UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT
OF 1934
Commission File Number 001-15617
SPIGADORO, INC.
(exact name of registrant as specified in its charter)
Delaware 13-3920210
(State or other jurisdiction of (I.R.S Employer
Incorporation or organization) Identification No.)
70 East 55th Street
24th Floor
New York, New York 10022
(212) 754 - 4271
(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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
Class Outstanding at April 30, 2001
----- -----------------------------
Common Stock, $.01 par value 61,034,037 shares
SPIGADORO, INC. AND SUBSIDIARIES
FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED MARCH 31, 2001
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
Consolidated Balance Sheets at March 31, 2001
(unaudited) and December 31, 2000 3
Consolidated Statements of Income for Three Months
ended March 31, 2001and 2000 (unaudited) 4
Consolidated Statements of Cash Flows for Three Months
ended March 31, 2001and 2000 (unaudited) 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-16
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Default upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURE PAGE 18
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPIGADORO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, March 31, December, 31
2001 2001 2000
(unaudited) (unaudited)
----------- ----------------------------------
ASSETS (thousands (millions of Lire)
of Dollars)(1)
Current assets:
Cash and cash equivalents $ 7,826 17,241 26,476
Accounts receivable trade, net of allowance
for doubtful accounts of Lire 5,474 million in March
in 2001 and Lire 1,926 million in March 2000
and Lire 5,068 in December 2000 37,357 82,297 53,535
Taxes receivable 6,257 13,784 17,547
Inventories 13,815 30,434 31,812
Deferred income taxes 584 1,286 1,248
Other current assets 3,360 7,402 4,106
------------ --------- ---------
Total current assets 69,199 152,444 134,724
Property, equipment and improvements, net 65,519 144,339 146,265
Other assets:
Intangible assets, at amortized cost 17,423 38,382 38,728
Deferred income taxes
Other assets 2,030 4,473 4,691
Assets held for disposition 59 131 861
----------- --------- ---------
$ 154,230 339,769 325,269
=========== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 62,045 136,686 108,198
Current portion of long-term debt 3,793 8,356 7,783
Accounts payable 33,850 74,572 78,983
Income taxes payable
Accrued payroll and social contributions 2,567 5,656 7,948
Other current liabilities 3,626 7,987 7,313
----------- --------- ---------
Total current liabilities 105,881 233,257 210,225
Long-term debt, less current portion 16,018 35,287 36,948
Employees and agents termination indemnities 7,955 17,524 17,008
Deferred income taxes 2,159 4,756 4,866
Social contributions and income taxes payable 2,112 4,653 4,653
----------- --------- ---------
Total liabilities 134,125 295,477 273,700
----------- --------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01(Lire 22.03) par value,
authorized 100,000,000, non issued
Common stock, $.01(Lire 22.03) par value,
authorized 100,000,000, issued 63,261,037
in 2001 and 2000 553 1,219 1,219
Capital in excess of par value 27,560 60,715 60,715
Retained earnings (6,846) (15,082) (8,166)
Accumulated other comprehensive income (875) (1,927) (1,566)
Less treasury stock (102,000 shares) (287) (633) (633)
----------- --------- ---------
Total stockholders' equity 20,105 44,292 51,569
----------- --------- ---------
$ 154,230 339,769 325,269
=========== ========= =========
(1) Exchange rate: Lire 2,203 = U.S. $1 as of March 31, 2001, unaudited and
presented for convenience purposes only.
See Notes to Consolidated Financial Statements
3
SPIGADORO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three months ended
March 31,
2001 2001 2000
---------------- ------------ ---------------
(thousands (millions of Lire)
of Dollars)(1)
Net sales $ 39,316 86,613 63,406
Cost of sales 31,214 68,765 46,914
--------------- ------------ ---------------
Gross profit 8,102 17,848 16,492
--------------- ------------ ---------------
Operating expenses:
Selling expenses 7,116 15,677 12,225
General and administrative expenses 2,891 6,369 4,151
--------------- ------------ ---------------
10,007 22,046 16,376
--------------- ------------ ---------------
Income (loss) from operations (1,905) (4,198) 116
Other income (expense):
Interest expense (1,380) (3,041) (1,244)
Interest income 35 78 192
Other, net 240 529 28,109
--------------- ------------ ---------------
(1,105) (2,434) 27,057
--------------- ------------ ---------------
Income (loss) from continuing operations
before income taxes (3,010) (6,632) 27,173
Income taxes (124) (272) (6,581)
--------------- ------------ ---------------
Income (loss) from continuing operations (3,134) (6,904) 20,592
Loss from discontinued operations (5) (12) (52)
--------------- ------------ ---------------
Net income (loss) $ (3,139) (6,916) 20,540
=============== ============ ===============
Basic and diluted earnings (loss) per share
of common stock
From continuing operations (0.05) (117) 341
=============== ============ ===============
From discountinued operations (0) (0) (1)
=============== ============ ===============
Weighted average number of
common shares outstanding
- basic and diluted 58,939 58,939 60,394
=============== ============ ===============
(1) Exchange rate: Lire 2,203 = U.S. $1 as of March 31, 2001, unaudited and
presented for convenience purposes only.
See Notes to Consolidated Financial Statements
4
SPIGADORO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31,
2001 2001 2000
---------------- ----------- ----------
(thousands (millions of Lire)
of Dollars)(1)
Cash flows from operating activities:
Net income (loss) from continuing operations $ (3,134) (6,904) 20,592
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Gain on sale of securities (27,710)
Depreciation of equipment 1,572 3,463 1,470
Amortization of goodwill 371 817 452
Provision for employees and agents
termination indemnities 333 734 546
Provision for doubtful accounts 174 384 104
Deferred income taxes (67) (148) 6,034
Other non cash items, net 30 65 (322)
Payment of employees and agents
termination indemnities (99) (218) (654)
Changes in operating assets and liabilities:
Accounts receivable trade (13,230) (29,146) (4,022)
Inventories 626 1,378 1,709
Accounts payable and other current liabilities (1,696) (3,737) (1,125)
Accrued payroll and social contributions (1,040) (2,292) (1,050)
Other, net 304 673 (1,472)
---------------- ----------- ----------
Net cash used in operating activities (15,856) (34,931) (5,448)
---------------- ----------- ----------
Cash flows from investing activities:
Proceeds from sale of securities 32,972
Purchases of property, equipment and improvements (845) (1,861) (815)
Proceeds from disposal of property, equipment
and improvements 21 46 13
Additions to intangible assets (31) (68) (83)
Changes in assets held for disposition 332 730
---------------- ----------- ----------
Net cash provided by (used in) investing activities (523) (1,153) 32,087
---------------- ----------- ----------
Cash flows from financing activities
Repayment of notes payable (2,941)
Proceeds from long term debt 400
Payment of long-term debt (494) (1,088) (847)
Net change in short-term borrowings 12,931 28,488 6,174
---------------- ----------- ----------
Net cash provided by financing activities 12,437 27,400 2,786
---------------- ----------- ----------
Effect of exchange rate on cash (250) (551) 554
---------------- ----------- ----------
Net increase (decrease) in cash and cash equivale (4,192) (9,235) 29,979
Cash and cash equivalents, beginning of the period 12,018 26,476 15,999
---------------- ----------- ----------
Cash and cash equivalents, end of period $ 7,826 17,241 45,978
================ =========== ==========
Supplemental disclosure of cash flow information,
cash paid during the period for:
Interest $ 1,354 2,982 1,078
================ =========== ==========
(1) Exchange rate: Lire 2,203 = U.S. $1 as of March 31, 2001, unaudited and
presented for convenience purposes only.
See Notes to Consolidated Financial Statements
5
SPIGADORO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Dollars; in millions of Lire)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION - The unaudited interim consolidated
financial statements contain all adjustments consisting of normal
recurring adjustments, which are, in the opinion of the management of
Spigadoro, Inc. ("Spigadoro"), necessary to present fairly the
consolidated financial position of Spigadoro as of March 31, 2001,
and the consolidated results of operations and cash flows of
Spigadoro for the periods presented. Results of operations for the
periods presented are not necessarily indicative of the results for
the full fiscal year. These financial statements should be read in
conjunction with the audited consolidated financial statements and
notes thereto included in Spigadoro's annual Report on Form 10-K
filed with the Securities and Exchange Commission for the year ended
December 31, 2000.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Spigadoro, Inc., its wholly-owned
subsidiaries Petrini S.p.A. (Petrini), Petrini Foods International
Inc., Pastifico Gazzola S.p.A. (Gazzola), IAT AG, Switzerland (IAT
AG), IAT Deutschland GmbH Interactive Medien Systeme Bremen (IAT
GmbH), and 100% of both the General Partner and the limited
partnership interest in Columbus-Computer-Handels und Vertriebs GmbH
& Co. KG (Columbus) (collectively the Company). All intercompany
accounts and transactions have been eliminated.
FOREIGN CURRENCY TRANSLATION - The consolidated financial statements
of the Company have been prepared in Italian Lire, the Company's
functional currency, since principally all of the continuing
operations are headquartered in Italy. The subsidiary located in the
United States, has been converted to Lire from U.S. Dollars, using
the exchange rate at the end of the period for balance sheet items,
except for equity accounts which are translated at historical rates
and the average exchange rates for the period for statement of income
items and for statement of cash flow items. The translation
differences are recorded as accumulated other comprehensive income in
the consolidated statements of stockholders' equity.
The consolidated financial statements of the Company, including U.S.
Dollar information in the notes to the consolidated financial
statements, have been translated into U.S. Dollars for the
convenience of the readers and have been made at the rate of Italian
Lire 2,203 to U.S. $1.00, approximating the Noon Buying rate of the
Federal Reserve Bank of New York at March 31, 001. All monetary
amounts are in million of Lire and thousands of U.S. Dollars
excluding per share information. Such translation should not be
construed as a representation that the Lire amounts could be
converted into U.S. Dollars at that, or any other rate.
INCOME (LOSS) PER COMMON SHARE - The Company complies with Statement
of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per
Share". SFAS 128 requires dual presentation of basic and diluted
earnings per share for all periods presented. Basic earnings per
share is computed by dividing income of the entity by the weighted
average number of common shares outstanding for the period. Basic
earnings per share excludes shares held in treasury and shares held
in escrow pending release upon the occurrence of specified economic
events. Shares held in treasury were 102,000 at March 31, 2001.
Shares held in escrow were 2,125,000 at March 31, 2001. Diluted
earnings per share reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised
or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted income
per common share is the same as basic income per common share for the
three months ended March 31, 2001.
6
SPIGADORO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Dollars; in millions of Lire)
NOTE 2 - ACQUISITIONS:
In May 2000, Petrini acquired all of the issued and outstanding
shares of Pastificio Gazzola S.p.A. (Gazzola). The aggregate purchase
price including acquisition expenses was $12,423 (Lire 27,367). In
addition, the Company issued 583,334 shares of its common stock to
the parent company of Gazzola and received cash proceeds of $1,747
(Lire 3,849). The agreement provided for additional payments to the
sellers of up to $4,864 (Lire 10,000) subject to certain conditions.
The Company has also guaranteed the obligations of Petrini with
respect to the additional contingent payments and issued 2,125,000
shares of its common stock which is being held in escrow, to satisfy
such obligations if required.
The acquisition was accounted for as a purchase and the purchase
price was allocated on the basis of the relative fair value of the
assets acquired and the liabilities assumed as follows:
Dollars Lire
------- ----
Purchase price $ 12,423 27,367
Gazzola net equity, April 30, 2000 140 307
----------------- -----------------
TOTAL EXCESS COST $ 12,283 27,060
================= =================
THE EXCESS COST WAS ALLOCATED AS FOLLOWS:
Property, plant and equipment $ 4,971 10,950
Allowance for doubtful accounts (1,069) (2,354)
Inventories (141) (310)
Deferred tax liabilities (358) (788)
Goodwill 8,880 19,562
----------------- -----------------
$ 12,283 27,060
================= =================
The original allocation of the purchase price between goodwill and
the net assets of the Company was adjusted due to the write-off of
certain accounts receivable and the recording of additional reserves,
based on further analysis performed by the Company.
7
SPIGADORO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Dollars; in millions of Lire)
NOTE 2 - ACQUISITIONS (CONTINUED):
The following unaudited pro forma condensed statements of operations
for the three months ended March 31, 2000 gives effect to the
acquisition of Gazzola as if it occurred on January 1, 2000.
Three Months Ended
March 31, 2000
-----------------------------------
(Dollars) (Lire)
Net sales $ 37,344 82,269
================= ==============
Loss from continuing
operations $ 8,212 18,092
================= ==============
Net loss $ 7,722 17,012
================= ==============
Loss per share, basic
and diluted $ 0.13 281
================= ==============
Weighted average number
of shares (in thousands) 60,394 60,394
================= ==============
NOTE 3 - COMPREHENSIVE INCOME (LOSS):
Three Months Ended March 31,
2001 2001 2000
----------------- --------------------------------------
(thousands
of Dollars) (million of Lire)
Net income (loss) $ (3,139) (6,916) 20,540
Other comprehensive income (loss)
net of tax:
Foreign currency translation adjustment (128) (283) (1,644)
----------------- ----------------- -----------------
$ (3,267) (7,199) 18,896
================= ================= =================
8
SPIGADORO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Dollars; in millions of Lire)
NOTE 4 - INVENTORIES:
Inventories consisted of:
March 31, March 31, December 31,
2001 2001 2000
----------------- --------------------------------------
(thousands
of Dollars) (millions of Lire)
Raw materials and consumables $ 7,833 17,254 19,850
Work-in-process 74 163 195
Finished goods 5,908 13,017 11,767
----------------- ----------------- -----------------
$ 13,815 30,434 31,812
================= ================= =================
NOTE 5 - INFORMATION BY SEGMENT:
The Company manages its business on a segment basis. The significant
segments operated by the Company consist of: (i) pasta and other food
products, (ii) animal feed and other activities. Information related
to the significant segments is reported below for the three months
period ended March 31, 2001 and 2000. The Company evaluates its
segments performances based on the EBITDA and the income from
operations. The accounting policies of the segment are substantially
the same as those described in Note 1.
Pasta and Animal Feed
Other Food and Other Total
Products Activities Company
----------------- ------------------ -----------------
Three months ended March 31, 2001:
(thousands of Dollars)
Total revenue $ 16,462 $ 22,854 $ 39,316
Depreciation and amortization 1,228 715 1,943
EBITDA (233) 270 37
Income (loss) from operations (1,460) (446) (1,906)
Identifiable long-term assets (property,
plant and equipment and intangibles) 48,207 21,872 70,079
Capital expenditures 437 438 876
9
SPIGADORO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Dollars; in millions of Lire)
NOTE 5 - INFORMATION BY SEGMENT (CONTINUED):
Pasta and Animal Feed
Other Food and Other Total
Products Activities Company
----------------- ------------------ -----------------
Three months ended March 31, 2001:
(millions of Lire)
Total revenue 36,265 50,348 86,613
Depreciation and amortization 2,703 1,577 4,280
EBITDA (513) 595 82
Income (loss) from operations (3,216) (982) (4,198)
Identifiable long-term assets (property,
plant and equipment and intangibles) 106,201 48,184 154,385
Capital expenditures 963 966 1,929
Three months ended March 31, 2000:
(millions of Lire)
Total revenue 17,293 46,113 63,406
Depreciation and amortization 420 1,502 1,922
EBITDA 822 1,216 2,038
Income (loss) from operations 402 (286) 116
Identifiable long-term assets (property,
plant and equipment and intangibles) 12,270 44,531 56,801
Capital expenditures 410 488 898
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Unless the context otherwise requires, "we" or "us" refers to
Spigadoro, Inc., the Delaware corporation, and its wholly owned subsidiaries,
"Petrini " refers to Petrini S.p.A., an Italian corporation and wholly-owned
subsidiary of Spigadoro and "Gazzola" refers to Pastificio Gazzola S.p.A., an
Italian corporation and wholly-owned subsidiary of Petrini. This Form 10-Q
contains forward-looking statements within the meaning of the "safe harbor"
provision under Section 21E of the Securities Exchange Act of 1934 and the
Private Securities Litigation Reform Act of 1995. We use forward-looking
statements in our description of our plans and objectives for future operations
and assumptions underlying these plans and objectives. Forward-looking
terminology includes the words "may", "expects", "believes", "anticipates",
"intends", "projects", or similar terms, variations of such terms or the
negative of such terms. These forward-looking statements are based on
management's current expectations and are subject to known and unknown factors
and uncertainties which could cause actual results to differ materially from
those described in or implied by such forward-looking statements. Readers are
advised not to place undue reliance on these forward-looking statements which
speak only as of the date they were made. We expressly disclaim any obligation
or undertaking to release publicly any updates or revisions to any
forward-looking statements contained in this Form 10-Q to reflect any change in
our expectations or any changes in events, conditions or circumstances on which
any forward-looking statement is based. Factors which could cause such results
to differ materially from those described in the forward-looking statements
include, but are not limited to, those set forth under "Risk Factors" and
elsewhere in, or incorporated by reference from time to time into our filings
with the Securities and Exchange Commission. These factors include the
following: we have changed our principal business and we may not be successful
operating a new business; Vertical Financial Holdings and affiliated entities
control Spigadoro; our operating results will be adversely affected by charges
from acquisitions; our strategy of acquiring other companies for growth may not
succeed and may adversely affect our financial condition, results of operations
and cash flows; intense competition in the pasta and animal feed industries may
adversely affect operating results; our business may be adversely affected by
risks associated with foreign operations; and other risks. In addition, our
acquisition negotiations are in various stages and we have no agreement or
arrangements relating to any acquisitions. We are unable to predict whether or
when any of these negotiations will result in any definitive agreements.
OVERVIEW
In December 1999, we acquired all of the outstanding shares of common
stock of Petrini from Gruppo Spigadoro, N.V. As a result of the transaction, we
changed our name from IAT Multimedia, Inc. to Spigadoro, Inc and changed the
focus of our business from the sale of computers and computer components and
peripherals to the production and sale of food products. Our animal feed
business produces feed for industrial breeders, family owned breeding farms and
domestic pets. Our pasta and flour business produces both branded and private
label traditional, specialty and diet pastas and flours for the use of bakery
industry.
11
In May 2000, through our wholly-owned subsidiary, Petrini S.p.A., we
acquired all of the issued and outstanding shares of Pastificio Gazzola S.p.A.
The aggregate purchase price was approximately Lire 27.4 billion ($12.4
million) in cash. We agreed to make additional payments of up to Lire 10 billion
(approximately $4.5 million) to the sellers on May 2, 2002, subject to certain
conditions.
However, Petrini has contested the right of the former owners to
receive the contingent payments aggregating Lire 10 billion ($4.5 million)
referenced above. We have recently reached a verbal agreement to settle this
dispute, together with amounts due to the former general manager under Italian
law as a result of the termination of his employment, for an amount not to
exceed $250,000. Although we anticipate that a written agreement incorporating
these terms will soon be finalized, there can be no assurance that such
agreement will be executed. However, assuming such agreement is executed, our
obligation to make the additional payments to the former owners of Gazzola of up
to Lire 10 billion ($4.5 million) will be extinguished.
Since substantially all of our operations are currently in Italy, our
functional currency is the Italian Lire. Therefore, our financial statements are
presented in Lire for financial statement reporting. All amounts stated in US
Dollars have been translated into US Dollars for the convenience of the reader
at the rate of Lire 2,203 = US $1.00, which approximates the Noon Buying rate of
the Federal Reserve Bank of New York on March 31, 2001. In the following
discussions, most percentages and Lire and US Dollar amounts have been rounded
to aid presentation. As a result, all such figures are approximations.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 2001 COMPARED TO THREE MONTH PERIOD ENDED
MARCH 31, 2000.
We acquired Gazzola on May 3, 2000 and therefore our results of
operations for the first quarter 2001 include the Gazzola operations, while our
results of operations for the first quarter 2000 include only the operations of
Petrini. As a result, all revenue and expense accounts in the following
discussion for the first quarter 2001 were increased by Gazzola's revenues and
expenses incurred during the first quarter 2001.
NET SALES. Net sales for the first quarter 2001 increased by 36.6% to
Lire 86.6 billion ($39.3 million) from Lire 63.4 billion ($28.8 million) for the
first quarter 2000 primarily due to the Gazzola sales for the first quarter
2001, which were not included in the prior year period, and an increase in sales
in our animal feed division. Net sales for animal feed for the first quarter
2001 increased by 9.2% to Lire 50.3 billion ($22.8 million) compared to Lire
46.1 billion ($20.9 million) for the first quarter 2000. This increase was
primarily due to sales price increases we started implementing last year, the
effects of which we began to realize in the first quarter of the current year,
as well as a 2% increase in animal feed volumes sold to 98,733 tons. Net sales
for pasta and flour for the first quarter 2001 increased by 109.7% to Lire 36.3
billion ($16.5 million) from Lire 17.3 billion ($7.8 million) for the first
quarter 2000 as a result of an increase of 101.4% in sales volumes to 36,261
tons in the first quarter 2001 from 18,000 tons in the first quarter 2000. This
increase was due to the inclusion of Gazzola's sales in the first quarter 2001.
12
GROSS PROFIT. Gross profit for the first quarter 2001 increased by 8.2%
to Lire 17.8 billion ($8.1 million), or 20.6% of net sales, from Lire 16.5
billion ($7.5 million), or 26.0% of net sales, for the first quarter 2000. This
increase was primarily due to the inclusion of Gazzola's sales in the first
quarter 2001. The decrease in gross margin was almost entirely due to the
inclusion of Gazzola, where gross margins during the first quarter 2001 were
8.8%. Consequently, while the inclusion of Gazzola's sales in the first quarter
2001 resulted in an increase of gross profit in absolute terms, it also resulted
in a reduction in gross margin of approximately 5%. Although strong competitive
pressures in the private label sector have so far prevented Gazzola from
re-establishing its margins at the levels recorded in 1999 (approximately
16.9%), our ongoing restructuring efforts have resulted in a significant
improvement from the 3.1% average gross margin of Gazzola during fiscal 2000.
There can be no assurance when, if ever, Gazzola will be able to re-establish
its 1999 margins. The gross margin of the food division, excluding Gazzola,
decreased to 25% in the first quarter 2001 compared to 27% in the prior year
quarter, primarily due to a 40% increase in energy costs and an 8% increase in
raw material costs that was partially offset by price increases.
OPERATING EXPENSES. Operating expenses relating to the Petrini and
Gazzola operations (stand-alone) in the first quarter 2001 increased by 32.6% to
Lire 20.7 billion ($9.4 million) from Lire 15.6 billion ($7.1 million) in the
first quarter 2000. The increase in absolute operating expenses was primarily
due to Gazzola operating expenses for the first quarter 2001 which were not
included in the prior year period. As a percentage of net sales, operating
expenses decreased to 23.9% in the first quarter 2001 from 24.6% in the prior
year period. Consolidated operating expenses, including Spigadoro corporate
overhead, increased in the first quarter 2001 by 34.6% to Lire 22 billion ($10
million), or 25.5% of net sales, from Lire 16.4 billion ($7.4 million), or 25.8%
of net sales, during the first quarter of 2000 primarily due to the inclusion of
Gazzola.
INCOME (LOSS) FROM OPERATIONS. Loss from operations at Petrini and
Gazzola (stand-alone) amounted to Lire 2.4 billion ($1.1 million) during the
first quarter 2001 as compared to income from operations of Lire 1.4 billion
($600,000) during the comparable 2000 period. This decrease was primarily due to
the lower gross margins during the 2001 period. Consolidated loss from
operations for the first quarter 2001 amounted to Lire 4.2 billion ($1.9
million) compared to income from operations of Lire 0.1 billion ($100,000) for
the first quarter 2000, due to the reasons discussed above and the additional
effect of Spigadoro corporate overhead.
INTEREST EXPENSE. Interest expense for the first quarter 2001 increased
to Lire 3 billion ($1.4 million) from Lire 1.2 billion ($600,000) for the first
quarter 2000. This was the result of an increased level of debt, including
additional debt incurred in connection with our acquisition of Gazzola. The
increase in interest expense was partially offset by interest income of Lire 0.1
billion ($80,000) from cash investments.
OTHER INCOME. Other income for the first quarter 2001 decreased to Lire
0.5 billion ($200,000) from other income of Lire 28.1 billion ($12.8) for the
first quarter 2000. This decrease is primarily due to the fact that the first
quarter 2000 includes the proceeds from the sale of all of our Algo Vision
shares, which resulted in a one-time net gain of Lire 28.3 billion ($12.8
million).
13
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES. Loss before
taxes for the first quarter 2001 amounted to Lire 6.6 billion ($3 million)
compared to income before taxes of Lire 27.2 billion ($12.3 million) for the
first quarter 2000. Loss before taxes for the first quarter 2001 is primarily
due to an increase in operating and interest expenses due to the Gazzola
acquisition, partially offset by an increase in absolute gross profit, as
described above, as well as the inclusion of the Algo Vision sale proceeds in
the 2000 period.
NET INCOME (LOSS). Net loss for the first quarter 2001 amounted to Lire
6.9 billion ($3.1 million) compared to net income of Lire 20.5 billion ($9.3
million) for the first quarter 2000. Net loss for the first quarter 2001 was
primarily the result of the loss from operations due to the factors set forth
above, partially offset by a reduction in income taxes. Income tax for the first
quarter 2001 amounted to Lire 0.3 billion ($100,000) compared to income taxes of
Lire 6.6 billion ($3 million) for the first quarter 2000. For the first quarter
2001 we recorded taxes on income even though we recorded a net loss. These taxes
are mainly related to the Italian regional income tax (IRAP), which does not
permit a deduction for salaries and interest costs.
EBITDA. EBITDA relating to the Petrini and Gazzola operations
(stand-alone) in the first quarter 2001 decreased by 51.0% to Lire 1.3 billion
($600,000) from Lire 2.7 billion ($1.2 million) in the first quarter 2000. This
decrease was primarily due to an increase in operating expenses related to our
Gazzola acquisition partially offset by an increase in gross profit.
Consolidated EBITDA for the first quarter 2001 decreased to Lire 0.1 billion
($40,000) from Lire 2 billion ($900,000) for the first quarter 2000 due the
reasons discussed above. EBITDA should not be considered an alternative to
income from operations, net income, cash flow or any other measure of
performance as determined in accordance with generally accepted accounting
principles, as an indicator of operating performance or as a measure of
liquidity.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2001, our cash and cash equivalents decreased to Lire
17.2 billion ($7.8 million) from to Lire 26.5 billion ($12.1 million) at
December 31, 2000.
Net cash used in operating activities was Lire 34.9 billion ($15.9
million) during the first quarter of 2001 compared to Lire 5.4 billion ($2.5
million) during the comparable 2000 period. Cash used in operating activities
was primarily the result of an increase in accounts receivable, net of allowance
for doubtful accounts, in the amount of Lire 28.8 billion ($13.1 million) due to
a reduced usage of factoring credit lines during the period. This reduced usage
is due to the fact that one of the banks that we maintain a factoring facility
with is currently being acquired and the line is being transferred to the new
owner, and we are currently negotiating new terms for another factoring line
maintained with a different bank. There can be no assurance that such new
factoring facility, if consummated, will not be on terms less favorable to us.
Net cash used in investing activities amounted to Lire 1.2 billion
($500,000) for the first quarter of 2001 compared to net cash provided by
investing activities of Lire 32.1 billion ($14.5 million) for the prior year
period. Cash was used in investing activities primarily for purchases of
equipment and improvements. Cash provided by investing activities for the first
quarter of 2000 was primarily the result of a one-time gain from the sale of all
of our Algo Vision shares.
14
Net cash provided by financing activities in the first quarter 2001 was
Lire 27.4 billion ($12.4 million) compared to net cash provided by financing
activities of Lire 2.8 billion ($1.3 million) in the first quarter of 2000. Cash
provided by financing activities was primarily the result of a net increase in
short term debt of Lire 28.5 billion ($12.9 million), which was due to increased
working capital needs (primarily related to an increase in accounts receivable
due to the reduced factoring), partially offset by the repayment of long term
debt in the amount of 1.1 billion ($500,000).
At March 31, 2001, our total indebtedness increased to Lire 180.3
billion ($81.8 million) compared to Lire 152.9 billion ($69.4 million) at
December 31, 2000 primarily due to additional short-term debt incurred to
finance the increase in accounts receivable caused by reduced factoring
activities.
At March 31, 2001 we had short-term debt in the aggregate amount of
Lire 136.7 billion ($62 million) comprised of borrowings under short-term credit
facilities, indebtedness assumed in the acquisition of Petrini, and Lire 30.0
billion ($13.6 million) of a syndicated credit facility drawn down in connection
with the Gazzola acquisition which matures in October 2001. We maintain
unsecured short-term credit facilities with over 20 Italian banks. These
facilities are typically available for terms up to one year and accrue interest
at rates that fluctuate relative to the official Italian rate of discount. At
March 31, 2001, the aggregate amount outstanding under these short-term credit
facilities was Lire 126.4 billion ($57.4 million), and Lire 44.4 billion ($20.1
million) was unused and available for borrowing. Borrowings under these
facilities are used to support our Italian operations and are typically serviced
by cash flow from operations. At March 31, 2001, all of the promissory notes
issued in the acquisition of Petrini had been repaid except for a portion of a
$6.3 million promissory note payable to Gruppo Spigadoro N.V., the principal
stockholder of the Company. At March 31, 2001, Lire 11.4 billion ($5.2 million)
remained outstanding under such note (including accrued interest). The Gruppo
Spigadoro note was originally scheduled to mature on December 31, 2000, but the
remaining amount outstanding under such note was converted into a demand
promissory note.
As noted above, the Lire 60 billion ($13.3 million) working capital
facility secured in April 2000 will mature in October 2001. As of March 31,
2001, we have drawn down Lire 30.0 billion ($13.6 million) of this facility, and
Lire 30.0 billion ($13.6 million) remains available. We will be required to
refinance such facility prior to its maturity. While we anticipate that we will
be able to refinance this facility on terms acceptable to us, we currently have
no agreements or arrangements to do so, and our inability to secure such
financing would have a material adverse effect on our operations and financial
condition.
At March 31, 2001, we had long-term debt (including current portion) in
the aggregate amount of Lire 43.6 billion ($19.8 million). The debt matures over
varying terms through 2011 and accrues interest either at fixed annual interest
rates ranging from 1.9% to 11.35% or variable rates based upon various interest
rate measures. Substantially all of the long-term debt is secured by liens on
our assets. A portion of the long-term debt is subsidized by government
agencies.
15
We have entered into certain factoring arrangements whereby we sell a
portion of our accounts receivable without recourse. A portion of the proceeds
of these arrangements has been used to pay short-term and long-term indebtedness
while the remaining proceeds have been used for working capital purposes. We
intend to continue our factoring activity in the future and believe that it will
result in increased cash and decreased short-term debt, while increasing our
flexibility to incur additional indebtedness if necessary or advisable to
execute our consolidation strategy.
We believe that our funds, including cash generated from operations
together with amounts available under our credit facilities and factoring
arrangements, should be sufficient to finance our working capital requirements
and our capital and debt service requirements for at least the next 12 months,
depending on acquisitions. We may require additional funds for acquisitions and
integration and management of acquired businesses, and we anticipate undertaking
an appropriate refinancing of the Lire 30.0 billion syndicated debt facility on
or before the maturity of this facility in October 2001. In addition, we believe
that our current allocation between long-term debt and short-term debt is not
optimized, and we intend to refinance a portion of our indebtedness in an effort
to allocate a greater portion of out total debt to long-term debt. We have no
present commitments or arrangements to obtain any additional funds and we cannot
predict whether additional funds will be available on terms favorable to us or
at all. If we cannot obtain funds when required, our business may be adversely
affected. Our acquisition negotiations are in various stages and we have no
agreements or arrangements relating to any acquisitions. We are unable to
predict whether or when any of these negotiations will result in any definitive
agreements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In January 2001, we became obligated to issue 20,000 shares of our
common stock to Riccardo di Lorenzo, our Chief Financial Officer, for services
rendered pursuant to his Employment Agreement. The certificate representing such
shares has not yet been issued.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
16
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K.
None.
17
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPIGADORO, INC.
By: /s/ Riccardo Carelli
--------------------
Riccardo Carelli
Chief Executive Officer
By: /s/ Riccardo di Lorenzo
-----------------------
Riccardo di Lorenzo
Chief Financial Officer
Date: May 15, 2001
18