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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. 33-72284
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WHITE ROSE FOODS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3172841
(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 100.612 shares of Class A Common Stock, par
value of $.01, outstanding.
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<PAGE>
WHITE ROSE FOODS, INC. 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 Operations,
Thirteen Weeks Ended March 30, 1996
and March 29, 1997 (Unaudited) ............................ 2
Consolidated Condensed Statement of Stockholders' 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.............................................. 10
Item 6. Exhibits and Reports on Form 8-K .............................. 10
Signatures ............................................................ 11
<PAGE>
White Rose Foods, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands)
December 28, March 29,
1996 1997
(Unaudited)
ASSETS
Current Assets:
Cash......................................... $1,749 $1,734
Accounts and notes receivable-net............ 61,550 65,466
Inventories.................................. 49,563 51,994
Prepaid expenses............................. 3,706 3,197
----- -----
Total current assets.................. 116,568 122,391
------- -------
Property, Plant & Equipment
Cost......................................... 71,784 72,197
Accumulated depreciation..................... (15,514) (17,093)
------ ------
Net.......................................... 56,270 55,104
------ ------
Long-term notes receivable...................... 19,276 20,857
Other assets.................................... 12,216 12,411
Deferred financing costs........................ 4,172 3,883
Excess of costs over net assets acquired........ 92,567 91,898
------ ------
$301,069 $306,544
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable................................ $26,719 $28,352
Accounts payable............................. 49,468 55,134
Accrued expenses............................. 24,362 21,367
Current installment long-term obligations.... 3,677 3,634
----- -----
Total current liabilities............. 104,226 108,487
------- -------
Long-term debt.................................. 153,389 154,606
Capital lease liability......................... 31,523 30,996
Other long-term liabilities..................... 7,826 7,621
Stockholders' Equity:
Common stock................................. - -
Additional paid-in-capital................... 17,225 17,225
Accumulated deficit.......................... (13,120) (12,391)
------ ------
Total stockholders' equity............ 4,105 4,834
----- ------
$301,069 $306,544
======= =======
See Notes to Consolidated Condensed Financial Statements
-1-
<PAGE>
White Rose Foods, Inc. and Subsidiaries
Consolidated Condensed Statements of Operations
(in thousands)
(unaudited)
Thirteen weeks ended
----------------------
March 30, March 29,
1996 1997
Revenue:
Net Sales........................................ $263,861 $264,378
Other revenue..................................... 1,013 1,595
----- -----
Total Revenue.............................. 264,874 265,973
Cost of Products Sold.............................. 236,723 237,180
------- -------
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
----- -----
Operating Income................................... 5,478 6,569
Interest expense................................. 6,138 5,709
Amortization-deferred financing costs............ 284 288
Other (income)-net............................... (777) (1,043)
--- -----
(Loss) income before income taxes.................. (167) 1,615
Income taxes.................... .................. 0 886
--- ---
Net (loss) income.................................. ($167) $729
==== ====
See Notes to Consolidated Condensed Financial Statements
-2-
<PAGE>
White Rose Foods, Inc. and Subsidiaries
Consolidated Condensed Statement of Stockholders' Equity
(in thousands, except share data)
(unaudited)
Additional
Class A Common Stock Paid-In (Accumulated
Shares Amount Capital Deficit) Total
Balance at
December 28, 1996 100.612 $ -- $17,225 ($13,120) $4,105
Net income:
thirteen weeks
ended March 29, 1997 -- -- -- 729 729
------- --- ------ ------ -----
Balance at
March 29, 1997 100.612 $ -- $17,225 ($12,391) $4,834
======= === ====== ====== =====
See Notes to Consolidated Condensed Financial Statements
-3-
<PAGE>
White Rose Foods, Inc. and Subsidiaries
Consolidated Condensed Statement of Cash Flows
(in thousands)
(unaudited)
Thirteen weeks ended
March 30, March 29,
1996 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income.................................. ($167) $729
Adjustments to reconcile net income to net cash
used in operating activities
Depreciation and amortization................... 1,252 1,147
Amortization.................................... 1,150 1,088
Provision for bad debts......................... 625 375
Increase in prepaid pension cost................ (105) (75)
Noncash interest expense........................ 1,397 1,544
Noncash interest income......................... (233) (259)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable............................. 4,336 (4,291)
Inventory....................................... (777) (2,431)
Prepaid expenses................................ 191 579
Long-term receivables........................... (1,027) (1,322)
Others assets................................... 155 116
Increase (decrease) in:
Accounts payable, accrued expenses and
other liabilities.............................. (10,501) 2,462
------ ------
Net cash used in operating activities.............. (3,704) (338)
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, & equipment.......... (175) (413)
----- ---
Net cash used in investing activities.............. (175) (413)
----- ---
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)
--- ---
Net cash provided by financing activities.......... 4,497 736
----- ---
Increase (decrease) in cash........................ 618 (15)
Cash at beginning of period........................ 447 1,749
--- -----
Cash at end of period.............................. $1,065 $1,734
====== ======
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest....................................... $7,507 $7,043
===== =====
Income Taxes................................... $67 $72
== ==
See Notes to Consolidated Condensed Financial Statements
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<PAGE>
WHITE ROSE FOODS, INC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (UNAUDITED)
1. BASIS OF PRESENTATION
White Rose Foods, Inc. ("White Rose") is a company which was formed to serve as
a holding company for all of the stock of Di Giorgio Corporation ("Di Giorgio").
DIG Holding Corp. contributed 100% of the outstanding voting stock of Di Giorgio
to White Rose in exchange for shares of common stock of White Rose. In addition,
White Rose purchased 100% of the non-voting common stock of Di Giorgio from DIG
Holding Corp. in exchange for a note which was repaid in connection with the
White Rose $63.5 million face value senior discount note offering. Since these
transactions were among companies under common control, the acquisition of Di
Giorgio by White Rose has been accounted for as if it were a pooling of interest
and the financial statements reflect 100% ownership of Di Giorgio's operations
for all periods. White Rose and subsidiaries (collectively "the Company") had no
operations other than Di Giorgio's for all periods.
On December 27, 1996, the Company and its parent, DIG Holding, effected a merger
with the Company continuing as the surviving corporation. As the stockholders of
the Company are identical to the stockholders of DIG Holding, the exchange of
shares was a transfer of interest among entities under common control, and is
being accounted for at historical cost in a manner similar to pooling of
interest accounting. Accordingly, the consolidated financial statements
presented herein reflect the assets and liabilities and related results of
operations of the combined entity for all periods.
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 consolidated condensed balance sheet as of March 29, 1997, the consolidated
condensed statements of operations 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.
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
OPERATIONS
General
White Rose is a company which was formed in May 1992 to serve as a holding
company for all of the stock of Di Giorgio. DIG Holding contributed 100% of the
outstanding voting stock of Di Giorgio to White Rose in exchange for shares of
common stock of White Rose. In addition, White Rose purchased 100% of the
non-voting common stock of Di Giorgio from DIG Holding in exchange for a note
which was repaid in connection with the White Rose $63.5 million face value
senior discount note offering. Since these transactions were among companies
under common control, the acquisition of Di Giorgio by White Rose has been
accounted for as if it were a pooling of interest and the financial statements
reflect 100% ownership of Di Giorgio's operations for all periods. White Rose
and subsidiaries had no operations other than Di Giorgio's for all periods.
On December 27, 1996, White Rose and its parent, DIG Holding, effected a merger
with White Rose continuing as the surviving corporation. As the stockholders of
the Company are identical to the stockholders of DIG Holding, the exchange of
shares was a transfer of interest among entities under common control, and is
being accounted for at historical cost in a manner similar to pooling of
interests accounting. Accordingly, the consolidated financial statements
represented herein reflect the assets and liabilities and related results of
operations of the combined entity for all periods.
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.
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<PAGE>
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 to $1.0 million for the thirteen
weeks ended March 29, 1997 as compared to $777,000 for the Prior Period
primarily due to increased interest income.
Interest expense decreased to $5.7 million for the thirteen weeks ended March
29, 1997 from $6.1 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 offset by increased accretion of the senior discount
notes.
The Company recorded an income tax provision of $886,000 resulting in an
effective income tax rate of 55% for the thirteen weeks ended March 29, 1997 as
compared to an effective tax rate of 0% 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 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
$729,000 as compared to a loss of $167,000 for the Prior Period.
-7-
<PAGE>
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 $338,000 consisting primarily of cash generated from net income,
non-cash expenses and increases in accounts payable and accrued expenses of $2.5
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 $11.8 million to $217.6
million at March 29, 1997 as compared to $229.4 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,
offset by a $6.1 million accretion of the senior discount notes. Stockholder's
equity increased $2.9 million to $ 4.8 million at March 29, 1997 from $1.9
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.
The indenture governing the Company's 12% senior notes, 12.75% senior discount
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%
-8-
<PAGE>
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.
-9-
<PAGE>
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.
WHITE ROSE FOODS, INC.
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 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 OPERATIONS, STATEMENT OF
STOCKHOLDERS' EQUITY AND STATEMENT OF CASH FLOWS FROM FORM 10Q FOR THE PERIOD
ENDED SEPTEMBER 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> 1,734
<SECURITIES> 0
<RECEIVABLES> 70,152
<ALLOWANCES> 4,686
<INVENTORY> 51,994
<CURRENT-ASSETS> 122,391
<PP&E> 72,197
<DEPRECIATION> 17,093
<TOTAL-ASSETS> 306,544
<CURRENT-LIABILITIES> 108,487
<BONDS> 145,080
0
0
<COMMON> 0
<OTHER-SE> 4,834
<TOTAL-LIABILITY-AND-EQUITY> 306,544
<SALES> 264,378
<TOTAL-REVENUES> 265,973
<CGS> 237,180
<TOTAL-COSTS> 259,404
<OTHER-EXPENSES> (755)
<LOSS-PROVISION> 375
<INTEREST-EXPENSE> 5,709
<INCOME-PRETAX> 1,615
<INCOME-TAX> 886
<INCOME-CONTINUING> 729
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 729
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
