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<SEC-DOCUMENT>0000950134-01-003019.txt : 20010409
<SEC-HEADER>0000950134-01-003019.hdr.sgml : 20010409
ACCESSION NUMBER: 0000950134-01-003019
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010402
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: SUIZA FOODS CORP
CENTRAL INDEX KEY: 0000931336
STANDARD INDUSTRIAL CLASSIFICATION: ICE CREAM & FROZEN DESSERTS [2024]
IRS NUMBER: 752559681
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-12755
FILM NUMBER: 1589715
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
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>d85713e10-k405.txt
<DESCRIPTION>FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 2000
<TEXT>
<PAGE> 1
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 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 Registrant's principal executive offices)
----------
Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
---------------------------- -----------------------
Common Stock, $.01 par value New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: [X]
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant at March 19, 2001, based on the $48.45 per
share closing price for the Company's common stock on the New York Stock
Exchange, was approximately $1.2 billion.
The number of shares of the Registrant's common stock outstanding as of
March 19, 2001 was 27,455,865.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on or about May 17, 2001 (to be filed) are
incorporated by reference into Part III of this Form 10-K.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I
<S> <C> <C>
1 Business........................................................................................... 1
2 Properties......................................................................................... 13
3 Legal Proceedings.................................................................................. 14
PART II
5 Market for Our Common Stock and Related Matters.................................................... 14
6 Selected Financial Data............................................................................ 16
7 Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 17
7A Quantitative and Qualitative Disclosures About Market Risk......................................... 22
8 Consolidated Financial Statements.................................................................. 23
PART III
10 Directors and Executive Officers................................................................... 25
11 Executive Compensation............................................................................. 25
12 Security Ownership of Certain Beneficial Owners and Management..................................... 25
13 Certain Relationships and Related Transactions..................................................... 25
PART IV
14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................... 26
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
We are the leading manufacturer and distributor of dairy products in the
United States.
Our principal executive offices are located at 2515 McKinney Avenue, Suite
1200, Dallas, Texas 75201. Our telephone number is (214) 303-3400. We maintain a
worldwide web site at http://www.suizafoods.com. We were incorporated in
Delaware in 1994.
BRIEF HISTORY
We commenced operations in 1988 through a predecessor entity. Our original
operations consisted solely of a packaged ice business. As a result of our
acquisition strategy in the packaged ice industry, we became one of the largest
manufacturers and distributors of packaged ice in the United States.
We entered the dairy business in December 1993 when we acquired Suiza Dairy
Corporation, a regional dairy processor located in Puerto Rico. We have grown
our dairy business rapidly, primarily through a focused acquisition strategy.
Since our acquisition of Suiza Dairy in 1993, we have completed 43 dairy
acquisitions, including seven during 2000.
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<PAGE> 4
For information about significant acquisitions during 2000, see "-Developments
Since January 1, 2000 - Acquisitions" below. Primarily as a result of our
acquisition strategy in the dairy industry, we are now the largest manufacturer
and distributor of dairy products in the United States.
We completed our initial public offering in April 1996. Initially our common
stock was traded in the Nasdaq National Market. In January 1997 we completed a
second public offering. Our common stock began trading on the New York Stock
Exchange in March 1997.
In August 1997 we acquired Franklin Plastics, Inc., a company engaged in the
business of manufacturing and selling plastic containers, in connection with our
acquisition of a dairy company related to Franklin Plastics. We then began
acquiring other companies in the plastic container business including
Continental Can in May 1998. By the end of 1998 we had built one of the largest
plastic packaging companies in the United States.
In April 1998 we sold our packaged ice operations in order to focus our
resources on our dairy and packaging operations.
In July 1999, having made a decision to further focus our resources on our
core dairy business, we sold our U.S. plastic packaging operations to
Consolidated Container Company in exchange for cash and a 43.1% interest in the
purchaser. In March and May 2000 we sold the European packaging operations that
we acquired as part of our acquisition of Continental Can. Our only remaining
packaging investment is our 43.1% interest in Consolidated Container Company.
The following timeline graphically depicts our history:
<TABLE>
<CAPTION>
------------------------------------------------------------------
| acquisitions of packaged ice companies |
| |
Dec Apr Jan Aug Apr Jul May
1988 1993 1996 1997 1997 1998 1999 2000
--o-------------o-------------o---------o------------o-------------o----------------o----------------o--------
<S> <C> <C> <C> <C> <C> <C> <C>
Commenced entered IPO second entered sold packaged sold U.S. plastic Completed
operations dairy public packaging ice business packaging divestitures of
- packaged business offering industry operations European
ice with | | packaging
operations purchase of | | businesses
only Suiza Dairy | |
| -------------------------------
| acquisitions of packaging companies
-------------------------------------------------------------------------------------------------------->
acquisitions of dairy companies
</TABLE>
DEVELOPMENTS SINCE JANUARY 1, 2000
Acquisitions
We have completed seven acquisitions since January 1, 2000 including,
among others:
o Southern Foods (January 2000). Southern Foods Group, the third largest
dairy processor in the United States, had 30 plants in 12 states at the
time of the acquisition and net sales of approximately $1.3 billion in
1999. We acquired Southern Foods Group pursuant to a joint venture with
Dairy Farmers of America.
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 currently own a 75% interest in this business, and it is
currently our only operation outside the United States.
o Valley of Virginia (February 2000). Valley of Virginia Cooperative Milk
Producers Association, an agricultural marketing cooperative with dairy
processing plants in Springfield and Mt. Crawford, Virginia, had net
sales of approximately $209 million in 1999.
o Schenkel's All Star Dairy (December 2000). Schenkel's All Star Dairy,
based in Huntington, Indiana, manufactures and sells a full line of
dairy products throughout Indiana and the contiguous states. Schenkel's
All Star Dairy had net sales of approximately $73.0 during fiscal year
1999.
2
<PAGE> 5
Primarily as a result of acquisitions, we increased our net sales from $4.48
billion for the year ended December 31, 1999 to $5.76 billion for the year ended
December 31, 2000.
Other Events
Other important events since January 2000 include the following:
o Between January 1, 2000 and March 5, 2001 we repurchased approximately
3.4 million shares of our common stock under our open market share
repurchase program for a total purchase price of approximately $154.6
million.
o In January 2000 we expanded the test market of our value-added line of
milks, including kidsmilk(R) and fitmilk(R), to approximately 1,000
stores in New England and Michigan and in February 2000 we launched
SunSoy(TM), a non-dairy, lactose-free, cholesterol-free soymilk enriched
with calcium and vitamins.
o During the first half of 2000 we sold the European packaging businesses
that we acquired as part of Continental Can.
o In September 2000, we formed a strategic partnership with Hershey Foods
pursuant to which our Morningstar Foods subsidiary will manufacture,
sell and distribute products under the Hershey's brand, and we launched
our first three products under the partnership including Hershey's Fat
Free Chocolate Milk, 2% Reduced Fat Chocolate Milk and 2% Reduced Fat
Strawberry Milk, all of which are now distributed nationally.
o During 2000, we took a leadership role in the development and formation
of dairy.com, the first business-to-business online vertical exchange
focused specifically on bringing farmers, farm cooperatives, processors
and manufacturers together in an electronic marketplace for the exchange
of goods and services, supply chain efficiency tools and dairy farm
optimization tools.
o During the second quarter of 2000, we closed and fully funded a
receivable-backed loan in the amount of $150 million, and used the
proceeds to pay down higher-cost debt.
o We furthered our overall integration and cost reduction strategy during
2000 by closing three plants and reducing our workforce accordingly. We
also re-distributed manufacturing capacity between our business
segments, allowing our business units to better serve our customers,
while at the same time enabling them to operate more efficiently as they
concentrate on their core businesses. As a result of these manufacturing
re-alignment activities and certain management reporting changes
effected during 2000, we now have two reportable business segments,
including Suiza Dairy Group and Morningstar Foods.
For more information about our receivable-backed loan, our stock repurchases
and our integration and cost reduction activities, please see Notes 11, 13 and
17, respectively, to our Consolidated Financial Statements.
3
<PAGE> 6
The following chart is a general representation of our current corporate
structure:
[CHART]
CURRENT BUSINESS STRATEGY
We are focused on maximizing shareholder value primarily through the
following strategies:
Increasing Sales
We intend to grow sales in our existing businesses by combining excellent
product quality and customer service with our unparalleled geographic reach to
provide unmatched service and convenience to our customers. Also, we intend to
expand our product offerings through innovation because we believe that
innovation is key to growing both our sales and overall consumption of dairy
products.
Taking Advantage of Our Scale
We intend to:
o continue to vigorously pursue economies of scale in purchasing and
product development,
o continue to reduce manufacturing costs and increase product quality
through the integration of manufacturing operations into more
specialized, scale-efficient facilities, and
o continue to reduce expenses by eliminating duplicative administrative
costs.
Enhancing Operating Profit Margin and Free Cash Flow
We continue to seek profit margin improvements through integration and cost
reduction initiatives, and increased sales of higher-margin products. Also, we
seek to increase free cash flow primarily through a disciplined capital
expenditure strategy and effective management of working capital.
Expanding With Our Customers
We will continue to pursue acquisitions because we believe that in order to
win and retain customers in the consolidating retail sector it is critical not
only that we have excellent product quality and customer service
4
<PAGE> 7
but also that we are able to distribute our products wherever our customers have
operations. In addition, acquisitions may help to further reduce our
distribution costs or enable us to quickly expand our product lines or
technological capabilities. In February of 2000, we completed the acquisition of
a Spanish dairy processor, and we may pursue one or more additional
international acquisitions.
INDUSTRY OVERVIEW
The dairy industry is a mature industry which has traditionally been
characterized by slow to flat growth, low profit margins, fragmentation and
excess capacity. Excess capacity has resulted from the development of more
efficient manufacturing techniques, the establishment of captive dairy
manufacturing operations by large grocery retailers and little to no growth in
the demand for fresh milk products. For the last several years, the dairy
industry has been in the process of consolidating. As the industry has
consolidated, large regional dairy processors have emerged.
Consolidation has tended to raise efficiencies in the typically low-margin
dairy industry. However, consumption of dairy products remains flat and has even
declined in some regions of the country. We believe that the consolidation trend
will continue as dairy processors continue to seek to better serve their
customers. Also, we believe that innovation will become increasingly important
as processors seek to increase consumption, sales and margins through product
differentiation and branding.
BUSINESS SEGMENTS
Suiza Dairy Group
We sell primarily fresh dairy products through Suiza Dairy Group, with our
product mix weighted heavily toward fluid milk, including flavored milks and
buttermilk. Other products that we sell through Suiza Dairy Group include:
o ice cream and novelties,
o half-and-half and whipping cream,
o condensed milk,
o cottage cheese,
o sour cream,
o yogurt,
o dips,
o coffee creamers,
o juice and juice drinks, and
o water.
Suiza Dairy Group operates its business in a generally decentralized manner
organized by geographic region, including the Northeast region, the Southeast
region and the Southwest region. We have established a strong presence in each
of our regions. Suiza Dairy Group manufactures its products in 67 plants in 29
states. For more information about plants in the Suiza Dairy Group regions, see
"Properties."
Primarily due to the highly perishable nature of its products, Suiza Dairy
Group delivers most of its products directly from its plants or distribution
warehouses to its customers in trucks that we own or lease. This form of
delivery is called a "direct store delivery" or "DSD" system. We believe that we
have one of the most extensive refrigerated DSD systems in the United States,
with over 4,300 delivery routes across the United States. Using its DSD system,
Suiza Dairy Group also acts as distributor for certain other manufacturers of
refrigerated products in certain parts of the country.
Suiza Dairy Group sells its products through internal regional sales forces
to a wide variety of retail and food service customers including grocery stores,
club stores, convenience stores, institutional food service, gas stores,
schools, restaurants and hotels. Suiza Dairy Group's customer base is large, and
we are not dependent on any single customer. Suiza Dairy Group's sales are
slightly seasonal, with sales tending to be higher in the third and fourth
quarters.
In 2000, Suiza Dairy Group manufactured and marketed approximately two
thirds of its dairy products under its proprietary and licensed brand names. The
remaining one third of Suiza Dairy Group's products were
5
<PAGE> 8
manufactured and sold on a private-label (or "customer brand") basis for
customers. Proprietary brands used in Suiza Dairy Group include the following
regional brands: Adohr Farms(R), Barbe's(R), Broughton(R), Brown's Dairy(R),
Country Fresh(R), Dairy Gold(R), Dairymens(R), Lehigh Valley Farms(R), Meadow
Gold(R), Model Dairy(TM), Natural by Garelick Farms(R), Oak Farms(R),
Robinson(R), Schenkel's All Star Dairy(TM), Schepps(R), Shenandoah's Pride(R),
Louis Trauth Dairy(R), Tuscan(R), Velda Farms(R) and West Lynn Creamery(R).
Suiza Dairy Group also sells products, on a regional basis, under certain
partner or licensed brands including Borden(R), Flav-O-Rich(R), Foremost(R) and
Pet(R), and under our proprietary kidsmilk(R) and fitmilk(R) brands.
Sales by Suiza Dairy Group to unaffiliated customers totaled $4.66 billion
in 2000. For more financial information about Suiza Dairy Group, see Note 21 to
our Consolidated Financial Statements.
Morningstar Foods
Morningstar Foods sells primarily extended shelf life ("ESL") fluid, aerosol
and other dairy and non-dairy products. Its product offerings include:
o dairy and non-dairy coffee creamers,
o flavored and unflavored ESL milks, lactose-free milks and soymilk,
o aerosol whipped topping,
o dairy and non-dairy frozen whipped topping,
o egg substitute, and
o cultured dairy products.
Morningstar Foods markets and sells its products primarily on a national
basis to a wide variety of retail, food service and dairy outlets and in several
foreign countries through an internal sales force and independent brokers.
Morningstar Foods' customer base is large, and it is not dependent on any single
customer. Its specialty and long shelf-life products are delivered primarily by
common carrier. Sales of some of these products are higher in the fourth
quarter.
Morningstar Foods manufactures its products in ten plants located across the
United States. For more information about Morningstar Foods' manufacturing
plants, see "Properties."
In 2000, Morningstar Foods manufactured and marketed approximately 42% of
its products under its proprietary and licensed brand names. The remaining 58%
of Morningstar Foods' products were manufactured and sold on a private-label (or
"customer brand") basis for customers. Proprietary brands used in Morningstar
Foods include the following national brands: International Delight(R), Sun
Soy(TM), Second Nature(R), Naturally Yours(R) and Mocha Mix(R). Morningstar
Foods also sells products under certain partner or licensed brands including
Lactaid(R) and Hershey's(R).
Sales by Morningstar Foods to unaffiliated customers totaled approximately
$704 million in 2000. For more financial information about Morningstar Foods,
see Note 21 to our Consolidated Financial Statements.
Puerto Rico and International Operations
We have a strong dairy operation on the island of Puerto Rico, operated
under the name "Suiza Dairy." Suiza Dairy manufactures primarily fresh dairy
products with its product mix weighted heavily toward fluid milk and juice
drinks. We also have a small coffee roasting business in Puerto Rico.
We have four plants across the island. For more information about our Puerto
Rico properties, see "Properties." Suiza Dairy delivers its products
through a DSD system. It sells its products through an internal sales force to a
wide variety of retail and food service customers including grocery stores, club
stores, convenience stores, corner bakeries, institutional food service, gas
stores, schools, restaurants and hotels. In 2000, Suiza Dairy manufactured and
marketed approximately 97% of its products under its proprietary brand names.
The remaining three percent of Suiza Dairy's products were manufactured and sold
on a private-label (or "customer brand") basis for customers.
Our international dairy operations consist solely of our Spanish operations
conducted through Leche Celta, in which we own a 75% interest. Leche Celta sells
primarily ultra-high temperature ("UHT") fluid milk. Leche Celta manufactures
its products in three plants located in the Galicia and Cantabria regions of
Spain. For more
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<PAGE> 9
information about Leche Celta's plants, see "Properties." Leche Celta delivers
its products primarily through independent trucking companies delivering
directly to our customers' warehouses. It sells its products through an internal
sales force to a wide variety of customers, including mainly large and mid-size
retailers. In 2000, Leche Celta manufactured and marketed approximately 75% of
its products under its proprietary brands, and the remaining 25% under
private-label brands for customers.
RESEARCH AND DEVELOPMENT
The development of new products, packaging and manufacturing processes is an
important part of our business. We utilize consumer research to test new
products prior to market introduction and we are currently test marketing
several new products and packaging innovations. While company-sponsored research
and development is important to our operations, our total expenditures to date
related to this function have not been material to our overall financial
results.
RAW MATERIALS AND SUPPLY
The primary raw material used in our operations is raw milk. We purchase a
significant portion of our raw milk for our U.S. operations from Dairy Farmers
of America, a large farmers cooperative and owner of 33.8% of Suiza Dairy Group.
We have entered into various supply agreements with Dairy Farmers of America.
Prices charged by Dairy Farmers of America under these contracts are competitive
market prices. We also purchase raw milk from independent farmers and certain
other farm co-operatives typically pursuant to contractual arrangements. Raw
milk is generally readily available. After raw milk, cream (including butterfat)
is our most used raw material. We use cream in the manufacture of creamers, ice
cream and certain other dairy products. Although we produce a significant amount
of cream in our fluid milk operations, we also purchase cream from unaffiliated
third parties from time to time. Cream (including butterfat) is generally
readily available. Other raw materials, such as coffee, juice concentrates,
sweeteners, and packaging supplies are generally available from numerous
suppliers and we are not dependent on any single supplier for these materials.
Certain of our raw materials are purchased under long-term contracts in order to
obtain lower costs. The prices of our raw materials increase and decrease
depending on supply and demand. Also, the price of raw milk in the United States
is regulated by the federal government through federal market orders and price
support programs, and many state and other governments regulate raw milk pricing
through their own programs. For more information about raw milk pricing in the
United States, please see "Government Regulation -- Milk Industry Regulation."
Prices of raw milk and cream can fluctuate widely.
COMPETITION
Our businesses are highly competitive. We have many competitors in each of
our major product, service and geographic markets.
Competition in our businesses is based primarily on:
o service,
o price,
o brand recognition,
o quality, and
o breadth of product line.
INTELLECTUAL PROPERTY
We have developed or acquired several hundred trademarks, brand names and
logos and several patents, and we are constantly developing new trademarks,
brand names, logos and patents. In addition, we hold licenses for the use of
several registered trademarks from third parties. We believe that our use of
trademarks, brand names and patented packaging designs creates goodwill and
results in product differentiation and, therefore, is important to our business.
7
<PAGE> 10
GOVERNMENT REGULATION
Public Health
As a manufacturer and distributor of food products, we are subject to a
number of food safety regulations, including the Federal Food, Drug and Cosmetic
Act and regulations promulgated thereunder by the U.S. Food and Drug
Administration ("FDA"). This comprehensive regulatory scheme governs the
manufacture (including composition and ingredients), labeling, packaging and
safety of food in the United States. The FDA:
o regulates manufacturing practices for foods through its current good
manufacturing practices regulations,
o specifies the standards of identity for certain foods, including many of
the products we sell, and
o prescribes the format and content of certain information required to
appear on food product labels.
In addition, the FDA enforces the Public Health Service Act and regulations
issued thereunder, which authorize regulatory activity necessary to prevent the
introduction, transmission or spread of communicable diseases. These regulations
require, for example, pasteurization of milk and milk products. We are also
subject to numerous other regulations involving such matters as the licensing of
dairy manufacturing facilities, enforcement by government health agencies of
standards for our products, inspection of our facilities and regulation of our
trade practices in connection with the sale of dairy products.
We use quality control laboratories in all of our manufacturing facilities
to test raw milk and other ingredients and finished products. Product quality
and freshness are essential to the successful distribution of our products. To
monitor product quality at our facilities, we maintain quality control programs
to test products during various processing stages. We believe that our dairy
facilities and manufacturing practices comply with all material government
regulations.
Employee Safety Regulations
We are subject to certain health and safety regulations including
regulations issued pursuant to the U.S. Occupational Safety and Health Act.
These regulations require us to comply with certain manufacturing, health and
safety standards to protect our employees from accidents. We believe that we are
in material compliance with all employee safety regulations.
Environmental Regulations
We are subject to various environmental regulations. Ammonia, a refrigerant
used extensively in our operations, is considered an "extremely" hazardous
substance pursuant to U.S. federal environmental laws due to its toxicity. Also,
certain of our dairy facilities discharge biodegradable wastewater into
municipal waste treatment facilities in excess of levels permitted under local
regulations. Because of this, certain of our dairy subsidiaries are required to
pay waste water surcharges or to construct waste water pretreatment facilities.
To date, such waste water surcharges have not had a material effect on our
consolidated financial statements.
We maintain above-ground or underground petroleum storage tanks at many of
our facilities. These tanks are periodically inspected to determine compliance
with applicable regulations. We may be required to make expenditures from time
to time in order to maintain compliance of these tanks.
We do not expect environmental compliance to have a material impact on our
capital expenditures, earnings or competitive position in the foreseeable
future.
Milk Industry Regulation
Pursuant to the U.S. 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,
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<PAGE> 11
the extent to which these compacts would increase the prices we pay for raw
milk. In Spain, the government has established a quota system regulating the
amount of milk that can be sold by individual farmers and farm cooperatives
which affects the manner in which we purchase raw milk, as well as the prices we
pay for raw milk.
EMPLOYEES
As of December 31, 2000 we employed over 18,000 people in the following
categories:
<TABLE>
<CAPTION>
NO. OF EMPLOYEES % OF TOTAL
---------------- ----------
<S> <C> <C>
Suiza Dairy Group............ 15,597 85.3%
Morningstar Foods............ 1,388 7.6
Other Operations............. 1,219 6.7
Corporate.................... 73 0.4
</TABLE>
RISK FACTORS
This report contains statements about our future that are not statements of
historical fact. Most of these statements are found in the portions of this
report entitled "Current Business Strategy," "Government Regulation," "Industry
Overview," "Raw Materials and Supply," "Liquidity and Capital Resources," "Known
Trends and Uncertainties," and "Quantitative and Qualitative Disclosures About
Market Risk." In some cases, you can identify these statements by terminology
such as "may," "will," "should," "could," "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 among others:
o inability to successfully integrate or operate acquired businesses,
o inability to retain key customers of acquired or existing businesses,
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 will 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 based on a number of
factors. See "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. 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.
9
<PAGE> 12
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 is a significant source of growth for our business because
demand tends to be relatively flat, and we expect margins on non value-added
dairy 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 significantly 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
and cream (including butterfat). The prices of these materials increase and
decrease depending on supply and demand and, in some cases, governmental
regulation. For more information about the pricing of raw milk, see "Raw
Materials and Supply" and "Government Regulation -- Milk Industry Regulation".
Prices of raw milk and cream can fluctuate widely over short periods of time. In
many 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.
Also, because we deliver a majority of our products directly to our
customers through our "direct store delivery" system, we are a large consumer of
gasoline. We experienced increased fuel costs in 2000 as a result of increased
fuel prices, and a continued increase in fuel prices could adversely affect our
results of operations.
Consolidated Container Company, in which we own a 43.1% interest, uses high
density, polyethylene resin as its primary raw material. Due to recent increases
in the cost of petroleum products, Consolidated Container incurred sharply
increased costs for high density, polyethylene resin during 2000, which
adversely affected its results of operations for 2000 and, accordingly, our 2000
earnings per share. Continued high costs for HDPE, or a further increase in
those costs, could adversely affect Consolidated Container's results of
operations, which would have an adverse impact on our earnings per share.
We Could Be Adversely Affected By Changes in Regulations
Our operations are subject to federal, foreign, state and local governmental
regulation. See "Government Regulation." 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.
Our Substantial Debt Could Adversely Affect Us and We Have Additional Borrowing
Capacity
As of March 19, 2001, we had substantial debt and other financial
obligations, including the following, in addition to certain other subsidiary
debt obligations:
o $1.03 billion of indebtedness under the senior credit facility of Suiza
Dairy Group,
o $599.9 million of 5.5% preferred securities,
o $174.7 million of indebtedness under the receivable-backed loan.
As of March 19, 2001, we had approximately $562.4 million of borrowing
capacity under our parent credit facility and the Suiza Dairy Group credit
facility. We have pledged the stock of certain subsidiaries to secure our senior
credit 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 portion of our debt obligations
are at variable rates.
10
<PAGE> 13
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. A
significant increase in interest rates could adversely impact our financial
results. If we do not comply with the financial and other restrictive covenants
under our credit facilities, we may default under them. 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 reduced demand for our products,
o temporary plant closings, and
o substantial costs of compliance or remediation.
Any of these events could have a material and adverse effect on our
financial condition, results of operations or cash flows.
Our Foreign Operations Bring Added Risk
In February of 2000 we purchased a majority interest in a Spanish dairy
processor. We have limited experience in managing a European dairy business.
There can be no assurance that we will be able to effectively manage a dairy
operation in Europe. Also, we are exposed to foreign currency risk due to
certain operating cash flows and various financial instruments being denominated
in Spanish pesetas. Any substantial devaluation of the Spanish peseta 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 personnel. 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, directors or other employees. Also, we have experienced, and
could continue to experience, some difficulty in attracting personnel due to the
currently low unemployment rates in the United States. If we are unable to
attract and retain key 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:
11
<PAGE> 14
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 certain 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.
We Are Subject to Environmental Regulations
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.
WHERE YOU CAN GET MORE INFORMATION
If you would like more information about our company, write or call us at:
Suiza Foods Corporation
2515 McKinney Avenue, Suite 1200
Dallas, Texas 75201
(214) 303-3400
Attention: Investor Relations
Our fiscal year ends on December 31. We furnish our stockholders with annual
reports containing audited financial statements and other appropriate reports.
In addition, we file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements or other information we file at the Securities and
Exchange Commission's public reference rooms in Washington D.C. You can request
copies of these documents, upon payment of a duplicating fee, by writing to the
Securities and Exchange Commission. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. Our Securities and Exchange Commission filings are also
available to the public on the Internet at http://www.sec.gov.
12
<PAGE> 15
ITEM 2. PROPERTIES
Suiza Dairy Group currently conducts its manufacturing operations in the
following plants:
<TABLE>
<CAPTION>
NUMBER
REGION OF PLANTS LOCATIONS OF PLANTS
------ --------- -------------------
<S> <C> <C>
Northeast 10 o Maine
o Massachusetts (3)
o New Jersey (2)
o New York
o Pennsylvania (2)
o Vermont
Southeast 19 o Florida (2)
o Illinois
o Indiana (2)
o Kentucky (2)
o North Carolina (3)
o Ohio (3)
o South Carolina (2)
o Tennessee
o Virginia (3)
Southwest 38 o Alabama
o California (4)
o Colorado (4)
o Hawaii (3)
o Idaho (2)
o Louisiana (3)
o Michigan (4)
o Mississippi
o Montana (3)
o Nebraska
o Nevada
o Oklahoma
o Tennessee
o Texas (7)
o Utah (2)
</TABLE>
Morningstar Foods currently conducts its manufacturing operations in plants
in the following locations:
o Tempe, Arizona
o City of Industry, California
o Gustine, California
o Greeley, Colorado
o Frederick, Maryland
o Fraser, New York
o Arlington, Tennessee
o Sulphur Springs, Texas
o Mt. Crawford, Virginia
o Madison, Wisconsin
Our Puerto Rico operation currently manufactures its products in plants in
the following locations:
o Aguadilla
o Caguas
o Lares
o San Juan
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<PAGE> 16
Our Spanish operation currently manufactures its products in plants in the
following locations:
o Pontedeume
o Meira
o Santander
We own most of our plants. Each of our plants also serves as a distribution
facility. We also have numerous distribution branches located across the United
States, some of which are owned and some of which are leased. We believe that
each of our properties is suitable for its current use.
Our executive offices are located in leased premises at 2515 McKinney
Avenue, Suite 1200, Dallas, Texas 75201.
ITEM 3. LEGAL PROCEEDINGS
Prior to our acquisition of West Lynn Creamery in 1998, West Lynn Creamery
paid rebates to certain of its customers pursuant to a rebate program conducted
by West Lynn Creamery between 1992 and 1997 (the "Rebate Program"). As a result
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 such customers'
federal income taxes through the use of the Rebate Program, the United States
Department of Justice (the "DOJ"), through the U.S. Attorney for Boston,
conducted an investigation of this matter. We were not aware of the
investigation at the time we acquired West Lynn Creamery. On March 30 of this
year, we reached a final settlement of this matter with the DOJ, pursuant to
which West Lynn Creamery will plead guilty to one charge of conspiracy to
impede the collection of taxes by the Internal Revenue Service and will pay
$7.2 million to the government. We intend to seek recourse against the former
owners of West Lynn Creamery, although there can be no assurance that we will be
successful in our efforts. We do not expect any material loss of sales or other
long-term adverse effects on our business as a result of this settlement.
From time to time we are party to other legal proceedings that arise in the
ordinary course of business. Except for the litigation described in the
foregoing paragraph, we do not believe that the resolution of any currently
pending legal proceedings will have a material adverse affect on our financial
position, results of operations, cash flows or liquidity.
PART II
ITEM 5. MARKET FOR OUR COMMON STOCK AND RELATED MATTERS
Our common stock began trading in the Nasdaq National Market on April 17,
1996. Our common stock began trading on the New York Stock Exchange on March 5,
1997. The following table sets forth the high and low sales prices of our common
stock as quoted on the New York Stock Exchange for the last two fiscal years. At
March 19, 2001, there were approximately 375 record holders of our common stock.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1999:
First Quarter ............................ $ 50.25 $ 32.56
Second Quarter ........................... 41.88 29.63
Third Quarter ............................ 40.69 30.00
Fourth Quarter ........................... 39.75 32.63
2000:
First Quarter ............................ 44.88 36.00
Second Quarter ........................... 49.00 37.81
Third Quarter ............................ 52.44 44.50
Fourth Quarter ........................... 51.50 40.44
2001:
First Quarter (through March 19, 2001) ... 50.57 42.00
</TABLE>
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<PAGE> 17
We have never declared or paid a cash dividend on our common stock. We
intend to retain all earnings to cover working capital fluctuations and to fund
capital expenditures, scheduled debt repayments, stock buybacks and acquisitions
and we do not anticipate paying cash dividends on our common stock in the
foreseeable future.
15
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data as of and for each of the five years
in the period ended December 31, 2000 has been derived from our audited
consolidated financial statements. The selected financial data do not purport to
indicate results of operations as of any future date or for any future period.
The selected financial data should be read in conjunction with our Consolidated
Financial Statements and related Notes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales ....................................... $ 5,756,303 $ 4,481,999 $ 3,320,940 $ 1,795,868 $ 1,207,565
Cost of sales ................................... 4,330,067 3,487,075 2,557,908 1,381,084 970,796
------------ ------------ ------------ ------------ ------------
Gross profit .................................... 1,426,236 994,924 763,032 414,784 236,769
Operating costs and expenses:
Selling and distribution ...................... 812,274 518,962 376,928 209,271 123,161
General and administrative .................... 182,570 148,009 112,169 58,708 44,352
Amortization of intangibles ................... 52,441 38,513 31,479 14,916 7,675
Plant closing, merger and other costs ......... 3,388 12,566 37,003 571
Litigation settlement costs ................... 7,500
------------ ------------ ------------ ------------ ------------
Total operating costs and expenses .............. 1,058,173 718,050 520,576 319,898 175,759
------------ ------------ ------------ ------------ ------------
Operating income ................................ 368,063 276,874 242,456 94,886 61,010
Other (income) expense:
Interest expense, net ......................... 112,586 49,233 52,082 36,664 15,707
Financing charges on trust issued preferred
securities ................................... 33,595 38,584 30,213
Equity in earnings of unconsolidated
affiliates .................................. (11,453) (2,630) (78)
Other income, net ............................. (630) (1,416) (4,212) (24,483) (4,499)
------------ ------------ ------------ ------------ ------------
Total other expense ............................. 134,098 83,771 78,005 12,181 11,208
------------ ------------ ------------ ------------ ------------
Income from continuing operations before
income taxes .................................. 233,965 193,103 164,451 82,705 49,802
Income taxes .................................... 90,303 75,463 59,823 43,375 2,939
Minority interest in earnings ................... 29,911 8,813 1,559
------------ ------------ ------------ ------------ ------------
Income from continuing operations ............... 113,751 108,827 103,069 39,330 46,863
Income (loss) from discontinued operations ...... (3,161) 717 2,315
------------ ------------ ------------ ------------ ------------
Income before extraordinary gain (loss) ......... 113,751 108,827 99,908 40,047 49,178
Extraordinary gain (loss) ....................... 4,968 904 31,698 (11,283) (2,215)
------------ ------------ ------------ ------------ ------------
Net income ...................................... $ 118,719 $ 109,731 $ 131,606 $ 28,764 $ 46,963
============ ============ ============ ============ ============
Net income applicable to common stock ........... $ 118,719 $ 109,731 $ 131,369 $ 28,464 $ 46,661
============ ============ ============ ============ ============
Basic earnings per common share:
Income from continuing operations ............... $ 4.03 $ 3.31 $ 3.12 $ 1.32 $ 1.99
Income (loss) from discontinued operations ...... (0.10) 0.02 0.10
Extraordinary gain (loss) ....................... .18 .03 0.96 (0.38) (0.10)
------------ ------------ ------------ ------------ ------------
Net income ...................................... $ 4.21 $ 3.34 $ 3.98 $ 0.96 $ 1.99
============ ============ ============ ============ ============
Diluted earnings per common share:
Income from continuing operations ............... $ 3.68 $ 3.11 $ 2.90 $ 1.25 $ 1.90
Income (loss) from discontinued operations ...... (0.08) 0.02 0.10
Extraordinary gain (loss) ....................... .14 .02 0.76 (0.36) (0.09)
------------ ------------ ------------ ------------ ------------
Net income ...................................... $ 3.82 $ 3.13 $ 3.58 $ 0.91 $ 1.91
============ ============ ============ ============ ============
Average common shares:
Basic ........................................... 28,195,043 32,861,218 32,953,290 29,508,791 23,424,322
============ ============ ============ ============ ============
Diluted ......................................... 36,671,264 42,858,492 41,965,564 31,348,591 24,491,899
============ ============ ============ ============ ============
Other Data:
Ratio of earnings to combined fixed charges and
preferred stock dividends(1) ................... 2.58x 3.75x 3.36x 2.89x 3.38x
Balance Sheet Data (at end of period):
Total assets .................................... $ 3,780,478 $ 2,658,922 $ 3,013,783 $ 1,403,462 $ 833,624
Long-term debt(2) ............................... 1,353,269 712,068 932,969 828,659 455,880
Mandatorily redeemable convertible trust issued
preferred securities ........................... 584,032 683,505 682,938
Total stockholders' equity ...................... 598,832 583,972 655,771 359,310 213,854
</TABLE>
- ----------
(1) For purposes of calculating the ratio of earnings to combined fixed charges
and preferred stock dividends, "earnings" represents income before income
taxes plus fixed charges. "Fixed charges" consist of interest on all debt,
amortization of deferred financing costs and the portion of rental expense
that we believe is representative of the interest component of rent expense.
Preferred stock dividends consist of dividends, adjusted to a pre-tax basis,
on our Series A Preferred Stock, which we redeemed in 1998.
(2) Includes amounts outstanding under subsidiary lines of credit and the
current portion of long-term debt.
16
<PAGE> 19
ITEM 7. 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 holdings in
the consumer goods packaging industry. We currently have two reportable business
segments, including Suiza Dairy Group and Morningstar Foods.
RESULTS OF OPERATIONS
The following table presents certain information concerning our results of
operations, including information presented as a percentage of net sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
2000 1999 1998
----------------------- ----------------------- -----------------------
DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales ..................................... $5,756,303 100.0% $4,481,999 100.0% $3,320,940 100.0%
Cost of sales ................................. 4,330,067 75.2 3,487,075 77.8 2,557,908 77.0
---------- ---------- ---------- ---------- ---------- ----------
Gross profit .................................. 1,426,236 24.8 994,924 22.2 763,032 23.0
Operating costs and expenses:
Selling and distribution .................... 812,274 14.1 518,962 11.5 376,928 11.4
General and administrative .................. 182,570 3.2 148,009 3.3 112,169 3.4
Amortization of intangibles ................. 52,441 0.9 38,513 0.9 31,479 0.9
Plant closing and other costs ............... 3,388 0.1 12,566 0.3
Litigation settlement costs ................. 7,500 0.1
---------- ---------- ---------- ---------- ---------- ----------
Total operating costs and expenses ............ 1,058,173 18.4 718,050 16.0 520,576 15.7
---------- ---------- ---------- ---------- ---------- ----------
Operating income .............................. $ 368,063 6.4% $ 276,874 6.2% $ 242,456 7.3%
========== ========== ========== ========== ========== ==========
</TABLE>
During the first half of 2000, we sold our European packaging business. On
July 2, 1999 we sold our U.S. plastic packaging operations to Consolidated
Container Company, in exchange for cash and a 43.1% interest in Consolidated
Container. This is our only remaining packaging investment. We account for our
investment in Consolidated Container under the equity method of accounting. As a
result, the sales and operating expenses of Consolidated Container subsequent to
July 2, 1999 are not included in the table presented above, but are instead
condensed onto a single line below operating income (see discussion below under
"Other Income and Expense").
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Net Sales -- Net sales increased 28.4% to $5.76 billion during 2000 from
$4.48 billion in 1999. Excluding the effect of our packaging operations, sales
increased by $1.72 billion, or 43.1%, in 2000. Net sales for Suiza Dairy Group
increased by $1.56 billion, or 50.2%, in 2000 compared to 1999 mainly due to
acquisitions, particularly the acquisition of Southern Foods Group. Net sales
for Morningstar Foods increased by $49.1 million, or 7.5%, in 2000 due to
increased sales of higher priced products.
Cost of Sales -- Our cost of sales ratio was 75.2% in 2000 compared to 77.8%
in 1999. The cost of sales ratio for Suiza Dairy Group decreased to 75.9% in
2000 from 79.6% in 1999. This ratio improved due to improved performance at
dairies owned more than twelve months, lower raw material costs and because
Southern Foods Group, which we acquired effective January 1, 2000, has a lower
cost of sales ratio than our existing dairies. The customer base of Southern
Foods Group is somewhat different from our other dairies, which requires
Southern Foods Group to charge higher prices to cover higher distribution costs.
The cost of sales ratio for Morningstar Foods improved to 66.8% in 2000 from
69.0% in 1999 due to an increased emphasis on cost-savings initiatives, as well
as increased sales of higher margin products.
Operating Costs and Expenses -- Our operating expense ratio was 18.4% in
2000 compared to 16.0% in 1999. The operating expense ratio at Suiza Dairy Group
was 17.9% in 2000 compared to 15.1% in 1999. This ratio increased due to higher
distribution costs at Southern Foods Group as a result of their extensive direct
store delivery routes in rural areas and due to 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. Included in operating costs in
Suiza Dairy Group in 2000 are plant closing costs of $2.1 million and litigation
settlement costs of $7.5 million. For more information regarding the litigation
settlement costs, see Note 3 to our Consolidated Financial Statements. In 1999,
plant closing costs amounted to $8.7 million.
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<PAGE> 20
The operating expense ratio at Morningstar Foods was 18.9% in 2000 compared
to 18.2% in 1999. This ratio increased due to higher marketing expenses in 2000
related to new products. In 1999, plant closing costs amounted to $0.5 million.
Operating Income -- Operating income in 2000 was $368.1 million, an increase
of 32.9% from 1999 operating income of $276.9 million. Excluding the effect of
our packaging operations, our operating income in 2000 increased $141.2 million
or 62.3%. Our operating income margin increased to 6.4% in 2000 compared to 6.2%
in 1999 (5.7% excluding the contribution of our packaging operations in 1999).
Operating margin in Suiza Dairy Group improved to 6.2% in 2000 from 5.3% in
1999. This increase is due primarily to improved performance at dairies owned
more than twelve months. Morningstar Foods' operating margin improved to 14.3%
in 2000 from 12.8% in 1999 due to increased sales of higher margin products.
Other Income and Expense -- Total other expense increased in 2000 by $50.3
million. Interest expense increased to $112.6 million in 2000 from $49.2 million
in 1999. This increase is due to additional debt used to finance acquisitions
and also as a result of higher interest rates. Financing charges on preferred
securities decreased to $33.6 million in 2000 from $38.6 million in 1999 as a
result of the redemption of $100.0 million of 5.0% preferred securities held by
Dairy Farmers of America on January 1, 2000 in connection with our acquisition
of Southern Foods Group.
Income from investments in unconsolidated affiliates, which is primarily
related to our minority interest in Consolidated Container Company, amounted to
$11.5 million in 2000. These earnings included $0.8 million, representing our
proportional share of a favorable adjustment to previously recorded
restructuring charges at Consolidated Container Company. During 1999 we reported
$2.6 million in income from investments in unconsolidated subsidiaries,
primarily Consolidated Container Company.
Income Taxes -- Income tax expense was recorded at an effective rate of
38.6% in 2000 compared to 39.1% during 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 certain tax saving initiatives implemented during
2000.
Minority Interest -- Minority interest in earnings increased to $29.9
million in 2000 from $8.8 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 Dairy Farmers of America contributed the
operations of Southern Foods Group and their interests in certain other joint
ventures with us. Dairy Farmers of America received a 33.8% ownership interest
in the joint venture, which is shown as a minority interest on our consolidated
financial statements. During 1999, minority interest in earnings consisted
primarily of Dairy Farmers of America's ownership interests in our joint
ventures with them.
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 financing costs.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net Sales -- Our net sales increased by $1.16 billion or 35% in 1999
compared to 1998, primarily as a result of acquisitions. Excluding $244.9
million and $325.0 million in revenues recorded by our U.S. packaging operations
in 1999 and 1998, respectively, sales increased $1.24 billion or 41.5%. Net
sales for Suiza Dairy Group increased by $1.14 billion, or 58.2%, in 1999
compared to 1998 mainly due to acquisitions in the northeastern United States
and to growth in our existing businesses. Net sales for Morningstar Foods
increased by $43.4 million, or 7.1%, in 1999 primarily due to increased sales of
higher priced products such as branded coffee creamers.
18
<PAGE> 21
Cost of Sales -- Our cost of sales ratio was 77.8% in 1999 compared to 77.0%
in 1998. This ratio increased due to the sale of our U.S. packaging operations,
which had a lower cost of sales ratio. The cost of sales ratio for Suiza Dairy
Group was 79.6% in 1999 compared to 78.5% in 1998. This increase was due to
higher costs of sales in newly acquired businesses. The cost of sales ratio for
Morningstar Foods improved to 69.0% in 1999 from 72.4% in 1998 due to increased
volume of higher margin branded products.
Operating Costs and Expenses -- Our operating expense ratio was 16.0% in
1999 compared to 15.7% in 1998. The operating expense ratio at Suiza Dairy Group
was 15.1% in 1999 compared to 14.2% in 1998. This increase was primarily the
result of $8.7 million in plant closing and other costs. We incurred these plant
closing and other costs in order to operate more efficiently. Excluding these
charges, our operating expense ratio was equivalent to 1998 levels. The
operating expense ratio at Morningstar Foods was 18.2% in 1999 compared to 16.6%
in 1998. This ratio increased due to higher distribution and marketing expenses
in 1999 and to plant closing costs of $0.5 million.
Operating Income -- Our operating income in 1999 was $276.9 million, an
increase of $34.4 million or 14.2% from 1998 operating income of $242.5 million.
Our operating income margin decreased to 6.2% in 1999 from 7.3% in 1998. On a
comparable basis, excluding
o $12.6 million in plant closing and other nonrecurring charges in 1999,
and
o operating income of $36.2 million and $45.2 million generated by our
U.S. packaging operations in 1999 and 1998, respectively,
our operating income in 1999 was $253.3 million, an increase of $56.0 million or
28.4% compared to 1998 operating income of $197.3 million. Making the same
adjustments, our operating margin was 6.0% in 1999 compared to 6.6% in 1998.
Operating margin in Suiza Dairy Group decreased to 5.3% in 1999 from 6.2% in
1998 due to the plant closing costs noted above and due to lower operating
income margins at newly acquired companies. Dairies owned more than 12 months
increased operating margins by 0.57%. Morningstar Foods' operating margin
improved to 12.8% in 1999 from 11.0% in 1998 due to increased sales of higher
margin products.
Other Income and Expense -- Our interest expense decreased to $49.2 million
in 1999 from $52.1 million in 1998 due to the elimination of approximately $500
million of debt following the sale of our U.S. packaging operations, partially
offset by additional debt incurred to pay for acquisitions and stock repurchases
totaling approximately $428.8 million. Financing charges on our trust issued
preferred securities amounted to $38.6 million in 1999 compared to $30.2 million
in 1998, reflecting a full year of these charges in 1999 as compared to only
part of the year in 1998.
Income from investments in unconsolidated affiliates, which was primarily
related to our minority interest in Consolidated Container Company during the
last two quarters of 1999, amounted to $2.6 million. These earnings were net of
$4.9 million representing our proportional share of restructuring and other
non-recurring charges related to the integration and rationalization of
Consolidated Container Company's operations.
Income Taxes -- Income tax expense was recorded at an effective rate of
39.1% for 1999 compared with 36.4% in 1998. The increase in the rate was due
primarily to a lower of level of earnings in Puerto Rico in 1999, where we have
the benefit of lower tax rates and higher foreign taxes from a full year of
Continental Can foreign operations in 1999 compared to only 7 months in 1998.
Discontinued Operations and Extraordinary Items -- In 1998, we reported a
loss from discontinued operations of $3.2 million, net of an income tax benefit
of $2.1 million, related to our packaged ice operations which were sold on April
30, 1998.
Extraordinary items included:
o the sale of our packaged ice business in April 1998 resulting in a $35.5
million gain, net of income tax expense of $22.0 million, and
o the recording of a $3.8 million loss, net of an income tax benefit of
$2.3 million, from the write-off of deferred financing costs and the
recognition of interest rate swap losses in connection with the early
extinguishment of the term portion of our credit facility in May 1998.
19
<PAGE> 22
o the recording of an additional gain of $0.9 million, net of income taxes
of $0.5 million, in the fourth quarter of 1999 when contingencies
related to the sale of our packaged ice operations in 1998 were resolved
favorably.
LIQUIDITY AND CAPITAL RESOURCES
Historical Cash Flow
During 2000, we met our working capital needs with cash flow from operations
along with borrowings under the Suiza Dairy Group credit facility. Net cash
provided by continuing operations was $297.7 million for 2000 as contrasted to
$283.5 million for 1999, an increase of $14.2 million. Net income plus non-cash
items increased by $83.5 million in 2000 compared to 1999, partially offset by
changes in working capital components of $69.3 million in 2000 compared to the
previous year. Net cash used in investing activities was $380.3 million in 2000
compared to $38.0 million in 1999. Cash paid for acquisitions was $336.0 million
in 2000, an increase of $100.1 million over 1999, offset by $89.0 million of
cash proceeds from divestitures as compared to $383.1 million in 1999.
During 2000, we spent a total of $148.5 million on stock repurchases under
our open market stock repurchase program, which we funded with borrowings under
our receivables-backed loan, cash flow from operations and cash flow from
divestitures. From January 1, 2001 through March 5, 2001, we have repurchased
and effectively retired 123,334 shares of our stock for a total purchase price
of approximately $6.1 million, all of which has been funded with cash flow from
operations. For more information about our stock repurchase program, please see
Note 13 to our Consolidated Financial Statements.
We have not made any significant acquisitions during 2001 to date.
Current Debt Obligations
Effective January 1, 2000, in connection with our acquisition of Southern
Foods Group, we entered into a joint venture with Dairy Farmers of America. We
contributed our domestic fluid dairy operations (not including our Morningstar
Foods and Puerto Rico operations) and Dairy Farmers of America contributed the
operations of Southern Foods Group, as well as its interests in certain other
joint ventures with us, to form Suiza Dairy Group. In exchange for our
contribution we received a 66.2% ownership in Suiza Dairy Group. We report the
results of Suiza Dairy Group in our Consolidated Financial Statements. Dairy
Farmers of America's portion of Suiza Dairy Group's income, cash flows, assets
and liabilities is shown as a minority interest on our Consolidated Financial
Statements.
Simultaneously with the closing of this transaction, Suiza Dairy Group
entered into a new $1.61 billion credit facility and borrowed approximately $1.1
billion under this new facility. Suiza Dairy Group distributed a portion of the
borrowings under the new credit facility to DFA and to us.
We used our portion of the distributed funds to repay certain existing
obligations, including our then existing senior credit facility which we
terminated and replaced with a new $300 million parent-level credit facility. We
also redeemed $100 million aggregate stated amount of mandatorily redeemable
trust issued preferred securities held by Dairy Farmers of America, and assumed
approximately $113.8 million of outstanding debt of Southern Foods Group. 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.
As a result of these transactions, we now have two senior credit facilities,
one at the parent level and one at the Suiza Dairy Group level.
At December 31, 2000, Suiza Dairy Group had outstanding borrowings of $1.10
billion under its senior credit facility. In addition, $17.8 million of letters
of credit secured by the Suiza Dairy Group credit facility were issued but
undrawn. As of December 31, 2000, approximately $497.2 million was available for
future borrowings under this credit facility, subject to satisfaction of certain
conditions contained in the loan agreement.
We had no debt outstanding under our parent-level credit facility; however,
$4.0 million of letters of credit secured by that facility were issued but
undrawn.
20
<PAGE> 23
On June 30, 2000, we obtained a receivable-backed loan in the amount of $150
million. 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 and Morningstar Foods. Suiza Dairy Group used
its proceeds to pay down higher cost borrowings under its credit facility. In
February 2001 we increased the amount of this loan from $150 million to $175
million and again used the proceeds to pay down higher cost debt.
Future Capital Requirements
We intend to invest a total of approximately $150 million in capital
expenditures for our existing manufacturing facilities and distribution
capabilities during 2001, which we intend to fund using cash flow from
operations.
We expect that cash flow from operations will be sufficient to meet our
requirements for our existing businesses for the foreseeable future. In the
future, we may pursue additional acquisitions that are compatible with our core
business strategy. Any acquisitions of fluid dairy businesses in the United
States (excluding territories) will be purchased through Suiza Dairy Group,
pursuant to our agreement with Dairy Farmers of America, except in certain
unusual circumstances. Therefore, any such acquisitions will be funded under the
Suiza Dairy Group credit facility. Working capital requirements for Suiza Dairy
Group and its subsidiaries 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 cash flows
from operations or the parent-level credit facility. We financed a portion of
the purchase price for our acquisition of a majority interest in Leche Celta
with low-cost borrowings in Spain. We may use similar types of financing in any
future international acquisitions. We believe that we have the ability to secure
additional financing for our future capital requirements.
Preferred Securities
On February 20, 1998, we issued $100 million of company-obligated 5%
mandatorily redeemable convertible preferred securities of a subsidiary trust as
part of the consideration paid to acquire Land-O-Sun. These securities were
subsequently redeemed as part of the Southern Foods transaction on January 4,
2000.
On March 24, 1998, we issued $600 million of company-obligated 5.5%
mandatorily redeemable convertible preferred securities of a subsidiary trust in
a private placement transaction, the proceeds of which were primarily used to
repay amounts outstanding under our senior credit facility. These preferred
securities mature 30 years from the date of issue.
The remaining preferred securities have quarterly distributions payable at a
rate of 5.5% per annum, and have a liquidation preference of $50 per security.
Distributions may be deferred for up to 20 consecutive quarters. The preferred
securities are convertible, at the option of the holder thereof, into an
aggregate of approximately 7.7 million shares of our common stock.
The preferred securities are redeemable, at our option, at any time after
March 24, 2001 at specified amounts and are mandatorily redeemable at their
liquidation preference amount of $50 per share at maturity on March 24, 2028 or
upon the occurrence of certain specified events.
We have fully guaranteed all of the subsidiary trust obligations under the
preferred securities, to the extent the subsidiary trust has funds on hand
available therefor. We also agreed to register the resale of the common stock
issuable upon conversion of the preferred securities under certain
circumstances.
KNOWN TRENDS AND UNCERTAINTIES
Tax Rate
Our 2000 tax rate was approximately 38.6%. 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 in 2002. Any additional acquisitions could
change this effective tax rate.
21
<PAGE> 24
Rationalization Activities
As a result of our rapid growth in recent years, we have had, and we believe
we will continue to have, many opportunities to lower costs and become more
efficient in our operations by rationalizing our assets and work force. Our
strategy has been to expand our dairy businesses primarily through acquisitions
and then to consolidate these acquisitions into our existing dairies.
For more information about these activities to date, please see Note 17 to
our Consolidated Financial Statements. In 2001 we intend to continue our
emphasis on our rationalization activities. As we continue these activities, we
may incur costs or other charges. 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. We
also expect that our earnings from our 43.1% equity investment in Consolidated
Container Company will continue to be reduced by our share of restructuring and
other non-recurring charges recognized by Consolidated Container as they
continue to integrate the operations of our former U.S. plastic packaging
business and the business of Reid Plastics. Although we cannot estimate the
effect of these charges on our earnings at this time, we do not expect these
costs to have a material adverse impact on our earnings or results of
operations.
Euro Currency Conversion
Companies conducting business in or having transactions denominated in
certain European currencies are facing the European Union's conversion to a new
common currency, the "euro." This conversion is expected to be implemented over
a three year period ending December 31 of this year. On January 1, 1999, the
euro became the official currency for accounting and tax purposes of several
countries of the European Union and the exchange rate between the euro and local
currencies was fixed. In 2002, the euro will replace the individual nation's
currencies. Since we have operations in Europe, the conversion to the euro will
have an effect on us. We currently believe that there will be no material
adverse impact of the conversion on our operations or financial performance.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
Market risk represents the risk of loss that may impact our consolidated
financial position, results of operations or cash flows. We are exposed to
market risk in the areas of interest rates and foreign currency exchange rates.
INTEREST RATE FLUCTUATIONS
Our exposure to market risk for changes in interest rates relates primarily
to our debt obligations. We manage interest rate risk to reduce the potential
volatility of earnings that may arise from changes in interest rates through the
use of interest rate derivative 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 credit facility.
The following table summarizes our various interest rate agreements as of
December 31, 2000:
<TABLE>
<CAPTION>
TYPE INTEREST RATE LIMITS NOTIONAL AMOUNTS EXPIRATION DATES
---- -------------------- ---------------- ---------------------------
<S> <C> <C> <C>
Swaps ..................... 6.07% to 6.14% $ 250.0 million December 2002
25.0 million December 2003
Collars ................... 6.08% and 7.50% 100.0 million December 2002 to June 2003
</TABLE>
These derivative agreements provide hedges for loans under Suiza Dairy
Group's credit facility by limiting or fixing the LIBOR interest rates specified
in the Suiza Dairy Group 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
22
<PAGE> 25
derivative agreements have been redesignated as hedges under the Suiza Dairy
Group 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.
We also entered into certain additional interest rate swap agreements with a
notional amount of $550.0 million in the fourth quarter of 2000, which are
intended to provide hedges against variable interest rate exposure on loans
under Suiza Dairy Group's credit facility. These agreements, which became
effective January 2, 2001, are interest rate swaps with an interest range of
6.44% to 6.78% expiring between December 2001 and December 2006.
We have also entered into interest rate swap agreements that provide hedges
for loans under Leche Celta's term loan. The following table summarizes these
agreements:
<TABLE>
<CAPTION>
Type Interest Rate Limits Notional Amounts Expiration Date
---- -------------------- ---------------- ---------------
<S> <C> <C> <C>
November 23, 2000 5.54% 1,500,000,000 pesetas (approximately $8.4 November 2003
million)
November 23, 2000 5.6% 2,000,000,000 pesetas (approximately November 2004
$11.2 million)
</TABLE>
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 portion 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 December 31, 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. At this time, we believe that potential losses due to foreign currency
fluctuations would not have a material impact on our consolidated financial
position, results of operations or operating cash flow.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
Our Consolidated Financial Statements for 2000 are included in this report
on the following pages.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report .................................................................. F-1
Consolidated Balance Sheets as of December 31, 2000 and 1999 .................................. F-2
Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998 ........ F-3
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000,
1999 and 1998 .............................................................................. F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 .... F-5
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies .............................................. F-6
2. Acquisitions ............................................................................ F-8
3. Subsequent Events ....................................................................... F-10
4. Extraordinary Gains and Losses and Discontinued Operations .............................. F-10
5. Investments in Unconsolidated Affiliates ................................................ F-10
6. Inventories ............................................................................. F-11
7. Property, Plant and Equipment ........................................................... F-12
8. Intangible and Other Assets ............................................................. F-12
9. Accounts Payable and Accrued Expenses ................................................... F-12
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
10. Income Taxes ............................................................................ F-12
11. Long-Term Debt .......................................................................... F-14
12. Mandatorily Redeemable Trust Issued Preferred Securities ................................ F-17
13. Stockholders' Equity .................................................................... F-17
14. Other Comprehensive Income .............................................................. F-20
15. Employee Retirement and Profit Sharing Plans ............................................ F-20
16. Postretirement Benefits Other Than Pensions ............................................. F-22
17. Plant Closing and Other Costs ........................................................... F-23
18. Supplemental Cash Flow Information ...................................................... F-25
19. Commitments and Contingencies ........................................................... F-25
20. Fair Value of Financial Instruments ..................................................... F-26
21. Business and Geographic Information and Major Customers ................................. F-26
22. Quarterly Results of Operations (unaudited) ............................................. F-28
</TABLE>
24
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Suiza Foods Corporation
Dallas, Texas
We have audited the accompanying consolidated balance sheets of Suiza Foods
Corporation and subsidiaries (the "Company") as of December 31, 2000 and 1999,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Suiza Foods Corporation and subsidiaries as of December 31, 2000 and 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 8, 2001
(March 30, 2001 as to Note 3)
F-1
<PAGE> 28
SUIZA FOODS CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................... $ 31,110 $ 25,155
Receivables, net of allowance for doubtful accounts of
$24,171 and $18,849 ........................................................ 519,318 379,070
Inventories .................................................................. 186,713 182,321
Refundable income taxes ...................................................... 3,925 3,514
Deferred income taxes ........................................................ 54,634 27,005
Prepaid expenses and other current assets .................................... 22,231 22,342
----------- -----------
Total current assets ................................................. 817,931 639,407
Property, plant and equipment .................................................. 1,003,769 758,485
Intangible and other assets .................................................... 1,958,778 1,261,030
----------- -----------
Total ................................................................ $ 3,780,478 $ 2,658,922
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ........................................ $ 567,342 $ 441,792
Income taxes payable ......................................................... 4,342 14,654
Current portion of long-term debt ............................................ 128,224 22,671
----------- -----------
Total current liabilities ............................................ 699,908 479,117
Long-term debt ................................................................. 1,225,045 689,397
Other long-term liabilities .................................................... 34,202 34,858
Deferred income taxes .......................................................... 123,614 46,323
Mandatorily redeemable convertible trust issued preferred securities
(redemption value of $599,945 and $700,000 plus accrued dividends) ........... 584,032 683,505
Minority interest in subsidiaries .............................................. 514,845 141,750
Commitments and contingencies (Note 19)
Stockholders' equity:
Preferred stock, none issued
Common stock, 27,285,649 and 29,287,558 shares issued and outstanding,
with a par value of $0.01 per share ....................................... 273 293
Additional paid-in capital ................................................... 166,361 275,527
Retained earnings ............................................................ 433,309 314,590
Accumulated other comprehensive loss ......................................... (1,111) (6,438)
----------- -----------
Total stockholders' equity ........................................... 598,832 583,972
----------- -----------
Total ................................................................ $ 3,780,478 $ 2,658,922
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 29
SUIZA FOODS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net sales .................................................. $ 5,756,303 $ 4,481,999 $ 3,320,940
Cost of sales .............................................. 4,330,067 3,487,075 2,557,908
------------ ------------ ------------
Gross profit ............................................... 1,426,236 994,924 763,032
Operating costs and expenses:
Selling and distribution ................................. 812,274 518,962 376,928
General and administrative ............................... 182,570 148,009 112,169
Amortization of intangibles .............................. 52,441 38,513 31,479
Plant closing and other costs ............................ 3,388 12,566
Litigation settlement costs .............................. 7,500
------------ ------------ ------------
Total operating costs and expenses ............... 1,058,173 718,050 520,576
------------ ------------ ------------
Operating income ........................................... 368,063 276,874 242,456
Other (income) expense:
Interest expense, net .................................... 112,586 49,233 52,082
Financing charges on trust issued preferred securities ... 33,595 38,584 30,213
Equity in earnings of unconsolidated affiliates .......... (11,453) (2,630) (78)
Other income, net ........................................ (630) (1,416) (4,212)
------------ ------------ ------------
Total other expense .............................. 134,098 83,771 78,005
------------ ------------ ------------
Income from continuing operations before income taxes ...... 233,965 193,103 164,451
Income taxes ............................................... 90,303 75,463 59,823
Minority interest in earnings .............................. 29,911 8,813 1,559
------------ ------------ ------------
Income from continuing operations .......................... 113,751 108,827 103,069
Loss from discontinued operations .......................... (3,161)
------------ ------------ ------------
Income before extraordinary gain ........................... 113,751 108,827 99,908
Extraordinary gain ......................................... 4,968 904 31,698
------------ ------------ ------------
Net income ................................................. $ 118,719 $ 109,731 $ 131,606
============ ============ ============
Net income applicable to common stock ...................... $ 118,719 $ 109,731 $ 131,369
============ ============ ============
Basic earnings per common share:
Income from continuing operations ........................ $ 4.03 $ 3.31 $ 3.12
Loss from discontinued operations ........................ (0.10)
Extraordinary gain ....................................... .18 .03 0.96
------------ ------------ ------------
Net income ............................................... $ 4.21 $ 3.34 $ 3.98
============ ============ ============
Diluted earnings per common share:
Income from continuing operations ........................ $ 3.68 $ 3.11 $ 2.90
Loss from discontinued operations ........................ (0.08)
Extraordinary gain ....................................... .14 .02 0.76
------------ ------------ ------------
Net income ............................................... $ 3.82 $ 3.13 $ 3.58
============ ============ ============
Average common shares -- Basic ............................. 28,195,043 32,861,218 32,953,290
============ ============ ============
Average common shares -- Diluted ........................... 36,671,264 42,858,492 41,965,564
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 30
SUIZA FOODS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED
STOCK COMMON STOCK ADDITIONAL
----------- -------------------------- PAID-IN RETAINED
AMOUNT SHARES AMOUNT CAPITAL EARNINGS
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 ........... $ 3,741 30,614,037 $ 306 $ 281,773 $ 73,490
Issuance of common stock ......... 4,494,437 45 210,443
Purchase and retirement of
treasury stock.................. (1,510,400) (15) (45,986)
Repurchase of 11,691 shares
of preferred stock ............. (3,741)
Dividends on preferred stock ..... (237)
Net income ....................... 131,606
Other comprehensive income
(Note 14):
Cumulative translation
adjustment......................
Minimum pension liability
adjustment......................
Comprehensive income .............
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 ......... -- 33,598,074 336 446,230 204,859
Issuance of common stock ......... 1,106,207 11 27,382
Purchase and retirement of
treasury stock.................. (5,416,723) (54) (198,085)
Net income ....................... 109,731
Other comprehensive income
(Note 14):
Cumulative translation
adjustment......................
Comprehensive income .............
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 ......... -- 29,287,558 293 275,527 314,590
Issuance of common stock ......... 1,279,956 13 39,327
Purchase and retirement of
treasury stock.................. (3,281,865) (33) (148,493)
Net income ....................... 118,719
Other comprehensive income
(Note 14):
Cumulative translation
adjustment......................
Comprehensive income .............
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2000 ......... -- 27,285,649 $ 273 $ 166,361 $ 433,309
=========== =========== =========== =========== ===========
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE TOTAL
INCOME STOCKHOLDERS' COMPREHENSIVE
(LOSS) EQUITY INCOME
------------ ------------- -------------
<S> <C> <C> <C>
Balance, January 1, 1998 ........... $ 359,310
Issuance of common stock ......... 210,488
Purchase and retirement of
treasury stock.................. (46,001)
Repurchase of 11,691 shares
of preferred stock ............. (3,741)
Dividends on preferred stock ..... (237)
Net income ....................... 131,606 $ 131,606
Other comprehensive income
(Note 14):
Cumulative translation
adjustment...................... $ 4,273 4,273 4,273
Minimum pension liability
adjustment...................... 73 73 73
-----------
Comprehensive income ............. $ 135,952
----------- ----------- ===========
Balance, December 31, 1998 ......... 4,346 655,771
Issuance of common stock ......... 27,393
Purchase and retirement of
treasury stock.................. (198,139)
Net income ....................... 109,731 $ 109,731
Other comprehensive income
(Note 14):
Cumulative translation
adjustment...................... (10,784) (10,784) (10,784)
-----------
Comprehensive income ............. $ 98,947
----------- ----------- ===========
Balance, December 31, 1999 ......... (6,438) 583,972
Issuance of common stock ......... 39,340
Purchase and retirement of
treasury stock.................. (148,526)
Net income ....................... 118,719 $ 118,719
Other comprehensive income
(Note 14):
Cumulative translation
adjustment...................... 5,327 5,327 5,327
-----------
Comprehensive income ............. $ 124,046
----------- ----------- ===========
Balance, December 31, 2000 ......... $ (1,111) $ 598,832
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 31
SUIZA FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .............................................................. $ 118,719 $ 109,731 $ 131,606
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss from discontinued operations .................................... 3,161
Depreciation and amortization ........................................ 144,983 116,645 91,779
(Gain) loss on disposition of assets ................................. 768 5,352 (53)
Minority interest .................................................... 52,187 14,614 1,559
Equity in earnings of unconsolidated affiliates ...................... (11,453) (2,630) (78)
Extraordinary gain ................................................... (4,968) (904) (31,698)
Deferred income taxes ................................................ 50,916 22,199 20,386
Other ................................................................ 1,265 3,863 (711)
Changes in operating assets and liabilities, net of acquisitions:
Receivables ........................................................ (43,104) 41,878 (49,065)
Inventories ........................................................ (18,977) 22,709 (4,600)
Prepaid expenses and other assets .................................. 2,321 (20,492) (1,284)
Accounts payable and accrued expenses .............................. 6,344 (52,164) 24,481
Income taxes ....................................................... (1,323) 22,704 22,998
----------- ----------- -----------
Net cash provided by continuing operations ...................... 297,678 283,505 208,481
Net cash used in discontinued operations ........................ (2,068)
----------- ----------- -----------
Net cash provided by operating activities ....................... 297,678 283,505 206,413
----------- ----------- -----------
Cash flows from investing activities:
Net additions to property, plant, and equipment ......................... (136,876) (187,642) (176,870)
Cash outflows for acquisitions and investments .......................... (335,956) (235,837) (611,401)
Net proceeds from the sale of discontinued operations ................... 172,732
Net proceeds from divestitures .......................................... 89,037 383,112
Other ................................................................... 3,542 2,383 1,369
----------- ----------- -----------
Net cash used in continuing operations .......................... (380,253) (37,984) (614,170)
Net cash used in discontinued operations ........................ (14,022)
----------- ----------- -----------
Net cash used in investing activities ........................... (380,253) (37,984) (628,192)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of debt .......................................... 1,284,492 538,995 965,820
Repayment of debt ....................................................... (947,443) (631,065) (1,082,464)
Payments of deferred financing costs .................................... (12,014) (1,256)
Proceeds from issuance of minority interest ............................. 8,983
Distributions to minority interest holders .............................. (16,438) (10,122)
Issuance of common stock, net of expenses ............................... 28,514 16,060 37,808
Redemption of common and preferred stock ................................ (148,526) (198,139) (49,742)
Issuance of trust issued preferred securities, net of expenses .......... 582,500
Redemption of trust issued preferred securities ......................... (100,055)
Preferred dividends paid and other ...................................... (353)
----------- ----------- -----------
Net cash provided by (used in) financing activities ............. 88,530 (275,288) 452,313
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents .......................... 5,955 (29,767) 30,534
Cash and cash equivalents, beginning of period ............................ 25,155 54,922 24,388
----------- ----------- -----------
Cash and cash equivalents, end of period .................................. $ 31,110 $ 25,155 $ 54,922
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 32
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- Our consolidated financial statements include the
accounts of our wholly-owned and majority owned subsidiaries. All significant
intercompany balances and transactions are eliminated in consolidation. We also
own equity interests of less than 50% in certain companies that we do not
control which are accounted for in the consolidated financial statements using
either the equity or cost method of accounting depending on our ownership
interest. Under the equity method of accounting, our investments in these
affiliates are presented as a single amount in our consolidated balance sheets
and our proportional share of their earnings are presented in our consolidated
statements of income as a single line item in other income.
The preparation of our consolidated financial statements in conformity with
generally accepted accounting principles requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
Cash Equivalents -- We consider all highly liquid investments purchased with
a remaining maturity of three months or less to be cash equivalents.
Inventories -- Inventories are stated at the lower of cost, using the
first-in, first-out ("FIFO") method, or market. The costs of finished goods
inventories include raw materials, direct labor and indirect production and
overhead costs.
Property, Plant and Equipment -- Property, plant and equipment are stated at
acquisition cost, along with capitalized interest on borrowings during the
actual construction period of major capital projects. Also included in property,
plant and equipment are certain direct costs related to the implementation of
computer software for internal use. Depreciation and amortization are provided
using the straight-line method over the estimated useful lives of the assets, as
follows:
<TABLE>
<CAPTION>
ASSET USEFUL LIFE
---------------------------------- --------------------------
<S> <C>
Buildings and improvements Seven to 40 years
Machinery and equipment Three to 20 years
</TABLE>
Capitalized lease assets are amortized over the shorter of their lease term
or their estimated useful lives. Expenditures for repairs and maintenance which
do not improve or extend the life of the assets are expensed as incurred.
Intangible and Other Assets -- Intangible and other assets include the
following intangibles, which are amortized over their related estimated useful
lives:
<TABLE>
<CAPTION>
ASSET USEFUL LIFE
---------------------------------- ----------------------------------------------------------------------------
<S> <C>
Goodwill Straight-line method over 25 to 40 years
Identifiable intangible assets:
Customer lists Straight-line method over seven to ten years
Customer supply contracts Straight-line method over the terms of the agreements (primarily 15 years)
Trademarks/trade names Straight-line method over ten to 40 years
Noncompetition agreements Straight-line method over the terms of the agreements
Patents Straight-line method over fifteen years
Deferred financing costs Interest method over the terms of the related debt
</TABLE>
We periodically assess the net realizable value of our long-lived assets, as
well as all other assets, by comparing the expected future net operating cash
flows, undiscounted and without interest charges, to the carrying
F-6
<PAGE> 33
amount of the underlying assets. We would evaluate a potential impairment if the
recorded value of these assets exceeded the associated future net operating cash
flows. Any potential impairment loss would be measured as the amount by which
the carrying value exceeds the fair value of the asset. Fair value of assets
would be measured by market value, if an active market exists, or by a forecast
of expected future net operating cash flows, discounted at a rate commensurate
with the risk involved.
Foreign Currency Translation -- The financial statements of our foreign
subsidiaries are translated to U.S. dollars in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Translation." The functional currency of our foreign subsidiaries is generally
the local currency of the country. Accordingly, assets and liabilities of the
foreign subsidiaries are translated to U.S. dollars at year-end exchange rates.
Income and expense items are translated at the average rates prevailing during
the year. Changes in exchange rates, which affect cash flows and the related
receivables or payables are recognized as transaction gains and losses in the
determination of net income. The cumulative translation adjustment in
stockholders' equity reflects the unrealized adjustments resulting from
translating the financial statements of our foreign subsidiaries.
Minority Interest in Subsidiaries -- Minority interest in results of
operations of consolidated subsidiaries represents the minority shareholders'
share of the income or loss of various consolidated subsidiaries. The minority
interest in the consolidated balance sheets reflect the original investment by
these minority shareholders in these consolidated subsidiaries, along with their
proportional share of the earnings or losses of these subsidiaries less any
distributions made.
Employee Stock Options and Restricted Stock -- We measure compensation
expense for our stock-based employee compensation plans using the intrinsic
value method and provide the required pro forma disclosures of the effect on net
income and earnings per share as if the fair value-based method had been applied
in measuring compensation expense.
Revenue -- Revenue is recognized when the product is shipped to the
customer. We provide credit terms to customers generally ranging up to 30 days,
perform ongoing credit evaluation of our customers and maintain allowances for
potential credit losses based on historical experience.
Income Taxes -- All of our wholly-owned U.S. operating subsidiaries are
included in our consolidated tax return. In addition, our proportional share of
the operations of our majority owned subsidiaries and certain of our equity
method affiliates, which are organized as limited liability companies or limited
partnerships are also included in our consolidated tax return. Our Puerto Rico
and foreign subsidiaries are required to file separate income tax returns in
their local jurisdictions. Certain distributions from these subsidiaries are
subject to U.S. income taxes; however, available tax credits of these
subsidiaries may reduce or eliminate these U.S. income tax liabilities.
Deferred income taxes are provided for temporary differences in the
consolidated financial statements and tax bases of assets and liabilities using
current tax rates. Deferred tax assets, including the benefit of net operating
loss carryforwards, are evaluated based on the guidelines for realization and
may be reduced by a valuation allowance if deemed necessary.
Advertising Expense -- Advertising expense is comprised of media, agency and
production expenses, along with coupon and customer advertising funds.
Advertising expenses are charged to income during the period incurred, except
for expenses related to the development of a major commercial or media campaign
which are charged to income during the period in which the advertisement or
campaign is first presented by the media. Advertising expenses charged to income
totaled $63.1 million in 2000, $43.5 million in 1999 and $28.9 million in 1998.
Additionally, there were no prepaid advertising costs at December 31, 2000 and
such costs were $1.7 million at December 31, 1999.
Comprehensive Income -- We consider all changes in equity from transactions
and other events and circumstances, except those resulting from investments by
owners and distributions to owners, to be comprehensive income.
Interest Rate Agreements -- Interest rate swaps, caps and floors are entered
into as hedges against interest exposure of our variable rate debt. Differences
between amounts to be paid or received on these interest rate agreements
designated as hedges are included in interest expense as payments are made or
received. Gains or losses on agreements not designated as hedges are included in
income as incurred. Amounts paid to acquire
F-7
<PAGE> 34
interest rate caps and amounts received for interest rate floors are amortized
as an adjustment to interest expense over the life of the related agreement.
Recently Issued Accounting Pronouncements -- Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and
Hedging Activities (as amended) became effective for us as of January 1, 2001.
All derivatives, which currently consist of only our interest rate agreements,
have been identified pursuant to SFAS No. 133 requirements. We have completed
our documentation and assessment of those derivatives designated as accounting
hedges, all of which were determined to be cash flow hedges. As of the effective
date, we will record the derivative asset or liability related to these cash
flow hedges on our consolidated balance sheet at fair value, with an offset to
other comprehensive income to the extent the hedge is effective, as required by
SFAS No. 133. Any ineffectiveness in cash flow hedges or fair value hedges will
be recorded as an adjustment to earnings and not other comprehensive income. Our
adoption of this accounting standard as of January 1, 2001 will result in the
recognition of a liability related to our cash flow hedges of $16.3 million, a
charge, net of income taxes, of $2.2 million to earnings as the cumulative
effect of the adoption of this new standard and a cumulative effect charge, net
of income taxes, of $9.6 million to other comprehensive income.
In September 2000, the Emerging Issues Task Force ("Task Force") of the
Financial Accounting Standards Board reached a consensus on Issue No. 00-10,
"Accounting for Shipping and Handling Fees and Costs," which became effective
for us in the fourth quarter of 2000. This issue requires the disclosure of our
accounting policies for shipping and handling costs and their income statement
classification. Our shipping and handling costs are included in both costs of
sales and selling and distribution expense, depending on the nature of such
costs. Shipping and handling costs in costs of sales include the cost of
shipping products to customers through third party carriers, inventory warehouse
costs and product loading and handling costs. Shipping and handling costs in
selling and distribution expense consist primarily of route delivery costs for
both Company owned delivery routes and independent distributor routes, to the
extent that such independent distributors are paid a delivery fee. These
shipping and handling costs that were recorded as a component of selling and
distribution expense were approximately $614.1 million, $370.4 million and
$268.1 million during 2000, 1999 and 1998 respectively.
The Task Force also reached a consensus on Issue No. 00-14, "Accounting for
Certain Sales Incentives," which becomes effective for us in the second quarter
of 2001. This issue addresses the recognition, measurement and income statement
classification of sales incentives that have the effect of reducing the price of
a product or service to a customer at the point of sale. Upon our adoption,
certain sales incentives, which are currently classified as selling and
distribution expenses, will be reclassified as a reduction of sales. Our current
accounting policy for recording sales incentives within the scope of this issue
is to record estimated coupon expense based on historical coupon redemption
experience which is consistent with the requirements of this issue, and we
estimate that the costs of these sales incentives that are recorded as selling
and distribution expenses approximated $4.3 million, $2.1 million and $4.3
million during 2000, 1999 and 1998, respectively.
Reclassifications -- Certain reclassifications have been made to conform the
prior years' consolidated financial statements to the current year
classifications.
2. ACQUISITIONS
Effective January 1, 2000 we entered into a joint venture with Dairy Farmers
of America in which we contributed 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 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
Foods subsidiary). Our ownership interest as well as Dairy Farmers of America's
was determined by negotiation between the parties. This transaction was
accounted for as an acquisition by us of Southern Foods Group using the purchase
method of accounting.
F-8
<PAGE> 35
In total, we completed the acquisitions of 27 dairy businesses and eight
packaging businesses during the last three years which included the following
acquisitions which were significant at the time of completion:
<TABLE>
<CAPTION>
DATE COMPANY SEGMENT PURCHASE PRICE
---------------------- -------------------------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
January 2000 Southern Foods Group Dairy $435,606
February 1998 Land-O-Sun Dairies Dairy 248,000
May 1998 Continental Can Packaging 354,400
</TABLE>
These acquisitions and the smaller dairy and packaging businesses acquired
were funded primarily with borrowings under our credit facilities, along with
the issuance in 1999 and 1998 of 77,233 and 2,050,635 shares of our common
stock, respectively, with fair market values of $3.2 million and $138.5 million,
respectively.
All acquisitions were accounted for using the purchase method of accounting
as of their respective acquisition dates, and accordingly, only the results of
operations of the acquired companies subsequent to their respective acquisition
dates are included in our consolidated financial statements. At the acquisition
date, the purchase price was allocated to assets acquired, including
identifiable intangibles, and liabilities assumed based on their fair market
values. The excess of the total purchase prices over the fair values of the net
assets acquired represented goodwill. In connection with the acquisitions,
assets were acquired and liabilities were assumed, subject to final purchase
price adjustments, as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
2000 1999 1998
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Purchase prices:
Cash paid, net of cash acquired ......................................... $ 331,543 $ 230,611 $ 599,197
Cash acquired in acquisitions ........................................... 6,327 9,976 24,353
Common stock issued ..................................................... 3,193 138,547
Subsidiary preferred and common securities issued and minority
partnership interests ................................................. 340,336 18,500 201,447
--------- --------- ---------
Total purchase prices ........................................... 678,206 262,280 963,544
Fair values of net assets acquired:
Fair values of assets acquired .......................................... 473,648 94,514 798,902
Liabilities assumed ..................................................... (187,907) (21,273) (541,447)
--------- --------- ---------
Total net assets acquired ....................................... 285,741 73,241 257,455
--------- --------- ---------
Goodwill .................................................................. $ 392,465 $ 189,039 $ 706,089
========= ========= =========
</TABLE>
The unaudited results of operations on a pro forma basis for the year ended
December 31, 1999, as if the Southern Foods operations had been acquired as of
the beginning of 1999 are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
---------------------------
HISTORICAL PRO FORMA
---------- ----------
<S> <C> <C>
Net sales ....................................................... $4,481,999 $5,782,896
Income from continuing operations before taxes .................. 193,103 217,152
Net income from continuing operations ........................... 108,827 109,787
Earnings per share from continuing operations:
Basic ........................................................ $ 3.31 $ 3.34
Diluted ...................................................... $ 3.11 $ 3.16
</TABLE>
Since Southern Foods Group was acquired effective January 1, 2000, its
full-year operating results are included in the consolidated financial
statements. However, on a pro forma basis, the 1999 acquisitions, net of the
sale in 1999 of a majority interest in our U.S. plastic packaging operations
discussed in Note 5, do not have a material pro forma impact on net sales,
income from continuing operations or net income for 1999.
Related Party Transactions -- During 2000, 1999 and 1998, we paid fees to a
former officer and director for acquisition consulting services related to
certain completed acquisitions totaling $3.9 million, $0.5 million and $5.1
million, respectively, which have been capitalized as part of the purchase price
of the acquisitions.
F-9
<PAGE> 36
3. SUBSEQUENT EVENT
Prior to our acquisition of West Lynn Creamery in June 1998, West Lynn
Creamery paid rebates to certain of its customers pursuant to a rebate program
conducted by West Lynn Creamery between 1992 and 1997 (the "Rebate Program"). As
a result 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 such
customers' federal income taxes through the use of the Rebate Program, the
United States Department of Justice (the "DOJ") conducted an investigation of
this matter. On March 30, 2001, we reached a final settlement of this matter
with the DOJ pursuant to which West Lynn Creamery will plead guilty to one
charge of conspiracy to impede the collection of taxes by the Internal Revenue
Service and will pay $7.2 million to the government. As a result, we have
recorded a charge of $7.5 million ($5.0 million net of minority interest) in the
fourth quarter of 2000, which includes certain professional fees and expenses
incurred in connection with this matter. This charge is reflected as "Litigation
Settlement Costs" in our 2000 Consolidated Income Statement, and in "Accounts
Payable and Accrued Expenses" in our Consolidated Balance Sheet as of December
31, 2000.
4. EXTRAORDINARY GAINS AND LOSSES AND DISCONTINUED OPERATIONS
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 financing costs.
In the fourth quarter of 1999 we recorded a gain of $0.9 million, net of
income taxes of $0.5 million, when contingencies related to the sale of our
packaged ice operations in 1998 were resolved favorably.
On April 30, 1998, we completed the sale of our packaged ice operations for
net cash proceeds of approximately $172.7 million. We reported an extraordinary
gain of $35.5 million from the sale of this operation, net of $22.0 million of
income tax expense. Our packaged ice segment had revenues of approximately $17.9
million during the four months ended April 30, 1998. The results of discontinued
operations includes interest expense of $2.4 million during 1998. Interest
charges allocated to discontinued operations are based on debt specifically
attributed to our packaged ice operations. The results of discontinued
operations are presented net of the related income tax benefit of $2.1 million
in 1998.
In 1998, an extraordinary loss of $3.8 million, net of a $2.3 million income
tax benefit, was also recognized in connection with the early extinguishment of
the term loan of our previous senior credit facility, and included losses from
the write-off of deferred financing costs and interest rate swap losses.
5. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Investment in Consolidated Container Company LLC -- On July 2, 1999, we sold
a majority interest in our U.S. plastic packaging operations to Consolidated
Container Company, which through a predecessor owned another plastic packaging
business. Pursuant to this transaction, we received a 43.1% common equity
interest in Consolidated Container Company in exchange for our common equity
interest in our U.S. plastic packaging operations, along with cash of
approximately $364.0 million in connection with Consolidated Container Company's
refinancing of the intercompany debt and preferred stock investment that our
U.S. plastic packaging operations owed us. As a part of this transaction the
senior secured notes of Plastic Containers, Inc., a former subsidiary of
Continental Can, were assumed by Consolidated Container Company.
F-10
<PAGE> 37
With the consummation of this transaction, the assets and liabilities and
results of operations of our formerly consolidated U.S. plastic packaging
operations were combined with those of Consolidated Container Company and were
eliminated from our consolidated financial statements. For all periods prior to
this date, our U.S. plastic packaging operations continue to be included in our
consolidated financial statements. Included in consolidated sales for the first
six months of 1999 and for all of 1998 were sales of $245.0 million and $332.0
million, respectively, related to the U.S. plastic packaging operations.
Our investment in Consolidated Container Company after July 2, 1999 is
accounted for under the equity method of accounting. Our investment in
Consolidated Container Company was $23.7 million and $3.9 million at December
31, 2000 and 1999, respectively. Our initial investment, as adjusted, was lower
than our proportional share of Consolidated Container Company's net assets by
$100.4 million which is being amortized over forty years. Earnings from our
unconsolidated affiliates in our consolidated statements of income include $11.3
million and $2.4 million (net of restructuring and other non-recurring charges
of ($0.8) million and $4.9 million) attributable to Consolidated Container
Company, of which $2.6 million and $1.4 million are attributable to the
amortization of the difference between the carrying amount of our investment and
our proportional share of our underlying equity interest in their net assets for
the years ended December 31, 2000 and 1999, respectively. Although the market
value of our investment in Consolidated Container Company is not readily
determinable, we believe that the fair value of this investment exceeds its
carrying amount.
Summarized financial information for Consolidated Container Company at
December 31, 2000 and 1999 and for the periods ended December 31, 2000 and 1999
is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
2000 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Current assets ......................... $ 148,243 $ 154,743
Total assets ........................... 1,001,625 990,589
Current liabilities .................... 162,796 142,280
Debt ................................... 530,971 554,011
Total liabilities ...................... 723,184 733,761
Total equity ........................... 278,441 256,828
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
2000 1999
------------------ ------------------
<S> <C> <C>
Net sales .................... $ 754,649 $ 388,665
Operating income ............. 81,081 27,470
</TABLE>
Investment in Horizon Organic -- As of December 31, 2000 and 1999 we had a
13.6% and 13.8% interest in Horizon Organic, respectively. We account for this
investment under the equity method of accounting as we believe that we have the
ability to influence the operating policies of Horizon. The quoted stock price
ranged from $4.00 to $12.25 during 2000. The closing stock price on December 31,
2000 was $4.44 per share, resulting in a market value of our investment of $5.9
million. Our investment in Horizon Organic at December 31, 2000 and 1999 was
$16.4 million and $16.2 million, respectively, and our equity in earnings
included in our consolidated statement of income for both 2000 and 1999 was $0.2
million.
6. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
2000 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies ........ $ 99,315 $ 100,044
Finished goods .................... 87,398 82,277
---------- ----------
Total ................... $ 186,713 $ 182,321
========== ==========
</TABLE>
F-11
<PAGE> 38
7. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
2000 1999
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Land .............................. $ 102,331 $ 64,063
Buildings and improvements ........ 327,477 227,306
Machinery and equipment ........... 863,740 703,984
----------- -----------
1,293,548 995,353
Less accumulated depreciation ..... (289,779) (236,868)
----------- -----------
Total ................... $ 1,003,769 $ 758,485
=========== ===========
</TABLE>
For 2000 and 1999, we capitalized $3.5 million and $3.6 million in interest,
respectively related to borrowings during the actual construction period of
major capital projects, which is included as part of the cost of the related
asset.
8. INTANGIBLE AND OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
2000 1999
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Goodwill ......................................... $ 1,790,523 $ 1,207,756
Identifiable intangibles ......................... 224,129 103,798
Deposits and other ............................... 36,444 21,123
Investments in unconsolidated affiliates ......... 44,831 20,137
Deferred income taxes ............................ 41 501
----------- -----------
2,095,968 1,353,315
Less accumulated amortization .................... (137,190) (92,285)
----------- -----------
Total .................................. $ 1,958,778 $ 1,261,030
=========== ===========
</TABLE>
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable ....................... $370,355 $276,968
Payroll and benefits ................... 71,219 70,076
Other accrued liabilities .............. 125,768 94,748
-------- --------
$567,342 $441,792
======== ========
</TABLE>
10. INCOME TAXES
The following table presents the 2000, 1999 and 1998 provisions for income
taxes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
(IN THOUSANDS)
2000(1) 1999(2) 1998(3)
------------ ------------ ------------
Current taxes payable:
<S> <C> <C> <C>
Federal ........................ $ 47,010 $ 31,480 $ 16,423
State .......................... 8,668 10,041 7,234
Foreign and other .............. 2,151 6,433 4,612
Deferred income taxes ............ 32,474 27,509 31,554
------------ ------------ ------------
Total .................. $ 90,303 $ 75,463 $ 59,823
============ ============ ============
</TABLE>
- ----------
(1) Excludes a $2.8 million income tax expense related to extraordinary gains.
(2) Excludes a $0.5 million income tax expense related to extraordinary gains.
(3) Excludes a $2.1 million income tax benefit related to discontinued
operations and a $19.9 million income tax expense related to net
extraordinary gains.
F-12
<PAGE> 39
The following is a reconciliation of income taxes reported in the
consolidated statements of income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
(IN THOUSANDS)
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Tax expense at statutory rates .............. $ 81,888 $ 67,586 $ 57,557
State income taxes .......................... 9,315 7,795 7,967
Tax effect of tax-exempt earnings ........... (2,687) (2,612) (4,765)
Nondeductible goodwill ...................... 4,229 1,968 1,423
Other ....................................... (2,442) 726 (2,359)
-------- -------- --------
Total ............................. $ 90,303 $ 75,463 $ 59,823
======== ======== ========
</TABLE>
The tax effects of temporary differences giving rise to deferred income tax
assets and liabilities were:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
2000 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards .................... $ 20,007 $ 14,363
Asset valuation reserves ............................ 5,493 7,141
Nondeductible accruals .............................. 41,894 46,209
Tax credits ......................................... 3,381 3,311
Other ............................................... 6,469 2,158
--------- ---------
77,244 73,182
Deferred income tax liabilities:
Depreciation and amortization ....................... (118,886) (69,509)
Tax credit basis differences ........................ (6,251) (6,251)
Basis differences in unconsolidated affiliates ...... (21,046) (16,239)
--------- ---------
(146,183) (91,999)
--------- ---------
Net deferred income tax liability ........... $ (68,939) $ (18,817)
========= =========
</TABLE>
These net deferred income tax assets (liabilities) are classified in our
consolidated balance sheets as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
2000 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Current assets ................... $ 54,634 $ 27,005
Noncurrent assets ................ 41 501
Noncurrent liabilities ........... (123,614) (46,323)
--------- ---------
Total .................. $ (68,939) $ (18,817)
========= =========
</TABLE>
At December 31, 2000, we had approximately $45.0 million of net operating
losses and approximately $7.9 million of tax credits available for carry over to
future years. The losses are subject to certain limitations and will expire
beginning in 2008.
No valuation allowance has been recorded as management believes it is more
likely than not that all of the deferred tax assets will be realized.
F-13
<PAGE> 40
11. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
2000 1999
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Parent-level credit facility ................ $ -- $ 635,500
Subsidiary debt obligations:
Suiza Dairy Group credit facility ......... 1,095,000
Receivable-backed loan .................... 150,000
Foreign subsidiary term loan .............. 39,519
Uncommitted line of credit ................ 20,000
Other lines of credit ..................... 24,655
Industrial development revenue bonds ...... 8,845 9,330
Capital lease obligations and other ....... 39,905 42,583
----------- -----------
1,353,269 712,068
Less current portion ........................ (128,224) (22,671)
----------- -----------
Total ............................. $ 1,225,045 $ 689,397
=========== ===========
</TABLE>
Terminated Senior Credit Facility -- In connection with our acquisition of
Southern Foods Group 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 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 future acquisitions. As
of December 31, 2000, no funds were borrowed under this facility, but there were
$4.0 million of issued but undrawn letters of credit outstanding. See "Credit
Facility Terms" below for a description of the terms of the parent credit
facility.
Suiza Dairy Group Credit Facility -- Simultaneous with the closing of our
acquisition of Southern Foods Group, Suiza Dairy Group 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 borrowed approximately $1.1 billion under this facility and
distributed a portion of the borrowings to us and to Dairy Farmers of America.
We used our portion of the distribution to repay our then existing senior credit
facility and certain other obligations. At December 31, 2000, there were
outstanding borrowings of $1.095 billion under this facility, in addition to
$17.8 million of issued but undrawn letters of credit. See "Credit Facility
Terms" below for a description of the terms of the Suiza Dairy Group credit
facility.
Credit Facility Terms -- Amounts outstanding under the Suiza Dairy Group
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 credit facility and 0 to 75
basis points on the new parent 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, plus a
margin that varies from 125 to 225 basis points for the Suiza Dairy
Group credit facility and 75 to 175 basis points on the new parent
credit facility, depending on our ratio of defined indebtedness to
EBITDA.
The interest rate in effect on the Suiza Dairy Group credit facility,
including the applicable interest rate margin, was 8.50% at December 31, 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
F-14
<PAGE> 41
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 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 credit facility and the parent-level credit facility
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 capital stock of certain of our subsidiaries.
Receivable-Backed Loan - On June 30, 2000 we entered into a $150 million
credit facility secured by certain subsidiary accounts receivable. 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 and its subsidiaries to pay down higher cost
borrowings under the Suiza Dairy Group 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 December 31, 2000
was 7.13%. In February 2001, we increased our receivable-backed loan from $150
million to $175 million, and used the proceeds to pay down higher-cost
borrowings under the Suiza Dairy Group credit facility.
Foreign Subsidiary Term Loan - In connection with our acquisition of Leche
Celta, in February 2000, our Spanish subsidiary obtained a 7 billion peseta
non-recourse 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, will expire on February 21, 2007, bears interest at
a variable rate based on the ratio of Leche Celta'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
December 31, 2000 was 7.13%.
Uncommitted Line of Credit - On October 4, 2000, Suiza Dairy Group entered
into an agreement with First Union National Bank pursuant to which Suiza Dairy
Group may borrow up to $20.0 million from time to time on an uncommitted basis.
Loans outstanding under the agreement are unsecured and bear interest at a
floating rate of interest, adjusted daily. There is no commitment fee associated
with this facility. Principal amounts borrowed under this agreement will mature
one year from the date of the agreement. On December 31, 2000, Suiza Dairy Group
had an outstanding balance of $20.0 million under this line of credit at an
interest rate of 8.56%.
Other Lines of Credit - Leche Celta, our Spanish subsidiary, is our only
subsidiary with a currently outstanding line of credit separate from the credit
facilities described above. Leche Celta's existing line of credit, which is in
the principal amount of 2.5 billion pesetas, 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 debt to EBITDA ( as defined in
the corresponding loan agreement), is secured by our stock in Leche Celta and
will expire in June 2007. No funds were drawn on this line of credit at December
31, 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 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 December 31, 2000 ranged from
5.20% to 5.45%.
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
F-15
<PAGE> 42
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, 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.
Scheduled Maturities -- The scheduled maturities of long-term debt, which
include capitalized lease obligations, at December 31, 2000, were as follows (in
thousands):
<TABLE>
<S> <C>
2001.......................... $ 128,224
2002.......................... 142,710
2003.......................... 309,447
2004.......................... 175,568
2005.......................... 579,457
Thereafter.................... 17,863
------------
Total............... $ 1,353,269
============
</TABLE>
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 credit facility.
These derivative agreements provided hedges for loans under our Suiza Dairy
Group credit facility by limiting or fixing the LIBOR interest rates specified
in the Suiza Dairy Group credit facility at the interest rates noted below until
the indicated expiration dates of these interest rate derivative agreements.
The following table summarizes our various interest rate agreements as of
December 31, 2000 and 1999:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
----------------------
2000 1999
----------- --------
(IN THOUSANDS)
<S> <C> <C>
Interest rate caps with an interest limit of 8% expiring March 2000 .............. $ -- $ 60,000
Interest rate swaps with an interest range of 6.03% to 6.14% expiring between
September 2000 and December 2003 ................................................. 275,000 435,000
Interest rate collars with an interest range of 6.08% to 7.50% expiring between
December 2002 and June 2003 ...................................................... 100,000 100,000
</TABLE>
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 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. For a discussion of the treatment of derivative
agreements effective January 1, 2001 see Note 1 - Recently Issued Accounting
Pronouncements.
We have also entered into certain additional interest rate swap agreements
with a notional amount of $550.0 million in the fourth quarter of 2000, which
are intended to provide hedges against variable interest rate exposure on loans
under Suiza Dairy Group's credit facility. These agreements, which became
effective January 2, 2001, are interest rate swaps with an interest range of
6.44% to 6.78% expiring between December 2001 and December 2006.
We have also entered into interest rate swap agreements that provide hedges
for loans under Leche Celta's term loan. The following table summarizes these
agreements:
<TABLE>
<CAPTION>
EURIBOR INTEREST
EFFECTIVE DATE RATE LIMITS NOTIONAL AMOUNTS EXPIRATION DATE
- ---------------------- ----------------- ----------------------------------------------- ----------------
<S> <C> <C> <C>
November 23, 2000 5.54% 1,500,000,000 pesetas (approximately $8.4 million) November 2003
November 23, 2000 5.6% 2,000,000,000 pesetas (approximately $11.2 million) November 2004
</TABLE>
F-16
<PAGE> 43
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.
12. MANDATORILY REDEEMABLE TRUST ISSUED PREFERRED SECURITIES
In connection with our acquisition of Land-O-Sun in February 1998, we issued
$100 million of company-obligated 5% mandatorily redeemable convertible
preferred securities of a Delaware business trust. On January 4, 2000, in
connection with the Southern Foods transaction, we redeemed the 5% mandatorily
redeemable convertible preferred securities in the amount of $100,638,889, which
includes the principal repayment and accrued interest.
On March 24, 1998, we also completed the sale of $600 million of
company-obligated 5.5% mandatorily redeemable convertible preferred securities
of a Delaware business trust in a private placement to "qualified institutional
buyers" under Rule 144A under the Securities Act of 1933, as amended. The 5.5%
preferred securities mature 30 years from the date of issue. These trust issued
preferred securities, which are recorded net of related fees and expenses, are
convertible at the option of the holders into an aggregate of approximately 7.7
million shares of our common stock, subject to adjustment in certain
circumstances. These preferred securities are also redeemable, at our option, at
any time after three years from their issue date at specified amounts and are
mandatorily redeemable at their liquidation preference amount of $50 per share
at maturity or upon occurrence of certain specified events.
13. STOCKHOLDERS' EQUITY
Our authorized shares of capital stock include 1,000,000 shares of preferred
stock and 500,000,000 shares of common stock with a par value of $.01 per share.
Preferred Stock -- The rights and preferences of preferred stock are
established by our Board of Directors upon issuance. The Series A preferred
stock previously outstanding represented 11,691 shares of preferred stock with a
stated and redemption value of $320.00 per share, provided for cumulative
dividends at a rate of 8% and was redeemable only at our option. On September
29, 1998, we redeemed all outstanding shares of Series A preferred stock for the
stated value of $320.00 per share, plus accumulated unpaid dividends, for a
total cost of $3.8 million.
Stock Option and Restricted Stock Plans -- We have stock options and shares
of restricted stock outstanding under three plans. Only one of these plans has
shares remaining available for issuance. This plan, the Suiza Foods Corporation
1997 Stock Option and Restricted Stock Plan, provides for grants of stock
options and restricted stock to employees, officers, directors and consultants
to acquire 7.5 million shares. Exercise prices of stock options will approximate
or be above fair market value on the grant date. The options vest in accordance
with provisions set forth in the applicable option agreements.
F-17
<PAGE> 44
The following table summarizes the status of our stock-based compensation
programs:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding at December 31, 1997 .... 5,688,241 $ 19.70
Granted ........................... 1,444,412 49.40
Canceled .......................... (75,447) 39.99
Exercised ......................... (2,349,335) 15.72
----------
Outstanding at December 31, 1998 .... 4,707,871 30.56
Granted ........................... 1,078,169 35.22
Canceled .......................... (208,021) 42.70
Exercised ......................... (980,768) 15.13
----------
Outstanding at December 31, 1999 .... 4,597,251 34.68
Granted ........................... 1,366,900 38.27
Canceled .......................... (206,701) 42.21
Exercised ......................... (1,231,179) 20.79
----------
Outstanding at December 31, 2000 .... 4,526,271 $ 38.96
==========
Exercisable at December 31, 1998 .... 3,157,266 $ 21.80
Exercisable at December 31, 1999 .... 2,927,217 30.17
Exercisable at December 31, 2000 .... 2,400,853 38.50
</TABLE>
The following table summarizes information about options outstanding and
exercisable at December 31, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------ ---------------------------------
RANGE OF WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES NUMBER REMAINING EXERCISE PRICE NUMBER EXERCISE PRICE
OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
- ------------------ ---------------- ---------------------- -------------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 0 to $16.75 201,281 4.60 $11.16 201,281 $11.16
17.25 to 34.50 1,157,522 6.48 30.00 976,590 29.25
35.38 to 65.25 3,167,468 7.82 44.00 1,222,982 50.38
</TABLE>
We have elected to follow Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for our stock options. All options granted
to date have been to employees, officers or directors. Accordingly, no
compensation expense has been recognized since stock options granted under these
plans were at exercise prices which approximated or exceeded market value at the
grant date. Had compensation expense been determined for stock option grants
using fair value methods provided for in SFAS No. 123, Accounting for
Stock-Based Compensation, our pro forma net income and net income per common
share would have been the amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2000 1999 1998
------------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Compensation cost ........................... $ 27,278 $ 18,861 $ 34,198
Net income:
As reported ............................... 118,719 109,731 131,606
Pro forma ................................. 104,272 98,245 110,745
Net income per share:
As reported-- basic ....................... 4.21 3.34 3.98
As reported-- diluted ..................... 3.82 3.13 3.58
Pro forma-- basic ......................... 3.70 2.99 3.36
Pro forma-- diluted ....................... 3.43 2.86 3.08
Stock option share data:
Stock options granted during period ....... 1,366,900 1,078,169 1,444,412
Weighted average option fair value ........ $ 20.57(a) $ 18.00(b) $ 29.23(c)
</TABLE>
- ----------
(a) Calculated in accordance with the Black-Scholes option pricing model, using
the following assumptions: expected volatility of 40%; expected dividend
yield of 0%; expected option term of four to ten years and risk-free rates
of return as of the date of grant ranging from 6.03% to 6.74% based on the
yield of seven-year U.S. Treasury securities.
F-18
<PAGE> 45
(b) Calculated in accordance with the Black-Scholes option pricing model, using
the following assumptions: expected volatility of 40%; expected dividend
yield of 0%; expected option term of four to ten years and risk-free rates
of return as of the date of grant of 5.1% based on the yield of ten-year
U.S. Treasury securities.
(c) Calculated in accordance with the Black-Scholes option pricing model, using
the following assumptions: expected volatility of 40%, expected dividend
yield of 0%, expected option term of four to ten years and risk-free rates
of return as of the date of grant of 5.5% based on the yield of ten-year
U.S. treasury securities.
Rights Agreement -- On February 27, 1998, our board of directors declared a
dividend distribution of the right to purchase one share of our common stock on
the terms and conditions set forth in the Rights Agreement (a "Right") for each
share of our common stock outstanding ten days subsequent to the announcement by
any person of such person's acquisition of or intent to acquire a beneficial
ownership of 15% or more in Suiza Foods Corporation. At any time prior to such
date, a required majority may redeem the Rights in whole, but not in part, at a
price of $0.01 per Right. The Rights will expire on March 18, 2008, unless our
board of directors extends the term of, or redeems, the Rights.
Earnings Per Share -- Basic earnings per share is based on the weighted
average number of common shares outstanding during each period. Diluted earnings
per share is based on the weighted average number of common shares outstanding
and the effect of all dilutive common stock equivalents during each period. The
following table reconciles the numerators and denominators used in the
computations of both basic and diluted EPS:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Basic EPS computation:
Numerator:
Income from continuing operations .......................... $ 113,751 $ 108,827 $ 103,069
Less preferred stock dividends ............................. (237)
------------ ------------ ------------
Income applicable to common stock .......................... $ 113,751 $ 108,827 $ 102,832
============ ============ ============
Denominator:
Average common shares ...................................... 28,195,043 32,861,218 32,953,290
Basic EPS from continuing operations .......................... $ 4.03 $ 3.31 $ 3.12
Diluted EPS computation:
Numerator:
Income from continuing operations .......................... $ 113,751 $ 108,827 $ 103,069
Less preferred stock dividends ............................. (237)
Net effect on earnings from conversion of mandatorily
redeemable convertible preferred securities .............. 21,334 24,501 18,732
------------ ------------ ------------
Income applicable to common stock .......................... $ 135,085 $ 133,328 $ 121,564
============ ============ ============
Denominator:
Average common shares -- basic ............................. 28,195,043 32,861,218 32,953,290
Stock option conversion .................................... 793,680 901,151 1,838,193
Dilutive effect of conversion of mandatorily redeemable
convertible preferred securities ......................... 7,682,541 9,096,123 7,174,081
------------ ------------ ------------
Average common shares -- diluted .............................. 36,671,264 42,858,492 41,965,564
============ ============ ============
Diluted EPS from continuing operations ........................ $ 3.68 $ 3.11 $ 2.90
</TABLE>
Share Repurchases -- On September 15, 1998, our Board of Directors
authorized an open market share repurchase program of up to $100 million of our
common stock. On September 28, 1999, the Board increased the program by $100
million to $200 million and on November 17, 1999 authorized a further increase
to $300 million. We fulfilled the $300 million authorization during the second
quarter of 2000, and on May 19, 2000, the Board increased the program by $100
million to $400 million and on November 2, 2000 authorized a further increase to
$500 million. Set forth in the chart below is a summary of the stock we have
repurchased pursuant to this program through December 31, 2000.
F-19
<PAGE> 46
<TABLE>
<CAPTION>
NO. OF SHARES PURCHASE
PERIOD REPURCHASED PRICE
------------------------------- ------------- --------------
<S> <C> <C>
Third Quarter 1998 ............ 1,000,000 $ 30.4 million
Fourth Quarter 1998 ........... 510,400 15.6 million
Second Quarter 1999 ........... 79,700 3.0 million
Third Quarter 1999 ............ 1,850,515 66.7 million
Fourth Quarter 1999 ........... 3,486,508 128.4 million
First Quarter 2000 ............ 688,800 27.2 million
Second Quarter 2000 ........... 966,065 42.2 million
Third Quarter 2000 ............ 1,587,000 77.0 million
Fourth Quarter 2000 ........... 40,000 2.1 million
------------- --------------
Total ............... 10,208,988 $392.6 million
============= ==============
</TABLE>
Subsequent to December 31, 2000, we have repurchased an additional $6.1
million or 123,334 shares and $101.3 million remains available for spending
under this program.
These repurchased shares were treated as effectively retired in the
consolidated financial statements.
14. OTHER COMPREHENSIVE INCOME
Comprehensive income comprises net income plus all other changes in equity
from non-owner sources. The amount of income tax (expense) benefit allocated to
each component of other comprehensive income during the year ended December 31,
2000 and 1999 are included below.
<TABLE>
<CAPTION>
PRE-TAX TAX
INCOME BENEFIT NET
(LOSS) (EXPENSE) AMOUNT
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cumulative translation adjustment ............................. $ 7,005 $ (2,732) $ 4,273
Minimum pension liability adjustment .......................... 120 (47) 73
-------- -------- --------
Accumulated other comprehensive income, December 31, 1998 ..... 7,125 (2,779) 4,346
Cumulative translation adjustment ............................. (18,277) 7,493 (10,784)
-------- -------- --------
Accumulated other comprehensive income, December 31, 1999 ..... $(11,152) $ 4,714 $ (6,438)
Cumulative translation adjustment ............................. (2,381) 931 (1,450)
Reclassification adjustment for disposal ...................... 11,139 (4,362) 6,777
-------- -------- --------
Accumulated other comprehensive income, December 31, 2000 ..... $ (2,394) $ 1,283 $ (1,111)
======== ======== ========
</TABLE>
15. EMPLOYEE RETIREMENT AND PROFIT SHARING PLANS
We sponsor various defined benefit and defined contribution retirement
plans, including various employee savings and profit sharing plans, and
contribute to various multi-employer pension plans on behalf of our employees.
Substantially all full-time union and non-union employees who have completed one
or more years of service and have met other requirements pursuant to the plans
are eligible to participate in these plans. During 2000, 1999 and 1998, our
retirement and profit sharing plan expenses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
2000 1999 1998
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Defined benefit plans ........................... $ 2,482 $ 3,994 $ 3,176
Defined contribution plans ...................... 6,792 7,572 7,077
Multi-employer pension plans .................... 5,599 4,937 3,987
--------- --------- ---------
$ 14,873 $ 16,503 $ 14,240
========= ========= =========
</TABLE>
Defined Benefit Plans -- The benefits under our defined benefit plans are
based on years of service and employee compensation. Our funding policy is to
contribute annually the minimum amount required under ERISA regulations. Plan
assets consist principally of investments made with insurance companies under a
group annuity contract.
F-20
<PAGE> 47
The following table sets forth the funded status of our defined benefit
plans and the amounts recognized in our consolidated balance sheets:
<TABLE>
DECEMBER 31,
--------------------------
2000 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year .................. $ 71,673 $ 148,219
Service cost ........................................... 2,274 4,140
Interest cost .......................................... 6,573 5,052
Assumption change ...................................... (1,498)
Plan amendments ........................................ 1,381
Actuarial (gain) loss .................................. 1,802 (6,878)
Acquisitions ........................................... 18,724 4,944
Disposition of packaging operations .................... (1,412) (76,134)
Benefits paid .......................................... (7,994) (6,279)
Plan curtailments ...................................... (3,727)
Other .................................................. 76 107
--------- ---------
Benefit obligation at end of year ........................ 89,370 71,673
--------- ---------
Change in plan assets
Fair value of plan assets at beginning of year ........... 79,166 136,577
Actual return on plan assets ........................... 1,221 10,033
Acquisitions ........................................... 18,644 5,577
Disposition of US plastic packaging operations ......... (68,639)
Employer contribution .................................. 1,679 1,809
Benefits paid .......................................... (7,994) (6,279)
Other .................................................. 37 88
--------- ---------
Fair value of plan assets at end of year ................. 92,753 79,166
--------- ---------
Funded status .............................................. 3,383 7,494
Unrecognized net transition obligation ................... 1,317 1,931
Unrecognized prior service cost .......................... 2,596 1,517
Unrecognized net (gain)loss .............................. (7,799) (17,186)
Minimum liability adjustment ............................. (1,651)
--------- ---------
Net amount recognized ...................................... $ (2,154) $ (6,244)
========= =========
Amounts recognized in the consolidated balance sheets at
December 31 of each year consist of:
Prepaid benefit cost ..................................... $ 2,125 $ 1,775
Accrued benefit liability ................................ (4,279) (8,364)
Intangible asset ......................................... 345
--------- ---------
Net amount recognized ...................................... $ (2,154) $ (6,244)
========= =========
Weighted-average assumptions as of December 31:
Discount rate ............................................ 7.75% 7.75%
Expected return on plan assets ........................... 6.75-9.50% 6.75-9.00%
Rate of compensation increase ............................ 0-5.00% 0-4.00%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Components of net periodic benefit cost (income)
Service cost ............................................. $ 2,274 $ 4,151 $ 4,057
Interest cost ............................................ 6,573 5,052 5,842
Expected return on plan assets ........................... (8,204) (6,157) (6,890)
Amortization of unrecognized transition obligation ....... 140 188 194
Amortization of prior service cost ....................... 147 138 109
Amortization of unrecognized net gain .................... (622) (3) (13)
Recognized net actuarial gain from curtailment ........... (3,899) (670)
------- ------- -------
Net periodic benefit cost (income) ......................... $(3,591) $ 3,369 $ 2,629
======= ======= =======
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $32.7 million, $32.7 million, and $30.4 million,
respectively, as of December 31, 2000, and $7.6 million, $6.1 million and $4.9
million, respectively, as of December 31, 1999, excluding pension plans related
to the disposed U.S. packaging operations.
Defined Contribution Plans -- Certain of our non-union personnel may elect
to participate in savings and profit sharing plans sponsored by us. These plans
generally provide for salary reduction contributions to the plans on behalf of
the participants of between 1.0% and 17.0% of a participant's annual
compensation and provide for employer matching and profit sharing contributions
as determined by our Board of Directors. In addition, certain
F-21
<PAGE> 48
union hourly employees are participants in company-sponsored defined
contribution plans which provide for employer contributions in various amounts
ranging from $21 to $39 per pay period per participant.
Multi-Employer Pension Plans -- Certain of our subsidiaries contribute to
various multi-employer union pension plans, which are administered jointly by
management and union representatives and cover substantially all full-time and
certain part-time union employees who are not covered by our other plans. The
Multi-Employer Pension Plan Amendments Act of 1980 amended ERISA to establish
funding requirements and obligations for employers participating in
multi-employer plans, principally related to employer withdrawal from or
termination of such plans. We could, under certain circumstances, be liable for
unfunded vested benefits or other expenses of jointly administered
union/management plans. At this time, we have not established any liabilities
because withdrawal from these plans is not probable or reasonably possible.
16. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Certain of our subsidiaries provide health care benefits to certain retirees
who are covered under specific group contracts. As defined by the specific group
contract, qualified covered associates may be eligible to receive major medical
insurance with deductible and coinsurance provisions subject to certain lifetime
maximums.
The following table sets forth the funded status of these plans and the
amounts recognized in our consolidated balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
2000 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year ............. $ 5,156 $ 3,948
Service cost ...................................... 29 44
Interest cost ..................................... 450 235
Actuarial loss .................................... 1,340 84
Plan amendments ................................... (566)
Acquisition ....................................... 1,110 1,179
Benefits paid ..................................... (627) (334)
------- -------
Benefit obligation at end of year ..................... $ 6,892 $ 5,156
Fair value of plan assets at end of year .............. -- --
------- -------
Funded status ......................................... (6,892) (5,156)
Unrecognized prior service cost ..................... (566)
Unrecognized net (gain)/loss ........................ 218 (772)
------- -------
Net amount recognized -- accrued benefit liability .... $(7,240) $(5,928)
======= =======
Weighted-average assumptions as of December 31:
Discount rate ....................................... 7.75% 7.50%
Health Care Inflation:
Initial rate ........................................ 7.12-9.50% 7.68%
Ultimate rate ....................................... 5.00-6.00% 4.75%
Year of ultimate rate achievement ................... 2005-2015 2005
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
2000 1999 1998
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Components of Net Periodic Benefit Cost:
Service and interest cost ........................ $ 479 $ 278 $ 289
Amortization of unrecognized net gain ............ (51) (40) (21)
Recognized net actuarial loss .................... 65
----- ----- -----
Net periodic benefit cost ........................ $ 493 $ 238 $ 268
===== ===== =====
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
----------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Effect on total of service and interest cost components.... $ 24 $ (21)
Effect on post-retirement obligation....................... $536 (466)
</TABLE>
F-22
<PAGE> 49
17. PLANT CLOSING AND OTHER COSTS
Plant closing costs -- As part of an overall integration and cost reduction
strategy, we recorded plant closing and other non-recurring costs during 2000
and 1999 in the amount of $3.4 million and $12.6 million, respectively. In
addition, our share of Consolidated Container's restructuring charges were
income of $0.8 million in 2000 and expenses of $4.9 million during 1999. These
amounts were reported as an adjustment to equity in earnings of unconsolidated
affiliates.
The charges recorded for our integration and cost reduction programs in 2000
reflect several approved efficiency and integration efforts including
restructuring of our corporate office departments, elimination of a production
shift and certain maintenance activities at our Puerto Rican operation, and
closing of our Hartford, Connecticut plant.
During 1999, we recorded charges related to the closing of four plants with
consolidation of production into other plants, the disposition of a small cheese
processing plant, consolidation of administrative offices within one of our
regions and severance costs incurred at the corporate office as well as the
European and Puerto Rican operations.
The principal components of the plans approved during 2000 and 1999 include
the following:
o Workforce reduction as a result of plant closings, plant
rationalizations and consolidation of administrative functions. The
plans included an overall reduction of 205 people in 2000 and 315
people in 1999, primarily plant employees associated with the plant
closings and rationalization. The costs were charged to our earnings in
the period that the plan was established in detail and employee
severance and benefits had been appropriately communicated. All except
six employees had been severed as of December 31, 2000.
o Shutdown costs include those costs that are necessary to prepare the
plant facilities for closure.
o Additional costs to be incurred after shutdown included lease
obligations or termination costs, utilities and property taxes after
shutdown of the plant.
o Write-downs of property, plant and equipment and other assets are
primarily for 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.
Activity with respect to the plant closing and other non-recurring costs for
2000 is summarized below:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
DECEMBER 31, DECEMBER 31,
1999 CHARGES PAYMENTS 2000
------------- ------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash Charges:
Workforce reduction costs ...................... $ 3,073 $ 2,176 $(4,070) $ 1,179
Shutdown costs ................................. 468 564 (669) 363
Lease obligations after shutdown ............... 438 95 (415) 118
Other .......................................... 40 159 (199)
------- ----- ------- -------
Subtotal ......................................... $ 4,019 2,994 $(5,353) $ 1,660
======= ======= =======
Noncash charges:
Write-down of property, plant and equipment .... 394
-------
Total charges .................................... $ 3,388
=======
</TABLE>
F-23
<PAGE> 50
Activity with respect to the plant closing and other non-recurring costs for
1999 is summarized below:
<TABLE>
<CAPTION>
BALANCE AT
DECEMBER 31,
CHARGES PAYMENTS 1999
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Charges:
Workforce reduction costs ....................... $ 4,188 $(1,115) $ 3,073
Shutdown costs .................................. 779 (311) 468
Lease obligations after shutdown ................ 575 (137) 438
Other ........................................... 234 (194) 40
------- ------- -------
Subtotal .......................................... 5,776 $(1,757) $ 4,019
======= =======
Noncash charges:
Write-down of property, plant and equipment ..... 6,790
-------
Total charges ..................................... $12,566
=======
</TABLE>
There have not been significant adjustments to the plan and the majority of
future cash requirements to reduce the liability at December 31, 2000 are
expected to be completed within a year.
Acquired facility closing costs -- As part of our purchase price
allocations, we accrued costs in 2000 and 1999 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 our acquisitions of Broughton Foods, 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 included an overall
reduction of 282 and 340 plant personnel during 2000 and 1999,
respectively. The costs incurred were charged against our acquisition
liabilities for these costs. All except 35 employees had been
terminated as of December 31, 2000.
o Shutdown costs include those costs that are necessary to clean and
prepare the plant facilities for closure.
o Additional costs to be incurred after shutdown included lease
obligations or termination costs, utilities and property taxes after
shutdown of the plant.
Activity with respect to these acquisition liabilities for 2000 is
summarized below:
<TABLE>
<CAPTION>
ACCRUED ACCRUED
CHARGES AT CHARGES AT
DECEMBER 31, DECEMBER 31,
1999 ACCRUALS PAYMENTS 2000
------------ -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Workforce reduction costs .... $ 624 $ 1,268 $ (895) $ 997
Shutdown costs ............... 332 9,735 (2,796) 7,271
------- ------- ------- -------
Total ........................ $ 956 $11,003 ($3,691) $ 8,268
======= ======= ======= =======
</TABLE>
Activity with respect to these acquisition liabilities for 1999 is
summarized below:
<TABLE>
<CAPTION>
ACCRUED
CHARGES AT
DECEMBER 31,
ACCRUALS PAYMENTS 2000
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Workforce reduction costs .............. $ 3,888 $(3,264) $ 624
Shutdown costs ......................... 1,035 (703) 332
Other .................................. 112 (112) 0
------- ------- -------
Total .................................. $ 5,035 ($4,079) $ 956
======= ======= =======
</TABLE>
F-24
<PAGE> 51
18. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for interest and financing charges, net of
capitalized interest ............................................... $142,205 $ 87,548 $ 74,989
Cash paid for taxes .................................................. 31,883 40,003 17,908
Non-cash transactions:
Issuance of notes payable and common and preferred stock
in connection with business and property acquisitions ........... -- 3,193 138,547
Issuance of mandatorily redeemable preferred securities, minority
partnership interests and subsidiary preferred and common
securities in connection with acquisitions ...................... 340,336 18,500 201,447
</TABLE>
19. COMMITMENTS AND CONTINGENCIES
Leases -- We lease certain property, plant and equipment used in our
operations under both capital and operating lease agreements. Such leases, which
are primarily for machinery and equipment and vehicles, have lease terms ranging
from one to 20 years. Certain of the operating lease agreements require the
payment of additional rentals for maintenance, along with additional rentals
based on miles driven or units produced. Rent expense, including additional
rent, was $66.9 million, $45.1 million and $48.0 million for the years ended
December 31, 2000, 1999 and 1998, respectively.
The composition of capital leases which are reflected as property, plant and
equipment in our consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Buildings and improvements ....................... $ 2,102 $ 12,115
Machinery and equipment .......................... 10,770 13,549
Less accumulated amortization .................... (4,267) (9,160)
-------- --------
$ 8,605 $ 16,504
======== ========
</TABLE>
Future minimum payments at December 31, 2000, under noncancelable capital
and operating leases with terms in excess of one year are summarized below:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
2001 ......................................... $ 1,312 $ 52,950
2002 ......................................... 1,160 44,819
2003 ......................................... 1,113 38,168
2004 ......................................... 988 30,807
2005 ......................................... 814 25,844
Thereafter ................................... 244 52,098
-------- --------
Total minimum lease payments ................. 5,631 $244,686
========
Less amount representing interest ............ (597)
--------
Present value of capital lease obligations ... $ 5,034
========
</TABLE>
Litigation -- We and our subsidiaries are parties, in the ordinary course of
business, to certain claims and litigation. In our opinion, the settlement of
such matters is not expected to have a material adverse impact on our financial
position, results of operations or cash flows.
F-25
<PAGE> 52
Employment Agreements -- We have entered into employment agreements with
certain key management personnel which provide for minimum compensation levels
and incentive bonuses, along with provisions for termination benefits in certain
circumstances and for certain severance payments in the event of a change in
control.
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
Pursuant to SFAS No. 107, "Disclosure About Fair Value of Financial
Instruments," we are required to disclose an estimate of the fair value of our
financial instruments as of December 31, 2000 and 1999. SFAS No. 107 defines the
fair value of financial instruments as the amount at which the instrument could
be exchanged in a current transaction between willing parties.
Due to their near-term maturities, the carrying amounts of accounts
receivable and accounts payable are considered equivalent to fair value. In
addition, because the interest rates on our senior credit facility and most
other debt are variable, their fair values approximate their carrying values.
We have entered into various interest rate agreements to reduce our
sensitivity to changes in interest rates on our variable rate debt. The fair
values of these instruments were determined based on current values for similar
instruments with similar terms. The following table presents the carrying value
and fair value of our interest rate agreements at December 31:
<TABLE>
<CAPTION>
2000 1999
-------------------------------- ----------------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE OF FAIR VALUE
OF ASSET LIABILITY LIABILITY ASSET
-------------- ---------- ----------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest rate agreements
effective in 2000............... $ 3,696 $(3,967) $(4,313) $5,745
Interest rate agreements
effective in 2001............... (12,311)
</TABLE>
Included in Note 1 - Recently Issued Accounting Pronouncements is a
discussion of the treatment of interest rate agreements effective January 1,
2001.
21. 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 a majority
interest in our U.S. plastic packaging operations effective July 2, 1999, as
discussed in Note 5, we no longer have a reportable packaging segment under
current accounting rules. Our two European packaging businesses have been
included in the packaging segment until their disposition in March and May 2000.
Effective with the acquisition of Southern Foods Group and the formation of
Suiza Dairy Group we began a realignment of our businesses which has resulted in
the separation of our previous dairy segment into two reportable segments: Suiza
Dairy Group and Morningstar Foods. Our Suiza Dairy Group segment, which consists
of Suiza Dairy Group, L.P., manufactures and distributes fluid milk, ice cream
and novelties, half-and-half and whipping cream, sour cream, cottage cheese, and
yogurt as well as fruit juices and other flavored drinks and bottled water.
Morningstar Foods, which consists of our wholly-owned subsidiary Morningstar
Foods Inc., manufactures dairy and non-dairy coffee creamers, whipping cream and
pre-whipped toppings, specialty products such as lactose-reduced milk and soy
milk, as well as certain refrigerated and extended shelf-life products. Our
Puerto Rico and Spanish operations do not meet the definition of a segment and
are reported in "Corporate/Other." All periods presented have been reclassified
to conform with these changes.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. We evaluate performance based on
operating profit not including nonrecurring gains and losses and foreign
exchange gains and losses.
We do not allocate income taxes or management fees to segments. In addition,
there are no significant noncash items other than depreciation and amortization
in reported profit or loss. The amounts in the following tables are the amounts
obtained from reports used by our executive management team for the year ended
December 31:
F-26
<PAGE> 53
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net sales from external customers:
Suiza Dairy Group ........................ $ 4,660,329 $ 3,101,800 $ 1,960,611
Morningstar Foods ........................ 704,246 655,159 611,714
Packaging ................................ 42,286 489,814 504,745
Corporate/Other .......................... 349,442 235,226 243,870
----------- ----------- -----------
Total .................................... $ 5,756,303 $ 4,481,999 $ 3,320,940
=========== =========== ===========
Intersegment sales:
Suiza Dairy Group ........................ $ 14,680 $ 8,838 $ 8,223
Morningstar Foods ........................ 60,213 19,370 9,768
Packaging ................................ -- 18,674 29,379
Corporate/Other .......................... -- -- --
----------- ----------- -----------
Total .................................... $ 74,893 $ 46,882 $ 47,370
=========== =========== ===========
Operating income:
Suiza Dairy Group (1) .................... $ 289,630 $ 164,575 $ 121,888
Morningstar Foods (2) .................... 100,944 83,641 67,298
Packaging (3) ............................ 415 50,402 56,030
Corporate/Other (4) ...................... (22,926) (21,744) (2,760)
----------- ----------- -----------
Subtotal ................................. 368,063 276,874 242,456
Other items:
Interest expense and financing charges ... (146,181) (87,817) (82,295)
Equity in earnings of investees .......... 11,453 2,630 78
Other, net ............................... 630 1,416 4,212
----------- ----------- -----------
Income before income tax.................. $ 233,965 $ 193,103 $ 164,451
=========== =========== ===========
Depreciation and amortization:
Suiza Dairy Group ........................ $ 105,717 $ 64,046 $ 44,157
Morningstar Foods ........................ 22,849 19,644 16,336
Packaging ................................ 1,529 23,020 22,309
Corporate/Other .......................... 14,888 9,935 8,977
----------- ----------- -----------
Total .................................... $ 144,983 $ 116,645 $ 91,779
=========== =========== ===========
Assets:
Suiza Dairy Group ........................ $ 2,912,231 $ 1,750,389 $ 1,551,493
Morningstar Foods ........................ 424,819 458,450 400,561
Packaging ................................ -- 196,792 825,455
Corporate/Other .......................... 443,428 253,291 236,274
----------- ----------- -----------
Total .................................... $ 3,780,478 $ 2,658,922 $ 3,013,783
=========== =========== ===========
Capital expenditures:
Suiza Dairy Group ........................ $ 90,901 $ 104,023 $ 66,927
Morningstar Foods ........................ 28,162 20,344 25,288
Packaging ................................ 1,313 23,650 72,323
Corporate/Other .......................... 16,500 39,625 12,332
----------- ----------- -----------
Total .................................... $ 136,876 $ 187,642 $ 176,870
=========== =========== ===========
</TABLE>
- ----------
(1) Operating income includes plant closing and other nonrecurring charges of
$2.1 million and $8.7 million in 2000 and 1999, respectively. Operating
income in 2000 includes litigation settlement costs of $7.5 million.
(2) Operating income includes plant closing and other nonrecurring charges of
$0.5 million in 1999.
(3) Operating income includes plant closing and other nonrecurring
charges of $0.2 million in 1999.
(4) Operating income includes corporate office severance, plant closing and
other nonrecurring charges of $1.3 million and $3.2 million in 2000 and
1999, respectively.
<TABLE>
<CAPTION>
REVENUES LONG-LIVED ASSETS
------------------------------------------ --------------------------
2000 1999 1998 2000 1999
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Geographic Information
United States .............. $5,364,575 $4,002,144 $2,904,498 $2,723,408 $1,810,874
Puerto Rico ................ 226,661 235,226 243,870 127,487 124,199
Europe ..................... 165,067 244,629 172,572 111,611 83,941
---------- ---------- ---------- ---------- ----------
Total .............. $5,756,303 $4,481,999 $3,320,940 $2,962,506 $2,019,014
========== ========== ========== ========== ==========
</TABLE>
F-27
<PAGE> 54
We have no one customer within any segment which represents greater than ten
percent of our consolidated revenues.
22. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The table set forth below is a summary of the unaudited quarterly results of
operations for 2000 and 1999 (in thousands, except per share data). As a result
of the sale of our U.S. packaging operations to Consolidated Container Company
on July 2, 1999 in exchange for cash and a 43.1% interest in Consolidated
Container Company, the sales, gross profit and operating expenses of this
operation subsequent to July 2, 1999 are not included in the table but are
instead consolidated onto a single line, "equity in earnings of unconsolidated
affiliates" within income from continuing operations.
<TABLE>
<CAPTION>
QUARTER
-------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
---------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
2000
Net sales ............................ $ 1,394,141 $ 1,434,354 $ 1,439,947 $ 1,487,861
Gross profit ......................... 340,158 360,218 354,320 371,540
Income before extraordinary gain(1) .. 20,594 33,533 31,189 28,435
Net income(1) ........................ 25,562(2) 33,533 31,189 28,435
Basic earnings per common share(3):
Income before extraordinary gain .. 0.71 1.16 1.13 1.05
Net income .......................... 0.88 1.16 1.13 1.05
Diluted earnings per common share(3):
Income before extraordinary gain .... 0.69 1.04 1.01 .95
Net income .......................... 0.82 1.04 1.01 .95
1999
Net sales .............................. $ 1,153,186 $ 1,118,844 $ 1,082,060 $ 1,127,909
Gross profit ........................... 232,559 262,949 247,650 251,766
Income before extraordinary gain(4) .... 20,873 32,147 30,449 25,358
Net income(4) .......................... 20,873 32,147 30,449 26,262(5)
Basic earnings per common share(3):
Income before extraordinary gain .... 0.62 0.95 0.90 0.83
Net income .......................... 0.62 0.95 0.90 0.86
Diluted earnings per common share(3):
Income before extraordinary gain .... 0.60 0.87 0.83 0.78
Net income .......................... 0.60 0.87 0.83 0.80
</TABLE>
- ----------
(1) The results for the first, second, and third quarters of 2000 include plant
closing and other non-recurring charges of $0.7 million, $0.8 million and
$0.3 million, respectively. Results in the second quarter include defined
benefit plan curtailment gains of $3.6 million. Results in the fourth
quarter include a charge of $5.0 million for litigation settlement costs
and a gain of $0.4 million related to plant closing credits at Consolidated
Container. All amounts are net of income taxes and minority interest.
(2) Results for the first quarter of 2000 include an extraordinary gain related
to interest rate derivatives which became unhedged, net of an extraordinary
loss for the write-off of deferred financing costs.
(3) Earnings per common share calculations for each of the quarters were based
on the basic and diluted weighted average number of shares outstanding for
each quarter, and the sum of the quarters may not necessarily be equal to
the full year earnings per common share amount.
(4) The results for the second, third and fourth quarters of 1999 include plant
closing and other non-recurring charges of $2.9 million, $3.2 million
(including $0.9 million related to Consolidated Container), and $5.0 million
(including $2.0 million related to Consolidated Container), respectively.
All amounts are net of income taxes.
(5) The results for the fourth quarter of 1999 include an extraordinary gain
from the resolution of contingencies related to the sale of our packaged ice
business in 1998.
F-28
<PAGE> 55
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Incorporated herein by reference to our proxy statement (to be filed) for
our May 17, 2001 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to our proxy statement (to be filed) for
our May 17, 2001 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to our proxy statement (to be filed) for
our May 17, 2001 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to our proxy statement (to be filed) for
our May 17, 2001 Annual Meeting of Stockholders.
25
<PAGE> 56
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The following consolidated financial statements are filed as part of this
report or are incorporated herein as indicated:
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report......................................................................... F-1
Consolidated Balance Sheets as of December 31, 2000 and 1999......................................... F-2
Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998............... F-3
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000,
1999 and 1998....................................................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999
and 1998............................................................................................. F-5
Notes to Consolidated Financial Statements........................................................... F-6
</TABLE>
EXHIBITS
See Index to Exhibits.
FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report
Schedule II -- Valuation and Qualifying Accounts
26
<PAGE> 57
REPORTS ON FORM 8-K
None
By: /s/ BARRY A. FROMBERG
--------------------------------
Barry A. Fromberg
Executive Vice President and
Chief Financial Officer
Dated April 2, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ GREGG L. ENGLES Chief Executive Officer and
- ------------------------- Chairman of the Board April 2, 2001
Gregg L. Engles
/s/ PETE SCHENKEL
- -------------------------
Pete Schenkel Vice Chairman of the Board April 2, 2001
/s/ HECTOR M. NEVARES
- -------------------------
Hector M. Nevares Vice Chairman of the Board April 2, 2001
/s/ ALAN BERNON
- -------------------------
Alan Bernon Director April 2, 2001
/s/ TOM DAVIS Director April 2, 2001
- -------------------------
Tom Davis
/s/ STEPHEN L. GREEN
- -------------------------
Stephen L. Green Director April 2, 2001
/s/ JOSEPH S. HARDIN, JR.
- -------------------------
Joseph S. Hardin, Jr. Director April 2, 2001
/s/ JOHN MUSE
- -------------------------
John Muse Director April 2, 2001
/s/ P. EUGENE PENDER
- -------------------------
P. Eugene Pender Director April 2, 2001
/s/ JIM TURNER
- -------------------------
Jim Turner Director April 2, 2001
</TABLE>
27
<PAGE> 58
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Suiza Foods Corporation
Dallas, Texas
We have audited the consolidated financial statements of Suiza Foods
Corporation and subsidiaries (the "Company") as of December 31, 2000 and 1999
and for each of the three years in the period ended December 31, 2000, and have
issued our report thereon dated February 8, 2001 (March 30 as to Note 3); such
report is included elsewhere in this Form 10-K. Our audits also included the
consolidated financial statement schedule of Suiza Foods Corporation and
subsidiaries, listed in Item 14. This consolidated financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 8, 2001
28
<PAGE> 59
SCHEDULE II
SUIZA FOODS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)
Allowance for doubtful accounts deducted from accounts receivable:
<TABLE>
<CAPTION>
RECOVERIES
OF WRITE-OFF
BALANCE -- ACCOUNTS OF
BEGINNING CHARGED TO WRITTEN UNCOLLECTIBLE BALANCE
YEAR OF YEAR INCOME ACQUISITIONS DISPOSITIONS OFF ACCOUNTS END OF YEAR
--------- ----------- ------------ ------------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 3,589 4,260 13,836 47 2,429 19,303
1999 19,303 4,766 1,646 1,188 158 5,836 18,849
2000 18,849 10,277 8,314 2,776 215 10,708 24,171
</TABLE>
29
<PAGE> 60
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 -- Amended and Restated Reorganization Agreement (incorporated
by reference from our Registration Statement on Form S-1 (File
No. 333-1858)).
3.1 -- Certificate of Incorporation dated September 19, 1994
(incorporated by reference from our Quarterly Report on Form
10-Q for the quarter ended June 30, 1997 (File No. 1-12755).
3.2 -- Certificate of Amendment to Certificate of Incorporation
dated March 27, 1995 (incorporated by reference from our
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997 (File No. 1-12755)).
3.3 -- Certificate of Correction of Certificate of Amendment to
Certificate of Incorporation Dated June 6, 1995 (incorporated
by reference from our Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 (File No. 1-12755)).
3.4 -- Certificate of Amendment to Certificate of Incorporation
dated February 29, 1996 (incorporated by reference from our
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997 (File No. 1-12755)).
3.5 -- Certificate of Amendment to Certificate of Incorporation
dated May 15, 1997 (incorporated by reference from our
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997 (File No. 1-12755)).
3.6 -- Certificate of Amendment of Certificate of Incorporation
(incorporated by reference from our Quarterly Report on Form
10-Q for the quarter ended June 30, 1998 (File No. 1-12755)).
3.7 -- Amended and Restated Bylaws (incorporated by reference from
our Quarterly Report on Form 10-Q for the quarter ended June
30, 1999 (File No. 1-12755)).
4.1 -- Specimen of Common Stock Certificate (incorporated by
reference to our Registration Statement On Form S-1 (File No.
333-1858)).
4.2 -- Registration Rights Agreement (incorporated by reference to
our Registration Statement on Form S-1 (File No. 333-1858)).
4.3 -- Rights Agreement dated March 6, 1998 among us and Harris
Trust & Savings Bank, as rights agent, which includes as
Exhibit A the Form of Rights Certificate (incorporated by
reference from the Registration Statement on Form 8-A filed on
March 10, 1998 (File No. 1-12755)).
4.4 -- Certificate of Trust of Suiza Capital Trust II
(incorporated by reference from our Quarterly Report on Form
10-Q for the quarter ended March 31, 1998 (File No. 1-
12755)).
4.5 -- Amended and Restated Declaration of Trust of Suiza Capital
Trust II, dated as of March 24, 1998, among us, as Sponsor,
Wilmington Trust Company, as Property Trustee, Wilmington
Trust Company, as Delaware Trustee, and Tracy L. Noll, J.
Michael Lewis and Joseph B. Armes, as Regular Trustees
(incorporated by reference from our Quarterly Report on Form
10-Q for the quarter ended March 31, 1998 (File No. 1-12755)).
4.6 -- Indenture for the 5.5% Convertible Subordinated Debentures,
dated as of March 24, 1998, among us and Wilmington Trust
Company, as Indenture Trustee (incorporated by reference from
our Quarterly Report on Form 10-Q for the quarter ended March
31, 1998 (File No. 1-12755)).
4.7 -- Form of 5.5% Preferred Securities (incorporated by
reference from our Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 (File No. 1-12755)).
4.8 -- Form of 5.5% Convertible Subordinated Debenture
(incorporated by reference from our Quarterly Report on Form
10-Q for the quarter ended March 31, 1998 (File No. 1-12755)).
</TABLE>
30
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
4.9 -- Preferred Securities Guarantee Agreement, dated as of March
24, 1998, between us, as Guarantor, and Wilmington Trust
Company, as Guarantee Trustee (incorporated by reference from
our Quarterly Report on Form 10-Q for the quarter ended March
31, 1998 (File No. 1-12755)).
4.10 -- Registration Rights Amendment, dated March 24, 1998,
between us, Suiza Capital Trust II, and Donaldson, Lufkin,
Jenrette Securities Corporation, Bear, Stearns & Co. Inc. and
J.P. Morgan & Co. (incorporated by reference from our
Quarterly Report on Form 10-Q for the quarter ended March 31,
1998 (File No. 1-12755)).
4.11 -- Registration Rights Agreement, dated as of January 1, 2000,
between Suiza Foods Corporation, Dairy Farmers of America,
Inc. and Mid-Am Capital, L.L.C. (incorporated by reference
from our Current Report on Form 8-K dated January 11, 2000,
File No. 1-12755).
*10.1 -- Suiza Foods Corporation Exchange Stock Option and
Restricted Stock Plan (incorporated by reference to our
Registration Statement on Form S-1 (File No. 333-1858)).
*10.2 -- Suiza Foods Corporation 1995 Stock Option and Restricted
Stock Plan (incorporated by reference to our Registration
Statement on Form S-1 (File No. 333-18263)).
*10.3 -- Second Amended and Restated 1997 Stock Option and
Restricted Stock Plan (incorporated by reference from our
Registration Statement on Form S-8 filed August 2, 2000 (File
No. 1-12755)).
*10.4 -- Executive Deferred Compensation Plan (incorporated by
reference from our Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999 (File No. 1-12755)).
*10.5 --Amendment No. 1 to Executive Deferred Compensation and Plan
(incorporated by reference to Exhibit 10.3 to our Registration
Statement filed February 11, 2000) (File No. 1-12755).
*10.6 -- Amended and Restated 1997 Employee Stock Purchase Plan
(incorporated by reference from our Quarterly Report on Form
10-Q for the quarter ended September 30, 2000. (File No.
1-12755)).
*10. 7 -- Country Fresh, Inc. 1989 Stock Option Plan (incorporated by
reference from our Annual Report on Form 10-K for the year
ended December 31, 1997 (File No. 1-12755)).
</TABLE>
31
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.8 -- Stockholders Agreement dated July 31, 1997 among us,
Franklin Plastics, Peter M. Bernon and Alan J. Bernon
(incorporated by reference from our Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, as amended on
October 24, 1997 (File No. 1-12755)).
10.9 -- Agreement and Plan of Merger dated as of September 28, 1997
by and among us, SF Acquisition Corp. and The Morningstar
Foods Group Inc. (incorporated by reference from our
Registration Statement on Form S-4 (File No. 333-37869)).
10.10 -- Agreement and Plan of Merger dated as of January 14, 1998
by and among us, CC Acquisition Corp. and Continental Can
Company, Inc. (incorporated by reference from our Registration
Statement on Form S-4 (File No. 333-46519)).
10.11 -- Amended and Restated Declaration of Trust of Suiza Capital
Trust, dated as of February 20, 1998 (incorporated by
reference from our Current Report on Form 8-K filed on March
9, 1998 (File No. 1-12755)).
10.12 -- Indenture, dated as of February 20, 1998, between us, as
Issuer, and Wilmington Trust Company, as Trustee (incorporated
by reference from our Current Report on Form 8-K filed on
March 9, 1998 (File No. 1-12755)).
10.13 -- 5% Convertible Subordinated Debenture due 2018, issued by
us to Suiza Capital Trust on February 20, 1998 (incorporated
by reference from our Current Report on Form 8-K filed on
March 9, 1998 (File No. 1-12755)).
10.14 -- Certificate for Preferred Securities of Suiza Capital
Trust, issued to DFA Investment Company on February 20, 1998
(incorporated by reference from our Current Report on Form 8-K
filed March 9, 1998 (File No. 1-12755)).
10.15 -- Contribution and Merger Agreement by and among Suiza Foods
Corporation, Franklin Plastics, Inc. and affiliates, Vestar
Packaging LLC, Reid Plastics Holdings, Inc. and affiliates,
Consolidated Container Holdings LLC, Consolidated Container
Company LLC and Reid Plastics Group LLC dated as of April 29,
1999, as amended (incorporated by reference from our Current
Report on Form 8-K dated July 19, 1999, File No. 1-12755).
10.16 -- Amendment No. 1 to Contribution and Merger Agreement dated
June 28, 1999 (incorporated by reference from our Current
Report on Form 8-K dated July 19, 1999, File No. 1-12755).
10.17 -- Amended and Restated Contribution Agreement, Plan of Merger
and Purchase Agreement among us and several other entities
relating to our acquisition of Southern Food, Group, L.P.
(incorporated by reference from our Quarterly Report on Form
10-Q for the quarter ended September 30, 1999) (File No.
1-12755).
10.18 -- Amended and Restated Limited Liability Company Agreement of
Consolidated Container Holdings, LLC (incorporated by
reference from our Current Report on Form 8-K dated July 19,
1999, File No. 1-12755).
10.19 -- Credit Agreement dated as of January 4, 2000 among Suiza
Dairy Group, L.P. and Southern Foods Group, L.P. as Borrowers
certain domestic subsidiaries of the parent borrower, the
Lenders parties thereto, First Union National Bank as
Administrative Agent, Bank One, NA as Syndication Agent, Bank
of America, N.A. and Fleet National Bank as Co-Documentation
Agents and First Union Securities, Inc. and Bank One Capital
Market, Inc., as Co-Book Runners (incorporated by reference
from our Current Report on Form 8-K dated January 11, 2000,
File No. 1-12755).
10.20 -- Credit Agreement dated as of January 4, 2000 among Suiza
Foods Corporation as Borrower, certain domestic subsidiaries
of the Borrower as Guarantors, the Lenders parties thereto,
First Union National Bank as Administrative Agent, Bank One,
NA as Syndication Agent, Bank of America, N.A. and Fleet
National Bank as Co- Documentation Agents and First Union
Securities, Inc. and Bank One Capital Markets, Inc., as
Co-Book Runners (incorporated by reference from our Current
Report on Form 8-K dated January 11, 2000, File No. 1-12755).
10.21 -- Second Amended and Restated Limited Partnership of Suiza
Dairy Group, L.P. (filed herewith).
*10.22 -- Form of Severance Agreement for our dairy executive
officers (incorporated by reference from our Annual Report on
Form 10-K for the year ended December 31, 1999).
</TABLE>
32
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
*10.23 -- Form of Severance Agreement for certain senior officers
(incorporated by reference from our Annual Report on Form 10-K
for the year ended December 31, 1999).
*10.24 -- Form of Severance Agreement for certain other officers
(incorporated by reference from our Annual Report on Form 10-K
for the year ended December 31, 1999).
10.25 -- Amendment No. 1 to Credit Agreement between Suiza Foods
Corporation and certain Lenders party thereto (incorporated by
reference from our Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000) (File No. 1-12755).
10.26 -- First Amendment to Credit Agreement between Suiza Dairy
Group, L.P. and certain Lenders party thereto (incorporated by
reference from our Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000) (File No. 1-12755).
11 -- Computation of Per Share Earnings (filed herewith).
21 -- List of Subsidiaries (filed herewith).
23 -- Consent of Deloitte & Touche LLP (filed herewith).
</TABLE>
- ----------
* Management or compensatory contract
33
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.21
<SEQUENCE>2
<FILENAME>d85713ex10-21.txt
<DESCRIPTION>AMENDED/RESTATED DECLARATION OF TRUST
<TEXT>
<PAGE> 1
EXHIBIT 10.21
SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
OF
SUIZA DAIRY GROUP, L.P.
<PAGE> 2
SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
OF
SUIZA DAIRY GROUP, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I ORGANIZATIONAL MATTERS........................................................................1
1.1 Formation.......................................................................................1
1.2 Name............................................................................................1
1.3 Registered Office and Principal Office of Partnership; Addresses of Partners....................1
1.4 Term............................................................................................2
1.5 Assumed Name Certificate........................................................................2
1.6 Ownership.......................................................................................2
1.7 No Individual Authority.........................................................................2
1.8 Title to Partnership Property...................................................................2
1.9 Limits of Partnership...........................................................................2
ARTICLE II DEFINITIONS...................................................................................2
ARTICLE III PURPOSE......................................................................................11
3.1 Purposes and Scope.............................................................................11
ARTICLE IV CAPITAL CONTRIBUTIONS........................................................................11
4.1 Initial Capital Contributions..................................................................11
4.2 Non-Contemplated Contributions.................................................................12
4.3 New Investment Contributions...................................................................13
4.4 Capital Accounts...............................................................................14
4.5 Interest.......................................................................................17
4.6 No Withdrawal..................................................................................17
4.7 Limitation on Capital Contributions and Loans..................................................17
ARTICLE V ALLOCATIONS..................................................................................17
5.1 Allocation of Profits and Losses...............................................................17
5.2 Special Allocations............................................................................19
5.3 Curative Allocations...........................................................................21
5.4 Tax Allocations: Code Section 704(c)...........................................................21
5.5 Other Allocation Rules.........................................................................22
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VI DISTRIBUTIONS................................................................................22
6.1 Distributions of Available Cash................................................................22
6.2 Amounts Withheld...............................................................................23
6.3 Excess Distributions...........................................................................23
6.4 Tax Distributions..............................................................................23
6.5 Payments Not Deemed Distributions..............................................................24
ARTICLE VII MANAGEMENT OF THE PARTNERSHIP................................................................24
7.1 Management Committee...........................................................................24
7.2 Major Decisions................................................................................25
7.3 Approval of Major Decisions....................................................................26
7.4 Officers.......................................................................................27
7.5 Certificate of Limited Partnership; Qualifications to do Business..............................27
7.6 Compensation and Reimbursement of Partner Expenses;
Other Agreements with Partners.................................................................27
7.7 Outside Activities; Noncompetition.............................................................28
7.8 Partnership Funds..............................................................................29
7.9 Transactions with Affiliates...................................................................30
7.10 Indemnification................................................................................30
7.11 Liability of the Partnership...................................................................30
7.12 Suiza Foods Board Seat.........................................................................30
ARTICLE VIII RIGHTS AND OBLIGATIONS OF PARTNERS...........................................................30
8.1 Limitation of Liability........................................................................30
8.2 Return of Capital..............................................................................31
ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS.......................................................31
9.1 Records and Accounting.........................................................................31
9.2 Fiscal Year....................................................................................31
9.3 Reports........................................................................................31
9.4 Documents......................................................................................31
ARTICLE X TAX MATTERS..................................................................................32
10.1 Tax Matters Partner............................................................................32
10.2 Annual Tax Returns.............................................................................32
10.3 Notice and Limitations on Authority............................................................33
10.4 Tax Elections..................................................................................33
10.5 Actions in Event of Audit......................................................................33
10.6 Organizational Expenses........................................................................34
10.7 Taxation as a Partnership......................................................................34
ARTICLE XI TRANSFERS OF PARTNER INTERESTS...............................................................34
11.1 Transfer Restrictions..........................................................................34
11.2 Consent of the Management Committee............................................................34
11.3 Tax Opinion....................................................................................34
11.4 Registration...................................................................................34
11.5 Prohibited Transfers...........................................................................35
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
11.6 Rights of Assignee.............................................................................35
11.7 Admission as a Partner.........................................................................35
11.8 Distributions and Allocations in Respect of Transferred Partner Interests......................36
11.9 Suiza Buy-Out Option...........................................................................36
11.10 DFA Registration Right.........................................................................37
11.11 VOV Put Right..................................................................................37
ARTICLE XII DISSOLUTION AND LIQUIDATION..................................................................37
12.1 Dissolution....................................................................................37
12.2 Continuation of the Partnership................................................................38
12.3 Liquidation....................................................................................38
12.4 Reserves.......................................................................................39
12.5 Distribution in Kind...........................................................................40
12.6 Disposition of Documents and Records...........................................................40
12.7 Negative Capital Accounts......................................................................40
12.8 Filing of Certificate of Cancellation..........................................................40
12.9 Return of Capital..............................................................................40
12.10 Waiver of Partition............................................................................40
ARTICLE XIII AMENDMENT OF AGREEMENT.......................................................................41
13.1 Amendment Procedures...........................................................................41
ARTICLE XIV GENERAL PROVISIONS...........................................................................41
14.1 Addresses and Notices..........................................................................41
14.2 Titles and Captions............................................................................42
14.3 Pronouns and Plurals...........................................................................42
14.4 Further Action.................................................................................42
14.5 Binding Effect.................................................................................42
14.6 Integration....................................................................................42
14.7 No Third Party Beneficiary.....................................................................42
14.8 Waiver.........................................................................................43
14.9 Counterparts...................................................................................43
14.10 Applicable Law.................................................................................43
14.11 Invalidity of Provisions.......................................................................43
14.12 Confidentiality................................................................................43
</TABLE>
iii
<PAGE> 5
SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
OF
SUIZA DAIRY GROUP, L.P.
This AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT of SUIZA DAIRY
GROUP, L.P. (the "Agreement") is entered into as of the 29th day of December
2000, to be effective as of the 31st day of March, 2000 (the "Effective Date"),
by and among Suiza Dairy Group GP, L.L.C., a Delaware limited liability
company, as the General Partner ("Suiza GP" or the "General Partner"), and
Suiza Dairy Group Holdings, Inc., a Nevada corporation ("SDG Holdings"), Dairy
Farmers of America, Inc., a Kansas cooperative marketing association ("DFA"),
Mid-Am Capital, L.L.C., a Delaware limited liability company ("Mid-Am"), and
VOV Acquisition Corporation, a Delaware corporation ("VOV") as Limited
Partners (together, the "Limited Partners," and with Suiza Management, the
"Partners"), together with any Person who becomes a Partner as provided herein.
ARTICLE I
ORGANIZATIONAL MATTERS
1.1 Formation. The Partnership was formed as a limited partnership in
accordance with the Delaware Act on September 20, 1999, pursuant to the
provisions of the Delaware Act. The Partners hereby enter into this Agreement in
order to set forth the rights and obligations of the Partners and certain
matters related thereto. Except as expressly provided and permitted herein to
the contrary, the rights and obligations of the Partners and the administration
and termination of the Partnership shall be governed by the Delaware Act.
1.2 Name. The name of the Partnership shall be, and the business of the
Partnership shall be conducted under the name of, "Suiza Dairy Group, L.P." The
Partnership's business may also be conducted under any additional name or names
approved by the Management Committee from time to time.
1.3 Registered Office and Principal Office of Partnership; Addresses of
Partners.
(a) The registered office of the Partnership in the State of
Delaware shall be 1013 Centre Road, Wilmington, DE 19805, and the
registered agent for service of process on the Partnership at such
registered office shall be Corporation Service Partnership, 1013 Centre
Road, Wilmington, DE 19805. The principal place of business of the
Partnership shall be at 2515 McKinney Ave., LB 30, Suite 1200, Dallas,
Texas 75201, or such other location as determined by the Management
Committee. The Partnership may also maintain offices at such additional
locations as the Management Committee deems advisable.
1
<PAGE> 6
(b) The addresses of the Partners as of the Closing Date are
set forth in Section 14.1. The address of a Partner may be changed in
accordance with the requirements set forth in Section 14.1.
1.4 Term. The existence of the Partnership commenced on the
Commencement Date, and the Partnership shall continue in existence until the
dissolution of the Partnership pursuant to the express provisions of Article XII
hereof (other than a dissolution that is followed by the reconstitution of the
Partnership pursuant to Section 12.2).
1.5 Assumed Name Certificate. The Partners shall execute and file any
assumed or fictitious name certificate or certificates or any similar documents
required by law to be filed in connection with the formation and operation of
the Partnership.
1.6 Ownership. The interest of each Partner in the Partnership shall be
personal property for all purposes. All property and interests in property, real
or personal, owned by the Partnership shall be deemed owned by the Partnership
as an entity, and no Partner, individually, shall have any ownership of such
property or interest except by having an ownership interest in the Partnership
as a Partner. Each of the Partners irrevocably waives, during the term of the
Partnership and during any period of its liquidation following any dissolution,
any right that it may have to maintain any action for partition with respect to
any of the assets of the Partnership.
1.7 No Individual Authority. No Partner, acting alone, shall have any
authority to act for, or to undertake or assume, any obligation, debt, duty or
responsibility on behalf of any other Partner or the Partnership except as
otherwise expressly provided in this Agreement.
1.8 Title to Partnership Property. It is the desire and intention of
the Partners that legal title to all property of the Partnership shall be held
and conveyed in the name of the Partnership.
1.9 Limits of Partnership. The relationship between the parties hereto
shall be limited to the carrying on of the business of the Partnership in
accordance with the terms of this Agreement. Such relationship shall be
construed and deemed to be a limited partnership for the sole and limited
purpose of carrying on such business. Except as otherwise provided for or
contemplated in this Agreement, nothing herein shall be construed to create a
partnership between the Partners or to authorize any Partner to act as general
agent for any other Partner.
ARTICLE II
DEFINITIONS
The following definitions shall for all purposes, unless otherwise
clearly indicated to the contrary, apply to the terms used in this Agreement.
"Adjusted Capital Account" means, with respect to any Partner, a
special account maintained for such Partner, the balance of which shall equal
such Partner's Capital Account
2
<PAGE> 7
balance, increased by the amount (if any) of such Partner's share of the
Partnership Minimum Gain and Partner Minimum Gain of the Partnership.
"Adjusted Capital Account Deficit" means, with respect to any Partner,
the deficit balance, if any, in such Partner's Capital Account as of the end of
the relevant Fiscal Year, after giving effect to the following adjustments:
(a) Credit to such Capital Account any amounts which such
Partner is obligated to restore pursuant to any provision of this
Agreement or is deemed to be obligated to restore pursuant to
Regulations Section 1.704-1(b)(2)(iv)(c), the penultimate sentence of
Regulations Section 1.704-2(g)(1), or the penultimate sentence of
Regulations Section 1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5), and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
"Affiliate" means, with respect to a particular Person, any other
Person directly or indirectly Controlling, Controlled by, or under common
Control with such Person.
"Agreement" means this Limited Partnership Agreement of Suiza Dairy
Group, L.P., as it may be further amended, supplemented or restated from time to
time in accordance with the terms of this Agreement.
"Available Cash" of the Partnership as of any date means all cash funds
of the Partnership on hand as of such date after: (a) payment of all
expenditures of any kind, including operating expenses and capital expenditures,
that are due and payable as of such date or that are expected to become due and
payable in the next 30 days; and (b) provision for adequate reserves (working
capital and capital), with the amount of such reserves to be determined by the
Management Committee (acting reasonably and in good faith).
"Book Depreciation" has the meaning set forth in Section 4.4(b)(v).
"Book Value" has the meaning set forth in Section 4.4(c).
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States shall
not be regarded as a Business Day.
"Capital Account" means the capital account maintained for a Partner
pursuant to Section 4.4.
"Capital Contribution" means, with respect to any Partner, the amount
of money and the initial Book Value of any property (other than money)
contributed to the Partnership with respect
3
<PAGE> 8
to the interest in the Partnership held by such Partner, reduced by the amount
of any liabilities of the Partner assumed by the Partnership or which are
secured by any property contributed by such Partner to the Partnership.
"Capital Transaction" means any transaction in which the Partnership
(a) sells, assigns or otherwise conveys one or more of its Dairy Operations, or
(b) refinances all, substantially all or a material portion of the Partnership's
debt which is secured by assets of the Partnership.
"Certificate" means the Certificate of Limited Partnership of the
Partnership filed with the Secretary of State of Delaware, as it may be amended
or restated from time to time.
"Closing Date" means the date of the first Amended and Restated Limited
Partnership Agreement of Suiza Dairy Group, L.P.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time. All references herein to the Code shall include any
corresponding provision or provisions of succeeding law.
"Commencement Date" means the date that the Certificate of Limited
Partnership was filed with the Secretary of State of Delaware.
"Contribution Agreement" means the Contribution Agreement, Plan of
Merger, and Purchase Agreement dated as of September 20, 1999, by and among
Suiza Foods, Suiza SoCal Holdings, Inc., a Nevada corporation, Suiza GTL
Holdings, Inc., a Delaware corporation, LOS Holdings, Inc., a Delaware
Corporation, SDG Holdings, Suiza Management Corporation, a Delaware corporation,
Suiza GP, the Suiza Companies, Suiza GTL, Suiza SoCal, Robinson Dairy, DFA, DFA
Investment, SFG, SFG Management, SFG Capital, the Partnership, Pete Schenkel,
and, for the limited purposes indicated on the signature pages thereto, Mid-Am.
"Contributions" means the Contributions, as defined in the Contribution
Agreement.
"Control" (and derivations thereof) means, with respect to a particular
Person, the ownership, directly or indirectly, of more than 50% of the equity or
voting interests in such Person.
"Dairy Operation" means any fluid milk processing operation, other than
any fluid milk processing operation where the primary product or products in
terms of sales or production is UHT milk or any other ultra pasteurized or
extended shelf-life fluid milk product, or bottled water operation located in
the Territory.
"Default Rate" means a per annum interest rate equal to the lesser of:
(a) ten percent (10%) per annum, compounded annually; and (b) the maximum rate
of interest permitted to be charged by applicable law.
"Delaware Act" means the Delaware Revised Uniform Limited Partnership
Act, 6 Del. C. Section 17-101, et seq., as amended from time to time.
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<PAGE> 9
"DFA" means Dairy Farmers of America, Inc., a Kansas cooperative
marketing association.
"DFA Companies" means SFG, SFG Management and SFG Capital.
"DFA Interests" has the meaning set forth in Section 11.9 hereof.
"DFA Investment" means DFA Investment Company, a Kansas cooperative
marketing association.
"DFA Manager" means the member of the Management Committee designated
by DFA pursuant to Section 7.1.
"DFA Parents" means DFA, DFA Investment and Mid-Am.
"DFA Partners" means DFA, Mid-Am and any assignees or transferees of
their Partner Interests, to the extent each holds any Partner Interest in the
Partnership. Any right or power granted to DFA or the DFA Partners may be
exercised by DFA or, if DFA no longer owns any Partner Interests, then by any
group of DFA Partners holding a majority of the Percentage Interests held by all
DFA Persons.
"DFA Price" means, as of any date, the sum of (a) the aggregate
Preferred Returns plus the aggregate Preferred Capital Balance for all DFA
Partners, plus (b) the aggregate Formula Value of the DFA Partners.
"DFA Veto" means any occasion on which the Management Committee fails
to approve a Major Decision proposed by Suiza due solely to a vote (or failure
to vote) by the DFA Manager.
"Dissolution Event" has the meaning set forth in Section 12.1(b).
"EBITDA" means, for any period, the sum, for the Partnership and its
subsidiaries on a consolidated basis, without duplication in accordance with
generally accepted accounting principles of the following: (a) Net Income, plus
(b) income taxes, interest expense, depreciation and amortization, to the extent
deducted in calculating Net Income, plus (c) any Unusual Items of loss included
in calculating Net Income, minus (d) any Unusual Items of income included in
calculating Net Income.
"Effective Date" means March 31, 2000.
"Event of Bankruptcy" means, with respect to any Partner or the
Partnership, any of the following acts or events:
(a) making an assignment for the benefit of creditors;
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<PAGE> 10
(b) filing a voluntary petition in bankruptcy;
(c) becoming the subject of an order for relief or being
declared insolvent or bankrupt in any federal or state bankruptcy or
insolvency proceeding;
(d) filing a petition or answer seeking a reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or
similar relief under any statute, law, or regulations;
(e) filing an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against it in a
proceeding of the type described in parts (a) through (d) of the
definition;
(f) seeking, consenting to, or acquiescing in the appointment
of a trustee, receiver, or liquidator of all or any substantial part of
its properties; or
(g) the expiration of 90 days after the date of the
commencement of a proceeding against such Person seeking
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any statute, law, or regulation if
the proceeding has not been previously dismissed or the expiration of
60 days after the date of the appointment, without such Person's
consent or acquiescence, of a trustee or receiver for the liquidation
of such Person or of all or any substantial part of such Person's
properties, if the appointment has not been previously vacated or
stayed, or the expiration of 60 days after the date of expiration of a
stay, if the appointment has not been previously vacated.
"Fiscal Year" means the 12-month period ending December 31 of each
year; provided that the initial Fiscal Year shall be the period beginning on the
Commencement Date and ending December 31, 1999, and the last Fiscal Year shall
be the period beginning on January 1 of the calendar year in which the final
liquidation and termination of the Partnership is completed and ending on the
date such final liquidation and termination is completed (to the extent any
computation or other provision hereof provides for an action to be taken on a
Fiscal Year basis, an appropriate proration or other adjustment shall be made in
respect of the initial and final Fiscal Years to reflect that such periods are
less than full calendar year periods).
"Formula Value" for a particular Partner as of a particular date means
(a) the Percentage Interest of such Partner, multiplied by (b) the sum of (i)
7.5 times the EBITDA of the Partnership over the 12 full calendar months
immediately preceding such date, minus (ii) any indebtedness for borrowed money
of the Partnership, including the Preferred Interests, as of such date;
provided, that the Formula Value shall not be less than the average annual
EBITDA computed over the 24 months preceding the date of determination.
"Indemnitee" has the meaning set forth in Section 7.10.
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<PAGE> 11
"Independent Accountants" means any of the five largest nationally
recognized accounting firms in the United States, as selected by the Management
Committee. Deloitte & Touche LLP shall be the initial Independent Accountant.
"Limited Partner" means SDG Holdings, DFA, Mid-Am, VOV and any other
Person who is admitted as a Limited Partner in the Partnership on and after the
Effective Date and whose admission has been reflected on the books and records
of the Partnership.
"Liquidator" has the meaning set forth in Section 14.3.
"Losses" has the meaning set forth in Section 4.4(b).
"Major Decision" has the meaning set forth in Section 7.2.
"Management Committee" means the management committee of the General
Partner, whose members will be designated by Suiza and DFA in accordance with
Section 7.1 hereof.
"Mergers" means the Mergers, as defined in the Contribution Agreement,
pursuant to which the Suiza Companies will be merged into the Partnership or
into one or more limited liability companies owned, directly or indirectly, by
the Partnership.
"Mid-Am" means Mid-Am Capital, L.L.C., a Delaware limited liability
company.
"Net Income" of a Person means the net income of such Person,
determined in accordance with generally accepted accounting principles, applied
in a manner consistent with the manner in which Suiza Foods (or its successor)
calculates its consolidated net income at such time.
"Nonrecourse Deductions" has the meaning set forth in Section
1.704-2(b)(1) of the Regulations.
"Partner" means SDG Holdings, DFA, Mid-Am, VOV and any other Person who
is admitted as a Partner in the Partnership on and after the Effective Date and
whose admission has been reflected on the books and records of the Partnership.
"Partner Interest" means the interest of a Partner in the Partnership,
including, without limitation, such Partner's right: (a) to a distributive share
of the Profits, Losses, and other items of income, gain, loss, deduction, and
credit of the Partnership; (b) to a distributive share of the assets of the
Partnership; and (c) with respect to certain Partners, to participate in the
management and operation of the Partnership as provided in this Agreement.
"Partner Minimum Gain" shall mean partner nonrecourse debt minimum gain
as determined under the rules of Regulations Section 1.704-2(i).
"Partner Nonrecourse Deduction" has the meaning set forth in
Regulations Section 1.704-2(i)(1) and (2).
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<PAGE> 12
"Partnership" means Suiza Dairy Group, L.P., a Delaware limited
partnership established by filing of the Certificate with the Secretary of State
of Delaware.
"Partnership Estimated Net Taxable Income" has the meaning set forth in
Section 6.4(a).
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(d).
"Percentage Interest" means the percentage interest of a Regular
Partner in certain allocations of Profits, Losses, and other items of income,
gain, loss, or deduction and certain distributions of cash and property. The
initial Percentage Interest of each Regular Partner is set forth below:
<TABLE>
<CAPTION>
REGULAR PARTNER INITIAL PERCENTAGE INTEREST
- --------------- ---------------------------
<S> <C>
SDG Holdings 66.1%
DFA 33.8%
Suiza Management 0.1%
-----
TOTAL 100.0%
=====
</TABLE>
The Percentage Interest of a Regular Partner may be adjusted pursuant
to Section 4.3 hereof. After such adjustment, the Percentage Interest of such
Regular Partner, as adjusted, shall constitute such Regular Partner's Percentage
Interest for all purposes under this Agreement. Mid-Am, Suiza Preferred Partner,
and VOV shall not have Percentage Interests.
"Person" means an individual, corporation, partnership, limited
liability company, trust, estate, unincorporated organization, association, or
other entity.
"Preferred Capital Balance" means: (a) with respect to Suiza Preferred
Partner, the excess of (i) $176,272,000 plus the amount of the Preferred Capital
Balance of any additional Partner Interests issued to Suiza Preferred Partner
pursuant to Section 4.3(a), over (ii) total Preferred Capital Balance
Distributions to Suiza Preferred Partner since the Closing Date; (b) with
respect to Mid-Am, the excess of (i) $90,000,000, over (ii) total Preferred
Capital Balance Distributions to Mid-Am since the Closing Date; and (c) with
respect to VOV, the excess of (i) $ 48,537,569.00, over (ii) total Preferred
Capital Balance Distributions to VOV since the Effective Date.
"Preferred Capital Balance Distribution" means any distribution of cash
to the Priority Partners which reduces their respective Preferred Capital
Balances. Each Preferred Capital Balance Distribution shall (a) be made to the
Priority Partners in proportion to their Preferred Capital Balances, and (b) be
identified by the Managers as a Preferred Capital Balance Distribution and not a
distribution under Section 6.1(a) or (b) hereof. With the approval of the
Management Committee in accordance with the provisions of Section 7.3 hereof, a
Preferred Capital Balance Distribution may be made at any time.
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<PAGE> 13
"Preferred Return" means, with respect to a particular Priority
Partner, an aggregate amount, computed like simple interest, compounded
annually, at a rate equal to 10% per annum on such Priority Partner's Preferred
Capital Balance, except that with respect to VOV, the rate shall equal 8% per
annum, or as contemplated by Section 4.3(a), reduced by distributions made to
such Priority Partner pursuant to Section 6.1(b) below.
"Priority Partner" means Suiza Preferred Partner, Mid-Am, VOV and any
permitted successors and assigns thereof.
"Profits" has the meaning set forth in Section 4.4(b).
"Regular Partner" means the Suiza Regular Partners, DFA, and any other
Partner with a Percentage Interest greater than zero that may be admitted to the
Company in accordance with this Agreement.
"Regulations" means the Treasury Regulations promulgated under the
Code, as amended and in effect (including corresponding provisions of any
succeeding regulations).
"Regulatory Allocations" has the meaning set forth in Section 5.3.
"Robinson Dairy" means Robinson Dairy, Inc., a Colorado corporation.
"Settlement Notice" has the meaning set forth in Section 7.10(c).
"Schenkel" means Pete Schenkel.
"SFG" means Southern Foods Group, L.P., a Delaware limited partnership.
"SFG Management" means SFG Management Limited Liability Company, a
Delaware limited liability company.
"SFG Capital" means SFG Capital Corporation, a Delaware corporation.
"Suiza" means Suiza Management and any assignees or transferees of its
Partner Interests, to the extent each holds any Partner Interest in the
Partnership. Any right or power granted to Suiza Management or Suiza may be
exercised by Suiza Management or, if Suiza Management no longer owns any Partner
Interests, then by any Persons included within the foregoing definition of
"Suiza" holding a majority of the Percentage Interests held by all Persons
included within such definition.
"SDG Holdings" means Suiza Dairy Group Holdings, Inc., a Nevada
corporation.
"Suiza Common Stock" means the common stock, $.01 par value per share,
of Suiza Foods, or any securities issued in exchange for or in substitution of
such common stock in connection with any merger, consolidation, recapitalization
or similar event.
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<PAGE> 14
"Suiza Companies" means the following companies and any additional
dairy operations contributed by the Suiza Parents pursuant to the Contribution
Agreement: Broughton Foods Company, an Ohio corporation; Burger Dairy Company,
an Indiana corporation; CFI-TMP, Inc., a Michigan corporation; Country Delite
Farms, Inc., a Delaware corporation; Country Fresh, Inc., a Michigan
corporation; Country Fresh Wesley, Inc., a Michigan corporation; Dairy Fresh,
Inc., a Delaware corporation; Dairy Products of Michigan, Inc., a Michigan
corporation; East Coast Ice Cream, LLC, a Michigan limited liability company;
Frostbite Brands, Inc., a Michigan corporation; Land-O-Sun Dairies, LLC, a
Delaware limited liability company, LFD Holding Company, a Delaware corporation;
London Farms Dairy, Inc., a Delaware corporation; Louis Trauth Dairy, Inc., a
Delaware corporation; Model Dairy, Inc., a Delaware corporation; Northern Falls
Water Company, Inc., a Delaware corporation; Oberlin Farms Dairy, Inc., an Ohio
corporation; Southeastern Juice Packers, Inc., a Michigan corporation; and Velda
Farms, Inc., a Delaware corporation.
"Suiza Foods" means Suiza Foods Corporation, a Delaware corporation.
"Suiza GP" means Suiza Dairy Group GP, LLC, a Delaware limited
liability company.
"Suiza GTL" means Suiza GTL, LLC, a Delaware limited liability company.
"Suiza Managers" means the members of the Management Committee
designated by Suiza pursuant to Section 7.1.
"Suiza Parents" means Suiza Foods, Suiza SoCal Holdings, Inc., a Nevada
corporation, Suiza GTL Holdings, Inc., a Delaware corporation, LOS Holdings,
Inc., a Delaware Corporation, and SDG Holdings.
"Suiza Preferred Partner" means SDG Holdings as the holder of a
Preferred Capital Balance and as the owner of rights to distributions in respect
thereof under Section 6.1(a), and allocations of Profits and Losses in
connection therewith.
"Suiza Regular Partners" means Suiza Management and SDG Holdings as the
holders of Percentage Interests greater than zero and as the owner of rights to
distributions under Section 6.1(b) hereof, and allocations of Profits and Losses
in connection therewith.
"Suiza SoCal" means Suiza SoCal, LLC, a Delaware limited liability
company.
"Tax Matters Partner" has the meaning set forth in Section 11.1.
"Territory" means the continental United States, Alaska and Hawaii.
"Territory Dairy Investment" means any acquisition after the Closing
Date of a Dairy Operation located in the Territory, whether through asset
purchase, stock purchase, merger or otherwise.
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<PAGE> 15
"Unusual Items" of income or loss mean any extraordinary items of
income or loss, any nonoperating gains or losses resulting from the sale of
assets, any merger or acquisition expenses and any restructuring charges.
"VOV" means VOV Acquisition Corporation, a Delaware corporation.
ARTICLE III
PURPOSE
3.1 Purposes and Scope. Subject to the provisions of this Agreement,
the purposes of the Partnership are to:
(a) acquire (i) the operations of the DFA Companies, the Suiza
Companies, Suiza GTL, Suiza SoCal and Robinson Dairy through the
Mergers and the Contributions and (ii) such other assets and
liabilities as are contemplated to be acquired by the Partnership
pursuant to the terms of the Contribution Agreement;
(b) own, operate, manage, maintain, improve, develop,
purchase, sell, exchange, and otherwise acquire or dispose of Dairy
Operations in the Territory;
(c) borrow money in furtherance of any or all of the
objectives of the Partnership business, and to secure the same by
mortgage, pledge, or other liens; and
(d) do any and all other acts or things which may be
incidental or necessary to carry on the business of the Partnership as
herein contemplated. The Partnership shall not engage in any other
business or activity not intended to implement the foregoing without
the prior written consent of the Management Committee.
ARTICLE IV
CAPITAL CONTRIBUTIONS
4.1 Initial Capital Contributions. Prior to the date of this Agreement,
the Suiza Parents owned, directly or indirectly, all of the outstanding equity
interests in each of the Suiza Companies (except Land-O-Sun Dairies, LLC) and
Robinson Dairy, 75% of the outstanding common member interests and $120 million
aggregate stated amount of preferred member interests in Suiza GTL, 75% of the
outstanding common member interests and $95 million aggregate stated amount of
preferred member interests in Suiza SoCal, and, together with DFA Investment,
all of the outstanding equity interests in Land-O-Sun Dairies, LLC. Prior to the
date of this Agreement, the DFA Parents owned, directly or indirectly, all of
the outstanding limited partner interests in the Partnership, 25% of the
outstanding common member interests and $40 million aggregate stated amount of
preferred member interests in Suiza GTL, 25% of the outstanding common member
interests and $21 million aggregate stated amount of preferred member interests
in Suiza SoCal, and $20 million stated amount of preferred interests in
Land-O-Sun Dairies, LLC. Prior to the date of this Agreement, Suiza Management
has been the sole
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<PAGE> 16
general partner of the Partnership. The DFA Parents and Schenkel own, directly
or indirectly, all of the outstanding equity interests in SFG, SFG Management
and SFG Capital. Pursuant to the Contribution Agreement, (i) the Partnership
purchased from Schenkel the entire equity interests in SFG held by Schenkel for
the sum of $99 million in cash; (ii) Suiza Management purchased from Schenkel
all of the member interests in SFG Management owned by Schenkel for the sum of
$1 million in cash; (iii) DFA contributed its member interest in SFG Management
to the Partnership; (iv) the DFA Parents contributed, or caused the contribution
of, their equity interests in SFG, their membership interests in Suiza GTL and
in Suiza SoCal, the SFG Subordinated Notes held by them, and their preferred
interests in Land-O-Sun Dairies, LLC to the Partnership in exchange for common
and preferred limited partner interests in the Partnership; (v) the Suiza
Parents contributed or merged the Suiza Companies and Robinson Dairy into, and
contributed their membership interests in Suiza GTL and Suiza SoCal to, the
Partnership in exchange for common and preferred limited partner interests in
the Partnership; (vi) Suiza Management contributed 90% of the member interests
in SFG Management it purchased from Schenkel to the Partnership in respect of
its .1% general partner interest in the Partnership; and (vii) DFA made an
additional cash contribution to, or Suiza Foods received an additional cash
distribution from, a loan from, or additional preferred interests in, the
Partnership in respect of certain additional Dairy operations contributed by the
Suiza Parents as contemplated therein, including, without limitation, the
operations of Robinson Dairy. Subject to adjustments made within 30 days after
the Closing Date to the balance of any such Partner's Capital Account as of the
Closing Date, it is hereby agreed that (a) Mid-Am's Capital Account as of the
Closing Date was equal to $90 million, (b) Suiza Preferred Partner's Capital
Account as of the Closing Date was equal to $176.272 million, (c) SDG Holdings'
Capital Account plus Suiza Management's Capital Account as of the Closing Date
was equal to .662 times, and DFA's Capital Account as of the Closing was equal
to .338 times, the aggregate Capital Accounts of all of the Partners, and (d)
VOV's Capital Account as of the Effective Date shall be equal to the amount of
its Preferred Capital Balance as of the Effective Date.
4.2 Non-Contemplated Contributions.
(a) If the Management Committee approves (in accordance with
the Major Decision provisions of Section 7.3) any additional Capital
Contributions beyond those described in Section 4.1, the Partnership
shall deliver a written notice to all of the Partners (although only
Partners shall be required to make, and can make, such additional
Capital Contributions) (a "Contribution Notice") requesting such
additional Capital Contributions. Each Contribution Notice shall
specify the following information:
(i) the aggregate amount of Capital Contributions
requested in the Contribution Notice;
(ii) the amount of additional cash funds each Partner
is required to contribute to the Partnership (which Capital
Contributions shall be made by the Partners in proportion to
their Percentage Interests);
(iii) the date on which such additional Capital
Contributions are due, which date shall be approved in advance
by the Management Committee; and
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<PAGE> 17
(iv) wiring or other instructions for the bank
account into which the required Capital Contribution is to be
deposited.
(b) Any Capital Contributions made pursuant to Section 4.2(a)
shall be spent by the Partnership in accordance with the general
directions of the Management Committee, as approved in connection with
the approval of such Capital Contributions.
(c) Except as provided in Sections 4.1 and 4.3 hereof and in
the foregoing provisions of this Section 4.2, no Partner shall be
required to make any Capital Contribution.
4.3 New Investment Contributions.
(a) If the Management Committee decides to make a Territory
Dairy Investment and determines that it is desirable to purchase the
target business (i) in a qualified stock purchase (within the meaning
of Section 338 of the Code) followed by a Section 338(h)(10) election,
(ii) in a transaction taxed as taxable purchase of the target's stock,
or (iii) in a transaction qualifying as a reorganization under Section
368 of the Code, Suiza Foods shall carry out the purchase and shall
transfer the assets and liabilities of the acquired business to the
Partnership. If the acquisition is effected by a transaction as to
which a Section 338(h)(10) election is made, the Partnership shall loan
the purchase price (including the related acquisition costs and
expenses recorded as purchase price) to Suiza Foods, and the transfer
of the assets and liabilities of the acquired business shall constitute
repayment of the loan that funded the acquisition. If the acquisition
is effected by a transaction taxed as a taxable purchase of the
target's stock, the Partnership shall loan the purchase price
(including the related acquisition costs and expenses recorded as
purchase price) to Suiza Foods, and Suiza Foods shall transfer the
assets and liabilities of the acquired business in exchange for a
preferred Partner Interest with a Preferred Capital Balance equal to
the amount of the loan and a Preferred Return equal to the interest
rate on the loan from the Partnership to Suiza Foods. If the
acquisition is effected by a transaction qualifying as a reorganization
under Section 368 of the Code, Suiza Foods, through SDG Holdings, shall
transfer the assets and liabilities of the acquired business to the
Partnership as a capital contribution. In such event, DFA shall elect
(i) whether to contribute to the Partnership an amount of cash equal to
DFA's Percentage Interest multiplied by the value (determined using the
closing trading price on the date issued) of the Suiza Common Stock
transferred to the stockholders of the acquired corporation, plus the
related acquisition costs and expenses recorded as purchase price, and
divided by the SDG Holdings' Percentage Interests, or (ii) whether,
with the mutual agreement of the Partners, the Partnership shall loan
the purchase price (including the related acquisition costs and
expenses recorded as purchase price) to Suiza Foods, and Suiza Foods
shall transfer the assets and liabilities of the acquired business in
exchange for a preferred Partner Interest with a Preferred Capital
Balance equal to the amount of the loan and a Preferred Return equal to
the interest rate on the loan from the Partnership to Suiza Foods. If
DFA elects not to contribute such amount of cash and the Partnership
does not make a loan to Suiza Foods in exchange for such additional
preferred Partner Interest,
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<PAGE> 18
SDG Holdings' Percentage Interest shall be increased to equal the
quotient (expressed as a percentage) of (i) the Formula Value for SDG
Holdings immediately prior to the acquisition, plus the value
(determined using the closing trading price on the date issued) of the
Suiza Common Stock transferred to the stockholders of the acquired
corporation, plus the related cash purchase price, if any, acquisition
costs and expenses recorded as purchase price, divided by (ii) the
total Formula Value for all Partners immediately prior to the
Partnership's participation in the relevant Territory Dairy Investment,
plus the value (determined using the closing trading price on the date
issued) of the Suiza Common Stock transferred to the stockholders of
the acquired corporation, plus the related cash purchase price, if any,
acquisition costs and expenses recorded as purchase price, and DFA's
Percentage Interest shall be correspondingly reduced.
(b) Notwithstanding any provision in this Agreement to the
contrary, if Suiza desires for the Partnership to participate in a
Territory Dairy Investment and the Management Committee rejects such
Territory Dairy Investment due solely to a DFA Veto, then, in addition
to any other options available to Suiza as a result of such DFA Veto
(i.e., its rights under Sections 7.7(b)(iii) and 11.9), Suiza may, in
its sole discretion, cause the Partnership to participate in such
Territory Dairy Investment if Suiza (and any other Partners who agree
to participate) make any and all Capital Contributions necessary to
enable the Partnership to participate in such Territory Dairy
Investment (a "New Investment Contribution") (which New Investment
Contribution shall be treated as being made by SDG Holdings). Each time
SDG Holdings (and any other Partners) makes a New Investment
Contribution, the Percentage Interest of each Partner shall be adjusted
to equal the quotient (expressed as a percentage) of (i) the Formula
Value for such Partner immediately prior to the Partnership's
participation in the relevant Territory Dairy Investment, plus the
amount of the New Investment Contributions (if any) made by such
Partner with respect to the relevant Territory Dairy Investment,
divided by (ii) the total Formula Value for all Partners immediately
prior to the Partnership's participation in the relevant Territory
Dairy Investment, plus the total amount of the total New Investment
Contributions made by all Partners with respect to the relevant
Territory Dairy Investment.
4.4 Capital Accounts.
(a) Maintenance Rules. The Partnership shall maintain for each
Partner a separate Capital Account in accordance with this Section 4.4,
which shall control the division of assets upon liquidation of the
Partnership as provided in Section 12.3. The Capital Account shall be
maintained in accordance with the following provisions:
(i) Such Capital Account shall be increased by the
cash amount or Book Value of any property contributed by such
Partner to the Partnership pursuant to this Agreement, such
Partner's allocable share of Profits and any items in the
nature of income or gain which are specially allocated to such
Partner pursuant to Section 5.2 or Section 5.3 hereof, and the
amount of any Partnership liabilities assumed by such Partner
or which are secured by any property distributed to such
Partner.
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<PAGE> 19
(ii) Such Capital Account shall be decreased by the
cash amount or Book Value of any property distributed to such
Partner pursuant to this Agreement, such Partner's allocable
share of Losses and any items in the nature of deductions or
losses which are specially allocated to such Partner pursuant
to Section 5.2 or Section 5.3 hereof, and the amount of any
liabilities of the Partner assumed by the Partnership or which
are secured by any property contributed by such Partner to the
Partnership.
(iii) In the event all or a portion of an interest in
the Partnership is transferred in accordance with the terms of
this Agreement, the transferee shall succeed to the Capital
Account of the transferor to the extent it relates to the
transferred interest; provided, however, that if the transfer
causes a termination of the Partnership under Section
708(b)(1)(B) of the Code, then the Partnership shall be deemed
to have contributed its assets to a new limited partnership in
exchange for interests in the new limited partnership,
followed by a distribution of the interests in the new limited
partnership to the Partnership and liquidation of the
Partnership. Such deemed liquidation and reconstitution shall
not cause the Partnership to be dissolved or reconstituted for
purposes other than maintenance of the Capital Accounts and
federal income tax, unless otherwise provided in Article XII.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts generally are intended
to comply with Section 1.704-1(b) of the Regulations and shall be
interpreted and applied in a manner consistent with such Regulations.
If the Management Committee reasonably determines that it is prudent to
modify the manner in which the Capital Accounts, or any increases or
decreases to the Capital Accounts, are computed in order to comply with
such Regulations, the Management Committee may authorize such
modifications, provided that it does not have any effect on the amounts
distributable to any Person pursuant to Section 12.3 hereof upon the
dissolution of the Partnership.
(b) Definition of Profits and Losses. "Profits" and "Losses"
mean, for each Fiscal Year or other period, an amount equal to the
Partnership's taxable income or loss for such year or period,
determined in accordance with Code Section 703(a) (for this purpose,
all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in
taxable income or loss), with the following adjustments:
(i) Income of the Partnership that is exempt from
federal income tax and not otherwise taken into account in
computing Profits and Losses pursuant to this Section 4.4(b)
shall be added to such taxable income or loss;
(ii) Any expenditures of the Partnership described in
Code Section 705(a)(2)(B), or treated as Code Section
705(a)(2)(B) expenditures pursuant to Regulations Section
1.704-1(b)(2)(iv)(i), and not otherwise taken into
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account in computing Profits and Losses pursuant to this
Section 4.4(b) shall be subtracted from such taxable income or
loss;
(iii) In the event the Book Value of any Partnership
asset is adjusted pursuant to Section 4.4(c)(ii) or Section
4.4(c)(iii), the amount of such adjustment shall be taken into
account as gain or loss from the disposition of such asset for
purposes of computing Profits and Losses;
(iv) Gain or loss resulting from any disposition of
property with respect to which gain or loss is recognized for
federal income tax purposes shall be computed by reference to
the Book Value of the property disposed of, notwithstanding
that the adjusted tax basis of such property differs from its
Book Value;
(v) In lieu of the deduction for depreciation, cost
recovery or amortization taken into account in computing such
taxable income or loss, there shall be taken into account
"Book Depreciation" as defined in this Section 4.4(b)(v).
"Book Depreciation" for any asset means for any Fiscal Year or
other period an amount that bears the same ratio to the Book
Value of that asset at the beginning of such Fiscal Year or
other period as the federal income tax depreciation,
amortization or other cost recovery deduction allowable for
that asset for such year or other period bears to the adjusted
tax basis of that asset at the beginning of such year or other
period. If the federal income tax depreciation, amortization,
or other cost recovery deduction allowable for any asset for
such year or other period is zero, then Book Depreciation for
that asset shall be determined with reference to such
beginning Book Value using any reasonable method selected by
the Management Committee; and
(vi) Notwithstanding any other provision of this
Section 4.4(b), any items that are specially allocated
pursuant to Section 5.2 or Section 5.3 shall not be taken into
account in computing Profits and Losses.
(c) Definition of Book Value. "Book Value" means for any asset
the asset's adjusted basis for federal income tax purposes, except as
follows:
(i) The initial Book Value of any asset contributed
by a Partner to the Partnership shall be the gross fair market
value of such asset, as determined by the Management
Committee.
(ii) The Book Values of all Partnership assets shall
be adjusted to equal their respective gross fair market
values, as determined by the Management Committee, as of the
following times: (A) the acquisition of an additional interest
in the Partnership by any new or existing Partner in exchange
for more than a de minimis capital contribution if the
Management Committee reasonably determines that such
adjustment is necessary or appropriate to reflect the relative
economic interests of the Partners in the Partnership; (B) the
distribution by the
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Partnership to a Partner of more than a de minimis amount of
Partnership property as consideration for an interest in the
Partnership if the Management Committee reasonably determines
that such adjustment is necessary or appropriate to reflect
the relative economic interests of the Partners in the
Partnership; and (C) the liquidation of the Partnership within
the meaning of Regulation Section 1.704-1(b)(2)(ii)(g);
(iii) The Book Value of any Partnership asset
distributed to any Partner shall be the gross fair market
value of such asset on the date of distribution, as determined
by the Management Committee.
(iv) The Book Values of Partnership assets shall be
increased (or decreased) to reflect any adjustment to the
adjusted basis of such assets pursuant to Code Section 734(b)
or Code Section 743(b), but only to the extent that such
adjustments are taken into account in determining Capital
Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)
and Section 5.2(d) hereof; provided, however, that Book Values
shall not be adjusted pursuant to this Section 4.4(c)(iv) to
the extent the Management Committee determines that an
adjustment pursuant to Section 4.4(c)(ii) is necessary or
appropriate in connection with a transaction that would
otherwise result in an adjustment pursuant to this Section
4.4(c)(iv).
(v) If the Book Value of an asset has been determined
or adjusted pursuant to Section 4.4(c)(i), Section 4.4(c)(ii),
or Section 4.4(c)(iv) hereof, such Book Value shall thereafter
be adjusted by the Book Depreciation taken into account with
respect to such asset for purposes of computing Profits and
Losses.
4.5 Interest. Except as otherwise provided in this Agreement, no
interest shall be paid by the Partnership on Capital Contributions or on
balances in Capital Accounts.
4.6 No Withdrawal. No Partner shall be entitled to withdraw any part of
its Capital Contribution or its Capital Account or to receive any distribution
from the Partnership, except as provided in Articles IV, VI, and XII.
4.7 Limitation on Capital Contributions and Loans. Except as
specifically provided in this Article IV, Article VIII, or Article XII hereof,
no Partner may contribute capital, loan, or advance money to the Partnership.
ARTICLE V
ALLOCATIONS
5.1 Allocation of Profits, Losses and Certain Deductions.
(a) Allocation of Profit Generally. After giving effect to the
allocations set forth in Section 5.2 and Section 5.3, and after giving
effect to all distributions of cash or
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property (other than cash or property to be distributed pursuant to
Article XII), Profits for any Fiscal Year shall be allocated to the
Partners in the following manner:
(i) First, to each Partner with a negative balance in
its Adjusted Capital Account, pro rata in accordance with such
negative Adjusted Capital Account balances, until such
negative Adjusted Capital Account balances have been
eliminated;
(ii) Next, to SDG Holdings and from DFA in an amount
equal to (W) DFA's Percentage Interest multiplied by (X) the
amount of any income or gain allocated to SDG Holdings during
the Fiscal Year pursuant to Section 5.4 arising out of a
Territory Dairy Investment effected by either a transaction
taxed as a taxable acquisition of the target corporation's
stock or a transaction qualifying as a reorganization under
Section 368 of the Code ("COB Acquisition"), plus any loss or
deduction allocated to SDG Holdings pursuant to Section 5.4
arising out of a COB Acquisition that has not previously been
taken into account in a computation pursuant to this Section
5.1(a)(ii), multiplied by (Y) the sum of the highest marginal
federal income tax rate applicable to corporations for the
Fiscal Year and the highest marginal state income tax rate
applicable to Suiza Foods for the Fiscal Year, expressed as a
percentage, divided by (Z) one minus the sum of the highest
marginal federal income tax rate applicable to corporations
for the Fiscal Year and the highest marginal state income tax
rate applicable to Suiza Foods for the Fiscal Year, expressed
as a percentage.
(iii) Next, to each Priority Partner in the minimum
amount necessary to cause such Priority Partner's positive
Adjusted Capital Account balance to equal the sum of such
Priority Partner's (A) Preferred Return plus (B) Preferred
Capital Balance, in proportion to such deficiencies;
(iv) Next, to the Partners in proportion to their
Percentage Interests.
(b) Allocation of Losses.
(i) After giving effect to the provisions of Section
5.2 and Section 5.3, and subject to the limitation set forth
in Section 5.1(b)(ii), Losses for any Fiscal Year shall be
allocated to the Partners in the following manner:
(A) First, to the Partners until each of
their Adjusted Capital Account balances is reduced to
zero dollars ($0), in proportion to their Adjusted
Capital Account balances;
(B) Next, in the minimum amount necessary to
cause each Priority Partner's positive Adjusted
Capital Account balance to equal the sum of such
Priority Partner's Preferred Return and Preferred
Capital Balance, in proportion to the excess of each
such Priority Partner's
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Adjusted Capital Account over the amount of its
Preferred Return and Preferred Capital Balance;
(C) Next, to each Priority Partner, in
proportion to their positive Adjusted Capital Account
balances, until such positive Adjusted Capital
Account balances have been eliminated; and
(D) Next, to the Partners in proportion to
their Percentage Interests.
(ii) Notwithstanding anything to the contrary in
Section 5.1(b)(i):
(A) The Losses allocated pursuant to Section
5.1(b)(i) hereof to any Partner for any Fiscal Year
shall not exceed the maximum amount of Losses that
may be allocated to such Partner without causing such
Partner to have an Adjusted Capital Account Deficit
at the end of such Fiscal Year.
(B) If some but not all of the Partners
would have an Adjusted Capital Account Deficit as a
consequence of an allocation of Losses pursuant to
Section 5.1(b)(i) hereof, the limitations set forth
in this Section 5.1(b)(ii) shall be applied by
allocating Losses pursuant to this Section 5.1(b)(ii)
only to those Partners who would not have an Adjusted
Capital Account Deficit as a consequence of receiving
such an allocation of Losses (with the allocation of
such Losses among such Partners to be determined by
the Management Committee, based on the allocation
that is most likely to effectuate the distribution
priorities set forth in Section 6.1 hereof).
(C) If no Partner may receive an additional
allocation of Losses pursuant to Section
5.1(b)(ii)(B) above, such additional Losses not
allocated pursuant to Section 5.1(b)(ii)(B) shall be
allocated solely to the Partners in proportion to
their Percentage Interests.
(c) Allocation of Certain Deductions. Any deductions allocated
to the Partnership by SFG that arise out of payment of bond tender
premiums by SFG with respect to the SFG Subordinated Notes (as defined
in the Contribution Agreement) shall be allocated to DFA in an amount
equal to the amount of such bond tender premium economically borne by
DFA pursuant to Section 2.6 of the Contribution Agreement.
5.2 Special Allocations.
(a) Minimum Gain Chargeback--Partnership Nonrecourse
Liabilities. If there is a net decrease in Partnership Minimum Gain
during any Fiscal Year, certain items of income and gain shall be
allocated (on a gross basis) to the Partners in the amounts and manner
described in Regulations Section 1.704-2(f) and (j)(2)(i) and (ii),
subject to the
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exemptions set forth in Regulations Section 1.704-2(f)(2), (3), (4),
and (5). This Section 5.2(a) is intended to comply with the minimum
gain chargeback requirement (set forth in Regulations Section
1.704-2(f)) relating to Partnership nonrecourse liabilities (as defined
in Regulations Section 1.704-2(b)(3)) and shall be so interpreted.
(b) Minimum Gain Chargeback--Partner Nonrecourse Debt. If
there is a net decrease in Partner Minimum Gain during any Partnership
Fiscal Year, certain items of income and gain shall be allocated (on a
gross basis) as quickly as possible to those Partners who had a share
of the Partner Minimum Gain (determined pursuant to Regulations Section
1.704-2(i)(5)) in the amounts and manner described in Regulations
Section 1.704-2(i)(4), (j)(2)(ii), and (j)(2)(iii). This Section 5.2(b)
is intended to comply with the minimum gain chargeback requirement (set
forth in Regulations Section 1.704-2(i)(4)) relating to partner
nonrecourse debt (as defined in Regulations Section 1.704-2(b)(4)) and
shall be so interpreted.
(c) Qualified Income Offset. If, after applying Section 5.2(a)
and Section 5.2(b), any Partner has an Adjusted Capital Account
Deficit, items of Partnership income and gain shall be specially
allocated (on a gross basis) to each such Partner in an amount and
manner sufficient to eliminate, to the extent required by the
Regulations, the Adjusted Capital Account Deficit of such Partner as
quickly as possible.
(d) Optional Basis Adjustments. To the extent an adjustment to
the adjusted tax basis of any Partnership asset pursuant to Code
Sections 734(b) or 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall
be treated as an item of gain (if the adjustment increases the basis of
the asset) or loss (if the adjustment decreases such basis) and such
gain or loss shall be specially allocated to the Partners in a manner
consistent with the manner in which their Capital Accounts are required
to be adjusted pursuant to such Section of the Regulations.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any
Fiscal Year shall be specially allocated among the Partners in
proportion to their Percentage Interests.
(f) Partner Nonrecourse Deductions. Partner nonrecourse
deductions shall be allocated pursuant to Regulations Section
1.704-2(b)(4) and (i)(1) to the Partner who bears the economic risk of
loss with respect to the deductions.
(g) Special Allocation: Economic Sharing Arrangement.
Notwithstanding anything to the contrary in this Article V, the
Partners acknowledge and agree that the manner in which distributions
are to be made pursuant to Section 6.1 correctly reflects the Partners'
economic sharing arrangement in the Partnership. To the extent that
allocations of Profits, Losses, and other items of income, gain, loss,
and deduction set forth in this Article V (other than this Section
5.2(g)) could produce an economic sharing arrangement among the
Partners different than that described in Section 6.1, then the
Partnership shall specially allocate items of gross income, gain, loss,
and deduction among the Partners in any manner that may be required to
cause the allocations of Profits,
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Losses, and other items of income, gain, loss, and deduction described
in Article V to be consistent with the economic sharing arrangement
described in Section 6.1.
5.3 Curative Allocations. The allocations set forth in Section
5.1(b)(ii) and Section 5.2(a) through Section 5.2(f) hereof (the "Regulatory
Allocations") are intended to comply with certain requirements of the
Regulations. It is the intent of the Partners that, to the extent possible, all
Regulatory Allocations shall be offset either with other Regulatory Allocations
or with special allocations of other items of Partnership income, gain, loss, or
deduction pursuant to this Section 5.3. Therefore, notwithstanding any other
provisions of this Article V (other than the Regulatory Allocations), the
Management Committee shall make such offsetting special allocations of
Partnership income, gain, loss, or deduction in whatever manner it determines
appropriate so that, after such offsetting allocations are made, each Partner's
Capital Account balance is, to the extent possible, equal to the Capital Account
balance such Partner would have had if the Regulatory Allocations were not part
of the Agreement and all Partnership items were allocated pursuant to Section
5.1(a), Section 5.1(b)(i), and Section 5.2(g) hereof. In exercising its
discretion under this Section 5.3, the Management Committee shall take into
account future Regulatory Allocations under Sections 5.2(a) and 5.2(b) that,
although not yet made, are likely to offset other Regulatory Allocations
previously made under Sections 5.2(e) and 5.2(f).
5.4 Tax Allocations: Code Section 704(c).
(a) In accordance with Code Section 704(c) and the Regulations
thereunder, income, gain, loss and deduction with respect to any
property contributed to the capital of the Partnership shall, solely
for tax purposes, be allocated among the Partners so as to take account
of any variation between the adjusted basis of such property to the
Partnership for federal income tax purposes and its initial Book Value
(computed in accordance with Section 4.4(c)(i) hereof).
(b) If the Book Value of any Partnership asset is adjusted
pursuant to Section 4.4(c)(ii) hereof, subsequent allocations of
income, gain, loss, and deduction with respect to such asset shall take
account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Book Value in the same manner as
under Code Section 704(c) and the Regulations thereunder.
(c) Any elections or other decisions relating to such
allocation shall be made by the Management Committee.
(d) Allocations pursuant to this Section 5.4 are solely for
purposes of federal, state, and local taxes and shall not affect or in
any way be taken into account in computing any Person's Capital
Account, Adjusted Capital Account, or share of Profits, Losses, and
other items or distributions pursuant to any provision of this
Agreement.
(e) It is intended that the allocations in Sections 5.1, 5.2,
5.3 and 5.4 effect an allocation for federal income tax purposes
consistent with Section 704 of the Code and comply with any limitations
or restrictions therein.
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5.5 Other Allocation Rules.
(a) For purposes of determining the Profits, Losses, or any
other item allocable to any period, Profits, Losses, and any such other
item shall be determined on a daily, monthly, or other basis, as
determined by the Management Committee using any permissible method
under Code Section 706 and the Regulations thereunder.
(b) For federal income tax purposes, every item of income,
gain, loss and deduction shall be allocated among the Partners in
accordance with the allocations under Sections 5.1, 5.2, 5.3, and 5.4.
(c) The Partners are aware of the income tax consequences of
the allocations made by this Article V and hereby agree to be bound by
the provisions of this Article V in reporting their shares of
Partnership income and loss for income tax purposes.
(d) The Partners agree that the Partners' Percentage Interests
represent the Partners' respective interests in Partnership profits for
purposes of allocating excess nonrecourse liabilities (as defined in
Regulations Section 1.752-3(a)(3)) pursuant to Regulations Section
1.752-3(a)(3).
ARTICLE VI
DISTRIBUTIONS
6.1 Distributions of Available Cash. The Management Committee shall
review the Partnership's accounts at the end of each calendar quarter to
determine whether distributions are appropriate. Subject to Section 17-607 of
the Delaware Act, the Management Committee shall authorize such distributions of
Available Cash as it may determine in its sole discretion; provided, however, to
the extent there is sufficient Available Cash to make distributions under
Section 6.1(a) hereof, such distributions shall be made. All such distributions
of cash shall be made in the manner set forth below:
(a) First, to SDG Holdings in an amount equal to (W) DFA's
Percentage Interest multiplied by (X) the amount of any income or gain
allocated to SDG Holdings during the Fiscal Year pursuant to Section
5.4 arising out of a Territory Dairy Investment effected by either a
transaction taxed as a taxable acquisition of the target corporation's
stock or a transaction qualifying as a reorganization under Section 368
of the Code ("COB Acquisition"), plus any loss or deduction allocated
to SDG Holdings pursuant to Section 5.4 arising out of a COB
Acquisition that has not previously been taken into account in a
computation pursuant to Section 5.1(a)(ii), multiplied by (Y) the sum
of the highest marginal federal income tax rate applicable to
corporations for the Fiscal Year and the highest state income tax
applicable to Suiza Foods during the Fiscal Year, expressed as a
percentage, divided by (Z) one minus the sum of the highest marginal
federal income tax rate applicable to corporations for the Fiscal Year
and the highest state
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income tax rate applicable to Suiza Foods during the Fiscal Year,
expressed as a percentage.
(b) First, to each Priority Partner with a Preferred Return,
in proportion to the Preferred Return of each such Priority Partner, in
an amount up to the Preferred Return of each such Priority Partner; and
(c) Next, to the Partners in proportion to their Percentage
Interests.
(d) Notwithstanding anything to the contrary above, (i) any
Preferred Capital Account Balance Distribution made by the Partnership
shall be treated as a distribution by the Partnership in reduction of
the Priority Partners' Preferred Capital Balances but shall not be made
or taken into account under clause (a) or (b) above; and (ii) if
Available Cash is derived from a transaction that occurs in connection
with the dissolution, termination and liquidation of the Partnership,
any Available Cash that is derived from or attributable to such a
transaction shall be distributed to the Partners in accordance with
Section 12.3 hereof.
6.2 Amounts Withheld. Notwithstanding any other provision of this
Agreement to the contrary, each Partner hereby authorizes the Partnership to
withhold and to pay over, or otherwise pay, any withholding or other taxes
payable by the Partnership with respect to such Partner as a result of such
Partner's participation in the Partnership. If and to the extent that the
Partnership shall be required to withhold or pay any such taxes, such Partner
shall be deemed for all purposes of this Agreement to have received a payment
from the Partnership as of the time such withholding or tax is paid, which
payment shall be deemed to be a distribution with respect to such Partner's
Partner Interest to the extent that the Partner (or any successor to such
Partner's Partner Interest) is entitled to receive a distribution. Any
withholdings authorized by this Section 6.2 shall be made at the maximum
applicable statutory rate under the applicable tax law unless the Partnership
shall have received an opinion of counsel or other evidence satisfactory to the
Management Committee to the effect that a lower rate is applicable, or that no
withholding is applicable.
6.3 Excess Distributions. To the extent that the aggregate of actual
and deemed distributions to a Partner under this Article VI for any period
exceeds the distributions to which such Partner is entitled for such period, the
amount of such excess shall be considered a loan from the Partnership to such
Partner. Such loan shall bear interest (which interest shall be treated as an
item of income to the Partnership) at the Default Rate, accruing from and after
the date which is ten (10) days after a Partner, on behalf of the Partnership,
makes demand for repayment of any such excess, and such interest shall accrue
until discharged by such Partner by repayment, which shall be made out of
distributions to which such Partner would otherwise be subsequently entitled if
the Partner does not otherwise repay such loan.
6.4 Tax Distributions.
(a) Notwithstanding anything to the contrary in Section 6.1,
the Managers shall cause the Partnership from time to time to
distribute to each Partner an amount
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equal to the excess of (i) the Partnership's Estimated Net Taxable
Income (defined below) for the applicable Fiscal Year (or portion
thereof) to which such distribution relates which is allocable to such
Partner, multiplied by the maximum marginal federal income and the
state tax rate applicable to the relevant corporation in effect during
the Fiscal Year to which such distribution relates, over (ii) the sum
of distributions already made to such Partner during the relevant
Fiscal Year. For these purposes, "Partnership Estimated Net Taxable
Income" means the excess of (Y) the estimate of the aggregate amount of
items of taxable income and gain of the Partnership for the applicable
Fiscal Year (or portion thereof) to which such distribution relates,
over (Z) the estimate of the aggregate amount of items of taxable
deduction and loss for such Fiscal Year (or portion thereof) to which
such distribution relates. The Managers shall determine the Partnership
Estimated Net Taxable Income and each Partner's allocable share of
Partnership Estimated Net Taxable Income. The Partners acknowledge and
agree that the sole purpose of this Section 6.4(a) is to enable the
Partnership to distribute sufficient cash to each Partner to permit
each Partner to timely satisfy its estimated income tax obligations, if
any, arising from the Partner's allocable share of the Partnership's
taxable income. The Manager shall make such distributions on or about
April 15, June 15, September 15 and December 15 of each year and/or on
any other date that similarly coincides with the due date of any
estimated income tax obligation of any Partner.
(b) Notwithstanding any provision in this Section 6.4 to the
contrary, no distributions shall be made pursuant to this Section 6.4
to the extent there is not sufficient Available Cash to make such
distributions.
(c) For purposes of this Agreement, amounts distributed to the
Partners pursuant to Section 6.4 shall be deemed to be advance
distributions of amounts to be distributed pursuant to Section 6.1.
6.5 Payments Not Deemed Distributions. Any amounts paid pursuant to
Section 7.6 shall not be considered distributions for purposes of this
Agreement.
ARTICLE VII
MANAGEMENT OF THE PARTNERSHIP
7.1 Management Committee.
(a) The Partnership shall be managed by the Management
Committee of the General Partner, which will consist of three
individuals (the "Managers"). Two Managers shall be designated by
Suiza, and one Manager shall be designated by DFA, and the General
Partner shall cause such persons to be elected to the Management
Committee. Suiza and DFA shall have the right to designate replacements
of those Managers designated by them. Each Manager designated by Suiza
must be a director, officer or employee of Suiza, and each Manager
designated by DFA must be a director, officer or employee of DFA. The
initial Suiza Managers shall be Gregg L. Engles and Tracy L. Noll, and
the initial DFA Manager shall be Gary E. Hanman. Suiza may
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designate one of the Suiza Managers as the Chairman of the Management
Committee, and such Manager will preside (when present) at all meetings
of the Management Committee.
(b) The limited liability company agreement of the General
Partner shall be in substantially the form attached hereto as Exhibit
A.
7.2 Major Decisions. The term "Major Decision" means any decision by
the Management Committee with respect to any of the following matters:
(a) admitting any Person as a Partner of the Partnership;
(b) accepting or requiring any Partner to make any additional
Capital Contribution to the Partnership or otherwise issuing additional
equity interests in the Partnership except for Capital Contributions
specified in Section 4.3 of less than $100 million;
(c) incurring indebtedness for borrowed money (which expressly
excludes trade payables incurred in the ordinary course of business) in
excess of $250 million;
(d) selling, leasing, pledging or granting a security interest
or encumbrance in all or substantially all of the Partnership's assets,
except in connection with the incurrence of indebtedness for borrowed
money that does not involve a Major Decision under the preceding
paragraph;
(e) approving an increase in the annual capital expenditure
budget of $50 million or more over the previous annual capital
expenditure budget for the Partnership or making any capital
expenditure, or series of related capital expenditures, in excess of
$50 million that are not contemplated by a previously approved capital
expenditure budget;
(f) acquiring (whether through an asset purchase, merger,
equity purchase or otherwise) any Dairy Operations or other assets
(excluding acquisitions of raw materials and supplies in the ordinary
course of business) having a value, individually or in the aggregate
for any series of related transactions, in excess of $250 million;
(g) selling or otherwise disposing of any Dairy Operations or
other assets (excluding sales or other dispositions of inventory in the
ordinary course of business) having a value, individually or in the
aggregate for any series of related transactions, in excess of $250
million;
(h) consenting to the transfer of a Partner Interest pursuant
to Section 11.2;
(i) except as otherwise permitted in Section 7.6(b) or Section
7.9, entering into any transaction or agreement between the Partnership
and a Partner or an Affiliate of a Partner, including any change in the
percentage used to determine the Management Fee
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in Section 7.6(b), except for loans specified in Section 4.3 of less
than $100 million between the Partnership and a Partner or an Affiliate
of a Partner;
(j) making any material election or other decision pursuant to
Section 5.4(c), which relates to Code Section 704(c);
(k) any change in the purpose or scope of the Partnership
pursuant to Article III; (l) amending or granting a waiver with respect
to this Agreement;
(m) authorizing any consolidation, dissolution, or liquidation
of the Partnership or any merger in which the Partnership does not
survive;
(n) executing or delivering any assignment for the benefit of
creditors of the Partnership;
(o) filing any voluntary petition in bankruptcy or
receivership with respect to the Partnership; or
(p) making a Preferred Capital Balance Distribution, and the
amount of any such Preferred Capital Balance Distribution.
7.3 Approval of Major Decisions. Notwithstanding any contrary
provisions of Section 7.1, the limited liability company agreement of the
General Partner shall provide the following with respect to approval of Major
Decisions:
(a) Any Major Decision must be approved by unanimous vote of
the Managers present and entitled to vote at a meeting of the
Management Committee at which a quorum is present.
(b) The Management Committee may not approve any Major
Decision unless at least one Suiza Manager and one DFA Manager are
present at the meeting; provided that the Suiza Manager entitled to
vote may approve any Major Decision at a meeting at which no DFA
Manager is present if the following provisions have been satisfied with
respect to such meeting:
(i) the notice of such meeting included a statement
indicating that a Major Decision would be addressed at such
meeting and describing in general terms the nature of such
Major Decision; and
(ii) if no DFA Manager is present at the originally
scheduled meeting, the meeting is adjourned, and a second
notice is delivered to DFA and to the DFA Manager, marked
"CONFIDENTIAL/URGENT" indicating the time at which the meeting
will be reconvened and including a statement notifying DFA and
the DFA Manager that if the DFA Manager fails to attend the
reconvened meeting
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specified in the second notice, then the Major Decision to be
considered at such meeting may be approved without any vote by
the DFA Manager. This second notice shall be delivered at
least two Business Days prior to the date of the reconvened
meeting. At such reconvened meeting, the only business that
may be conducted is that described in the notice of such
meeting.
7.4 Officers. The officers of the General Partner shall include a
President, a Secretary and such other officers as the Management Committee in
its discretion may appoint, and such officers will have any powers delegated to
them by the Management Committee (subject to any limitations on the authority of
the Management Committee set forth in this Agreement). The initial President of
the General Partner shall be Pete Schenkel. The President of the General Partner
and certain other key employees of the General Partner and Partnership, as
determined from time to time by the Management Committee, shall be entitled to
receive options (the "New Options") to purchase Suiza Common Stock on terms
consistent with Suiza Foods' stock option program for executives then in effect.
At the time that any New Options are granted, the Partnership shall pay to Suiza
Foods in cash the value of such New Options determined under the Black-Scholes
formula using the closing trading price of Suiza Common Stock on the date upon
which such New Options are granted (the "Black-Scholes Prepayment"). Certain
current employees of the Suiza Companies, Suiza GTL, Suiza SoCal and Robinson
Dairy hold options to purchase Suiza Common Stock (the "Existing Options"). When
any New Options or Existing Options are exercised, the Partnership shall
purchase from Suiza Foods for cash the number of shares of Suiza Common Stock
that the persons exercising such options are entitled to receive at a price
equal to the closing trading price of Suiza Common Stock on the date upon which
such options are exercised, minus the amount of any Black-Scholes Prepayment
made with respect to such options, and shall transfer such shares to the
exercising optionees. If any New Options expire without being exercised, Suiza
Foods shall repay to the Partnership the amount of any Black-Scholes Prepayment
made with respect to such New Options.
7.5 Certificate of Limited Partnership; Qualifications to do Business.
The President or another officer of the General Partner shall cause to be filed
on behalf of and at the Partnership's expense such certificates or documents
(including, without limitation, copies, renewals, amendments or restatements of
the Certificate) as may be determined by such officer to be reasonable and
necessary or appropriate for the qualification and operation of a limited
partnership in the State of Delaware and in any other state in which the
Partnership may elect to do business.
7.6 Compensation and Reimbursement of Partner Expenses; Other
Agreements with Partners .
(a) Except as provided in Section 7.6(b) and Section 7.10, no
Partner shall be compensated for any services rendered to the
Partnership by such Partner or its designees on the Management
Committee. Notwithstanding anything to the contrary in this Agreement,
each Partner shall be reimbursed for out-of-pocket expenses that such
Partner makes for or on behalf of the Partnership, to the extent such
expenses are authorized by the Management Committee.
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(b) Suiza Management and DFA will perform corporate overhead
services for the Partnership of substantially the same type and to
substantially the same extent provided by Suiza Management to the Suiza
Companies, Suiza GTL, Suiza SoCal and Robinson Dairy, and by DFA to SFG
and to SFG Management, prior to the date hereof (the "Services"). In
consideration for the Services, the Partnership shall pay Suiza
Management and DFA a quarterly management fee (the "Management Fee"),
payable within 45 days after the end of each calendar quarter. From the
Closing Date through December 31, 2000, the quarterly Management Fee
payable to Suiza Management and to DFA will be $7,500,000 and $250,000,
respectively (pro rated for any partial quarter). Thereafter, the
quarterly Management Fee payable to Suiza Management and to DFA will be
an amount equal to .164% and .005%, respectively, of the Partnership's
budgeted gross revenues for that quarter, which percentage will be
reviewed annually by the Management Committee and may be changed
annually, which changes, other than changes caused by a material change
in the duties and responsibilities of a party providing services or by
a material increase in the costs of providing services, may be made
only in accordance with Section 7.2(i).
(c) Suiza Foods, the Partnership and DFA will enter into one
or more milk supply agreements pursuant to which DFA will provide raw
milk to certain Dairy Operations of the Partnership and to The
Morningstar Group, Inc.
7.7 Outside Activities; Noncompetition.
(a) Subject to Section 7.7(b), a Partner, any Affiliates of a
Partner, and any director, officer, partner, or employee of a Partner
or any Affiliate thereof, may have business interests and engage in
business activities in addition to those relating to the Partnership
and may engage in any businesses and activities for its own account and
for the accounts of others without having or incurring any obligation
to offer any interest in or funds from such properties, businesses or
activities to the Partnership or any Partner, and no other provision of
this Agreement shall be deemed to prohibit the Partners or any such
other Person from conducting such other businesses and activities.
Neither the Partnership nor any Partner shall have any rights by virtue
of this Agreement or the limited liability Partnership relationship
created hereby in any business Partnerships of the other Partner or any
Affiliate of such Partner or any director, officer, partner, or
employee of the other Partner or any Affiliate thereof.
(b) No Partner may, directly or indirectly, engage or
participate in any Dairy Operations within the Territory; provided
that:
(i) nothing in this Section 7.7(b) shall restrict the
business operations of any current affiliate of DFA that is
not Controlled by DFA;
(ii) nothing in this Section 7.7(b) shall be
construed as preventing any Partner from (A) engaging in any
business after the Closing Date that it engaged in within the
Territory prior to the Closing Date solely through entities
other than the DFA Companies, or the Suiza Companies and
Robinson Dairy, (as
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applicable), including without limitation the business
operations of The Morningstar Group, Inc. and its
subsidiaries, Continental Can Company, Inc. and its
subsidiaries, and Horizon Organic Holding Corporation; (B)
engaging in any business outside the Territory, including
Suiza Foods' dairy operations in Puerto Rico; (C) engaging in
any business within the Territory in products and services not
provided by the Partnership; or (D) being a passive investor
or security holder of an interest constituting less than 5% of
the equity ownership, voting rights or debt of any of the
foregoing; and
(iii) if Suiza desires for the Partnership to
participate in a Territory Dairy Investment and the Management
Committee rejects such Territory Dairy Investment due to a DFA
Veto, then Suiza or any of its Affiliates may engage or
participate in such Territory Dairy Investment on terms which
are no more favorable to Suiza or such Affiliate than those
rejected by the Management Committee due to such DFA Veto, and
thereafter Suiza or such Affiliate may operate the Dairy
Operations acquired in such Territory Dairy Investment.
(c) The Partners acknowledge and agree that their respective
obligations under Section 7.7(b) are a material inducement and
condition to this Agreement and the obligations of the parties
hereunder and that the restrictions and remedies contained in this
Section 7.7 are reasonable as to time, geographic area and scope of
activity and do not impose a greater restraint than is necessary to
protect the goodwill and other legitimate business interests of the
Partnership. It is the intent of all parties hereto that the foregoing
restrictions against unlawful and unfair competitive activities be
given the fullest effect consistent with applicable law.
(d) If the provisions of Section 7.7(b) are found by a court
of competent jurisdiction to contain unreasonable or unnecessary
limitations as to time, geographic area or scope of activity, then such
court is hereby directed to reform such provisions to the minimum
extent necessary to cause the limitations contained therein as to time,
geographical area and scope of activity to be reasonable and
enforceable.
(e) The Partners acknowledge and agree that the Partnership
would be irreparably harmed by any violation of their respective
obligations under Section 7.7(b) and that, in addition to all other
rights or remedies available at law or in equity, the parties will be
entitled to injunctive and other equitable relief to prevent or enjoin
any such violation, without posting any bond whatsoever.
7.8 Partnership Funds. The funds of the Partnership shall be deposited
in such segregated money-market Partnership account or Partnership accounts as
are designated by the President. The officers of the Partnership shall be
authorized to sign checks or drafts against any Partnership account, and
representatives of Suiza shall be listed as an alternate signatory with respect
to any such account. Any withdrawals from or charges against such accounts may
be made by officers or agents of the Partnership in accordance with the terms of
the Agreement.
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7.9 Transactions with Affiliates. Except as otherwise permitted in
Section 4.3, Section 7.6(b) and Section 7.6(c) and except for any transaction or
agreement approved as a Major Decision pursuant to Section 7.3, the Partnership
may not enter into any transaction or agreement with any Partner or any
Affiliate of a Partner if the terms of such transaction or agreement are
materially less favorable to the Partnership than the terms that could be
obtained by the Partnership through an arms-length transaction or agreement with
an unrelated party.
7.10 Indemnification. The Partnership shall indemnify and hold harmless
the General Partner and any director, officer, employee, agent, or
representative of the General Partner, against all liabilities, losses, and
damages incurred by any of them by reason of any act performed or omitted to be
performed in the name of or on behalf of the Partnership, or in connection with
the Partnership's business, including attorneys' fees and any amounts expended
in the settlement of any claims or liabilities, losses, or damages, to the
fullest extent permitted by the Delaware Act. The Partnership shall indemnify
and hold harmless any Limited Partner, employee, agent, or representative of the
Partnership, any Person who is or was serving at the request of the Partnership
acting through the General Partner as a director, officer, partner, trustee,
employee, agent, or representative of another corporation, partnership, joint
venture, trust, or other enterprise, but in no event shall such indemnification
exceed the indemnification permitted by the Delaware Act. Notwithstanding
anything to the contrary in this Section 7.10, in no event shall Limited
Partners be subject to personal liability by reason of the indemnification
provisions of this Agreement.
7.11 Liability of the Partners.
(a) Neither the Partners nor their respective owners,
directors, officers, employees, or agents nor their designated Managers
shall be liable to the Partnership or to the other Partners for errors
in judgment or for any acts or omissions that do not constitute gross
negligence or willful or wanton misconduct.
(b) Each Partner may exercise any of the powers granted to
them by this Agreement and perform any of the duties imposed upon them
hereunder either directly or by or through agents.
7.12 Suiza Foods Board Seat. For so long as the DFA Partners own at
least 10 % of the Partner Interests, Suiza shall nominate an individual
designated by DFA for election to the Board of Directors of Suiza Foods.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF PARTNERS
8.1 Limitation of Liability. The Limited Partners shall have no
liability under this Agreement except as provided in Article IV and Sections
6.3, 7.7, 11.9, 11.10 and 14.12 of this Agreement.
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8.2 Return of Capital. No Partner shall be entitled to the withdrawal
or return of its Capital Contribution, except to the extent, if any, that
distributions made pursuant to this Agreement or upon termination of the
Partnership may be considered as such by law and then only to the extent
provided for in this Agreement.
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
9.1 Records and Accounting. The officers of the Partnership shall keep
or cause to be kept appropriate books and records with respect to the
Partnership's business (including without limitation, any books, records,
statements, or information required to be maintained by the Partnership under
the Delaware Act), which shall at all times be kept at the principal office of
the Partnership or such other office as the Management Committee may approve for
such purposes. Any books and records maintained by the Partnership in the
regular course of its business, including books of account and records of
Partnership proceedings, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, micrographics or any other information storage
device, provided that the books and records so kept are convertible into clearly
legible written form within a reasonable period of time. The books of the
Partnership shall be maintained for financial reporting purposes on the accrual
basis of accounting.
9.2 Fiscal Year. The Fiscal Year of the Partnership shall be the
calendar year for tax and accounting purposes.
9.3 Reports.
(a) The officers of the Partnership shall deliver to each
Partner, not later than 90 days following the end of each Fiscal Year,
a balance sheet, an income statement, and an annual statement of source
and application of funds of the Partnership for such Fiscal Year.
(b) No later than 45 days after the last day of each fiscal
quarter during the term of this Agreement, the officers of the
Partnership shall use reasonable efforts to cause the Partnership to
prepare, or cause to be prepared and delivered to each Partner a
balance sheet together with a profit and loss statement for such fiscal
quarter together with a cumulative profit and loss statement for the
year- end with comparative statements for the previous year if
applicable.
9.4 Documents. Each Partner shall have the right to inspect, review and
make copies (with such copies at Partnership expense) of documents relating to
the business of the Partnership.
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ARTICLE X
TAX MATTERS
10.1 Tax Matters Partner. Suiza shall be the "Tax Matters Partner" for
Federal income tax purposes pursuant to Section 6231 of the Code with respect to
each applicable taxable year of the Partnership. Suiza is authorized to do
whatever is necessary to qualify as such.
10.2 Annual Tax Returns.
(a) Suiza shall prepare or cause the Independent Accountants
to prepare, at the Partnership's expense, and shall timely file, or
cause the timely filing of, all tax returns and shall, on behalf of the
Partnership, timely file, or cause the timely filing of, all other
writings required by any governmental authority having jurisdiction to
require such filing. Suiza shall submit the proposed returns to each
Partner for its review and approval no later than 15 days prior to the
due date of the returns, after giving effect to any extensions of time
unless an extension would effectively make or make unavailable a
material tax election.
(b) If a Partner disagrees with the treatment of any
partnership item (within the meaning of Section 6231(a)(3) of the Code
and Regulations) on a tax return of the Partnership, then such Partner
shall give written notice to Suiza. If, after good faith consultation,
an agreement regarding the treatment of such item cannot be reached
within ten (10) days after the receipt of notice, the Partnership shall
seek written advice from a mutually agreed upon independent tax counsel
or mutually agreed upon Independent Accountants. Such advice shall
recommend the treatment which is consistent with the terms of this
Agreement, the respective interests of the Partners, and for which
there exists substantial authority in support thereof. Such recommended
treatment shall be the one reported on the return.
(c) Without the prior approval of the Management Committee, no
Partner shall file an amended return of the Partnership or a request
for an administrative adjustment under Section 6227 of the Code, nor
shall any Partner (other than the Tax Matters Partner, as provided
herein) commence any administrative or judicial proceeding relating to
a return of the Partnership. If, after good faith consultation, such
approval is not provided, no Partner shall file such return or request,
or commence such proceeding unless a mutually agreed upon independent
tax counsel renders an opinion that there is substantial authority for
the proposed treatment of the tax items with respect to which such
return, request, or proceeding relates. Nothing herein shall be
construed to prevent a Partner from undertaking any administrative or
judicial proceeding with respect to its own return.
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10.3 Notice and Limitations on Authority.
(a) Each Partner shall notify the other Partners upon receipt
of any notice regarding a material audit or tax examination of the
Partnership and upon any request for material information by United
States federal, state, local, or other tax authorities.
(b) Suiza shall, within ten (10) days after the receipt
thereof, forward to each Partner a photocopy of any material
correspondence relating to the Partnership received from the Internal
Revenue Service. Suiza shall, within ten (10) days thereof, advise each
Partner in writing of the substance of any material conversation
affecting the Partnership held with any representative of the Internal
Revenue Service.
(c) Suiza shall have all the authority granted by the Code and
Regulations to the Tax Matters Partner, including the authority:
(i) to enter into a settlement agreement with the
Internal Revenue Service which purports to bind Partners other
than the Tax Matters Partner;
(ii) to file a petition as contemplated in Section
6226(a) or 6228 of the Code;
(iii) to intervene in any action as contemplated in
Section 6226(b)(5) of the Code;
(iv) to file any request contemplated in Section
6227(b) of the Code; and
(v) to enter into an agreement extending the period
of limitations as contemplated in Section 6229(b)(1)(B) of the
Code.
10.4 Tax Elections. Suiza shall do all acts, make all elections and
take whatever reasonable steps are required to maximize, in the aggregate, the
federal, state, and local income tax advantages available to the Partnership and
shall defend all tax audits and litigation with respect thereto at the expense
of the Partnership. Suiza shall maintain the books, records, and tax returns of
the Partnership in a manner consistent with the acts, elections and steps taken
by the Partnership. In making any election for each Fiscal Year for tax
purposes, Suiza shall make such election, to the extent reasonably possible, in
a manner that maximizes the benefit and minimizes the detriment of each such
election to each Partner.
10.5 Actions in Event of Audit. If an audit of the Partnership's tax
returns occurs, Suiza shall, at the expense of the Partnership, notify the
Partners thereof, participate in the audit and contest, and settle or otherwise
compromise assertions of the auditing agent which may be adverse to the
Partnership in accordance with this Article X. Suiza may, if it determines that
the retention of accountants or other professionals would be in the best
interests of the Partnership, retain such accountants or other professionals to
assist in such audits. The Partnership shall indemnify and reimburse Suiza for
all reasonable expenses, including legal and accounting fees,
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claims, liabilities, losses and damages borne by Suiza or its Affiliates which
were incurred in connection with any administrative or judicial proceeding with
respect to any audit of the Partnership's tax returns, except to the extent
caused by the gross negligence or willful misconduct of Suiza.
10.6 Organizational Expenses. The Partnership shall elect to deduct
expenses incurred in organizing the Partnership ratably over a 60-month period
as provided in Section 709 of the Code.
10.7 Taxation as a Partnership. No election shall be made by the
Partnership or any Partner for the Partnership to be excluded from the
application of any of the provisions of Subchapter K, Chapter 1 of Subtitle A of
the Code or from any similar provisions of any state tax laws.
ARTICLE XI
TRANSFERS OF PARTNER INTERESTS
11.1 Transfer Restrictions. A Partner may not transfer any portion of
its Partner Interest unless such Partner has otherwise complied with the
provisions of Sections 11.2, 11.3, and 11.4 hereof; provided that the provisions
of Sections 11.2, 11.3 and 11.4 will not apply to (a) a transfer pursuant to
Section 11.9 or 11.10; (b) a pledge by a Partner of its Partner Interest to
secure bona fide indebtedness to such Partner or its Affiliates or any transfer
of such Partner Interest to or by the pledgee in connection with or following
foreclosure of such pledge; or (c) a transfer by VOV of its Partner Interest to
an Affiliate. For purposes of this Article XI, the term "transfer," when used
with respect to a Partner Interest, includes a sale, assignment, gift, pledge,
encumbrance, hypothecation, mortgage, exchange, or any other disposition.
11.2 Consent of the Management Committee. Except for a transfer by a
Partner to an Affiliate of such Partner, the Partner Interest of a Partner may
not be transferred without the written consent of the Management Committee,
which consent may be unreasonably withheld.
11.3 Tax Opinion. The transferor of any Partner Interests shall provide
an opinion of counsel, satisfactory to the other Partner, that the proposed
assignment, transfer, or sale would not cause the termination of the Partnership
for federal income tax purposes.
11.4 Registration. If any Partner Interest is to be assigned,
transferred or sold, either: (a) such Partner Interest shall be registered under
the Securities Act of 1933, as amended, and any applicable state securities
laws; or (b) the transferor shall provide an opinion of counsel that the
proposed assignment, transfer, or sale is exempt from such registration
requirements, which opinion shall not be deemed provided unless and until it is
accepted by the Management Committee. Except as otherwise provided in Section
11.10, the Partnership and the Partners have no obligation or intention
whatsoever either to register Partner Interests for resale under any federal or
state securities laws or to take any action which would make available to any
Person any exemption from the registration requirements of such laws.
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11.5 Prohibited Transfers. Any transfer or purported transfer, whether
by operation of law or otherwise, of a Partner Interest shall be null and void
and of no legal effect if such transfer is prohibited by this Article XI or by
other provisions of this Agreement.
11.6 Rights of Assignee.
(a) Except as provided in this Article XI, and as required by
operation of law, the Partnership shall not be obligated for any
purpose whatsoever to recognize the transfer by any Partner of a
Partner Interest if such transfer violates the terms of this Article
XI.
(b) Any transfer of Partner Interests must be in writing, may
not contravene any of the provisions of this Agreement or the Delaware
Act, and must be executed by the transferor and delivered to the
Partnership and recorded on the books of the Partnership. Any transfer
which contravenes any of the provisions of this Agreement or the
Delaware Act shall be of no force and effect and shall not be
recognized by the Partnership.
(c) A transferee of Partner Interests who is not already a
Partner or is not admitted as a Partner pursuant to Section 11.7 shall
have no right to require any information or account of the
Partnership's transactions or to inspect the Partnership books or to
vote, but shall only be entitled to receive the allocations and
distributions to which his transferor would otherwise be entitled under
this Agreement.
(d) Any transferee who does not become a Partner and desires
to make a further transfer of such Partner Interest shall be subject to
all of the provisions of this Article XI to the same extent and in the
same manner as any Partner desiring to transfer his Partner Interest.
11.7 Admission as a Partner.
(a) Subject to the other provisions of this Article XI, a
permitted transferee of a Partner Interest (if such transferee is not
already a Partner) shall be admitted as a Partner only after the
satisfactory completion of items (i) through (iv) below, and if
applicable, item (v):
(i) The transferee accepts and agrees to be bound by
the terms and provisions of this Agreement;
(ii) a counterpart of this Agreement and such other
documents or instruments as the Management Committee may
reasonably require is executed by the transferee to evidence
such acceptance and agreement;
(iii) the transferee pays or reimburses the
Partnership for all reasonable legal fees, filing, and
publication costs incurred by the Partnership in connection
with the admission of the transferee as a Partner;
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(iv) the Management Committee approves the admission
of such permitted transferee, which approval may be withheld
in the unreasonable discretion of such Management Committee;
and
(v) if the transferee is not an individual, the
transferee provides the Partnership with evidence satisfactory
to counsel for the Partnership of the authority of such
transferee to become a Partner under the terms and provisions
of this Agreement.
(b) The Management Committee or officers of the Partnership
shall make all official filings and publications as promptly as
practicable after the satisfaction by the transferee of the conditions
contained in this Article XI to the admission of such transferee as a
Partner.
11.8 Distributions and Allocations in Respect of Transferred Partner
Interests. If any Partner Interest is sold, assigned, or transferred during any
Fiscal Year without violating the provisions of this Article XI, Profits,
Losses, and all other items attributable to the transferred (or adjusted)
interest for such period shall be divided and allocated between the affected
Persons by taking into account their varying interests during the period in
accordance with Code Section 706(d), using any conventions permitted by law and
approved by the Management Committee. All distributions on or before the date of
such transfer shall be made to the transferor. Solely for purposes of making
such allocations and distributions in the case of a transfer, the Partnership
shall recognize such transfer not later than the end of the calendar month
during which it is given notice of such transfer, provided that if the
Partnership does not receive a notice stating the date such Partner Interest was
transferred and such other information as the Management Committee may
reasonably require within 30 days after the end of the Fiscal Year during which
the transfer occurs, then all of such items shall be allocated, and all
distributions shall be made, to the Person who, according to the books and
records of the Partnership, on the last day of the Fiscal Year during which the
transfer occurs, was the owner of the Partner Interest. Neither the Partnership
nor any Partner shall incur any liability for making allocations and
distributions in accordance with the provisions of this Section 11.8, whether or
not any Partner or the Partnership has knowledge of any transfer of ownership of
any interest.
11.9 Suiza Buy-Out Option.
(a) If Suiza proposes any Major Decision and the Management
Committee rejects such Major Decision solely due to a DFA Veto, then
Suiza, or an Affiliate of Suiza, shall have the option, exercisable by
written notice to DFA (the "Buy-Sell Notice") within thirty (30)
Business Days following the date of the DFA Veto, to purchase all the
Partner Interests held by the DFA Partners (the "DFA Interests") in
exchange for the DFA Price, calculated as of the date of the Buy-Sell
Notice. Any portion of the DFA Price may, at the election of Suiza, be
paid in shares of Suiza Common Stock; provided such Suiza Common Stock
is then traded on a national securities exchange or the Nasdaq Stock
Market. For purposes of this paragraph, each share of Suiza Common
Stock shall be deemed to have a value equal to the average
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closing price of the Suiza Common Stock over the twenty (20) trading
days commencing ten (10) business days preceding the date of the
Buy-Sell Notice. The DFA Price will be allocated among the DFA Partners
as follows: (i) first to Priority Partners, in an amount equal to their
aggregate Preferred Returns plus their aggregate Preferred Capital
Balances, and (ii) second, to all DFA Partners, in proportion to their
Percentage Interests.
(b) If Suiza timely elects to acquire the DFA Interests in
connection with any DFA Veto, the closing of the transfer of the DFA
Interests shall occur within 45 days after the date of the Buy-Sell
Notice or such longer period as may be necessary to satisfy applicable
legal requirements. At the closing, the DFA Partners shall assign all
of their DFA Interests to Suiza, or any designated Affiliate of Suiza,
by written assignment with special warranty of title in a form
reasonably acceptable to Suiza. The DFA Partners shall convey their
entire interest in the Partnership, free and clear of all liens,
claims, and encumbrances, and the DFA Partners shall execute and
deliver to Suiza, or any designated Affiliate of Suiza, all documents
which may be reasonably required to give effect to the sale and
purchase of such DFA Interests. The DFA Partners shall have a right to
demand a shelf registration of any Suiza Common Stock issued in payment
of the DFA Price as set forth in the Registration Rights Agreement
(Suiza Common Stock) of even date herewith.
11.10 DFA Registration Right. DFA shall have a right to demand
registration of its Percentage Interest as set forth in the Registration Rights
Agreement (Venture Interests) of even date herewith.
11.11 VOV Put Right. Upon written notice by VOV, or its permitted
successors or assigns at any time after the Effective Date, the Partnership
shall purchase VOV's Partner Interest for an amount equal to VOV's Preferred
Capital Balance plus any accrued but unpaid Preferred Return as of the closing
date of such purchase, subject to the terms and conditions mutually agreed upon
by the Partnership and VOV.
ARTICLE XII
DISSOLUTION AND LIQUIDATION
12.1 Dissolution.
(a) Except as set forth in this Agreement, no Partner shall
have the right to terminate this Agreement or to dissolve the
Partnership by its express will or by withdrawal without the consent of
the other Partners.
(b) The Partnership shall be dissolved upon the first to occur
of any of the following events: (each such event is referred to as a
"Dissolution Event"):
(i) the expiration of its term as provided in Section
1.4;
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(ii) any Partner suffers an Event of Bankruptcy or is
otherwise liquidated and dissolved;
(iii) an election to dissolve the Partnership is
unanimously approved in writing by the Partners;
(iv) any other event occurs that, under the Delaware
Act, would cause the Partnership's dissolution; or
(v) any pledgee or transferee of a pledgee of Partner
Interests having the right to vote more than 50% of the
Percentage Interests elects in writing to dissolve the
Partnership.
12.2 Continuation of the Partnership. Upon the occurrence of an event
described in Section 12.1(b)(ii) or Section 12.1(b)(iv), the Partnership shall
be carried on without dissolution if approved by Partners holding 50% or more of
the Percentage Interests. In all other cases, upon the occurrence of an event
described in Section 12.1(b), the Partnership shall be deemed to be dissolved
and reconstituted only if Partners holding 100% of the Percentage Interests
(excluding for these purposes any Percentage Interests held by the Partner with
respect to which such Dissolution Event occurred) elect to continue the
Partnership within 90 days of such event. If no election to continue the
Partnership is made within 90 days of such event, the Partnership shall conduct
only those activities necessary to wind up its affairs. If an election to
continue the Partnership is made upon the occurrence of an event described in
Section 12.1(b), then:
(a) the Partnership shall be deemed to be reconstituted and
shall continue until the end of the term for which it is formed unless
earlier dissolved in accordance with this Article XII; and
(b) all necessary steps shall be taken to amend or restate
this Agreement and the Certificate of Limited Partnership, provided
that the right of Partners holding 100% of the Percentage Interests
(excluding for these purposes any Percentage Interests held by a
Partner with respect to which such Dissolution Event occurred) to
continue the Partnership shall not exist and may not be exercised
unless the Partnership has received an opinion of counsel acceptable to
the Management Committee that (i) the exercise of the right would not
result in the loss of limited liability of any Partner; and (ii)
neither the Partnership nor the reconstituted Partnership would be
treated as an association taxable as a corporation for federal income
tax purposes upon the exercise of such right to continue.
12.3 Liquidation.
(a) Upon the dissolution of the Partnership, unless an
election to continue the Partnership is made pursuant to Section 12.2,
Suiza shall serve as liquidator ("Liquidator") of the Partnership.
(b) Upon dissolution or resignation of the Liquidator, a
successor and substitute Liquidator (who shall have and succeed to all
rights, powers and duties of the
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original Liquidator) shall within 30 days thereafter be approved by the
Partners holding 60% of the Percentage Interests. The right to appoint
a successor or substitute Liquidator in the manner provided herein
shall be recurring and continuing for so long as the functions and
services of the Liquidator are authorized to continue under the
provisions hereof, and every reference herein to the Liquidator will be
deemed to refer also to any such successor or substitute Liquidator
appointed in the manner herein provided.
(c) Except as expressly provided in this Article XII, the
Liquidator appointed in the manner provided herein shall have and may
exercise, without further authorization or consent of any of the
parties hereto, all of the powers conferred upon the Management
Committee under the terms of this Agreement (but subject to all of the
applicable limitations, contractual and otherwise, upon the exercise of
such powers, including the limitations set forth in Section 7.3) to the
extent necessary or desirable in the good faith judgment of the
Liquidator to carry out the duties and functions of the Liquidator
hereunder for and during such period of time as shall be reasonably
required in the good faith judgment of the Liquidator to complete the
winding up and liquidation of the Partnership as provided for herein.
(d) Except as otherwise provided in this Article XII
(including Section 12.5 below), the Liquidator shall liquidate the
assets of the Partnership, and, after making all allocations and
distributions otherwise required by this Agreement, shall apply and
distribute the net proceeds of such liquidation in the following order
of priority:
(i) to the creditors of the Partnership, including
Partners, in the order of priority provided by applicable law;
(ii) then, to each Priority Partner with a Preferred
Return, in proportion to the Preferred Return of each such
Priority Partner, in an amount up to the Preferred Return of
each Priority Partner;
(iii) then, to each Priority Partner, in proportion
to the Preferred Capital Balance of each such Priority
Partner, in an amount up to the Preferred Capital Balance of
each Priority Partner; and
(iv) finally, the remaining balance of the
liquidation proceeds, if any, to the Partners in accordance
with their respective positive Capital Account balances, after
taking into account all allocations of Profit, Loss and other
items of income, gain, loss and deduction, and distributions
for all periods, including prior distributions made pursuant
to this Article XII; provided, however, that, notwithstanding
anything in this Article XII to the contrary, the Liquidator
may place in escrow a reserve of cash or other assets of the
Partnership for contingent liabilities in an amount determined
by the Liquidator to be appropriate for such purposes.
12.4 Reserves. After all of the assets of the Partnership have been
distributed, the Partnership shall terminate. If at any time thereafter any
funds in any cash reserve fund referred
39
<PAGE> 44
to in Section 12.3(d) are released because the need for such cash reserve fund
has ended, such funds shall be distributed to the Partners in the same manner as
if such distribution had been made pursuant to Section 12.3(d).
12.5 Distribution in Kind. Notwithstanding the provisions of Section
12.3 which require the liquidation of the assets of the Partnership, but subject
to the order of priorities set forth therein and subject also to Section 12.4,
if upon the dissolution of the Partnership the Management Committee determines
that an immediate sale of part or all of the Partnership's assets would be
impractical or would cause undue loss to the Partners, the Liquidator may, in
good faith, defer for a reasonable time the liquidation of any assets except
those necessary to satisfy liabilities of the Partnership (other than those to
Partners). The Liquidator may distribute to the Partners, in lieu of cash, such
Partnership assets as the Liquidator deems not suitable for liquidation. Any
distributions in kind shall be subject to such conditions relating to the
disposition and management thereof as the Liquidator and the Management
Committee deem reasonable and equitable. The Liquidator shall value any property
distributed in kind based upon such property's fair market value as determined
using such reasonable method of valuation as it may adopt.
12.6 Disposition of Documents and Records. All documents and records of
the Partnership, including, without limitation, all financial records, vouchers,
canceled checks and bank statements, shall be delivered to Suiza upon
termination of the Partnership. Suiza shall retain such documents and records
for a period of not less than six (6) years and shall make such documents and
records available during normal business hours to any other Partner for
inspection and copying at the other Partner's cost and expense.
12.7 Negative Capital Accounts. If, after the allocations of Profit,
Loss, and other items of income, gain, loss, deduction or credit under Article V
and after distributions of cash under Article VI, any Partner shall ever have a
negative balance in such Partner's Capital Account, no Partner shall have any
obligation to restore such negative balance, or to make any contribution to the
capital of the Partnership by reason thereof, and such negative balance shall
under no circumstances be considered a liability of the Partnership or of any
Partner.
12.8 Filing of Certificate of Cancellation. Upon the completion of the
distribution of Partnership property as provided in Sections 12.3, 12.4, and
12.5, the Partnership shall be terminated, and the Liquidator (or the Partners
if necessary) shall cause the Certificate to be canceled and will take such
other actions as may be necessary to terminate the Partnership.
12.9 Return of Capital. No Partner shall be personally liable for the
return of the Capital Contributions of any other Partners, or any portion
thereof, it being expressly understood that any such return shall be made solely
from Partnership assets.
12.10 Waiver of Partition. Each Partner hereby waives any rights to
partition of the Partnership property.
40
<PAGE> 45
ARTICLE XIII
AMENDMENT OF AGREEMENT
13.1 Amendment Procedures.
(a) Amendments to this Agreement may be proposed by any
Partner, which shall give written notice to all Partners of the text of
such amendment, together with a statement of the purpose of such
amendment.
(b) Proposed amendments to this Agreement shall be adopted if
they have been approved in writing by Partners holding 90% of the
Percentage Interests; provided that any amendment that affects the
Preferred Partners in any material respect must also be approved in
writing by Partners with aggregate Preferred Capital Balances equal to
at least 90% of the aggregate Preferred Capital Balances of all
Priority Partners. The President shall, within a reasonable time after
the adoption of any amendment to this Agreement, make official filings
or publications required or desirable to reflect such amendment,
including any required filing for recordation of any parallel amendment
to the Certificate.
ARTICLE XIV
GENERAL PROVISIONS
14.1 Addresses and Notices. Any notice provided in or permitted under
this Agreement shall be made in writing and may be given or served by: (a)
delivering the same in person to the party to be notified; (b) depositing the
same in the mail, postage prepaid, registered or certified with return receipt
requested, and addressed to the party to be notified at the address herein
specified; (c) delivering the same on a prepaid basis via a nationally
recognized courier service, such as Federal Express; or (d) sending the same by
facsimile transmission, followed by delivery of a hard copy via a nationally
recognized courier service, such as Federal Express. If notice is deposited in
the mail pursuant to this Section 14.1, it will be deemed received on the third
(3rd) Business Day after it is so deposited. Notice given in any other manner
shall be deemed received only if and when actually received by the party to be
notified. For the purpose of notice, the address of the parties shall be, until
changed as hereinafter provided for, as follows:
If to any DFA Partner: with a copy to:
Dairy Farmers of America, Inc. McDermott, Will & Emery
Northpointe Tower, Suite 1000 227 West Monroe Street
10220 N. Executive Hills B-1 Chicago, Illinois 60606-5096
Kansas City, MO 64153 Attention: Michael R. Fayhee
Attention: President and General Counsel Telecopy: (312) 984-7700
Telecopy: 816-801-6593
41
<PAGE> 46
If to any Suiza Parent: with a copy to:
Suiza Foods Corporation Hughes & Luce, L.L.P.
2515 McKinney Ave., LB 30, Suite 1200 1717 Main Street, Suite 2800
Dallas, Texas 75201 Dallas, Texas 75201
Attention: Chief Executive Officer Attention: William A. McCormack
and General Counsel
Telecopy: (214) 303-3499 Telecopy: (214) 939-5849
The parties shall have the right from time to time and at any time to change
their respective addresses and each shall have the right to specify as its
address any other address by at least 15 days' prior written notice to the other
parties. Each party shall have the right from time to time to specify additional
parties (not to exceed two additional parties) to whom notice hereunder must be
given by delivering to the other party 15 days' prior written notice thereof,
setting forth the address of such additional parties. Notice required to be
delivered hereunder to any party shall not be deemed to be effective until the
additional parties, if any, designated by such party have been given notice in a
manner deemed effective pursuant to the terms of this Section 14.1.
14.2 Titles and Captions. All article and section titles and captions
in this Agreement are for convenience only. They shall not be deemed part of
this Agreement and in no way define, limit, extend or describe the scope or
intent of any provisions hereof. Except as specifically provided otherwise,
references to "Articles" and "Sections" are to Articles and Sections of this
Agreement.
14.3 Pronouns and Plurals. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa. The locative adverbs "hereof,"
"herein," "hereafter," etc. refer to this Agreement as a whole.
14.4 Further Action. The parties shall execute all documents, provide
all information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
14.5 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their heirs, executors, administrators,
successors, legal representatives, and permitted assigns.
14.6 Integration. This Agreement constitutes the entire agreement among
the parties hereto pertaining to the subject matter hereof and supersedes all
prior agreements and understandings pertaining thereto.
14.7 No Third Party Beneficiary. This Agreement is made solely and
specifically between and for the benefit of the parties hereto, and their
respective successors and assigns subject to the express provisions hereof
relating to successors and assigns, and no other Person whatsoever shall have
any rights, interest, or claims hereunder or be entitled to any benefits under
or on account of this Agreement as a third party beneficiary or otherwise. It is
expressly
42
<PAGE> 47
understood that the right of the Partnership or the Partners to require any
additional Capital Contributions under the terms of this Agreement shall not be
construed as conferring any rights or benefits to or upon any Person not a party
to this Agreement, or the holder of any obligations secured by a mortgage, deed
of trust, security interest or other lien or encumbrance upon or affecting the
Partnership or any interest of a Partner therein.
14.8 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach or any other covenant, duty, agreement or
condition.
14.9 Counterparts. This Agreement may be executed in counterparts, all
of which together shall constitute one agreement binding on all the parties
hereto, notwithstanding that all such parties are not signatories to the
original or the same counterpart. Each party shall become bound by this
Agreement immediately upon affixing its signature hereto or, in the case of a
transferee, upon executing and delivering such documents as required by the
Management Committee.
14.10 APPLICABLE LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW.
14.11 Invalidity of Provisions. If any provision of this Agreement is
declared or found to be illegal, unenforceable or void, in whole or in part,
then the parties shall be relieved of all obligations arising under such
provision, but only to extent that it is illegal, unenforceable or void, it
being the intent and agreement of the parties that this Agreement shall be
deemed amended by modifying such provision to the extent necessary to make it
legal and enforceable while preserving its intent or, if that is not possible,
by substituting therefor another provision that is legal and enforceable and
achieves the same objectives.
14.12 Confidentiality. Each party to this Agreement agrees to keep
confidential the terms of this Agreement and any materials provided in
connection with this Agreement. Notwithstanding the foregoing, each party to
this Agreement may disclose the terms, and any and all materials provided in
connection with this Agreement (a) to its counsel, accountants, auditors or
other agents whose custom it is to hold such information confidential, (b) as
may be required by any statute, court order, administrative order or decree of
governmental ruling or regulation of the United States or other applicable
jurisdiction, including Internal Revenue Service auditors, or as may be
requested by the Internal Revenue Service or any other governmental entity, or
(c) to such other Persons as are reasonably deemed necessary by such party to
protect the interests of such party or for the purposes of enforcing such
documents.
SIGNATURE PAGES ARE ATTACHED HERETO
43
<PAGE> 48
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have executed this Agreement as of the day and year first above written.
PARTNERS:
SUIZA DAIRY GROUP HOLDINGS, INC., a
Nevada corporation
By: /s/ LISA N. TYSON
-----------------------------------------
Name: Lisa N. Tyson
---------------------------------------
Title: Vice President
--------------------------------------
DAIRY FARMERS OF AMERICA, INC., a
Kansas cooperative marketing association
By: /s/ DAVID A. GEISLER
-----------------------------------------
Name: David A. Geisler
---------------------------------------
Title: Corporate Vice President
--------------------------------------
MID-AM CAPITAL, L.L.C., a Delaware
limited liability company
By: /s/ GERALD L. BOS
-----------------------------------------
Name: Gerald L. Bos
---------------------------------------
Title: CEO/Treasurer
--------------------------------------
VOV ACQUISITION CORPORATION,
a Delaware corporation
By: /s/ LISA N. TYSON
-----------------------------------------
Name: Lisa N. Tyson
---------------------------------------
Title: Vice President
--------------------------------------
GENERAL PARTNER:
SUIZA DAIRY GROUP GP, LLC,
a Delaware limited liability company
By: /s/ LISA N. TYSON
-----------------------------------------
Name: Lisa N. Tyson
---------------------------------------
Title: Vice President
--------------------------------------
44
<PAGE> 49
EXHIBIT A
LIMITED LIABILITY COMPANY AGREEMENT OF
SUIZA DAIRY GROUP GP, LLC
[see attached]
A-1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-11
<SEQUENCE>3
<FILENAME>d85713ex11.txt
<DESCRIPTION>STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TEXT>
<PAGE> 1
EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
SUIZA FOODS CORPORATION
(IN THOUSANDS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
BASIC EPS COMPUTATION: 2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
NUMERATOR:
INCOME FROM CONTINUING OPERATIONS ........................ $ 113,751 $ 108,827 $ 103,069
LESS PREFERRED STOCK DIVIDENDS ........................... (237)
------------ ------------ ------------
INCOME APPLICABLE TO COMMON STOCK ........................ $ 113,751 $ 108,827 $ 102,832
============ ============ ============
DENOMINATOR:
AVERAGE COMMON SHARES .................................... 28,195,043 32,861,218 32,953,290
============ ============ ============
BASIC EPS FROM CONTINUING OPERATIONS ......................... $ 4.03 $ 3.31 $ 3.12
============ ============ ============
DILUTED EPS CALCULATION:
NUMERATOR:
INCOME FROM CONTINUING OPERATIONS ........................ $ 113,751 $ 108,827 $ 103,069
LESS PREFERRED STOCK DIVIDENDS ........................... (237)
NET EFFECT ON EARNINGS FROM CONVERSION OF MANDATORILY
REDEEMABLE CONVERTIBLE PREFERRED SECURITIES .......... 21,334 24,501 18,732
------------ ------------ ------------
INCOME APPLICABLE TO COMMON STOCK ........................ $ 135,085 $ 133,328 $ 121,564
============ ============ ============
DENOMINATOR:
AVERAGE COMMON SHARES - BASIC ............................ 28,195,043 32,861,218 32,953,290
STOCK OPTION CONVERSION .................................. 793,680 901,151 1,838,193
DILUTIVE EFFECT OF CONVERSION OF MANDITORILY
REDEEMABLE CONVERTIBLE PREFERRED SECURITIES ............ 7,682,541 9,096,123 7,174,081
------------ ------------ ------------
AVERAGE COMMON SHARES - DILUTED .......................... 36,671,264 42,858,492 41,965,564
============ ============ ============
DILUTED EPS FROM CONTINUING OPERATIONS ..................... $ 3.68 $ 3.11 $ 2.90
============ ============ ============
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>4
<FILENAME>d85713ex21.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
<S> <C>
Neptune Delaware Corporation Delaware
Morningstar Receivables Corp.(1) Delaware
Suiza Capital Trust II Delaware
Suiza Management Corporation Delaware
Suiza REIT, Inc. Delaware
Suiza Dairy Group REIT, Inc. Delaware
Suiza Preferred Holdings, Inc. Delaware
Suiza Dairy Group GP, LLC Delaware
Suiza Dairy Group Holdings, Inc. Nevada
Suiza Dairy Group, L.P.(2) Delaware
Suiza Dairy Group Aviation, LLC Delaware
Suiza Receivables GP, LLC Delaware
Suiza Receivables, L.P.(3) Delaware
Country Fresh, LLC Michigan
CF Burger Dairy, LLC Delaware
London's Farm Dairy, LLC Delaware
Oberlin Farms, LLC (Dairymens(TM)) Delaware
Suiza GTL, LLC Delaware
New England Dairies, LLC Delaware
Tuscan/Lehigh Management, L.L.C. Delaware
Tuscan/Lehigh Dairies, L.P. Delaware
Suiza Southeast, LLC Delaware
Broughton Foods, LLC Delaware
Dairy Fresh, LLC Delaware
Land-O-Sun Dairies, LLC Delaware
Louis Trauth Dairy, LLC Delaware
Schenkel's All Star Dairy, LLC Delaware
Schenkel's All Star Delivery, LLC Delaware
Shenandoah's Pride, LLC Delaware
Velda Farms, LLC Delaware
Suiza Southwest, LLC Delaware
Country Delite Farms, LLC Delaware
Model Dairy, LLC Delaware
Robinson Dairy, LLC Delaware
SFG Management Limited Liability Company(4) Delaware
Southern Foods Holding Company, LLC Delaware
Southern Foods Group, L.P.(5) Delaware
SFG Capital Corporation Delaware
Suiza SoCal, LLC Delaware
Sulphur Springs Cultured Specialties, LLC Delaware
</TABLE>
- ----------
(1) 79% interest; Neva Plastics 21% interest
(2) 66.1% Suiza Dairy Group Holdings, Inc., .1 Suiza Dairy group GP, LLC, 33.8%
Dairy Farmers of America, Inc.
(3) 99.1% interest Suiza Dairy Group, L.P., .1% interest Suiza Receivables GP,
LLC
(4) 95% interest Suiza Southwest, LLC; 5% interest Suiza Management Corporation
(5) 99% interest Southern Foods Holding Company, LLC; 1% interest SFG Management
Limited Liability Company
<PAGE> 2
<TABLE>
<S> <C>
Suiza International Holding Company Delaware
Suiza Netherlands, B.V.(6) Netherlands
Leche Celta, S.L. Spain
Lacteos de Santander, S.A. Spain
Suiza U.S. Holding Company Delaware
Garrido y Compania, LLC Delaware
Garrido Alto Grande Corp. Puerto Rico
Morningstar Foods Inc.(7) Delaware
Morningstar Services Inc. Delaware
Neva Plastics Manufacturing Corp. Delaware
Suiza Dairy Corporation Delaware
Suiza Fruit Corporation Delaware
Continental Can Company, Inc. Delaware
Dixie Holding, Inc. New York
Dixie Union Geschaftsfuhrungs GmbH Germany
Dixie Union GmbH & Co. KG Germany
Franklin Plastics, Inc.(8) Delaware
Consolidated Container Holdings LLC(9) Delaware
</TABLE>
- ----------
(6) 75% interest Suiza International Holding Company; 25% interest Neva Plastics
Manufacturing Corp.
(7) 81.43% interest Suiza U.S. Holding Company; 18.57% interest Suiza Preferred
Holdings, Inc.
(8) 88% interest Continental Can Company, Inc.; 12% interest Alan J. Bernon and
Peter M. Bernon
(9) 43% interest Franklin Plastics, Inc.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>5
<FILENAME>d85713ex23.txt
<DESCRIPTION>CONSENT OF DELOITTE & TOUCHE LLP
<TEXT>
<PAGE> 1
EXHIBIT 23
CONSENT OF DELOITTE & TOUCHE LLP
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Registration No. 333-68319), the Registration Statement
on Form S-3 (Registration No. 333-69627), the Registration Statement on Form
S-3, as amended by Post-Effective Amendment No. 1 (Registration No. 333-77813),
the Registration Statement on Form S-8 (Registration No. 333-80641), the
Registration Statement on Form S-4, as amended by Post-Effective Amendment No. 1
(Registration No. 333-29741), the Registration Statement on Form S-3, as amended
by Post-Effective Amendment No. 1 (Registration No. 333-13119), the Registration
Statement on Form S-3, as amended by Post-Effective Amendment No. 1
(Registration No. 333-29207), the Registration Statement on Form S-3
(Registration No. 333-34133), the Registration Statement on Form S-3, as amended
by Post-Effective Amendment No. 2 (Registration No. 333-45749), the Registration
Statement on Form S-3 (Registration No. 333-56613), the Registration Statement
on Form S-8 (Registration No. 333-11185), the Registration Statement on Form S-8
(Registration No. 333-28019), the Registration Statement on Form S-8
(Registration No. 333-28021), the Registration Statement on Form S-8
(Registration No. 333-41353), the Registration Statement on Form S-8,
(Registration No. 333-50013), the Registration Statement on Form S-8
(Registration No. 333-55969), the Registration Statement on Form S-8
(Registration No. 333-30160) and the Registration Statement on Form S-8
(Registration No. 333-42828), of our reports dated February 8, 2001 (March 30,
2001 as to Note 3), appearing in the Annual Report on Form 10-K of Suiza Foods
Corporation for the year ended December 31, 2000.
Dallas, Texas
April 2, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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