<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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 1-10307
______________________________
IMPERIAL SUGAR COMPANY
(Exact name of registrant as specified in its charter)
Texas 74-0704500
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Imperial Square, P.O. Box 9, Sugar Land, Texas 77487
(Address of principal executive offices, including Zip Code)
(281) 491-9181
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of August 5, 1999.
33,520,350 shares.
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<PAGE>
IMPERIAL SUGAR COMPANY
Index
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Consolidated Statement of Changes in
Shareholders' Equity 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
______________________
The statements regarding future market prices, anticipated cost savings,
agricultural results, operating results and Year 2000 readiness and other
statements that are not historical facts contained in this Quarterly Report on
Form 10-Q are forward-looking statements. The words "expect", "project",
"estimate", "believe", "anticipate", "plan", "intend", "could", "may", "predict"
and similar expressions are also intended to identify forward-looking
statements. Such statements involve risks, uncertainties and assumptions,
including, without limitation, market factors, the effect of weather and
economic conditions, farm and trade policy, the ability of the Company to
realize cost savings from acquisitions, the ability of the Company and third
party vendors and customers to successfully remediate Year 2000 computer issues,
the available supply of sugar, available quantity and quality of sugarbeets and
other factors detailed elsewhere in this and other Company filings with the
Securities and Exchange Commission. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual outcomes may vary materially from those indicated.
- 2 -
<PAGE>
PART I - FINANCIAL INFORMATION
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1999
(Unaudited) September 30, 1998
------------- ------------------
(In Thousands of Dollars)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and temporary investments $ 10,997 $ 2,877
Marketable securities 70,003 59,478
Accounts receivable 49,638 139,870
Inventories 285,751 204,929
Deferred costs and prepaid expenses 36,342 39,135
---------- ----------
Total current assets 452,731 446,289
OTHER INVESTMENTS 5,071 20,872
PROPERTY, PLANT AND EQUIPMENT - net 412,241 398,193
GOODWILL & OTHER INTANGIBLES - net 397,208 279,410
OTHER ASSETS 32,159 35,036
---------- ----------
TOTAL $1,299,410 $1,179,800
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable -- trade $ 144,695 $ 106,041
Short-term borrowings 37,762 1,161
Current maturities of long-term debt 13,479 7,555
Other current liabilities 48,853 71,303
---------- ----------
Total current liabilities 244,789 186,060
LONG-TERM DEBT 546,813 525,893
DEFERRED INCOME TAXES, EMPLOYEE BENEFITS
AND OTHER CREDITS 121,962 114,940
SHAREHOLDERS' EQUITY
Common stock 309,760 268,804
Stock held by benefit trust (12,493) (14,367)
Treasury stock (3,326) (1,452)
Retained earnings 67,730 80,150
Unrealized securities gains - net 24,175 19,772
---------- ----------
Total shareholders' equity 385,846 352,907
---------- ----------
TOTAL $1,299,410 $1,179,800
========== ==========
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(In Thousands of Dollars, Except per Share Amounts)
<S> <C> <C> <C> <C>
NET SALES $ 499,977 $ 456,087 $ 1,400,735 $ 1,305,921
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 443,875 407,336 1,263,492 1,186,907
Selling, general and administrative 19,026 15,627 52,983 49,835
Depreciation and amortization 14,017 11,489 39,077 33,910
Asset impairment and other charges - - - 18,287
----------- ----------- ----------- -----------
Total 476,918 434,452 1,355,552 1,288,939
----------- ----------- ----------- -----------
OPERATING INCOME 23,059 21,635 45,183 16,982
INTEREST EXPENSE (14,532) (12,712) (44,999) (35,690)
REALIZED SECURITIES GAINS 2,379 2 4,671 2,181
LOSS ON INVESTMENT IN PARTNERSHIP - - (16,706) -
OTHER INCOME -- Net 1,306 1,066 2,120 3,824
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES
& MINORITY INTEREST 12,212 9,991 (9,731) (12,703)
PROVISION (BENEFIT) FOR INCOME TAXES 5,558 4,716 (191) (2,385)
MINORITY INTEREST IN INCOME OF SAVANNAH - - - 1,766
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 6,654 5,275 (9,540) (12,084)
EXTRAORDINARY ITEM - NET OF TAX - - - (1,999)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 6,654 $ 5,275 $ (9,540) $ (14,083)
=========== =========== =========== ===========
BASIC EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Income (loss) before extraordinary item $ 0.21 $ 0.20 $ (0.30) $ (0.52)
=========== =========== =========== ===========
Net income (loss) $ 0.21 $ 0.20 $ (0.30) $ (0.61)
=========== =========== =========== ===========
DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Income (loss) before extraordinary item $ 0.21 $ 0.19 $ (0.30) $ (0.52)
=========== =========== =========== ===========
Net income (loss) $ 0.21 $ 0.19 $ (0.30) $ (0.60)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 32,190,208 27,043,121 31,548,191 23,206,716
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
----------------------
1999 1998
--------- ---------
(In Thousands of Dollars)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (9,540) $ (14,083)
Adjustments for non-cash and non-operating items:
Loss on investment in partnership 16,706 -
Extraordinary item - net of tax - 1,999
Minority interest in income of Savannah - 1,766
Impairment loss - 12,538
Depreciation & amortization 39,077 33,910
Other (4,097) 143
Changes in operating assets and liabilities
(excluding amounts acquired in the Savannah
and Diamond Crystal acquisitions):
Accounts receivable 99,439 1,753
Inventories (66,933) (35,322)
Deferred costs and prepaid expenses 3,864 18,551
Accounts payable - trade 31,654 38,719
Other current liabilities (43,378) (24,584)
--------- ---------
Operating cash flow 66,792 35,390
--------- ---------
INVESTMENT ACTIVITIES:
Acquisition of Diamond Crystal, net of cash acquired (111,442) -
Acquisition of Savannah, net of cash acquired - (363,665)
Capital expenditures (16,665) (30,774)
Investment in marketable securities (13,409) (10,604)
Proceeds from sales of securities 14,611 10,693
Proceeds from the maturity of securities 5,881 583
Proceeds from sales of fixed assets 2,184 477
Other 1,311 2,086
--------- ---------
Investing cash flow (117,529) (391,204)
--------- ---------
FINANCING ACTIVITIES:
Short-term debt:
CCC borrowings - advances 59,888 37,037
CCC borrowings - repayments (22,448) (31,530)
Other - net (839) -
Revolving credit borrowings 86,985 (42,879)
Long-term debt:
Proceeds - 520,874
Repayment (62,965) (130,748)
Dividends paid (2,880) (2,075)
Issuance of stock and other 1,116 5,189
--------- ---------
Financing cash flow 58,857 355,868
--------- ---------
INCREASE IN CASH AND TEMPORARY INVESTMENTS 8,120 54
CASH AND TEMPORARY INVESTMENTS, BEGINNING OF PERIOD 2,877 9,354
--------- ---------
CASH AND TEMPORARY INVESTMENTS, END OF PERIOD $ 10,997 $ 9,408
========= =========
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE>
IMPERIAL SUGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Nine Months Ended June 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Shares of Common Stock Common Stock
---------------------------------- -------------------------------
Held by Held by Unrealized
Benefit Treasury Benefit Treasury Retained Securities
Issued Trust Stock Issued Trust Stock Earnings Gains Total
---------- ----------- --------- -------- --------- --------- --------- ---------- -------
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SEPTEMBER 30, 1998 28,385,991 (1,199,053) (121,197) $268,804 $(14,367) $(1,452) $80,150 $19,772 $352,907
Net loss - - - - - - (9,540) - (9,540)
Cash dividends - - - - - - (2,880) - (2,880)
Stock issued in Diamond
Crystal acquisition 5,006,770 - - 40,054 - - - - 40,054
Employee stock purchase plan &
stock option exercises 83,493 - - 571 - - - - 571
Director compensation plan 39,776 331 331
Stock transferred from
benefit trust - 156,403 (156,403) - 1,874 (1,874) - - -
Change in unrealized
securities gains - net - - - - - - - 4,403 4,403
---------- ---------- -------- -------- -------- -------- -------- ---------- --------
BALANCE JUNE 30, 1999 33,516,030 (1,042,650) (277,600) $309,760 $(12,493) $(3,326) $67,730 $24,175 $385,846
========== ========== ======== ======== ======== ======== ======== ========== ========
</TABLE>
See notes to consolidated financial statements.
- 6 -
<PAGE>
IMPERIAL SUGAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1999 AND 1998
Basis of Presentation - The unaudited condensed consolidated financial
statements included herein have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission and reflect, in the
opinion of management, all adjustments, consisting only of normal recurring
accruals, that are necessary for a fair presentation of financial position and
results of operations for the interim periods presented. These financial
statements include the accounts of Imperial Sugar Company (formerly Imperial
Holly Corporation) and its majority owned subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain information and footnote disclosures required by
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. The financial statements included herein should
be read in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended September 30,
1998.
Cost of Sales - Payments to growers for sugarbeets are based in part upon the
Company's average net return for sugar sold (as defined in the participating
contracts with growers) during the grower contract years, some of which extend
beyond June 30. The contracts provide for the sharing of the net selling price
(gross sales price less certain marketing costs, including packaging costs,
brokerage, freight expense and amortization of costs for certain facilities used
in connection with marketing) with growers. Cost of sales includes an accrual
for estimated additional amounts to be paid to growers based on the average net
return realized for sugar sold in each of the contract years through June 30.
The final cost of sugarbeets cannot be determined until the end of the contract
year for each growing area. Manufacturing costs prior to production are
deferred and allocated to production costs during each sugar manufacturing
campaign. Additionally, the Company's sugar inventories, which are accounted
for on a LIFO basis, are periodically reduced at interim dates to levels below
that of the beginning of the fiscal year. When such interim LIFO liquidations
are expected to be restored prior to fiscal year-end, the estimated replacement
cost of the liquidated layers is utilized as the basis of the cost of sugar sold
from beginning of the year inventory. Accordingly, the cost of sugar utilized
in the determination of cost of sales for interim periods includes estimates
which may require adjustment in future fiscal periods.
Accounting Pronouncements - As of October 1, 1998, the Company adopted
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income", which requires the reporting of comprehensive income and its
components. Comprehensive income (loss) was:
<TABLE>
<CAPTION>
June 30,
1999 1998
------- -------
<S> <C> <C>
Three Months Ended 5,671 6,316
Nine Months Ended (5,137) (8,705)
</TABLE>
The difference between comprehensive income and net income for each period
was the change in unrealized securities gains, net of related income taxes.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" and Statement of Financial Accounting Standards No. 132,
"Employers' Disclosure About Pensions and Other Post Retirement Benefits".
These statements, which are effective for the Company's fiscal year ending
- 7 -
<PAGE>
September 30, 1999, establish additional disclosure requirements but do not
affect the measurement of results of operation. Additionally, Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," has been issued and will be effective for the fiscal
year ending September 30, 2001. Management is evaluating what effect, if any,
such statements will have on the Company's results of operation and/or required
disclosures.
Accounts Receivable Securitization - On June 30, 1999, the Company entered
into a five-year receivables purchase agreement with an independent issuer of
receivables-backed commercial paper. Through a wholly-owned special purpose
subsidiary, the Company agreed to sell on an ongoing basis and without recourse,
an undivided percentage ownership interest in designated pools of accounts
receivable. To maintain the balance in the designated pools of accounts
receivable sold, the Company is obligated to sell undivided percentage interests
in new receivables as existing receivables are collected. The agreement permits
the sale of up to $110 million of undivided interests in accounts receivable
through June, 2004. The Company records such transfers as sales of the related
accounts receivable as it has surrendered control of such receivables under the
provisions of SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities".
At June 30, 1999, the Company had sold a $95 million undivided interest in
its accounts receivable to the purchaser. The Company used these proceeds to
pay down debt under its senior secured credit facilities. The Company's
retained interest was $27 million; the fair value of the retained interest
approximated its book value.
Loss on Investment in Partnership - During the second quarter of fiscal
1999, the Company recorded charges totaling $16.7 million to write-off its
investment in Pacific Northwest Sugar Company, a partnership in which a
subsidiary of the Company was a 43% limited partner. In connection with the
restructuring of the partnership's debt, the Company transferred its limited
partnership interest to an affiliate of the general partner. An agreement dated
April 26, 1999 terminated the Company's involvement with the project and
includes mutual releases among the parties. As a result of the agreement, the
general partner became the sole owner of the partnership, which constructed,
owns and operates a beet sugar processing facility in Moses Lake, Washington.
The facility experienced substantial operating losses in its first year of
operation due principally to critical equipment failures, exacerbated by warmer
than normal weather during the processing campaign. The Company's share of such
losses totaled approximately $10.5 million and is included in the above
mentioned charge.
Acquisitions - On November 2, 1998 the Company acquired all the
outstanding common stock of DSLT Inc. ("Diamond Crystal") in a merger of a
wholly owned subsidiary of the Company with and into Diamond Crystal.
Consideration paid at closing consisted of $79.6 million cash, 4,972,060 shares
of Company Common Stock and the repayment of $28.3 million of Diamond Crystal
debt. The Merger consideration is subject to adjustments based on an
acquisition date balance sheet of Diamond Crystal and other factors. In April
1999, additional consideration of $555,000 cash and 34,710 shares of Company
common stock was issued based on the resolution of certain of such factors. The
cash portion of the Merger consideration was funded by borrowing under the
Company's existing revolving credit agreement.
- 8 -
<PAGE>
Diamond Crystal produces nutritional dry mixes, sauces, seasonings,
drink mixes and desserts for distribution to the healthcare and food service
industries. A preliminary allocation of the aggregate purchase price paid at
closing, including $35.4 million of liabilities assumed, has been made to
current assets ($33.3 million), plant, property and equipment ($29.1 million)
and goodwill ($123.9 million). Liabilities assumed include $2.5 million for the
estimated costs to close two Diamond Crystal production facilities, as well as
cost related to the involuntary termination of certain administrative employees.
The Company acquired Savannah Foods & Industries, Inc. ("Savannah") in a
two step transaction concluded December 22, 1997, when Savannah merged with a
wholly owned subsidiary of the Company. Previously, the Company had purchased
50.1% of Savannah's outstanding common stock in a tender offer which was
completed October 17, 1997.
The Diamond Crystal and Savannah acquisitions were accounted for by
the purchase method, and these consolidated financial statements include the
results of Diamond Crystal since November 2, 1998, and the results of Savannah
since October 17, 1997, net of the minority shareholders' interest in the
earnings of Savannah through December 22, 1997. Pro forma operating results as
if both the Diamond Crystal and the Savannah acquisitions and related financing
transactions had occurred as of September 30, 1997, and assuming effective tax
rates of 35% to 38%, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(In Thousands of Dollars, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Net Sales $ 499,977 $ 487,111 $ 1,411,819 $ 1,470,548
----------- ----------- ----------- -----------
Cost of Sales 443,875 430,239 1,272,260 1,320,820
Selling, General and
Administrative Expenses 19,026 20,780 54,335 67,227
Asset Impairment and Other Charges - - - 18,287
Depreciation and Amortization 14,017 12,798 39,510 38,998
----------- ----------- ----------- -----------
Total 476,918 463,817 1,366,105 1,445,332
----------- ----------- ----------- -----------
Operating Income 23,059 23,294 45,714 25,216
Interest Expense (14,532) (14,632) (45,702) (44,425)
Securities Gains 2,379 2 4,671 2,181
Loss on Investment in Partnership - - (16,706) -
Other Income 1,306 928 2,120 4,020
----------- ----------- ----------- -----------
Income Before Income Taxes 12,212 9,592 (9,903) (13,008)
Provision for Income Taxes 5,558 4,794 (13) (1,217)
----------- ----------- ----------- -----------
Net Income (Loss) $ 6,654 $ 4,798 $ (9,890) $ (11,791)
=========== =========== =========== ===========
Basic Earnings Per Share $ 0.21 $ 0.15 $ (0.30) $ (0.37)
----------- ----------- ----------- -----------
Diluted Earnings Per Share $ 0.21 $ 0.15 $ (0.30) $ (0.37)
=========== =========== =========== ===========
Weighted Average Shares
Outstanding 32,190,208 32,015,121 32,135,065 32,004,286
=========== =========== =========== ===========
</TABLE>
Goodwill acquired in these transactions is being amortized over 40
years.
- 9 -
<PAGE>
Earnings per Share - The following table presents information
necessary to calculate basic and diluted earnings per share.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ------------ ------------
(In Thousands of Dollars, Except per Share Amounts)
<S> <C> <C> <C> <C>
Earnings for basic and diluted computation:
Income (loss) before extraordinary
item $ 6,654 $ 5,275 $ (9,540) $ (12,084)
Adjustments - None - - - -
----------- ----------- ----------- -----------
Adjusted income (loss) before
extraordinary item $ 6,654 $ 5,275 $ (9,540) $ (12,084)
=========== =========== =========== ===========
Net income (loss) $ 6,654 $ 5,275 $ (9,540) $ (14,083)
Adjustments - None - - - -
----------- ----------- ----------- -----------
Adjusted net income $ 6,654 $ 5,275 $ (9,540) $ (14,083)
=========== =========== =========== ===========
Basic earnings per share:
Weighted average shares outstanding 32,190,208 27,043,121 31,548,191 23,206,716
=========== =========== =========== ===========
Income (loss) per share before
extraordinary item $ 0.21 $ 0.20 $ (0.30) $ (0.52)
=========== =========== =========== ===========
Net income (loss) per share $ 0.21 $ 0.20 $ (0.30) $ (0.61)
=========== =========== =========== ===========
Diluted earnings per share:
Weighted average shares outstanding 32,190,208 27,043,121 31,548,191 23,206,716
Incremental shares issuable from
assumed exercise of stock options
under the treasury stock method 240 94,263 4,424 150,878
----------- ----------- ----------- -----------
Weighted average shares outstanding
- as adjusted 32,190,448 27,137,384 31,552,615 23,357,594
=========== =========== =========== ===========
Income (loss) per share before
extraordinary item $ 0.21 $ 0.19 $ (0.30) $ (0.52)
=========== =========== =========== ===========
Net income (loss) per share $ 0.21 $ 0.19 $ (0.30) $ (0.60)
=========== =========== =========== ===========
</TABLE>
Substantially all of the Company's consolidated subsidiaries fully and
unconditionally guarantee the Company's 9-3/4% senior subordinated notes due
2007. The Company does not publish separate financial statements and other
disclosures for such guarantor subsidiaries because management has determined
that such information is not material to investors. Condensed, combined
financial information for such guarantor subsidiaries was as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -----------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Income Statement Data
- ---------------------
Net Sales $435,009 $385,436 $1,208,920 $1,095,631
Operating income 35,468 23,572 32,519 25,830
Net income (loss) 11,313 13,630 11,718 9,439
June 30,
1999
--------
Balance Sheet Data
- ------------------
Current assets $372,252
Property, plant and equipment, net 356,633
Goodwill - net 397,208
Current liabilities 243,991
Long-term debt, net 25,150
</TABLE>
- 10 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company completed the first step of the Savannah acquisition on
October 17, 1997 and completed the Diamond Crystal acquisition on November 2,
1998. Accordingly, the results of operations reported for the nine months ended
June 30, 1998 do not include Savannah operations for the first 16 days of the
period and do not include Diamond Crystal for any part of the period. Savannah
operations are included for the entire nine months ended June 30, 1999, while
Diamond Crystal's results are included for eight of the nine months. The pro
forma financial information included in the Notes to Consolidated Financial
Statements present the combined results of the companies as if the acquisitions
and related financing transactions had occurred as of September 30, 1997.
Liquidity and Capital Resources
- -------------------------------
The Company's primary capital requirements are expected to include
debt service, capital expenditures and working capital. The primary sources of
capital are expected to be cash flow from operations, borrowings under the
revolving credit portion of the Company's bank credit facility and sales of
receivables under the revolving receivable purchase facility.
The Company's bank credit facility includes a $157 million revolving
credit facility (available through December 2002) and term loans initially
aggregating $255 million. At June 30, 1999, the Company had $6 million
available under the revolving credit facility. Interest on the facilities is at
floating rates (either a base rate plus a margin of from 0.25% to 2% or a
Eurodollar rate plus a margin of from 1.25% to 3%). The Company has entered
into interest rate swap agreements with major financial institutions to
effectively fix the interest rate on $231 million under the bank credit facility
at a weighted average annual rate of 8.54% as of June 30, 1999. The Company
will be required to make prepayments under the facilities, with certain
exceptions, equal to 100% of the net proceeds from certain indebtedness, the
sale of equity securities and the disposition of assets, including proceeds from
the sale of stock of any subsidiaries, plus 75% of excess cash flow. The
facility is secured by substantially all of the assets of the Company and its
subsidiaries.
On June 30, 1999, the Company entered into a five-year receivables purchase
agreement with an independent issuer of receivables-backed commercial paper.
The agreement establishes a five-year, $110 million revolving receivable
purchase facility, which allows the Company to sell receivables on a non-
recourse basis. At June 30, 1999, the Company sold $95 million of accounts
receivable. The proceeds were used to repay $52 million of term loans and $43
million outstanding under the revolving credit facility. The bank credit
facility was amended to reduce the revolving credit facility's commitment amount
to $157 million.
The Company's debt agreements impose various restrictions that could
limit the Company's ability to respond to market conditions, to provide for
unanticipated capital investments, to raise additional debt or equity capital,
or to take advantage of business opportunities. In particular, the Company and
each of its subsidiaries is subject to negative covenants contained in the bank
credit facility that restrict, subject to specified exceptions:
. the incurrence of additional indebtedness and other obligations and
the granting of additional liens;
. mergers, acquisitions and dispositions;
. investments, loans and advances;
- 11 -
<PAGE>
. dividends, stock repurchases and redemptions;
. prepayment or repurchase of other indebtedness and amendments to
certain agreements governing indebtedness;
. transactions with affiliates;
. capital expenditures;
. sales and leasebacks;
. changes in fiscal periods;
. changes of lines of business; and
. entering into agreements that prohibit the creation of liens or limit
the subsidiaries' ability to pay dividends.
In addition, the bank credit facility requires the Company to maintain
compliance with certain specified financial covenants, including a maximum ratio
of total debt to earnings before interest, taxes, depreciation and amortization
("EBITDA") and senior debt to EBITDA, a minimum interest coverage ratio and a
minimum fixed charge coverage ratio as well as a minimum adjusted current ratio
and a minimum level of net worth.
The indenture governing the Company's $250 million senior subordinated
notes contains covenants that limit, with certain exceptions, the ability of the
Company and most of its subsidiaries to:
. incur additional indebtedness or issue preferred stock;
. pay dividends or make certain other restricted payments by the
Company or its subsidiaries;
. enter into transactions with affiliates;
. make certain asset dispositions;
. in the case of the Company, merge or consolidate with, or transfer
substantially all of its assets to another person;
. encumber assets;
. issue capital stock of wholly owned subsidiaries; or
. engage in certain business activities.
In addition, under certain circumstances, the Company will be required to
offer to repurchase the notes at par, plus accrued and unpaid interest, with the
proceeds of certain asset sales.
The Company's capital expenditures for fiscal 1999 are expected to be
approximately $30 million, including additional packaging and production
efficiency upgrades, as well as continuation of the Company's computer system
initiatives.
Based upon current and anticipated future operations and anticipated future
cost savings, the Company believes that capital resources will be adequate to
meet anticipated future capital requirements. There can be no assurance,
however, that the Company will realize sufficient cost savings or generate
sufficient cash flow that, together with the other sources of capital, will
enable the Company to service its indebtedness, or make anticipated capital
expenditures. If the Company is unable to generate sufficient cash flow from
operations or to borrow sufficient funds in the future to service its debt, it
may be required to sell assets, reduce capital expenditures, refinance all or a
portion of its existing indebtedness, or obtain additional financing.
Year 2000 Issues
- ----------------
The Company has developed plans to address the possible exposures related
to the impact on its computer systems of the year 2000 ("Y2K"). Implementation
of some of these plans is completed and others are in process. The Company's
- 12 -
<PAGE>
efforts have been focused in four areas: (1) technology infrastructure,
including hardware and computer operating software; (2) application software for
key financial, informational and operational systems; (3) process control
technology at each of the Company's production facilities; and (4) third party
readiness. These efforts are being coordinated with the Company's strategic
initiative to replace its major management information systems with newly
acquired client-server based software from PeopleSoft USA, Inc.
The Company estimates that its infrastructure project is 95% complete,
including remediation of the mainframe and mid-range computers in the Company's
Savannah, Georgia and Sugar Land, Texas offices, and installation of the client-
server computers for the PeopleSoft implementation. The remaining
infrastructure effort is to install previously tested hardware.
The Company's plan for Y2K compliance of application software is
substantially complete. Such plan included remediation of certain systems and
replacement of others. Remediation of application software processed in
Savannah, Georgia was completed in fiscal 1998. Remediation of systems processed
in Sugar Land, Texas has been completed during fiscal 1999. The initial phase
of replacement with PeopleSoft applications of non-Y2K compliant applications
was implemented in fiscal 1998 and the replacement of remaining non-compliant
systems, principally human resource applications, was completed in June 1999.
Management at each of the Company's production facilities is reviewing
and assessing the year 2000 impacts on hardware and software, including embedded
computer chips, utilized for manufacturing process control. The Company
believes that it has substantially completed identification of, and expects to
complete remediation by September 30, 1999 of, manufacturing control technology
which may materially affect its manufacturing operations.
The Company has also initiated discussions with major vendors and
customers concerning their year 2000 readiness, and is evaluating their
responses and developing contingency plans should such third parties not
complete required system modifications. Contingency plans could include
identifying alternate vendors for required services and materials or developing
manual procedures for automated processes.
Costs to modify existing application systems was approximately $1
million, approximately half of which was incurred over a two year period. New
hardware and software purchases are estimated to total $5.5 million over a two
year period, including $3.5 million which was capitalized in fiscal 1998. No
material costs were incurred on these projects prior to fiscal 1998.
The failure to correct a material year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Y2K problem, resulting in part from the uncertainty
of the year 2000 readiness of third party suppliers and customers, the Company
is unable to determine at this time whether the consequences of year 2000
failures will have a material impact on the Company's results of operations,
liquidity or financial condition. The year 2000 efforts described above are
expected to significantly reduce the Company's level of uncertainty about the
Y2K problem and, in particular, about the year 2000 compliance and readiness of
such third parties. The Company believes that, with the implementation of new
business systems and completion of the projects as scheduled, the possibility of
significant interruptions of normal operations should be reduced.
- 13 -
<PAGE>
Readers are cautioned that forward-looking statements contained in this
year 2000 discussion should be read in conjunction with the Company's
disclosures on page 2 of this Form 10-Q.
Results of Operations
- ---------------------
The increase in pro forma net sales for the three month period ended June
30, 1999 compared to 1998 resulted from higher industrial sugar sales prices,
which were partially offset by slight decreases in refined sugar volumes and
lower prices on consumer private label products. The decrease in pro forma net
sales for the nine month period ended June 30, 1999 compared to 1998 resulted
from lower volumes of refined sugar sales and lower consumer private label
prices, which were partially offset by higher industrial sugar sales prices.
Pro forma gross margin as a percent of sales declined slightly from 11.7% to
11.2% for the quarter primarily due to the Food Service divisions competitive
pricing pressures and the significant decline in byproduct sales prices due to
competitive feed grain prices. The decline was partially offset by the decrease
in raw cane sugar unit costs. Pro forma gross margin as a percent of sales
declined from 10.2% to 9.9% for the nine months primarily due to higher costs at
the Company's Montana and Michigan factories resulting from lower sugar content
in sugarbeets harvested, and warmer temperatures during sugarbeet storage which
adversely affected sugar recovery in the first half of the current year.
Pro forma sales by the Company's Food Service division were $312.1 million
for the nine months and $106.8 million for the three months ended June 30, 1999,
increases of $14.9 million and $9.5 million from the same periods of the prior
year. Food Service gross margin was $40 million for the nine months and $12.7
million for the three months of the current year, down by $2.3 million and $.3
million respectively, due principally to product mix and lower prices due to
competitive pricing.
Historically, over three-quarters of the Company's industrial sales are
made under forward sales contracts, most of which commence October 1 and extend
for up to a year, resulting in a lagging effect of market price changes on the
Company's sugar sales. To mitigate its exposure to future price changes, the
Company purchases raw cane sugar under forward purchase contracts at fixed
prices and use futures contracts and other pricing techniques to fix the price
for part of the sugar purchased. Additionally, the Company manages the volume
of refined sugar sales contracted for future delivery relative to the volume of
raw sugar priced for future purchases. The Company purchases sugar beets under
participatory contracts which provide for a percentage sharing of the net
selling price realized on refined beet sugar sales and, in some cases,
byproducts, between the Company and the grower. Use of this type of contract
reduces the Company's exposure to price risk on sugarbeet purchases by causing
the price paid for sugarbeets to vary with the price received for refined sugar,
so long as the contract net selling price does not fall below the regional
minimum support prices established by the USDA. Consequently, the increase in
industrial unit selling price of refined beet sugar resulted in increases in the
unit cost of sugarbeets purchased, mitigating the impact on beet sugar sales
margins.
Pro forma selling, general and administrative costs were $1.8 million
lower for the three months and $12.9 million lower for the nine months ended
June 30, 1999 compared to the same periods of the prior year, due to cost
savings in general and administrative expenses as well as reductions in volume
related selling costs. Following the Savannah acquisition the Company undertook
significant cost savings initiatives and reorganized its administrative
functions to remove duplication and streamline such functions.
- 14 -
<PAGE>
Interest expense for the three and nine months ended June 30, 1999 was
higher than the comparable period of the prior year primarily as a result of
higher borrowings to finance the Diamond Crystal acquisition.
The loss on investment in partnership resulted from the write-off of the
Company's investment in a limited partnership as discussed in the notes of
consolidated financial statements.
The asset impairment and other charges included in the prior year's
results were primarily charges in connection with the closing of the Company's
Hereford, Texas beet sugar factory and charges to record a loss the Company
incurred in meeting it contractual sales obligations as a result of poor weather
conditions at its Northern California factories.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company uses raw sugar futures and options in its inventory
purchasing programs. Gains and losses on such transactions are matched to
specific inventory purchases and charged or credited to cost of sales as such
inventory is sold. The Company does not enter into futures or option
transactions for trading purposes.
The information below presents the Company's domestic futures position
outstanding as of March 31, 1999. The Company's world sugar futures and option
positions are not material to its consolidated financial position, results of
operations or cash flows.
<TABLE>
<CAPTION>
Expected Maturity Expected Maturity
Fiscal 1999 Fiscal 2000
----------------- -----------------
<S> <C> <C>
Futures Contract (long positions):
Contract Volumes (cwt.) 725,760 3,092,320
Weighted Average Contract Price
(per cwt.) $ 22.54 $ 22.28
Contract Amount $16,357,796 $68,893,417
Weighted Average Fair Value
(per cwt.) $ 22.47 $ 22.25
Fair Value $16,307,827 $68,796,605
</TABLE>
The above information does not include either the Company's physical inventory
or its fixed price purchase commitments for raw sugar.
The Company's position in derivative financial instruments and other financial
instruments has not changed materially since September 30, 1998, except for the
addition of interest rate swaps with notional amounts totaling $55.7 million,
maturing in various amounts through 2003.
- 15 -
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The exhibits required to be filed with this report are listed below:
Exhibit 4.1 First Amendment to the Company's Amended and Restated
Credit Agreement dated March 31, 1998.
Exhibit 4.2 Second Amendment to the Company's Amended and Restated
Credit Agreement dated September 28, 1998.
Exhibit 27 Financial Data Schedule
Registrant is a party to several long-term debt instruments under which in
each case the total amount of securities authorized does not exceed 10% of the
total assets of Registrant and its subsidiaries on a consolidated basis.
Pursuant to paragraph 4(iii) (A) of Item 601(b) of Regulation S-K, Registrant
agrees to furnish a copy of such instruments to the Securities and Exchange
Commission upon request.
(b) During the three months ended June 30, 1999, the Company filed a current
report on Form 8-K dated May 3, 1999. A report on Form 8-K was filed on July
16, 1999 in connection with the Receivables Purchase Agreement.
- 16 -
<PAGE>
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.
IMPERIAL SUGAR COMPANY
(Registrant)
Dated: August 10, 1999 By: /s/ Mary L. Burke
-------------------
Mary L. Burke
Managing Director
and Chief Financial Officer
(Principal Financial Officer)
- 17 -
<PAGE>
EXECUTION COPY
FIRST AMENDMENT
FIRST AMENDMENT, dated as of March 31, 1998 (this "Amendment"), to the
---------
Amended and Restated Credit Agreement, dated as of December 22, 1997 (as
heretofore and hereafter amended, supplemented or otherwise modified from time
to time, the "Credit Agreement"), among Imperial Holly Corporation (the
----------------
"Borrower"), the several Lenders from time to time parties thereto, Lehman
- ---------
Commercial Paper Inc., as Syndication Agent, Lehman Brothers Inc., as Arranger
and Harris Trust and Savings Bank, as Administrative Agent and Collateral Agent.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Borrower has requested that the Lenders amend certain
provisions of the Credit Agreement;
WHEREAS, the Lenders have agreed to such amendments only upon the
terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
SECTION 1. Defined Terms. Unless otherwise defined herein,
-------------
capitalized terms which are defined in the Credit Agreement are used herein as
therein defined.
SECTION 2. Amendment to Section 7 of the Credit Agreement. (a)
----------------------------------------------
Section 7.1(a) of the Credit Agreement is hereby amended by deleting the
parenthetical "(or, if less, the number of full fiscal quarters subsequent to
the Closing Date)" appearing in the third line therein.
(b) Section 7.1(b) of the Credit Agreement is hereby amended by
deleting the parenthetical "(or, if less, the number of full fiscal quarters
subsequent to the Closing Date)" appearing in the third line therein.
(c) Section 7.1(c) of Credit Agreement is hereby amended as follows:
(i) by deleting the parenthetical "(or, if less, the number
of full fiscal quarters subsequent to the Closing Date)" appearing in
the second and third lines therein; and
(ii) by inserting the following proviso immediately at the
end thereof:
"; provided, that for the purposes of determining the ratio described
--------
above for the fiscal quarters of the Borrower ending March 31, 1998,
June 30, 1998 and September 30, 1998, (i) Consolidated Interest
Expense and Consolidated EBITDA
<PAGE>
2
for the relevant period shall be determined as of the last day of the
four full fiscal quarters ending on such date and (ii) the
Consolidated Interest Expense and Consolidated EBITDA of the Target
and its Subsidiaries during such period shall be included on a pro
forma basis for such period (assuming the consummation of the Tender
Offer Purchase and the Merger and the incurrence or assumption of any
Indebtedness in connection therewith (including the Indebtedness
incurred hereunder) occurred on the first day of such period)."
SECTION 3. Conditions to Effectiveness. This Amendment shall become
---------------------------
effective as of the date hereof (the "Effective Date") upon execution and
--------------
delivery by a duly authorized officer of each of the Borrower, the Agents and
the Required Lenders.
SECTION 4. Representation and Warranties. The Borrower represents
-----------------------------
and warrants to each Agent and each Lender that as of the Effective Date, before
and after giving effect to this Amendment: (i) no Default or Event of Default
has occurred and is continuing; (ii) the representations and warranties made by
the Borrower in or pursuant to the Credit Agreement or any Loan Documents are
true and correct in all material respects on and as of the Effective Date as if
made on such date (except to the extent that any such representations and
warranties expressly relate to an earlier date, in which case such
representations and warranties were true and correct in all material respects on
and as of such earlier date) and (iii) this Amendment constitutes the legal,
valid and binding obligation of the Borrower, enforceable against the Borrower
in accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law).
SECTION 5. Continuing Effect of Credit Agreement. This Amendment
-------------------------------------
shall not constitute an amendment or waiver of or consent to any provision of
the Credit Agreement not expressly referred to herein and shall not be construed
as an amendment, waiver or consent to any action on the part of the Borrower
that would require an amendment, waiver or consent of the Agents or the Lenders
except as expressly stated herein. Except as expressly consented to hereby, the
provisions of the Credit Agreement are and shall remain in full force and
effect.
SECTION 6. Expenses. The Borrower agrees to pay and reimburse the
--------
Agents for all of their reasonable costs and out-of-pocket expenses incurred in
connection with the preparation, execution and delivery of this Amendment and
ancillary documents, including, without limitation, the reasonable fees and
disbursements of counsel to the Agents.
SECTION 7. 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, but all counterparts taken together shall
constitute one and the same instrument.
<PAGE>
3
SECTION 8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their respective duly authorized officers as of the
date first above written.
IMPERIAL HOLLY CORPORATION
/s/ KAREN L. MERCER
By:___________________________________________
Name: Karen L. Mercer
Title: Vice President and Treasurer
LEHMAN COMMERCIAL PAPER INC., as Syndication Agent
and as a Lender
/s/ MICHELE SWANSON
By:____________________________________________
Name: Michele Swanson
Title: Authorized Signatory
HARRIS TRUST AND SAVINGS BANK, as Administrative
Agent, Collateral Agent,
Issuing Lender and as a Lender
/s/ ERICA T. KUHLMANN
By:_____________________________________________
Name: Erica T. Kuhlmann
Title: Vice President
WACHOVIA BANK, N.A.
/s/
By:_____________________________________________
Name:
Title:
UNION BANK OF CALIFORNIA, N.A.
/s/ ALBERT W. KELLEY
By:_____________________________________________
Name: Albert W. Kelley
Title: Vice President
<PAGE>
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK
B.A., "RABOBANK NEDERLAND" NEW YORK BRANCH
/s/ W. JEFFREY VOLLACK /s/ DANA W. HEMENWAY
By:_______________________________________________
Name: W. Jeffrey Vollack Dana W. Hemenway
Title: Senior Credit Officer Vice President
Senior Vice President
WELLS FARGO BANK (TEXAS), N.A.
/s/
By:_______________________________________________
Name:
Title:
CREDIT AGRICOLE INDOSUEZ
/s/ DEAN BALICE
By:_______________________________________________
Name: Dean Balice
Title: Senior Vice President
Branch Manager
/s/ DENNIS TOOLAN
By:_______________________________________________
Name: Dennis Toolan
Title: Senior Vice President
U.S. BANCORP AG CREDIT, INC.
/s/ ALAN V. SCHULER
By:_______________________________________________
Name: Alan V. Schuler
Title: Vice President
<PAGE>
Title:
THE BANK OF NEW YORK
/s/ ALAN F. LYSTER, JR.
By:____________________________________
Name: Alan F. Lyster, Jr.
Title: Vice President
THE FROST NATIONAL BANK
/s/ W. GLEN THOMAS
By:____________________________________
Name: W. Glen Thomas
Title: Vice President
ST. PAUL BANK FOR COOPERATIVES
/s/ MARVIN L. LINDO
By:____________________________________
Name: Marvin L. Lindo
Title: Senior Vice President--Credit
ING HIGH INCOME PRINCIPAL PRESERVATION
FUND HOLDINGS, LDC
By: ING Capital Advisors, Inc., as
Investment Advisor
/s/ HELEN Y. RHEE
By:____________________________________
Name: Helen Y. Rhee
Title: AVP & Portfolio Manager
<PAGE>
Title:
PILGRIM AMERICA PRIME RATE TRUST
/s/ MICHAEL J. BACEVICH
By:____________________________________________
Name: Michael J. Bacevich
Title: Vice President
METROPOLITAN LIFE INSURANCE COMPANY
/s/ JAMES R. DINGLER
By:____________________________________________
Name: James R. Dingler
Title: Director
MERRILL LYNCH SENIOR FLOATING RATE FUND
By: Merrill Lynch Asset Management, L.P., as
Investment Advisor
/s/ GILLES MARCHAND, CPA
By:____________________________________________
Name: Gilles Marchand, CPA
Title: Authorized Signatory
MERRILL LYNCH DEBT STRATEGIES PORTFOLIO
By: Merrill Lynch Asset Management, L.P., as
Investment Advisor
/s/ GILLES MARCHAND, CPA
By:____________________________________________
Name: Gilles Marchand, CPA
Title: Authorized Signatory
<PAGE>
MERRILL LYNCH INCOME STRATEGIES PORTFOLIO
By: Merrill Lynch Asset Management, L.P., as
Investment Advisor
/s/ GILLES MARCHAND, CPA
By:____________________________________
Name: Gilles Marchand, CPA
Title: Authorized Signatory
THE TRAVELERS INSURANCE COMPANY
/s/ TERESA M. TORREY
By:____________________________________
Name: Teresa M. Torrey
Title: Second Vice President
PEOPLES SECURITY LIFE INSURANCE COMPANY
By:____________________________________
Name:
Title:
GCB INVESTMENT PORTFOLIO
By: Citibank, N.A
/s/ STEVEN KAUFMAN
By:____________________________________
Name: Steven Kaufman
Title: Vice President
<PAGE>
OSPREY INVESTMENTS PORTFOLIO
By: Citibank, N.A
/s/ HANS L. CHRISTENSEN
By:____________________________________
Name: Hans L. Christensen
Title: Vice President
BALANCED HIGH-YIELD FUND I LTD.
By: BHF-Bank Aktiengesellschaft
/s/ JOHN SYKES G. GWIN
By:______________________________________
Name: John Sykes G. Gwin
Title: Vice President AT
PROTECTIVE ASSET MANAGEMENT
/s/ JAMES DONDERO, CFA, CPA
By:______________________________________
Name: James Dondero, CFA, CPA
Title: President
Protective Asset Management Company
<PAGE>
PUTNAM DIVERSIFIED INCOME TRUST
By:____________________________________
Name:
Title:
PUTNAM VT HIGH YIELD FUND
By:____________________________________
Name:
Title:
VAN KAMPEN CLO I, LIMITED
By: Van Kampen American Capital Management,
Inc. as Collateral Manager
/s/ JEFFREY W. MALLET
By:____________________________________
Name: Jeffrey W. Mallet
Title: Senior Vice President & Director
<PAGE>
SECOND AMENDMENT
SECOND AMENDMENT, dated as of September 28, 1998 (this "Amendment"), to the
---------
Amended and Restated Credit Agreement, dated as of December 22, 1997 (as
heretofore and hereafter amended, supplemented or otherwise modified from time
to time, the "Credit Agreement"), among Imperial Holly Corporation (the
----------------
"Borrower"), the several Lenders from time to time parties thereto, Lehman
- ---------
Commercial Paper, Inc., as Syndication Agent, Lehman Brothers Inc., as Arranger
and Harris Trust and Savings Bank, as Administrative Agent and Collateral Agent.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Borrower has requested that the Lenders amend certain
provisions of the Credit Agreement;
WHEREAS, the Lenders have agreed to such amendments only upon the terms and
subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
SECTION 1. Defined Terms. Unless otherwise defined herein, capitalized
-------------
terms which are defined in the Credit Agreement are used herein as therein
defined.
SECTION 2. Amendments to the Credit Agreement.
----------------------------------
(a) Section 1.1 of the Credit Agreement is hereby further amended by
amending the definition of AConsolidated Total Debt" to provide as
follows:
"Consolidated Total Debt": at any date, the
-----------------------
sum of (a) the aggregate principal amount
of all Funded Debt of the Borrower and its
Subsidiaries at such date minus (b) the
-----
excess of (i) the aggregate principal
amount of all Revolving Credit Loans, Swing
Line Loans and Indebtedness incurred
pursuant to Section 7.2(k) outstanding at
such date over (ii) the lesser of (A) the
Acquisition Debt and (B) the lowest amount
described in the
1
<PAGE>
foregoing clause (i) to be outstanding
during any consecutive 30 days occurring
within the 12 months ending on such date
(or, if less, since the Acquisition Date),
all determined on a consolidated basis in
accordance with GAAP; provided that for
--------
the purposes of calculating Consolidated
Total Leverage Ratio for its use in
determining the Applicable Margin and the
Commitment Fee Rate in the Pricing Grid,
AConsolidated Total Debt" shall mean, at
any date, the aggregate principal amount of
all Funded Debt of the Borrower and its
Subsidiaries at such date, determined on a
consolidated basis in accordance with GAAP.
(b) Section 1.1 of the Credit Agreement is hereby further amended by
amending the definition of "Disposition" by inserting after the
-----------
word "thereof" the phrase "(provided that the cancellation of shares
of IHK Acquisition Corp. as contemplated in the DSLT Merger Agreement
shall not be a "Disposition" hereunder)."
(c) Section 1.1 of the Credit Agreement is hereby further amended by
inserting therein in proper alphabetical order the following
definitions:
"Acquisition Date" means the "Effective
----------------
Time", as such term is defined in the DSLT
Merger Agreement.
"Acquisition Debt" means the outstanding
----------------
principal amount of Revolving Loans, the
proceeds of which are used to pay the
adjusted "Merger Price", as such term is
defined in the DSLT Merger Agreement; not
to exceed $115,300,000.
2
<PAGE>
"Consolidated Current Ratio": as of any
--------------------------
date, the ratio of (a) all amounts which
would, in conformity with GAAP, be
attributable to and reflected as accounts
receivable, inventory and deferred costs
on a consolidated balance sheet of the
Borrower and its Subsidiaries at such
date, to (b) the sum of (i) all amounts
which would, in conformity with GAAP, be
attributable to and reflected as accounts
payable on a consolidated balance sheet of
the Borrower and its Subsidiaries and (ii)
the aggregate principal amount of all
Indebtedness consisting of Revolving
Credit Loans, Swing Line Loans or
Indebtedness of the Borrower and its
Subsidiaries incurred pursuant to Section
7.2(k) on such date.
"DSLT Merger": shall mean the
-----------
"Merger," as such term is
defined in the DSLT Merger
Agreement.
"DSLT" Merger Agreement": means
----------------------
the Agreement and Plan of Merger
dated September 2, 1998, among
the Borrower, IHK Acquisition
Corp. and DSLT Inc., as amended
from time to time.
"WF": means Wholesome Foods
--
L.L.C., a Florida limited
liability company.
"WF Acquisition": means the
--------------
acquisition of WF pursuant to
the WF Purchase Agreement.
"WF Purchase Agreement": means
---------------------
the Stock Purchase Agreement
dated as of September 1, 1998
among the Borrower, the Susan S.
Root Revocable Trust and the
1992 Root Children's Business
Trust as amended from time to
time.
(d) Section 2.5 of the Credit Agreement is hereby amended by deleting from
the sixth line thereof the phrase "one Business Day prior to" and
inserting in lieu thereof the phrase "no later than the".
(e) Section 2.12(a) of the Credit Agreement is hereby amended by inserting
at the end thereof the following phrase:
3
<PAGE>
The Lenders hereby agree that
this Section 2.12(a) shall not
apply to the issuance of up to
$40,000,000 of Capital Stock to
be issued in connection with the
DSLT Merger.
(f) The Credit Agreement is hereby amended by inserting therein the
following new Section 2.25:
2.25. Cleandown Periods. As of each fiscal year end, the
-----------------
aggregate principal amount of Revolving Loans
and Swing Line Loans outstanding at such date
must be reduced to at least the following
amounts for 30 consecutive days:
Fiscal Year End Outstandings
--------------- ------------
September 30, 1999 $ 100 million
September 30, 2000 $ 85 million
September 30, 2001 $ 70 million
September 30, 2002 $ 55 million
The application of any prepayment pursuant to
Section 2.25 shall be made first to Base Rate
Loans and second to Eurodollar Loans. Each
prepayment of the Loans under Section 2.25
(except in the case of Revolving Credit Loans
that are Base Rate Loans and Swing Line
Loans) shall be accompanied by accrued
interest to the date of such prepayment on
the amount prepaid and any amounts owing
pursuant to Section 2.21.
(g) Section 7.1(b) of the Credit Agreement is hereby amended by
revising the schedule therein to provide as follows:
Consolidated Senior
Fiscal Quarter Leverage Ratio
-------------- --------------
September 30, 1998 3.30 to 1.00
December 31, 1998 3.30 to 1.00
March 31, 1999 3.30 to 1.00
June 30, 1999 3.00 to 1.00
September 30, 1999 2.75 to 1.00
December 31, 1999 2.50 to 1.00
March 31, 2000 2.50 to 1.00
June 30, 2000 2.50 to 1.00
September 30, 2000 2.50 to 1.00
December 31, 2000 2.25 to 1.00
March 31, 2001 2.25 to 1.00
4
<PAGE>
June 30, 2001 2.25 to 1.00
September 30, 2001 2.25 to 1.00
December 31, 2001 2.00 to 1.00
Thereafter 2.00 to 1.00
(h) Section 7.1(e) of the Credit Agreement is hereby deleted and the
following inserted in lieu thereof:
Consolidated Current Ratio. Permit the
--------------------------
Consolidated Current Ratio as of the
last day of any fiscal quarter of the
Borrower to be less than 1.30 to 1.00.
(i) Section 7.4 of the Credit Agreement is hereby amended by (i) deleting
the word "and" at the end of Section 7.4(a), (ii) deleting the period
at the end of Section 7.4(b) and inserting "; and" in lieu thereof and
(iii) inserting at the end thereof the following new subsection:
(c) any Person may be merged or
consolidated with or into the Borrower
or any Subsidiary so long as (i) the
Borrower or such Subsidiary shall be the
surviving corporation, and (ii) after
giving effect to such events, no Default
or Event of Default shall have resulted
therefrom.
(j) Section 7.7 is hereby amended by inserting at the end thereof the
following provision:
and (iii) to the extent the payment of such
purchase prices constitute a Capital
Expenditure, Capital Expenditures in the
amount of the purchase prices paid in
connection with the acquisition of DSLT Inc.
and WF.
(k) Section 7.8 of the Credit Agreement is hereby amended by (i) deleting
the word "and" at the end of Section 7.8(l), (ii) deleting the period
at the end of subsection (m) and inserting "; and" in lieu thereof and
(iii) inserting the following new subsection:
5
<PAGE>
(n) as contemplated under (i)
the DSLT Merger Agreement in
connection with the DSLT
Merger, for an aggregate
consideration of not more than
$163,000,000, of which not
less than $40,000,000 are
proceeds from the issuance of
equity securities of the
Borrower and (ii) the WF
Purchase Agreement in
connection with the WF
Acquisition.
(l) Section 7.10 is hereby amended by amending the last sentence thereof
by inserting after the phrase "and the Merger" the phrase "and the
DSLT Merger and the WP Acquisition."
(m) Notwithstanding anything in the Credit Agreement to the contrary, the
Lenders hereby consent to the performance of the Borrower"s
obligations under Sections 2.4 and 2.5 of the WF Purchase Agreement.
SECTION 3. Conditions to Effectiveness. This Amendment shall become
---------------------------
effective as of the date hereof (the "Effective Date") upon satisfaction of the
--------------
following conditions precedent:
(a) The execution and delivery of this Amendment by a duly authorized
officer of each of the Borrower, the Agents and the Required Lenders;
(b) Delivery to the Administrative Agent of true, correct and complete
copies of the executed DSLT Merger Agreement and the WF Purchase Agreement,
together with copies of any legal opinions delivered in connection therewith;
(c) Delivery to the Administrative Agent of the DSLT Financial
Statements (as defined below);
(d) Delivery to the Administrative Agent of the tax return of WF and
its subsidiary as of and for the year ended December 31, 1997; and
(e) Payment of an amendment fee of 12.50 basis points on each Lender's
existing Commitment to those Lenders which have approved the Amendment on or
prior to September 28, 1998.
SECTION 4. Representation and Warranties. The Borrower represents
-----------------------------
and warrants to each Agent and each Lender that as of the Effective Date, before
and after giving effect to this Amendment: (i) no Default or Event of Default
has occurred and is continuing; (ii) the representations and warranties made by
the Borrower in or pursuant to the Credit Agreement or any
6
<PAGE>
Loan Documents are true and correct in all material respects on and as of the
Effective Date as if made on such date (except to the extent that any such
representations and warranties expressly relate to an earlier date, in which
case such representations and warranties were true and correct in all material
respects on and as of such earlier date); (iii) this Amendment constitutes the
legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms, except as such enforcement may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law); and (iv) the Borrower has delivered to the Lenders the audited
financial statements for DSLT as of and for the year ended March 31, 1997, the
audited financial statements for DSLT as of and for the year ended March 31,
1998 and the unaudited financial statements for DSLT Inc. as of and for the
three months ended June 30, 1998 (collectively, the " DSLT Financial"
--------------
Statements"), and based on the Borrower"s review of the DSLT Financial
Statements and other financial information obtained by the Borrower in
connection with the DSLT Merger, nothing has come to the Borrower's attention as
of the Effective Date that would cause it to believe that the DSLT Financial
Statements are inaccurate in any material respect or that the DSLT Financial
Statements do not present fairly, in all material respects, the consolidated
financial position of DSLT and its subsidiaries as at the date of the DSLT
Financial Statements in conformity with generally accepted accounting
principles, consistently applied, except (A) as otherwise indicated in the DSLT
Financial Statements, and (B) for such matters as would not individually or in
the aggregate have a material adverse effect on the business, operations or
financial condition of the Borrower and its Subsidiaries taken as a whole; (v)
except as reflected, reserved against or otherwise disclosed in the DSLT
Financial Statements, based on the Borrower's review of the DSLT Financial
Statements and other financial information obtained by the Borrower in
connection with the DSLT Merger, nothing has come to the Borrower's attention as
of the Effective Date that would cause it to believe that either DSLT or any of
its subsidiaries had, as of the date of the DSLT Financial Statements, any
material liabilities or obligations that would have been required to be
reflected on the DSLT Financial Statements (including disclosures required in
any notes thereto) in accordance with generally accepted accounting principles,
consistently applied, except for such matters as would not individually or in
the aggregate have a material adverse effect on the business, operations or
financial condition of the Borrower and its Subsidiaries taken as a whole.
SECTION 5. Continuing Effect of Credit Agreement. This Amendment
-------------------------------------
shall not constitute an amendment or waiver of or consent to any provision of
the Credit Agreement not expressly referred to herein and shall not be construed
as an amendment, waiver or consent to any action on the part of the Borrower
that would require an amendment, waiver or consent of the Agents or the Lenders
except as expressly stated herein. Except as expressly consented to hereby, the
provisions of the Credit Agreement are and shall remain in full force and
effect.
SECTION 6. Expenses. The Borrower agrees to pay and reimburse the
--------
Agents for all of their reasonable costs and out-of-pocket expenses incurred in
connection with the preparation, execution and delivery of this Amendment and
ancillary documents, including, without limitation, the reasonable fees and
disbursements of counsel to the Agents.
7
<PAGE>
SECTION 7. 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, but all counterparts taken together shall
constitute one and the same instrument.
SECTION 8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their respective duly authorized officers as of the
date first above written.
IMPERIAL HOLLY CORPORATION
/s/ MARY L. BURKE
By:________________________________
Mary L. Burke
Name:______________________________
CFO
Title:_____________________________
LEHMAN COMMERCIAL PAPER, INC., as
Syndication Agent and as a Lender
/s/ MICHAEL E. O'BRIEN
By:________________________________
Michael E. O'Brien
Name:______________________________
Authorized Signatory
Title:_____________________________
HARRIS TRUST AND SAVINGS BANK, as
Administrative Agent, Collateral Agent,
Issuing Lender and as a Lender
/s/ KAREN L. KNUDSEN
By:________________________________
Karen L. Knudsen
Name:______________________________
Vice President
Title:_____________________________
WACHOVIA BANK, N.A.
/s/
By:________________________________
Name:______________________________
Title:_____________________________
9
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By:_________________________________
Name:_______________________________
Title:______________________________
FBS AG CREDIT, INC.
/s/ ALAN V. SCHULER
By:_________________________________
Alan V. Schuler
Name:_______________________________
Vice President
Title:______________________________
THE BANK OF NEW YORK
/s/ HELEN L. SARRO
By:_________________________________
Helen L. Sarro
Name:_______________________________
Assistant Vice President
Title:______________________________
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
ARABOBANK NEDERLAND" NEW
YORK BRANCH
/s/ ROBERT B. BENOIT
By:_________________________________
Robert B. Benoit
Name:_______________________________
Senior Vice President
Title:______________________________
/s/ KEVIN T. KING
By:_________________________________
Kevin T. King
Name:_______________________________
Vice President
Title:______________________________
ST. PAUL BANK FOR COOPERATIVES
/s/ MARVIN LINDO
By:_________________________________
Marvin Lindo
Name:_______________________________
Senior Vice President
Title:______________________________
10
<PAGE>
FROST NATIONAL BANK
/s/ W. GLEN THOMAS
By:________________________________
W. Glen Thomas
Name:______________________________
Vice President
Title:_____________________________
CREDIT AGRICOLE INDOSUEZ
/s/ DENNIS M. TOOLAN W. LEROY STARTZ
By:_____________________________________________
Dennis M. Toolan W. Leroy Startz
Name:___________________________________________
Senior Vice President First Vice President
Title:__________________________________________
WELLS FARGO BANK (TEXAS), N.A.
/s/ SUSAN L. COULTER
By:________________________________
Susan L. Coulter
Name:______________________________
Vice President
Title:_____________________________
BALANCED HIGH YIELD FUND I LTD.,
By: BHF-BANK AKTIENGESELLSCHAFT,
acting through its New York Branch
By:________________________________
Name:______________________________
Title:_____________________________
GCB INVESTMENT PORTFOLIO
By:________________________________
Name:______________________________
Title:_____________________________
11
<PAGE>
MERRILL LYNCH DEBT STRATEGIES
PORTFOLIO
By:________________________________
Name:______________________________
Title:_____________________________
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By:________________________________
Name:______________________________
Title:_____________________________
MERRILL LYNCH INCOME STRATEGIES
PORTFOLIO
By:__________________________________
Name:________________________________
Title:_______________________________
METROPOLITAN LIFE INSURANCE
COMPANY
By:________________________________
Name:______________________________
Title:_____________________________
OSPREY INVESTMENTS PORTFOLIO
By:________________________________
Name:______________________________
Title:_____________________________
12
<PAGE>
PEOPLES SECURITY LIFE INSURANCE
COMPANY
c/o AEGON USA INVESTMENT
MANAGEMENT
By:________________________________
Name:______________________________
Title:_____________________________
PILGRIM AMERICA PRIME RATE TRUST
By:________________________________
Name:______________________________
Title:_____________________________
PAMCO CAYMAN LTD.
By: PROTECTIVE ASSET MANAGEMENT
COMPANY
By:________________________________
Name:______________________________
Title:_____________________________
PUTNAM DIVERSIFIED INCOME TRUST
By:________________________________
Name:______________________________
Title:_____________________________
PUTNAM VT HIGH YIELD FUND
By:________________________________
13
<PAGE>
Name:______________________________
Title:_____________________________
THE TRAVELERS INSURANCE COMPANY
By:________________________________
Name:______________________________
Title:_____________________________
VAN KAMPEN AMERICAN CAPITAL
/s/ JEFFREY W. MALLET
By:_____________________________________
Jeffrey W. Mallet
Name:___________________________________
Senior Vice President & Director
Title:__________________________________
VAN KAMPEN AMERICAN CAPITAL
SENIOR INCOME TRUST
/s/ JEFFREY W. MALLET
By:_____________________________________
Jeffrey W. Mallet
Name:___________________________________
Senior Vice President & Director
Title:__________________________________
VAN KAMPEN CLO I, LIMITED
BY: VAN KAMPEN AMERICAN
CAPITAL MANAGEMENT INC.,
as Collateral Manager
/s/ JEFFREY W. MALLET
By:________________________________
Jeffrey W. Mallet
Name:______________________________
Senior Vice President
Title:_____________________________
TORONTO DOMINION
By:________________________________
Name:______________________________
Title:_____________________________
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's unaudited condensed consolidated financial statements for the nine
months ended June 30, 1999 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 10,997
<SECURITIES> 70,003
<RECEIVABLES> 49,638
<ALLOWANCES> 0
<INVENTORY> 285,751
<CURRENT-ASSETS> 452,731
<PP&E> 623,374
<DEPRECIATION> 211,133
<TOTAL-ASSETS> 1,299,410
<CURRENT-LIABILITIES> 244,789
<BONDS> 546,813
0
0
<COMMON> 309,760
<OTHER-SE> 76,086
<TOTAL-LIABILITY-AND-EQUITY> 1,299,410
<SALES> 1,400,735
<TOTAL-REVENUES> 1,400,735
<CGS> 1,263,492
<TOTAL-COSTS> 1,263,492
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,999
<INCOME-PRETAX> (9,731)
<INCOME-TAX> (191)
<INCOME-CONTINUING> (9,540)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,540)
<EPS-BASIC> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
