-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HDlVGiRT3xIfsN0RyREdTaNwA+9V22mLAFb3fChR9SJ2vy2qFooJb3cZ8Rbo5vjT mhvgJhlFmB2R6xZvaBTPZg== /in/edgar/work/0000950134-00-009461/0000950134-00-009461.txt : 20001114 0000950134-00-009461.hdr.sgml : 20001114 ACCESSION NUMBER: 0000950134-00-009461 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUIZA FOODS CORP CENTRAL INDEX KEY: 0000931336 STANDARD INDUSTRIAL CLASSIFICATION: [2024 ] IRS NUMBER: 752559681 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12755 FILM NUMBER: 759508 BUSINESS ADDRESS: STREET 1: 2515 MCKINNEY AVENUE LB 30 STREET 2: SUITE 1200 CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2145289922 MAIL ADDRESS: STREET 1: 3811 TURTLE CREEK BLVD STREET 2: SUITE 1300 CITY: DALLAS STATE: TX ZIP: 75219 10-Q 1 d81719e10-q.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2000 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 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 the registrant as specified in its charter) [SUIZA FOODS LOGO] ---------- DELAWARE 75-2559681 (State or other jurisdiction of (I.R.S. employer incorporation or organization) Identification no.) 2515 MCKINNEY AVENUE, SUITE 1200 DALLAS, TEXAS 75201 (214) 303-3400 (Address, including zip code, and telephone number, including area code, of the registrant's principal executive offices) ---------- 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 November 6, 2000 the number of shares outstanding of each class of common stock was: Common Stock, par value $.01 27,158,928 ================================================================================ 2 TABLE OF CONTENTS
Page ---- PART I - FINANCIAL INFORMATION Item 1 - Financial Statements................................................................................. 3 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations................ 16 Item 3 - Quantitative and Qualitative Disclosures About Market Risk........................................... 25 PART II - OTHER INFORMATION Item 1 - Legal Proceedings.................................................................................... 27 Item 6 - Exhibits and Reports on Form 8-K..................................................................... 27
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SUIZA FOODS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------ ------------ (unaudited) Assets Current assets: Cash and cash equivalents ................................................... $ 42,997 $ 25,155 Accounts receivable, net .................................................... 479,688 379,070 Inventories ................................................................. 181,484 182,321 Refundable income taxes ..................................................... 20,033 3,514 Deferred income taxes ....................................................... 33,047 27,005 Prepaid expenses and other current assets ................................... 23,006 22,342 ------------ ------------ Total current assets ........................................................ 780,255 639,407 Property, plant and equipment, net ............................................. 975,627 758,485 Intangible and other assets .................................................... 1,927,873 1,261,030 ------------ ------------ Total .......................................................................... $ 3,683,755 $ 2,658,922 ============ ============ Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses ....................................... $ 525,647 $ 441,792 Income taxes payable ........................................................ 11,613 14,654 Current portion of long-term debt and subsidiary lines of credit ............ 91,494 22,671 ------------ ------------ Total current liabilities ................................................... 628,754 479,117 Long-term debt ................................................................. 1,282,521 689,397 Other long-term liabilities .................................................... 28,188 34,858 Deferred income taxes .......................................................... 87,723 46,323 Mandatorily redeemable convertible trust issued preferred securities ........... 583,891 683,505 Minority interest in subsidiaries .............................................. 508,283 141,750 Commitments and contingencies Stockholders' equity: Common stock, 27,194,401 and 29,287,558 shares issued and outstanding ....... 272 293 Additional paid-in capital .................................................. 163,647 275,527 Retained earnings ........................................................... 404,874 314,590 Accumulated other comprehensive income ...................................... (4,398) (6,438) ------------ ------------ Total stockholders' equity .................................................. 564,395 583,972 ------------ ------------ Total .......................................................................... $ 3,683,755 $ 2,658,922 ============ ============
See notes to condensed consolidated financial statements. 3 4 SUIZA FOODS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- -------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ (Dollars in thousands, except per share data) Net sales ................................................................ $ 1,439,947 $ 1,082,060 $ 4,268,442 $ 3,354,090 Cost of sales ............................................................ 1,085,627 834,410 3,213,745 2,610,932 ------------ ------------ ------------ ------------ Gross profit ............................................................. 354,320 247,650 1,054,697 743,158 Operating costs and expenses: Selling and distribution .............................................. 202,371 134,257 602,297 380,445 General and administrative ............................................ 43,035 34,411 135,235 115,248 Amortization of intangibles ........................................... 13,495 8,732 39,153 28,709 Plant closing and other costs ......................................... 424 3,520 3,388 8,191 ------------ ------------ ------------ ------------ Total operating costs and expenses .................................... 259,325 180,920 780,073 532,593 ------------ ------------ ------------ ------------ Operating income ......................................................... 94,995 66,730 274,624 210,565 Other (income) expense: Interest expense, net ................................................. 28,987 8,434 83,122 39,612 Financing charges on trust issued preferred securities ................ 8,395 9,645 25,200 28,939 Equity in earnings of unconsolidated affiliates ....................... (5,169) (4,692) (10,572) (4,692) Other (income) expense, net ........................................... (594) 384 (1,670) 283 ------------ ------------ ------------ ------------ Total other (income) expense .......................................... 31,619 13,771 96,080 64,142 ------------ ------------ ------------ ------------ Income before income taxes, minority interests and extraordinary gain .... 63,376 52,959 178,544 146,423 Income taxes ............................................................. 24,021 20,359 67,901 56,462 Minority interest in earnings ............................................ 8,166 2,151 25,327 6,493 ------------ ------------ ------------ ------------ Income before extraordinary gain ......................................... 31,189 30,449 85,316 83,468 Extraordinary gain ....................................................... -- -- 4,968 -- ------------ ------------ ------------ ------------ Net income ............................................................... $ 31,189 $ 30,449 $ 90,284 $ 83,468 ============ ============ ============ ============ Average common shares: Basic ............................................. 27,623,928 33,665,778 28,530,656 33,679,515 Average common shares: Diluted ........................................... 36,197,712 43,641,789 37,062,352 43,771,536 Basic earnings per common share: Income before extraordinary gain ...................................... $ 1.13 0.90 2.99 $ 2.48 Extraordinary gain .................................................... -- -- 0.17 -- ------------ ------------ ------------ ------------ Net income ............................................................ $ 1.13 $ 0.90 $ 3.16 $ 2.48 ============ ============ ============ ============ Diluted earnings per common share: Income before extraordinary gain ...................................... $ 1.01 $ 0.83 $ 2.73 $ 2.32 Extraordinary gain .................................................... -- -- 0.14 -- ------------ ------------ ------------ ------------ Net income ............................................................ $ 1.01 $ 0.83 $ 2.87 $ 2.32 ============ ============ ============ ============
See notes to condensed consolidated financial statements. 4 5 SUIZA FOODS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------ 2000 1999 ------------ ------------ (Dollars in thousands) Cash flows from operating activities: Net income ...................................................................... $ 90,284 $ 83,468 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................................... 113,919 89,371 Minority interest, before tax effects ....................................... 42,682 6,493 Equity in earnings of unconsolidated affiliates ............................. (10,572) (4,692) Extraordinary gain .......................................................... (4,968) -- Deferred income taxes ....................................................... 35,334 15,220 Other, net .................................................................. 5,029 5,604 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable ...................................................... (3,383) 8,423 Inventories .............................................................. (16,375) (3,709) Prepaid expenses and other assets ........................................ (984) (13,885) Accounts payable and other accrued expenses .............................. (48,682) 11,859 Income taxes ............................................................. (10,669) 40,203 ------------ ------------ Net cash provided by operating activities .............................. 191,615 238,355 Cash flows from investing activities: Additions to property, plant and equipment ....................................... (86,260) (143,208) Cash outflows for acquisitions and investments ................................... (286,139) (226,405) Net proceeds from divestitures ................................................... 89,037 373,768 Other ............................................................................ 2,568 (1,682) ------------ ------------ Net cash provided by (used in) investing activities .................... (280,794) 2,473 Cash flows from financing activities: Proceeds from the issuance of debt ............................................... 1,299,909 35,767 Repayment of debt ................................................................ (946,558) (217,202) Payment of deferred financing and debt restructuring ............................. (11,971) -- Issuance of common stock, net of expenses ........................................ 26,178 3,273 Redemption of trust issued preferred securities .................................. (100,050) -- Redemption of common stock ....................................................... (146,545) (69,680) Proceeds from issuance of minority interest ...................................... 8,983 Distributions to minority interest ............................................... (13,942) (10,122) ------------ ------------ Net cash provided by (used in) financing activities .................... 107,021 (248,981) ------------ ------------ Increase (decrease) in cash and cash equivalents .................................... 17,842 (8,153) Cash and cash equivalents, beginning of period ...................................... 25,155 54,922 ------------ ------------ Cash and cash equivalents, end of period ............................................ $ 42,997 $ 46,769 ============ ============
See notes to condensed consolidated financial statements. 5 6 SUIZA FOODS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 1. GENERAL Basis of Presentation - The unaudited condensed consolidated financial statements contained in this report have been prepared on the same basis as the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 1999. In our opinion, we have made all necessary adjustments (which include only normal recurring adjustments) in order to present fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods presented. Certain reclassifications have been made to conform the previous year's consolidated financial statements to the current year's classifications. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. Our results of operations for the period ended September 30, 2000 may not be indicative of our operating results for the full year. The consolidated financial statements contained in this report should be read in conjunction with our 1999 consolidated financial statements contained in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 16, 2000. This Quarterly Report, including these notes, have been written in accordance with the Securities and Exchange Commission's "Plain English" guidelines. Unless otherwise indicated, references in this report to "we," "us" or "our" refer to Suiza Foods Corporation and its subsidiaries, including Suiza Dairy Group (our joint venture with Dairy Farmers of America described below in Note 2), as a whole. Recently Issued Accounting Standards - Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as extended by SFAS No. 137 (June 1999) and amended by SFAS No. 138 (June 2000), will become effective for us beginning January 1, 2001. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires the recognition of derivatives as either assets or liabilities in the statement of financial position and the measurement of those instruments at fair value. Our internal process relating to implementation of SFAS No. 133 is ongoing. We are in the process of designating, documenting and assessing hedging relationships, the majority of which are expected to result in cash-flow hedges which require us to record the derivative assets or liabilities at fair value on our statement of financial position with an offset in Other Comprehensive Income to the extent the hedge is effective. Hedge ineffectiveness will be recorded in earnings. We continue to evaluate the impact of SFAS No. 133 as well as the ongoing implementation issues currently being addressed by the Derivatives Implementation Group. As a result, the direct financial impact of the application of hedge accounting and the transition adjustment on our financial position and results of operations has yet to be determined. SAB No. 101, "Revenue Recognition in Financial Statements," as extended by SAB No. 101A (March 2000) and 101B (June 2000), became effective for us beginning October 1, 2000. SAB No. 101 is a statement of the Securities and Exchange Commission's views on applying generally accepted accounting principles to selected revenue recognition issues. We believe our revenue recognition practices are in compliance with SAB No. 101 and, therefore, we do not expect it to have a material effect on our consolidated financial position, results of operations or cash flows. 6 7 2. ACQUISITIONS AND DIVESTITURES Effective January 1, 2000 we entered into a joint venture with Dairy Farmers of America in which we combined certain of our domestic fluid dairy operations with certain of Dairy Farmers of America's operations into a newly formed venture, Suiza Dairy Group, L.P. Dairy Farmers of America is a large farmers' cooperative from which we purchase a significant portion of our raw milk. In connection with this transaction, Suiza Dairy Group, L.P. issued partnership interests to Dairy Farmers of America of approximately $326 million and made a cash payment to Dairy Farmers of America's partner in the amount of $100 million. Dairy Farmers of America received a 33.8% ownership interest in Suiza Dairy Group, L.P., in exchange for the contribution of the operations of Southern Foods Group, L.P. which had net sales of approximately $1.3 billion in 1999, and for the contribution of its investments in its other joint ventures with us: Suiza GTL, LLC and Suiza SoCal, LLC. We received a 66.2% ownership interest in Suiza Dairy Group, L.P. in exchange for the contribution of our domestic fluid dairy operations (excluding our Puerto Rican operations and our Morningstar subsidiary). Our ownership interests as well as Dairy Farmers of America's were determined by negotiation between the parties. This transaction was accounted for as an acquisition by us of Southern Foods Group, L.P. using the purchase method of accounting. On February 8, 2000 we completed the acquisition of the dairy business of Valley of Virginia Cooperative Milk Producers Association, an agricultural marketing cooperative with dairy processing plants in Springfield, Virginia and Mt. Crawford, Virginia. Valley of Virginia Cooperative Milk Producers Association had net sales of $209 million during its fiscal year ended August 31, 1999. We funded the purchase price through borrowings under the new Suiza Dairy Group, L.P. credit facility, discussed in Note 4. On February 18, 2000 we purchased a majority interest in Leche Celta, S.A., a Spanish dairy processor with sales of approximately $150 million in 1999. We funded approximately $44.4 million of our equity investment through borrowings under our new parent-level senior credit facility discussed in Note 4. We financed the balance of the purchase price with a loan obtained from a Spanish lender, as discussed in Note 4. We have also made two other small acquisitions to date in 2000, including a dairy in Colorado during August and a water business in the northeastern United States in January. On March 3, 2000, we sold Ferembal S.A., our French packaging subsidiary, and effective May 2, 2000, we sold Dixie Union GmbH & Co. KG, our German packaging subsidiary. Our only remaining packaging investment is our approximately 43% minority investment in Consolidated Container Holdings, LLC. Our unaudited consolidated results of operations on a pro forma basis for the three- and nine-month periods ended September 30, 1999, as if we had acquired Southern Foods Group, L.P.'s operations as of the beginning of 1999, are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1999 -------------------------------- --------------------------------- HISTORICAL PRO FORMA HISTORICAL PRO FORMA --------------- ---------------- -------------- ----------------- (in thousands, except per share data) Net sales............... $1,082,060 $1,399,019 $3,354,090 $4,304,066 Net income.............. 30,449 31,094 83,468 85,094 Earnings per share: Basic.............. 0.90 0.92 2.48 2.53 Diluted............ 0.83 0.88 2.32 2.43
7 8 On a pro forma basis, our other 1999 and 2000 acquisitions, net of the sale in 1999 of a majority interest in our U.S. packaging operations and the sale in 2000 of our European packaging operations, do not have a material pro forma impact on net sales or net income for the three- or nine-month periods ended September 30, 1999. The pro forma results of operations are presented for informational purposes only and are not necessarily indicative of the results of operations that would have occurred had the acquisition been completed as of the above date, nor are they necessarily indicative of future results of operations. 3. INVENTORIES
AT SEPTEMBER 30, AT DECEMBER 31, 2000 1999 ---------------- ---------------- (in thousands) Raw materials and supplies ............. $ 95,368 $ 100,044 Finished goods ......................... 86,116 82,277 ---------------- ---------------- Total ............................. $ 181,484 $ 182,321 ================ ================
4. DEBT
AT SEPTEMBER 30, AT DECEMBER 31, 2000 1999 ---------------- ---------------- (in thousands) Parent-level credit facility ................ $ -- $ 635,500 Subsidiary debt obligations: Suiza Dairy Group credit facility ....... 1,125,800 -- Receivable-backed loan .................. 150,000 -- Foreign subsidiary term loan ............ 37,970 -- Other lines of credit ................... 5,597 24,655 Industrial development revenue bonds .... 9,330 9,330 Capital lease obligations and other ..... 45,318 42,583 ---------------- ---------------- 1,374,015 712,068 Less current portion ........................ (91,494) (22,671) ---------------- ---------------- Total ................................... $ 1,282,521 $ 689,397 ================ ================
Terminated Senior Credit Facility -- In connection with our acquisition of Southern Foods Group, L.P. effective January 1, 2000, we replaced our then existing senior credit facility with two new facilities, as described under "Parent-Level Credit Facility" and "Suiza Dairy Group Credit Facility" below. Parent-Level Credit Facility -- Effective January 1, 2000 we entered into a new parent-level credit facility, which replaced our then existing senior credit facility. The new facility, which expires in January 2005, provides us with a revolving line of credit of up to $300 million to be used for general corporate and working capital purposes, including the financing of acquisitions. As of September 30, 2000, no funds were borrowed under this facility. See "Credit Facility Terms" below for a description of the terms of the new parent credit facility. Suiza Dairy Group Credit Facility -- Simultaneous with the closing of our acquisition of Southern Foods Group, L.P., Suiza Dairy Group, L.P. entered into a new $1.61 billion credit facility with a group of lenders which expires in January 2005. The Suiza Dairy Group credit facility provides an $805 million revolving line of credit, a $625 million term loan and a $180 million term loan. At closing, Suiza Dairy Group, L.P. borrowed approximately $1.1 billion under this facility and distributed a portion of the borrowings to us and Dairy Farmers of America. We used our portion of the distribution to repay our then existing senior credit facility and certain other obligations. See "Credit Facility Terms" below for a description of the terms of the Suiza Dairy Group, L.P. credit facility. 8 9 Credit Facility Terms -- Amounts outstanding under the Suiza Dairy Group, L.P. credit facility and our parent-level credit facility bear interest at a rate per annum equal to one of the following rates, at our option: o a base rate equal to the higher of the Federal Funds rate plus 50 basis points or the prime rate, plus a margin that varies from 25 to 125 basis points for the Suiza Dairy Group, L.P. credit facility and 0 to 75 basis points on the parent-level credit facility, depending on our ratio of defined indebtedness to EBITDA or o the London Interbank Offering Rate ("LIBOR") computed as LIBOR divided by the product of one minus the Eurodollar Reserve Percentage (as defined in the agreement), plus a margin that varies from 125 to 225 basis points for the Suiza Dairy Group, L.P. credit facility and 75 to 175 basis points on the parent-level credit facility, depending on our ratio of indebtedness to EBITDA (as defined in the agreement). The interest rate in effect on the Suiza Dairy Group, L.P. credit facility, including the applicable interest rate margin, was 8.62% at September 30, 2000. Interest is payable quarterly or at the end of the applicable interest period. Scheduled principal payments on the $625 million term loan are due in the following installments: o $25.0 million quarterly from March 31, 2001 through December 31, 2001; o $31.25 million quarterly from March 31, 2002 through December 31, 2002; o $37.5 million quarterly from March 31, 2003 through December 31, 2003; o 25% of the outstanding balance (up to $50 million) quarterly on each of March 31, 2004, June 30, 2004 and September 30, 2004; and the o Remaining balance on January 4, 2005. No principal payments are due on the $805 million line of credit and the $180 million term loan until maturity on January 4, 2005. In consideration for the revolving commitments, we pay a commitment fee on unused amounts of the Suiza Dairy Group, L.P. credit facility and the parent-level credit facility that ranges from 25 to 50 basis points, based on our ratio of indebtedness to EBITDA (as defined in the agreement). The Suiza Dairy Group, L.P. credit facility and our parent-level credit facility, both of which mature on January 4, 2005, contain various financial and other restrictive covenants and requirements that we maintain certain financial ratios, including a leverage ratio (computed as the ratio of the aggregate outstanding principal amount of defined indebtedness to EBITDA, as defined separately by each agreement) and an interest coverage ratio (computed as the ratio of EBITDA to interest expense as defined separately by each agreement). In addition, both facilities require that we maintain a minimum level of net worth as defined separately by each agreement. The facilities also contain limitations on liens, investments, the incurrence of additional indebtedness and acquisitions, and prohibit certain dispositions of property and restrict certain payments, including dividends. The credit facilities are secured by the capital stock of certain of our subsidiaries. Receivable-Backed Loan -- On June 30, 2000 we completed a securitization of certain subsidiary accounts receivable for $150 million. Pursuant to this transaction, we pledged receivables to a multi-seller asset-backed conduit sponsored by a major financial institution. We used the portion of the proceeds attributable to Suiza Dairy Group, L.P. and its subsidiaries to pay down higher cost borrowings under the Suiza Dairy Group, L.P. credit facility. The loan bears interest at a variable rate based on the commercial paper yield as defined in the agreement. The interest rate on the receivable-backed loan at September 30, 2000 was 7.09%. 9 10 Foreign Subsidiary Term Loan -- In connection with our acquisition of Leche Celta, S.A. in February 2000, our Spanish subsidiary obtained a 7 billion peseta (as of November 6, 2000, approximately $36.1 million) non-recourse term loan from a Spanish lender, all of which was borrowed at closing and used to finance a portion of the purchase price. The loan, which is secured by the stock of Leche Celta, S.A., will expire on February 21, 2007, bears interest at a variable rate based on the ratio of Leche Celta, S.A.'s debt to EBITDA (as defined in the corresponding loan agreement), and requires semi-annual principal payments beginning in August 2001. The interest rate in effect on this loan at September 30, 2000 was 6.75%. Other Lines of Credit -- Leche Celta, S.A., our Spanish subsidiary, is our only subsidiary with a currently outstanding line of credit separate from the credit facilities described above. Leche Celta, S.A.'s existing line of credit, which is in the principal amount of 2.5 billion pesetas (as of November 6, 2000, approximately $12.9 million), was obtained on July 12, 2000 in replacement of a pre-existing line of credit, bears interest at a variable interest rate based on the ratio of Leche Celta, S.A.'s debt to EBITDA (as defined in the corresponding loan agreement), is secured by our stock in Leche Celta, S.A. and will expire in June 2007. The interest rate on this line of credit was 5.0% at September 30, 2000. Our French and German subsidiaries, which we sold in March and May 2000, respectively, also had lines of credit. Those lines of credit were terminated upon completion of the divestitures. Industrial Development Revenue Bonds -- Certain of our subsidiaries have revenue bonds outstanding which require aggregate annual sinking fund redemptions aggregating $0.7 million and are secured by irrevocable letters of credit issued by financial institutions, along with first mortgages on certain real property and equipment. Interest on these bonds is due semiannually at interest rates that vary based on market conditions which, at September 30, 2000, ranged from 5.75% to 5.90%. Other Subsidiary Debt -- Other subsidiary 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. Southern Foods Group, L.P., which we acquired in January 2000, had $113.8 million principal amount of 9 7/8% senior notes outstanding when we completed our acquisition. As a result of the acquisition, we were required to offer to repurchase these senior notes at 101% of face value. All senior notes were tendered and were redeemed on March 24, 2000. Interest Rate Agreements -- We have interest rate derivative agreements in place, including interest rate swaps and collars that have been designated as hedges against our variable interest rate exposure on our loans under the Suiza Dairy Group, L.P. credit facility. The following table summarizes our various interest rate agreements as of September 30, 2000:
NOTIONAL AMOUNT -------------- (in thousands) Interest rate swaps with interest rates ranging from 6.03% to 6.14% expiring between December 2000 and December 2003...................... $375,000 Interest rate collars with an interest rate range of 6.08% to 7.50% expiring between December 2002 and June 2003.......................... 100,000
These derivative agreements provide hedges for loans under our Suiza Dairy Group, L.P. credit facility by limiting or fixing the LIBOR interest rates specified in the Suiza Dairy Group, L.P. credit 10 11 facility at the interest rates noted above until the indicated expiration dates of these interest rate derivative agreements. These derivative agreements were previously designated as hedges for borrowings under our terminated senior credit facility. In connection with the repayment of amounts owed under our terminated senior credit facility these derivative agreements were marked to fair market value, which resulted in a gain of $6.5 million, net of income taxes, which, along with a loss from the write-off of unamortized deferred loan costs related to this facility was reported as an extraordinary gain from the extinguishment of debt during the first quarter of 2000. These derivative agreements have been redesignated as hedges under the Suiza Dairy Group, L.P. credit facility and their recorded asset value is being amortized on a straight-line basis over the remaining lives of the respective agreements. The amortization is reported as a component of total consolidated interest expense. The following table summarizes certain additional interest rate swap agreements intended to provide hedges against variable interest rate exposure on loans under Suiza Dairy Group, L.P.'s credit facility. These agreements will become effective January 2, 2001.
INTEREST RATE LIMITS NOTIONAL AMOUNTS EXPIRATION DATE -------------------- ---------------- --------------- 6.45% $275.0 million December 2001 6.69% 100.0 million December 2004 6.69% to 6.74% 100.0 million December 2005 6.775% 75.0 million December 2006
We have also entered into interest rate swap agreements that provide hedges for loans under Leche Celta's term loan. See Note 4 - Foreign Subsidiary Term Loan. The following table summarizes these agreements:
EFFECTIVE DATE INTEREST RATE LIMITS NOTIONAL AMOUNTS EXPIRATION DATE -------------- -------------------- ---------------- --------------- November 23, 2000 5.54% 1,500,000,000 pesetas November 2003 (approximately $7.7 million as of November 6, 2000) November 23, 2000 5.6% 2,000,000,000 pesetas November 2004 (approximately $10.3 million as of November 6, 2000)
We are exposed to market risk under these arrangements due to the possibility of interest rates on the credit facilities falling below the rates on our interest rate derivative agreements. Credit risk under these arrangements is remote since the counterparties to our interest rate derivative agreements are major financial institutions. 5. BUSINESS AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS Prior to the third quarter of 1999, we had two reportable segments including "dairy" and "packaging." As a result of the sale of our U.S. plastic packaging operations effective July 2, 1999, we ceased to have a reportable packaging segment under applicable accounting rules. Therefore, we shifted our two remaining packaging operations into "Corporate/Other" for segment reporting purposes beginning in the third quarter of 1999. All periods presented have been reclassified to conform with these changes. Our two remaining packaging businesses were sold in March and May 2000. The accounting policies of both segments were the same as those described in the summary of significant accounting policies set forth in Note 1 to our 1999 consolidated financial statements contained in our 1999 Annual Report on Form 10-K. 11 12 The following are reconciliations of reportable segment amounts to our consolidated totals:
THREE MONTHS ENDED SEPTEMBER 30, -------------------------------------------------- 2000 -------------------------------------------------- (in 000s) DAIRY PACKAGING OTHER TOTAL ---------- ---------- ---------- ---------- Revenues from external customers ......................... $1,439,947 $ -- $ -- $1,439,947 Intersegment revenues ............. -- -- -- -- Segment operating income (loss) ... 97,186 -- (2,191) 94,995 Total segment assets .............. 3,552,443 -- 131,312 3,683,755 THREE MONTHS ENDED SEPTEMBER 30, -------------------------------------------------- 1999 -------------------------------------------------- (in 000s) DAIRY PACKAGING OTHER TOTAL ---------- ---------- ---------- ---------- Revenues from external customers ......................... $1,006,741 $ -- $ 75,319 $1,082,060 Intersegment revenues ............. -- -- -- -- Segment operating income (loss) ... 69,550 -- (2,820) 66,730 Total segment assets .............. 2,424,489 -- 341,754 2,766,243
NINE MONTHS ENDED SEPTEMBER 30, -------------------------------------------------- 2000 -------------------------------------------------- (in 000s) DAIRY PACKAGING OTHER TOTAL ---------- ---------- ---------- ---------- Revenues from external customers ......................... $4,226,156 $ -- $ 42,286 $4,268,442 Intersegment revenues ............. -- -- -- -- Segment operating income (loss) ... 282,885 -- (8,261) 274,624 NINE MONTHS ENDED SEPTEMBER 30, -------------------------------------------------- 1999 -------------------------------------------------- (in 000s) DAIRY PACKAGING OTHER TOTAL ---------- ---------- ---------- ---------- Revenues from external customers ......................... $2,919,200 $ 244,866 $ 190,024 $3,354,090 Intersegment revenues ............. 16,036 18,674 -- 34,710 Segment operating income (loss) ... 187,228 34,685 (11,348) 210,565
Geographic information for the three- and nine-month periods ended September 30:
REVENUES LONG-LIVED ASSETS ----------------------------------------------------------------- ------------------------------- THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, AT SEPTEMBER 30, ------------------------------- ------------------------------- ------------------------------- (in 000s) 2000 1999 2000 1999 2000 1999 -------------- -------------- -------------- -------------- -------------- -------------- United States ...... $ 1,351,641 $ 946,990 $ 4,010,105 $ 2,984,250 $ 2,673,645 $ 1,817,400 Puerto Rico ........ 57,125 59,751 171,302 180,135 123,121 124,033 Europe ............. 31,181 75,319 87,035 189,705 106,734 89,870 -------------- -------------- -------------- -------------- -------------- -------------- Total .............. $ 1,439,947 $ 1,082,060 $ 4,268,442 $ 3,354,090 $ 2,903,500 $ 2,031,303 ============== ============== ============== ============== ============== ==============
No single customer represents greater than ten percent of our consolidated revenues. 6. COMPREHENSIVE INCOME Comprehensive income consists of net income plus all other changes in equity from non-owner sources. Consolidated comprehensive income was $27.9 million and $92.3 million for the three-month and nine-month periods ending September 30, 2000. Differences between net income and consolidated comprehensive income for these periods are due to foreign currency translation adjustments. Activity in accumulated other comprehensive income and the amount of income tax (expense) benefit allocated to each component of other comprehensive income during the three- and nine-month periods ended September 30, 2000 are included below.
PRE-TAX INCOME TAX BENEFIT (LOSS) (LOSS) NET AMOUNT ------------ ------------ ------------ Accumulated other comprehensive income, December 31, 1999 ........................... $ (11,152) $ 4,714 $ (6,438) Cumulative translation adjustments: Cumulative translation adjustment arising during period ................... (432) 169 (263) Reclassification adjustment for disposal during period .............. 9,674 (3,789) 5,885 ------------ ------------ ------------ Accumulated other comprehensive income, March 31, 2000 .............................. (1,910) 1,094 (816) Cumulative translation adjustment arising during period ................... (1,920) 751 (1,169) Reclassification adjustment for disposal during period .............. 1,465 (573) 892 ------------ ------------ ------------ Accumulated other comprehensive income, June 30, 2000 ............................... (2,365) 1,272 (1,093) Cumulative translation adjustment arising during period ................... (5,280) 1,975 (3,305) ------------ ------------ ------------ Accumulated other comprehensive income, September 30, 2000 .......................... $ (7,645) $ 3,247 $ (4,398) ============ ============ ============
12 13 7. STOCKHOLDERS' EQUITY On September 15, 1998, our Board of Directors authorized an open market share repurchase program of up to $100 million of our common stock. The Board increased the program on September 28, 1999 and again on November 17, 1999, bringing the total authorized amount to $300 million. We fulfilled the $300 million authorization during the second quarter of 2000, and on May 19, 2000, the Board again increased the program by $100 million to $400 million. Set forth in the chart below is a summary of the stock we have repurchased pursuant to this program through September 30, 2000. Purchase price amounts shown in the table below do not include brokers' commissions. See Note 10 for a discussion of activity under our share repurchase program after September 30, 2000.
NUMBER OF SHARES PURCHASE PERIOD REPURCHASED PRICE ------------------------------- ----------------- ------------- (in millions) Third Quarter 1998............ 1,000,000 $ 30.4 Fourth Quarter 1998........... 510,400 15.6 Second Quarter 1999........... 79,700 3.0 Third Quarter 1999............ 1,850,515 66.7 Fourth Quarter 1999........... 3,486,508 128.4 First Quarter 2000............ 688,800 27.2 Second Quarter 2000........... 966,065 42.2 Third Quarter 2000............ 1,587,000 77.0 ----------------- ----------- Total..................... 10,168,988 $ 390.5 ================= ===========
Repurchased shares are treated as retired in our consolidated financial statements. 8. CURTAILMENT OF BENEFIT PLANS We recognized a pre-tax curtailment gain of $3.6 million during the second quarter of 2000. This was primarily due to a reduction in the projected benefit obligation under certain defined benefit plans which resulted from the consolidation of the employees covered by those plans into our defined contribution plan. 9. PLANT CLOSING COSTS Plant Closing Costs - As part of an overall integration and cost reduction strategy, we recorded costs during the third quarter of 2000 in the amount of $424,000 and during the second quarter in the amount of $549,000 associated with restructuring our corporate office departments. Also during the second quarter of 2000 we recorded costs in the amount of $641,000 associated with eliminating certain activities in our Puerto Rico operation. Those costs related primarily to severance and other expenses in connection with the elimination of a production shift and certain maintenance activities. During the first quarter of 2000, we recorded plant closing expenses of $1.8 million related to our Hartford, Connecticut plant. These cash charges relate to severance costs and plant shutdown expenses. This strategy is a continuation of our integration and cost reduction program implemented during 1999. The principal components of the plans approved during 1999 and 2000 to date include the following: o Workforce reduction as a result of plant closings, plant rationalizations and consolidation of administrative functions. The plans include an overall reduction of 205 people, primarily plant employees associated with the plant closings and rationalization. The 13 14 costs related to each plan were charged to our earnings in the period that the plan was established in detail and employee severance and benefits were appropriately communicated. All except 32 employees had been terminated as of September 30, 2000. o Shutdown costs including those costs that are necessary to prepare the plant facilities for closure. o Additional costs to be incurred after shutdown including lease obligations or termination costs, utilities and property taxes. o Write-downs of property, plant and equipment and other assets primarily related to asset impairments as a result of facilities that are no longer used in operations. The impairments relate primarily to owned building, land and equipment at the facilities which are being sold and were written down to their estimated fair value. Plant closing and other nonrecurring costs charged to operations during the first three quarters of 2000 are summarized in the following chart:
(in 000s) FIRST SECOND THIRD QUARTER QUARTER QUARTER TOTAL -------- -------- -------- -------- Cash charges: Workforce reduction costs ................... $ 1,025 $ 727 $ 424 $ 2,176 Shutdown costs .............................. 564 -- -- 564 Lease obligations after shutdown ............ 95 -- -- 95 Other ....................................... 90 69 -- 159 -------- -------- -------- -------- Total cash charges ............................... 1,774 796 424 2,994 Non-cash charges: Write down of inventory and property, plant and equipment ......................... -- 394 -- 394 -------- -------- -------- -------- Total ............................................ $ 1,774 $ 1,190 $ 424 $ 3,388 ======== ======== ======== ========
Set forth in the following chart are the types and amounts of charges that were recognized as accrued expenses, along with cash payments made against such accruals during 2000:
NINE MONTHS ENDED ACCRUED CHARGES SEPTEMBER 30, 2000 ACCRUED CHARGES AT ----------------------------------- AT DECEMBER 31, 1999 CHARGES PAYMENTS SEPTEMBER 30, 2000 ----------------- ---------------- ---------------- ------------------ (in 000s) Cash charges: Workforce reduction costs .......... $ 3,073 $ 2,176 $ (3,319) $ 1,930 Shutdown costs ..................... 468 564 (605) 427 Lease obligations after shutdown ... 438 95 (287) 246 Other .............................. 40 159 (191) 8 ---------------- ---------------- ---------------- ---------------- Total .................................. $ 4,019 $ 2,994 $ (4,402) $ 2,611 ================ ================ ================ ================
There have not been significant adjustments to any plan and the majority of future cash requirements to reduce the liabilities under the plans are expected to be completed within one year. Acquired Facility Closing Costs -- As part of our purchase price allocations, we accrued costs in 1999 and 2000 pursuant to plans to exit certain activities and operations of acquired businesses in order to rationalize production and reduce costs and inefficiencies. Several plants were closed in connection with 14 15 our acquisitions of Broughton Foods, Nature's Best, New England Dairies and Southern Foods. Production from these plants was moved to our other facilities. The principal components of the plans include the following: o Workforce reduction as a result of plant closings including an overall reduction of 282 plant personnel. The costs incurred to date have been charged against our acquisition liabilities for these costs. All except 36 employees had been terminated as of September 30, 2000. o Shutdown costs including those costs that are necessary to clean and prepare the plant facilities for closure. Additional costs to be incurred after shutdown include lease obligations or termination costs, utilities and property taxes. Set forth in the following chart are the types and amounts of costs that were recognized as accrued expenses, along with cash payments made against such accruals during 2000:
NINE MONTHS ENDED ACCRUED CHARGES SEPTEMBER 30, 2000 ACCRUED CHARGES AT ----------------------------------- AT DECEMBER 31, 1999 ACCRUALS PAYMENTS SEPTEMBER 30, 2000 ----------------- ---------------- ---------------- ------------------ (in 000s) Cash charges: Workforce reduction costs ..... $ 624 $ 1,268 $ (641) $ 1,251 Shutdown costs ................ 332 9,735 (498) 9,659 ---------------- ---------------- ---------------- ---------------- Total ............................. $ 956 $ 11,103 $ (1,139) $ 10,820 ================ ================ ================ ================
10. SUBSEQUENT EVENTS On November 2, 2000, our Board of Directors increased the authorized amount of our open market share repurchase program by $100 million, increasing the total to $500 million. During the fourth quarter of this year, through November 6, 2000, we have repurchased 40,000 shares of our common stock for a total purchase price of approximately $2.0 million pursuant to our open market share repurchase program. As of November 6, 2000, $107.5 million was available for spending under this program. 15 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We are the nation's leading dairy processor and distributor, producing a full line of company-branded and customer-branded dairy products such as fluid milk, ice cream and novelties, coffee creamers, half-and-half, whipping cream, sour cream, cottage cheese and yogurt. We also manufacture and distribute fruit juices and other flavored drinks, bottled water and coffee, and have a 43.1% interest in Consolidated Container Holdings, LLC, one of the largest rigid plastic container manufacturers in the United States. RESULTS OF OPERATIONS The following table presents certain information concerning our results of operations, including information presented as a percentage of net sales (dollars in thousands):
THREE MONTHS ENDED SEPTEMBER 30, -------------------------------------------------- 2000 1999 ---------------------- ----------------------- % OF % OF DOLLARS NET SALES DOLLARS NET SALES ---------- ---------- ---------- ---------- Net sales ............................ $1,439,947 100.0% $1,082,060 100.0% Cost of sales ........................ 1,085,627 75.4 834,410 77.1% ---------- ---------- ---------- ---------- Gross profit ......................... 354,320 24.6 247,650 22.9 Operating expenses: Selling and distribution ........ 202,371 14.1 134,257 12.4 General administrative .......... 43,035 3.0 34,411 3.2 Amortization of intangibles ..... 13,495 0.9 8,732 0.8 Plant closing and other costs ... 424 0.0 3,520 0.3 ---------- ---------- ---------- ---------- Total operating expenses ...... 259,325 18.0 180,920 16.7 ---------- ---------- ---------- ---------- Operating income ..................... $ 94,995 6.6% $ 66,730 6.2% ========== ========== ========== ==========
NINE MONTHS ENDED SEPTEMBER 30, -------------------------------------------------- 2000 1999 ----------------------- ----------------------- % OF % OF DOLLARS NET SALES DOLLARS NET SALES ---------- ---------- ---------- ---------- Net sales ............................ $4,268,442 100.0% $3,354,090 100.0% Cost of sales ........................ 3,213,745 75.3 2,610,932 77.8 ---------- ---------- ---------- ---------- Gross profit ......................... 1,054,697 24.7 743,158 22.2 Operating expenses: Selling and distribution ........ 602,297 14.1 380,445 11.4 General administrative .......... 135,235 3.2 115,248 3.4 Amortization of intangibles ..... 39,153 0.9 28,709 0.9 Plant closing and other costs ... 3,388 0.1 8,191 0.2 ---------- ---------- ---------- ---------- Total operating expenses ...... 780,073 18.3 532,593 15.9 ---------- ---------- ---------- ---------- Operating income ..................... $ 274,624 6.4% $ 210,565 6.3% ========== ========== ========== ==========
On July 2, 1999 we sold our U.S. packaging operations to Consolidated Container Holdings LLC, in exchange for cash and a 43.1% interest in Consolidated Container Holdings LLC. We account for our investment in Consolidated Container Holdings, LLC under the equity method of accounting. As a result, for periods subsequent to July 2, 1999, the sales and operating expenses of Consolidated Container Holdings, LLC are no longer included in the table presented above, but are instead condensed onto a single line below operating income (see discussion below under "Other (Income) Expense"). Third Quarter and Year-to-Date 2000 Compared to Third Quarter and Year-to-Date 1999 Net Sales -- Net sales increased 33.1% to $1.44 billion in the third quarter of 2000 from $1.08 billion in the third quarter of 1999. For the nine month period ending September 30, net sales increased 27.3% to $4.27 billion in 2000 from $3.35 billion in 1999. Excluding $245 million in revenues recorded by our U.S. packaging operations in 1999, sales increased $1.16 billion or 37.3% in the first nine months of 2000. This increase was primarily due to acquisitions. Cost of Sales -- Our cost of sales ratio was 75.4% in the third quarter of 2000 compared to 77.1% in the same period in 1999, and 75.3% for the first nine months of 2000 compared to 77.8% for the same period of 1999. This ratio improved during the third quarter of 2000 due to improved performance at dairies owned more than twelve months, especially at our Morningstar subsidiary, and because Southern Foods Group, L.P., acquired effective January 1, 2000, has a lower cost of sales ratio than our existing dairies. For the first nine months of 2000, the cost of sales ratio improved for the same reasons, in addition to lower raw material costs in the first quarter of 2000. Operating Costs and Expenses -- Our operating expense ratio was 18.0% in the third quarter of 2000 compared to 16.7% in the third quarter of 1999, and 18.3% in the first nine months of 2000 compared to 15.9% in the same period of 1999. 16 17 This ratio increased due to o higher distribution costs at Southern Foods Group, L.P. as a result of their extensive direct store delivery routes in rural areas, o higher marketing expenses in 2000 related to new products, and o increased distribution costs in 2000 because of higher fuel costs. These cost increases were partly offset by a $3.6 million pre-tax gain in the second quarter of 2000 related to the curtailment of certain defined benefit plans. Operating Income -- Operating income in the third quarter of 2000 was $95.0 million, an increase of 42.4% from third quarter 1999 operating income of $66.7 million. For the nine month period ended September 30, operating income increased 30.4% to $274.6 million in 2000 from $210.6 million in 1999. Excluding operating income of $34.7 million generated by our U.S. packaging operations in 1999, our operating income in the first nine months of 2000 increased $98.7 million or 56.1%. Our operating income margin increased to 6.6% in the third quarter of 2000 compared to 6.2% in 1999. Excluding the contribution of our U.S. packaging operations in 1999, our operating margin increased to 6.4% in the first nine months of 2000 compared to 5.7% in 1999. This increase is due to o a significant reduction in raw milk costs during the first quarter of 2000, o improved performance at dairies owned more than twelve months, and o higher margins at Southern Foods Group, L.P., partly offset by higher operating expenses. Other (Income) Expense -- Interest expense increased to $29.0 million in the third quarter of 2000 from $8.4 million in 1999, and increased to $83.1 million in the first nine months of 2000 from $39.6 million in the same period of 1999. These increases are due to additional debt used to finance acquisitions and stock repurchases, and higher interest rates. Financing charges on preferred securities decreased to $8.4 million in the third quarter of 2000 from $9.6 million in 1999, and decreased to $25.2 million in the first nine months of 2000 from $28.9 million in 1999. This reflects the redemption of $100.0 million of 5.0% preferred securities held by Dairy Farmers of America in connection with our acquisition of Southern Foods Group, L.P. Income from investments in unconsolidated affiliates, which is primarily related to our minority interest in Consolidated Container Company, LLC, amounted to $5.2 million in the third quarter of 2000 and $10.6 million in the first nine months of 2000. During the third quarter of 1999 we reported $4.7 million from our investment in Consolidated Container Company, LLC. Income Taxes -- Income tax expense was recorded at an effective rate of 37.9% in the third quarter of 2000 compared to 38.4% during the third quarter of 1999, and at an effective rate of 38.0% in the first nine months of 2000 compared to 38.6% during the same period of 1999. This decrease was a result of the sale of our U.S. packaging operations, which had a higher effective tax rate than our dairy operations, and of certain tax saving initiatives implemented during the fourth quarter of 1999 and the first quarter of 2000. Minority Interest -- Minority interest in earnings increased to $8.2 million in the third quarter of 2000 from $2.2 million in 1999, and increased to $25.3 million in the first nine months of 2000 compared 17 18 to $6.5 million in 1999. Effective January 1, 2000 we entered into a joint venture with Dairy Farmers of America into which we contributed our domestic fluid dairy operations and DFA contributed the operations of Southern Foods Group, L.P. Dairy Farmers of America received a 33.8% ownership interest which is shown as a minority interest on our consolidated financial statements. During 1999, minority interest in earnings consisted primarily of DFA's ownership interests in two smaller joint ventures: Suiza GTL, LLC and Land-O-Sun, LLC. Extraordinary Gain -- During the first quarter of 2000 we recognized a $5.0 million extraordinary gain, net of income tax expense of $2.8 million, which included the following items related to the early extinguishment of our previous senior credit facility: o A $6.5 million gain, net of income tax expense of $3.6 million, for interest rate derivatives which became unhedged and were marked to fair market value, and o A $1.5 million loss, net of an income tax benefit of $0.8 million, for the write-off of deferred finance costs. RECENT DEVELOPMENTS Stock Repurchase Program Our Board of Directors has authorized an open market share repurchase program of our common stock. Our Board of Directors increased the authorized amount of the program by $100 million to $500 million on November 2, 2000. Between January 1, 2000 and November 7, 2000 we repurchased 3,281,865 shares of our common stock for a total purchase price of $148.4 million. For more information about our stock repurchase program, please see Notes 7 and 10 to our Condensed Consolidated Financial Statements contained in this report. Investment in Dairy.com On July 28, 2000, we announced our investment in Dairy.com, a business-to-business online vertical exchange focused specifically on serving the dairy industry. Securitization of Receivables On June 30, 2000, we completed the securitization of $150 million of receivables. Pursuant to this transaction, we have pledged these receivables to a multi-seller asset-backed conduit sponsored by a major financial institution. In return, we obtained $150 million in proceeds which we distributed to our subsidiaries, Suiza Dairy Group, L.P. and Morningstar Foods, Inc. Suiza Dairy Group, L.P. used its proceeds to pay down higher cost borrowings under its credit facility. Completed Acquisitions We have completed five acquisitions during 2000, including: o Southern Foods (January 2000). Southern Foods Group, L.P., the third largest dairy processor in the United States, had 30 plants in 12 states at the time of our acquisition and net sales of approximately $1.3 billion in 1999. We acquired Southern Foods Group, L.P. pursuant to a joint venture with Dairy Farmers of America. o Valley of Virginia (February 2000). Valley of Virginia Cooperative Milk Producers Association, an agricultural marketing cooperative with dairy processing plants in 18 19 Springfield and Mt. Crawford, Virginia, had net sales of approximately $209 million in 1999. o Leche Celta (February 2000). Leche Celta, the fourth largest dairy processor in Spain, had net sales of approximately $150 million in 1999. Leche Celta has three plants located in the Galicia and Cantabria regions of Spain, and produces primarily ultra-high temperature dairy products. We acquired a majority interest in this business. We have also made two other small acquisitions to date in 2000, including a dairy in Colorado during August and a water business in the northeastern United States during January. Sale of Our European Packaging Operations On March 3, 2000, we sold Ferembal S.A., our French packaging subsidiary, and effective May 2, 2000, we sold Dixie Union GmbH & Co. KG, our German packaging subsidiary. Our only remaining packaging investment is our approximately 43% minority investment in Consolidated Container Holdings, LLC. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2000, we had total stockholders' equity of $564.4 million, total indebtedness of $1.37 billion (including long-term debt and the current portion of long-term debt) and $583.9 million of mandatorily redeemable convertible trust issued preferred securities. We are currently in compliance with all covenants and financial ratios contained in our debt agreements. Cash Flow Net cash provided by operating activities was $191.6 million for the first nine months of 2000 as contrasted to $238.4 million for the first nine months of 1999. This decrease was primarily due to the use of cash to fund a change in working capital. Investing activities in the first nine months of 2000 included approximately $86.3 million in capital expenditures and $286.1 million of cash paid for acquisitions and investments, partly offset by $89.0 million in net proceeds from divestitures. Current Debt Obligations In connection with our acquisition of Southern Foods Group, L.P. effective January 1, 2000, we replaced our then existing senior credit facility with two new facilities. For more information about this transaction and about the terms of these facilities, including scheduled principal payments, please see Note 4 to our Condensed Consolidated Financial Statements contained in this report. At September 30, 2000 Suiza Dairy Group, L.P. had outstanding borrowings of $1.13 billion under its credit facility. In addition, $21.6 million of letters of credit secured by the Suiza Dairy Group, L.P. credit facility were issued but undrawn. As of September 30, 2000, up to $462.6 million was available for future borrowings under Suiza Dairy Group, L.P.'s credit facility, subject to satisfaction of certain conditions contained in the loan agreement. At September 30, 2000 we had no funds outstanding under our new parent-level senior credit facility; however $4.0 million of letters of credit secured by that facility were issued but undrawn. At September 30, 2000 approximately $296.0 million was available for future borrowing under our new parent-level senior credit facility. 19 20 At September 30, 2000, we had $150 million of outstanding borrowings secured by our receivables. As of November 6, 2000 the outstanding balance on our Suiza Dairy Group credit facility was approximately $1.07 billion, and $17.8 million of letters of credit secured by this senior credit facility were issued but undrawn. On the same date, there was no debt outstanding under our parent-level senior credit facility, and $4.0 million of letters of credit secured by that facility were issued but undrawn. Future Capital Requirements We intend to spend a total of approximately $140.0 million in capital expenditures for our existing manufacturing facilities and distribution capabilities during 2000, of which $86.3 million has been spent to date. All capital expenditures to date this year have been funded using cash flow from operations. We expect to fund any remaining capital expenditures using cash flow from operations. We expect that cash flow from operations will be sufficient to meet our ordinary requirements for our existing businesses for the remainder of 2000 and for the foreseeable future. In the future, we may pursue additional acquisitions that are compatible with our core business strategy. Pursuant to our agreement with Dairy Farmers of America, any acquisitions of fluid dairy businesses in the United States (excluding territories) will be purchased through Suiza Dairy Group, L.P. except in certain unusual circumstances. Therefore, any such acquisitions will be funded under the Suiza Dairy Group, L.P. senior credit facility or through other types of debt and/or equity financing. Working capital requirements for Suiza Dairy Group, L.P. and its subsidiaries not satisfied by cash flow from operations will also be funded through this facility. Any international acquisitions, or domestic acquisitions of non-fluid dairy businesses, as well as all stock repurchases, will be funded through the parent senior credit facility or through other types of debt and/or equity financing. We believe that we have the ability to secure adequate financing for all of our future capital requirements. KNOWN TRENDS AND UNCERTAINTIES Trends in Tax Rates Our 1999 tax rate was approximately 39.1%. We believe that our effective tax rate will range from 37% to 40% for the next several years. Our effective tax rate is affected by various tax advantages applicable to our Puerto Rico based operations, which will phase out over the next few years. Any additional acquisitions could change this effective tax rate. Rationalization Activities As a result of our rapid growth in recent years, we have many opportunities to lower costs and become more efficient in our operations by rationalizing our assets and work force. As we continue to pursue these opportunities, we may incur costs or other charges related to these rationalization activities. Although we cannot estimate the amount of these costs or other charges at this time, we do not expect that these costs will have a material adverse impact on our earnings or results of operations. 20 21 RISK FACTORS This report contains certain statements about our future that are not statements of historical fact. These statements are found in the portions of this report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources," "Management's Discussion and Analysis of Financial Condition and Results of Operations - Known Trends and Uncertainties" and "Quantitative and Qualitative Disclosures About Market Risk." You can identify these statements by terminology such as "may," "will," "should," "expects," "seek to," "anticipates," "plans," "believes," "estimates," "intends," "predicts," "potential" or "continue" or the negative of such terms and other comparable terminology. These statements are only predictions, and in evaluating those statements, you should carefully consider the risks outlined below. Actual performance or results may differ materially and adversely. We May Have Difficulties Managing Our Growth We have expanded our operations rapidly in recent years. This rapid growth places a significant demand on our management and our financial and operational resources, which subjects us to various risks, including o inability on our part to successfully integrate or operate acquired businesses, o inability to retain key customers, and o inability to realize or delays in realizing expected benefits from our increased size. The integration of businesses we have acquired or may acquire in the future may also require us to invest more capital than we expected or require more time and effort by management than we expected. If we fail to effectively manage the integration of the businesses we have acquired, our operations and financial results could be affected, both materially and adversely. Our Failure to Successfully Compete Could Adversely Affect Our Prospects and Financial Results Our business is subject to significant competition. If we fail to successfully compete against our competitors, our business will be adversely affected. Significant consolidation is currently underway in the supermarket industry. As our customer base continues to consolidate, we expect competition among us and our competitors to intensify as we compete for the business of fewer customers. Competition in the dairy industry is based on a number of factors and, as the consolidation of the grocery industry continues, there can be no assurance that we will be able to keep our existing customers, or to gain new customers. Winning new customers is particularly important to our future growth, as demand tends to be relatively flat in our industry. Moreover, as our customers become larger, they will have significantly greater purchasing leverage, and may force dairy prices and margins significantly lower than current levels. We could also be adversely affected by any expansion of capacity by our existing competitors or by new entrants in our markets. Our Innovation Efforts May Not Succeed We have invested, or intend to invest, significant resources in product innovation in an effort to increase our sales and profit margins as well as the overall consumption of dairy products. We believe that sales and profit growth through innovation may be the only source of significant growth for our business because demand tends to be relatively flat, and we expect margins on non value-added dairy 21 22 products to be compressed as our customer base consolidates. The success of our innovation initiatives will depend on customer and consumer acceptance of our products, of which there can be no assurance. If our innovation efforts do not succeed, we may not be able to continue to increase sales or profit margins. Our Raw Material and Supply Costs Could Increase The most important raw materials that we use in our operations are raw milk, cream (including butterfat) and high density polyethylene resin. The prices of these materials increase and decrease depending on supply and demand and, in some cases, governmental regulation. Prices of raw milk and cream can fluctuate widely over short periods of time. In some cases, we are not able to pass on the increased price of raw materials to our customers due primarily to timing problems. Therefore, volatility in the cost of our raw materials can adversely affect our performance. We Could Be Adversely Affected by Changes in Regulations Under the Federal Milk Marketing Order program, the federal government and several state agencies establish minimum regional prices paid to producers for raw milk. These prices, which are calculated by economic formula based on supply and demand, vary depending on the type of product manufactured using the raw milk. In New England, the Northeast Dairy Compact Commission sets a minimum price for milk independent of the price set by the federal milk marketing orders. The price we pay for raw milk in New England currently exceeds the price we pay for raw milk in other parts of the country. Several other states have considered adopting compacts among milk producers which would establish minimum prices paid by milk processors, including us, to raw milk producers in those states. We do not know whether new compacts will be authorized by Congress or, if authorized, the extent to which these compacts would increase the prices we pay for raw milk. As a manufacturer and distributor of food products, we are also subject to federal, state and local laws and regulations relating to o food quality, o manufacturing standards, o labeling, and o packaging. Our operations are subject to other federal, foreign, state and local governmental regulation, including laws and regulations relating to occupational health and safety, labor, discrimination and other matters. While we believe that we are in compliance with all material governmental regulations, we cannot be certain what effect any future material noncompliance, or any material changes in these laws and regulations, including changes in the laws regulating minimum prices for raw milk, could have on our business. Material changes in these laws and regulations could have positive or adverse effects on our business. We Have Substantial Debt and Other Financial Obligations and We May Incur Additional Debt As of September 30, 2000, we had outstanding debt and other financial obligations of approximately $1.96 billion compared to our stockholders' equity of $564.4 million. 22 23 As of September 30, 2000, up to $462.6 million was available for future borrowings under Suiza Dairy Group, L.P.'s senior credit facility, subject to satisfaction of certain conditions contained in the loan agreement, and a total of $296.0 million was available for borrowing under the parent level credit facility. We have pledged the stock of some of our subsidiaries to secure these facilities and the assets of other subsidiaries to secure other indebtedness. Our credit facilities and related debt service obligations o limit our ability to obtain additional financing in the future without obtaining prior consent, o require us to dedicate a significant portion of our cash flow to the payment of principal and interest on our debt, which reduces the funds we have available for other purposes, o may limit our flexibility in planning for, or reacting to, changes in our business and market conditions, o impose on us additional financial and operational restrictions, and o expose us to interest rate risk since a majority of our debt obligations are at variable rates. Our ability to make scheduled payments on our debt and other financial obligations depends on our financial and operating performance. Our financial and operating performance is subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond our control. If we do not comply with the financial and other restrictive covenants under our credit facilities, we may default under these facilities. Upon default, our lenders could accelerate the indebtedness under the facilities, foreclose against their collateral or seek other remedies. We May Be Subject to Product Liability Claims We sell food products for human consumption, which involves risks such as o product contamination or spoilage, o product tampering, and o other adulteration of food products. Consumption of an adulterated, contaminated or spoiled product may result in personal illness or injury. We could be subject to claims or lawsuits relating to an actual or alleged illness or injury, and we could incur liabilities that are not insured or that exceed our insurance coverages. Although we maintain quality control programs designed to address food quality and safety issues, an actual or alleged problem with the quality, safety or integrity of our products at any of our facilities could result in o product withdrawals, o product recalls, o remediation expenses, o negative publicity, o temporary plant closings, and o substantial costs of compliance. Any of these events could have a material and adverse effect on our financial condition. Our Foreign Operations Bring Added Risk In February of this year, we purchased a majority interest in a Spanish dairy processor. We have little experience in managing businesses in Europe, and no prior experience with managing a European dairy operation. There can be no assurance that we will be able to effectively manage a dairy operation in 23 24 Europe. Moreover, conducting operations in Europe involves risks and uncertainties not present in the U.S. as a result of governmental and economic conditions being generally less stable than in the United States. Also, we are exposed to foreign currency risk due to certain operating cash flows and various financial instruments being denominated in foreign currencies. Currently, our most significant foreign currency exposure relates to the Spanish peseta and the euro. Substantial devaluation of any of these currencies could have a material adverse effect on our financial condition and results of operations. Loss of or Inability to Attract Key Personnel Could Adversely Affect Our Business Our success depends to a large extent on the skills, experience and performance of our key management. The loss of one or more of these persons could hurt our business. We do not maintain key man life insurance on any of our executive officers or directors. Also, we have experienced, and could continue to experience, some difficulty in attracting management personnel due to the currently low unemployment rates in the United States. If we are unable to attract and retain key management personnel, our business will be adversely affected. Certain Provisions of Our Certificate of Incorporation, Bylaws and Delaware Law Could Deter Takeover Attempts Some provisions in our certificate of incorporation and bylaws could delay, prevent or make more difficult a merger, tender offer, proxy contest or change of control. Our stockholders might view any such transaction as being in their best interests since the transaction could result in a higher stock price than the current market price for our common stock. Among other things, our certificate of incorporation and bylaws o authorize our board of directors to issue preferred stock in series with the terms of each series to be fixed by our board of directors, o divide our board of directors into three classes so that only approximately one-third of the total number of directors is elected each year, o permit directors to be removed only for cause, and o specify advance notice requirements for stockholder proposals and director nominations. In addition, with some exceptions, the Delaware General Corporation Law restricts mergers and other business combinations between us and any stockholder that acquires 15% or more of our voting stock. We also have a stockholder rights plan. Under this plan, after the occurrence of specified events, our stockholders will be able to buy stock from us or our successor at reduced prices. These rights do not extend, however, to persons participating in takeover attempts without the consent of our board of directors. Accordingly, this plan could delay, defer, make more difficult or prevent a change of control. Environmental Regulations Could Result in Charges or Increase Our Costs of Doing Business We, like others in similar businesses, are subject to a variety of federal, foreign, state and local environmental laws and regulations including, but not limited to, those regulating waste water and stormwater, air emissions, storage tanks and hazardous materials. We believe that we are in material compliance with these laws and regulations. Future developments, including increasingly stringent regulations, could require us to make currently unforeseen environmental expenditures. 24 25 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK INTEREST RATE AGREEMENTS We have interest rate derivative agreements in place, including interest rate swaps and collars that have been designated as hedges against our variable interest rate exposure on our loans under the Suiza Dairy Group, L.P. credit facility. The following table summarizes our various interest rate agreements as of September 30, 2000:
TYPE INTEREST RATE LIMITS NOTIONAL AMOUNTS EXPIRATION DATE - ------------------------- ---------------------- ------------------------ -------------------------- Swaps................... 6.03% to 6.14% $ 100.0 million December 2000 250.0 million December 2002 25.0 million December 2003 Collars................. 6.08% and 7.50% 100.0 million December 2002 to June 2003
These derivative agreements provide hedges for loans under Suiza Dairy Group, L.P.'s credit facility by limiting or fixing the LIBOR interest rates specified in the Suiza Dairy Group, L.P. credit facility at the interest rates noted above until the indicated expiration dates of these interest rate derivative agreements. These derivative agreements were previously designated as hedges for borrowings under our terminated senior credit facility. In connection with the repayment of amounts owed under our terminated senior credit facility these derivative agreements were marked to fair market value, which resulted in a gain of $6.5 million, net of income taxes, which, along with a loss from the write-off of unamortized deferred loan costs related to this facility was reported as an extraordinary gain from the extinguishment of debt during the first quarter of 2000. These derivative agreements have been redesignated as hedges under the Suiza Dairy Group, L.P. credit facility and their recorded asset value is being amortized on a straight-line basis over the remaining lives of the respective agreements. The amortization is reported as a component of total consolidated interest expense. The following table summarizes certain additional interest rate swap agreements intended to provide hedges against variable interest rate exposure on loans under Suiza Dairy Group, L.P.'s credit facility. These agreements will become effective January 2, 2001.
INTEREST RATE LIMITS NOTIONAL AMOUNTS EXPIRATION DATE ------------------------- ---------------------- --------------------- 6.45% $275.0 million December 2001 6.69% 100.0 million December 2004 6.69% to 6.74% 100.0 million December 2005 6.775% 75.0 million December 2006
We have also entered into interest rate swap agreements that provide hedges for loans under Leche Celta's term loan. See Note 4 - Foreign Subsidiary Term Loan. The following table summarizes these agreements:
EFFECTIVE DATE INTEREST RATE LIMITS NOTIONAL AMOUNTS EXPIRATION DATE - ------------------------- ----------------------- ----------------------------------- ---------------------- November 23, 2000 5.54% 1,500,000,000 pesetas November 2003 (approximately $7.7 million as of November 6, 2000) November 23, 2000 5.6% 2,000,000,000 pesetas November 2004 (approximately $10.3 million as of November 6, 2000)
25 26 We are exposed to market risk under these arrangements due to the possibility of interest rates on our credit facilities falling below the rates on our interest rate derivative agreements. Credit risk under these arrangements is remote since the counterparties to our interest rate derivative agreements are major financial institutions. A majority of our debt obligations are at variable rates. We have performed a sensitivity analysis assuming a hypothetical 10% adverse movement in interest rates. As of September 30, 2000, the analysis indicated that such interest rate movement would not have a material effect on our financial position, results of operations or cash flows. However, actual gains and losses in the future may differ materially from that analysis based on changes in the timing and amount of interest rate movement and our actual exposure and hedges. FOREIGN CURRENCY We are exposed to foreign currency risk due to operating cash flows and various financial instruments that are denominated in foreign currencies. Our most significant foreign currency exposures relate to the Spanish peseta and the euro. We do not expect any potential losses due to foreign currency fluctuations to have a material impact on our consolidated financial position, results of operations or operating cash flow. 26 27 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Prior to our acquisition of West Lynn Creamery in June 1998, West Lynn Creamery had paid rebates to certain of its customers pursuant to a rebate program established many years ago (the "Rebate Program"). The United States Department of Justice (the "DOJ"), through the U.S. attorney for Boston, is investigating this Rebate Program. The investigation was initiated by the DOJ because of allegations made by one or more of West Lynn's customers that West Lynn conspired with or aided these customers in evading payment of their federal income taxes through the use of the Rebate Program. We are fully cooperating with the DOJ's investigation of the Rebate Program. If the DOJ finally concludes that West Lynn Creamery failed to comply with any federal statute, it could bring criminal charges against West Lynn Creamery or one of our other subsidiaries. Alternatively, West Lynn Creamery or one of our other subsidiaries may enter into a criminal or a civil agreement with the DOJ in order to resolve this matter. In either event, we could be required to pay fines and/or penalties which could be material. At this time, we do not know when or how this investigation ultimately will be resolved or the amount of any potential liability, nor do we know whether any potential liability can be recovered from the former owners or agents of West Lynn Creamery. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Amendment No. 1 to Credit Agreement between Suiza Foods Corporation and certain lenders party thereto 10.2 First Amendment to Credit Agreement between Suiza Dairy Group, L.P. and certain lenders party thereto 10.3 Amended and Restated Employee Stock Purchase Plan 11 Statement re computation of per share earnings 27 Financial Data Schedules (b) Reports on Form 8-K and 8-K/A None 27 28 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. SUIZA FOODS CORPORATION /s/ Barry A. Fromberg -------------------------------------------- Barry A. Fromberg Executive Vice President and Chief Financial Officer (Principal Accounting Officer) Date: November 10, 2000 29 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------ ----------- 10.1 Amendment No. 1 to Credit Agreement between Suiza Foods Corporation and certain lenders party thereto 10.2 First Amendment to Credit Agreement between Suiza Dairy Group, L.P. and certain lenders party thereto 10.3 Amended and Restated Employee Stock Purchase Plan 11 Statement re computation of per share earnings 27 Financial Data Schedules
EX-10.1 2 d81719ex10-1.txt AMENDMENT NO. 1 TO CREDIT AGREEMENT-SUIZA FOODS 1 EXHIBIT 10.1 AMENDMENT NO. 1 TO CREDIT AGREEMENT This AMENDMENT NO. 1 TO CREDIT AGREEMENT (this "Amendment") is executed as of June 30, 2000, to be effective for all purposes as of the Effective Date (as hereinafter defined). Reference is made to the Credit Agreement, dated as of January 4, 2000 (as amended, modified, supplemented and in effect on the date hereof, the "Credit Agreement"), among Suiza Foods Corporation, a Delaware corporation (the "Borrower"), certain Subsidiaries of Borrower, the lenders party thereto (collectively, the "Lenders"), First Union National Bank, as administrative agent for the Lenders (in such capacity, the "Administrative Agent"), Bank One, NA, as syndication agent for the Lenders, and Bank of America, N.A., and Fleet National Bank, as co-documentation agents for the Lenders. WHEREAS, the Borrower, the Lenders and the Administrative Agent desire to amend certain provisions of the Credit Agreement; NOW, THEREFORE, the parties hereto hereby agree as follows: Section 1. Definitions. Except as otherwise defined in this Amendment, terms defined in the Credit Agreement are used herein as defined therein. Section 2. Amendments to Credit Agreement and Schedules Thereto. Subject to the satisfaction of the conditions precedent set forth in Section 5 hereof, the Lenders hereby agree that the Credit Agreement shall be amended as follows: A. From and after the Effective Date, the definitions set forth in Section 1.1 are amended by (i) amending and restating the definitions of the terms "Leverage Ratio", "Permitted Acquisition" and "SFDG" in their entirety to read as set forth below and (ii) adding the following other defined terms thereto in the appropriate alphabetical order: "Leverage Ratio" shall mean, with respect to the Borrower and its Restricted Subsidiaries on a consolidated basis for the twelve month period ending on the last day of any fiscal quarter, the ratio of (a) Funded Debt of the Borrower and its Restricted Subsidiaries on a consolidated basis on the last day of such period minus cash held on a consolidated basis on such day to (b) Consolidated EBITDA for such period. "Permitted Acquisition" shall mean an acquisition by the Borrower or any of its Subsidiaries which (i) is an acquisition of a Person or assets of a Person in a line of business permitted by Section 6.3 hereof, (ii) is in an amount not greater than $100,000,000 in total cash consideration (after deducting cash on the balance sheet of the Person acquired or included in the assets being acquired) for any single acquisition; provided, however, the total cash consideration (after deducting cash on the balance sheet of the Person acquired or included in the assets being acquired) for any single acquisition may exceed $100,000,000 with the consent of the Required Lenders or if the funds for such acquisition are provided by SFDG by a loan and the assets of the entity acquired or the assets acquired are transferred to SFDG to extinguish such loan or in exchange for a preferred ownership interest with terms matching such loan's terms, (iii) is approved by the Board of Directors or the requisite shareholders of the Person being acquired or Person transferring the assets being acquired, 2 (iv) if an acquisition of Capital Stock of a Person, at least 51% of all issued and outstanding Capital Stock of such Person is acquired, and (v) after giving effect to such acquisition on a Pro Forma Basis, the Borrower and its Restricted Subsidiaries are in compliance with each of the financial covenants set forth in Section 5.9. "SFDG" shall mean Suiza Dairy Group, L.P., a Delaware limited partnership and Subsidiary of Borrower. B. From and after the Effective Date, paragraphs (c) and (l) in the definition of "Permitted Investment" are hereby amended and restated to read in their entirety as follows and a new paragraph (o) is hereby added to the definition of "Permitted Investment" to read as follows: "(c) investments of any Subsidiary of the Borrower in the Borrower, investments of any Restricted Subsidiary of the Borrower in any other Restricted Subsidiary of the Borrower or investments by the Borrower in any of its Restricted Subsidiaries, or investments of the Borrower and/or any of its Restricted Subsidiaries in any of its Unrestricted Subsidiaries in connection with a Permitted Acquisition; (l) additional investments up to but not exceeding $50,000,000 in the aggregate during each fiscal year, including investments in Unrestricted Subsidiaries; provided, however, that notwithstanding the foregoing, the Borrower shall be permitted to make additional investments in Unrestricted Subsidiaries during any fiscal year in an amount equal to the aggregate amount of dividends and other distributions received by the Borrower or its Restricted Subsidiaries from such Unrestricted Subsidiaries and payments of Indebtedness by an Unrestricted Subsidiary to the Borrower or its Restricted Subsidiaries during such fiscal year; (o) to the extent no Default or Event of Default exists at such time or would result therefrom, loans by the Borrower or its Subsidiaries to SFDG or its Subsidiaries up to but not exceeding $100,000,000 in the aggregate principal amount at any one time outstanding." C. From and after the Effective Date, paragraph (c) of Section 2.2 of the Credit Agreement is hereby amended and restated to read in its entirety as follows: "(c) Interest on Swingline Loans. Subject to the provisions of Section 2.8(b), Swingline Loans shall bear interest at a per annum rate equal to the lesser of (i) Alternate Base Rate plus the Applicable Percentage for Revolving Loans that are Alternate Base Rate Loans, or (ii) the rate agreed upon by the Borrower and the Swingline Lender with respect to the portion of the Swingline Loans held by the Swingline Lender. Interest on Swingline Loans shall be payable in arrears on each Interest Payment Date." D. From and after the Effective Date, a new paragraph (i) is added to Section 6.1 of the Credit Agreement to read as follows: 3 "(i) to the extent no Default or Event of Default exists at such time or would result therefrom, additional Indebtedness of the Borrower and its Restricted Subsidiaries to SFDG or its Subsidiaries up to but not exceeding $100,000,000 in the aggregate principal amount at any one time outstanding." E. From and after the Effective Date, paragraph (c) of Section 6.4 of the Credit Agreement is hereby amended and restated to read in its entirety as follows: (c) convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, any part of its business or assets, whether now owned or hereafter acquired (including, without limitation, receivables and leasehold interests), but excluding: (i) any Excluded Disposition; (ii) obsolete or worn-out Property, tools or equipment no longer used or useful in its business (other than any Excluded Disposition) or real Property no longer used or useful in its business; (iii) any sale, lease or transfer of assets from a Credit Party to another Credit Party; (iv) any sale of Transferred Assets by such Person to a Receivables Financier in connection with a Permitted Receivables Financing; (v) other assets so long as the aggregate amount thereof sold or otherwise disposed of in any single fiscal year by the Borrower and its Restricted Subsidiaries shall not have a book value in excess of ten percent of the book value of the total assets of the Borrower and its Restricted Subsidiaries owned on the first day of such fiscal year; and (vi) any sale or lease of assets (A) to SFDG or its Subsidiaries in connection with a business realignment to the extent permitted under Section 6.3 in an aggregate amount, so long as the Borrower and its Restricted Subsidiaries remain in compliance with the provisions of Section 5.9, not to exceed (1) $100,000,000 from the date hereof through June 30, 2001, (2) $75,000,000 for the period beginning July 1, 2001 through June 30, 2002 and (3) $50,000,000 on an annual basis for the period beginning July 1, 2002 through the Maturity Date or (B) in connection with a Permitted Receivables Financing; provided, that in each case with respect to subsection (v) above at least 85% of the consideration received therefor by the Borrower or any such Restricted Subsidiary is in the form of cash or Cash Equivalents; and" F. Schedules 3.6, 3.12, 3.16 and 3.19 to the Credit Agreement are hereby replaced by Revised Schedules 3.6, 3.12, 3.16 and 3.19 attached to this Amendment, as of the Effective Date hereof. 4 G. References in the Credit Agreement (including references to such Credit Agreement as amended hereby) to "this Agreement" (and indirect references such as "hereunder", "hereby", "herein", and "hereof") shall be deemed to be references to the Credit Agreement as amended hereby. Section 3. Representations and Warranties. The Credit Parties hereby represent and warrant to the Administrative Agent and the Lenders that (i) the representations and warranties in Article 3 of the Credit Agreement are true and correct on the date hereof as if made on and as of the date hereof as if each reference (whether direct or indirect) therein to "this Agreement" included reference to this Amendment and the Credit Agreement as amended hereby and (ii) no Default has occurred and is continuing as of the date hereof. Section 4. Guarantors. Each of the Guarantors (i) acknowledges and consents to all of the terms and conditions of this Amendment, (ii) affirms all of its obligations under the Credit Documents and (iii) agrees that this Amendment and all documents executed in connection herewith do not operate to reduce or discharge such Guarantor's obligations under the Credit Agreement or the other Credit Documents. Section 5. Conditions Precedent. The amendments to the Credit Agreement set forth in Section 2 shall become effective as of June 30, 2000 on the date (the "Effective Date") that this Amendment shall have been executed by the Borrower, the Guarantors and the Required Lenders. Section 6. Miscellaneous. Except as expressly provided herein, the Credit Agreement shall remain unmodified and in full force and effect. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. This Amendment shall be governed by, and construed in accordance with, the law of the State of North Carolina. 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the day and year first above written. BORROWER: SUIZA FOODS CORPORATION By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- GUARANTORS: MORNINGSTAR FOODS INC. MORNINGSTAR SERVICES INC. NEPTUNE DELAWARE CORPORATION NEVA PLASTICS MANUFACTURING CORP. SUIZA DAIRY CORPORATION SUIZA FRUIT CORPORATION SUIZA MANAGEMENT CORPORATION By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- 6 AGREED AND ACCEPTED: FIRST UNION NATIONAL BANK, in its capacity as Administrative Agent and individually in its capacity as a Lender By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- BANK ONE, NA, in its capacity as Syndication Agent and individually in its capacity as a Lender By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- BANK OF AMERICA, N.A., in its capacity as Documentation Agent and individually in its capacity as a Lender By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- FLEET NATIONAL BANK, in its capacity as Documentation Agent and individually in its capacity as a Lender By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- 7 COBANK, ACB, in its capacity as Managing Agent and individually in its capacity as a Lender By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- CREDIT AGRICOLE INDOSUEZ, in its capacity as Managing Agent and individually in its capacity as a Lender By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- THE INDUSTRIAL BANK OF JAPAN, LIMITED, in its capacity as Managing Agent and individually in its capacity as a Lender By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- WELLS FARGO BANK (TEXAS), N.A., in its capacity as Managing Agent and individually in its capacity as a Lender By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- 8 BANCO POPULAR DE PUERTO RICO, in its capacity as Co-Agent and individually in its capacity as a Lender By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- THE BANK OF TOKYO-MITSUBISHI, LTD., in its capacity as Co-Agent and individually in its capacity as a Lender By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- THE BANK OF NOVA SCOTIA, in its capacity as Co-Agent and individually in its capacity as a Lender By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- SUNTRUST BANK, ATLANTA, in its capacity as Co-Agent and individually in its capacity as a Lender By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- 9 CITIBANK, N.A. By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- EX-10.2 3 d81719ex10-2.txt FIRST AMENDMENT TO CREDIT AGREEMENT-SUIZA DAIRY 1 EXHIBIT 10.2 FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as of June 30, 2000 among SUIZA DAIRY GROUP, L.P., f/k/a Suiza Fluid Dairy Group, L.P., a Delaware limited partnership (the "Parent Borrower"), SOUTHERN FOODS GROUP, L.P., a Delaware limited partnership (the "Subsidiary Borrower"), certain of the Domestic Subsidiaries of the Parent Borrower (individually a "Guarantor" and collectively the "Guarantors"; the Guarantors, together with the Parent Borrower and the Subsidiary Borrower, individually a "Credit Party" and collectively the "Credit Parties"), FIRST UNION NATIONAL BANK, as Administrative Agent (the "Administrative Agent") for the lenders party to the Credit Agreement defined below (the "Lenders"), BANK ONE, NA, as Syndication Agent for the Lenders (the "Syndication Agent"), BANK OF AMERICA, N.A. and FLEET NATIONAL BANK, as Co-Documentation Agents (the "Documentation Agents"), and the Lenders. RECITALS WHEREAS, the Parent Borrower, the Subsidiary Borrower, the Guarantors, the Administrative Agent, the Syndication Agent, the Documentation Agents and the Lenders are parties to that certain Credit Agreement dated as of January 4, 2000 (the "Credit Agreement"), which provides for the making of revolving loans, term loans and other financial accommodations to the Borrower and the Subsidiary Borrower; WHEREAS, the Parent Borrower has requested that the Subsidiary Borrower no longer be treated as a separate borrower under the Credit Agreement, that the Parent Borrower assume all obligations of the Subsidiary Borrower under the Credit Agreement, that the Subsidiary Borrower guarantee all Credit Party Obligations and that the Lenders make certain other changes to the Credit Agreement; and WHEREAS, the parties hereto have agreed to amend the Credit Agreement on the terms and subject to the conditions set forth in this Amendment. NOW, THEREFORE, the parties hereto hereby agree as follows: Section 1. Definitions. Except as otherwise defined in this Amendment, terms defined in the Credit Agreement are used herein as defined therein. Section 2. Amendments to Credit Agreement and Schedules Thereto. Subject to the satisfaction of the conditions precedent set forth in Section 5 hereof, the Lenders hereby agree that the Credit Agreement shall be amended as follows: 2 A. From and after the Effective Date (as defined below), the Credit Agreement is amended in its entirety to read in the form of such Credit Agreement attached hereto as Exhibit A to this Amendment. B. From and after the Effective Date, the Subsidiary Borrower shall no longer be a Borrower, but shall be a Guarantor under the Credit Documents. C. As of the Effective Date, Schedules 2.1(a), 2.1(d), 2.3(c), 2.4(c), 2.5(d), 3.6, 3.12, 3.19 and 6.1(b) to the Credit Agreement are replaced by the revised Schedules 2.1(a), 2.1(d), 2.3(c), 2.4(c), 2.5(d), 3.6, 3.12, 3.19 and 6.1(b) attached to this Amendment. D. As of the Effective Date, Schedule 2.2(d) to the Credit Agreement is deleted in its entirety. E. References in the Credit Agreement (including references to such Credit Agreement as amended hereby) to "this Agreement" (and indirect references such as "hereunder", "hereby", "herein", and "hereof") shall be deemed to be references to the Credit Agreement as amended hereby. Section 3. Representations and Warranties. The Credit Parties hereby represent and warrant to the Administrative Agent and the Lenders that (i) the representations and warranties in Article 3 of the Credit Agreement (as amended hereby) are true and correct on the date hereof as if made on and as of the date hereof as if each reference (whether direct or indirect) therein to "this Agreement" included reference to this Amendment and the Credit Agreement as amended hereby and (ii) no Default or Event of Default has occurred and is continuing as of the date hereof. Section 4. Guarantors. Each of the Guarantors (including the Subsidiary Borrower) (i) acknowledges and consents to all of the terms and conditions of this Amendment, (ii) affirms all of its obligations under the Credit Documents and (iii) agrees that this Amendment and all documents executed in connection herewith do not operate to reduce or discharge such Guarantor's obligations under the Credit Agreement or the other Credit Documents. Section 5. Conditions Precedent. The amendments to the Credit Agreement set forth in Section 2 shall become effective as of June 30, 2000 upon the satisfaction of each of the following conditions (the "Effective Date"): A. The Administrative Agent shall have received an executed counterpart to this Amendment from the Borrower, the Guarantors and the Required Lenders. B. The Administrative Agent shall have received, for each applicable Lender, an executed Revolving Note, Term A Note, Term A2 Note and Swingline Note. C. The Administrative Agent shall have received a Joinder Agreement duly executed by the Subsidiary Borrower. 2 3 Section 6. Miscellaneous. Except as expressly provided herein, the Credit Agreement shall remain unmodified and in full force and effect. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. This Amendment shall be governed by, and construed in accordance with, the law of the State of North Carolina. 3 4 IN WITNESS WHEREOF, each of the parties hereto have caused this Amendment to be duly executed and delivered by its proper and duly authorized officers as of the day and year first above written. PARENT BORROWER: SUIZA DAIRY GROUP, L.P., a Delaware limited partnership By: Suiza Dairy Group GP, LLC By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- SUBSIDIARY BORROWER: SOUTHERN FOODS GROUP, L.P., a Delaware limited partnership By: SFG MANAGEMENT LIMITED LIABILITY COMPANY By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 5 GUARANTORS: SFG MANAGEMENT LIMITED LIABILITY COMPANY SUIZA SOUTHEAST, LLC BROUGHTON FOODS, LLC LAND-O-SUN DAIRIES, LLC COUNTRY DELITE FARMS, LLC DAIRY FRESH, LLC LOUIS TRAUTH DAIRY, LLC VELDA FARMS, LLC SUIZA GTL, LLC NEW ENGLAND DAIRIES, LLC TUSCAN/LEHIGH MANAGEMENT, L.L.C. SUIZA SOUTHWEST, LLC (fka Suiza West, LLC) ROBINSON DAIRY, LLC MODEL DAIRY, LLC SUIZA SOCAL, LLC COUNTRY FRESH, LLC OBERLIN FARMS DAIRY, LLC LONDON'S FARM DAIRY, LLC CF BURGER DAIRY, LLC By: -------------------------------------------- Name: ------------------------------------------ Title: of each of the foregoing ----------------- limited liability companies 6 SOUTHERN FOODS GROUP, L.P., a Delaware limited partnership By: SFG MANAGEMENT LIMITED LIABILITY COMPANY By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ TUSCAN/LEHIGH DAIRIES, L.P. By: TUSCAN/LEHIGH MANAGEMENT, L.L.C. its general partner By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ SFG CAPITAL CORPORATION By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 7 FIRST UNION NATIONAL BANK, in its capacity as Administrative Agent and individually in its capacity as a Lender By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 8 BANK ONE, NA, in its capacity as Syndication Agent and individually in its capacity as a Lender By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 9 BANK OF AMERICA, N.A., in its capacity as Documentation Agent and individually in its capacity as a Lender By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 10 FLEET NATIONAL BANK, in its capacity as Documentation Agent and individually in its capacity as a Lender By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 11 COBANK, ACB, in its capacity as Managing Agent and individually in its capacity as a Lender By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 12 CREDIT AGRICOLE INDOSUEZ, in its capacity as Managing Agent and individually in its capacity as a Lender By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 13 COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A. "RABOBANK NEDERLAND", NEW YORK BRANCH, in its capacity as Managing Agent and individually in its capacity as a Lender By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 14 THE INDUSTRIAL BANK OF JAPAN, LIMITED, in its capacity as Managing Agent and individually in its capacity as a Lender By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 15 WELLS FARGO BANK (TEXAS), N.A., in its capacity as Managing Agent and individually in its capacity as a Lender By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 16 BANCO POPULAR DE PUERTO RICO, in its capacity as Co-Agent and individually in its capacity as a Lender By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 17 BANCO POPULAR NORTH AMERICA, in its capacity as Co-Agent and individually in its capacity as a Lender By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 18 THE BANK OF TOKYO-MITSUBISHI, LTD., in its capacity as Co-Agent and individually in its capacity as a Lender By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 19 THE BANK OF NOVA SCOTIA, in its capacity as Co-Agent and individually in its capacity as a Lender By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 20 GUARANTY FEDERAL BANK, F.S.B. in its capacity as Co-Agent and individually in its capacity as a Lender By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 21 SUNTRUST BANK, ATLANTA, in its capacity as Co-Agent and individually in its capacity as a Lender By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 22 HARRIS TRUST AND SAVINGS BANK By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 23 BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC. By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 24 CREDIT INDUSTRIEL ET COMMERCIAL By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 25 U.S. BANCORP AG CREDIT, INC. By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 26 BANK HAPOALIM B.M. By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 27 THE BANK OF NEW YORK By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 28 BANQUE NATIONALE DE PARIS By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 29 THE CHASE MANHATTAN BANK By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 30 CREDIT LYONNAIS NEW YORK BRANCH By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 31 THE DAI-ICHI KANGYO BANK, LTD., CHICAGO BRANCH By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 32 THE MITSUBISHI TRUST & BANKING CORPORATION By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 33 NATIONAL CITY BANK OF KENTUCKY By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 34 THE SANWA BANK, LIMITED, NEW YORK BRANCH By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 35 THE FUJI BANK, LIMITED By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 36 THE SAKURA BANK, LIMITED By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 37 MERCANTILE BANK NATIONAL ASSOCIATION By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 38 BANK OF HAWAII By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 39 ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN AG By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 40 MICHIGAN NATIONAL BANK By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 41 RZB FINANCE LLC By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 42 NATEXIS BANQUES POPULAIRES By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- EX-10.3 4 d81719ex10-3.txt AMENDED/RESTATED EMPLOYEE STOCK PURCHASE PLAN 1 EXHIBIT 10.3 FIRST AMENDED AND RESTATED 1997 EMPLOYEE STOCK PURCHASE PLAN OF SUIZA FOODS CORPORATION I. INTRODUCTION The purpose of the First Amended and Restated 1997 Employee Stock Purchase Plan is to make available to eligible employees of Suiza Foods Corporation (the "COMPANY"), and certain related companies a means of purchasing shares of Suiza Common Stock through voluntary, regular payroll deductions. The Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974, but is intended to qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the "CODE"). The Plan shall be administered, interpreted and construed in accordance with Section 423 of the Code. Participation in the Plan is entirely voluntary, and the Company makes no recommendations to employees as to whether they should or should not participate. II. DEFINITIONS 2.1. DEFINITIONS. The following words and phrases shall have the following meanings: "ADMINISTRATOR" means the entity or person designated to act as Administrator of the Plan pursuant to SECTION 6.1. "BASE COMPENSATION" means gross compensation for the relevant pay period, including overtime pay, but excluding all bonuses, severance pay, any extraordinary pay, expense allowances/reimbursements, moving expenses and income from restricted stock or stock option awards. For these purposes, gross compensation includes any amount that would be included in taxable income but for the fact that it was contributed to a qualified plan pursuant to an elective deferral under Section 401(k) of the Code or contributed under a salary reduction agreement pursuant to Section 125 of the Code. "BOARD" means the Board of Directors of Suiza. "BROKER" means a duly licensed securities dealer, broker or agent designated to act as Broker of the Plan pursuant to SECTION 6.2. "COMMITTEE" means the Compensation Committee of the Board, which, to the extent required by Rule 16b-3, shall consist entirely of non-employee directors (as defined in Rule 16b-3). Page 1 of 9 2 "COMPANY" means Suiza Foods Corporation. "COMMON STOCK" means Suiza's Common Stock, par value $.01 per share. "CODE" has the meaning set forth in ARTICLE I. "ELIGIBLE EMPLOYEE" means any employee of any Suiza Company, excluding any employee (a) who has been employed by a Suiza Company for less than 60 days, (b) whose customary employment with the employee's Employer is 20 hours or less per week, (c) whose customary employment with the employee's Employer is not for more than five months in any calendar year, or (d) who immediately after the grant of an option under this Plan to the employee would (in accordance with the provisions of Sections 423 and 424(d) of the Code) own stock possessing 5% or more of the total combined voting power or value of all classes of stock of the "employer corporation" or of its "PARENT CORPORATIONS" or "SUBSIDIARY CORPORATIONS," as defined in Section 424 of the Code. "EMPLOYER" means, with respect to any Participant, the Suiza Company of which the Participant is an Eligible Employee. "FAIR MARKET VALUE" means, with respect to a share of Common Stock, the last sales price (or average of the quoted closing bid and asked prices if there is no closing sales price reported) of a share of Common Stock as reported by the New York Stock Exchange (or by the principal national stock exchange on which the Common Stock is then listed) on the date of valuation, if such date is a business day, or the immediately preceding business day, if such date is not a business day. "INDEMNIFIED PERSON" has the meaning set forth in SECTION 9.2. "INITIAL OPTION PERIOD" means the Option Period commencing on the Plan Start Date and ending on July 31, 1997. "1933 ACT" means the Securities Act of 1933, as amended. "OPTION" means an option granted pursuant to this Plan at the beginning of each Option Period to acquire Common Stock. "OPTION EXERCISE DATE" means the last day of each Option Period. "OPTION PERIOD" means each calendar month during the period beginning on the Plan Start Date and ending on June 30, 2007, unless the Plan is terminated earlier. "PAYROLL DEDUCTION ACCOUNT" means, with respect to each Participant, the amounts credited to the Participant's account from the payroll deductions made by the Participant under this Plan, less any amounts withdrawn from such account (for payment of Common Stock, Page 2 of 9 3 payment to the Participant, payment of withholding and other taxes or amounts or payment of other obligations or amounts). "PARTICIPANT" has the meaning set forth in SECTION 3.2. "PLAN" means the Suiza Foods Corporation First Amended and Restated 1997 Employee Stock Purchase Plan as the same may be amended from time to time. "PLAN START DATE" means July 1, 1997. "RELATED CORPORATION" means any present or future corporation which would be a "subsidiary corporation" or "parent corporation" of Suiza Foods Corporation as such terms are defined in Section 424 of the Code. "RULE 16B-3" means Rule 16b-3 under the 1933 Act. "SUIZA COMPANY" means Suiza Foods Corporation or a Related Corporation. "STOCK ACCOUNT" means, with respect to each Participant, the number of shares of Common Stock credited under this Plan to the Participant's account. Dividends with respect to shares of Common Stock credited to a Participant's Stock Account shall be paid to the Participant and shall not be held in either the Participant's Stock Account or Payroll Deduction Account. III. PARTICIPATION 3.1. ELIGIBLE EMPLOYEES. Subject to ARTICLE VIII, all Eligible Employees as of the beginning of each Option Period may participate in the Plan for such Option Period at their election. 3.2. PARTICIPATION PROCEDURES. If an Eligible Employee does not otherwise have an election to become a Participant in effect, each Eligible Employee choosing to participate in the Plan (herein called a "PARTICIPANT") during an Option Period shall enroll as a Participant in the Plan by filing with the Participant's Employer a completed enrollment form (authorized by the Administrator) no later than (a) 15 days prior to the beginning of any Option Period (including the Initial Option Period). 3.3. EMPLOYEE CONTRIBUTIONS. Subject to other limitations provided in this Plan, a Participant may contribute under the Plan a minimum of one percent (1%) and a maximum of fifteen percent (15%) of the Participant's Base Compensation. Contributions may be made only through regular payroll deductions, net of any tax or other withholdings. An enrollment form and payroll deduction authorization will remain effective for each Option Period until terminated in writing by a Participant or until the Participant is no longer eligible to participate in the Plan. The payroll deduction authorization may be reduced or terminated at any time by the Participant's written request submitted to the Participant's Page 3 of 9 4 Employer; PROVIDED, HOWEVER, that a Participant may not recommence or increase payroll deductions until the beginning of the next Option Period, nor may a Participant make more than one revision of the Participant's payroll deduction authorization in any Option Period. Termination of deductions shall constitute withdrawal from the Plan as set forth in SECTION 3.5 and cancellation of any outstanding Options of the Participant. Reduction or termination of deductions will become effective as soon as practicable after a Participant's written request is received by the Participant's Employer. 3.4. PARTICIPANT RESTRICTION. Notwithstanding any provisions of this Plan to the contrary, no Participant will be granted an option under this Plan which would permit the Participant's rights to purchase shares of stock under all employee stock purchase plans of Suiza and "parent corporations" and "subsidiary corporations" (within the meaning of Section 424 of the Code) to accrue at a rate which exceeds $25,000 of the Fair Market Value of such stock (determined at the time each Option is "GRANTED" (within the meaning of Code Section423(b)(8)) for each calendar year during which any Option granted to such Participant is outstanding at any time, as provided in Sections 423 and 424(d) of the Code. 3.5. WITHDRAWAL FROM PLAN. A Participant may withdraw from the Plan (thereby canceling all Options then in existence) at any time by giving written notice to the Participant's Employer and to the Administrator. The Administrator shall, as soon as practicable after receiving written notice of a Participant's withdrawal from the Plan, cause to be delivered to the Participant a check representing any funds held to the credit of the Participant's Payroll Deduction Account. A Participant who has withdrawn from the Plan may thereafter reenter the Plan by following the procedure described under SECTION 3.2, but not sooner than the beginning of the next Option Period after the Participant has withdrawn from participation. 3.6. TERMINATION OF PARTICIPANT'S EMPLOYMENT. Upon termination of a Participant's employment from the Suiza Companies for any reason, including death or disability, the Participant's Payroll Deduction Account in the Plan shall be closed, and all existing Options held by the Participant shall be canceled. The Administrator shall, as soon as practicable after termination of a Participant's employment, cause to be delivered to the Participant or the Participant's estate or the Participant's designated beneficiary as provided below, as applicable, a check representing any funds held to the credit of the Participant's Payroll Deduction Account. In the event of a Participant's death, the Participant's Payroll Deduction Account shall be delivered and paid to the estate of such Participant or to a beneficiary designated by the Participant in writing on a form approved by the Administrator. IV. OPTIONS TO PURCHASE STOCK; MAXIMUM SHARES AVAILABLE 4.1. MAXIMUM SHARES. The maximum number of shares which shall be issued under the Plan, subject to adjustment upon changes in Common Stock under ARTICLE VII, shall be 250,000 shares. 4.2. OFFERINGS. Subject to ARTICLE XIII, the Company shall make consecutive offerings on the beginning of each Option Period to Participants to purchase Common Stock as Page 4 of 9 5 long as shares authorized remain available for issuance. Each offering as of the beginning of each Option Period shall be the total number of shares authorized under SECTION 4.1, less the number of shares issued by purchases of Common Stock under SECTION 5.5 in prior Option Periods. V. PURCHASE OF STOCK PURSUANT TO OPTIONS 5.1. PAYROLL DEDUCTION ACCOUNTS. Each Suiza Company will deduct from its Participants' paychecks such amounts as have been authorized by the Participants and, promptly after the end of each month, remit to the Administrator all amounts so deducted during the month, together with a report showing each Participant and the amounts allocable to the Payroll Deduction Account of each Participant. The Administrator shall credit each Participant's Payroll Deduction Account with the amount of such deposits, and shall reduce the Participant's Payroll Deduction Account by the purchase price of all Common Stock purchased by the Participant under this Plan and by any other withdrawals from the Participant's Payroll Deduction Account. The Plan, through its Administrator, shall purchase for the Stock Accounts of the Participants shares of Common Stock with funds received under the Plan. 5.2. STOCK ACCOUNTS. The Broker will open and maintain a Stock Account in the name of each Participant to which will be credited all shares of Common Stock purchased for the Participant's benefit. All shares held under the Plan will be registered in the name of the Plan or the Broker, and will remain so registered until the shares are delivered to the Participant. The Participant shall have the right to sell all or any part of the shares held in the Participant's Stock Account, pursuant to procedures established by the Broker. 5.3. GRANT OF OPTIONS AND PURCHASE. Subject to ARTICLE VIII, each person who is a Participant on the first day of an Option Period will as of the first day of such Option Period be granted an Option for such period. Such Option will be for the number of shares of Common Stock to be determined by dividing (a) the balance in the Participant's Payroll Deduction Account on the Option Exercise Date, by (b) the purchase price per share of Common Stock determined under Section 5.4 below. The number of shares of Common Stock receivable by each Participant upon exercise of an Option for an Option Period shall be reduced, on a substantially proportionate basis, in the event that the number of shares then available under the Plan is otherwise insufficient. 5.4. PURCHASE PRICE. On Option Exercise Dates occurring prior to January 1, 2001, the purchase price of each share of Common Stock purchased pursuant to the exercise of an Option shall be .90 multiplied by the Fair Market Value of the Common Stock on the last day of the Option Period. On Option Exercise Dates occurring after January 1, 2001, the purchase price of each share of Common Stock sold pursuant to the exercise of an Option shall be 0.85 multiplied by the Fair Market Value of the Common Stock on the last day of the Option Period. 5.5. EXERCISE OF OPTIONS. Each person who is a Participant in the Plan on each Option Exercise Date will be deemed to have exercised on that Option Exercise Date the Option granted to the Participant for that Option Period. Upon such exercise, the balance of the Page 5 of 9 6 Participant's Payroll Deduction Account shall be applied to the purchase of the number of shares of Common Stock determined under SECTION 5.3, and the amount of shares of Common Stock purchased shall be credited to the Participant's Stock Account. In the event that the balance of the Participant's Payroll Deduction Account following an Option Period is in excess of the total purchase price of the shares of Common Stock so sold, the balance of the Payroll Deduction Account shall be returned to the Participant. Notwithstanding anything herein to the contrary, Suiza's obligation to sell and deliver shares of Common Stock under the Plan is subject to the approval required of any governmental authority in connection with the authorization, issuance, sale or transfer of such shares, to any requirements of the New York Stock Exchange or any national securities exchange applicable thereto, and to compliance by Suiza with other applicable legal requirements in effect from time to time, including without limitation any applicable tax withholding requirements. 5.6. NO ASSIGNMENT OF PARTICIPANT'S INTEREST IN PLAN. A Participant may not assign, sell, transfer, pledge, hypothecate or alienate any Options or other interests in or rights under the Plan. Options under the Plan are exercisable by a Participant during the Participant's lifetime only by the Participant. All employees shall have the same rights and privileges under the Plan. 5.7. VESTING. Each Participant will immediately acquire full ownership of all shares of Common Stock at the time such shares are credited to the Participant's Stock Account. 5.8. DIVIDENDS, SPLITS AND DISTRIBUTIONS. Any stock dividends or stock splits in respect of shares held in the Participant's Stock Account will be credited to the Participant's account without charge. Any distributions to holders of Common Stock or other securities or rights to subscribe for additional shares of Common Stock will be sold and the proceeds will be handled in the same manner as a cash dividend, unless the Participant instructs the Administrator to the contrary. 5.9. VOTING RIGHTS. The Broker will deliver to each Participant as promptly as practicable, by mail or otherwise, all notices of meetings, proxy statements and other material distributed by Suiza to its stockholders. The full shares of Common Stock in each Participant's Stock Account will be voted in accordance with the Participant's signed proxy instructions duly delivered to the Broker or pursuant to any other method of voting available to holders of Common Stock. There will be no charge to the Participant for the Administrator's retention or delivery of stock certificates, or in connection with notices, proxies or other such material. 5.10. NO INTEREST TO BE PAID. No interest will be paid to or credited to the Payroll Deduction Accounts or Stock Accounts of the Participants. VI. ADMINISTRATION OF PLAN 6.1. THE ADMINISTRATOR AND THE COMMITTEE. To carry out the purposes of the Plan, the Committee shall appoint an Administrator. The Administrator may be any Page 6 of 9 7 company or individual that the Committee deems qualified, including Suiza. The Administrator shall be responsible for the implementation of the Plan, including allocation of funds to the Payroll Deduction Accounts and distribution of purchased Common Stock to the Stock Accounts, and keeping adequate and accurate records of such activities for the Participants. The Committee shall be entitled to adopt and apply guidelines and procedures consistent with the purposes of the Plan. In order to effectuate the purposes of the Plan, the Committee shall have the discretionary authority to construe and interpret the Plan, to supply any omissions therein, to reconcile and correct any errors or inconsistencies, to decide any questions in the administration and application of the Plan, and to make equitable adjustments for any mistakes or errors made in the administration of the Plan, and all such actions or determinations made by the Committee, and the application of rules and regulations to a particular case or issue by the Committee, in good faith, shall not be subject to review by anyone, but shall be final, binding and conclusive on all persons ever interested hereunder. 6.2. BROKER. The Administrator may, in its discretion, with the consent and approval of the Committee, appoint a Broker. The Broker may be any company or individual that the Committee deems qualified; PROVIDED, HOWEVER, that the Broker shall be a licensed security dealer, broker, or agent authorized to make purchases and sales of Common Stock. 6.3. REPORTING TO PARTICIPANTS. The Broker will make available to each Participant an accounting of the Participant's Stock Account. VII. ADJUSTMENT UPON CHANGES IN COMMON STOCK 7.1. CHANGES IN COMMON STOCK. If any change is made in the Common Stock (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Administrator may make appropriate adjustments in the number of shares and price per share of Common Stock subject to the Plan or to any Option granted under the Plan. 7.2. DISSOLUTION; MERGER; CAPITAL REORGANIZATION; ETC. In the event of (i) a dissolution or liquidation of Suiza; (ii) a merger or consolidation in which Suiza is not the surviving corporation, or a reverse merger in which Suiza is the surviving corporation but the shares of Common Stock by virtue of the merger are converted into other property, whether in the form of securities, cash or otherwise; or (iii) any other capital reorganization in which more than 50 percent of the shares of Common Stock entitled to vote are exchanged, the Plan shall terminate, unless another corporation assumes the responsibility of continuing the operation of the Plan or the Committee determines in its discretion that the Plan shall nevertheless continue in full force and effect. If the Committee elects to terminate the Plan, the Administrator shall send to each Participant cash in an amount equal to the funds held to the credit of such Participant's Payroll Deduction Account. Page 7 of 9 8 7.3. COMPANY'S RIGHT TO RESTRUCTURE, ETC. The grant of any right to a Participant pursuant to the Plan shall not affect in any way the right or power of Suiza to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets. VIII. AMENDMENT; TERMINATION OF PLAN 8.1. AMENDMENT. Suiza, acting through the Committee, reserves the right to amend or terminate the Plan at any time or times; PROVIDED, HOWEVER, any amendment that would require the consent of stockholders under applicable law, rule or regulation (including, without limitation, the Code, the Exchange Act or any self regulatory organization such as a national securities exchange), will not be made unless such stockholders' consent is obtained. 8.2. TERMINATION. In addition, the Plan shall terminate automatically on the tenth anniversary of the Plan Start Date, or on any Option Exercise Date when Participants become entitled to purchase a number of shares greater than the number of reserved shares remaining available for purchase, subject to the allocation of remaining shares pursuant to the last sentence of SECTION 5.3. Upon termination of the Plan, all amounts held in the Payroll Deduction Accounts shall, to the extent not used to purchase shares of Common Stock, be refunded to the Participants entitled thereto. IX. MISCELLANEOUS 9.1. EXPENSES OF PLAN. No fees or commissions will be charged for the purchase of Common Stock by Participants under the Plan. The Broker's brokerage commissions incurred in connection with sales of Common Stock by Participants or other transactions in Participants' Stock Accounts will be paid by the Participants. If the Company is acting as Administrator, no expenses of administration will be charged to the Participants. 9.2. INDEMNIFICATION. In the event and to the extent not insured against under any contract of insurance with an insurance company, Suiza shall indemnify and hold harmless each "INDEMNIFIED PERSON," as defined below, against any and all claims, demands, suits, proceedings, losses, damages, interest, penalties, expenses (specifically including, but not limited to, counsel fees to the extent approved by the Board or otherwise provided by law, court costs and other reasonable expenses of litigation), and liability of every kind, including amounts paid in settlement, with the approval of the Board, arising from any action or cause of action related to the Indemnified Person's act or acts or failure to act. Such indemnity shall apply regardless of whether such claims, demands, suits, proceedings, losses, damages, interest, penalties, expenses and liability arise in whole or in part from (a) the negligence or other fault of the Indemnified Person, or (b) from the imposition on such Indemnified Person of any civil penalties or excise taxes pursuant to the Code or any other applicable laws; except when the same is judicially determined to be due to gross negligence, fraud, recklessness, or willful or intentional Page 8 of 9 9 misconduct of such Indemnified Person. "INDEMNIFIED PERSON" shall mean each member of the Board, the Administrator, each member of the Committee and each other employee of any Suiza Company who is allocated fiduciary responsibility hereunder. 9.3. NO CONTRACT OF EMPLOYMENT INTENDED. The granting of any rights to an Eligible Employee under this Plan shall not constitute an agreement or understanding, express or implied, on the part of any Suiza Company, to employ such Eligible Employee for any specified period. 9.4. GOVERNING LAW. The construction, validity and operation of this Plan shall be governed by the laws of the State of Delaware. 9.5. SEVERABILITY OF PROVISIONS. If any provision of this Plan is determined to be invalid, illegal or unenforceable, such invalidity, illegality or unenforcability shall not affect the remaining provisions of this Plan, but such invalid, illegal or unenforceable provisions shall be fully severable, and the Plan shall be construed and enforced as if such provision had never been inserted herein. 9.6. NO LIABILITY OF SUIZA. Neither Suiza, its directors, officers or employees of the Committee, nor any Related Corporation which is in existence or hereafter comes into existence, shall be liable to any Participant or other person if it is determined for any reason by the Internal Revenue Service or any court having jurisdiction that the Plan does not qualify under Section 423 of the Code. IN WITNESS WHEREOF, the Company has caused this Plan to be adopted effective as of the Plan Start Date. SUIZA FOODS CORPORATION By: ---------------------------------- Name: ----------------------------- Title: ---------------------------- Page 9 of 9 EX-11 5 d81719ex11.txt STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS SUIZA FOODS CORPORATION (In thousands, except share and per-share amounts)
Three Months ended Nine Months ended September 30, September 30, ----------------------------- ----------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Basic EPS computation: Numerator: Income before extraordinary items $ 31,189 $ 30,449 $ 85,316 $ 83,468 ----------- ----------- ----------- ----------- Income applicable to common stock $ 31,189 $ 30,449 $ 85,316 $ 83,468 =========== =========== =========== =========== Denominator: Average common shares 27,623,928 33,665,788 28,530,656 33,679,515 =========== =========== =========== =========== Basic EPS before extraordinary items $ 1.13 $ 0.90 $ 2.99 $ 2.48 =========== =========== =========== =========== Diluted EPS calculation: Numerator: Income before extraordinary items $ 31,189 $ 30,449 $ 85,316 $ 83,468 Net effect on earnings from conversion of mandatorily redeemable convertible preferred securities 5,331 5,980 16,001 17,942 ----------- ----------- ----------- ----------- Income applicable to common stock $ 36,520 $ 36,429 $ 101,317 $ 101,410 =========== =========== =========== =========== Denominator: Average common shares - basic 27,623,928 33,665,788 28,530,656 33,679,515 Stock option conversion 906,601 879,896 832,882 995,898 Dilutive effect of conversion of manditorily redeemable convertible preferred securities 7,667,183 9,096,105 7,698,814 9,096,123 ----------- ----------- ----------- ----------- Average common shares - diluted 36,197,712 43,641,789 37,062,352 43,771,536 =========== =========== =========== =========== Diluted EPS before extraordinary items $ 1.01 $ 0.83 $ 2.73 $ 2.32 =========== =========== =========== ===========
EX-27 6 d81719ex27.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED FINANCIAL STATEMENTS FOR THE 9-MONTH PERIOD ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 42,997 0 479,688 0 181,484 780,255 975,627 0 3,683,755 628,754 1,282,521 583,891 0 272 564,123 3,683,755 4,268,442 4,268,442 3,213,745 780,073 (1,670) 0 108,322 178,544 67,901 85,316 0 4,968 0 90,284 3.16 2.87
-----END PRIVACY-ENHANCED MESSAGE-----