- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 26, 1998 Commission File No. 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 07008
Carteret, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number including area code: (732) 541-5555
------------
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 November 4, 1998, there were 78.1158 shares of Class A Common Stock and
76.8690 shares of Class B Common Stock, par value of each class $.01,
outstanding.
- --------------------------------------------------------------------------------
<PAGE>
DI GIORGIO CORPORATION AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets,
December 27, 1997 and September 26, 1998 (Unaudited)............... 1
Consolidated Condensed Statements of Operations,
Thirty-Nine Weeks and Thirteen Weeks Ended
September 27, 1997 and September 26, 1998 (Unaudited) ............. 2
Consolidated Condensed Statement of Stockholders' Deficiency
Thirty-Nine Weeks Ended September 26, 1998 (Unaudited) ............ 3
Consolidated Condensed Statements of Cash Flows,
Thirty-Nine Weeks Ended September 27, 1997 and
September 26, 1998 (Unaudited) ................................... 4
Notes to Consolidated Condensed Financial Statements (Unaudited)...... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................... 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ............................... 13
Signatures ............................................................. 14
<PAGE>
DI GIORGIO CORPORATION and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
December 27, September 26,
1997 1998
(Unaudited)
ASSETS
Current Assets:
Cash...................................... $2,426 $1,834
Accounts and notes receivable-net......... 71,715 77,630
Inventories............................... 56,121 52,720
Prepaid expenses.......................... 8,234 8,473
----- -----
Total current assets................ 138,496 140,657
------- -------
Property, Plant & Equipment
Cost...................................... 35,837 25,196
Accumulated depreciation.................. (13,693) (15,486)
------ ------
Net....................................... 22,144 9,710
------ ------
Long-term notes receivable.................. 7,428 7,595
Deferred taxes.............................. 12,266 12,266
Other assets................................ 15,341 13,647
Deferred financing costs.................... 5,657 5,117
Excess of costs over net assets acquired.... 78,629 76,784
------ ------
Total assets....................... $279,961 $265,776
======== ========
LIABILITIES & STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Notes payable-revolver.................... $19,669 $13,757
Accounts payable.......................... 58,899 63,567
Accrued expenses.......................... 21,098 29,852
Notes and leases payable within one year... 15,465 207
----- -----
Total current liabilities........... 115,131 107,383
------- -------
Long-term debt.............................. 159,333 155,000
Capital lease liability..................... 2,499 2,342
Other long-term liabilities................. 6,079 5,197
Stockholders' Deficiency:
Common stock.............................. - -
Additional paid-in-capital................ 13,002 8,002
Accumulated deficit....................... (16,083) (12,148)
------ -----
Total stockholders' deficiency (3,081) (4,146)
------ ------
Total liabilities &
stockholder's deficiency.......... $279,961 $265,776
======== ========
See Notes to Consolidated Condensed Financial Statements
-1-
<PAGE>
DI GIORGIO CORPORATION and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
Thirteen weeks ended Thirty-Nine weeks ended
-------------------- -----------------------
Sept 27, Sept 26, Sept 27, Sept 26,
1997 1998 1997 1998
Revenue:
Net Sales..................$255,478 $280,360 $772,044 $844,611
Other revenue.............. 1,161 1,991 4,447 5,501
----- ----- ----- -----
Total Revenue....... 256,639 282,351 776,491 850,112
Cost of Products Sold....... 230,265 253,612 693,327 763,147
------- ------- ------- -------
Gross Profit-exclusive of
warehouse expense shown
below...................... 26,374 28,739 83,164 86,965
Warehouse expense......... 10,232 12,557 31,482 36,582
Transportation expense.... 5,511 6,050 16,185 18,200
Selling, general and
administrative expense.... 5,498 5,424 16,803 17,133
Amortization-excess of cost
over net assets acquired.. 408 615 1,746 1,845
----- ----- ------ -----
Operating Income............ 4,725 4,093 16,948 13,205
Interest expense.......... 5,392 4,496 17,085 13,592
Amortization-deferred
financing costs.......... 115 180 766 540
Other (income)-net........ (210) (7,835) (2,411) (8,912)
----- ----- ----- -----
Income before income taxes and
extraordinary items....... (572) 7,252 1,508 7,985
Income taxes................ (4,003) 3,119 (2,691) 3,849
----- ----- ----- -----
Income before
extraordinary items........ 3,431 4,133 4,199 4,136
Extraordinary loss on
extinguishment of
debt-net of tax............ (226) 0 (8,693) (201)
--- --- ----- -----
Net income (loss)........... $3,205 $4,133 ($4,494) $3,935
===== ===== ===== =====
See Notes to Consolidated Condensed Financial Statements
-2-
<PAGE>
DI GIORGIO CORPORATION and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIENCY
(in thousands, except share data)
(unaudited)
Additional
Class A Class B Paid-In (Accumulated
Common Stock Common Stock Capital Deficit) Total
------------ ------------ ------- ------- ------
Shares Total Shares Total
Balance at
December 27,
1997 101.622 $ -- 100.000 $ -- $13,002 ($16,083) ($3,081)
Stock
repurchase (23.506)$ -- (23.131)$ -- (5,000) -- ($5,000)
Net income -- -- -- -- -- 3,935 3,935
------ ---- ------ ---- ------- ------- ------
Balance at
September 26,
1998 78.116 $ -- 76.869 $ -- $8,002 ($12,148) ($4,146)
====== ==== ====== ==== ====== ======= =======
See Notes to Consolidated Condensed Financial Statements
-3-
<PAGE>
DI GIORGIO CORPORATION and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Thirty-nine weeks ended
Sept 27, 1997 Sept 26, 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... ($4,494) $3,935
Adjustments to reconcile net loss to net cash
used in operating activities
Extraordinary loss on extinguishment
of debt-net of tax.................................... 8,693 201
Depreciation and amortization.......................... 3,531 1,951
Amortization........................................... 3,722 4,033
Provision for bad debts................................ 1,125 825
Increase in prepaid pension cost....................... (225) (225)
Noncash interest income................................ 3,010 0
Deferred tax benefit................................... (3,910) 0
Impairment loss on leasehold improvements.............. 0 3,000
Gain on sale of Garden City facility................... 0 (3,400)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts & notes receivable............................ (8,814) (6,740)
Inventory.............................................. (3,268) 3,401
Prepaid expenses....................................... 221 (239)
Long-term receivables.................................. (297) (167)
Others assets.......................................... (5,393) (138)
(Decrease) increase in:
Accounts payable, accrued expenses and
other liabilities..................................... 10,134 12,881
------ ------
Net cash provided by operating activities................. 4,035 19,318
----- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, & equipment................. (1,866) (2,782)
Proceeds from Farmingdale sale............................ 12,432 0
Net proceeds from Garden City facility sale............... 0 13,867
--- ------
Net cash provided by investing activities................. 10,566 11,085
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under revolving line-of-credit. (14,038) (5,912)
Capital lease payments..................................... (2,340) (146)
Premiums paid in connection with debt redemption........... (10,881) (335)
Repayment of Rose Partner note receivable.................. 8,917 0
Dividend paid.............................................. (61) 0
Finance fees paid.......................................... (5,871) 0
Capital stock repurchase................................... 0 (5,000)
Note offering.............................................. 155,000 0
Long-term debt payments....................................(145,140) (19,602)
------- -------
Net cash used in financing activities...................... (14,414) (30,995)
------ ------
Increase (decrease) in cash................................ 187 (592)
Cash at beginning of period................................ 1,749 2,426
----- -----
Cash at end of period...................................... $1,936 $1,834
===== =====
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest............................................... $16,970 $10,135
====== ======
Income Taxes (refunds)................................. $195 ($2)
=== ==
Non-cash dividend of notes receivable and land
held for sale............................................. $4,162 $0
===== ==
Reduction of goodwill for reversal of valuation
reserve on deferred tax asset............................. $11,479 $0
====== ==
See Notes to Consolidated Condensed Financial Statements
-4-
<PAGE>
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated condensed balance sheet as of September 26, 1998, the
consolidated condensed statements of operations for the thirteen weeks and
thirty-nine weeks ended September 27, 1997 and September 26, 1998, the
consolidated condensed statements of cash flows for the thirty-nine weeks ended
September 27, 1997 and September 26, 1998, and stockholders' deficiency for the
thirty-nine weeks ended September 26, 1998, 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, 1997 and the Form 10-Q for the
quarters ended March 28, 1998 and June 27, 1998, 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.
The interim figures are not necessarily indicative of the results to be expected
for the full fiscal year.
2. GARDEN CITY FACILITY
On April 1, 1998 the Company sold its Garden City, New York frozen facility and
underlying land for approximately $14.5 million. The terms of the agreement
require the Company to lease back the facility for a period of two years with
one five year option, at an annual rent of approximately $1.5 million. The
Company will use the facility for its public cold storage business. The net
proceeds of the sale were applied as follows: $7.2 million was used to repay a
purchase money note on the building and leasehold interest, $1.7 million was
used to acquire the land and $5 million was used to repay a portion of the
Company's bank credit facility. The transaction resulted in a gain of
approximately $3.4 million offset by an asset write down of certain related
leasehold improvements of approximately $3 million. The remaining gain will be
deferred over the remaining term of the lease.
-5-
<PAGE>
3. STOCK REPURCHASE
During the second fiscal quarter of 1998, the Company repurchased 23.5062 shares
of Class A and 23.131 shares of Class B common stock for $5 million.
4. OTHER INCOME
In September 1998, the Company recorded $7.3 million of nonrecurring other
income as a result of renegotiating a contract to clarify past practices. This
amount includes $1.7 million which is to be paid in eight quarterly
installments.
-6-
<PAGE>
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 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;
restrictions imposed by the documents governing the Company's indebtedness;
competition; the Company's reliance on several significant customers; potential
losses from loans to its retailers; potential environmental liabilities which
the Company may have; the Company's labor relations; dependence on key
personnel; changes in business regulation; business abilities and judgment of
personnel; year 2000 computer issues; and changes in, or failure to comply with,
government regulations.
Results of Operations
Thirteen weeks ended September 26, 1998 and September 27, 1997
Net sales for the thirteen weeks ended September 26, 1998 were $280.4 million as
compared to $255.5 million for the thirteen weeks ended September 27, 1997. This
9.7% increase in net sales primarily reflects both increased sales of frozen
food products to an additional division of an existing customer which began in
August 1997 as well as additional business from new and existing customers.
Other revenue, consisting of recurring customer related services, increased to
$2.0 million for the thirteen weeks ended September 26, 1998 as compared to $1.2
million for the prior period as a result of both increased storage revenue and
additional services provided as a result of the increased sales discussed above.
Gross margin (excluding warehouse expense) remained constant at 10.3% of net
sales or $28.7 million for the thirteen weeks ended September 26, 1998 as
compared to 10.3% of net sales or $26.4 million for the prior period. The
Company has, and will continue to, take steps to maintain and improve its
margins; however, factors such as decreases in promotional activities, changes
in product mix, additions of high volume, low margin customers, or competitive
pricing pressures may, together or separately, have an effect on gross margin.
Warehouse expense increased as a percentage of net sales to 4.5% of net sales or
$12.6 million for the thirteen weeks ended September 26, 1998 as compared to
4.0% of net sales or $10.2 million for the same period last year primarily as a
result of operating two frozen food facilities. The current period includes
approximately $1.4 million of expenses related to the Garden City facility which
is being used for public storage as well as secondary self storage. Another
-7-
<PAGE>
cause for the increase was the amended grocery facility lease. In November 1997,
the Company amended its grocery facility lease, adding additional leased
property, extending the term, and increasing the annual rental obligations. The
changes in the provisions of the lease resulted in the amended lease being
treated as a new lease and accounted for as an operating lease. Had the terms of
the lease not changed, warehouse expense as a percentage of sales would have
decreased by .1% of sales in the current period.
Transportation expense remained constant at 2.2% of net sales or $6.1 million
for the thirteen weeks ended September 26, 1998 as compared to 2.2% of net sales
or $5.5 million in the thirteen weeks ended September 27, 1997.
Selling, general and administrative expense decreased to 1.9% of net sales or
$5.4 million for the thirteen weeks ended September 26, 1998 as compared to 2.2%
of net sales or $5.5 million for the prior period primarily due to the effect of
fixed costs as applied to higher revenues.
Other income, net of other expenses, increased to $7.8 million for the thirteen
weeks ended September 26, 1998, as compared to $210,000 in the prior period.
During the current period, the Company entered into an agreement with Fleming
Companies, Inc which called for (i) the Company to receive consideration
resulting in a $7.3 million nonrecurring gain from renegotiating a contract to
clarify past practices and (ii) a strategic marketing alliance which may
generate modest commission income in the future.
Interest expense decreased to $4.5 million for the thirteen weeks ended
September 26, 1998 from $5.4 million for the thirteen weeks ended September 27,
1997. The comparative decrease is a result of lower average outstanding levels
of the Company's funded debt, partially as a result of the amended grocery lease
being treated as an operating lease instead of a capital lease, and lower
average interest rates.
The Company recorded an income tax provision of $3.1 million, resulting in an
effective income tax rate of 43% for the thirteen weeks ended September 26, 1998
as compared to a benefit of $4.0 million in the thirteen weeks ended September
27, 1997. The Company's estimated effective tax rate is higher than the
statutory tax rate primarily because of the nondeductibility of certain of the
Company's amortization of the excess of cost over net assets acquired; however,
due to net operating losses 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 September 26, 1998
of $4.1 million as compared to net income of $3.2 million for the thirteen weeks
ended September 27, 1997, which included a $226,000 extraordinary loss, net of
tax, on the extinguishment of debt .
Thirty-nine weeks ended September 26, 1998 and September 27, 1997
Net sales for the thirty-nine weeks ended September 26, 1998 were $844.6 million
as compared to $772.0 million for the thirty-nine weeks ended September 27,
1997. This 9.4% increase in net sales primarily reflects increased sales of
frozen food products to an additional division of an existing customer which
began in August 1997 as well as additional business from new and existing
customers which began earlier in fiscal 1998.
-8-
<PAGE>
Other revenue, consisting of recurring customer related services, increased to
$5.5 million for the thirty-nine weeks ended September 26, 1998 as compared to
$4.4 million in the prior period as a result of both increased storage revenue
and additional services provided as a result of the increased revenue discussed
above.
Gross margin (excluding warehouse expense) decreased to 10.3% of net sales or
$87.0 million for the thirty-nine weeks ended September 26, 1998 as compared to
10.8% of net sales or $83.2 million for the prior period, reflecting the
combined impact of a change in mix of products sold and an increase in sales to
higher volume, lower margin chain customers. The Company has, and will continue
to, take steps to maintain and improve its margins; however, factors such as
decreases in promotional activities, changes in product mix, additions of high
volume, low margin customers, or competitive pricing pressures may, together or
separately, have an effect on gross margin.
Warehouse expense increased as a percentage of net sales to 4.3% of net sales or
$36.6 million for the thirty-nine weeks ended September 26, 1998 as compared to
4.1% of net sales or $31.5 million for the prior period primarily as a result of
operating two frozen food facilities beginning in April 1998. Another cause for
the increase was the amended grocery facility lease. In November 1997, the
Company amended its grocery facility lease, adding additional leased property,
extending the term, and increasing the annual obligations. The changes in the
provisions of the lease resulted in the amended lease being treated as a new
lease and accounted for as an operating lease. Had the terms of the lease not
changed, warehouse expense as a percentage of sales would have decreased by .1%
of sales in the current period.
Transportation expense increased to 2.2% of net sales or $18.2 million for the
thirty-nine weeks ended September 26, 1998 as compared to 2.1% of net sales or
$16.2 million in the prior period.
Selling, general and administrative expense decreased to 2.0% of net sales or
$17.1 million for the thirty-nine weeks ended September 26, 1998 as compared to
2.2% of net sales or $16.8 million for the prior period primarily due to the
effect of fixed costs as applied to higher revenues.
Other income, net of other expenses, increased to $8.9 million for the
thirty-nine weeks ended September 26, 1998 as compared to $2.4 million for the
prior. During the current period, the Company entered into an agreement with
Fleming Companies, Inc which called for (i) the Company to receive a one time
consideration of $7.3 million to renegotiate a contract to clarify past
practices and (ii) a strategic marketing alliance which may generate modest
commission income in the future. This increase was offset somewhat by (i)
approximately $369,000 of rental income relating to the Farmingdale facility in
the prior period and (ii) a lower level of interest income as a result of the
repayment of the Rose Partner note receivable (repaid in June 1997) which
accounted for $502,000 of interest income in the prior period. The Farmingdale
facility was sold in August 1997 with the proceeds used to reduce outstanding
indebtedness.
Interest expense decreased to $13.6 million for the thirty-nine weeks ended
September 26, 1998 from $17.1 million for the prior period. The comparative
decrease is a result of lower average outstanding levels of the Company's funded
debt and lower average interest rates as a result of the Company's refinancing
in June 1997.
The Company recorded an income tax provision of $3.8 million, resulting in an
effective income tax rate of 48% for the thirty-nine weeks ended September 26,
1998 as compared to a benefit of $2.7 million in the prior period. The Company's
-9-
<PAGE>
estimated effective tax rate is higher than the statutory tax rate primarily
because of the nondeductibility of certain of the Company's amortization of the
excess of cost over net assets acquired; however, due to net operating losses
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 thirty-nine weeks ended September 26,
1998 of $3.9 million, including an extraordinary loss, net of tax, on the
extinguishment of debt, of $201,000 as compared to a net loss of $4.5 million
for the prior period, which included an $8.7 million extraordinary loss, net of
tax, on the extinguishment of debt.
Liquidity and Capital Resources
Cash flows 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 is scheduled to mature on June 30, 2000 and bears interest at a
rate per annum equal to (at the Company's option): (i) the Euro Dollar Offering
Rate plus 2.25% or (ii) Bankers Trust Company's prime rate plus 0.75%.
Borrowings under the Company's revolving bank credit facility were $13.8 million
at September 26, 1998. Additional borrowing capacity of $64.9 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 working
capital needs, capital expenditures, and debt service requirements during the
next twelve months.
During the thirty-nine weeks ended September 26, 1998, cash flows provided by
operating activities were $19.3 million, consisting primarily of (i) cash
generated from income before extraordinary items and non-cash expenses and (ii)
an increase in accounts payable, accrued expenses and other liabilities of $12.9
million, a decrease in inventory of $3.4 million offset by an increase in
accounts and notes receivable of $6.7 million.
Cash flows provided by investing activities during the thirty-nine weeks ended
September 26, 1998 were approximately $11.1 million; which consisted of $13.9
million of proceeds from the sale of the Garden City facility offset by $2.8
million of capital expenditures, which included the Garden City land purchase of
$1.7 million. Net cash used in financing activities was $31.0 million consisting
primarily of $19.6 million of debt payments, a $5.0 million capital stock
buyback, and net repayments under the Company's bank credit facility of $5.9
million. The $19.6 million in debt payments included approximately $7.5 million
which was utilized to redeem the balance of the Company's 12% senior notes on
March 26, 1998. The redemption included a mandatory 4.5% premium ($335,000)
which resulted in a $201,000 extraordinary loss net of tax. As a result of this
redemption, the Company expects to save approximately $250,000 in interest
expense annually given the current difference in interest rates between the
notes redeemed and the Company's bank credit facility. The balance of debt
payments reflects the repayment of notes related to the sale of the Garden City
facility (see below) and to Fleming Companies, Inc.
Earnings before interest expense, income taxes, depreciation and amortization,
and non-recurring charges such as extraordinary gains or losses ("EBITDA"), was
$27.6 million during the thirty-nine weeks ended September 26, 1998 as compared
to $25.8 million in the prior period. This increase in EBITDA reflects the $7.3
million result of renegotiating a contract to clarify past practices offset by a
combination of lower gross margins, the $2.2 million negative impact of the
change in accounting treatment of the Company's grocery facility lease, and the
-10-
<PAGE>
sale of the Farmingdale property in August 1997 which contributed approximately
$1.2 million to the prior period's EBITDA.
The consolidated indebtedness of the Company decreased to $171.3 million at
September 26, 1998 as compared to $197.0 million at December 27, 1997.
Stockholders' deficiency was $4.1 million on September 26, 1998 as compared to a
deficiency of $3.1 million on December 27, 1997 reflecting in part the $5
million stock repurchase in May 1998.
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. The Company and its banks amended the interest
coverage ratio test for the remaining term of the bank credit facility in March
1998. As of September 26, 1998, the Company was in compliance with its
covenants.
From time to time when the Company considers market conditions attractive, the
Company has and may in the future, purchase a portion of its public debt on the
open market.
As situations present themselves, the Company, has in the past, and will in the
future actively pursue complementary acquisitions, distribution agreements, and
similar arrangements which would allow it to leverage its facilities and market
position and increase profitability.
Year 2000 Computer Issues
State of readiness
The Company has implemented a Year 2000 compliance program designed to insure
that the Company's computer systems and applications will function properly
beyond 1999. The program is led by the Company's vice president of information
systems and consists of employees from across division lines. The Company
believes it has identified all of the systems which need testing, including but
not limited to its traditional computer systems as well as those systems
containing embedded chip technology commonly found in buildings and equipment
connected with a building's infrastructure such as heating, refrigeration and
air conditioning systems, security systems and telephones. The vast majority of
testing to determine if a system is Year 2000 compliant is complete. Portions of
the remediation phase, such as the billing system, are also complete and
currently in use. The remainder of the remediation phase is projected to be
completed in the second quarter of fiscal 1999. In some cases, new systems will
be purchased and those should also be implemented no later than the end of the
second quarter of fiscal 1999.
Costs
The total expected cost of the Company's year 2000 compliance program is
projected to be less than $1.25 million, consisting primarily of internal
salaries, of which approximately $540,000 has been spent. All costs are expensed
as incurred. The Company does expect to use, on a limited basis, some outside
programmers in this effort.
-11-
<PAGE>
Risks
Although the full consequences are unknown, the failure of one of the Company's
critical computer systems or the failure of an outside system, such as that of
the Federal Reserve or the electric utilities, may result in the interruption of
the Company's business which may result in a material adverse effect on the
results of operations or financial condition of the Company. With particular
respect to inventory purchased for resale from the Company's 1,400 vendors, the
Company does not expect that any vendor's or small group of vendors' year 2000
problem(s) would have a long-term negative effect on the Company since the worst
thing that would happen is the Company would not receive any of that vendor's
product for resale. The Company doesn't expect any of its competitors would
receive that product either, so the Company and the Company's customers would
not be at a competitive disadvantage.
With respect to the Company's larger customers, communications are ongoing with
respect to their progress in resolving potential year 2000 problems such as
insuring the integrity of the procurement system as well as helping the smaller
customers' critical needs such as cash registers and point-of-sale (POS)
systems. Despite the relative lack of problems encountered in these discussions
with both large and small customers of the Company to date, the Company has no
direct confirmation or control of our customers year 2000 remediation efforts,
and there can be no assurance that system failures, that cause material adverse
results to our customers, would not have an adverse effect on the Company.
Contingency Plans
The Company is in the process of developing contingency plans for those areas
which might be effected by the year 2000 problem; however, there can be no
assurances that a contingency plan will exist for all situations.
-12-
<PAGE>
II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K. None
-13-
<PAGE>
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
Arthur M. Goldberg
Chairman, President and Chief
Executive Officer
By: /s/ Richard B. Neff
Richard B. Neff
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: November 9, 1998
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS, STATEMENTS OF OPERATIONS, STATEMENT OF
STOCKHOLDERS' DEFICIENCY AND STATEMENT OF CASH FLOWS FROM FORM 10Q FOR THE
PERIOD ENDED SEPTEMBER 26, 1998
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-END> SEP-26-1998
<CASH> 1,834
<SECURITIES> 0
<RECEIVABLES> 82,127
<ALLOWANCES> 4,497
<INVENTORY> 52,720
<CURRENT-ASSETS> 140,657
<PP&E> 25,196
<DEPRECIATION> 15,486
<TOTAL-ASSETS> 265,776
<CURRENT-LIABILITIES> 107,383
<BONDS> 155,000
0
0
<COMMON> 0
<OTHER-SE> (4,146)
<TOTAL-LIABILITY-AND-EQUITY> 265,776
<SALES> 844,611
<TOTAL-REVENUES> 850,112
<CGS> 763,147
<TOTAL-COSTS> 835,062
<OTHER-EXPENSES> 7,665
<LOSS-PROVISION> 825
<INTEREST-EXPENSE> 13,592
<INCOME-PRETAX> 7,985
<INCOME-TAX> 3,849
<INCOME-CONTINUING> 4,136
<DISCONTINUED> 0
<EXTRAORDINARY> (201)
<CHANGES> 0
<NET-INCOME> 3,935
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
