<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1996
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 numbers 340-28130
SUIZA FOODS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-2559681
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
3811 Turtle Creek Boulevard, Suite 1300
Dallas, Texas 75219
(214) 528-0939
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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 report(s), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
As of October 31, 1996, the number of shares outstanding of each class of
common stock was:
Common Stock, $.01 par value: 10,739,729
<PAGE>
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUIZA FOODS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1995 1996
----------- -------------
(Unaudited)
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,177 $ 9,288
Accounts receivable 31,045 47,729
Inventories 11,346 15,853
Prepaid expenses and other current assets 1,380 3,162
Deferred income taxes 81 2,127
-------- --------
Total current assets 47,029 78,159
PROPERTY, PLANT AND EQUIPMENT 92,715 112,280
DEFERRED INCOME TAXES - 7,792
INTANGIBLE AND OTHER ASSETS 91,411 151,439
-------- --------
TOTAL $231,155 $349,670
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 31,957 $ 43,702
Income taxes payable 2,415 539
Current portion of long-term debt 15,578 11,637
-------- --------
Total current liabilities 49,950 55,878
LONG-TERM DEBT 171,745 204,316
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.01: 20,000,000
shares authorized, 6,313,479 issued and
outstanding at December 31, 1995; 10,739,729
shares issued and outstanding, as adjusted, 63 107
at September 30, 1996.
Additional paid-in capital 31,023 89,337
Retained earnings (deficit) (21,626) 32
-------- --------
Total stockholders' equity 9,460 89,476
-------- --------
TOTAL $231,155 $349,670
-------- --------
-------- --------
See notes to condensed consolidated financial statements
2
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SUIZA FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three months ended Nine months ended
September 30, September 30,
----------------------- ---------------------
1995 1996 1995 1996
--------- ---------- --------- ---------
(Dollars in thousands, except share data)
<S> <C> <C> <C> <C>
NET SALES $ 110,549 $ 139,304 $ 325,454 $ 364,611
COST OF SALES 77,110 101,214 234,762 267,131
--------- ---------- --------- ---------
GROSS PROFIT 33,439 38,090 90,692 97,480
OPERATING COSTS AND EXPENSES:
Selling and distribution 16,904 19,533 48,295 52,215
General and administration 5,027 5,856 15,298 15,661
Amortization of intangibles 916 1,240 2,865 3,200
--------- ---------- --------- ---------
Total operating costs and expenses 22,847 26,629 66,458 71,076
--------- ---------- --------- ---------
INCOME FROM OPERATIONS 10,592 11,461 24,234 26,404
OTHER (INCOME) EXPENSE:
Interest expense, net 4,848 4,356 15,285 12,844
Merger, financing and other costs - 571 10,238 571
Other income, net (199) (3,137) (406) (3,389)
--------- ---------- --------- ---------
Total other expense 4,649 1,790 25,117 10,026
--------- ---------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS 5,943 9,671 (883) 16,378
INCOME TAXES (BENEFIT) 1,232 (9,266) 1,963 (7,495)
--------- ---------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY
LOSS 4,711 18,937 (2,846) 23,873
EXTRAORDINARY LOSS FROM
EXTINGUISHMENT OF DEBT - - (8,462) (2,215)
--------- ---------- --------- ---------
NET INCOME (LOSS) $ 4,711 $ 18,937 $ (11,308) $ 21,658
--------- ---------- --------- ---------
--------- ---------- --------- ---------
NET EARNINGS (LOSS) PER SHARE:
Income (loss) before extraordinary
loss $ 0.75 $ 1.68 $ (0.47) $ 2.55
Extraordinary loss - - (1.40) (0.24)
--------- ---------- --------- ---------
Net Income (loss) $ 0.75 $ 1.68 $ (1.87) $ 2.31
--------- ---------- --------- ---------
--------- ---------- --------- ---------
WEIGHTED AVERAGE SHARES OUTSTANDING 6,313,000 11,249,682 6,041,000 9,360,539
--------- ---------- --------- ---------
--------- ---------- --------- ---------
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
SUIZA FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Nine months ended September 30,
(Dollars in thousands)
1995 1996
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (11,308) $ 21,658
Operating activities:
Depreciation and amortization 6,834 7,032
Amortization of intangible assets, including deferred financing costs 3,749 3,776
(Gain) loss on the sales of assets (98) 17
Extraordinary loss from early extinguishment of debt 8,462 2,215
Merger, financing and other costs 10,238 571
Noncash and imputed interest 670 236
Minority interests 101 --
Deferred income taxes 287 (9,896)
Changes in operating assets and liabilities:
Accounts receivable (1,491) (7,639)
Inventories (916) (1,657)
Prepaid expenses and other assets (1,157) (1,534)
Accounts payable and other accrued expenses (2,217) 1,649
Income tax payable 3,889 (1,260)
--------- --------
Net cash provided by operating activities 17,043 15,168
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (7,638) (10,186)
Proceeds from the sale of property, plant and equipment 650 267
Cash outflows for acquisitions (1,808) (83,129)
--------- --------
Net cash used in investing activities (8,796) (93,048)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of debt 146,700 89,473
Repayment of debt (145,546) (60,620)
Payment of deferred financing, debt restructuring and merger costs (8,972) (3,220)
Issuance of common stock, net of expenses 4,087 58,358
Distributions to minority interests (63) --
Purchase of subsidiary preferred stock (8,269) --
--------- --------
Net cash (used in) provided by financing activities (12,063) 83,991
--------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,816) 6,111
--------- --------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,395 3,177
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,579 $ 9,288
--------- --------
--------- --------
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
SUIZA FOODS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements as of September 30,
1996 and for the three-month and nine-month periods ended September 30,
1996 have been prepared by Suiza Foods Corporation (the "Company" or
"Suiza Foods") without audit. In the opinion of management, all
necessary adjustments (which include only normal recurring adjustments)
have been made to present fairly, in all material respects, the
consolidated financial position, results of operations and cash flows
as of and for the three-month and nine-month periods ended September
30, 1996. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted. These financial
statements should be read in conjunction with the Company's 1995
financial statements contained in its Form S-1 as filed with the
Securities and Exchange Commission on March 1, 1996, as amended.
2. INVENTORIES
December 31, September 30,
1995 1996
---- ----
Pasteurized and raw milk and raw materials $ 4,278 $ 6,062
Parts and supplies 3,105 4,482
Finished goods 3,963 5,309
------- -------
$11,346 $15,853
------- -------
------- -------
3. LONG-TERM DEBT
December 31, September 30,
1995 1996
---- ----
Senior credit facility:
Revolving loan facility $ 10,900 $ 8,600
Acquisition facility -- 42,900
Term loans 123,750 127,500
Subordinated notes 51,101 36,000
Capital lease obligations and other debt 1,572 953
-------- --------
187,323 215,953
Less: current portion (15,578) (11,637)
-------- --------
$171,745 $204,316
-------- --------
-------- --------
5
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SUIZA FOODS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996
3. LONG-TERM DEBT (Continued)
On April 22, 1996, the Company issued 3,795,000 shares of common stock,
$.01 par value per share, in a public offering (the "Offering") at an
issue price of $14.00 per share. The Offering provided net cash
proceeds to the Company of approximately $48.6 million. Of this amount,
$31.5 million was used to repay senior debt, $15.7 million was used to
repay the Company's 15% subordinated notes and $1.8 million was used to
pay prepayment penalties related to the early extinguishment of the 15%
subordinated notes. As a result of these transactions, the Company
recorded a $2.2 million extraordinary loss from extinguishment of debt
which included $1.8 million in prepayment penalties and $1.3 million
for the write-off of deferred financing costs related to the repaid
debt, net of a tax benefit of $0.9 million.
On July 19, 1996, the Company amended its senior credit facilities to
borrow $35.0 million to complete the Garrido acquisition (see footnote
5, "Acquisitions"). Pursuant to this amendment, the Company's term
loans were combined into a single $130.0 million U.S. based facility.
Quarterly amortization payments beginning September 30, 1996 on this
facility are $2.5 million, increasing to: 1) $3.75 million on September
30, 1997; 2) $5.0 million on September 30, 1998; 3) $5.375 million on
September 30, 1999; 4) $6.0 million on September 30, 2000; 5) $9.875
million on September 30, 2001, with a final installment of $19.75
million due on March 3, 2002.
On September 9, 1996, the Company further amended its senior credit
facilities to add a new $90.0 million acquisition facility. The Company
is required to pay interest only on amounts drawn under this facility
until September 30, 1998, at which time any outstanding balance will
convert into a term facility with scheduled amortization. In connection
with this amendment, the Company expensed $571,000 of financing costs.
4. TAXES
In December 1995, the Commonwealth of Puerto Rico adopted the Puerto
Rico Agricultural Tax Incentives Act of 1995 which provides a 50% tax
credit for certain "eligible investments" in qualified agricultural
business in Puerto Rico. During 1996, the Company made investments in
its Puerto Rico dairy, fruit, plastics and Garrido operations, all of
which have been certified as qualified agricultural businesses in
Puerto Rico.
In connection with these investments, the Company believes that it has
met the eligible investment criteria of this act related to its
investment in its Puerto Rico dairy subsidiary. Accordingly, during the
quarter ended September 30, 1996, the Company recognized $15.75 million
in tax credits related to this qualifying investment. Of this amount,
the Company (i) sold $4.0 million of tax credits to third parties,
resulting in a cash gain of $3.4 million (net of a discount and related
expenses) and (ii) recognized a deferred tax asset for the remainder of
the tax credit in the amount of $11.75 million. Accordingly, the
Company recorded other income in the amount of $3.4 million from the
sale ($2.2 million net of U.S. taxes) and recorded a credit to tax
expense of approximately $11.75 million during the quarter.
6
<PAGE>
SUIZA FOODS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996
4. TAXES (continued)
The Company is currently investigating whether its investment in
Garrido or other recent transactions relating to its Puerto Rico based
operations will qualify for tax credits based on recent rulings by
Puerto Rico tax authorities. If the Company ultimately qualifies for
such credits, there can be no assurance as to the amounts or timing of
any benefits that the Company may realize.
5. ACQUISITIONS
During the quarter, the Company paid approximately $1.0 million to
acquire two small ice businesses. Estimated annual sales of these two
ice companies was $0.7 million. On July 19, 1996 the Company acquired
the common stock of Garrido y Compania, Inc. ("Garrido") for
approximately $35.0 million. On September 7, 1996 the Company purchased
the assets of Swiss Dairy Corporation ("Swiss Dairy") for approximately
$54.0 million. Of this $54.0 million, approximately $42.0 million was
funded from the Company's new $90.0 million acquisition facility.
Estimated annual sales for Garrido and Swiss Dairy are approximately
$27.0 million and $106.0 million, respectively.
6. STOCKHOLDERS' EQUITY
On April 22, 1996, the Company sold 3,795,000 shares of common stock,
$.01 par value per share, in a public offering at a price to the public
of $14.00 per share. Following this offering, the Company had
10,108,479 shares of common stock issued and outstanding. On August 7,
1996, the Company sold 625,000 shares of its common stock at a price of
$16.00 per share in a private placement to a single investor. Following
the private sale, the Company had 10,739,729 shares of common stock
issued and outstanding.
7. SUBSEQUENT EVENTS
On October 23, 1996, the Company announced that it had signed a
non-binding letter of intent to acquire Model Dairy Corporation of
Reno, Nevada. There can be no assurance that this acquisition will be
consummated. The Company intends to finance this potential acquisition
with additional borrowings under its $90.0 million acquisition facility.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Suiza Foods is a leading manufacturer and distributor of fresh milk products
and refrigerated ready-to-serve fruit drinks and coffee in Puerto Rico, fresh
milk and related dairy products in California and Florida, and packaged ice
in Florida and the southwestern United States. The Company has grown
primarily through strategic and consolidating acquisitions. Through these
acquisitions, the Company has realized regional economies of scale and
operating efficiencies by consolidating manufacturing and distribution
operations in each of its core businesses. The Company conducts its dairy
operations through Suiza-Puerto Rico, Garrido, Velda Farms and Swiss Dairy
and its ice operations through Reddy Ice. Each of these subsidiaries is a
strong regional competitor with an established reputation for customer
service and product quality. These subsidiaries market their products
through extensive distribution networks to a diverse group of customers,
including convenience stores, grocery stores, other retail outlets, schools
and institutional food service customers.
The Company is a Delaware corporation incorporated on September 19, 1994 for
the sole purpose of entering into certain mergers, exchanges and related
transactions (the "Combination"). On March 31, 1995, the Company completed
the Combination pursuant to which the Company acquired Suiza - Puerto Rico,
Velda Farms and Reddy Ice, which was accounted for as a pooling of interests.
Pursuant to the Combination, the Company issued 6,313,479 shares of its
common stock in exchange for all of the outstanding equity interest of the
combining entities. On April 22, 1996, the Company sold 3,795,000 shares of
common stock, $.01 par value per share, in a public offering (the "Offering")
at a price to the public of $14.00 per share. Prior to the Offering, there
was no public market for the Company's stock. The Offering provided net cash
proceeds to the Company of approximately $48.6 million. On August 7, 1996,
the Company sold 625,000 shares of its common stock in a private placement to
a single investor, which provided net cash proceeds to the Company of
approximately $9.7 million. Following this private sale, the Company had
10,739,729 shares of common stock outstanding.
This Quarterly Report on Form 10-Q includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended
and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical facts included in this
Quarterly Report on Form 10-Q including without limitation, statements under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's financial position, business strategy
and plans and objectives of management of the Company for future
operations, are forward-looking statements. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to be
correct. Important factors that could cause actual results to differ
materially from the Company's expectations ("Cautionary Statements") are
disclosed in conjunction with the forward-looking statements included in this
Quarterly Report on Form 10-Q and below under the heading "Additional Factors
That May Affect Future Results", as well as those under the heading "Risk
Factors" in the Company's Registration Statement on Form S-1, as amended,
as filed with the Securities and Exchange Commission on March 1, 1996
(Registration No. 333-1858). All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by the Cautionary
Statements.
9
<PAGE>
RESULTS OF OPERATIONS
The Company currently operates in two distinct businesses: Dairy, which
includes the operations of Suiza - Puerto Rico, Garrido, Velda Farms and
Swiss Dairy; and Ice, which includes the operations of Reddy Ice.
<TABLE>
Three months ended September 30, Nine months ended September 30,
----------------------------------------------- --------------------------------------------
Percent of Percent of Percent of Percent of
1995 Net Sales 1996 Net Sales 1995 Net Sales 1996 Net Sales
-------- ---------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales:
Dairy $ 90,879 $ 119,432 $ 284,536 $ 321,522
Ice 19,670 19,872 40,918 43,089
-------- --------- --------- ---------
Net sales 110,549 100.0% 139,304 100.0% 325,454 100.0% 364,611 100.0%
Cost of Sales 77,110 69.8 101,214 72.7 234,762 72.1 267,131 73.3
-------- ----- --------- ----- --------- ----- --------- -----
Gross Profit 33,439 30.2 38,090 27.3 90,692 27.9 97,480 26.7
Operating expenses:
Selling and
distribution 16,904 15.3 19,533 14.0 48,295 14.8 52,215 14.3
General and
administrative 5,027 4.5 5,856 4.2 15,298 4.7 15,661 4.3
Amortization of
intangibles 916 0.8 1,240 0.9 2,865 0.9 3,200 0.9
-------- ----- --------- ----- --------- ----- --------- -----
Total operating
expenses 22,847 20.6 26,629 19.1 66,458 20.4 71,076 19.5
Operating income:
Dairy 4,934 4.5 6,545 4.7 17,441 5.4 18,919 5.2
Ice 6,441 5.8 5,851 4.2 8,800 2.7 10,040 2.7
Corporate Office (783) (0.7) (935) (0.7) (2,007) (0.6) (2,555) (0.7)
-------- ----- --------- ----- --------- ----- --------- -----
Operating income $ 10,592 9.6% $ 11,461 8.2% $ 24,234 7.5% $ 26,404 7.2%
-------- ----- --------- ----- --------- ----- --------- -----
-------- ----- --------- ----- --------- ----- --------- -----
</TABLE>
THIRD QUARTER AND YEAR-TO-DATE 1996 COMPARED TO THIRD QUARTER AND
YEAR-TO-DATE 1995
NET SALES. The Company's net sales increased by 26.0% and 12.0% for the
third quarter and first nine months of 1996 when compared to the like periods
of 1995. Dairy net sales increased by 31.4% and 13.0% for the third quarter
and first nine months of 1996 when compared to like periods of 1995,
primarily due to (i) the acquisition of Skinners' Dairy in January 1996,
Garrido in July 1996 and Swiss Dairy in September 1996 which reported net
sales of $21.9 million and $24.3 million for the third quarter and first nine
months of 1996 for periods subsequent to their acquisition and (ii) an
increase in prices charged for milk to recoup increases in raw milk costs in
the U.S. Ice net sales increased by 1.0% and 5.3% for the third quarter and
first nine months of 1996 when compared to like periods of 1995 due to the
addition of new customers and the acquisition of ten small ice businesses
during the first nine months of 1996.
COST OF SALES. The Company's cost of sales margins were 72.7% and 73.3% for
the third quarter and first nine months of 1996 compared to 69.8% and 72.1%
for the same periods in 1995. Dairy cost of sales margins increased
primarily due to higher raw milk costs. Ice cost of sales margins decreased
reflecting additional efficiencies realized from acquired business and
increased volumes when compared to the same periods over last year.
9
<PAGE>
OPERATING EXPENSES. Operating expense ratios were 19.1% and 19.5% for the
third quarter and first nine months of 1996 compared to 20.6% and 20.4% for
the same periods in 1995. Operating expense increases were experienced in
both Dairy and Ice as the result of acquisitions made during the past
eighteen months. Operating expense margins decreased in the third quarter and
nine-month comparison because of (i) increased Dairy net sales due to higher
milk costs (which had little impact on operating expense levels) and (ii) the
addition of Garrido and Swiss Dairy during the third quarter, which had lower
operating expense margins than the other operations.
OPERATING INCOME. The Company's operating income increased 8.2% to $11.5
million in the third quarter of 1996 from $10.6 million in the third quarter
of 1995 as a result of increased sales levels due to acquisitions. For the
first nine months, 1996 operating income was $26.4 million, an increase of
9.0% from 1995 operating income of $24.2 million. The Company's operating
income margin decreased to 8.2% in the third quarter of 1996 from 9.6% in the
third quarter of 1995 and decreased to 7.2% in the first nine months of 1996
from 7.5% in the nine months of 1995 due primarily to the effect of higher
milk costs and increased Dairy influence in the Company's mix of business.
Ice has much higher operating income margins than Dairy.
OTHER (INCOME) EXPENSE. Interest expense declined to $4.4 million in the
third quarter of 1996 from $4.8 million in the third quarter of 1995.
Interest expense also declined to $12.8 million during the first nine months
of 1996 from $15.3 million during the first nine months of 1995. These
reductions in interest expenses resulted from a decrease in interest rates
from the repayment of certain subordinated notes in 1996 and lower average
debt levels during the 1996 nine month period. The Company also incurred $8.8
million in non-recurring merger expenses on March 31, 1995 related to the
Combination and $1.4 million in non-recurring merger costs during the second
quarter of 1995 related to several uncompleted acquisitions and to an
uncompleted debt offering. Other income rose to $3.1 million in the third
quarter of 1996 primarily as a result of $3.4 million realized from the sale
of tax credits (see footnote 4 to the condensed consolidated financial
statements).
EXTRAORDINARY ITEMS. During the second quarter of 1996, the Company incurred
$2.2 million in extraordinary costs (net of a $0.9 million tax benefit) as a
result of the early extinguishment of debt from the net cash proceeds of the
Companys' initial public offering. These costs included $1.3 million for the
write-off of deferred financing costs and $1.8 million in prepayment
penalties. During the first nine months of 1995, the Company incurred $8.5
million in extraordinary costs (net of $0.7 million tax benefit) to refinance
the Company's debt in conjunction with the Combination, which included the
write-off of deferred financing costs and certain prepayment penalties.
NET INCOME (LOSS). The Company reported net income of $18.9 million in the
third quarter of 1996 compared to $4.7 million in the third quarter of 1995.
The 1996 net income improved due do a one-time gain from tax credits in
addition to improved operating income. The Company reported net income of
$21.7 million for the first nine months of 1996 compared to a loss of $11.3
million for the first nine months of 1995. The 1995 loss resulted primarily
from the $10.2 million in one-time non-operating charges related to the
Combination and uncompleted acquisitions and to the $8.5 million
extraordinary loss on early extinguishment of debt mentioned above.
SEASONALITY
The Company's Ice business is seasonal with peak demand for its products
occurring during the second and third calendar quarters. Over the past two
fiscal years, Ice recorded an average of approximately 69% of its annual net
sales during these quarters. While this percentage for the second and third
quarters has remained relatively constant over recent years, the timing of
the hottest summer weather can impact the distribution of sales between these
two quarters.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had total stockholders' equity of $89.5
million and total indebtedness of $216.0 million (including long-term debt
and the current portion of long-term debt). The Company is currently in
compliance with all covenants and financial ratios contained in its debt
agreements.
CASH FLOW. Historically, the working capital needs of the Company have been
met with cash flow from operations along with borrowings under revolving
credit facilities. Net cash provided by operating activities was $15.2
million for the first nine months of 1996 as contrasted with net cash
provided by operations of $17.0 million for the first nine months of 1995.
Investing activities in the first nine months of 1996 included $10.2 million
in capital expenditures, of which $7.9 million was spent by Dairy and $2.3
million was spent by Ice, and $83.1 million for acquisitions.
On April 22, 1996, the Company sold 3,795,000 shares of common stock in the
Offering at a price to the public of $14.00 per share. Prior to the Offering,
there was no public market for the Company's common stock. The Offering
provided net cash proceeds to the Company of approximately $48.6 million. Of
this amount, $4.6 million was used to repay amounts outstanding under the
Company's revolving credit facility, $8.7 million was used to repay current
maturities under the term loan facility, $17.8 million was used to repay
long-term maturities under the term loan facility, $15.7 million was used to
repay the Company's 15% subordinated notes and $1.8 million was used to pay
prepayment penalties related to the early extinguishment of the 15%
subordinated notes. Following the Offering, the Company had 10,108,479 shares
of common stock issued and outstanding. On July 19, 1996, the Company
acquired the common stock of Garrido y Compania, Inc. ("Garrido") a Puerto
Rico coffee roaster. The total purchase price was approximately $35.0 million
which was funded by additional borrowings under existing senior loan
facilities. On August 7, 1996, the Company sold 625,000 shares of new common
stock in a private placement to an institutional investor for a price of
$16.00 per share. The sale of stock provided approximately $9.7 million in
net cash proceeds which were used to retire debt outstanding under the
Company's revolving credit facility. The Company filed a registration
statement with respect to the resale of the 625,000 shares on October 1,
1996, which was declared effective on October 11, 1996. On September 9, 1996,
the Company acquired Swiss Dairy Corporation ("Swiss Dairy"). The purchase
price was approximately $54.0 million which was funded by borrowings under
senior loan facilities.
FUTURE CAPITAL REQUIREMENTS. During the remainder of 1996, the Company
intends to invest approximately $4.7 million, which is in addition to the
$10.2 million spent during the first nine months in expanding its
manufacturing facilities and distribution capabilities. Of these amounts,
Dairy will spend a total of $11.2 million in 1996 to expand and maintain its
manufacturing facilities and for fleet replacement. Ice will spend a total of
$3.7 million in 1996, including $2.0 million for maintenance of existing
facilities and $1.7 million to increase production capacity.
The Company expects that cash flow from operations along with additional
borrowings under existing and future credit facilities will be sufficient to
meet the Company's requirements for the remainder of 1996. During the
remainder of 1996, the Company intends to pursue additional acquisitions in
its existing regional markets and to seek strategic acquisition opportunities
that are compatible with its core businesses. Management believes that, in
addition to the $47.1 million of availability under the Company's acquisition
facility, the Company has the ability to secure additional financing to pursue
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
its acquisition and consolidation strategy. Pursuant to this strategy, the
Company announced on October 23, 1996 that it had signed a non-binding letter
of intent to purchase the assets of Model Dairy Corporation of Reno, Nevada.
The Company intends to finance this potential acquisition, if consummated,
with additional borrowings under its existing senior credit facilities.
Beyond 1996, the Company may be required to raise additional equity and to
incur additional borrowings in order to pursue its acquisition strategy.
There can be no assurance, however, that the Company will have sufficient
available capital resources to realize its acquisition and consolidation
strategy.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's quarterly operating results may fluctuate in the future as a
result of a variety of factors, many of which are outside the Company's
control. Factors that may adversely affect the Company's quarterly operating
results attributable to its dairy operations include changes in the cost of
raw materials, federal, Puerto Rico and state government regulation of the
dairy industry and competition. Factors that may adversely affect the
Company's quarterly operating results attributable to its ice operations
include weather, seasonality and competition. The Company's quarterly
operating results are also dependent on the ability of the Company to
identify suitable acquisition candidates and successfully integrate any
acquired businesses into the Company's existing business and retain key
customers of acquired businesses. There can be no assurance that the Company
will have sufficient available capital resources to realize its acquisition
strategy.
12
<PAGE>
Part II
Other Information
Item 1. LEGAL PROCEEDINGS
To the knowledge of the Company, there are no reportable suits or
proceedings pending or threatened against or affecting the Company
other than those encountered in the ordinary course of the Company's
business.
Item 2. CHANGES IN SECURITIES
On August 7, 1996, the Company completed a private placement of
625,000 shares of common stock, $.01 par value per share, to T. Rowe
Price Small-Cap Value Fund, Inc., a Maryland corporation. The common
stock was sold for an aggregate purchase price of $10.0 million. The
sale of common stock in this private placement was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933,
as amended. No underwriter participated in this transactions.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no matters submitted to a vote of the holders of
securities of the Company since the Company became subject to the
reporting requirements of the Securities Exchange Act of 1934, as
amended.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Statement re computation of per share earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
(1) Form 8-K filed on September 20, 1996 to report the
acquisition of Garrido.
(2) Form 8-K/A filed on September 24, 1996, amending the
Form 8-K filed on September, 20,1996, containing Item 7,
historical and pro forma financial statements for Garrido.
(3) Form 8-K filed on September 24, 1996 to report the
acquisition of Swiss Dairy.
(4) Form 8-K/A filed September 25, 1996, amending the Form 8-K
filed on September 20, 1996 and Form 8-K/A filed on
September 24, 1996, containing the acquisition agreement
for Garrido.
13
<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.
SUIZA FOODS CORPORATION
/s/ Tracy L. Noll
---------------------------------------
Tracy L. Noll
Vice President, Chief Financial Officer
(Principal Accounting Officer)
Date: November 13, 1996
14
<PAGE>
EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
FOR THE THREE FOR THE THREE FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
------------- ------------- ------------- -------------
(In thousands, except share and per-share amounts)
<S> <C> <C> <C> <C>
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS $ 4,711 $ 18,937 $ (2,846) $ 13,094
EXTRAORDINARY LOSS 0 0 (8,462) (2,215)
--------- ---------- --------- ---------
NET INCOME (LOSS) $ 4,711 $ 18,937 $ (11,308) $ 10,879
--------- ---------- --------- ---------
--------- ---------- --------- ---------
CALCULATION OF PRIMARY EARNINGS (LOSS) PER SHARE:
WEIGHTED AVERAGE SHARES OUTSTANDING 6,313,000 10,454,403 6,041,000 8,661,111
COMMON STOCK EQUIVALENTS (OPTIONS & WARRANTS) * 795,279 * 699,427
--------- ---------- --------- ---------
TOTAL WEIGHTED AVERAGE SHARES OUTSTANDING 6,313,000 11,249,682 6,041,000 9,360,538
--------- ---------- --------- ---------
--------- ---------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS $ 0.75 $ 1.68 $ (0.47) $ 1.40
EXTRAORDINARY LOSS 0.00 0.00 (1.40) (0.24)
--------- ---------- --------- ---------
NET INCOME (LOSS) $ 0.75 $ 1.68 $ (1.87) $ 1.16
--------- ---------- --------- ---------
--------- ---------- --------- ---------
CALCULATION OF FULLY DILUTED EARNINGS (LOSS) PER SHARE:
WEIGHTED AVERAGE SHARES OUTSTANDING 6,313,000 10,454,403 6,041,000 8,661,111
COMMON STOCK EQUIVALENTS (OPTIONS & WARRANTS) * 800,096 * 790,508
--------- ---------- --------- ---------
TOTAL WEIGHTED AVERAGE SHARES OUTSTANDING 6,313,000 11,254,499 6,041,000 9,451,619
--------- ---------- --------- ---------
--------- ---------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS $ 0.75 $ 1.68 $ (0.47) $ 1.39
EXTRAORDINARY LOSS 0.00 0.00 (1.40) (0.23)
--------- ---------- --------- ---------
NET INCOME (LOSS) $ 0.75 $ 1.68 $ (1.87) $ 1.15
--------- ---------- --------- ---------
--------- ---------- --------- ---------
</TABLE>
* EXCLUDED AS SUCH AMOUNTS ARE ANTI-DILUTIVE
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Condensed Financial Statements for the three-month period ended September
30, 1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 9,288
<SECURITIES> 0
<RECEIVABLES> 47,729
<ALLOWANCES> 0
<INVENTORY> 15,853
<CURRENT-ASSETS> 78,159
<PP&E> 112,280
<DEPRECIATION> 0
<TOTAL-ASSETS> 349,670
<CURRENT-LIABILITIES> 55,878
<BONDS> 204,316
0
0
<COMMON> 107
<OTHER-SE> 89,359
<TOTAL-LIABILITY-AND-EQUITY> 349,670
<SALES> 139,304
<TOTAL-REVENUES> 139,304
<CGS> 101,214
<TOTAL-COSTS> 26,629
<OTHER-EXPENSES> (2,566)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,356
<INCOME-PRETAX> 9,671
<INCOME-TAX> (9,266)
<INCOME-CONTINUING> 18,937
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,937
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.68
</TABLE>
