<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
April 3, 1998 (March 9, 1998)
Suiza Foods Corporation
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 001-12755 75-2559681
- ---------------------------- ------------------------ ------------------
(STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (IRS EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
3811 Turtle Creek Blvd., Suite 1300
Dallas, Texas 75219
----------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code:
(214) 528-0939
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
LAND-O-SUN DAIRIES, L.L.C.
Report of Independent Auditors-Deloitte & Touche LLP F-6
Balance Sheets F-7
Statements of Operations F-8
Statements of Members' Equity F-9
Statements of Cash Flows F-10
Notes to Financial Statements F-11
(b) PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated
financial statements are filed with this report:
Unaudited Pro Forma Consolidated Statements of Income for
the Year Ended December 31, 1997. F-1
Unaudited Pro Forma Consolidated Balance Sheet as
of December 31, 1997 F-4
The unaudited pro forma financial data have been derived by the application
of pro forma adjustments to the historical consolidated balance sheet and
related consolidated statements of income of Suiza Foods Corporation ("Suiza
Foods") to give effect to (i) the previously reported completed acquisitions by
Suiza Foods of Dairy Fresh, LP ("Dairy Fresh") on July 1, 1997 and The Garelick
Companies ("Garelick") on July 31, 1997 (the "1997 Acquired Businesses"), (ii)
the previously reported probable merger of Continental Can, Inc. ("Continental
Can") with Suiza Foods (the "Continental Can Merger"), (iii) the completed
acquisition by Suiza Foods of Land-O-Sun Dairies, L.L.C. ("Land-O-Sun") on
February 20, 1998, which was partially funded through the issuance of $100
million of company-obligated mandatorily redeemable convertible preferred
securities, all of which have been accounted for using the purchase method of
accounting, and (iv) the issuance of $600 million of company-obligated
mandatorily redeemable convertible preferred securities (the "Preferred
Securities Offering") in a private placement under Rule 144A of the Securities
Act of 1933, as amended. The above company-obligated mandatorily redeemable
convertible preferred securities issued in the Land-O-Sun acquisition and in the
Preferred Securities Offering are hereinafter referred to as the "Preferred
Securities."
The unaudited pro forma consolidated statements of income for the year
ended December 31, 1997 give effect to the completed acquisitions of the 1997
Acquired Businesses, the Continental Can Merger, the completed Land-O-Sun
acquisition and the Preferred Securities Offering, as if all these transactions
had been consummated on January 1, 1997. The unaudited pro forma consolidated
balance sheet as of December 31, 1997 gives effect to the Continental Can
Merger, the completed Land-O-Sun acquisition and the Preferred Securities
Offering, as if all these transactions had been consummated on December 31,
1997. There is no pro forma consolidated balance sheet effect of the
acquisitions by Suiza Foods of the 1997 Acquired Businesses since these
acquisitions were completed prior to December 31, 1997 and, as a result, their
balance sheets are already included in the historical consolidated balance
sheets of Suiza Foods as of that date.
The unaudited pro forma financial data should be read in conjunction with
the separate audited consolidated financial statements of Suiza Foods, the 1997
Acquired Business and Continental Can, including the notes thereto, all of which
have been previously filed, and the audited financial statements of Land-O-Sun,
including the notes thereto, included herein. The pro forma adjustments, which
are described in the accompanying notes, are based on available information and
certain assumptions that management of Suiza Foods believes are reasonable. The
unaudited pro forma consolidated income statement data are not necessarily
indicative of the operating results that would have occurred had the completed
acquisitions of the 1997 Acquired Businesses, the Continental Can Merger, the
completed Land-O-Sun acquisition and the Preferred Securities Offering, occurred
on January 1, 1997, nor are they necessarily indicative of the future operating
results of Suiza Foods.
<PAGE> 3
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA AND RATIOS)
<TABLE>
<CAPTION>
1997
ACQUIRED CONTINENTAL
SUIZA FOODS BUSINESSES CAN LAND-O-SUN ADJUSTMENTS PRO FORMA
----------- ---------- ----------- ---------- ----------- -----------
(a)
<S> <C> <C> <C> <C> <C> <C>
Net Sales........................ $ 1,794,876 $284,285 $546,284 $463,995 $ -- $ 3,089,440
Cost of Sales.................... 1,392,216 222,046 456,998 341,608 (2,905)(b)(d) 2,409,963
----------- -------- -------- -------- -----------
Gross profit................... 402,660 62,239 89,286 122,387 679,477
Operating Expenses:
Selling, distribution and
administrative.............. 255,449 32,613 55,941 88,964 (4,039)(b)(c)(d) 428,928
Amortization of intangibles.... 14,916 1,257 1,858 633 11,420(e) 30,084
Merger and other costs......... 37,003 -- -- -- 37,003
----------- -------- -------- -------- -----------
Total operating
expenses............. 307,368 33,870 57,799 89,597 496,015
----------- -------- -------- -------- -----------
Operating Income................. 95,292 28,369 31,487 32,790 183,462
Other (income) expense:
Interest expense, net.......... 36,664 3,753 15,965 4,319 (23,193)(f)(g) 37,508
Financing charges on the
Preferred Securities......... 39,983(g) 39,983
Other (income) expense......... (24,077) (18) 438 0 (23,657)
----------- -------- -------- -------- -----------
Total other expense.... 12,587 3,735 16,403 4,319 53,834
----------- -------- -------- -------- -----------
Income Before Income Taxes....... 82,705 24,634 15,084 28,471 129,628
Income Taxes..................... 43,375 787 3,850 0 15,020(h) 63,032
----------- -------- -------- -------- -----------
Income Before Minority
Interest....................... 39,330 23,847 11,234 28,471 66,596
Minority Interest................ -- -- 3,248 -- (3,064)(i) 184
----------- -------- -------- -------- -----------
Income from Continuing
Operations..................... $ 39,330 $ 23,847 $ 7,986 $ 28,471 $ 66,412
=========== ======== ======== ======== ===========
Income from Continuing Operations
Applicable to Common Shares.... $ 39,030 $ 66,112
=========== ===========
Income Per Common Share from
Continuing Operations:
Basic.......................... $ 1.32 $ 2.09
=========== ===========
Diluted........................ $ 1.25 $ 1.97
=========== ===========
Average Common Shares
Basic.......................... 29,508,791 31,701,634
=========== ===========
Diluted........................ 31,348,591 33,605,458
=========== ===========
Other Data:
Ratio of earnings to
combined fixed
charges and preferred
stock dividends 2.89X 2.40X
=========== ===========
</TABLE>
F-1
<PAGE> 4
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS)
(a) Includes the pre-acquisition results of operations of Suiza Foods' 1997
acquisitions of Dairy Fresh for the six months ended June 30, 1997 and
Garelick for the seven months ended July 31, 1997.
(b) Elimination of the excess of historical depreciation expense of the 1997
Acquired Businesses over the depreciation of the fair value of property and
equipment, which resulted in a decrease of $2,264 and $619 in amounts
charged to cost of sales and selling, distribution and administrative
expense, respectively. Suiza Foods has not completed an assessment of the
fair value of property and equipment of Continental Can and Land-O-Sun for
purchase price allocation purposes. Accordingly, the excess purchase price
for these acquisitions has been allocated to goodwill. To the extent that
such assessments indicate that the fair value of property and equipment
exceeds its net book values, this excess would be allocated to property and
equipment and would reduce goodwill. Assuming a weighted average useful
life of property and equipment of 15 years, every $5.0 million of excess
purchase price allocated to property and equipment of Continental Can and
Land-O-Sun (rather than goodwill) would increase depreciation and
amortization expense for 1997 by $208.
(c) Elimination of salaries and benefits paid primarily to former shareholders
of the 1997 Acquired Businesses and Land-O-Sun whose employment was either
terminated or salaries were reduced as part of the purchase agreement,
along with the elimination of certain related party expenses of the 1997
Acquired Businesses and Land-O-Sun, pursuant to agreements with such
related parties at acquisition date, resulting in a reduction of historical
selling, distribution and administrative costs for the 1997 Acquired
Businesses and Land-O-Sun of $1,335 and $1,957, respectively.
(d) Pro forma reduction of historical costs of sales and selling, distribution
and administrative costs of $641 and $128, respectively, for the effects of
pro forma adjustments to Continental Can's pension and other employee
benefit and other liabilities to the fair value of such liabilities at
acquisition date.
(e) Amortization of goodwill and other intangibles, over the following
amortization periods, in excess of historical amounts, as follows:
<TABLE>
<CAPTION>
1997
ACQUIRED CONTINENTAL
LIFE BUSINESSES CAN LAND-O-SUN TOTAL
----- ---------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
Organization costs.................... 5 $ 5 $ -- $ -- $ 5
Tradenames............................ 25-40 233 233
Goodwill.............................. 40 2,770 2,587 5,825 11,182
------ ------ ------ -------
$3,008 $2,587 $5,825 $11,420
====== ====== ====== =======
</TABLE>
(f) Pro forma interest expense on the average outstanding balance of variable
rate borrowings under Suiza Foods' senior credit facility used to fund the
purchases of the 1997 Acquired Businesses and a portion of the purchase
price for Land-O-Sun, at an assumed interest rate of 7.25%, net of the
reduction of historical interest expense related to the historical debt
repaid, along with the reduction of interest expense for Continental Can's
fixed rate debt to a current market yield of 7.75%, as follows:
<TABLE>
<S> <C>
1997 Acquired Businesses.................................... $11,569
Land-O-Sun.................................................. 8,809
Continental Can............................................. (1,340)
-------
Total............................................. $19,038
=======
</TABLE>
The effect of a .125% change in the interest rate on the new variable rate
borrowings to fund the purchases of the 1997 Acquired Businesses and
Land-O-Sun, would have resulted in a change in the proforma interest
expense adjustment of $428.
(g) Pro forma financing charges on the $100 million of 5% Preferred Securities
and the $20 million of 7% preferred interests issued to the sellers in the
Land-O-Sun acquisition, along with the pro forma adjustment to reduce
interest expense by $42,231 from the use of the proceeds of the Preferred
Securities Offering to repay amounts outstanding under Suiza Foods' senior
credit facility at an assumed interest rate of 7.25%, and the related pro
forma financing charges, including the accretion on the Preferred
F-2
<PAGE> 5
Securities to their liquidation amount over the term of the securities, on
the $600 million of 5.5% Preferred Securities issued in the Preferred
Securities Offering.
<TABLE>
<CAPTION>
PREFERRED
SECURITIES
LAND-O-SUN OFFERING TOTAL
---------- ---------- --------
<S> <C> <C> <C>
Interest expense.................................. $ 0 $(42,231) $(42,231)
Financing charges on Preferred Securities......... 5,000 33,583 38,583
Land-O-Sun minority interest charge............... 1,400 0 1,400
------ -------- --------
Total................................... $6,400 $ (8,648) $ (2,248)
====== ======== ========
</TABLE>
(h) Estimated pro forma adjustment to reflect pro forma income taxes for the
1997 Acquired Businesses at the estimated effective tax rate of 40% for
such 1997 Acquired Businesses, pro forma income taxes for the Land-O-Sun
acquisition at the estimated effective tax rate of 38.5% for Land-O-Sun, to
adjust income taxes of Continental Can for the pro forma adjustments,
excluding non-deductible goodwill, at the estimated effective tax rate for
Continental Can of 40% and to adjust income taxes for the pro forma effect
of the Preferred Securities Offering at the estimated effective tax rate of
38%.
<TABLE>
<S> <C>
1997 Acquired Businesses.................................... $ 4,526
Land-O-Sun.................................................. 4,181
Continental Can............................................. 3,027
Preferred Securities Offering............................... 3,286
-------
Total............................................. $15,020
=======
</TABLE>
(i) Estimated pro forma adjustment of $3,064 to adjust the minority interest
charge to reflect the purchase, pursuant to negotiated agreements, of
substantially all of the outstanding minority owned shares of Continental
Can's subsidiaries for cash, which is anticipated to occur prior to the
Continental Can Merger.
F-3
<PAGE> 6
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONTINENTAL
SUIZA FOODS CAN LAND-O-SUN ADJUSTMENTS PRO FORMA
----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents.... $ 24,388 $ 25,871 $ 8,101 $ (41,542)(a) $ 16,818
Accounts receivable.......... 164,284 64,292 36,604 265,180
Inventories.................. 76,087 79,113 11,939 3,578(b) 170,717
Prepaid expenses and other... 7,978 2,141 2,830 12,949
Refundable income taxes...... 19,836 19,836
Deferred income taxes........ 2,718 2,647 5,365
Net assets of discontinued
operation................. 100,785 100,785
---------- -------- -------- ----------
Total current
assets............. 396,076 174,064 59,474 591,650
Property and Equipment......... 363,649 144,452 59,165 567,266
Deferred Income Taxes.......... 4,484 7,614 16,696(b) 28,794
Intangible and Other Assets.... 639,253 49,276 7,696 336,465(b) 1,032,690
---------- -------- -------- ----------
Total................ $1,403,462 $375,406 $126,335 $2,220,400
========== ======== ======== ==========
Current Liabilities:
Accounts payable and accrued
expenses.................. $ 178,021 $ 83,968 $ 42,355 $ $ 304,344
Income taxes payable......... 4,006 757 4,763
Current portion of long-term
debt...................... 50,846 20,291 2,750 (2,750)(a) 71,137
---------- -------- -------- ----------
Total current
liabilities........ 232,873 105,016 45,105 380,244
Long-Term Debt................. 777,813 156,418 40,266 (423,766)(a)(b)(c) 550,731
Other Liabilities.............. 13,230 26,408 11,457 14,280(b) 65,375
Deferred Income Taxes.......... 20,236 4,725 24,961
Minority Interest.............. 14,057 6,704(a)(b) 20,761
Company-Obligated Mandatorily
Redeemable Convertible
Preferred Securities of
Subsidiaries................. 682,500(a)(c) 682,500
Stockholders' Equity:
Preferred stock.............. 3,741 3,741
Common stock................. 305 20(a) 325
Additional paid-in capital... 281,774 136,498(a) 418,272
Retained earnings............ 73,490 73,490
Equity of acquired
businesses................ 68,782 29,507 (98,289)(b)
---------- -------- -------- ----------
Total stockholders'
equity............. 359,310 68,782 29,507 495,828
---------- -------- -------- ----------
Total................ $1,403,462 $375,406 $126,335 $2,220,400
========== ======== ======== ==========
</TABLE>
F-4
<PAGE> 7
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(a) In connection with the Continental Can Merger, Suiza Foods will exchange
.629 shares of Suiza Foods Common Stock for all the issued and outstanding
shares of Continental Can Common Stock and will exchange .629 Suiza Foods
substitute stock options for all the outstanding stock options and warrants
of Continental Can. In addition, pursuant to the Continental Can merger
negotiations, Continental Can has reached agreements to purchase
substantially all of the outstanding minority owned shares of its
subsidiaries for cash. In addition to the shares issued to effect the
Continental Can Merger, the purchase price for the minority interests and
transaction expenses will be funded through available cash.
On February 20, 1998, Suiza Foods completed the acquisition of Land-O-Sun
for a purchase price of approximately $248 million, including acquired cash
and excluding acquisition costs and expenses of $10 million, which was
funded with borrowings under the Suiza Foods senior credit facility, the
issuance of $100 million of 5% Preferred Securities, and the issuance of
$20 million of preferred interests in Land-O-Sun. In addition, Suiza Foods
refinanced the existing outstanding long-term debt of Land-O-Sun with
borrowings under its senior credit facility.
The following is a summary of the total purchase prices and related
payments in connection with these acquisitions:
<TABLE>
<CAPTION>
CONTINENTAL
CAN MERGER LAND-O-SUN TOTAL
----------- ---------- --------
<S> <C> <C> <C>
Cash and cash equivalents........................ $ 41,542 $ -- $ 41,542
Senior credit facility borrowings................ 181,016 181,016
Issuance of preferred interests of subsidiary.... 20,000 20,000
Issuance of the Preferred Securities............. 100,000 100,000
Issuance of common stock......................... 136,518 -- 136,518
-------- -------- --------
Total purchase prices.................. 178,060 301,016 479,076
Repayment of existing indebtedness:
Current portion of long-term debt.............. -- (2,750) (2,750)
Long-term debt................................. -- (40,266) (40,266)
-------- -------- --------
Net purchase prices.............................. $178,060 $258,000 $436,060
======== ======== ========
</TABLE>
(b) The above acquisitions resulted in an excess of the purchase prices over
the historical net assets acquired, which were allocated to the net assets
acquired, as follows:
<TABLE>
<CAPTION>
CONTINENTAL
CAN MERGER LAND-O-SUN TOTAL
----------- ---------- --------
<S> <C> <C> <C>
Net purchase prices.............................. $178,060 $258,000 $436,060
Historical carrying value of net assets:
Total net assets............................... 68,782 29,507 98,289
Carrying value of minority interest acquired... 13,296 -- 13,296
-------- -------- --------
Excess of net purchase prices over historical
carrying values................................ $ 95,982 $228,493 $324,475
======== ======== ========
Allocation of excess purchase price:
Excess fair value of inventories............... $ 3,578 $ -- $ 3,578
Deferred income tax assets..................... 16,696 -- 16,696
Fair value of assumed debt..................... (17,984) -- (17,984)
Fair value of benefit and other liabilities.... (9,766) (4,514) (14,280)
Intangible assets.............................. 103,458 233,007 336,465
-------- -------- --------
$ 95,982 $228,493 $324,475
======== ======== ========
</TABLE>
(c) Issuance of $600 million liquidation amount of the Preferred Securities in
the Preferred Securities Offering for net proceeds of $582,500, which are
to be used to repay amounts outstanding under the senior credit facility.
F-5
<PAGE> 8
INDEPENDENT AUDITORS' REPORT
To the Representative Committee of
Land-O-Sun Dairies, L.L.C.:
We have audited the accompanying balance sheets of Land-O-Sun Dairies, L.L.C.
(the "Company") as of December 31, 1997 and 1996, and the related statements of
operations, members' equity, and cash flows for the year ended December 31,
1997 and the two-month period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1997 and
1996, and the results of its operations and its cash flows for the year ended
December 31, 1997 and the two-month period ended December 31, 1996 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Greenville, SC
February 6, 1998
(February 20, 1998 as to Note 11)
F-6
<PAGE> 9
LAND-O-SUN DAIRIES, L.L.C.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,101,000 $ 6,451,000
Accounts receivable, net 36,604,000 33,725,000
Inventories 11,939,000 12,979,000
Prepaid expenses and other current assets 940,000 851,000
Property held for sale 1,890,000 1,628,000
------------- -------------
Total current assets 59,474,000 55,634,000
PROPERTY, PLANT AND EQUIPMENT, NET 59,165,000 54,979,000
OTHER ASSETS, NET 7,696,000 7,732,000
------------- -------------
TOTAL $ 126,335,000 $ 118,345,000
============= =============
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 2,750,000 $ 2,750,000
Accounts payable 18,446,000 18,602,000
Bank overdraft 9,064,000 7,143,000
Accrued expenses and other liabilities 14,845,000 12,992,000
------------- -------------
Total current liabilities 45,105,000 41,487,000
------------- -------------
LONG-TERM LIABILITIES:
Long-term debt 40,266,000 61,304,000
Other liabilities 11,457,000 12,268,000
------------- -------------
Total long-term liabilities 51,723,000 73,572,000
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 7)
MEMBERS' EQUITY:
Preferred capital - Mid-Am 13,565,000 12,221,000
Member's capital (deficiency) - Mid-Am 11,928,000 (511,000)
Member's capital (deficiency) - LOS 4,014,000 (8,424,000)
------------- -------------
Total members' equity 29,507,000 3,286,000
------------- -------------
TOTAL $ 126,335,000 $ 118,345,000
============= =============
</TABLE>
See notes to financial statements.
F-7
<PAGE> 10
LAND-O-SUN DAIRIES, L.L.C.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 AND TWO-MONTH PERIOD ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
<S> <C> <C>
NET SALES $463,995,000 $ 76,482,000
COST OF SALES 341,608,000 62,302,000
------------ ------------
GROSS MARGIN 122,387,000 14,180,000
DELIVERY, SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 89,597,000 14,952,000
------------ ------------
OPERATING INCOME (LOSS) 32,790,000 (772,000)
INTEREST EXPENSE 4,319,000 928,000
------------ ------------
NET INCOME (LOSS) $ 28,471,000 $ (1,700,000)
============ ============
</TABLE>
See notes to financial statements.
F-8
<PAGE> 11
<TABLE>
<CAPTION>
LAND-O-SUN DAIRIES, L.L.C.
STATEMENTS OF MEMBERS' EQUITY
YEAR ENDED DECEMBER 31, 1997 AND TWO-MONTH PERIOD ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
MID-AM LOS
MID-AM MEMBERS' MEMBERS'
PREFERRED CAPITAL CAPITAL
CAPITAL (DEFICIENCY) (DEFICIENCY) TOTAL
<S> <C> <C> <C> <C>
CONTRIBUTION OF CAPITAL $ 12,000,000 $ 450,000 $ 550,000 $ 13,000,000
TRANSFER OF NET LIABILITIES
FROM MEMBER -- -- (8,014,000) (8,014,000)
NET LOSS FOR THE
TWO-MONTH PERIOD
ENDED DECEMBER 31, 1996 221,000 (961,000) (960,000) (1,700,000)
------------ ------------ ------------ ------------
BALANCE (DEFICIENCY) AS OF
DECEMBER 31, 1996 12,221,000 (511,000) (8,424,000) 3,286,000
NET INCOME FOR THE YEAR
ENDED DECEMBER 31, 1997 1,344,000 13,564,000 13,563,000 28,471,000
DISTRIBUTION OF
MEMBERS' CAPITAL -- (1,125,000) (1,125,000) (2,250,000)
------------ ------------ ------------ ------------
BALANCE AS OF
DECEMBER 31, 1997 $ 13,565,000 $ 11,928,000 $ 4,014,000 $ 29,507,000
============ ============ ============ ============
</TABLE>
See notes to financial statements.
F-9
<PAGE> 12
LAND-O-SUN DAIRIES, L.L.C.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 AND TWO-MONTH PERIOD ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 28,471,000 $ (1,700,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 7,035,000 1,135,000
Amortization 633,000 130,000
Interest accreted to principal during the year 653,000 154,000
Gain on disposal of assets (47,000) (228,000)
(Increase) decrease in accounts receivable (2,879,000) 5,604,000
Decrease in inventories 1,040,000 967,000
Increase in prepaid expenses and other current assets (89,000) (73,000)
(Increase) decrease in other assets (997,000) 253,000
Increase (decrease) in accounts payable and bank overdraft 1,765,000 (464,000)
Increase (decrease) in accrued expenses and other liabilities 1,853,000 (760,000)
Increase (decrease) in other liabilities (811,000) 280,000
------------ ------------
Net cash provided by operating activities 36,627,000 5,298,000
------------ ------------
INVESTING ACTIVITIES:
Capital expenditures (11,364,000) (1,745,000)
Expenditures relating to assets held for sale (348,000) --
Proceeds from sales of assets 276,000 356,000
------------ ------------
Net cash used in investing activities (11,436,000) (1,389,000)
------------ ------------
FINANCING ACTIVITIES:
Loan to Land-O-Sun Dairies, Inc. -- (400,000)
Repayment of loan to Land-O-Sun Dairies, Inc. 400,000 --
Contributed cash from Land-O-Sun Dairies, Inc. -- 4,903,000
Contributed cash from Mid-America Dairymen, Inc. for preferred
stock -- 12,000,000
Contributed cash from Mid-America Dairymen, Inc. for members'
capital -- 450,000
Debt proceeds -- 68,000,000
Principal payments on debt (12,791,000) --
Net repayments of revolving credit line (8,900,000) (82,411,000)
Distribution of members' capital (2,250,000) --
------------ ------------
Net cash (used in) provided by financing activities (23,541,000) 2,542,000
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,650,000 6,451,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,451,000 --
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,101,000 $ 6,451,000
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $ 5,900,000 $ 659,000
Noncash financing activities:
Contribution of non-cash net liabilities from Land-O-Sun
Dairies, Inc. $ -- $(12,917,000)
Contribution of capital - Land-O-Sun Dairies, Inc. $ -- $ 550,000
</TABLE>
See notes to financial statements.
F-10
<PAGE> 13
LAND-O-SUN DAIRIES, L.L.C.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997 AND TWO-MONTH PERIOD ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND NATURE OF THE BUSINESS
On October 10, 1996, Land-O-Sun Dairies, L.L.C. (the "Company"), a
Delaware limited liability company, was formed by Land-O-Sun Dairies,
Inc. ("LOS", an S Corporation) and Mid-America Dairymen, Inc. ("Mid-Am")
(collectively referred to herein as the "Members" and individually as a
"Member"). On October 31, 1996 ("transfer date"), LOS contributed
substantially all of its assets and liabilities (net liabilities of
$8,014,000, recorded at LOS carrying value) to the Company in exchange
for an aggregate 55% ownership in the Company (to which $550,000 of
Members' Capital was contributed). On October 31, 1996, Mid-Am
contributed $450,000 in cash to the Company in exchange for a 45%
ownership in the Company. The business and affairs of the Company are
managed by the Members who are represented by and act through a
Representative Committee (two members each from LOS and Mid-Am). Since
the parties involved are considered affiliates, all assets and
liabilities transferred to the Company were recorded at LOS's carrying
value as of the date of the transfer.
The principal business of the Company is to process and distribute dairy
products. The Company's processing plants primarily produce fluid milk,
ice cream, cultured and other dairy products, and beverage products.
These products are distributed by a fleet of refrigerated trucks and
trailers through direct store delivery, pre-order drop delivery, and
warehouse delivery service, and are sold under a variety of private store
labels and brand names, as well as the nationally recognized "PET" dairy
trademark (which the Company uses under a license agreement with Pet
Incorporated) and the "Flav-O-Rich" dairy trademark (which the Company
uses under a license agreement with Flav-O-Rich, Inc.).
Dairy products manufactured by other companies which are distributed by
the Company include frozen desserts, cultured dairy products, and juices
and other beverages. The Company's products are sold primarily to
supermarket chains, independent grocery stores, convenience stores, and
institutional accounts principally throughout the Southeastern region of
the United States.
The Company has issued preferred and members' capital. Preferred capital
represents a $12 million contribution by Mid-Am to the LLC and cumulative
unpaid dividends ($1,565,000 at December 31, 1997). The preferred capital
is entitled to a cumulative annual return of 11% on the average daily
balance of its preferred capital plus any prior unpaid amounts. As of
December 31, 1997, no dividends had been declared. Members' capital
represents the members' original interest in the Company (LOS of
$550,000, or 55%; Mid-Am of $450,000 or 45%), contribution of the net
liabilities of LOS and the members' allocated portion of net income or
loss of the Company. Generally, income is first allocated to any unpaid
preferred dividend amounts and then the remaining net income (loss) is
allocated equally between LOS and Mid-Am.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS - All highly liquid investments with a maturity of three
months or less when purchased are considered to be cash equivalents. Due
to the short-term nature of cash equivalents, fair value approximates its
recorded value at December 31, 1997 and 1996.
F-11
<PAGE> 14
INVENTORIES - Inventories are valued at the lower of cost or market using
the first-in, first-out ("FIFO") method.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is stated
at cost. Depreciation is provided over the estimated useful lives of the
related assets using primarily the straight-line method.
The following estimated useful lives were in effect during all periods
presented in the financial statements:
<TABLE>
<CAPTION>
<S> <C>
Land improvements 25 years
Buildings and improvements 20-50 years
Machinery, plant and transportation equipment 3-15 years
</TABLE>
Leasehold improvements are amortized over the shorter of their estimated
life or the period of the related leases.
PROPERTY HELD FOR SALE - Assets held for sale represent the estimated
value of land and idle manufacturing facilities and distribution
facilities which the Company is actively offering to sell. The recorded
values of these facilities are at the lower of carrying amount or fair
value, less cost to sell.
ACCOUNTS RECEIVABLE - Due to the short-term nature of accounts
receivable, fair value approximates its recorded value at December 31,
1997 and 1996.
OTHER ASSETS - Other assets include the carrying value of the "PET"
trademark license agreement, goodwill and deferred financing fees. The
trademark asset is being amortized over the remaining license period
through June 2026. The Company has classified as goodwill the cost in
excess of the fair value of the net assets acquired by LOS from its
predecessor and the cost in excess of the fair value of the net assets
acquired by LOS from Flav-O-Rich, Inc. The Company amortizes goodwill on
a straight-line method over 15 years. The deferred financing fees are
being amortized over the life of the related debt instrument,
approximating the interest method.
ADVERTISING COSTS - The Company expenses advertising costs as incurred.
Advertising expense for the year ended December 31, 1997 and the
two-month period ended December 31, 1996 was $3,471,000 and $418,000,
respectively.
INCOME TAXES - The Members intend that the Company will be treated as a
partnership for federal and state income tax purposes and that each
Member will be treated as a partner of a partnership for federal and
state income tax purposes. In lieu of corporation income taxes, the
Members are taxed on their proportionate share of the Company's taxable
income. Therefore, no provision or liability for federal or state income
taxes has been included in these financial statements. For the year ended
December 31, 1997, the Company paid approximately $1.0 million of
additional compensation to one of the owners of LOS for income taxes
relating to a prior tax year of LOS. Additionally, for the year ended
December 31, 1997, the Company paid $2,250,000 to the Members for income
taxes relating to the taxable income of the Company. Such payment is
recorded as a distribution of Members' capital in the statement of
members' capital. No such amounts were paid in the two-month period ended
December 31, 1996.
ENVIRONMENTAL REMEDIATION COSTS - The Company accrues for losses
associated with environmental remediation obligations when such losses
are probable and reasonably estimable. Accruals for estimated losses from
environmental remediation obligations generally are recognized no later
than completion of the remedial feasibility study.
F-12
<PAGE> 15
Such accruals are adjusted as further information develops or
circumstances change. Costs of future expenditures for environmental
remediation obligations are not discounted to their present value. The
liability as of December 31, 1997 and 1996 was $772,000 and $794,000,
respectively.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company's most significant
financial statement estimates include the reserve for self-insurance
liabilities and reserves for environmental remediation costs. Actual
results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS - The Financial Accounting Standards
Board ("FASB") has recently issued Statement of Financial Accounting
Standards ("SFAS") No. 130, Reporting Comprehensive Income. This
statement establishes standards for reporting and disclosure of
comprehensive income and its components (revenues, expenses, gains and
losses). This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive
income (including, for example, minimum pension liability adjustments) be
reported in a financial statement similar to the statement of operations.
The accumulated balance of other comprehensive income will be disclosed
separately from members' capital in the equity section of the balance
sheet. This statement is effective for the Company for the year ended
December 31, 1998 and is not expected to materially affect the reporting
and disclosure of financial information by the Company.
3. CERTAIN BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
1997 1996
Accounts receivable, net:
<S> <C> <C>
Trade receivables $ 36,287,000 $ 34,737,000
Other receivables 2,083,000 1,136,000
------------ ------------
Total 38,370,000 35,873,000
Less allowance for doubtful accounts (1,766,000) (2,148,000)
------------ ------------
Accounts receivable, net $ 36,604,000 $ 33,725,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
1997 1996
Inventories:
<S> <C> <C>
Raw materials $ 5,740,000 $ 6,111,000
Finished goods 5,952,000 6,646,000
Supplies and other 355,000 416,000
------------ ------------
Total 12,047,000 13,173,000
Less reserve for inventory obsolescence (108,000) (194,000)
------------ ------------
Inventories, net $ 11,939,000 $ 12,979,000
============ ============
</TABLE>
F-13
<PAGE> 16
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Property, plant and equipment, net:
Land and improvements $ 6,261,000 $ 6,370,000
Buildings and improvements 14,140,000 13,785,000
Machinery, plant and transportation equipment 57,854,000 47,244,000
------------ ------------
Total 78,255,000 67,399,000
Less accumulated depreciation and amortization (19,090,000) (12,420,000)
------------ ------------
Property, plant and equipment, net $ 59,165,000 $ 54,979,000
============ ============
Other assets, net:
Trademark $ 1,446,000 $ 1,446,000
Less accumulated amortization (154,000) (108,000)
------------ ------------
Net trademark 1,292,000 1,338,000
------------ ------------
Goodwill 5,857,000 5,176,000
Less accumulated amortization (793,000) (602,000)
------------ ------------
Net goodwill 5,064,000 4,574,000
------------ ------------
Other deferred costs 1,721,000 1,533,000
Less accumulated amortization (501,000) (233,000)
------------ ------------
Net other deferrals 1,220,000 1,300,000
------------ ------------
Note receivable from related party -- 400,000
Deposits and other 120,000 120,000
------------ ------------
Other assets, net $ 7,696,000 $ 7,732,000
============ ============
Accrued expenses and other liabilities:
Self-insurance liabilities - current portion $ 3,672,000 $ 1,860,000
Vacation pay 2,970,000 3,005,000
Wages and withholdings 3,409,000 2,400,000
Advertising, rebates and billbacks 2,196,000 2,036,000
Professional fees 310,000 746,000
Other 2,288,000 2,945,000
------------ ------------
Total accrued expenses and other liabilities $ 14,845,000 $ 12,992,000
============ ============
Other liabilities:
Accrued employee benefits:
Postemployment benefits $ 1,259,000 $ 1,168,000
Postretirement benefits 740,000 645,000
Pension liability 4,066,000 3,058,000
------------ ------------
Total 6,065,000 4,871,000
Accrued self-insurance liabilities 3,983,000 6,097,000
Other 1,409,000 1,300,000
------------ ------------
Total $ 11,457,000 $ 12,268,000
============ ============
</TABLE>
F-14
<PAGE> 17
<TABLE>
<CAPTION>
4. FINANCING ARRANGEMENTS
Long-term debt consists of:
1997 1996
<S> <C> <C>
Harris Trust and Savings Bank - $30 million Revolving Credit Agreement,
variable interest based on LIBOR (7.7500% and 7.8125% at December 31, 1997
and 1996, respectively); collateralized by substantially all of the assets of
the Company $ 17,000,000 $ 25,900,000
Harris Trust and Savings Bank - $20 million Term Loan
Agreement, variable interest based on LIBOR (7.7500% and 7.8125% at December
31, 1997 and 1996, respectively), principal payable in ten consecutive
semi-annual installments commencing on March 31, 1997; collateralized by
substantially all of the assets of the Company 17,016,000 20,000,000
Mid-America Finance, Inc - $9 million unsecured Term Loan
Agreement, interest at 10%, principal due March 31, 2007 9,000,000 9,000,000
Mid-America Finance, Inc - unsecured Term Loan Agreement,
interest at 10.25%; retired in 1997 -- 9,154,000
------------ ------------
Total 43,016,000 64,054,000
Less current maturities (2,750,000) (2,750,000)
------------ ------------
Total long-term debt $ 40,266,000 $ 61,304,000
============ ============
</TABLE>
On October 31, 1996, the Company entered into a revolving credit agreement
with Harris Trust and Savings Bank providing for revolving credit loans,
term loans, and/or letters of credit up to $30 million at variable
interest rates. The agreement requires the Company to meet certain
financial ratios and covenants, including maximum capital expenditure
limits and fixed charge coverage, leverage, net worth and current ratios.
The Company was in compliance with all required financial ratios and
covenants at December 31, 1997. The agreement expires October 31, 2001. At
December 31, 1997 there was $17.0 million in borrowings outstanding under
the agreement.
On December 17, 1997, the Company entered into an unsecured Subordinated
Working Capital Line of Credit Note with Mid-Am Capital, L.L.C., an
affiliate. The Company may borrow up to $5.0 million at the prime rate
plus 1% per annum. The line of credit is available through June 17, 1998.
No amounts were outstanding under this line of credit at December 31,
1997.
The estimated fair value of the Company's debt was approximately $44.4
million and $64.1 million at December 31, 1997 and 1996, respectively,
based on estimated borrowing rates available to the Company.
Principal payments due on the debt subsequent to December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1998 $ 2,750,000
1999 2,900,000
2000 2,900,000
2001 25,466,000
2002 -
Thereafter 9,000,000
-----------
Total $ 43,016,000
=============
</TABLE>
F-15
<PAGE> 18
5. LEASE COMMITMENTS
The Company leases certain distribution and office facilities, machinery
and equipment, and fleet and other vehicles under noncancelable operating
leases for varying periods ranging from one to eight years. Minimum
future lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1998 $ 5,987,000
1999 5,864,000
2000 5,230,000
2001 4,216,000
2002 2,846,000
Thereafter 2,903,000
------------
Total $ 27,046,000
============
</TABLE>
Rental expense, which includes operating lease expense and month-to-month
leases, was $7,080,000 and $1,142,000 for the year ended December 31,
1997 and the two-month period ended December 31, 1996, respectively.
6. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined benefit pension plan which covers
substantially all employees. The plan allows contributions by employees
in certain circumstances, and participants become fully vested after five
years of service. The Company's funding policy is to make contributions
to the plans to the extent that such contributions are tax deductible,
thereby accumulating funds adequate to provide for all accrued benefits.
The assets of the plan include primarily investments in common stocks,
corporate bonds, U.S. Treasury notes and bonds, and money market cash
equivalents.
Effective January 1, 1997, the Company adopted an amendment which
modifies the manner in which future benefits accrue under the plan for
salaried employees. The amendment generated a decrease of $164,000 in
pension expense for 1997 and an increase of approximately $870,000 in the
projected benefit obligation.
The funded status of the plan at December 31, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested $ 21,675,000 $ 17,802,000
Nonvested 450,000 318,000
------------ ------------
Accumulated benefit obligation $ 22,125,000 $ 18,120,000
============ ============
Plan assets at fair value $ 19,376,000 $ 16,400,000
Projected benefit obligation (22,715,000) (19,564,000)
Net unrecognized items (727,000) 106,000
------------ ------------
Accrued pension liability $ (4,066,000) $ (3,058,000)
============ ============
</TABLE>
F-16
<PAGE> 19
Net periodic pension expense for the year ended December 31, 1997 and the
two-month period ended December 31, 1996 includes the following
components:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Service cost for benefits earned during the period $ 1,498,000 $ 1,414,000
Interest cost on projected benefit obligation 1,441,000 1,306,000
Expected/Actual return on plan assets (3,623,000) (1,950,000)
Net amortization and deferral 2,027,000 592,000
----------- -----------
Net periodic pension expense 1,343,000 1,362,000
Less expense recorded by LOS prior to transfer date - (1,135,000)
----------- -----------
Expense recorded by the Company $ 1,343,000 $ 227,000
=========== ===========
</TABLE>
The significant actuarial assumptions for the plan as of the year-end
measurement dates were as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Discount rate 7.0% 7.5%
Rate of increase in future compensation levels 4.0% 4.0%
Expected long-term rate of return on assets 9.5% 9.5%
</TABLE>
Effective January 1, 1997, the Company introduced a non-qualified
Supplemental Executive Retirement Plan (SERP). The SERP, which is
unfunded, provides eligible executives defined pension benefits outside
the defined benefit pension plan, based on average earnings, years of
service and age at retirement. At December 31, 1997, the projected
benefit obligation was $487,000 and net unrecognized costs of the SERP
were approximately $379,000. The expense incurred for the SERP was
$108,000 for the year ended December 31, 1997. At December 31, 1997 the
Company has offset its liability for the SERP of $108,000 with restricted
cash held in a trust account of approximately the same amount.
The Company sponsors a defined contribution savings plan whereby the
Company matches a portion of the contributions made by plan participants.
The expense incurred for matching contributions was approximately
$539,000 and $77,000 for the year ended December 31, 1997 and the
two-month period ended December 31, 1996, respectively.
The Company provides certain postretirement life insurance benefits to
non-salaried employees who retire at age 55 or later with a minimum of
ten years of service. The Company accrues the cost of providing such
postretirement benefits, including life insurance coverage, during the
active service period of the employees who are expected to qualify for
such benefits.
The accumulated postretirement benefit obligation ("APBO") and related
net periodic postretirement benefit cost were actuarially determined
using a current discount rate of 7.0% and 7.5% for December 31, 1997 and
the two-month period ended December 31, 1996, respectively. The APBO at
December 31, 1997 and 1996 was approximately $879,000 and $708,000,
respectively. The plan is unfunded and had unrecognized losses of
approximately $139,000 and 62,000 at December 31, 1997 and 1996,
respectively. The liability (recorded in other noncurrent liabilities) at
December 31, 1997 and 1996 related to the plan was approximately $740,000
and $645,000, respectively.
F-17
<PAGE> 20
Net periodic postretirement benefit cost for the unfunded plan for the
year ended December 31, 1997 and two months ended December 31, 1996 is
includes the following components:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Service cost, benefits attributed to employee service during the period $ 75,000 $ 74,000
Interest cost on accumulated postretirement benefit obligation 53,000 45,000
Net amortization and deferral 1,000 1,000
--------- ---------
Total net periodic post-retirement cost 129,000 120,000
Less expense recorded by LOS prior to transfer date -- (100,000)
--------- ---------
Expense recorded by the Company $ 129,000 $ 20,000
========= =========
</TABLE>
The Company provides certain postemployment benefits to former or
inactive employees after employment but before retirement. The Company
accrues the benefits when it becomes probable that such benefits will be
paid and when sufficient information exists to make reasonable estimates
of the amounts to be paid. The liability (included in other noncurrent
liabilities) at December 31, 1997 and 1996 was approximately $1.3 million
and $1.2 million, respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company is exposed to asserted and unasserted potential claims
encountered in the normal course of business. In the opinion of
management, the resolution of these matters will not have a material
adverse effect on the Company's financial position or results of
operations.
In 1995, the Company entered into an Asset Purchase Agreement (the
"Agreement") to buy a dairy in North Carolina (the "Dairy") in which the
Company would purchase all of the assets of this dairy for $3,000,000.
The Company withdrew from the Agreement claiming a material adverse
change under the Agreement. The Dairy claims that the Company's decision
not to conclude the purchase is a breach of contract under the Agreement.
On December 22, 1997, the United States Bankruptcy Court for the Eastern
District of North Carolina, Raleigh Division ("Court") entered an order
granting a summary judgment in favor of the Dairy. Such order indicated
that the Court would schedule a hearing on damages (no amount has yet
been disclosed) sought by the Dairy although a date for a hearing on such
damage claims has not yet been set by the Court. The Company believes
their withdrawal was allowable under the terms of the Agreement. As such,
when the order becomes final, the Company intends to appeal. The amount
of liability, if any, of this claim at December 31, 1997, is not
determinable at this time and no provision for loss, if any, has been
provided in the accompanying financial statements.
The Company has entered into a number of different purchase commitments
in the ordinary course of business for such items as raw materials,
packaging materials and cleaning chemicals during the year. Management
believes that there is no exposure to risk of loss related to such
agreements.
The Company has an employment agreement with an executive officer, the
terms of which expire September 30, 1998. Such agreement provides for an
annual salary and health and medical benefits through the expiration
date. In addition, the Company will provide the executive officer with
the same health and medical benefits in place as of September 30, 1998
through September 30, 2001. The commitment for payments at December 31,
1997 is approximately $197,000, which has been included in other
liabilities.
F-18
<PAGE> 21
8. CONCENTRATION OF CREDIT RISK
The Company markets and distributes its products within a limited
geographical area (primarily the Southeastern United States).
Additionally, the Company's accounts receivable generally are unsecured
and are liquidated based on cash flows generated by its customers'
operations.
The Company's largest customer accounted for 13% of total net sales for
the year ended December 31, 1997. Additionally, trade receivables at
December 31, 1997 include approximately $2.7 million due from this
customer.
Purchases from the Company's two largest vendors accounted for 49% and
12%, respectively, of total costs of goods sold for the year ended
December 31, 1997. Additionally, accounts payable at December 31, 1997
include approximately $10.9 million due to these vendors.
9. WELFARE BENEFIT TRUST AGREEMENT
The Company has a Welfare Benefit Trust Agreement whereby amounts
deposited into the trust fund by the Company are restricted for the
benefit of the employees and their eligible dependents under and in
accordance with Land-O-Sun Dairies, L.L.C. Group Insurance Plan for the
payment of eligible medical claims. At December 31, 1997, approximately
$95,000 of assets and $2.0 million of liabilities relating to the plan
are included in the Balance Sheet. At December 31, 1996 the Company had
offset its liability for health insurance claims of $2.6 million with
restricted cash held in the trust account of approximately $3.0 million.
Expenses recorded by the Company relating to this plan were $4.1 million
and $1.2 million for the year ended December 31, 1997 and the two months
ended December 31, 1996, respectively.
10. RELATED PARTY TRANSACTIONS
At December 31, 1996, the Company had an unsecured $400,000 note
receivable from LOS included in other assets in the accompanying December
31, 1996 balance sheet. The note was repaid during 1997.
In the ordinary course of business, the Company purchases raw materials
from Mid-Am. The Company's purchases from Mid-Am amounted to $166.6
million and $31.0 million during the year ended December 31, 1997 and the
two months ended December 31, 1996, respectively. Accounts payable at
December 31, 1997 and 1996 include approximately $8.9 million and $7.1
million, respectively, due to Mid-Am. Additionally, in the ordinary
course of business the Company sells excess milk and cream to Mid-Am. The
Company's sales to Mid-Am amounted to $6.8 million and $0.9 million
during the year ended December 31, 1997 and the two months ended December
31, 1996, respectively. Accounts receivable at December 31, 1997 and 1996
include approximately $1.2 million and $1.3 million, respectively, due to
Mid-Am.
On October 31, 1996, the Company entered into two unsecured Term Loan
Agreements with Mid-America Finance, Inc. (a related party to Mid-Am)
(see Note 4). During 1997, one of these two loans with a principal amount
of $9 million was repaid. At December 31, 1997, the remaining amount due
Mid-America Finance, Inc. was $9 million.
On December 17, 1997, the Company entered into a Subordinated Working
Capital Line of Credit Note with Mid-Am Capital, L.L.C. (a related party
to Mid-Am) (see Note 4). No amounts were outstanding under this line of
credit at December 31, 1997.
F-19
<PAGE> 22
11. SUBSEQUENT EVENTS
On January 1, 1998, the Company acquired Carolina Dairies Corporation
which was a dairy manufacturer and distributor, for a cash purchase price
of approximately $4.6 million. The purchase price was financed by
utilizing unused credit facilities and will be accounted for as a
purchase. For the year ended December 31, 1997, Carolina Dairies
Corporation reported unaudited net sales of approximately $13 million.
On February 20, 1998, the Members sold all of their equity in the Company
to Suiza Foods Corporation of Dallas, Texas. In addition, all of the
Company's debt which was outstanding at February 20, 1998 was repaid.
********
F-20
