<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 of 15(d) of the Securities
- --- Exchange Act of 1934
For the quarterly period ended November 24, 1996 or
-------------------
Transition report pursuant to Section 13 of 15(d) of the Securities
- --- Exchange Act of 1934
For the transition period from __________________ to __________________
Commission file number 0-1118
--------
DEAN FOODS COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-0984820
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
3600 North River Road, Franklin Park, Illinois 60131
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 678-1680
-----------------------------
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
--- ---
The number of shares of the Registrant's Common Stock, par value $1 per share,
outstanding as of the date of this report was 40,172,398.
Total number of pages 11.
1
<PAGE> 2
PART I - FINANCIAL INFORMATION
A. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of the Company, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the following
unaudited condensed consolidated financial statements have been included
herein. Certain information and footnote disclosures normally included in the
financial statements have been omitted. These unaudited condensed consolidated
financial statements should be read in conjunction with the Company's 1996
Annual Report on Form 10-K.
2
<PAGE> 3
ITEM 1.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTERS AND SIX MONTHS ENDED
NOVEMBER 24, 1996 AND NOVEMBER 26, 1995
(In Thousands Except for Per Share Amounts)
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
-------------------- ----------------
November 24, November 26, November 24, November 26,
1996 1995 1996 1995
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $775,717 $705,358 $1,485,769 $1,356,863
Costs of products sold 604,733 547,092 1,154,892 1,049,912
Delivery, selling and
administrative expenses 132,301 124,293 256,113 244,780
--------------- -------------- -------------- --------------
Operating earnings 38,683 33,973 74,764 62,171
Interest expense (6,849) (7,211) (13,098) (12,869)
Interest income 228 378 498 761
--------------- -------------- -------------- --------------
Income before income taxes 32,062 27,140 62,164 50,063
Provision for income taxes 12,986 11,128 25,178 20,390
--------------- -------------- -------------- --------------
Net income $ 19,076 $ 16,012 $ 36,986 $ 29,673
=============== ============== ============== ==============
Net income per common
share $ .47 $ .40 $ .92 $ .74
=============== ============== ============== ==============
Dividends per share
(Declared and paid) $ .19 $ .18 $ .38 $ .36
=============== ============== ============== ==============
Weighted average common
shares 40,153 40,111
============== ==============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
CONDENSED CONSOLIDATED BALANCE SHEETS
NOVEMBER 24, 1996 AND MAY 26, 1996
(In Thousands)
<TABLE>
<CAPTION>
November 24, May 26,
1996 1996
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS: $ 15,981 $ 10,399
Cash and cash equivalents
Accounts and notes receivable,
less allowance for doubtful
accounts of $3,344 and $3,201, respectively 215,231 188,222
Inventories 361,831 278,731
Other current assets 100,459 107,047
------------ -------------
Total Current Assets 693,502 584,399
------------ -------------
PROPERTIES:
Property, plant and equipment, at cost 1,023,150 993,826
Accumulated depreciation 497,535 468,159
------------ -------------
525,615 525,667
------------ -------------
OTHER ASSETS 110,123 112,174
------------ -------------
Total Assets $1,329,240 $1,222,240
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Notes payable to banks $ 142,000 $ 92,000
Current installments of long-term obligations 11,747 11,855
Accounts payable and accrued expenses 323,309 287,305
Dividends payable 7,711 7,297
Federal and state income taxes 1,656 -
------------ -------------
Total Current Liabilities 486,423 398,457
------------ -------------
LONG-TERM OBLIGATIONS (Less current
installments included above) 220,272 221,653
------------ -------------
DEFERRED LIABILITIES 92,204 94,438
------------ -------------
SHAREHOLDERS' EQUITY 530,341 507,692
------------ -------------
Total Liabilities and Shareholders' Equity $1,329,240 $1,222,240
============ =============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
NOVEMBER 24, 1996 AND NOVEMBER 26, 1995
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------
November 24, November 26,
1996 1995
------------ -------------
(Unaudited)
<S> <C> <C>
Net cash provided from (used by) operations $ 5,150 $ (8,441)
--------- ----------
Cash flows from investing activities:
Capital expenditures (35,873) (53,991)
Proceeds from disposition of property,
plant and equipment 976 1,558
Acquisition of business, net of
cash acquired - (57,569)
--------- ----------
Net cash used in investing activities (34,897) (110,002)
--------- ----------
Cash flows from financing activities:
Issuance of long-term obligations - 9,799
Repayment of long-term obligations (1,489) (1,937)
Issuance of notes payable to banks, net 50,000 144,000
Unexpended industrial revenue bond proceeds 702 (3,481)
Cash dividends paid (14,707) (13,814)
Issuance of common stock 823 1,511
--------- ----------
Net cash provided by financing activities 35,329 136,078
--------- ----------
Increase in cash and cash equivalents 5,582 17,635
Cash and cash equivalents - beginning of period 10,399 4,826
--------- ----------
Cash and cash equivalents - end of period $ 15,981 $ 22,461
========= ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. INVENTORIES
The following is a tabulation of inventories by class at November 24,
1996, November 26, 1995, and May 26, 1996 (In Thousands).
<TABLE>
<CAPTION>
(Unaudited)
November 24, November 26, May 26,
1996 1995 1996
------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Raw materials and supplies $ 44,504 $ 45,042 $ 56,671
Materials in process 117,206 104,772 65,447
Finished goods 217,251 258,758 172,316
------------ ------------ ---------
378,961 408,572 294,434
Less: Excess of current cost over stated value
of last-in, first-out inventories 17,130 14,831 15,703
------------ ------------ ---------
Total inventories $361,831 $393,741 $278,731
============ ============ =========
</TABLE>
2. BUSINESS SEGMENT INFORMATION
The following is a tabulation of the Company's business segment
information for the quarters and six month periods ended November 24, 1996 and
November 26, 1995 (In Thousands).
(Unaudited)
<TABLE>
<CAPTION>
Dairy Vegetables Pickles Specialty Corporate Consolidated
--------- ---------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
SECOND QTR. ENDED
November 24, 1996
Net sales $452,351 $152,845 $88,884 $81,637 $ - $ 775,717
Operating earnings $ 16,600 $ 11,531 $ 8,967 $ 9,983 $ (8,398) $ 38,683
November 26, 1995
Net sales $397,220 $161,533 $86,772 $59,833 $ - $ 705,358
Operating earnings $ 19,162 $ 9,614 $ 4,926 $ 6,078 $ (5,807) $ 33,973
SIX MONTHS ENDED
November 24, 1996
Net sales $884,632 $267,152 $184,732 $149,253 $ - $1,485,769
Operating earnings $ 42,720 $ 12,487 $ 16,901 $ 18,414 $ (15,758) $ 74,764
November 26, 1995
Net sales $787,484 $277,613 $180,554 $111,212 $ - $1,356,863
Operating earnings $ 39,503 $ 12,261 $ 9,678 $ 12,551 $ (11,822) $ 62,171
</TABLE>
3. LEGAL PROCEEDINGS
See PART II, Item 1 for a discussion of pending legal proceedings.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A.) Liquidity and Capital Resources
As of November 24, 1996 there have been no material changes in the
Company's liquidity or its capital resources from those described in the
Management's Discussion and Analysis contained in the Company's Annual Report
on Form 10-K for the fiscal year ended May 26, 1996. Cash and cash equivalents
were $16.0 million at November 24, 1996, an increase of $5.6 million from the
balance at May 26, 1996.
The inventories at November 24, 1996 were $361.8 million, an increase of
$83.1 million over the balance at May 26, 1996, reflecting the typical seasonal
increase resulting from the vegetable and cucumber harvests. The November 24,
1996 inventories were $31.9 million lower than inventories at November 26, 1995
reflecting the lower value of inventories in the Vegetables segment.
In the fourth quarter of fiscal 1996 the Company recorded a pre-tax
provision of $150.0 million related to the adoption of a plan to reduce costs,
rationalize production capacity and provide for projected severance and
environmental costs. At May 26, 1996 the remaining accruals were $49.0
million. During the first half of fiscal 1997 the Company expended $4.4
million, primarily for plant closure and severance activities. Plant closure
and severance activity will accelerate in the remaining quarters of fiscal 1997
following the completion of processing of the 1996 harvest in the plants
scheduled for closure or disposition.
Short-term borrowings outstanding at November 24, 1996, were $142.0
million, an increase of $50.0 million from the balance outstanding at May 26,
1996 as a result of the borrowing associated with the normal pack of seasonally
grown crops. The short-term borrowings are $31.0 million less than at November
26, 1995 due primarily to the lower inventory balance in fiscal 1997. Working
capital at November 24, 1996 was $207.1 million compared to $185.9 million at
May 26, 1996. The Company's debt-to-capital ratio was 41.4% at November 24,
1996 compared with 39.1% at May 26, 1996.
B.) Results of Operations
Sales
Net sales for the second quarter of fiscal 1997 of $775.7 million were 10%
higher than sales of $705.4 million in the prior year. For the six months, net
sales increased 9.5% to $1.49 billion in fiscal 1997 from $1.36 billion last
year. The sales increases in both periods are primarily due to increases in
the Dairy and Specialty segments.
Dairy sales for the quarter of $452.4 million were 13.9% higher than sales
of $397.2 million in the prior year. For the six months, Dairy sales increased
12.3%, to $884.6 million from $787.5 million in fiscal 1996. The increased
sales in both periods are primarily the result of increased selling prices
which reflected the pass-through of record high raw milk costs, which peaked in
the second quarter of fiscal 1997. Raw milk costs are projected to decline
during the third quarter. For the six month period overall dairy volume is up
slightly as a 4% increase in fluid milk is largely offset by a 4% decline in
ice cream, which is less than the decline in the overall ice cream industry.
7
<PAGE> 8
The Vegetables segment sales of $152.8 million in the second quarter and
$267.2 million for the six months in fiscal 1997 are down approximately 5% and
4% respectively, from sales of $161.5 and $277.6 million in the same periods in
the prior year. The decline in both periods is due primarily to lower private
label sales. Fiscal 1997 Pickles segment sales of $88.9 million and $184.7
million for the second quarter and six month periods, respectively, are
approximately 2% ahead of prior year sales in both periods.
The Specialty segment sales for both the second quarter and six month
periods increased significantly over the prior year to $81.6 million and $149.3
million, respectively, from $59.8 million and $111.2 million in the same
periods of the prior year. These increases of 36% in the second quarter and
34% for the six months are primarily due to an acquisition in December 1996 and
increased sales of the segment's non-dairy coffee creamers.
Operating Earnings
Operating earnings for the second quarter of fiscal 1997 were $38.7
million, an increase of 14% over operating earnings of $34.0 million in fiscal
1996. For the six months, operating earnings of $74.8 million were $12.6
million or 20% higher than the same period of the prior fiscal year. The
Pickles and Specialty segments have reported improved operating earnings in
both quarters of fiscal 1997, while Dairy had a stronger first quarter and
weaker second quarter than in the prior year and Vegetables earnings were down
in the first quarter but up in the second quarter of fiscal 1997.
Dairy segment operating earnings of $16.6 million in the second quarter of
fiscal 1997 were 13.4% lower than operating earnings of $19.2 million in the
prior year. For the six months, Dairy operating earnings of $42.7 million are
8.1% higher than in fiscal 1996. Unlike the first quarter of fiscal 1997, when
an increasing butterfat differential, which effectively reduced the cost of the
Company's skim and lowfat dairy products, benefited the results in this
segment, a declining butterfat differential in the second quarter negatively
affected this segment's second quarter operating results.
The Vegetables segment operating earnings of $11.5 million in the second
quarter of fiscal 1997 versus $9.6 million in the second quarter of the prior
fiscal year was the segment's first quarter-over-quarter increase since fiscal
1995. For the six month period, operating earnings in the Vegetables segment
of $12.5 million are approximately flat with those of the prior fiscal year.
The improved second quarter results were principally the result of favorable
manufacturing variances, lower warehousing costs and reduced operating
expenses, all of which offset the lower sales volumes in fiscal 1997.
Pickles segment operating earnings increased to $9.0 million in the second
quarter of fiscal 1997 from $4.9 million in 1996, and for six months were $16.9
million in fiscal 1997 versus $9.7 million in the prior year. The improvements
in both periods of 1997 are the result of improved procurement and manufacturing
efficiencies and a shift in customer sales mix which resulted in the
elimination of sales of low margin products.
The Specialty segment operating earnings for the second quarter and six
month periods of fiscal 1997 of $10.0 million and $18.4 million, respectively,
are substantially ahead of the $6.1 million and $12.6 million operating
earnings in the same periods of the prior year. The improvement in operating
earnings in fiscal 1997 is primarily the result of increased profits resulting
from the higher sales in the powdered products operation and the earnings of a
fiscal 1996 acquisition.
8
<PAGE> 9
The increased corporate expenses in fiscal 1997 for both the second
quarter and six months are principally the result of increased pension and
compensation accruals to reflect improved 1997 earnings levels and the
Company's recently announced management changes.
Interest Expense
Interest expense in the second quarter of $6.8 million is slightly lower
than the interest expense in the same period of the prior year reflecting lower
average borrowings. For the six month period, interest expense is
approximately flat with that of the prior year.
Income Taxes
The effective income tax rate for both the second quarter and six month
periods of fiscal 1997 was 40.5% compared with a rate of 41.0% in the second
quarter and 40.7% for the first six months of fiscal 1996.
9
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
There has been no material change in the legal proceedings reported
under Item 3 - Legal Proceedings, of the Company's Form 10-K Annual
Report, for the fiscal year ended May 26, 1996.
ITEM 6. Exhibits and Reports on Form 8-K
a.) Exhibits
Item 12 - Computation of Ratio of Earnings to Fixed Charges.
Item 27 - Financial Data Schedules.
b.) Reports on Form 8-K
None filed.
10
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEAN FOODS COMPANY
---------------------------
(Registrant)
DATE: January 8, 1997 William R. McManaman
---------------------------
WILLIAM R. McMANAMAN
Vice President, Finance and
Chief Financial Officer
DATE: January 8, 1997 William M. Luegers
---------------------------
WILLIAM M. LUEGERS
Controller
11
<PAGE> 1
Exhibit 12
Dean Foods Company
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
26 Weeks Ended
November 24, 1996
-----------------
<S> <C>
Income before taxes $62,164
-------
Fixed charges:
Interest expense 13,098
Portion of rentals (33%) 5,071
-------
Total fixed charges 18,169
-------
Earnings before taxes and
fixed charges $80,333
=======
Ratio of earnings to
fixed charges 4.4
=======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrants' Quarterly Report on Form 10-Q for the quarterly period ended
November 24, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-25-1997
<PERIOD-START> MAY-26-1996
<PERIOD-END> NOV-24-1996
<CASH> 15,981
<SECURITIES> 0
<RECEIVABLES> 218,575
<ALLOWANCES> 3,344
<INVENTORY> 361,831
<CURRENT-ASSETS> 693,502
<PP&E> 1,023,150
<DEPRECIATION> 497,535
<TOTAL-ASSETS> 1,329,240
<CURRENT-LIABILITIES> 486,423
<BONDS> 220,272
41,429
0
<COMMON> 0
<OTHER-SE> 488,912
<TOTAL-LIABILITY-AND-EQUITY> 1,329,240
<SALES> 775,717
<TOTAL-REVENUES> 775,717
<CGS> 604,733
<TOTAL-COSTS> 604,733
<OTHER-EXPENSES> 131,911
<LOSS-PROVISION> 362
<INTEREST-EXPENSE> 6,849
<INCOME-PRETAX> 32,062
<INCOME-TAX> 12,986
<INCOME-CONTINUING> 19,076
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,076
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
</TABLE>
