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 June 30, 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 July 30, 2001
----- ----------------------------
Common Stock, $.01 par value 61,235,922 shares
SPIGADORO, INC. AND SUBSIDIARIES
FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED JUNE 30, 2001
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
Consolidated Balance Sheets at June 30, 2001
(unaudited) and December 31, 2000 3
Consolidated Statements of Income for Three Months
ended June 30, 2001 and 2000 (unaudited) 4
Consolidated Statements of Income for Six Months
ended June 30, 2001 and 2000 (unaudited) 5
Consolidated Statements of Cash Flows for Six Months
ended June 30, 2001and 2000 (unaudited) 6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-18
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 19 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Default upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURE PAGE 20
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPIGADORO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, June 30, December, 31
2001 2001 2000
(unaudited) (unaudited)
-------------- ----------------- ----------------
ASSETS (thousands (millions of Lire)
of Dollars)(1)
Current assets:
Cash and cash equivalents $ 4,523 10,318 26,476
Accounts receivable trade, net of allowance
for doubtful accounts of Lire 6,652 million in June
2001 and Lire 5,068 million in December 2000 33,390 76,163 53,535
Taxes receivable 7,586 17,304 17,547
Inventories 11,977 27,319 31,812
Deferred income taxes 547 1,248 1,248
Other current assets 2,735 6,238 4,106
--------------- ---------- ----------
Total current assets 60,758 138,590 134,724
Property, equipment and improvements, net 62,124 141,704 146,265
Other assets:
Intangible assets, at amortized cost 16,375 37,351 38,728
Other assets 2,067 4,716 4,691
Assets held for disposition 45 102 861
--------------- ---------- ----------
$ 141,369 322,463 325,269
=============== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 57,157 130,376 108,198
Current portion of long-term debt 3,376 7,701 7,783
Accounts payable 33,551 76,529 78,983
Accrued payroll and social contributions 2,897 6,607 7,948
Other current liabilities 2,773 6,325 7,313
--------------- ---------- ----------
Total current liabilities 99,754 227,538 210,225
Long-term debt, less current portion 14,740 33,622 36,948
Employees and agents termination indemnities 7,730 17,632 17,008
Deferred income taxes 2,056 4,692 4,866
Social contributions and income taxes payable 2,040 4,653 4,653
--------------- ---------- ----------
Total liabilities 126,320 288,137 273,700
--------------- ---------- ----------
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 534 1,219 1,219
Capital in excess of par value 26,618 60,715 60,715
Retained earnings (10,880) (24,818) (8,166)
Accumulated other comprehensive income (945) (2,157) (1,566)
Less treasury stock (102,000 shares) (278) (633) (633)
--------------- ---------- ----------
Total stockholders' equity 15,049 34,326 51,569
--------------- ---------- ----------
$ 141,369 322,463 325,269
=============== ========== ==========
(1) Exchange rate: Lire 2,281 = U.S. $1 as of June 30, 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
June 30,
2001 2001 2000
--------------- ------------------- ---------
(thousands (millions of Lire)
of Dollars)(1)
Net sales $ 39,218 89,457 80,478
Cost of sales 31,348 71,506 65,078
------------- --------- --------
Gross profit 7,870 17,951 15,400
------------- --------- --------
Operating expenses:
Selling expenses 8,026 18,308 12,630
General and administrative expenses 2,894 6,600 5,823
------------- --------- --------
10,920 24,908 18,453
------------- --------- --------
Income (loss) from operations (3,050) (6,957) (3,053)
------------- --------- --------
Other income (expense):
Interest expense (1,357) (3,096) (2,280)
Interest income 22 50 421
Other, net 16 37 1,008
------------- --------- --------
(1,319) (3,009) (851)
------------- --------- --------
Income (loss) from continuing operations
before income taxes (4,369) (9,966) (3,904)
Income taxes (88) (200) (414)
------------- --------- --------
Income (loss) from continuing operations (4,457) (10,166) (4,318)
Loss from discontinued operations (18) (42) (138)
------------- --------- --------
Net income (loss) $ (4,475) (10,208) (4,456)
============= ========= ========
Basic and diluted earnings (loss) per share
of common stock
From continuing operations (0.08) (172) (71)
============= ========= ========
From discontinued operations (0) (1) (2)
============= ========= ========
Weighted average number of
common shares outstanding
- basic and diluted 58,939 58,939 60,733
============= ========= ========
(1) Exchange rate: Lire 2,281 = U.S. $1 as of June 30, 2001, unaudited and
presented for convenience purposes only.
See Notes to Consolidated Financial Statements
4
SPIGADORO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six months ended
June 30,
2001 2001 2000
--------------- --------- ---------
(thousands (millions of Lire)
of Dollars)(1)
Net sales $ 77,190 176,070 143,884
Cost of sales 61,495 140,271 111,992
------------ -------- -------
Gross profit 15,695 35,799 31,892
------------ -------- -------
Operating expenses:
Selling expenses 14,899 33,985 24,855
General and administrative expenses 5,686 12,969 9,974
------------ -------- -------
20,585 46,954 34,829
------------ -------- -------
Income (loss) from operations (4,890) (11,155) (2,937)
------------ -------- -------
Other income (expense):
Interest expense (2,690) (6,137) (3,524)
Interest income 56 128 613
Other, net 247 566 29,117
------------ -------- -------
(2,387) (5,443) 26,206
------------ -------- -------
Income (loss) from continuing operations
before income taxes (7,277) (16,598) 23,269
Income taxes (207) (472) (6,995)
------------ -------- -------
Income (loss) from continuing operations (7,484) (17,070) 16,274
Loss from discontinued operations (23) (54) (190)
------------ -------- -------
Net income (loss) $ (7,507) (17,124) 16,084
============ ======== =======
Earnings (loss) per share of common stock
From continuing operations - Basic $ (0.13) (290) 269
============ ======== =======
- Diluted $ (0.13) (290) 248
============ ======== =======
From discontinued operations - Basic $ (0) (1) (3)
============ ======== =======
- Diluted $ (0) (1) (3)
============ ======== =======
Weighted average number of
common shares outstanding
- Basic 58,939 58,939 60,561
============ ======== =======
- Diluted 58,939 58,939 65,604
============ ======== =======
(1) Exchange rate: Lire 2,281 = U.S. $1 as of June 30, 2001, unaudited and
presented for convenience purposes only.
See Notes to Consolidated Financial Statements
5
SPIGADORO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
2001 2001 2000
---------------- ----------- ----------
(thousands (millions of Lire)
of Dollars)(1)
Cash flows from operating activities:
Net income (loss) $ (7,507) (17,124) 16,274
Less: loss from discontinued operations (23) (54) (190)
-------------- ---------- ---------
Income (loss) from continuing operations (7,484) (17,070) 16,084
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Gain on sale of securities 0 0 (28,078)
Depreciation of equipment 2,982 6,802 4,148
Amortization of goodwill 706 1,610 1,144
Provision for employees and agents
termination indemnities 535 1,220 1,174
Provision for doubtful accounts 694 1,584 320
Deferred income taxes 30 69 5,962
Other non cash items, net 0 0 264
Payment of employees and agents
termination indemnities (261) (596) (866)
Changes in operating assets and liabilities:
Accounts receivable trade (10,615) (24,212) 15,408
Inventories 1,970 4,493 2,936
Accounts payable and other current liabilities (1,076) (2,454) 8,137
Accrued payroll and social contributions (588) (1,341) (1,217)
Other, net (1,404) (3,198) (2,747)
-------------- ---------- ---------
Net cash provided by (used in) operating activities (14,508) (33,093) 22,669
-------------- ---------- ---------
Cash flows from investing activities:
Acquisition of business, net of cash acquired 0 0 (24,819)
Proceeds from sale of securities 0 0 33,411
Purchases of property, equipment and improvements (2,089) (4,765) (3,232)
Proceeds from disposal of property, equipment
and improvements 984 2,244 62
Additions to intangible assets (80) (182) (303)
Proceeds from disposal of intangible assest 153 350 0
Changes in assets held for disposition 333 759 0
-------------- ---------- ---------
Net cash provided by (used in) investing activities (699) (1,594) 5,119
-------------- ---------- ---------
Cash flows from financing activities
Proceeds from issuance of common stock 0 0 3,528
Purchase of treasury stock 0 0 (146)
Repayment of notes payable 0 0 (15,290)
Proceeds from long term debt 330 752 30,621
Payment of long-term debt (1,824) (4,160) (2,732)
Net change in short-term borrowings 9,723 22,178 (19,784)
-------------- ---------- ---------
Net cash provided by (used in) financing activities 8,229 18,770 (3,803)
-------------- ---------- ---------
Effect of exchange rate on cash (106) (241) 723
-------------- ---------- ---------
Net increase (decrease) in cash and cash equivalents (7,084) (16,158) 24,708
-------------- ---------- ---------
Cash and cash equivalents, beginning of the period 11,607 26,476 15,999
-------------- ---------- ---------
Cash and cash equivalents, end of period $ 4,523 10,318 40,707
============== ========== =========
Supplemental disclosure of cash flow information,
cash paid during the period for:
Interest $ 2,501 5,705 2,961
============== ========== =========
(1) Exchange rate: Lire 2,281 = U.S. $1 as of June 30, 2001, unaudited and
presented for convenience purposes only.
See Notes to Consolidated Financial Statements
6
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 June 30, 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, 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 2,281 to U.S. $1.00, approximating the Noon Buying rate of the
Federal Reserve Bank of New York at June 30, 2001. All monetary
amounts are in millions 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 June 30, 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 six months ended June 30, 2001.
NEW ACCOUNTING PRONOUNCEMENT- In July 2001, the Financial Accounting
Standards Board ("FASB") issued SFAS No.'s 141 and 142, "Business
Combinations" and "Goodwill and Other Intangibles". FASB 141
requires all business combinations initiated after June 30, 2001 to
be accounted for using the purchase method. Under FASB 142,
effective the first quarter of the year ending December 31, 2002,
goodwill is no longer subject to amortization over its estimated
useful life. Rather, goodwill is subject to at least an annual
assessment for impairment applying a fair-value based test.
Additionally, an acquired intangible asset should be separately
recognized if the benefit of the intangible asset is obtained
through contractual or other legal rights, or if the intangible
asset can be sold, transferred, licensed, rented, or exchanged,
regardless of the acquirer's intent to do so. The Company is in the
process of determining the impact of these pronouncements on its
financial position and results of operations.
7
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 $11,998 (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 3,985). The agreement provided for additional payments to the
sellers of up to $4,384 (Lire 10,000) subject to certain conditions.
The Company has recently reached an agreement to settle a dispute
regarding these amounts, together with amounts due to the former
general manager under Italian law as a result of the termination of
his employment, for an amount of Lire 508 ($223). With the execution
of such agreement our obligation to make the additional payments to
the former owners of Gazzola of up to Lire 10,000 ($4,384) has been
extinguished.
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 $ 11,998 27,367
Gazzola net equity, April 30, 2000 135 307
----------------- -----------------
TOTAL EXCESS COST $ 11,863 27,060
================= =================
THE EXCESS COST WAS ALLOCATED AS FOLLOWS:
Property, plant and equipment $ 4,801 10,950
Allowance for doubtful accounts (1,032) (2,354)
Inventories (136) (310)
Deferred tax liabilities (345) (788)
Goodwill 8,576 19,562
----------------- -----------------
$ 11,864 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 subsequent to the
acquisition.
8
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 six months ended June 30, 2000 gives effect to the
acquisition of Gazzola as if it occurred on January 1, 2000.
Three Months Ended
June 30, 2000
-----------------------------------
(Dollars) (Lire)
Net sales $ 73,616 167,917
================= ==============
Loss from continuing
operations $ (7,303) (16,659)
================= ==============
Net loss $(4,752) (10,840)
================= ==============
Loss per share, basic
and diluted $(0.08) (179)
================= ==============
Weighted average number
of shares (in thousands) 60,394 60,394
================= ==============
NOTE 3 - COMPREHENSIVE INCOME (LOSS):
Six Months Ended June 30,
2001 2001 2000
----------------- --------------------------------------
(thousands
of Dollars) (million of Lire)
Net income (loss) $ (7,507) (17,124) 16,084
Other comprehensive loss
net of tax:
Foreign currency translation adjustment (259) (591) (1,736)
----------------- ----------------- -----------------
Comprehensive income (loss) $ (7,766) (17,715) 14,348
================= ================= =================
Three Months Ended June 30,
2001 2001 2000
----------------- --------------------------------------
(thousands
of Dollars) (million of Lire)
Net loss $ (4,475) (10,208) (4,456)
Other comprehensive loss
net of tax:
Foreign currency translation adjustment (101) (230) (92)
----------------- ----------------- -----------------
Comprehensive income (loss) $ (4,576) (10,438) (4,548)
================= ================= =================
9
SPIGADORO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Dollars; in millions of Lire)
NOTE 4 - INVENTORIES:
Inventories consisted of:
June 30, June 30, December 31,
2001 2001 2000
----------------- --------------------------------------
(thousands
of Dollars) (millions of Lire)
Raw materials and consumables $ 6,778 15,461 19,850
Work-in-process 80 183 195
Finished goods 5,118 11,675 11,767
----------------- ----------------- -----------------
$ 11,977 27,319 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 six month
period ended June 30, 2001 and 2000. The Company evaluates its
segments performances based on EBITDA and 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
----------------- ------------------ -----------------
Six months ended June 30, 2001:
(thousands of Dollars)
Total revenue $ 31,608 $ 45,582 $ 77,190
Depreciation and amortization 2,216 1,472 3,688
EBITDA (1,327) 373 (954)
Loss from operations (3,543) (1,347) (4,890)
Identifiable long-term assets (property,
plant and equipment and intangibles) 45,909 20,434 66,343
Capital expenditures 803 942 1,745
10
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
----------------- ------------------ -----------------
Six months ended June 30, 2001:
(millions of Lire)
Total revenue 72,097 103,973 176,070
Depreciation and amortization 5,054 3,358 8,412
EBITDA (3,028) 851 (2,177)
Income from operations (8,082) (3,073) (11,155)
Identifiable long-term assets (property,
plant and equipment and intangibles) 104,719 46,609 151,328
Capital expenditures 1,832 3,115 4,947
Six months ended June 30, 2000:
(millions of Lire)
Total revenue 50,164 93,720 143,884
Depreciation and amortization 2,223 3,069 5,292
EBITDA (172) 3,566 3,394
Loss from operations (2,395) (542) (2,937)
Identifiable long-term assets (property,
plant and equipment and intangibles) 105,097 44,746 149,843
Capital expenditures 2,013 1,522 3,535
11
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 that
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
substantial debt may adversely affect our ability to obtain additional funds and
increase our vulnerability to economic or business downturns; 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; fluctuations in raw material costs could adversely affect our
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.
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 ($12.0 million) in
cash.
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.
12
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 2,281 = US $1.00, which approximates the Noon Buying rate of the Federal
Reserve Bank of New York on June 30, 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 JUNE 30, 2001 COMPARED TO THREE MONTH PERIOD ENDED JUNE
30, 2000.
We acquired Gazzola on May 3, 2000 and therefore our results of operations for
the second quarter 2001 include the Gazzola operations for the entire period,
while our results of operations for the second quarter 2000 include the
operations of Gazzola for 2 months only. As a result, all revenue and expense
accounts in the following discussion for the second quarter 2001 are
proportionately higher than the corresponding results during the second quarter
2000.
NET SALES. Net sales for the second quarter 2001 increased by 11.2% to Lire 89.5
billion ($39.2 million) from Lire 80.5 billion ($35.3 million) for the second
quarter 2000 due to the Gazzola sales for the second quarter 2001, which were
included in the prior year period for two months only, and an increase in sales
in our animal feed division. Net sales for animal feed for the second quarter
2001 increased by 12.6% to Lire 53.6 billion ($23.5 million) compared to Lire
47.6 billion ($20.9 million) for the second quarter 2000, primarily due to sales
price increases we started implementing last year and a 7.6% increase in volumes
sold to 103,290 tons. Net sales for pasta and flour for the second quarter 2001
increased by 9% to Lire 35.8 billion ($15.7 million) from Lire 32.9 billion
($14.4 million) for the second quarter 2000 as a result of an increase of 5.1%
in sales volumes to 35,806 tons in the second quarter 2001 from 34,053 tons in
the second quarter 2000. This increase was mainly due to the inclusion of
Gazzola sales for the entire second quarter 2001.
GROSS PROFIT. Gross profit for the second quarter 2001 increased by 16.6% to
Lire 18.0 billion ($7.9 million), or 20.1% of net sales, from Lire 15.4 billion
($6.8 million), or 19.1% of net sales, for the second quarter 2000. The increase
in absolute gross profit was partially due to the inclusion of Gazzola's sales
in the second quarter 2001. Although Gazzola's margins improved to 10.7% from
8.8% in the first quarter 2001, strong competitive pressures in the private
label sector have not yet allowed Gazzola to re-establish its margins at levels
achieved during the end of 1999 (16.9%). There can be no assurance when, if
ever, Gazzola will be able to re-establish such margins. Excluding the effect of
Gazzola, the gross margin of the food division was 22% during the second quarter
2001 compared to 24% in the prior year period, principally due to a significant
increase in energy costs (40% higher than second quarter 2000 resulting in
additional costs of approximately Lire 0.3 billion ($120,000)), and an increase
in raw materials cost of 2% versus second quarter 2000 that was only partially
offset by a price increase. Gross margins in the animal feed sector during the
second quarter 2001 were in line with the prior year period at 25%.
OPERATING EXPENSES. Operating expenses relating to the Petrini and Gazzola
operations (stand-alone) in the second quarter 2001 increased by 43.7% to Lire
24.9 billion ($10.9 million), from Lire 17.3 billion ($7.6 million) in the
second quarter 2000. The increase in absolute operating expenses was partially
due to Gazzola operating expenses for the second quarter 2001 which were
included in the prior year period for 2 months only. In addition, we also
recorded during the second quarter 2001, as
13
one-time expense, the severance payment made to our former Chief Operating
Officer for Lire 0.7 billion ($300,000), and we accrued Lire 0.5 billion
($200,000) for an additional payment to be carried out on December 31, 2002
subject to certain conditions. As a result of global economic conditions, we
also increased during the second quarter 2001 our bad debts accrual by an
additional Lire 1 billion ($400,000), as we expect some receivables will remain
unpaid. Distribution costs in second quarter 2001 increased by 16% versus the
comparable 2000 period as a consequence of our 2000 restructuring plan in the
animal feed business and higher transportation rates. During 2000, we closed a
production site in the south of Italy, we substantially decreased the activity
in another production site and we started serving our customers in those
geographical areas from other production sites. This produced certain savings in
purchasing of raw materials and in production costs, but generated higher
transportation costs. As a percentage of net sales, operating expenses increased
to 27.8% in the second quarter 2001 from 21.5% in the prior year period.
Consolidated operating expenses for the first quarter 2001 increased by 35% to
Lire 24.9 billion ($10.9 million), or 27.8% of net sales, from Lire 18.5 billion
($8.1 million) for the second quarter 2000, or 22.9% of net sales, primarily due
to the reasons explained above.
INCOME (LOSS) FROM OPERATIONS. Loss from operations at Petrini and Gazzola
(stand-alone) amounted to Lire 6.5 billion ($2.8 million) during the second
quarter 2001 as compared to income from operations of Lire 1.5 billion
($600,000) during the comparable 2000 period. This decrease was primarily due to
the higher operating expenses during the 2001 period as explained above.
Consolidated loss from operations for the second quarter 2001 amounted to Lire 7
billion ($3.1 million) compared to loss from operations of Lire 3.1 billion
($1.4 million) for the second quarter 2000, due to the reasons discussed above.
INTEREST EXPENSE. Interest expense for the second quarter 2001 increased to Lire
3.1 billion ($1.4 million) from Lire 2.3 billion ($1 million) for the second
quarter 2000. This was the result of increased level of debt, including
additional debt incurred in connection with our acquisition of Gazzola.
OTHER INCOME. Other income for the second quarter 2001 was negligible, while in
the second quarter 2000 we recorded other income of Lire 1 billion ($400,000).
This decrease is primarily due to the fact that the second quarter 2000 includes
exchange rates gains on the repayment of our Lire 12.05 billion ($5.3 million)
promissory note issued in connection with our acquisition of Petrini in December
1999.
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES. Loss from continuing
operations before taxes for the second quarter 2001 amounted to Lire 10 billion
($4.4 million) compared to a loss of Lire 3.9 billion ($1.7 million) for the
second quarter 2000. Loss before taxes for the second quarter 2001 is primarily
due to an increase in operating expenses and in interest expenses due to the
Gazzola acquisition and a decrease in other income as explained above, partially
offset by an increase in absolute gross profit, as described above.
NET INCOME (LOSS). Net loss for the second quarter 2001 amounted to Lire 10.2
billion ($4.5 million) compared to net loss of Lire 4.5 billion ($2 million) for
the second quarter 2000. Net loss for the second quarter 2001 was primarily the
result of the loss from operations due to the factors set forth above and an
increase in net interest expense. Income tax for the second quarter 2001
amounted to Lire 0.2 billion ($100,000) compared to income taxes of Lire 0.4
billion ($180,000) for the first quarter 2000. For the second 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.
14
EBITDA. EBITDA relating to the Petrini and Gazzola operations (stand-alone) in
the second quarter 2001 decreased to a negative Lire 3.0 billion ($1.3 million)
from a gain of Lire 1.2 billion ($600,000) in the second quarter 2000. This
decrease was primarily due to an increase in operating expenses, including
one-time expenses of approximately $1.3 million, partially offset by an increase
in gross profit. Consolidated EBITDA for the second quarter 2001 decreased to a
negative Lire 2.8 billion ($1.2 million) from a gain of Lire 1.0 billion
($420,000) for the second 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.
SIX MONTH PERIOD ENDED JUNE 30, 2001 COMPARED TO SIX MONTH PERIOD ENDED JUNE 30,
2000.
We acquired Gazzola on May 3, 2000 and therefore our results of operations for
the six months ended June 30, 2001 include the Gazzola operations for the entire
period, while our results of operations for the six months ended June 30, 2000
include the operations of Gazzola for 2 months only. As a result, all revenue
and expense accounts in the following discussion for the second quarter 2001 are
proportionately higher than the corresponding results during the second quarter
2000.
NET SALES. Net sales for the six months ended June 30, 2001 increased by 22.4%
to Lire 176.1 billion ($77.2 million) from Lire 143.9 billion ($63.1 million)
for the six months ended June 30, 2000 primarily due to the Gazzola sales for
the six months ended June 30, 2001 which were included in the prior year period
for two months only, and an increase in sales in our animal feed division. Net
sales for animal feed for the six months ended June 30, 2001 increased by 10.9%
to Lire 104 billion ($45.6 million) from Lire 93.7 billion ($41.1 million) for
the six months ended June 30, 2000, while the sales volume increased by 4.8% to
202,023 tons in the six months ended June 30, 2001 from 192,797 tons in the six
months ended June 30, 2000. Net sales for pasta and flour for the six months
ended June 30, 2001 increased by 43.7% to Lire 72.1 billion ($31.6 million) from
Lire 50.2 billion ($22.0 million) for the six months ended June 30, 2000 as a
result of an increase of 39.3% in sales volumes to 72,067 tons in the six months
ended June 30, 2001 from 51,731 tons in the six months ended June 30, 2000.
These increases were primarily due to Gazzola sales in the six months ended June
30, 2001 which were included in the prior year period for two months only. The
increase in food net sales was partially offset by a change in product mix with
an increase of sales of lower priced products and therefore a decrease in
overall average selling prices resulting from high competition in the markets in
which Gazzola operates. Sales of our Gazzola operation are primarily made to
customers within Europe in the private label sector.
GROSS PROFIT. Gross profit for the six months ended June 30, 2001 increased by
12.3% to Lire 35.8 billion ($15.7 million), or 20.3% of net sales, from Lire
31.9 billion ($14.0 million), or 22.2% of net sales, for the six months ended
June 30, 2000. The increase in absolute gross profit was partially due to the
inclusion of Gazzola sales in the six months ended June 30, 2001 while in the
previous year period only two months were included. Although Gazzola's margins
improved to 10.7% from 8.8% in the first quarter 2001, strong competitive
pressures in the private label sector have not yet allowed Gazzola to
re-establish its margins at levels achieved during the end of 1999 (16.9%).
There can be no assurance when, if ever, Gazzola will be able to re-establish
such margins. Excluding the effect of Gazzola, the gross margin of the food
division was 21% during the first half of 2001 compared to 24% in the 2000 six
month period, principally due to a significant increase in energy costs (40%
higher than second quarter 2000 resulting in additional costs of approximately
Lire 0.5 billion ($220,000)), and an increase in raw materials cost of 4% versus
the comparable 2000 period that was only partially offset by price
15
increases. Gross margins in the animal feed sector during the second quarter
2001 were in line with the prior year period at 25%.
OPERATING EXPENSES. Operating expenses relating to the Petrini and Gazzola
operations (stand-alone) in the six months ended June 30, 2001 increased by
38.4% to Lire 45.6 billion ($20.0 million), or 25.9% of net sales, from Lire
32.9 billion ($14.4 million), or 22.9% of net sales, in the six months ended
June 30, 2000. This increase was primarily due to Gazzola operating expenses for
the first four months of 2001, which were not included in the prior year period.
In addition, we also recorded during the six months ended June 30, 2001, as
one-time expense, the severance payment made to our former Chief Operating
Officer for Lire 0.7 billion ($300,000) and we accrued Lire 0.5 billion
($200,000) for an additional payment to be carried out on December 31, 2002,
subject to certain conditions. As a result of global economic conditions, we
also increased during the second quarter 2001 our bad debts accrual by an
additional Lire 1 billion ($400,000), as we expect some receivables will remain
unpaid. Distribution costs in the six months ended June 30, 2001 increased by
14% versus the comparable 2000 period as a consequence of our 2000 restructuring
plan in the animal feed business and higher transportation rates. During 2000 we
closed a production site in the south of Italy, we substantially decreased the
activity in another production site and we started serving our customers in
those geographical areas from other production sites. This produced certain
savings in purchasing of raw materials and in production costs, but generated
higher transportation costs. Consolidated operating expenses for the six months
ended June 30, 2001 increased by 34.8% to Lire 47.0 billion ($20.6 million), or
26.7% of net sales, from Lire 34.8 billion ($15.3 million) for comparable 2000
period, or 24.2% of net sales, due to the inclusion of Gazzola for the full
period and the other aspects as explained above.
INCOME (LOSS) FROM OPERATIONS. Loss from operations at Petrini and Gazzola
(stand-alone) amounted to Lire 8.8 billion ($3.9 million) during the six months
ended June 30, 2001 as compared to loss from operations of Lire 0.1 billion
($40,000) during the comparable 2000 period. This increase was attributable to
the combined effect of a higher gross profit in absolute terms, lower margins as
a percentage of net sales, and higher operating expenses as explained above.
Consolidated loss from operations for the six months ended June 30, 2001
amounted to Lire 11.1 billion ($4.9 million) compared to loss from operations of
Lire 2.9 billion ($1.3 million) for the comparable 2001 period, due to the
reasons discussed above.
INTEREST EXPENSE. Interest expense for the six months ended June 30, 2001
increased to Lire 6.1 billion ($2.7 million) from Lire 3.5 billion ($1.5
million) during the six months ended June 30, 2000. This increase was the result
of 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 ($60,000) from cash investments.
OTHER INCOME. Other income for the six months ended June 30, 2001 decreased to
Lire 0.6 billion ($250,000) from other income of Lire 29.1 billion ($12.8
million) for the comparable 2000 period. This decrease is primarily due to the
fact that the six months ended June 30, 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 ($12.4 million).
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES. Loss from continuing
operations before taxes for the six months ended June 30, 2001 amounted to Lire
16.6 billion ($7.3 million) compared to income of Lire 23.3 billion ($10.2) for
the comparable 2000 period. Loss before taxes for the first half of 2001 is
primarily due to an increase in operating and interest expenses and a decrease
in other income as explained above, partially offset by an increase in absolute
gross profit, as described above.
16
NET INCOME (LOSS). Net loss for the six months ended June 30, 2001 amounted to
Lire 17.1 billion ($7.5 million) compared to net income of Lire 16.1 billion
($7.1 million) for the comparable 2000 period. Net loss for the six months ended
June 30, 2001 was primarily the result of the loss from operations due to the
factors set forth above, an increase in net interest expense and a reduction in
income taxes. Income tax for the six months ended June 30, 2001 amounted to Lire
0.5 billion ($210,000) compared to income taxes of Lire 7.0 billion ($3.1
million) for the six months ended June 30, 2000. For the six months ended June
30, 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 six months ended June 30, 2001 decreased to negative Lire 1.7 billion
($700,000) from positive Lire 4 billion ($1.7 million) in the comparable 2000
period. This decrease was primarily due to an increase in operating expenses,
including one-time expenses of approximately $1.3 million, partially offset by
an increase in gross profit as explained above. Consolidated EBITDA for the six
months ended June 30, 2001 decreased to negative Lire 2.2 billion ($950,000)
from a gain of Lire 3.4 billion ($1.5 million) for the six months ended June 30,
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 June 30, 2001, our cash and cash equivalents decreased to Lire 10.3
billion ($4.5 million) from Lire 26.5 billion ($11.6 million) at December 31,
2000.
Net cash used in operating activities was Lire 33.1 billion ($14.5 million)
during the six months ended June 30, 2001 compared to net cash provided by
operating activities of Lire 22.3 billion ($9.9 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 24.2 billion ($10.6 million) due to a reduced usage of factoring
credit lines during the period.
Net cash used in investing activities amounted to Lire 1.6 billion ($700,000)
for the six months ended June 30, 2001 compared to net cash provided by
investing activities of Lire 5.1 billion ($2.2 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
half of 2000 was primarily the result of a one-time gain from the sale of all of
our Algo Vision shares and of the Gazzola acquisition.
Net cash provided by financing activities in the six months ended June 30, 2001
was Lire 18.8 billion ($8.2 million) compared to net cash used in financing
activities of Lire 3.8 billion ($1.7 million) in the first half of 2000. Cash
provided by financing activities was primarily the result of a net increase in
short term debt of Lire 22.2 billion ($9.7 million), which was due to increased
working capital needs (mainly receivables) partially offset by the repayment of
long term debt in the amount of 4.2 billion ($1.8 million).
At June 30, 2001, our total indebtedness increased to Lire 171.7 billion ($75.3
million) compared to Lire 152.9 billion ($67.0 million) at December 31, 2000
primarily due to additional short-term debt incurred to finance the increase in
accounts receivable.
At June 30, 2001 we had short-term debt in the aggregate amount of Lire 130.4
billion ($57.1 million) comprised of borrowings under short-term credit
facilities, indebtedness assumed in the acquisition of Petrini, and Lire 45.0
billion ($19.7 million) of a syndicated credit facility drawn down in connection
with
17
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 June 30, 2001,
the aggregate amount outstanding under these short-term credit facilities was
Lire 118.7 billion ($52.0 million), and Lire 23.3 billion ($10.2 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 June 30, 2001, all of the promissory notes issued in the
acquisition of Petrini had been repaid except for a portion of a $5.1 million
promissory note payable to Gruppo Spigadoro N.V., the principal stockholder of
the Company. At June 30, 2001, Lire 11.8 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 of June 30, 2001, of the Lire 60 billion ($26.3 million) working capital
facility secured in April 2000 that will mature in October 2001, we have drawn
down Lire 45.0 billion ($19.7 million) of this facility, and Lire 15.0 billion
($6.6 million) has been cancelled. We will be required to refinance the
outstanding portion of such facility prior to its maturity, and we are currently
engaged in discussions related to a potential medium term refinancing facility.
While we anticipate that we will be able to refinance the facility on terms
acceptable to us, we currently have no firm 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 June 30, 2001, we had long-term debt (including current portion) in the
aggregate amount of Lire 41.3 billion ($18.1 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.
We have entered into a factoring arrangement whereby we sell a portion of our
accounts receivable without recourse. A portion of the proceeds of this
arrangement 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 as a way to increase our
flexibility and 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 and our ability to refinance our outstanding syndicated debt
facility prior to its maturity. We may require additional funds for acquisitions
and integration and management of acquired businesses, and we anticipate
undertaking an appropriate refinancing of the Lire 45.0 billion ($19.7 million)
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 the proposed refinancing currently
under negotiation is consistent with our desire to allocate a greater portion of
out total debt to long-term debt. Notwithstanding such negotiations, we have no
present commitments or arrangements to obtain any additional funds and we cannot
predict whether additional funds will be available on terms acceptable 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.
18
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
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
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.
19
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: August 12, 2001
20