<PAGE> 1
UNITED STATES
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 August 24, 1997
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 40,581,423.
1
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PART I - FINANCIAL INFORMATION
A. UNAUDITED CONDENSED CONSOLIDATION 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 1997
Annual Report on Form 10-K.
2
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ITEM 1.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
AUGUST 24, 1997 AND AUGUST 25, 1996
(In Thousands Except for Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
August 24, August 25,
1997 1996
---------- ----------
(Unaudited)
<S> <C> <C>
Net sales $729,453 $710,052
Costs of products sold 558,940 550,159
Delivery, selling and
administrative expenses 129,871 123,812
-------- --------
Operating earnings 40,642 36,081
Interest expense (5,727) (6,249)
Interest income 409 270
-------- --------
Income before income taxes 35,324 30,102
Provision for income taxes 13,777 12,192
-------- --------
Net income $ 21,547 $ 17,910
======== ========
Net income per common share $ .53 $ .45
======== ========
Dividends per share (Declared and paid) $ .20 $ .19
======== ========
Weighted average common shares 40,427 40,142
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
CONDENSED CONSOLIDATED BALANCE SHEETS
AUGUST 24, 1997 AND MAY 25, 1997
(In Thousands)
<TABLE>
<CAPTION>
August 24, May 25,
1997 1997
---------- --------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 24,128 $ 4,386
Accounts and notes receivable,
less allowance for doubtful
accounts of $3,707 and $3,585, respectively 189,826 210,528
Inventories 299,493 265,691
Other current assets 72,254 81,528
---------- ----------
Total Current Assets 585,701 562,133
---------- ----------
PROPERTIES:
Property, plant and equipment, at cost 1,079,244 1,049,528
Accumulated depreciation 534,990 522,355
---------- ----------
544,254 527,173
---------- ----------
OTHER ASSETS 151,309 128,052
---------- ----------
Total Assets $1,281,264 $1,217,358
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable to banks $ 52,000 $ 3,000
Current installments of long-term obligations 13,374 13,369
Accounts payable and accrued expenses 297,781 313,374
Dividends payable 8,201 7,738
Federal and state income taxes 27,985 16,620
---------- ----------
Total Current Liabilities 399,341 354,101
LONG-TERM OBLIGATIONS 211,653 211,926
DEFERRED LIABILITIES 79,796 83,650
SHAREHOLDERS' EQUITY 590,474 567,681
---------- ----------
Total Liabilities and Shareholders' Equity $1,281,264 $1,217,358
========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
AUGUST 24, 1997 AND AUGUST 25, 1996
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
August 24, August 25,
1997 1996
---------- ----------
(Unaudited)
<S> <C> <C>
Net cash provided from operations $ 39,018 $ 32,017
-------- ---------
Cash flows from investing activities:
Capital expenditures (30,751) (19,859)
Proceeds from disposition of property,
plant and equipment 319 661
Acquisition of business, net of
cash acquired (41,923) -
-------- ---------
Net cash used in investing activities (72,355) (19,198)
-------- ---------
Cash flows from financing activities
Repayment of long-term obligations (293) (574)
Issuance (repayment) of notes payable to banks, net 49,000 (10,000)
Unexpended industrial revenue bond proceeds 2,976 744
Cash dividends paid (7,650) (7,221)
Issuance of common stock 9,046 723
-------- ---------
Net cash provided by (used for) financing activities 53,079 (16,328)
-------- ---------
Increase (decrease) in cash and cash equivalents 19,742 (3,509)
Cash and cash equivalents - beginning of period 4,386 10,399
-------- ---------
Cash and cash equivalents - end of period $ 24,128 $ 6,890
======== =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. INVENTORIES
The following is a tabulation of inventories by class at August 24, 1997,
August 25, 1996, and May 25, 1997 (In Thousands).
<TABLE>
<CAPTION>
August 24, August 25, May 25,
1997 1996 1997
---------- ---------- -------
(Unaudited)
<S> <C> <C> <C>
Raw materials and supplies $ 39,437 $ 48,062 $ 52,321
Materials in process 78,923 93,964 59,846
Finished goods 198,962 203,415 172,353
--------- --------- --------
317,322 345,441 284,520
Less: Excess of current cost over stated
value of last-in, first-out
inventories 17,829 16,434 18,829
--------- --------- --------
Total inventories $299,493 $329,007 $265,691
========= ========= ========
</TABLE>
2. BUSINESS SEGMENT INFORMATION
The following is a tabulation of the Company's business segment
information for the first quarters ended August 24, 1997 and August 25, 1996
(In Thousands).
<TABLE>
<CAPTION>
(Unaudited)
---------
Dairy Vegetables Pickles Specialty Corporate Consolidated
--------- ---------- -------- --------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
AUGUST 24, 1997
Net sales $455,962 $109,597 $90,460 $73,434 $ - $729,453
Operating earnings (loss) $ 32,413 $ (2,525) $ 9,322 $10,993 $ (9,561) $ 40,642
AUGUST 25, 1996
Net sales $432,281 $114,307 $95,848 $67,616 $ - $710,052
Operating earnings $ 26,120 $ 956 $ 7,934 $ 8,431 $ (7,360) $ 36,081
</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 August 24, 1997 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 25, 1997. Cash and cash equivalents were $24.1
million at August 24, 1997, an increase of $19.7 million from the balance at
May 25, 1997.
The inventories at August 24, 1997 were $299.5 million, an increase of
$33.8 million over the balance at May 25, 1997, reflecting the typical seasonal
increase resulting from the vegetable and cucumber harvests. The August 24,
1997 inventories were $29.5 million lower than inventories a year ago
reflecting the planned reduction of inventories in the Vegetables and Pickles
segments.
Short-term borrowings outstanding at August 24, 1997, were $52.0 million,
an increase of $49.0 million from the balance outstanding at May 25, 1997.
Working capital at August 24, 1997 was $186.4 million compared to $208.0
million at May 25, 1997. The increase in short-term borrowings and the decrease
in working capital were primarily the result of increased borrowings associated
with a business acquisition and higher capital expenditures during the quarter
ended August 24, 1997. The Company's debt-to-capital ratio was 31.9% at August
24, 1997 compared with 28.7% at May 25, 1997.
B.) Results of Operations
Net Sales
Net sales for the first quarter were $729.5 million, a 2.7% increase over
the same period last year, principally due to the inclusion of sales generated
by fiscal year 1997 and 1998 acquisitions in the Dairy and Specialty segments
as well as volume growth in each of these segments.
Dairy sales of $456.0 million were 5.5% higher than sales of $432.3
million in the prior year largely due to increased volume from two fiscal year
1997 acquisitions in the fluid milk and ice cream operations.
Sales in the Vegetables segment for the quarter ended August 24, 1997
declined $4.7 million, or 4.1%, compared to the prior year. Case volume and
overall pricing were down slightly compared to first quarter of fiscal year
1997. Contributing to the reduction in sales, was the shift of promotional
activities from the first quarter, which is a seasonally light sales quarter,
to later in the fiscal year.
The Pickles segment reported net sales of $90.5 million for the quarter
ended August 24, 1997. This represents a 5.6% decline from the same period one
year ago as the business continues to focus on identifying and eliminating
unprofitable products and customers.
First quarter sales in fiscal 1998 were $73.4 million in the Specialty
segment, an 8.6% increase over the first quarter last year. This increase was
led by the Dean Dip and Dressing
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Company, which includes the Marie's refrigerated salad dressings business
acquired at the beginning of fiscal 1998.
Operating Earnings
Operating earnings for the first quarter of fiscal 1998 were $40.6
million, or 12.6% higher than operating earnings of $36.1 million during the
first quarter of fiscal 1997. The increase in operating earnings was driven
largely by increased earnings in the Dairy, Pickles and Specialty segments.
Dairy segment operating earnings of $32.4 million were 24.1% higher than
the operating earnings of $26.1 million in the prior year. Operating earnings
from the fluid milk operations were slightly less than the earnings in the
first quarter last year, which had benefited from changes in raw milk costs.
Ice cream operations improved quarter to quarter due to both higher pricing and
volume, as well as the contribution of an acquisition made in late fiscal 1997.
Extended shelf life operating earnings improved significantly due to increased
volume and improved margins.
The Vegetables segment reported a $2.5 million operating loss for the
first quarter of fiscal 1998 versus $1.0 million of operating earnings in the
first quarter of fiscal 1997. Certain promotional activities were shifted to
later in fiscal year 1998 and product mix was unfavorable, both contributing
to reduced earnings.
First quarter fiscal 1998 operating earnings for the Pickles segment
improved $1.4 million, or 17.5%, to $9.3 million in the quarter as a result of
enhanced operating and promotional spending efficiencies.
Specialty segment operating earnings of $11.0 million were 30.4% higher
than operating earnings of $8.4 million in the prior fiscal year, primarily due
to improved operating efficiencies in the Dean Dip and Dressing operation, as
well as the contribution from the recent acquisition of the Marie's
refrigerated salad dressing business.
Corporate
Corporate expenses increased to $9.6 million in the first quarter of
fiscal 1998 from $7.4 million in the same period last year. This increase was
primarily related to the incentive and equity-based compensation programs of
the Company.
Interest Expense
Interest expense in the first quarter of fiscal year 1998 totaled $5.7
million, which was 8.4% lower than the interest expense in the first quarter of
fiscal 1997. The decline is due to the overall reduction in average debt
levels.
Income Taxes
The effective income tax rate for the first quarter was 39.0% compared
with a rate of 40.5% in the first quarter a year ago. The decrease in the rate
is largely due to reductions in state income taxes, and increased export and
research and development incentives.
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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 25, 1997.
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
The Company filed a Current Report on Form 8-K, dated
September 24, 1997, with regards to the Company's Press
Release dated September 24, 1997, "Marineau Resigns As Dean
Foods President".
9
<PAGE> 10
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: September 29, 1997 William R. McManaman
------------------ ------------------------
WILLIAM R. McMANAMAN
Vice President, Finance and
Chief Financial Officer
DATE: September 29, 1997 William M. Luegers, Jr.
------------------ ------------------------
WILLIAM M. LUEGERS, JR.
Controller
10
<PAGE> 1
Exhibit 12
Dean Foods Company
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
13 Weeks Ended
August 24, 1997
---------------
<S> <C>
Income before taxes $35,324
-------
Fixed charges:
Interest expense 5,727
Portion of rentals (33%) 2,401
-------
Total fixed charges 8,128
-------
Earnings before taxes and fixed charges $43,452
=======
Ratio of earnings to fixed charges 5.3
=======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE
REGISTRANTS' QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED AUGUST
24, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> MAY-26-1997
<PERIOD-END> AUG-24-1997
<CASH> 24,128
<SECURITIES> 0
<RECEIVABLES> 193,533
<ALLOWANCES> 3,707
<INVENTORY> 299,493
<CURRENT-ASSETS> 72,254
<PP&E> 1,079,244
<DEPRECIATION> 534,990
<TOTAL-ASSETS> 1,281,264
<CURRENT-LIABILITIES> 399,341
<BONDS> 211,653
0
0
<COMMON> 41,828
<OTHER-SE> 548,646
<TOTAL-LIABILITY-AND-EQUITY> 1,281,264
<SALES> 729,453
<TOTAL-REVENUES> 729,453
<CGS> 558,940
<TOTAL-COSTS> 558,940
<OTHER-EXPENSES> 129,303
<LOSS-PROVISION> 159
<INTEREST-EXPENSE> 5,727
<INCOME-PRETAX> 35,324
<INCOME-TAX> 13,777
<INCOME-CONTINUING> 21,547
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,547
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
</TABLE>
