10-Q 1 dg0304q.txt 10-Q FOR QUARTER ENDED 3/27/2004 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 March 27, 2004 [ ] 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____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in this Form 10-Q or any amendment to this Form 10-Q. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes__ No_X As April 20, 2004, there were outstanding 78.1158 shares of Class A Common Stock and 76.8690 shares of Class B Common Stock. The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant is $0 because all voting and non-voting stock is held by affiliates of the registrant. DI GIORGIO CORPORATION AND SUBSIDIARIES INDEX PART 1. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Balance Sheets, December 27, 2003 and March 27, 2004 (Unaudited)....................... 1 Consolidated Condensed Income Statements, Thirteen Weeks Ended March 29, 2003 and March 27, 2004 (Unaudited)..... 2 Consolidated Condensed Statement of Stockholders Equity, Thirteen Weeks Ended March 27, 2004 (Unaudited)........................ 3 Consolidated Condensed Statements of Cash Flows, Thirteen Weeks Ended March 29, 2003 and March 27, 2004 (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 Item 4. Controls and Procedures............................................. 11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K ................................... 12 Signatures ............................................................. 13 Di Giorgio Corporation and Subsidiaries Consolidated Condensed Balance Sheets (in thousands) December 27, March 27, 2003 2004 (unaudited) ASSETS Current Assets: Cash $ 1,637 $ 1,635 Accounts and notes receivable-net 109,738 107,021 Inventories 61,204 61,325 Deferred income taxes 2,205 2,303 Prepaid expenses 3,606 3,106 --------- --------- Total current assets 178,390 175,390 --------- --------- Property, Plant and Equipment Cost 29,290 29,563 Accumulated depreciation and amortization (19,450) (20,187) --------- --------- Net 9,840 9,376 --------- --------- Long-term notes receivable 11,082 9,142 Other assets 24,764 24,487 Deferred financing costs-net 1,886 2,179 Goodwill 68,893 68,893 --------- --------- Total assets $ 294,855 $ 289,467 ========= ========= LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Revolving credit facility $ 12,880 $ -- Accounts payable 59,166 59,810 Accrued expenses 30,652 35,431 Dividends payable -- 10,000 Notes and leases payable within one year 64 65 --------- --------- Total current liabilities 102,762 105,306 --------- --------- Long-term debt 148,300 148,300 Capital lease liability 1,877 1,860 Other long-term liabilities 9,394 9,082 Stockholders' Equity: Common stock -- -- Additional paid-in-capital 8,002 8,002 Retained earnings 24,520 16,917 --------- --------- Total stockholders' equity 32,522 24,919 --------- --------- Total liabilities & stockholders' equity $ 294,855 $ 289,467 ========= ========= See Notes to Consolidated Condensed Financial Statements -1- Di Giorgio Corporation and Subsidiaries Consolidated Condensed Income Statements (in thousands) (unaudited) Thirteen weeks ended March 29, March 27, 2003 2004 Revenue: Net sales $ 383,015 $ 311,144 Other revenue 2,239 2,622 --------- --------- Total revenue 385,254 313,766 Cost of products sold 345,415 276,285 --------- --------- Gross profit-exclusive of warehouse expense shown below 39,839 37,481 Warehouse expense 15,232 14,756 Transportation expense 7,848 6,975 Selling, general and administrative expense 8,207 8,446 --------- --------- Operating income 8,552 7,304 Interest expense 3,793 3,777 Amortization-deferred financing costs 157 169 Other (income)-net (848) (831) --------- --------- Income before income taxes 5,450 4,189 Income tax expense 2,329 1,792 --------- --------- Net income $ 3,121 $ 2,397 ========= ========= See Notes to Consolidated Condensed Financial Statements -2- Di Giorgio Corporation and Subsidiaries Consolidated Condensed Statement of Stockholders' Equity (in thousands, except share data) (unaudited)

~~Thirteen~~Class ~~weeks~~A ~~ended~~Class ~~Thirty-nine~~B ~~weeks~~Additional ~~ended~~Common ~~Sept~~Stock ~~28,~~Common ~~Sept~~Stock ~~27,~~Paid-in ~~Sept~~Retained ~~28,~~Shares ~~Sept~~Amount ~~27,~~Shares ~~2002~~Amount ~~2003~~Capital ~~2002~~Earnings ~~2003~~Total ~~Revenue:~~Balance ~~Net~~at ~~sales~~December ~~$ 370~~27,~~671~~ $2003 ~~391,582~~78.1158 $ ~~1,146,003 $ 1,175,030 Other revenue 1,766 2,453 5,750 7,204~~ --~~-------~~ ~~---------~~76.8690 $--~~---------~~ ~~----------- Total revenue 372~~$8,~~437~~002 ~~394~~$24,~~035~~520 1$32,~~151,753~~522 ~~1,182,234~~Net ~~Cost~~income ~~of products sold 334,889 352,788 1,035,776 1,060,426~~ -- --~~-----~~ --~~-------~~ --~~---------~~ --~~---------~~ ~~Gross profit-exclusive of warehouse expense shown below 37~~2,~~548~~397 412,~~247~~397 ~~115,977~~Dividends ~~121,808 Warehouse expense 14,599 15,906 43,491 46,462 Transportation expense 7,378 7,774 21,739 23,167 Selling, general and administrative expense 7,076 7,799 22,917 24,122~~ --~~-------~~ --~~-------~~ --~~---------~~ --~~---------~~ ~~Operating income 8,495 9,768 27,830 28,057 Interest expense 3,866 3,699 11,733 11,228 Amortization~~-~~deferred financing costs 163 157 488 471 Other (income)~~-~~net~~ (~~595) (542) (1~~10,~~836~~000) (210,~~390~~000) ------~~---~~ ---- ------ ---- ------- ------ ------ ~~Income~~Balance ~~before~~at ~~income~~March ~~taxes 5~~27,~~061~~ ~~6,454~~2004 ~~17,445~~78.1158 ~~18,748 Income tax expense 2,122 2,723 7,448 7,947~~ $--~~-------~~ ~~---------~~76.8690 $--~~---------~~ ~~----------- Net income~~ $ 28,~~939~~002 $ 316,~~731~~917 $ 924,~~997~~919 ~~$ 10,801~~ ======= == == ======= ==== ======= ======= =======

See Notes to Consolidated Condensed Financial Statements -3- Di Giorgio Corporation and Subsidiaries Consolidated Condensed Statements of Cash Flows (in thousands) (unaudited) Thirteen weeks ended -------------------- March 29, March 27, 2003 2004 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $3,121 $2,397 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization of fixed assets 575 576 Other amortization 602 198 Provision for doubtful accounts 125 125 Amortization of pension expense 243 337 Gain on sale of equipment -- (18) Deferred income taxes (216) (98) Proceeds from note participation sale -- 1,981 Changes in assets and liabilities: (Increase) decrease in: Accounts and notes receivable 7,012 611 Inventories 1,958 (121) Prepaid expenses 1,253 500 Long-term receivables 205 1,940 Other assets 26 (29) Increase (decrease) in: Accounts payable (8,836) 644 Accrued expenses and other liabilities 4,928 4,407 -------- -------- Net cash provided by operating activities 10,996 13,450 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (299) (184) Proceeds from sale of equipment -- 90 -------- -------- Net cash used in investing activities (299) (94) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net repayments under revolving line-of-credit (2,693) (12,880) Financing fees paid -- (462) Capital lease payments (16) (16) -------- -------- Net cash used in financing activities (2,709) (13,358) -------- -------- Increase (decrease) in cash 7,988 (2) Cash at beginning of period 629 1,637 -------- -------- Cash at end of period $ 8,617 $ 1,635 ======== ======== Supplemental Disclosure of Cash Flow Information Cash paid during the period: Interest $ 52 $ 69 ======== ======== Income taxes $ 231 $ 311 ======== ======== See Notes to Consolidated Condensed Financial Statements -4- DI GIORGIO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (UNAUDITED) 1. BASIS OF PRESENTATION The consolidated condensed balance sheet as of March 27, 2004, the consolidated condensed income statements for the thirteen weeks ended March 29, 2003 and March 27, 2004, the consolidated condensed statement of stockholders' equity for the thirteen weeks ended March 27, 2004, and the consolidated condensed statements of cash flows for the thirteen weeks ended March 29, 2003 and March 27, 2004, 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, 2003 (where the consolidated condensed balance sheet as of December 27, 2003 has been derived), 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. -5- 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 statements may be identified by their use of words like "plans", "expects" "aims" "believes", "projects" "anticipates", "intends" "estimates" "will" " should" "could" and other expressions that indicate future events and trends. 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; the Company's reliance on several significant customers; potential losses from loans to its retailers; restrictions imposed by the documents governing the Company's indebtedness; current wholesale competition, as well as future competition from presently unknown sources; competition in the retail segment of the supermarket business; the Company's labor relations; potential environmental liabilities which the Company may incur; dependence on key personnel; business abilities and judgment of personnel; changes in, or failure to comply with government regulations; potential commercial vehicle restrictions; inflation, especially with respect to wages and energy costs; and the results of terrorism or terrorist acts against the Company. General As previously announced, the Company ceased doing business with the Great Atlantic & Pacific Tea Company ("A&P") in October 2003. While the Company has reduced expenses to help compensate for the reduced sales, the loss of this business will continue to have a negative impact on earnings when compared to prior periods. Sales to A&P were $93.7 million in the first fiscal quarter of 2003. The loss of these sales was partially offset by increased sales to a new group of customers in the Philadelphia area that we began servicing in the second quarter of 2003. Results of Operations Thirteen weeks ended March 27, 2004 and March 29, 2003 Net sales for the thirteen weeks ended March 27, 2004 decreased $71.9 million to $311.1 million from $383.0 million in the prior period. Excluding sales to A&P during the 2003 period, comparable sales increased 7.5% in the current period mostly as a result of sales to the new customers discussed above. Other revenue, consisting of recurring customer related services, increased to $2.6 million for the thirteen weeks ended March 27, 2004 as compared to $2.2 million in the prior period resulting from a full quarter of providing a warehousing service for a national manufacturer which started in the first quarter of 2003. -6- Gross margin increased to 12.0% of net sales or $37.5 million for the thirteen weeks ended March 27, 2004, as compared to 10.4% of net sales or $39.8 million for the prior period reflecting a change in mix of both customers and products sold and increased other revenue from frozen warehousing services. Factors such as changes in customer mix, changes in manufacturers' promotional activities, changes in product mix, or competitive pricing pressures may have an effect on gross margin. It is uncertain that the improvement in gross margin realized in this quarter will continue. Caution should be taken when comparing the Company's gross margin to that of other companies because other companies, while still complying with generally accepted accounting principles ("GAAP"), may characterize income and expenses differently. Warehouse expense increased as a percentage of net sales to 4.7% of net sales or $14.8 million for the thirteen weeks ended March 27, 2004, as compared to 4.0% of net sales or $15.2 million in the prior period, primarily as a result of fixed costs being compared to lower overall sales. In addition, rent expense for the thirteen weeks ended March 27, 2004 increased approximately $.3 million as a result of increased outside storage and occupancy costs related to the Company's specialty food division. Transportation expense increased as a percentage of net sales to 2.2% of net sales or $7.0 million for the thirteen weeks ended March 27, 2004 as compared to 2.0% of net sales or $7.8 million in the prior period primarily as a result of fixed costs being compared to lower overall sales. Selling, general and administrative expense increased to 2.7% of net sales or $8.4 million for the thirteen weeks ended March 27, 2004 as compared to 2.1% of net sales or $8.2 million in the prior period as a result of fixed costs being compared to lower overall sales, additional expenses including salaries of $.2 million related to the start up of the specialty food division, and additional pension expense of $.1 million as compared to the prior period. There has been no change in the Company's effective tax rate of 43%. Net income for the thirteen weeks ended March 27, 2004 was $2.4 million as compared to net income of $3.1 million in the prior period. EBITDA was $8.7 million for the thirteen weeks ended March 27, 2004 as compared to $10.4 million in the prior period. While the loss of A&P was the primary reason for the decline, the Company incurred a $.4 million operating loss attributable to the start up of its specialty food division. -7- Reconciliation of EBITDA to net income (in thousands): Thirteen weeks ended March 2004 2003 ----- ---- EBITDA $8,740 $10,420 Less: depreciation and amortization of fixed assets 576 575 Less: other amortization 198 602 Less: interest expense 3,777 3,793 Less: income tax provision 1,792 2,329 ----- ----- Net income $2,397 $3,121 ====== ====== The Company has presented EBITDA supplementally because management believes this information enables management, investors, and others readers to evaluate and compare, from period to period, the Company's results from ongoing operations in a more meaningful and consistent manner. We believe net income is the most closely comparable GAAP measure as opposed to cash flow from operations. Similar to net income, management uses the EBITDA measures as a measure of the performance of our operations without the vagaries of fluctuations in working capital as cash flow from operations would. Management also uses the EBITDA results when making operating decisions that require additional resources and as a basis for certain calculations for compensation programs. We believe that the relevant statistic for our business to measure liquidity is our working capital plus our availability under our existing line of credit, both of which are disclosed in our liquidity discussion under Liquidity and Capital Resources below. Liquidity and Capital Resources Cash flows from operations, cash on hand, 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 February 1, 2007. The Company believes that cash flows from operations and amounts available under the bank credit facility will be adequate to meet its anticipated working capital needs, capital expenditures, dividend payments, if any, and debt service requirements during the next twelve months, as well as any investments the Company may make. There were no borrowings under the Company's revolving bank credit facility (excluding $6.0 million of outstanding letters of credit) at March 27, 2004. The Company had additional borrowing capacity of $84.0 million available at that time under the Company's then current borrowing base availability certificate. The Company paid a $10 million dividend on March 31, 2004 and as of April 20, 2004, the Company had $5.5 million of borrowings outstanding under its bank credit facility. The Company's bank credit facility 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 lead bank's prime rate. -8- During the thirteen weeks ended March 27, 2004, cash flows provided by operating activities were approximately $13.5 million, consisting primarily of (i) cash generated from income before non-cash expenses of $3.5 million, (ii) an increase in accounts payable, accrued expenses, and other liabilities of $5.1 million, (iii) reductions of accounts and notes receivables (including long-term portion) of $2.6 million, (iv) a reduction of prepaid expenses of $.5 million, and (v) proceeds of $2.0 million from the sale of note particpations offset by an increase in inventories and other assets of $.2 million. Cash flows used in investing activities during the thirteen weeks ended March 27, 2004 were approximately $.1 million. $.2 million was used for capital expenditures and $.1 million was received as proceeds from the sale of excess trailers. Net cash used in financing activities of approximately $13.4 million consisted primarily of $12.9 million of net repayments of the bank credit facility and $.5 million of financing fees paid. The consolidated indebtedness of the Company decreased to $150.2 million at March 27, 2004 as compared to $163.1 million at December 27, 2003 and stockholders' equity decreased to $24.9 million at March 27, 2004 as compared to $32.5 million at December 27, 2003 as a result of the $10.0 million dividend declared in March 2004 and paid March 31, 2004. Under the terms of the Company's bank credit facility, the Company is required to meet certain financial tests, including minimum interest coverage ratios. As of March 27, 2004, the Company was in compliance with its covenants. From time to time when the Company considered market conditions attractive, the Company has purchased, and may in the future purchase its notes on the open market and retire a portion of its public debt. Item 4. Controls and Procedures As of the end of the period covered by this report, an evaluation was performed with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective as of March 27, 2004. There were no significant changes in the Company's internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation. -9- II-OTHER INFORMATION Item 5. Other Information In March 2004, the Company reached an agreement for a three year term with the union representing the frozen division warehousemen and drivers. Item 6. Exhibits and Reports on Form 8-K (a) 31.1 - Statement Under Oath of Principal Executive Officer Regarding Facts and Circumstances Relating to Exchange Act Filings. Filed herewith. 31.2- Statement Under Oath of Principal Financial Officer Regarding Facts and Circumstances Relating to Exchange Act Filings. Filed herewith. 32.1 - Certification of Chief Executive Officer and Chief Financial Officer of Di Giorgio Corporation Pursuant to 18 U. S.C. Section 1350 (b) Reports on Form 8-K. None -10- 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/ Richard B. Neff ----------------------------------- Richard B. Neff Co-Chairman and Chief Executive Officer By: /s/ Stephen R. Bokser ----------------------------------- Stephen R. Bokser Co-Chairman, President, and Chief Operating Officer By: /s/ Lawrence S. Grossman ----------------------------------- Lawrence S. Grossman Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: April 28, 2004 -11-

Class A Class B Additional Common Stock Common Stock Paid in Retained Shares Amount Shares Amount Capital Earnings Total Balance at 78.1158 $ -- 76.8690 $ -- $8,002 $20,171 $28,173 December 28, 2002 Net income -- -- -- -- -- 10,801 $10,801 Dividend (10,000) (10,000) -------- -------- Balance at 78.1158 $ -- 76.8690 $ -- $8,002 $20,972 $28,974 September 27, 2003 ======= ==== ======= ==== ======= ======== ========

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