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 March 31, 1996
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 numbers 333-1858,333-03698
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) 528-0939
(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 file 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 report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
As of April 30, 1996, the number of shares outstanding of each class of
common stock was:
Common Stock, $.01 par value: 10,108,479
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUIZA FOODS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, March 31,
1995 1996
(Unaudited)
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,177 $ 1,101
Accounts receivable 31,045 32,303
Inventories 11,346 11,955
Prepaid expenses and other current assets 1,380 1,781
Deferred income taxes 1,448 1,517
----- -----
Total current assets 48,396 48,657
PROPERTY, PLANT AND EQUIPMENT 92,715 93,765
INTANGIBLE AND OTHER ASSETS 91,411 92,901
------ ------
TOTAL $ 232,522 $ 235,323
========= =========
LIABILITIES
AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 31,957 $ 30,778
Income taxes payable 2,415 1,264
Current portion of long-term debt 15,578 15,638
------ ------
Total current liabilities 49,950 47,680
LONG-TERM DEBT 171,745 175,980
DEFERRED INCOME TAXES 1,367 1,820
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.01; 20,000,000
shares authorized, 6,313,479 shares
issued and outstanding, as adjusted 63 63
Additional paid-in capital 31,023 31,023
Retained earnings (deficit) (21,626) (21,243)
------- -------
Total stockholders' equity 9,460 9,843
----- -----
TOTAL $ 232,522 $ 235,323
========= =========
See notes to consolidated financial statements.
SUIZA FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 31,
1995 1996
---- ----
(Dollars in thousands, except share data)
NET SALES $ 104,876 $ 109,035
COST OF SALES 78,669 82,615
------ ------
GROSS PROFIT 26,207 26,420
OPERATING COSTS AND EXPENSES:
Selling and distribution 15,394 15,502
General and administrative 5,159 4,921
Amortization of intangibles 1,035 937
----- ---
Total operating costs and expenses 21,588 21,360
------ ------
INCOME FROM OPERATIONS 4,619 5,060
OTHER (INCOME) EXPENSE:
Interest expense, net 5,349 4,616
Merger costs 8,838
Other income, net (190) (80)
---- ---
Total other expense 13,997 4,536
------ -----
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS (9,378) 524
INCOME TAXES 511 141
--- ---
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS (9,889) 383
EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT (8,462)
------
NET INCOME (LOSS) $ (18,351) $ 383
========= ===========
NET EARNINGS ( LOSS) PER SHARE:
Income (loss) before extraordinary loss $ (1.80) $ 0.06
Extraordinary loss (1.54)
-----
Net income (loss) $ (3.34) $ 0.06
========= ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,497,092 6,953,131
========= =========
See notes to consolidated financial statements.
SUIZA FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
(Dollars in thousands)
1995 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (18,351) $ 383
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 2,293 2,251
Amortization of intangible assets,
including deferred financing costs 1,335 1,161
(Gain) loss on the sales of assets (166) 8
Extraordinary loss from early extinguishment
of debt 8,462
Merger costs 8,838
Noncash and imputed interest 469 216
Minority interests 101
Deferred income taxes 153 384
Changes in operating assets and liabilities:
Accounts receivable (2,657) (1,258)
Inventories 124 (448)
Prepaid expenses and other assets (704) (15)
Accounts payable and other accrued expenses (145) (1,481)
Income tax payable (78) (1,151)
Net cash (used in) provided by
operating activities (326) 50
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,215) (3,441)
Proceeds from the sale of property, plant and
equipment 240 229
Cash outflows for acquisitions (3,333)
Net cash used in investing activities (1,975) (6,545)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of debt 146,700 8,119
Repayment of debt (135,604) (3,700)
Payment of deferred financing, debt
restructuring and merger costs (7,342)
Issuance of common stock, net of expenses 4,087
Distributions to minority interests (63)
Purchase of subsidiary preferred stock (8,269)
Net cash (used in) provided by
financing activities (491) 4,419
DECREASE IN CASH AND CASH EQUIVALENTS (2,793) (2,076)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,395 3,177
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,602 $ 1,101
See notes to consolidated financial statements.
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements as of and for the three months
ended March 31, 1996 have been prepared by Suiza Foods Corporation (the
"Company" or "Suiza Foods") without audit. 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 as of and for the three months ended March
31, 1996 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 1995 financial statements contained in
its Form S-1 as filed with the Securities and Exchange Commission on March 1,
1996, as amended.
2. INVENTORIES
At December 31, At March 31,
1995 1996
---- ----
Pasteurized and raw milk and raw materials $ 4,278 $ 4,084
Parts and supplies 3,105 3,588
Finished goods 3,963 4,284
----- -----
$ 11,346 $ 11,955
========= =========
3. LONG-TERM DEBT
At December 31, At March 31,
1995 1996
---- ----
Senior credit facility:
Revolving loan facility $ 10,900 $ 16,175
Term loans 123,750 122,700
Subordinated notes 51,101 51,534
Capital lease obligations and other debt 1,572 1,209
----- -----
187,323 191,618
Less: current portion (15,578) (15,638)
------- -------
$ 171,745 $ 175,980
=========== =========
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 1996
4. ACQUISITIONS
Effective January 6, 1996, the Company, acquired certain of the assets of
Skinners' Dairy, Inc. ("Skinners'"). The total purchase price was approximately
$2.9 million which was funded by additional borrowings under the existing term
loan facility. This acquisition was accounted for using the purchase method of
accounting as of the effective date, and accordingly, only the results of
operations of Skinner's subsequent to the acquisition date are included in the
consolidated financial statements of the Company. Of the total purchase price
paid for Skinners', $0.2 million was allocated to the assets acquired based upon
their fair market values. The excess of the total purchase price over the fair
values of the net assets acquired of $2.7 million represented goodwill. In
addition, during the quarter, the Company paid $.4 million to acquire two small
ice businesses.
5. SUBSEQUENT EVENT
On April 22, 1996, the Company issued 3,795,000 shares of common stock, $.01 per
value per share, in a public offering (the "Offering") at an issue price of $14
per share. Prior to the Offering, there was no public market for the Company's
common stock. The Offering provided net cash proceeds to the Company of
approximately $49 million. Of this amount, $31.5 million was used to repay
senior debt, $15.7 million was used to repay the Company's 15% subordinated
notes and $1.8 million was used to pay prepayment penalties related to the early
extinguishment of the 15% subordinated notes. Following the Offering, the
Company had 10,108,479 shares of common stock issued and outstanding.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Suiza Foods is a leading manufacturer and distributor of fresh milk products and
refrigerated ready-to-serve fruit drinks in Puerto Rico, fresh milk and related
dairy products in Florida, and packaged ice in Florida and the southwestern
United States. The Company has grown primarily through strategic and
consolidating acquisitions. Through these acquisitions, the Company has realized
regional economies of scale and operating efficiencies by consolidating
manufacturing and distribution operations in each of its core businesses. The
Company operates through Suiza-Puerto Rico, Velda Farms and Reddy Ice, each of
which is a strong regional competitor with an established reputation for
customer service and product quality. These subsidiaries market their products
through extensive distribution networks to a diverse group of customers,
including convenience stores, grocery stores, other retail outlets, schools and
institutional food service customers.
The Company is a Delaware corporation, incorporated on September 19, 1994, for
the sole purpose of entering into certain mergers, exchanges and related
transactions (the "Combination"). On March 31, 1995, the Company completed the
Combination pursuant to which the Company acquired Suiza - Puerto Rico, Velda
Farms and Reddy Ice, which was accounted for as a pooling of interests. Pursuant
to the Combination, the Company issued 6,313,479 shares as adjusted, of its
common stock in exchange for all of the outstanding equity interest of the
combining entities.
Results of Operations
The Company currently operates in two distinct businesses: Dairy, which includes
the operations of Suiza - Puerto Rico and Velda Farms; and Ice, which includes
Reddy Ice.
Three months ended March 31,
Percent to Percent to
1995 Net Sales 1996 Net Sales
---- --------- ---- ---------
Net sales:
Dairy $ 98,464 $ 102,214
Ice 6,412 6,821
----- -----
Net sales 104,876 100.0% 109,035 100.0%
Cost of sales 78,669 75.0 82,615 75.8
------ ---- ------ ----
Gross profit 26,207 25.0 26,420 24.2
Operating expenses:
Selling and distribution 15,394 14.7 15,502 14.2
General and administrative 5,159 4.9 4,921 4.5
Amortization of intangibles 1,035 1.0 937 0.9
----- --- --- ---
Total operating expenses 21,588 20.6 21,360 19.6
Operating income:
Dairy 6,209 5.9 6,444 5.9
Ice (1,093) (1.0) (476) (0.4)
Corporate office (497) (0.5) (908) (0.8)
---- ---- ---- ----
Operating income $ 4,619 4.4% $ 5,060 4.6%
========= === ========= ===
Three Months Ended March 31, 1996 Compared to Three Months ended March 31, 1995
Net Sales. The Company's net sales increased 4.0% to $109.0 million in the first
quarter of 1996 from $104.9 million in 1995. Dairy net sales increased 3.8% or
$3.8 million to $102.2 million in the first quarter of 1996, primarily due to
(i) an increase in prices charged for milk resulting from the increased raw milk
costs in the first quarter in the U.S. and (ii) the acquisition of Skinners'
Dairy in January 1996. Ice net sales increased 6.4% or $0.4 million to $6.8
million in the first quarter of 1996 due to the addition of new customers and
from the acquisition of five small ice business during 1995 and early 1996.
Cost of Sales. The Company's cost of sales increased $3.9 million, resulting in
an increase in the cost of sales margin to 75.8% in the first quarter of 1996
from 75.0% in 1995. The increase in Dairy cost of sales was due to higher raw
milk costs and the addition of Skinners' Dairy in January 1996. Dairy cost of
sales margins declined as increased raw milk costs were passed through to
customers as price increases. Ice cost of sales increased as a result of the
increased sales volumes. Ice cost of sales margins were comparable period to
period.
Operating Expenses. The Company's operating expenses decreased $0.2 million in
the first quarter of 1996, while the operating expense margin decreased to 19.6%
in the 1996 period from 20.6% in the 1995 period. The operating expense decrease
was due to reductions in both Dairy and Ice spending levels as efficiencies
gained from consolidating acquired business and other cost savings were realized
by the combined businesses. The operating expense margin also declined because
of increased Dairy net sales due to higher milk costs which had little impact on
operating expense levels.
Operating Income. The Company's operating income increased 9.5% to $5.1 million
in the first quarter of 1996 from $4.6 million in the first quarter of 1995 as a
result of the operating expense efficiencies discussed above. The Company's
operating income margin increased to 4.6% in the first quarter of 1996 from 4.4%
in the first quarter of 1995 primarily due to the operating expense
efficiencies.
Other (Income) Expense. Interest expense declined to $4.6 million in the first
quarter of 1996 from $5.3 million in the first quarter of 1996 primarily due to
lower interest rates following the refinancing of the Company's debt on March
31, 1995. The Company incurred $8.8 million in non-recurring merger expenses on
March 31, 1995 related to the Combination.
Extraordinary Items. The Company incurred $8.5 million in extraordinary costs
(net of a $0.7 million tax benefit) on March 31, 1995 to refinance the Company's
debt in conjunction with the Combination, which costs included the write-off of
deferred financing costs and certain prepayment penalties.
Net Income (Loss). The Company reported net income of $0.4 million in the first
quarter of 1996 compared to a net loss of $18.4 million in the first quarter of
1995. The primary causes of the 1995 net loss were $8.8 million in non-recurring
merger costs and $8.5 million in extraordinary losses from the early
extinguishment of debt.
Seasonality
The Company's Ice business is seasonal with peak demand for its products
occurring during the second and third calendar quarters. Over the past two
fiscal years, Ice had recorded and average of approximately 69% of it annual net
sales during these two quarters. While this percentage for the second and third
quarters has remained relatively constant over recent years, the timing of the
hottest summer weather can impact the distribution of sales between these two
quarters.
Liquidity and Capital Resources
As of March 31, 1996, the Company had total stockholders' equity of $9.8 million
and total indebtedness of $191.6 million (including long-term debt and the
current portion of long-term debt). 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 revolving credit
facilities. Net cash provided by operating activities was $.1 million for the
first quarter of 1996 as contrasted with net cash used by operations of $(.3)
million for the first quarter of 1995. Investing activities in the first quarter
of 1996 included $3.4 million in capital expenditures of which $2.8 million was
spent at Dairy and $.6 million was spent at Ice. Investing activities also
included $3.3 million for acquisitions. Net cash provided by investing
activities included $2.7 million in additional borrowing under the Senior Term
Loan Facility to fund the Skinners' acquisition.
Future Capital Requirements. During the remainder of 1996, the Company intends
to invest approximately $8.3 million in addition to the $3.4 million spent
during the first quarter in its manufacturing facilities and distribution
capabilities. Of these amounts, Dairy intends to spend approximately a total of
$9.5 million to expand and maintain its manufacturing facilities and for fleet
replacement. Ice intends to spend a total of $2.2 million in 1996, including
$1.7 for maintenance of existing facilities and $0.5 million to increase
production capacity.
On April 22, 1996, the Company issued 3,795,000 shares of new common stock, $.01
per value per share in a public offering (the "Offering") at an issue price of
$14 per share. Prior to the Offering, there was no public market for the
Company's common stock. The Offering provided net cash proceeds to the Company
of approximately $49 million. Of this amount, $5.0 million was used to repay
amounts outstanding under the revolving credit facility, $8.7 million was used
to repay current maturities under the term loan facility, $17.8 million was used
to repay long-term maturities under the term loan facility and $15.7 million was
used to repay the Company's 15% subordinated notes and $1.8 million was used to
pay prepayment penalties related to the early extinguishment of the 15%
subordinated notes. Following the Offering, the Company had 10,108,479 shares of
common stock issued and outstanding.
The Company expects that cash flow from operations will be sufficient to meet
the Company's requirements for the remainder of 1996 and for the foreseeable
future. During the remainder of 1996 and in the future, the Company intends to
pursue additional acquisitions in its existing regional markets and to seek
strategic acquisition opportunities that are compatible with it core businesses.
Management believes that the repayment of a portion of its indebtedness, using
the proceeds of the offering, will give the Company the ability to secure
additional financing to pursue it acquisition and consolidation strategy.
Part II
Other Information
Item 1. LEGAL PROCEEDINGS
To the knowledge of the Company, there are no reportable suits or
proceedings pending or threatened against or affecting the Company other than
those encountered in the ordinary course of the Company's business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no matters submitted to a vote of the holders of
securities of the Company since the Company became subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Statement re computation of per share earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
None
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/ Tracy L. Noll
Tracy L. Noll
Vice President, Chief Financial
Officer (Principal Accounting Officer)
Date: May 14, 1996
EXHIBIT 11
Statement re computation of per share earnings
For the three For the three
Months ended Months ended
March 31, March 31,
1995 1996
---- ----
(In thousands, except share and per-share amounts)
Income(loss) before extraordinary items $ (9,889) $ 383
Extraordinary loss (8,462)
------
Net income (loss) $ (18,351) $ 383
=========== ==========
Calcultaion of pimary earnings (loss) per share:
Weighted average shares outstanding 5,497,092 6,313,479
Common stock equivalents (options & warrants) * 639,652
-------
Total weighted average shares outstanding 5,497,092 6,953,131
========= =========
Income (loss) before extraordinary items $ (1.80) $ 0.06
Extraordinary loss (1.54) 0.00
----- ----
Net income (loss) $ (3.34) $ 0.06
=========== ==========
Calculation of fully diluted earnings (loss) per share:
Weighted average shares outstanding 5,497,092 6,313,479
Common stock equivalents (options & warrants) * 674,283
-------
Total weighted average shares outstanding 5,497,092 6,987,762
========= =========
Income (loss) before extraordinary items $ (1.80) $ 0.05
Extraordinary loss (1.54) 0.00
----- ----
Net income (loss) $ (3.34) $ 0.05
========== ==========