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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 001-12755
SUIZA FOODS CORPORATION
(Exact name of the registrant as specified in its charter)
[SUIZA FOODS LOGO]
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DELAWARE 75-2559681
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
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2515 MCKINNEY AVENUE
SUITE 1200
DALLAS, TEXAS 75201
(214) 303-3400
(Address, including zip code, and telephone number, including
area code, of the registrant's principal executive offices)
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Securities Registered Pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.01 par value New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: [X]
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant at March 13, 2000, based on the $37.31 per
share closing price for the registrant's common stock on the New York Stock
Exchange, was approximately $995.4 million.
The number of shares of the registrant's common stock outstanding as of
March 13, 2000 was 32,110,333.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on or about May 17, 2000 (to be filed) are
incorporated by reference into Part III of this Form 10-K.
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EXPLANATORY NOTE
The Registrant hereby amends its Annual Report on Form 10-K for the year
ended December 31, 1999 by adding Exhibit 21 and Exhibit 23 thereto.
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TABLE OF CONTENTS
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PAGE
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PART I
1 Business.................................................... 1
2 Properties.................................................. 12
3 Legal Proceedings........................................... 13
PART II
5 Market for Our Common Stock and Related Matters............. 13
6 Selected Financial Data..................................... 14
7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
7a Quantitative and Qualitative Disclosures About Market
Risk...................................................... 21
8 Consolidated Financial Statements........................... 22
PART III
10 Directors and Executive Officers............................ 23
11 Executive Compensation...................................... 23
12 Security Ownership of Certain Beneficial Owners and
Management................................................ 23
13 Certain Relationships and Related Transactions.............. 23
PART IV
14 Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 24
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PART I
ITEM 1. BUSINESS
GENERAL
We are the leading manufacturer and distributor of dairy products in the
United States.
Our principal executive offices are located at 2515 McKinney Avenue, Suite
1200, Dallas, Texas 75201. Our telephone number is (214) 303-3400. We maintain a
worldwide web site at http://www.suizafoods.com. We were incorporated in
Delaware in 1994.
BRIEF HISTORY
We commenced operations in 1988 through a predecessor entity. Our original
operations consisted solely of a packaged ice business. As a result of our
acquisition strategy in the packaged ice industry, we became one of the largest
manufacturers and distributors of packaged ice in the United States.
We entered the dairy business in December 1993 when we acquired Suiza Dairy
Corporation, a regional dairy processor located in Puerto Rico. We have grown
our dairy business primarily through a focused acquisition strategy. Since our
acquisition of Suiza Dairy in 1993, we have completed 39 dairy acquisitions,
including 7 during 1999 and 4 during 2000 through March 13. With the completion
of our most recent acquisitions, we have become the largest manufacturer and
distributor of dairy products in the United States.
We completed our initial public offering in April 1996. Initially our
common stock was traded in the Nasdaq National Market. In January 1997 we
completed a second public offering. Our common stock began trading on the New
York Stock Exchange in March 1997.
In August 1997 we acquired Franklin Plastics, Inc., a company engaged in
the business of manufacturing and selling plastic containers, in connection with
our acquisition of a dairy company related to Franklin Plastics. We then began
acquiring other companies in the plastic container business including
Continental Can in May 1998. By 1999 we had built one of the largest plastic
packaging companies in the United States.
In April 1998 we sold our packaged ice operations in order to focus our
resources on our dairy and packaging operations.
In July 1999, having made a decision to further focus our resources on our
core dairy business, we sold all of our U.S. plastic container operations to
Consolidated Container Company in exchange for cash and a 43.1% interest in the
purchaser. In March 2000 we sold the European metal can operations that we
acquired as part of our acquisition of Continental Can. Our only remaining
packaging business is a small flexible film business based in Kempton, Germany,
which we also acquired as part of Continental Can.
The following timeline graphically depicts our history:
[CHART]
Primarily as a result of acquisitions, we have increased our net sales and
operating income from $891.2 million and $40.0 million, respectively, for the
year ended December 31, 1994, to $4.5 billion and $276.9 million, respectively,
for the year ended December 31, 1999.
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RECENT DEVELOPMENTS
Acquisitions
We have completed 11 acquisitions since January 1, 1999 including:
- Leche Celta (February 2000). Leche Celta, the fourth largest dairy
processor in Spain, had net sales of approximately $150 million in 1999.
Leche Celta has three plants located in the Galicia and Cantabria regions
of Spain, and produces primarily ultra-high temperature dairy products.
We acquired a majority interest in this business.
- Valley of Virginia (February 2000). Valley of Virginia Cooperative Milk
Producers Association, an agricultural marketing cooperative with dairy
processing plants in Springfield and Mt. Crawford, Virginia, had net
sales of approximately $209 million in 1999.
- Southern Foods (January 2000). Southern Foods Group, the third largest
dairy processor in the United States, had 30 plants in 12 states at the
time of the acquisition and net sales of approximately $1.3 billion in
1999. We acquired Southern Foods Group pursuant to a joint venture with
Dairy Farmers of America.
- Adohr Farms (August 1999). We acquired Adohr Farms, which had annual
revenues of $148 million in 1998, pursuant to a joint venture with Dairy
Farmers of America. In January 2000 all interests in that joint venture
were contributed to the joint venture we formed with Dairy Farmers of
America in connection with the acquisition of Southern Foods.
- Broughton Foods (June 1999). Broughton Foods Company had sales of
approximately $179 million in 1998 (or $202 million on a pro forma basis
for acquisitions).
Primarily as a result of acquisitions, we increased our net sales from $3.3
billion for the year ended December 31, 1998 to $4.5 billion for the year ended
December 31, 1999, and over $6.0 billion in 1999 on a pro forma basis if all
acquisitions completed during 1999 and 2000 had been completed on January 1,
1999. For more information about our acquisition history, please see Notes 2 and
3 to our Consolidated Financial Statements.
Divestitures
In July 1999 we sold our U.S. plastic packaging business to Consolidated
Container Company for cash and a 43.1% interest in the purchaser. In March of
this year we sold the European metal packaging business that we acquired as part
of Continental Can. As a result of these transactions we no longer have a
reportable "packaging" segment. For more information about these transactions,
please see Notes 3, 5 and 21 to our Consolidated Financial Statements.
Other Events
Other important recent events include the following:
- Between January 1, 1999 and March 13, 2000 we repurchased approximately
5,826,723 shares of our common stock under our open market share
repurchase program for a total purchase price of approximately $214.4
million,
- We furthered our overall integration and cost reduction strategy during
1999, closing or selling nine plants and reducing our workforce,
- In May 1999 we launched the initial test market of our new value-added
branded milks, kidsmilk(TM), fitmilk(TM) and lifemilk(TM), in Reno,
Nevada, and in January 2000 we expanded the test market to approximately
1,000 stores in New England and Michigan,
- In February 2000 we launched SunSoy(TM), a non-dairy, lactose-free,
cholesterol-free soymilk enriched with calcium and vitamins, and
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- In February of this year we entered into a long-term supply agreement to
provide The Stop & Shop Supermarket Company, one of the largest grocery
store operators in New England, with all of its private-label milk and
related dairy products in New England and parts of New York. We expect
this agreement to become effective during the second quarter of this
year.
For more information about our stock repurchases and our integration and
cost reduction activities, please see Notes 13 and 17 to our Consolidated
Financial Statements.
The following chart is a general representation of our current corporate
structure, after giving effect to all of our recent transactions:
[GRAPH]
CURRENT BUSINESS STRATEGY
Our primary strategic focus has been to expand the geographic coverage of
our dairy business to better serve an increasingly national customer base. We
have grown our dairy business significantly since January 1, 1999 and as a
result we now have national manufacturing and distribution capabilities.
Although we expect to continue to make selective and strategic acquisitions, our
business strategy is now focused on maximizing shareholder value primarily
through the following strategies:
Taking Advantage of Our Scale
We seek to:
- vigorously pursue economies of scale in purchasing and product
development as a result of our increased sales base,
- reduce manufacturing costs and increase product quality through the
continued integration of manufacturing operations into more specialized,
scale-efficient facilities,
- lower our distribution costs by eliminating excess capacity while at the
same time developing a more efficient system for distributing a greater
volume of product, and
- continue to reduce expenses by eliminating duplicative administrative
costs.
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Increasing Sales
We intend to grow sales in our existing businesses by combining excellent
product quality and customer service with our unparalleled geographic reach to
provide unmatched service and convenience to our customers, many of whom are
consolidating. Also, we intend to expand our product offerings through
innovation because we believe that innovation is the key to growing both our
sales and overall consumption of dairy products.
Enhancing Operating Profit Margins, Free Cash Flow and Return on Invested
Capital
We continue to seek profit margin improvements through integration and cost
reduction initiatives, and increased sales of higher-margin products. Also, we
seek to increase free cash flow and improve our return on invested capital
primarily through a disciplined capital expenditure strategy and effective
management of working capital.
Expanding With Our Customers
We will continue to pursue strategic acquisitions because we believe that
in order to win and retain customers in the consolidating retail sector it is
critical not only that we have excellent product quality and customer service
but also that we are able to distribute our products wherever our customers have
operations. In addition, strategic acquisitions may help to further reduce our
distribution costs or enable us to quickly expand our product lines or
technological capabilities. In February of this year, we completed the
acquisition of a Spanish dairy processor, and we may pursue one or more
additional international acquisitions. We believe that the international markets
may offer us new growth and consolidation opportunities in the future. Also, we
believe an international presence offers us greater access to European
advancements in ultra-high temperature ("UHT") technologies and better aligns us
with large retail customers, many of whom have operations in Europe.
In order to implement our business strategies, we have invested in product
development, marketing and technological enhancements, and revised our
management compensation system to reflect our shifted strategy.
INDUSTRY OVERVIEW
According to published industry statistics, approximately $22.2 billion in
wholesale value of fresh milk products were sold in the United States in 1999
compared to $21.6 billion sold in 1989.
The dairy industry is a mature industry which has traditionally been
characterized by slow to flat growth, fragmentation and excess capacity. Excess
capacity has resulted from the development of more efficient manufacturing
techniques, the establishment of captive dairy manufacturing operations by large
grocery retailers and little to no growth in the demand for fresh milk products.
For the last several years, the dairy industry has been in the process of
consolidating. As the industry has consolidated, large regional dairy processors
have emerged.
Consolidation has tended to raise efficiencies in the typically low-margin
dairy industry. However, consumption of dairy products remains flat and has even
declined in some regions of the country. We believe that the consolidation trend
will continue as dairy processors continue to seek to become more profitable.
Also, we believe that innovation will become increasingly important as
processors seek to increase consumption, sales and margins through product
differentiation and branding.
PRODUCTS AND SERVICES
Our product mix is heavily weighted toward fluid milk, including flavored
milks and buttermilk.
Our other products include:
- specialty products such as lactose-reduced milk and soymilk,
- ice cream and novelties,
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- dairy and non-dairy coffee creamers,
- half-and-half and whipping cream,
- sour cream,
- cottage cheese,
- yogurt, and
- dairy and non-dairy frozen whipped toppings.
We also manufacture and distribute fruit juices and other flavored drinks,
bottled water and coffee.
In 1999, we manufactured and marketed approximately two thirds of our dairy
products under our proprietary brand names. The remaining one third of our
products were manufactured and sold on a private-label (or "customer brand")
basis for our customers. Our proprietary brands include:
- national brands including International Delight(R), Sun Soy(TM), Second
Nature(R), Naturally Yours(R), Mocha Mix(R), kidsmilk(TM), fitmilk(TM)
and lifemilk(TM),
- regional brands including Adohr Farms(R), Barbe's(R), Broughton(R),
Brown's Velvet Dairy(R), Country Fresh(R), Dairymens(R), Lehigh Valley
Farms(R), Meadow Gold(R), Model Dairy(TM), Natural by Garelick Farms(R),
Oak Farms(R), Robinson(R), Schepps(R), Shenandoah's Pride(R), Suiza(TM),
Louis Trauth(TM), Tuscan(R), Velda Farms(R) and West Lynn Creamery(R),
and
- partner or licensed brands in certain regions including Borden(R),
Flav-O-Rich(R), Foremost(R), Lactaid(R), and Pet(R).
SALES AND DISTRIBUTION
We have organized our dairy operations primarily by geographic regions. We
currently operate five regions in the United States (including Puerto Rico), in
addition to our Morningstar group and our international operations. We have
established a strong presence in each of our regions. For more information about
our regions, see "Properties" on page 12.
We market and sell our dairy products primarily through our internal
regional sales forces to a wide variety of retail and food service customers
including grocery stores, club stores, convenience stores, institutional food
service, gas stores, schools, restaurants and hotels. Our customer base is
large, and we are not dependent on any single customer.
We deliver a majority of our dairy products directly from our plants or our
distribution warehouses to our customers, primarily in trucks that we own or
lease. This form of delivery is called a "direct store delivery" or "DSD"
system.
Our sales of dairy products are slightly seasonal, with sales tending to be
higher in the third and fourth quarters.
Our Morningstar subsidiary produces and sells a majority of our specialty
and long shelf-life products. We market and sell these products on a national
basis to a wide variety of retail, food service and dairy outlets and in a
number of foreign countries through an internal sales force and independent
brokers. Our specialty and long shelf-life products are delivered primarily by
common carrier. Sales of some of these products, such as whipping cream and
pre-whipped toppings, sour cream and coffee creamers, experience higher sales in
the fourth quarter.
RESEARCH AND DEVELOPMENT
The development of new products, packaging and manufacturing processes is
an important part of our growing emphasis on branded dairy products. We utilize
consumer research to test new products prior to market introduction and we are
currently test marketing several new products and packaging innovations.
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While company-sponsored research and development is important to our operations,
our total expenditures to date related to this function have not been material
to our overall financial results.
RAW MATERIALS AND SUPPLY
The primary raw material used in our operations is raw milk. We purchase a
significant portion of our raw milk from Dairy Farmers of America, a large
farmers cooperative and owner of 33.8% of our U.S. fluid dairy operations (but
not including our Morningstar subsidiary or our Puerto Rican operations). We
have entered into various supply agreements with Dairy Farmers of America.
Prices charged by Dairy Farmers of America under these contracts are competitive
market prices. We also purchase raw milk from independent farmers and certain
other farm co-operatives typically pursuant to contractual arrangements. Raw
milk is generally readily available. After raw milk, cream (including butterfat)
is our most used raw material. We use cream in the manufacture of creamers, ice
cream and certain other dairy products. Although we produce a significant amount
of cream in our fluid milk operations, we also purchase cream from unaffiliated
third parties from time to time. Cream (including butterfat) is generally
readily available. Other raw materials, such as coffee, juice concentrates,
sweeteners, and packaging supplies are generally available from numerous
suppliers and we are not dependent on any single supplier for these materials.
Certain of our raw materials are purchased under long-term contracts in order to
obtain lower costs. The prices of our raw materials increase and decrease
depending on supply and demand. Also, the price of raw milk is regulated by the
federal government through federal market orders and price support programs, and
many state governments regulate raw milk pricing through their own market order
programs or compacts with other states. For more information about raw milk
pricing, please see "Government Regulation -- U.S. Milk Industry Regulation" on
page 7. Prices of raw milk and cream can fluctuate widely.
COMPETITION
The dairy industry is highly competitive. We have many competitors in each
of our major product, service and geographic markets.
Competition in the dairy business is based primarily on:
- service,
- price,
- brand recognition,
- quality, and
- breadth of product line.
The dairy industry has excess capacity. Excess capacity has resulted from
the development of more efficient manufacturing techniques, the establishment of
captive dairy manufacturing operations by large grocery retailers and relatively
little growth in the demand for fresh milk products. Any expansion of production
capacity in one of our regional markets could have an adverse effect on us.
INTELLECTUAL PROPERTY
We have developed or acquired several hundred trademarks, brand names and
logos and several patents, and we are constantly developing new trademarks,
brand names, logos and patents. In addition, we hold licenses for the use of
several registered trademarks from third parties. We believe that our use of
trademarks, brand names and patented packaging designs creates goodwill and
results in product differentiation and, therefore, is important to our business.
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GOVERNMENT REGULATION
Public Health
As a manufacturer and distributor of food products, we are subject to the
Federal Food, Drug and Cosmetic Act and regulations promulgated thereunder by
the Food and Drug Administration ("FDA"). This comprehensive regulatory scheme
governs the manufacture (including composition and ingredients), labeling,
packaging and safety of food. The FDA:
- regulates manufacturing practices for foods through its current good
manufacturing practices regulations,
- specifies the standards of identity for certain foods, including many of
the products we sell, and
- prescribes the format and content of certain information required to
appear on food product labels.
In addition, the FDA enforces the Public Health Service Act and regulations
issued thereunder, which authorize regulatory activity necessary to prevent the
introduction, transmission or spread of communicable diseases. These regulations
require, for example, pasteurization of milk and milk products. We are also
subject to other federal, state and local regulation through such measures as
the licensing of dairy manufacturing facilities, enforcement by federal, state
and local health agencies of standards for our products, inspection of our
facilities and regulation of our trade practices in connection with the sale of
dairy products.
We use quality control laboratories to test raw milk and other ingredients
and finished products. Product quality and freshness are essential to the
successful distribution of our products. To monitor product quality at our
facilities, we maintain quality control programs to test products during various
processing stages. We believe that our dairy facilities and manufacturing
practices comply with all material government regulations.
Employee Safety Regulations
We are subject to certain health and safety regulations including
regulations issued pursuant to the Occupational Safety and Health Act. These
regulations require us to comply with certain manufacturing, health and safety
standards to protect our employees from accidents. We believe that we are in
material compliance with all employee safety regulations.
Environmental Regulations
We are subject to certain federal, state and local environmental
regulations. Ammonia, a refrigerant used extensively in our operations, is
considered an "extremely" hazardous substance pursuant to federal environmental
laws due to its toxicity. Also, certain of our dairy facilities discharge
biodegradable wastewater into municipal waste treatment facilities in excess of
levels permitted under local regulations. Because of this, certain of our dairy
subsidiaries are required to pay waste water surcharges or to construct waste
water pretreatment facilities. To date, such waste water surcharges have not had
a material effect on our consolidated financial statements.
We maintain above-ground or underground petroleum storage tanks at many of
our facilities. These tanks are periodically inspected to determine compliance
with applicable regulations. We may be required to make expenditures from time
to time in order to maintain compliance of these tanks.
We do not expect environmental compliance to have a material impact on our
capital expenditures, earnings or competitive position in the foreseeable
future.
U.S. Milk Industry Regulation
Pursuant to the Federal Milk Marketing Order program, the federal
government and several state agencies establish minimum regional prices paid to
producers for raw milk. These prices, which are calculated by economic formula
based on supply and demand, vary depending on the type of product manufactured
using the raw milk. In New England, the Northeast Dairy Compact Commission sets
a minimum price for milk
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independent of the price set by the federal milk marketing orders. The price we
pay for raw milk in New England currently exceeds the price we pay for raw milk
in other parts of the country. Several other states have adopted or are
considering adopting compacts among milk producers which would establish minimum
prices paid by milk processors, including us, to raw milk producers in those
states. We do not know whether new compacts will be authorized by Congress or,
if authorized, the extent to which these compacts would increase the prices we
pay for raw milk.
EMPLOYEES
As of December 31, 1999 we employed approximately 13,800 people in the
following categories:
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NO. OF EMPLOYEES % OF TOTAL
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Dairy....................................................... 11,720 84.9%
European Packaging.......................................... 2,014 14.6
Corporate................................................... 72 0.5
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Since December 31, 1999, we have acquired Southern Foods, which had
approximately 5,700 employees as of December 31, 1999, and made certain other
acquisitions and divestitures, bringing our current number of employees to over
18,000.
RISK FACTORS
This report contains statements about our future that are not statements of
historical fact. Most of these statements are found in the portions of this
report entitled "Current Business Strategy," "Government Regulation," "Industry
Overview," "Liquidity and Capital Resources," "Known Trends and Uncertainties,"
and "Quantitative and Qualitative Disclosures About Market Risk." In some cases,
you can identify these statements by terminology such as "may," "will,"
"should," "could," "expects," "seek to," "anticipates," "plans," "believes,"
"estimates," "intends," "predicts," "potential" or "continue" or the negative of
such terms and other comparable terminology. These statements are only
predictions, and in evaluating those statements, you should carefully consider
the risks outlined below. Actual performance or results may differ materially
and adversely.
We May Have Difficulties Managing Our Growth
We have expanded our operations rapidly in recent years. This rapid growth
places a significant demand on our management and our financial and operational
resources, which subjects us to various risks, including:
- inability to successfully integrate or operate acquired businesses,
- inability to retain key customers of acquired businesses, and
- inability to realize or delays in realizing expected benefits from our
increased size.
The integration of businesses we have acquired or may acquire in the future may
also require us to invest more capital than we expected or require more time and
effort by management than we expected. If we fail to effectively manage the
integration of the businesses we have acquired, our operations and financial
results will be affected, both materially and adversely.
We Operate in Highly Competitive Markets and our Customer Base is
Consolidating
Our business is subject to significant competition. See "Competition" on
page 6.
Significant consolidation is currently underway in the supermarket
industry. As our customer base continues to consolidate, we expect competition
among us and our competitors to intensify as we compete for the business of
fewer customers. As discussed on page 6, competition in the dairy industry is
based on a number of factors. As the consolidation of the grocery industry
continues, there can be no assurance that we will be able to keep our existing
customers, or to gain new customers. Winning new customers is particularly
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important to our future growth, as demand tends to be relatively flat in our
industry. Moreover, as our customers become larger, they will have significantly
greater purchasing leverage, and may force dairy prices and margins
significantly lower than current levels.
We could also be adversely affected by any expansion of capacity by our
existing competitors or by new entrants in our markets.
Our Innovation Efforts May Not Succeed
We have invested, or intend to invest, significant resources in product
innovation in an effort to increase our sales and profit margins as well as the
overall consumption of dairy products. We believe that sales and profit growth
through innovation may be the only source of significant growth for our business
because demand tends to be relatively flat, and we expect margins on non
value-added dairy products to be compressed as our customer base consolidates.
The success of our innovation initiatives will depend on customer and consumer
acceptance of our products, of which there can be no assurance. If our
innovation efforts do not succeed, we may not be able to continue to increase
sales or profit margins.
Our Raw Material and Supply Costs Could Increase
The most important raw materials that we use in our operations are raw
milk, cream (including butterfat) and high density polyethylene resin. The
prices of these materials increase and decrease depending on supply and demand
and, in some cases, governmental regulation. For more information about the
pricing of raw milk, see "Raw Materials and Supply" and "Government
Regulation -- U.S. Milk Industry Regulation" on page 7. Prices of raw milk and
cream can fluctuate widely over short periods of time. In many cases, we are not
able to pass on the increased price of raw materials to our customers due
primarily to timing problems. Therefore, volatility in the cost of our raw
materials can adversely affect our performance. Also, because we deliver the
majority of our products directly to our customers through our "direct store
delivery" system, we are a large consumer of gasoline. A continued increase in
fuel prices could adversely affect our results of operations.
We Could Be Adversely Affected By Changes in Regulations
Our operations are subject to federal, foreign, state and local
governmental regulation. See "Government Regulation" beginning on page 7. While
we believe that we are in compliance with all material governmental regulations,
we cannot be certain what effect any future material noncompliance, or any
material changes in these laws and regulations, including changes in the laws
regulating minimum prices for raw milk, could have on our business.
We Have Substantial Debt and Other Financial Obligations and We May Incur
Additional Debt
As of March 13, 2000, we had substantial debt and other financial
obligations, including:
- $1.08 billion of indebtedness under the senior credit facility of Suiza
Dairy Group, our joint venture with Dairy Farmers of America,
- $600.0 million of 5.5% preferred securities, and
- $113.8 million of subordinated debt of Southern Foods.
We had no debt outstanding under our parent-level senior credit facility as
of March 13, 2000.
We have pledged the stock of certain subsidiaries to secure our senior
credit facilities and the assets of other subsidiaries to secure other
indebtedness. Our two senior credit facilities and related debt service
obligations
- limit our ability to obtain additional financing in the future without
obtaining prior consent,
- require us to dedicate a significant portion of our cash flow to the
payment of principal and interest on our debt which reduces the funds we
have available for other purposes,
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- may limit our flexibility in planning for or reacting to changes in our
business and market conditions, and
- impose on us additional financial and operational restrictions.
Our ability to make scheduled payments on our debt and other financial
obligations depends on our financial and operating performance. Our financial
and operating performance is subject to prevailing economic conditions and to
financial, business and other factors, some of which are beyond our control. If
we do not comply with the financial and other restrictive covenants under our
credit facilities, we may default under them. Upon default, our lenders could
accelerate the indebtedness under the facilities, foreclose against their
collateral or seek other remedies.
We May Be Subject to Product Liability Claims
We sell food products for human consumption, which involves risks such as
- product contamination or spoilage,
- product tampering, and
- other adulteration of food products.
Consumption of an adulterated, contaminated or spoiled product may result in
personal illness or injury. We could be subject to claims or lawsuits relating
to an actual or alleged illness or injury, and we could incur liabilities that
are not insured or that exceed our insurance coverages.
Although we maintain quality control programs designed to address food
quality and safety issues, an actual or alleged problem with the quality, safety
or integrity of our products at any of our facilities could result in
- product withdrawals,
- product recalls,
- remediation expenses,
- negative publicity,
- temporary plant closings, and
- substantial costs of compliance or remediation.
Any of these events could have a material and adverse effect on our financial
condition.
Our Foreign Operations Bring Added Risk
In February of this year we purchased a majority interest in a Spanish
dairy processor. We also own a small packaging business in Germany. We have
little experience in managing businesses in Europe, and no experience with
managing a European dairy operation. There can be no assurance that we will be
able to effectively manage a dairy operation in Europe. Moreover, conducting
operations in Europe involves risks and uncertainties not present in the U.S. as
a result of governmental and economic conditions being generally less stable
than in the United States. Also, we are exposed to foreign currency risk due to
certain operating cash flows and various financial instruments being denominated
in foreign currencies. Currently, our most significant foreign currency exposure
relates to the Spanish peseta, the German mark and the euro. Any substantial
devaluation of any of these currencies could have a material adverse effect on
our financial condition and results of operations.
Loss of or Inability to Attract Key Personnel Could Adversely Affect Our
Business
Our success depends to a large extent on the skills, experience and
performance of our key management. The loss of one or more of these persons
could hurt our business. We do not maintain key man life insurance on any of our
executive officers or directors. Also, we have experienced, and could continue
to experience,
10
<PAGE> 14
some difficulty in attracting management personnel due to the currently low
unemployment rates in the United States. If we are unable to attract and retain
key management personnel, our business will be adversely affected.
Certain Provisions of Our Certificate of Incorporation, Bylaws and Delaware
Law Could Deter Takeover Attempts
Some provisions in our certificate of incorporation and bylaws could delay,
prevent or make more difficult a merger, tender offer, proxy contest or change
of control. Our stockholders might view any such transaction as being in their
best interests since the transaction could result in a higher stock price than
the current market price for our common stock. Among other things, our
certificate of incorporation and bylaws
- authorize our board of directors to issue preferred stock in series with
the terms of each series to be fixed by our board of directors,
- divide our board of directors into three classes so that only
approximately one-third of the total number of directors is elected each
year,
- permit directors to be removed only for cause, and
- specify advance notice requirements for stockholder proposals and
director nominations.
In addition, with certain exceptions, the Delaware General Corporation Law
restricts mergers and other business combinations between us and any stockholder
that acquires 15% or more of our voting stock.
We also have a stockholder rights plan. Under this plan, after the
occurrence of specified events, our stockholders will be able to buy stock from
us or our successor at reduced prices. These rights do not extend, however, to
persons participating in takeover attempts without the consent of our board of
directors. Accordingly, this plan could delay, defer, make more difficult or
prevent a change of control.
We Are Subject to Environmental Regulations
We, like others in similar businesses, are subject to a variety of federal,
foreign, state and local environmental laws and regulations including, but not
limited to, those regulating waste water and stormwater, air emissions, storage
tanks and hazardous materials. We believe that we are in material compliance
with these laws and regulations. Future developments, including increasingly
stringent regulations, could require us to make currently unforeseen
environmental expenditures.
WHERE YOU CAN GET MORE INFORMATION
If you would like more information about our company, write or call us at:
Suiza Foods Corporation
2515 McKinney Avenue, Suite 1200
Dallas, Texas 75201
(214) 303-3400
Attention: Investor Relations
Our fiscal year ends on December 31. We furnish our stockholders with
annual reports containing audited financial statements and other appropriate
reports. In addition, we file annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information we file at
the Securities and Exchange Commission's public reference rooms in Washington
D.C. You can request copies of these documents, upon payment of a duplicating
fee, by writing to the Securities and Exchange Commission. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the operation of the public reference rooms. Our Securities and Exchange
Commission filings are also available to the public on the Internet at
http://www.sec.gov.
11
<PAGE> 15
ITEM 2. PROPERTIES
We currently conduct our manufacturing operations from the following
plants:
<TABLE>
<CAPTION>
NUMBER
REGION OF PLANTS LOCATIONS OF PLANTS
- ------ --------- ---------------------
<S> <C> <C>
Midwest 9 - Indiana
- Michigan(4)
- Ohio(3)
- Tennessee
Northeast 10 - Maine
- Massachusetts(3)
- New Jersey(2)
- New York
- Pennsylvania(2)
- Vermont
Southeast 16 - Florida(2)
- Illinois
- Kentucky(2)
- North Carolina(3)
- Ohio
- South Carolina(2)
- Tennessee
- Virginia(4)
Southwest 35 - Alabama
- California(2)
- Colorado(5)
- Hawaii(4)
- Idaho(2)
- Iowa
- Louisiana(3)
- Mississippi
- Montana(3)
- Nebraska
- Nevada
- Oklahoma
- Tennessee
- Texas(7)
- Utah(2)
Puerto Rico 4 - Puerto Rico
Morningstar 11 - Arizona
- California(4)
- Maryland
- New York
- Tennessee
- Texas(2)
- Wisconsin
International 3 - Spain
1 - Germany*
</TABLE>
- ---------------
* Our plant in Kempton, Germany is not a dairy plant. It is a small plant in
which our only remaining packaging subsidiary, Dixie Union, conducts its
flexible film packaging and machine building operations.
We own most of our plants. Each of our plants also serves as a distribution
facility. We also have numerous distribution branches located across the United
States, some of which are owned and some of which are leased. We believe that
each of our properties is suitable for its current use.
Our executive offices are located in leased premises at 2515 McKinney
Avenue, Suite 1200, Dallas, Texas 75201.
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<PAGE> 16
ITEM 3. LEGAL PROCEEDINGS
From time to time we are party to legal proceedings that arise in the
ordinary course of business. We do not believe that the resolution of any
currently pending legal proceedings will have a material adverse affect on our
financial position, results of operations or liquidity.
PART II
ITEM 5. MARKET FOR OUR COMMON STOCK AND RELATED MATTERS
Our common stock began trading in the Nasdaq National Market on April 17,
1996. Our common stock began trading on the New York Stock Exchange on March 5,
1997. The following table sets forth the high and low sales prices of our common
stock as quoted on the New York Stock Exchange for the last two fiscal years. At
March 13, 2000, there were approximately 400 record holders of our common stock.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1998:
First Quarter............................................. $67.00 $55.00
Second Quarter............................................ 63.00 53.31
Third Quarter............................................. 61.25 26.50
Fourth Quarter............................................ 51.63 25.69
1999:
First Quarter............................................. $50.25 $32.56
Second Quarter............................................ 41.88 29.63
Third Quarter............................................. 40.69 30.00
Fourth Quarter............................................ 39.75 32.63
2000:
First Quarter (through March 13, 2000).................... $44.88 $36.31
</TABLE>
We have never declared or paid a cash dividend on our common stock. We
intend to retain all earnings to cover working capital fluctuations and to fund
capital expenditures, scheduled debt repayments, stock buybacks and acquisitions
and we do not anticipate paying cash dividends on our common stock in the
foreseeable future.
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<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data as of and for each of the five years
in the period ended December 31, 1999 have been derived from our audited
consolidated financial statements. The selected financial data do not purport to
indicate results of operations as of any future date or for any future period.
The selected financial data should be read in conjunction with our Consolidated
Financial Statements and related Notes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales............................................ $4,481,999 $3,320,940 $1,795,868 $1,207,565 $1,014,926
Cost of sales........................................ 3,487,075 2,557,908 1,381,084 970,796 813,091
---------- ---------- ---------- ---------- ----------
Gross profit......................................... 994,924 763,032 414,784 236,769 201,835
Operating costs and expenses:
Selling and distribution........................... 518,962 376,928 209,271 123,161 107,885
General and administrative......................... 148,009 112,169 58,708 44,352 39,649
Amortization of intangibles........................ 38,513 31,479 14,916 7,675 5,609
Plant closing, merger and other costs.............. 12,566 37,003 571 9,300
---------- ---------- ---------- ---------- ----------
Total operating costs and expenses................... 718,050 520,576 319,898 175,759 162,443
---------- ---------- ---------- ---------- ----------
Operating income..................................... 276,874 242,456 94,886 61,010 39,392
Other (income) expense:
Interest expense, net.............................. 49,233 52,082 36,664 15,707 18,942
Financing charges on trust issued preferred
securities....................................... 38,584 30,213
Equity in earnings of unconsolidated affiliates.... (2,630) (78)
Other income, net.................................. (1,416) (4,212) (24,483) (4,499) (2,241)
---------- ---------- ---------- ---------- ----------
Total other expense.................................. 83,771 78,005 12,181 11,208 16,701
---------- ---------- ---------- ---------- ----------
Income from continuing operations before
income taxes....................................... 193,103 164,451 82,705 49,802 22,691
Income taxes......................................... 75,463 59,823 43,375 2,939 10,003
Minority interest in earnings........................ 8,813 1,559
---------- ---------- ---------- ---------- ----------
Income from continuing operations.................... 108,827 103,069 39,330 46,863 12,688
Income (loss) from discontinued operations........... (3,161) 717 2,315 1,329
---------- ---------- ---------- ---------- ----------
Income before extraordinary gain (loss).............. 108,827 99,908 40,047 49,178 14,017
Extraordinary gain (loss)............................ 904 31,698 (11,283) (2,215) (8,462)
---------- ---------- ---------- ---------- ----------
Net income........................................... $ 109,731 $ 131,606 $ 28,764 $ 46,963 $ 5,555
========== ========== ========== ========== ==========
Net income applicable to common stock................ $ 109,731 $ 131,369 $ 28,464 $ 46,661 $ 5,251
========== ========== ========== ========== ==========
Basic earnings per common share:
Income from continuing operations.................... $ 3.31 $ 3.12 $ 1.32 $ 1.99 $ 0.60
Income (loss) from discontinued operations........... (0.10) 0.02 0.10 0.06
Extraordinary gain (loss)............................ .03 0.96 (0.38) (0.10) (0.41)
---------- ---------- ---------- ---------- ----------
Net income........................................... $ 3.34 $ 3.98 $ 0.96 $ 1.99 $ 0.25
========== ========== ========== ========== ==========
Diluted earnings per common share:
Income from continuing operations.................... $ 3.11 $ 2.90 $ 1.25 $ 1.90 $ 0.59
Income (loss) from discontinued operations........... (0.08) 0.02 0.10 0.06
Extraordinary gain (loss)............................ .02 0.76 (0.36) (0.09) (0.40)
---------- ---------- ---------- ---------- ----------
Net income........................................... $ 3.13 $ 3.58 $ 0.91 $ 1.91 $ 0.25
========== ========== ========== ========== ==========
Average common shares:
Basic................................................ 32,861,218 32,953,290 29,508,791 23,424,322 20,708,467
========== ========== ========== ========== ==========
Diluted.............................................. 42,858,492 41,965,564 31,348,591 24,491,899 20,935,161
========== ========== ========== ========== ==========
Other Data:
Ratio of earnings to combined fixed charges and
preferred stock dividends(1)....................... 3.75x 3.36x 2.89x 3.38x 1.94x
Balance Sheet Data (at end of period):
Total assets......................................... $2,658,922 $3,013,783 $1,403,462 $ 833,624 $ 484,852
Long-term debt(2).................................... 712,068 932,969 828,659 455,880 265,749
Mandatorily redeemable convertible trust issued
preferred securities............................... 683,505 682,938
Total stockholders' equity........................... 583,972 655,771 359,310 213,854 111,909
</TABLE>
- ---------------
(1) For purposes of calculating the ratio of earnings to combined fixed charges
and preferred stock dividends, "earnings" represent income before income
taxes plus fixed charges. "Fixed charges" consist of interest on all debt,
amortization of deferred financing costs and the portion of rental expense
that we believe is
14
<PAGE> 18
representative of the interest component of rent expense. Preferred stock
dividends consists of dividends, adjusted to a pre-tax basis, on our Series
A Preferred Stock, which we redeemed in 1998.
(2) Includes amounts outstanding under subsidiary lines of credit and the
current portion of long-term debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We are the nation's leading dairy processor and distributor, producing a
full line of company-branded and customer-branded dairy products such as fluid
milk, ice cream and novelties, coffee creamers, half-and-half, whipping cream,
sour cream, cottage cheese and yogurt. We also manufacture and distribute fruit
juices and other flavored drinks, bottled water and coffee, and have holdings in
the consumer goods packaging industry.
RESULTS OF OPERATIONS
The following table presents certain information concerning our results of
operations, including information presented as a percentage of net sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT
---------- ------- ---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales.......................................... $4,481,999 100.0% $3,320,940 100.0% $1,795,868 100.0%
Cost of sales...................................... 3,487,075 77.8 2,557,908 77.0 1,381,084 76.9
---------- ----- ---------- ----- ---------- -----
Gross profit....................................... 994,924 22.2 763,032 23.0 414,784 23.1
Operating costs and expenses:
Selling and distribution......................... 518,962 11.5 376,928 11.4 209,271 11.7
General and administrative....................... 148,009 3.3 112,169 3.4 58,708 3.3
Amortization of intangibles...................... 38,513 0.9 31,479 0.9 14,916 0.8
Plant closing, merger and other costs............ 12,566 0.3 37,003 2.0
---------- ----- ---------- ----- ---------- -----
Total operating costs and expenses................. 718,050 16.0 520,576 15.7 319,898 17.8
---------- ----- ---------- ----- ---------- -----
Operating income................................... $ 276,874 6.2% $ 242,456 7.3% $ 94,886 5.3%
========== ===== ========== ===== ========== =====
</TABLE>
On July 2, 1999 we sold our U.S. plastic packaging operations to
Consolidated Container Company, in exchange for cash and a 43.1% interest in
Consolidated Container. We account for our investment in Consolidated Container
under the equity method of accounting. As a result, the sales and operating
expenses of Consolidated Container subsequent to July 2, 1999 are not included
in the table presented above, but are instead condensed onto a single line below
operating income (see discussion below under "Other (Income) Expense").
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net Sales. Our net sales increased by $1.16 billion or 35% in 1999 compared
to 1998, primarily as a result of acquisitions. Excluding $244.9 million and
$325.0 million in revenues recorded by our U.S. packaging operations in 1999 and
1998, respectively, sales increased $1.24 billion or 41.5%. Acquisitions
completed in 1998 and 1999 accounted for $1.01 billion of this increase. The
remaining increase of $229.1 million was due to growth in our existing
businesses and to increased sales of higher priced products such as branded
coffee creamers.
Cost of Sales. Our cost of sales ratio was 77.8% in 1999 compared to 77.0%
in 1998. This ratio increased due to
- higher costs of sales in newly acquired businesses, and
- the sale of our U.S. packaging operations, which had a lower cost of
sales ratio.
Partially offsetting these events was the fact that dairies owned for more
than one year reduced their cost of sales ratio by 0.8%.
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<PAGE> 19
Operating Costs and Expenses. Our operating expense ratio was 16.0% in 1999
compared to 15.7% in 1998. This increase was primarily the result of $12.6
million in plant closing costs and other costs. As a result of our rapid growth
in recent years, we have had, and will continue to have, many opportunities to
rationalize our assets and workforce. We have incurred these plant closing and
other costs in order to operate more efficiently. Excluding these charges, our
operating expense ratio was equivalent to 1998 levels.
Operating Income. Our operating income in 1999 was $276.9 million, an
increase of $34.4 million or 14.2% from 1998 operating income of $242.5 million.
Our operating income margin decreased to 6.2% in 1999 from 7.3% in 1998. On a
comparable basis, excluding
- $12.6 million in plant closing and other nonrecurring charges in 1999,
and
- operating income of $36.2 million and $45.2 million generated by our U.S.
packaging operations in 1999 and 1998, respectively,
our operating income in 1999 was $253.3 million, an increase of $56.0 million or
28.4% compared to 1998 operating income of $197.3 million. Making the same
adjustments, our operating margin was 6.0% in 1999 compared to 6.6% in 1998.
This decrease was due to lower operating income margins at newly acquired
companies. Dairies owned more than 12 months increased operating margins by
0.65%.
Other (Income) Expense. Our interest expense decreased to $49.2 million in
1999 from $52.1 million in 1998 due to the elimination of approximately $500
million of debt following the sale of our U.S. packaging operations, partially
offset by additional debt incurred to pay for acquisitions and stock repurchases
totaling approximately $428.8 million. Financing charges on our trust issued
preferred securities amounted to $38.6 million in 1999 compared to $30.2 million
in 1998, reflecting a full year of these charges in 1999 as compared to only
part of the year in 1998.
Income from investments in unconsolidated affiliates, which is primarily
related to our minority interest in Consolidated Container Company during the
last two quarters of 1999, amounted to $2.6 million. These earnings were net of
$4.9 million representing our proportional share of restructuring and other
non-recurring charges related to the integration and rationalization of
Consolidated Container Company's operations.
Income Taxes. Income tax expense was recorded at an effective rate of 39.1%
for 1999 compared with 36.4% in 1998. The increase in the rate was due primarily
to a lower of level of earnings in Puerto Rico in 1999, where we have the
benefit of lower tax rates and higher foreign taxes from a full year of
Continental Can foreign operations in 1999 compared to only 7 months in 1998.
Discontinued Operations and Extraordinary Items. In 1998, we reported a
loss from discontinued operations of $3.2 million, net of an income tax benefit
of $2.1 million, related to our packaged ice operations which were sold on April
30, 1998.
Extraordinary items included:
- the sale of our packaged ice business in April 1998 resulting in a $35.5
million extraordinary gain, net of income tax expense of $22.0 million,
and
- the recording of a $3.8 million loss, net of an income tax benefit of
$2.3 million, from the write-off of deferred financing costs and the
recognition of interest rate swap losses in connection with the early
extinguishment of the term portion of our credit facility in May 1998.
- the recording of an additional gain of $0.9 million, net of income taxes
of $0.5 million, in the fourth quarter of 1999 when contingencies related
to the sale of our packaged ice operations in 1998 were resolved
favorably.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Sales. Our net sales increased by $1.5 billion, or 85%, in 1998
compared to 1997, primarily as a result of acquisitions, with $1.07 billion of
the increase attributable to our dairy operations, $279.5 million of
16
<PAGE> 20
the increase attributable to our U.S. plastic packaging operations, and $172.6
million attributable to our foreign operations.
We began operating in the packaging business in July 1997 with the
acquisition of Franklin Plastics and extended our market presence with our
acquisition of Continental Can in May 1998. Our packaging business grew rapidly
through those acquisitions, as well as through several smaller acquisitions and
through newly opened facilities at Franklin Plastics.
Cost of Sales. Our cost of sales ratio was 77.0% in 1998 compared to 76.9%
in 1997. In our dairy business, the cost of sales ratio rose to 77.1% in 1998
compared to 76.9% in 1997. This slight increase was due to higher milk and
butterfat costs which were mostly offset by realized operating synergies in our
dairy segment.
In our packaging business, our cost of sales ratio improved to 76.7% in
1998 from 77.6% in 1997 primarily due to lower raw materials costs.
Operating Costs and Expenses. Our operating expense ratio was 15.7% in 1998
compared to 17.8% in 1997. In 1997 we recorded merger costs related to our
acquisitions of Country Fresh and Morningstar. Without these merger costs, the
operating expense ratio in 1997 was also 15.7%. The operating expense ratio in
our dairy business in 1998 was 15.7% compared to 15.4% in 1997 mostly due to
higher operating expenses in acquired businesses. The operating expense ratio
for our dairies owned for more than one year improved in 1998 as a result of
realized synergies in those businesses. Our packaging business improved its
operating expense ratio to 12.2% in 1998 from 13.2% in 1997 due primarily to our
acquisition of Continental Can, which had relatively low distribution costs.
Operating Income. Our operating income in 1998 was $242.5 million, an
increase of 155.5% from 1997 operating income of $94.9 million. Our operating
income margin increased to 7.3% in 1998 from 5.3% in 1997. After adjusting our
1997 results for merger costs, our operating income margin fell slightly from
7.4% in 1997 to 7.3% in 1998. This decline was primarily due to lower margins at
companies acquired in 1998 and record high raw material prices in our dairy
business partially offset by lower raw material prices in our packaging
business.
Other (Income) Expense. Our interest expense increased to $52.1 million in
1998 from $36.7 million in 1997 primarily due to increased levels of debt used
to finance acquisitions. Financing charges on our trust issued preferred
securities amounted to $30.2 million in 1998, reflecting
- the issuance on February 20, 1998 of $100 million of 5.0% preferred
securities related to the acquisition of Land-O-Sun, and
- the issuance on March 24, 1998 of $600 million of 5.5% preferred
securities.
Other income decreased to $4.2 million in 1998 from $24.5 million in 1997.
In 1997 we sold tax credits which resulted in a gain of $21.8 million.
Income Taxes. Income tax expense was recorded at an effective rate of 36.4%
in 1998 compared with 52.4% in 1997. The higher effective rate in 1997 was
primarily due to merger costs of $37.0 million. Most merger costs were not tax
deductible and they generated a tax benefit of only $2.3 million.
Discontinued Operations and Extraordinary Items. In 1998, we reported a
loss from discontinued operations of $3.2 million, net of an income tax benefit
of $2.1 million, compared to income from discontinued operations of $.7 million
in 1997, net of income tax expense of $.4 million. Extraordinary items in 1998
were:
- a $35.5 million extraordinary gain, net of income tax expense of $22.0
million, resulting from the sale of our packaged ice business in April,
and
- a $3.8 million loss, net of an income tax benefit of $2.3 million, from
the write-off of deferred financing costs and the recognition of interest
rate swap losses in connection with the early extinguishment of the term
portion of our credit facility in May.
17
<PAGE> 21
During 1997 extraordinary items were:
- in the first quarter of 1997, costs of $3.3 million, net of an income tax
benefit of $2.0 million, related to the early extinguishment of
subordinated debt, and
- in the fourth quarter of 1997, a loss of $8.0 million, net of an income
tax benefit of $5.0 million, related to the refinancing connected to the
Country Fresh and Morningstar mergers.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
During 1999, we met our working capital needs with cash flow from
operations along with borrowings under our senior credit facility. Net cash
provided by continuing operations was $283.5 million for 1999 as contrasted to
$208.5 million for 1998, an increase of $75.0 million. Net income plus non-cash
items increased by $52.9 million in 1999 compared to 1998, while changes in
working capital components improved by $22.1 million in 1999 compared to the
previous year. Net cash used in investing activities was $38.0 million in 1999
compared to $628.2 million in 1998, a decrease of $590.2 million. This decrease
was primarily due to lower cash outflows for acquisitions in 1999 and higher
proceeds from divestitures, which in 1999 related primarily to the sale of our
U.S. plastic packaging operations to Consolidated Container Company.
During 1999, we spent a total of $198.1 million on stock repurchases under
our open market stock repurchase program, which we funded with borrowings under
our credit facility and cash flow from operations.
We have spent approximately $101.5 million for acquisitions in 2000 to
date, $70.0 million of which we funded from borrowings under our joint venture
senior credit facility and $31.5 million of which we funded from borrowings
under our parent-level senior credit facility. We also sold our European metal
packaging business in March 2000, and we used a portion of the proceeds to pay
down debt under our parent-level senior credit facility and to buy back stock.
For more information about these transactions, please see Note 3 to our
Consolidated Financial Statements. Through March 13, 2000, we have repurchased
410,000 shares of our stock for a total purchase price of approximately $16.2
million, all of which has been funded under our parent-level credit facility.
For more information about our stock repurchase program, please see Note 13 to
our Consolidated Financial Statements.
Current Debt Obligations
At December 31, 1999, we had outstanding borrowings of $635.5 million under
our senior credit facility. In addition, $27.2 million of letters of credit
secured by our senior credit facility were issued but undrawn. As of December
31, 1999, approximately $337.3 million was available for future borrowings under
our senior credit facility.
Effective January 1, 2000 we entered into a joint venture with Dairy
Farmers of America. We contributed our domestic fluid dairy operations (not
including our Morningstar and Puerto Rico operations) and Dairy Farmers of
America contributed the operations of Southern Foods Group to form Suiza Dairy
Group. In exchange for our contribution we received a 66.2% ownership in Suiza
Dairy Group. We will report the results of Suiza Dairy Group in our consolidated
financial statements. DFA's share of Suiza Dairy Group's income, assets and
liabilities will be shown as a minority interest on our consolidated financial
statements.
Simultaneously with the closing of this transaction, Suiza Dairy Group
entered into a new $1.61 billion credit facility and borrowed approximately $1.1
billion under this new facility. Suiza Dairy Group distributed a portion of the
borrowings under the new credit facility to DFA and to us. We also assumed
approximately $113.8 million of outstanding debt of Southern Foods Group. We
used our portion of the distributed funds to repay certain existing obligations,
including our then existing senior credit facility which we terminated and
replaced with a new $300 million parent-level senior credit facility. We also
redeemed $100 million aggregate stated amount of mandatorily redeemable trust
issued preferred securities held by DFA.
As a result, we now have two senior credit facilities, one at the parent
level and one at the Suiza Dairy Group level.
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<PAGE> 22
As of March 13, 2000, the outstanding balance on Suiza Dairy Group's senior
credit facility was approximately $1.08 billion, and $19.1 million of letters of
credit secured by this senior credit facility were issued but undrawn as of that
date.
We also had $113.8 million in subordinated notes outstanding on such date
at the Southern Foods level.
We had no debt outstanding under our parent-level senior credit facilities;
however, $14.6 million of letters of credit secured by that facility were issued
but undrawn.
Future Capital Requirements
We intend to invest a total of approximately $140 million in capital
expenditures for our existing manufacturing facilities and distribution
capabilities during 2000, which we intend to fund using cash flow from
operations.
In January of this year, we offered to repurchase the Southern Foods
subordinated notes at 101% of face value. The indenture that governs the bonds
required the repurchase offer as a result of the change in control of Southern
Foods effective January 1, 2000. The repurchase offer will terminate at the end
of the day on March 20, 2000. All repurchases will be funded from borrowings
under the joint venture credit facility.
We expect that cash flow from operations will be sufficient to meet our
requirements for our existing businesses for the foreseeable future. In the
future, we may pursue additional acquisitions that are compatible with our core
business strategy. Any acquisitions of fluid dairy businesses in the United
States (excluding territories) will be purchased through Suiza Dairy Group,
pursuant to our agreement with Dairy Farmers of America, except in certain
unusual circumstances. Therefore, any such acquisitions will be funded under the
Suiza Dairy Group senior credit facility. Working capital requirements for Suiza
Dairy Group and its subsidiaries will also be funded through this facility. Any
international acquisitions, or domestic acquisitions of non-fluid dairy
businesses, as well as all stock repurchases, will be funded through the parent
senior credit facility. We financed a portion of the purchase price for our
acquisition of a majority interest in Leche Celta with low-cost borrowings in
Spain. We may use similar types of financing in any future international
acquisitions. We believe that we have the ability to secure additional financing
for our future capital requirements.
Preferred Securities
On February 20, 1998, we issued $100 million of company-obligated 5%
mandatorily redeemable convertible preferred securities of a subsidiary trust as
part of the consideration paid to acquire Land-O-Sun. These securities were
subsequently redeemed as part of the Southern Foods transaction on January 4,
2000.
On March 24, 1998, we issued $600 million of company-obligated 5.5%
mandatorily redeemable convertible preferred securities of a subsidiary trust in
a private placement transaction, the proceeds of which were primarily used to
repay amounts outstanding under our senior credit facility. These preferred
securities mature 30 years from the date of issue.
The remaining preferred securities have quarterly distributions payable at
5.5% per annum, and have a liquidation preference of $50 per security.
Distributions may be deferred for up to 20 consecutive quarters. The preferred
securities are convertible, at the option of the holder thereof, into an
aggregate of approximately 7.7 million shares of our common stock.
The preferred securities are redeemable, at our option, at any time after
March 24, 2001 at specified amounts and are mandatorily redeemable at their
liquidation preference amount of $50 per share at maturity or upon the
occurrence of certain specified events.
We have fully guaranteed all of the respective subsidiary trust obligations
under the preferred securities, to the extent the subsidiary trust has funds on
hand available therefor. We also agreed to register the resale of the common
stock issuable upon conversion of the preferred securities under certain
circumstances.
19
<PAGE> 23
KNOWN TRENDS AND UNCERTAINTIES
Tax Rate
Our 1999 tax rate was approximately 39.1%. We believe that our effective
tax rate will range from 37% to 40% for the next several years. Our effective
tax rate is affected by various tax advantages applicable to our Puerto Rico
based operations, which will phase out over the next few years. Any additional
acquisitions could change this effective tax rate.
Rationalization Activities
As a result of our rapid growth in recent years, we have had, and we
believe we will continue to have, many opportunities to lower costs and become
more efficient in our operations by rationalizing our assets and work force. Our
strategy has been to expand our dairy businesses primarily through acquisitions
and then to consolidate these acquisitions into our existing dairies.
During 1999 we closed or sold nine dairy plants. For more information about
these activities, please see Note 17 to our Consolidated Financial Statements.
In 1998 we closed 8 dairy plants. In 2000 we intend to continue our emphasis on
our rationalization activities. As we continue these activities, we may incur
costs or other charges. Although we cannot estimate the amount of these costs or
other charges at this time, we do not expect that these costs will have a
material adverse impact on our earnings or results of operations. We also expect
that our earnings from our 43.1% equity investment in Consolidated Container
Company will continue to be reduced by our share of restructuring and other
non-recurring charges recognized by Consolidated Container as they continue to
integrate the operations of our former U.S. plastic packaging business and the
business of Reid Plastics. Although we cannot estimate the effect of these
charges on our earnings at this time, we do not expect these costs to have a
material adverse impact on our earnings or results of operations.
Euro Currency Conversion
Companies conducting business in or having transactions denominated in
certain European currencies are facing the European Union's conversion to a new
common currency, the "euro". This conversion is expected to be implemented over
a three year period. On January 1, 1999, the euro became the official currency
for accounting and tax purposes of several countries of the European Union and
the exchange rate between the euro and local currencies was fixed. In 2002, the
euro will replace the individual nation's currencies. Since we have operations
in Europe, the conversion to the euro will have an effect on us. We currently
believe that there will be no material adverse impact of the conversion on our
operations or financial performance.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000 problem. The Year 2000
problem arises from the way dates are recorded and computed in most
applications, operating systems, hardware and embedded chips. If the problem had
not been corrected, systems that use a date in its prescribed function could
have failed or produced erroneous results before, on and after the year 2000.
All Year 2000 remediation efforts for our businesses were completed on time
and within budget estimates without any material adverse impact on our
operations. Through December 31, 1999 we incurred and expensed approximately
$5.1 million in remediation costs associated with our Year 2000 compliance
activities. In addition to these remediation costs expensed, we have also
capitalized approximately $9.0 million of capital expenditures through December
31, 1999 for the replacement and upgrading of purchased software and hardware
for both existing systems and the systems of acquired businesses.
20
<PAGE> 24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
Market risk represents the risk of loss that may impact our consolidated
financial position, results of operations or cash flows. We are exposed to
market risk in the areas of interest rates and foreign currency exchange rates.
INTEREST RATE FLUCTUATIONS
Our exposure to market risk for changes in interest rates relates primarily
to our debt obligations. We manage interest rate risk to reduce the potential
volatility of earnings that may arise from changes in interest rates through the
use of interest rate derivative agreements.
At December 31, 1999, we had interest rate derivative agreements in place,
including interest rate caps, swaps and collars which had been designated as
hedges against our variable interest rate exposure on loans under our previous
senior credit facility. The following table summarizes our various interest rate
agreements:
<TABLE>
<CAPTION>
TYPE INTEREST RATE LIMITS NOTIONAL AMOUNTS EXPIRATION DATE
- ---- -------------------- ---------------- ---------------
<S> <C> <C> <C>
Caps............................... 8.0% $60.0 million March 2000
Swaps.............................. 6.03% to 6.14% 60.0 million September 2000
100.0 million December 2000
275.0 million December 2002
Collars............................ 6.08% and 7.50% 100.0 million December 2002
To June 2003
</TABLE>
The original costs and premiums of these derivative agreements are
amortized on a straight-line basis as a component of interest expense. These
derivative agreements provide hedges for senior credit facility loans by
limiting or fixing the LIBOR interest rates specified in the senior credit
facility (5.63% average during the fourth quarter of 1999, excluding the LIBOR
margin) at the interest rates specified above until the indicated expiration
dates of these interest rate derivative agreements.
Following the closing of the Southern Foods transaction and the formation
of the Suiza Dairy Group, we sold these derivative agreements to the Suiza Dairy
Group at fair market value. Beginning in 2000, the new basis for these
derivatives will be amortized on a straight-line basis over their remaining
lives by Suiza Dairy Group. The amortization will be reported as a component of
total consolidated interest expense.
A majority of our debt obligations are at variable rates. We have performed
a sensitivity analysis assuming a hypothetical 10% adverse movement in interest
rates. As of December 31, 1999, the analysis indicated that such interest rate
movement would not have a material effect on our financial position, results of
operations or cash flows. However, actual gains and losses in the future may
differ materially from that analysis based on changes in the timing and amount
of interest rate movements and our actual exposure and hedges.
FOREIGN CURRENCY
We are exposed to foreign currency risk due to operating cash flows and
various financial instruments that are denominated in foreign currencies. Our
most significant foreign currency exposures relate to the Spanish peseta, the
German mark and the euro. At this time, we believe that potential losses due to
foreign currency fluctuations would not have a material impact on our
consolidated financial position, results of operations or operating cash flow.
21
<PAGE> 25
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-1
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-2
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997.......................... F-3
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997.............. F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-5
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies............ F-6
2. Acquisitions.......................................... F-8
3. Subsequent Events..................................... F-9
4. Discontinued Operations and Extraordinary Gains and
Losses................................................ F-10
5. Investments in Unconsolidated Affiliates.............. F-11
6. Inventories........................................... F-12
7. Property, Plant and Equipment......................... F-12
8. Intangible and Other Assets........................... F-13
9. Accounts Payable and Accrued Expenses................. F-13
10. Income Taxes.......................................... F-13
11. Long-Term Debt........................................ F-15
12. Mandatorily Redeemable Trust Issued Preferred
Securities............................................ F-17
13. Stockholders' Equity.................................. F-18
14. Other Comprehensive Income............................ F-21
15. Employee Retirement and Profit Sharing Plans.......... F-21
16. Postretirement Benefits Other Than Pensions........... F-24
17. Plant Closing, Merger and Other Costs................. F-25
18. Supplemental Cash Flow Information.................... F-27
19. Commitments and Contingencies......................... F-27
20. Fair Value of Financial Instruments................... F-28
21. Business and Geographic Information and Major
Customers............................................. F-28
22. Quarterly Results of Operations....................... F-30
</TABLE>
22
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Suiza Foods Corporation
Dallas, Texas
We have audited the accompanying consolidated balance sheets of Suiza Foods
Corporation and subsidiaries (the "Company") as of December 31, 1999 and 1998,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Suiza Foods Corporation and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 14, 2000
(March 3, 2000 as to Note 3)
F-1
<PAGE> 27
SUIZA FOODS CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 25,155 $ 54,922
Temporary investments..................................... 9,216
Receivables, net of allowance for doubtful accounts of
$18,849 and $19,303.................................... 379,070 452,185
Inventories............................................... 182,321 223,338
Refundable income taxes................................... 3,514 24,455
Deferred income taxes..................................... 27,005 23,859
Prepaid expenses and other current assets................. 22,342 25,924
---------- ----------
Total current assets.............................. 639,407 813,899
Property, plant and equipment............................... 758,485 846,956
Intangible and other assets................................. 1,261,030 1,352,928
---------- ----------
Total............................................. $2,658,922 $3,013,783
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 441,792 $ 500,303
Income taxes payable...................................... 14,654 18,876
Current portion of long-term debt......................... 22,671 39,892
---------- ----------
Total current liabilities......................... 479,117 559,071
Long-term debt.............................................. 689,397 893,077
Other long-term liabilities................................. 34,858 64,449
Deferred income taxes....................................... 46,323 28,702
Mandatorily redeemable convertible trust issued preferred
securities (redemption value of $700,000 plus accrued
dividends)................................................ 683,505 682,938
Minority interest in subsidiaries........................... 141,750 129,775
Commitments and contingencies (Note 19)
Stockholders' equity:
Preferred stock, none issued
Common stock, 29,287,558 and 33,598,074 shares issued and
outstanding, with a par value of $0.01 per share....... 293 336
Additional paid-in capital................................ 275,527 446,230
Retained earnings......................................... 314,590 204,859
Accumulated other comprehensive income.................... (6,438) 4,346
---------- ----------
Total stockholders' equity........................ 583,972 655,771
---------- ----------
Total............................................. $2,658,922 $3,013,783
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 28
SUIZA FOODS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales............................................. $ 4,481,999 $ 3,320,940 $ 1,795,868
Cost of sales......................................... 3,487,075 2,557,908 1,381,084
----------- ----------- -----------
Gross profit.......................................... 994,924 763,032 414,784
Operating costs and expenses:
Selling and distribution............................ 518,962 376,928 209,271
General and administrative.......................... 148,009 112,169 58,708
Amortization of intangibles......................... 38,513 31,479 14,916
Plant closing, merger and other costs............... 12,566 37,003
----------- ----------- -----------
Total operating costs and expenses.......... 718,050 520,576 319,898
----------- ----------- -----------
Operating income...................................... 276,874 242,456 94,886
Other (income) expense:
Interest expense, net............................... 49,233 52,082 36,664
Financing charges on trust issued preferred
securities....................................... 38,584 30,213
Equity in earnings of unconsolidated affiliates (net
of restructuring and other non-recurring charges
of $4,948 in 1999)............................... (2,630) (78)
Other income, net................................... (1,416) (4,212) (24,483)
----------- ----------- -----------
Total other expense......................... 83,771 78,005 12,181
----------- ----------- -----------
Income from continuing operations before income
taxes............................................... 193,103 164,451 82,705
Income taxes.......................................... 75,463 59,823 43,375
Minority interest in earnings......................... 8,813 1,559
----------- ----------- -----------
Income from continuing operations..................... 108,827 103,069 39,330
Income (loss) from discontinued operations............ (3,161) 717
----------- ----------- -----------
Income before extraordinary gain (loss)............... 108,827 99,908 40,047
Extraordinary gain (loss)............................. 904 31,698 (11,283)
----------- ----------- -----------
Net income............................................ $ 109,731 $ 131,606 $ 28,764
=========== =========== ===========
Net income applicable to common stock................. $ 109,731 $ 131,369 $ 28,464
=========== =========== ===========
Basic earnings per common share:
Income from continuing operations................... $ 3.31 $ 3.12 $ 1.32
Income (loss) from discontinued operations.......... (0.10) 0.02
Extraordinary gain (loss)........................... .03 0.96 (0.38)
----------- ----------- -----------
Net income.......................................... $ 3.34 $ 3.98 $ 0.96
=========== =========== ===========
Diluted earnings per common share:
Income from continuing operations................... $ 3.11 $ 2.90 $ 1.25
Income (loss) from discontinued operations.......... (0.08) 0.02
Extraordinary gain (loss)........................... .02 0.76 (0.36)
----------- ----------- -----------
Net income.......................................... $ 3.13 $ 3.58 $ 0.91
=========== =========== ===========
Average common shares -- Basic........................ 32,861,218 32,953,290 29,508,791
=========== =========== ===========
Average common shares -- Diluted...................... 42,858,492 41,965,564 31,348,591
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 29
SUIZA FOODS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED ACCUMULATED
STOCK COMMON STOCK ADDITIONAL OTHER TOTAL
--------- ------------------- PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
AMOUNT SHARES AMOUNT CAPITAL EARNINGS INCOME EQUITY
--------- ---------- ------ ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997...... $ 3,741 25,002,823 $250 $164,390 $45,473 $ -- $213,854
Issuance of common stock..... 5,611,214 56 117,383 117,439
Dividends on preferred
stock...................... (300) (300)
Net income and comprehensive
income..................... 28,764 28,764
Adjustment for conforming the
year-end of Country
Fresh...................... (447) (447)
------- ---------- ---- -------- -------- -------- --------
Balance, December 31, 1997.... 3,741 30,614,037 306 281,773 73,490 359,310
Issuance of common stock..... 4,494,437 45 210,443 210,488
Purchase and retirement of
treasury stock............. (1,510,400) (15) (45,986) (46,001)
Repurchase of 11,691 shares
of preferred stock......... (3,741) (3,741)
Dividends on preferred
stock...................... (237) (237)
Net income................... 131,606 131,606
Other comprehensive income
(Note 14):
Cumulative translation
adjustment............... 4,273 4,273
Minimum pension liability
adjustment............... 73 73
Comprehensive income.........
------- ---------- ---- -------- -------- -------- --------
Balance, December 31, 1998.... -- 33,598,074 336 446,230 204,859 4,346 655,771
Issuance of common stock..... 1,106,207 11 27,382 27,393
Purchase and retirement of
treasury stock............. (5,416,723) (54) (198,085) (198,139)
Net income................... 109,731 109,731
Other comprehensive income
(Note 14):
Cumulative translation
adjustment............... (10,784) (10,784)
Comprehensive income.........
------- ---------- ---- -------- -------- -------- --------
Balance, December 31, 1999.... $ -- 29,287,558 $293 $275,527 $314,590 $ (6,438) $583,972
======= ========== ==== ======== ======== ======== ========
<CAPTION>
COMPREHENSIVE
INCOME
-------------
<S> <C>
Balance, January 1, 1997......
Issuance of common stock.....
Dividends on preferred
stock......................
Net income and comprehensive
income..................... $ 28,764
========
Adjustment for conforming the
year-end of Country
Fresh......................
Balance, December 31, 1997....
Issuance of common stock.....
Purchase and retirement of
treasury stock.............
Repurchase of 11,691 shares
of preferred stock.........
Dividends on preferred
stock......................
Net income................... $131,606
Other comprehensive income
(Note 14):
Cumulative translation
adjustment............... 4,273
Minimum pension liability
adjustment............... 73
--------
Comprehensive income......... $135,952
========
Balance, December 31, 1998....
Issuance of common stock.....
Purchase and retirement of
treasury stock.............
Net income................... $109,731
Other comprehensive income
(Note 14):
Cumulative translation
adjustment............... (10,784)
--------
Comprehensive income......... $ 98,947
========
Balance, December 31, 1999....
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 30
SUIZA FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 109,731 $ 131,606 $ 28,764
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss (income) from discontinued operations.......... 3,161 (717)
Depreciation and amortization....................... 116,645 91,779 44,607
(Gain) loss on disposition of assets................ 5,352 (53) 32
Minority interest................................... 14,614 1,559
Equity in earnings of unconsolidated affiliates..... (2,630) (78)
Extraordinary (gain) loss........................... (904) (31,698) 11,283
Merger and other costs.............................. 37,003
Deferred income taxes............................... 22,199 20,386 27,355
Other............................................... 3,863 (711) 430
Changes in operating assets and liabilities, net of
acquisitions:
Receivables....................................... 41,878 (49,065) 6,685
Inventories....................................... 22,709 (4,600) (5,259)
Prepaid expenses and other assets................. (20,492) (1,284) (3,284)
Accounts payable and accrued expenses............. (52,164) 24,481 (12,667)
Income taxes...................................... 22,704 22,998 (5,189)
--------- ----------- ---------
Net cash provided by continuing operations..... 283,505 208,481 129,043
Net cash provided by (used in) discontinued
operations................................... (2,068) 7,578
--------- ----------- ---------
Net cash provided by operating activities...... 283,505 206,413 136,621
--------- ----------- ---------
Cash flows from investing activities:
Net additions to property, plant, and equipment........ (187,642) (176,870) (62,120)
Cash outflows for acquisitions......................... (230,611) (599,197) (429,898)
Net proceeds from the sale of discontinued
operations.......................................... 172,732
Net proceeds from divestitures......................... 383,112
Additions to equity investments........................ (5,226) (12,204)
Other.................................................. 2,383 1,369
--------- ----------- ---------
Net cash used in continuing operations......... (37,984) (614,170) (492,018)
Net cash used in discontinued operations....... (14,022) (58,028)
--------- ----------- ---------
Net cash used in investing activities.......... (37,984) (628,192) (550,046)
--------- ----------- ---------
Cash flows from financing activities:
Proceeds from issuance of debt......................... 538,995 965,820 1,230,604
Repayment of debt...................................... (631,065) (1,082,464) (856,980)
Payments of deferred financing, debt restructuring and
merger costs........................................ (1,256) (54,410)
Proceeds from issuance of minority interest............ 8,983
Distributions to minority interest holders............. (10,122)
Issuance of common stock, net of expenses.............. 16,060 37,808 95,076
Redemption of common and preferred stock............... (198,139) (49,742)
Issuance of trust issued preferred securities, net of
expenses............................................ 582,500
Preferred dividends paid and other..................... (353) (300)
--------- ----------- ---------
Net cash provided by (used in) financing
activities................................... (275,288) 452,313 413,990
--------- ----------- ---------
Increase (decrease) in cash and cash equivalents......... (29,767) 30,534 565
Cash and cash equivalents, beginning of period........... 54,922 24,388 23,823
--------- ----------- ---------
Cash and cash equivalents, end of period................. $ 25,155 $ 54,922 $ 24,388
========= =========== =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 31
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- Our consolidated financial statements include the
accounts of our wholly owned and majority owned subsidiaries. All significant
intercompany balances and transactions are eliminated in consolidation. We also
own equity interests of less than 50% in certain companies that we do not
control which are accounted for in the consolidated financial statements using
the equity method of accounting. Under the equity method of accounting, our
investments in these affiliates are presented as a single amount in our
consolidated balance sheets and our proportional share of their earnings are
presented in our consolidated statements of income as a single line item in
other income.
The preparation of our consolidated financial statements in conformity with
generally accepted accounting principles requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
Cash Equivalents and Temporary Investments -- We consider all highly liquid
investments purchased with a remaining maturity of three months or less to be
cash equivalents. Temporary investments at December 31, 1998 consisted of
held-to-maturity U.S. government obligations due within one year, certificates
of deposit or Eurodollar deposits due within one year, and highly rated
commercial paper. These temporary investments were stated at amortized cost,
which approximated market value.
Inventories -- Inventories are stated at the lower of cost, using the
first-in, first-out ("FIFO") method, or market. The costs of finished goods
inventories include raw materials, direct labor and indirect production and
overhead costs.
Property, Plant and Equipment -- Property, plant and equipment are stated
at acquisition cost, along with capitalized interest on borrowings during the
actual construction period of major capital projects. Also included in property,
plant and equipment are certain direct costs related to the implementation of
computer software for internal use. Depreciation and amortization are provided
using the straight-line method over the estimated useful lives of the assets, as
follows:
<TABLE>
<CAPTION>
ASSET USEFUL LIFE
- ----- -----------
<S> <C>
Buildings and improvements Ten to 40 years
Machinery and equipment Three to 20 years
</TABLE>
Capitalized lease assets are amortized over the shorter of their lease term
or their estimated useful lives. Expenditures for repairs and maintenance which
do not improve or extend the life of the assets are expensed as incurred.
F-6
<PAGE> 32
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible and Other Assets -- Intangible and other assets include the
following intangibles which are amortized over their related useful lives:
<TABLE>
<CAPTION>
ASSET USEFUL LIFE
----- -----------
<S> <C>
Goodwill Straight-line method over 25 to 40
years
Identifiable intangible assets:
Customer lists Straight-line method over seven to
ten years
Trademarks/trade names Straight-line method over ten to 40
years
Noncompetition agreements Straight-line method over the terms
of the agreements
Patents Straight-line method over fifteen
years
Deferred financing costs Interest method over the terms of the
related debt
</TABLE>
We periodically assess the net realizable value of our long-lived assets,
as well as all other assets, by comparing the expected future net operating cash
flows, undiscounted and without interest charges, to the carrying amount of the
underlying assets. We would evaluate a potential impairment if the recorded
value of these assets exceeded the associated future net operating cash flows.
Any potential impairment loss would be measured as the amount by which the
carrying value exceeds the fair value of the asset. Fair value of assets would
be measured by market value, if an active market exists, or by a forecast of
expected future net operating cash flows, discounted at a rate commensurate with
the risk involved.
Interest Rate Agreements -- Interest rate swaps, caps and floors are
entered into as hedges against interest exposure of our variable rate debt.
Differences between amounts to be paid or received on these interest rate
agreements designated as hedges are included in interest expense as payments are
made or received. Gains or losses on agreements not designated as hedges are
included in income as incurred. Amounts paid to acquire interest rate caps and
amounts received for interest rate floors are amortized as an adjustment to
interest expense over the life of the related agreement.
Foreign Currency Translation -- The financial statements of our foreign
subsidiaries are translated to U.S. dollars in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Translation." The functional currency of our foreign subsidiaries is generally
the local currency of the country. Accordingly, assets and liabilities of the
foreign subsidiaries are translated to U.S. dollars at year-end exchange rates.
Income and expense items are translated at the average rates prevailing during
the year. Changes in exchange rates, which affect cash flows and the related
receivables or payables are recognized as transaction gains and losses in the
determination of net income. The cumulative translation adjustment in
stockholders' equity reflects the unrealized adjustments resulting from
translating the financial statements of our foreign subsidiaries.
Minority Interest in Subsidiaries -- Minority interest in results of
operations of consolidated subsidiaries represents the minority shareholders'
share of the income or loss of various consolidated subsidiaries. The minority
interest in the consolidated balance sheets reflect the original investment by
these minority shareholders in these consolidated subsidiaries, along with their
proportional share of the earnings or losses of these subsidiaries.
Employee Stock Options and Restricted Stock -- We measure compensation
expense for our stock-based employee compensation plans using the intrinsic
value method and provide the required pro forma disclosures of the effect on net
income and earnings per share as if the fair value-based method had been applied
in measuring compensation expense.
F-7
<PAGE> 33
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue -- Revenue is recognized when the product is shipped to the
customer. We provide credit terms to customers generally ranging up to 30 days,
perform ongoing credit evaluation of our customers and maintain allowances for
potential credit losses based on historical experience.
Income Taxes -- All of our wholly owned U.S. operating subsidiaries are
included in our consolidated tax return. In addition, our proportional share of
the operations of our majority owned subsidiaries and certain of our equity
method affiliates, which are organized as limited liability companies or limited
partnerships are also included in our consolidated tax return. Our Puerto Rico
and foreign subsidiaries are required to file separate income tax returns in
their local jurisdictions. Certain distributions from these subsidiaries are
subject to U.S. income taxes; however, available tax credits of these
subsidiaries may reduce or eliminate these U.S. income tax liabilities.
Deferred income taxes are provided for temporary differences in the
consolidated financial statements and tax bases of assets and liabilities using
current tax rates. Deferred tax assets, including the benefit of net operating
loss carryforwards, are evaluated based on the guidelines for realization and
may be reduced by a valuation allowance if deemed necessary.
Advertising Expense -- Advertising expense is comprised of media, agency
and production expenses. Advertising expenses are charged to income during the
period incurred, except for expenses related to the development of a major
commercial or media campaign which are charged to income during the period in
which the advertisement or campaign is first presented by the media. Advertising
expenses charged to income totaled $43.5 million in 1999, $28.9 million in 1998
and $26.0 million in 1997. Additionally, prepaid advertising costs were $1.7
million at December 31, 1999 and $0.9 million at December 31, 1998.
Comprehensive Income -- We consider all changes in equity from transactions
and other events and circumstances, except those resulting from investments by
owners and distributions to owners, to be comprehensive income.
Recently Issued Accounting Pronouncements -- SFAS No. 133, "Accounting for
Derivative Financial Instruments and Hedging Activities," was issued in June
1998, and establishes standards for accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 is effective in the first
quarter of our year ending December 31, 2001. We are currently analyzing the
effect of this standard and do not expect it to have a material effect on our
consolidated financial position, results of operations or cash flows.
Reclassifications -- Certain reclassifications have been made to conform
the prior years' consolidated financial statements to the current year
classifications.
2. ACQUISITIONS
During 1997, 1998 and 1999 we completed the acquisitions of 25 dairy
businesses and nine packaging businesses which included the following
acquisitions which were significant at the time of completion:
<TABLE>
<CAPTION>
PURCHASE
DATE COMPANY SEGMENT PRICE
- ---- ------- ------- ----------
(IN
THOUSANDS)
<S> <C> <C> <C>
July 1997 Dairy Fresh Dairy $106,300
July 1997 Garelick Farms Dairy 160,000
July 1997 Franklin Plastics Packaging 139,600
February 1998 Land-O-Sun Dairies Dairy 248,000
May 1998 Continental Can Packaging 354,400
</TABLE>
F-8
<PAGE> 34
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
These acquisitions and the smaller dairy and packaging businesses acquired
were funded primarily with borrowings under our then-existing senior credit
facility, along with the issuance in 1999, 1998 and 1997 of 77,233, 2,050,635
and 297,400 shares of our common stock, respectively, with then-existing fair
market values of $3.2 million, $138.5 million and $10.0 million, respectively.
All acquisitions were accounted for using the purchase method of accounting
as of their respective acquisition dates, and accordingly, only the results of
operations of the acquired companies subsequent to their respective acquisition
dates are included in our consolidated financial statements. At the acquisition
date, the purchase price was allocated to assets acquired, including
identifiable intangibles, and liabilities assumed based on their fair market
values. The excess of the total purchase prices over the fair values of the net
assets acquired represented goodwill. In connection with the acquisitions,
assets were acquired and liabilities were assumed, subject to final purchase
price adjustments, as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Purchase prices:
Cash paid, net of cash acquired............ $230,611 $599,197 $429,898
Cash acquired in acquisitions.............. 9,976 24,353 4,202
Common stock issued........................ 3,193 138,547 10,000
Subsidiary preferred and common securities
issued.................................. 18,500 201,447
-------- -------- --------
Total purchase prices.............. 262,280 963,544 444,100
Fair values of net assets acquired:
Fair values of assets acquired............. 94,514 798,902 194,437
Liabilities assumed........................ (21,273) (541,447) (55,350)
-------- -------- --------
Total net assets acquired.......... 73,241 257,455 139,087
-------- -------- --------
Goodwill..................................... $189,039 $706,089 $305,013
======== ======== ========
</TABLE>
On a pro forma basis, the 1999 acquisitions, net of the sale in 1999 of a
majority interest in our U.S. plastic packaging operations discussed in Note 5,
do not have a material pro forma impact on net sales, income from continuing
operations or net income for 1999 or 1998.
Related Party Transactions -- During 1999, 1998 and 1997, we paid fees to a
former officer and director for acquisition consulting services related to
certain completed acquisitions totaling $0.5 million, $5.1 million and $1.4
million, respectively, which have been capitalized as part of the purchase price
of the acquisition.
3. SUBSEQUENT EVENTS
Effective January 1, 2000, we entered into a joint venture with Dairy
Farmers of America ("DFA") in which we combined certain of our domestic fluid
dairy operations with certain of DFA's operations into a newly formed venture,
Suiza Dairy Group. DFA is a large farmers cooperative from which we purchase a
significant portion of our raw milk. DFA received a 33.8% ownership interest in
Suiza Dairy Group in exchange for the contribution of the operations of Southern
Foods Group and for the contribution of its investments in its other joint
ventures with us: Suiza GTL, LLC and Suiza SoCal, LLC. We received a 66.2%
ownership interest in Suiza Dairy Group in exchange for the contribution of our
domestic fluid dairy operations (excluding our Puerto Rican operations and our
Morningstar subsidiary). Our ownership interests as well as DFA's were
determined by negotiation between the parties. This transaction will be
accounted for as an acquisition of Southern Foods using the purchase method of
accounting. Suiza Dairy Group also assumed $113.8 million, 9 7/8% senior notes
of Southern Foods which mature in September 2007.
F-9
<PAGE> 35
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Upon closing of the acquisition, Suiza Dairy Group entered into a new $1.61
billion credit facility and borrowed approximately $1.1 billion under this new
facility. Suiza Dairy Group distributed a portion of the borrowings under the
new credit facility to DFA and to us. DFA used its portion of the distributed
funds to repay certain existing obligations of Southern Foods and we used our
portion of the distributed funds to repay certain of our existing obligations,
including redeeming the $100 million aggregate stated amount of mandatorily
redeemable trust issued preferred securities held by DFA and repaying amounts
outstanding under our senior credit facility. We also terminated our existing
senior credit facility and replaced it with a new $300 million parent-level
senior credit facility as discussed in Note 11.
The preliminary unaudited consolidated results of operations on a pro forma
basis for the year ended December 31, 1999, as if the Southern Foods operations
had been acquired as of the beginning of 1999 are as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- ----------
<S> <C> <C>
Net sales............................................ $4,481,999 $5,782,896
Income from continuing operations before taxes....... 193,103 217,152
Net income from continuing operations................ 108,827 109,787
Earnings per share from continuing operations:
Basic.............................................. $ 3.31 $ 3.34
Diluted............................................ $ 3.11 $ 3.16
</TABLE>
The pro forma results of operations are presented for informational
purposes only and are not necessarily indicative of the results of operations
that would have occurred had the acquisition been completed as of the above
date, nor are they necessarily indicative of future results of operations.
On February 8, 2000, we completed the acquisition of Valley of Virginia
Cooperative Milk Producers Association, an agricultural marketing cooperative
with dairy processing plants in Springfield, Virginia and Mt. Crawford,
Virginia. Valley of Virginia, which had net sales of $209 million for the twelve
month period ended August 31, 1999, sells milk and ice cream products in
Virginia, Maryland, Pennsylvania, Delaware and the District of Columbia, and
ultra-high temperature dairy products across the eastern half of the United
States, primarily under the Shenandoah's Pride (R) brand.
In February of 2000, we purchased a majority interest in Leche Celta, S.A.,
a Spanish dairy processor with sales of approximately $150 million in 1999.
Leche Celta produces primarily ultra-high temperature dairy products from three
plants located in northern Spain. We funded approximately $31.5 million of our
equity investment through borrowings under our new parent-level senior credit
facility. We financed the balance of the purchase price with a low-interest rate
loan in Spain.
On March 3, 2000, we completed the sale of our European metal packaging
operations. The proceeds of this sale were used to repay borrowings made to fund
our equity investment in Leche Celta and for other corporate purposes.
4. DISCONTINUED OPERATIONS AND EXTRAORDINARY GAINS AND LOSSES
On April 30, 1998, we consummated the sale of our packaged ice operations
for net cash proceeds of approximately $172.7 million. We reported an
extraordinary gain of $35.5 million from the sale of this operation, net of
$22.0 million of income tax expense. Our packaged ice segment had revenues of
approximately $17.9 million during the four months ended April 30, 1998 and
$66.3 million during 1997. The results of discontinued operations includes
interest expense of $2.4 million during 1998 and $7.1 million during 1997.
Interest charges allocated to discontinued operations are based on debt
specifically attributed to our packaged ice operations. The results of
discontinued operations are presented net of the related income tax benefit of
$2.1 million in 1998 and income tax expense of $0.4 million in 1997. During
1999, certain
F-10
<PAGE> 36
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contingencies related to this sale were resolved, resulting in an additional
extraordinary gain on the sale of $0.9 million, net of $0.5 million of income
tax expense.
In 1998, an extraordinary loss of $3.8 million, net of a $2.3 million
income tax benefit, was also recognized in connection with the early
extinguishment of the term loan of our senior credit facility, and included
losses from the write-off of deferred financing costs and interest rate swap
losses. We also recognized extraordinary losses in connection with the early
extinguishment of prior credit facilities in 1997 and expensed $11.3 million in
1997, net of an income tax benefit of $7.0 million. These costs related to debt
issuance, legal and other costs associated with the extinguishment of these
prior credit facilities.
5. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Investment in Consolidated Container Company LLC -- On July 2, 1999, we
sold a majority interest in our U.S. plastic packaging operations to
Consolidated Container Company, which through a predecessor owned another
plastic packaging business. Pursuant to this transaction, we received a 43.1%
common equity interest in Consolidated Container Company in exchange for our
existing common equity interest in our U.S. plastic packaging operations, along
with cash of approximately $364.0 million in connection with Consolidated
Container Company's refinancing of the intercompany debt and preferred stock
investment that our U.S. plastic packaging operations owed us. As a part of this
transaction the senior secured notes of Plastic Containers, Inc., a former
subsidiary of Continental Can, were assumed by Consolidated Container Company
(see Footnote 11).
With the consummation of this transaction, the assets and liabilities and
results of operations of our formerly consolidated U.S. plastic packaging
operations were combined with those of Consolidated Container Company and were
eliminated from our consolidated financial statements. For all periods prior to
this date, our U.S. plastic packaging operations continue to be included in our
consolidated financial statements. The consolidated balance sheet at December
31, 1998 included current assets of approximately $80.0 million, total assets of
approximately $566.0 million and total liabilities of approximately $218.0
million (excluding intercompany debt and preferred stock investment balances)
related to our U.S. plastic packaging operations, which are no longer reflected
in the consolidated balance sheet at December 31, 1999. Included in consolidated
sales for the first six months of 1999 and for all of 1998 were sales of $245.0
million and $332.0 million, respectively, related to the U.S. plastic packaging
operations.
Our investment in Consolidated Container Company after July 2, 1999 is
accounted for under the equity method of accounting. Our investment in
Consolidated Container Company at December 31, 1999 was $3.9 million. Our
initial investment was lower than our proportional share of Consolidated
Container Company's net assets by $109.1 million which is being amortized over
forty years. Earnings from our unconsolidated affiliates in our consolidated
statements of income includes $2.4 million (net of restructuring and other
non-recurring charges of $4.9 million) attributable to Consolidated Container
Company, of which $1.4 million is attributable to the amortization of the
difference between the carrying amount of our investment and our proportional
share of our underlying equity interest in their net assets. Although the market
value of our investment in Consolidated Container Company is not readily
determinable, management believes that the fair value of this investment exceeds
its carrying amount.
F-11
<PAGE> 37
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial information for Consolidated Container Company at
December 31, 1999 and for the six months ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------
(IN THOUSANDS)
<S> <C>
Current assets.............................................. $156,031
Total assets................................................ 992,083
Current liabilities......................................... 143,859
Debt........................................................ 553,926
Total liabilities........................................... 735,255
Total equity................................................ 256,828
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED DECEMBER 31,
1999
------------------
<S> <C>
Net sales................................................... $388,665
Operating income............................................ $ 27,470
</TABLE>
Investment in Horizon Organic -- As of December 31, 1999 and 1998 we had a
13.8% and 11.4% interest in Horizon Organic, respectively. We account for this
investment under the equity method of accounting as we believe that we have the
ability to influence the operating policies of Horizon. The quoted stock price
of this investment ranged from $17.50 to $7.25 per share during 1999. The
closing stock price on December 31, 1999 was $7.50 per share, resulting in a
market value of our investment of $10.0 million. Our investment in Horizon
Organic at December 31, 1999 and 1998 was $16.2 million and $12.3 million,
respectively and our equity in earnings included in our consolidated statement
of income for 1999 and 1998 were $0.2 million and $0.1 million, respectively.
6. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies.............................. $100,044 $113,118
Finished goods.......................................... 82,277 110,220
-------- --------
Total......................................... $182,321 $223,338
======== ========
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land................................................. $ 64,063 $ 60,176
Buildings and improvements........................... 227,306 229,940
Machinery and equipment.............................. 703,984 761,545
--------- ----------
995,353 1,051,661
Less accumulated depreciation........................ (236,868) (204,705)
--------- ----------
Total...................................... $ 758,485 $ 846,956
========= ==========
</TABLE>
For 1999 and 1998, we capitalized $3.6 million and $0.8 million in
interest, respectively.
F-12
<PAGE> 38
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INTANGIBLE AND OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Goodwill............................................. $1,207,756 $1,266,663
Identifiable intangibles............................. 103,798 108,038
Deposits and other................................... 21,123 18,768
Investments in unconsolidated affiliates............. 20,137 12,282
Deferred income taxes................................ 501 2,528
---------- ----------
1,353,315 1,408,279
Less accumulated amortization........................ (92,285) (55,351)
---------- ----------
Total...................................... $1,261,030 $1,352,928
========== ==========
</TABLE>
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable........................................ $276,968 $304,775
Payroll and benefits.................................... 70,076 73,049
Other accrued liabilities............................... 94,748 122,479
-------- --------
$441,792 $500,303
======== ========
</TABLE>
10. INCOME TAXES
The following table presents the 1999, 1998 and 1997 provisions for income
taxes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999(1) 1998(2) 1997(3)
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current taxes payable:
Federal....................................... $31,480 $16,423 $10,501
State......................................... 10,041 7,234 2,601
Foreign and other............................. 6,433 4,612 2,918
Deferred income taxes........................... 27,509 31,554 27,355
------- ------- -------
Total................................. $75,463 $59,823 $43,375
======= ======= =======
</TABLE>
- ---------------
(1) Excludes a $0.5 million income tax expense related to extraordinary gains.
(2) Excludes $2.1 million income tax benefit related to discontinued operations
and a $19.9 million income tax expense related to net extraordinary gains.
(3) Excludes a $0.4 million income tax expense related to discontinued
operations and a $7.0 million income tax benefit related to extraordinary
losses.
F-13
<PAGE> 39
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation of income taxes reported in the
consolidated statements of income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax expense at statutory rates.................. $67,586 $57,557 $28,946
State income taxes.............................. 7,795 7,967 1,710
Tax effect of tax-exempt earnings............... (2,612) (4,765) (4,429)
Sale of Puerto Rico tax credits................. 4,350
Nondeductible goodwill.......................... 1,968 1,423 528
Nondeductible merger and other expenses......... 11,832
Other........................................... 726 (2,359) 438
------- ------- -------
Total................................. $75,463 $59,823 $43,375
======= ======= =======
</TABLE>
The tax effects of temporary differences giving rise to deferred income tax
assets and liabilities were:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards...................... $ 14,363 $ 24,354
Asset valuation reserves.............................. 7,141 3,587
Nondeductible accruals................................ 46,209 38,741
Puerto Rico tax credits............................... 3,311 4,745
Other................................................. 2,158
-------- --------
73,182 71,427
Deferred income tax liabilities:
Depreciation and amortization......................... (69,509) (65,293)
Tax credit basis differences.......................... (6,251) (6,425)
Basis differences in unconsolidated affiliates........ (16,239)
Other................................................. (2,024)
-------- --------
(91,999) (73,742)
-------- --------
Net deferred income tax liability............. $(18,817) $ (2,315)
======== ========
</TABLE>
These net deferred income tax assets (liabilities) are classified in our
consolidated balance sheet as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current assets.......................................... $ 27,005 $ 23,859
Noncurrent assets....................................... 501 2,528
Noncurrent liabilities.................................. (46,323) (28,702)
-------- --------
Total......................................... $(18,817) $ (2,315)
======== ========
</TABLE>
During 1997, we obtained a ruling from the Commonwealth of Puerto Rico
confirming that our fruit, plastics and dairy operations in Puerto Rico
qualified for an agriculture tax credit. Accordingly, we recognized in other
income a nonrecurring gain of $18.1 million, net of discounts and related
expenses ($11.5 million after
F-14
<PAGE> 40
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
income taxes), for earned tax credits we sold to third parties during 1997. In
addition, during 1997, we sold $4.4 million of previously recognized tax credits
for cash proceeds of $3.7 million, net of discounts and related expenses, which
is recorded in other income. However, since these tax credits had been
previously recognized, this sale resulted in income tax expense of $5.6 million
for an after tax loss of $1.9 million.
At December 31, 1999, we had approximately $42.3 million of net operating
losses and approximately $1.6 million of tax credits available for carry over to
future years. The losses are subject to certain limitations and will expire
beginning in 2008.
11. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Senior credit facility.................................. $635,500 $719,500
Subsidiary debt obligations:
Lines of credit....................................... 24,655 46,160
Senior secured notes.................................. -- 131,078
Industrial development revenue bonds.................. 9,330 12,635
Capital lease obligations and other................... 42,583 23,596
-------- --------
712,068 932,969
Less current portion.................................... (22,671) (39,892)
-------- --------
Total......................................... $689,397 $893,077
======== ========
</TABLE>
Terminated Senior Credit Facility -- In connection with our acquisition of
Southern Foods on January 4, 2000, we replaced our then existing senior credit
facility with two new facilities, as described under "Suiza Dairy Group Credit
Facility" and "New Parent Credit Facility" below. The old senior credit facility
provided us with a line of credit of up to $1 billion to be used for general
corporate and working capital purposes, including the financing of acquisitions.
Interest was payable quarterly or at the end of the applicable interest period
and the interest rate in effect on that facility, including the applicable
interest rate margin, was an average 6.55% during the quarter ended December 31,
1999. The senior credit facility would have expired on March 31, 2003.
Suiza Dairy Group Credit Facility -- Simultaneous with the closing of the
Southern Foods transaction, Suiza Dairy Group entered into a new $1.6 billion
credit facility with a group of lenders which expires in January 2005. The Suiza
Dairy Group credit facility provides an $805 million revolving line of credit, a
$625 million term loan and a $180 million term loan. Suiza Dairy Group initially
borrowed approximately $1.1 billion and distributed a portion of the borrowings
to DFA and us. We used our portion of the distribution to repay our then
existing senior credit facility and certain other obligations.
New Parent Credit Facility -- On January 4, 2000 we also entered into a new
parent credit facility, which replaced our then existing senior credit facility.
The new facility, which expires in January 2005, provides us with a revolving
line of credit of up to $300 million to be used for general corporate and
working capital purposes, including the financing of future acquisitions. On the
date of this new agreement, we had not borrowed any funds under this facility.
Credit Facility Terms -- Amounts outstanding under the Suiza Dairy Group
credit facility and our new parent credit facility bear interest at a rate per
annum equal to one of the following rates, at our option: (i) a base rate equal
to the higher of the Federal Funds rate plus 50 basis points or the prime rate,
plus a margin that varies from 25 to 125 basis points for the Suiza Dairy Group
credit facility and 0 to 75 basis points on the new parent credit facility,
depending on our ratio of defined indebtedness to EBITDA or (ii) The London
F-15
<PAGE> 41
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interbank Offering Rate ("LIBOR") computed as LIBOR divided by the product of
one minus the Eurodollar Reserve Percentage, plus a margin that varies from 125
to 225 basis points for the Suiza Dairy Group credit facility and 75 to 175
basis points on the new parent credit facility, depending on our ratio of
defined indebtedness to EBITDA. In consideration for the revolving commitments,
we pay a commitment fee on unused amounts of the Suiza Dairy Group credit
facility and the new parent credit facility that ranges from 25 to 50 basis
points, based on our ratio of defined indebtedness to EBITDA. Interest is
payable quarterly or at the end of the applicable interest period.
The Suiza Dairy Group credit facility and our new parent credit facility
contain various financial and other restrictive covenants and requirements that
Suiza Dairy Group and we maintain certain financial ratios, including a leverage
ratio (computed as the ratio of the aggregate outstanding principal amount of
defined indebtedness to EBITDA, as defined separately by each agreement) and an
interest coverage ratio (computed as the ratio of EBITDA to interest expense as
defined separately by each agreement). In addition, the Suiza Dairy Group credit
facility and our new parent credit facility require that we maintain a minimum
level of net worth as defined separately by each agreement. The facilities also
contain limitations on liens, investments, the incurrence of additional
indebtedness and acquisitions, and prohibit certain dispositions of property and
restrict certain payments, including dividends. The credit facilities are
secured by capital stock of certain of our subsidiaries.
Subsidiary Debt Obligations -- Subsidiary debt obligations include lines of
credit, industrial development revenue bond obligations and other debt
obligations of certain subsidiaries.
Borrowings under these subsidiary lines of credit are generally subject to
limitations based on a borrowing base, as defined in the respective agreements,
and bear interest generally at floating interest rates determined for each
subsidiary. The weighted average interest rate in effect on our subsidiaries'
lines of credit, which represent only foreign subsidiary lines of credit, at
December 31, 1999 was 4.43%.
The senior secured notes outstanding at December 31, 1998 were issued by
one of Continental Can's subsidiaries, Plastic Containers, Inc., and had an
original par value of $125 million and a fixed interest rate of 10%. The senior
secured notes were assumed by Consolidated Container Company on July 2, 1999 in
connection with the sale of a majority interest in our U.S. plastic packaging
operations.
Certain of our subsidiaries have revenue bonds outstanding which require
aggregate annual sinking fund redemptions aggregating $0.7 million and are
secured by irrevocable letters of credit issued by financial institutions, along
with first mortgages on certain real property and equipment. Interest on these
bonds is due semiannually at interest rates that vary based on market conditions
which, at December 31, 1999, ranged from 5.60% to 5.85%.
Other debt includes various promissory notes for the purchase of property,
plant and equipment and capital lease obligations. The various promissory notes
payable provide for interest at varying rates and are payable in monthly
installments of principal and interest until maturity, when the remaining
principal balances are due. Capital lease obligations represent machinery and
equipment financing obligations which are payable in monthly installments of
principal and interest and are collateralized by the related assets financed.
Interest Rate Agreements -- We have interest rate derivative agreements in
place, including interest rate caps, swaps and collars that have been designated
as hedges against our variable interest rate exposure on our loans under our
senior credit facility.
F-16
<PAGE> 42
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes our various interest rate agreements as of
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Interest rate caps with an interest limit of 8% expiring
March 2000................................................ $ 60,000 $ 60,000
Interest rate swaps with an interest range of 6.03% to 6.14%
expiring between September 2000 and December 2002......... 435,000 435,000
Interest rate collars with an interest range of 6.08% to
7.5% expiring between December 2002 and June 2003......... 100,000 100,000
</TABLE>
These derivative agreements provided hedges for loans under our terminated
senior credit facility at December 31, 1999, and subsequently for our Suiza
Dairy Group facility by limiting or fixing the LIBOR interest rates at the
interest rates noted above until the indicated expiration dates of these
interest rate derivative agreements. The original costs and premiums of these
derivative agreements are being amortized on a straight-line basis as a
component of interest expense.
We are exposed to market risk under these arrangements due to the
possibility of exchanging a lower interest rate for a higher interest rate. The
counterparties are major financial institutions and the risk of incurring losses
related to the credit risk is considered to be remote.
Scheduled Maturities -- The scheduled maturities of long-term debt, which
include capitalized lease obligations, at December 31, 1999, were as follows (in
thousands):
<TABLE>
<S> <C>
2000............................................. $ 22,671
2001............................................. 12,662
2002............................................. 5,575
2003............................................. 640,266
2004............................................. 20,345
Thereafter....................................... 10,549
--------
Total.................................. $712,068
========
</TABLE>
In addition, there were $27.2 million of issued but undrawn letters of
credit secured by our senior credit facility as of December 31, 1999.
12. MANDATORILY REDEEMABLE TRUST ISSUED PREFERRED SECURITIES
In connection with our acquisition of Land-O-Sun in February 1998, we
issued $100 million of company-obligated 5% mandatorily redeemable convertible
preferred securities of a Delaware business trust. On March 24, 1998, we also
completed the sale of $600 million of company-obligated 5.5% mandatorily
redeemable convertible preferred securities of a Delaware business trust in a
private placement to "qualified institutional buyers" under Rule 144A under the
Securities Act of 1933, as amended. The 5% preferred securities mature 20 years
from the date of issue and the 5.5% preferred securities mature 30 years from
the date of issue. These trust issued preferred securities, which are recorded
net of related fees and expenses, are convertible at the option of the holders
into an aggregate of approximately 9.1 million shares of our common stock,
subject to adjustment in certain circumstances. These preferred securities are
also redeemable, at our option, at any time after three years from their
respective issue dates at specified amounts and are mandatorily redeemable at
their liquidation preference amount of $50 per share at maturity or upon
occurrence of certain specified events.
On January 4, 2000, in connection with the Southern Foods transaction, we
redeemed the 5% mandatorily redeemable convertible preferred securities in the
amount of $100,638,889, which includes the principal repayment and accrued
interest.
F-17
<PAGE> 43
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. STOCKHOLDERS' EQUITY
Our authorized shares of capital stock include 1,000,000 shares of
preferred stock and 500,000,000 shares of common stock with a par value of $.01
per share.
Preferred Stock -- The rights and preferences of preferred stock are
established by our Board of Directors upon issuance. The Series A preferred
stock previously outstanding represented 11,691 shares of preferred stock with a
stated and redemption value of $320.00 per share, provided for cumulative
dividends at a rate of 8% and were redeemable only at our option. On September
29, 1998, we redeemed all outstanding shares of Series A preferred stock for the
stated value of $320.00 per share, plus accumulated unpaid dividends, for a
total cost of $3.8 million.
Stock Offerings -- On January 28, 1997, we sold 4,270,000 shares of common
stock in a public offering at a price to the public of $22.00 per share. The
public offering provided net cash proceeds to us of approximately $89.0 million
which was used to repay senior and subordinated debt and prepayment penalties
related to the early extinguishment of the subordinated notes.
Stock Option and Restricted Stock Plans -- We have three stock option and
restricted stock plans. These plans provide for grants of stock options and
restricted stock to employees, officers, directors and consultants to acquire
6,156,023 shares of common stock. The plans stipulate that the exercise prices
of stock options will approximate or be above fair market value on the grant
date. The options vest in accordance with provisions as set forth in the
applicable option agreements.
The following table summarizes the status of our stock-based compensation
programs:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding at January 1, 1997........................... 3,607,887 $ 9.34
Granted................................................ 2,798,958 30.40
Canceled............................................... (96,738) 13.89
Exercised.............................................. (621,866) 8.66
----------
Outstanding at December 31, 1997......................... 5,688,241 $19.70
Granted................................................ 1,444,412 49.40
Canceled............................................... (75,447) 39.99
Exercised.............................................. (2,349,335) 15.72
----------
Outstanding at December 31, 1998......................... 4,707,871 $30.56
Granted................................................ 1,078,169 35.22
Canceled............................................... (208,021) 42.70
Exercised.............................................. (980,768) 15.13
----------
Outstanding at December 31, 1999......................... 4,597,251 $34.68
==========
Exercisable at December 31, 1997......................... 4,423,601 17.49
Exercisable at December 31, 1998......................... 3,157,266 21.80
Exercisable at December 31, 1999......................... 2,927,217 30.17
</TABLE>
F-18
<PAGE> 44
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about options outstanding and
exercisable at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED-AVERAGE ------------------------------
NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ------------------------ ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0 to $13.72........ 680,005 6.81 $ 9.25 677,885 $ 9.27
16.00 to 34.50........ 1,715,136 6.38 29.38 1,347,127 28.46
35.38 to 65.25........ 2,202,110 7.43 46.67 902,205 48.42
</TABLE>
We have elected to follow APB 25 and related interpretations in accounting
for our stock options. Accordingly, no compensation expense has been recognized
since stock options granted under these plans were at exercise prices which
approximated or exceeded market value at the grant date. Had compensation
expense been determined for stock option grants using fair value methods
provided for in SFAS No. 123, Accounting for Stock-Based Compensation, our pro
forma net income and net earnings per common share would have been the amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Compensation cost.............................. $ 18,861 $ 34,198 $ 21,706
Net income:
As reported.................................. 109,731 131,606 28,764
Pro forma.................................... 98,245 110,745 15,415
Net income per share:
As reported -- basic......................... 3.34 3.98 0.96
As reported -- diluted....................... 3.13 3.58 0.91
Pro forma -- basic........................... 2.99 3.36 0.52
Pro forma -- diluted......................... 2.86 3.08 0.49
Stock option share data:
Stock options granted during period.......... 1,078,169 1,444,412 2,798,958
Weighted average option fair value........... $ 18.00(a) $ 29.23(b) $ 7.75(b)
</TABLE>
- ---------------
(a) Calculated in accordance with the Black-Scholes option pricing model, using
the following assumptions: expected volatility of 40%; expected dividend
yield of 0%; expected option term of four to ten years and risk-free rates
of return as of the date of grant of 5.1% based on the yield of ten-year
U.S. Treasury securities.
(b) Calculated in accordance with the Black-Scholes option pricing model, using
the following assumptions: expected volatility of 40%, expected dividend
yield of 0%, expected option term of four to ten years and risk-free rates
of return as of the date of grant of 5.5% based on the yield of ten-year
U.S. treasury securities.
Rights Plan -- On February 27, 1998, our board of directors declared a
dividend of one common share purchase right for each outstanding share of common
stock to the stockholders of record on March 18, 1998. The rights are not
exercisable until ten days subsequent to the announcement of the acquisition of
or intent to acquire a beneficial ownership of 15% or more in Suiza. At such
time, each right entitles the registered holder to purchase from us that number
of shares of common stock at an exercise price of $210.00, with a market value
of up to two times the exercise price. At any time prior to such date, a
required majority may redeem the
F-19
<PAGE> 45
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rights in whole, but not in part, at a price of $0.01 per right. The rights will
expire on March 18, 2008, unless our board of directors extends the term of, or
redeems, the rights.
Earnings Per Share -- Basic earnings per share is based on the weighted
average number of common shares outstanding during each period. Diluted earnings
per share is based on the weighted average number of common shares outstanding
and the effect of all dilutive common stock equivalents during each period. The
following table reconciles the numerators and denominators used in the
computations of both basic and diluted EPS:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Basic EPS computation:
Numerator:
Income from continuing operations........ $ 108,827 $ 103,069 $ 39,330
Less preferred stock dividends........... (237) (300)
----------- ----------- -----------
Income applicable to common stock........ $ 108,827 $ 102,832 $ 39,030
=========== =========== ===========
Denominator:
Average common shares.................... 32,861,218 32,953,290 29,508,791
=========== =========== ===========
Basic EPS from continuing operations........ $ 3.31 $ 3.12 $ 1.32
=========== =========== ===========
Diluted EPS computation:
Numerator:
Income from continuing operations........ $ 108,827 $ 103,069 $ 39,330
Less preferred stock dividends........... (237) (300)
Net effect on earnings from conversion of
mandatorily redeemable convertible
preferred securities................... 24,501 18,732
----------- ----------- -----------
Income applicable to common stock........ $ 133,328 $ 121,564 $ 39,030
=========== =========== ===========
Denominator:
Average common shares -- basic........... 32,861,218 32,953,290 29,508,791
Stock option conversion.................. 901,151 1,838,193 1,815,017
Earnings contingency..................... 24,783
Dilutive effect of conversion of
mandatorily redeemable convertible
preferred securities................... 9,096,123 7,174,081
----------- ----------- -----------
Average common shares -- diluted............ 42,858,492 41,965,564 31,348,591
=========== =========== ===========
Diluted EPS from continuing operations........ $ 3.11 $ 2.90 $ 1.25
=========== =========== ===========
</TABLE>
Share Repurchases -- On September 15, 1998, our Board of Directors
authorized an open market share repurchase program of up to $100 million of our
common stock. On September 28, 1999, the Board increased the program by $100
million to $200 million and on November 17, 1999 authorized a further increase
to
F-20
<PAGE> 46
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$300 million. Set forth in the chart below is a summary of the stock we have
repurchased pursuant to this program through December 31, 1999.
<TABLE>
<CAPTION>
NO. OF
SHARES PURCHASE
PERIOD REPURCHASED PRICE
- ------ ------------- --------------
<S> <C> <C>
Third Quarter 1998....................................... 1,000,000 $ 30.4 million
Fourth Quarter 1998...................................... 510,400 15.6 million
Second Quarter 1999...................................... 79,700 3.0 million
Third Quarter 1999....................................... 1,850,515 66.7 million
Fourth Quarter 1999...................................... 3,486,508 128.4 million
--------- --------------
Total.......................................... 6,927,123 $244.1 million
========= ==============
</TABLE>
As of March 3, 2000, we have repurchased an additional $12.8 million or
317,500 shares and $43.1 million remains available for spending under this
program.
These repurchased shares were treated as effectively retired in the
consolidated financial statements.
14. OTHER COMPREHENSIVE INCOME
Comprehensive income comprises net income plus all other changes in equity
from nonowner sources. The amount of income tax (expense) benefit allocated to
each component of other comprehensive income during the year ended December 31,
1999 and 1998 are included below. There were no components of other
comprehensive income during 1997.
<TABLE>
<CAPTION>
PRE-TAX TAX
INCOME BENEFIT NET
(LOSS) (EXPENSE) AMOUNT
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cumulative translation adjustment.................... $ 7,005 $(2,732) $ 4,273
Minimum pension liability adjustment................. 120 (47) 73
-------- ------- --------
Accumulated other comprehensive income, December 31,
1998............................................... 7,125 (2,779) 4,346
Cumulative translation adjustment.................... (18,277) 7,493 (10,784)
-------- ------- --------
Accumulated other comprehensive income, December 31,
1999............................................... $(11,152) $ 4,714 $ (6,438)
======== ======= ========
</TABLE>
15. EMPLOYEE RETIREMENT AND PROFIT SHARING PLANS
We sponsor various defined benefit and defined contribution retirement
plans, including various employee savings and profit sharing plans, and
contribute to various multi-employer pension plans on behalf of our employees.
Substantially all full-time union and non-union employees who have completed one
or more years of service and have met other requirements pursuant to the plans
are eligible to participate in these plans. During 1999, 1998 and 1997, our
retirement and profit sharing plan expenses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Defined benefit plans.................................... $ 3,994 $ 3,176 $1,061
Defined contribution plans............................... 7,572 7,077 2,232
Multi-employer pension plans............................. 4,937 3,987 2,715
------- ------- ------
$16,503 $14,240 $6,008
======= ======= ======
</TABLE>
F-21
<PAGE> 47
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Defined Benefit Plans -- The benefits under our defined benefit plans are
based on years of service and employee compensation. Our funding policy is to
contribute annually the minimum amount required under ERISA regulations. Plan
assets consist principally of investments made with insurance companies under a
group annuity contract.
The following table sets forth the funded status of our defined benefit
plans and the amounts recognized in our consolidated balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... $ 148,219 $ 23,758
Service cost.............................................. 4,140 4,047
Interest cost............................................. 5,052 5,842
Assumption change......................................... (1,498) 396
Actuarial (gain) loss..................................... (6,878) 3,996
Acquisitions.............................................. 4,944 117,099
Disposition of US plastic packaging operations............ (76,134)
Benefits paid............................................. (6,279) (6,355)
Other..................................................... 107 (564)
---------- ----------
Benefit obligation at end of year........................... 71,673 148,219
---------- ----------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.............. 136,577 20,480
Actual return on plan assets.............................. 10,033 8,138
Acquisitions.............................................. 5,577 107,358
Disposition of US plastic packaging operations............ (68,639)
Employer contribution..................................... 1,809 6,886
Benefits paid............................................. (6,279) (6,355)
Other..................................................... 88 70
---------- ----------
Fair value of plan assets at end of year.................... 79,166 136,577
---------- ----------
Funded status............................................... 7,494 (11,642)
Unrecognized net transition obligation.................... 1,931 2,281
Unrecognized prior service cost........................... 1,517 1,319
Unrecognized net (gain)loss............................... (17,186) 1,542
---------- ----------
Net amount recognized....................................... $ (6,244) $ (6,500)
========== ==========
Amounts recognized in the consolidated balance sheets at
December 31 of each year consist of:
Prepaid benefit cost........................................ $ 1,775 $ 2,585
Accrued benefit liability................................... (8,364) (10,596)
Intangible asset............................................ 345 1,391
Accumulated other comprehensive income...................... 120
---------- ----------
Net amount recognized....................................... $ (6,244) $ (6,500)
========== ==========
Weighted-average assumptions as of December 31:
Discount rate............................................... 7.75% 6.50%
Expected return on plan assets.............................. 6.75-9.00% 3.50-9.00%
Rate of compensation increase............................... 0-4.00% 0%-9.00%
</TABLE>
F-22
<PAGE> 48
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost.......................................... $ 4,151 $ 4,057 $ 1,200
Interest cost......................................... 5,052 5,842 1,454
Expected return on plan assets........................ (6,157) (6,890) (1,467)
Amortization of unrecognized transition obligation.... 188 194 180
Amortization of prior service cost.................... 138 109 118
Amortization of unrecognized net gain................. (3) (13) (17)
Recognized net actuarial loss from curtailment........ (670)
------- ------- -------
Net periodic benefit cost............................... $ 3,369 $ 2,629 $ 1,468
======= ======= =======
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $7,613, $6,100, and $4,881, respectively, as of
December 31, 1999, and $11,766, $11,479, and $8,385, respectively, as of
December 31, 1998, excluding pension plans related to the disposed U.S.
packaging operations.
Defined Contribution Plans -- Certain of our non-union personnel may elect
to participate in savings and profit sharing plans sponsored by us. These plans
generally provide for salary reduction contributions to the plans on behalf of
the participants of between 1.0% and 17.0% of a participant's annual
compensation and provide for employer matching and profit sharing contributions
as determined by our Board of Directors. In addition, certain union hourly
employees are participants in company-sponsored defined contribution plans which
provide for employer contributions in various amounts ranging from $21 to $39
per pay period per participant.
Multi-Employer Pension Plans -- Certain of our subsidiaries contribute to
various multi-employer union pension plans, which are administered jointly by
management and union representatives and cover substantially all full-time and
certain part-time union employees who are not covered by our other plans. The
Multi-Employer Pension Plan Amendments Act of 1980 amended ERISA to establish
funding requirements and obligations for employers participating in
multi-employer plans, principally related to employer withdrawal from or
termination of such plans. We could, under certain circumstances, be liable for
unfunded vested benefits or other expenses of jointly administered
union/management plans. At this time, we have not established any liabilities
because withdrawal from these plans is not probable or reasonably possible.
F-23
<PAGE> 49
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Certain of our subsidiaries provide health care benefits to certain
retirees who are covered under specific group contracts. As defined by the
specific group contract, qualified covered associates may be eligible to receive
major medical insurance with deductible and coinsurance provisions subject to
certain lifetime maximums.
The following table sets forth the funded status of these plans and the
amounts recognized in our consolidated balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year..................... $ 3,948 $ 3,198
Service cost.............................................. 44 41
Interest cost............................................. 235 247
Actuarial (gain)/loss..................................... 84 (146)
Acquisition............................................... 1,179 906
Benefits paid............................................. (334) (298)
------- -------
Benefit obligation at end of year........................... $ 5,156 $ 3,948
------- -------
Fair value of plan assets at end of year.................... -- --
------- -------
Funded status............................................... (5,156) (3,948)
Unrecognized net gain..................................... (772) (411)
------- -------
Net amount recognized -- accrued benefit liability.......... $(5,928) $(4,359)
======= =======
Weighted-average assumptions as of December 31
Discount rate............................................. 7.50% 6.50%
Health Care Inflation:
Initial rate................................................ 7.68% 7.68%
Ultimate rate............................................... 4.75% 4.75%
Year of ultimate rate achievement........................... 2005 2005
</TABLE>
For measurement purposes, a 7.68% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1999 and 1998. The rate was
assumed to decrease gradually to 4.75% for 2005 and remain at that level
thereafter.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Components of Net Periodic Benefit Cost:
Service and interest cost................................... $278 $289 $184
Amortization of unrecognized net gain....................... (40) (21) (6)
---- ---- ----
Net periodic benefit cost................................... $238 $268 $178
==== ==== ====
</TABLE>
F-24
<PAGE> 50
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Effect on total of service and interest cost components... $ 24 $ (21)
Effect on postretirement obligation....................... 427 (377)
</TABLE>
17. PLANT CLOSING, MERGER AND OTHER COSTS
Plant closing, merger and other costs -- During 1999, as part of an overall
integration and cost reduction strategy, we recorded plant closing and other
non-recurring expenses of $12.6 million. In addition, our share of Consolidated
Container Company's restructuring charges was $4.9 million and was reported as a
reduction of equity in earnings of unconsolidated affiliates.
The charges recorded for our integration and cost reduction programs
reflect several approved efficiency and integration efforts including closing of
four plants with consolidation of production into other plants, disposition of a
small cheese processing plant, consolidation of administrative offices within
one of our regions, and severance costs incurred at the corporate office as well
as the European and Puerto Rican operations.
The principal components of the plan included the following:
- Workforce reduction as a result of plant closings, plant rationalizations
and consolidation of administrative functions. The plan included an
overall reduction of 315 people, primarily plant employees associated
with the plant closings and rationalization. The costs were charged to
our earnings in the period that the plan was established in detail and
employee severance and benefits had been appropriately communicated. All
except fourteen employees had been severed as of December 31, 1999.
- Shutdown costs include those costs that are necessary to clean and
prepare the plant facilities for closure. Additional costs to be incurred
after shutdown included lease obligations or termination costs, utilities
and property taxes after shutdown of the plant.
- Write-downs of property, plant and equipment and other assets are
primarily for asset impairments as a result of facilities that are no
longer used in operations. The impairments relate primarily to owned
building, land and equipment at the facilities which are being sold and
were written down to their estimated fair value.
Activity with respect to the plant closing and other non-recurring costs
are summarized below:
<TABLE>
<CAPTION>
ENDING
CHARGES PAYMENTS BALANCE
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Charges:
Workforce reduction costs.............................. $ 4,188 $(1,115) $3,073
Shutdown costs......................................... 779 (311) 468
Lease obligations after shutdown....................... 575 (137) 438
Other.................................................. 234 (194) 40
------- ------- ------
Subtotal................................................. 5,776 $(1,757) $4,019
======= ======
Noncash charges:
Write-down of property, plant and equipment............ 6,790
-------
Total charges............................................ $12,566
=======
</TABLE>
F-25
<PAGE> 51
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
There have not been significant adjustments to the plan and the majority of
future cash requirements to reduce the liability at December 31, 1999 are
expected to be completed in early 2000. However, there are continuing cash
payments under one severance agreement that will be made into the first quarter
of 2001.
Acquired facility closing costs -- As a part of accounting for
acquisitions, we accrued costs pursuant to plans to exit certain activities and
operations in order to rationalize productivity and reduce costs and
inefficiencies. Two plants were closed in connection with the acquisition of
Broughton Foods, and two plants in our northeastern U.S. region were also closed
subsequent to acquisition. The production from these plants was moved to our
other facilities.
The principal components of the plans included the following:
- Workforce reduction as a result of plant closings included an overall
reduction of 340 plant personnel. The costs incurred were charged against
our acquisition liabilities for these costs.
- Shutdown costs include those costs that are necessary to clean and
prepare the plant facilities for closure. Additional costs to be incurred
after shutdown included lease obligations or termination costs, utilities
and property taxes after shutdown of the plant.
Activity with respect to these acquisition liabilities are summarized
below:
<TABLE>
<CAPTION>
ACCRUED ENDING
COSTS PAYMENTS BALANCE
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Workforce reduction costs................................. $3,888 $(3,264) $624
Shutdown costs............................................ 1,035 (703) 332
Other..................................................... 112 (112) 0
------ ------- ----
Total..................................................... $5,035 $(4,079) $956
====== ======= ====
</TABLE>
Merger and other costs -- During 1997 we incurred merger and other costs of
$37.0 million. The following table summarizes the nature and amount of the costs
recorded in merger and other costs (in thousands):
<TABLE>
<S> <C>
Merger fees and expenses.................................... $17,766
Severance and employment costs.............................. 17,555
Costs of uncompleted transactions........................... 505
Other costs................................................. 1,177
-------
$37,003
=======
</TABLE>
Merger fees and expenses include primarily fees paid to investment bankers
and investment advisors, professional fees and various merger-related filing
fees. Severance and employment costs include primarily payments to employees
terminated at the merger date and payments for retention bonuses and excise
taxes, pursuant to preexisting employment agreements. Costs of uncompleted
transactions include the costs and expenses related to abandoned acquisitions in
1997. Other costs primarily include the cost of the consolidation of our
corporate offices in connection with the Morningstar merger in 1997. The
majority of these costs were incurred and paid during the fourth quarter of 1997
with substantially all the remaining costs paid in 1998.
F-26
<PAGE> 52
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for interest and financing charges, net of
capitalized interest.................................. $87,548 $74,989 $43,386
Cash paid for taxes..................................... 40,003 17,908 23,668
Noncash transactions:
Issuance of notes payable and common and preferred
stock in connection with business and property
acquisitions....................................... 3,193 138,547 17,049
Issuance of mandatorily redeemable preferred
securities and subsidiary preferred and common
securities in connection with two acquisitions..... 18,500 201,447
</TABLE>
19. COMMITMENTS AND CONTINGENCIES
Leases -- We lease certain property, plant and equipment used in our
operations under both capital and operating lease agreements. Such leases, which
are primarily for machinery and equipment and vehicles, have lease terms ranging
from one to nine years. Certain of the operating lease agreements require the
payment of additional rentals for maintenance, along with additional rentals
based on miles driven or units produced. Rent expense, including additional
rent, was $45.1 million, $48.0 million and $18.5 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
The composition of capital leases which are reflected as property, plant
and equipment in our consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Buildings and improvements.................................. $12,115 $ 8,591
Machinery and equipment..................................... 13,549 13,984
Less accumulated amortization............................... (9,160) (3,833)
------- -------
$16,504 $18,742
======= =======
</TABLE>
Future minimum payments at December 31, 1999, under noncancelable capital
and operating leases with terms in excess of one year are summarized below:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
2000........................................................ $ 4,109 $ 32,650
2001........................................................ 4,704 28,415
2002........................................................ 3,125 24,399
2003........................................................ 2,444 20,237
2004........................................................ 1,643 16,524
Thereafter.................................................. 1,705 25,601
------- --------
Total minimum lease payments................................ 17,730 $147,826
========
Less amount representing interest........................... (1,879)
-------
Present value of capital lease obligations.................. $15,851
=======
</TABLE>
F-27
<PAGE> 53
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Litigation -- We and our subsidiaries are parties, in the ordinary course
of business, to certain claims and litigation. In our opinion, the settlement of
such matters is not expected to have a material adverse impact on our financial
position, results of operations or cash flows.
Employment Agreements -- We have entered into employment agreements with
certain key management personnel which provided for minimum compensation levels
and incentive bonuses, along with provisions for termination benefits in certain
circumstances and for certain severance payments in the event of a change in
control.
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
Pursuant to SFAS No. 107, "Disclosure About Fair Value of Financial
Instruments," we are required to disclose an estimate of the fair value of our
financial instruments as of December 31, 1999 and 1998. SFAS No. 107 defines the
fair value of financial instruments as the amount at which the instrument could
be exchanged in a current transaction between willing parties.
Due to their near-term maturities, the carrying amounts of accounts
receivable and accounts payable are considered equivalent to fair value. In
addition, because the interest rates on our senior credit facility and most
other debt are variable, their fair values approximate their carrying values.
We have entered into various interest rate agreements to reduce our
sensitivity to changes in interest rates on our variable rate debt. The fair
values of these instruments were determined based on current values for similar
instruments with similar terms. The following table presents the carrying value
and fair value of our interest rate agreements at December 31:
<TABLE>
<CAPTION>
1999 1998
-------------------- ---------------------
CARRYING FAIR CARRYING FAIR
VALUE OF VALUE VALUE OF VALUE
LIABILITY ASSET LIABILITY LIABILITY
--------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest rate agreements....................... $(4,313) $5,745 $(5,943) $(17,274)
</TABLE>
21. BUSINESS AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
In all periods shown in the consolidated financial statements contained in
this report prior to the third quarter of 1999, we had two reportable segments,
including "dairy" and "packaging." As a result of the sale of a majority
interest in our U.S. plastic packaging operations effective July 2, 1999, as
discussed in Note 5, we no longer have a reportable packaging segment under
current accounting rules. Our remaining packaging operations, which consist of
only our European flexible film business, are now included in "Other" in the
table below along with our corporate expenses not allocated to a specific
segment; all periods presented have been reclassified to conform with this
change. Our dairy products and related distribution businesses manufacture and
distribute fluid milk, ice cream and novelties, dairy and non-dairy coffee
creamers, half-and-half and whipping cream, sour cream, cottage cheese, yogurt,
dairy and non-dairy frozen whipped toppings as well as certain refrigerated,
frozen and extended shelf-life products on a national basis. We also manufacture
and distribute fruit juices and other flavored drinks, bottled water and coffee.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. We evaluate performance based on
profit or loss from operations before income taxes not including nonrecurring
gains and losses and foreign exchange gains and losses.
We do not allocate income taxes or unusual items to segments. In addition,
not all segments have significant noncash items other than depreciation and
amortization in reported profit or loss. The amounts in
F-28
<PAGE> 54
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the following tables are the amounts obtained from reports used by our executive
management team for the year ended December 31:
<TABLE>
<CAPTION>
DAIRY PACKAGING OTHER TOTAL
---------- --------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1999
Revenues from external customers...... $3,992,185 $244,866 $244,948 $4,481,999
Intersegment revenues................. 16,036 18,674 -- 34,710
Segment operating income.............. 259,750 34,685 (17,561) 276,874
Income from continuing operations
before income taxes................ 260,619 22,567 (90,083) 193,103
Depreciation and amortization......... 91,919 14,678 10,048 116,645
Total segment assets.................. 2,373,253 285,669 2,658,922
Capital expenditures for segment
assets............................. 134,918 8,720 44,004 187,642
1998
Revenues from external customers...... $2,816,195 $332,173 $172,572 $3,320,940
Intersegment revenues................. 19,088 29,379 -- 48,467
Segment operating income.............. 204,319 44,459 (6,322) 242,456
Income from continuing operations
before income taxes................ 182,843 20,285 (38,677) 164,451
Depreciation and amortization......... 68,616 17,618 5,545 91,779
Total segment assets.................. 2,136,560 611,156 266,067 3,013,783
Capital expenditures for segment
assets............................. 100,854 59,721 16,295 176,870
1997
Revenues from external customers...... $1,743,240 $ 52,628 $ -- $1,795,868
Intersegment revenues................. 6,300 2,312 -- 8,612
Segment operating income.............. 133,996 4,862 (43,972) 94,886
Income from continuing operations
before income taxes................ 83,140 (178) (257) 82,705
Depreciation and amortization......... 41,162 2,233 1,212 44,607
Total segment assets.................. 1,121,791 156,351 125,320 1,403,462
Capital expenditures for segment
assets............................. 52,642 9,313 165 62,120
</TABLE>
<TABLE>
<CAPTION>
REVENUES LONG-LIVED ASSETS
------------------------------------ -----------------------
1999 1998 1997 1999 1998
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Geographic Information
United States.......... $4,002,144 $2,904,498 $1,546,902 $1,810,874 $1,992,879
Puerto Rico............ 235,226 243,870 248,966 124,199 122,336
Europe................. 244,629 172,572 83,941 90,958
---------- ---------- ---------- ---------- ----------
Total.......... $4,481,999 $3,320,940 $1,795,868 $2,019,014 $2,206,173
========== ========== ========== ========== ==========
</TABLE>
We have no one customer within any segment which represents greater than
ten percent of our consolidated revenues.
F-29
<PAGE> 55
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
22. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for 1999 and 1998 (in thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER
----------------------------------------------------
FIRST SECOND THIRD(6) FOURTH(6)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1999
Net sales....................... $1,153,186 $1,118,844 $1,082,060 $1,127,909
Gross profit.................... 232,559 262,949 247,650 251,766
Income from continuing
operations(1)................ 20,873 32,147 30,449 25,358
Income before extraordinary
gain(1)...................... 20,873 32,147 30,449 25,358
Net income(1)................... 20,873 32,147 30,449 26,262(2)
Basic earnings per common
share(3):
Income before extraordinary
gain....................... 0.62 0.95 0.90 0.83
Net income................... 0.62 0.95 0.90 0.86
Diluted earnings per common
share(3):
Income before extraordinary
gain....................... 0.60 0.87 0.83 0.78
Net income................... 0.60 0.87 0.83 0.80
1998
Net sales....................... $ 593,121 $ 768,120 $ 968,104 $ 991,595
Gross profit.................... 136,973 185,907 220,795 219,357
Income from continuing
operations................... 18,053 29,630 28,313 27,073
Income before extraordinary
gain......................... 14,892(4) 29,630 28,313 27,073
Net income...................... 14,892 61,328(5) 28,313 27,073
Basic earnings per common
share(3):
Income before extraordinary
gain....................... 0.48 0.91 0.82 0.81
Net income................... 0.48 1.88 0.82 0.81
Diluted earnings per common
share(3):
Income before extraordinary
gain....................... 0.45 0.82 0.76 0.76
Net income................... 0.45 1.54 0.76 0.76
</TABLE>
- ---------------
(1) The results for the second, third and fourth quarters of 1999 include plant
closing and other non-recurring charges of $4.7 million, $5.1 million
(including $1.6 million related to Consolidated Container), and $7.8 million
(including $3.4 million related to Consolidated Container), respectively.
(2) The results for the fourth quarter of 1999 include an extraordinary gain
from the resolution of contingencies related to the sale of our packaged ice
business in 1998.
(3) Earnings per common share calculations for each of the quarters were based
on the basic and diluted weighted average number of shares outstanding for
each quarter, and the sum of the quarters may not necessarily be equal to
the full year earnings per common share amount.
F-30
<PAGE> 56
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) The difference between income from continuing operations and income before
extraordinary gain represents the results of the discontinued operations of
the packaged ice business, net of income taxes.
(5) The results for the second quarter of 1998 include an extraordinary gain on
the sale of our packaged ice business of $35.5 million, net of income tax,
and an extraordinary loss on the early extinguishment of our credit facility
of $3.8 million, net of income tax.
(6) As a result of the sale of our U.S. plastic packaging operations to
Consolidated Container Company on July 2, 1999 in exchange for cash and a
43.1% interest in Consolidated Container Company, the sales, gross profit
and operating expenses of this operation subsequent to July 2, 1999 are not
included in the table but are instead condensed on to a single line, "equity
in earnings of unconsolidated affiliates" within income from continuing
operations.
F-31
<PAGE> 57
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Incorporated herein by reference to our proxy statement (to be filed) for
our May 17, 2000 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to our proxy statement (to be filed) for
our May 17, 2000 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to our proxy statement (to be filed) for
our May 17, 2000 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to our proxy statement (to be filed) for
our May 17, 2000 Annual Meeting of Stockholders.
23
<PAGE> 58
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The following consolidated financial statements are filed as part of this
report or are incorporated herein as indicated:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-1
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-2
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997.......................... F-3
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997.............. F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-5
Notes to Consolidated Financial Statements.................. F-6
</TABLE>
EXHIBITS
See Index to Exhibits.
FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report
Schedule II -- Valuation and Qualifying Accounts
24
<PAGE> 59
By: /s/ BARRY A. FROMBERG
--------------------------------
Barry A. Fromberg
Executive Vice President and
Chief Financial Officer
Dated April 4, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ GREGG L. ENGLES
- ----------------------------------------------------- Chief Executive Officer and
Gregg L. Engles Chairman of the Board April 4, 2000
/s/ PETE SCHENKEL
- -----------------------------------------------------
Pete Schenkel Vice Chairman of the Board April 4, 2000
/s/ HECTOR M. NEVARES
- -----------------------------------------------------
Hector M. Nevares Vice Chairman of the Board April 4, 2000
/s/ ALAN BERNON
- -----------------------------------------------------
Alan Bernon Director April 4, 2000
/s/ STEPHEN L. GREEN
- -----------------------------------------------------
Stephen L. Green Director April 4, 2000
/s/ JOSEPH S. HARDIN, JR.
- -----------------------------------------------------
Joseph S. Hardin, Jr. Director April 4, 2000
/s/ JOHN MUSE
- -----------------------------------------------------
John Muse Director April 4, 2000
/s/ P. EUGENE PENDER
- -----------------------------------------------------
P. Eugene Pender Director April 4, 2000
/s/ JIM TURNER
- -----------------------------------------------------
Jim Turner Director April 4, 2000
</TABLE>
25
<PAGE> 60
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Suiza Foods Corporation
Dallas, Texas
We have audited the consolidated financial statements of Suiza Foods
Corporation and subsidiaries (the "Company") as of December 31, 1999 and 1998
and for each of the three years in the period ended December 31, 1999, and have
issued our report thereon dated February 14, 2000 (March 3, 2000 as to Note 3);
such report is included elsewhere in this Form 10-K. Our audits also included
the consolidated financial statement schedule of Suiza Foods Corporation and
subsidiaries, listed in Item 14. This consolidated financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 14, 2000
(March 3, 2000 as to Note 3)
<PAGE> 61
SCHEDULE II
SUIZA FOODS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
Allowance for doubtful accounts deducted from accounts receivable:
<TABLE>
<CAPTION>
RECOVERIES
BALANCE -- OF WRITE-OFF OF
BEGINNING CHARGED TO ACCOUNTS UNCOLLECTIBLE BALANCE
YEAR OF YEAR INCOME ACQUISITIONS DISPOSITIONS WRITTEN OFF ACCOUNTS END OF YEAR
- ---- ---------- ---------- ------------ ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 2,943 1,838 260 8 1,460 3,589
1998 3,589 4,260 13,836 47 2,429 19,303
1999 19,303 4,766 1,646 1,188 158 5,836 18,849
</TABLE>
<PAGE> 62
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
2.1 -- Amended and Restated Reorganization Agreement
(incorporated by reference from our Registration
Statement on Form S-1 (File No. 333-1858)).
3.1 -- Certificate of Incorporation dated September 19, 1994
(incorporated by reference from our Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997 (File No.
1-12755).
3.2 -- Certificate of Amendment to Certificate of Incorporation
dated March 27, 1995 (incorporated by reference from our
Quarterly Report on Form 10-Q for the quarter ended June
30, 1997 (File No. 1-12755)).
3.3 -- Certificate of Correction of Certificate of Amendment to
Certificate of Incorporation Dated June 6, 1995
(incorporated by reference from our Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997 (File No.
1-12755)).
3.4 -- Certificate of Amendment to Certificate of Incorporation
dated February 29, 1996 (incorporated by reference from
our Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997 (File No. 1-12755)).
3.5 -- Certificate of Amendment to Certificate of Incorporation
dated May 15, 1997 (incorporated by reference from our
Quarterly Report on Form 10-Q for the quarter ended June
30, 1997 (File No. 1-12755)).
3.6 -- Certificate of Amendment of Certificate of Incorporation
(incorporated by reference from our Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 (File No.
1-12755)).
3.7 -- Bylaws (incorporated by reference to the Company's
Registration Statement on Form S-1 (File No. 333-1858)).
3.8 -- Amended and Restated Bylaws (incorporated by reference
from our Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 (File No. 1-12755)).
4.1 -- Specimen of Common Stock Certificate (incorporated by
reference to our Registration Statement On Form S-1 (File
No. 333-1858)).
4.2 -- Registration Rights Agreement (incorporated by reference
to our Registration Statement on Form S-1 (File No.
333-1858)).
4.3 -- Rights Agreement dated March 6, 1998 among us and Harris
Trust & Savings Bank, as rights agent, which includes as
Exhibit A the Form of Rights Certificate (incorporated by
reference from the Registration Statement on Form 8-A
filed on March 10, 1998 (File No. 1-12755)).
4.4 -- Certificate of Trust of Suiza Capital Trust II
(incorporated by reference from our Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 (File No.
1-12755)).
4.5 -- Amended and Restated Declaration of Trust of Suiza
Capital Trust II, dated as of March 24, 1998, among us,
as Sponsor, Wilmington Trust Company, as Property
Trustee, Wilmington Trust Company, as Delaware Trustee,
and Tracy L. Noll, J. Michael Lewis and Joseph B. Armes,
as Regular Trustees (incorporated by reference from our
Quarterly Report on Form 10-Q for the quarter ended March
31, 1998 (File No. 1-12755)).
4.6 -- Indenture for the 5.5% Convertible Subordinated
Debentures, dated as of March 24, 1998, among us and
Wilmington Trust Company, as Indenture Trustee
(incorporated by reference from our Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 (File No.
1-12755)).
4.7 -- Form of 5.5% Preferred Securities (incorporated by
reference from our Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 (File No. 1-12755)).
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
4.8 -- Form of 5.5% Convertible Subordinated Debenture
(incorporated by reference from our Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 (File No.
1-12755)).
4.9 -- Preferred Securities Guarantee Agreement, dated as of
March 24, 1998, between us, as Guarantor, and Wilmington
Trust Company, as Guarantee Trustee (incorporated by
reference from our Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 (File No. 1-12755)).
4.10 -- Registration Rights Amendment, dated March 24, 1998,
between us, Suiza Capital Trust II, and Donaldson,
Lufkin, Jenrette Securities Corporation, Bear, Stearns &
Co. Inc. and J.P. Morgan & Co. (incorporated by reference
from our Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998 (File No. 1-12755)).
*10.1 -- Suiza Foods Corporation Exchange Stock Option and
Restricted Stock Plan (incorporated by reference to our
Registration Statement on Form S-1 (File No. 333-1858)).
*10.2 -- Suiza Foods Corporation 1995 Stock Option and Restricted
Stock Plan (incorporated by reference to our Registration
Statement on Form S-1 (File No. 333-18263)).
*10.3 -- Amended and Restated 1997 Stock Option and Restricted
Stock Plan (incorporated by reference from our Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998
(File No. 1-12755)).
*10.4 -- Amended and Restated 1997 Stock Option and Restricted
Stock Plan (incorporated by reference from our Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999
(File No. 1-12755)).
*10.5 -- Executive Deferred Compensation Plan (incorporated by
reference from our Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999 (File No. 1-12755)).
*10.6 -- 1997 Employee Stock Purchase Plan (incorporated by
reference from our Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, as amended on October 24,
1997 (File No. 1-12755)).
*10.7 -- First Amendment to the 1997 Employee Stock Purchase Plan
(incorporated by reference from our Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, as amended
on October 24, 1997 (File No. 1-12755)).
*10.8 -- Second Amendment to the 1997 Employee Stock Purchase Plan
(incorporated by reference from our Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, as amended
on October 24, 1997 (File No. 1-12755)).
*10.9 -- 1991 Incentive and Nonstatutory Stock Option Plan of
Morningstar (incorporated by reference from Morningstar's
Registration Statement on Form S-1 (No. 33-45805) filed
on February 19, 1992).
*10.10 -- 1992 Incentive and Nonstatutory Stock Option Plan
(incorporated by reference from Morningstar's
Registration Statement on Form S-1 (No. 33-45805) filed
on February 19, 1992).
*10.11 -- 1994 Incentive and Nonstatutory Stock Option Plan
(incorporated by reference from Morningstar's
Registration Statement on Form S-8 (No. 33-53975) filed
on June 6, 1994).
*10.12 -- 1996 Director Stock Option Plan (incorporated by
reference from Morningstar's Annual Report on Form 10-K
(No. 0-19075) for the year ended December 31, 1996).
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
*10.13 -- Country Fresh, Inc. 1989 Stock Option Plan (incorporated
by reference from our Annual Report on Form 10-K for the
year ended December 31, 1997 (File No. 1-12755)).
*10.14 -- Form of Stock Option Agreement for Messrs. Gregg L.
Engles, C.O. Beshears, William P. Brick, Hector M.
Nevares and Tracy L. Noll under the 1995 Stock Option and
Restricted Stock Plan (incorporated by reference from our
Quarterly Report on Form 10-Q for the quarter ended June
30, 1997, as amended on October 24, 1997 (File No.
1-12755)).
*10.15 -- Form of Restricted Stock Agreement for Messrs. C.O.
Beshears and William P. Brick under the 1995 Stock Option
and Restricted Stock Plan (incorporated by reference from
our Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, as amended on October 24, 1997 (File No.
1-12755)).
*10.16 -- Form of Stock Option Agreement for Messrs. Gregg L.
Engles, William P. Brick, Hector M. Nevares and Tracy L.
Noll under the 1997 Stock Option and Restricted Stock
Plan (incorporated by reference from our Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997, as
amended on October 24, 1997 (File No. 1-12755)).
*10.17 -- Stock Option Agreement dated as of October 13, 1994 among
Country Fresh, Inc. and Delton C. Parks under the Country
Fresh, Inc. 1989 Stock Option Plan (incorporated by
reference from our Annual Report on Form 10-K for the
year ended December 31, 1997 (File No. 1-12755)).
10.18 -- Stockholders Agreement dated July 31, 1997 among us,
Franklin Plastics, Peter M. Bernon and Alan J. Bernon
(incorporated by reference from our Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, as amended
on October 24, 1997 (File No. 1-12755)).
10.19 -- Agreement and Plan of Merger dated as of September 28,
1997 by and among us, SF Acquisition Corp. and The
Morningstar Group Inc. (incorporated by reference from
our Registration Statement on Form S-4 (File No.
333-37869)).
10.20 -- Agreement and Plan of Merger dated as of January 14, 1998
by and among us, CC Acquisition Corp. and Continental Can
Company, Inc. (incorporated by reference from our
Registration Statement on Form S-4 (File No. 333-46519)).
10.21 -- Amended and Restated Declaration of Trust of Suiza
Capital Trust, dated as of February 20, 1998
(incorporated by reference from our Current Report on
Form 8-K filed on March 9, 1998 (File No. 1-12755)).
10.22 -- Indenture, dated as of February 20, 1998, between us, as
Issuer, and Wilmington Trust Company, as Trustee
(incorporated by reference from our Current Report on
Form 8-K filed on March 9, 1998 (File No. 1-12755)).
10.23 -- 5% Convertible Subordinated Debenture due 2018, issued by
us to Suiza Capital Trust on February 20, 1998
(incorporated by reference from our Current Report on
Form 8-K filed on March 9, 1998 (File No. 1-12755)).
10.24 -- Certificate for Preferred Securities of Suiza Capital
Trust, issued to DFA Investment Company on February 20,
1998 (incorporated by reference from our Current Report
on Form 8-K filed March 9, 1998 (File No. 1-12755)).
10.25 -- Contribution and Merger Agreement by and among Suiza
Foods Corporation, Franklin Plastics, Inc. and
affiliates, Vestar Packaging LLC, Reid Plastics Holdings,
Inc. and affiliates, Consolidated Container Holdings LLC,
Consolidated Container Company LLC and Reid Plastics
Group LLC dated as of April 29, 1999, as amended
(incorporated by reference from our Current Report on
Form 8-K dated July 19, 1999, File No. 1-12755).
</TABLE>
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
10.26 -- Amendment No. 1 to Contribution and Merger Agreement
dated June 28, 1999 (incorporated by reference from our
Current Report on Form 8-K dated July 19, 1999, File No.
1-12755).
10.27 -- Amended and Restated Limited Liability Company Agreement
of Consolidated Container Holdings, LLC (incorporated by
reference from our Current Report on Form 8-K dated July
19, 1999, File No. 1-12755).
10.28 -- Registration Rights Agreement, dated as of January 1,
2000, between Suiza Foods Corporation, Dairy Farmers of
America, Inc. and Mid-Am Capital, L.L.C. (incorporated by
reference from our Current Report on Form 8-K dated
January 11, 2000, File No. 1-12755).
10.29 -- Credit Agreement dated as of January 4, 2000 among Suiza
Fluid Dairy Group, L.P. and Southern Foods Group, L.P. as
Borrowers certain domestic subsidiaries of the parent
borrower, the Lenders parties thereto, First Union
National Bank as Administrative Agent, Bank One, NA as
Syndication Agent, Bank of America, N.A. and Fleet
National Bank as Co-Documentation Agents and First Union
Securities, Inc. and Bank One Capital Market, Inc., as
Co-Book Runners (incorporated by reference from our
Current Report on Form 8-K dated January 11, 2000, File
No. 1-12755).
10.30 -- Credit Agreement dated as of January 4, 2000 among Suiza
Foods Corporation as Borrower, certain domestic
subsidiaries of the Borrower as Guarantors, the Lenders
parties thereto, First Union National Bank as
Administrative Agent, Bank One, NA as Syndication Agent,
Bank of America, N.A. and Fleet National Bank as Co-
Documentation Agents and First Union Securities, Inc. and
Bank One Capital Markets, Inc., as Co-Book Runners
(incorporated by reference from our Current Report on
Form 8-K dated January 11, 2000, File No. 1-12755).
10.31 -- Amended and Restated Limited Partnership of Suiza Fluid
Dairy Group, L.P. (incorporated by reference from our
Current Report on Form 8-K dated January 11, 2000, File
No. 1-12755).
*10.32 -- Form of Severance Agreement for our dairy executive
officers (incorporated by reference from our Annual
Report on Form 10-K for the year ended December 31,
1999).
*10.33 -- Form of Severance Agreement for certain senior officers
(incorporated by reference from our Annual Report on Form
10-K for the year ended December 31, 1999).
*10.34 -- Form of Severance Agreement for certain other officers
(incorporated by reference from our Annual Report on Form
10-K for the year ended December 31, 1999).
11 -- Computation of Per Share Earnings (filed with the Annual
Report on Form 10-K for the year ended December 31, 1999
filed March 16, 2000).
12 -- Statement re computation of ratios (filed with the Annual
Report on Form 10-K for the year ended December 31, 1999
filed March 16, 2000).
21 -- List of Subsidiaries (filed herewith).
23 -- Consent of Deloitte & Touche LLP (filed herewith).
27 -- Financial Data Schedule (filed with the Annual Report on
Form 10-K for the year ended December 31, 1999 filed
March 16, 2000).
</TABLE>
- ---------------
* Management or compensatory contract
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
<TABLE>
<CAPTION>
Juris. of No. Shares of Percentage
Subsidiary Org. Owner Capital Stock Ownership
---------- ---- ----- ------------- ---------
<S> <C> <C> <C> <C>
Suiza Management Corporation DE Suiza Foods Corporation 1,000 common shares 100%
Suiza Capital Trust II DE Suiza Foods Corporation
Neptune Delaware Corporation DE Suiza Foods Corporation 1,000 common shares 100%
VOV Acquisition Corp. DE Suiza Foods Corporation 1,000 common shares 100%
SUIZA INTERNATIONAL HOLDING COMPANY DE Suiza Foods Corporation 100 common shares 100%
Suiza Espana Spain Suiza International Holding Company 100%
Leche Celta Spain Suiza International Holding Company 85%
SUIZA U.S. HOLDING COMPANY DE Suiza Foods Corporation 100 common shares 100%
Garrido y Compania, Inc PR Suiza U.S. Holding Company 100 common shares 100%
Garrido Alto Grande Corp. PR Garrido y Compania, LLC 1,000,000 common shares 100%
Morningstar Foods Inc. DE Suiza U.S. Holding Company 1,000 common shares 100%
Morningstar Services Inc. DE Morningstar Foods Inc. 1,000 common shares 100%
Neva Plastics Manufacturing DE Suiza U.S. Holding Company 10,000 common shares 100%
Corporation
Suiza Dairy Corporation DE Suiza U.S. Holding Company 10,000 common shares 100%
Suiza Fruit Corporation DE Suiza U.S. Holding Company 10,000 common shares 100%
CONTINENTAL CAN COMPANY, INC. DE Suiza Foods Corporation 10,000 common shares 100%
Dixie Holding, Inc. NY Continental Can Company, Inc. 10,000 common shares; 100%
100 shares preferred
Franklin Plastics, Inc. DE Continental Can Company, Inc. (88%) 5,000,000 shares common; 100%
Alan J. Bernon & Peter M. Bernon (12%) 1,000,000 shares
preferred
Consolidated Container Company, LLC DE Franklin Plastics, Inc. 43%
Lockbart Realty Corp. NY Continental Can Company, Inc. 100%
Suiza Fluid Dairy Group Holdings, Inc. NV Suiza Foods Corporation 1,000 common shares 100%
Suiza Dairy Group GP, LLC DE Suiza Management Corporation 100 common units 100%
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C> <C> <C>
SUIZA DAIRY GROUP, L.P. DE Suiza Fluid Dairy Group Holdings, Inc. Partnership Interests 100%
(66.2%)
Dairy Farmers of America (33.8%)
Suiza Dairy Group GP, LLC (General
Partner Interest)
COUNTRY FRESH, LLC MI Suiza Dairy Group, L.P. 100 common units 100%
CF Burger Dairy, LLC DE Country Fresh, LLC 100 common units 100%
London's Farm Dairy, LLC DE Country Fresh, LLC 100 common units 100%
Oberlin Farms Dairy, LLC DE Country Fresh, LLC 100 common units 100%
SUIZA GTL, LLC DE Suiza Dairy Group, L.P. 100 common units 100%
New England Dairies, LLC DE Suiza GTL. LLC 100 common units 100%
Tuscan/Lehigh Management, LLC DE Suiza GTL, LLC 100 common units 100%
Tuscan/Lehigh Dairies, L.P. DE Suiza GTL, LLC (99%) 100 common units 100%
Tuscan/Lehigh Management, LLC (1%)
SUIZA SOUTHEAST, LLC DE Suiza Dairy Group, L.P. 100 common units 100%
Broughton Foods, LLC DE Suiza Southeast, LLC 100 common units 100%
Dairy Fresh, LLC DE Suiza Southeast, LLC 100 common units 100%
Land-O-Sun Dairies, LLC DE Suiza Southeast, LLC 100 common units 100%
Louis Trauth Dairy, LLC DE Suiza Southeast, LLC 100 common units 100%
Shenandoah's Pride, LLC DE Suiza Southeast, LLC 100 common units 100%
Velda Farms, LLC DE Suiza Southeast, LLC 100 common units 100%
SUIZA SOUTHWEST, LLC DE Suiza Dairy Group, L.P. 100 common units 100%
Country Delite Farms, LLC DE Suiza Southwest, LLC 100 common units 100%
Model Dairy, LLC DE Suiza Southwest, LLC 100 common units 100%
Robinson Dairy, LLC DE Suiza Southwest, LLC 100 common units 100%
SFG Management Limited Liability DE Suiza Southwest, LLC (95%) 100 common units 100%
Company Suiza Management Corporation (5%)
Southern Foods Group, L.P. DE Suiza Southwest, LLC (99%) 100 common units 100%
SFG Management Limited Liability
Company (1%)
SFG Capital Corporation DE Southern Foods Group, L.P. 100 common shares 100%
Suiza SoCal, LLC DE Suiza Southwest, LLC 100 common units 100%
Sulphur Springs Cultured Products, LLC DE Suiza Southwest, LLC 100 common units 100%
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF DELOITTE & TOUCHE LLP
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Registration No. 333-68319), the Registration Statement
on Form S-3 (Registration No. 333-69627), the Registration Statement on Form
S-3, as amended by Post-Effective Amendment No. 1 (Registration No. 333-77813),
the Registration Statement on Form S-8 (Registration No. 333-80641), the
Registration Statement on Form S-4, as amended by Post-Effective Amendment No. 1
(Registration No. 333-29741), the Registration Statement on Form S-3, as amended
by Post-Effective Amendment No. 1 (Registration No. 333-13119), the Registration
Statement on Form S-3, as amended by Post-Effective Amendment No. 1
(Registration No. 333-29207), the Registration Statement on Form S-3
(Registration No. 333-34133), the Registration Statement on Form S-3, as amended
by Post-Effective Amendment No. 2 (Registration No. 333-45749), the Registration
Statement on Form S-3 (Registration No. 333-56613), the Registration Statement
on Form S-8 (Registration No. 333-11185), the Registration Statement on Form S-8
(Registration No. 333-28019), the Registration Statement on Form S-8
(Registration No. 333-28021), the Registration Statement on Form S-8
(Registration No. 333-41353), the Registration Statement on Form S-8,
(Registration No. 333-50013), the Registration Statement on Form S-8
(Registration No. 333-55969) and the Registration Statement on Form S-8
(Registration No. 333-30160), of our reports dated February 14, 2000 (March 3,
2000 as to Note 3), appearing in the Annual Report on Form 10-K of Suiza Foods
Corporation for the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 31, 2000
