SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
AMENDMENT NO. 1
TO
FORM 8-K
FILED SEPTEMBER 20, 1996
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
September 24, 1996 (July 19, 1996)
Suiza Foods Corporation
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 340-28130 75-2559681
(STATE OR OTHER (COMMISSION FILE (IRS EMPLOYER
JURISDICTION OF NUMBER) IDENTIFICATION NO.)
INCORPORATION)
3811 TURTLE CREEK BLVD., SUITE 1300
DALLAS, TEXAS 75219
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code:
(214) 528-0939
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
GARRIDO & COMPANIA, INC.
Report of Independent Auditors - KPMG Peat Marwick LLP . . . Page F-2
Consolidated Balance Sheets . . . . . . . . . . . . . . . . Page F-4
Consolidated Statements of Earnings . . . . . . . . . . . . Page F-5
Consolidated Statements of Changes in Stockholders Equity . Page F-6
Consolidated Statements of Cash Flows . . . . . . . . . . . Page F-7
Notes to Consolidated Financial Statements . . . . . . . . . Page F-8
(B) PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements
are filed with this report:
Pro Forma Consolidated Statements of Earnings:
Year Ended December 31, 1995 . . . . . . . . . . . . . . . . Page F-16
Six Months Ended June 30, 1996 . . . . . . . . . . . . . . . Page F-17
Pro Forma Consolidated Balance Sheet as of June 30, 1996 . . . Page F-18
The unaudited pro forma financial data have been derived by the application
of pro forma adjustments to the consolidated financial statements of Suiza
Foods Corporation (the "Company" or the "Registrant"). The pro forma
statement of earnings data represent income from continuing operations for
the year ended December 31, 1995 and for the six months ended June 30, 1996
and give effect to the July 19, 1996 acquisition of Garrido & Compania, Inc.
("Garrido") and the related borrowings to fund the acquisition as if such
transactions had been consummated as of January 1, 1995. The pro forma
consolidated balance sheet data give effect to the acquisition of Garrido and
the related borrowings to fund the acquisition as if such transactions had
been consummated as of June 30, 1996. The pro forma adjustments, which are
described in the accompanying notes, are based on available information and
certain assumptions that management of the Company believes are reasonable.
The pro forma financial data should not be considered indicative of actual
results that would have been achieved if the transactions given pro forma
effect had been consummated on the dates or for the periods indicated and do
not purport to indicate results of operations as of any future date or for
any future period.
The unaudited pro forma financial data should be read in conjunction with the
historical consolidated financial statements of the Company and Garrido and the
related notes thereto.
2
(C) EXHIBITS
23.1 Consent of independent auditors
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: September 24, 1996 SUIZA FOODS CORPORATION
By: /s/ Tracy L. Noll
-----------------------------------
Tracy L. Noll
CHIEF FINANCIAL OFFICER
4
GARRIDO & COMPANIA, INC. AND SUBSIDIARIES
Consolidated Financial Statements
June 30, 1996 and 1995
With Independent Auditors' Report Thereon
F-1
INDEPENDENT AUDITORS' REPORT
Board of Directors
Garrido & Compania, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Garrido &
Compania, Inc. and Subsidiaries as of June 30, 1996 and 1995, and the related
consolidated statements of earnings, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended June 30, 1996. 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As discussed in note 1 to the consolidated financial statements, effective July
19, 1996, Garrido & Compania, Inc.'s wholly-owned subsidiaries, Garrido Alto
Grande Corp., Alto Grande Export Corp. and Guest Choice, Inc. merged with and
into Garrido & Compania, Inc. Simultaneously on the same date, Garrido &
Compania, Inc. was acquired by G Acquisition Corp., who changed its name to
Garrido & Compania, Inc. These mergers and acquisition result in a new
accounting entity whose financial statements are not included herewith.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Garrido & Compania,
Inc. and Subsidiaries as of June 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1996 in conformity with generally accepted accounting principles.
(Continued)
F-2
As discussed in notes 1 and 7 to the consolidated financial statements,
effective July 1, 1993, Garrido & Compania, Inc. and Subsidiaries changed their
method of accounting for income taxes to adopt the provisions of Financial
Accounting Standards Board's Statement of Financial Accounting Standards
No. 109, ACCOUNTING FOR INCOME TAXES.
KPMG Peat Marwick, LLP
San Juan, Puerto Rico
August 23, 1996
Stamp No. 1353935 of the Puerto Rico
Society of Certified Public Accountants
was affixed to the record copy of this report.
F-3
GARRIDO & COMPANIA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1996 and 1995
ASSETS 1996 1995
------ ------------- ------------
Current assets:
Cash and cash equivalents of $8,694,471
in 1996 and $4,830,762 in 1995 (note 1) $ 10,736,810 $ 4,969,014
------------- ------------
Accounts receivable:
Trade (note 5) 2,420,152 2,756,225
Other 31,010 106,788
------------- ------------
2,451,162 2,863,013
Less allowance for doubtful accounts 100,000 -
------------- ------------
Accounts receivable, net 2,351,162 2,863,013
Inventories (notes 3 and 5) 1,893,681 2,141,911
Other prepaid expenses 29,149 187,554
------------- ------------
Total current assets 15,010,802 10,161,492
------------- ------------
Investments in government securities 11,229 14,062
------------- ------------
Property and equipment, at cost (notes 2, 4 and 5) 4,099,079 5,193,094
Less accumulated depreciation and amortization 2,570,627 3,341,099
------------- ------------
Property and equipment, net 1,528,452 1,851,995
Other assets, including unamortized cost of intangibles of
$97,335 in 1996 and $129,896 in 1995 (note 2) 121,245 177,913
------------- ------------
$ 16,671,728 $ 12,205,462
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks (notes 1 and 5) $ 2,115,000 $ 217,616
Current installments of long-term debt (notes 1 and 5) 711,429 711,428
Current portion of notes payable to former
stockholders (notes 1 and 5) 188,314 143,759
Accounts payable and accrued expenses (note 2) 1,083,607 736,368
Income taxes payable (note 7) 265,088 90,849
------------- ------------
Total current liabilities 4,363,438 1,900,020
Long-term debt, excluding current installments (notes 1 and 5) 1,499,523 2,210,952
Notes payable to former stockholders, excluding
current portion (notes 1 and 5) 469,269 664,853
Deferred income taxes (note 7) 34,277 788,598
Other liabilities (note 2) - 85,000
------------- ------------
Total liabilities 6,366,507 5,649,423
------------- ------------
Stockholders' equity:
Common stock, $100 par value. Authorized 10,000
shares; 586 shares issued and outstanding (note 5) 58,600 58,600
Retained earnings 10,246,621 6,497,439
------------- ------------
Total stockholders' equity 10,305,221 6,556,039
Commitments and contingencies (notes 6, 7 and 8)
------------- ------------
$ 16,671,728 $ 12,205,462
------------- ------------
------------- ------------
See accompanying notes to consolidated financial statements.
F-4
GARRIDO & COMPANIA, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended June 30, 1996, 1995 and 1994
1996 1995 1994
----------- ----------- -----------
Net sales $26,219,899 $25,803,634 $24,747,415
Cost of sales 17,793,564 18,200,625 17,571,451
----------- ----------- -----------
Gross profit 8,426,335 7,603,009 7,175,964
Selling, general and
administrative expenses
(notes 6 and 8) 5,034,182 4,493,311 4,968,225
----------- ----------- -----------
Operating income 3,392,153 3,109,698 2,207,739
Other income/(expenses):
Interest expense (notes 2 and 5) (299,885) (353,439) (422,965)
Other, net 327,450 56,028 12,610
----------- ----------- -----------
Total other income/
(expense), net 27,565 (297,411) (410,355)
----------- ----------- -----------
Earnings before income taxes
and cumulative effect of
change in accounting
principle 3,419,718 2,812,287 1,797,384
----------- ----------- -----------
Income taxes (note 7)
Current (424,857) (336,077) (254,358)
Deferred 754,321 (134,260) (34,910)
----------- ----------- -----------
329,464 (470,337) (289,268)
----------- ----------- -----------
Earnings before cumulative
effect of change in
accounting principle 3,749,182 2,341,950 1,508,116
----------- ----------- -----------
Cumulative effect at July 1, 1993
of change in accounting principle
(notes 1 and 7) - - (103,074)
----------- ----------- -----------
Net earnings $ 3,749,182 $ 2,341,950 $ 1,405,042
----------- ----------- -----------
----------- ----------- -----------
Earnings per share of common
stock (note 1):
Before cumulative effect of
change in accounting principle $ 6,398 $ 3,997 $ 2,356
Cumulative effect of change in
accounting principle (notes 1
and 7) - - (161)
----------- ----------- -----------
Net earnings per share (note 1) $ 6,398 $ 3,997 $ 2,195
----------- ----------- -----------
----------- ----------- -----------
See accompanying notes to consolidated financial statements.
F-5
GARRIDO & COMPANIA, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
June 30, 1996, 1995 and 1994
Total
Common Retained Stockholders'
Stock Earnings Equity
------- ----------- -------------
Balance at June 30, 1993 $65,100 $ 3,493,947 $ 3,559,047
Net earnings - 1,405,042 1,405,042
Acquisition and cancellation of
65 shares of common stock (note 5) (6,500) (743,500) (750,000)
------- ----------- -------------
Balance at June 30, 1994 58,600 4,155,489 4,214,089
Net earnings - 2,341,950 2,341,950
------- ----------- -------------
Balance at June 30, 1995 58,600 6,497,439 6,556,039
Net earnings - 3,749,182 3,749,182
------- ----------- -------------
Balance at June 30, 1996 $58,600 $10,246,621 $10,305,221
------- ----------- -------------
------- ----------- -------------
See accompanying notes to consolidated financial statements.
F-6
GARRIDO & COMPANIA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 1996, 1995 and 1994
Increase/(Decrease) in Cash and Cash Equivalents
1996 1995 1994
----------- ----------- -----------
Cash flows from operating activities:
Net earnings $ 3,749,182 $ 2,341,950 $ 1,405,042
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 543,277 633,298 656,814
Deferred income taxes (754,321) 134,260 137,984
Net gain/(loss) in disposition of property
and equipment 8,144 - (1,800)
Amortization on discount on notes payable to
former stockholders 10,092 10,396 10,613
Change in assets and liabilities:
Decrease/(increase) in accounts receivable,
net 511,851 (427,983) (252,874)
Decrease/(increase) in inventories 248,230 4,371,240 (1,954,132)
Decrease in prepaid income tax - 23,357
Decrease/(increase) in other prepaid
expenses 158,405 111,003 (70,319)
Decrease/(increase) in other assets 48,144 (37,071) 4,668
Increase/(decrease) in accounts payable and
accrued expenses 347,239 (49,710) 205,368
Decrease in obligation under capital lease - (19,266) (19,202)
Increase/(decrease) in other liabilities (85,000) (85,000) (149,876)
Increase in income tax payable 174,239 1,373 89,476
----------- ----------- -----------
Total adjustments 1,210,300 4,642,540 (1,319,923)
----------- ----------- -----------
Net cash provided by operating activities 4,959,482 6,984,490 85,119
----------- ----------- -----------
Cash flows from investing activities:
Principal returns on investment in government
securities 2,833 3,343 2,765
Proceeds on sale of property and equipment 1,000 8,600 3,100
Capital expenditures for additions to property
and equipment (220,354) (312,544) (261,299)
----------- ----------- -----------
Net cash used in investing activities (216,521) (300,601) (255,434)
----------- ----------- -----------
Cash flows from financing activities:
Net borrowings under various lines of credit
agreements and demand notes payable 8,048,242 1,700,000 962,269
Payments of long-term debt and note payable to
bank (6,862,287) (3,215,049) (565,476)
Payments on principal of notes payable to
former stockholders (161,120) (351,370) (46,886)
Acquisition and cancellation of common stock - - (269,123)
----------- ----------- -----------
Net cash provided by/(used in) financing
activities 1,024,835 (1,866,419) 80,784
----------- ----------- -----------
Net increase/(decrease) in cash (note 9) 5,767,796 4,817,470 (89,531)
Cash and cash equivalents at beginning of year 4,969,014 151,544 241,075
----------- ----------- -----------
Cash and cash equivalents at end of year $10,736,810 $ 4,969,014 $ 151,544
----------- ----------- -----------
----------- ----------- -----------
See accompanying notes to consolidated financial statements.
F-7
GARRIDO & COMPANIA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1996 and 1995
(1) NATURE OF BUSINESS, AFFILIATION, SUBSEQUENT EVENTS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Garrido & Compania, Inc. and its subsidiaries (the Company)are mainly
engaged in the processing and roasting of raw coffee for sale and
distribution under the tradenames of Cafe Crema, Cafe Adjuntas, Cafe Pilon,
Cafe Expreso, Cafe Alto Grande and under Executive and Aroma Coffee Break
Services. In addition, the Company exports certain products to be sold
outside the United States' territories, such as Japan, Sweden, and other
European countries, which currently represents less than 10% of sales.
AFFILIATION
The Company is 100% owner of the outstanding common stock of Garrido Alto
Grande Corp. (GAGC), Alto Grande Export Corp. (AGEC) and Guest Choice, Inc.
(GC).
Guest Choice, Inc. was incorporated under the laws of Puerto Rico on
February 8, 1996, and will be engaged in providing and servicing coffee to
hotels and other businesses in Puerto Rico, the United States and the
Caribbean. Guest Choice, Inc. main offices are located in the state of
Arizona. Guest Choice, Inc. did not have any sales during 1996, and total
assets related to these operations amounted to approximately $1,122,000 as
of June 30, 1996.
SUBSEQUENT EVENTS
Effective July 19, 1996, Garrido & Compania, Inc. and subsidiaries were
acquired by G Acquisition Corp., a wholly-owned subsidiary of Suiza Foods
Corporation through the purchase of all of its outstanding common stock.
Simultaneously, Garrido & Compania, Inc. merged with and into its wholly-
owned subsidiaries. Subsequent to the mergers and acquisition, G
Acquisition Corp. changed its name to Garrido & Compania, Inc.
The abovementioned mergers and acquisition result in a new accounting
entity after June 30, 1996 whose financial statements are not included
herewith. The accompanying consolidated financial statements relate
to the Company and its subsidiaries as of June 30, 1996, which is prior
to the effectiveness of the mergers and acquisition of July 19, 1996.
As a part of the aforementioned transactions, on or about July 19, 1996
all the outstanding long-term debt, including certain term loans, revolving
and temporary lines of credit, notes payable to former stockholders and
other notes payable included as part of other liabilities in the
consolidated balance sheets at June 30, 1996, were assumed and paid in
full by the stockholders of the Company.
F-8
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in the
preparation of the consolidated financial statements.
(b) INVENTORIES
Inventories are stated at the lower of cost (average cost) or
market (net realizable value). For finished goods inventories, the
cost is comprised of the cost of coffee, the cost of packaging
material and the cost of labor and overhead.
(c) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major renewals and
betterments are charged to property accounts. Replacements,
maintenance and repairs which do not improve or extend the life of the
respective assets are charged to expense.
(d) DEPRECIATION AND AMORTIZATION
Depreciation and amortization are provided over the estimated
useful life of the respective assets under the straight-line method.
Useful lives of the depreciable assets fluctuate from 3 to 20 years.
Leasehold improvements are amortized over the shorter of the lease
term or estimated useful life of the asset.
(e) INTANGIBLES
Intangibles consist primarily of customer lists, benefits from
covenants not to compete, trademarks, confidential formulas, right of
use of water wells and others. The cost of these intangible assets
are being amortized over their estimated useful lives under the
straight-line method.
(f) INCOME TAXES
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, and
reported the cumulative effect of that change in the method of
accounting for income taxes in the 1994 consolidated statement of
earnings.
Statement No. 109 requires a change from the deferred method of
accounting for income taxes of APB Opinion 11 to the asset and
liability method of accounting for income taxes. Under the asset and
liability method of Statement No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Under Statement No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
F-9
(g) CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers
all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents. Cash equivalents for 1996
and 1995 consist of U.S. Treasury bills amounting to $8,694,471 and
$4,830,762, respectively, with market value of $8,752,487 and
$4,860,338, respectively. Management has the ability and intent to
hold these cash equivalents until maturity.
(h) NET EARNINGS PER COMMON SHARE
Net Earnings per common share is based upon the weighted average
number shares of common stock outstanding during the year, which
equals 586 shares for 1996 and 1995 and 640 shares for 1994.
(i) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash equivalents,
trade and other receivables, investments, trade accounts payable,
other accrued liabilities, notes payable to banks and others and
long-term debt. At June 30, 1996 the carrying value of all financial
instruments approximated their fair value, due to their nature.
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainty and matters of significant judgment and, therefore, cannot
be determined with precision. Changes in assumptions could
significantly affect the estimates.
(j) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
F-10
(k) RECLASSIFICATION
Certain reclassifications have been made to the 1995 figures in
order to conform them with the 1996 consolidated financial statements.
(2) ASSET ACQUISITIONS
During 1991, the Company acquired certain assets from an unrelated party.
Of the total purchase price, $510,000 is payable in annual installments of
$85,000, plus interest, through 1996. Interest rate fluctuates between 9%
or prime rate, whichever is lower. As of June 30, 1996 and 1995, the
unpaid principal balance amounted to $85,000 and $170,000 respectively, of
which $85,000 is included in accounts payable and accrued expenses and the
remaining balance in 1995 is included in other liabilities. The liability
is secured by the assets acquired. As stated in note 1, amounts
outstanding at June 30, 1996 were subsequently paid on or about July 19,
1996.
During 1990, the Company also acquired certain assets from an unrelated
party. Of the total purchase price, $154,463 remained unpaid at June 30,
1995 and is included in accounts payable. Such amount was paid in full
during 1996.
(3) INVENTORIES
Inventories at June 30, 1996 and 1995 consist of the following:
1996 1995
---- ----
Raw coffee $ 925,176 $ 1,381,553
Finished goods 623,063 514,133
Bags, labels and supplies 345,442 246,225
----------- -----------
$ 1,893,681 $ 2,141,911
----------- -----------
----------- -----------
(4) PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1996 and 1995 consist of the following:
1996 1995
---- ----
Land $ 157,464 $ 157,464
Building 723,488 727,109
Machinery and equipment 2,379,515 2,914,072
Motor vehicles 294,544 575,244
Data processing equipment 115,181 114,677
Furniture and fixtures 110,584 318,968
Leasehold improvements 318,303 385,560
----------- -----------
Total $ 4,099,079 $ 5,193,094
----------- -----------
----------- -----------
F-11
(5) INDEBTEDNESS
Long-term debt at June 30, 1996 and 1995 consists of the following:
1996 1995
---- ----
Term loan payable to bank in monthly
installments of $5,952, plus interest,
through 1998. Interest rate fluctuates
based on the prime interest rate, which at
June 30, 1996 was 8.25%. Term loan
payable is partially secured by land and
property of the Company. $ 130,952 $ 202,380
Term loan payable to bank in quarterly
installments of $160,000 through 2000
secured by trade receivables and
inventories. Interest rate fluctuates based
on prime rate plus 1/2%, floating. 2,080,000 2,720,000
----------- -----------
2,210,952 2,922,380
Less current installments 711,429 711,428
----------- -----------
Long-term debt, excluding current
installments $ 1,499,523 $ 2,210,952
----------- -----------
----------- -----------
Notes payable to banks represent advances under revolving and temporary
lines of credit with a commercial bank amounting to $5,500,000.
Withdrawals, under these credit facilities can be made under a Master
Promissory Note and will be available for letters of credit and guarantee
letters. These facilities will be available to cover working capital needs
and for buying coffee directly from suppliers. Advances from such lines of
credit amounting to $2,115,000 in 1996 and $217,616 in 1995 are secured by
the personal guarantee of the Company's stockholders. These obligations
bear interest at 6.66%.
Notes payable to former stockholders consist of a 6% subordinated note
payable in monthly installments of $7,750, including interest, through June
1, 2007. Aggregate unpaid principal balance of these notes was $640,316
and $693,164 as of June 30, 1996 and 1995, respectively. The notes are
presented net of unamortized discounts amounting to $53,743 in 1996 and
$63,836 in 1995 which were originally computed based on the prime interest
rates at the time of their issuance. During 1994, the Company acquired and
canceled 65 shares of common stock from a former stockholder for $750,000.
At the date of the purchase $269,123 were paid and the rest was financed
through a $480,877 noninterest bearing note payable in monthly installments
of $8,333 through April 1997. Unpaid balances as of June 30, 1996 and 1995
are $71,010 and $179,284, respectively.
As stated in note 1, on or about July 19, 1996 all the aforementioned
outstanding long-term debt, notes payable to banks and notes payable to
former stockholders amounting to $4,983,535 at June 30, 1996 were assumed
and paid in full by the Company's stockholders.
F-12
(6) RELATED PARTY TRANSACTIONS
The Company leases certain of its production and office facilities in
premises owned by a related party under a ten (10) year operating lease
agreement expiring in April 2005. The annual minimum lease expense is
approximately $62,000.
(7) INCOME TAX AND TAX EXEMPTIONS
Pursuant to the 1987 Puerto Rico Tax Incentives Act, Garrido Alto Grande
Corp. (GAGC) has been granted partial tax exemption from the Commonwealth
of Puerto Rico income, property and municipal taxes with respect to a
portion of its operations up to year 2011.
During 1996, the Company and Garrido Alto Grande Corp. have been granted
partial tax exemption under Law No. 225, AGRICULTURAL TAX INCENTIVES ACT OF
1995, of the Commonwealth of Puerto Rico. Under subject law, the companies
are 100% exempt from property and municipal taxes, effective for part of
the year ended June 30, 1996. Furthermore, effective for taxable year
ending June 30, 1997, the companies will be entitled to a 90% exemption on
income taxes related to their agricultural business income.
The dollar effect of the income tax saving related to the partial tax
exemption for the years ended June 30, 1996, 1995 and 1994 are $1,067,580,
$552,781 and $341,453, respectively. Per share amounts of such income tax
savings are $1,822 in 1996, $943 in 1995 and $534 in 1994.
As discussed in note 1, the Company adopted Statement No. 109 as of July 1,
1993. The cumulative effect of this change in accounting for income taxes
amounting to $103,074 was determined as of July 1, 1993 and is reported
separately in the consolidated statement of earnings for the year ended
June 30, 1994.
Income tax benefit/(expense) for the years ended June 30, 1996, 1995 and
1994 consists of:
1996 1995 1994
----------- ----------- -----------
Current $ (424,857) $ (336,077) $ (254,358)
Deferred 754,321 (134,260) (34,910)
----------- ----------- -----------
$ 329,464 $ (470,337) $ (289,268)
----------- ----------- -----------
----------- ----------- -----------
Deferred income tax expense for 1995 and 1994 is mainly related to the use
of flexible depreciation for income tax purposes and straight-line
depreciation for consolidated financial statement purposes, and the tax
effect for consolidated financial statements of current undistributed
earnings of subsidiaries as required by Statement No. 109. The 1996
deferred tax benefit arises from a reduction in the Company's effective tax
rate after considering the future tax effect of the 90% income tax
exemption under Law No. 225 referred to above and the reversal of prior
years deferred tax liability related to undistributed earnings, which will
not be paid due to the transactions described in note 1.
F-13
Income tax expense for the years ended June 30, 1996, 1995 and 1994 differs
from the amounts computed by applying the Company's Puerto Rico effective
income tax rate to pretax accounting income from operations as a result of
the following:
1996 1995 1994
---------- ---------- ----------
Provision computed on pretax
accounting income, net of the
GAGC tax exemption $ 236,686 $ 236,942 $ 116,469
Add/(deduct) tax effect on the
following items:
Nondeductible expenses 44,064 17,140 14,475
Excess of depreciation per
financial statements over
depreciation for tax purposes 179,406 77,696 121,472
Tax-exempt interest income
and others (35,299) 4,299 1,942
---------- ---------- ----------
Puerto Rico income tax
current $ 424,857 $ 336,077 $ 254,358
---------- ---------- ----------
---------- ---------- ----------
Deferred income tax expense/
(benefit) is composed as follows:
Reversal of temporary difference
related to flexible depreciation
and the effect of income
tax exemption under Law No. 225 $ (336,170) $ (77,696) $ (121,472)
Unamortized discounts and
others (21,855) (23,406) (4,552)
Undistributed earnings of
wholly-owned subsidiary (396,296) 235,362 160,934
---------- ---------- ----------
Puerto Rico deferred income tax
expense/(benefit) $ (754,321) $ 134,260 $ 34,910
---------- ---------- ----------
---------- ---------- ----------
The tax effect of temporary differences that give rise to significant
portions of deferred income tax liabilities at June 30, 1996 and 1995 are
presented below:
1996 1995
--------- ----------
Flexible depreciation for tax
purposes $ 32,181 $ 368,351
Unamortized discount on notes
payable to stockholders 2,096 23,951
Undistributed earnings of wholly-
owned subsidiary - 396,296
--------- ----------
$ 34,277 $ 788,598
--------- ----------
--------- ----------
As of June 30, 1996, the Company is being audited by the Treasury
Department of the Commonwealth of Puerto Rico for the year 1993.
Management believes that no significant deficiencies will result from this
audit. However, as per the terms of the purchase agreement related to the
acquisition as stated in note 1, any deficiencies will be assumed and paid
by the Company's stockholders.
F-14
As of June 30, 1996, the Company has a net operating loss (NOL) of $94,019
related to the 1996 operations of Guest Choice, Inc., available to offset
future taxable income, if any, related to the Guest Choice operations. No
deferred tax asset is recognized due to the fact that the realization of
the NOL is uncertain.
(8) COMMITMENTS AND CONTINGENCIES
The Company leases certain building facilities for the operations of coffee
break services under a noncancellable operating lease, expiring in April
1998. Rent expense under such lease agreement for the year ended June 30,
1996 was approximately $43,000 and for 1995 and 1994 was approximately
$41,000. The future minimum lease payments under this noncancellable
operating lease amounted to approximately $78,833.
The Company is involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial position, results of
operations or liquidity.
(9) SUPPLEMENTAL INFORMATION ON CASH FLOWS
During the years ended June 30, 1996, 1995 and 1994, the Company made the
following cash payments and noncash transactions:
1996 1995 1994
--------- --------- ---------
Interest payments $ 316,712 $ 329,919 $ 417,190
--------- --------- ---------
--------- --------- ---------
Income tax payments $ 264,881 334,704 125,194
--------- --------- ---------
--------- --------- ---------
Acquisition and cancellation of 65
shares of common stock financed
through the issuance of a notes
payable (note 5) $ - $ - $ 480,877
--------- --------- ---------
--------- --------- ---------
F-15
SUIZA FOODS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
HISTORICAL
--------------------
THE PRO FORMA
COMPANY GARRIDO ADJUSTMENTS PRO FORMA
Net sales $ 430,466 $26,226 $ - $ 456,692
Costs of sales 312,633 17,242 (84)(a) 329,791
--------- ------- ---------
Gross profit 117,833 8,984 126,901
Operating expenses:
Selling and distribution 64,289 2,506 (15)(a) 66,780
General and administrative 19,277 2,041 (13)(a) 21,305
Amortization of intangibles 3,703 - 499 (b) 4,202
---------- ------- --------
Total operating expenses 87,269 4,547 92,287
---------- ------- --------
Operating income 30,564 4,437 34,614
Other (income) expense
Interest expense 19,921 349 2,083 (c) 22,353
Merger and other costs 10,238 10,238
Other expense (469) (110) (579)
--------- ------- ---------
Total other (income)
expense 29,690 239 32,012
--------- ------- ---------
Income (loss) before income
taxes 874 4,198 2,602
Income taxes 2,450 589 16 (d) 3,055
--------- ------- ---------
Income (loss) from continuing
operations $ (1,576) $ 3,609 $ (453)
--------- ------- ---------
--------- ------- ---------
Income (loss) per share from
continuing operations $ (0.26) $ (0.07)
--------- ---------
--------- ---------
Weighted average shares
outstanding 6,109,398 6,109,398
--------- ---------
--------- ---------
(a) Excess of historical depreciation expense over the depreciation
of the fair value of property and equipment acquired, as follows:
Cost of sales $ (84)
Selling and distribution (15)
General and administration (13)
------
$ (112)
------
------
(b) Amortization of goodwill over 40 years.
(c) Pro forma interest expense on the average outstanding balance of new
borrowings used to fund the acquisition at an assumed annual interest
rate of 7.25%, net of the reduction of historical interest expense
related to the historical debt repaid.
(d) Estimated pro forma adjustment to reflect income taxes at the
Company's estimated effective tax rate for this operation of 35%.
F-16
SUIZA FOODS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
HISTORICAL
---------------------
THE PRO FORMA
COMPANY GARRIDO ADJUSTMENTS PRO FORMA
Net sales $ 225,307 $13,228 $ - $ 238,535
Costs of sales 165,917 8,982 (42)(a) 174,857
--------- ------- ---------
Gross profit 59,390 4,246 63,678
Operating expenses:
Selling and distribution 32,682 1,428 (8)(a) 34,102
General and administrative 9,805 1,163 (6)(a) 10,962
Amortization of intangibles 1,960 - 250 (b) 2,210
--------- ------- ---------
Total operating expenses 44,447 2,591 47,274
--------- ------- ---------
Operating income 14,943 1,655 16,404
Other (income) expense
Interest expense 8,488 131 979 (c) 9,598
Merger and other costs -
Other expense (252) (237) (489)
--------- ------- ---------
Total other (income)
expense 8,236 (106) 9,109
--------- ------- ---------
Income before income taxes 6,707 1,761 7,295
Income taxes 1,771 (478) 684 (d) 1,977
--------- ------- ---------
Income from continuing
operations $ 4,936 $ 2,239 $ 5,318
--------- ------- ---------
--------- ------- ---------
Income per share from
continuing operations $ 0.58 $ 0.63
--------- ---------
--------- ---------
Weighted average shares
outstanding 8,455,332 8,455,332
--------- ---------
--------- ---------
(a) Excess of historical depreciation expense over the depreciation
of the fair value of property and equipment acquired, as follows:
Cost of sales $(42)
Selling and distribution (8)
General and administration (6)
----
$(56)
----
----
(b) Amortization of goodwill over 40 years.
(c) Pro forma interest expense on the average outstanding balance of new
borrowings used to fund the acquisition at an assumed annual interest
rate of 7.25%, net of the reduction of historical interest expense
related to the historical debt repaid.
(d) Estimated pro forma adjustment to reflect income taxes at the
Company's estimated effective tax rate for this operation of 35%.
F-17
SUIZA FOODS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
(IN THOUSANDS)
HISTORICAL
------------------
THE PRO FORMA
COMPANY GARRIDO ADJUSTMENTS PRO FORMA
CURRENT ASSETS:
Cash and cash equivalents $ 1,179 $10,737 $ (600)(a) $ 11,316
Accounts receivable, net 33,670 2,351 36,021
Inventories 12,245 1,894 14,139
Prepaid expenses and other
current assets 1,644 29 1,673
Deferred income taxes 1,587 - 1,587
-------- ------- --------
Total current assets 50,325 15,011 64,736
PROPERTY AND EQUIPMENT 95,955 1,528 861 (b) 98,344
INTANGIBLE AND OTHER ASSETS 91,693 132 19,830 (b) 111,655
-------- ------- --------
TOTAL ASSETS $237,973 $16,671 $274,735
-------- ------- --------
-------- ------- --------
CURRENT LIABILITIES
Accounts payable and
accrued expenses $ 29,998 $ 1,083 $ - $ 31,081
Income taxes payable 1,023 265 1,288
Current portion of
long-term debt 9,556 3,015 (2,015)(a) 10,556
-------- ------- --------
Total current liabilities 40,577 4,363 42,925
LONG TERM DEBT 134,334 1,968 32,388 (a) 168,690
DEFERRED INCOME TAXES 2,273 34 24 (b) 2,331
STOCKHOLDERS' EQUITY
Common stock 101 59 (59)(b) 101
Additional paid-in capital 79,593 79,593
Retained earnings (deficit) (18,905) 10,247 (10,247)(b) (18,905)
-------- ------- --------
Total stockholders' equity 60,789 10,306 60,789
-------- ------- --------
TOTAL LIABILITIES AND EQUITY $237,973 $16,671 $274,735
-------- ------- --------
-------- ------- --------
(a) On July 19, 1996, the Company completed the acquisition of all the
outstanding common stock of Garrido for a total purchase price of
approximately $31.0 million, including expenses and acquired cash,
net of debt repaid, as follows (in thousands):
Cash $ 600
Credit agreement borrowings
Current portion 1,000
Long-term portion 34,356
Repayment of existing indebtedness
Current portion (3,015)
Long-term portion (1,968)
-------
$30,973
-------
-------
(b) The above purchase resulted in an excess of the purchase price over
the historical net assets acquired which was allocated to the net
assets acquired as follows:
Total purchase price $30,973
Historical carrying value of net
assets acquired 10,306
-------
Excess of purchase price over
historical carrying value $20,667
-------
-------
Allocation of excess purchase price:
Excess fair value of property and
equipment $ 861
Intangible assets, primarily goodwill 19,830
Deferred tax liabilities (24)
-------
$20,667
-------
-------
F-18
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
23.1 Consent of Independent Auditors