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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended September 30, 1998
or
[] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission file number 001-12755
SUIZA FOODS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-2559681
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
3811 Turtle Creek Boulevard, Suite 1300
Dallas, Texas 75219
(214) 528-9922
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of October 31, 1998 the number of shares outstanding of each class of common
stock was:
Common Stock, $.01 par value: 35,015,841
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUIZA FOODS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, December 31,
1998 1997
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 32,073 $ 24,388
Temporary investments 27,395 --
Accounts receivable, net of allowance for doubtful
accounts of $15,933 and $3,589, respectively 411,240 164,284
Inventories 221,619 76,087
Prepaid expenses and other current assets 17,065 7,978
Refundable income taxes 19,083 19,836
Deferred income taxes 6,617 2,718
Net assets of discontinued operations -- 100,785
----------- -----------
Total current assets 735,092 396,076
PROPERTY, PLANT AND EQUIPMENT, NET 746,438 363,649
DEFERRED INCOME TAXES 2,527 4,484
INTANGIBLE AND OTHER ASSETS 1,282,110 639,253
----------- -----------
TOTAL $ 2,766,167 $ 1,403,462
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 446,589 $ 178,021
Income taxes payable 10,085 4,006
Lines of credit and current portion of long-term debt 47,413 50,846
----------- -----------
Total current liabilities 504,087 232,873
LONG-TERM DEBT 830,963 777,813
OTHER LONG-TERM LIABILITIES 62,473 13,230
DEFERRED INCOME TAXES 15,241 20,236
MANDATORILY REDEEMABLE CONVERTIBLE TRUST ISSUED PREFERRED SECURITIES 682,792 --
MINORITY INTEREST IN SUBSIDIARIES 24,793 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock -- 3,741
Common stock, 34,992,672 and 30,463,312 shares issued and outstanding 350 305
Additional paid-in capital 488,135 281,774
Retained earnings 177,786 73,490
Accumulated other comprehensive income 9,935 --
Treasury stock (30,388) --
----------- -----------
Total stockholders' equity 645,818 359,310
----------- -----------
TOTAL $ 2,766,167 $ 1,403,462
=========== ===========
See notes to condensed consolidated financial statements.
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SUIZA FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
NET SALES $ 968,104 $ 499,836 $ 2,329,345 $ 1,247,203
COST OF SALES 747,309 385,174 1,785,670 960,141
------------ ------------ ------------ ------------
GROSS PROFIT 220,795 114,662 543,675 287,062
OPERATING COSTS AND EXPENSES:
Selling and distribution 108,019 55,876 267,347 145,615
General and administrative 34,846 16,316 78,967 43,549
Amortization of intangibles 9,143 4,719 22,129 10,077
------------ ------------ ------------ ------------
Total operating costs and expenses 152,008 76,911 368,443 199,241
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 68,787 37,751 175,232 87,821
OTHER (INCOME) EXPENSE:
Interest expense, net 14,104 12,728 35,951 23,351
Financing charges on preferred securities 9,646 -- 20,541 --
Other income, net (921) (980) (2,362) (20,114)
------------ ------------ ------------ ------------
Total other (income) expense 22,829 11,748 54,130 3,237
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTERESTS 45,958 26,003 121,102 84,584
INCOME TAXES 17,066 9,066 43,978 28,979
MINORITY INTEREST 579 -- 1,128 --
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS 28,313 16,937 75,996 55,605
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS -- 2,774 (3,161) 2,422
------------ ------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEMS 28,313 19,711 72,835 58,027
EXTRAORDINARY GAIN (LOSS) -- -- 31,698 (3,270)
------------ ------------ ------------ ------------
NET INCOME $ 28,313 $ 19,711 $ 104,533 $ 54,757
============ ============ ============ ============
NET INCOME APPLICABLE TO COMMON STOCK $ 28,238 $ 19,636 $ 104,296 $ 54,532
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES: Basic 34,638,425 30,097,654 32,752,669 29,225,850
Diluted 45,183,512 32,376,270 41,242,617 31,071,025
BASIC EARNINGS PER SHARE:
Income from continuing operations $ 0.82 $ 0.56 $ 2.31 $ 1.90
Income (loss) from discontinued operations -- 0.09 (0.10) 0.08
Extraordinary gain (loss) -- -- 0.97 (0.11)
------------ ------------ ------------ ------------
Net income $ 0.82 $ 0.65 $ 3.18 $ 1.87
============ ============ ============ ============
DILUTED EARNINGS PER SHARE:
Income from continuing operations $ 0.76 $ 0.52 $ 2.15 $ 1.78
Income (loss) from discontinued operations -- 0.09 (0.08) 0.08
Extraordinary gain (loss) -- -- 0.77 (0.11)
------------ ------------ ------------ ------------
Net income $ 0.76 $ 0.61 $ 2.84 $ 1.75
============ ============ ============ ============
See notes to condensed consolidated financial statements.
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SUIZA FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine months ended September 30,
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 104,533 $ 54,757
Adjustments to reconcile net income to net cash provided by operating activities:
(Income) loss from discontinued operations 3,161 (2,422)
Depreciation and amortization 64,209 30,643
Minority interest 1,128 --
Extraordinary (gain) loss (31,698) 3,270
Deferred income taxes 17,904 4,113
Other 1,104 (520)
Changes in operating assets and liabilities, net of acquisitions:
Receivables (88,778) 10,940
Inventories (12,367) (6,699)
Prepaid expenses and other assets (3,919) (1,159)
Accounts payable and other accrued expenses 47,555 (1,006)
Income taxes 17,103 8,963
----------- -----------
Net cash provided by continuing operations 119,935 100,880
Net cash (used) provided by discontinued operations (2,068) 4,210
----------- -----------
Net cash provided by operating activities 117,867 105,090
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (113,655) (37,664)
Cash outflows for acquisitions (566,782) (425,089)
Net proceeds from the sale of discontinued operations 172,732 --
Other (12) (721)
----------- -----------
Net cash used by continuing operations (507,717) (463,474)
Net cash used by discontinued operations (14,022) (31,206)
----------- -----------
Net cash used by investing activities (521,739) (494,680)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of debt 892,419 446,250
Repayment of debt (1,063,749) (136,078)
Payment of deferred financing, debt restructuring and merger costs (1,256) (12,770)
Redemption of preferred stock (3,741) --
Redemption of common stock (30,388) --
Issuance of common stock, net of expenses 36,069 91,396
Issuance of trust issued preferred securities, net of expenses 582,500 --
Other (297) (150)
----------- -----------
Net cash provided by financing activities 411,557 388,648
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,685 (942)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 24,388 23,823
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 32,073 $ 22,881
=========== ===========
See notes to condensed consolidated financial statements.
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SUIZA FOODS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements as of September 30, 1998 and
for the three and nine month periods ended September 30, 1998 and 1997 have
been prepared by Suiza Foods Corporation (the "Company" or "Suiza") without
audit and have been prepared to give retroactive effect to the November 1997
mergers with Country Fresh, Inc. and The Morningstar Group Inc. which have
been accounted for as poolings of interests. The consolidated financial
statements of the Company as of and for the periods ended September 30,
1998, also reflect the acquisitions of a number of businesses during 1998,
which have been accounted for as purchase business combinations as of their
respective acquisition dates, as discussed in Note 6. As a result of these
1998 purchase acquisitions, the assets acquired and liabilities assumed and
the post-acquisition results of operations have resulted in significant
increases in the Company's assets and liabilities and operating results
during 1998 as compared to 1997 levels.
In the opinion of management, all necessary adjustments (which include only
normal recurring adjustments) to present fairly, in all material respects,
the consolidated financial position, results of operations and cash flows of
the Company as of September 30, 1998 and for the three month and nine month
periods ended September 30, 1998 and 1997 have been made. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. These financial statements should be read in
conjunction with the Company's 1997 financial statements contained in its
Annual Report on Form 10-K as filed with the Securities and Exchange
Commission on March 31, 1998. Certain reclassifications have been made to
conform the prior year condensed consolidated statements of income to the
current year classifications.
2. TEMPORARY INVESTMENTS
Temporary investments at September 30, 1998 consist of U.S. Government
obligations due within one year, certificates of deposit or Eurodollar
deposits due within one year, highly rated commercial paper, and an
investment in securities. At September 30, 1998, the carrying value of
temporary investments approximates market value.
3. INVENTORIES
At September 30, At December 31,
1998 1997
---------------- ---------------
(in thousands)
Raw materials and supplies $119,620 $ 43,764
Finished goods 101,999 32,323
-------- --------
$221,619 $ 76,087
======== ========
4. DEBT
At September 30, At December 31,
1998 1997
---------------- ---------------
(in thousands)
Subsidiary lines of credit $ 26,235 $ --
========= =========
Senior credit facility:
Revolving loan facility $ 648,000 $ 265,500
Term loan facility 550,000
Subsidiary debt obligations 204,141 13,159
--------- ---------
852,141 828,659
Less: current portion (21,178) (50,846)
--------- ---------
$ 830,963 777,813
========= =========
Subsidiary Lines of Credit - In connection with the acquisition of
Continental Can Company, Inc. ("Continental Can"), the Company has assumed
existing subsidiary lines of credit of certain of Continental Can's domestic
and foreign subsidiaries. Borrowings under these subsidiary lines of credit
are generally subject to limitations based on a borrowing base, as defined
in the respective agreements, and bear interest generally at floating
interest rates determined for each subsidiary. Outstanding borrowings under
these subsidiary lines of credit, which at September 30, 1998, represented
foreign subsidiary borrowings, have been classified as a current liability
since such borrowings are expected to be repaid within one year.
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4. DEBT (continued)
Senior Credit Facilities - Effective as of May 29, 1998, the Company amended
and restated its existing credit facility with a group of lenders, including
First Union National Bank, as administrative agent, and The First National
Bank of Chicago, as syndication agent (the "Senior Credit Facility"), which
terminated the term loan facility of the prior agreement and expanded the
revolving loan facility. The new Senior Loan Facility provides the Company
with a line of credit of up to $1 billion to be used for general corporate
and working capital purposes, including the financing of acquisitions by the
Company. The Senior Credit Facility expires March 31, 2003, unless extended
in accordance with its terms.
Amounts outstanding under the Senior Credit Facility bear interest at a rate
per annum equal to one of the following rates, at the Company's option: (i)
a base rate equal to the higher of the Federal Funds rate plus 50 basis
points or the prime rate or (ii) The London Interbank Offering Rate
("LIBOR") plus a margin that varies from 50 to 75 basis points depending on
the Company's ratio of defined indebtedness to EBITDA (as defined in the
Senior Credit Facility). The Company pays a commitment fee on unused amounts
of the Senior Credit Facility that ranges from 15 to 23 basis points, based
on the Company's ratio of defined indebtedness to EBITDA. Interest is
payable quarterly or at the end of the applicable interest period. The
interest rate in effect on the Senior Credit Facility, including the
applicable interest rate margin, was 6.43% at September 30, 1998.
The Senior Credit Facility is secured by capital stock of the Company's
subsidiaries other than Continental Can Company, Inc. and its subsidiaries
and certain other subsidiaries.
The Company's Senior Credit Facility contains various financial and other
restrictive covenants and requirements that the Company maintain certain
financial ratios, including a leverage ratio (computed as the ratio of the
aggregate outstanding principal amount of defined indebtedness to EBITDA, as
defined) and an interest coverage ratio (computed as the ratio of EBITDA to
interest expense). In addition, the Senior Credit Facility requires that the
Company maintain a minimum level of net worth. The Senior Credit Facility
also contains limitations on liens, investments, the incurrence of
additional indebtedness and acquisitions, and prohibits certain dispositions
of property.
Subsidiary Debt Obligations - Subsidiary debt obligations include senior
secured notes of one of Continental Can's subsidiaries, industrial
development revenue bond obligations of certain subsidiaries and other debt
obligations of certain subsidiaries.
The senior secured notes were issued in December 1996 by one of Continental
Can's subsidiaries, Plastic Containers, Inc. ("PCI"), and have an original
face value of $125 million. These notes, which are due in 2006, bear
interest at a fixed interest rate of 10%, payable semi-annually in July and
December of each year, and are secured by substantially all assets other
than inventory, receivables and certain equipment of PCI, along with the
stock of certain of PCI's subsidiaries. These notes are redeemable, in whole
or in part, at the option of PCI, beginning on December 16, 2001, at an
initial price of 105% of par value, declining ratably each year to par value
on December 15, 2004. In addition, the indenture requires PCI to offer to
redeem the notes at a redemption price of 101% of par value in the event of
a change in control, and at 100% of par value upon the occurrence of certain
other events. The indenture places certain restrictions on the payment of
dividends, additional liens, disposition of the proceeds of asset sales,
sale and leaseback transactions and additional borrowings.
Certain of the Company's subsidiaries have revenue bonds outstanding,
certain of which require aggregate annual sinking fund redemptions
aggregating $0.7 million and are secured by irrevocable letters of credit
issued by financial institutions, along with first mortgages on certain real
property and equipment. Interest on these bonds is due semiannually at
interest rates that vary based on market conditions which, at September 30,
1998, ranged from 4.10% to 4.15%.
Other debt includes various promissory notes for the purchase of property,
plant and equipment and capital lease obligations. The various promissory
notes payable provide for interest at varying rates and are payable in
monthly installments of principal and interest until maturity, when the
remaining principal balances are due. Capital lease obligations represent
machinery and equipment financing obligations which are payable in monthly
installments of principal and interest and are collateralized by the related
assets financed.
Interest Rate Agreements - The Company has interest rate derivative
agreements in place, including interest rate caps and interest rate swaps,
that have been designated as hedges against the Company's variable interest
rate exposure on its loans under the Senior Credit Facility.
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At September 30, 1998, the interest rate caps, which mature in March 2000,
had aggregate notional amounts of $60 million and capped interest on LIBOR
loans at 8.0%, plus the applicable LIBOR margin. At September 30, 1998, the
interest rate swaps had aggregate notional amounts of $435 million at
interest rates ranging from 6.03% to 6.14%, plus the applicable LIBOR margin
and include $110 million of swaps that mature in December 2000; $50 million
of swaps that mature in March 2001; $225 million of swaps that mature in
December 2002; and $50 million of swaps that mature in December 2003. In
addition, the Company has entered into $100 million of interest rate
collars, which mature from December 2002 to June 2003, and provide for an
interest rate floor and limit of approximately 6.11% and 7.5%, respectively,
plus the applicable LIBOR margin. These derivative agreements provide hedges
for Senior Credit Facility loans by limiting or fixing the LIBOR interest
rates specified in the Senior Credit Facility at the above rates until the
indicated expiration dates of these interest rate derivative agreements. The
original costs and premiums of these derivative agreements are being
amortized on a straight-line basis as a component of interest expense.
The Company is exposed to market risk under these arrangements due to the
possibility of exchanging a lower interest rate for a higher interest rate.
The counterparties are major financial institutions and the risk of
incurring losses related to credit risk is considered by the Company to be
remote.
4. STOCKHOLDER'S EQUITY
On September 15, 1998, the Company's Board of Directors authorized an open
market share repurchase program of up to $100 million of the Company's
common stock. During the third quarter of 1998, the Company repurchased one
million shares of common stock for a total purchase price of approximately
$30.4 million pursuant to this Board authorization. In addition, subsequent
to September 30, 1998, the Company has repurchased an additional 510,400
shares of common stock for a total purchase price of approximately $15.6
million pursuant to this Board authorization. On September 29, 1998, the
Company also redeemed all outstanding shares of Series A preferred stock
for the stated value of $320 per share, plus accumulated unpaid dividends,
for a total cost of $3.8 million.
6. TAXES
In December 1995, the Commonwealth of Puerto Rico adopted the Puerto Rico
Agricultural Tax Incentives Act of 1995, which reduced the effective income
tax rate for qualified agricultural businesses in Puerto Rico from 39% to
3.9% and provided for a 50% tax credit for certain "eligible investments" in
qualified agricultural businesses in Puerto Rico.
During the first quarter of 1997, the Company obtained a ruling from the
Commonwealth of Puerto Rico confirming that its investments in its
Suiza-Puerto Rico fruit and plastics subsidiaries qualified for the 50% tax
credit. Accordingly, in March 1997, the Company recognized a nonrecurring
gain of $18.1 million, net of discounts and related expenses ($11.5 million
after income taxes) from the sale of earned tax credits to third parties. In
addition, in April 1998, the Company sold additional tax credits for net
proceeds of $7.6 million related to its 1996 investment in its Puerto Rico
coffee business subject to indemnification provisions. The sale of these tax
credits will be recognized as an adjustment to the original purchase price
of the coffee business, once the uncertainties related to these
indemnification provisions are resolved, which will result in a reduction of
goodwill.
7. ACQUISITIONS
On February 20, 1998, Suiza completed the acquisition of Land-O-Sun Dairies,
L.L.C., ("Land-O-Sun") for a purchase price of approximately $248 million,
including approximately $128 million in cash. The non-cash portion of the
purchase price was funded through the issuance of $100 million of
company-obligated 5% mandatorily redeemable convertible preferred securities
of a Delaware business trust formed by Suiza, and the issuance of $20
million of preferred interests of Land-O-Sun. In addition, Suiza refinanced
Land-O-Sun's existing outstanding long-term indebtedness, which totaled
approximately $52 million as of the closing date. Suiza financed the cash
portion of the purchase price and refinanced the existing long-term
indebtedness with borrowings of $180 million under its Senior Credit
Facility. Land-O-Sun is based in Johnson City, Tennessee and operates 13
fluid dairy and ice cream processing facilities in Tennessee, North
Carolina, South Carolina, Georgia, Illinois, Kentucky and Virginia.
Land-O-Sun reported net sales of approximately $464 million for its fiscal
year ended December 31, 1997.
On May 29, 1998, the Company completed the acquisition of Continental Can
for a purchase price of approximately $181 million, which was funded through
the issuance of 2,050,635 shares of Suiza common stock and Suiza stock
options to replace
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outstanding stock options of Continental Can, along with cash of $41
million. Suiza also assumed Continental Can's long-term indebtedness of
approximately $200 million at acquisition date. Continental Can is primarily
engaged in the packaging business through a number of operating subsidiaries
in the United States and in Europe, and reported net sales of approximately
$546 million for the fiscal year ended December 31, 1997.
Following is a summary of unaudited pro forma results of operations of Suiza
which gives effect to Suiza's significant acquisitions in 1997 (Dairy Fresh,
Garelick Farms, and Franklin Plastics) and in 1998 (Continental Can, and
Land-O-Sun, ) as if these significant acquisitions had occurred at the
beginning of 1997.
Three months ended September 30, Nine months ended September 30,
------------------------------------- -------------------------------------
1998 1997 1998 1997
------------------------------------- -------------------------------------
(in thousands, except per share data) (in thousands, except per share data)
Revenues $ 968,104 $ 807,694 $ 2,605,092 $ 2,295,524
Income from continuing operations 28,313 17,591 80,317 75,113
Net income 28,313 20,366 108,854 74,265
Income from continuing operations
per share:
Basic $ 0.82 $ 0.54 $ 2.36 $ 2.39
Diluted 0.76 0.51 2.18 2.23
Net income per share:
Basic $ 0.82 $ 0.63 $ 3.20 $ 2.37
Diluted 0.76 0.59 2.85 2.21
On June 30, 1998 the Company acquired the operations of West Lynn Creamery,
Inc. ("West Lynn"). West Lynn is a leading manufacturer and distributor of
milk, cultured products, extended shelf-life products, juice and ice cream
throughout the northeast United States and reported net sales of $214
million for its fiscal year ended December 31, 1997. On August 14, 1998 the
Company completed the purchase of certain assets of the fluid dairy division
of Cumberland Farms, Inc. ("Cumberland Farms"). Cumberland Farms' fluid
dairy division, which processes and distributes milk, juice, water and
related dairy products, reported net sales of approximately $200 million in
1997.
During the first nine months of 1998, the Company also acquired a number of
smaller dairy and plastic packaging businesses, including the acquisitions
of Louis Trauth Dairy, Inc. ("Trauth"), a Newport, Kentucky-based
manufacturer and distributor of fresh milk, ice cream and related dairy
products, Oberlin Farms Dairy, Inc. ("Oberlin"), a Cleveland, Ohio-based
processor of milk and cultured dairy products, four small dairy businesses
and six small packaging businesses. Trauth and Oberlin recorded net sales of
approximately $67 million and $76 million, respectively, for their most
recent fiscal years
All of the above acquisitions have been accounted for using the purchase
method of accounting. The purchase price of each of the acquisitions was
allocated to assets acquired, including identifiable intangibles, and
liabilities assumed based on their estimated fair market values. The excess
of the total purchase prices over the estimated fair values of the net
assets represented goodwill. These allocations are tentative and subject to
change.
On September 10, 1998, the Company signed a definitive agreement to acquire
publicly-traded Broughton Foods Company ("Broughton") for a cash purchase
price of $19.00 per share of common stock outstanding. Broughton is a
leading manufacturer and distributor of milk, cultured products, ice cream,
extended shelf-life and other dairy products in Michigan, Ohio, West
Virginia, Kentucky, Tennessee and parts of the eastern U.S. Broughton's
current annual revenue, including the pro forma effect of completed business
combinations, is approximately $200 million. Completion of the acquisition
of Broughton is subject to customary conditions including, among other
things, the receipt of certain governmental approvals and the approval of
the shareholders of Broughton. Assuming all closing conditions are
satisfied, the transaction could be completed at approximately the end of
December 1998.
8. DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEMS
On April 30, 1998, Suiza consummated its previously announced sale of Reddy
Ice Corporation ("Reddy Ice") to Packaged Ice, Inc. ("Packaged Ice") for net
cash proceeds of approximately $172.7 million. The Company reported an
extraordinary gain of $35.5 million from the sale of Reddy Ice, net of $22
million of income taxes. Reddy Ice had revenues during 1997 of approximately
$66.3 million.
Income (loss) from discontinued operations includes interest expense of $1.8
million during the third quarter of 1997 and interest expense of $2.4
million and $5.3 million during the first nine months of 1998 and 1997,
respectively. Interest charges allocated to discontinued operations are
based on debt specifically attributed to Reddy Ice. The income (loss) from
discontinued operations as reported in the condensed consolidated statements
of income is presented net of the related income tax expense of $1.7 million
in the third quarter of 1997, and income tax benefit of $2.1 million and
income
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tax expense of $1.5 million in the first nine months of 1998 and 1997,
respectively.
During the second quarter of 1998, the Company recognized a $3.8 million
extraordinary loss from the early extinguishment of debt, net of income tax
benefit of $2.3 million, which included the write-off of deferred financing
costs and the recognition of market losses on interest rate contracts, from
the termination of the term loan facility under the Senior Credit Facility
and the repayment of all amounts outstanding under the term loan facility.
In addition, during the nine months ended September 30, 1997, the Company
recognized a $3.3 million extraordinary loss from the early extinguishment
of subordinated debt, net of income tax benefit of $2.0 million, which
included the write-off of deferred financing costs and certain prepayment
penalties.
9. TRUST ISSUED PREFERRED SECURITIES
In connection with the Land-O-Sun acquisition, Suiza issued $100 million of
company-obligated 5% mandatorily redeemable convertible preferred securities
of a Delaware business trust. On March 24, 1998, the Company also completed
the sale of $600 million of company-obligated 5.5% mandatorily redeemable
convertible preferred securities of a Delaware business trust in a private
placement to "qualified institutional buyers" under Rule 144A under the
Securities Act of 1933, as amended. These trust issued preferred securities,
which are recorded net of related fees and expenses, are convertible at the
option of the holders into an aggregate of approximately 9.1 million shares
of the Company's common stock, subject to adjustment in certain
circumstances. These preferred securities are also redeemable, at the
Company's option, at any time after three years from their respective issue
dates at specified amounts and are mandatorily redeemable at their
liquidation preference amount of $50 per share after 30 years from their
respective issue dates or upon occurrence of certain specified events, as
defined.
10. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income," issued in
June 1997. For interim periods, SFAS 130 requires disclosure of
comprehensive income, which is composed of net income and other
comprehensive income items. Other comprehensive income items are revenues,
expenses, gains and losses that under generally accepted accounting
principles are excluded from net income and reflected as a component of
equity. Consolidated comprehensive income was $35.0 million and $110.4
million for the three and nine month periods ended September 30, 1998, which
included net income as reported and comprehensive income adjustments
primarily for foreign currency gains of $11.2 million and $9.9 million ($6.7
million and $5.9 million, net of taxes) for the three and nine month periods
ended September 30, 1998, respectively. Consolidated comprehensive income
was equal to consolidated net income for the three and nine month periods
ended September 30, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Suiza Foods Corporation (the "Company" or "Suiza") is a leading manufacturer and
distributor of fresh milk and related dairy products and plastic packaging in
the United States. Suiza also manufactures, distributes and markets
refrigerated, shelf-stable and frozen food products. Suiza has grown primarily
through a successful acquisition strategy, having consummated more than 20 dairy
and packaging acquisitions since its initial public offering in April 1996.
Through these acquisitions, Suiza has realized and continues to realize
economies of scale, operating efficiencies and added complementary product
lines. The Company conducts its dairy operations primarily through its Puerto
Rico subsidiaries ("Suiza-Puerto Rico"), Velda Farms, Inc. ("Velda Farms"),
Swiss Dairy Corporation ("Swiss Dairy"), Model Dairy, Inc. ("Model Dairy"),
Dairy Fresh, Inc. ("Dairy Fresh"), Garelick Farms, Inc. and certain related
dairy subsidiaries ("Garelick Farms"), Country Delite Farms Inc. ("Country
Delite"), Country Fresh, Inc. ("Country Fresh"), The Morningstar Group Inc.
("Morningstar"), LOS Holdings, Inc. ("Land-O-Sun"), Louis Trauth Dairy Inc.
("Trauth"), Oberlin Farms Dairies ("Oberlin"), West Lynn Creamery ("West Lynn"),
and Cumberland Farms Inc. ("Cumberland Farms"). The Company conducts its
packaging operations through Franklin Plastics, Inc. and subsidiaries ("Franklin
Plastics" or "Plastics") and through Continental Can Company, Inc. ("Continental
Can"). Each of the Company's dairy and plastic packaging operating subsidiaries
is a leading competitor in its market, with an established reputation for
customer service and product quality. The Company's dairy subsidiaries market
their products through extensive distribution networks to a diverse group of
customers, including convenience stores, grocery stores, schools and
institutional food service customers. The Company's customers in the plastic
packaging business include regional dairy manufacturers, bottled water
processors, beverage manufacturers, and consumer and industrial products
companies.
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Recent Developments
Completed Acquisitions. On August 14, 1998, the Company completed the purchase
of the assets of the fluid dairy division of Cumberland Farms, Inc. ("Cumberland
Farms"). Cumberland Farms' fluid dairy division, which processes and distributes
milk, juice, water and related dairy products and operates in the northeast,
reported net sales of approximately $200 million in 1997. The Cumberland Farms
acquisition was accounted for using the purchase method of accounting. Also
during the third quarter and early fourth quarter of 1998, the Company's dairy
group completed three additional small acquisitions.
The Company's packaging group completed three small acquisitions during the
third quarter of 1998 comprising six plants. The packaging group now operates 52
rigid plastic container facilities in the United States and Puerto Rico, and one
plastic film facility and eight metal can facilities in Europe.
Pending Acquisition. On September 10, 1998, the Company signed a definitive
agreement to acquire publicly-traded BroughtonFoods Company ("Broughton") for a
cash purchase price of $19.00 per share of common stock outstanding. Broughton
is a leading manufacturer and distributor of milk, cultured products, ice cream,
extended shelf-life and other dairy products in Michigan, Ohio, West Virginia,
Kentucky, Tennessee and parts of the eastern U.S. Broughton's current annual
revenue, including the pro forma effect of completed business combinations, is
approximately $200 million. Completion of the acquisition of Broughton is
subject to customary conditions including, among other things, the receipt of
certain governmental approvals and the approval of the shareholders of
Broughton. Assuming all closing conditions are satisfied, the transaction could
be completed at approximately the end of December 1998.
Share Repurchase Program. On September 15, 1998, the Company's Board of
Directors authorized an open market share repurchase program of up to $100
million of the Company's common stock. During the third quarter of 1998, the
Company repurchased one million shares of common stock for a total purchase
price of approximately $30.4 million pursuant to this Board authorization. In
addition, subsequent to September 30, 1998, the Company has repurchased an
additional 510,400 shares of common stock for a total purchase price of
approximately $15.6 million pursuant to this Board authorization. On September
29, 1998, the Company also redeemed all outstanding shares of Series A
preferred stock for the stated value of $320 per share, plus accumulated unpaid
dividends, for a total cost of $3.8 million.
Results of Operations
The Company currently operates in two distinct businesses ("Dairy" and
"Packaging") as shown below (dollars in thousands):
Three months ended September 30, Nine months ended September 30,
-------------------------------------------- --------------------------------------------------
1998 1997 1998 1997
--------------------- -------------------- ---------------------- ------------------------
Percent Percent Percent Percent
of of of of
Dollars Net Sales Dollars Net Sales Dollars Net Sales Dollars Net Sales
---------- --------- --------- --------- ----------- --------- ---------- -----------
Net sales:
Dairy $ 764,741 $ 474,552 $ 1,995,213 $ 1,221,919
Packaging 203,363 25,284 334,132 25,284
---------- ------- --------- ------ ----------- --------- ----------- -----------
Net sales 968,104 100.0% 499,836 100.0% 2,329,345 100.0% 1,247,203 100.0%
Cost of sales 747,309 77.2 385,174 77.1 1,785,670 76.7 960,141 77.0
---------- ------- --------- ------ ----------- --------- ----------- -----------
Gross profit 220,795 22.8 114,662 22.9 543,675 23.3 287,062 23.0
Operating expenses:
Selling and distribution 108,019 11.2 55,876 11.2 267,347 11.4 145,615 11.7
General and administrative 34,846 3.6 16,316 3.3 78,967 3.4 43,549 3.5
Amortization of intangibles 9,143 0.9 4,719 0.9 22,129 1.0 10,077 0.8
---------- ------- --------- ------ ----------- --------- ----------- -----------
Total operating expenses 152,008 15.7 76,911 15.4 368,443 15.8 199,241 16.0
---------- ------- --------- ------ ----------- --------- ----------- -----------
Operating income (loss):
Dairy 50,498 5.2 37,594 7.5 149,555 6.4 90,918 7.2
Packaging 22,392 2.3 2,389 0.5 36,816 1.6 2,389 0.2
Corporate office (4,103) (0.4) (2,232) (0.5) (11,139) (0.5) (5,486) (0.4)
---------- ------- --------- ------ ----------- --------- ----------- -----------
Total operating income $ 68,787 7.1% $ 37,751 7.5% $ 175,232 7.5% $ 87,821 7.0%
========== ======= ========= ====== =========== ========= =========== ===========
Third Quarter and Year-to-date 1998 Compared to Third Quarter and Year-to-date
1997 Net Sales. The Company's net sales increased by 93.7% and 86.8% for the
third quarter and first nine months of 1998, respectively, when compared to like
periods of 1997. Dairy net sales increased by 61.2% and 63.3% for the third
quarter and first nine months of 1998, respectively, compared to like periods of
1997 primarily due to (i) the acquisitions of Garelick Farms, Dairy Fresh and
Country Delite in the last half of 1997, (ii) the acquisitions of Land-O-Sun,
Trauth, Oberlin, West Lynn, and
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Cumberland in the first nine months of 1998 and (iii) increased sales and higher
pricing of our branded products. The Company began operating in the Packaging
business with the acquisition of Franklin Plastics in July, 1997 and acquired
Continental Can in May, 1998. The Packaging segment has experienced rapid growth
through these acquisitions, as well as through several smaller acquisitions and
through newly opened facilities at Franklin Plastics.
Cost of Sales. The Company's cost of sales margins were 77.2% and 76.7% for the
third quarter and first nine months of 1998, respectively, compared to 77.1% and
77.0% for the same periods in 1997. Dairy cost of sales margins were slightly
higher in the third quarter of 1998 compared to last year due to significant
increases in butterfat prices. For the first nine months of 1998 Dairy cost of
sales margins improved from the prior year due to (i) realized operating
synergies in the Company's fluid dairy operations and (ii) increased branded
sales, which have a higher gross margin than other products.
Operating Expenses. The Company's operating expense ratios were 15.7% and 15.8%
for the third quarter and first nine months of 1998 compared to 15.4% and 16.0%
for the same periods in 1997. The operating expense ratio increased in the
quarter comparison primarily due to (i) the impact of a severe hurricane in
Puerto Rico and (ii) the acquisition of several dairies that currently have
higher operating expenses than existing dairies. The operating expense ratio
decreased slightly in the year-to-date periods as a result of realized
efficiencies in purchasing and the addition of Packaging, which has lowered the
Company's overall operating expense ratios.
Operating Income. The Company's operating income increased 82.2% to $68.8
million in the third quarter of 1998 from $37.8 million in the third quarter of
1997 primarily as a result of (i) the aforementioned acquisitions, (ii) realized
operating efficiencies and synergies and (iii) the increased growth of
Packaging. For the first nine months of 1998, operating income was $175.2
million, an increase of 99.5% from 1997 operating income of $87.8 million. The
Company's operating income margin decreased to 7.1% in the third quarter of 1998
from 7.6% in the third quarter of 1997 due to increased butterfat costs and the
impact of a hurricane in Puerto Rico; however it increased to 7.5% in the first
nine months of 1998 from 7.0% in the first nine months of 1997 due to
acquisitions, realized operating efficiencies, and the growth of Packaging.
Other (Income) Expense. Interest expense increased to $14.1 million in the third
quarter of 1998 from $12.7 million in the third quarter of 1997 primarily due to
the increased level of debt used to finance the aforementioned acquisitions. For
the same reason, interest expense increased to $36.0 million during the first
nine months of 1998 from $23.4 million in the first nine months of 1997.
Financing charges on preferred securities amounted to $9.6 million and $20.5
million in the third quarter and first nine months of 1998, respectively,
reflecting (i) the issuance on February 20, 1998 of $100 million of
company-obligated mandatorily redeemable preferred securities related to the
acquisition of Land-O-Sun and (ii) the issuance on March 24, 1998 of $600
million of company-obligated mandatorily redeemable preferred securities. Other
income decreased to $2.4 million in the first nine months of 1998 from $20.1
million in the first nine months of 1997 due to the recognition in the 1997
period of an $18.1 million gain from the sale of Puerto Rico tax credits as
discussed in Note 5 to the condensed consolidated financial statements.
Extraordinary Items. In the first nine months of 1998, the Company reported a
$35.5 million extraordinary gain (net of $22.0 million of income taxes) from the
sale of Reddy Ice Corporation ("Reddy Ice") and a $3.8 million extraordinary
loss from the early extinguishment of the term loan facility of the Senior
Credit Facility (net of $2.3 million of income tax benefit) related to the
write-off of deferred financing costs and the recognition of interest rate swap
losses. The Company incurred a $3.3 million extraordinary loss (net of a $2.0
million tax benefit) in the first nine months of 1997 related to the early
extinguishment of subordinated debt, which included the write-off of deferred
financing costs and certain prepayment penalties.
Net Income. The Company reported net income of $28.3 million in the third
quarter of 1998 compared to net income of $19.7 million in the third quarter of
1997. The Company reported net income of $104.5 million in the first nine months
of 1998 ($72.8 million excluding the net extraordinary gain of $31.7 million)
compared to $54.8 million in the first nine months of 1997 ($46.6 million
excluding the after-tax gain on the sale of tax credits of $11.5 million and the
extraordinary loss of $3.3 million).
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Liquidity and Capital Resources
As of September 30, 1998, the Company had total stockholders' equity of $645.8
million, total indebtedness of $878.4 million (including long-term debt and the
current portion of long-term debt) and $682.8 million of mandatorily redeemable
convertible trust issued preferred securities. The Company is currently in
compliance with all covenants and financial ratios contained in its debt
agreements.
Cash Flow. Historically, the working capital needs of the Company have been met
with cash flow from operations along with borrowings under the Senior Credit
Facility. Net cash provided by continuing operations was $119.9 million for the
first nine months of 1998 as contrasted to $100.9 million for the first nine
months of 1997. Investing activities in the first nine months of 1998 included
approximately $113.7 million in capital expenditures of which $68.6 million was
spent at Dairy, $39.5 million was spent at Packaging, and $5.6 million was spent
at corporate. Investing activities during the first nine months of 1998 also
included $566.8 million of cash paid for acquisitions, along with net proceeds
of $172.7 million from the sale of Reddy Ice.
On February 20, 1998, Suiza completed the acquisition of Land-O-Sun for a
purchase price of approximately $248 million, including approximately $128
million in cash. The non-cash portion of the purchase price was funded through
the issuance of $100 million of company-obligated 5% mandatorily redeemable
convertible preferred securities of a Delaware business trust formed by Suiza,
and the issuance of $20 million of preferred interests of Land-O-Sun. In
addition, Suiza refinanced Land-O-Sun's existing outstanding long-term
indebtedness, which totaled approximately $52 million as of the closing date.
Suiza financed the cash portion of the purchase price and refinanced the
existing long-term indebtedness with borrowings of $180 million under its Senior
Credit Facility.
On May 29, 1998 the Company completed the acquisition of Continental Can for a
purchase price of approximately $181 million, which was funded through the
issuance of 2,050,635 shares of Suiza common stock and Suiza stock options to
replace outstanding stock options of Continental Can, along with cash of $41
million. Suiza also assumed Continental Can's long-term indebtedness of
approximately $200 million at acquisition date.
On June 30, 1998 the Company acquired West Lynn and on August 14, 1998 the
Company completed the purchase of assets of the fluid dairy division of
Cumberland Farms. During the first nine months of 1998 the Company also acquired
Trauth, Oberlin and six small plastic packaging businesses. Suiza financed these
acquisitions with borrowings under its Senior Credit Facility.
On March 24, 1998, the Company completed the sale of $600 million of
company-obligated 5.5% mandatorily redeemable convertible preferred securities
of a Delaware business trust in a private placement, resulting in net proceeds
after expenses of approximately $582.5 million. The net proceeds were used to
repay amounts outstanding under the revolving loan facility of the Company's
Senior Credit Facility.
On September 15, 1998, the Company's Board of Directors authorized an open
market share repurchase program of up to $100 million of the Company's common
stock. During the third quarter of 1998, the Company repurchased one million
shares of common stock for a total purchase price of approximately $30.4 million
pursuant to this Board authorization. In addition, subsequent to September 30,
1998, the Company has repurchased an additional 510,400 shares of common stock
for a total purchase price of approximately $15.6 million pursuant to this Board
authorization. On September 29, 1998, the Company also redeemed all outstanding
shares of Series A preferred stock for the stated value of $320 per share, plus
accumulated unpaid dividends, for a total cost of $3.8 million.
Current Debt Obligations. On May 29, 1998 the Company amended its Senior Credit
Facility. Pursuant to this amendment, the Company terminated and repaid the term
loan facility and expanded the revolving loan facility to $1 billion. At
September 30, 1998, approximately $328.6 million was available under the
revolving loan facilities.
Future Capital Requirements. During 1998, the Company intends to invest a total
of approximately $140 to $150 million in its manufacturing facilities and
distribution capabilities of which almost $114 million has been spent to date.
Of this amount, Dairy intends to spend approximately $90 to $100 million for the
year to expand and maintain its manufacturing facilities and for fleet
replacement and Packaging intends to spend approximately $40 to $50 million.
The Company has not completed its budget for 1999, but expects to make
investments in manufacturing facilities and distribution capabilities in 1999
comparable in amount to 1998. In addition, the Company has current commitments,
subject to certain conditions, to expend approximately $185 million on currently
proposed acquisitions during the remainder of 1998 and early 1999.
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The Company expects that cash flow from operations will be sufficient to meet
the Company's requirements for its existing businesses for the remainder of 1998
and for the foreseeable future. Management expects to fund currently proposed
acquisitions out of cash flow from operations and borrowings under the Senior
Credit Facility. In the future, the Company intends to pursue additional
acquisitions in its existing regional markets as well as new markets, and to
seek strategic acquisition opportunities that are compatible with it core
businesses. Management believes that the Company has the ability to secure
additional financing to pursue its acquisition and consolidation strategy. There
can be no assurance, however, that the Company will have sufficient available
capital resources to realize its acquisition and consolidation strategy.
Known Trends and Uncertainties
Year 2000 Compliance. The inability of computers, software and other equipment
utilizing microprocessors to recognize and properly process data fields
containing a two-digit year is commonly referred to as the Year 2000 problem.
The Year 2000 problem is rooted in the way dates are recorded and computed in
most applications, operating systems, hardware and embedded chips. If the
problem is not corrected, systems that use the date for calculations may fail or
produce erroneous results on or before the year 2000.
As is the case with most other companies using computers in their operations,
the Company is currently engaged in a comprehensive project to address its Year
2000 issues in the following areas: enterprise systems and applications; plant
floor systems; personal computers and applications; networks and communications;
supply chain; EDI and miscellaneous equipment. These areas encompass both
information technology (IT) systems (such as enterprise systems, networks and
communications, and EDI) and non-IT systems (such as plant floor systems). Each
functional area plan details specific tasks needed to assess the extent of Year
2000 issues, and to implement and test solutions to these issues. The Company's
Year 2000 readiness project is being led by a project manager and the Company
has adopted a structural approach which has included the development of
corporate standards, the communication of the status of the project with
management, and consultation with outside experts.
The Company has completed the assessment phase in all IT system areas and
implementation processes are underway in these areas, using both internal and
external resources. The Company has also completed the preliminary assessment of
Year 2000 issues with its plant floor systems and is in the process of
performing detailed inventories for these systems. For IT and non-IT
applications that are provided by a third party software vendor, available
upgrades are in the process of being implemented. The Company has received or
requested assurances from these vendors that these systems are already Year 2000
compliant and that timely updates will be made available for purchased software.
All critical systems, including plant floor systems, are targeted to be Year
2000 compliant by mid-1999.
As a result of the numerous systems used by companies that the Company has
acquired in recent years and also due to technological enhancements, the Company
has had an ongoing information systems development plan to move these acquired
companies' systems to the Company's platform systems, with scheduled
replacements of systems throughout the organization. Year 2000 compliance is a
part of the Company's overall development plan. The Company has delayed certain
non-essential IT projects in order to reassign Company resources to the Year
2000 strategic plan.
The Company has incurred and expensed approximately $1 million to date for
remediation costs associated with the implementation of its Year 2000 strategic
plan for existing IT and non-IT systems that are being modified, and expects to
incur and expense approximately up to an additional $5 million in the future to
remediate Company-developed software, to inventory and test plant floor systems
and to write off unamortized costs for systems replaced. In addition to these
remediation costs expensed, the Company has also capitalized approximately $3
million of capital expenditures to date for the replacement and upgrading of
purchased software and hardware for both existing systems and the systems of
acquired businesses pursuant to its Year 2000 strategic plan and its on-going
information systems development plan. The Company has budgeted an additional $12
million (approximately) of capital expenditures in 1999 for the purchase of
additional replacement systems; however, budgeted amounts are based on
management's conservative estimates and actual results could differ as the plan
is further implemented. The majority of the remaining budgeted expenditures are
for replacement of plant floor systems, and until the Company has completed its
detailed inventories for its plant floor systems, there can be no assurance
whether replacement of such systems will be necessary to the extent budgeted.
A critical step in the Company's strategic plan is the coordination of Year 2000
readiness with third parties. The Company is communicating with its significant
suppliers and customers to determine the extent to which the Company and its
interface systems are vulnerable if the customer, supplier or a third party
fails to resolve their Year 2000 issues. The Company will continue
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to work with all of its major trading partners to understand the associated
risks and plan for contingencies. There can be no guarantee that the systems of
other companies on which the Company's systems and operations rely will be
timely converted or that the failure of these systems would not have an adverse
effect on the Company's systems.
Management believes that necessary modifications and replacements of the
Company's critical IT and non-IT systems will be completed timely. If for any
reason, critical service providers, suppliers or customers are unable to resolve
their Year 2000 issues in a timely manner, such matters could have a material
adverse impact on the Company's results of operations. The Company's current
assessment of risks based on the most reasonable worst case scenario, however,
is that there will be no material adverse impact on the Company's operations or
financial performance, because management believes that if any disruption to
operations does occur, it will be isolated and or short-term in duration.
The Company has prioritized its efforts and is addressing the most strategic
areas first. Development of contingency plans is underway and such plans will
address individual business units and corporate applications as well as actions
necessary to mitigate the impact of third party disruptions.
Euro Currency Conversion. Companies conducting business in or having
transactions denominated in certain European currencies are facing the European
Union's pending conversion to a new common currency, the "euro." This conversion
is expected to be implemented over a three year period. On January 1, 1999, the
euro will become the official currency for accounting and tax purposes of
several countries of the European Union and the exchange rate between the euro
and local currencies will be fixed. In 2002, the euro will replace the
individual nation's currencies. Since the Company's Packaging group has plants,
and otherwise conducts business, in Europe, the conversion to the euro will have
an effect on the Company. The Company is currently considering the specific
nature of the impact of the conversion on the Company, and management believes
that there will be no material adverse impact of the conversion on the Company's
operations or financial performance.
Trends in Tax Rates. The Company has experienced increased income tax rates
throughout 1998. During the third quarter of 1998 income taxes averaged 37% of
pretax income compared to 35% of pretax income in the third quarter of 1997.
This increase reflects a shift of the Company's business from Puerto Rico, which
has a lower tax rate, to the United States. This trend has been caused by the
Company's acquisitions and is expected to continue, with 1999 income tax rates
estimated to be approximately 38%.
Cautionary Statement
Certain statements and information in this Quarterly Report constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements may be indicated by
phrases such as "believes," "anticipates," "expects," "intends," "foresees,"
"projects," "forecasts" or words of similar meaning or import. Such statements
are subject to certain risks, uncertainties, or assumptions. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those set forth in
applicable forward-looking statements. Among the key factors that may have a
direct bearing on the Company's results and financial condition are (i) risks
associated with the Company's acquisition strategy, including its ability to
integrate the operations of its acquired businesses and realize operating
efficiencies, (ii) risks relating to the Company's leverage position, (iii)
risks associated with intense competition in the Company's industries, (iv) the
impact of governmental regulations affecting the dairy industry, (v) risks
associated with volatility in the costs of raw goods such as butterfat, and (vi)
the impact of extreme weather conditions. Any forward-looking statements made or
incorporated by reference herein speak only as of the date of this Quarterly
Report. The Company expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any such statements, to reflect any change
in its expectations with regard thereto or any change in events, conditions, or
circumstances on which any such statement is based. Additional information
concerning these and other risk factors is contained in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, a copy of which
may be obtained from the Company upon request.
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PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Agreement and Plan of Merger dated as of September 10, 1998 by and
among Suiza Foods Corporation, Broughton Foods Acquisition
Corporation and Broughton Foods Company.
11 Statement re computation of per share earnings.
27 Financial Data Schedules
(b) Reports on Form 8-K
(1) On September 14, 1998, the Company filed a Form 8-K (pursuant to
Item 5 of Form 8-K) in connection with a press release issued by
the Company on September 11, 1998 regarding the proposed
acquisition of Broughton Foods Company by Suiza Foods Corporation.
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SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUIZA FOODS CORPORATION
/s/ Barry A. Fromberg
------------------------------------
Barry A. Fromberg
Executive Vice President, Chief
Financial Officer (Principal
Accounting Officer)
Date: November 16, 1998
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.1 Agreement and Plan of Merger dated as of September 10, 1998 by and
among Suiza Foods Corporation, Broughton Foods Acquisition
Corporation and Broughton Foods Company.
11 Statement re computation of per share earnings.
27 Financial Data Schedules