<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 of 15(d) of the Securities
---
Exchange Act of 1934
For the quarterly period ended November 23, 1997
or
Transition report pursuant to Section 13 of 15(d) of the Securities
---
Exchange Act of 1934
For the transition period from to
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Commission file number 0-1118
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DEAN FOODS COMPANY
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(Exact name of registrant as specified in its charter)
DELAWARE 36-0984820
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
3600 North River Road, Franklin Park, Illinois 60131
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 678-1680
---------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares of the Registrant's Common Stock, par value $1 per
share, outstanding as of the date of this report was 40,639,789.
1
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PART I - FINANCIAL INFORMATION
- ------------------------------
A. UNAUDITED CONDENSED CONSOLIDATION FINANCIAL STATEMENTS
------------------------------------------------------
In the opinion of the Company, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the following
unaudited condensed consolidated financial statements have been included
herein. Certain information and footnote disclosures normally included in the
financial statements have been omitted. These unaudited condensed consolidated
financial statements should be read in conjunction with the Company's 1997
Annual Report on Form 10-K.
2
<PAGE> 3
ITEM 1.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
FOR THE SIX MONTHS ENDED
------------------------
NOVEMBER 23, 1997 AND NOVEMBER 24, 1996
---------------------------------------
(In Thousands Except for Per Share Amounts)
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
-------------------- ----------------
November 23, November 24, November 23, November 24,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(Unaudited)
Net sales $ 771,954 $ 775,717 $ 1,501,407 $ 1,485,769
Costs of products sold 586,015 604,733 1,144,955 1,154,892
Delivery, selling and
administrative expenses 136,106 132,301 265,977 256,113
------------ ------------ ------------ ------------
Operating earnings 49,833 38,683 90,475 74,764
Interest expense (7,183) (6,849) (12,910) (13,098)
Interest income 914 228 1,323 498
------------ ------------ ------------ ------------
Income before income taxes 43,564 32,062 78,888 62,164
Provision for income taxes 16,989 12,986 30,766 25,178
------------ ------------ ------------ ------------
Net income $ 26,575 $ 19,076 $ 48,122 $ 36,986
============ ============ ============ ============
Net income per common share $ .66 $ .47 $ 1.19 $ .92
============ ============ ============ ============
Dividends per share
(Declared and paid) $ .20 $ .19 $ .40 $ .38
============ ============ ============ ============
Weighted average common
shares 40,508 40,153
============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
NOVEMBER 23, 1997 AND MAY 25, 1997
----------------------------------
(In Thousands)
<TABLE>
<CAPTION>
November 23, May 25,
1997 1997
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 75,291 $ 4,386
Accounts and notes receivable,
less allowance for doubtful
accounts of $3,786 and $3,585,
respectively 223,189 210,528
Inventories 322,049 265,691
Other current assets 67,489 81,528
------------ -----------
Total Current Assets 688,018 562,133
------------ -----------
PROPERTIES:
Property, plant and equipment, at cost 1,099,600 1,049,528
Accumulated depreciation 544,655 522,355
------------ -----------
554,945 527,173
------------ -----------
OTHER ASSETS 165,216 128,052
------------ -----------
Total Assets $ 1,408,179 $ 1,217,358
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable to banks $ - $ 3,000
Current installments of long-term obligations 13,134 13,369
Accounts payable and accrued expenses 298,183 313,374
Dividends payable 8,216 7,738
Federal and state income taxes 36,880 16,620
------------ ------------
Total Current Liabilities 356,413 354,101
------------ ------------
LONG-TERM OBLIGATIONS 359,221 211,926
------------ ------------
DEFERRED LIABILITIES 82,660 83,650
------------ ------------
SHAREHOLDERS' EQUITY 609,885 567,681
------------ ------------
Total Liabilities and Shareholders' Equity $ 1,408,179 $ 1,217,358
============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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FOR THE SIX MONTHS ENDED
------------------------
NOVEMBER 23, 1997 AND NOVEMBER 24, 1996
---------------------------------------
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------
November 23, November 24,
1997 1996
-------- ---------
<S> <C> <C>
(Unaudited)
Net cash provided from operations $ 40,290 $ 5,150
-------- ---------
Cash flows from investing activities
Capital expenditures (60,542) (35,873)
Proceeds from disposition of property,
plant and equipment 1,547 976
Acquisitions of businesses, net of
cash acquired (53,510) -
-------- --------
Net cash used in investing activities (112,505) (34,897)
-------- --------
Cash flows from financing activities
Issuance of long-term obligations 147,574 -
Repayment of long-term obligations (580) (1,489)
Issuance (repayment) of notes payable to
banks, net (3,000) 50,000
Unexpended industrial revenue bond proceeds 4,741 702
Cash dividends paid (15,755) (14,707)
Issuance of common stock upon exercise of
options 10,140 823
-------- --------
Net cash provided by financing activities 143,120 35,329
-------- --------
Increase in cash and cash equivalents 70,905 5,582
Cash and cash equivalents - beginning of
period 4,386 10,399
-------- --------
Cash and cash equivalents - end of period $ 75,291 $ 15,981
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------
1. INVENTORIES
-----------
The following is a tabulation of inventories by class at November 23,
1997, November 24, 1996, and May 25, 1997 (In Thousands).
<TABLE>
<CAPTION>
November 23, November 24, May 25,
1997 1996 1997
------------- ------------- -------
(Unaudited)
<S> <C> <C> <C>
Raw materials and supplies $40,409 $44,504 $52,321
Materials in process 90,457 117,206 59,846
Finished goods 208,712 217,251 172,353
------------- ------------- ---------
339,578 378,961 284,520
Less: Excess of current cost over stated
value of last-in, first-out inventories 17,529 17,130 18,829
------------- ------------- ---------
Total inventories $322,049 $361,831 $265,691
============= ============= =========
</TABLE>
2. BUSINESS SEGMENT INFORMATION
----------------------------
The following is a tabulation of the Company's business segment
information for the quarters and six months ended November 23, 1997 and
November 24, 1996 (In Thousands).
<TABLE>
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Dairy Vegetables Pickles Specialty Corporate Consolidated
--------- ---------- --------- --------- ------------- ----------------
SECOND QTR. ENDED
NOVEMBER 23, 1997
Net sales $457,236 $147,021 $79,337 $88,360 $ - $ 771,954
Operating earnings $27,561 $12,694 $8,063 $12,996 $(11,481) $ 49,833
NOVEMBER 24, 1996
Net sales $452,351 $152,845 $88,884 $81,637 $ - $ 775,717
Operating earnings $16,600 $11,531 $8,967 $9,983 $ (8,398) $ 38,683
SIX MONTHS ENDED
NOVEMBER 23, 1997
Net sales $913,198 $256,618 $169,797 $161,794 $ - $1,501,407
Operating earnings $59,974 $10,169 $17,385 $23,989 $(21,042) $ 90,475
NOVEMBER 24, 1996
Net sales $884,632 $267,152 $184,732 $149,253 $ - $1,485,769
Operating earnings $42,720 $12,487 $16,901 $18,414 $(15,758) $ 74,764
</TABLE>
3. LEGAL PROCEEDINGS
-----------------
See PART II, Item 1 for a discussion of pending legal proceedings
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
A.) Liquidity and Capital Resources
As of November 23, 1997 there have been no material changes in the
Company's liquidity or its capital resources from those described in the
Management's Discussion and Analysis contained in the Company's Annual Report
on Form 10-K for the fiscal year ended May 25, 1997. Cash and cash equivalents
were $75.3 million at November 23, 1997, an increase of $70.9 million from the
balance at May 25, 1997. The increase was due to the temporary investment of
unused proceeds from the October 1997 issuance of $150 million of senior notes,
which will be used for general corporate purposes and to fund future
acquisitions.
The inventories at November 23, 1997 were $322.0 million, an increase of
$56.4 million over the balance at May 25, 1997, reflecting the typical seasonal
increases resulting from the vegetable and cucumber harvests. The November 23,
1997 inventories were $39.8 million lower than inventories a year ago
reflecting the planned reduction of the inventories in Vegetables and Pickles
segments.
There were no short-term borrowings outstanding at November 23, 1997,
versus a $3.0 million balance at May 25, 1997. Working capital at November 23,
1997 was $331.6 million compared to $208.0 million at May 25, 1997. The
increase in working capital was primarily due to the increases in short-term
cash investments and inventories. The company's debt-to-capital ratio was
37.9% at November 23, 1997 compared with 28.7% at May 25, 1997.
B.) Results of Operations
SECOND QUARTER FISCAL 1998 VERSUS SECOND QUARTER FISCAL 1997
Net sales of $772.0 million for the second quarter of fiscal 1998
decreased $3.8 million from net sales of $775.7 million in the prior year. Net
sales increases in the Dairy and Specialty segments were offset by decreased
sales in the Vegetables and Pickles segments. Operating earnings increased
28.8% to $49.8 million for the second quarter of fiscal 1998, from $38.7
million in fiscal 1997. The increase in operating earnings was driven by
improved earnings in the Dairy, Vegetables and Specialty segments.
Dairy segment net sales for the quarter of $457.2 million were 1.1% higher
than sales of $452.4 million in the prior year. Net sales increases were the
result of an overall Dairy volume increase and the effect of late fiscal 1997
acquisitions, which were partially offset by lower prices as the result of
significantly lower raw milk costs versus a year ago. Dairy segment operating
earnings of $27.6 million in the second quarter of fiscal 1998 were $11.0
million, or 66.0%, higher than operating earnings of $16.6 million in fiscal
1997. Second quarter Dairy earnings improvements were a result of the sales
increase discussed above, improved margins and an increasing butterfat
differential, which effectively reduces skim and lowfat dairy product costs.
Butterfat is expected to decline during the third quarter of fiscal 1998.
Vegetables segment net sales of $147.0 million in the second quarter of
fiscal 1998 were down 3.8% from sales of $152.8 million in the same period of
the prior year. The decline in sales was primarily due to lower case volume
resulting primarily from the shift of promotional activities to later in the
fiscal year. Vegetables segment operating earnings of $12.7 million in the
second quarter of fiscal 1998 were $1.2 million, or 10.1%, higher than
operating earnings of $11.5 million in the prior year, as the segment began
recognizing the benefits of lower costs resulting from the consolidation of
operations initiated in the spring of 1996.
Net sales in the Pickles segment for the second quarter of $79.3 million
decreased $9.5 million, or 10.7%, compared to the same period in the prior
year. The sales decline was the result of the business continuing to eliminate
unprofitable products and customers. Second quarter operating earnings for the
Pickles segment declined to $8.1 million from $9.0 million in fiscal 1997 due
primarily from increased price competition in certain markets.
Specialty segment net sales of $88.4 million in the second quarter were
8.2% higher than sales for the same period a year ago. Operating earnings for
the second quarter of fiscal 1998 of $13.0 million were substantially ahead of
the $10.0 million of earnings in the same period of the prior year. The net
sales and
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operating earnings improvements are primarily due to the early fiscal 1998
acquisition of the Marie's refrigerated salad dressing business. Also
contributing to the operating earnings increase was the improved operating
efficiencies in the Dean Dip and Dressing operations.
SIX MONTHS ENDED FISCAL 1998 VERSUS SIX MONTHS ENDED FISCAL 1997
Net sales for the six months of fiscal 1998 were $1.50 billion, slightly
higher than sales of $1.49 billion in the prior year. Operating earnings of
$90.5 million for the first six months of fiscal 1998 were $15.7 million, or
21.0%, higher than the same period of the prior fiscal year. Increases in the
Dairy and Specialty segments were primarily responsible for the improvements in
net sales and operating earnings for the six month period.
For the six months, Dairy net sales increased 3.2% to $913.2 million from
$884.6 million in fiscal 1997. Dairy operating earnings were $60.0 million
versus $42.7 million for the same period in the prior fiscal year, a 40.4%
increase. Dairy segment improvements were the result of overall Dairy volume
increases and the favorable impact from late fiscal 1997 acquisitions. An
increasing butterfat differential, which effectively lowered costs, also
contributed to the six months earnings increase.
Vegetables segment net sales of $256.6 million for the first six months of
fiscal 1998 were down approximately 4% from sales of $267.2 million in the
same period in the prior year. Operating earnings of $10.2 million were $2.3
million lower than operating earnings of $12.5 million reported in fiscal 1997.
Contributing to the six months net sales and earnings declines were lower case
volume and the shifting of promotional activities to later in the fiscal year.
For the six months, Pickles net sales of $169.8 million were lower than
sales of $184.7 million in fiscal 1997. The decline is the result of the
business continuing to focus on identifying and eliminating unprofitable
products and customers. Earnings for the six months ended November 23, 1997
versus the same period of the prior year were relatively flat.
Specialty segment net sales for the six months of $161.8 million were 8.4%
higher than sales for the same period of fiscal 1997. Specialty segment
operating earnings for fiscal 1998 of $24.0 million were $5.6 million ahead of
the $18.4 million earnings for the prior year. The improvements are primarily
due to improved operating efficiencies in the Dean Dip and Dressing operations,
as well as the contribution from the early fiscal 1998 acquisition of the
Marie's refrigerated salad dressing business.
CORPORATE
Fiscal 1998 corporate expenses increased $3.1 million and $5.3 million in
the second quarter and six months, respectively, compared to the same periods
in the prior year. The increases were primarily related to certain stock-based
and incentive compensation expenses.
INTEREST EXPENSE
Interest expense in the second quarter of fiscal 1998 totaled $7.2
million, which was 4.9% higher than interest expense in second quarter of
fiscal 1997. The increase is primarily the result of additional interest
expense associated with the issuance of $150 million of senior notes in October
1997. For the six month period interest expense was relatively flat with that
of the prior year, as the increase associated with the fiscal 1998 senior notes
issuance was offset by lower average short-term borrowings outstanding.
INCOME TAXES
The effective tax rate for both the second quarter and six month periods of
fiscal 1998 was 39.0% compared to a rate of 40.5% in the same periods of the
prior year. The decrease in the rate is largely due to reductions in state
income taxes, and increased export and research and development incentives.
8
<PAGE> 9
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
-----------------
There has been no material change in the legal proceedings reported
under Item 3 - Legal Proceedings, of the Company's Form 10-K Annual
Report, for the fiscal year ended May 25, 1997.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
a.) Exhibits
Item 12 - Computation of Ratio of Earnings to Fixed Charges
Item 27 - Financial Data Schedules
b.) Reports on Form 8-K
None filed.
9
<PAGE> 10
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEAN FOODS COMPANY
------------------
(Registrant)
DATE: January 6, 1998 William R. McManaman
---------------------------
WILLIAM R. McMANAMAN
Vice President, Finance and
Chief Financial Officer
DATE: January 6, 1998 William M. Luegers, Jr.
---------------------------
WILLIAM M. LUEGERS, JR.
Controller
10
<PAGE> 1
Exhibit 12
Dean Foods Company
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
26 Weeks Ended
November 23, 1997
-----------------
<S> <C>
Income before taxes $ 78,888
-----------
Fixed charges:
Interest expense 12,910
Portion of rentals (33%) 4,802
-----------
Total fixed charges 17,712
-----------
Earnings before taxes and fixed charges $ 96,600
===========
Ratio of earnings to fixed charges 5.5
===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrants' Quarterly Report on Form 10-Q for the quarterly period ended
November 23, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> MAY-26-1997
<PERIOD-END> NOV-23-1997
<CASH> 75,291
<SECURITIES> 0
<RECEIVABLES> 226,975
<ALLOWANCES> 3,786
<INVENTORY> 322,049
<CURRENT-ASSETS> 688,018
<PP&E> 1,099,600
<DEPRECIATION> 544,655
<TOTAL-ASSETS> 1,408,179
<CURRENT-LIABILITIES> 356,413
<BONDS> 359,221
0
0
<COMMON> 41,870
<OTHER-SE> 568,015
<TOTAL-LIABILITY-AND-EQUITY> 1,408,179
<SALES> 771,954
<TOTAL-REVENUES> 771,954
<CGS> 586,015
<TOTAL-COSTS> 586,015
<OTHER-EXPENSES> 135,761
<LOSS-PROVISION> 345
<INTEREST-EXPENSE> 7,183
<INCOME-PRETAX> 43,564
<INCOME-TAX> 16,989
<INCOME-CONTINUING> 26,575
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,575
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
</TABLE>
