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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED MAY 25, 1997
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
Commission File No.: 0-1118
DEAN FOODS COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE
(State of other jurisdiction of
incorporation or organization)
3600 N. RIVER ROAD, FRANKLIN PARK, ILLINOIS
(Address of principal executive offices)
36-0984820
(I.R.S. Employer
Identification No.)
60131
(Zip Code)
(847) 678-1680
Registrant's telephone number, including area code
Securities registered pursuant to Sections 12(b) and 12(g) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK, PAR VALUE $1 PER SHARE NEW YORK STOCK EXCHANGE
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 files pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) 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 number of shares of Common Stock, Par Value $1 Per Share, of the
Registrant outstanding as of August 8, 1997 was 40,565,649. The aggregate market
value of such outstanding shares on August 8, 1997 was $1.86 billion, based upon
the closing price for the Common Stock on the New York Stock Exchange on such
date.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated herein by reference in the
respective Parts hereof indicated:
1. Registrant's Annual Report to Shareholders for Fiscal Year Ended May 25, 1997
(referred to herein as the "Company's Fiscal 1997 Annual Report"): Part I and
Part II
2. Registrant's Proxy Statement for its Annual Meeting of Stockholders to be
held on September 30, 1997 (referred to herein as the "Company's 1997 Proxy
Statement"): Part III
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PART I
ITEM 1. BUSINESS.
Dean Foods Company and its subsidiaries ("the Company") is engaged in the
processing, distribution and sales of dairy, vegetable, pickle and specialty
food products.
The Company's principal products are Dairy (fluid milk and cultured
products, ice cream and extended shelf life products), Vegetables (frozen and
canned vegetables), Pickles (pickles, relishes and specialty items) and
Specialty (powdered products and sauces, puddings and dips). A significant
portion of the Company's products are sold under private labels. The Company
also operates a trucking business hauling less-than-truckload freight,
concentrating primarily on refrigerated and frozen cartage, the results of which
are reported in the Specialty segment.
The predecessor to Dean Foods Company was incorporated in Illinois in 1925.
Acquisitions have been an important factor in the Company's strategy. The
Company does not have specific acquisition criteria, but generally focuses on
food companies having a well-established reputation for quality products and
services.
In fiscal 1996, the Company conducted a strategic business review of all
operations, focusing on its markets, competitors and capabilities, and
identified a strategic plan design to enhance long-term shareholder value. As a
result, in May 1996 the Company recorded a pre-tax special charge of $150.0
million ($97.7 million after-tax, or $2.44 per share) related to the adoption of
a plan to reduce costs, rationalize production capacity and provide for
severance and environmental costs. Complete implementation of the plan will
result in the elimination of more than 800 manufacturing and administrative
positions and the disposition or closure of 13 manufacturing facilities. As of
May 25, 1997, the Company had disposed of or closed 11 manufacturing facilities
and eliminated 700 positions. Net benefits recognized from the plan and the
additional strategies in fiscal 1997 were approximately $13 million.
The Company has made 12 acquisitions in the last five years. During fiscal
1997, the Company acquired Tri-State Dairy, Inc., a dairy processor located in
Miami, Florida and Meadows Distributing Co., Inc.., an ice cream and frozen
foods distributor located in Batavia, Illinois. During fiscal 1996 the Company
acquired the business and assets of Norcal Crossetti Foods, Inc., a frozen
vegetable and fruit processor located in Watsonville, California; Paramount
Foods, a pickle processor located in Louisville, Kentucky; and Rod's Food
Products, a specialty foods processor of aerosol toppings and extended shelf
life products located in City of Industry, California. During fiscal 1995, the
Company acquired the business and assets of a dairy processor located in Clovis,
New Mexico and Rio Grande Foods, Inc., a frozen vegetable processor located in
McAllen, Texas. During fiscal 1994, the Company acquired Longlife Dairy Products
of Jacksonville, Florida, a processor of extended shelf life products, the Birds
Eye frozen vegetable business and the Bennett's premium sauce line. During
fiscal 1993, the Company acquired W. B. Roddenbery Co., Inc. of Cairo, Georgia,
a processor of pickles, peanut butter, boiled peanuts and syrups and acquired an
East Coast replacement sour cream product line. The results of operations of
these acquisitions, from their respective dates of acquisition, have been
included in the Company's results of operations.
With one exception, these companies, businesses and assets were acquired
for cash, installment notes or a combination thereof. In fiscal 1993, the
Company exchanged 535,000 shares of its common stock for all the outstanding
shares of W. B. Roddenbery Co., Inc.
Information regarding the Company's Dairy, Vegetables, Pickles and
Specialty business segments for the last three fiscal years is set forth in the
Company's Fiscal 1997 Annual Report (Exhibit 13a hereto) at page 35 in Note 14
to the consolidated financial statements. Such information, excluding the first
sentence of such note, is hereby incorporated herein by reference.
DAIRY BUSINESS SEGMENT
Fluid Milk and Cultured Products
The Company processes raw milk and other raw materials into fluid milk and
cultured products. The Company believes that it is the largest fluid milk
processor in the United States. Although industry data is not
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available, the Company estimates that it has an 8% market share in domestic
fluid milk. Included in the fluid products category is homogenized, low-fat and
skim milk plus buttermilk, chocolate milk and juice products. Cultured dairy
products include cottage cheese, yogurt and sour cream.
Fluid milk and fresh cultured products are sold to grocery store chains,
convenience stores, smaller retail grocery outlets, warehouse club stores,
grocery warehouses and institutional customers in the Midwest and mid-Southern
states, in parts of the Southeastern, Southwestern and Rocky Mountain states,
parts of Pennsylvania and New York, and Mexico.
In addition to the strong Dean's brand in the Midwest and Mid-South, fluid
milk and cultured dairy products are sold in various areas under
well-established labels such as Bell, Cream o'Weber, Creamland, Gandy's, T.G.
Lee, Mayfield, McArthur, Meadow Brook, Price's, Reiter and Verifine. A
substantial portion of the Company's fluid milk and cultured products volume is
sold under private labels.
The fluid milk and cultured products business is extremely competitive and
productivity is therefore very important. The Company continues to reinvest a
substantial portion of its total capital budget in its dairy plants and
distribution systems to maintain and improve efficiencies. Major capital
expenditures in fiscal 1997 included the construction of a new fluid milk
processing plant in Braselton, Georgia that is expected to begin operations
during the first half of fiscal 1998, expansion of the filler room at the
Sharpsville, Pennsylvania facility and new labeling equipment at the Athens,
Tennessee plant. Capital expenditures during fiscal 1996 included new packaging
equipment for one-pint and ten-ounce, plastic, resealable bottles at its Athens,
Tennessee dairy plant, the expansion of the Erie, Pennsylvania milk cooler and
additional processing capacity at the Company's Rochester, Indiana and Huntley,
Illinois milk plants. Major capital projects during fiscal 1995 included
additional processing equipment and costs related to plant consolidation of the
Lubbock and San Angelo, Texas dairy processing plants, a cooler expansion at the
Rochester, Indiana dairy plant, a waste water treatment system at the
Belleville, Pennsylvania dairy plant and computer equipment at the Florida dairy
operations. Capital expenditure projects for 1994 included cooler expansions at
its Evart, Michigan; Chemung, Illinois; and Louisville, Kentucky dairy plants;
corrugated caser and palletizer at its El Paso, Texas dairy plant; blowmold
packaging equipment at its Rochester, Indiana dairy plant and construction of a
dairy distribution and cooler facility in Greenville, South Carolina. Major
capital projects during fiscal 1993 included completion of a cooler expansion at
its Orlando, Florida dairy operations; additional processing capacity at its
Sharpsville, Pennsylvania dairy plant; and additional processing equipment at
the Company's Albuquerque, New Mexico dairy plant.
Sales of fluid milk and cultured products to unaffiliated customers for the
fiscal years 1997, 1996 and 1995 were $1,386 million, $1,235 million and $1,190
million, respectively.
Ice Cream and Frozen Desserts
The Company produces packaged and bulk ice cream products which are sold
through supermarkets, convenience stores, smaller retail grocery outlets,
restaurants and other foodservice users. The product line includes ice cream
(regular, lowfat and non-fat), fruit sherbets, frozen yogurts, and novelties
made with ice cream, sherbet and ices. These products are sold under a variety
of regional brands and numerous private labels in the Midwest, Mid-South,
Southeast, Southwest, and parts of the Rocky Mountain states under numerous
well-established brands. Such brands include Dean's, Dean's Country Charm,
Gandy's, Creamland, Cream o'Weber, Bell, Price's, Fitzgerald, Fieldcrest,
Mayfield, McArthur/T.G.Lee, Reiter and Verifine. Sales of ice cream and frozen
dessert products are substantially greater during the summer months than during
the rest of the year. Additionally, the Company produces and supplies
Baskin-Robbins ice cream products in the Midwest and Southwest.
Capital expenditures during fiscal 1997 and fiscal 1996 included additional
processing equipment at the Company's Belvidere, Illinois and Athens, Tennessee
ice cream plants. During fiscal 1995 capital expenditures included plant
expansion and replacement of refrigeration equipment at the Belvidere, Illinois
ice cream plant. Major projects in 1994 included a stick novelty line, freezer
expansion and new distribution facilities in Athens, Tennessee and new
processing equipment in Akron, Ohio.
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Sales to unaffiliated customers for the fiscal years 1997, 1996 and 1995
were $261 million, $235 million and $219 million, respectively.
Extended Shelf Life
The Company processes extended shelf life fluid, aerosol and other dairy
products. Extended shelf life products include whipping creams, half and half,
aerosol toppings, coffee creamers, flavored milks and lactose-reduced milks.
Extended shelf life products produced and marketed by Ryan Milk Company and
Longlife Dairy Products are distributed nationwide under Dean brands such as
Dairy Pure, Dean Ultra and Easy 2%, as well as well-known licensed national
brands and private labels. In fiscal 1997 the Company consolidated Ryan Milk
Company and Longlife Dairy Products into Ryan Foods Company.
The extended shelf life products business is extremely competitive and
productivity is therefore very important. The Company continues to reinvest in
its extended shelf life plants and distribution systems to maintain and improve
efficiencies. In fiscal 1997, the Company divested its Ready Foods plant in
Philadelphia, Pennsylvania and consolidated production into its Murray, Kentucky
facility where the Company invested in a new aerosol filling line. During fiscal
1996, capital expenditures included the installation of new racking and
inventory systems and cooler expansion at its Murray, Kentucky plant. Major
capital projects during fiscal 1993 included additional processing capacity at
its Murray, Kentucky operation.
Sales of extended shelf life products to unaffiliated customers for fiscal
1997, fiscal 1996 and 1995 were $141 million, $141 million and $104 million,
respectively.
VEGETABLES BUSINESS SEGMENT
Frozen and Canned Vegetables
The Company processes and markets frozen and canned vegetables consisting
of corn, peas, green beans, carrots, beets, spinach, peas and carrots, green
lima beans and various mixed vegetable blends. Additional products in the frozen
vegetable line include asparagus, broccoli, Brussels sprouts, cauliflower,
fordhook lima beans, southern greens, okra, crowder and black-eyed peas, celery
and vegetable blends with pasta and with rice. The processing and canning of
fresh vegetables is seasonal in nature, with most of the canning activity in the
Midwest occurring during harvesting periods. The Company believes the geographic
diversity of its plants and growing areas provides the ability to balance
production. The packaging of processed frozen vegetables occurs year-round. As a
result of the seasonal nature of the vegetable business, inventory levels vary
significantly during the year.
Also included in the Vegetables segment are sales of canned meats processed
under bid contracts with the federal government. Such sales vary greatly from
year to year because of the nature of the federal government's procurement
practices. Margins are small since these contracts are taken primarily to absorb
overhead of the Company's canning operation during seasonally idle periods of
production.
Frozen vegetables account for approximately 75% of the total vegetable
sales. The Company is the largest frozen vegetable processor in the United
States and the third largest vegetable processor overall. Products are marketed
under several brand names including Birds Eye, Freshlike and Veg-All, as well as
under customer brand names or in-house brands. The Company's Birds Eye and
Veg-All vegetable brands are marketed throughout the United States. The
Freshlike canned and frozen vegetable line is marketed primarily in the Midwest.
Other vegetable products are marketed under private labels or in-house brands
throughout the United States and exported to the Far East, Mid-East, Europe,
Mexico, Canada and the Caribbean. Consumer products are distributed through
traditional retail and mass merchandising outlets and include Company brands and
buyers' brands of all products. Institutional customers, including hotels,
restaurants, in-plant feeding programs, and schools are serviced through
foodservice distributors with products packaged in larger containers.
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During fiscal 1997, the Company closed six plants and consolidated
production capacity into its remaining processing facilities. Major capital
expenditures included new processing and freezing equipment and expanded quality
assurance and R&D facilities. During fiscal 1996, major capital expenditures
included new electronic sorting equipment, upgraded freezing capacity, improved
warehousing and new management information systems. Fiscal 1995 major capital
expenditures included the completion of the new carrot line in Uvalde, Texas and
a waste water treatment plant in Celaya, Mexico. Major capital projects in 1994
included the installation of a carrot processing line at Uvalde, Texas and an
expansion of the office facilities in Green Bay, Wisconsin. Fiscal 1993 capital
expenditures included the construction of a waste water treatment facility at
the Company's Bellingham, Washington location.
Sales to unaffiliated customers for fiscal years 1997, 1996 and 1995 were
$558 million, $574 million and $543 million, respectively.
PICKLES BUSINESS SEGMENT
Pickles, Relishes and Specialty Items
The Company is one of the largest pickle processors and marketers in the
United States with sales nationwide. Pickles, relishes, pickled peppers and
other assorted specialty items are sold under several brand names, including
Arnold's, Atkins, Aunt Jane's, Cates, Dailey, Heifetz, Paramount, Pesta, Peter
Piper, Rainbo and Roddenbery. Branded and private label product are marketed and
distributed to retail grocery store chains, wholesalers and the foodservice
industry and in bulk to other food processors.
During fiscal 1997 the Company closed its Eaton Rapids, Michigan plant and
consolidated production into existing facilities and continued to modernize its
remaining manufacturing facilities. During fiscal 1996 capital improvements were
made to upgrade and modernize the Company's manufacturing facilities and reduce
transportation costs. Major capital expenditure projects during fiscal 1995
included the installation of processing equipment at the Company's Cairo,
Georgia plant. Fiscal 1994 capital expenditures included the construction of a
new processing room at the Company's LaJunta, Colorado plant. Major capital
expenditures in fiscal 1993 included installation of processing equipment at the
Company's Plymouth, Indiana plant and construction of administrative office
facilities at its Atkins, Arkansas location.
The processing of pickle products is seasonal, dependent to a large extent
upon the growing season of cucumbers in the summer months. Inventories are
therefore higher in the fall and winter months than in the spring and early
summer.
The Company markets a number of specialty sauces, including shrimp,
seafood, tartar, horseradish, chili and sweet and sour sauces, in the Eastern,
Midwestern and Southern United States to retail grocers. Products are sold under
the Bennett's and Hoffman House brand names.
Sales to unaffiliated customers for the fiscal years 1997, 1996 and 1995
were $371 million, $373 million and $367 million, respectively.
SPECIALTY BUSINESS SEGMENT
Powdered Products
Non-dairy coffee creamers are the Company's principal powdered products.
Powdered premium and low-fat products are sold primarily under private labels to
vending operators, office beverage service companies and institutional
foodservice distributors with national distribution which supply restaurants,
schools, health care institutions, hotels and vending and fast-food operations.
Non-dairy creamers are also sold for private label distribution to all classes
of the retail trade and sold in bulk to a number of other food companies for use
as an ingredient in their food products. Powdered products are also sold to
international customers in Australia, Canada, the Far East, Mexico, South
America, Europe, Africa and the Middle East. The Company believes that it is the
largest manufacturer of powdered non-dairy coffee creamers in the United States.
The Company's non-dairy coffee creamers are an economical and convenient
substitute for milk and cream. These products require no refrigeration and have
long shelf lives.
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The Company, through an affiliate, provides stabilizers and other dry
ingredients to the United Kingdom, Continental Europe and other foreign markets.
Capital expenditures in fiscal 1997 included the construction of a new
dryer in Wayland, Michigan, which is expected to begin production during the
second quarter of fiscal 1998. Capital expenditures during fiscal 1996 included
the construction of a new production facility in the United Kingdom. There were
no major capital expenditures during fiscal years 1993 through 1995.
Sales to unaffiliated customers for the fiscal years 1997, 1996 and 1995
were $153 million, $129 million and $110 million, respectively.
Sauces, Puddings and Dips
The Company's aseptic products primarily include ready-to-serve natural
cheese sauces, puddings and other specialty sauces which are sterilized under a
process which allows storage for prolonged periods without refrigeration.
Aseptic products are sold nationwide, primarily under private labels to
distributors which supply restaurants, schools, hotels and other segments of the
foodservice industry. There were no major capital expenditures during fiscal
years 1997 and 1996. Major capital expenditures in fiscal 1995 and 1994 included
a multi-phase project to significantly upgrade the Dixon, Illinois facility with
the completion of a new batch make-up room. There were no major capital
expenditures during fiscal 1993.
The Company manufactures vegetable-fat-based party dips, low-fat sour cream
and sour cream replacements at its Rockford, Illinois facility. These products
are sold nationally, but primarily east of the Rockies, under the Dean's, King
and private label brands in supermarkets and other retail outlets through
distributor or direct warehouse delivery. Dean's brand vegetable-fat-based dips,
available in regular, lowfat and non-fat varieties, have the leading market
position nationwide and the Company's Birds Eye Veggie Dip is the second leading
produce dip.
At the beginning of fiscal 1998, the Company completed the acquisition of
the Marie's business. The Marie's product line includes refrigerated salad
dressings, vegetable dips, salsas and fruit glazes.
During fiscal 1996 the Company acquired Rod's Food Products which brought a
significant West Coast presence to several of Dean's product lines. Rod's
supplies a large and growing Western United States customer base with retail
snack dips and other oil-based products, as well as flavored salad dressings for
the foodservice trade. Retail products are sold under the Rod's, Imo, Slender
Choice, Chivo and Zesty brand names and a number of private labels.
Sales to unaffiliated customers for the fiscal years 1997, 1996 and 1995
were $122 million, $100 million and $74 million, respectively.
DFC Transportation
DFC Transportation Company, a transportation and logistics subsidiary of
the Company, operates nationwide with a fleet of approximately 134 tractors and
264 trailers, providing less-than-truckload refrigerated and frozen cartage
service. Its customers include food and industrial companies. A significant
portion of its revenues are derived from the brokerage of various types of
freight.
Revenues from unaffiliated customers in fiscal years 1997, 1996 and 1995
were $27 million, $27 million and $23 million, respectively. Revenues relating
to hauling products for other divisions and subsidiaries of the Company have
been eliminated.
RAW MATERIALS AND SUPPLIES
The Company's business is dependent upon obtaining adequate supplies of raw
and processed agricultural products. Historically, the Company has been able to
obtain adequate supplies of agricultural products.
Raw milk and other agricultural products are generally purchased directly
from farmers and farm cooperatives. The Company does not have long-term purchase
contracts for agricultural products. The price of
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raw milk is extensively regulated. Raw milk costs peaked at record levels in the
second quarter of fiscal 1997, then declined sharply during the third quarter
and rose during the last quarter of fiscal 1997 to a level comparable to last
year end. In fiscal 1996, raw milk costs were slightly below fiscal 1995 levels
during the first six months and then increased to higher levels than fiscal 1995
by year-end. Raw milk costs fell substantially in the first quarter of fiscal
1995 remaining stable throughout the balance of the year. Early indications are
that raw milk costs will be lower during the first quarter and rise during the
second quarter of fiscal 1998.
The Company produces most of its plastic gallon and half-gallon container
requirements for its fluid milk business. Can requirements for canned vegetables
are primarily furnished by three can manufacturers, and glass containers for
pickles and related products are purchased from one main supplier, as required,
at competitive prices.
Certain commodities, such as corn syrups, vegetable oils, sugar and casein,
and various packaging supplies are purchased from numerous sources on a normal
purchase order basis, with vegetables and cucumbers purchased under seasonal
grower contracts. The Company is not dependent upon any single supplier and is
confident that any lost supplier requirements could be replaced in the ordinary
course of business.
In its vegetable and pickle operations, the Company supplies seed to and
advises growers regarding planting techniques, monitors and arranges for the
control of insects, directs the harvest, and, for some crops, provides automated
harvesting service. Vegetable supplies are largely dependent on regional weather
and growing conditions. Although weather-related delays and crop conditions have
been encountered this year in certain growing areas, early indications are that
supplies will be normal with fiscal 1998 crop costs approximating fiscal 1997
crop cost levels. Fiscal 1997 raw product costs were relatively flat on average
compared to fiscal 1996 costs. Industry-wide excess inventory levels which led
to reduced pricing and the poor 1995 Midwest harvest which resulted in higher
costs caused Vegetables operating earnings in fiscal 1996 to decline
substantially compared with fiscal 1995.
Although Midwest crop plantings were late due to adverse planting
conditions, the spring 1997 cucumber harvest was good and fiscal 1998 cucumber
costs should approximate fiscal 1997 costs. Fiscal 1997 cucumber cost
approximated fiscal 1996 costs. Raw cucumber costs were higher in fiscal 1996
compared with fiscal 1995 due to the poor Southeast cucumber harvest and the
necessity to source cucumber requirements from higher cost growing areas. The
cost of raw cucumbers increased in fiscal 1995 as a result of weather-related
costs after being relatively stable during the previous fiscal year.
DISTRIBUTION
Dairy products are principally delivered to grocery chain stores or
warehouses directly from the Company's processing plants by the Company, in
trucks which it owns or leases, and by independent distributors. In certain
states, products are also delivered to the Company's distribution branches from
which distribution is then made to customers. The Company has continued its
efforts to streamline its distribution system for Dairy products. Major
economies have been effected in recent years through consolidation of
distribution branches and routes, with emphasis on direct truck delivery to
retail stores and warehouses of grocery chains. The Company's Vegetables,
Pickles and Specialty products are delivered to warehouses and food distributors
by the Company's fleet of trucks and outside freight carriers. Inventories of
frozen and canned vegetables are maintained by the Company in warehouses
throughout the country in order to maintain a ready supply for rapid delivery to
local retailers.
COMPETITION
The Company's business is highly price competitive with relatively low
operating margins. Quality and customer service are important factors in
securing and maintaining business. An important aspect of the Company's service
to customers is computer ordering, shipping and billing systems. Referred to in
the food industry as "Efficient Consumer Response", the Company has over the
last few years made a substantial commitment to these areas. The Company's Dairy
business operates in a number of different geographical markets, competing in
some against national companies and in others against regional or local
companies. In
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certain markets, some supermarket chain stores have their own dairy products
processing plants. Generally, in each major market and product class there are a
number of competitors, some of which have greater sales and assets than the
Company's operations in that market. The Company's Vegetables, Pickles and
Specialty products are marketed nationwide and, in some cases, internationally.
The degree of penetration and competitive conditions in each market varies, but
the Company does not consider that it has any material competitive advantage in
any of its major markets or product classes.
EMPLOYEES
The Company has approximately 11,800 employees (10,000 full-time), of whom
approximately 4,500 are represented by the International Brotherhood of
Teamsters and other unions under forty collective bargaining agreements. Seven
of these agreements expire during fiscal 1998. Generally, the Company considers
its employee relations to be good.
The Company has approximately 5,000 seasonal positions at its vegetable
operations and its pickle processing plants, principally during the summer
months. At times, the Company has experienced difficulties in meeting seasonal
employee needs. The Company estimates that two individuals are hired for each
seasonal position. A number of strategies have been employed to retain seasonal
employees including incentive programs and employee sharing programs.
ENVIRONMENT
On July 10, 1996, a subsidiary of the Company was fined approximately $4.0
million in a lawsuit filed by the United States of America in the United States
District Court for the Middle District of Pennsylvania alleging violations of
the Federal Water Pollution Control Act relating to the discharge of
conventional, non-hazardous substances. The Company has appealed the lower court
ruling on the grounds that the fine should be substantially reduced. The Company
provided for this exposure in 1996 and in light of reserves existing, the
ultimate resolution of the imposed fine is not expected to have a material
effect on the financial position or results of operations of the Company.
The Company's compliance with Federal, State and local regulations relating
to the discharge of material into the environment or otherwise relating to the
protection of the environment has not had a material effect on the Company's
capital expenditures, earnings or competitive position. The Company's fiscal
1996 special charge to earnings included a provision covering the estimated
potential environmental cleanup costs associated with the closure of certain
manufacturing facilities. The Company continues to give considerable attention
to the impact or potential impact of its operations on the environment.
ITEM 2. PROPERTIES.
The Company owns forty-eight of its processing plants (four of which are
subject to mortgage) and leases the other three under leases expiring from
fiscal 1999 through fiscal 2011. The Company has various distribution branches
and storage warehouses located throughout the country, some of which are owned
and some leased. The Company considers its properties suitable and adequate for
the conduct of its business. A number of the Vegetables facilities are operated
only during the vegetable intake season. All other production facilities are
principally operated at or near capacity levels, but generally on the basis of
fewer than three shifts per day.
Further information relating to the Company's leases is contained in the
Note 10 to consolidated financial statements appearing in the Company's Fiscal
1997 Annual Report (Exhibit 13a hereto) on page 34. Such information is hereby
incorporated by reference.
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The locations of the Company's processing facilities, by product category
within business segment, are set forth below:
DAIRY
Fluid Milk and Cultured Products
Miami, Florida Barberton, Ohio
Orange City, Florida Springfield, Ohio
Orlando, Florida Erie, Pennsylvania
Chemung, Illinois Sharpsville, Pennsylvania
Huntley, Illinois Athens, Tennessee
Rockford, Illinois El Paso, Texas
Rochester, Indiana Lubbock, Texas
Louisville, Kentucky Salt Lake City, Utah
Evart, Michigan Sheyboygan, Wisconsin
Albuquerque, New Mexico
Ice Cream and Frozen Desserts
Belvidere, Illinois Athens, Tennessee
Albuquerque, New Mexico Barberton, Ohio
Extended Shelf Life
Jacksonville, Florida Murray, Kentucky
VEGETABLES
Frozen and Canned Vegetables
Oxnard, California Cambria, Wisconsin
Watsonville, California Darien, Wisconsin
Arlington, Minnesota Fairwater, Wisconsin
Waseca, Minnesota Fond du Lac, Wisconsin
Fulton, New York Green Bay, Wisconsin
McAllen, Texas Hortonville, Wisconsin
Uvalde, Texas Celaya, Mexico
PICKLES
Pickles, Relishes and Specialty Items
Atkins, Arkansas Plymouth, Indiana
LaJunta, Colorado Croswell, Michigan
Sanford, Florida Faison, North Carolina
Cairo, Georgia Green Bay, Wisconsin
SPECIALTY
Powdered Products
Pecatonica, Illinois Wayland, Michigan
Rockford, Illinois Abingdon, Oxon, United Kingdom
Sauces, Puddings and Dips
City of Industry, California Rockford, Illinois
Dixon, Illinois Thornton, Illinois
DFC Transportation Huntley, Illinois
Distribution branches for the Dairy segment are located in Alabama,
Florida, Georgia, Idaho, Illinois, Nevada, New Mexico, New York, Ohio,
Pennsylvania, South Carolina, Tennessee, Texas, and Virginia.
Distribution warehouses for the Vegetables, Pickles and Specialty segments
are maintained adjacent to many processing plants with public warehouses
utilized throughout the United States for further distribution of vegetable and
pickle products. The Company maintains powdered product warehouses utilized
throughout the United States. A Company-owned transportation terminal and
maintenance facility is located in Illinois.
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ITEM 3. LEGAL PROCEEDINGS.
Information on legal proceedings is contained in the Company's Fiscal 1997
Annual Report (Exhibit 13a hereto) on page 35 in Note 13 to the consolidated
financial statements. Such information is hereby incorporated herein by
reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended May 25, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding the Company's executive officers is set forth in Item
10 of Part III of this Report.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the New York Stock Exchange under
the ticker symbol DF. The range of Common Stock sales prices for each of the
quarters during the past two fiscal years (as reported by the New York Stock
Exchange) and the frequency and amount of Common Stock dividends declared the
past two fiscal years are set forth under the caption "Quarterly Financial Data"
at page 36 of the Company's Fiscal 1997 Annual Report (Exhibit 13a hereto) in
the rows captioned "Stock Price Range" and "Dividend Rate". Such rows and the
column and row captions related thereto are hereby incorporated herein by
reference.
The approximate number of holders of record of the Company's Common Stock
on August 8, 1997, was 8,792.
Restrictions on the Company's ability to pay dividends on its Common Stock
are described in the fifth paragraph of Note 4 to the consolidated financial
statements at page 31 of the Company's Fiscal 1997 Annual Report (Exhibit 13a
hereto), which paragraph is hereby incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data for each of the Company's last five fiscal years is
set forth at page 37 of the Company's Fiscal 1997 Annual Report (Exhibit 13a
hereto) under the caption "Summary of Operations". Such selected financial data
is hereby incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
A discussion of the Company's financial condition, cash flows and results
of operations, including information with respect to liquidity and capital
resources, is set forth at pages 18 through 23 of the Company's Fiscal 1997
Annual Report (Exhibit 13a hereto) under the caption "Financial Review", which
discussion is hereby incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's consolidated balance sheets as of May 25, 1997 and May 26,
1996 and related consolidated statements of income, of shareholders' equity and
of cash flows for each of the three fiscal years in the period ended May 25,
1997, and the notes thereto, together with the report thereon of independent
accountants, are set forth on pages 24 through 36 of the Company's Fiscal 1997
Annual Report (Exhibit 13a hereto). Such financial statements, notes thereto and
the report thereon of independent accountants are hereby incorporated herein by
reference.
Financial data for each quarter within the two most recent fiscal years is
set forth under the caption "Quarterly Financial Data" at page 36 of the
Company's Fiscal 1997 Annual Report (Exhibit 13a hereto) in the rows captioned
"Net Sales", "Gross Profit", "Net Income (Loss)" and "Per Common Share Data: Net
Income (Loss)". Such rows and row captions related thereto are hereby
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
11
<PAGE> 12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding the Company's directors (including nominees for
election at the Company's Annual Meeting of Stockholders to be held September
30, 1997) is set forth at pages 1 through 7 of the Company's 1997 Proxy
Statement under the captions "ELECTION OF DIRECTORS" and "CERTAIN INFORMATION
REGARDING THE BOARD OF DIRECTORS". Such information is hereby incorporated
herein by reference.
Information supplied by the Company's executive officers who are not also
directors of the Company concerning their ages, business experiences, and
periods of service as executive officers is as follows:
<TABLE>
<CAPTION>
SERVED IN
SUCH POSITION
POSITION WITH THE COMPANY AGE SINCE
------------------------- --- -------------
<S> <C> <C> <C>
Robert E. Baker...................... Vice President, 50 1997
Strategic Planning
Eric A. Blanchard.................... Vice President, 41 1993
Secretary and General Counsel
Jenny L. Carpenter................... Vice President, 51 1995
Sales and Marketing --
Specialty Food Products
Gary A. Corbett...................... Vice President, Governmental 49 1993
and Dairy Industry Relations
Neil J. Finerty...................... Vice President, 52 1997
Human Resources
Gary D. Flickinger................... Vice President, 55 1993
Production and Engineering
Daniel E. Green...................... Group Vice President, 52 1992
Specialty Dairy Division
James R. Greisinger.................. Group Vice President and 56 1992
President of Dean Pickle and
Specialty Products Company
Cameron C. Hitchcock................. Treasurer 35 1997
Dale E. Kleber....................... Vice President and 41 1997
Assistant General Counsel
William M. Luegers, Jr. ............. Corporate Controller 43 1996
William R. McManaman................. Vice President, Finance 50 1996
and Chief Financial Officer
George A. Muck....................... Vice President, 59 1970
Research and Development
Douglas A. Parr...................... Vice President, 55 1993
Dairy Sales and Marketing
Dennis J. Purcell.................... Corporate Group Vice President 54 1993
Roger A. Ragland..................... Group Vice President, 63 1995
International
Gary P. Rietz........................ Chief Information Officer 41 1997
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
SERVED IN
SUCH POSITION
POSITION WITH THE COMPANY AGE SINCE
------------------------- --- -------------
<S> <C> <C> <C>
Jeffrey P. Shaw...................... Group Vice President and 40 1992
President of Dean Foods
Vegetable Company
</TABLE>
Each of the executive officers, including executive officers who are also
directors, was elected to serve as an executive officer until the next annual
meeting of directors, scheduled for September 30, 1997.
All of the Company's executive officers listed in Part III, Item 10 have
been employees of the Company for more than five years, with the exception of
Mr. Baker, Mr. Finerty, Mr. Hitchcock, Mr. Luegers, Mr. McManaman and Mr. Reitz.
Prior to assuming their current positions,
- -- Mr. Blanchard was the Company's secretary and general counsel;
- -- Ms. Carpenter was the Company's Director of Marketing and Sales-Specialty
Foods Division;
- -- Mr. Corbett was in the Company's sales administration management;
- -- Mr. Flickinger was the Director of Production -- Dairy and a divisional
general manager;
- -- Mr. Green was the Company's Vice President, Corporate Planning and
Development;
- -- Mr. Greisinger was a Company Vice President and President of Dean Pickle and
Specialty Products Company;
- -- Mr. Kleber was a Corporate attorney;
- -- Mr. Parr was a Company regional sales manager;
- -- Mr. Purcell was Senior Vice President of Sales and Marketing of Dean Pickle
and Specialty Products Company;
- -- Mr. Ragland was a divisional sales vice president;
- -- Mr. Shaw was President of the Company's Richard A. Shaw, Inc. subsidiary,
which was subsequently merged into Dean Foods Vegetable Company.
Mr. Baker was employed by the Company during 1997. Mr. Baker, prior to his
employment by the Company, was the Vice President -- Marketing & Strategic
Planning of Specialty Foods Company, a diversified food company.
Mr. Finerty has been employed by the Company since 1995. Prior to assuming his
present duties, he was Director -- Industrial Relations. Mr. Finerty, prior to
his employment with the Company, was Assistant Director -- Labor Relations of
Borden Inc., a diversified food and dairy company.
Mr. Hitchcock was employed by the Company in 1997. Mr. Hitchcock, prior to his
employment with the Company, was Vice President -- Corporate Finance of Duetsche
Morgan Grenfell, Inc., the global investment banking arm of Duetsche Bank Group.
Mr. Luegers has been employed by the Company since 1996. Mr. Luegers, prior to
his employment with Company, was Director of Accounting of Brunswick
Corporation, a diversified marine and recreational products company.
Mr. McManaman has been employed by the Company since 1996. Mr. McManaman, prior
to this employment by the Company, was the Vice President -- Finance of
Brunswick Corporation, a diversified marine and recreational products company.
Mr. Rietz was employed by the Company in 1997. Mr. Reitz, prior to his
employment with the Company, was Business Systems Manager -- North American
Beverage Division of Quaker Oats Company, a diversified food and beverage
company.
13
<PAGE> 14
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding the cash compensation of the Company's executive
officers, compensation pursuant to plans and compensation of the Company's
directors (including nominees for election at the Company's Annual Meeting of
stockholders to be held September 30, 1997) is set forth in the Company's 1997
Proxy Statement at pages 6 through 7 under the caption "CERTAIN INFORMATION
REGARDING THE BOARD OF DIRECTORS" and at pages 8 through 15 under the caption
"EXECUTIVE COMPENSATION." Such information is hereby incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners and
management is set forth in the Company's 1997 Proxy Statement at page 20 under
the caption "PRINCIPAL HOLDERS OF VOTING SECURITIES". Such information is hereby
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
14
<PAGE> 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Report. The page
number, if any, listed opposite a document indicates the page number in
the sequential numbering system in the manually signed original of this
Report where such document can be found.
PAGE NO.
--------
(1) Financial Statements
The consolidated balance sheets at May 25, 1997 and May 26,
1996, the related consolidated statements of income, of
shareholders' equity and of cash flows for each of the three
fiscal years in the period ended May 25, 1997, and the notes
thereto, together with the report thereon of Price
Waterhouse LLP dated June 24, 1997, as incorporated by
reference in Part II, Item 8 of this Report.
(2) Financial Statement Schedules
Report of independent accountants on financial statement
schedule.................................................... 17
Schedule VIII -- Valuation and qualifying accounts.......... 18
All other schedules have been omitted because they are not
applicable, or not required, or because the required
information is shown in the consolidated financial
statements or notes thereto.
Separate financial statements of the Registrant have been
omitted since the Registrant is primarily an operating
company and all subsidiaries included in the consolidated
financial statements, in the aggregate, do not have minority
equity interest and/or indebtedness to any person other than
the Registrant or its consolidated subsidiaries in amounts
which together exceed 5% of total consolidated assets at May
25, 1997, except for indebtedness incurred in the ordinary
course of business which is not overdue and which matures
within one year from the date of its creation.
(3) Exhibits
See Exhibit Index........................................... 19-20
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the fiscal
year ended May 25, 1997.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By WILLIAM R. MCMANAMAN
------------------------------------
William R. McManaman
(Vice President, Finance and
Chief Financial Officer)
Date: August 22, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
HOWARD M. DEAN Chairman of the Board and Director August 22, 1997
- -----------------------
Howard M. Dean
EDWARD A. BRENNAN Director August 22, 1997
- -----------------------
Edward A. Brennan
LEWIS M. COLLENS Director August 22, 1997
- -----------------------
Lewis M. Collens
PAULA H. CROWN Director August 22, 1997
- -----------------------
Paula H. Crown
JOHN P. FRAZEE, JR. Director August 22, 1997
- -----------------------
John P. Frazee, Jr.
BERT A. GETZ Director August 22, 1997
- -----------------------
Bert A. Getz
JOHN S. LLEWELLYN, JR Director August 22, 1997
- -----------------------
John S. Llewellyn, Jr
PHILIP A. MARINEAU President and Director August 22, 1997
- -----------------------
Philip A. Marineau
RICHARD P. MAYER Director August 22, 1997
- -----------------------
Richard P. Mayer
ANDREW J. MCKENNA Director August 22, 1997
- -----------------------
Andrew J. McKenna
THOMAS A. RAVENCROFT Senior Vice President and Director August 22, 1997
- -----------------------
Thomas A. Ravencroft
THOMAS L. ROSE Vice Chairman and Director August 22, 1997
- -----------------------
Thomas L. Rose
16
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
Dean Foods Company
Our audits of the consolidated financial statements referred to in our
report dated June 24, 1997, appearing on page 36 of the Dean Foods Company
Annual Report to Shareholders for Fiscal Year Ended May 25, 1997 (which report
and consolidated financial statements are incorporated by reference in this
Annual Report on Form 10-K) also included an audit of the Financial Statement
Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial
Statement Schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
PRICE WATERHOUSE LLP
Chicago, Illinois
June 24, 1997
17
<PAGE> 18
DEAN FOODS COMPANY AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
AMOUNT CHARGED
BALANCE AT (CREDITED) BALANCE
BEGINNING TO COSTS AND ACCOUNTS AT END
CLASSIFICATION OF PERIOD EXPENSES WRITTEN OFF OF PERIOD
-------------- ---------- -------------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fiscal Year Ended May 25, 1997
Allowance for doubtful accounts and notes
receivable...................................... $3,201 $ 930 $ 546 $3,585
====== ====== ====== ======
Fiscal Year Ended May 26, 1996
Allowance for doubtful accounts and notes
receivable...................................... $4,257 $2,000 $3,056 $3,201
====== ====== ====== ======
Fiscal Year Ended May 28, 1995
Allowance for doubtful accounts and notes
receivable...................................... $3,875 $ 666 $ 284 $4,257
====== ====== ====== ======
</TABLE>
18
<PAGE> 19
EXHIBIT INDEX
The following documents are the exhibits to this Report. For convenient
reference, each exhibit is listed according to the number assigned to it in the
Exhibit Table of Item 601 of Regulation S-K. The page number, if any, listed
opposite an exhibit indicates the page number in the sequential numbering system
in the manually signed original of this Report where such exhibit can be found.
PAGE NO.
--------
(3) Articles of Incorporation and By-Laws
a. Dean Foods Company Restated Certificate of Incorporation
dated February 8, 1988 (filed as Exhibit 3(a) to
Registrant's Form 10-K Annual Report for Fiscal Year
Ended May 29, 1988 and incorporated herein by reference)
b. By-Laws of Registrant, as amended January 26, 1996 (filed
as Exhibit 3(b) to the Registrant's Form 10-K Annual Report
for Fiscal Year Ended May 26, 1996 and incorporated
herein by reference)
(4) Instruments defining the rights of security holders, including indentures
a. Rights Agreement dated July 28, 1988 (filed as Exhibit
4(a) to the Registrant's Form 10-K Annual Report for Fiscal
Year Ended May 28, 1989 and incorporated herein by
reference)
b. Amendment dated December 1, 1989, to Rights Agreement
dated July 28, 1988 (filed as exhibit 4(b) to Registrant's
Form 10-K Annual Report for Fiscal Year Ended May 27,
1990 and incorporated herein by reference)
(10) Material contracts
a. Amended and Restated Dean Foods Company Management
Deferred Compensation Plan, dated as of June 1, 1994 (filed
as Exhibit 10(a) to Registrant's Form 10-K Annual Report
for Fiscal Year Ended May 29, 1994 and incorporated
herein by reference)
b. Dean Foods Company Retirement Plan for Certain Directors
(filed as Exhibit 10(a) to Registrant's Form 10-K Annual
Report for Fiscal Year Ended December 28, 1985 and
incorporated herein by reference)
c. Form of Agreement dated March 17, 1986, between
Registrant and each of its current executive officers (filed
as Exhibit 10(b) to Registrant's Form 10-K Annual Report
for Fiscal Year Ended December 28, 1985 and incorporated
herein by reference)
d. Form of Indemnification Agreement between Registrant and
each of its directors and officers serving at any time after
October 5, 1987 (filed as Exhibit 10(m) to Registrant's
Form 10-K Annual Report for Fiscal Year Ended May 29,
1988, and incorporated herein by reference)
e. Amended and Restated Dean Foods Company Directors
Deferred Compensation Plan, dated March 25, 1988 (filed as
Exhibit 10(j) to Registrant's Form 10-K Annual Report for
Fiscal Year Ended May 28, 1989 and incorporated herein by
reference)
f. Dean Foods Company Supplemental Benefit Plan for eligible
officers, as amended and restated on May 24, 1991 (filed as
Exhibit 10(k) to Registrant's Form 10-K Annual Report for
Fiscal Year ended May 26, 1991 and incorporated herein by
reference)
g. Dean Foods Company Supplemental Incentive Compensation
Plan for certain officers, as amended March 31, 1989 (filed
as Exhibit 10(l) to Registrant's Form 10-K Annual Report
for Fiscal Year Ended May 28, 1989 and incorporated
herein by reference)
h. Dean Foods Company Director Stock Option Plan, dated
September 30, 1992 (filed as Exhibit 10(i) to Registrant's
Form 10-K Annual Report for Fiscal Year ended May 30,
1993 and incorporated herein by reference)
i. Employment Agreement dated December 2, 1996 between the
Company and Philip A. Marineau (filed as Exhibit 10(a) to
Registrant's Form 10-Q Quarterly Report for Quarterly
Period Ended February 23, 1997 and incorporated herein by
reference)
19
<PAGE> 20
PAGE NO.
----------
j. Severance, Consulting and Non-Compete Agreement dated
December 5, 1996 between the Company and Thomas L. Rose
(filed as Exhibit 10(b) to Registrant's Form 10-Q
Quarterly Report for Quarterly Period Ended February 23,
1997 and incorporated herein by reference)
k. $200 million Credit Agreement dated February 16, 1995;
Amendment #1 dated February 13, 1996; Amendment #2 dated
June 24, 1996; and Amendment and Restatement of Credit
Agreement dated February 4, 1997.......................... 21-120
(11) Statement re computation of per share earnings............... 121
(12) Computation of Ratio of Earnings to Fixed Charges............ 122
(13) Annual report to security holders, Form 10-Q or quarterly
report to security holders
a. Dean Foods Company Annual Report to Shareholders for
Fiscal Year Ended May 25, 1997............................ 123-164
With the exception of the financial statements, report of
independent accountants thereon and certain other
information expressly incorporated herein by reference, the
Registrant's Annual Report to Shareholders for Fiscal Year
Ended May 25, 1997 is not to be deemed filed as part of
this Report.
(21) Subsidiaries of the Registrant
a. Subsidiaries of the Registrant as of May 25, 1997......... 165
(23) Consents of Experts and Counsel
a. Consent of Independent Accountants dated August 22,
1997......................................................... 166
(27) Financial Data Schedules..................................... 167
20
<PAGE> 1
EXHIBIT 10
$200,000,000
CREDIT AGREEMENT
dated as of
February 16, 1995
among
Dean Foods Company,
The Banks Listed Herein,
Harris Trust & Savings Bank,
as Co-Agent
and
Morgan Guaranty Trust Company of New York,
as Agent
1
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE 1
DEFINITIONS
1.1. Definitions........................................................ 1
1.2. Accounting Terms and Determinations................................ 13
1.3. Types of Borrowings................................................ 13
ARTICLE 2
THE CREDITS
2.1. Commitments to Lend................................................ 14
2.2. Notice of Committed Borrowing...................................... 14
2.3. Money Market Borrowings............................................ 15
2.4. Notice to Banks; Funding of Loans.................................. 19
2.5. Notes.............................................................. 20
2.6. Maturity of Loans.................................................. 20
2.7. Interest Rates..................................................... 21
2.8. Fees............................................................... 23
2.9. Optional Termination or Reduction of Commitments................... 23
2.10. Method of Electing Interest Rates.................................. 23
2.11. Mandatory Termination of Commitments............................... 25
2.12. Optional Prepayments............................................... 25
2.13. General Provisions as to Payments.................................. 25
2.14. Funding Losses..................................................... 26
2.15. Regulation D Compensation.......................................... 26
2.16. Computation of Interest and Fees................................... 27
2.17. Change of Control.................................................. 27
ARTICLE 3
CONDITIONS
3.1. Closing............................................................ 28
3.2. Borrowings......................................................... 29
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1. Corporate Existence and Power...................................... 29
4.2. Corporate and Governmental Authorization; No Contravention......... 29
4.3. Binding Effect..................................................... 30
i
<PAGE> 3
Page
----
4.4. Financial Information......................................... 30
4.5. Litigation.................................................... 31
4.6. Compliance with ERISA......................................... 31
4.7. Environmental Matters......................................... 31
4.8. Taxes......................................................... 32
4.9. Subsidiaries.................................................. 32
4.10. Regulatory Restrictions on Borrowing.......................... 32
4.11. Liens......................................................... 32
4.12. Full Disclosure............................................... 32
ARTICLE 5
COVENANTS
5.1. Information................................................... 33
5.2. Payment of Obligations........................................ 35
5.3. Maintenance of Property; Insurance............................ 35
5.4. Conduct of Business and Maintenance of Existence.............. 35
5.5. Compliance with Laws.......................................... 36
5.6. Inspection of Property, Books and Records..................... 36
5.7. Mergers and Sales of Assets................................... 36
5.8. Use of Proceeds............................................... 37
5.9. Negative Pledge............................................... 37
5.10. Adjusted Debt to Adjusted Total Capital....................... 38
5.11. Fixed Charge Coverage Ratio................................... 38
ARTICLE 6
DEFAULTS
6.1. Events of Default............................................. 39
6.2. Notice of Default............................................. 41
ARTICLE 7
THE AGENT
7.1. Appointment and Authorization................................. 41
7.2. Agents and Affiliates......................................... 41
7.3. Action by Agent............................................... 42
7.4. Consultation with Experts..................................... 42
7.5. Liability of Agent............................................ 42
7.6. Indemnification............................................... 42
7.7. Credit Decision............................................... 43
7.8. Successor Agent............................................... 43
7.9. Agent's Fee................................................... 43
7.10. Co-Agent...................................................... 43
ii
<PAGE> 4
ARTICLE 8
CHANGE IN CIRCUMSTANCES
Page
----
8.1. Basis for Determining Interest Rate Inadequate or Unfair ........... 43
8.2. Illegality ......................................................... 44
8.3. Increased Cost and Reduced Return .................................. 45
8.4. Taxes .............................................................. 46
8.5. Base Rate Loans Substituted for Affected Euro-Dollar Loans ......... 48
8.6. Substitution of Bank ............................................... 49
ARTICLE 9
MISCELLANEOUS
9.1. Notices ............................................................ 49
9.2. No Waivers ......................................................... 50
9.3. Expenses; Indemnification .......................................... 50
9.4. Sharing of Set-Offs ................................................ 51
9.5. Amendments and Waivers ............................................. 51
9.6. Successors and Assigns ............................................. 51
9.7. Collateral ......................................................... 53
9.8. Governing Law; Submission to Jurisdiction .......................... 53
9.9. Counterparts; Integration; Effectiveness ........................... 54
9.10. WAIVER OF JURY TRIAL ............................................... 54
EXHIBIT A - Note
EXHIBIT B - Form of Money Market Quote Request
EXHIBIT C - Form of Invitation for Money Market Quote
EXHIBIT D - Form of Money Market Quote
EXHIBIT E - Opinion of Counsel for the Borrower
EXHIBIT F - Opinion of Davis Polk & Wardwell,
Special Counsel for the Agent
EXHIBIT G - Assignment and Assumption Agreement
iii
<PAGE> 5
AGREEMENT dated as of February 16, 1995 among DEAN FOODS COMPANY, the
BANKS listed on the signature pages hereof, HARRIS TRUST & SAVINGS BANK, as
Co-Agent and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent.
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein, have
the following meanings:
"Absolute Rate Auction" means a solicitation of Money Market Quotes
setting forth Money Market Absolute Rates pursuant to Section 2.3.
"Adjusted Consolidated Debt" means, at any date, (a) Consolidated Debt
for Borrowed Money minus (b) in the case of any determination thereof made with
respect to a date during the two fiscal quarters of the Borrower ending most
nearly on November 30 and February 28, respectively, of any Fiscal Year, and to
the extent otherwise included in the calculation of Consolidated Debt for
Borrowed Money, the Inventory Financing Amount, all determined as of such date.
For purposes of this definition, "Inventory Financing Amount" means at any date
the outstanding amount of Consolidated Debt for Borrowed Money with a stated
maturity of not more than 270 days borrowed for the purpose of financing
purchases of inventory by the Borrower and its Consolidated Subsidiaries, but
in no event greater than the lesser of (A) the amount (if any) by which (I) the
inventory of the Borrower and its Consolidated Subsidiaries as of the then-most
recent Monthly Accounting Date occurring more than 15 Domestic Business Days
prior to such date exceeds (II) the amount of such inventory as of the Monthly
Accounting Date occurring most nearly on the then-most recent June 3Oth and (B)
the amount set forth below opposite the Fiscal Year of the Borrower in which
such date occurs:
<TABLE>
<CAPTION>
Fiscal Year Maximum Exclusion
----------- -----------------
<S> <C>
1996 $130,000,000
1996 140,000,000
1998 150,000,000
</TABLE>
1
<PAGE> 6
<TABLE>
<S> <C>
1999 160,000,000
2000 170,000,000
</TABLE>
"Administrative Questionnaire" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Agent and submitted to
the Agent (with a copy to the Borrower) duly completed by such Bank.
"Agent" means Morgan Guaranty Trust Company of New York in its capacity as
agent for the Banks hereunder, and its successors in such capacity.
"Applicable Lending Office" means, with respect to any Bank, (i) in the
case of its Base Rate Loans, its Domestic Lending Office, (ii) in the case of
its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of
its Money Market Loans, its Money Market Lending Office.
"Assignee" has the meaning set forth in Section 9.6(c).
"Bank" means each bank listed on the signature pages hereof, each Assignee
which becomes a Bank pursuant to Section 9.6(c), and their respective
successors.
"Base Rate" means, for any day, a rate per annum equal to the higher of
(i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal
Funds Rate for such day.
"Base Rate Loan" means (i) a Committed Loan which bears interest at the
Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice of
Interest Rate Election or the provisions of Article 8 or (ii) an overdue amount
which was a Base Rate Loan immediately before it became overdue.
"Benefit Arrangement" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer
Plan and which is maintained or otherwise contributed to by any member of the
ERISA Group.
"Borrower" means Dean Foods Company, a Delaware corporation, and its
successors.
"Borrower's 1994 Form 10-K" means the Borrower's annual report on Form
10-K for 1994, as filed with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934.
2
<PAGE> 7
"Borrower's Latest Form 10-Q" means the Borrower's quarterly report on
Form 10-Q for the quarter ended November 27, 1994, as filed with the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934.
"Borrowing" has the meaning set forth in Section 1.3.
"Closing Date" means the date on or after the Effective Date on which the
Agent shall have received the documents specified in or pursuant to Section
3.1.
"Co-Agent" means Harris Trust & Savings Bank, in its capacity as co-agent.
"Commitment" means, with respect to each Bank, the amount set forth
opposite the name of such Bank on the signature pages hereof, or, in the case
of any Assignee that becomes a Bank after the date hereof, as may be set forth
in the relevant Assignment and Assumption Agreement executed pursuant to
Section 9.6, as such amount may be reduced from time to time pursuant to
Section 2.9.
"Commitment Termination Date" means February 15, 2000, or, if such day is
not a Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day
unless such Euro-Dollar Business Day falls in another calendar month, in which
case the Commitment Termination Date shall be the next preceding Euro-Dollar
Business Day; provided that if by May 15, 1995 the Agent shall not have
received (i) evidence satisfactory to it that the execution and delivery of
this Agreement and the Notes by relevant officers of the Borrower, and the
performance of this Agreement by the Borrower, in each case with respect to
Borrowings maturing not earlier than February 15, 2000, shall have been duly
authorized and/or ratified by all necessary corporate action and (ii) an
opinion of Eric A. Blanchard, Esq., general counsel of the Borrower, to the
effect of the matters referred to in clause (i), then "Commitment Termination
Date" means August 16, 1995.
"Committed Loan" means a loan made by a Bank pursuant to Section 2.1;
provided that, if any such loan or loans (or portions thereof) are combined or
subdivided pursuant to a Notice of Interest Rate Election, the term "Committed
Loan" shall refer to the combined principal amount resulting from such
combination or to each of the separate principal amounts resulting from such
subdivision, as the case may be.
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<PAGE> 8
"Consolidated Debt for Borrowed Money" means at any date Debt of the
Borrower and its Consolidated Subsidiaries of the type referred to in clauses
(i), (ii) and (iv) of the definition of Debt.
"Consolidated EBIT" means, for any fiscal period, Consolidated Net
Income for such period plus, to the extent deducted in determining Consolidated
Net Income for such period, the aggregate amount of (i) Consolidated Interest
Expense and (ii) income tax expense.
"Consolidated Interest Expense" means, for any period, the interest
expense of the Borrower and its Consolidated Subsidiaries determined on a
consolidated basis for such period.
"Consolidated Net Income" means, for any fiscal period, the net income
of the Borrower and its Consolidated Subsidiaries, determined on a consolidated
basis for such period, exclusive of the effect of any extraordinary gain or
loss.
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which would be consolidated with those of the Borrower
in its consolidated financial statements if such statements were prepared as of
such date.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business, (iv) all obligations of such Person as lessee which are
capitalized in accordance with generally accepted accounting principles, (v)
all non-contingent obligations of such Person to reimburse any bank or other
Person in respect of amounts paid under a letter of credit or similar
instrument (and, for purposes of Section 5.9 and the definitions of Material
Debt and Material Financial Obligations, all contingent obligations of such
nature), (vi) all Debt secured by a Lien on any asset of such Person, whether
or not such Debt is otherwise an obligation of such Person and (vii) all Debt
of others Guaranteed by such Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
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"Derivatives Obligations" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency
option or any other similar transaction (including any option with respect to
any of the foregoing transactions) or any combination of the foregoing
transactions.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.
"Domestic Lending Office" means, as to each Bank, its office located
at its address set forth in its Administrative Questionnaire (or identified in
its Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Agent.
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 9.9.
"Environmental and Health Laws" means any and all federal, state,
local and foreign statutes, laws, judicial decisions, regulations, ordinances,
rules, judgments, orders, decrees, plans, injunctions, permits, concessions,
grants, franchises, licenses, agreements and other governmental restrictions
relating to human health and safety (including without limitation occupational
safety and health standards), the environment, the effect of the environment on
human health or to emissions, discharges or releases of pollutants,
contaminants, Hazardous Substances or wastes into the environment including,
without limitation, ambient air, surface water, ground water, or land, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, Hazardous Substances or wastes or the clean-up or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Borrower, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under
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<PAGE> 10
common control which, together with the Borrower or any Subsidiary, are treated
as a single employer under Section 414 of the Internal Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its office,
branch or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice
to the Borrower and the Agent.
"Euro-Dollar Loan" means (i) a Committed Loan which bears interest at
a Euro-Dollar Rate pursuant to the applicable Notice of Committed Borrowing or
Notice of Interest Rate Election or (ii) an overdue amount which was a
Euro-Dollar Loan immediately before it became overdue.
"Euro-Dollar Margin" means a rate per annum determined in accordance
with the Pricing Schedule.
"Euro-Dollar Rate" means a rate of interest determined pursuant to
Section 2.7(b) on the basis of a London Interbank Offered Rate.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or
other assets which includes loans by a non-United States office of any Bank to
United States residents).
"Event of Default" has the meaning set forth in Section 6.1.
"Existing Credit Agreement" means the Credit Agreement dated as of
August 24, 1994 among the Borrower, the banks party thereto and Bank of
Montreal, Chicago Branch, as agent.
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<PAGE> 11
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest l/lOOth of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to Morgan Guaranty Trust Company of New
York on such day on such transactions as determined by the Agent.
"Fixed Rate Loans" means Euro-Dollar Loans or Money Market Loans
(excluding Money Market LIBOR Loans bearing interest at the Base Rate pursuant
to Section 8.1) or both.
"Fiscal Year" means a fiscal year of the Borrower, and "Fiscal Year"
for any particular year means the fiscal year of the Borrower ended or ending
during the specified calendar year (for example, "Fiscal Year 1996" means the
fiscal year of the Borrower ending most nearly on May 31, 1996).
"Group of Loans" means at any time a group of Loans consisting of (i)
all Committed Loans which are Base Rate Loans at such time or (ii) all
EuroDollar Loans having the same Interest Period at such time, provided that,
if a Committed Loan of any particular Bank is converted to or made as a Base
Rate Loan pursuant to Article 8, such Loan shall be included in the same Group
or Groups of Loans from time to time as it would have been in if it had not
been so converted or made.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Debt (whether arising by virtue of partnership arrangements, by agreement
to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for the purpose of assuring in any other manner the obligee
of such
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<PAGE> 12
Debt of the payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part), provided that the term Guarantee shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Hazardous Substances" means any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any constituent
elements displaying any of the foregoing characteristics.
"Indemnity" has the meaning set forth in Section 9.3(b).
"Interest Period" means: (1) with respect to each Euro-Dollar Loan,
the period commencing on the date of borrowing specified in the applicable
Notice of Borrowing or on the date specified in the applicable Notice of
Interest Rate Election and ending one, two, three or six months thereafter, as
the Borrower may elect in the applicable notice; provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on
the nest preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Commitment Termination Date shall end on the Commitment Termination Date.
(2) with respect to each Money Market LIBOR Loan, the period
commencing on the date of borrowing Specified in the applicable Notice of
Borrowing and ending such whole number of months thereafter as the Borrower may
elect in accordance with Section 2.3; provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall
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<PAGE> 13
be extended to the nest succeeding Euro-Dollar Business Day unless such
Euro-Dollar Business Day falls in another calendar month, in which case
such Interest Period shall end on the next preceding Euro-Dollar Business
Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Commitment Termination Date shall end on the Commitment Termination Date.
(3) with respect to each Money Market Absolute Rate Loan, the period
commencing on the date of borrowing specified in the applicable Notice of
Borrowing and ending such number of days thereafter (but not less than 15 days)
as the Borrower may elect in accordance with Section 2.3; provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the nest succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Commitment Termination Date shall end on the Commitment Termination Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"LIBOR Auction" means a solicitation of Money Market Quotes setting
forth Money Market Margins based on the London Interbank Offered Rate pursuant
to Section 2.3.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, the
Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset
which it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement relating to such asset.
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<PAGE> 14
"Loan" means a Base Rate Loan, a Euro-Dollar Loan or a Money Market
Loan and "Loans" means Base Rate Loans, Euro-Dollar Loans or Money
Market Loans or any combination of the foregoing.
"London Interbank Offered Rate" has the meaning set forth in
Section 2.7(b).
"Material Debt" means Debt (other than the Notes) of the Borrower
and/or one or more of its Subsidiaries, arising in one or more related or
unrelated transactions, in an aggregate principal or face amount exceeding
$10,000,000.
"Material Financial Obligations" means a principal or face amount
of Debt and/or payment obligations in respect of Derivatives
Obligations of the Borrower and/or one or more of its Subsidiaries, arising in
one or more related or unrelated transactions, exceeding in the aggregate
$10,000,000.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $5,000,000.
"Money Market Absolute Rate" has the meaning set forth in Section
2.3(d).
"Money Market Absolute Rate Loan" means a loan to be made by a Bank
pursuant to an Absolute Rate Auction.
"Money Market Lending Office" means, as to each Bank, its Domestic
Lending Office or such other office, branch or affiliate of such Bank
as it may hereafter designate as its Money Market Lending Offices by notice to
the Borrower and the Agent; provided that any Bank may from time to time by
notice to the Borrower and the Agent designate separate Money Market Lending
Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market
Absolute Rate Loans, on the other hand, in which case all references herein to
the Money Market Lending Office of such Bank shall be deemed to refer to either
or both of such offices, as the context may require.
"Money Market LIBOR Loan" means a loan to be made by a Bank
pursuant to a LIBOR Auction (including such a loan bearing interest at
the Base Rate pursuant to Section 8.1).
"Money Market Loan" means a Money Market LIBOR Loan or a Money Market
Absolute Rate Loan.
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"Money Market Margin" has the meaning set forth in Section 2.3(d)(ii)(c).
"Money Market Quote" means an offer by a Bank to make a Money Market Loan
in accordance with Section 2.3.
"Monthly Accounting Date" means each Sunday occurring most nearly on the
last day of a calendar month (whether before or after such last day),
representing the last day of each four-week or five-week accounting period of
the Borrower.
"Multi employer Plan" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for
these purposes any Person which ceased to be a member of the ERISA Group during
such five year period.
"Notes" means promissory notes of the Borrower, substantially in the form
of Exhibit A hereto, evidencing the obligation of the Borrower to repay the
Loans, and "Note" means any one of such promissory notes issued hereunder.
"Notice of Borrowing" means a Notice of Committed Borrowing or a Notice of
Money Market Borrowing.
"Notice of Committed Borrowing" has the meaning set forth in Section 2.2.
"Notice of Interest Rate Election" has the meaning set forth in Section
2.10.
"Notice of Money Market Borrowing" has the meaning set forth in Section
2.3(f).
"Parent" means, with respect to any Bank, any Person controlling such
Bank.
"Participant" has the meaning set forth in Section 9.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or
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<PAGE> 16
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Plan" means at any time an employee pension benefit plan (other
than a Multiemployer Plan) which is covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Internal
Revenue Code and either (i) is maintained, or contributed to, by any member of
the ERISA Group for employees of any member of the ERISA Group or (ii) has at
any time within the preceding five years been maintained, or contributed to, by
any Person which was at such time a member of the ERISA Group for employees of
any Person which was at such time a member of the ERISA Group.
"Pricing Schedule" means the Schedule attached hereto identified as
such.
"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"Quarterly Date" means March 31, June 30, September 30 and December
31.
"Reference Banks" means the principal London offices of Bank of
America Illinois, Westdeutsche Landesbank Girozentrale, New York and
Cayman Islands Branches and Morgan Guaranty Trust Company of New York, and
"Reference Bank" means any one of such Reference Banks.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Required Banks" means at any time Banks having at least 66-2/3% of
the aggregate amount of the Commitments or, if the Commitments shall have been
terminated, holding Notes evidencing at least 66-2/3% of the aggregate unpaid
principal amount of the Loans.
"Revolving Credit Period" means the period from and including the
Closing Date to but excluding the Commitment Termination Date.
"Subsidiary" means, as to any Person, any corporation or other
entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or
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<PAGE> 17
indirectly owned by such Person; unless otherwise specified, "Subsidiary" means
a Subsidiary of the Borrower.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed
by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market
value of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"United States" means the United States of America, including the
States and the District of Columbia, but excluding its territories and
possessions.
SECTION 1.2. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time,
applied on a basis consistent (except for changes concurred in by the
Borrower's independent public accountants) with the most recent audited
consolidated financial statements of the Borrower and its Consolidated
Subsidiaries delivered to the Banks; provided that, if the Borrower notifies
the Agent that the Borrower wishes to amend any covenant in Article 5 to
eliminate the effect of any change in generally accepted accounting principles
on the operation of such covenant (or if the Agent notifies the Borrower that
the Required Banks wish to amend Article 5 for such purpose), then the
Borrower's compliance with such covenant shall be determined on the basis of
generally accepted accounting principles in effect immediately before the
relevant change in generally accepted accounting principles became effective,
until either such notice is withdrawn or such covenant is amended in a manner
satisfactory to the Borrower and the Required Banks.
SECTION 1.3. Types of Borrowings. The term "Borrowing" denotes the
aggregation of Loans of one or more Banks to be made to the Borrower pursuant
to Article 2 on the same date, all of which Loans are of the same type (subject
to Article 8) and, except in the case of Base Rate Loans, have the same initial
Interest Period. Borrowings are classified for purposes of this Agreement
either by
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<PAGE> 18
reference to the pricing of Loans comprising such Borrowing (e.g., a "Fixed
Rate Borrowing" is a Euro-Dollar Borrowing or a Money Market Borrowing
(excluding any such Borrowing consisting of Money Market LIBOR Loans bearing
interest at the Base Rate pursuant to Section 8.1), and a "Euro-Dollar
Borrowing" is a Borrowing comprised of Euro-Dollar Loans) or by reference to
the provisions of Article 2 under which participation therein is determined
(i.e., a "Committed Borrowing" is a Borrowing under Section 2.1 in which all
Banks participate in proportion to their Commitments, while a "Money Market
Borrowing" is a Borrowing under Section 2.3 in which the Bank participants are
determined on the basis of their bids in accordance therewith).
ARTICLE 2
THE CREDITS
SECTION 2.1. Commitments to Lend. During the Revolving Credit
Period, each Bank severally agrees, on the terms and conditions set forth in
this Agreement, to make loans to the Borrower pursuant to this Section from
time to time in amounts such that the aggregate principal amount of Committed
Loans by such Bank at any one time outstanding shall not exceed the amount of
its Commitment. Each Borrowing under this Section shall be in an aggregate
principal amount of $10,000,000 or any larger multiple of $1,000,000 (except
that any such Borrowing may be in the aggregate amount available in accordance
with Section 3.2) and shall be made from the several Banks ratably in
proportion to their respective Commitments. Within the foregoing limits, the
Borrower may borrow under this Section, prepay Loans to the extent permitted by
Section 2.12 and reborrow at any time during the Revolving Credit Period under
this Section.
SECTION 2.2. Notice of Committed Borrowing. The Borrower shall give
the Agent notice (a "Notice of Committed Borrowing") not later than 11:00 A.M.
(New York City time) on (x) the date of each Base Rate Borrowing and (y) the
third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying:
(i) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in
the case of a Euro-Dollar Borrowing;
(ii) the aggregate amount of such Borrowing;
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<PAGE> 19
(iii) whether the Loans comprising such Borrowing are to bear
interest initially at the Base Rate or a Euro-Dollar Rate; and
(iv) in the case of a Euro-Dollar Borrowing, the duration of the
Interest Period applicable thereto, subject to the provisions of the
definition of Interest Period.
SECTION 2.3. Money Market Borrowings. (a) The Money Market Option.
In addition to Committed Borrowings pursuant to Section 2.1, the Borrower may,
as set forth in this Section, request the Banks during the Revolving Credit
Period to make offers to make Money Market Loans to the Borrower. The Banks
may, but shall have no obligation to, make such offers and the Borrower may,
but shall have no obligation to, accept any such offers in the manner set forth
in this Section.
(b) Money Market Quote Request. When the Borrower wishes to request
offers to make Money Market Loans under this Section, it shall transmit to the
Agent by facsimile transmission a Money Market Quote Request substantially in
the form of Exhibit B hereto so as to be received not later than 11:00 A.M.
(New York City time) on (x) the fifth Euro-Dollar Business Day prior to the
date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the
Domestic Business Day next preceding the date of Borrowing proposed therein, in
the case of an Absolute Rate Auction (or, in either case, such other time or
date as the Borrower and the Agent shall have mutually agreed and shall have
notified to the Banks not later than the date of the Money Market Quote
Request for the first LIBOR Auction or Absolute Rate Auction for which such
change is to be effective) specifying:
(i) the proposed date of Borrowing, which shall be a Euro-Dollar
Business Day in the case of a LIBOR Auction or a Domestic Business Day in
the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which shall be
$10,000,000 or a larger multiple of $1,000,000,
(iii) the duration of the Interest Period applicable thereto,
subject to the provisions of the definition of Interest Period, and
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<PAGE> 20
(iv) whether the Money Market Quotes requested are to set forth a
Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request. No Money Market Quote
Request shall be given within five Euro-Dollar Business Days (or such other
number of days as the Borrower and the Agent may agree) of any other Money
Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly upon receipt of a
Money Market Quote Request, the Agent shall send to the Banks by facsimile
transmission an Invitation for Money Market Quotes substantially in the form of
Exhibit C hereto, which shall constitute an invitation by the Borrower to each
Bank to submit Money Market Quotes offering to make the Money Market Loans to
which such Money Market Quote Request relates in accordance with this Section.
(d) Submission and Contents of Money Market Quotes. (i) Each Bank
may submit a Money Market Quote containing an offer or offers to make Money
Market Loans in response to any Invitation for Money Market Quotes. Each Money
Market Quote must comply with the requirements of this subsection (d) and must
be submitted to the Agent by facsimile transmission at its offices specified in
or pursuant to Section 9.1 not later than (x) 2:00 P.M. (New York City time) on
the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in
the case of a LIBOR Auction or (y) 10:00 A.M. (New York City time) on the
proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in
either case, such other time or date as the Borrower and the Agent shall have
mutually agreed and shall have notified to the Banks not later than the date of
the Money Market Quote Request for the first LIBOR Auction or Absolute Rate
Auction for which such change is to be effective); provided that Money Market
Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity
of a Bank may be submitted, and may only be submitted, if the Agent or such
affiliate notifies the Borrower of the terms of the offer or offers contained
therein not later than (x) one hour prior to the deadline for the other Banks,
in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the
other Banks, in the case of an Absolute Rate Auction. Subject to Articles 3 and
6, any Money Market Quote so made shall be irrevocable except with the written
consent of the Agent given on the instructions of the Borrower.
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<PAGE> 21
(ii) Each Money Market Quote shall be in substantially the form of
Exhibit D hereto and shall in any case specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Money Market Loan for which each
such offer is being made, which principal amount (w) may be greater than
or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or
a larger multiple of $1,000,000, (y) may not exceed the principal amount
of Money Market Loans for which offers were requested and (z) may be
subject to an aggregate limitation as to the principal amount of Money
Market Loans for which offers being made by such quoting Bank may be
accepted,
(C) in the case of a LIBOR Auction, the margin above or below the
applicable London Interbank Offered Rate (the "Money Market Margin")
offered for each such Money Market Loan, expressed as a percentage
(specified to the nearest l/l0,000th of 1%) to be added to or subtracted
from such base rate,
(D) in the case of an Absolute Rate Auction, the rate of interest
per annum (specified to the nearest l/l0,000th of 1%) (the "Money Market
Absolute Rate") offered for each such Money Market Loan, and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the quoting
Bank with respect to each Interest Period specified in the related Invitation
for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
(A) is not substantially in conformity with Exhibit D hereto or
does not specify all of the information required by subsection (d)(ii);
(B) contains qualifying, conditional or similar language;
(C) proposes terms other than or in addition to those set forth in
the applicable Invitation for Money Market Quotes; or
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(D) arrives after the time set forth in subsection (d)(i).
(e) Notice to Borrower. The Agent shall promptly notify the
Borrower of the terms (x) of any Money Market Quote submitted by a Bank that is
in accordance with subsection (d), and (y) of any Money Market Quote that
amends, modifies or is otherwise inconsistent with a previous Money Market
Quote submitted by such Bank with respect to the same Money Market Quote
Request. Any such subsequent Money Market Quote shall be disregarded by the
Agent unless such subsequent Money Market Quote is submitted solely to correct
a manifest error in such former Money Market Quote. The Agent's notice to the
Borrower shall specify (A) the aggregate principal amount of Money Market Loans
for which offers have been received for each Interest Period specified in the
related Money Market Quote Request, (B) the respective principal amounts and
Money Market Margins or Money Market Absolute Rates, as the case may be, so
offered and (C) if applicable, limitations on the aggregate principal amount of
Money Market Loans for which offers in any single Money Market Quote may be
accepted.
(f) Acceptance and Notice by Borrower. Not later than 11:00 A.M.
(New York City time) on (x) the third Euro-Dollar Business Day prior to the
proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed
date of Borrowing, in the case of an Absolute Rate Auction (or, in either case,
such other time or date as the Borrower and the Agent shall have mutually
agreed and shall have notified to the Banks not later than the date of the
Money Market Quote Request for the first LIBOR Auction or Absolute Rate
Auction for which such change is to be effective), the Borrower shall notify
the Agent of its acceptance or non-acceptance of the offers so notified to it
pursuant to subsection (e). In the case of acceptance, such notice (a "Notice
of Money Market Borrowing") shall specify the aggregate principal amount of
offers for each Interest Period that are accepted. The Borrower may accept any
Money Market Quote in whole or in part; provided that:
(i) the aggregate principal amount of each Money Market Borrowing
may not exceed the applicable amount set forth in the related Money Market
Quote Request;
(ii) the principal amount of each Money Market Borrowing must be
$10,000,000 or a larger multiple of $1,000,000;
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(iii) acceptance of offers may only be made on the basis of
ascending Money Market Margins or Money Market Absolute Rates, as the case
may be; and
(iv) the Borrower may not accept any offer that is described in
subsection (d)(iii) or that otherwise fails to comply with the
requirements of this Agreement.
(g) Allocation by Agent. If offers are made by two or more Banks
with the same Money Market Margins or Money Market Absolute Rates, as the case
may be, for a greater aggregate principal amount than the amount in respect of
which such offers are accepted for the related Interest Period, the principal
amount of Money Market Loans in respect of which such offers are accepted shall
be allocated by the Agent among such Banks as nearly as possible (in multiples
of $1,000,000, as the Agent may deem appropriate) in proportion to the
aggregate principal amounts of such offers. Determinations by the Agent of the
amounts of Money Market Loans shall be conclusive in the absence of manifest
error.
SECTION 2.4. Notice to Banks; Funding of Loans. (a) Upon receipt of
a Notice of Borrowing, the Agent shall promptly notify each Bank of the
contents thereof and of such Bank's share (if any) of such Borrowing and such
Notice of Borrowing shall not thereafter be revocable by the Borrower.
(b) Not later than 12:00 Noon (New York City time) on the date of
each Borrowing, each Bank participating therein shall make available its share
of such Borrowing, in Federal or other funds immediately available in New York
City, to the Agent at its address referred to in Section 9.1. Unless the Agent
determines that any applicable condition specified in Article 3 has not been
satisfied, the Agent will make the funds so received from the Banks available
to the Borrower at the Agent's aforesaid address.
(c) Unless the Agent shall have received notice from a Bank prior to
the date of any Borrowing that such Bank will not make available to the Agent
such Bank's share of such Borrowing, the Agent may assume that such Bank has
made such share available to the Agent on the date of such Borrowing in
accordance with subsection (b) of this Section and the Agent may, in reliance
upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so
made such share available to the Agent, such Bank and the Borrower severally
agree to repay to the Agent forthwith on
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demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Borrower until the date such
amount is repaid to the Agent, at (i) in the case of the Borrower, a rate per
annum equal to the higher of the Federal Funds Rate and the interest rate
applicable thereto pursuant to Section 2.7 and (ii) in the case of such Bank,
the Federal Funds Rate. If such Bank shall repay to the Agent such
corresponding amount, such amount so repaid shall constitute such Bank's Loan
included in such Borrowing for purposes of this Agreement.
SECTION 2.5. Notes. (a) The Loans of each Bank shall be evidenced
by a single Note payable to the order of such Bank for the account of its
Applicable Lending Office in an amount equal to the aggregate unpaid principal
amount of such Bank's Loans.
(b) Each Bank may, by notice to the Borrower and the Agent, request
that its Loans of a particular type be evidenced by a separate Note in an
amount equal to the aggregate unpaid principal amount of such Loans. Each such
Note shall be in substantially the form of Exhibit A hereto with appropriate
modifications to reflect the fact that it evidences solely Loans of the
relevant type. Each reference in this Agreement to the "Note" of such Bank
shall be deemed to refer to and include any or all of such Notes, as the
context may require.
(c) Upon receipt of each Bank's Note pursuant to Section 31, the
Agent shall forward such Note to such Bank. Each Bank shall record the date,
amount and type of each Loan made by it and the date and amount of each payment
of principal made by the Borrower with respect thereto, and may, if such Bank
so elects in connection with any transfer or enforcement of its Note, endorse
on the schedule forming a part thereof appropriate notations to evidence the
foregoing information with respect to each such Loan then outstanding; provided
that the failure of any Bank to make any such recordation or endorsement shall
not affect the obligations of the Borrower hereunder or under the Notes. Each
Bank is hereby irrevocably authorized by the Borrower so to endorse its Note
and to attach to and make a part of its Note a continuation of any such
schedule as and when required.
SECTION 2.6. Maturity of Loans. (a) The outstanding principal
balance of each Committed Loan shall be due and payable on the Commitment
Termination Date.
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(b) Each Money Market Loan included in any Money Market Borrowing
shall mature, and the principal amount thereof shall be due and payable, on the
last day of the Interest Period applicable to such Borrowing.
SECTION 2.7. Interest Rates. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from the
date such Loan is made until it becomes due, at a rate per annum equal to the
Base Rate for such day. Such interest shall be payable quarterly in arrears on
each Quarterly Date and, with respect to the principal amount of any Base Rate
Loan converted to a Euro-Dollar Loan, on each date a Base Rate Loan is so
converted. Any overdue principal of or interest on any Base Rate Loan shall
bear interest, payable on demand, for each day until paid at a rate per annum
equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans
for such day.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during each Interest Period applicable
thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for
such day plus the London Interbank Offered Rate applicable to such Interest
Period. Such interest shall be payable for each Interest Period on the last day
thereof and, if such Interest period is longer than three months, at intervals
of three months after the first day thereof.
The "London Interbank Offered Rate" applicable to any Interest Period
means the average (rounded upward, if necessary, to the next higher 1/16 of 1%)
of the respective rates per annum at which deposits in dollars are offered to
each of the Reference Banks in the London interbank market at approximately
11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of
such Interest Period in an amount approximately equal to the principal amount
of the Euro-Dollar Loan of such Reference Bank to which such Interest Period is
to apply and for a period of time comparable to such Interest Period.
(c) Any overdue principal of or interest on any Euro-Dollar Loan
shall bear interest, payable on demand, for each day until paid at a rate per
annum equal to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for
such day plus the quotient obtained (rounded upward, if necessary, to the next
higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary,
to the next higher 1/16 of 1%) of the respective rates per annum at which one
day (or, if such amount due remains unpaid more than three Euro-Dollar Business
Days, then for such other period of time not longer than three months as the
Agent may
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select) deposits in dollars in an amount approximately equal to such overdue
payment due to each of the Reference Banks are offered to such Reference Bank
in the London interbank market for the applicable period determined as
provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the
circumstances described in clause (a) or (b) of Section 8.1 shall exist, at a
rate per annum equal to the sum of 2% plus the rate applicable to Base Rate
Loans for such day) and (ii) the sum of 2% plus the Euro-Dollar Margin for such
day plus the London Interbank Offered Rate applicable to such Loan at the date
such payment was due.
(d) Subject to Section 8.1, each Money Market LIBOR Loan shall bear
interest on the outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum equal to the sum of the London
Interbank Offered Rate for such Interest Period (determined in accordance with
Section 2.7(b) as if the related Money Market LIBOR Borrowing were a Committed
Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the
Bank making such Loan in accordance with Section 2.3. Each Money Market
Absolute Rate Loan shall bear interest on the outstanding principal amount
thereof, for the Interest Period applicable thereto, at a rate per annum equal
to the Money Market Absolute Rate quoted by the Bank making such Loan in
accordance with Section 2.3. Such interest shall be payable for each Interest
Period on the last day thereof and, if such Interest Period is longer than
three months, at intervals of three months after the first day thereof. Any
overdue principal of or interest on any Money Market Loan shall bear interest,
payable on demand, for each day until paid at a rate per annum equal to the sum
of 2% plus the Base Rate for such day.
(e) The Agent shall determine each interest rate applicable to the
Loans hereunder. The Agent shall give prompt notice to the Borrower and the
participating Banks of each rate of interest so determined, and its
determination thereof shall be conclusive in the absence of manifest error.
(f) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Agent as contemplated by this Section. If any Reference Bank
does not furnish a timely quotation, the Agent shall determine the relevant
interest rate on the basis of the quotation or quotations furnished by the
remaining Reference Bank or Banks or, if none of such quotations is available
on a timely basis, the provisions of Section 8.1 shall apply.
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SECTION 2.8. Fees. The Borrower shall pay to the Agent for the
account of the Banks ratably a facility fee at the Facility Fee Rate
(determined daily in accordance with the Pricing Schedule). Such facility fee
shall accrue (i) from and including the Effective Date to but excluding the
date of termination of the Commitments in their entirety, on the daily
aggregate amount of the Commitments (whether used or unused) and (ii) from and
including such date of termination to but excluding the date the Loans shall be
repaid in their entirety, on the daily aggregate outstanding principal amount
of the Loans, and shall be payable quarterly in arrears on each Quarterly Date
and on the date of termination of the Commitments in their entirety (and, if
later, the date the Loans shall be repaid in their entirety).
SECTION 2.9. Optional Termination or Reduction of Commitments. During
the Revolving Credit Period, the Borrower may, upon at least five Domestic
Business Days' notice to the Agent, (i) terminate the Commitments at any time,
if no Loans are outstanding at such time or (ii) ratably reduce from time to
time by an aggregate amount of $10,000,000 or a larger multiple of $1,000,000,
the aggregate amount of the Commitments in excess of the aggregate outstanding
principal amount of the Loans.
SECTION 2.10. Method of Electing Interest Rates. (a) The Loans
included in each Committed Borrowing shall bear interest initially at the type
of rate specified by the Borrower in the applicable Notice of Committed
Borrowing. Thereafter, the Borrower may from time to time elect to change or
continue the type of interest rate borne by each Group of Loans (subject in
each case to the provisions of Article 8), as follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect to
convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day
and
(ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to
convert such Loans to Base Rate Loans or elect to continue such Loans as
Euro-Dollar Loans for an additional Interest Period, subject to Section
2.14 in the case of any such conversion or continuation effective on any
day other than the last day of the then current Interest Period applicable
to such Loans.
Each such election shall be made by delivering a notice (a "Notice of Interest
Rate Election") to the Agent not later than 10:00 A.M. (New York City time) on
the third
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Euro-Dollar Business Day before the conversion or continuation selected in such
notice is to be effective. A Notice of Interest Rate Election may, if it so
specifies, apply to only a portion of the aggregate principal amount of the
relevant Group of Loans; provided that (i) such portion is allocated ratably
among the Loans comprising such Group and (ii) the portion to which such Notice
applies, and the remaining portion to which it does not apply, are each
$5,000,000 or any larger multiple of $1,000,000.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected in
such notice is to be effective, which shall comply with the applicable
clause of subsection (a) above;
(iii) if the Loans comprising such Group are to be converted, the
new type of Loans and, if the Loans being converted are to be Euro-Dollar
Loans, the duration of the next succeeding Interest Period applicable
thereto; and
(iv) if such Loans are to be continued as Euro-Dollar Loans for an
additional Interest Period, the duration of such additional Interest
Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the Provisions of the definition of Interest Period.
(c) Upon receipt of a Notice of Interest Rate Election from the
Borrower pursuant to subsection (a) above, the Agent shall promptly notify each
Bank of the contents thereof and such notice shall not thereafter be revocable
by the Borrower. If the Borrower fails to deliver a timely Notice of Interest
Rate Election to the Agent for any Group of Euro-Dollar Loans, such Loans shall
be converted into Base Rate Loans on the last day of the then current Interest
Period applicable thereto.
(d) An election by the Borrower to change or continue the rate of
interest applicable to any Group of Loans pursuant to this Section shall not
constitute a "Borrowing" subject to the provisions of Section 3.2.
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SECTION 2.11. Mandatory Termination of Commitments. The Commitments
shall terminate on the Commitment Termination Date.
SECTION 2.12. Optional Prepayments. (a) Subject in the case of any
Euro-Dollar Borrowing to Section 2.14, the Borrower may, upon at least one
Euro-Dollar Business Day's notice to the Agent, prepay any Group of Base Rate
Loans (or any Money Market Borrowing bearing interest at the Base Rate pursuant
to Section 8.1) or any Group of Euro-Dollar Loans, in each case in whole at any
time, or from time to time in part in amounts aggregating $10,000,000 or any
larger multiple of $1,000,000, by paying the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment. Each such
optional prepayment shall be applied to prepay ratably the Loans of the several
Banks included in such Group.
(b) Except as provided in subsection (a) above the Borrower may not
prepay all or any portion of the principal amount of any Money Market Loan
prior to the maturity thereof.
(c) Upon receipt of a notice of prepayment pursuant to this Section,
the Agent shall promptly notify each Bank of the contents thereof and of such
Bank's ratable share (if any) of such prepayment and such notice shall not
thereafter be revocable by the Borrower.
SECTION 2.13. General Provisions as to Payments. (a) The Borrower
shall make each payment of principal of, and interest on, the Loans and of fees
hereunder, not later than 12:00 Noon (New York City time) on the date when due,
in Federal or other funds immediately available in New York City, to the Agent
at its address referred to in Section 9.1. The Agent will promptly distribute
to each Bank its ratable share of each such payment received by the Agent for
the account of the Banks. Whenever any payment of principal of, or interest on,
the Base Rate Loans or of fees shall be due on a day which is not a Domestic
Business Day, the date for payment thereof shall be extended to the next
succeeding Domestic Business Day. Whenever any payment of principal of, or
interest on, the Euro-Dollar Loans shall be due on a day which is not a
Euro-Dollar Business Day, the date for payment thereof shall be extended to the
next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day
falls in another calendar month, in which case the date for payment thereof
shall be the next preceding Euro-Dollar Business Day. Whenever any payment of
principal of, or interest on, the Money Market Loans shall be due on a day
which is not a Euro-Dollar Business Day, the date for
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payment thereof shall be extended to the next succeeding Euro-Dollar Business
Day. If the date for any payment of principal is extended by operation of law
or otherwise, interest thereon shall be payable for such extended time.
(b) Unless the Agent shall have received notice from the Borrower
prior to the date on which any payment is due to the Banks hereunder that the
Borrower will not make such payment in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date and the Agent
may, in reliance upon such assumption, cause to be distributed to each Bank on
such due date an amount equal to the amount then due such Bank. If and to the
extent that the Borrower shall not have so made such payment, each Bank shall
repay to the Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Agent, at the Federal Funds Rate.
SECTION 2.14. Funding Losses. If the Borrower makes any payment of
principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is
converted (pursuant to Article 2, 6 or 8 or otherwise) on any day other than
the last day of an Interest Period applicable thereto, or the last day of an
applicable period fixed pursuant to Section 2.7(c), or if the Borrower fails to
borrows prepay or convert any Fixed Rate Loans after notice has been given to
any Bank in accordance with Section 2.4(a), 2.10(c) or 2.12(c), the Borrower
shall reimburse each Bank within 15 days after demand for any resulting loss or
expense incurred by it (or by an existing or prospective Participant in the
related Loan), including (without limitation) any loss incurred in obtaining,
liquidating or employing deposits from third parties, but excluding loss of
margin for the period after any such payment or conversion or failure to
borrow, prepay or convert, provided that such Bank shall have delivered to the
Borrower a certificate setting forth in reasonable detail the calculation of
the amount of such loss or expense, which amount shall be conclusive if
reasonably calculated.
SECTION 2.15. Regulation D Compensation. Each Bank may require the
Borrower to pay, contemporaneously with each payment of interest on the
Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of such
Bank at a rate per annum determined by such Bank up to but not exceeding the
excess of (i) (A) the applicable London Interbank Offered Rate divided by (B)
one minus the Euro-Dollar Reserve Percentage over (ii) the applicable London
Interbank Offered Rate. Any Bank wishing to require
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payment of such additional interest (x) shall so notify the Borrower and the
Agent, in which case such additional interest on the Euro-Dollar Loans of such
Bank shall be payable to such Bank at the place indicated in such notice with
respect to each Interest Period commencing at least three Euro-Dollar Business
Days after the giving of such notice and (y) shall notify the Borrower at least
five Euro-Dollar Business Days prior to each date on which interest is payable
on the Euro-Dollar Loans of the amount then due it under this Section.
SECTION 2.16. Computation of Interest and Fees. Interest based on
the Prime Rate hereunder shall be computed on the basis of a year of 365 days
(or 366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excludinq the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
SECTION 2.17. Change of Control. If a Change of Control shall occur
(i) the Borrower will, within ten days after the occurrence thereof, give each
Bank notice thereof and shall describe in reasonable detail the facts and
circumstances giving rise thereto and (ii) each Bank may, by three Domestic
Business Days' notice to the Borrower and the Agent given not later than 30
days after such Change of Control, terminate its Commitment, which shall
thereupon be terminated, and declare the Note held by it (together with accrued
interest thereon) and any other amounts payable hereunder for its account to
be, and such Note and such other amounts shall thereupon become, immediately
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower.
For purposes of this Section, the following terms have the following
meanings:
A "Change of Control" shall occur if (i) any person or group of
persons (within the meaning of Section 13 or 14 of the Securities Exchange
Act of 1934, as amended) shall have acquired beneficial ownership (within
the meaning of Rule 13d-3 promulgated by the Securities and Exchange
Commission under said Act) of 20% or more in voting power of the
outstanding Voting Stock of the Borrower or (ii) during any period of 12
consecutive calendar months, individuals who were directors of the
Borrower on the first day of such period (together with individuals whose
nomination for election or election as directors were recommended or
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approved by a majority of such directors on such first day) shall cease to
constitute a majority of the board of directors of the Borrower.
"Voting Stock" means capital stock of any class or classes (however
designated) having ordinary voting power for the election of directors of the
Borrower, other than stock having such power only by reason of the happening of
a contingency.
ARTICLE 3
CONDITIONS
SECTION 3.1. Closing. The closing hereunder shall occur upon
receipt by the Agent of the following documents, each dated the Closing Date
unless otherwise indicated:
(a) a duly executed Note for the account of each Bank dated on or
before the Closing Date complying with the provisions of Section 2.5;
(b) an opinion of Eric A. Blanchard, Esq., general counsel of the
Borrower, substantially in the form of Exhibit E hereto and covering such
additional matters relating to the transactions contemplated hereby as the
Required Banks may reasonably request;
(c) an opinion of Davis Polk & Wardwell, special counsel for the
Agent, substantially in the form of Exhibit F hereto and covering such
additional matters relating to the transactions contemplated hereby as the
Required Banks may reasonably request;
(d) evidence satisfactory to it that the unused portion of the
commitments under the Existing Credit Agreement have terminated; and
(e) all documents the Agent may reasonably request relating to the
existence of the Borrower, the corporate authority for and the validity of
this Agreement and the Notes, and any other matters relevant hereto, all
in form and substance satisfactory to the Agent.
The Agent shall promptly notify the Borrower and the Banks of the Closing Date,
and such notice shall be conclusive and binding on all parties hereto.
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SECTION 3.2. Borrowings. The obligation of any Bank to make a Loan
on the occasion of any Borrowing is subject to the satisfaction of the
following conditions:
(a) the fact that the Closing Date shall have occurred on or prior
to March 15, 1995;
(b) receipt by the Agent of a Notice of Borrowing as required by
Section 2.2 or 2.3, as the case may be;
(c) the fact that, immediately after such Borrowing, the aggregate
outstanding principal amount of the Loans will not exceed the aggregate
amount of the Commitments;
(d) the fact that, immediately before and after such Borrowing, no
Default shall have occurred and be continuing; and
(e) the fact that the representations and warranties of the
Borrower contained in this Agreement shall be true on and as of the date
of such Borrowing.
Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such Borrowing as to the facts specified in clauses
(c), (d) and (e) of this Section.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.1. Corporate Existence and Power. The Borrower is a
corporation duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, and has all corporate
powers and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted.
SECTION 4.2. Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by the Borrower of
this Agreement and the Notes are within the corporate powers of the Borrower,
have been duly authorized by all necessary corporate action, require no action
by or in respect of, or filing with, any governmental body, agency or official
and do not contravene,
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or constitute a default under, any provision of applicable law or regulation or
of the certificate of incorporation or by-laws of the Borrower or of any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Borrower or any of its Subsidiaries or result in the creation or imposition
of any Lien on any asset of the Borrower or any of its Subsidiaries.
SECTION 4.3. Binding Effect. This Agreement constitutes a valid and
binding agreement of the Borrower and each Note, when executed and delivered in
accordance with this Agreement, will constitute a valid and binding obligation
of the Borrower, in each case enforceable in accordance with its terms.
SECTION 4.4. Financial Information. (a) The consolidated statement
of financial position of the Borrower and its Consolidated Subsidiaries as of
May 29, 1994 and the related consolidated statements of income and cash flows
for the Fiscal Year then ended, reported on by Price Waterhouse and set forth
in the Borrower's 1994 Form 10-K, a copy of which has been delivered to each of
the Banks, fairly present, in conformity with generally accepted accounting
principles, the consolidated financial position of the Borrower and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for such Fiscal Year.
(b) The unaudited condensed consolidated statement of financial
position of the Borrower and its Consolidated Subsidiaries as of November 27,
1994 and the related unaudited condensed consolidated statements of income and
cash flows for the six months then ended, set forth in the Borrower's Latest
Form 10-Q, a copy of which has been delivered to each of the Banks, fairly
present, in conformity with generally accepted accounting principles (other
than with respect to omission of footnote disclosure and other information, all
to the extent permitted to be omitted from a filing on Form 10-Q filed with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934) applied on a basis consistent with the financial statements referred to
in subsection (a) of this Section, the consolidated financial position of the
Borrower and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such six month period
(subject to normal year-end adjustments).
(c) Since November 27, 1994 there has been no material adverse change
in the business, financial position, results of operations or prospects of the
Borrower and its Consolidated Subsidiaries, considered as a whole.
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SECTION 4.5. Litigation. There is no action, suit or proceeding
pending against, or to the knowledge of the Borrower threatened against or
affecting, the Borrower or any of its Subsidiaries before any court or
arbitrator or any governmental body, agency or official in which there is a
reasonable probability of an adverse decision which could materially adversely
affect the business, consolidated financial position or consolidated results of
operations of the Borrower and its Consolidated Subsidiaries, considered as a
whole, or which in any manner draws into question the validity of this
Agreement or the Notes.
SECTION 4.6. Compliance with ERISA. Each member of the ERISA Group
has fulfilled its obligations under the minimum funding standards of ERISA and
the Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of
the Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting
of a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.
SECTION 4.7. Environmental Matters. In the ordinary course of its
business, the Borrower conducts an ongoing review of the effect of material
Environmental and Health Laws on the business, operations and properties of the
Borrower and its Subsidiaries, in the course of which it identifies and
evaluates associated liabilities and costs (including, without limitation, any
capital or operating expenditures required for clean-up or closure of
properties presently or previously owned, any capital or operating expenditures
required to achieve or maintain compliance with environmental protection
standards imposed by law or as a condition of any license, permit or contract,
any related constraints on operating activities, including any periodic or
permanent shutdown of any facility or reduction in the level of or change in
the nature of operations conducted thereat, any costs or liabilities in
connection with off-site disposal of wastes or Hazardous Substances, and any
actual or potential liabilities to third parties, including employees, and any
related costs and expenses). On the basis of this review, the Borrower has
reasonably concluded that such associated liabilities and costs, including the
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costs of compliance with Environmental and Health Laws, are unlikely to have a
material adverse effect on the business, financial condition, results of
operations or prospects of the Borrower and its Consolidated Subsidiaries,
considered as a whole.
SECTION 4.8. Taxes. The Borrower and its Subsidiaries have filed all
United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by the Borrower or any
Subsidiary. The charges, accruals and reserves on the books of the Borrower
and its Subsidiaries in respect of taxes or other governmental charges are, in
the opinion of the Borrower, adequate.
SECTION 4.9. Subsidiaries. Each of the Borrower's corporate
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
SECTION 4.10. Regulatory Restrictions on Borrowing. The Borrower is
not an "investment company" within the meaning of the Investment Company Act of
1940, as amended, a "holding company" within the meaning of the Public Utility
Holding Company Act of 1935, as amended, or otherwise subject to any regulatory
scheme which restricts its ability to incur debt.
SECTION 4.11. Liens. Except as permitted pursuant to Section 5.9,
there are no Liens on any asset owned by the Borrower or any Subsidiary.
SECTION 4.12. Full Disclosure. All information heretofore furnished
by the Borrower to the Agent or any Bank for purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all such
information hereafter furnished by the Borrower to the Agent or any Bank will
be, true and accurate in all material respects on the date as of which such
information is stated or certified. The Borrower has disclosed to the Banks in
writing any and all facts which materially and adversely affect or may affect
(to the extent the Borrower can now reasonably foresee), the business,
operations or financial condition of the Borrower and its Consolidated
Subsidiaries, taken as a whole, or the ability of the Borrower to perform its
obligations under this Agreement.
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ARTICLE 5
COVENANTS
The Borrower agrees that, so long as any Bank has any Commitment
hereunder or any amount payable under any Note remains unpaid:
SECTION 5.1. Information. The Borrower will deliver to each of the
Banks:
(a) as soon as available and in any event within 120 days after the
end of each Fiscal Year of the Borrower, a consolidated statement of
financial position of the Borrower and its Consolidated Subsidiaries as of
the end of such Fiscal Year and the related consolidated statements of
income and cash flows for such Fiscal Year, setting forth in each case in
comparative form the figures for the previous Fiscal Year, all reported on
in a manner acceptable to the Securities and Exchange Commission and
audited by Price Waterhouse or other independent public accountants of
nationally recognized standing;
(b) as soon as available and in any event within 60 days after the
end of each of the first three quarters of each Fiscal Year of the
Borrower, a condensed consolidated statement of financial position of the
Borrower and its Consolidated Subsidiaries as of the end of such quarter
and the related condensed consolidated statements of income and cash flows
for such quarter and for the portion of the Borrower's Fiscal Year ended
at the end of such quarter, setting forth in the case of such statements
of income and cash flows, in comparative form the figures for the
corresponding quarter and the corresponding portion of the Borrower's
previous Fiscal Year, all certified (subject to normal year-end
adjustments) as to fairness of presentation, generally accepted accounting
principles (other than for footnote presentation and similar disclosure)
and consistency by the chief financial officer or the chief accounting
officer of the Borrower;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the
chief financial officer or the chief accounting officer of the Borrower
(i) setting forth in reasonable detail the calculations required to
establish whether the Borrower was in compliance with the requirements of
Sections 5.9 to
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5.11, inclusive, on the date of such financial statements and (ii) stating
whether any Default exists on the date of such certificate and, if any
Default then exists, setting forth the details thereof and the action
which the Borrower is taking or proposes to take with respect thereto;
(d) within five days after any officer of the Borrower obtains
knowledge of any Default, if such Default is then continuing, a
certificate of the chief financial officer or the chief accounting officer
of the Borrower setting forth the details thereof and the action which the
Borrower is taking or proposes to take with respect thereto;
(e) promptly upon the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, reports and proxy
statements so mailed;
(f) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration
statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q
and 8-K (or their equivalents) which the Borrower shall have filed with
the Securities and Exchange Commission;
(g) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as defined
in Section 4043 of ERISA) with respect to any Plan which might constitute
grounds for a termination of such Plan under Title IV of ERISA, or knows
that the plan administrator of any Plan has given or is required to give
notice of any such reportable event, a copy of the notice of such
reportable event given or required to be given to the PBGC; (ii) receives
notice of complete or partial withdrawal liability under Title IV of ERISA
or notice that any Multiemployer Plan is in reorganization, is insolvent
or has been terminated, a copy of such notice; (iii) receives notice from
the PBGC under Title IV of ERISA of an intent to terminate, impose
liability (other than for premiums under Section 4007 of ERISA) in respect
of, or appoint a trustee to administer any Plan, a copy of such notice;
(iv) applies for a waiver of the minimum funding standard under Section
412 of the Internal Revenue Code, a copy of such application; (v) gives
notice of intent to terminate any Plan under Section 4041(c) of ERISA, a
copy of such notice and other information filed with the PBGC; (vi) gives
notice of withdrawal from any Plan pursuant to Section
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4063 of ERISA, a copy of such notice; or (vii) fails to make any payment
or contribution to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement or makes any amendment to any Plan or Benefit
Arrangement which has resulted or could result in the imposition of a Lien
or the posting of a bond or other security, a certificate of the chief
financial officer or the chief accounting officer of the Borrower setting
forth details as to such occurrence and action, if any, which the Borrower
or applicable member of the ERISA Group is required or proposes to take;
and
(h) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries as the
Agent, at the request of any Bank, may reasonably request.
SECTION 5.2. Payment of Obligations. The Borrower will pay and
discharge, and will cause each Subsidiary to pay and discharge, at or before
maturity, all their respective material obligations and liabilities (including,
without limitation, tax liabilities and claims of materialmen, warehousemen
and the like which if unpaid might by law give rise to a Lien), except where
the same may be contested in good faith by appropriate proceedings, and will
maintain, and will cause each Subsidiary to maintain, in accordance with
generally accepted accounting principles, appropriate reserves for the accrual
of any of the same.
SECTION 5.3. Maintenance of Property; Insurance. (a) The Borrower
will keep, and will cause each Subsidiary to keep, all property useful and
necessary in its business in good working order and condition, ordinary wear
and tear excepted.
(b) The Borrower will, and will cause each of its Subsidiaries to,
maintain (either in the name of the Borrower or in such Subsidiary's own name)
with financially sound and responsible insurance companies, insurance on all
their respective properties in at least such amounts, against at least such
risks and with such risk retention as are usually maintained, insured against
or retained, as the case may be, in the same general area by companies of
established repute engaged in the same or a similar business; and will furnish
to the Banks, upon request from the Agent, information presented in reasonable
detail as to the insurance so carried.
SECTION 5.4. Conduct of Business and Maintenance of Existence. The
Borrower will continue, and will cause each Subsidiary to continue, to engage
in business of the
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same general type as now conducted by the Borrower and its Subsidiaries, and
will preserve, renew and keep in full force and effect, and will cause each
Subsidiary to preserve, renew and keep in full force and effect their
respective corporate existence and their respective rights, privileges and
franchises necessary or desirable in the normal conduct of business; provided
that nothing in this Section 5.4 shall prohibit (i) the merger of a Subsidiary
into the Borrower or the merger or consolidation of a Subsidiary with or into
another Person if the corporation surviving such consolidation or merger is a
Subsidiary and if, in each case, after giving effect thereto, no Default shall
have occurred and be continuing or (ii) the termination of the corporate
existence of any Subsidiary if the Borrower in good faith determines that such
termination is in the best interest of the Borrower and is not materially
disadvantageous to the Banks.
SECTION 5.5. Compliance with laws. The Borrower will comply, and
cause each Subsidiary to comply, in all material respects with all applicable
laws, ordinances, rules, regulations, and requirements of governmental
authorities (including, without limitation, Environmental and Health Laws and
ERISA and the rules and regulations thereunder) except where the necessity of
compliance therewith is contested in good faith by appropriate proceedings.
SECTION 5.6. Inspection of Property, Books and Records. The
Borrower will keep, and will cause each Subsidiary to keep, proper books of
record and account in which full, true and correct entries shall be made of all
dealings and transactions in relation to its business and activities; and will
permit, and will cause each Subsidiary to permit, representatives of any Bank
at such Bank's expense to visit and inspect any of their respective properties,
to examine and make abstracts from any of their respective books and records
and to discuss their respective affairs, finances and accounts with their
respective officers, employees and independent public accountants, all at such
reasonable times, upon such reasonable notice and as often as may reasonably be
desired.
SECTION 5.7. Mergers and Sales of Assets. The Borrower will not (i)
consolidate or merge with or into any other Person or (ii) sell, lease or
otherwise transfer, directly or indirectly, all or any substantial part of the
assets of the Borrower and its Subsidiaries, taken as a whole, to any other
Person; provided that the Borrower may merge with another Person if (x) the
Borrower is the corporation surviving such merger and (y) after giving
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effect to such merger, no Default shall have occurred and be continuing.
SECTION 5.8. Use of Proceeds. The proceeds of the Loans made under
this Agreement will be used by the Borrower for general corporate purposes.
None of such proceeds will be used, directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of buying or carrying any "margin
stock" within the meaning of Regulation U.
SECTION 5.9. Negative Pledge. Neither the Borrower nor any
Subsidiary will create, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired by it, except:
(a) Liens existing on the date of this Agreement securing Debt
outstanding on the date of this Agreement in an aggregate principal or
face amount not exceeding $15,000,000;
(b) any Lien existing on any asset of any corporation at the time
such corporation becomes a Subsidiary and not created in contemplation of
such event;
(c) any Lien on any asset securing Debt incurred or assumed for
the purpose of financing all or any part of the cost of acquiring such
asset, provided that such Lien attaches to such asset concurrently with or
within 90 days after the acquisition thereof;
(d) any Lien on any asset of any corporation existing at the time
such corporation is merged or consolidated with or into the Borrower or a
Subsidiary and not created in contemplation of such event;
(e) any Lien existinq on any asset prior to the acquisition thereof
by the Borrower or a Subsidiary and not created in contemplation of such
acquisition;
(f) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the foregoing
clauses of this Section, provided that such Debt is not increased and is
not secured by any additional assets;
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(g) Liens arising in the ordinary course of its business which (i)
do not secure Debt or Derivatives Obligations, (ii) do not secure any
obligation in an amount, in aggregate together with the amount of all
other obligations then secured by Liens pursuant to this clause (g),
exceeding $50,000,000 and (iii) do not in the aggregate materially detract
from the value of its assets or materially impair the use thereof in the
operation of its business;
(h) Liens on cash and cash equivalents securing Derivatives
Obligations, provided that the aggregate amount of cash and cash
equivalents subject to such Liens may at no time exceed $10,000,000; and
(i) Liens not otherwise permitted by the foregoing clauses of this
Section, securing Debt in an aggregate principal or face amount at any
date not to exceed 5% of the consolidated stockholders' equity of the
Borrower and its Consolidated Subsidiaries, determined as of such date.
SECTION 5.10. Adjusted Debt to Adjusted Total Capital. The ratio of
(i) Adjusted Consolidated Debt to (ii) the sum of Adjusted Consolidated Debt
plus consolidated stockholders' equity of the Borrower and its Consolidated
Subsidiaries (including for this purpose any amount attributable to stock which
is required to be redeemed or is redeemable at the option of the holder, if
certain events or conditions occur or exist or otherwise), in each case
determined at such date, shall at no time exceed 0.5 to 1.0.
SECTION 5.11. Fixed Charge Coverage Ratio. As of the last day of each
fiscal quarter of the Borrower ending during each period set forth below, the
ratio of (i) Consolidated EBIT to (ii) Consolidated Interest Expense, in each
case for the four consecutive fiscal quarters of the Borrower and its
Consolidated Subsidiaries ending on such day, shall not be less than 3.0 to 1.0.
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ARTICLE 6
DEFAULTS
SECTION 6.1. Events of Default. If one or more of the following
events ("Events of Default") shall have occurred and be continuing:
(a) the Borrower shall fail to pay (i) when due any principal of
any Loan or (ii) within five days when due, any interest, any fees or any
other amount payable hereunder;
(b) the Borrower shall fail to observe or perform any covenant
contained in Article 5, other than those contained in Sections 5.1 through
5.6;
(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause
(a) or (b) above) for 10 days after notice thereof has been given to the
Borrower by the Agent at the request of any Bank;
(d) any representation, warranty, certification or statement made
by the Borrower in this Agreement or in any certificate, financial
statement or other document delivered pursuant to this Agreement shall
prove to have been incorrect in any material respect when made (or deemed
made);
(e) the Borrower or any Subsidiary shall fail to make any payment
in respect of any Material Financial Obligations when due or within any
applicable grace period;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Debt or enables (or, with the
giving of notice or lapse of time or both, would enable) the holder of
such Debt or any Person acting on such holder's behalf to accelerate the
maturity thereof;
(g) the Borrower or any Subsidiary shall commence a voluntary case
or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment
of a trustee, receiver, liquidator, custodian or other similar official of
it or any substantial part of its property,
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or shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, or shall make a general assignment for the benefit
of creditors, or shall fail generally to pay its debts as they become due,
or shall take any corporate action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced
against the Borrower or any Subsidiary seeking liquidation, reorganization
or other relief with respect to it or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed
for a period of 60 days; or an order for relief shall be entered against
the Borrower or any Subsidiary under the federal bankruptcy laws as now or
hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an
amount or amounts aggregating in excess of $5,000,000 which it shall have
become liable to pay under Title IV of ERISA; or notice of intent to
terminate a Material Plan shall be filed under Title IV of ERISA by any
member of the ERISA Group, any plan administrator or any combination of
the foregoing; or the PBGC shall institute proceedings under Title IV of
ERISA to terminate, to impose liability (other than for premiums under
Section 4007 of ERISA) in respect of, or to cause a trustee to be
appointed to administer any Material Plan; or a condition shall exist by
reason of which the PBGC would be entitled to obtain a decree adjudicating
that any Material Plan must be terminated; or there shall occur a complete
or partial withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans
which could cause one or more members of the ERISA Group to incur a
current payment obligation in excess of $5,000,000; or
(j) judgments or orders for the payment of money in excess of
$5,000,000 shall be rendered against the Borrower or any Subsidiary and
such judgments or orders shall continue unsatisfied and unstayed for a
period of 10 days;
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then, and in every such event, the Agent shall (i) if requested by Banks having
more than 50% in aggregate amount of the Commitments, by notice to the Borrower
terminate the Commitments and they shall thereupon terminate, and (ii) if
requested by Banks holding more than 50% of the aggregate principal amount of
the Loans, by notice to the Borrower declare the Loans (together with accrued
interest thereon) to be, and the Loans shall thereupon become, immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower; provided that in the case of
any of the Events of Default specified in clause (g) or (h) above with respect
to the Borrower, without any notice to the Borrower or any other act by the
Agent or the Banks, the Commitments shall thereupon automatically terminate and
the Loans (together with accrued interest thereon) shall automatically become
immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower.
SECTION 6.2. Notice of Default. The Agent shall give notice to the
Borrower under Section 6.1(c) promptly upon being requested to do so by any
Bank and shall thereupon notify all the Banks thereof.
ARTICLE 7
THE AGENT
SECTION 7.1. Appointment and Authorization. Each Bank irrevocably
appoints and authorizes the Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement and the Notes as are
delegated to the Agent by the terms hereof or thereof, together with all such
powers as are reasonably incidental thereto.
SECTION 7.2. Agents and Affiliates. Each of Morgan Guaranty Trust
Company of New York and Harris Trust & Savings Bank shall have the same rights
and powers under this Agreement as any other bank and may exercise or refrain
from exercising the same as though it were not the Agent or Co-Agent, as the
case may be, and each of Morgan Guaranty Trust Company of New York and Harris
Trust & Savings Bank and its respective affiliates may accept deposits from,
lend money to, and generally engage in any kind of business with the Borrower
or any Subsidiary or affiliate of the Borrower as if it were not the Agent or
Co-Agent, as the case may be.
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SECTION 7.3. Action by Agent. The obligations of the Agent hereunder
are only those expressly set forth herein. Without limiting the generality of
the foregoing, the Agent shall not be required to take any action with respect
to any Default, except as expressly provided in Article 6.
SECTION 7.4. Consultation with Experts. The Agent may consult with
legal counsel (who may be counsel for the Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
SECTION 7.5. Liability of Agent. Neither the Agent nor any of its
affiliates nor any of their respective directors, officers, agents or employees
shall be liable for any action taken or not taken by it in connection herewith
(i) with the consent or at the request of the Required Banks or (ii) in the
absence of its own gross negligence or willful misconduct. Neither the Agent
nor any of its affiliates nor any of their respective directors, officers,
agents or employees shall be responsible for or have any duty to ascertain,
inquire into or verify (i) any statement, warranty or representation made in
connection with this Agreement or any borrowing hereunder; (ii) the performance
or observance of any of the covenants or agreements of the Borrower; (iii) the
satisfaction of any condition specified in Article 3, escept receipt of items
required to be delivered to the Agent; or (iv) the validity, effectiveness or
genuineness of this Agreement, the Notes or any other instrument or writing
furnished in connection herewith. The Agent shall not incur any liability by
acting in reliance upon any notice, consent, certificate, statement, or other
writing (which may be a bank wire, telex, facsimile transmission or similar
writing) believed by it to be genuine or to be signed by the proper party or
parties.
SECTION 7.6. Indemnification. Each Bank shall, ratably in accordance
with its Commitment, indemnify the Agent, its affiliates and their respective
directors, officers, agents and employees (to the extent not reimbursed by the
Borrower) against any cost, expense (including counsel fees and disbursements),
claim, demand, action, loss or liability (except such as result from such
indemnitees' gross negligence or willful misconduct) that such indemnitees may
suffer or incur in connection with this Agreement or any action taken or
omitted by such indemnitees hereunder.
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SECTION 7.7. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent, the Co-Agent or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement. Each
Bank also acknowledges that it will, independently and without reliance upon
the Agent, the Co-Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking any action under this Agreement.
SECTION 7.8. Successor Agent. The Agent may resign at any time by
giving notice thereof to the Banks and the Borrower. Upon any such resignation,
the Required Banks shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Required Banks, and shall
have accepted such appointment, within 30 days after the retiring Agent gives
notice of resignation, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a commercial bank organized or
licensed under the laws of the United States of America or of any State thereof
and having a combined capital and surplus of at least $50,000,000. Upon the
acceptance of its appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Article shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent.
SECTION 7.9. Agent's Fee. The Borrower shall pay to the Agent for
its own account fees in the amounts and at the times previously agreed upon
between the Borrower and the Agent.
SECTION 7.10. Co-Agent. The Co-Agent shall have no responsibility or
obligation under this agreement in its capacity as Co-Agent.
ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.1. Basis for Determining Interest Rate Inadequate or
Unfair. If on or prior to the first day of
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any Interest Period for any Euro-Dollar Loan or Money Market LIBOR Loan:
(a) the Agent is advised by the Reference Banks that deposits in
dollars (in the applicable amounts) are not being offered to the Reference
Banks in the London interbank market for such Interest Period, or
(b) in the case of Euro-Dollar Loans, Banks having 50% or more of
the aggregate principal amount of the affected Loans advise the Agent that
the London Interbank Offered Rate as determined by the Agent will not
adequately and fairly reflect the cost to such Banks of funding their
Euro-Dollar Loans for such Interest Period,
the Agent shall forthwith give notice thereof to the Borrower and the Banks,
whereupon until the Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, (i) the obligations of the Banks to
make Euro-Dollar Loans or to continue or convert outstanding Loans as or into
Euro-Dollar Loans shall be suspended and (ii) each outstanding Euro-Dollar Loan
shall be converted into a Base Rate Loan on the last day of the then current
Interest Period applicable thereto. Unless the Borrower notifies the Agent at
least two Domestic Business Days before the date of any Fixed Rate Borrowing
for which a Notice of Borrowing has previously been given that it elects not to
borrow on such date, (i) if such Fixed Rate Borrowing is a Committed Borrowing,
such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such
Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR
Loans comprising such Borrowing shall bear interest for each day from and
including the first day to but excluding the last day of the Interest Period
applicable thereto at the Base Rate for such day.
SECTION 8.2. Illegality. If, on or after the date of this Agreement,
the adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Bank (or its Euro-Dollar Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall make it unlawful or impossible for any
Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its
Euro-Dollar Loans and such Bank shall so notify the Agent, the Agent shall
forthwith give notice thereof to the
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other Banks and the Borrower, whereupon until such Bank notifies the Borrower
and the Agent that the circumstances giving rise to such suspension no longer
exist, the obligation of such Bank to make Euro-Dollar Loans, or to convert
outstanding Loans into Euro-Dollar Loans, shall be suspended. Before giving
any notice to the Agent pursuant to this Section, such Bank shall designate a
different Euro-Dollar Lending Office if such designation will avoid the need
for giving such notice and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. If such notice is given, each Euro-Dollar Loan of
such Bank then outstanding shall be converted to a Base Rate Loan either (a) on
the last day of the then current Interest Period applicable to such Euro-Dollar
Loan if such Bank may lawfully continue to maintain and fund such Loan to such
day or (b) immediately if such Bank shall determine that it may not lawfully
continue to maintain and fund such Loan to such day.
SECTION 8.3. Increased Cost and Reduced Return. (a) If on or after
(x) the date hereof, in the case of any Committed Loan or any obligation to
make Committed Loans or (y) the date of the related Money Market Quote, in the
case of any Money Market Loan, the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency shall impose, modify
or deem applicable any reserve (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve System,
but excluding any such requirement included in an applicable Euro-Dollar
Reserve Percentage), special deposit, insurance assessment or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, any Bank (or its Applicable Lending Office) or shall impose on any
Bank (or its Applicable Lending Office) or the London interbank market any
other condition affecting its Fixed Rate Loans, its Note or its obligation to
make Fixed Rate Loans and the result of any of the foregoing is to increase the
cost to such Bank (or its Applicable Lending Office) of making or maintaining
any Fixed Rate Loan, or to reduce the amount of any sum received or receivable
by such Bank (or its Applicable Lending Office) under this Agreement or under
its Note with respect thereto, by an amount deemed by such Bank to be material,
then, within 15 days after demand by such Bank (with a copy to the Agent), the
Borrower shall pay
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to such Bank such additional amount or amounts as will compensate such Bank for
such increased cost or reduction.
(b) If any Bank shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such law, rule or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, (including any determination by any such authority, central
bank or comparable agency that, for purposes of capital adequacy requirements,
the Commitments hereunder do not constitute commitments with an original
maturity of one year or less) has or would have the effect of reducing the rate
of return on capital of such Bank (or its Parent) as a consequence of such
Bank's obligations hereunder to a level below that which such Bank (or its
Parent) could have achieved but for such adoption, change, request or directive
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, within 15
days after demand by such Bank (with a copy to the Agent), the Borrower shall
pay to such Bank such additional amount or amounts as will compensate such Bank
(or its Parent) for such reduction.
(c) Each Bank will promptly notify the Borrower and the Agent of any
event of which it has knowledge, occurring after the date hereof, which will
entitle such Bank to compensation pursuant to this Section and will designate a
different Lending Office if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the judgment of such Bank, be
otherwise disadvantageous to such Bank. A certificate of any Bank claiming
compensation under this Section and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive in the absence of
manifest error. In determining such amount, such Bank may use any reasonable
averaging and attribution methods.
SECTION 8.4. Taxes. (a) for the purposes of this Section 8.4(a), the
following terms have the following meanings:
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings with respect to any payment by the
Borrower pursuant to this Agreement or under any Note, and all liabilities with
46
<PAGE> 51
respect thereto, excluding (i) in the case of each Bank and the Agent, taxes
imposed on its income, and franchise or similar taxes imposed on it, by a
jurisdiction under the laws of which such Bank or the Agent (as the case may
be) is organized or in which its principal executive office is located or, in
the case of each Bank, in which its Applicable Lending Office is located and
(ii) in the case of each Bank, any United States withholding tax imposed on
such payments but only to the extent that such Bank is subject to United States
withholding tax at the time such Bank first becomes a party to this Agreement.
"Other Taxes" means any present or future stamp or documentary taxes
and any other excise or property taxes, or similar charges or levies, which
arise from any payment made pursuant to this Agreement or under any Note or
from the execution or delivery of, or otherwise with respect to, this
Agreement or any Note.
(b) Any and all payments by the Borrower to or for the account of any
Bank or the Agent hereunder or under any Note shall be made without deduction
for any Taxes or Other Taxes; provided that, if the Borrower shall be required
by law to deduct any Taxes or other Taxes from any such payments, (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section) such Bank or the Agent (as the case may be) receives an amount
equal to the sum it would have received had no such deductions been made, (ii)
the Borrower shall make such deductions, (iii) the Borrower shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law and (iv) the Borrower shall furnish to the
Agent, at its address referred to in Section 9.1, the original or a certified
copy of a receipt evidencing payment thereof.
(c) The Borrower agrees to indemnify each Bank and the Agent for the
full amount of Taxes or Other Taxes (including, without limitation, any Taxes
or Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section) paid by such Bank or the Agent (as the case may be) and any
liability (including penalties, interest and expenses) arising therefrom or
with respect thereto. This indemnification shall be paid within 15 days after
such Bank or the Agent (as the case may be) makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the
47
<PAGE> 52
case of each Bank listed on the signature pages hereof and on or prior to the
date on which it becomes a Bank in the case of each other Bank, and from time
to time thereafter if requested in writing by the Borrower (but only so long as
such Bank remains lawfully able to do so), shall provide the Borrower with
Internal Revenue Service form 1001 or 4224, as appropriate, or any successor
form prescribed by the Internal Revenue Service, certifying that such Bank is
entitled to benefits under an income tax treaty to which the United States is a
party which exempts the Bank from United States withholding tax or reduces the
rate of withholding tax on payments of interest for the account of such Bank or
certifying that the income receivable pursuant to this Agreement is effectively
connected with the conduct of a trade or business in the United States.
(e) For any period with respect to which a Bank has failed to provide
the Borrower with the appropriate form pursuant to Section 8.4(d) (unless such
failure is due to a change in treaty, law or regulation occurring subsequent to
the date on which such form originally was required to be provided) such Bank
shall not be entitled to indemnification under Section 8.4(b) or (c) with
respect to Taxes imposed by the United States; provided that if a Bank, which
is otherwise exempt from or subject to a reduced rate of withholding tax,
becomes subject to Taxes because of such Bank's failure to deliver a form
required hereunder, the Borrower shall take such steps as such Bank shall
reasonably request to assist such Bank to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for
the account of any Bank pursuant to this Section, then such Bank will change
the jurisdiction of its Applicable Lending Office if, in the judgment of such
Bank, such change (i) will eliminate or reduce any such additional payment
which may thereafter accrue and (ii) is not otherwise disadvantageous to such
Bank.
SECTION 8.5. Base Rate Loans Substituted for Affected Euro-Dollar
Loans. If (i) the obligation of any Bank to make, or convert outstanding Loans
to, Euro-Dollar Loans has been suspended pursuant to Section 8.2 or (ii) any
Bank has demanded compensation under Section 8.3 or 8.4 with respect to its
Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business
Days' prior notice to such Bank through the Agent, have elected that the
provisions of this Section shall apply to such Bank, then, unless and until
such Bank notifies the Borrower that the circumstances giving rise to such
suspension or demand for compensation no longer exist:
48
<PAGE> 53
(a) all Loans which would otherwise be made by such Bank as (or
continued as or converted into) Euro-Dollar Loans shall instead be Base
Rate Loans (on which interest and principal shall be payable
contemporaneously with the related Euro-Dollar Loans of the other Banks);
and
(b) after each of its Euro-Dollar Loans has been repaid (or
converted to a Base Rate Loan), all payments of principal which would
otherwise be applied to repay such Euro-Dollar Loans shall be applied to
repay its Base Rate Loans instead.
If such Bank notifies the Borrower that the circumstances giving rise to such
notice no longer apply, the principal amount of each such Base Rate Loan shall
be converted into a Euro-Dollar Loan on the first day of the next succeeding
Interest Period applicable to the related Euro-Dollar Loans of the other Banks.
SECTION 8.6. Substitution of Bank. If (i) the obligation of any Bank
to make Euro-Dollar Loans has been suspended pursuant to Section 8.2 or (ii)
any Bank has demanded compensation under Section 8.3 or 8.4, the Borrower shall
have the right, with the assistance of the Agent, to seek a mutually
satisfactory substitute bank or banks (which may be one or more of the Banks)
to purchase the Note and assume the Commitment of such Bank.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile transmission or similar writing) and shall be given to such
party: (a) in the case of the Borrower or the Agent, at its address, facsimile
number or telex number set forth on the signature pages hereof, (b) in the case
of any Bank, at its address, facsimile number or telex number set forth in its
Administrative Questionnaire or (c) in the case of any party, such other
address, facsimile number or telex number as such party may hereafter specify
for the purpose by notice to the Agent and the Borrower. Each such notice,
request or other communication shall be effective (i) if given by telex, when
such telex is transmitted to the telex number specified in this Section and the
appropriate answerback is received, (ii) if given by facsimile
49
<PAGE> 54
transmission, when transmitted to the facsimile number specified in
this Section and confirmation of receipt is received, (iii) if given by mail,
72 hours after such communication is deposited in the U.S. mails with first
class postage prepaid, addressed as aforesaid or (iv) if given by any other
means, when delivered at the address specified in this Section; provided that
notices to the Agent under Article 2 or Article 8 shall not be effective until
received.
SECTION 9.2. No Waivers. No failure or delay by the Agent or any Bank
in exercising any right, power or privilege hereunder or under any Note
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.3. Expenses; Indemnification. (a) The Borrower shall pay
(i) all reasonable out-of-pocket expenses of the Agent, including reasonable
fees and disbursements of special counsel for the Agent, in connection with the
preparation and administration of this Agreement, any waiver or consent
hereunder or any amendment hereof or any Default or alleged Default hereunder
and (ii) if an Event of Default occurs, all reasonable out-of-pocket expenses
incurred by the Agent and each Bank, including (without duplication) the
reasonable fees and disbursements of outside counsel, in connection with such
Event of Default and collection, bankruptcy, insolvency and other enforcement
proceedings resulting therefrom.
(b) The Borrower agrees to indemnify the Agent and each Bank, their
respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in
connection with any investigative, administrative or judicial proceeding
(whether or not such Indemnitee shall be designated a party thereto) brought or
threatened relating to or arising out of this Agreement or any actual or
proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall
have the right to be indemnified hereunder for such Indemnitee's own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction.
50
<PAGE> 55
SECTION 9.4. Sharing of Set-Offs. Each Bank agrees that if it shall, by
exercising any right of set-off or counterclaim or otherwise, receive payment
of a proportion of the aggregate amount of principal and interest due with
respect to any Note held by it which is greater than the proportion received by
any other Bank in respect of the aggregate amount of principal and interest due
with respect to any Note held by such other Bank, the Bank receiving such
proportionately greater payment shall purchase such participations in the Notes
held by the other Banks, and such other adjustments shall be made, as may be
required so that all such payments of principal and interest with respect to
the Notes held by the Banks shall be shared by the Banks pro rata; provided
that nothing in this Section shall impair the right of any Bank to exercise any
right of set-off or counterclaim it may have and to apply the amount subject to
such exercise to the payment of indebtedness of the Borrower other than its
indebtedness hereunder. The Borrower agrees, to the fullest extent it may
effectively do so under applicable law, that any holder of a participation in a
Note, whether or not acquired pursuant to the foregoing arrangements, may
exercise rights of set-off or counterclaim and other rights with respect to
such participation as fully as if such holder of a participation were a direct
creditor of the Borrower in the amount of such participation.
SECTION 9.5. Amendments and Waivers. Any provision of this Agreement
or the Notes may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Borrower and the Required Banks (and, if the
rights or duties of the Agent are affected thereby, by the Agent); provided
that no such amendment or waiver shall, unless signed by all the Banks, (i)
increase or decrease the Commitment of any Bank (except for a ratable decrease
in the Commitments of all Banks) or subject any Bank to any additional
obligation, (ii) reduce the principal of or rate of interest on any Loan, or
any fees hereunder (iii) postpone the date fixed for any payment of Principal
of or interest on any Loan, or any fees hereunder or for any scheduled
reduction or termination of any Commitment or (iv) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Notes, or the
number of Banks, which shall be required for the Banks or any of them to take
any action under this Section or any other provision of this Agreement.
SECTION 9.6. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights or
51
<PAGE> 56
obligations under this Agreement without the prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "participant") participating interests in its Commitment
or any or all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrower and the Agent, such Bank shall remain responsible for the performance
of its obligations hereunder, and the Borrower and the Agent shall continue to
deal solely and directly with such Bank in connection with such Bank's rights
and obligations under this Agreement. Any agreement pursuant to which any Bank
may grant such a participating interest shall provide that such Bank shall
retain the sole right and responsibility to enforce the obligations of the
Borrower hereunder including, without limitation, the right to approve any
amendment, modification or waiver of any provision of this Agreement; provided
that such participation agreement may provide that such Bank will not agree to
any modification, amendment or waiver of this Agreement described in clause
(i), (ii), (iii), or (iv) of Section 9.5 without the consent of the
Participant. The Borrower agrees that each Participant shall, to the extent
provided in its participation agreement, be entitled to the benefits of Article
8 and Section 2.15 with respect to its participating interest. An assignment or
other transfer which is not permitted by subsection (c) or (d) below shall be
given effect for purposes of this Agreement only to the extent of a
participating interest granted in accordance with this subsection (b).
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part (equivalent to
an initial Commitment of not less than $10,000,000) of all, of its rights and
obligations under this Agreement and the Notes, and such Assignee shall assume
such rights and obligations, pursuant to an Assignment and Assumption Agreement
in substantially the form of Exhibit G hereto executed by such Assignee and
such transferor Bank, with (and subject to) the subscribed consent of the
Borrower and the Agent, which such consents shall not be unreasonably withheld;
provided that if an Assignee is an affiliate of such transferor Bank or was a
Bank immediately prior to such assignment, no such consent shall be required;
and provided further that such assignment may, but need not, include rights of
the transferor Bank in respect of outstanding Money Market Loans. Upon
execution and delivery of such instrument and payment by such Assignee to such
transferor Bank of an amount equal to the purchase price agreed between such
transferor Bank and such Assignee,
52
<PAGE> 57
such Assignee shall be a Bank party to this Agreement and shall have
all the rights and obligations of a Bank with a Commitment as set forth in such
instrument of assumption, and the transferor Bank shall be released from its
obligations hereunder to a corresponding extent, and no further consent or
action by any party shall be required. Upon the consummation of any assignment
pursuant to this subsection (c), the transferor Bank, the Agent and the
Borrower shall make appropriate arrangements so that, if required, a new Note
is issued to the Assignee. In connection with any such assignment, the
transferor Bank shall pay to the Agent an administrative fee for processing
such assignment in the amount of $2,500. If the Assignee is not incorporated
under the laws of the United States of America or a state thereof, it shall
deliver to the Borrower and the Agent certification as to exemption from
deduction or withholding of any United States federal income taxes in
accordance with Section 8.4, 8.6.
(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note to a Federal Reserve Bank. No such assignment
shall release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's rights
shall be entitled to receive any greater payment under Section 8.3 or 8.4, 8.6
than such Bank would have been entitled to receive with respect to the rights
transferred, unless such transfer is made with the Borrower's prior written
consent or by reason of the provisions of Section 8.2, 8.3 or 8.4, 8.6
requiring such Bank to designate a different Applicable Lending Office under
certain circumstances or at a time when the circumstances giving rise to such
greater payment did not exist.
SECTION 9.7. Collateral. Each of the Banks represents to the Agent and
each of the other Banks that it in good faith is not relying upon any "margin
stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
SECTION 9.8. Governing Law; Submission to Jurisdiction. This Agreement
and each Note shall be governed by and construed in accordance with the laws of
the State of New York, without regard to conflicts of law. The Borrower hereby
submits to the nonexclusive jurisdiction of the United States District Court
for the Southern District of New York and of any New York State court sitting
in New York City for purposes of all legal proceedings against the Borrower
arising out of or relating to this Agreement or the
53
<PAGE> 58
transactions contemplated hereby. The Borrower irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum.
SECTION 9.9. Counterparts; Integration; Effectiveness. This Agreement
may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof. This Agreement shall become effective upon receipt by the Agent of
counterparts hereof signed by each of the parties hereto (or, in the case of
any party as to which an executed counterpart shall not have been received,
receipt by the Agent in form satisfactory to it of telegraphic, telex,
facsimile or other written confirmation from such party of execution of a
counterpart hereof by such party).
SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT
AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
54
<PAGE> 59
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
DEAN FOODS COMPANY
By /s/ Dale I. Hecox
----------------------------------
Name: Dale I. Hecox
Title: Treasurer
Address: 3600 N. River Rd.,
Franklin Park, IL 60131
Telex:
Facsimile: (708) 671-8744
Commitments BANKS
- -----------
$30,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Charles H. King
----------------------------------
Title: Vice President
$30,000,000 HARRIS TRUST & SAVINGS BANK
By /s/ H. Glen Clarke
----------------------------------
Title: Vice President
$23,333,334 NORTHERN TRUST COMPANY
By /s/ Joseph G. Yacullo
----------------------------------
Title: Vice President
$23,333,334 WACHOVIA BANK OF GEORGIA, N.A.
By /s/ David L. Gaines
----------------------------------
Title: Senior Vice President
55
<PAGE> 60
$20,000,000 BANK OF AMERICA ILLINOIS
By /s/ G. Burton Queen
-----------------------------
Title: Vice President
$20,000,000 MELLON BANX
By /s/ William R. Browne
----------------------------
Title: Vice President
$13,333,333 CHEMICAL BANK
By /s/ Lisa D. Benitez
----------------------------
Title: Vice President
$13,333,333 CREDIT SUISSE
By /s/ William P. Murray
----------------------------
Title: Member of Senior
Management
By /s/ Kristinn R. Kristinsson
----------------------------
Title: Associate
$13,333,333 THE FUJI BANK, LIMITED
By /s/ Peter L. Chinnici
----------------------------
Title: Joint General Manager
$13,333,333 WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORX AND
CAYMAN ISLANDS BRANCHES
56
<PAGE> 61
By /s/ Sal Battinelli
-------------------------
Title: Vice President
By /s/ Karen E. Hoplock
-------------------------
Title: Vice President
Total Commitments
- -----------------
$200,000,000
============
HARRIS TRUST & SAVINGS BANK,
as Co-Agent
By /s/ H. Glen Clarke
----------------------------
Title: Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By /s/ Charles H. King
-----------------------------
Name: Charles H. King
Title: Vice President
60 Wall Street
New York, New York 10260
Attention: Charles E. King
---------------
Telex number: 177615
Facsimile number: (212) 648-5336
57
<PAGE> 62
PRICING SCHEDULE
Each of "Euro-Dollar Margin" and "Facility Fee Rate" means, for any
date, the rates set forth below in the row opposite such term and in the column
corresponding to the "Pricing Level" that applies at such date:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Level I Level II Level III Level IV Level V Level VI
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Euro-Dollar 0.16% 0.18% 0.25% 0.30% 0.40% 0.50%
Margin
- -------------------------------------------------------------------------------
Facility Fee 0.09% 0.10% 0.125% 0.15% 0.20% 0.25%
Rate
- -------------------------------------------------------------------------------
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings:
"Level I Pricing" applies at any date if, at such date, the Borrower's
long-term debt is rated A+ or higher by S&P and Al or higher by Moody's.
"Level II Pricing" applies at any date if, at such date, (i) the
Borrower's long-term debt is rated A- or higher by S&P and A3 or higher by
Moody's and (ii) Level I Pricing does not apply.
"Level III Pricing" applies at any date if, at such date, (i) the
Borrower's long-term debt is rated BBB+ or higher by S&P and Baal or higher by
Moody's and (ii) neither Level I Pricing nor Level II Pricing applies.
"Level IV Pricing" applies at any date if, at such date, (i) the
Borrower's long-term debt is rated BBB or higher by S&P and Baa2 or higher by
Moody's and (ii) none of Level I Pricing, Level II Pricing and Level III Pricing
applies.
"Level V Pricing" applies at any date if, at such date, (i) the
Borrower's long-term debt is rated BBB- or higher by S&P and Baa3 or higher by
Moody's and (ii) none of Level I Pricing, Level II Pricing, Level III Pricing
and Level IV Pricing applies.
"Level VI Pricing" applies at any date if, at such date, no other
Pricing Level applies.
"Moody's" means Moody's Investors Service, Inc.
58
<PAGE> 63
"Pricing Level" refers to the determination of which of Level I, Level
II, Level III, Level IV, Level V or Level VI applies at any date.
"S&P" means Standard & Poor's Ratings Group.
The credit ratings to be utilized for purposes of this Schedule are
those assigned to the senior unsecured long-term debt securities of the
Borrower without third-party credit enhancement, and any rating assigned to any
other debt security of the Borrower shall be disregarded. The rating in effect
at any date is that in effect at the close of business on such date.
59
<PAGE> 64
EXHIBIT A
NOTE
New York, New York
February 16, 1995
For value received, Dean Foods Company, a Delaware corporation (the
"Borrower"), promises to pay to the order of _______________ (the "Bank"), for
the account of its Applicable Lending Office, the unpaid principal amount of
each Loan made by the Bank to the Borrower pursuant to the Credit Agreement
referred to below on the maturity date provided for in the Credit Agreement.
The Borrower promises to pay interest on the unpaid principal amount of each
such Loan on the dates and at the rate or rates provided for in the Credit
Agreement. All such payments of principal and interest shall be made in lawful
money of the United States in Federal or other immediately available funds at
the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New
York, New York.
All Loans made by the Bank, the respective types thereof and all
repayments of the principal thereof shall be recorded by the Bank and, if the
Bank so elects in connection with any transfer or enforcement hereof,
appropriate notations to evidence the foregoing information with respect to
each such Loan then outstanding may be endorsed by the Bank on the schedule
attached hereto, or on a continuation of such schedule attached to and made a
part hereof; provided that the failure of the Bank to make any such recordation
or endorsement shall not affect the obligations of the Borrower hereunder or
under the Credit Agreement.
This note is one of the Notes referred to in the $200,000,000 Credit
Agreement dated as of February 16, 1995 among Dean Foods Company, the banks
listed on the signature pages thereof, Harris Trust & Savings Bank, as Co-Agent
and Morgan Guaranty Trust Company of New York, as Agent (as the same may be
amended from time to time, the "Credit Agreement"). Terms defined in the
Credit Agreement are used
1
<PAGE> 65
herein with the same meanings. Reference is made to the Credit
Agreement for provisions for the prepayment hereof and the acceleration of the
maturity hereof.
DEAN FOODS COMPANY
By
--------------------
Name:
Title:
2
<PAGE> 66
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Amount Type Amount of
of of Principal Notation
Date Loan Loan Repaid Made By
<S> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 67
EXHIBIT B
Form of Money Market Quote Request
[Date]
To: Morgan Guaranty Trust Company of New York (the "Agent")
From: Dean Foods Company
Re: $200,000,000 Credit Agreement (the "Credit Agreement") dated as of
February 16, 1995 among Dean Foods Company, the Banks listed on the
signature pages thereof, Harris Trust & Savings Bank, as Co-Agent, and
the Agent
We hereby give notice pursuant to Section 2.3 of the Credit Agreement
that we request Money Market Quotes for the following proposed Money Market
Borrowing(s):
Date of Borrowing:
------------------------------------
Principal Amount/l/ Interest Period/2/
- ---------------- --------------
$
- ----------------------------
/1/ Amount must be $10,000,000 or a larger multiple of $1,000,000.
/2/ Not less than one month (LIBOR Auction) or not less than 15 days
(Absolute Rate Auction), subject to the provisions of the definition of
Interest Period.
1
<PAGE> 68
Such Money Market Quotes should offer a Money Market [Margin] [Absolute
Rate]. [The applicable base rate is the London Interbank Offered Rate.]
Terms used herein have the meanings assigned to them in the Credit
Agreement.
Dean Foods Company
By
----------------------------
Name:
Title:
2
<PAGE> 69
EXHIBIT C
Form of Invitation for Money Market Quotes
To: [Name of Bank]
Re: Invitation for Money Market Quotes to Dean Foods Company (the "Borrower")
Pursuant to Section 2.3 of the $200,000,000 Credit Agreement dated as
of February 16, 1995 among Dean Foods Company, the Banks parties thereto,
Harris Trust & Savings Bank, as Co-Agent, and the undersigned, as Agent, we are
pleased on behalf of the Borrower to invite you to submit Money Market Quotes
to the Borrower for the following proposed Money Market Borrowing(s):
Date of Borrowing:
------------------------------
Principal Amount Interest Period
- ---------------- ---------------
$
Such Money Market Quotes should offer a Money Market [Margin] [Absolute
Rate]. [The applicable base rate is the London Interbank Offered Rate.]
Please respond to this invitation by no later than [2:00 P.M.] [9:30
A.M.] (New York City time) on [date].
MORGAN GUARANTY TRUST COMPANY
OF NEW YOUR
By
-----------------------------
Authorized Officer
1
<PAGE> 70
EXHIBIT D
Form of Money Market Quote
To: Morgan Guaranty Trust Company of New York, as Agent
Re: Money Market Quote to Dean Foods Company (the "Borrower")
In response to your invitation on behalf of the Borrower dated
____________, 19___ , we hereby make the following Money Market Quote on the
following terms:
1. Quoting Bank: ___________________________________
2. Person to contact at Quoting Bank:
_________________________________________________
3. Date of Borrowing:_______________________________*
4. We hereby offer to make Money Market Loan(s) in the following principal
amounts, for the following Interest Periods and at the following rates:
Principal Interest Money Market
Amount** Period*** [Margin****] [Absolute Rate*****]
- --------- --------- ------------ --------------------
$
$
[Provided, that the aggregate principal amount of Money Market Loans
for which the above offers may be accepted shall not exeed $___________.]**
____________
* As specified in the related Invitation.
** Principal amount bid for each Interest Period may not exceed
principal amount requested. Specify aggregate limitation if the sum of the
individual offers exceeds the amount the Bank is willing to lend. Bids must be
made for $5,000,000 or a larger multiple of $1,000,000.
(notes continued on following page)
1
<PAGE> 71
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the $200,000,000
Credit Agreement dated as of February 16, 1995 among Dean Foods Company, the
Banks listed on the signature pages thereof, Harris Trust & Savings Bank, as
Co-Agent and yourselves, as Agent, irrevocably obligates us to make the Money
Market Loan(s) for which any offer(s) are accepted, in whole or in part.
Very truly yours,
[NAME OF BANK]
Dated: By:
-------------------- ------------------------
Authorized Officer
- ---------------
*** Not less than one month or not less than 15 days, as specified in
the related Invitation. No more than five bids are permitted for each Interest
Period.
**** Margin over or under the London Interbank Offered Rate determined
for the applicable Interest Period. Specify percentage (to the nearest
1/10,000 of 1%) and specify whether "PLUS" or "MINUS".
***** Specify rate of interest per annum (to the nearest l/l0,000th of 1%).
2
<PAGE> 72
EXHIBIT E
OPINION OF
COUNSEL FOR THE BORROWER
________________, 199_
To the Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have acted as counsel for Dean Foods Company (the "Borrower") in
connection with the $200,000,000 Credit Agreement (the "Credit Agreement")
dated as of February 16, 1995 among the Borrower, the banks listed on the
signature pages thereof, Harris Trust & Savings Bank, as Co-Agent and Morgan
Guaranty Trust Company of New York, as Agent. Terms defined in the Credit
Agreement are used herein as therein defined. This opinion is being rendered
to you at the request of our client pursuant to Section 3.1(b) of the Credit
Agreement.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as we have deemed necessary or advisable for
purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of Delaware and has all corporate powers
and all material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
1
<PAGE> 73
2. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes are within the corporate powers of the Borrower,
have been duly authorized by all necessary corporate action, require no action
by or in respect of, or filing with, any governmental body, agency or official
and do not contravene, or constitute a default under, any provision of
applicable law or regulation or of the certificate of incorporation or by-laws
of the Borrower or of any agreement, judgment, injunction, order, decree or
other instrument binding upon the Borrower or any of its Subsidiaries or result
in the creation or imposition of any Lien on any asset of the Borrower or any
of its Subsidiaries.
3. The Credit Agreement constitutes a valid and binding agreement of
the Borrower and each Note constitutes a valid and binding obligation of the
Borrower, in each case enforceable in accordance with its terms except as the
same may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and by general principles of equity.
4. There is no action, suit or proceeding pending against, or to the
best of our knowledge threatened against or affecting, the Borrower or any of
its Subsidiaries before any court or arbitrator or any governmental body,
agency or official, in which there is a reasonable possibility of an adverse
decision which could materially adversely affect the business, consolidated
financial position or consolidated results of operations of the Borrower and
its Consolidated Subsidiaries, considered as a whole, or which in any manner
draws into question the validity of the Credit Agreement or the Notes.
5. Each of the Borrower's corporate Subsidiaries is a corporation
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
Very truly yours,
2
<PAGE> 74
EXHIBIT F
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE AGENT
____________________, 199_
To the Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have participated in the preparation of the $200,000,000 Credit
Agreement (the "Credit Agreement") dated as of February 16, 1995 among Dean
Foods Company, a Delaware corporation (the "Borrower"), the banks listed on the
signature pages thereof (the "Banks"), Harris Trust & Savings Bank, as Co-Agent
and Morgan Guaranty Trust Company of New York, as Agent (the "Agent"), and have
acted as special counsel for the Agent for the purpose of rendering this
opinion pursuant to Section 3.1(c) of the Credit Agreement. Terms defined in
the Credit Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as we have deemed necessary or advisable for
purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes are within
1
<PAGE> 75
the Borrower's corporate powers and have been duly authorized by all
necessary corporate action.
2. The Credit Agreement constitutes a valid and binding agreement of
the Borrower and each Note constitutes a valid and binding obligation of the
Borrower, in each case enforceable in accordance with its terms except as the
same may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and by general principles of equity.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of
the United States of America and the General Corporation Law of the State of
Delaware. In giving the foregoing opinion, we express no opinion as to the
effect (if any) of any law of any jurisdiction (except the State of New York)
in which any Bank is located which limits the rate of interest that such Bank
may charge or collect.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by any other person without our prior written consent.
Very truly yours,
2
<PAGE> 76
EXHIBIT G
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _____________, 19__ among [NAME OF ASSIGNOR] (the
"Assignor"), [NAME OF ASSIGNEE] (the "Assignee"), DEAN FOODS COMPANY (the
"Borrower") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the
"Agent") .
WHEREAS, this Assignment and Assumption Agreement (the "Agreement")
relates to the $200,000,000 Credit Agreement dated as of February 16, 1995
among the Borrower, the Assignor and the other Banks party thereto, as Banks,
Harris Trust & Savings Bank, as Co-Agent and the Agent (the "Credit
Agreement");
WHEREAS, as provided under the Credit Agreement, the Assignor has a
Commitment to make Loans to the Borrower in an aggregate principal amount at
any time outstanding not to exceed $___________;
WHEREAS, Committed Loans made to the Borrower by the Assignor under the
Credit Agreement in the aggregate principal amount of $_______________ are
outstanding at the date hereof; and
WHEREAS, the Assignor proposes to assign to the Assignee all of the
rights of the Assignor under the Credit Agreement in respect of a portion of
its Commitment thereunder in an amount equal to $______________ (the "Assigned
Amount"), together with a corresponding portion of its outstanding Committed
Loans, and the Assignee proposes to accept assignment of such rights and assume
the corresponding obligations from the Assignor on such terms;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
SECTION 1. Definitions. All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Credit Agreement.
1
<PAGE> 77
SECTION 2. Assignment. The Assignor hereby assigns and sells to the
Assignee all of the rights of the Assignor under the Credit Agreement to the
extent of the Assigned Amount, and the Assignee hereby accepts such assignment
from the Assignor and assumes all of the obligations of the Assignor under the
Credit Agreement to the extent of the Assigned Amount, including the purchase
from the Assignor of the corresponding portion of the principal amount of the
Committed Loans made by the Assignor outstanding at the date hereof. Upon the
execution and delivery hereof by the Assignor, the Assignee, [the Borrower and
the Agent] and the payment of the amounts specified in Section 3 required to be
paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed
to the rights and be obligated to perform the obligations of a Bank under the
Credit Agreement with a Commitment in an amount equal to the Assigned Amount,
and (ii) the Commitment of the Assignor shall, as of the date hereof, be
reduced by a like amount and the Assignor released from its obligations under
the Credit Agreement to the extent such obligations have been assumed by the
Assignee. The assignment provided for herein shall be without recourse to the
Assignor.
SECTION 3. Payments. As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in Federal funds the amount heretofore agreed between them./l/ It
is understood that facility fees accrued to the date hereof are for the account
of the Assignor and such fees accruing from and including the date hereof are
for the account of the Assignee. Each of the Assignor and the Assignee hereby
agrees that if it receives any amount under the Credit Agreement which is for
the account of the other party hereto, it shall receive the same for the
account of such other party to the extent of such other party's interest
therein and shall promptly pay the same to such other party.
[SECTION 4. Consent of the Borrower and the Agent. This Agreement is
conditioned upon the consent of the
___________
/1/ Amount should combine principal together with accrued interest and
breakage compensation, if any, to be paid by the Assignee, net of any portion
of any upfront fee to be paid by the Assignor to the Assignee. It may be
preferable in an appropriate case to specify these amounts generically or by
formula rather than as a fixed sum.
2
<PAGE> 78
Borrower and the Agent pursuant to Section 9.6(c) of the Credit
Agreement. The execution of this Agreement by the Borrower and the Agent is
evidence of this consent. Pursuant to Section 9.6(c), the Borrower agrees to
execute and deliver a Note payable to the order of the Assignee to evidence the
assignment and assumptlon provided for herein.]
SECTION 5. Non-Reliance on Assignor. The Assignor makes no
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition, or statements of the
Borrower, or the validity and enforceability of the obligations of the Borrower
in respect of the Credit Agreement or any Note. The Assignee acknowledges that
it has, independently and without reliance on the Assignor, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and will continue to be
responsible for making its own independent appraisal of the business, affairs
and financial condition of the Borrower.
SECTION 6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. Counterparts. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
3
<PAGE> 79
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
[NAME OF ASSIGNOR]
By________________________
Name:
Title:
[NAME OF ASSIGNEE]
By________________________
Name:
Title:
DEAN FOODS COMPANY
By________________________
Name:
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By________________________
Name:
Title:
4
<PAGE> 80
[CONFORMED COPY]
AMENDMENT NO. 1 TO CREDIT AGREEMENT
AMENDMENT dated as of February 13, 1996 to the $200,000,000 Credit
Agreement dated as of February 16, 1995 (the "Agreement") among Dean Foods
Company (the "Company"), the banks listed on the signature pages thereof,
Harris Trust & Savings Bank, as Co-Agent, and Morgan Guaranty Trust Company of
New York, as Agent.
The parties to the Agreement wish to (i) revise the group of "Banks"
parties thereto, (ii) provide that the Commitments of the Banks shall be as set
forth herein, with an aggregate amount of such Commitments equal to
$300,000,000, (iii) extend the Commitment Termination Date and (iv) amend the
pricing of interest and fees, all as hereinafter set forth. The parties
therefore agree as follows:
SECTION 1. Definitions: References. Unless otherwise
specifically defined herein, each term used herein which is defined in the
Agreement shall have the meaning assigned to such term in the Agreement. Each
reference to "hereof", "hereunder", "herein" and "hereby" and each other
similar reference and each reference to "this Agreement" and each other similar
reference contained in the Agreement shall from and after the date hereof refer
to the Agreement as amended hereby.
SECTION 2. Amendment of Adjusted Consolidated Debt Schedule.
The schedule set forth in the definition of "Adjusted Consolidated Debt" in
Section 1.1 is amended to read in full as follows:
Fiscal Year Maximum Exclusion
----------- -----------------
1996 $130,000,000
1997 140,000,000
1998 150,000,000
1999 160,000,000
2000 170,000,000
2001 180,000,000
SECTION 3. Amendment of Commitment Amounts. The definition of
"Commitment" in Section 1.1 is amended to read in full as follows:
"Commitment" means, with respect to each Bank, the amount set forth
opposite the name of such Bank on Schedule II hereto, or, in the case of any
Assignee that becomes a Bank after the date hereof, as may be set forth in the
relevant Assignment and Assumption Agreement executed pursuant to Section 9.6,
as such amount may be reduced from time to time pursuant to Section 2.9.
<PAGE> 81
A new Schedule II is added to the Credit Agreement in the form attached hereto.
SECTION 4. Extension of Commitment Termination Date. The
definition of "Commitment Termination Date" in Section 1.1 is amended to read
in full as follows:
"Commitment Termination Date" means February 12, 2001, or, if such day
is not a Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day
unless such Euro-Dollar Business Day falls in another calendar month, in which
case the Commitment Termination Date shall be the next preceding Euro-Dollar
Business Day.
SECTION 5. Amendment of Pricing. The Pricing Schedule attached
to the Agreement is amended to read in full as follows:
PRICING SCHEDULE
Each of "Euro-Dollar Margin" and "Facility Fee Rate" means, for any
date, the rates set forth below in the row opposite such term and in the column
corresponding to the "Pricing Level" that applies at such date:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Level I Level II Level III Level IV Level V Level VI Level VII
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Euro-Dollar 0.155% 0.17% 0.16% 0.25% 0.275% 0.325% 0.50%
Margin
- ---------------------------------------------------------------------------------------------
Facility Fee 0.07% 0.08% 0.09% 0.10% 0.125% 0.175% 0.25%
Rate
- ---------------------------------------------------------------------------------------------
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings:
"Level I Pricing" applies at any date if, at such date, the Borrower's
long-term debt is rated A+ or higher by S&P and Al or higher by Moody's.
"Level II Pricing" applies at any date if, at such date, (i) the
Borrower's long-term debt is rated A or higher by S&P and A2 or higher
by Moody's and (ii) Level I Pricing does not apply.
"Level III Pricing" applies at any date if, at such date, (i) the
Borrower's long-term debt is rated A- or higher by S&P and A3 or higher
by Moody's and (ii) neither Level I nor Level II Pricing applies.
"Level IV Pricing" applies at any date if, at such date, (i) the
Borrower's long-term debt is rated BBB+ or higher by S&P and Baal or higher by
Moody's and (ii) none of Level I Pricing, Level II Pricing and Level III Pricing
applies.
2
<PAGE> 82
"Level V Pricing" applies at any date if, at such date, (i) the
Borrower's long-term debt is rated BBB or higher by S&P and Baa2 or
higher by Moody's and (ii) none of Level I Pricing, Level II Pricing, Level III
Pricing and Level IV Pricing applies.
"Level VI Pricing" applies at any date if, at such date, (i) the
Borrower's long-term debt is rated BBB- or higher by S&P and Baa3 or
higher by Moody's and (ii) none of Level I Pricing, Level II Pricing, Level III
Pricing, Level IV Pricing and Level V Pricing applies.
"Level VII Pricing" applies at any date if, at such date, no other
Pricing Level applies.
"Moody's" means Moody's Investors Service, Inc.
"Pricing Level" refers to the determination of which of Level I, Level
II, Level III, Level IV, Level V, Level VI or Level VII applies at any date.
"S&P" means Standard & Poor's Ratings Group.
The credit ratings to be utilized for purposes of this Schedule are
those assigned to the senior unsecured long-term debt securities of the
Borrower without third-party credit enhancement, and any rating assigned to any
other debt security of the Borrower shall be disregarded. The rating in
effect at any date is that in effect at the close of business on such date.
SECTION 6. Termination of 364-Day Credit Agreement. The Commitments
(as defined therein) under the $100,000,000 Credit Agreement dated as of
February 16, 1995 among the Borrower, the banks listed on the signature pages
thereof, Harris Trust & Savings Bank, as Co-Agent and Morgan Guaranty Trust
Company of New York, as Agent, shall terminate on February 13, 1996
simultaneously with the effectiveness hereof.
SECTION 7. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 8. Counterparts: Effectiveness. This Amendment may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Amendment shall become effective when the Agent shall have
received duly executed counterparts hereof signed by the Borrower and all of
the Banks, and any Note not heretofore delivered by the Company.
3
<PAGE> 83
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
DEAN FOODS COMPANY
By /s/ Dale I. Hecox
----------------------
Title: Treasurer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Charles H. King
----------------------
Title: Vice President
HARRIS TRUST & SAVINGS BANK
By /s/ Glen Clarke
----------------------
Title: Vice President
NORTHERN TRUST COMPANY
By /s/ Sidney Dillard
----------------------
Title: Vice President
WACHOVIA BANK OF GEORGIA, N.A.
By /s/ Douglas Williams
----------------------
Title: Senior Vice President
4
<PAGE> 84
BANK OF AMERICA ILLINOIS
By /s/ Margaret A. Detrick
--------------------------------
Title: Vice President
MELLON BANK
By /s/ Laurel L. Larson
--------------------------------
Title: Assistant Vice President
CHEMICAL BANK
By /s/ Lisa D. Benitez
--------------------------------
Title: Vice President
THE FUJI BANK, LIMITED
By /s/ Peter L. Chinnici
----------------------------------
Title: Joint General Manager
NATIONSBANK, N.A.
By /s/ Carter A. Smith
------------------------------------
Title: Vice President
5
<PAGE> 85
SCHEDULE II
COMMITMENTS OF BANKS
Commitment Name of Bank
---------- ------------
$45,000,000 Morgan Guaranty Trust Company
of New York
45,000,000 Harris Trust & Savings Bank
35,000,000 Northern Trust Company
35,000,000 Wachovia Bank of Georgia, N.A.
35,000,000 Bank of America Illinois
35,000,000 Mellon Bank
20,000,000 Chemical Bank
20,000,000 The Fuji Bank, Limited
30,000,000 NationsBank, N.A.
6
<PAGE> 86
[CONFORMED COPY]
AMENDMENT NO. 2 TO CREDIT AGREEMENT
AMENDMENT dated as of June 24, 1996 to the Credit Agreement dated as of
February 16, 1995 (as amended by Amendment No. 1 thereto dated as of February
13, 1996) (the "Agreement") among Dean Foods Company (the "Borrower"), the
banks listed on the signature pages thereof, Harris Trust & Savings Bank, as
Co-Agent, and Morgan Guaranty Trust Company of New York, as Agent.
The parties hereto wish to (i) revise the adjusted debt to total capital
covenant and (ii) revise the fixed charges coverage covenant, each as
hereinafter set forth, and therefore agree as follows:
SECTION 1. Definitions: References. Unless otherwise specifically defined
herein, each term used herein which is defined in the Agreement shall have the
meaning assigned to such term in the Agreement. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar reference and each
reference to "this Agreement" and each other similar reference contained in
the Agreement shall from and after the date hereof refer to the Agreement as
amended hereby.
SECTION 2. Amendment of Adjusted Debt to Adjusted Total Capital Covenant.
Section 5.10 of the Agreement is hereby amended by deleting the words "exceed
0.5 to 1.0" and inserting in lieu thereof the following:
during either period set forth below exceed the ratio set forth
opposite such period below:
Period Ratio
------ -----
From May 26, 1996 to and 0.525 to 1.0
including May 25, 1997
May 26, 1997 and thereafter 0.5 to 1.0
SECTION 3. Amendment of Fixed Charge Coverage Covenant. The definition of
Consolidated EBIT in Section 1.1 is hereby deleted and replaced in its
entirety as follows:
"Consolidated EBIT" means, for any fiscal period, Consolidated Net
Income for such period plus, to the extent deducted in determining
<PAGE> 87
Consolidated Net Income for such period, the aggregate amount of (i)
Consolidated Interest Expense, (ii) income tax expense and (iii) solely
with respect to Consolidated Net Income calculated for each fiscal quarter
ended prior to May 26, 1997, the amount of the pre-tax special charge to
earnings set forth as a separate line item on the Borrower's consolidated
statement of income for the Fiscal Year ended May 26, 1996 (but in no
event greater than $150,000,000 in the aggregate for all such periods).
SECTION 4. Governing Law. This Amendment shall be governed by
and construed in accordance with the laws of the State of New York.
SECTION 5. Counterparts: Effectiveness. This Amendment may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Amendment shall become effective when the Agent shall have
received duly executed counterparts hereof signed by the Borrower and the
Required Banks.
2
<PAGE> 88
IN WITNESS WHEREOF, parties hereto have caused this Amendment to be duly
executed by their respective authorized of officers as of the day and year first
above written.
DEAN FOODS COMPANY
By: DALE I. HECOX
----------------------
Name: Dale I. Hecox
Title: Treasurer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By CHARLES H. KING
----------------------
Title: Vice President
HARRIS TRUST & SAVINGS BANK
By H. GLEN CLARKE
----------------------
Title: Vice President
NORTHERN TRUST COMPANY
By DAVID C. BLOWERS
----------------------------
Title: Senior Vice President
3
<PAGE> 89
WACHOVIA BANK OF GEORGIA, N.A.
By: MICHAEL J. BROWN
----------------------------
Title: Vice President
BANK OF AMERICA ILLINOIS
By: G. BURT QUEEN
----------------------------
Title: Vice President
MELLON BANK
By: LAUREL L. LARSEN
----------------------------
Title: Assistant Vice President
CHEMICAL BANK
By: C.C. WARDELL
---------------------------
Title: Managing Director
THE FUJI BANK, LIMITED
By: PETER L. CHINNICI
----------------------------
Title: Joint General Manager
4
<PAGE> 90
NATIONSBANK, N.A.
By: LOUISE C. COMINSKEY
-------------------------------
Title: Vice President
5
<PAGE> 91
[CONFORMED COPY]
AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT
AGREEMENT dated as of February 4, 1997 among DEAN FOODS COMPANY (with its
successors, the "Borrower"), the BANKS listed on the signature pages hereof
(with their respective successors and assigns, the "Banks"), HARRIS TRUST &
SAVINGS BANK, as Co-Agent, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Agent.
WITNESSETH:
WHEREAS, the Borrower, certain of the Banks parties hereto, the Co-Agent
and the Agent have heretofore entered into a Credit Agreement dated as of
February 16, 1995, as amended by Amendment No. 1 dated as of February 13, 1996
and by Amendment No. 2 dated as of June 24, 1996 (the "Credit Agreement"); and
WHEREAS, the parties hereto desire to amend the Credit Agreement as set
forth herein and to restate the Credit Agreement in its entirety to read as set
forth in the Credit Agreement with the amendments specified below;
NOW THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. (a) Unless otherwise specifically
defined herein, each capitalized term used herein which is defined in the Credit
Agreement shall have the meaning assigned to such term in the Credit Agreement.
Each reference to "hereof", "hereunder", "herein" and "hereby" and each other
similar reference and each reference to "this Agreement" and each other similar
reference contained in the Credit Agreement shall from and after the date hereof
refer to the Credit Agreement as amended hereby.
(b) The following term shall have the meaning given to such term for
purposes of this Agreement:
"Agreement Effective Date" means the date this Agreement becomes
effective in accordance with Section 9 hereof.
<PAGE> 92
SECTION 2. Amendment of Adjusted Consolidated Debt Schedule. The schedule
set forth in the definition of "Adjusted Consolidated Debt" in Section 1.1 is
amended to read in full as follows:
Fiscal Year Maximum Exclusion
----------- -----------------
1996 $ 130,000,000
1997 140,000,000
1998 150,000,000
1999 160,000,000
2000 170,000,000
2001 180,000,000
2002 190,000,000
SECTION 3. Extension of Termination Date. The definition of "Commitment
Termination Date" in Section 1.1 of the Credit Agreement is restated to read in
its entirety as follows:
"Commitment Termination Date" means February 4, 2002, or, if such day
is not a Euro-Dollar Business Day, the next succeeding Euro-Dollar Business
Day unless such Euro-Dollar Business Day falls in another calendar month,
in which case the Commitment Termination Date shall be the next preceding
Euro-Dollar Business Day.
SECTION 4. Amendment of Pricing. The Pricing Schedule attached to the
Agreement is amended to read in full in the form of the Pricing Schedule
attached to this Agreement.
SECTION 5. Amendment of Leverage Ratio. Section 5.10 of the Credit
Agreement is amended to read in full as follows:
SECTION 5.10 Adjusted Debt to Adjusted Total Capital. The ratio of (i)
Adjusted Consolidated Debt to (ii) the sum of Adjusted Consolidated Debt
plus consolidated stockholders' equity of the Borrower and its Consolidated
Subsidiaries (including for this purpose any amount attributable to stock
which is required to be redeemed or is redeemable at the option of the
holder, if certain events or conditions occur or exist or otherwise), in
each case determined at such date, shall at no time exceed 0.55 to 1.0.
2
<PAGE> 93
SECTION 6. Amendment of Fixed Charge Coverage Ratio. Section 5.11 of the
Credit Agreement is amended to read in full as follows:
SECTION 5.11. Fixed Charge Coverage Ratio. As of the last day of each
fiscal quarter of the Borrower ending during each period set forth below,
the ratio of (i) Consolidated EBIT to (ii) Consolidated Interest Expense,
in each case for the four consecutive fiscal quarters of the Borrower and
its Consolidated Subsidiaries ending on such day, shall not be less than
2.0 to 1.0.
SECTION 7. Representations and Warranties. The Borrower hereby represents
and warrants that as of the Agreement Effective Date and after giving effect
thereto:
(a) no Default has occurred and is continuing; and
(b) each representation and warranty of the Borrower set forth in the
Credit Agreement is true and correct as though made on and as of the
Agreement Effective Date.
SECTION 8. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
SECTION 9. Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective on the date that each of the following
conditions shall have been satisfied:
(i) receipt by the Agent of duly executed counterparts hereof signed
by each of the parties hereto (or, in the case of any party as to which an
executed counterpart shall not have been received, the Agent shall have
received telegraphic, telex or other written confirmation from such party
of execution of a counterpart hereof by such party);
(ii) receipt by the Agent of an opinion of Eric A. Blanchard, Esq.,
general counsel of the Borrower, substantially to the effect of Exhibit E
to the Credit Agreement but with respect to the Credit Agreement as amended
and restated hereby, and covering such additional matters relating to the
transactions contemplated hereby as the Required Banks may reasonably
request; and
(iii) receipt by the Agent of all documents it may reasonably request
relating to the existence of the Borrower, the corporate authority for and
the
3
<PAGE> 94
validity of the Credit Agreement as amended and restated hereby and any
other matters relevant hereto, all in form and substance satisfactory to
the Agent.
provided that this Agreement shall not become effective or binding on any
party hereto unless all of the foregoing conditions are satisfied not later
than March 14, 1997. The Agent shall promptly notify the Borrower and the
Banks of the Agreement Effective Date, and such notice shall be conclusive and
binding on all parties hereto.
4
<PAGE> 95
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
DEAN FOODS COMPANY
By Dale I. Hecox
---------------------------
Name: Dale I. Hecox
Title: Treasurer
5
<PAGE> 96
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Bank and Agent
By JENNY Y. LEE
----------------------------
Name: Jenny Y. Lee
Title: Vice President
HARRIS TRUST & SAVINGS BANK, as Bank
and Co-Agent
By H. GLEN CLARKE
----------------------------
Name: H. Glen Clarke
Title: Vice President
NORTHERN TRUST COMPANY
By SIDNEY R. DILLARD
----------------------------
Name: Sidney R. Dillard
Title: Vice President
WACHOVIA BANK OF GEORGIA, N.A.
By ELIZABETH U. COLT
----------------------------
Name: Elizabeth U. Colt
Title: Vice President
6
<PAGE> 97
BANK OF AMERICA ILLINOIS
By MARY T. CARLSON
----------------------------------
Name: Mary T. Carlson
Title: Vice President
MELLON BANK
By LAUREL L. LARSEN
----------------------------------
Name: Laurel L. Larsen
Title: Assistant Vice President
THE CHASE MANHATTEN BANK
By TIMOTHY J. STORMS
----------------------------------
Name: Timothy J. Storms
Title: Managing Director
THE FUJI BANK, LIMITED
By TETSUO KAMATSU
----------------------------------
Name: Tetsuo Kamatsu
Title: Joint General Manager
7
<PAGE> 98
NATIONSBANK, N.A.
By LISA S. DONOGHUE
----------------------------------
Name: Lisa S. Donoghue
Title: Joint General Manager
8
<PAGE> 99
PRICING SCHEDULE
Each of "Euro-Dollar Margin" and "Facility Fee Rate" means, for any date,
the rates set forth below in the row opposite such term and in the column
corresponding to the "Pricing Level" that applies at such date:
<TABLE>
<CAPTION>
Level I Level II Level III Level IV Level VI Level VI Level VII
<S> <C> <C> <C> <C> <C> <C> <C>
Euro Dollar 0.14% 0.155% 0.17% 0.21% 0.25% 0.325% 0.375%
Margin
Facility Fee 0.06% 0.07% 0.08% 0.09% 0.125% 0.175% 0.25%
Rate
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings:
"Level I Pricing" applies at any date if, at such date, the Borrower's
long-term debt is rated A+ or higher by S&P or A1 or higher by Moody's.
"Level II Pricing" applies at any date if, at such date, (i) the
Borrower's long-term debt is rated A or higher by S&P or A2 or higher by Moody's
and (ii) Level I Pricing does not apply.
"Level III Pricing" applies at any date if, at such date, (i) the
Borrower's long-term debt is rated A- or higher by S&P or A3 or higher by
Moody's and (ii) neither Level I nor Level II Pricing applies.
"Level IV Pricing" applies at any date if, at such date, (i) the
Borrower's long-term debt is rated BBB+ or higher by S&P or Baa1 or higher by
Moody's and (ii) none of Level I Pricing, Level II Pricing and Level III Pricing
applies.
"Level V Pricing" applies at any date if, at such date, (i) the
Borrower's long-term debt is rated BBB or higher by S&P or Baa2 or higher by
Moody's and (ii) none of Level I Pricing, Level II Pricing, Level III Pricing
and Level IV Pricing applies.
"Level VI Pricing" applies at any date if, at such date, (i) the
Borrower's long-term debt is rated BBB- or higher by S&P or Baa3 or higher by
Moody's and (ii) none of Level I Pricing, Level II Pricing, Level III Pricing,
Level IV Pricing and Level V Pricing applies.
9
<PAGE> 100
"Level VII Pricing" applies at any date if, at such date, no other
Pricing Level Applies.
"Moody's" means Moody's Investors Service, Inc.
"Pricing Level" refers to the determination of which of Level I, Level
II, Level III, Level IV, Level V, Level VI or Level VII applies at any date.
"S&P" means Standard & Poor's Ratings Services.
The credit ratings to be utilized for purposes of this Schedule are those
assigned to the senior unsecured long-term debt securities of the Borrower
without third-party credit enhancement, and any rating assigned to any other
debt security of the Borrower shall be disregarded. The rating in effect at
any date is that in effect at the close of business on such date.
The following provisions are applicable so long as the Borrower's long-term
debt is rated at least BBB- by S&P and at least Baa3 by Moody's: If the Borrower
is split-rated and the ratings differential is one level, the higher of the two
ratings will apply (e.g.A-/Baa1 results in Level III Pricing). If the Borrower
is split-rated and the ratings differential is more than one level, the average
of the two ratings (or the higher of two intermediate ratings) shall be used
(e.g.A-/Baa2 results in Level IV Pricing, as does A-/Baa3).
10
<PAGE> 1
EXHIBIT 11
Dean Foods Company and Subsidiaries
Computation of Earnings Per Share
---------------------------------
(In thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ---------
<S> <C> <C> <C>
Net Income (Loss) $86,704 $(49,688) $80,059
======= ======== =======
Weighted Average Number of
common shares outstanding
during the period 40,181 40,122 39,890
======= ======== =======
Primary Earnings (Loss)
Per Common Share $ 2.16 $ (1.24) $ 2.01
======= ======== =======
</TABLE>
121
<PAGE> 1
EXHIBIT 12
Dean Foods Company and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
-------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Years Ending May
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes $145,723 $(69,395) $136,388 $118,313 $114,759
----------------------------------------------------------------------------
Fixed charges:
Interest expense 25,150 28,120 22,397 15,471 14,888
Debt issue costs 190 229 117 123 155
Portion of rentals (33%) 9,605 10,142 8,270 6,997 7,653
----------------------------------------------------------------------------
Total fixed charges 34,945 38,491 30,784 22,591 22,696
----------------------------------------------------------------------------
Earnings (loss) before taxes
and fixed charges $180,668 $(30,904) $167,172 $140,904 $137,455
============================================================================
Ratio of earnings (loss)
to fixed charges 5.2 - (*) 5.4 6.2 6.1
============================================================================
</TABLE>
(*) The Fiscal 1996 Ratio of Earnings to Fixed Charges is less than one-to-one
due to the $150.0 million special charge included in "Income (Loss) before
Taxes", resulting in $69,395 fixed charge coverage deficiency.
122
<PAGE> 1
DEAN FOOD COMPANY
VALUE THROUGH INNOVATION
to Consumers --- to Customers --- to Employees --- to Shareholders
1997 Annual Report
<PAGE> 2
Headquartered in
Franklin Park, Illinois,
Dean Foods Company [MAP]
has 50 locations serving the
continental United States, Europe and Mexico.
CONTENTS Location Map INSIDE COVER Financial Highlights 1 Letter to
Shareholders 2 Strategic Initiatives 4 Review of Operations 12
Financial Review 18 Financial Statements 24 Notes to Financial
Statements 29 Summary of Operations 37 Directors and Officers 38
Corporate Data 39
<PAGE> 3
Dean Foods Company and Subsidiaries
<TABLE>
<CAPTION>
In thousands, except for items marked with an* 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net Sales $3,018,367 $2,814,268 $2,630,182
- ------------------------------------------------------------------------------------------
Operating Earnings (Loss) $ 170,079 $ (42,430)(a) $ 157,103
- ------------------------------------------------------------------------------------------
Income (Loss) Before Taxes $ 145,723 $ (69,395)(a) $ 136,388
- ------------------------------------------------------------------------------------------
Net Income (Loss) $ 86,704 $ (49,688)(a) $ 80,059
- ------------------------------------------------------------------------------------------
Net Income (Loss) Per Common Share* $ 2.16 $ (1.24)(a) $ 2.01
- ------------------------------------------------------------------------------------------
Dividends Per Common Share* $ .76 $ .72 $ .68
- ------------------------------------------------------------------------------------------
YEAR-END POSITION
Working Capital $ 208,032 $ 185,942 $ 215,012
- ------------------------------------------------------------------------------------------
Total Assets $1,217,358 $1,222,240 $1,202,426
- ------------------------------------------------------------------------------------------
Long-Term Obligations $ 211,926 $ 221,653 $ 224,679
- ------------------------------------------------------------------------------------------
Shareholders' Equity $ 567,681 $ 507,692 $ 584,526
- ------------------------------------------------------------------------------------------
Shares Outstanding 40,284 40,134 40,078
OTHER DATA
Production Plants* 50 59(b) 59
- ------------------------------------------------------------------------------------------
Employees* 11,800 11,900(b) 11,800
- ------------------------------------------------------------------------------------------
Shareholders* 8,838 9,481 9,989
- ------------------------------------------------------------------------------------------
</TABLE>
(a) 1996 includes a pre-tax charge of $150,000 ($97,720 after-tax, or
$2.44 per share) related to the adoption of a plan to reduce costs,
rationalize production capacity and provide for severance and
environmental costs.
(b) 1996 includes certain plants that have been closed or disposed of and
certain employees that have been affected by the adoption of a plan to
reduce costs, rationalize production capacity and provide for severance
and environmental costs.
1
<PAGE> 4
[PICTURE]
[PHOTO]
Philip A. Marineau
President and
Chief Operating Officer
[PHOTO]
Howard M. Dean
Chairman of the Board and
Chief Executive Officer
TO OUR SHAREHOLDERS:
Fiscal 1997 was an outstanding year for Dean Foods. By executing the strategic
direction plan announced in May, 1996, Dean achieved record results,
demonstrated consistent performance and significantly increased its share
price. Moreover, the Company set the stage to continue this profitable growth
and improve returns in fiscal 1998 and beyond. We continued to develop our
strategies and communicate them to all Dean Foods employees. We installed new
measurement tools to allocate resources and evaluate results. And we have made
a number of management additions to position ourselves for planned growth.
Our future is promising. We have established a winning strategy and a
management team committed to continue to improve Dean Foods' returns and
shareholder value.
FISCAL 1997
Fiscal 1997 was a year of record performances in sales, earnings, cash flow and
share price. Sales topped $3 billion for the first time, a 7% increase over
1996. Operating earnings were $170 million, a 58% increase over the prior year,
before the 1996 special charge. Net income was $86.7 million, or $2.16 per
share, surpassing the fiscal 1995 previous record of $2.01 per share. Earnings
per share in fiscal 1996, before the $150 million pre-tax special charge, were
$1.20.
The Company generated over $100 million in free cash flow from operations
and reduced debt by a like amount.
We substantially improved our return on invested capital (ROIC) from less
than 7% to nearly 13%.
Dean Foods' share price, after reaching a low of $22 1/8, ended the fiscal
year at $38 3/8, and currently trades in the upper $40's.
STRATEGIC DIRECTION
In fiscal 1996, we thoroughly evaluated the strategy of all of our business
units, focusing on their current and future market environment, competitors and
capabilities, and formulated a plan to substantially improve shareholder value.
We recorded a pre-tax special charge of $150 million to reduce costs,
rationalize capacity and provide for severance and environmental issues. As of
fiscal 1997 year-end, we have completed the disposal or closure of 11 plants and
eliminated more than 700 positions. Execution of this plan took most of the year
and is now substantially complete. Net savings from this plan and other cost
initiatives were approximately $13 million in fiscal 1997 and are expected to
more than double in the future.
The five principal strategies we outlined last year to create and deliver
long-term sustainable value continue to be the foundation on which we will
build Dean Foods in the future:
CORE BUSINESSES
We will continue to profitably grow our core businesses through innovative
products which are important to "on-the-go" consumers. We intend to introduce
milk products as beverages and snacks in bold new packaging that bridges
yesteryear's milk containers with today's modern consumer and consumption
demands. Dean Foods will invest more than $40 million on this endeavor, and
these products will be introduced in most of our fluid milk markets by the end
of this fiscal
2
<PAGE> 5
year. We also plan to continue to introduce Birds Eye vegetable-based products
as "meal solutions" for the time-constrained consumer looking for nutritionally
balanced meals that are easy and quick to prepare. Pickles in the form of
sandwich slices and also as snacks offer additional opportunities. In our
Specialty segment, our acquisition of the Marie's line of salad dressings and
dips, as well as several new non-dairy powdered products, should drive
continued growth in this important segment.
INVESTED CAPITAL
Investing our resources in areas that create maximum long-term shareholder
value is a key to our future success. We have extended our use of ROIC as a
principal performance measure. All of our managers are now focusing their
efforts on the key value drivers that affect ROIC and thereby impact the
long-term value of their businesses. Our goal is to attain a 17% ROIC.
CONTINUOUS MARGIN IMPROVEMENT
We have furthered our entrepreneurial spirit of teamwork and employee
empowerment through a "best practices" process initiated in our Dairy segment to
reduce costs and enhance margins. We will be extending this model to the other
segments of the Company beginning in fiscal 1998.
ACQUISITIONS
Historically, Dean Foods has grown significantly through acquisitions.
Subsequent to our restructuring efforts, we have renewed our emphasis in this
area and are in various stages of negotiations with a number of parties. We have
significant experience and a sound management process for acquiring companies
that will enhance profitable growth in core categories.
FINANCIAL STRATEGY
Our financial strategy is consistent with and supports the operating strategy of
the Company. We will continue to focus on the key elements of our financial
strategy - capital expenditures, capital structure, dividends and share
repurchase - to maximize shareholder value while maintaining financial
flexibility.
MANAGEMENT AND BOARD CHANGES
Beginning in the Spring of 1996, the Company and the Board of Directors took
several key steps pursuant to a long-term management succession plan. Philip
Marineau was selected as President and Chief Operating Officer in December
1996. In addition to Mr. Marineau, we have added several other officers,
particularly in Finance.
We want to take this opportunity to extend our gratitude to Thomas Rose,
retiring as Vice Chairman of the Board in September 1997, for his outstanding
contributions and dedicated service to the Company. Mr. Rose retires after 43
years of service with Dean Foods, the last three as President and Chief
Operating Officer. Mr. Rose also has been a member of our Board since 1988.
DEAN'S FUTURE
The food industry is more challenging and dynamic than ever before.
Manufacturers and retailers continue to consolidate and become more efficient.
Regions served continue to expand and industry excess capacity continues to
shrink. Costs of key ingredients reflect the low-inflation environment, but are
more volatile. Consumers are more value-conscious and have less time to shop
and prepare meals.
These challenges and changes bring new opportunities to those food
companies which understand them and have the right strategies in place to
pursue them. We are confident in our strategic direction and believe that Dean
Foods will profitably grow and prosper in this environment and enhance its
leadership position. Our mission is clear: we will provide superior value to
consumers, customers, employees, and shareholders.
We could not have accomplished all we have without the tireless efforts of
all our employees, and we thank them for their commitment, dedication and
willingness to embrace change at Dean Foods. We also take this opportunity to
thank our customers, suppliers and shareholders for their continued support.
[SIG]
Howard M. Dean
Chairman of the Board and
Chief Executive Officer
[SIG]
Philip A. Marineau
President and
Chief Operating Officer
August 8, 1997
3
<PAGE> 6
Dean Foods Strategic Initiatives
[PICTURE]
Providing products that
appeal to today's on-the-go consumer lifestyles
is a major opportunity
for Dean Foods.
4
<PAGE> 7
Dean Foods Strategic Initiatives
UNDERSTANDING CONSUMER LIFESTYLES
Consumers continue to spend less time shopping, preparing food or even thinking
about their next meal. Meanwhile, the grocery industry continues to offer more
choices, some of which are not fully meeting consumers' real needs. Dean Foods
is developing healthy, convenient products designed for the faster-paced
lifestyle of today's shopper. From single-serve plastic milk bottles to
easy-to-prepare, vegetable-based meal solutions to snackable pickles, vegetables
and dairy products, our focus is on providing consumer value in every product
group we offer.
SINGLE-SERVE BOTTLES
Dean Foods believes that the milk industry can learn a lot from the larger
beverage industry in appealing to on-the-go consumers. Soda is available in
attractive, single-serve and multi-pack bottles that are easy to open and reseal
and fit in a cup holder. Soon, so will milk and other fluid products from Dean
Foods. Sales of 10-ounce, pint- and even quart-size plastic containers of
chocolate and white milk, juices and iced tea grew dramatically in Mayfield
Dairy's Southeastern marketing area in the past year following our introduction
of these exciting new, yet traditional-looking bottles. By the end of this year,
we plan to complete the roll out covering markets in 17 states served by Dean
Foods.
VEGETABLE-BASED MEAL SOLUTIONS
Americans are more concerned than ever about their health. Yet, they are not
willing to sacrifice taste or convenience. Microwavable, frozen meals that taste
like they were made from scratch continue to grow in popularity. The opportunity
we have identified is in the healthy niche of this product segment. Birds Eye
and Freshlike have always stood for high-quality vegetables. Birds Eye Pasta
Secrets and Easy Recipe, as well as Freshlike Pasta Combos, have started
shoppers thinking about these brands more broadly as meal solutions. We will
continue to focus our efforts on expanding these product lines to provide more
alternatives for consumers looking for fast, complete meals that are both
nutritious and great tasting.
HEALTHY SNACKING
Whether counting calories or fat grams, watching what we eat is a national
pastime. Fat-free dairy products and desserts, fresh prepared vegetables,
non-fat veggie dips and dressings, and sandwich slices and other pickle snacks
do more than just lower fat and calorie intake. They provide the daily nutrients
and fiber recommended for people who don't have the time to prepare a full meal.
"ON-THE-GO" PRODUCTS
FOR ON-THE-GO CONSUMERS WHO CARE ABOUT WHAT THEY EAT, DEAN FOODS' FAMILY OF
RESPECTED BRANDS WILL OFFER MORE REAL CHOICES IN THE YEARS TO COME. New
products, convenient packaging and more value-added market positioning are all
part of this strategy.
5
<PAGE> 8
Dean Foods Strategic Initiatives
[PICTURE]
Customers look to Dean Foods to provide real value
through category expertise and an understanding of
their business needs.
6
<PAGE> 9
Dean Foods Strategic Initiatives
ADDRESSING CUSTOMER NEEDS
Providing real consumer value requires a close relationship between
manufacturer and retailer. As the leader in most of its product categories,
Dean Foods believes that one of its primary responsibilities is to provide
customers with insight as to how dairy, vegetable, pickle and Dean's other
specialty products can best solve consumer meal problems. In turn, our
customers utilize this insight to provide creative solutions in each of these
food categories. Helping our customers in this way involves investing in our
facilities, our information technology and our people.
It also involves sharing ideas and planning jointly to meet the needs of the
consumer and our customer.
SUPPORTING PRIVATE LABEL
All of our food groups share a common characteristic - that is, the prominence
of customer private labels in the market. Many food companies with strong
national and regional brands view private label products as the competition. At
Dean Foods, we support our customers' private labels and believe they can and
should continue to grow in all food groups. In fact, we are the nation's leading
private label processor of fluid milk, frozen vegetables, pickles, snack dips
and non-dairy coffee creamers. As a result, we are uniquely positioned to
provide credible information and insight to our customers as to how they can
provide a mix of branded and private label products that offers maximum consumer
value while assuring consistent customer profitability. The many exclusive
supply arrangements we maintain with dairy, frozen vegetable and pickle
customers are clear indications of our success in this area.
INVESTING IN THE FUTURE
Our most progressive customers today are no longer talking just about lowering
product cost. They are focusing on lowering total supply chain cost, which
includes product, distribution, storage, inventory and merchandising costs.
Moreover, they are interested in collaborating with manufacturers who can
provide the greatest overall value. That means reducing costs as well as
increasing category sales through new products, better assortments and fewer
out-of-stocks. Dean Foods has always invested in its facilities to maintain
their low-cost, high-quality status. Recently, we have focused more of our
investments on systems that provide better information, enhance our
administrative, logistical and other services and, in general, make us a more
valuable supplier. We have invested heavily in people and facilities in the new
Rockford, IL and Green Bay, WI Technical Centers that support our R&D efforts.
And recently, we have undertaken significant training programs designed to help
our sales and marketing teams measure the effectiveness of promotional programs
in each of our business segments.
ACCESS MEANS OPPORTUNITY
Those food processors who best understand the plans and strategies of their
customers and then design a strategy and build an organization to address them
will be the clear winners in the future. Our leadership in several of our
customers' most profitable food categories provides Dean with access to the top
management of these customers. Utilizing that access to create joint business
plans affords the unique opportunity for Dean Foods to deliver the value that
customers demand.
CATEGORY LEADERSHIP
WE ARE COMMITTED TO BEING THE LEADER IN EACH OF THE FOOD CATEGORIES IN WHICH WE
PARTICIPATE.
To do so, we will use our product and consumer insight to find innovative ways
to create customer value.
7
<PAGE> 10
Dean Foods Strategic Initiatives
[PICTURE]
We take seriously the
commitment to provide employees with a
motivating and rewarding work environment.
8
<PAGE> 11
Dean Foods Strategic Initiatives
EMPLOYEE INVOLVEMENT
Employee involvement and empowerment are common terms in Corporate America
today. Yet, these terms mean different things at different companies. At Dean
Foods, we are creating employee involvement through team-based productivity
programs that start at the plant floor, and through coordinated planning
processes that maintain our entrepreneurial style. Human resource initiatives
designed to ensure respect for all employees and share rewards for excellence
in performance are some of the ways in which we have developed a culture that
supports this involvement.
INNOVATIVE TEAMS
Over a year ago, Dean Foods piloted a program to reduce controllable costs at
its T.G. Lee Foods dairy facility in Orlando, FL. From that pilot program, we
established an experienced team which has developed hundreds of ideas for
productivity improvements and other margin enhancements at several dairy sites.
A separate team is being assembled to implement the program at our vegetable
and pickle operations. The team members, however, do not generate most of the
ideas. They come from the local employees. The bottom-line results thus far are
impressive, and the remaining opportunities are huge. Perhaps the greatest
benefits of the program aren't even the initial cost reductions. Rather, they
are the long-term benefits from providing intensive individual training and
initiating change to a corporate culture that is even more focused on
continuous improvement.
PLANNING FOR PERFORMANCE
Fiscal 1997 was the first year of implementation of a new approach to
strategic and annual planning at Dean Foods. The Company has long used a
bottom-up, annual planning process that is developed and executed at the local
level. This approach complements the Company's decentralized management style
and allows regional Dean Foods businesses to operate in an entrepreneurial
manner. Yet, as our customer base has consolidated and most of our businesses
have become truly national businesses, we have recognized the benefits in each
of our business segments of a more coordinated go-to-market strategy. To capture
these benefits, as well as develop a clearer vision of the Company's overall
strategy for the years to come, we have now established a five-year corporate
strategic planning process. At the same time, we have maintained the
responsibility of our local managers to establish annual plans, implement local
strategies, make capital investment decisions and commit company resources that
support the broader strategy. We view all of this as essential to fostering a
performance-driven work environment in which employees can excel.
RESPECT FOR THE INDIVIDUAL
Respect for the individual has always been a cornerstone of Dean's Culture. And
we have recognized that respecting the differences among our employees is a
critical aspect of that broader respect. Dean Foods commenced a Company-wide
diversity initiative nearly a year ago which takes that recognition further. Our
goals are ambitious, and we are confident that substantial benefits will be
realized.
CONTINUOUS IMPROVEMENT
MAINTAINING A CORPORATE CULTURE COMMITTED TO CONTINUOUS IMPROVEMENT IS A KEY TO
OUR SUCCESS.
A clear strategy and an environment that supports and rewards personal
achievement have been essential to the development of that culture at Dean
Foods.
9
<PAGE> 12
Dean Foods Strategic Initiatives
[PICTURE]
WE BRING VALUE TO OUR
SHAREHOLDERS THROUGH A RELENTLESS FOCUS ON PERFORMANCE AND
PROFITABLE GROWTH.
10
<PAGE> 13
Dean Foods Strategic Initiatives
RETURN ON INVESTED CAPITAL
Ultimately, corporations are in business to serve their shareholders. To Dean
Foods, that means consistent improvement in earnings and cash flow and
profitable growth. The principal measure we use to review our performance is
return on invested capital (ROIC). Our planning, acquisition, capital
investment and compensation programs are all tied to this measurement. Dean's
fiscal 1997 ROIC increased to 12.7% from 6.9% in fiscal 1996 (before the
special charge). In the current market environment, we believe that a 17% ROIC
is achievable and will deliver a superior return to our shareholders.
INTERNAL GROWTH
Each of our business segments currently has more new product and new business
opportunities than ever before. The single-serve plastic bottle, our new fluid
milk plant in Georgia, vending channels for milk and ice cream distribution and
the growth of extended shelf life products under licensed brands are just some
of our dairy opportunities for internal growth. Fresh prepared Birds Eye
vegetables and extensions of our pasta and Easy Recipe meal solutions are also
big ideas. Sandwich slices have brought new excitement to the pickle category
while our olives, sauces and other specialty items provide additional, untapped
growth opportunities. The cappuccino craze, along with the Company's exports to
developing markets, have created explosive demands for our non-dairy creamers
and other powdered products. And we are just beginning to pursue the
opportunities to grow our dip and dressing business with the recently acquired
Marie's line to support it.
GROWTH BY ACQUISITION
All of the industries in which we operate are consolidating at an increasing
pace. Smaller businesses are seeing the advantages of joining larger,
well-established companies that have the resources to address the needs of
larger customers and the changing consumer. At the same time, the funds
available to financial investors who are attracted to the food business have
never been greater. Our acquisition strategy remains focused on our core
businesses, where we can create the greatest synergy. More importantly, we
continue to apply a consistent valuation methodology that assures that all
acquisitions will add to shareholder value.
PERFORMANCE
AND GROWTH
PERFORMANCE AND PROFITABLE GROWTH ARE THE KEY DRIVERS TO PROVIDING VALUE TO
DEAN FOODS SHAREHOLDERS.
These drivers, in turn, reflect our success in providing value to consumers,
customers and employees. Our mission at Dean Foods is continually to find new
and innovative ways to deliver that value.
11
<PAGE> 14
Review of Operations
We are a full-line dairy,
vegetable, pickle and
specialty food manufacturer and distributor offering our own popular brands,
custom private label programs and
foodservice items.
SALES FLUID MILK AND CULTURED PRODUCTS
(in millions)
93 94 95 96 97
$1,163 $1,156 $1,190 $1,235 $1,386
SALES ICE CREAM AND FROZEN DESSERTS
(in millions)
93 94 95 96 97
$199 $208 $219 $235 $261
DAIRY
Dean Foods Company is the nation's leading processor of fluid milk (including
homogenized whole milk, low-fat milk, skim milk, buttermilk and chocolate
milk), and one of the nation's leading processors of cultured dairy products,
ice cream and other frozen desserts, juices and extended shelf life
dairy products.
From 24 dairy facilities in 13 states, we distribute these dairy products
to supermarkets, convenience stores, warehouse club stores and foodservice and
institutional customers in the Midwest, Southeast, Southwest and several other
markets across the nation.
Fiscal 1997 sales and operating profits reached record levels due
primarily to market share gains and more favorable ingredient costs. Our
acquisition of a fluid milk business in December, 1995 also contributed to
these results.
FLUID MILK AND CULTURED PRODUCTS
The Company markets fluid milk and cultured products, its largest product
group, through a family of well-respected regional brands, including Bell,
Cream o' Weber, Creamland, Dean's, Gandy's, T.G. Lee, Mayfield, McArthur,
Meadow Brook, Price's, Reiter and Verifine. Most of these brands maintain the
number one market share in the markets where they are distributed. The
Company's 19 fluid milk plants also produce private label products for some of
the largest retailers in these markets. Sales for the category increased to
$1.4 billion in fiscal 1997.
Dean Foods is positioning milk as a delicious, refreshing and nutritious
beverage through new forms of packaging and improved graphics. Having
successfully completed testing of a single-serve plastic bottle shaped like the
original glass milk bottle in the Mayfield marketing areas, we are preparing to
roll out the package in our other markets in fiscal 1998.
The strategic acquisition of a Miami, FL fluid milk business in May, 1997
broadened the Company's Florida customer base and will generate significant
production and distribution efficiencies in existing operations.
12
<PAGE> 15
Review of Operations
[PICTURE]
ICE CREAM AND FROZEN DESSERTS
Dean Foods Company markets a complete line of premium, low-fat and non-fat ice
cream, fruit sherbet, frozen yogurts, and frozen novelty desserts under its
regional brands, including Bell, Creamland, Cream o' Weber, Dean's, Dean's
Country Charm, Fieldcrest, Fitzgerald, Gandy's, Mayfield, McArthur, Price's,
T.G. Lee, Reiter and Verifine, as well as customer private labels. While
industry frozen dessert sales volume declined, Dean sales grew 11% to $261
million in fiscal 1997.
The successful relaunch of the Company's premium Dean's Country Charm brand
was the year's most important accomplishment in the category. Dean's "Really
Cool Flavors" advertising campaign propelled the brand to market leadership
during the key summer season. Several new product offerings, including fruit
sorbet and sorbet bars, and a program to place Dean frozen desserts in school
vending machines, also brought exciting new sales opportunities.
Dean completed a three-year expansion and upgrade of its Belvidere, IL
plant in fiscal 1997. The additional capacity allowed it to take on the volume
previously produced at the closed Ft. Lauderdale, FL facility.
In May 1997, the acquisition of Meadows Distributing Company, a major ice
cream distributor in the Midwest, was completed. This acquisition not only
solidified the Company's position as the premier ice cream company in the
important Chicago, IL market, but brought valuable distribution resources for
further expansion in the Midwest and beyond.
EXTENDED SHELF LIFE PRODUCTS
The Extended Shelf Life Division processes whipping creams, half and half,
aerosol toppings, coffee creamers, flavored milks and lactose-reduced milks
nationwide. These products are sold under Dean brands such as Dean Ultra, Dairy
Pure, Easy 2% for lactose-reduced milk, Rod's and Guilt Free, as well as
numerous private labels. Licensed national brands, including Nestle Quik,
Carnation Coffee-Mate liquid non-dairy coffee creamer, Vitamite non-dairy
beverage, and Dairy Ease lactose-reduced milk, are also very important to this
product group. The Nestle Quik and Carnation Coffee-Mate brands are licensed
exclusively in 25 states, while the Vitamite and Dairy Ease brands are licensed
nationally.
SALES EXTENDED SHELF LIFE PRODUCTS
(in millions)
93 94 95 96 97
$75 $105 $104 $141 $141
13
<PAGE> 16
REVIEW OF OPERATIONS
SALES FROZEN AND CANNED VEGETABLES
(in millions)
93 94 95 96 97
$357 $420 $543 $574 $558
[PICTURE]
In fiscal 1997 Dean Foods Company divested its Ready Foods plant in
Philadelphia, PA and consolidated Ryan Milk and Longlife Dairy Products into
Ryan Foods Company. The Company maintains its two production plants in Kentucky
and Florida, in which it has invested heavily in recent years. Co-pack partners
in Alabama and California facilitate efficient national distribution.
Despite the discontinuation of production and the related decrease in
sales in the Northeast, overall sales of this product group were flat, as sales
of Nestle Quik and Carnation Coffee-Mate grew dramatically. The Company also
increased its share of the market for private label and regionally branded
lactose-reduced milk through new relationships with two major retailers and
geographic expansion.
Some of the exciting opportunities for fiscal 1998 include the licensing
of the Nestea brand for refrigerated iced tea in 25 U.S. markets and the Health
Source brand of nutriceutical products. The branded and private label extended
shelf life fluid products previously produced and marketed by our Rod's Food
Products division were also integrated into Ryan Foods' West Coast business. As
more customers identify the cost savings associated with longer shelf life dairy
products, this division is poised to continue its double-digit sales growth.
VEGETABLES
Dean Foods Vegetable Company is the nation's leading processor of frozen
vegetables and the nation's third-leading producer of processed vegetables,
including canned and frozen vegetables. The Company markets a full line of
vegetables under the Birds Eye, Freshlike and Veg-All brands, along with
customer private labels. More and more, customers are recognizing the benefits
of using fewer suppliers who can more efficiently satisfy all of their needs. As
a leader in managing the processed vegetable category, the Company can offer
customers complete consumer information, continuous replenishment programs and
combination shipments of branded and private label vegetables.
Following the closure of five facilities in fiscal 1997, the Company
operates 14 plants and three distribution centers serving markets in the U.S.,
Canada, Japan, Europe, Puerto Rico and Mexico from growing areas in the Pacific
Northwest, California, the upper Midwest, New York, Texas and Mexico. The fiscal
1997 consolidation and recent technology upgrades have made Dean a low-cost
producer in this product group and contributed greatly to the Vegetable
segment's much improved financial performance.
14
<PAGE> 17
Review of Operations
[PICTURE]
Fiscal 1997 sales of $558 million were slightly below last year due to
lower private label sales reflecting highly competitive market conditions
existing throughout the year. Branded sales, however, remained strong with
increased market penetration of the Freshlike line of frozen vegetables, the
successful roll out of a line of premium baby vegetables and significant gains
in sales of Birds Eye Pasta Secrets and Freshlike Pasta Combos. During the year
the Company also updated its line of sauced vegetables, now called Side Orders,
with flavor improvements and more convenient packaging.
The vegetable industry continues to undergo dramatic change, including
significant consolidation, an increased emphasis on quick, nutritious meal
solutions and explosive growth of fresh prepared vegetables. Dean Foods
Vegetable Company is capitalizing on each of these trends.
During the year, the Company expanded an existing supply arrangement with
a major Northwest frozen vegetable supplier. We extended our stir fry, pasta and
Easy Recipe lines, all of which provide great tasting meal solutions. In
addition, the Company entered the fresh prepared vegetable segment in fiscal
1997 with a four city market test of Birds Eye fresh vegetables processed by a
California producer. All of these efforts will help to achieve the Company's
long-term vision to be the leading marketer of vegetable-based meal solutions.
PICKLES
Dean Pickle and Specialty Products Company is one of the nation's leading
suppliers of pickles, peppers, relishes, olives, sauces, syrup and other
specialty food products to major retail and foodservice customers. The Company
maintains the leading share of private label retail and foodservice pickle sales
in the U.S. We also offer a family of regional brands, including Arnold's,
Atkins, Aunt Jane's, Cates, Dailey, Heifetz, Paramount, Pesta, Peter Piper,
Rainbo and Roddenbery. Pickles, peppers, relishes and olives are marketed
throughout the nation while Bennett's and Hoffman House sauces and Northwoods
and Roddenbery syrups have captured strong regional positions.
This product group's fiscal 1997 performance improved substantially due to
the elimination of low margin or non-strategic sales and cost reductions. Sales
decreased slightly to $371 million from fiscal 1996 as a result of such sales
and product eliminations. The sales decrease was offset partially by product
line expansions such as the successful addition of sandwich slices -- pickles
sliced lengthwise for snacks and sandwiches -- to the Company's regional brands
and most of its private labels during the year.
SALES PICKLES,
RELISHES AND SPECIALTY ITEMS
(in millions)
93 94 95 96 97
$305 $353 $367 $373 $371
15
<PAGE> 18
Review of Operations
16
SALES POWDERED PRODUCTS
(in millions)
93 94 95 96 97
$88 $100 $110 $129 $153
[PICTURE]
SALES SAUCES, PUDDINGS
AND DIPS
(in millions)
93 94 95 96 97
$66 $69 $74 $100 $122
Consistent with the Company's overall strategy to provide healthy,
on-the-go products, the Company introduced new labels emphasizing the benefits
of naturally calorie-free, fat-free pickles. New, more convenient packaging was
introduced in foodservice markets, which continue to show increased pickle and
pepper sales.
Weather remains a significant factor in the pickle business. To reduce
crop risk, Dean continues to diversify its growing areas and take advantage of
its eight strategically located processing plants. We have also extended the
growing season and increased productivity through a combination of cost
reductions and carefully targeted investments. In fiscal 1997 the Company
installed new technology at its Michigan, Colorado and North Carolina plants to
reduce labor costs and increase production yields. The consolidation and upgrade
of our information systems also contributed to lower inventory costs and
improved customer response.
SPECIALTY
The Specialty segment of Dean Foods Company continued to show substantial growth
in fiscal 1997 through both acquisition and internal growth. This diverse
segment includes non-dairy coffee creamers and other powdered products,
dressings and snack dips, aseptic sauces and puddings and the Company's
transportation division. Sales grew nearly 18% to $302 million and segment
earnings also achieved record levels.
Dean Foods is North America's leading producer and marketer of a wide
variety of private label, non-dairy coffee creamers sold to the retail,
foodservice, export, industrial, vending and office coffee service markets. Our
product mix ranges from fat-free to premium non-dairy creamers that can be
whipped and used as whipping cream.
Non-dairy creamer sales have doubled over the past six years. Much of
this growth has come in the bulk industrial segment in which the Company has
developed unique offerings for customer applications from cappuccino products to
cake mixes. With the increasing popularity of coffee drinking in general, retail
and foodservice sales have also registered substantial gains, as have export
sales to our markets in Canada,
16
<PAGE> 19
Review of Operations
[PICTURE]
Central and South America, Eastern Europe and the Pacific Rim. A new dryer
at the Company's Wayland, MI plant is scheduled to come on line in fiscal 1998
to accommodate this growth.
The Company's U.K. affiliate, E.B.I. Foods, continued to expand sales of
its dry ingredient blends to industrial customers throughout Europe, as well as
the Middle East, Far East and Africa. E.B.I. completed the move to its new
production facility in Abingdon, England, which will provide the needed capacity
for its aggressive growth plans.
At the beginning of fiscal 1998, the Company completed the acquisition of
the Marie's business. The Marie's product line includes not only its well-known
refrigerated salad dressings, but also vegetable dips, salsas and fruit glazes.
Marie's gives the Company its first significant presence in the fast-growing
produce department of the supermarket. We have already begun to pursue
opportunities to leverage the Marie's brand with the Company's Birds Eye lines
of vegetable dips and fresh vegetables.
In the wake of Dean's fiscal 1996 acquisition of Rod's Food Products in
City of Industry, CA, the Company has strengthened its position as the national
leader in refrigerated snack dips sold in the dairy aisle under the Dean's,
Rod's and Imo labels. Rod's sales of salad dressings to foodservice
distributors and aerosol whipped toppings to the retail channel in the Western
United States also enjoyed continued growth.
The Company's Amboy Specialty Division is one of the nation's largest
aseptic producers of shelf-stable cheese sauces and pudding products for
foodservice and food manufacturing customers coast to coast. Fiscal 1997 sales
grew slightly compared to the year-earlier period despite the decision by the
Company's largest pudding customer to pull out of the market. This loss was
offset by increased foodservice cheese sauce sales.
DFC Transportation Company operates one of the nation's largest and most
efficient temperature-controlled, less-than-truckload transportation and
logistics services. Supporting Dean Foods Company and other well-known food and
consumer products firms, DFC Transportation helps its customers consolidate dry,
refrigerated and frozen shipments and distributes them throughout the U.S.,
Canada and Mexico. By helping minimize shipping and inventory carrying costs,
DFC Transportation enhances the cost-competitiveness and the value of Dean Foods
Company's entire product line, powerfully assisting market development.
SALES DFC
TRANSPORTATION
(in millions)
93 94 95 96 97
$21 $20 $23 $27 $27
17
<PAGE> 20
Dean Foods Company and Subsidiaries
FINANCIAL REVIEW
The financial review should be read in conjunction with the letter
to shareholders, the operations review of the Company's business
segments, the consolidated financial statements and the notes related thereto
contained in this annual report.
87 88 89 90 91 92 93 94 95 96 97
$115 $130 $156 $183 $198 $184 $198 $93 $215 $186 $208
WORKING CAPITAL
(in millions of dollars)
87 88 89 90 91 92 93 94 95 96 97
19.1% 17.3% 23.8% 29.5% 27.1% 27.0% 24.4% 33.6% 31.2% 39.1% 28.7%
TOTAL DEBT TO TOTAL CAPITAL
(in percent)
87 88 89 90 91 92 93 94 95 96 97
$0.32 $0.36 $0.40 $0.44 $0.49 $0.56 $0.60 $0.64 $0.68 $0.72 $0.76
DIVIDENDS PER SHARE
(in dollars)
87 88 89 90 91 92 93 94 95 96 97
$236 $266 $293 $363 $417 $430 $476 $525 $585 $508 $568
SHAREHOLDERS' EQUITY
(in millions of dollars)
87 88 89 90 91 92 93 94 95 96 97
$42 $39 $56 $68 $73 $78 $75 $81 $83 $90 $71
CAPITAL EXPENDITURES
(in millions of dollars)
18
<PAGE> 21
Dean Foods Company and Subsidiaries
FINANCIAL REVIEW
STRATEGIC DIRECTION
The Company's primary objective is the maximization of shareholder value
through dividend growth and long-term stock appreciation. During fiscal 1997,
the Company remained focused on this objective by continuing with the strategic
direction plan adopted in fiscal 1996. This plan was the result of a
comprehensive review undertaken during fiscal 1996 of all of the Company's
businesses, markets and products, with the underlying purpose to improve
profitability and enhance shareholder value.
In May 1996, the Company announced a pre-tax special charge to earnings of
$150.0 million ($97.7 million after-tax, or $2.44 per share) related to the
adoption of the strategic plan. Although savings are not being realized as soon
as originally planned, long-term annual savings estimates are exceeding initial
expectations. The annual post-execution, pre-tax savings of the plan are
expected to be slightly more than the $21 million original estimate. Additional
strategies to reduce operating costs and improve marketing/trade promotion
effectiveness are expected to produce additional pre-tax savings of more than
$30 million annually by the year 2002, also higher than originally forecasted.
Net benefits recognized from the plan and the additional strategies in fiscal
1997 were approximately $13 million. Additional information relative to the key
elements of the strategic direction plan and the related special charge is
contained in Note 2 to the consolidated financial statements.
FINANCIAL OBJECTIVES AND STRATEGIES
Among the financial objectives and strategies employed by the Company are:
SOUND WORKING CAPITAL MANAGEMENT
The Company employs various procedures to monitor and control the quality and
levels of current assets and liabilities, using short-term borrowings primarily
to meet seasonal crop-related cash requirements. During the last three fiscal
years, the Company has also utilized short-term borrowings under bank lines of
credit to acquire businesses. In June 1995, short-term borrowings used to
finance business acquisitions were refinanced, as further discussed in Note 4
to the consolidated financial statements.
CAPITAL INVESTMENTS
The Company's goal is to maintain and improve the productivity of its assets,
making those capital investments which offer returns to the Company greater
than its weighted average cost of capital.
PRUDENT USE OF DEBT
The Company maintains debt levels considered prudent based upon its cash flows
and financial ratios. The long-term debt market has been used primarily to fund
acquisitions and major capital expenditures. Based upon the Company's total
debt to total capitalization ratio at year-end fiscal 1997 of 28.7%, the
Company believes it has sufficient debt capacity to fund future growth.
FINANCIAL RISK MANAGEMENT
The Company's primary financial risk is interest rate exposure, which is
managed through a mix of fixed and floating rate debt. Foreign currency risk is
not significant. The Company's policies and controls preclude leveraged or
structured derivatives and financial derivatives for speculative purposes.
DIVIDEND POLICY
The Company paid quarterly dividends of $.19 per share in fiscal 1997, up from
$.18 per share in fiscal 1996 and $.17 per share in fiscal 1995. On July 25,
1997, the Company raised the quarterly dividend rate 5.3% to $.20 per share,
the Company's twenty-fifth increase since 1974.
STOCK REPURCHASE
No shares were purchased during the last three fiscal years, as funds generated
from operations were used in connection with the acquisitions of businesses. At
May 25, 1997, the Company has authorization to repurchase up to 1.7 million
shares of the Company's common stock.
19
<PAGE> 22
Dean Foods Company and Subsidiaries
FINANCIAL REVIEW
FINANCIAL CONDITION
CAPITAL RESOURCES AND LIQUIDITY
The Company's operating cash and capital expenditure requirements have
historically been met through funds generated internally from assets employed.
Working capital at May 25, 1997 was $208.0 million, an increase of $22.1
million over the prior year. The Company's current ratio was 1.59 compared to
1.47 at the end of fiscal 1996. The increase in working capital was largely due
to an $89 million reduction in short-term borrowings which was partially offset
by decreases in inventory and deferred tax assets and an increase in income
taxes payable. Cash and temporary cash investments at May 25, 1997 was $4.4
million, a decrease of $6.0 million from last year-end. Inventories decreased
$13.0 million reflecting the lower quantity of inventories in the Vegetables
and Pickles segments. Dairy inventory turnover is at a high rate, whereas
inventories of the Vegetables, Pickles and Specialty segments generally have
lower turnover rates. Crop-related Vegetable and Pickle inventory levels
may vary from year to year. A large portion of the Vegetables, Pickles
and Specialty inventories are valued on the LIFO inventory valuation method,
which enhances the Company's cash flow.
Crop-related requirements are funded under the Company's short-term
bilateral bank lines of credit or its bank revolving credit agreement. During
fiscal 1997, the lines of credit and revolving credit agreement were also the
source of funds for business acquisitions. The short-term borrowings
outstanding at the end of fiscal 1997 were $3.0 million, whereas the borrowings
outstanding at the end of fiscal 1996 were $92.0 million.
Net property, plant and equipment at May 25, 1997 was relatively unchanged
from a year ago as capital expenditures made during the year were offset by
depreciation expense. Major capital expenditures during fiscal 1997 were
primarily for plant expansions required to process increased production volumes
and new products.
The Company's long-term objective is to provide a mix of debt and equity
that will provide sufficient flexibility for growth. During fiscal 1997, the
Company restated and amended its existing $300 million revolving credit
facility extending the maturity to the year 2002. There were no short-term
borrowings outstanding under this facility as of May 25, 1997. In June 1995,
the Company issued $100 million ten-year senior notes. Long-term obligations at
May 25, 1997 were $211.9 million, a decrease of $9.7 million from last
year-end. The Company's total debt to total capital at May 25, 1997 was 28.7%
compared to 39.1% a year ago. The Company is in compliance with the covenants
and restrictions under its debt agreements, the most restrictive of which are
discussed in Note 4 to the consolidated financial statements.
Shareholders' equity at May 25, 1997 was $567.7 million, an increase of
$60.0 million from last year-end, reflecting fiscal 1997 earnings less
dividends paid to shareholders. The treasury stock held at May 25, 1997 is
available for use in future acquisitions, for stock options or for other
general business purposes.
CASH FLOWS
The change in cash for fiscal 1997 was a negative $6.0 million, whereas cash
increased by $5.6 million during fiscal 1996. Particulars of the Company's cash
flow activities are as follows:
Operating Activities - Cash provided from operations for fiscal
1997 was $201.8 million compared to $129.2 million and $128.1 million for
fiscal years 1996 and 1995, respectively. The increase in cash provided in
fiscal 1997 was principally due to operating efficiencies resulting,
in part, from the 1996 strategic direction plan and improved working capital
management.
Investing Activities - Net cash used in the Company's investing activities
in fiscal 1997 was reduced to $82.2 million from $153.8 million and $115.4
million in fiscal years 1996 and 1995, respectively. Both capital expenditures
and business acquisitions, the Company's principal investing activities, were
lower than in the two prior years as the Company increased its focus on asset
management in fiscal 1997. Capital expenditures for 1997 were $70.7 million
compared with $89.8 million and $83.3 million in fiscal years 1996 and 1995,
respectively. Capital expenditures for fiscal 1998 are expected to be
significantly higher than fiscal 1997 spending due to capital projects related
to continued plant expansion and new products, primarily related to the Dairy
20
<PAGE> 23
Dean Foods Company and Subsidiaries
segment's small bottle initiative. The 1998 expenditures are expected to be
funded from internal sources and available borrowing capacity. The Company used
$16.3 million in fiscal 1997 to acquire businesses, historically an important
aspect of the Company's growth. During the three years ended May 25, 1997, a
total of $117.7 million was spent to acquire businesses which are discussed in
Note 3 to the consolidated financial statements.
On May 27, 1997, the Company acquired the Marie's salad dressing and dips
business for cash consideration. The acquisition was funded through short-term
borrowing.
Financing Activities - Net cash used in financing activities during fiscal
1997 was $125.6 million compared to net cash provided of $30.2 million in
fiscal 1996 and net cash used of $18.8 million in fiscal 1995. The net
repayment of $89.0 million of short-term borrowings in fiscal 1997 versus the
net issuance of short-term notes payable in fiscal 1996 is the principal reason
for the fluctuation in net financing activities between years. Short-term
borrowings outstanding at fiscal year-end 1997 and 1996 were $3.0 million and
$92.0 million, respectively. Cash dividends paid were $30.1 million during
fiscal 1997, compared to $28.5 million and $26.7 million during fiscal years
1996 and 1995, respectively.
RESULTS OF OPERATIONS
Net sales increased 7.3% to $3.0 billion in fiscal 1997, from $2.8 billion in
fiscal 1996. An improved sales mix and business acquisitions were the primary
contributing factors in the fiscal 1997 increase. Fiscal 1996 net sales
increased 7.0% over fiscal 1995 sales of $2.6 billion. All of the Company's
business segments recorded increased sales in fiscal 1996 as unit sales volumes
exceeded the prior year.
Earnings for fiscal 1997 increased over fiscal 1996 with net income of
$86.7 million or $2.16 per share compared with a net loss of $49.7 million, or
$1.24 per share, in the prior year. Fiscal 1996 results included a pre-tax
charge to earnings of $150.0 million ($97.7 million after-tax, or $2.44 per
share) related to the adoption of a strategic plan to reduce costs, rationalize
production capacity and provide for severance and environmental costs. Absent
the fiscal 1996 special charge, fiscal 1997 operating earnings increased by 58%
over the prior year. Each of the Company's business segments reported increased
earnings during fiscal 1997. The Company's return on invested capital increased
to 12.7% in fiscal 1997 from 6.9% (pre-special charge) in fiscal 1996. Fiscal
1995 net income was $80.1 million, or $2.01 per share. Fiscal 1995 earnings
benefited from improved earnings of Vegetables and Pickles operations.
The strategic plan adopted in fiscal 1996 included the planned
elimination of more than 800 manufacturing and administrative positions and the
disposition or closure of 13 manufacturing facilities. As of May 25, 1997, the
Company had disposed of or closed 11 manufacturing facilities and eliminated
approximately 700 positions. Further discussion of the charge and remaining
reserve appears in Note 2 to the consolidated financial statements.
The pre-tax impact of the special charge on the Company's fiscal 1996
operating earnings (loss) by business segment is summarized below:
<TABLE>
<CAPTION>
Operating Operating Earnings
(In thousands) Earnings (Loss) Special Charge before Special Charge
<S> <C> <C> <C>
Dairy $ (2,644) $ 76,694 $ 74,050
Vegetables (41,837) 47,561 5,724
Pickles 10,299 13,704 24,003
Specialty 25,737 999 26,736
Corporate (33,985) 11,042 (22,943)
Consolidated $(42,430) $150,000 $107,570
</TABLE>
BUSINESS SEGMENTS
The Company is a diversified food processor and distributor engaged in four
business segments. The Company is the country's largest processor of fluid milk
products serving various regional markets, with some products distributed
nationwide and to Mexico. Dairy is the Company's largest segment, accounting
for 59% of total fiscal 1997 sales. The Vegetables segment, which includes
frozen and canned vegetables, is the Company's second largest segment
accounting for 18% of total fiscal 1997 sales. Pickles and Specialty products
are the remaining two segments accounting for 12% and 11% of total sales,
respectively. Vegetables, Pickles and Specialty products are sold in regional
markets and nationally, with certain products sold internationally. The Company
is a large user of certain agricultural related commodities, the prices for
which can vary greatly. The competitive conditions and relatively low
21
<PAGE> 24
Dean Foods Company and Subsidiaries
FINANCIAL REVIEW
profit margins in the food industry necessitate timely adjustment of the
Company's pricing to reflect changes in commodity pricing as well as changes in
other production and distribution related costs. Segment operating earnings
represent total sales less operating expenses with the following items not
deducted: general corporate expense, interest expense and federal and state
income taxes. The following discussions of segment earnings exclude the impact
of the fiscal 1996 special charge.
Dairy - Dairy sales for fiscal 1997 increased 11%, primarily the result of
increased selling prices which reflected the pass-through of higher raw milk
costs during the year and increased sales related to new customers. Overall,
Dairy volume was up 2% as a 5% increase in fluid milk volume was offset by a
slight decrease in ice cream volume, and a decline resulting from the sale of
an extended shelf life plant. Sales for fiscal year 1996 were 6% greater than
fiscal 1995 as a result of increased unit sales volumes and higher raw milk
costs than those prevailing during fiscal 1995.
Raw milk costs peaked at record levels in the second quarter of fiscal
1997, then declined sharply during the third quarter and rose during the last
quarter of fiscal 1997 to a level comparable to last year-end. Early
indications are that raw milk costs will be lower during the first quarter and
rise during the second quarter of fiscal 1998; however, available milk supplies
are expected to be adequate for the Company's operations. Prices for resin used
in dairy containers were slightly higher in fiscal 1997 compared to fiscal
1996; whereas, fiscal 1996 resin prices were lower compared to those in fiscal
1995. Indications are that prices for resin in fiscal 1998 are expected to be
slightly higher than fiscal 1997 prices.
Fiscal 1997 Dairy operating earnings of $103.8 million reflect a 40%
increase over the same period last year. Performance improved in each of the
fluid milk, ice cream and extended shelf life operations as a result of higher
sales and improved operating efficiencies. Fiscal 1996 operating earnings
declined 4% from fiscal 1995 principally the result of competitive conditions
in certain markets and increased advertising costs associated with the
introduction of new products and packaging.
Vegetables - Sales of $557.8 million for fiscal 1997 were down
approximately 3% from sales of $573.8 million in the prior year, primarily due
to lower private label sales. Sales for fiscal 1996 increased 6% over fiscal
1995, principally as a result of sales of acquired companies, as selling prices
were depressed throughout the year.
Fiscal 1997 Vegetable operating earnings of $31.4 million represented a
significant improvement from the operating income of $5.7 million reported in
fiscal 1996. The improved results were principally because of favorable
manufacturing variances resulting from improved procurement and increased
operating efficiencies, lower warehousing costs and reduced operating expenses,
all of which offset the lower sales volume in fiscal 1997. Fiscal 1996
operating earnings declined $39.0 million from fiscal 1995 principally the
result of weather-related higher costs associated with the poor 1995 Midwest
harvest, industry-wide excess inventory levels and highly competitive market
conditions that prevailed throughout fiscal 1996, both on frozen and canned
vegetables.
Pickles - Sales in fiscal 1997 of $370.8 million were slightly lower in
relation to fiscal 1996 sales of $373.2 million primarily due to a shift in
customer sales mix which focused on eliminating the sales of unprofitable or
non-strategic customers and products. Fiscal 1996 sales increased 2% over
fiscal 1995 principally as a result of sales of a business acquired mid-year in
fiscal 1996 which offset competitive pressures on selling prices.
Operating earnings of $36.0 million in fiscal 1997 increased from $24.0
million in fiscal 1996, primarily due to more effective procurement, increased
operating efficiencies and improved promotional activities management. Fiscal
1996 earnings declined $6.4 million from fiscal 1995 earnings as a result of a
poor Southeast cucumber harvest with resulting higher processing costs and the
necessity to source cucumber requirements from higher cost growing areas.
Specialty - Sales for fiscal 1997 increased nearly 18% to $301.9 million
from $256.0 million in fiscal 1996. The increase is primarily due to the
full-year inclusion of sales generated by a mid-fiscal 1996 acquisition and the
increased sales volume of the segment's non-dairy creamer products. Sales of
the business acquired during fiscal 1996 and increased unit sales volumes
resulted in fiscal 1996 sales exceeding fiscal 1995 sales by 24%.
22
<PAGE> 25
Dean Foods Company and Subsidiaries
Fiscal 1997 operating earnings of $36.7 million increased 37% over
earnings of $26.7 million in fiscal 1996. The improvement in operating earnings
is attributable to the higher sales of powdered products and the full-year
earnings of the mid-fiscal 1996 acquisition. The earnings of the same
mid-fiscal 1996 acquisition and strong unit sales increases did not offset
lower margins in fiscal 1996, which resulted in a 2% decrease from fiscal 1995
operating earnings.
CORPORATE
Corporate expenses increased in fiscal 1997 over fiscal 1996 principally the
result of increased compensation and stock plan accruals reflecting improved
1997 results, as well as increased pension and other expenses related to 1997
management changes. Excluding the impact of the special charge, fiscal 1996
Corporate expense approximated fiscal 1995 Corporate expense.
INTEREST EXPENSE
Fiscal 1997 interest expense decreased $3.0 million, or 11%, principally as a
result of decreased debt service on short-term borrowings. The Company's Credit
Agreement and committed lines-of-credit had lower average borrowings at lower
weighted average interest rates during fiscal 1997 in comparison to fiscal
1996. Interest expense in fiscal 1996 increased 27% over fiscal 1995, the
result of increased borrowings related to businesses acquired late in fiscal
1995 and during fiscal 1996.
INCOME TAXES
The Company recognized an effective tax rate of 40.5% for fiscal 1997 versus an
effective rate of 28.4% for fiscal 1996 which reflected the fiscal 1996 net
loss and the impact of the special charge to earnings. The effective rate for
fiscal 1995 was 41.3%. Explanations of the differences from statutory rates are
explained in Note 8 to the consolidated financial statements.
ENVIRONMENTAL MATTERS
On July 10, 1996, a subsidiary of the Company was fined approximately $4.0
million in a lawsuit filed by the United States of America in the United States
District Court for the Middle District of Pennsylvania alleging violations of
the Federal Water Pollution Control Act relating to the discharge of
conventional, non-hazardous substances. The Company has appealed the lower
court ruling on the grounds that the fine should be substantially reduced. If
the Company's efforts in this regard are unsuccessful, the fine would be
covered by existing reserves. The Company continues to give attention to the
impact of its operations on the environment and compliance with current
federal, state and local regulations relating to the protection of the
environment. The Company's fiscal 1996 special charge to earnings included a
provision covering the estimated potential environmental cleanup costs
associated with the closure of certain manufacturing facilities.
NEW ACCOUNTING STANDARD
In March 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." This
new standard requires dual presentation of basic and diluted earnings per share
(EPS) on the face of the consolidated income statement and requires a
reconciliation of the numerators and denominators of the basic and diluted EPS
calculations. Adoption of SFAS No. 128 is required in fiscal 1998. The
Company's current EPS calculation conforms to basic EPS. The Company does not
expect the adoption of SFAS No. 128 to have a material impact on EPS since
potential common shares in the form of stock options are not materially
dilutive.
FORWARD LOOKING STATEMENTS
Certain statements in this Annual Report are forward looking as defined by the
Private Securities Litigation Reform Law. These statements involve certain
risks and uncertainties that may cause actual results to differ materially from
expectations as of the date of the Report. These risks include, but are not
limited to, adverse weather conditions resulting in poor harvest conditions,
raw milk and resin costs, interest rate fluctuations, competitive pricing
pressures, marketing and cost-management programs and shifts in market demand.
23
<PAGE> 26
Dean Foods Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 25, 1997 and May 26, 1996 (In thousands)
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and temporary cash investments $ 4,386 $ 10,399
- -------------------------------------------------------------------------------------------------------------------------------
Accounts and notes receivable, less allowance for doubtful accounts of $3,585 and $3,201, respectively 210,528 188,222
- -------------------------------------------------------------------------------------------------------------------------------
Inventories 265,691 278,731
- -------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets 32,390 58,497
- -------------------------------------------------------------------------------------------------------------------------------
Income tax refund receivable - 7,244
- -------------------------------------------------------------------------------------------------------------------------------
Other 49,138 41,306
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 562,133 584,399
- -------------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land 31,127 30,745
- -------------------------------------------------------------------------------------------------------------------------------
Buildings and improvements 279,632 262,402
- -------------------------------------------------------------------------------------------------------------------------------
Machinery and equipment 650,012 602,138
- -------------------------------------------------------------------------------------------------------------------------------
Transportation equipment 52,532 54,735
- -------------------------------------------------------------------------------------------------------------------------------
Construction in progress 36,225 43,806
- -------------------------------------------------------------------------------------------------------------------------------
1,049,528 993,826
- -------------------------------------------------------------------------------------------------------------------------------
Less - Accumulated depreciation 522,355 468,159
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL PROPERTIES, NET 527,173 525,667
- -------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Goodwill, net of amortization of $8,147 and $6,798, respectively 84,066 69,253
- -------------------------------------------------------------------------------------------------------------------------------
Other intangible assets, net of amortization of $3,833 and $3,153, respectively 25,846 26,635
- -------------------------------------------------------------------------------------------------------------------------------
Other 18,140 16,286
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 128,052 112,174
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,217,358 $1,222,240
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 27
Dean Foods Company and Subsidiaries
<TABLE>
<CAPTION>
(In thousands)
- -----------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to banks $ 3,000 $ 92,000
- -----------------------------------------------------------------------------------------------------
Current installments of long-term obligations 13,369 11,855
- -----------------------------------------------------------------------------------------------------
Accounts payable and accrued expenses 313,374 287,305
- -----------------------------------------------------------------------------------------------------
Dividends payable 7,738 7,297
- -----------------------------------------------------------------------------------------------------
Federal and state income taxes 16,620 --
- -----------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 354,101 398,457
- -----------------------------------------------------------------------------------------------------
LONG-TERM OBLIGATIONS 211,926 221,653
DEFERRED LIABILITIES
Deferred income taxes 44,414 61,042
- -----------------------------------------------------------------------------------------------------
Other 39,236 33,396
- -----------------------------------------------------------------------------------------------------
TOTAL DEFERRED LIABILITIES 83,650 94,438
- -----------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value, 10,000,000 shares authorized, none issued -- --
- -----------------------------------------------------------------------------------------------------
Common stock, $1 par value, 80,000,000 shares authorized, 41,544,923 and
41,395,009 shares issued, respectively 41,545 41,395
- -----------------------------------------------------------------------------------------------------
Capital in excess of par value 18,073 14,158
- -----------------------------------------------------------------------------------------------------
Retained earnings 538,450 482,299
- -----------------------------------------------------------------------------------------------------
Cumulative translation adjustment (218) 11
- -----------------------------------------------------------------------------------------------------
Less - Treasury stock, at cost, 1,261,920 and 1,261,990 shares, respectively 30,169 30,171
- -----------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 567,681 507,692
- -----------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES -- --
- -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,217,358 $1,222,240
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 28
Dean Foods Company and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Fiscal Years Ended May 25, 1997 (In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $3,018,367 $2,814,268 $2,630,182
- --------------------------------------------------------------------------------------------------
Costs of products sold 2,316,937 2,211,645 2,005,099
- --------------------------------------------------------------------------------------------------
Delivery, selling and administrative expenses 531,351 495,053 467,980
- --------------------------------------------------------------------------------------------------
Special charge -- 150,000 --
- --------------------------------------------------------------------------------------------------
OPERATING EARNINGS (LOSS) 170,079 (42,430) 157,103
- --------------------------------------------------------------------------------------------------
Interest expense (25,340) (28,349) (22,397)
- --------------------------------------------------------------------------------------------------
Interest income 984 1,384 1,682
- --------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 145,723 (69,395) 136,388
- --------------------------------------------------------------------------------------------------
Provision (benefit) for income taxes 59,019 (19,707) 56,329
- --------------------------------------------------------------------------------------------------
NET INCOME (LOSS) FOR THE YEAR $ 86,704 $ (49,688) $ 80,059
- --------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE $ 2.16 $ (1.24) $ 2.01
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 29
Dean Foods Company and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the Three Fiscal Years Ended May 25, 1997 (In thousands)
Common Common Capital in Cumulative
Stock Stock Excess of Retained Translation Treasury
Shares Value Par Value Earnings Adjustment Stock
<S> <C> <C> <C> <C> <C> <C>
BALANCE MAY 29, 1994 39,789 $41,050 $ 5,911 $507,981 $ -- $(30,168)
Net income -- -- -- 80,059 -- --
Issuance of common stock 145 145 3,902 -- -- --
Exercise of stock options 144 144 2,892 -- -- --
Purchase of treasury stock -- -- -- -- -- (3)
Cash dividends declared, $.68 per share -- -- -- (27,159) -- --
Cumulative translation adjustment -- -- -- -- (228) --
BALANCE MAY 28, 1995 40,078 41,339 12,705 560,881 (228) (30,171)
Net loss -- -- -- (49,688) -- --
Issuance of common stock 47 47 1,275 -- -- --
Exercise of stock options 9 9 178 -- -- --
Cash dividends declared, $.72 per share -- -- -- (28,894) -- --
Cumulative translation adjustment -- -- -- -- 239 --
BALANCE MAY 26, 1996 40,134 41,395 14,158 482,299 11 (30,171)
Net income -- -- -- 86,704 -- --
Issuance of common stock 120 120 3,222 -- -- --
Exercise of stock options 30 30 692 -- -- --
Issuance of treasury shares -- -- 1 -- -- 2
Cash dividends declared, $.76 per share -- -- -- (30,553) -- --
Cumulative translation adjustment -- -- -- -- (229) --
BALANCE MAY 25, 1997 40,284 $41,545 $18,073 $538,450 $(218) $(30,169)
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 30
Dean Foods Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Fiscal Years Ended May 25, 1997 (In thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS
Net income (loss) $ 86,704 $ (49,688) $ 80,059
- ------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net cash provided from operations:
- ------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 74,063 77,048 70,027
- ------------------------------------------------------------------------------------------------------------------
Deferred income taxes 15,822 (44,005) 6,641
- ------------------------------------------------------------------------------------------------------------------
Other long-term deferred liabilities 5,243 6,143 1,757
- ------------------------------------------------------------------------------------------------------------------
Special charge -- 150,000 --
- ------------------------------------------------------------------------------------------------------------------
(Increase) decrease in working capital items, net of acquisitions:
- ------------------------------------------------------------------------------------------------------------------
Accounts and notes receivable (17,295) (4,172) (11,591)
- ------------------------------------------------------------------------------------------------------------------
Inventories and other current assets 16,431 10,669 (35,217)
- ------------------------------------------------------------------------------------------------------------------
Accounts payable and accrued expenses 12,558 (6,877) 20,635
- ------------------------------------------------------------------------------------------------------------------
Federal and state income taxes 9,044 (7,478) 2,770
- ------------------------------------------------------------------------------------------------------------------
Other (733) (2,405) (7,012)
- ------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED FROM OPERATIONS 201,837 129,235 128,069
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (70,674) (89,799) (83,280)
- ------------------------------------------------------------------------------------------------------------------
Proceeds from dispositions of property, plant and equipment 2,794 621 3,153
- ------------------------------------------------------------------------------------------------------------------
Acquisitions of businesses, net of cash acquired (16,332) (66,053) (35,273)
- ------------------------------------------------------------------------------------------------------------------
Proceeds from businesses divested 2,000 1,399 --
- ------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (82,212) (153,832) (115,400)
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term obligations 8,200 9,799 100,861
- ------------------------------------------------------------------------------------------------------------------
Repayment of long-term obligations (14,130) (12,056) (7,218)
- ------------------------------------------------------------------------------------------------------------------
Issuance (repayment) of notes payable to banks, net (89,000) 63,000 (93,000)
- ------------------------------------------------------------------------------------------------------------------
Unexpended industrial revenue bond proceeds (4,662) (3,608) 211
- ------------------------------------------------------------------------------------------------------------------
Cash dividends paid (30,113) (28,474) (26,744)
- ------------------------------------------------------------------------------------------------------------------
Issuance of common stock 4,064 1,509 7,083
- ------------------------------------------------------------------------------------------------------------------
Issuance (purchase) of treasury stock 3 -- (3)
- ------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (125,638) 30,170 (18,810)
- ------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS (6,013) 5,573 (6,141)
- ------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments - beginning of year 10,399 4,826 10,967
- ------------------------------------------------------------------------------------------------------------------
CASH AND TEMPORARY CASH INVESTMENTS - END OF YEAR $ 4,386 $ 10,399 $ 4,826
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 31
Dean Foods Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands unless otherwise noted
1. NATURE OF THE BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Nature of Business - Dean Foods Company and its subsidiaries ("the Company") are
engaged in the processing, distribution and sales of dairy, vegetable, pickle
and other specialty food products. The Company operates in four business
segments. The Company's principal products in the Dairy segment are fluid milk
and cultured products, ice cream and extended shelf life products. In the
Vegetables segment, the Company processes and sells frozen and canned
vegetables. The Pickles segment's principal products are pickles, relishes and
related items. Specialty segment products include powdered products,
refrigerated salad dressings, sauces, puddings and dips, as well as the
operations of the Company's transportation subsidiary.
Use of Estimates in the Financial Statements - The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications - Certain previously reported amounts have been
reclassified to conform with year-end 1997 presentations.
Definition of Fiscal Year - The Company's fiscal year ends on the last
Sunday in May. There were 52 weeks in each of the three fiscal years ended May
1997.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and all of its wholly-owned and
majority-owned subsidiaries. All significant intercompany transactions and
balances are excluded from the statements.
Cash and Temporary Cash Investments - The Company considers temporary cash
investments with an original maturity of three months or less to be cash
equivalents.
Inventories - Inventories are stated at the lower of cost or market. The
majority of Vegetables and Pickles inventories are valued on the last-in,
first-out (LIFO) method. The majority of Dairy and certain Specialty inventories
are valued on the first-in, first-out (FIFO) method.
Property, Plant and Equipment - Major renewals and betterments are
capitalized while repairs and maintenance which do not improve or extend useful
life are expensed currently. Upon sale, retirement, abandonment or other
disposition of property, the cost and related accumulated depreciation are
eliminated from the accounts and any gain or loss is reflected in income. For
financial statement purposes, depreciation is calculated by the straight-line
method. For income tax purposes, depreciation is calculated using accelerated
methods for certain assets.
Intangible Assets - Excess of cost over fair market value of net
identifiable assets of acquired companies and other intangible assets are
amortized on a straight-line basis over various periods between three years and
forty years.
Long-Lived Assets - The Company continually reviews intangible assets and
property, plant and equipment for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. An estimate of the undiscounted future cash flows or, in the case
of goodwill, undiscounted operating earnings, over the remaining life of the
asset is compared to the carrying amount to determine whether an impairment
exists. Based upon its most recent analysis, the Company believes that no
material impairment of long-lived assets existed at May 25, 1997.
Pensions - Substantially all of the Company's employees are covered by
Company or union-management-administered pension plans or profit sharing plans.
The policy with respect to Company-administered pension plans is to fund
accrued pension costs based on determinations made by independent actuaries
which include provision for service cost, interest cost, return on pension
assets and amortization of prior service cost and unrecognized initial net
assets.
Income Taxes - Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Revenue Recognition - Revenues are recognized when products are shipped.
Net Income per Common Share - Net income per common share is based upon
the weighted average number of common and common equivalent shares outstanding
during each year.
Stock-Based Compensation - In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation." The Company has elected to
continue to measure compensation cost using the intrinsic value-based method
of accounting as prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
29
<PAGE> 32
Dean Foods Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SPECIAL CHARGE
In May 1996, the Company adopted a plan to reduce costs, rationalize production
capacity and provide for projected severance and environmental costs which
reduced fiscal 1996 income before taxes, net income and earnings per share by
$150.0 million, $97.7 million and $2.44 per share, respectively. The
implementation of the plan included the elimination of more than 800
manufacturing and administrative positions and disposition or closure of
13 manufacturing plants.
As of May 25, 1997, the Company had disposed of or closed 11
manufacturing facilities and eliminated 700 positions. The remaining reserves
are anticipated to be used for the payment of obligations related to continued
rationalization of production capacity, continuing severance benefits and
projected environmental costs.
The following table presents the composition of the Company's special
charge reserve:
<TABLE>
<CAPTION>
1996 Cash Non-cash Balance at
(In millions) Accrual Payments Charges May 25, 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset
write-offs/
closure costs $ 99.1 $12.1 $ 76.4 $10.6
- --------------------------------------------------------------------------------------------------
Intangibles
write-off 22.8 -- 22.8 --
- --------------------------------------------------------------------------------------------------
Termination
benefits 10.2 4.0 2.2 4.0
- --------------------------------------------------------------------------------------------------
Environmental
and other 17.9 3.0 8.1 6.8
- --------------------------------------------------------------------------------------------------
$150.0 $19.1 $109.5 $21.4
- --------------------------------------------------------------------------------------------------
</TABLE>
Included in the original $150.0 million charge were costs associated with
the write-down to net realizable value of assets. In fiscal 1996, $101.0
million of non-cash charges were recorded, including $73.6 million of asset
write-offs and $22.8 million of intangible write-offs.
Of the remaining $21.4 million special charge reserve balance, $7.7
million is classified as Other Deferred Liabilities in the Consolidated Balance
Sheet.
3. BUSINESS ACQUISITIONS
During fiscal 1997, the company acquired a Dairy operation and a Dairy
distributor, each for cash consideration. During fiscal 1996, the Company
acquired one operation in each of the Vegetables, Pickles and Specialty
segments for cash consideration. During fiscal 1995, the Company acquired a
Dairy operation and a Vegetables operation also for cash consideration. Each of
these acquisitions were accounted for as purchases and their results of
operations are included in the consolidated financial statements from their
respective dates of acquisition. The pro forma impact as if these acquisitions
had taken place at the beginning of the fiscal year prior to acquisition is not
significant.
On May 27, 1997, the Company acquired the Marie's salad dressing and dips
business for cash consideration.
4. BORROWING ARRANGEMENTS
Long-term obligations, less installments due within one year, are summarized
below:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Senior note, 6.75%,
maturing in 2005 $ 99,192 $ 99,091
- -------------------------------------------------------------------------------------------
Installment note, 9.64%,
maturing in equal
amounts of $6,500
through 2005 52,000 58,500
- -------------------------------------------------------------------------------------------
Installment note, 10.1%,
maturing in equal
amounts of $3,500
through 2004 24,500 28,000
- -------------------------------------------------------------------------------------------
Industrial revenue bonds,
maturing in varying
amounts through 2021:
Fixed rate, (7.4% to 8.0%;
average 7.43%) 2,238 4,208
- -------------------------------------------------------------------------------------------
Floating rate, (3.8% to
4.15%; average 4.04%) 36,025 31,136
- -------------------------------------------------------------------------------------------
Capitalized lease obligations,
4.9% to 9.75%, maturing
in various installments
through 2011 9,151 9,472
- -------------------------------------------------------------------------------------------
Other obligations, maturing
in varying amounts
through 2004, (6.0% to
10.0%; average 4.89%) 2,189 3,101
- -------------------------------------------------------------------------------------------
225,295 233,508
- -------------------------------------------------------------------------------------------
Less: Installments due
within one year 13,369 11,855
- -------------------------------------------------------------------------------------------
Total long-term obligations $211,926 $221,653
- -------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 33
Dean Foods Company and Subsidiaries
In fiscal 1997, the Company amended and restated its existing $300 million
revolving Credit Agreement. The amended agreement matures in 2002. The
borrowings under the Credit Agreement are unsecured and the Company pays a
facility fee of 0.07%. Borrowings under the Credit Agreement bear interest, at
the Company's option, at either fixed or variable rates linked to the Company's
overall public debt credit rating. During fiscal 1997, the maximum borrowings
under the Credit Agreement were $100.0 million; average borrowings were $55.6
million at a weighted average interest rate of 5.6%. At May 25, 1997, there were
no direct borrowings outstanding under this facility.
The Company has $60.0 million committed short-term lines of credit
available for borrowing needs. Lending banks are compensated on a fee basis of
1/8 of 1% of the credit line. During 1997, maximum borrowings under the
Company's committed and uncommitted lines of credit were $66.0 million; average
borrowings for the year were $24.3 million at a weighted average interest rate
of 5.6%. At May 25, 1997, the Company had $3.0 million outstanding from
uncommitted short-term lines of credit.
In June 1995, the Company issued $100 million of 6.75% Notes due 2005. The
net proceeds were used to repay $50 million in long-term obligations and $50
million in short-term borrowings, which were outstanding under the Credit
Agreements at May 28, 1995.
At May 25, 1997, the most restrictive provisions of the Company's
borrowing arrangements were as follows: tangible net worth of at least $175
million, working capital of at least $60 million, and a current ratio of at
least 1.25 were required to be maintained; approximately $51 million of retained
earnings was unrestricted for the payment of cash dividends and repurchase of
common stock; and the Company could not incur total long-term debt in excess of
55% of total capitalization.
Maturities of long-term obligations during each of the years 1999 through
2002 are $11,080, $12,900, $13,262 and $10,239, respectively.
Certain land, buildings and machinery and equipment having a net carrying
value of approximately $21 million were mortgaged or otherwise encumbered
against long-term debt of $11 million at May 25, 1997.
The fair value of the Company's long-term debt was determined using
valuation techniques that considered cash flows discounted at current market
rates and management's best estimate for instruments without quoted market
prices. At May 25, 1997 and May 26, 1996 the fair value of long-term debt is
estimated to be $231.3 million and $235.8 million, respectively.
5. SHAREHOLDERS' EQUITY
The 1988 shareholders' rights plan, as amended, protects shareholders in the
event the Company becomes the target of coercive and unfair takeover tactics.
The rights were distributed to shareholders on the basis of one preferred stock
purchase right for each share of Dean Foods Company common stock. Each right
entitles shareholders to purchase one one-hundredth of a share of preferred
stock and will become exercisable only if a person or group acquires 15% or
more of the Company's common stock. The rights may be redeemed by the Company
for $.05 per right at any time prior to a public announcement that a person or
group has acquired 15% or more of the Company's common stock. The rights expire
on August 10, 1998, unless previously redeemed or exercised.
The Company may repurchase shares of its common stock from time to time in
the open market, in privately-negotiated transactions or otherwise at a price
or prices reasonably related to the then prevailing market price.
6. STOCK PLANS
A summary of stock option activity for the Company's stock option plans follows:
<TABLE>
<CAPTION>
Number Average
of Shares Option Price
Under Option Per Share
<S> <C> <C>
Options outstanding
at May 29, 1994 1,040,030 $26.87
Changes during
the year:
Granted 251,105 29.87
Terminated (52,392) 28.74
Exercised (165,941) 22.94
Options outstanding
at May 28, 1995 1,072,802 28.09
Changes during
the year:
Granted 313,564 28.08
Terminated (18,222) 29.04
Exercised (17,380) 24.87
Options outstanding
at May 26, 1996 1,350,764 28.12
Changes during
the year:
Granted 779,570 26.28
Terminated (114,329) 27.94
Exercised (123,211) 26.94
Options outstanding
at May 25, 1997 1,892,794 $27.45
Exercisable at end
of year 880,533 $28.03
Available for grants:
Beginning of year 1,381,444
End of year 697,969
</TABLE>
31
<PAGE> 34
Dean Foods Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the stock option plans, key employees and directors may be granted
stock awards or options to purchase, at fair market value on the date of grant,
a maximum of 3,315,000 shares of the Company's common stock. Of these shares, a
maximum of 115,000 may be granted to non-employee directors. A total of 91,500
shares have been granted to non-employee directors. A total of 243,788
non-qualified options are outstanding, which obligate the Company to make a
cash payment to the optionee, upon exercise, of an amount up to the aggregate
increase in the market value of the common stock since the date of grant.
Options terminate ten years after date of grant.
The Company may, from time to time, offer key employees the opportunity
to elect to receive, in lieu of all or a portion of the cash bonuses otherwise
payable to them, stock awards of shares of the Company's common stock having a
fair market value on the date of the award equal to 115% of such cash bonuses or
portions thereof (Stock Bonus Awards Program). Key employees elected to receive
29,858 and 47,131 shares under the Stock Bonus Awards Program which related to
bonuses in fiscal 1997 and 1996, respectively.
The Company adopted the disclosure-only provision under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," as of May 25, 1997, while continuing to measure compensation
cost under APB Opinion No. 25, "Accounting for Stock Issued to Employees." If
the accounting provisions of the Statement had been adopted as of the beginning
of fiscal 1996, the effect on net earnings for 1997 and 1996 would have been
immaterial.
7. INVENTORIES
At May 25, 1997 and May 26, 1996, inventories comprised the following:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Raw materials
and supplies $ 52,321 $ 56,671
- ------------------------------------------------------------------------------
Materials in process 59,846 65,447
- ------------------------------------------------------------------------------
Finished goods 172,353 172,316
- ------------------------------------------------------------------------------
284,520 294,434
- ------------------------------------------------------------------------------
Less: Excess of current
cost over stated value
of last-in, first-out
inventories 18,829 15,703
- ------------------------------------------------------------------------------
Total inventories $265,691 $278,731
- ------------------------------------------------------------------------------
</TABLE>
The percentage of costs of products sold determined on the basis of
last-in, first-out cost approximated 41.3% and 43.6% for 1997 and 1996,
respectively.
8. INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
<TABLE>
<CAPTION>
Provision (benefit) for income taxes was as follows:
1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense:
- ------------------------------------------------------------------------
Federal $37,348 $ 20,169 $45,585
- ------------------------------------------------------------------------
State and foreign 5,849 4,129 9,309
- ------------------------------------------------------------------------
43,197 24,298 54,894
- ------------------------------------------------------------------------
Deferred tax expense
- ------------------------------------------------------------------------
(benefit):
- ------------------------------------------------------------------------
Federal 12,562 (39,540) 1,068
- ------------------------------------------------------------------------
State and foreign 3,260 (4,465) 367
- ------------------------------------------------------------------------
15,822 (44,005) 1,435
- ------------------------------------------------------------------------
Provision (benefit)
for income taxes $59,019 $(19,707) $56,329
- ------------------------------------------------------------------------
</TABLE>
The effective tax rates differ from the prevailing statutory federal
rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal
tax rate 35.0% 35.0% 35.0%
- ------------------------------------------------------------------------
State and foreign,
net of federal
benefit 4.4 (1.4) 4.4
- ------------------------------------------------------------------------
Other, net 1.1 (5.2) 1.9
- ------------------------------------------------------------------------
Effective tax rate 40.5% 28.4% 41.3%
- ------------------------------------------------------------------------
</TABLE>
The components of the deferred income tax assets and liabilities were as
follows:
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
- ---------------------------------------------------------------
Accounts receivable $ 91 $ 3,003
- ---------------------------------------------------------------
Inventory 481 577
- ---------------------------------------------------------------
Self-insurance reserves 15,928 14,655
- ---------------------------------------------------------------
Vacation pay 4,235 4,276
- ---------------------------------------------------------------
Marketing accruals 6,698 6,518
- ---------------------------------------------------------------
Future benefit of
special charge 3,518 33,817
- ---------------------------------------------------------------
Other 1,439 (4,349)
- ---------------------------------------------------------------
Total deferred tax assets $ 32,390 $ 58,497
- ---------------------------------------------------------------
Deferred tax liabilities:
- ---------------------------------------------------------------
Fixed assets $(84,344) $(74,429)
- ---------------------------------------------------------------
Deferred compensation 9,140 6,420
- ---------------------------------------------------------------
DISC deferral (2,735) (2,953)
- ---------------------------------------------------------------
Intangibles (6,769) (5,265)
- ---------------------------------------------------------------
Future benefit
of special charge 39,840 12,531
- ---------------------------------------------------------------
Other 454 2,654
- ---------------------------------------------------------------
Total deferred tax liabilities $(44,414) $(61,042)
- ---------------------------------------------------------------
</TABLE>
32
<PAGE> 35
Dean Foods Company and Subsidiaries
9. EMPLOYEE BENEFIT PLANS
The Company has various profit sharing and retirement plans covering certain
salaried and hourly employees. Amounts charged to operations under all plans
were $19,318, $18,876 and $16,312 in 1997, 1996 and 1995, respectively.
Defined Benefit Pension Plans - Costs for noncontributory defined benefit
plans were $5,919, $5,762 and $4,650 in 1997, 1996 and 1995, respectively. Plan
assets are primarily invested in bonds, stocks and real estate. Significant
weighted average assumptions used in determining net pension costs were:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Discount rate 8.0% 8.0%
Expected long-term rate of
return on assets 8.0% 8.0%
Rate of increase in
compensation levels (range) 0-5.0% 0-5.0%
The Company's defined benefit net pension costs included the following
components:
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current service
costs $4,546 $3,621 $3,013
Interest cost on
projected benefit
obligation 6,814 6,189 5,654
Actual return on
plan assets (6,933) (16,452) (4,339)
Net amortization
and deferral 1,492 12,404 322
- --------------------------------------------------------------------
Net pension costs $5,919 $ 5,762 $ 4,650
- --------------------------------------------------------------------
The following table sets forth the funded status of the Company's defined
benefit plans reconciled to accrued pension costs:
<CAPTION>
1997 1996
<S> <C> <C>
Present value of projected
benefit obligation:
Vested employees $ 60,771 $ 62,762
Non-vested employees 5,829 4,522
Accumulated
benefit obligation 66,600 67,284
Additional amounts due to
future salary increases 25,096 21,869
Total projected
benefit obligation 91,696 89,153
Fair value of net assets
available for benefits (73,615) (74,690)
Projected benefit obligation
greater than net
assets available 18,081 14,463
Unrecognized prior
service cost (2,135) (2,297)
Unrecognized net obligation 3,247 (112)
Unrecognized net
transition asset -- 3,735
Unrecognized net loss (13,860) (9,702)
Net accrued pension costs $ 5,333 $ 6,087
</TABLE>
The majority of retirement benefits are based upon the highest five year
average qualifying earnings (base compensation) for service prior to January 1,
1986 and, for service since then, based upon the participant's qualifying
earnings each year.
The Company participates in various multi-employer
union-management-administered defined contribution pension plans that
principally cover production workers. Pension expense under these plans was
$6,012, $6,398 and $5,557 in 1997, 1996 and 1995, respectively.
Profit Sharing Plans - The Company maintains noncontributory profit
sharing plans for certain employees. Company contributions under these plans
are made at the discretion of the Board of Directors. Expense for these plans
was $7,147, $6,012 and $4,965 in 1997, 1996 and 1995, respectively.
Postretirement Benefits - The Company provides health care and life
insurance benefits to certain of its retired employees and eligible dependents.
Employees are eligible for such benefits subject to minimum age and service
requirements. Eligible employees that retire before the normal retirement age,
along with their dependents, are entitled to benefits on a shared contribution
basis. Substantially all benefits terminate at age sixty-five. The Company
retains the right to modify or eliminate these benefits.
Net periodic postretirement benefits expense was $240, $704 and $1,140 in
1997, 1996 and 1995, respectively. The components of expense follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost of
benefits earned $ 8 $ 273 $ 589
Interest cost
on liability 232 431 551
Net periodic
postretirement
benefit cost $ 240 $ 704 $1,140
</TABLE>
33
<PAGE> 36
Dean Foods Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As a result of changes in employee benefit plans during fiscal 1996,
postretirement medical benefits for certain union plans were eliminated
resulting in a curtailment gain of $3,994.
The following table summarizes the postretirement benefit liability:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------------------------------
<S> <C> <C>
Retirees $2,252 $2,151
---------------------------------------------------------------------------
Fully eligible active
participants 328 280
---------------------------------------------------------------------------
Other active participants 864 764
---------------------------------------------------------------------------
Total 3,444 3,195
---------------------------------------------------------------------------
Unrecognized net gain 508 1,095
---------------------------------------------------------------------------
Accrued postretirement
benefits $3,952 $4,290
---------------------------------------------------------------------------
</TABLE>
The accumulated postretirement benefit obligation was determined using a
weighted average discount rate of 8.0% in 1997, 1996 and 1995, and an assumed
compensation increase of 5.0%. The health care cost trend rates were assumed to
be 7.5% in 1997, gradually declining to 5.0% over five years and remaining at
that level thereafter. In 1996 the cost trend rates were assumed to be 8.0%,
gradually declining to 5.0% over six years. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example, a 1%
increase in the health care cost trend rate would increase the accumulated
postretirement benefit obligation by $164 at May 25, 1997, and the net periodic
cost by $20.
10. LEASES
Net rental expense, including amounts for leases of one year or less, was
$29,107, $30,733 and $25,062 in 1997, 1996 and 1995, respectively. Sublease
rental income is not significant. A majority of the Company's leases provide
that the Company pay taxes, maintenance, insurance and certain other operating
expenses.
At May 25, 1997, annual minimum rental payments under capital and
operating leases that have initial noncancelable terms in excess of one year
were as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------------------------------------------------
<S> <C> <C>
1998 $ 1,268 $15,442
------------------------------------------------
1999 1,027 13,590
------------------------------------------------
2000 1,008 9,536
------------------------------------------------
2001 1,084 6,091
------------------------------------------------
2002 1,084 3,815
------------------------------------------------
Thereafter 13,014 9,675
------------------------------------------------
Total minimum
lease payments 18,485 $58,149
------------------------------------------------
Less: Imputed interest 9,121
------------------------------------------------
Present value of minimum
lease payments $ 9,364
-------------------------------------
</TABLE>
11. ACCOUNTS PAYABLE AND
ACCRUED EXPENSES
Consolidated accounts payable and accrued expenses at May 25, 1997 and
May 26, 1996 comprised the following items:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------
<S> <C> <C>
Trade payables $104,667 $ 98,387
- ------------------------------------------------------------
Accrued expenses 89,489 62,894
- ------------------------------------------------------------
Accrued insurance 49,873 41,848
- ------------------------------------------------------------
Special charge reserve 13,726 41,012
- ------------------------------------------------------------
Accrued payroll 42,765 32,965
- ------------------------------------------------------------
Accrued taxes, other
than income 4,608 4,578
- ------------------------------------------------------------
Accrued pension and
profit sharing 8,246 5,621
- ------------------------------------------------------------
Total accounts payable
and accrued expenses $313,374 $287,305
- ------------------------------------------------------------
</TABLE>
12. CASH FLOW DATA
Interest and taxes paid included in the Company's cash flow from operations
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Interest paid $ 25,370 $ 25,363 $22,579
- ----------------------------------------------------------------
Taxes paid 27,217 39,687 54,752
- ----------------------------------------------------------------
Liabilities assumed in conjunction with business acquisitions were:
1997 1996 1995
- --------------------------------------------------------------------
Fair value
of assets
acquired $ 31,172 $ 67,574 $35,908
- --------------------------------------------------------------------
Consideration
paid (16,332) (66,053) (35,273)
- --------------------------------------------------------------------
Liabilities
assumed $14,840 $1,521 $635
- --------------------------------------------------------------------
</TABLE>
34
<PAGE> 37
Dean Foods Company and Subsidiaries
13. COMMITMENTS AND
CONTINGENT LIABILITIES
The Company is a current defendant in assorted legal matters and from time to
time is the subject of routine investigations by various state and federal
agencies. On July 10, 1996, a federal judge imposed a fine of approximately
$4.0 million on a subsidiary of the Company, alleging violations of the Federal
Water Pollution Control Act relating to the discharge of conventional,
non-hazardous substances. The Company has appealed the lower court
ruling on the grounds that the fine should be substantially reduced. The
Company provided for this exposure in 1996 and in light of reserves existing,
the ultimate resolution of these matters, including the resolution of the
imposed fine, is not expected to have a material effect on the financial
position or results of operations of the Company.
14. BUSINESS SEGMENT INFORMATION
The nature of products classified in the business segments presented herein is
described on pages 12 through 17. Intersegment sales are not material.
Operating earnings (loss) of segments do not include interest income or expense
and provision (benefit) for income taxes.
Identifiable assets are those used in the Company's operations in each
segment. Corporate assets consist primarily of cash and marketable securities
and deferred tax assets.
<TABLE>
<CAPTION>
Dairy Vegetables Pickles Specialty Corporate Consolidated
<S> <C> <C> <C> <C> <C> <C>
1997
Net sales $1,787,862 $557,804 $370,825 $301,876 $ -- $3,018,367
Operating
earnings 103,764 31,408 35,974 36,685 (37,752) 170,079
Identifiable assets 510,499 381,082 141,344 107,623 76,810 1,217,358
Depreciation and
amortization 36,913 22,630 7,360 5,133 2,028 74,064
Capital
expenditures 34,429 15,094 5,751 11,298 4,102 70,674
1996
Net sales $1,611,266 $573,751 $373,213 $256,038 $ -- $2,814,268
Operating
earnings (loss) (2,644) (41,837) 10,299 25,737 (33,985) (42,430)
Identifiable assets 456,632 406,541 151,578 98,480 109,009 1,222,240
Depreciation and
amortization 37,633 25,086 7,903 4,476 1,950 77,048
Capital
expenditures 49,905 18,713 6,733 13,544 904 89,799
1995
Net sales $1,513,560 $543,103 $367,182 $206,337 $ -- $2,630,182
Operating
earnings 77,242 44,736 30,395 27,239 (22,509) 157,103
Identifiable assets 491,638 428,781 155,368 56,996 69,643 1,202,426
Depreciation
and amortization 36,418 21,364 7,735 3,184 1,326 70,027
Capital
expenditures 49,150 16,683 9,138 7,019 1,290 83,280
</TABLE>
Fiscal 1996 segment operating earnings (loss) include the special charge
related to the adoption of a plan to reduce costs, rationalize production
capacity and provide for severance and environmental costs of $76,694, $47,561,
$13,704, $999 and $11,042 in the Dairy, Vegetables, Pickles, Specialty and
Corporate segments, respectively.
35
<PAGE> 38
Dean Foods Company and Subsidiaries
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
Unaudited (In thousands, except for per share data) First Second Third Fourth Fiscal Year
<S> <C> <C> <C> <C> <C>
FISCAL 1997
Net sales $710,052 $775,717 $745,012 $787,586 $3,018,367
Gross profit $159,893 170,984 173,861 196,692 701,430
Net income $ 17,910 19,076 20,635 29,083 86,704
Per common share data:
Net income $ .45 .47 .51 .73 2.16
Stock price range -
High $ 25 29 7/8 33 5/8 39 3/4 39 3/4
Low $ 22 1/8 24 1/8 25 7/8 31 7/8 22 1/8
Dividend rate (cents) 19.0 19.0 19.0 19.0 76.0
FISCAL 1996
Net sales $651,505 $705,358 $717,976 $739,429 $2,814,268
Gross profit $148,685 158,266 145,801 149,871 602,623
Net income (loss) $ 13,661 16,012 6,727 (86,088)(a) (49,688)(a)
Per common share data:
Net income (loss) $ .34 .40 .17 (2.15)(a) (1.24)(a)
Stock price range -
High $ 29 1/4 28 3/4 29 3/4 26 5/8 29 3/4
Low $ 26 5/8 26 1/4 25 5/8 22 1/4 22 1/4
Dividend rate (cents) 18.0 18.0 18.0 18.0 72.0
</TABLE>
(a) 1996 includes an after-tax charge of $97,720 ($2.44 per share) related to
the adoption of a plan to reduce costs, rationalize production capacity and
provide for severance and environmental costs.
The Company's common stock is traded on the New York Stock Exchange under the
ticker symbol: DF.
REPORT OF INDEPENDENT ACCOUNTANTS
200 East Randolph Drive
Chicago, IL 60601
[PRICE WATERHOUSE LLP LOGO]
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF DEAN FOODS COMPANY
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of Dean Foods
Company and subsidiaries at May 25, 1997 and May 26, 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended May 25, 1997, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
June 24, 1997
36
<PAGE> 39
Dean Foods Company and Subsidiaries
SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
(In thousands, except for items marked with an *)
Fiscal Year Ended May, 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Net sales $3,018,367 2,814,268 2,630,182 2,431,203 2,274,340 2,289,441
Costs of products sold
and all operating expenses $2,848,288 2,856,698 (a) 2,473,079 2,298,147 2,145,687 2,169,886(c)
Operating earnings (loss) $ 170,079 (42,430)(a) 157,103 133,056 128,653 119,555(c)
Interest expense $ 25,340 28,349 22,397 15,471 14,888 15,551
Income (loss) before taxes $ 145,723 (69,395)(a) 136,388 118,313 114,759 105,527(c)
Provision (benefit) for
income taxes $ 59,019 (19,707) 56,329 47,551 46,350 43,511
Net income (loss) $ 86,704 (49,688)(a) 80,059 71,941(b) 68,409 62,016(c)
Depreciation on properties $ 67,983 70,220 65,056 58,549 51,815 48,348
Capital expenditures $ 70,674 89,799 83,280 80,977 74,803 77,867
Number of employees* 11,800 11,900 11,800 12,100 10,500 10,100
BALANCE SHEET DATA
Working capital $ 208,032 185,942 215,012 92,915 198,393 183,577
Total assets $1,217,358 1,222,240 1,202,426 1,109,154 892,836 857,152
Net plant and equipment $ 527,173 525,667 570,145 543,211 443,764 415,791
Long-term obligations $ 211,926 221,653 224,679 136,150 151,127 155,478
Shareholders' equity $ 567,681 507,692 584,526 524,774 476,319 430,443
COMMON STOCK DATA
Net income (loss) per share* $ 2.16 (1.24)(a) 2.01 1.81(b) 1.73 1.53(c)
Cash dividends per share* $ .76 .72 .68 .64 .60 .56
Book value per share* $ 14.09 12.65 14.58 13.19 12.00 10.87
Number of shareholders* 8,838 9,481 9,989 8,936 8,654 8,929
</TABLE>
<TABLE>
<CAPTION>
(In thousands, except for items marked with an *)
Fiscal Year Ended May, 1991 1990 1989 1988
<S> <C> <C> <C> <C>
OPERATING DATA
Net sales 2,157,997 1,987,517 1,683,578 1,551,832
Costs of products sold
and all operating expenses 2,018,374 1,875,149 1,576,512 1,471,261
Operating earnings (loss) 139,623 112,368 107,066 80,571
Interest expense 16,780 12,682 7,646 6,149
Income (loss) before taxes 124,340 102,066 101,793(d) 76,542(e)
Provision (benefit) for
income taxes 51,807 40,834 41,360 33,787
Net income (loss) 72,533 61,232 60,433(d) 42,755(e)
Depreciation on properties 44,465 37,338 31,046 29,028
Capital expenditures 72,844 68,196 55,917 39,258
Number of employees* 9,600 8,900 7,500 7,100
BALANCE SHEET DATA
Working capital 198,429 182,852 156,469 130,355
Total assets 816,999 744,759 586,702 499,150
Net plant and equipment 375,930 337,068 253,972 211,711
Long-term obligations 149,980 146,622 84,162 48,884
Shareholders' equity 416,560 362,760 293,249 265,739
COMMON STOCK DATA
Net income (loss) per share* 1.79 1.53 1.52(d) 1.07(e)
Cash dividends per share* .49 .44 .40 .36
Book value per share* 10.23 8.93 7.43 6.60
Number of shareholders* 8,380 8,005 8,290 8,671
</TABLE>
(a) 1996 includes a pre-tax charge of $150,000 ($97,720 after-tax, or
$2.44 per share) related to the adoption of a plan to reduce costs,
rationalize production capacity and provide for severance and
environmental costs.
(b) 1994 includes an after-tax net gain of $1,179 ($.03 per share) related
to changes in accounting principles.
(c) 1992 includes a charge against operations of $9,100 related to the
termination of the Company's refrigerated truckload transportation
business ($5,685 after taxes, or $.14 per share).
(d) 1989 includes a net gain of $10,132 for unusual items ($5,442 after
taxes, or $.14 per share).
(e) 1988 includes a net charge against operations of $11,606 for unusual
items ($9,686 after taxes, or $.24 per share).
37
<PAGE> 40
Dean Foods Company and Subsidiaries
DIRECTORS
HOWARD M. DEAN(1)
Chairman of the Board and
Chief Executive Officer
THOMAS L. ROSE
Vice-Chairman
PHILIP A. MARINEAU(1)
President and Chief
Operating Officer
EDWARD A. BRENNAN(2)
Retired Chairman and
Chief Executive Officer,
Sears, Roebuck & Co.,
a merchandising company
LEWIS M. COLLENS(2)(4)
President, Illinois Institute
of Technology, and Chairman
and Chief Executive Officer,
IIT Research Institute
PAULA H. CROWN(2)
Vice President of
Henry Crown and Company,
a private investment firm
JOHN P. FRAZEE, JR.(2)(4)
Retired Chairman and
Chief Executive Officer, Centel
Corporation, a leader in local
exchange telephone and cellular
communications services
BERT A. GETZ(3)(4)
Chairman, President and
Director, Globe Corporation,
a diversified investment firm
JOHN S. LLEWELLYN, JR.(3)(4)
President and Chief Executive
Officer, Ocean Spray Cranberries, Inc.,
a marketing cooperative of
cranberry and citrus growers
RICHARD P. MAYER(3)
Retired Chairman and Chief Executive
Officer, Kraft General Foods North
America, a diversified food company
ANDREW J. MCKENNA(1)(3)(4)
Chairman and Chief Executive Officer,
Schwarz Paper Company, a national
distributor and converter of paper
products and specialty printer
THOMAS A. RAVENCROFT
Senior Vice President and President,
Dairy Division
(1) Executive Committee
(2) Audit Committee
(3) Compensation Committee
(4) Corporate Governance Committee
OFFICERS
HOWARD M. DEAN
Chairman of the Board and
Chief Executive Officer
PHILIP A. MARINEAU
President and Chief
Operating Officer
ROBERT E. BAKER
Vice President, Strategic Planning
ERIC A. BLANCHARD
Vice President, Secretary and
General Counsel
JENNY L. CARPENTER
Vice President, Sales and
Marketing - Specialty Food
Products
GARY A. CORBETT
Vice President, Governmental
and Dairy Industry Relations
NEIL J. FINERTY
Vice President, Human Resources
GARY D. FLICKINGER
Vice President, Production
& Engineering
DANIEL E. GREEN
Group Vice President,
Specialty Dairy Division
JAMES R. GREISINGER
Group Vice President and
President of Dean Pickle and
Specialty Products Company
CAMERON C. HITCHCOCK
Treasurer
DALE E. KLEBER
Vice President and Associate
General Counsel
WILLIAM M. LUEGERS, JR.
Corporate Controller
WILLIAM R. MCMANAMAN
Vice President, Finance and
Chief Financial Officer
GEORGE A. MUCK
Vice President, Research and
Development
DOUGLAS A. PARR
Vice President, Dairy Sales
and Marketing
DENNIS J. PURCELL
Group Vice President
ROGER A. RAGLAND
Group Vice President -
International
GARY P. RIETZ
Chief Information Officer
THOMAS A. RAVENCROFT
Senior Vice President and President,
Dairy Division
JEFFREY P. SHAW
Group Vice President and President of Dean
Foods Vegetable Company
Design: BAGBY and COMPANY INC./Chicago Printing: Quantum Color Graphics
38
<PAGE> 41
Dean Foods Company and Subsidiaries
DIVIDEND REINVESTMENT SERVICE
A service for Dean shareholders is available whereby dividends can be
automatically reinvested in the Company's Common Stock. The plan also provides
for a voluntary quarterly cash payment option for the purchase of additional
stock and safekeeping of shares.
If interested in this service, please write to the transfer agent and
request a copy of Dean's dividend reinvestment brochure: Harris Trust and
Savings Bank, Dividend Reinvestment Service, P. O. Box A3309, Chicago, Illinois
60690.
DUPLICATE MAILINGS
When shares owned by one shareholder are held in different forms of the same
name, duplicate mailing of shareholder information results. The Company mails
to each name on the shareholder list unless the shareholder requests that
duplicate mailings be eliminated.
Shareholders that receive duplicate reports can help eliminate the
added expense by requesting that only one copy be sent. Send the labels or
label information to Harris Trust and Savings Bank, indicating the name to keep
on the list and the names to be deleted. This change will not affect dividend
or proxy mailings.
FORM 10-K
Single copies of the Company's 1997 Annual Report on Securities and Exchange
Commission Form 10-K (without exhibits) will be provided without charge to
shareholders upon written request directed to Director, Corporate
Communications.
FINANCIAL INFORMATION &
INVESTOR RELATIONS INQUIRIES
The Company maintains a direct mailing list to ensure that shareholders with
stock held in broker nominee accounts ("street name") and other interested
parties receive information on a timely basis. Current company financial
information can also be accessed on the Internet through PR Newswire.
To be added to the mailing list, or to request financial information,
please direct requests to:
Lu Ann Lilja
Director, Corporate Communications
Dean Foods Company
3600 N. River Road
Franklin Park, Illinois 60131
E-Mail address: [email protected]
TRANSFER AGENT AND REGISTRAR
For inquiries regarding change of address, stock transfer, registered
shareholdings, dividends and lost certificates, please contact:
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
312/360-5158
STOCK EXCHANGE
New York Stock Exchange
Ticker Symbol: DF
ANNUAL MEETING
September 30, 1997, 10:00 A.M.
Drury Lane Oak Brook Terrace
100 Drury Lane
Oak Brook Terrace,
Illinois 60181
(Location map appears
in Proxy Statement.)
CORPORATE OFFICE
3600 N. River Road
Franklin Park, Illinois 60131
847/678-1680
Dairy Ease is a registered trademark of Sterling Winthrop, Inc. Guilt Free is a
registered trademark of Yarnell's Ice Cream Co., Inc. Nestle Quik, Carnation
Coffeemate and Nestea are registered trademarks of Nestle Food Company. Health
Source and Vitamite are registered trademarks of Ralston Purina Company.
39
<PAGE> 42
Dean Foods Company
3600 North River Road
Franklin Park, Illinois 60131
<PAGE> 1
EXHIBIT 21(a)
SUBSIDIARIES OF THE REGISTRANT AS OF MAY 25, 1997
Jurisdiction In
Which Organized
---------------
Bell Dairy Products, Inc. Texas
Birds Eye de Mexico, S.A. de C.V. Mexico
Bowman Dairy Company, Inc. Delaware
Cream o'Weber Dairy, Inc. Utah
Creamland Dairies, Inc. New Mexico
Dean Dairy Products Company Pennsylvania
Dean Dip and Dressing Company Delaware
Dean Foods Company of Indiana Delaware
Dean Foods Vegetable Company Wisconsin
Dean Foods Products Company Delaware
Dean Milk Company, Inc. Kentucky
DFC Transportation Company Delaware
E.B.I. Foods, Ltd. United Kingdom
Elgin Blenders, Inc. Illinois
Gandy's Dairies, Inc. Texas
Dean Pickle and Specialty Products Company Wisconsin
Liberty Dairy Company Michigan
McArthur Dairy, Inc. Florida
Mayfield Dairy Farms, Inc. Tennessee
Meadow Brook Dairy Company Pennsylvania
Meadows Distributing Company Illinois
Ready Foods Products, Inc. Pennsylvania
Reiter Dairy, Inc. Ohio
Ryan Foods Company Kentucky
STDI, Inc. U.S. Virgin Islands
T.G. Lee Foods, Inc. Florida
Verifine Dairy Products Corporation of Sheyboygan Wisconsin
W.B. Roddenbery Co., Inc. Georgia
The names of all other subsidiaries have been omitted from the above list
because, when considered in the aggregate as a single subsidiary, they would
not constitute a material subsidiary.
165
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Forms S-8 (Nos. 33- 33775
and 33-33776 and Form S-8 filed July 25, 1996) and Form S-3 (No. 33-57353) of
Dean Foods Company of our report dated June 24, 1997, appearing on page 36 of
the Dean Foods Company Annual Report to Shareholders for Fiscal year Ended May
25, 1997, which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 17 of this Form 10-K.
Price Waterhouse LLP
August 22, 1997
166
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS' ANNUAL REPORT ON FORM 10-K FOR THE ANNUAL PERIOD ENDED MAY 25, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-25-1997
<PERIOD-START> MAY-27-1996
<PERIOD-END> MAY-25-1997
<CASH> 4,386
<SECURITIES> 0
<RECEIVABLES> 214,386
<ALLOWANCES> 3,585
<INVENTORY> 265,691
<CURRENT-ASSETS> 562,133
<PP&E> 1,049,528
<DEPRECIATION> 522,355
<TOTAL-ASSETS> 1,217,358
<CURRENT-LIABILITIES> 354,101
<BONDS> 211,926
0
0
<COMMON> 41,545
<OTHER-SE> 526,136
<TOTAL-LIABILITY-AND-EQUITY> 1,217,358
<SALES> 3,018,367
<TOTAL-REVENUES> 3,018,367
<CGS> 2,316,937
<TOTAL-COSTS> 2,316,937
<OTHER-EXPENSES> 530,421
<LOSS-PROVISION> 930
<INTEREST-EXPENSE> 25,340
<INCOME-PRETAX> 145,723
<INCOME-TAX> 59,019
<INCOME-CONTINUING> 86,704
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,704
<EPS-PRIMARY> 2.16
<EPS-DILUTED> 2.16
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