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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended July 3, 1999 Commission File No. 1-1790
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DI GIORGIO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-0431833
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
380 Middlesex Avenue 07008
Carteret, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number including area code: (732) 541-5555
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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.
Yes X No ____
As of August 4, 1999, there were outstanding 78.1158 shares of Class A Common
Stock and 78.8690 shares of Class B Common Stock. The aggregate market value of
the voting stock held by non-affiliates of the registrant is $0 because all
voting stock is held by affiliates of the registrant.
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<PAGE>
DI GIORGIO CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets,
January 2, 1999 and July 3, 1999 (Unaudited)............................1
Consolidated Condensed Statements of Operations,
Twenty-Six Weeks and Thirteen Weeks Ended
June 27, 1998 and July 3, 1999 (Unaudited)..............................2
Consolidated Condensed Statement of Stockholders' Deficiency,
Twenty-Six Weeks Ended July 3, 1999 (Unaudited).........................3
Consolidated Condensed Statements of Cash Flows,
Twenty-Six Weeks Ended June 27, 1998 and
July 3, 1999 (Unaudited) ..............................................4
Notes to Consolidated Condensed Financial Statements (Unaudited).............5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...............................................6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ..................................12
Signatures..................................................................13
<PAGE>
DI GIORGIO CORPORATION and SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
January 2, July 3,
1999 1999
(Unaudited)
ASSETS
Current Assets:
Cash...................................... $ 459 $ 447
Accounts and notes receivable-net......... 83,012 87,505
Inventories............................... 60,482 59,583
Deferred taxes............................ 11,283 8,327
Prepaid expenses.......................... 3,055 4,253
----- -----
Total current assets................ 158,291 160,115
------- -------
Property, Plant & Equipment
Cost...................................... 18,652 19,890
Accumulated depreciation.................. (10,319) (11,102)
------ ------
Net....................................... 8,333 8,788
------ ------
Long-term notes receivable.................. 11,844 15,380
Deferred taxes.............................. 2,063 2,063
Other assets................................ 13,193 12,076
Deferred financing costs.................... 4,935 4,575
Excess of costs over net assets acquired.... 76,169 74,956
------ ------
Total assets....................... $274,828 $277,953
======== ========
LIABILITIES & STOCKHOLDERS' DEFICIENCY Current Liabilities:
Notes payable-revolver.................... $20,628 $19,352
Accounts payable.......................... 71,616 71,562
Accrued expenses.......................... 24,719 26,340
Notes and leases payable within one year.. 211 193
------ -----
Total current liabilities........... 117,174 117,447
------- -------
Long-term debt.............................. 155,000 155,000
Capital lease liability..................... 2,288 2,202
Other long-term liabilities................. 4,067 3,663
Stockholders' Deficiency:
Common stock.............................. - -
Additional paid-in-capital................ 8,002 8,002
Accumulated deficit....................... (11,703) (8,361)
------ -----
Total stockholders' deficiency (3,701) (359)
------ ------
Total liabilities & stockholders'
deficiency........................ $274,828 $277,953
======== ========
See Notes to Consolidated Condensed Financial Statements
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DI GIORGIO CORPORATION and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
Thirteen weeks ended Twenty-six weeks ended
-------------------- ----------------------
June 27, July 3, June 27, July 3,
1998 1999 1998 1999
Revenue:
Net sales....................... $284,531 $346,245 $564,251 $701,053
Other revenue................... 1,674 2,022 3,510 4,080
----- ----- ----- -----
Total revenue............. 286,205 348,267 567,761 705,133
Cost of products sold............. 256,731 314,552 509,535 637,005
------- ------- ------- -------
Gross profit-exclusive of
warehouse expense shown below.... 29,474 33,715 58,226 68,128
Warehouse expense............... 12,604 12,810 24,025 26,540
Transportation expense.......... 5,989 6,539 12,150 13,376
Selling, general and
administrative expense.......... 5,821 6,543 11,709 13,114
Amortization-excess of cost
over net assets acquired........ 615 607 1,230 1,213
----- ----- ----- -----
Operating income.................. 4,445 7,216 9,112 13,885
Interest expense................ 4,320 4,183 9,096 8,536
Amortization-deferred financing
costs.......................... 180 180 360 360
Other (income)-net.............. (558) (618) (1,077) (1,309)
----- ----- ----- -----
Income before income taxes and
extraordinary items.............. 503 3,471 733 6,298
Income tax expense (benefit)...... 420 1,607 730 2,956
--- ----- --- -----
Income before
extraordinary items.............. 83 1,864 3 3,342
Extraordinary loss on
extinguishment of debt-net of tax. 0 0 (201) 0
----- ----- ----- -----
Net income (loss)................. $83 $1,864 ($198) $3,342
=== ===== ====== =====
See Notes to Consolidated Condensed Financial Statements
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DI GIORGIO CORPORATION and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIENCY
(in thousands, except share data)
(unaudited)
Additional
Class A Class B Paid-In (Accumulated
Common Stock Common Stock Capital Deficit) Total
------------ ------------ ------- ------- ------
Shares Amount Shares Amount
Balance at
January 2,
1999 78.1158 $ -- 78.8690 $ -- $ 8,002 ($11,703) ($3,701)
Net income -- -- -- -- -- 3,342 3,342
------- --- ------- ---- ------- ----- -----
Balance at
July 3, 1999 78.1158 $ -- 78.8690 $ -- $ 8,002 ($8,361) ($359)
======= === ======= ==== ======= ======= ======
See Notes to Consolidated Condensed Financial Statements
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DI GIORGIO CORPORATION and SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Twenty-six weeks ended
----------------------
June 27, July 3,
1998 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................ ($198) 3,342
Adjustments to reconcile net income to net cash
provided by operating activities
Extraordinary loss on debt
extinguishment - net.......................... 201 0
Depreciation and amortization................. 1,356 783
Amortization.................................. 2,700 2,644
Provision for doubtful accounts............... 750 600
Increase in prepaid pension asset............. (150) 0
Impairment loss on leasehold improvements..... 3,000 0
Gain on sale of Garden City facility.......... (3,400) 0
Deferred taxes................................ 2,956
Changes in assets and liabilities:
(Increase) decrease in:
Accounts & notes receivable................... 1,344 (5,093)
Inventory..................................... (5,671) 899
Prepaid expenses.............................. (768) (1,198)
Long-term receivables......................... (635) (3,536)
Other assets.................................. (143) 44
(Decrease) increase in:
Accounts payable.............................. (652) (54)
Accrued expenses and other liabilities........ (411) 1,219
------ -----
Net cash (used in) provided by
operating activities.......................... (2,677) 2,606
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, & equipment........ (2,543) (1,238)
Net proceeds from Garden City facility sale...... 13,867 0
------ -----
Net cash provided by (used in)
investing activities............................ 11,324 (1,238)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under revolving
line-of-credit................................ 11,413 (1,276)
Premiums paid on redemption of 12% notes......... (335) 0
Capital Stock repurchase......................... (5,000) 0
Long-term debt payments.......................... (14,963) (104)
Capital lease payments........................... (97) 0
------- -------
Net cash used in financing activities............ (8,982) (1,380)
----- -----
Decrease in cash................................. (335) (12)
Cash at beginning of period...................... 2,426 459
----- -----
Cash at end of period............................ $2,091 $447
====== ====
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest..................................... $9,409 $8,559
====== ======
Income Taxes (Refunds)....................... ($5) $147
== ====
See Notes to Consolidated Condensed Financial Statements
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DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated condensed balance sheet as of July 3, 1999, the consolidated
condensed statements of operations for the thirteen weeks and the twenty-six
weeks ended June 27, 1998 and July 3, 1999, the consolidated condensed
statements of cash flows for the twenty-six weeks ended June 27, 1998 and July
3, 1999, and stockholders' deficiency for the twenty-six weeks ended July 3,
1999, and related notes are unaudited and have been prepared in accordance with
generally accepted accounting principles for interim financial information and
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations. The
accompanying unaudited interim consolidated condensed financial statements and
related notes should be read in conjunction with the financial statements and
related notes included in the Form 10-K for the fiscal year ended January 2,
1999 and the Form 10-Q for the period ended April 3, 1999 filed with the
Securities and Exchange Commission. The information furnished reflects, in the
opinion of the management of the Company, all adjustments, consisting of normal
recurring accruals, which are necessary to present a fair statement of the
results for the interim periods presented.
The interim figures are not necessarily indicative of the results to be expected
for the full fiscal year.
2. SUBSEQUENT EVENT
Effective August 1, 1999, the Company amended its bank credit facility to, among
other things, extend the scheduled maturity until June 2004, lower interest
rates, and permit, under certain circumstances, the payment of dividends.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward- Looking Statements
Forward-looking statements in this Form 10-Q include, without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources and are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or achievement
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. These
factors include, among others, the following: general economic and business
conditions and those in particular in the New York City metropolitan area;
restrictions imposed by the documents governing the Company's indebtedness;
competition; the Company's reliance on several significant customers; potential
losses from loans to its retailers; potential environmental liabilities which
the Company may have; the Company's labor relations; dependence on key
personnel; changes in business regulation; business abilities and judgment of
personnel; year 2000 computer related issues; and changes in, or failure to
comply with government regulations .
Results of Operations
Thirteen weeks ended July 3, 1999 and June 27, 1998
Net sales for the thirteen weeks ended July 3, 1999 were $346.2 million as
compared to $284.5 million for the thirteen weeks ended June 27, 1998. This
21.7% increase in net sales primarily reflects sales to a group of supermarkets
operating under the Foodtown banner that became customers in late December 1998
as well as increased sales to existing customers.
Other revenue, consisting of recurring customer related services, increased to
$2.0 million for the thirteen weeks ended July 3, 1999 as compared to $1.7
million in the prior period as a result of the Company's overall increased
business.
Gross margin (excluding warehouse expense) decreased to 9.7% of net sales or
$33.7 million for the thirteen weeks ended July 3, 1999 as compared to 10.4% of
net sales or $29.5 million for the prior period, as a result of a change in mix
of both customers and products sold. As compared to the first quarter of 1999,
gross profit remained constant at 9.7%. The Company has, and will continue to,
take steps to maintain and improve its margins; however, as indicated by the
comparative decrease in gross margin, factors such as the additions of high
volume, low margin customers, the decrease in manufacturers' promotional
activities, changes in product mix, or competitive pricing pressures may
continue to have an effect on gross margin.
Warehouse expense decreased as a percentage of net sales to 3.7% or $12.8
million for the thirteen weeks ended July 3, 1999 as compared to 4.4% of net
sales or $12.6 million reflecting the combined effect of (i) applying largely
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fixed costs to higher revenues and (ii) the elimination of the costs of two
frozen food facilities in April 1999 as a result of the Garden City facility
ceasing operations. (See Liquidity and Capital Resources.)
Transportation expense decreased to 1.9% of net sales or $6.5 million for the
thirteen weeks ended July 3, 1999 as compared to 2.1% of net sales or $6.0
million in the prior period due to greater efficiencies and a change in the
Company's customer base.
Selling, general and administrative expense declined to 1.9% of net sales or
$6.5 million for the thirteen weeks ended July 3, 1999 as compared to 2.0% of
net sales or $5.8 million for the prior period due to the effect of applying
largely fixed costs to higher revenues.
Other income, net of other expenses, was $618,000 for the thirteen weeks ended
July 3, 1999 as compared to $558,000 for the prior period.
Interest expense decreased to $4.2 million for the thirteen weeks ended July 3,
1999 from $4.3 million for the prior period due to lower average outstanding
levels of the Company's funded debt.
The Company recorded an income tax provision of $1.6 million, resulting in an
effective income tax rate of 46% for the thirteen weeks ended July 3, 1999 as
compared to a provision of $420,000 resulting in an effective rate of 83% in the
prior period. The Company's estimated effective tax rate is higher than the
statutory tax rate primarily because of the nondeductibility of certain of the
Company's amortization of the excess of cost over net assets acquired; however,
due to net operating loss carryforwards for tax purposes, the Company does not
expect to pay federal income tax for the current year with the exception of an
alternative minimum tax.
The Company recorded net income for the thirteen weeks ended July 3, 1999 of
$1.8 million as compared to net income of $83,000 in the prior period.
Twenty-six weeks ended June 27, 1998 and July 3, 1999
Net sales for the twenty-six weeks ended July 3, 1999 were $701.1 million as
compared to $564.3 million for the twenty-six weeks ended June 27, 1998. This
24.2% increase in net sales primarily reflects sales to a group of supermarkets
operating under the Foodtown banner that became customers in late December 1998
as well as increased sales to existing customers.
Other revenue, consisting of recurring customer related services, increased to
$4.1 million for the twenty-six weeks ended July 3, 1999 as compared to $3.5
million in the prior period as a result of the Company's overall increased
business.
Gross margin (excluding warehouse expense) decreased to 9.7% of net sales or
$68.1 million for the twenty-six weeks ended July 3, 1999 as compared to 10.3%
of net sales or $58.2 million for the prior period, as a result of a change in
mix of both customers and products sold. The Company has, and will continue to,
take steps to maintain and improve its margins; however, as indicated by the
comparative decrease in gross margin, factors such as the additions of high
volume, low margin customers, the decrease in manufacturers' promotional
activities, changes in product mix, or competitive pricing pressures may
continue to have an effect on gross margin.
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Warehouse expense decreased as a percentage of net sales to 3.8% of net sales or
$26.5 million for the twenty-six weeks ended July 3, 1999 as compared to 4.3% of
net sales or $24.0 million due to the effect of applying largely fixed costs to
higher revenues. The Garden City, NY frozen food facility was closed as an
operational facility during the current period. (See Liquidity and Capital
Resources.)
Transportation expense decreased to 1.9% of net sales or $13.4 million for the
twenty-six weeks ended July 3, 1999 as compared to 2.2% of net sales or $12.2
million in the prior period due to greater efficiencies and a change in the
Company's customer base.
Selling, general and administrative expense declined to 1.9% of net sales or
$13.1 million for the twenty-six weeks ended July 3, 1999 as compared to 2.1% of
net sales or $11.7 million for the prior period due to the effect of applying
largely fixed costs to higher revenues.
Other income, net of other expenses, increased to $1.3 million for the
twenty-six weeks ended July 3, 1999 as compared to $1.1 million for the prior
period.
Interest expense decreased to $8.5 million for the twenty-six weeks ended July
3, 1999 from $9.1 million for the prior period due to lower average outstanding
levels of the Company's funded debt.
The Company recorded an income tax provision of $2.9 million, resulting in an
effective income tax rate of 47% for the twenty-six weeks ended July 3, 1999 as
compared to a provision of $730,000 resulting in an effective rate of 100% in
the prior period. The Company's estimated effective tax rate is higher than the
statutory tax rate primarily because of the nondeductibility of certain of the
Company's amortization of the excess of cost over net assets acquired; however,
due to net operating loss carryforwards for tax purposes, the Company does not
expect to pay federal income tax for the current year with the exception of an
alternative minimum tax.
The Company recorded net income for the twenty-six weeks ended July 3, 1999 of
$3.3 million as compared to a loss of $198,000, which included an extraordinary
loss of $201,000, in the prior period.
Liquidity and Capital Resources
Cash flows from operations and amounts available under the Company's $90 million
bank credit facility are the Company's principal sources of liquidity. The
Company's bank credit facility was amended effective August 1, 1999 and is now
scheduled to mature on June 30, 2004 and bears interest at a rate per annum
equal to (at the Company's option): (i) the Euro Dollar Offering Rate plus
1.625% or (ii) the Bankers Trust Company's prime rate. In addition, the bank
credit facility now allows the payment of dividends under certain circumstances.
Borrowings under the Company's revolving bank credit facility were $19.4 million
(excluding $5.3 million of outstanding letters of credit) at July 3, 1999.
Additional borrowing capacity of $61.0 million was available at that time under
the Company's then current, borrowing base certificate. The Company believes
that these sources will be adequate to meet its anticipated working capital
needs, capital expenditures, and debt service requirements during fiscal 1999.
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During the twenty-six weeks ended July 3, 1999, cash flows provided by operating
activities were $2.6 million, consisting primarily of (i) cash generated from
income before non-cash expenses of $7.4 million and (ii) an increase in accrued
expenses and other liabilities of $4.2 million, offset by an increase in
accounts and notes receivable of $8.6 million.
Cash flows used in investing activities during the twenty-six weeks ended July
3, 1999 were approximately $1.2 million which was used exclusively for capital
expenditures. Net cash used in financing activities of approximately $1.4
million was utilized to reduce the amount outstanding under the Company's bank
revolver and capital leases.
EBITDA, defined as earnings before interest expense, income taxes, depreciation
and amortization, was $18.2 million during the twenty-six weeks ended July 3,
1999 as compared to $13.9 million in the prior period. The Company has presented
EBITDA supplementally because management believes this information is useful
given the significance of the Company's depreciation and amortization and
because of its highly leveraged financial position. This data should not be
considered as an alternative to any measure of performance or liquidity as
promulgated under generally accepted accounting principles (such as net
income/loss or cash provided by/used in operating, investing and financing
activities), nor should it be considered as an indicator of the Company's
overall financial performance. Also, the EBITDA definition used herein may not
be comparable to similarly titled measures reported by other companies.
As part of the Company's 1998 $4.2 million facility integration and abandonment
expense, related to the shut down of the Garden City facility and the move of
its frozen business to Carteret, New Jersey, the Company recorded a reserve of
$2.8 million consisting of (i) $2.2 million for rent and real estate taxes from
May 1, 1999, the anticipated closure date of the facility, through March 31,
2000, the lease termination date, and (ii) $600,000 for the removal of certain
equipment. As of July 3, 1999, the balance of the facility integration and
abandonment reserve was $2.3 million, all of which is expected to be expended
before March 31, 2000. As planned, the Company ceased operations in the facility
in the second quarter of 1999 and is in the process of decommissioning the
facility.
The consolidated indebtedness of the Company decreased to $176.7 million at July
3, 1999 as compared to $178.1 million at January 2, 1999. Stockholders'
deficiency was $359,000 on July 3, 1999 as compared to a deficiency of $3.7
million on January 2, 1999.
Under the terms of the Company's revolving bank credit facility, the Company is
required to meet certain financial tests, including minimum interest coverage
ratios. As of July 3, 1999, the Company was in compliance with its covenants.
From time to time when the Company considered market conditions attractive, the
Company has purchased on the open market a portion of its public debt and may in
the future purchase and retire a portion of its outstanding public debt.
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Year 2000 Computer Issues
State of readiness
The Company has implemented a Year 2000 compliance program designed to insure
that the Company's computer systems and applications will function properly
beyond 1999. The program is led by the Company's vice president of information
systems and consists of employees from across division lines. The Company
believes it has identified all of the systems which need testing, including but
not limited to its traditional computer systems as well as those systems
containing embedded chip technology commonly found in buildings and equipment
connected with a building's infrastructure such as heating, refrigeration and
air conditioning systems, security systems and telephones. The vast majority of
testing to determine if a system is Year 2000 compliant is complete. The
remediation phase is substantially complete and the compliant systems are
currently in use. The remainder of the remediation phase is projected to be
completed in the third quarter of fiscal 1999. The Company plans to continue
testing its systems to determine compliance and immediately address problems
should they occur.
Costs
The total expected cost of the Company's Year 2000 compliance program is
projected to be less than $1.25 million, consisting primarily of internal
salaries, of which approximately $1 million has been spent as of July 3, 1999.
All costs are expensed as incurred. The Company expects to outsource, on a
limited basis, some of this effort.
Risks
Although the full consequences are unknown, the failure of one of the Company's
critical computer systems or the failure of an outside system, such as that of
the Federal Reserve or the electric utilities, may result in the interruption of
the Company's business which may result in a material adverse effect on the
results of operations or financial condition of the Company. With particular
respect to inventory purchased for resale from the Company's 1,120 vendors, the
Company does not expect that any vendor's Year 2000 problems would have a
long-term negative effect on the Company due to the diversity of product
availability in the market and the Company's expectations that none of its
competitors would receive that product either, so the Company and the Company's
customers would not be at a competitive disadvantage.
With respect to the Company's larger customers, communications are ongoing with
respect to their progress in managing Year 2000 issues such as insuring the
integrity of the procurement system as well as helping the smaller customers'
critical needs such as cash registers and point-of-sale (POS) systems. Despite
the relative lack of problems encountered in these discussions with both large
and small customers of the Company to date, the Company has no direct
confirmation or control of our customers' Year 2000 remediation efforts, and
there can be no assurance that system failures, which may cause material adverse
results to our customers, would not have an adverse effect on the Company.
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Contingency Plans
The Company is in the process of developing contingency plans for those areas
which might be effected by the Year 2000 problem; however, there can be no
assurances that a contingency plan will exist for all situations.
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II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No.10.50 Amendment No. 13, dated as of August 1, 1999
to Credit Agreement dated as of February 10, 1993 among Di
Giorgio Corporation, as Borrower, the financial institutions
parties thereto, as Lenders, BT Commercial Corporation, as
Agent for the Lenders, and Bankers Trust Company, as Issuing
Bank.
(b) Reports on Form 8-K. None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
DI GIORGIO CORPORATION
By: /s/ Arthur M. Goldberg
--------------------------------------
Arthur M. Goldberg
Chairman, President and Chief
Executive Officer
By: /s/ Richard B. Neff
--------------------------------------
Richard B. Neff
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: August 12, 1999
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EXHIBIT 10.50
Amendment No. 13, dated as of August 1, 1999 to Credit Agreement dated as
of February 10, 1993 among Di Giorgio Corporation, as Borrower, the
financial institutions parties thereto, as Lenders, BT Commercial
Corporation, as Agent for the Lenders, and Bankers Trust Company, as
Issuing Bank.
<PAGE>
EXECUTION
COPY
AMENDMENT NO. 13, dated as of August 1, 1999 ("Amendment No. 13")
to CREDIT AGREEMENT dated as of February 10, 1993 (as amended through the date
hereof, the "Credit Agreement") among DI GIORGIO CORPORATION, as Borrower, the
financial institutions parties thereto, as LENDERS, BT COMMERCIAL CORPORATION,
as Agent for the Lenders, and the Issuing Bank. Terms which are capitalized
herein and not otherwise defined shall have the meanings given to such terms in
the Credit Agreement.
WHEREAS, the Borrower has requested that the Lenders, among other
things, (i) extend the Expiration Date, (ii) reduce the interest rates payable
on Loans, (iii) reduce the rate on which Letter of Credit Fees payable under the
Credit Agreement are calculated and (iv) modify certain covenants contained in
the Credit Agreement; and
WHEREAS, the Lenders have agreed to the foregoing on the terms
and subject to the fulfillment of the conditions set forth in this Amendment No.
13;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower and the Lenders
hereby agree as follows:
Section One. Amendment. Upon the fulfillment of the conditions
precedent set forth in Section Three hereof, effective as of August 1, 1999, the
Credit Agreement is amended as follows:
(a) Section 1.1 of the Credit Agreement is amended by deleting
the definition of the term Applicable Margin in its entirety and by substituting
the following in lieu thereof:
"Applicable Margin" shall mean 1.625% in the case of Eurodollar
Rate Loans and zero in the case of Prime Rate Loans."
(b) Section 1.1 of the Credit Agreement is amended by deleting
the definition of the term Expiration Date in its entirety and by substituting
the following in lieu thereof:
"Expiration Date" shall mean June 30, 2004."
(c) Section 5.7 (a) of the Credit Agreement is amended in its
entirety to read as follows:
"5.7 Letter of Credit Fee. (a) The Agent, for the ratable benefit
of the Lenders, shall be entitled to charge to the account of the
Borrower (i) on the first business day of each month, a fee (the
"Letter of Credit Fee"), in an amount equal to (A) one and
one-half percent (1.50%) per annum of the daily average amount of
outstanding documentary
DSN:55036.5
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Letter of Credit Obligations during the immediately preceding
month and (B) one and one-half percent (1.50%) per annum of the
daily average amount of outstanding standby Letter of Credit
Obligations during the immediately preceding month, and (ii) as
and when incurred by the Agent or any Lender, any charges, fees,
costs and expenses charged to the Agent or any Lender for the
Borrower's account by any Issuing Bank (other than any fees
charged to the Agent or any Lender which would be duplicative of
the Letter of Credit Fee paid to the Agent for the benefit of the
Lenders) (the "Issuing Bank Fees") in connection with the
issuance of any Letters of Credit by the Issuing Bank. Each
determination by the Agent of Letter of Credit Fees hereunder
shall be conclusive and binding for all purposes, absent manifest
error."
(d) Section 8.1 of the Credit Agreement is deleted in its
entirety.
(e) Section 8.2 of the Credit Agreement is amended by deleting
the introductory portion thereof, and by deleting subsections (aa) through (dd)
thereof, and substituting in lieu thereof the introductory portion of Section
8.2 set forth below and subsections (aa) through (dd) set forth below, so that
subsections (aa) through (dd) thereof, together with the introductory portion of
Section 8.2, shall read as follows:
"8.2 Interest Coverage Ratio. The Borrower shall not permit its
ratio of EBITDA to Interest Expense as of the end of each of the
following periods to be less than the applicable ratio set forth
below opposite each such period:
Minimum Interest
Period Coverage Rates
------ --------------
(aa) the fiscal quarter ending in June, 1.60 to 1.00
1999, together with the three
preceding fiscal quarters
(bb) the fiscal quarter ending in 1.65 to 1.00
September, 1999, together with the
three preceding fiscal quarters
(cc) the fiscal quarter ending in 1.70 to 1.00
December, 1999, together with the
three preceding fiscal quarters
2
<PAGE>
(dd) the fiscal quarter ending in 1.75 to 1.00" March, 2000, and each
fiscal quarter thereafter, in each case together with the three preceding
fiscal quarters
(f) Subsection (a) (iii) of Section 8.10 of the Credit Agreement
is amended in its entirety to read as follows:
"(iii) the Borrower may declare and pay ratably dividends with
respect to its capital stock to its stockholders each fiscal
year, during the sixty day period commencing on the date of the
Agent's receipt of the Borrower's audited Financial Statements
for the prior fiscal year, in an aggregate amount not to exceed
in any fiscal year fifty percent (50%) of Net Income for such
prior fiscal year; provided that (1) no Default or Event of
Default shall have occurred and then be continuing or would
result therefrom, (2) immediately after giving effect to any such
proposed dividend, there shall be an aggregate amount of Unused
Availability of at least $30,000,000, (3) the ratio of EBITDA to
the sum of Interest Expense, dividends and taxes paid in cash,
and Capital Expenditures made, in each case with respect to the
Borrower, on a consolidated basis, for the fiscal year
immediately prior to the fiscal year during which such proposed
dividend shall be paid, shall be no less than 1.25 to 1.00, such
ratio to be calculated as if such dividend shall have been paid
on the last day of such preceding fiscal year and (4) at least
ten Business Days prior to the date on which the Borrower
proposes to pay such dividend, the Agent shall have received a
certificate prepared under the direction of and executed by the
Borrower's chief executive officer or chief financial officer (x)
pursuant to which such officer shall certify to the Lenders that
in determining Unused Availability for the purpose of clause (2)
hereof, the Borrower's trade payables have been paid in a manner
consistent with the Borrower's historical practices and (y)
setting forth in reasonable detail the calculation of the ratio
described in clause (3) hereof; and"
(g) Section 8.11 of the Credit Agreement is amended by deleting
the word "and" at the end of subsection (l) thereof, re-lettering subsection (m)
as subsection (n), and by adding a new subsection (m) thereof as set forth
below, so that such subsection (m), together with the introductory portion of
Section 8.11, shall read as follows:
"8.11 No Investments. The Borrower will not, and shall not permit
any of the Restricted Subsidiaries to, directly or indirectly,
make any Investment in any Person, whether in cash, securities,
or other property of any kind, including, without limitation, any
Subsidiary or Affiliate of the Borrower, other than:
(m) Investments in a Subsidiary, not to exceed $5,000,000 in the
aggregate principal amount outstanding at any one time, provided
that (i) the business of such Subsidiary is directly related to
and is intended to benefit the Borrower's primary business, and
(ii) immediately after giving effect to any such proposed
Investment,
DSN:55036.5
3
<PAGE>
there shall be an aggregate amount of Unused
Availability of at least $30,000,000; and"
Section Two. Representations and Warranties. To induce the
Lenders to enter into this Amendment No. 13, the Borrower warrants and
represents to the Lenders as follows:
(a) the recitals contained in this Amendment No. 13 are true and
correct in all respects;
(b) after giving effect to this Amendment No. 13, all of the
representations and warranties contained in the Credit Agreement and each other
Credit Document to which the Borrower is a party continue to be true and correct
in all material respects as of the date hereof, as if repeated as of the date
hereof, except for such representations and warranties which, by their terms,
are only made as of a previous date;
(c) the execution, delivery and performance of this Amendment No.
13 by the Borrower is within its corporate powers, has been duly authorized by
all necessary corporate action, the Borrower has received all necessary consents
to and approvals for the execution, delivery and performance of this Amendment
No. 13 (if any shall be required) and this Amendment No. 13 does not and will
not contravene or conflict with any provision of law or of the charter or
by-laws of the Borrower or with the terms or provisions of any other document or
agreement to which the Borrower is a party or by which the Borrower or its
property may be bound; and
(d) upon its execution, this Amendment No. 13 shall be a legal,
valid and binding obligation of the Borrower, enforceable against the Borrower
in accordance with its terms.
Section Three. Conditions Precedent. This Amendment No. 13 shall
become effective when the last of the following events shall have occurred:
(a) the Agent shall have received a fully executed counterpart of
this Amendment No. 13;
(b) no Default shall have occurred and be continuing which
constitutes an Event of Default or would constitute an Event of Default upon the
giving of notice or lapse of time or both, and no event or development which has
had or is reasonably likely to have a Material Adverse Effect shall have
occurred, in each case since the date of delivery to the Agent and the Lenders
of the Borrower's most recent financial statement, and the Agent and the Lenders
shall have received a certificate from the Borrower, executed by its Chief
Financial Officer, as to the truth and accuracy of this paragraph (b);
(c) the Borrower shall have paid in cash to the Agent, for the
ratable benefit of each of the Lenders, a non-refundable fee in the amount of
$225,000;
DSN:55036.5
4
<PAGE>
(d) the Borrower shall have delivered to the Agent a copy of the
corporate resolutions of the Borrower's Board of Directors authorizing the
execution, delivery and performance of this Amendment No. 13 by the Borrower;
and
(e) the Agent and the Lenders shall have received such additional
documents to further effectuate the purpose of this Amendment No. 13 as any of
them or their respective counsel may reasonably request.
Section Four. General Provisions.
(a) Except as herein expressly amended, the Credit Agreement and
all other agreements, documents, instruments and certificates executed in
connection therewith are ratified and confirmed in all respects and shall remain
in full force and effect in accordance with their respective terms.
(b) All references to the Credit Agreement shall mean the Credit
Agreement as amended as of the effective date hereof, and as amended hereby and
as hereafter amended, supplemented and modified from time to time.
(c) This Amendment No. 13 may be executed by the parties hereto
individually or in combination, in one or more counterparts, each of which shall
be an original and all which shall constitute one and the same agreement.
(d) This Amendment No. 13 shall be governed by, construed and
interpreted in accordance with the internal laws of the State of New York,
without regard to the conflicts of law principles thereof.
IN WITNESS WHEREOF, each of the Borrower, the Lenders, the
Issuing Bank and the Agent has signed below to indicate its agreement with the
foregoing and its intent to be bound thereby.
DI GIORGIO CORPORATION
By: /s/ Robert A. Zorn
---------------------------------
Name: Robert A. Zorn
Title: Senior Vice President
BT COMMERCIAL CORPORATION, as
Agent and as a Lender
By: /s/ Frank A. Chiovari
---------------------------------
Name: Frank A. Chiovari
Title: Vice President
DSN:55036.5
5
<PAGE>
LASALLE NATIONAL BANK, as a Lender
By: /s/ Christopher G. Clifford
---------------------------------
Name: Christopher G. Clifford
Title: Senior Vice President
BANCO POPULAR, as a Lender
By: /s/ Joseph C. LoMonsco
---------------------------------
Name: Joseph C. LoMonsco
Title: Vice President
CONGRESS FINANCIAL
CORPORATION, as a Lender
By: /s/ Thomas McGregor
---------------------------------
Name: Thomas McGregor
Title: Vice President
PNC BANK, as a Lender
By: /s/ Michael Richards
---------------------------------
Name: Michael Richards
Title: Vice President
SUMMIT COMMERCIAL/GIBRALTAR
CORP., as a Lender
By: /s/ Peter J. Hollitscher
---------------------------------
Name: Peter J. Hollitscher
Title: Vice President
DSN:55036.5
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS, STATEMENTS OF OPERATIONS, STATEMENT OF
STOCKHOLDERS' DEFICIENCY AND STATEMENT OF CASH FLOWS FROM FORM 10Q FOR THE
PERIOD ENDED JULY 3, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-1-2000
<PERIOD-START> JAN-2-1999
<PERIOD-END> JUL-3-1999
<CASH> 447
<SECURITIES> 0
<RECEIVABLES> 92,285
<ALLOWANCES> 4,780
<INVENTORY> 59,583
<CURRENT-ASSETS> 160,115
<PP&E> 19,890
<DEPRECIATION> 11,102
<TOTAL-ASSETS> 277,953
<CURRENT-LIABILITIES> 117,447
<BONDS> 155,000
0
0
<COMMON> 0
<OTHER-SE> (359)
<TOTAL-LIABILITY-AND-EQUITY> 277,953
<SALES> 701,053
<TOTAL-REVENUES> 705,133
<CGS> 637,005
<TOTAL-COSTS> 690,035
<OTHER-EXPENSES> 1,573
<LOSS-PROVISION> 600
<INTEREST-EXPENSE> 8,536
<INCOME-PRETAX> 6,298
<INCOME-TAX> 2,956
<INCOME-CONTINUING> 3,342
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,342
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
