<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
Commission file number: 333-49289
SOUTHERN FOODS GROUP, L.P.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2571364
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3114 SOUTH HASKELL, DALLAS, TEXAS 75223
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(214) 824-8163
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
-------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report.)
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 [ ].
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHERN FOODS GROUP, L.P.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------- ---------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ......................... $ 5,410 $ 4,747
Accounts receivable, net .......................... 93,738 77,987
Inventories ....................................... 35,040 30,548
Prepaid expenses and other assets ................. 4,404 2,947
--------------- ---------------
Total current assets .................... 138,592 116,229
--------------- ---------------
Property, plant and equipment, at cost ................. 209,587 194,384
Less: accumulated depreciation and amortization .. (33,049) (20,321)
--------------- ---------------
176,538 174,063
--------------- ---------------
Goodwill, net of accumulated amortization .............. 229,558 238,323
Trademarks and licenses, net ........................... 102,185 104,154
Deferred financing costs, net .......................... 12,305 11,714
Other assets ........................................... 1,722 1,830
--------------- ---------------
Total assets ............................ $ 660,900 $ 646,313
=============== ===============
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Raw milk accrual .................................. $ 31,072 $ 25,511
Accounts payable .................................. 43,070 27,396
Accrued expenses .................................. 54,056 45,668
Current portion of long-term debt ................. 669 777
--------------- ---------------
Total current liabilities ............... 128,867 99,352
Long-term debt ......................................... 319,030 345,914
Other long-term liabilities ............................ 11,026 10,668
Commitments and contingencies .......................... -- --
Partners' equity ....................................... 201,977 190,379
--------------- ---------------
Total liabilities and partners' equity .. $ 660,900 $ 646,313
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 2
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SOUTHERN FOODS GROUP, L.P.
STATEMENTS OF INCOME
(unaudited - in thousands)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales ........................... $ 291,742 $ 176,354 $ 841,415 $ 469,139
Cost of sales ....................... 219,894 128,629 633,462 344,594
----------- ----------- ----------- -----------
71,848 47,725 207,953 124,545
----------- ----------- ----------- -----------
Selling, distribution and general
and administrative expenses .... 53,907 35,488 156,511 89,836
Amortization of goodwill and other
intangible assets .............. 3,794 3,811 11,226 8,202
----------- ----------- ----------- -----------
Income from operations .............. 14,147 8,426 40,216 26,507
Interest expense .................... 8,148 3,954 24,040 8,286
Other (income) expense, net ......... (205) 926 (1,117) 1,478
----------- ----------- ----------- -----------
Net income .......................... $ 6,204 $ 3,546 $ 17,293 $ 16,743
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SOUTHERN FOODS GROUP, L.P.
STATEMENTS OF PARTNERS' EQUITY
(unaudited - in thousands)
<TABLE>
<CAPTION>
Preferred Common
----------- -------------------------
Limited General Limited
Partner Partner Partner Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Partners' equity, December 31, 1997 ..... $ 176,199 $ 409 $ 13,771 $ 190,379
Conversion of common equity
to preferred ................... 3,303 -- (3,303) --
Contributions ...................... -- -- -- --
Distributions ...................... (2,386) -- (3,309) (5,695)
Net income ......................... 17,293 -- -- 17,293
----------- ----------- ----------- -----------
Partners' equity, September 30, 1998 .... $ 194,409 $ 409 $ 7,159 $ 201,977
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SOUTHERN FOODS GROUP, L.P.
STATEMENTS OF CASH FLOWS
(unaudited - in thousands)
<TABLE>
<CAPTION>
For the nine months ended
--------------------------------
September 30, September 30,
1998 1997
-------------- --------------
<S> <C> <C>
Net cash provided by operating activities ..... 49,773 37,343
-------------- --------------
Cash flows from investing activities:
Acquisitions, net of cash acquired ............ (6,219) (2,412)
Acquisitions of trademarks .................... -- (105,000)
Additions to property, plant and equipment .... (10,174) (4,314)
Decrease in other assets ...................... 950 --
-------------- --------------
Net cash used in investing activities ......... (15,443) (111,726)
-------------- --------------
Cash flows from financing activities:
Borrowings - long-term debt ................... -- 255,000
Repayments - long-term debt ................... (20,863) (145,660)
Repurchase of subordinated notes .............. (19,230) --
Borrowings - related party notes .............. -- 20,490
Repayments - related party notes .............. -- (54,914)
Net borrowings - revolving credit facility .... 13,100 (5,000)
Payment of debt issuance costs ................ (979) (11,662)
Partner contributions - preferred equity ...... -- 45,000
Partner distributions - preferred equity ...... (2,386) --
Partner contributions - common equity ......... -- 6,195
Partner distributions - common equity ......... (3,309) (29,759)
-------------- --------------
Net cash used in financing activities ......... (33,667) 79,690
-------------- --------------
Net increase in cash .......................... 663 5,307
Cash at beginning of period ................... 4,747 1,995
-------------- --------------
Cash at end of period ......................... $ 5,410 $ 7,302
============== ==============
Cash paid during the period for interest ...... $ 15,064 $ 5,983
Noncash investing and financing activities
Meadow Gold contribution:
Net assets contributed ................... $ 265,000
Term debt assumed ........................ (175,000)
Preferred equity interests issued ........ (90,000)
--------------
--
==============
Barbe's Dairy contribution:
Net assets contributed ................... $ 8,000
Preferred equity interests issued ........ (8,000)
--------------
$ --
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SOUTHERN FOODS GROUP, L.P.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements of Southern Foods Group, L.P. ("SFG"
or the "Partnership") included herein have been prepared by the Partnership,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). In the opinion of management, the information
furnished reflects all adjustments, consisting only of normal recurring
adjustments, which are necessary for a fair presentation of the results of the
interim periods. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the SEC's rules
and regulations. However, management believes that the disclosures contained
herein are adequate to make the information presented not misleading. The
results of operations for the periods presented are not necessarily indicative
of the results to be expected for the full year. These consolidated financial
statements should be read in conjuction with the financial statements and the
notes thereto included in the Partnership's Registration Statement on Form S-4,
as amended, filed with the SEC on June 15, 1998. No significant accounting
changes have occurred during the nine months ended September 30, 1998.
2. ACQUISITIONS
On September 4, 1997, Dairy Farmers of America, Inc. ("DFA"), a partner in
the Partnership, acquired Borden/Meadow Gold Dairies Holdings, Inc.
("Holdings"), a subsidiary comprising the fluid milk operations of Borden, Inc.
and an affiliate ("Borden") for $380 million (the "Borden Acquisition").
Holdings owned 1) the Meadow Gold dairy operations located primarily in the
Western United States and Hawaii and 2) other dairies in Texas, Louisiana and
New Mexico. This acquisition was partially funded through new senior term debt
(the "Senior Bank Facilities") obtained by DFA from a syndicate of lenders led
by The Chase Manhattan Bank. Certain of these assets and liabilities, consisting
of the operations of Meadow Gold, were then contributed to the Partnership. In
conjunction with the Meadow Gold contribution, the Partnership assumed the
Senior Bank Facilities and issued non-voting, limited partner preferred
interests ("Preferred Interests") to DFA with a stated amount and fair value of
$90 million. The fair value of the net assets contributed to the Partnership was
$265 million, including property, plant and equipment of $114 million and
goodwill of $169 million.
Concurrent with the Borden Acquisition, the Partnership acquired the
license to use certain trademarks owned by Borden (the "Borden Trademarks") for
$55 million and repaid the Partnership's existing bank debt and related party
notes of approximately $92 million. The acquisition of the Borden Trademarks and
the repayment of debt was funded through the issuance of $150 million of senior
subordinated notes (the "Notes") and an equity contribution of $45 million from
Mid-Am Capital, L.L.C., an affiliate of DFA, for Preferred Interests. The
remaining proceeds, along with proceeds from the Senior Bank Facilities, were
used to purchase the trademarks used by Meadow Gold (the "Meadow Gold
Trademarks") from an affiliate of DFA for $50 million. The results of Meadow
Gold are included in the accompanying financial statements from September 4,
1997, the date of contribution.
The following unaudited pro forma summary results of operations assume that
the Meadow Gold contribution and the related transactions occurred on January 1,
1997 (in thousands):
<TABLE>
<CAPTION>
For the nine
months ended
September 30,
1997
--------------
<S> <C>
Net sales $ 782,492
Net income $ 12,109
</TABLE>
The unaudited pro forma summary results of operations are not necessarily
indicative of results of operations that would have occurred had the
transactions taken place on January 1, 1997, or of future results of operations
of the combined businesses.
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SOUTHERN FOODS GROUP, L.P.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
3. INVENTORIES
A summary of inventories is as follows (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Finished goods ................... $ 16,899 $ 14,776
Packaging and supplies ........... 4,499 3,389
Raw materials .................... 12,515 10,563
Truck parts ...................... 1,127 1,820
--------------- ---------------
$ 35,040 $ 30,548
=============== ===============
</TABLE>
4. EQUITY TRANSACTIONS
In accordance with SFG's partnership agreement, the Partnership made tax
payment distributions to management owners totalling $3.3 million for the nine
months ended September 30, 1998. As also required by the partnership agreement,
the Partnership converted equal amounts of DFA's limited partner common equity
to Series E Preferred Interests with a cumulative return of 10%. In September,
1998, the Partnership distributed $2.4 million in payment of preferred return on
the Series D Preferred Interests. The total stated value of Preferred Interests
outstanding at September 30, 1998 was $264 million, including unpaid preferred
returns.
5. STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). This new standard is effective for fiscal
years beginning after June 15, 1999 (January 1, 2000 for the Partnership). SFAS
133 requires that all derivative financial instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. The Partnership has not yet
adopted this new standard or completed its evaluation of the impact of such
adoption.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On September 4, 1997, DFA contributed the operations, assets and
liabilities of Meadow Gold to the Partnership. As a result of this transaction,
the accompanying financial statements include the results of Meadow Gold from
September 4, 1997, the date of the contribution.
On July 24, 1998, the Partnership acquired the dairy and juice processing
operations of Excelsior Dairy in Hawaii from Mountain View Dairies, Inc. for
approximately $2.7 million of cash consideration. Additionally, on August 10,
1998, the Partnership acquired the milk processing plant and distribution
operations located in Huntsville, Alabama formerly owned by Barber Dairies, Inc.
from Dean Foods Company for cash consideration of approximately $3.5
million. These acquisitions were accounted for using the purchase method and
their results are included in the financial statements from the dates of
acquisition.
GENERAL
The Partnership owns 27 plants which process and distribute fluid milk
products, cultured products, ice cream products, fruit juices and drinks and
other dairy related products. The majority of the Partnership's sales are from
fluid milk products, which include fresh packaged milk and chocolate milk in
whole, reduced fat and fat-free varieties, whipping cream, half-and-half and
buttermilk. These products are produced and marketed primarily under the
Schepps, Oak Farms, Meadow Gold, Borden, Viva, Foremost, Brown's Velvet, Barbe's
and Flav-O-Rich brand names, as well as various private labels. The Partnership
produces cultured products, such as sour cream, cottage cheese and yogurt, as
well as ice cream and fruit juices and drinks under its brand names, various
private labels and third-party labels. The Partnership also distributes cultured
products, fruit juices and drinks and ice cream products and other dairy related
products such as cheese, eggs, butter and non-dairy creamers purchased from
third parties.
RESULTS OF OPERATIONS
The Partnership's net sales were $841.4 million for the nine months ended
September 30, 1998, an increase of $372.3 million over the prior year. The
operations of Meadow Gold contributed $336.9 million to this increase. Excluding
the results of Meadow Gold, net sales for the nine months ended September 30,
1998 increased 8.1%, due primarily to an increase in volumes of 4.3% combined
with an increase in prices due to the increase in raw milk costs over the prior
year. The Partnership's net sales were $291.7 million for the quarter ended
September 30, 1998, an increase of $115.4 million over the prior year. The
Meadow Gold operations contributed $94.0 million to this increase. Excluding the
results of Meadow Gold, net sales for the quarter ended September 30, 1998
increased 14.9% over the prior year due primarily to an increase in volumes sold
of 8.1% combined with the increase in raw milk costs. The increase in volumes is
primarily attributable to growth in the Partnership's existing and new customer
base as well the acquisitions of the Alabama plant and Hawaii operations in the
third quarter of 1998.
The Partnership's gross profit was $208.0 million for the nine months ended
September 30, 1998, an increase of $83.4 million over the prior year. The
Partnership's gross profit was $71.8 million for the quarter ended September 30,
1998, an increase of $24.1 million over the prior year. The Meadow Gold
operations contributed $74.1 million and $19.4 million to these increases,
respectively. The remaining increase is attributable primarily to the increase
in net sales.
The Partnership's selling, general and administrative expenses of $156.5
million for the nine months ended September 30, 1998 were $66.7 million higher
than the prior year. Selling, general and administrative expenses of $53.9
million for the quarter ended September 30, 1998 were $18.4 million higher than
in the prior year. The increase in expense is due primarily to the operations of
Meadow Gold combined with the general increase in selling activity.
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Amortization of goodwill and other intangible assets increased
significantly from the prior year to $11.2 million for the nine months ended
September 30, 1998. This increase is due to higher amortization of goodwill,
trademarks and other intangible assets resulting from the Meadow Gold
transactions.
Interest expense increased significantly over the prior year to $24.0
million and $8.1 million for the nine months and quarter ended September 30,
1998, respectively. This increase is a result of the higher interest expense
associated with the proceeds from the Senior Bank Facilities and the Notes,
which were assumed in or used to finance the Meadow Gold transactions.
Other income increased to $1.1 million and $0.2 million for the nine months
and quarter ended September 30, 1998, respectively, primarily due to royalties
received from the sublicensing of the Borden Trademarks to third parties. As the
Partnership did not own the Borden License until September 1997, there were no
such royalties for the majority of 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities of $49.8 million for the nine months
ended September 30, 1998 was $12.4 million higher than the prior year, due
primarily to increased cash provided by working capital changes combined with
higher income from operations. The increase in cash provided by operating
activities due to the addition of the Meadow Gold operations is offset by
increased cash interest costs as a result of the higher average debt balances
and weighted average interest rates. Cash and cash equivalents on hand at
September 30, 1998 were $5.4 million compared to $4.7 million at December 31,
1997.
Cash used in investing activities for the nine months ended September 30,
1998 of $15.4 million includes $10.2 million for capital expenditures and $6.2
million for business acquisitions. Cash used in investing activities for the
nine months ended September 30, 1997 of $111.7 million includes $105.0 million
for the acquisition of the Borden and Meadow Gold trademarks, $4.3 million for
capital expenditures, and $2.4 million for business acquisitions.
Cash used in financing activities was $33.7 million for the nine months
ended September 30, 1998, primarily as a result of the repayment of long-term
debt of $20.8 million and the repurchase of $19.2 million of the Partnership's
Notes, offset by net borrowings under the revolving credit facility of $13.1
million. Additionally, $3.3 million was distributed to the management owners
during the nine months ended September 30, 1998 as tax payment distributions in
accordance with the partnership agreement, and $2.4 million of preferred return
was paid on the Series D Preferred Interests. Cash used in financing activities
in 1997 relates to the refinancing of outstanding debt in February 1997 and to
borrowings related to the September 1997 Meadow Gold transactions.
The Partnership's total debt at September 30, 1998 was $319.7 million. The
Notes bear interest at a rate of 9 7/8%, payable semi-annually beginning March
1, 1998, and mature September 1, 2007. The term loan portions of the Senior Bank
Facilities consist of borrowings under two tranches, Tranche A for $73.2 million
and Tranche B for $87.3 million. Both tranches bear interest at variable rates,
which weighted average rates were 7.57% and 8.57% for Tranche A and Tranche B,
respectively, at September 30, 1998. At September 30, 1998, $27.4 million of
revolving loans and $2.0 million of letters of credit were outstanding under the
Partnership's $60 million revolving credit facility.
Interest payments on the Notes and on the Senior Bank Facilities represent
significant liquidity requirements for the Partnership. The Partnership
anticipates that the Notes will require annual interest payments of
approximately $12.9 million and the Senior Bank Facilities will require
substantial interest payments based on the unamortized loan balance and variable
interest rates in effect (approximately $15.6 million annually based on
September 30, 1998 balances and applicable interest rates). In addition to its
debt service obligations, the Partnership will require liquidity for capital
expenditures and working capital needs. Management believes that the cash flow
generated from its operations, together with amounts available under the
revolving credit facility, should be sufficient to fund its debt service
requirements, working capital needs, anticipated capital expenditures and other
operating expenses. The Partnership's future operating performance and ability
to service or refinance the Notes and to extend or refinance the Senior Bank
Facilities will be
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subject to future economic conditions and to financial, business and other
factors, many of which are beyond the Partnership's control.
The Senior Bank Facilities and the Notes impose restrictions on the
Partnership's ability to make capital expenditures and limit the Partnership's
ability to incur additional indebtedness. Such restrictions, together with the
highly leveraged nature of the Partnership, could limit the Partnership's
ability to respond to market conditions, to provide for unanticipated capital
investments or to take advantage of business or acquisition opportunities. The
covenants contained in the Senior Bank Facilities and the Notes also, among
other things, limit the ability of the Partnership to dispose of assets, repay
indebtedness or amend other debt instruments, pay distributions, create liens on
assets, enter into sale and leaseback transactions, make investments, loans or
advances and make acquisitions.
In 1997 and 1998, the Partnership began to utilize interest rate collars
and swaps to manage interest rate exposures. The principal objective of such
contracts is to reduce the impact of changes in interest rates on its variable
rate debt. The Partnership does not utilize financial instruments for trading or
other speculative purposes. Swap agreements are contracts to exchange variable
rates for fixed rate payments periodically over the life of the agreements
without the exchange of the underlying notional amounts. The notional amounts of
interest rate agreements are used to measure interest to be paid or received.
The Partnership makes interest payments on the Senior Bank Facilities based on
the floating rate plus the applicable margin, and then either makes a payment to
or receives a payment from the counterparty to the swap agreement based on the
related notional amount and the difference between the fixed swap rate and the
applicable floating rate.
In January 1998, in order to fix the interest rates on the majority of the
Partnership's bank debt, the Partnership entered into various interest rate swap
agreements. The fixed LIBOR rate under these agreements ranges between 5.565%
and 5.63%. These agreements have an aggregate initial notional amount of $127
million, which declines annually over a five-year period to a final aggregate
notional amount of $23 million, and are cancellable at the counterparty's option
at the end of three or four years, based on the individual agreement. The
Partnership also has an interest rate collar with a notional amount of $28.0
million and a LIBOR rate cap of 7% and a floor of 5.65%. This agreement expires
in October 2000.
The Partnership is involved in certain threatened and pending legal matters
in the ordinary course of business. Although neither the outcome of these
proceedings nor the effect of such outcome can be predicted with certainty, in
the opinion of management, the outcome of these matters should not have a
material adverse effect on the financial condition or results of operations of
the Partnership.
The Partnership is in the process of conducting an internal review of its
computer systems to identify systems that could be affected by the "Year 2000"
issue. The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Partnership's programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
major system failure or miscalculations.
The Partnership's initiatives to minimize failures of electronic systems to
process date sensitive information in the Year 2000 and beyond include efforts
to identify all mission critical information technology (IT) systems, such as
financial and distribution applications, and non-IT systems such as plant
production systems, and remediate those systems which are non-compliant.
Identification of IT systems includes taking an inventory of all mission
critical computer hardware and software and testing these systems for Year 2000
compatibility. Those systems that are not year 2000 compliant will be repaired
or replaced as necessary. The Partnership's Year 2000 initiatives also include
identifying critical vendors and communicating with those vendors regarding
their Year 2000 readiness. These initiatives are underway, and the
identification phase should be substantially complete by the end of 1998.
Additionally, remediation efforts have been undertaken on systems that have been
identified as non-compliant. To date, the Partnership's efforts have utilized
internal resources; however, plans include engaging outside consultants if
considered necessary. The Partnership does not anticipate that the total costs
related to its Year 2000 compliance efforts will be material to its financial
position. The Partnership believes that necessary
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<PAGE> 11
modifications and replacements of critical IT and non-IT systems will be
completed timely. A contingency plan should be substantially completed by the
end of the second quarter 1999 for systems or vendors identified as Year 2000
risks. However, given the complexity of the Year 2000 issue, the impact on
business operations due to failure by the Partnership to achieve compliance or
failure by third parties to achieve compliance, which the Partnership cannot
control, could adversely affect the Partnership's results of operations.
Page 11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.39 Amendment No. 2 dated as of September 9, 1998 to the Credit
Agreement dated as of September 4, 1997, among Southern Foods
Group, L.P., certain lenders and The Chase Manhattan Bank as
Administrative Agent
27.1 Article 5 Financial Data Schedule
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHERN FOODS GROUP, L.P.
(Registrant)
Date: November 13, 1998 By: /s/ PATRICK K. FORD
--------------------------------
Patrick K. Ford
Chief Financial Officer, Secretary
and Treasurer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
10.39 Amendment No. 2 dated as of September 9, 1998 to the Credit
Agreement dated as of September 4, 1997, among Southern Foods
Group, L.P., certain lenders and The Chase Manhattan Bank as
Administrative Agent
27.1 Article 5 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.39
AMENDMENT NO. 2 dated as of September 9, 1998 (this "Amendment"), to the
Credit Agreement dated as of September 4, 1997 (the "Credit Agreement") among
SOUTHERN FOODS GROUP, L.P., a limited partnership organized under the laws of
the State of Delaware (the "Borrower"), the several banks and financial
institutions party to the Credit Agreement (the "Lenders") and THE CHASE
MANHATTAN BANK, as Administrative Agent.
A. Pursuant to the Credit Agreement, the Lenders and the Issuing Bank
have extended, and have agreed to extend, credit to the Borrower.
B. Section 6.08(b) of the Credit Agreement provides, inter alia, that the
Borrower will not make, directly or indirectly, any payment on or other
distribution on account of the purchase, redemption, retirement, acquisition,
cancelation or termination of any Indebtedness, subject to certain exceptions
set forth in such Section.
C. The Borrower has requested that the Required Lenders and the
Administrative Agent consent to an amendment to Section 6.08(b) of the Credit
Agreement, and the Administrative Agent and the Required Lenders are willing to
consent to such amendment, on the terms and subject to the conditions set forth
herein.
D. Capitalized terms used but not defined herein shall have the meanings
assigned to them in the Credit Agreement.
Accordingly, in consideration of the mutual agreements herein contained and
other good and valuable consideration, the sufficiency and receipt of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Amendment to Section 6.08(b). Section 6.08(b) of the Credit
Agreement is hereby amended by (a) renumbering paragraph (iii) of Section
6.08(b) as paragraph (iv) thereof and (b) inserting the following paragraph as
the new Section 6.08(b)(iii):
"(iii) purchase, redemption or retirement of Subordinated Debt in an
aggregate principal amount not to exceed $40,000,000, provided that
immediately prior to, and after giving effect to, any such purchase,
redemption or retirement, no Default shall have occurred and be continuing;
and"
SECTION 2. Representations and Warranties. To induce the other parties
hereto to enter into this Amendment, the Borrower represents and warrants to
each of the Lenders and the Administrative Agent that, after giving effect to
this Amendment, (a) the representations and warranties set forth in Article III
of the Credit Agreement are true and correct in all material respects on and as
of the date hereof with the same effect as though made on and as of the date
hereof, except to the extent such representations and warranties expressly
relate to an earlier date, and (b) no Default has occurred and is continuing.
SECTION 3. Conditions to Effectiveness. This Amendment shall become
effective on the date on which the Administrative Agent shall have received
counterparts of this
<PAGE> 2
Amendment that, when taken together, bear the signatures of the Borrower, the
Administrative Agent and the Required Lenders.
SECTION 4. Effect of Amendment. Except as expressly set forth herein,
this Amendment shall not by implication or otherwise limit, impair, constitute
a waiver of, or otherwise affect the rights and remedies of the Lenders, the
Administrative Agent or the Borrower under the Credit Agreement or any other
Loan Document, and shall not alter, modify, amend or in any way affect any of
the terms, conditions, obligations, covenants or agreements contained in the
Credit Agreement or any other Loan Document, all of which are ratified and
affirmed in all respects and shall continue in full force and effect. Nothing
herein shall be deemed to entitle the Borrower to a consent to, or a waiver,
amendment, modification or other change of, any of the terms, conditions,
obligations, covenants or agreements contained in the Credit Agreement or any
other Loan Document in similar or different circumstances. After the date
hereof, any reference to the Credit Agreement shall mean the Credit Agreement
as modified hereby. This Amendment shall constitute a "Loan Document" for all
purposes of the Credit Agreement and the other Loan Documents.
SECTION 5. Counterparts. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument.
Delivery of any executed counterpart of a signature page of this Amendment by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof.
SECTION 6. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. Notices. All notices hereunder shall be given in accordance
with the provisions of section 9.01 of the Credit Agreement.
SECTION 8. Headings. The headings of this Amendment are for purposes
of reference only and shall not limit or otherwise affect the meaning hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their duly authorized officers, all as of the date and year
first above written.
SOUTHERN FOODS GROUP, L.P.,
by SFG Management Limited
Liability Company, its sole
General Partner,
by /s/ PATRICK K. FORD
------------------------
Name: Patrick K. Ford
Title: Assistant Secretary
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<PERIOD-END> SEP-30-1998
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0
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