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 April 3, 1999 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: (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 May 10, 1999, there were outstanding 78.1158 shares of Class A Common
Stock and 78.8690 shares of Class B Common Stock. The aggregate market value of
the voting stock held by non-affiliates of the registrant is $0 because all
voting stock is held by affiliates of the registrant.
<PAGE>
DI GIORGIO CORPORATION AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets,
January 2, 1999 and April 3, 1999 (Unaudited)....................... 1
Consolidated Condensed Statements of Operations,
Thirteen Weeks Ended March 28, 1998
and April 3, 1999 (Unaudited)....................................... 2
Consolidated Condensed Statement of Stockholders= Deficiency,
Thirteen Weeks Ended April 3, 1999 (Unaudited)...................... 3
Consolidated Condensed Statements of Cash Flows,
Thirteen Weeks Ended March 28, 1998 and
April 3, 1999 (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
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................. 11
Signatures................................................................ 12
<PAGE>
DI GIORGIO CORPORATION and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
January 2, April 3,
1999 1999
(Unaudited)
ASSETS
Current Assets:
Cash...................................... $ 459 $ 2,163
Accounts and notes receivable-net......... 83,012 88,072
Inventories............................... 60,482 58,147
Deferred taxes............................ 11,283 11,283
Prepaid expenses.......................... 3,055 3,036
----- -----
Total current assets................ 158,291 162,701
------- -------
Property, Plant & Equipment
Cost...................................... 18,652 19,432
Accumulated depreciation.................. (10,319) (10,759)
------ ------
Net....................................... 8,333 8,673
------ ------
Long-term notes receivable.................. 11,844 12,219
Deferred taxes.............................. 2,063 2,063
Other assets................................ 13,193 12,646
Deferred financing costs.................... 4,935 4,755
Excess of costs over net assets acquired.... 76,169 75,562
------ ------
Total assets....................... $274,828 $278,619
======== ========
LIABILITIES & STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Notes payable-revolver.................... $20,628 $13,823
Accounts payable.......................... 71,616 73,497
Accrued expenses.......................... 24,719 32,330
Notes and leases payable within one year.. 211 206
------ -----
Total current liabilities........... 117,174 119,856
------- -------
Long-term debt.............................. 155,000 155,000
Capital lease liability..................... 2,288 2,242
Other long-term liabilities................. 4,067 3,744
Stockholders' Deficiency:
Common stock.............................. - -
Additional paid-in-capital................ 8,002 8,002
Accumulated deficit....................... (11,703) (10,225)
------ -----
Total stockholders' deficiency (3,701) (2,223)
------ ------
Total liabilities & stockholders'
deficiency........................ $274,828 $278,619
======== ========
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
-----------------------
March 28, April 3,
1998 1999
Revenue:
Net sales..................................... $279,720 $354,808
Other revenue................................. 1,836 2,058
----- -----
Total revenue........................... 281,556 356,866
Cost of products sold........................... 252,804 322,453
------- -------
Gross profit-exclusive of
warehouse expense shown below.................. 28,752 34,413
Warehouse expense............................. 11,421 13,730
Transportation expense........................ 6,161 6,837
Selling, general and
administrative expense........................ 5,888 6,571
Amortization-excess of cost
over net assets acquired...................... 615 606
------ -----
Operating income................................ 4,667 6,669
Interest expense.............................. 4,776 4,353
Amortization-deferred financing costs......... 180 180
Other (income)-net............................ (519) (691)
----- -----
Income before income taxes and
extraordinary items............................ 230 2,827
Income tax expense (benefit).................... 310 1,349
----- -----
Income before extraordinary items............... (80) 1,478
Extraordinary loss on extinguishment
of debt-net of tax............................. (201) 0
----- -----
Net income (loss)............................... $(281) $1,478
===== =====
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 Amount Shares Amount
Balance at
January 2,
1999 78.1158 $ -- 78.8690 $ -- $ 8,002 ($11,703) ($3,701)
Net income -- -- -- -- -- 1,478 1,478
------- ---- ------- ---- ------- ------- -----
Balance at
April 3,
1999 78.1158 $ -- 78.8690 $ -- $ 8,002 ($10,225) ($2,223)
======= ==== ======= ==== ======= ======= ======
See Notes to Consolidated Condensed Financial Statements
-3-
<PAGE>
DI GIORGIO CORPORATION and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Thirteen weeks ended
March 28, April 3,
1998 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... ($281) $1,478
Adjustments to reconcile net income to net
cash provided by operating activities
Extraordinary loss on extinguishment
of debt-net of tax.......................... 201 0
Depreciation and amortization................ 733 440
Amortization................................. 1,300 1,322
Provision for bad debts...................... 375 300
Increase in prepaid pension cost............. (75) 0
Changes in assets and liabilities:
(Increase) decrease in:
Accounts & notes receivable.................. (24) (5,360)
Inventory.................................... (2,639) 2,335
Prepaid expenses............................. 894 19
Long-term receivables........................ (657) (375)
Others assets................................ 46 9
(Decrease) increase in:
Accounts payable............................. 3,754 1,881
Accrued expenses and other liabilities....... 3,142 7,291
------ ------
Net cash provided by operating activities....... 6,769 9,340
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, & equipment....... (339) (780)
----- ---
Net cash used in investing activities........... (339) (780)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments)under
revolving line-of-credit..................... 505 (6,805)
Capital lease payments.......................... (47) (51)
Premiums paid on redemption of 12% notes........ (335) 0
Long-term debt payments......................... (7,606) 0
----- -----
Net cash used in financing activities........... (7,483) (6,856)
----- -----
(Decrease) increase in cash..................... (1,053) 1,704
Cash at beginning of period..................... 2,426 459
----- -----
Cash at end of period........................... $1,373 $2,163
===== =====
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest.................................... $1,180 $543
===== =====
Income Taxes (Refunds)...................... ($29) $138
===== =====
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 April 3, 1999, the consolidated
condensed statements of operations for the thirteen weeks ended March 28, 1998
and April 3, 1999, the consolidated condensed statements of cash flows for the
thirteen weeks ended March 28, 1998 and April 3, 1999, and stockholders=
deficiency for the thirteen weeks ended April 3, 1999, 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 January 2, 1999 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.
-5-
<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 related issues; and changes in, or failure to
comply with government regulations .
Results of Operations
Thirteen weeks ended April 3, 1999 and March 28, 1998
Net sales for the thirteen weeks ended April 3, 1999 were $354.8 million as
compared to $279.7 million for the thirteen weeks ended March 28, 1998. This
26.8% increase in net sales primarily reflects sales to a group of supermarkets
operating under the Foodtown banner that began in late December 1998 as well as
increased sales to existing customers.
Other revenue, consisting of recurring customer related services, increased to
$2.1 million for the thirteen weeks ended April 3, 1999 as compared to $1.8
million in the prior period as a result of the Company's overall increased
business.
Gross margin (excluding warehouse expense) decreased to 9.7% of net sales or
$34.4 million for the thirteen weeks ended April 3, 1999 as compared to 10.3% of
net sales or $28.8 million for the prior period, as a result of a change in mix
of both customers and products sold. The Company has, and will continue to, take
steps to maintain and improve its margins; however, as indicated by the
comparative decrease in gross margin, factors such as the additions of high
volume, low margin customers, the decrease in promotional activities, changes in
product mix, or competitive pricing pressures may continue to have an effect on
gross margin.
Warehouse expense decreased as a percentage of net sales to 3.9% of net sales or
$13.7 million for the thirteen weeks ended April 3, 1999 as compared to 4.1% of
net sales or $11.4 million due to the effect of applying largely fixed costs to
higher revenues. The current quarter also includes $1.1 million of expense
relating to the Garden City facility which is set to close as a storage facility
in the second quarter of 1999. Excluding the expense relating to the Garden City
facility, warehouse expense would have decreased to 3.6% of net sales.
-6-
<PAGE>
Transportation expense decreased to 1.9% of net sales or $6.8 million for the
thirteen weeks ended April 3, 1999 as compared to 2.2% of net sales or $6.2
million in the prior period due to greater efficiencies and a change in the
Company's customer base.
Selling, general and administrative expense declined to 1.9% of net sales or
$6.6 million for the thirteen weeks ended April 3, 1999 as compared to 2.1% of
net sales or $5.9 million for the prior period due to the effect of applying
largely fixed costs to higher revenues.
Other income, net of other expenses, increased to $691,000 for the thirteen
weeks ended April 3, 1999 as compared to $519,000 for the prior period. The
increase reflects an increased level of interest income as a result of more
customer loans.
Interest expense decreased to $4.4 million for the thirteen weeks ended April 3,
1999 from $4.8 million for the prior period due to lower average outstanding
levels of the Company=s funded debt.
The Company recorded an income tax provision of $1.3 million, resulting in an
effective income tax rate of 48% for the thirteen weeks ended April 3, 1999 as
compared to a provision of $310,000 resulting in an effective rate of 135% in
the prior period. 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 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 April 3, 1999 of
$1.5 million as compared to a loss of $281,000 in the prior period, which
included an extraordinary loss on the extinguishment of debt of $201,000 net of
tax.
Liquidity and Capital Resources
Cash flows from operations and amounts available under the Company's $90 million
bank credit facility are the Company's principal sources of liquidity. The
Company's bank credit facility is scheduled to mature on June 30, 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 (not including $5.3 million of outstanding letters of credit) at April
3, 1999. Additional borrowing capacity of $65.7 million was available at that
time under the Company's then current, borrowing base certificate. The Company
believes that these sources will be adequate to meet its anticipated working
capital needs, capital expenditures, and debt service requirements during fiscal
1999.
During the thirteen weeks ended April 3, 1999, cash flows provided by operating
activities were $9.3 million, consisting primarily of (i) cash generated from
income before non-cash expenses and (ii) an increase in accounts payable,
accrued expenses and other liabilities of $9.2 million, a decrease in inventory
of $2.3 million, offset by an increase in accounts receivable of $5.4 million.
-7-
<PAGE>
Cash flows used in investing activities during the thirteen weeks ended April 3,
1999 were approximately $780,000, which was used exclusively for capital
expenditures. Net cash used in financing activities of approximately $6.9
million was utilized to reduce the amount outstanding under the Company's bank
revolver.
EBITDA, defined as earnings before interest expense, income taxes, depreciation
and amortization, was $8.9 million during the thirteen weeks ended April 3, 1999
as compared to $7.0 million in the prior period. Excluding the net cost of
operations related to Garden City facility, EBITDA would have increased 37% to
$9.7 million. The Company has presented EBITDA supplementally because management
believes this information is useful given the significance of the Company's
depreciation and amortization and because of its highly leveraged financial
position. This data should not be considered as an alternative to any measure of
performance or liquidity as promulgated under generally accepted accounting
principles (such as net income/loss or cash provided by/used in operating,
investing and financing activities), nor should they be considered as an
indicator of the Company's overall financial performance. Also, the EBITDA
definition used herein may not be comparable to similarly titled measures
reported by other companies.
As part of the Company's 1998 $4.2 million facility integration and abandonment
expense, related to the shut down of the Garden City facility and the move of
its frozen business to Carteret, New Jersey, the Company recorded a reserve of
$2.8 million consisting of (i) $2.2 million related to rent and real estate
taxes from May 1, 1999, the anticipated closure date of its Garden City
facility, through March 31, 2000, the lease termination date, and (ii) $600,000
for the removal of certain equipment. As of April 3, 1999, the balance of the
facility integration and abandonment reserve remained at $2.8 million, all of
which is expected to be expended before March 31, 2000. The Company continues to
expect that the closure of the facility will occur in the second quarter of
1999.
The consolidated indebtedness of the Company decreased to $171.3 million at
April 3, 1999 as compared to $178.1 million at January 2, 1999. Stockholders=
deficiency was $2.2 million on April 3, 1999 as compared to a deficiency of $3.7
million on January 2, 1999.
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 April 3, 1999, the Company was in compliance
with its covenants.
From time to time when the Company considered market conditions attractive, the
Company has purchased on the open market a portion of its public debt and may in
the future purchase and retire a portion of its outstanding public debt.
-8-
<PAGE>
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 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 in place 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 $895,000 has been spent as of April 3, 1999.
All costs are expensed as incurred. The Company expects to outsource, on a
limited basis, some of this effort.
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 1,120 vendors, the
Company does not expect that any vendor(s) Year 2000 problem(s) would have a
long-term negative effect on the Company because the worst thing that would
happen is the Company would not receive any of that vendor's product for resale.
In such an instance, the Company would not 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 managing Year 2000 issues 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, which may cause material adverse
results to our customers, would not have an adverse effect on the Company.
-9-
<PAGE>
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.
-10-
<PAGE>
II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K. None
-11-
<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: May 12, 1999
-12-
<PAGE>
<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 APRIL 3, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-1-2000
<PERIOD-START> JAN-2-1999
<PERIOD-END> APR-3-1999
<CASH> 2,163
<SECURITIES> 0
<RECEIVABLES> 92,605
<ALLOWANCES> 4,533
<INVENTORY> 58,147
<CURRENT-ASSETS> 14,319
<PP&E> 19,432
<DEPRECIATION> 10,759
<TOTAL-ASSETS> 278,619
<CURRENT-LIABILITIES> 119,856
<BONDS> 155,000
0
0
<COMMON> 0
<OTHER-SE> (2,223)
<TOTAL-LIABILITY-AND-EQUITY> 278,619
<SALES> 354,808
<TOTAL-REVENUES> 356,866
<CGS> 322,453
<TOTAL-COSTS> 350,197
<OTHER-EXPENSES> (511)
<LOSS-PROVISION> 300
<INTEREST-EXPENSE> 4,353
<INCOME-PRETAX> 2,827
<INCOME-TAX> 1,349
<INCOME-CONTINUING> 1,478
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,478
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
