SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
August 22, 1997 (July 1, 1997)
Suiza Foods Corporation
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 340-28130 75-2559681
- ---------------------------- ------------------------ -------------------
(STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (IRS EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
3811 Turtle Creek Blvd., Suite 1300
Dallas, Texas 75219
----------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code:
(214) 528-0939
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
THE GARELICK COMPANIES
Report of Independent Auditors-Coopers & Lybrand L.L.P. F-7
Combined Balance Sheets F-8
Combined Statements of Income and Retained Earnings F-9
Combined Statements of Cash Flows F-10
Notes to Combined Financial Statements F-11
DAIRY FRESH L.P.
Report of Independent Auditor-McGladrey & Pullen, LLP F-23
Balance Sheets F-24
Statements of Income F-25
Statements of Partners' Equity F-26
Statements of Cash Flows F-27
Notes to Financial Statements F-28
(b) PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements are
filed with this report:
Unaudited Pro Forma Consolidated Statements of Earnings:
Year Ended December 31, 1996 F-1
Six Months Ended June 30, 1997 F-3
Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 1997 F-5
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 for the year ended December 31, 1996 represent income from
continuing operations for such period and give effect to the acquisitions of
Garrido & Compania, Inc. ("Garrido"), which was acquired on July 19, 1996, Swiss
Dairy, a Corporation ("Swiss Dairy"), which was acquired on September 9, 1996
and Model Dairy, Inc. ("Model Dairy"), which was acquired on December 16, 1996
(Garrido, Swiss Dairy and Model Dairy collectively, the "1996 Acquisitions"),
Dairy Fresh L.P. ("Dairy Fresh"), which was acquired on July 1, 1997 and The
Garelick Companies ("Garelick"), which were acquired on July 31, 1997 (Dairy
Fresh and Garelick collectively, the "1997 Acquisitions"), and the related
borrowings to fund these acquisitions as if each such transaction had been
consummated as of January 1, 1996. The pro forma statement of earnings data
for the six months ended June 30, 1997 represent income from continuing
operations for such period and give effect to the 1997 Acquisitions and the
related borrowings to fund these acquisitions as if each such transaction had
been consummated as of January 1, 1996. The pro forma consolidated balance
sheet data give effect to the 1997 Acquisitions and the related borrowings to
fund these acquisitions as if each such transaction had been consummated as of
June 30, 1997. 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
2
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 financial statements of the Company, Garrido, Swiss Dairy, Model
Dairy, Dairy Fresh and Garelick, and the related notes thereto.
(c) EXHIBITS
2.1 Asset Purchase Agreement, dated as of June 11, 1997, by and among
DF Acquisition Corp., a Delaware corporation, Dairy Fresh L.P., a
Delaware limited partnership, and Suiza Foods Corporation, a
Delaware corporation (filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K dated July 14, 1997 and incorporated
herein by reference).
2.2 Stock Purchase Agreement dated June 20, 1997 among Suiza Foods
Corporation, Peter M. Bernon, Alan J. Bernon and the other
stockholders named therein and The Garelick Companies (filed as
Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997 and incorporated herein by
reference).
2.3 Amendment No. 1 to Stock Purchase Agreement dated July 30, 1997
among Suiza Foods Corporation, Peter M. Bernon, Alan J. Bernon
and the other stockholders named therein and the Garelick
Companies (filed as Exhibit 10.8 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997 and
incorporated herein by reference).
2.4 Stockholders Agreement dated July 31, 1997 among Suiza Foods
Corporation, Franklin Plastics, Peter M. Bernon and Alan J.
Bernon (filed as Exhibit 10.9 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997 and incorporated
herein by reference).
23.1 Consent of McGladrey & Pullen, LLP.
23.2 Consent of Coopers & Lybrand L.L.P.
99.1 Press Release issued by the Company at 7:36 a.m. EDT on June 23,
1997 (filed as Exhibit 99.1 to the Company's Current Report on
Form 8-K dated July 14, 1997 and incorporated herein by
reference).
99.2 Press Release issued by the Company at 7:50 a.m. EDT on June 23,
1997 (filed as Exhibit 99.2 to the Company's Current Report on
Form 8-K dated July 14, 1997 and incorporated herein by
reference).
3
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1996
(In Thousands, Except Share Data)
- ------------------------------------------------------------------------------------------------------------
Historical
-------------------------------------
The 1996 1997 Pro Forma
Company Acquisitions Acquisitions Adjustments Pro Forma
(a) (b)
Net sales $520,916 $141,258 $479,269 $ - $1,141,443
Cost of Sales 388,548 117,529 385,962 (2,624)(c)(d) 889,415
-------- -------- -------- ----------
Gross profit 132,368 23,729 93,307 252,028
Operating expenses:
Selling and distribution 70,709 10,779 39,138 (1,676)(c)(d) 118,950
General and administrative 21,913 6,098 12,451 (4,937)(c)(d) 35,525
Amortization of intangibles 4,624 10 2,207 6,968 (e) 13,809
-------- -------- -------- ----------
Total operating expenses 97,246 16,887 53,796 168,284
-------- -------- -------- ----------
Operating income 35,122 6,842 39,511 83,744
Other (income) expense:
Interest expense 17,470 144 4,164 31,346 (f) 53,124
Merger and other costs 571 571
Other expense (4,012) (531) 144 (4,399)
-------- -------- -------- ----------
Total other (income)
expense 14,029 (387) 4,308 49,296
-------- -------- -------- ----------
Income before income taxes 21,093 7,229 35,203 34,448
Income taxes (6,836) (421) 1,101 3,995 (g) (2,161)
-------- -------- -------- ----------
Income from continuing operations $ 27,929 $ 7,650 $ 34,102 $ 36,609
-------- -------- -------- ----------
-------- -------- -------- ----------
Earnings per share from
continuing operations $ 2.81 $ 3.58
-------- ----------
-------- ----------
Weighted average shares
outstanding 9,921,822 10,219,222
--------- ----------
--------- ----------
(a) 1996 Acquisitions include the pre-acquisition results of operations
during 1996 of Garrido, Swiss Dairy and Model Dairy, the audited financial
statements of which have been previously filed.
(b) 1997 Acquisitions include the result of operations of Dairy Fresh for
the year ended December 31, 1996, and the results of operations of
Garelick for its most recent fiscal year ended September 30, 1997.
F-1
(c) Excess of historical depreciation expense over the depreciation of
the fair value of property and equipment acquired, as follows:
1996 1997
Acquisitions Acquisitions Total
Cost of sales $(375) $(1,732) $(2,107)
Selling and distribution (315) (393) (708)
General and administration (52) (69) (121)
----- ------- -------
$(742) $(2,194) $(2,936)
----- ------- -------
----- ------- -------
(d) Elimination of salaries and benefits paid primarily to former
shareholders of the acquired businesses whose employment was either
terminated or salaries were reduced as part of the purchase agreement,
along with the elimination of certain related party expenses of the
acquired businesses, pursuant to agreements with such related parties at
acquisition date, resulting in a reduction of historical costs of sales,
selling and distribution, and general administrative costs.
1996 1997
Acquisitions Acquisitions Total
Cost of sales $ (517) $ - $ (517)
Selling and distribution (968) - (968)
General and administration (1,065) (3,751) (4,816)
------- ------- -------
$(2,550) $(3,751) $(6,301)
------- ------- -------
------- ------- -------
(e) Amortization of goodwill and other intangibles in excess of historical
amounts.
1996 1997
Life Acquisitions Acquisitions Total
Organization costs 5 $ 12 $ 10 $ 22
Trade name 25 110 400 510
Customer list 10 367 367
Goodwill 40 1,081 4,988 6,069
------ ------ ------
$1,570 $5,398 $6,968
------ ------ ------
------ ------ ------
(f) Pro forma interest expense on the average outstanding balance of new
borrowings used to fund the acquisitions at an assumed interest rate of
7.75%, net of the reduction of historical interest expense related to the
historical debt repaid.
1996 Acquisitions $ 5,239
1997 Acquisitions 26,107
-------
Total $31,346
-------
-------
(g) Estimated pro forma income tax adjustment to reflect income taxes at
the estimated effective tax rate of 4% for Garrido, 35% for Model Dairy
and 40% for Swiss Dairy, Dairy Fresh and Garelick.
1996 Acquisitions $1,651
1997 Acquisitions 2,344
------
Total $3,995
------
------
F-2
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
- -------------------------------------------------------------------------------
HISTORICAL
------------------------
THE 1997 PRO FORMA
COMPANY ACQUISITIONS ADJUSTMENTS PRO FORMA
(a)
Net sales $ 336,819 $246,977 $ - $ 583,796
Costs of sales 252,047 192,812 (1,995) (b) 442,864
---------- -------- ----------
Gross profit 84,772 54,165 140,932
Operating expenses:
Selling and distribution 42,244 22,073 (473) (b) 63,844
General and administrative 16,397 5,674 (1,243) (b)(c) 20,828
Amortization of intangibles 2,982 1,251 2,623 (d) 6,856
---------- -------- ----------
Total operating expenses 61,623 28,998 91,528
---------- -------- ----------
Operating income 23,149 25,167 49,404
Other (income) expense:
Interest expense 6,580 3,410 10,988 (e) 20,978
Merger and other costs
Other expense (18,575) (18) (18,593)
---------- -------- ----------
Total other (income)
expense (11,995) 3,392 2,385
---------- -------- ----------
Income before income taxes 35,144 21,775 47,019
Income taxes 10,745 715 3,735 (f) 15,195
---------- -------- ----------
Income from continuing
operations $ 24,399 $ 21,060 $ 31,824
---------- -------- ----------
---------- -------- ----------
Earnings per share from
continuing operations $ 1.57 $ 2.01
---------- ----------
---------- ----------
Weighted average shares
Outstanding 15,509,388 15,806,788
---------- ----------
---------- ----------
(a) 1997 Acquisitions included the results of operations of Dairy Fresh
and Garelick for the six months ended June 30, 1997.
F-3
(b) Excess of historical depreciation expense over the depreciation of
the fair value of property and equipment acquired, as follows:
Cost of sales $ (1,995)
Selling and distribution (473)
General and administration (71)
---------
$ (2,539)
---------
---------
(c) Elimination of salaries and benefits paid primarily to former
shareholders of the acquired businesses whose employment was either
terminated or salaries were reduced as part of the purchase agreement,
along with the elimination of certain related party expenses of the
acquired businesses, pursuant to agreements with such related parties at
acquisition date, resulting in a reduction of historical general
administrative costs of $1,172.
(d) Amortization of goodwill and other intangibles in excess of historical
amounts.
Life
Organization costs 5 $ 5
Trade name 25 200
Goodwill 40 2,418
--------
$ 2,623
--------
--------
(e) Pro forma interest expense to reflect additional interest expense of
$10,988 on the average outstanding balance of new borrowings used to fund
the acquisitions at an assumed interest rate of 7.75%, net of the
reduction of historical interest expense related to the historical debt
repaid.
(f) Estimated pro forma income tax adjustment to reflect increased income
taxes of $3,735 at the estimated effective tax rate of 40% for Dairy Fresh
and Garelick.
F-4
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------
HISTORICAL
----------------------
THE 1997 PRO FORMA
COMPANY ACQUISITIONS ADJUSTMENTS PRO FORMA
(a)
Current assets:
Cash $ 7,130 $ 291 $ (68)(c) $ 7,353
Accounts receivable 50,784 32,948 83,732
Inventories 21,536 6,882 28,418
Prepaid expenses and other current assets 3,369 2,299 (75)(c) 5,593
Deferred income taxes 3,796 3,796
-------- -------- --------
Total current assets 86,615 42,420 128,892
Property and equipment 136,281 85,199 26,862 (c) 248,342
Deferred income taxes 8,319 8,319
Intangible and other assets 171,091 42,219 259,137 (c) 472,447
-------- -------- --------
Total assets $402,306 $169,838 $858,000
-------- -------- --------
-------- -------- --------
Current liabilities:
Accounts payable and accrued expenses $ 42,118 $ 40,122 $ (380)(b) $ 81,860
Income taxes payable 1,154 1,154
Current portion of long-term debt 17,323 57,762 (57,762)(b) 17,323
-------- -------- --------
Total current liabilities 60,595 97,884 100,337
Long-term debt 128,150 32,436 373,516 (b) 534,102
Deferred income taxes 4,928 4,928
Stockholders' equity:
Common stock 153 3 (b) 156
Additional paid-in capital 183,263 9,997 (b) 193,260
Retained 25,217 25,217
Equity of acquired businesses 39,518 (39,518)(c) -
-------- -------- --------
Total stockholders' equity 208,633 39,518 218,633
-------- -------- --------
Total liabilities and stockholders' equity $402,306 $169,838 $858,000
-------- -------- --------
-------- -------- --------
F-5
(a) 1997 Acquisitions include the financial positions of Dairy Fresh and
Garelick as of June 30, 1997.
b) On July 1, 1997, the Company completed the acquisition of substantially
all the net assets of Dairy Fresh and, on July 31, 1997, the acquisition
of all of the outstanding common stock of Garelick. The purchase prices
for these acquisitions were approximately $104.5 million and $306.6
million, respectively, including acquired cash and exluding expenses of
$1.8 million and $3.0 million, respectively, which were used to acquired
Dairy Fresh and Garelick and to repay their existing debt. The total
purchase prices were funded primarily with borrowings under the Company's
Senior Credit Facility and the issuance of 297,400 shares of the Company's
common stock, with a value of $10.0 million, to Garelick shareholders, as
follows:
Credit agreement borrowings $405,952
Issuance of common stock 10,000
--------
Total purchase prices 415,952
Repayment of existing indebtedness:
Accrued interest (380)
Current portion of long-term debt (57,762)
Long-term debt (32,436)
--------
Net purchase prices $325,374
--------
--------
(c) The above acquisitions resulted in an excess of the purchase prices over
the historical carrying values of net assets acquired, which were allocated
to the net assets acquired, as follows:
Net purchase prices $325,374
Historical carrying value of net assets:
Total net assets 39,518
Less net assets not assumed:
Cash (68)
Prepaid expenses (75)
Intangible and other assets (38,693)
--------
Historical carrying values of net assets acquired 682
--------
Excess of net purchase prices over historical carrying
values $324,692
--------
--------
Allocation of excess purchase price:
Excess fair value of property and equipment $ 26,862
Intangible assets 297,830
--------
$324,692
--------
--------
F-6
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
The Garelick Companies:
We have audited the accompanying combined balance sheets of The Garelick
Companies (see note 1) as of September 30, 1996 and 1995 and the related
combined statements of income and retained earnings and cash flows for each
of the three years in the period ended September 30, 1996. These statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 combined financial statements referred to above
present fairly, in all material respects, the financial position of The
Garelick Companies as of September 30, 1996 and 1995 and the results of its
operations and its cash flows for each of the three years in the period
ended September 30, 1996 in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
July 31, 1997
F-7
THE GARELICK COMPANIES
COMBINED BALANCE SHEETS
September 30,
-------------------------- June 30,
1995 1996 1997
---- ---- ----
(Unaudited)
ASSETS
Current Assets:
Cash $ 1,037,378 $ 1,174,333 $ 375,857
Accounts receivable, net 22,903,413 28,003,343 29,098,360
Inventories 4,514,509 5,456,192 5,001,547
Other current assets 678,760 653,364 2,080,265
----------- ------------ ------------
Total current assets 29,134,060 35,287,232 36,556,029
Property, plant and equipment, net 38,649,069 63,354,803 76,570,352
Intangible assets, net 1,962,414 1,446,568 1,001,497
Federal tax deposit 2,340,848 3,271,133 3,413,110
Other assets 350,000 350,000 350,000
----------- ------------ ------------
Total assets $72,436,391 $103,709,736 $117,890,988
----------- ------------ ------------
----------- ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $15,360,583 $ 41,632,120 $ 50,807,797
Accounts payable 24,754,392 30,111,820 27,801,931
Accrued expenses 6,031,256 7,718,694 10,682,039
Due stockholders --- 1,800,000 ---
Capital lease obligations 955,299 47,923 ---
----------- ------------ ------------
Total current liabilities 47,101,530 81,310,557 89,291,767
Notes payable - long term 8,128,569 --- ---
Capital lease obligations - long term 231,286 --- ---
----------- ------------ ------------
Total liabilities 55,461,385 81,310,557 89,291,767
Commitments --- --- ---
Stockholders' equity
Common stock 1,683,118 1,767,118 1,746,118
Additional paid-in-capital 2,206,860 2,206,860 1,856,860
Retained earnings 24,565,028 29,905,201 36,476,243
----------- ------------ ------------
28,455,006 33,879,179 40,079,221
Less cost of treasury stock (11,480,000) (11,480,000) (11,480,000)
----------- ------------ ------------
Total stockholders' equity 16,975,006 22,399,179 28,599,221
----------- ------------ ------------
Total liabilities and
stockholders' equity $72,436,391 $103,709,736 $117,890,988
----------- ------------ ------------
----------- ------------ ------------
The accompanying notes are an integral part
of the combined financial statements.
F-8
THE GARELICK COMPANIES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
years ended September 30, nine months ended June 30,
--------------------------------------------- -----------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(Unaudited)
Net sales $290,882,509 $331,888,720 $362,229,305 $266,204,788 $289,832,400
Cost of sales 234,924,276 268,559,379 289,414,731 209,915,835 234,055,970
------------ ------------ ------------ ------------ ------------
Gross profit 55,958,233 63,329,341 72,814,574 56,288,953 55,776,430
Operating expenses:
Selling and distribution 27,526,816 32,341,599 36,920,198 30,716,298 33,012,812
General and administrative 11,743,741 10,271,673 10,234,158 7,046,102 6,572,245
Amortization of intangibles 941,103 887,142 717,916 535,333 559,804
------------ ------------ ------------ ------------ ------------
Income from operations 15,746,573 19,828,927 24,942,302 17,991,220 15,631,569
Other expense (income):
Interest 551,037 1,417,005 1,873,147 1,407,717 2,240,155
Other (90,560) (401,772) 117,835 1,075 (832,988)
------------ ------------ ------------ ------------ ------------
Income before provision
for state income taxes 15,286,096 18,813,694 22,951,320 16,582,428 14,224,402
Provision for state income taxes 633,677 988,254 1,101,147 926,010 743,370
------------ ------------ ------------ ------------ ------------
Net income 14,652,419 17,825,440 21,850,173 15,656,418 13,481,032
Retained earnings,
Beginning of year 30,477,169 23,309,588 24,565,028 24,565,028 29,905,201
Stockholder distributions (21,820,000) (16,570,000) (16,510,000) (7,730,000) (6,909,990)
------------ ------------ ------------ ------------ ------------
Retained earnings, end of year $ 23,309,588 $ 24,565,028 $ 29,905,201 $ 32,491,446 $ 36,476,243
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
The accompanying notes are an integral part of the combined financial statements
F-9
THE GARELICK COMPANIES
COMBINED STATEMENT OF CASH FLOWS
years ended September 30, nine months ended June 30,
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(Unaudited)
Cash flows from operating activities:
Net income $ 14,652,419 $ 17,825,440 $ 21,850,173 $ 15,656,418 $ 13,481,032
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization
of property, plant and equipment 8,066,098 7,867,606 9,833,517 6,828,678 8,765,200
Amortization of intangible assets 941,103 887,142 717,916 535,333 559,804
Loss (gain) on sale of equipment (164,251) (392,607) 81,910 1,075 (832,988)
Changes in operating assets and liabilities:
Accounts receivable (3,443,739) (2,287,256) (5,099,930) (1,407,682) (1,095,017)
Inventories (616,048) (775,132) (941,683) (213,673) 454,645
Other current assets 742,395 (11,363) 25,396 (1,681,676) (1,426,901)
Federal tax deposit (446,485) (41,511) (930,285) (115,281) (141,977)
Other assets 50,583 499,417 --- --- ---
Accounts payable 3,286,137 2,358,879 5,357,428 5,061,284 (2,309,889)
Accrued expenses 4,909,407 (4,651,075) 1,687,438 (155,415) 2,963,345
------------ ------------ ------------ ------------ ------------
Net cash provided by operating activities 27,977,619 21,279,540 32,581,880 24,509,061 20,417,254
------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
Additions to property and equipment (17,639,648) (20,360,429) (34,923,854) (27,662,397) (22,075,936)
Acquisition of business (3,152,712) --- --- --- ---
Additions to intangible assets (114,866) (117,442) (202,070) (136,660) (114,733)
Proceeds from sale of equipment 12,467,294 7,235,734 302,693 52,323 928,175
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities (8,439,932) (13,242,137) (34,823,231) (27,746,734) (21,262,494)
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Net changes in notes payable 4,450,586 1,262,581 26,271,537 10,109,213 9,175,677
Net changes in notes payable-long term (814,285) 5,416,902 (8,128,569) 2,603,898 ---
Principal payments on capital leases (1,081,162) (972,658) (1,138,662) (1,016,696) (47,923)
Net capital contributions 1,132,000 1,140,000 84,000 --- (371,000)
Stockholder distributions (21,820,000) (16,570,000) (14,710,000) (7,730,000) (8,709,990)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities (18,132,861) (9,723,175) 2,378,306 3,966,415 46,764
------------ ------------ ------------ ------------ ------------
Increase (decrease) in cash 1,404,826 (1,685,772) 136,955 728,742 (798,476)
Cash at beginning of period 1,318,324 2,723,150 1,037,378 1,037,378 1,174,333
------------ ------------ ------------ ------------ ------------
Cash at end of period $ 2,723,150 $ 1,037,378 $ 1,174,333 $ 1,766,120 $ 375,857
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
The accompanying notes are an integral part of the combined financial statements
F-10
THE GARELICK COMPANIES
Notes to combined financial statements
__________
1. BASIS OF COMBINATION:
The Garelick Companies ("The Company") began operations as Garelick Farms,
Inc., incorporated under the laws of Massachusetts in 1973 as successor to a
company founded in 1931. The Company consists of twenty companies affiliated
through common control and family ownership. They are made up of three dairy
processing facilities, one spring water bottling plant and sixteen plastic
container manufacturing companies. The financial statements combine the
operations of Garelick Farms, Inc., Fairdale Farms, Inc. (acquired in 1990),
Grant's Dairy, Inc. (acquired in 1994), Miscoe Springs, Inc. (acquired in
1986), ("The Garelick Fluid Companies") and The Garelick Plastic Companies,
which commenced operations in various states over the past eight years as
follows:
Date
Organized
Company Name Location or Incorporated
- ------------ -------- ---------------
Marlborough Plastic, Inc. Massachusetts February 21, 1989
Maine Plastics, Inc. Maine March 22, 1989
Florida Plastics, Inc. Florida July 11, 1990
First Capital Plastics, Inc. Pennsylvania August 3, 1992
Sherman Plastics, Inc. Texas October 1, 1993
Chester County Container Corp Pennsylvania July 16, 1990*
New Jersey Plastics, Inc. New Jersey June 9, 1994*
Illinois Plastics, Inc. Illinois October 25, 1995
Allentown Plastics, Inc. Pennsylvania October 23, 1995
Kentwood Plastics, Inc. Louisiana February 28, 1995*
Franklin Plastics, Inc. Massachusetts January 17, 1992*
Richmond Container, Inc. Virginia October 1, 1994*
North Carolina Plastics, Inc. North Carolina May 31, 1996
Pennsylvania Plastics, Inc. Pennsylvania March 10, 1989**
Bunker Hill Plastics, Inc. Massachusetts April 15, 1992**
Plastics Management Group LC Massachusetts July 1, 1996
* Operations of Chester County Container Corp., New Jersey Plastics, Inc.,
Kentwood Plastics, Inc., Franklin Plastics, Inc. and Richmond Container, Inc.
commenced on July 18, 1994, October 15, 1994, March 1, 1996, May 15, 1996 and
August 15, 1996, respectively.
** Pennsylvania Plastics, Inc. and Bunker Hill Plastics, Inc. ceased operations
during June 1996 and 1995, respectively and were liquidated in fiscal 1997.
Continued
F-11
THE GARELICK COMPANIES
Notes to combined financial statements
__________
Grant's Dairy, Inc. was acquired on April 30, 1994 for $3,152,712 in cash and
incurred liabilities of $429,781. The acquisition was accounted for using
the purchase method. Accordingly, the purchase price was allocated to assets
acquired based on their fair market values. The excess of the purchase price
over the net assets acquired of $1,521,800 was allocated to identifiable
intangibles which are being amortized over three to five years.
The balance sheets are combined as of September 30, 1995 and 1996 except for
Garelick Farms, Inc. which is included as of June 30, 1995 and 1996.
Garelick Farms, Inc. indebtedness increased by approximately $1,302,000 by
September 30, 1996, which is excluded from the combined balance sheet and
cash flows. The combined statements of income and retained earnings and the
combined statement of cash flows include the years ended September 30, 1994,
1995 and 1996 except for Garelick Farms, Inc. which is included for the years
ended June 30, 1994, 1995 and 1996 and for the nine month periods ended March
31, 1996 and 1997. The effect on combined net revenues and net income of
reporting Garelick Farms, Inc. on a September 30 fiscal year end would be
immaterial for all periods presented, including the nine month periods ended
June 30, 1996 and 1997, and, accordingly, no adjustments have been made. The
combined results for the year ended September 30, 1994 include Grant's Dairy,
Inc. from May 1, 1994.
All material intercompany transactions and balances have been eliminated.
INTERIM FINANCIAL STATEMENTS
The combined balance sheet as of June 30, 1997, the combined statements of
income and retained earnings and cash flows for the nine month periods ended
June 30, 1996 and 1997 are unaudited, have been prepared on a basis
substantially consistent with the audited financial statements and, in the
opinion of management, include all adjustments (consisting of normal,
recurring adjustments) necessary for a fair presentation of results for these
interim periods. The combined results for the nine month periods ended June
30, 1996 and 1997 are not necessarily indicative of results to be expected
for the entire year.
2. NATURE OF BUSINESS:
The Garelick Companies operate in two segments. The Garelick Fluid Companies
are primarily engaged in the processing, packaging and distribution of milk
and milk products. In addition, they package and distribute certain juices
and spring water. The Garelick Plastic Companies are engaged in the
manufacture and delivery of plastic containers used primarily in the milk,
juice and water industries. The Garelick Fluid Companies also manufacture
plastic containers for their own use.
Continued
F-12
THE GARELICK COMPANIES
Notes to combined financial statements
__________
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH
The Company considers cash on hand and deposits in bank as cash for the purposes
of the statements of cash flow. Book overdrafts are recorded in accounts
payable.
INVENTORIES
Inventories, consisting primarily of processed and unprocessed dairy and
beverage products, related packaging materials and plastic resin, are stated at
the lower of cost (first-in, first-out) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is stated using
the straight-line and accelerated methods over the following estimated useful
lives:
Buildings and improvements 15 - 40 years
Machinery and equipment 5 - 7 years
Leased equipment 7 years
Vehicles 3 - 7 years
Office furniture and equipment 5 - 7 years
Bossey carts 5 - 7 years
Cases are expensed as they become unusable. Major improvements are capitalized
while maintenance and repairs are expensed as incurred. Upon retirement or
disposition, the cost of the assets and the related accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in
earnings.
INCOME TAXES
The companies have elected to be taxed as Subchapter S Corporations or as a
Limited Liability Company whereby all of its income or losses pass through to
its stockholders. Therefore, no provision for federal income taxes is included
in the combined financial statements.
REVENUE RECOGNITION
Revenue is recognized when products are shipped. Provisions are made for sales
discounts, volume allowances and cooperative advertising and are recognized in
the period incurred.
Continued
F-13
THE GARELICK COMPANIES
Notes to combined financial statements
__________
USE OF ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates and would affect financial
position, results of operations and cash flows.
CONCENTRATION OF CREDIT RISK
The Garelick Fluid Companies' sales and accounts receivable are primarily to
grocery retailers located in the Northeastern United States. Concentration of
credit risk with respect to accounts receivable is limited due to the large
number of customers and billing and payment patterns. The Garelick Plastics
Companies include facilities that are dependent on specific customers for a
substantial portion of their respective revenues. Concentration of credit risk
is limited due to contractual arrangements with customers and billing and
payment patterns.
LONG-LIVED ASSETS
In March, 1995, Statement of Financial Accounting Standards (SAS) No. 121
"Accounting for the Impairment of Long-Lived Assets to be Disposed Of" was
issued. SAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used or disposed of by an entity be reviewed for
impairment whenever events of changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company adopted this
statement and determined that no impairment loss need be recognized.
4. ACCOUNTS RECEIVABLE:
Accounts receivable consisted of the following at September 30:
1995 1996
----------- -----------
Trade customers $22,638,905 $28,131,638
Farmers 120,813 182,000
Officers and employees 181,655 78,151
----------- -----------
22,941,373 28,391,789
Less allowance for doubtful accounts 37,960 388,446
----------- -----------
$22,903,413 $28,003,343
----------- -----------
----------- -----------
Continued
F-14
THE GARELICK COMPANIES
Notes to combined financial statements
-------------
5. INVENTORIES:
Inventories consisted of the following at September 30:
1995 1996
---- ----
Pasteurized and raw milk and raw materials $2,916,162 $3,533,031
Finished goods 1,598,347 1,923,161
---------- ----------
$4,514,509 $5,456,192
---------- ----------
---------- ----------
6. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following at September 30:
1995 1996
---- ----
Land $ 606,139 $ 1,487,169
Buildings and improvements 24,548,180 28,280,506
Machinery and equipment 49,148,953 76,106,117
Leased equipment 5,798,302 1,662,368
Trucks and trailers 18,534,416 19,177,402
Office furniture and equipment 1,480,836 1,886,719
Cases and bossey carts 3,682,766 4,459,709
Deposits on equipment --- 821,628
------------ ------------
103,799,592 133,881,618
Less accumulated depreciation 65,150,523 70,526,815
------------ ------------
$ 38,649,069 $ 63,354,803
------------ ------------
------------ ------------
Depreciation and amortization expense amounted to $8,066,098, $7,867,606 and
$9,833,517 for the years ended September 30, 1994, 1995 and 1996,
respectively and $6,828,678 and $8,765,200 for the nine month periods ended
June 30, 1996 and 1997, respectively. Amortization expense for leased
equipment amounted to $807,084, $750,230 and $661,195 for the years ended
September 30, 1994, 1995 and 1996, respectively and $560,521 and $77,859 for
the nine month periods ended June 30, 1996 and 1997, respectively.
Deposits on equipment represent primarily initial payments for equipment for
additional capacity at existing facilities as well as for additional
facilities to be opened subsequent to September 30, 1996.
Continued
F-15
THE GARELICK COMPANIES
Notes to combined financial statements
-------------
In 1994 and 1995, the Company entered into sale-leaseback transactions in
which it sold certain blowmolding equipment to a financing company. These
transactions provided proceeds of $11,249,051 and $4,987,536 for the years
ended September 30, 1994 and 1995, respectively. The Company now leases back
this equipment under operating leases with monthly payments of approximately
$178,000. The terms of these leases are through January 2004.
Accumulated amortization on leased equipment amounted to $3,947,147,
$4,698,492 and $1,564,570 at September 30, 1994, 1995 and 1996, respectively.
7. INTANGIBLE ASSETS:
Intangible assets, which represent goodwill and plant start-up costs, are
recorded at the lower of cost or net realizable value and are amortized
straight line over their estimated useful lives of 3 to 15 years.
Amortization expense was $941,103, $887,142 and $717,916 for the years ended
September 30, 1994, 1995 and 1996, respectively and $535,333 and $559,804 for
the nine month periods ended June 30, 1996 and 1997, respectively.
8. NOTES PAYABLE:
Notes payable consisted of the following at September 30:
1995 1996
---- ----
Note payable, line of credit $13,894,154 $29,086,885
Note payable to bank, monthly payments of
$59,524 plus interest at 7.5%, due January 1999 2,559,522 1,845,238
Term loan, payable to bank, monthly payments
of $83,333 plus interest at 6.1%,
due February, 2001 --- 4,416,664
Term loan, payable to bank, monthly payments
of $16,667 plus interest at 6.93% through
September, 2000 1,983,333 1,783,333
Term note to bank, monthly payments of
$41,667 plus interest at 6.93 %,
due September, 2000 5,000,000 4,500,000
Promissory note to the former owner,
quarterly payments of $25,000, plus interest
at 7% through January 1996 52,143 ---
----------- -----------
23,489,152 41,632,120
Less current portion 15,360,583 41,632,120
----------- -----------
Long-term portion $ 8,128,569 $ ---
----------- -----------
----------- -----------
F-16
THE GARELICK COMPANIES
Notes to combined financial statements
-------------
At September 30, 1996, the Company had three separate loan and security
agreements with two banks. One agreement allowed for borrowings up to
$15,000,000, all of which was outstanding at September 30, 1996. This note
was payable upon demand with interest at the bank's prime rate less 3/4% (7.5%
at September 30, 1996). Another agreement allowed for borrowings of up to
$25,000,000, of which approximately $9,000,000 was reserved for standby
letters of credit and $10,948,000 was outstanding at the combination date in
1996. This note was payable upon demand with interest at the bank's prime
rate less 5/8% (7.625% at September 30, 1996). The third agreement allowed
for borrowings up to $10,000,000, of which $3,138,885 was outstanding at
September 30, 1996. Interest was at the bank's money market rate plus 3/4%
(6.25% at September 30, 1996). The line of credit and the note payable to the
bank are collateralized by all assets except certain property and equipment
and contain certain financial covenants, the most restrictive of which
required the Company to maintain a minimum tangible net worth and certain
financial ratios. In January and February 1997, all outstanding lines of
credit were consolidated into two loan and security agreements (one for
Fluids and one for Plastics) for $63,250,000. All debt was made current at
September 30, 1996 due to the change in control (see note 16).
At September 30, 1995, the Company, had two lines of credit with banks. One
line of credit allowed for borrowings of up to $28,850,000. The note was
payable upon demand with interest at the bank's prime rate less 5/8% (8.125%
at September 30, 1995). The other line of credit allowed for borrowings up to
$10,000,000 with interest at the bank's money market rate plus 3/4% (6.50% at
September 30, 1995).
The weighted average interest rate on short term borrowings was 6.14%, 7.37%
and 6.59% for the years ended September 30, 1994, 1995 and 1996, respectively.
F-17
THE GARELICK COMPANIES
Notes to combined financial statements
-------------
9. LEASE COMMITMENTS:
The Company leases certain equipment and facilities under operating leases
expiring through January 2005. Future minimum lease payments are as follows
for the periods ending September 30:
Amount
------
1997 $3,226,000
1998 3,125,000
1999 2,821,000
2000 2,821,000
2001 2,821,000
Rent expense was $2,677,194, $4,606,642 and $4,980,952 for the years ended
September 30, 1994, 1995 and 1996, respectively and $3,207,136 and $3,431,170
for the nine month periods ended June 30, 1996 and 1997, respectively.
10. RETIREMENT PLAN:
The Company sponsors a 401(k) Savings Plan (the "Plan") which covers all
eligible employees. Under the provisions of the Plan, the Company matches a
portion of the employee's contribution and also can make, at the discretion
of the Board of Directors, a voluntary contribution. Company contributions
vest 100% after five years of service for all of the Garelick Companies
except Grant's Dairy, Inc. These contributions vest at the rate of 20% per
year starting after three years of service. Company contributions amounted
to $590,918, $647,517 and $797,397 for the years ended September 30, 1994,
1995 and 1996, respectively and $594,174 and $734,934 for the nine month
periods ended June 30, 1996 and 1997, respectively.
11. RELATED PARTY TRANSACTIONS:
Prior to July 1, 1996, the Company paid fees to its stockholders for
management services performed on behalf of the Company. These payments
amounted to $1,325,000, $930,000 and $640,000 for the years ended September
30, 1994, 1995 and 1996, respectively and $410,000 and $270,000 for the nine
month periods ended June 30, 1996 and 1997, respectively.
The Company leases one of its manufacturing facilities from a trust. The
trustees include certain stockholders of the Company. The lease term expires
in February 2002, however the Company has options to extend the term through
2007. Rent paid to the trust amounted to $552,000 for each the years ended
September 30, 1994, 1995 and 1996 and $414,000 for each of the nine month
periods ended June 30, 1996 and 1997.
In September 1996, Fairdale Farms, Inc. acquired the land and building it
formerly leased from the prior owner of the business. In December 1996,
Fairdale Farms, Inc. sold this property to a trust. The trustees include
certain stockholders of the Company. In July 1997, the property was
repurchased from the trust due to the sale of the Company.
Continued
F-18
THE GARELICK COMPANIES
Notes to combined financial statements
-------------
12. COMMON STOCK:
Common stock for the Garelick Companies consisted of the following:
Additional
Shares Par Shares Common Paid-in
Entity Name Authorized Value Outstanding Stock Capital
- ----------- ----------- ----- ----------- ------- ----------
Opening balance:
Garelick Farms, Inc.:
Voting 10,000 10,000 $ 10,000
Non-Voting 83,718 83,718 83,718
-------- ------- ------------
93,718 $1 93,718 93,718 $ 658,860
Fairdale Farms, Inc. 100 none 100 500,000 ---
Miscoe Springs, Inc. 30,000 none 300 30,000 ---
Pennsylvania Plastics, Inc. 2,000 none 100 20,000 ---
Marlborough Plastics, Inc. 10,000 none 100 200 ---
Maine Plastics, Inc. 2,000 none 100 200 ---
Florida Plastics, Inc. 2,000 none 100 1,000 ---
Bunker Hill Plastics, Inc. 10,000 none 100 1,000 ---
First Capital Plastics, Inc. 2,000 none 120 12,000 300,000
Chester County Container Corp. 2,000 none 100 1,000 ---
Activity during 1994 due to
Capital contributions (distributions):
Grant's Dairy, Inc. 2,000 none 100 1,000,000 ---
Sherman Plastics, Inc. 2,000 none 120 12,000 420,000
First Capital Plastics, Inc. --- --- --- --- (300,000)
-------- ------- ------------ ----------
Balance, September 30, 1994 157,818 95,058 1,671,118 1,078,860
Activity during 1995 due to
Capital contributions (distributions):
Sherman Plastics, Inc. --- --- --- --- (420,000)
New Jersey Plastics, Inc. 2,000 none 120 12,000 948,000
Chester County Container Corp. --- --- --- --- 600,000
-------- ------- ------------ ----------
Balance, September 30, 1995 159,818 95,178 1,683,118 2,206,860
F-19
THE GARELICK COMPANIES
Notes to combined financial statements
-------------
Activity during 1996 due to
Capital contributions (distributions):
Illinois Plastics, Inc. 1,000 none 120 12,000 120,000
Allentown Plastics, Inc. 2,000 none 120 12,000 ---
Kentwood Plastics, Inc. 2,000 none 120 12,000 300,000
Franklin Plastics, Inc. 10,000 none 100 12,000 200,000
Plastics Management Group, LC --- n/a --- 12,000 ---
Richmond Container, Inc. 2,000 none 120 12,000 90,000
North Carolina Plastics, Inc. 1,000 none 120 12,000 90,000
Chester County Container Corp. --- --- --- --- (200,000)
New Jersey Plastics, Inc. --- --- --- --- (600,000)
-------- ------- ------------ ----------
Balance, September 30, 1996 177,818 95,878 1,767,118 2,206,860
Activity during 1997 due to
Capital contributions (distributions):
Chester County Container Corp. --- --- --- --- (150,000)
Franklin Plastics, Inc. --- --- --- --- (200,000)
Pennsylvania Plastics, Inc. (2,000) none (100) (20,000) ---
Bunker Hill Plastics, Inc. (10,000) none (100) (1,000)
-------- ------- ------------ ----------
Balance, June 30, 1997 165,818 95,678 $ 1,746,118 $1,856,860
-------- ------- ------------ ----------
-------- ------- ------------ ----------
Treasury Stock:
Garelick Farms, Inc.:
Voting 7,987
Non-Voting 60,325
-------
68,312 $11,400,000
Miscoe Springs, Inc. 100 80,000
------- ------------
Balance, September 30, 1994, 1995 and 1996 68,412 $11,480,000
------- ------------
------- ------------
13. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
nine months
years ended September 30, ended June 30,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
Interest $ 882,261 $1,889,445 $2,860,960 $1,861,308 $2,608,079
State income taxes 618,164 708,621 975,438 902,202 659,749
Continued
F-20
THE GARELICK COMPANIES
Notes to combined financial statements
----------
14. SEGMENT INFORMATION AND MAJOR CUSTOMERS:
Information about the Company's operations in the dairy and plastics segments
for the three years ended September 30, is as follows:
1994 1995 1996
---- ---- ----
Net sales to unaffiliated customers:
Fluids $247,944,655 $260,809,514 $278,013,511
Plastics 42,937,854 71,079,206 84,215,794
------------ ------------ -------------
Total $290,882,509 $331,888,720 $362,229,305
------------ ------------ -------------
------------ ------------ -------------
Operating income:
Fluids $ 11,388,145 $ 14,970,464 $ 15,357,028
Plastics 4,396,049 4,957,980 9,897,977
------------ ------------ -------------
Total $ 15,784,194 $ 19,928,444 $ 25,255,005
------------ ------------ -------------
------------ ------------ -------------
Identifiable assets (at end of period):
Fluids $ 53,081,575 $ 54,819,852 $ 57,456,198
Plastics 13,544,747 17,616,539 46,253,538
------------ ------------ -------------
Total $ 66,626,322 $ 72,436,391 $103,709,736
------------ ------------ -------------
------------ ------------ -------------
Capital expenditures:
Fluids $ 5,876,101 $ 12,207,880 $ 5,544,401
Plastics 11,763,547 8,152,549 29,379,453
------------ ------------ -------------
Total $ 17,639,648 $ 20,360,429 $ 34,923,854
------------ ------------ -------------
------------ ------------ -------------
Depreciation expense:
Fluids $ 5,801,169 $ 5,834,442 $ 5,768,961
Plastics 2,264,929 2,033,164 4,064,556
------------ ------------ -------------
Total $ 8,066,098 $ 7,867,606 $ 9,833,517
------------ ------------ -------------
------------ ------------ -------------
The Company has several significant customers. For the year ended September
30, 1996, one customer had sales of approximately 14% of the Company's total
sales and sales of approximately 12% and 11% of the Company's total sales for
the years ended September 30, 1995 and 1994, respectively.
Continued
F-21
THE GARELICK COMPANIES
Notes to combined financial statements
----------
15. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company believes that its borrowings under its loan and security
agreements are stated at fair value due to the variable interest rates which
reset periodically. The carrying amounts and fair values of fixed rate
borrowings under notes and term loans were as follows for the year to which
the disclosure requirement first applies:
as of September 30, 1996
------------------------
Carrying Amount Fair Value
--------------- ----------
Fixed rate borrowings $12,545,235 $12,273,105
16. SUBSEQUENT EVENT:
On June 23, 1997 the Company announced that it had signed a definitive
agreement to be acquired by Suiza Foods Corporation. The transaction was
completed on July 31, 1997. Due to the change in control, all borrowings
have been repaid.
F-22
INDEPENDENT AUDITOR'S REPORT
To the Partners
Dairy Fresh L.P.
Winston-Salem, North Carolina
We have audited the accompanying balance sheets of Dairy Fresh L.P. (a
limited partnership) as of December 31, 1996 and 1995, and the related
statements of income, partners' equity and cash flows for the years ended
December 31, 1996 and 1995, and the period from July 1, 1994 (date of
acquisition) to December 31, 1994. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dairy Fresh L.P. as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years ended December 31, 1996 and 1995, and the period from
July 1, 1994 (date of acquisition) to December 31, 1994, in conformity with
generally accepted accounting principles.
McGladrey & Pullen, LLP
Winston-Salem, North Carolina
March 10, 1997, except for Note 13
as to which the date is July 1, 1997
F-23
DAIRY FRESH L.P.
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
- -------------------------------------------------------------------------------
DECEMBER 31
------------------------- JUNE 30,
ASSETS 1995 1996 1997
(UNAUDITED)
CURRENT ASSETS:
Cash $ 532 $ 532 $ 68,112
Accounts receivable 4,349,850 3,862,274 5,131,269
Inventories 1,714,379 1,753,247 2,189,393
Prepaid expenses 115,707 120,040 75,100
----------- ----------- -----------
Total current assets 6,180,468 5,736,093 7,463,874
PROPERTY AND EQUIPMENT 10,083,028 9,610,013 9,197,059
INTANGIBLE ASSETS 32,045,748 38,666,072 37,691,450
----------- ----------- -----------
TOTAL $48,309,244 $54,012,178 $54,352,383
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,172,245 $ 4,824,231 $ 4,254,144
Accrued expenses 343,665 937,484 768,044
Current maturities of
long-term debt 5,000,000 6,250,000
----------- ----------- -----------
Total current liabilities 4,515,910 10,761,715 11,272,188
LONG-TERM DEBT 27,722,637 36,132,274 32,435,580
COMMITMENT AND CONTINGENCIES
PARTNERS' EQUITY 16,070,697 7,118,189 10,644,615
----------- ----------- -----------
TOTAL $48,309,244 $54,012,178 $54,352,383
----------- ----------- -----------
----------- ----------- -----------
See notes to financial statements.
F-24
DAIRY FRESH L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
- ------------------------------------------------------------------------------------------------------------------
PERIOD FROM
JULY 1, 1994
(DATE OF
ACQUISITION) TO
DECEMBER 31, YEARS ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
NET SALES $ 50,702,692 $101,761,863 $117,040,325 $ 56,370,017 $ 54,592,144
COST OF SALES 39,989,451 78,322,848 96,547,184 45,084,526 43,846,537
------------ ------------ ------------ ------------ ------------
Gross profit 10,713,241 23,439,015 20,493,141 11,285,491 10,745,607
OPERATING COSTS AND EXPENSES:
Selling and distribution 985,954 1,875,756 2,218,186 1,007,115 993,854
General and administrative 892,572 1,867,946 2,216,880 997,336 1,068,465
Amortization of intangibles 718,477 1,437,547 1,489,285 718,776 876,417
------------ ------------ ------------ ------------ ------------
Total operating costs
and expenses 2,597,003 5,181,249 5,924,351 2,723,227 2,938,736
------------ ------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 8,116,238 18,257,766 14,568,790 8,562,264 7,806,871
OTHER (INCOME) EXPENSE:
Interest expense, net, including
amortization of financing fees 1,607,740 2,867,525 2,291,115 1,084,704 1,829,563
Other (19,598) (34,560) 25,432 (53,144) (17,993)
------------ ------------ ------------ ------------ ------------
Total other (income)
expense 1,588,142 2,832,965 2,316,547 1,031,560 1,811,570
------------ ------------ ------------ ------------ ------------
NET INCOME 6,528,096 15,424,801 12,252,243 7,530,704 5,995,301
PRO FORMA INCOME TAXES 2,559,796 6,089,824 4,834,278 2,979,499 2,364,783
------------ ------------ ------------ ------------ ------------
PRO FORMA NET INCOME $ 3,968,300 $ 9,334,977 $ 7,417,965 $ 4,551,205 $ 3,630,518
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
See notes to financial statements.
F-25
DAIRY FRESH L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------------------
EQUITY PLAN
GENERAL PARTNERS LIMITED PARTNER LIMITED PARTNERS TOTAL
-------------------- ----------------- ------------------ ---------------------
UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT
----- ------ ----- ------ ----- ------ ----- ------
BALANCE AT JUNE 30, 1994 - $ - - $ - - $ - $ -
Capital contributions 120,500 4,406,417 4,500 7,945 2,813 14,063 127,813 4,428,425
Net income 6,389,001 112,520 26,575 6,528,096
Cash distributions ($22.16 per unit) (2,694,636) (105,857) (31,506) (2,831,999)
------- ----------- ----- --------- ----- --------- ------- ------------
BALANCE AT DECEMBER 31, 1994 120,500 8,100,782 4,500 14,608 2,813 9,132 127,813 8,124,522
Capital contributions 1,875 9,375 1,875 9,375
Net income 14,741,384 395,689 287,728 15,424,801
Cash distributions ($57.74 per unit) (7,020,659) (275,806) (191,536) (7,488,001)
------- ----------- ----- --------- ----- --------- ------- ------------
BALANCE AT DECEMBER 31, 1995 120,500 15,821,507 4,500 134,491 4,688 114,699 129,688 16,070,697
Net income 11,384,252 425,138 442,853 12,252,243
Charge associated with payment
of contingent note (1,610,911) (9,607) (7,816) (1,628,334)
Cash distributions ($105.95 per unit) (18,977,672) (274,882) (323,863) (19,576,417)
------- ----------- ----- --------- ----- --------- ------- ------------
BALANCE AT DECEMBER 31, 1996 120,500 6,617,176 4,500 275,140 4,688 225,873 129,688 7,118,189
Capital contributions (unaudited) 625 3,125 625 3,125
Net income (unaudited) 5,543,856 207,032 244,413 5,995,301
Cash distributions ($18.97 per unit)
(unaudited) (2,285,858) (85,364) (100,778) (2,472,000)
------- ----------- ----- --------- ----- --------- ------- ------------
BALANCE AT JUNE 30, 1997
(Unaudited) 120,500 $ 9,875,174 4,500 $ 396,808 5,313 $ 372,633 130,313 $ 10,644,615
------- ----------- ----- --------- ----- --------- ------- ------------
------- ----------- ----- --------- ----- --------- ------- ------------
See notes to financial statements.
F-26
DAIRY FRESH, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------
PERIOD FROM
JULY 1, 1994
(DATE OF
ACQUISITION), YEARS ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30
TO DECEMBER 31, --------------------------- -------------------------
1994 1995 1996 1996 1997
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,528,096 $ 15,424,801 $ 12,252,243 $ 7,530,704 $ 5,995,301
Agreements to reconcile net income to
net cash provided by operating activities:
Loss on sale of equipment 2,840 36,661 35,235 3,856
Depreciation 367,521 886,980 1,051,685 514,680 538,542
Amortization 771,472 1,542,946 1,847,640 771,474 974,622
Change in assets and liabilities:
Accounts receivable 573,931 (43,137) 487,576 (2,055,139) (1,268,995)
Inventories 84,801 (212,056) (38,868) (190,360) (436,146)
Prepaid expenses (3,170) 8,366 (4,333) 87,001 44,940
Accounts payable (1,247,708) (119,205) 1,382,308 1,579,170 (554,880)
Accrued expenses 328,682 (488,891) 593,819 922,777 (169,440)
----------- ------------ ------------ ----------- -----------
Net cash provided by operating
activities 7,403,625 17,002,644 17,608,731 9,195,542 5,127,800
----------- ------------ ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 8,760 77,460 49,640 46,985
Purchase of property and equipment (1,643,229) (1,215,022) (692,791) (542,622) (176,429)
----------- ------------ ------------ ----------- -----------
Net cash used in investing activities (1,643,229) (1,206,262) (615,331) (492,982) (129,444)
----------- ------------ ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Excess of outstanding checks over bank
balance 1,145,612 (400,083) (730,322) (175,380) (15,207)
Contributions of capital by equity partners 14,063 9,375 3,125
Proceeds from long-term borrowings 41,382,499
Principal payments on long-term borrowings (4,067,008) (7,917,467) (27,972,862) (5,024,163) (2,446,694)
Cash distributions to partners (2,831,999) (7,488,001) (19,576,417) (3,500,000) (2,472,000)
Payments for financing and syndication costs (20,738) (1,049,999)
Payment on contingent note (9,046,299)
----------- ------------ ------------ ----------- -----------
Net cash used in financing activities (5,760,070) (15,796,176) (16,993,400) (8,699,543) (4,930,776)
----------- ------------ ------------ ----------- -----------
NET INCREASE IN CASH 326 206 - 3,017 67,580
CASH:
Beginning 326 532 532 532
----------- ------------ ------------ ----------- -----------
Ending $ 326 $ 532 $ 532 $ 3,549 $ 68,112
----------- ------------ ------------ ----------- -----------
----------- ------------ ------------ ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for interest $ 1,200,786 $ 3,116,085 $ 1,524,171 $ 1,032,006 $ 2,059,822
----------- ------------ ------------ ----------- -----------
----------- ------------ ------------ ----------- -----------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCIAL ACTIVITIES:
Equipment acquired through incurrence
of accounts payable $ 285,725
-----------
-----------
Acquisition of Dairy Fresh, Inc. (Note 2) $ -
-----------
-----------
See notes to financial statements.
F-27
DAIRY FRESH L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM JULY 1, 1994 (DATE OF ACQUISITION) TO DECEMBER 31, 1994,
YEARS ENDED DECEMBER 31, 1995 AND 1996, AND
UNAUDITED SIX MONTHS ENDED JUNE 30, 1996 AND 1997
- ------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Dairy Fresh L.P. (the "Partnership") is a limited
partnership that was formed May 2, 1994, under the Revised Uniform Limited
Partnership Act of the State of Delaware, and on July 1, 1994, acquired the
business and net operating assets of Dairy Fresh, Inc. in a purchase business
combination. The general partners consist of Dairy Mgmt. Corp., (formerly
Dairy Fresh, Inc.) a North Carolina corporation, which is currently the
managing partner of the Partnership, and ZS Dairy Fresh L.P., a Delaware
limited partnership. Limited partners are ZS Dairy Inc., a Delaware
corporation, and selected key employees who participate in the Dairy Fresh
L.P. Employee Equity Plan. The Partnership processes, packages and sells
dairy products on a wholesale basis primarily to grocery stores in the
southeastern United States. Sales are on credit terms that the Partnership
establishes for individual customers, which generally range up to 30 days,
and the Partnership performs ongoing credit evaluations of its customers and
provides for potential credit losses based on historical experience.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
INVENTORIES - Inventories are valued at the lower of cost, on the first-in,
first-out method, or market. Costs of finished goods inventories include raw
materials, direct labor and indirect production and overhead costs.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost.
Depreciation is determined principally under the straight-line method over
the estimated useful lives of the assets, as follows:
ASSET USEFUL LIFE
Buildings and improvements 30 years
Machinery and equipment Five to ten years
Vehicles Three years
Furniture and fixtures Three to ten years
Expenditures for repairs and maintenance that do not improve or extend the
life of the assets are expensed as incurred.
INTANGIBLES - Intangible assets relate principally to the formation of the
Partnership and the acquisition of assets from Dairy Fresh, Inc. The excess
of cost over the fair value of net assets acquired (goodwill) is being
amortized using the straight-line method over a 30-year period. Financing
fees in connection with
F-28
the acquisition of assets and the refinancing of long-term debt are being
amortized over the six-year term of the debt using the straight-line method.
Organization and asset acquisition costs are being amortized using the
straight-line method over a five-year period.
The Partnership periodically assesses the net realizable value of its
intangible 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. The Partnership 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.
REVENUE - Revenue is recognized when the product is shipped to the customer.
PRO FORMA INCOME TAXES - The Partnership's historical financial statements do
not reflect federal and state income tax expense or the related current and
deferred income tax assets and liabilities since income taxes are the
responsibility of the partners. However, had the Partnership been organized
as a corporation and been subject to corporate income taxes, the
Partnership's statements of income would have reflected federal and state
income tax expense. Pro forma income tax expense, as if the Partnership was
subject to corporate income taxes, is reflected on the statements of income
for all periods using the federal and state tax rates in effect for those
periods.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Pursuant to Statement of Financial
Accounting Standards No. 107, "Disclosure About Fair Value of Financial
Instruments," The Partnership is required to disclose an estimate of the
fair value of its financial instruments. The Partnership's financial
instruments include accounts receivable, accounts payable and debt; however,
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 the Partnership's revolving credit
and term loan facilities are variable, their fair values approximate their
carrying values.
CASH EQUIVALENTS - The Partnership considers all highly liquid investments
purchased with a remaining maturity of three months or less to be cash
equivalents.
UNAUDITED INTERIM FINANCIAL STATEMENTS - The Partnership's balance sheet as
of June 30, 1997, and the statements of income and cash flows for the six
months ended June 30, 1996 and 1997, have been prepared by the Partnership
without audit. In the opinion of management, all adjustments (which include
only normal, recurring adjustments) necessary to present fairly the balance
sheet of the Partnership at June 30, 1997, and the results of operations and
cash flows of the Partnership for the six months ended June 30, 1996 and
1997, have been made. The results of operations for the interim periods are
not necessarily indicative of the results to be expected for the full year.
2. ASSET ACQUISITION
On July 1, 1994, the Partnership acquired the business and net operating
assets of Dairy Fresh, Inc. for cash of $46,305,916, plus a 14.4% profit
sharing interest in the future net profits of Dairy Fresh L.P. (represented
by an 18% equity interest of the Partnership) and a subordinated, contingent
note of the
F-29
Partnership due the earlier of June 30, 2009, or 90 days after
the payment of a $10,000,000 senior subordinated note payable to ZS Dairy
Fresh L.P. (see Note 12). The acquisition was accounted for as a purchase,
and due to the 18% continuing equity interest in the Partnership, that
portion of the Partnership was valued using predecessor basis, which caused a
reduction in initial partnership equity of $8,064,900.
The following is a summary of the noncash investing and financing activities
related to the acquisition of Dairy Fresh, Inc.:
Net assets acquired:
Accounts receivable $ 4,880,644
Inventories 1,587,124
Prepaid expenses 120,903
Fair value of property and equipment 8,205,153
Intangibles 34,360,166
Accounts payable assumed (4,507,904)
Accrued expenses assumed (503,874)
------------
$ 44,142,212
------------
------------
Funding for the acquisition:
Issuance of long-term debt $ 39,707,112
Contribution of capital by partners 4,435,100
------------
$ 44,142,212
------------
------------
The purchase price of the business and net operating assets acquired exceeded
their fair value by $31,848,054 at the time of the purchase. This amount is
being amortized over 30 years by the straight-line method. An additional
$7,417,965 of goodwill was recognized in 1996 in connection with a payment on
the contingent note payable (see Note 12). This amount is being amortized
over the remaining life of the original goodwill.
3. INVENTORIES
DECEMBER 31
------------------------- JUNE 30,
1995 1996 1997
(UNAUDITED)
Raw materials $ 239,274 $ 209,635 $ 283,860
Supplies 920,653 928,283 1,208,170
Finished goods 554,452 615,329 697,363
---------- ---------- ----------
$1,714,379 $1,753,247 $2,189,393
---------- ---------- ----------
---------- ---------- ----------
F-30
4. PROPERTY, PLANT AND EQUIPMENT
DECEMBER 31
------------------------- JUNE 30,
1995 1996 1997
(UNAUDITED)
Land $ 240,000 $ 240,000 $ 240,000
Buildings and improvements 2,975,924 3,136,203 3,136,203
Machinery and equipment 8,115,806 8,463,287 8,549,901
----------- ----------- -----------
11,331,730 11,839,490 11,926,104
Less accumulated depreciation (1,248,702) (2,229,477) (2,729,045)
----------- ----------- -----------
$10,083,028 $ 9,610,013 $ 9,197,059
----------- ----------- -----------
----------- ----------- -----------
5. INTANGIBLE ASSETS
DECEMBER 31
------------------------- JUNE 30,
1995 1996 1997
(UNAUDITED)
Goodwill $31,848,054 $39,266,019 $39,266,019
Financing fees 632,391 1,180,353 1,180,353
Organization and asset
acquisition costs 1,879,721 1,992,799 1,992,799
----------- ----------- -----------
34,360,166 42,439,171 42,439,171
Less accumulated amortization (2,314,418) (3,773,099) (4,747,721)
----------- ----------- -----------
$32,045,748 $38,666,072 $37,691,450
----------- ----------- -----------
----------- ----------- -----------
During 1996, in connection with the refinancing of the Partnership's debt and
repayment of the senior subordinated note, as discussed in Note 12, the
Partnership made a prepayment on the contingent purchase price note payable.
This prepayment resulted in the recognition of additional goodwill of
$7,417,965, which is being amortized over the remaining life of the original
goodwill. In addition, certain financing and other fees were paid in
connection with the refinancing that are being amortized over the term of the
debt.
6. ACCOUNTS PAYABLE
Included in accounts payable at December 31, 1995 and 1996, is the excess of
outstanding checks over the bank balances of $745,529 and $15,207,
respectively. There was no excess of outstanding checks over the bank
balances at June 30, 1997.
F-31
7. LONG-TERM DEBT
Long-term debt is composed of the following:
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
(UNAUDITED)
Credit facility:
Revolving credit note facility $ - $ 6,882,274 $ 5,685,580
Term loan facility 34,250,000 33,000,000
Acquisition facilities repaid:
Note payable 17,722,637
Subordinated note payable 10,000,000
----------- ----------- -----------
27,722,637 41,132,274 38,685,580
Less current maturities (5,000,000) (6,250,000)
----------- ----------- -----------
$27,722,637 $36,132,274 $32,435,580
----------- ----------- -----------
----------- ----------- -----------
In connection with the July 1, 1994 acquisition of Dairy Fresh, Inc., the
Partnership entered into a note payable agreement with NationsBank of North
Carolina, N.A. and a subordinate note payable agreement with ZS Dairy
Fresh L.P. (a general partner), the proceeds of which, together with
capital contributed by the partners, were used to fund the acquisition. On
November 12, 1996, the Partnership entered into a new revolving credit and
term loan agreement with The First National Bank of Boston and NationsBank,
N.A. as part of the refinancing of the above acquisition facilities.
Under the terms of the new agreement, First National Bank of Boston acts
as the administrative agent and NationsBank as the co-agent for all
lending institutions participating in the credit agreement. This loan
agreement provides for the Partnership to borrow up to $10,000,000 under a
revolving credit facility, in addition to a term loan facility of
$35,000,000.
The revolving credit and term loan bear interest at either a base rate or
the LIBOR plus an applicable percentage. The base rate is the higher of
an annual rate announced by the First Bank of Boston or 1/2% above the
weighted average of the rates on overnight federal funds transactions. The
percentage added to the base rate or the LIBOR for determining the interest
charged on the revolving credit facility will be redetermined quarterly
in accordance with the terms set forth in the credit agreement. The
percentage added has a range of 1.00% to 1.25% relating to the base rate
and a range of 2.50% to 2.75% relating to the LIBOR. At December 31, 1996,
the interest rate in effect on the above debt was approximately 8%. The
revolving credit facility is due and payable on November 12, 2002, with
interest payments due monthly, while the term loan facility is payable in
quarterly principal installments, along with accrued interest on each
payment date, of $1,250,000 through September 30, 1998; $1,500,000 through
September 30, 2001; $1,750,000 through September 30, 2002; with a final
payment of $500,000 due November 12, 2002.
F-32
The aggregate payments required on long-term debt at December 31, 1996,
are as follows:
Year of maturity:
1997 $ 5,000,000
1998 5,250,000
1999 6,000,000
2000 6,000,000
2001 6,250,000
Thereafter 12,632,274
-----------
$41,132,274
-----------
-----------
The revolving credit facility and term loan facility are collateralized by
a pledge of substantially all of the Partnership's assets and are subject
to a credit agreement which requires the Partnership to observe certain
covenants including, among others, the maintenance of a maximum ratio of
debt to earnings, the maintenance of a minimum ratio of cash flow to debt,
the maintenance of a minimum ratio of earnings to interest, the maintenance
of a minimum net worth, and the maintenance of minimum earnings. At
December 31, 1996, the Partnership had complied with all provisions of the
loan agreement.
8. PARTNERSHIP UNITS AND ALLOCATIONS
The Partnership is composed of Dairy Fresh Mgmt. Corp. (formerly Dairy
Fresh, Inc.), a North Carolina corporation (the managing partner), and
ZS Dairy Fresh L.P., a Delaware limited partnership (as General Partners),
ZS Dairy Inc., a Delaware corporation (the Limited Partner), and certain
key employees (the Equity Plan Limited Partners).
The Equity Plan Limited Partners are certain key employees designated by
the General Partners who have been permitted to acquire a specified number
of limited partnership units at $5 per unit. Units acquired by Equity Plan
Limited Partners share pro rata in allocations of income and distributions,
vest over five years, and are subject to redemption upon the employee's
termination of employment (except that vested units are not subject to
redemption if termination results from death or disability) or upon the
dissolution of the Partnership. The redemption price of unvested equity
plan units is the lesser of the Equity Plan Limited Partners' positive
capital account balance or $5 per unit. Upon termination of employment due
to other than death or disability, the redemption price of vested equity
plan units is the sum of (1) the lesser of (A) the Equity Plan Limited
Partners' positive capital account balance allocable to such vested units
and (B) $5 per unit and (2) the product of the profit percentage
represented by such vested units times the excess, if any, of the
Partnership's book value at the redemption date over the Partnership's
book value as of the date of the purchase of the units. Upon liquidation,
the redemption price of vested equity plan units is the amount of the
Equity Plan Limited Partners' positive capital account balance.
As discussed in Notes 1 and 2, Dairy Fresh Mgmt. Corp. is the successor to
Dairy Fresh, Inc. from which the Partnership's business and net assets
were acquired. Accordingly, the amounts recorded as capital contributions
to the Limited Partnership are based, in part, upon the predecessor cost
basis. As a result, until such time as capital accounts were restored to
the agreed-upon values, net income was allocated to the partners in a
manner that resulted in their ending capital account balances reflecting
their respective interests in the book value of the Limited Partnership.
Thereafter, net income has been allocated pro rata to the partners based
on partnership units. Cash distributions by the Limited Partnership are
allocable first pro rata in proportion to assumed tax rate times the net
profit allocated to each partner for income tax purposes, with any balance
allocable pro rata based on partnership units.
F-33
9. THRIFT SAVINGS AND PROFIT SHARING PLAN
The Partnership sponsors a thrift savings profit sharing plan that covers
substantially all employees and provides that the Partnership will match
25% of the first 6% of salary contributed by each employee. Additionally,
the Partnership may contribute a discretionary amount determined by the
managing partner. During the six months ended December 31, 1994, the
years ended December 31, 1995 and 1996, and the unaudited six months ended
June 30, 1996 and 1997, total contributions of $119,315, $141,248,
$177,106, $71,049 and $76,616, respectively, were made by the Partnership
to the plan.
10. MAJOR CUSTOMERS
Net sales for the periods presented include sales to the following major
customers:
CUSTOMER A CUSTOMER B
Six months ended December 31, 1994 $35,178,918 $11,862,228
Year ended December 31, 1995 69,143,133 24,901,624
Year ended December 31, 1996 80,586,173 28,233,841
Unaudited six months ended June 30, 1996 38,451,002 14,197,654
Unaudited six months ended June 30, 1997 38,367,258 12,762,431
11. RELATED PARTY TRANSACTIONS
The Partnership has consulting agreements with both of its general partners
requiring the payment of consulting fees, plus expenses, in consideration
for financial advisory and oversight services. These consulting agreements
required annual payments totaling $350,000, which are accrued monthly, and
have been included in general and administrative expenses. In addition,
the Partnership paid one of its general partners an investment banking fee
of $425,000, along with related expenses, during 1994, for acquisition and
financing services, which were included as part of the costs and expenses
of the acquisition.
12. COMMITMENTS AND CONTINGENCIES
CONTINGENT PURCHASE NOTE - As part of the July 1, 1994, purchase of the
business and net operating assets of Dairy Fresh, Inc., the Partnership
issued a contingent note payable to the seller, which was contingent upon
the attainment of certain operating profit targets in the future and was
due the earlier of June 30, 2009, or 90 days after the payment of the
$10,000,000 senior subordinated note payable to ZS Dairy Fresh L.P.
Because of the refinancing of the Partnership's long-term debt and the
related payment of the senior subordinated note due ZS Dairy Fresh L.P.,
a contingent note prepayment of $9,046,299 was made to the seller, which
was accounted for by recording additional goodwill of $7,417,965 and a
charge to partners' equity of $1,628,334, representing the seller's
carryover interest in the Partnership. The remaining balance, if any,
of the contingent note is now due the earlier of June 30, 2009, or 90
days after payment of a certain amount of existing long-term debt, as
defined in the agreement. When this condition is satisfied, the principal
due on the contingent note payable will be computed to equal 100% of the
operating income (as defined) of the Partnership for the four preceding
fiscal quarters less the prepayment amount. However, if the long-term
debt repayment requirement is not met by June 30, 2009, the principal
amount is deemed to be zero. In addition, if the Partnership has not
achieved an average monthly operating profit of at least $1,250,000 for
each of the months beginning July 1994 and through the month preceding
the long-term debt repayment date and annual net operating profit of at
least $15,000,000 as of the long-term repayment date, the maturity date of
the note shall be one year from the long-term repayment date.
F-34
EMPLOYMENT AGREEMENTS - In connection with the acquisition in 1994, the
Partnership entered into employment agreements with certain officers
that provided for minimum compensation levels and incentive bonuses along
with provisions for termination of benefits in certain circumstances.
13. SUBSEQUENT EVENT
On July 1, 1997, the Partnership sold substantially all of the assets of
the Partnership to Suiza Foods Corporation for cash and the assumption of
substantially all liabilities, except for debt.
******
F-35
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: August 21, 1997 SUIZA FOODS CORPORATION
By: /s/ Tracy L. Noll
-------------------------------
Tracy L. Noll
VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
4
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
2.1 Asset Purchase Agreement, dated as of June 11, 1997, by and among DF
Acquisition Corp., a Delaware corporation, Dairy Fresh L.P., a
Delaware limited partnership, and Suiza Foods Corporation, a Delaware
corporation (filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K dated July 14, 1997 and incorporated herein by reference).
2.2 Stock Purchase Agreement dated June 20, 1997 among Suiza Foods
Corporation, Peter M. Bernon, Alan J. Bernon and the other
stockholders named therein and The Garelick Companies (filed as
Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 and incorporated herein by reference).
2.3 Amendment No. 1 to Stock Purchase Agreement dated July 30, 1997 among
Suiza Foods Corporation, Peter M. Bernon, Alan J. Bernon and the other
stockholders named therein and the Garelick Companies (filed as
Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 and incorporated herein by reference).
2.4 Stockholders Agreement dated July 31, 1997 among Suiza Foods
Corporation, Franklin Plastics, Peter M. Bernon and Alan J. Bernon
(filed as Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997 and incorporated herein by
reference).
23.1 Consent of McGladrey & Pullen, LLP.
23.2 Consent of Coopers & Lybrand L.L.P.
99.1 Press Release issued by the Company at 7:36 a.m. EDT on June 23, 1997
(filed as Exhibit 99.1 to the Company's Current Report on Form 8-K
dated July 14, 1997 and incorporated herein by reference).
99.2 Press Release issued by the Company at 7:50 a.m. EDT on June 23, 1997
(filed as Exhibit 99.2 to the Company's Current Report on Form 8-K
dated July 14, 1997 and incorporated herein by reference).