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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 333-14217
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CORE-MARK INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 91-1295550
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
395 OYSTER POINT BOULEVARD, SUITE 415
SOUTH SAN FRANCISCO, CA 94080
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 589-9445
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X Yes No
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At April 30, 1997, Registrant had outstanding 5,500,000 shares of Common
Stock.
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CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
FORWARD-LOOKING STATEMENTS OR INFORMATION
Certain statements contained in this quarterly report on Form 10-Q under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and elsewhere herein and in the documents
incorporated herein by reference are not statements of historical fact but
are future-looking or forward-looking statements that may constitute
"forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. Certain, but not necessarily
all, of such forward-looking statements can be identified by the use of such
forward-looking terminology as the words "believes," "expects," "may,"
"will," "should," or "anticipates" (or the negative of such terms) or other
variations thereon or comparable terminology, or because they involve
discussions of Core-Mark International, Inc.'s (the "Company's") strategy.
Such forward-looking statements are based upon a number of assumptions
concerning future conditions that may ultimately prove to be inaccurate. The
ability of the Company to achieve the results anticipated in such statements
is subject to various risks and uncertainties and other factors which may
cause the actual results, level of activity, performance or achievements of
the Company or the industry in which it operates to be materially different
from any future results, level of activity, performance or achievements
expressed or implied by such forward-looking statements. Such factors
include, among others, the general state of the economy and business
conditions in the United States and Canada; adverse changes in consumer
spending; the ability of the Company to implement its business strategy,
including the ability to integrate recently acquired businesses into the
Company; the ability of the Company to obtain financing; competition; the
level of retail sales of cigarettes and other tobacco products; possible
effects of legal proceedings against manufacturers and sellers of tobacco
products and the effect of government regulations affecting such products.
As a result of the foregoing and other factors affecting the Company's
business beyond the Company's control, no assurance can be given as to future
results, levels of activity, performance or achievements and neither the
Company nor any other person assumes responsibility for the accuracy and
completeness of these statements.
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of December 31, 1996
and March 31, 1997................................................. 4
Condensed Consolidated Statements of Income for the three months
ended March 31, 1996 and 1997...................................... 5
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1996 and 1997............................... 6
Notes to Condensed Consolidated Financial Statements................... 7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................... 9
PART II - OTHER INFORMATION
Item 1: Legal Proceedings............................................. 12
Item 2: Changes in Securities......................................... 12
Item 3: Defaults upon Senior Securities............................... 12
Item 4: Submission of Matters to a Vote of Security Holders........... 12
Item 5: Other information............................................. 12
2
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PAGE
Item 6: Exhibits and Reports on Form 8-K.............................. 13
Signature .................................................................. 14
3
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ORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
DECEMBER 31, MARCH 31,
1996 1997
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ASSETS (UNAUDITED)
Current assets:
Cash ........................................ $ 25,769 $ 13,380
Receivables:
Trade accounts, less allowance for
doubtful accounts of $3,881 and
$4,021, respectively 88,715 86,930
Other ................................... 12,229 9,989
Inventories, net of LIFO allowance of $12,452
and $12,848, respectively ............ 99,342 100,839
Prepaid expenses and other .................. 6,214 6,626
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Total current assets .................... 232,269 217,764
Property and equipment ......................... 46,534 49,468
Less accumulated depreciation ............... (24,006) (25,155)
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Net property and equipment .................. 22,528 24,313
Other assets ................................... 9,792 9,522
Goodwill, net of accumulated amortization of
$15,220 and $15,726, respectively ......... 64,447 68,066
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$329,036 $319,665
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ...................... $ 51,572 $ 55,529
Cigarette and tobacco taxes payable ......... 43,912 37,880
Income taxes payable ........................ 454 499
Deferred income taxes ....................... 7,397 7,397
Other accrued liabilities ................... 30,653 30,298
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Total current liabilities ............... 133,988 131,603
Long-term debt ................................. 193,463 186,473
Other accrued liabilities and deferred income
taxes ..................................... 8,585 8,575
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Total liabilities .......................... 336,036 326,651
Commitments and contingencies:
Shareholders' equity:
Common stock; $.01 par value; 10,000,000
shares authorized; 5,500,000 shares
issued and outstanding ............... 55 55
Additional paid-in capital .................. 26,121 26,121
Accumulated deficit ......................... (28,576) (28,514)
Cumulative currency translation adjustments.. (1,608) (1,656)
Additional minimum pension liability ........ (2,992) (2,992)
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Total shareholders' equity (deficit) .... (7,000) (6,986)
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$329,036 $319,665
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See Notes to Condensed Consolidated Financial Statements.
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CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
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1996 1997
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Net sales ............................. $512,888 $527,866
Cost of goods sold .................... 475,996 487,756
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Gross profit ..................... 36,892 40,110
Operating and administrative expenses.. 31,530 35,223
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Operating income ................. 5,362 4,887
Interest expense, net ................. 1,554 4,391
Debt refinancing costs ................ 320 392
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Income before income taxes ....... 3,488 104
Income tax expense .................... 1,533 42
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Net income ....................... $ 1,955 $ 62
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See Notes to Condensed Consolidated Financial Statements.
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CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
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1996 1997
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CASH PROVIDED BY OPERATING ACTIVITIES:
Net income .................................... $ 1,955 $ 62
Adjustments to reconcile net income to
net cash provided by operating
activities:
LIFO expense .............................. 345 396
Amortization of goodwill .................. 494 506
Depreciation and amortization ............. 1,128 1,358
Amortization of debt refinancing fees ..... 320 392
Deferred income taxes ..................... (313) 4
Other adjustments for non-cash and non-
operating activities ................... 208 236
Changes in operating assets and
liabilities, net of acquisitions........ 28,604 13,132
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Net cash provided by operating activities ..... 32,741 16,086
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INVESTING ACTIVITIES:
Net assets of acquired businesses ......... -- (19,680)
Additions to property and equipment ....... (1,393) (1,736)
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Net cash used in investing activities ......... (1,393) (21,416)
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FINANCING ACTIVITIES:
Net payments under revolving credit
agreement .............................. (32,639) (6,990)
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Net cash used in financing activities ......... (32,639) (6,990)
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Effects of changes in foreign exchange rates .. 60 (69)
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Decrease in cash .............................. (1,231) (12,389)
Cash, beginning of period ..................... 24,447 25,769
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CASH, END OF PERIOD ........................... $ 23,216 $ 13,380
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SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments during the period for:
Interest .................................. $ 1,651 $ 6,694
Income taxes .............................. 831 2
See Notes to Condensed Consolidated Financial Statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of March 31, 1997, the
condensed consolidated statements of income for the three-month periods ended
March 31, 1996 and 1997, and the condensed consolidated statements of cash
flows for the three-month periods ended March 31, 1996 and 1997, have been
prepared by Core-Mark International, Inc. (the "Company"). In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company at
March 31, 1997 (subject to year-end adjustments) with respect to the interim
financial statements, and of the results of its operations and cash flows for
the interim periods then ended, have been included. The results of operations
for the interim periods are not necessarily indicative of the operating
results for the full year.
The condensed consolidated balance sheet as of December 31, 1996, is
derived from the audited financial statements but does not include all
disclosures required by generally accepted accounting principles. The notes
accompanying the consolidated financial statements of the Company included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996
("1996 Form 10-K") include a description of the Company's significant
accounting policies and additional information pertinent to an understanding
of both the December 31, 1996 balance sheet and the interim financial
statements included herein.
2. INVENTORIES
The condensed consolidated financial statements have been prepared using
the LIFO method of accounting for inventories. The use of the LIFO method
resulted in an increase in cost of goods sold and a corresponding decrease in
inventories of $345,000 and $396,000 for the three months ended March 31,
1996 and 1997, respectively. Interim LIFO calculations are based on
management's estimates of year-end inventory levels and inflation rates for
the year.
3. EXCISE TAXES
State and provincial excise taxes paid by the Company on cigarettes were
$115.7 million and $113.9 million for the three months ended March 31, 1996
and 1997, respectively. These amounts are included in net sales and cost of
goods sold for the periods indicated.
4. ACQUISITION OF THE SOSNICK COMPANIES
On February 3, 1997, the Company consummated a transaction, pursuant to a
Purchase Agreement dated January 31, 1997, to acquire certain assets and the
business of two related companies, Melvin Sosnick Company and Capital Cigar
Company (collectively "Sosnick" or the "Sosnick Companies"), a wholesale
distributor to the convenience retail market in northern California and
northern Nevada. Sosnick operates in the same geographic marketplace as the
Company and provides similar products and services. The Company is
integrating the acquired business into its existing operations and facilities
and has hired a majority of Sosnick's former employees (salespeople,
warehouse employees and drivers) to support the additional sales volume.
The assets acquired included trade accounts receivable, inventories and
warehouse equipment that the Company intends to continue to use in its
business. The acquisition excluded the assumption of substantially all of the
liabilities of Sosnick (such as notes payable, trade accounts payable,
commitments to lease warehouse facilities and other liabilities). The
acquisition has been accounted for using the purchase method of accounting.
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4. ACQUISITION OF THE SOSNICK COMPANIES (CON'T.)
The purchase price for the assets and the business totaled $21.9 million
has been allocated as follows (in thousands):
Accounts receivable, net $ 8,808
Inventory, net 8,557
Property and equipment 1,265
Goodwill 4,125
Other assets 225
Liabilities assumed (247)
Other liabilities incurred in connection
with the acquisition (844)
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Total purchase price $21,889
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The excess of the purchase price over the fair value of assets acquired
and liabilities assumed was $4.1 million and has been recorded as goodwill,
which will be amortized on a straight-line basis over a period of 40 years.
The acquisition was primarily financed by borrowings under the Company's
existing revolving credit facility. The total amount of incremental
borrowings required to acquire Sosnick at closing was $18.4 million. The
remaining purchase price was due and payable in installments during the first
ninety days subsequent to closing in varying amounts specified in the
purchase agreement, of which $1.3 million was paid in the first quarter of
1997.
The Company may be obligated to make certain additional payments to
Sosnick's shareholders, based on net sales associated with former customers
of Sosnick. The amount of such payments, when determinable, will be
allocated to goodwill.
The Company's net sales for the three months ended March 31, 1996 and 1997
would have been $571,146 and $542,466 if the acquisition had occurred at the
beginning of 1996 and 1997, respectively. The impact of the acquisition on net
income would not have been material for the three-month periods ended March 31,
1996 and 1997.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with Management's
Discussion and Analysis included in the Company's 1996 Form 10-K.
GENERAL
The Company is a broad-line, full-service wholesale distributor of
packaged consumer products to the convenience retail industry in North
America. The products distributed by the Company include cigarettes, food
products such as candy, fast food, snacks, groceries, and non-alcoholic
beverages, and non-food products such as film, batteries, and other sundries,
health and beauty care products and tobacco products other than cigarettes.
RESULTS OF OPERATIONS
The following table sets forth certain operating results as a percentage
of net sales for the periods indicated:
THREE MONTHS
ENDED MARCH 31,
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1996 1997
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Net sales 100.0% 100.0%
Cost of goods sold 92.8 92.4
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Gross profit 7.2 7.6
Operating & administrative expenses 6.2 6.7
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Operating income 1.0% 0.9%
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THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
NET SALES. Net sales for the three months ended March 31, 1997 were
$527.9 million, an increase of $15.0 million or 2.9% compared to the same
period in 1996. The increase in net sales was principally due to the Sosnick
acquisition (which contributed approximately $26 million in sales in the 1997
period) partially offset by a decline in net sales of cigarettes in the 1997
period compared to the 1996 period.
Net sales of cigarettes for the three months ended March 31, 1997 were
$355.8 million, a decrease of $3.9 million or 1.1% compared to the same period
in 1996. The decrease in net sales of cigarettes was principally due to a
general decline in cigarette unit volume, largely offset by the acquisition of
the Sosnick Companies (which contributed approximately $14 million in cigarette
net sales in the 1997 period). The Company's total cigarette unit sales for the
three months ended March 31, 1997 were 21.0 million cartons, a decrease of
1.2 million cartons or 5.6% compared to the same period in 1996. The Sosnick
acquisition contributed approximately 0.9 million in unit sales in the 1997
period, offsetting declines in unit volumes in the U.S. and Canada of
approximately 2.0 and 0.1 million cartons, respectively. Unit declines are
primarily the result of lower cigarette sales by the Company's customer base.
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Net sales of food and non-food products for the three months ended March
31, 1997 were $172.1 million, an increase of $18.9 million or 12.3% compared
to the same period in 1996. The increase was primarily due to the Sosnick
acquisition (which contributed approximately $12 million in net sales in the
1997 period) and the Company's focus on increasing food and non-food product
sales. The total increase primarily occurred in fast food sales, which
increased $4.7 million or 36.0%, candy sales, which increased $4.5 million or
8.1%, other tobacco sales, which increased $2.8 million or 9.8%, and retail
beverage sales, which increased $2.2 million or 21.8%.
GROSS PROFIT. Gross profit for the three months ended March 31, 1997 was
$40.1 million, an increase of $3.2 million or 8.7% compared to 1996. The
improvement was primarily due to the Sosnick acquisition and increased gross
profits from continued sales growth in the food and non-food product
categories. The gross profit margin for the three months ended March 31, 1997
increased to 7.6% of net sales as compared to 7.2% of net sales for the same
period in 1996. This increase is principally due to food and non-food sales
(which carry significantly higher margins than cigarettes) constituting 32.6%
of the Company's total net sales for the three months ended March 31, 1997
compared to 29.9% for the same period in 1996. For the three months ended
March 31, 1997, the Company recognized LIFO expense of $0.4 million compared
to $0.3 million for the same period in 1996.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative
expenses for the three months ended March 31, 1997 were $35.2 million, an
increase of $3.7 million or 11.7% compared to 1996. Such expenses for the
three months ended March 31, 1997 increased to 6.7% of net sales as compared
to 6.2% for the same period in 1996. The increase reflects approximately
$1.4 million (0.3% of net sales) of one-time duplicative facility costs as a
result of the Sosnick acquisition, higher levels of staffing during the
initial integration process and other integration costs associated with the
acquisition. The remaining increase in expenses as a percentage of sales is
primarily attributable to the decline in cigarette volumes and slightly
higher handling costs associated with the increased sales growth of the
higher margin food and non-food product categories.
OPERATING INCOME. As a result of the foregoing factors, operating income
for the three months ended March 31, 1997 was $4.9 million, a decrease of
$0.5 million or 8.9% as compared to the same period in 1996. As a percentage
of net sales, operating income for the three months ended March 31, 1997 was
0.9%, as compared to 1.0% for the same period in 1996.
NET INTEREST EXPENSE. Net interest expense for the three months ended
March 31, 1997 was $4.4 million, an increase of $2.8 million or 182.6%
compared to the same period in 1996. The net increase resulted from an
increase in average debt levels primarily due to the recapitalization and
senior subordinated note offering which occurred in the third quarter of
1996, as well as additional debt incurred to finance the Sosnick acquisition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise primarily from the funding of its
working capital needs, capital expenditure programs, and debt service
requirements with respect to its revolving credit facility and senior
subordinated notes. The Company has no mandatory payments of principal on its
senior subordinated notes prior to their final maturity on September 15,
2003, and has no mandatory payments of principal scheduled under its
revolving credit facility, which matures June 30, 2001. The Company has
historically financed its operations through internally generated funds and
borrowings under its credit facilities.
The Company's debt obligations totaled $186.5 million at March 31, 1997,
a decrease of $7.0 million from $193.5 million at December 31, 1996. The net
decrease in outstanding debt is primarily due to reductions in working
capital funding requirements, offset by borrowings to finance the Sosnick
acquisition. Debt requirements are generally the highest at December 31, when
the Company historically carries higher inventory.
The Company's principal sources of liquidity are net cash provided by
operating activities and its revolving credit facility. At year end the
Company typically carries higher inventories which are then liquidated in
future periods. Therefore, net cash provided by operating activities is
typically lower at the end of any fiscal year compared to interim periods.
However, at March 31, 1997, the Company's inventory levels were significantly
higher than at March 31, 1996 due to higher cigarette inventory resulting
from manufacturers' price increases that occurred in March of 1997. As a
result, net cash provided by operating activities was significantly lower for
the three months ended March 31, 1997 as compared to the same period in 1996.
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As discussed in Note 4 "Acquisition of the Sosnick Companies" to the
Condensed Consolidated Financial Statements, on February 3, 1997, the Company
acquired certain assets and the business of the Sosnick Companies. The assets
acquired included trade accounts receivable, inventories, and warehouse
equipment that the Company is using in its business. The aggregate purchase
price for the assets and business acquired was $21.9 million. The excess of
the purchase price over the fair value of the assets acquired was $4.1
million and has been reflected as goodwill.
The acquisition was primarily financed by borrowings under the Company's
existing revolving credit facility. The total amount of incremental
borrowings required to acquire Sosnick at closing was $18.4 million. The
remaining purchase price was due and payable in installments during the first
ninety days subsequent to closing in varying amounts specified in the
purchase agreement, of which $1.3 million was paid in the first quarter of
1997.
The Company may be obligated to make certain additional payments to
Sosnick's shareholders, based on net sales associated with former customers
of Sosnick. The amount of such payments, when determinable, will be
allocated to goodwill.
The Company is integrating the acquired business into its existing
operations and facilities. As a result, the Company expects to incur certain
duplicative facility and other operating costs that will impact the Company's
operating expenses during the remainder of fiscal 1997. Management expects
the integration process to be complete by the end of 1997.
The Company made capital expenditures of $1.7 million for the three
months ended March 31, 1997. For the remainder of 1997, the Company estimates
it will spend approximately $7 to $9 million for capital requirements,
principally consisting of warehouse facilities and equipment. These
expenditures are expected to be funded out of net cash provided by operating
activities and its revolving credit facility.
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PART II - OTHER INFORMATION
Item 1: Legal Proceedings
In May 1996, the Court of Appeals for the Fifth Circuit decertified a
federal class action purportedly brought on behalf of all cigarette smokers
in the United States. Following the decertification, lawyers for the class
brought state class action lawsuits in a number of states, with the objective
of filing such lawsuits in all fifty states, the District of Columbia and
Puerto Rico. Several of these state lawsuits name cigarette distributors such
as the Company as defendants.
Previous filings referred to an action brought by the County of Los
Angeles in October 1996 naming the Company, tobacco manufacturers and other
distributors of tobacco products as defendants. The claims against the
Company with respect to that action have been dismissed by the Superior Court
for the County of San Diego; however, the Court gave the plaintiff thirty
days to re-file the complaint. In addition, the same Court also dismissed the
Company from claims against it with respect to a "private attorney-general"
lawsuit filed in December 1996, which was also disclosed in previous filings.
The court gave the plaintiff thirty days to re-file the complaint.
In October of 1996, a subsidiary of the Company was named as a defendant
in a class action lawsuit filed in State Court in New Mexico. The other
defendants include the principal U.S. tobacco manufacturers as well as other
distributors. The case is brought on behalf of a putative class of smokers
who reside in New Mexico, each of whom is allegedly nicotine dependent. The
suit seeks, on behalf of the class, compensatory damages, punitive damages
and equitable relief, including medical monitoring of the class members.
In February, March and April 1997, a subsidiary of the Company was served
with three complaints filed by individual plaintiffs in the District Court of
Nueces County, Texas. The other defendants in the lawsuits include certain
U.S. tobacco manufacturers. The complaint seeks compensatory and punitive
damages for injuries allegedly caused by the use of tobacco products.
The Company does not believe that these actions will have a material
adverse effect on the Company's financial condition. The Company has been
indemnified with respect to certain claims alleged in each of the above
actions.
In addition, the Company is a party to other lawsuits incurred in the
ordinary course of its business. The Company believes it is adequately
insured with respect to such lawsuits or that such lawsuits will not result
in losses material to its consolidated financial position or results of
operations.
Item 2: Changes in Securities
Not applicable
Item 3: Defaults Upon Senior Securities
Not applicable
Item 4: Submission of Matters to a Vote of Security Holders
Not applicable
Item 5: Other Information
Not applicable
12
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Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
10.9 Purchase agreement dated January 31, 1997 between the Company and
Melvin Sosnick Company and Capital Cigar Company, incorporated herein
by reference from Exhibit (i) to Core-Mark International, Inc.'s
Current Report on Form 8-K filed February 18, 1997 (Registration No.
333-14217).
10.10 First Amendment dated as of January 31, 1997 to the Credit
Agreement dated as of August 7, 1996.
27 Financial Data Schedule
(b) Reports on Form 8-K:
During the first quarter of 1997, the Registrant filed a Current
Report on Form 8-K for the following event:
1. February 18, 1997
Item 2 - Acquisition of Assets
Reported that the Company entered into an agreement to acquire
certain assets and the business of two related companies, Melvin Sosnick
Company and Capital Cigar Company ("Sosnick"), a wholesale distributor to the
convenience retail market in northern California and northern Nevada.
Exhibits included the Purchase Agreement dated January 31, 1997. Financial
statements required by Item 7 of Form 8-K were filed with the Commission on
April 21, 1997 on Form 8-K/A.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORE-MARK INTERNATIONAL, INC.
(Registrant)
Date: May 14, 1997 By: /s/ Leo F. Korman
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Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer and
duly authorized officer)
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First Amendment dated as of January 31, 1997 to the Credit Agreement dated as of
August 7, 1996.
FIRST AMENDMENT
FIRST AMENDMENT, dated as of January 31, 1997 (this "AMENDMENT"), to the
Credit Agreement, dated as of August 7, 1996 (as amended, supplemented or
otherwise modified from time to time, the "CREDIT AGREEMENT"), among
CORE-MARK INTERNATIONAL, INC., a Delaware corporation (the "BORROWER"), the
several banks and other financial institutions from time to time parties
thereto (the "LENDERS") and The Chase Manhattan Bank, a New York banking
corporation, as administrative agent for the Lenders thereunder (in such
capacity, the "ADMINISTRATIVE AGENT").
W I T N E S S E T H:
WHEREAS, the Borrower has entered into a letter of intent, dated December
20, 1996, to purchase from the Melvin Sosnick Company, inventory, accounts
receivable and select fixed assets for the net book value of these assets
plus a premium;
WHEREAS, in connection therewith, the Borrower has requested that the
Administrative Agent and the Lenders enter into this First Amendment; and
WHEREAS, upon this Amendment becoming effective, the Majority Lenders
have agreed, that certain provisions of the Credit Agreement be amended in
the manner provided for in this Amendment.
NOW, THEREFORE, in consideration of the premises contained herein, the
parties hereto hereby agree as follows:
I. DEFINED TERMS. Terms defined in the Credit Agreement and used herein
shall have the meanings given to them in the Credit Agreement.
II. AMENDMENTS TO CREDIT AGREEMENT.
1. AMENDMENT TO SUBSECTION 1.1. Subsection 1.1 of the Credit
Agreement is hereby amended by adding the following definition in the
appropriate alphabetical order:
"SOSNICK ACQUISITION": the acquisition of substantially all of the
assets of the Melvin Sosnick Company and Capital Cigar Company and the
payment of related costs and expenses.
2. AMENDMENT TO SUBSECTION 7.1(B). Subsection 7.1(b) of the Credit
Agreement is hereby amended by deleting clause (ii) thereof in its
entirety and substituting in lieu thereof the following:
"(ii) permit Consolidated Net Worth of the Borrower at any time
during the period from March 31, 1997 to June 30, 2001 to be less than
an amount equal to $6,500,000 PLUS the aggregate of 50% of Consolidated
Net Income of the Borrower, if positive, for each quarter during the
period commencing on January 1, 1997 and ending at the close of the
fiscal quarter then last ended."
3. AMENDMENT TO SUBSECTION 7.9. Subsection 7.9 of the Credit
Agreement is hereby amended by deleting said subsection in its entirety and
substituting in lieu thereof the following:
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"7.9 LIMITATION ON CAPITAL EXPENDITURES. Make or commit to make
(by way of the acquisition of securities of a Person or otherwise) any
expenditure in respect of the purchase or other acquisition of fixed or
capital assets except for expenditures in the ordinary course of business not
exceeding, in the aggregate for the Borrower and its Subsidiaries,
$11,500,000, for the 1997 fiscal year and $9,500,000, for each fiscal year
thereafter, PROVIDED, that up to $1,500,000 of any such amount if not so
expended in the fiscal year for which it is permitted above, may be carried
over for expenditure in the next following fiscal year; PROVIDED, FURTHER,
that any expenditures constituting a portion of the acquisition price of a
business or a line of business acquired as a going concern and also
classified as an acquisition covered by subsection 7.10 shall not be taken
into account for purposes of determining compliance with the provisions of
this subsection 7.9."
4. AMENDMENT TO SUBSECTION 7.10(D). Subsection 7.10(d) is hereby
amended to add at the end thereof a sentence reading in its entirety as
follows:
"; PROVIDED, that any portion of the purchase price of the Sosnick
Acquisition shall not be taken into account for purposes of determining
compliance with the provisions of this subsection 7.10(d)."
III. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective
on the date (the "AMENDMENT EFFECTIVE DATE") on which all of the following
conditions precedent have been satisfied or waived:
1. The Borrower, the Administrative Agent and the Majority Lenders
shall have executed and delivered to the Administrative Agent this Amendment.
2. The Administrative Agent shall have received an acknowledgement
and consent (together with this Amendment, the "AMENDMENT DOCUMENTS"),
substantially in the form of Exhibit A hereto, from each of the Borrower and
its Subsidiaries party to the Security Agreement and the Subsidiaries
Guarantee or any other security agreement or guarantee acknowledging and
consenting to the execution, delivery and performance of this Amendment and
the transactions contemplated hereby and confirming the security interests
and guaranties granted and created therein, in each case, executed and
delivered by a duly authorized officer of such party.
3. The Administrative Agent shall have received a copy of the
resolutions, in form and substance satisfactory to the Administrative Agent,
of the Board of Directors of each of the Borrower and its Subsidiaries
authorizing the execution, delivery and performance of each of the Amendment
Documents to which it is a party and any borrowings, and the creation and
perfection of any security interest and liens, contemplated by such Amendment
Documents, certified by the Secretary or an Assistant Secretary of such party
thereto (each an "AMENDMENT PARTY") as of the Amendment Effective Date, which
certificate shall state that the resolutions thereby certified have not been
amended, modified, revoked or rescinded as of the date of such certificate.
4. The Administrative Agent shall have received, to the extent that
it has not theretofore received, a certificate of the Secretary or Assistant
Secretary of each Amendment Party, dated the Amendment Effective Date, as to
the incumbency and signature of each of the officers signing the Amendment
Documents to which such Amendment Party is a party, and any other instrument
or document delivered by such Amendment Party in connection herewith,
together with evidence of the incumbency of such Secretary or Assistant
Secretary.
5. The Sosnick Acquisition shall have been consummated pursuant to
a structure and terms (including without limitation those set forth in an
asset purchase agreement and any other related documentation (the "SOSNICK
ACQUISITION DOCUMENTS") executed in connection with the Sosnick Acquisition
and such Sosnick Acquisition Documents shall, unless otherwise agreed to by
the Administrative Agent, in each case be in all material respects the same
as any drafts distributed to the Administrative Agent prior to the
consummation of the Sosnick Acquisition) reasonably satisfactory to the
Administrative Agent and the Administrative Agent shall have received true
and correct copies of the Sosnick Acquisition Documents duly executed by the
parties thereto.
IV. GENERAL.
1. REPRESENTATION AND WARRANTIES. The representations and
warranties made by the Borrower and its Subsidiaries in the Credit Agreement,
the Security Documents and the Subsidiaries Guarantee or any other security
agreement or guarantee are true and correct in all material respects on and
as of the Amendment Effective Date, before and after giving effect to the
effectiveness of this Amendment, as if made on and as of the Amendment
Effective Date, except where such representations and warranties relate to an
earlier date in which
16
<PAGE>
case such representations and warranties shall be true and correct in all
material respects as of such earlier date and except to the extent and only
to the extent waived herein; PROVIDED that all references to the Credit
Agreement in such representations and warranties shall be and are deemed to
mean this Amendment as well as the Credit Agreement as amended hereby.
2. PAYMENT OF EXPENSES. The Borrower agrees to pay or reimburse the
Administrative Agent for all of its out-of-pocket costs and reasonable
expenses incurred in connection with the Amendment Documents, any other
documents prepared in connection herewith and the transactions contemplated
hereby, including, without limitation, the reasonable fees and disbursements
of Simpson Thacher & Bartlett, counsel to the Administrative Agent.
3. NO OTHER AMENDMENTS; CONFIRMATION. Except as expressly amended,
modified and supplemented hereby, the provisions of the Credit Agreement and
the Notes are and shall remain in full force and effect.
4. COUNTERPARTS. This Amendment may be executed in any number of
counterparts by the parties hereto, each of which counterparts when so
executed shall be an original, and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
CORE-MARK INTERNATIONAL, INC.
By: /s/ Leo F. Korman
Name: Leo F. Korman
Title: Senior Vice President and
Chief Financial Officer
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By: /s/ Marian N. Schulman
Name: Marian N. Schulman
Title: Attorney-in-fact
VAN KAMPEN AMERICAN CAPITAL PRIME RATE
INCOME TRUST, as a Lender
By: /s/ Jeffrey W. Maillet
Name: Jeffrey W. Maillet
Title: Senior Vice President and Director
BANK OF MONTREAL, as a Lender
By: /s/ Brenda Buttner
Name: Brenda Buttner
Title: Director
FIRST SOURCE FINANCIAL LLP, as a Lender by
First Source Financial, Inc., its
Agent/Manager
By: /s/ James W. Wilson
Name: James W. Wilson
Title: Senior Vice President
18
<PAGE>
LASALLE BUSINESS CREDIT, INC., as a Lender
By: /s/ Robert E. Alexander
Name: Robert E. Alexander
Title: Vice President
SANWA BUSINESS CREDIT CORPORATION, as a
Lender
By: /s/ Timothy K. Turner
Name: Timothy K. Turner
Title: First Vice President
UNION BANK OF CALIFORNIA, N.A., as a Lender
By: /s/ Alison Amonette
Name: Alison Amonette
Title: Vice President
CREDITANSTALT CORPORATE FINANCE, INC., as a
Lender
By: /s/ Jack Bertges
Name: Jack Bertges
Title: Senior Vice President
By: /s/ James McCann
Name: James McCann
Title: Vice President
FIRST BANK NATIONAL ASSOCIATION, as a
Lender
By: /s/ Elliot J. Jaffee
Name: Elliot J. Jaffee
Title: Vice President
MITSUI LEASING (USA) INC., as a Lender
By: /s/ Jerry Parisi
Name: Jerri Parisi
Title: Senior Vice President
US NATIONAL BANK OF OREGON, as a Lender
By: /s/ Joyce P. Dorsett
Name: Joyce P. Dorsett
Title: Corporate Banking Credit Officer
19
<PAGE>
BANQUE NATIONALE DE PARIS, as a Lender
By:
Name:
Title:
GIROCREDIT BANK, as a Lender
By: /s/ John Redding
Name: John Redding
Title: Vice President
SAKURA BANK, LIMITED, as a Lender
By: /s/ Taneo Sanuki
Name: Taneo Sanuki
Title: Joint General Manager
THE FIRST NATIONAL BANK OF BOSTON, as a
Lender
By: /s/ Abraham W.E. Weekes
Name: Abraham W.E. Weekes
Title: Vice President
20
<PAGE>
EXHIBIT A
ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned corporations (i) as a guarantor under that
certain Subsidiaries Guarantee, dated as of August 7, 1996 (the "GUARANTEE"),
made by each of such corporations in favor of the Administrative Agent and
(ii) as a grantor under that certain Security Agreement, dated as of August
7, 1996 (the "SECURITY AGREEMENT"), made by each of such corporations in
favor of the Administrative Agent, confirms and agrees that the Guarantee and
the Security Agreement are, and shall continue to be, in full force and
effect and are hereby ratified and confirmed in all respects and the
Guarantee and the Security Agreement and all of the Collateral (as defined in
the Security Agreement) do, and shall continue to, secure the payment of all
of the Obligations (as defined in the Guarantee) and the Obligations (as
defined in the Security Agreement), as the case may be, pursuant to the terms
of the Guarantee or the Security Agreement, as the case may be. Capitalized
terms not otherwise defined herein shall have the meanings assigned to them
in the Credit Agreement referred to in the Amendment to which this
Acknowledgement and Consent is attached.
CORE-MARK INTERNATIONAL, INC.
By: /s/ Leo F. Korman
Name: Leo F. Korman
Title: Senior Vice President
Chief Financial Officer
C/M PRODUCTS, INC.
By: /s/ Leo F. Korman
Name: Leo F. Korman
Title: Senior Vice President
Chief Financial Officer
CORE-MARK INTERRELATED COMPANIES, INC.
By: /s/ Leo F. Korman
Name: Leo F. Korman
Title: Senior Vice President
Chief Financial Officer
CORE-MARK MIDCONTINENT, INC.
By: /s/ Leo F. Korman
Name: Leo F. Korman
Title: Senior Vice President
Chief Financial Officer
Dated as of January 31, 1997
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1996
<CASH> 13,380
<SECURITIES> 0
<RECEIVABLES> 96,919
<ALLOWANCES> 4,021
<INVENTORY> 100,839
<CURRENT-ASSETS> 217,764
<PP&E> 49,468
<DEPRECIATION> 25,155
<TOTAL-ASSETS> 319,665
<CURRENT-LIABILITIES> 131,603
<BONDS> 186,473
0
0
<COMMON> 55
<OTHER-SE> (7,041)
<TOTAL-LIABILITY-AND-EQUITY> 318,993
<SALES> 527,866
<TOTAL-REVENUES> 527,866
<CGS> 487,756
<TOTAL-COSTS> 35,223
<OTHER-EXPENSES> 392
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,391
<INCOME-PRETAX> 104
<INCOME-TAX> 42
<INCOME-CONTINUING> 62
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
