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 July 1, 2000
[ ] 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____
As of August 2, 2000, there were outstanding 78.1158 shares of Class A Common
Stock and 76.8690 shares of Class B Common Stock.
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DI GIORGIO CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets,
January 1, 2000 and July 1, 2000 (Unaudited)............................1
Consolidated Condensed Statements of Operations,
Twenty-Six Weeks and Thirteen Weeks Ended
July 3, 1999 and July 1, 2000 (Unaudited)...............................2
Consolidated Condensed Statement of Stockholders' Equity,
Twenty-Six Weeks Ended July 1, 2000 (Unaudited).........................3
Consolidated Condensed Statements of Cash Flows,
Twenty-Six Weeks Ended July 3, 1999 and
July 1, 2000 (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
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DI GIORGIO CORPORATION and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
January, 1 July, 1
2000 2000
(Unaudited)
ASSETS
Current Assets:
Cash............................................... $988 $1,391
Accounts and notes receivable-net.................. 88,845 90,727
Inventories........................................ 61,546 63,060
Deferred taxes..................................... 7,655 4,542
Prepaid expenses................................... 2,633 4,758
----- -----
Total current assets.......................... 161,667 164,478
------- -------
Property, Plant & Equipment
Cost............................................... 21,595 23,417
Accumulated depreciation........................... (11,357) (12,235)
------ ------
Net................................................ 10,238 11,182
------ ------
Long-term notes receivable............................ 11,386 17,328
Other assets.......................................... 11,719 10,958
Deferred financing costs.............................. 4,652 4,248
Excess of costs over net assets acquired.............. 73,744 72,531
------ ------
Total assets................................. $273,406 $280,725
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable-revolver............................. $6,782 $8,489
Accounts payable .................................. 72,410 76,398
Accrued expenses .................................. 25,911 27,129
Notes and leases payable within one year........... 167 117
--- ---
Total current liabilities........................ 105,270 112,133
------- -------
Long-term debt ....................................... 155,000 155,000
Capital lease liability............................... 2,120 2,085
Other long-term liabilities........................... 5,048 3,332
Minority interest..................................... -- 305
Stockholders' Equity:
Common stock....................................... -- --
Additional paid-in-capital......................... 8,002 8,002
Accumulated deficit................................ (2,034) (132)
------- -----
Total stockholders' equity....................... 5,968 7,870
----- -----
Total liabilities & stockholders' equity..... $273,406 $280,725
======== ========
See Notes to Consolidated Condensed Financial Statements
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DI GIORGIO CORPORATION and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
Thirteen weeks ended Twenty-six weeks ended
-------------------- ----------------------
July 3, July 1, July 3, July 1,
1999 2000 1999 2000
Revenue:
Net sales....................... $346,245 $370,623 $701,053 $730,503
Other revenue................... 2,022 1,684 4,080 3,603
----- ----- ----- -----
Total revenue............. 348,267 372,307 705,133 734,106
Cost of products sold............. 314,552 336,585 637,005 663,048
------- ------- ------- -------
Gross profit-exclusive of
warehouse expense shown below.... 33,715 35,722 68,128 71,058
Warehouse expense............... 12,810 12,905 26,540 26,013
Transportation expense.......... 6,539 6,926 13,376 13,880
Selling, general and
administrative expense.......... 6,543 7,563 13,114 14,831
Amortization-excess of cost
over net assets acquired........ 607 607 1,213 1,213
----- ----- ----- -----
Operating income.................. 7,216 7,721 13,885 15,121
Interest expense................ 4,183 4,001 8,536 8,079
Amortization-deferred financing
costs.......................... 180 194 360 404
Minority interest............... -- 7 -- 11
Other (income)-net.............. (618) (735) (1,309) (1,438)
----- ----- ----- -----
Income before income taxes........ 3,471 4,254 6,298 8,065
Income tax expense ............... 1,607 1,920 2,956 3,663
----- ----- ----- -----
Net income ....................... $1,864 $2,334 $3,342 $4,402
===== ===== ===== =====
See Notes to Consolidated Condensed Financial Statements
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DI GIORGIO CORPORATION and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
(unaudited)
Additional (Accumulated
Class A Class B Paid-In Deficit)/Retained
Common Stock Common Stock Capital Earnings Total
------------ ------------ ------- -------- -----
Shares Amount Shares Amount
Balance at
January 1,
2000 78.1158 $ -- 76.8690 $ -- $ 8,002 ($2,034) $5,968
Net income -- -- -- -- -- 4,402 4,402
Dividend -- -- -- -- -- (2,500) (2,500)
------- ---- ------- ---- ------- ------- -----
Balance at
July 1,
2000 78.1158 $ -- 76.8690 $ -- $ 8,002 ($132) $7,870
======= ==== ======= ==== ======= ===== ======
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)
Twenty -six weeks ended
-----------------------
July 3, July 1,
1999 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $3,342 $4,402
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization..................... 783 1,022
Amortization...................................... 2,644 2,538
Provision for doubtful accounts................... 600 600
Non cash pension income........................... -- (200)
Deferred taxes.................................... 2,956 3,113
Changes in assets and liabilities:
(Increase) decrease in:
Accounts & notes receivable....................... (5,093) (2,482)
Inventory......................................... 899 (1,514)
Prepaid expenses.................................. (1,198) (2,125)
Long-term receivables............................. (3,536) (5,942)
Others assets..................................... 44 40
Increase (decrease) in:
Accounts payable.................................. (54) 3,988
Accrued expenses and other liabilities............ 1,219 (498)
----- ----
Net cash provided by operating activities............ 2,606 2,942
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, & equipment............ (1,238) (1,966)
----- -----
Net cash used in investing activities................ (1,238) (1,966)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under revolving line-of-credit........ (1,276) 1,707
Capital lease payments............................... (104) (85)
Dividends paid....................................... -- (2,500)
Net effect of minority interest...................... -- 305
-- ---
Net cash used in financing activities................ (1,380) (573)
----- ---
Increase (decrease) in cash.......................... (12) 403
Cash at beginning of period.......................... 459 988
--- ---
Cash at end of period................................ $447 $1,391
==== ======
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest........................................ $8,559 $8,073
====== ======
Income Taxes.................................... $147 $522
==== ====
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 July 1, 2000, the consolidated
condensed statements of operations for the twenty-six weeks ended July 3, 1999
and July 1, 2000, the consolidated condensed statements of cash flows for the
twenty-six weeks ended July 3, 1999 and July 1, 2000, and consolidated condensed
statement of stockholders' equity for the twenty-six weeks ended July 1, 2000,
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 1,
2000 and Form 10-Q for the quarter ended April 1, 2000 as filed with the
Securities and Exchange Commission. The information furnished herein reflects,
in the opinion of the management of the Company, all adjustments, consisting of
normal recurring accruals, which are necessary to present a fair statement of
the results for the interim periods presented.
The interim figures are not necessarily indicative of the results to be expected
for the full fiscal year.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward- Looking Statements
Forward-looking statements in this Form 10-Q include, without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources and are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These 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; and changes in, or failure to comply with government regulations.
Results of Operations
Thirteen weeks ended July 1, 2000 and July 3, 1999
Net sales for the thirteen weeks ended July 1, 2000 rose 7.0% to $370.6 million
as compared to $346.2 million for the thirteen weeks ended July 3, 1999
primarily as a result of increased sales to existing customers. Other revenue,
consisting of recurring customer related services, decreased to $1.7 million for
the thirteen weeks ended July 1, 2000 as compared to $2.0 million in the prior
period. This modest decrease was a result of storage income at the Garden City
and Kearny facilities in the prior period which ceased operations in the second
and third quarters of 1999.
Gross margin (excluding warehouse expense) decreased to 9.6% of net sales or
$35.7 million for the thirteen weeks ended July 1, 2000 as compared to 9.7% of
net sales or $33.7 million for the prior period, as a result of a change in mix
of products sold. The Company has, and will continue to, take steps to maintain
and improve its margins. Despite the Company's efforts, the mix of product
sought by customers and competitive pricing pressures may continue to have an
effect on gross margin.
Warehouse expense decreased as a percentage of net sales to 3.5% of net sales or
$12.9 million for the thirteen weeks ended July 1, 2000 as compared to 3.7% of
net sales or $12.8 million due to the inclusion of expenses related to the now
closed Garden City and Kearny warehouses in the prior period. Excluding all
expenses relating to these facilities, warehouse expense would have remained at
3.5% of net sales.
Transportation expense remained at 1.9% of net sales or $6.9 million for the
thirteen weeks ended July 1, 2000 as compared to 1.9% of net sales or $6.5
million in the prior period.
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Selling, general and administrative expense increased to 2.0% of net sales or
$7.6 million for the thirteen weeks ended July 1, 2000 as compared to 1.9% of
net sales or $6.5 million for the prior period due in part to costs associated
with (i) EasyGrocer.com, (ii) increased professional fees and employee benefits,
and (iii) the relocation of and related ongoing expenses associated with the
Company's data processing center.
Interest expense decreased to $4.0 million for the thirteen weeks ended July 1,
2000 from $4.2 million for the prior period due to lower average outstanding
levels of the Company's debt.
The Company recorded an income tax provision of $1.9 million, resulting in an
effective income tax rate of 45% for the thirteen weeks ended July 1, 2000 as
compared to a provision of $1.6 million resulting in an effective rate of 46% 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 until the fourth quarter
of 2000.
The Company recorded net income for the thirteen weeks ended July 1, 2000 of
$2.3 million as compared to a net income of $1.9 million in the prior period, an
increase of approximately 25%.
Twenty-six weeks ended July 1, 2000 and July 3, 1999
Net sales for the twenty-six weeks ended July 1, 2000 rose 4.2% to $730.5
million as compared to $701.1 million for the twenty-six weeks ended July 3,
1999 primarily as a result of increased sales to existing customers. Other
revenue, consisting of recurring customer related services, decreased to $3.6
million for the twenty-six weeks ended July 1, 2000 as compared to $4.1 million
in the prior period. This modest decrease was a result of storage income at the
Garden City and Kearny facilities in the prior period which ceased operations in
the second and third quarters of 1999.
Gross margin (excluding warehouse expense) remained at 9.7% of net sales or
$71.0 million for the twenty-six weeks ended July 1, 2000 as compared to 9.7% of
net sales or $68.1 million in the prior period. The Company has, and will
continue to, take steps to maintain and improve its margins. Despite the
Company's efforts, the mix of product sought by customers and competitive
pricing pressures may continue to have an effect on gross margin.
Warehouse expense decreased as a percentage of net sales to 3.6% of net sales or
$26.0 million for the twenty-six weeks ended July 1, 2000 as compared to 3.8% of
net sales or $26.5 million due to the inclusion of expenses related to the now
closed Garden City and Kearny warehouses in the prior period. Excluding all
expenses relating to these facilities, warehouse expense would have remained at
3.5% of net sales.
Transportation expense remained at 1.9% of net sales or $13.9 million for the
twenty-six weeks ended July 1, 2000 as compared to 1.9% of net sales or $13.4
million in the prior period.
Selling, general and administrative expense increased to 2.0% of net sales or
$14.8 million for the twenty-six weeks ended July 1, 2000 as compared to 1.9% of
net sales or $13.1 million for the prior period due in part to costs associated
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with (i) EasyGrocer.com, (ii) increased professional fees and employee benefits,
and, and (iii) the relocation of and related ongoing expenses associated with
the Company's data processing center.
Interest expense decreased to $8.1 million for the twenty-six weeks ended July
1, 2000 from $8.5 million for the prior period due to lower average outstanding
levels of the Company's debt.
The Company recorded an income tax provision of $3.7 million, resulting in an
effective income tax rate of 45% for the twenty-six weeks ended July 1, 2000 as
compared to a provision of $3.0 million resulting in an effective rate of 47% 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 until the fourth quarter
of 2000.
The Company recorded net income for the twenty-six weeks ended July 1, 2000 of
$4.4 million as compared to a net income of $3.3 million in the prior period, an
increase of approximately 32%.
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 believes that these sources will be adequate to meet its anticipated
working capital needs, capital expenditures, dividend payments, if any, debt
service, and other cash requirements during the next twelve months.
The Company's bank credit facility is scheduled to mature on June 30, 2004 and
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 bank's prime rate. Borrowings
under the Company's revolving bank credit facility were $8.5 million (excluding
$5.1 million of outstanding letters of credit) at July 1, 2000. The Company had
additional borrowing capacity of $72.1 million available at that time under the
Company's then current borrowing base availability certificate.
In April 2000, the Company declared and paid a $2.5 million dividend to its
shareholders. Also in April 2000, the Company extended approximately $8.4
million in additional loans to customers.
During the twenty-six weeks ended July 1, 2000, cash flows provided by operating
activities were $2.9 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 $3.4 million, offset by an increase in
(i) accounts and notes receivable of $8.4 million, (ii) inventory of $1.5
million and (iii) prepaid expenses of $2.1 million.
Cash flows used in investing activities during the twenty-six weeks ended July
1, 2000 were approximately $2.0 million, which were used exclusively for capital
expenditures. Net cash used in financing activities of approximately $ 573,000
consisted primarily of borrowings under the bank credit facility of $1.7 million
offset by a dividend payment of $2.5 million.
EBITDA, defined as earnings before interest expense, income taxes, depreciation
and amortization, was $19.7 million during the twenty-six weeks ended July 1,
2000 as compared to $18.3 million in the same period of the prior year.
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Excluding the additional expense related to the shutdown and abandonment of the
Garden City facility in the first quarter of 2000, EBITDA would have been $20.1
million in the first six months of 2000. 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.
The consolidated indebtedness of the Company increased slightly to $165.7
million at July 1, 2000 as compared to $164.1 million at January 1, 2000. As of
July 3, 1999 consolidated indebtedness was $176.7 million.
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. As of July 1, 2000, 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.
EasyGrocer.com
Through its website, EasyGrocer.com, the Company has developed a proprietary
electronic commerce system with the specific needs of its customers and their
retail consumers in mind. It allows consumers to do their grocery shopping
online 24 hours a day from the convenience of their home or office. Unlike many
other services, EasyGrocer.com is a network of local grocery merchants familiar
with the specific needs, including ethnic products, of their respective
communities. Consumers are able to shop the full inventory of specific stores
they have frequented in the past. All products offered by the supermarket are
available, including groceries, meat, produce, dairy, frozen food and health and
beauty aids. Orders may be delivered or picked up at the store.
Once on-line, the consumer is presented with a list of participating stores and
the entire selection of products offered by the store selected. Just as in a
supermarket, weekly specials can be offered to internet customers. Employees of
the store will select the order and will either deliver to or have it available
for pickup by the consumer. Payment will be by means of secure credit card
transmission over the internet. Electronic mailing of ad flyers and coupons,
specifically geared to a particular shopper's buying history, is contemplated.
The plan is to give the consumer the same selection and flexibility as in the
supermarket, but with added convenience.
Through June 2000, the number of participating stores has more than tripled from
the beginning of the year, including non-White Rose customers currently supplied
by a competing national wholesaler. At the present time, EasyGrocer.com's
service area is concentrated in New York City, Long Island, and Westchester
County in New York and parts of New Jersey and Pennsylvania. The Company is
making efforts to broaden this area.
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Average order size was $79.87 in June 2000, a significant increase over the
participating stores' average order size. EasyGrocer.com has entered into
strategic alliances with both Yahoo and EdificeRex to further enhance its
customer base. The Company intends to continue these alliances through the end
of 2000, as well as to use more traditional media campaigns such as radio and
newspaper advertising. The Company expects to spend less than $1 million during
the remainder of 2000 in support of EasyGrocer.com's marketing strategies.
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II-OTHER INFORMATION
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
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: August 2, 2000
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