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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 30, 1999
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.: 1-08262
DEAN FOODS COMPANY
(Exact name of registrant as specified in its charter)
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DELAWARE 36-0984820
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3600 N. RIVER ROAD, FRANKLIN PARK, ILLINOIS 60131
(Address of principal executive offices) (Zip Code)
</TABLE>
(847) 678-1680
Registrant's telephone number, including area code
Securities registered pursuant to Sections 12(b) and 12(g) of the Act:
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<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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COMMON STOCK, PAR VALUE $1 PER SHARE NEW YORK STOCK EXCHANGE
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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 (sec. 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 6, 1999 was 39,311,791. The aggregate market
value of such outstanding shares on August 6, 1999 was $1.70 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 30, 1999
(referred to herein as the "Company's Fiscal 1999 Annual Report"): Part I and
Part II
2. Registrant's Proxy Statement for its Annual Meeting of Stockholders to be
held on September 28, 1999 (referred to herein as the "Company's 1999 Proxy
Statement"): Part III
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PART I
ITEM 1. BUSINESS.
GENERAL
Dean Foods Company and its subsidiaries ("the Company") is engaged in the
processing, distribution and sales of dairy, pickle and specialty products. The
predecessor to Dean Foods Company was incorporated in Illinois in 1925.
The Company's principal products are Dairy (fluid milk and cultured
products, ice cream and extended shelf life products), Pickles (pickles,
relishes and specialty items) and Specialty (powdered products, refrigerated
salad dressings, dips, sauces and puddings). A significant portion of the
Company's products is 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.
STRATEGIC DIRECTION
The Company's primary objective is the maximization of shareholders value
through long-term stock appreciation and dividend growth. The Company's strategy
remains focused on profitable top-line growth, primarily through acquisitions
and new product introductions and continuous margin improvements through cost
compression initiatives. The Company continues to refine and execute its
previously announced long-term strategic plan, the underlying goal of which is
to improve profitability and enhance shareholder value.
On July 27, 1998, as part of the Company's on-going strategic review, the
Company announced the divestiture of the its Vegetables segment to Agrilink
Foods, Inc. ("Agrilink"). On September 23, 1998, the transaction closed for cash
consideration of $378.2 million, a $30.0 million Agrilink subordinated note and
Agrilink's aseptic foods business, which has been valued at $80.2 million.
Vegetables segment results of operations are presented as discontinued
operations in the financial statements and other financial information presented
in this Annual Report on Form 10-K.
BUSINESS ACQUISITIONS
Acquisitions have been and continue to be an important factor in the
Company's strategy and continued growth. The Company's acquisition strategy is
to focus on food companies having a well-established reputation for quality
products and services that meet selected financial criteria, including return on
invested capital and market value added. The Company continues to take advantage
of industry consolidation trends, specifically within the dairy segment, and to
focus on companies that can provide significant operating efficiencies. The
Company has completed 26 acquisitions in the last five years. These companies,
businesses and assets were acquired for cash, installment notes or a combination
thereof, except for the fiscal 1999 acquisitions of U.C. Milk Company and
Berkeley Farms, which were stock purchases. The listing below summarizes the
acquisitions completed by fiscal year:
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FISCAL YEAR 1999
Alta Dena Certified Dairy, a dairy
processor........................... City of Industry, California
Berkeley Farms, a dairy processor...... Hayward, California
U.C. Milk Company, a dairy processor... Madisonville, Kentucky
Barber Dairy, a dairy processor........ Birmingham, Alabama
Hillside Dairy, a dairy processor...... Cleveland Heights, Ohio
R.G. Clark, a dairy distributor........ Paducah, Kentucky
Modern Dairy, a dairy distributor...... Ashland, Kentucky
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Ice Cream Products, an ice cream
distributor......................... Columbia, South Carolina
Custom Food Processors International, a
dry ingredients processor........... New Hampton, Iowa
FISCAL YEAR 1998
Purity Dairies, a dairy processor...... Nashville, Tennessee
Coburg Dairy, a dairy processor........ Charleston, South Carolina
Dairy business of American Stores Buena Park, Escondido, San Leandro and
Company (Lucky Stores).............. Sacramento, California
Wengert's Dairy, a dairy processor..... Lebanon, Pennsylvania
Sani-Dairy Division of Penn Traffic
Company, a dairy processor.......... Johnstown, Pennsylvania
Maplehurst Dairy, a dairy processor.... Indianapolis, Indiana
H. Meyer Dairy Company, a dairy
processor........................... Cincinnati, Ohio
Milk Products LLC, a dairy processor... Albuquerque, New Mexico and El Paso,
Texas
Schwartz Pickle Company, a refrigerated
pickles processor................... Chicago, Illinois
Marie's Salad Dressing, a processor of
salad dressings and vegetable
dips................................ Thornton, Illinois
FISCAL YEAR 1997
Tri-State Dairy, Inc., a dairy
processor........................... Miami, Florida
Meadows Distribution Co., Inc., an ice
cream and frozen foods
distributor......................... Batavia, Illinois
FISCAL YEAR 1996
Norcal Crossetti Foods, Inc., a frozen
vegetable and fruit processor....... Watsonville, California
Paramount Foods, Inc., a pickle
processor........................... Louisville, Kentucky
Rod's Food Products, a specialty foods
processor of aerosol toppings and
extended shelf life products........ City of Industry, California
FISCAL YEAR 1995
Gold Star Dairy, a dairy processor..... Clovis, New Mexico
Rio Grande Foods, Inc., a frozen
vegetable processor................. McAllen, Texas
</TABLE>
Subsequent to end of fiscal 1999, the Company completed the acquisitions of
Steinfeld's Products Company, a pickle processor located in Portland, Oregon,
and Dairy Express, Inc., a dairy distributor located in the Philadelphia area,
for cash consideration.
BUSINESS SEGMENTS
Information regarding the Company's Dairy, Pickles and Specialty business
segments for the last three fiscal years is set forth in the Company's Fiscal
1999 Annual Report (Exhibit 13a hereto) at page 35 in Note 15 to the
consolidated financial statements. Such information, excluding the first
sentence of such note, is hereby incorporated herein by reference.
Dairy 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 one of the two largest fluid
milk processors in the United States. Although industry
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data is not available, the Company estimates that it has a 12% 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. The
Company also produces and distributes organic dairy products, which include a
wide variety of homogenized and pasteurized milk and cultured products.
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 Midsouth, in
parts of the Southeastern, Southwestern and Rocky Mountain states, parts of
Pennsylvania and New York, California and Mexico.
In addition to the strong Dean's brand in the Midwest and Midsouth, fluid
milk and cultured dairy products are sold in various areas under
well-established labels such as Alta Dena, Barber's, Berkeley Farms, Coburg,
Cream o'Weber, Creamland, Gandy's, Maplehurst, Mayfield, McArthur, Meadow Brook,
Price's, Purity, Reiter, T.G. Lee, Verifine and Wengert's. 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. Fiscal 1999 and 1998
major capital expenditures included the new and continued installation of small
plastic bottle (Milk Chugs) filling lines at plants located in Alabama,
California, Illinois, Pennsylvania and Utah. Fiscal 1999 expenditures also
included costs associated with new wrap-around labeling equipment at its Florida
dairy plants, cooler expansion at its Sharpsville, Pennsylvania facility, as
well as costs associated with production consolidation at its Southwest
facilities. Fiscal 1998 expenditures also included costs associated with the
completion of the new fluid milk plant in Braselton, Georgia, which began
production during the second quarter. Major capital expenditures in fiscal 1997
included the initial construction of the new Braselton, Georgia, fluid milk
processing plant, 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 installation of a small plastic bottle
filling line 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.
Sales of fluid milk and cultured products to unaffiliated customers for the
fiscal years 1999, 1998 and 1997 were $2,351 million, $1,574 million and $1,386
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, low-fat 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, California, parts of the Rocky Mountain states,
Pennsylvania, New York, California and Mexico. Such brands include Dean's,
Dean's Country Charm, Alta Dena, Bud's of San Francisco, Barber's, Berkeley
Farms, Creamland, Cream o'Weber, Gandy's, Price's, Purity, Fitzgerald,
Fieldcrest, Mayfield, 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.
Fiscal 1999 and 1998 capital expenditures included the purchase and
installation of frozen novelties vending machines in the Midsouth. Capital
expenditures during fiscal 1999 also included freezer expansion at its
Birmingham, Alabama facility and the purchase of freezer equipment at the
Company's Athens, Tennessee facility. Fiscal 1998 capital expenditures also
included the expansion of an ice cream storage facility. Capital
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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.
Sales to unaffiliated customers for the fiscal years 1999, 1998 and 1997
were $467 million, $332 million and $261 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
dairy creamers, aerosol whipped creams and non-dairy toppings, coffee creamers,
flavored milks and lactose-reduced milks.
Extended shelf life 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. Fiscal 1999 capital expenditures included a small bottle
production line and costs associated with a new cooler. Capital expenditures in
fiscal 1998 included investment in a new high-temperature processor and cooler
expansion at its Murray, Kentucky plant. In fiscal 1997, the Company divested
its Ready Foods plant in Philadelphia, Pennsylvania and consolidated production
into the 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.
Sales of extended shelf life products to unaffiliated customers for fiscal
1999, 1998 and 1997 were $167 million, $147 million and $141 million,
respectively.
Pickles 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, Peter Piper,
Rainbo, Roddenbery, Schwartz's and Steinfeld's. Branded and private label
products are marketed and distributed to retail grocery store chains,
wholesalers and the foodservice industry and in bulk to other food processors.
During fiscal 1999, the Company closed its Croswell, Michigan plant and
consolidated production into existing facilities and continued to modernize its
remaining manufacturing facilities. Fiscal 1999 capital expenditures include
costs to further automate pickle production at the Faison, North Carolina
facility. Capital expenditures in fiscal 1998 included the investment in
non-fermenting processing equipment, a new water treatment system and banana
pepper handling equipment. During fiscal 1997 the Company closed its Eaton
Rapids, Michigan plant and consolidated production, similar to the Croswell,
Michigan closure. 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
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.
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Sales to unaffiliated customers for the fiscal years 1999, 1998 and 1997
were $364 million, $349 million and $371 million, respectively.
Specialty Segment
Powdered Products
Non-dairy coffee creamers have been the Company's principal powdered
products. However, as a result of the fiscal 1999 acquisition of a New Hampton,
Iowa manufacturing facility, the Company's capabilities have been extended into
shortening powders and other high fat formulas used in baking, beverage mixes,
gravies and sauces. Core business remains premium and low-fat powdered products
sold primarily under private labels to vending operators, office beverage
service companies and institutional foodservice distributors with national
distribution to 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.
As the Company continues to grow its non-dairy creamer business, during
fiscal 1999 the Company entered into the nutritionally-based products market.
The nutritional beverage operations were acquired in conjunction with the
Vegetables segment disposition, which was sold to Agrilink Foods, Inc. on
September 23, 1998. In entering the nutritional beverage the Company will
leverage its private label expertise and launch beverages in the meal
supplement, weight loss and sports categories.
The Company, through an affiliate, provides stabilizers and other dry
ingredients to the United Kingdom, Continental Europe and other foreign markets.
There were no major capital expenditures during fiscal 1999. Fiscal 1998
and fiscal 1997 capital expenditures included the construction of a new dryer in
Wayland, Michigan, which began operation during the third 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 1995.
Sales to unaffiliated customers for the fiscal years 1999, 1998 and 1997
were $176 million, $161 million and $153 million, respectively.
Salad Dressings, Dips, Sauces and Puddings
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 that supply restaurants, schools, hotels and other segments of the
foodservice industry. In conjunction with the disposition of its Vegetables
segment, the Company also acquired an aseptic foods business from Agrilink. The
Agrilink acquisition both complements and supplements the Company's established
aseptic operation.
The Company manufactures vegetable-fat-based snack 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 direct
warehouse delivery. Dean's brand vegetable-fat-based dips, available in regular,
low-fat and non-fat varieties, have the leading market position nationwide. 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, which are marketed in the
produce section of supermarkets. Dean's dips and Marie's refrigerated salad
dressings are the leading brand names in their respective categories. Marie's
dips are the second leading produce dip. 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
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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 and Chivo brand
names and a number of private labels.
Capital expenditure during fiscal 1999 included a small-pouch filler line
at the Company's subsidiary in Dixon, Illinois. Fiscal 1998 capital expenditures
included receiving room upgrades at the Company's City of Industry, California
facility. There were no major capital expenditures during fiscal years 1997 and
1996. Major capital expenditures in fiscal 1995 included a multi-phase project
to significantly upgrade the Dixon, Illinois facility with the completion of a
new batch make-up room.
Sales to unaffiliated customers for the fiscal years 1999, 1998 and 1997
were $199 million, $147 million and $122 million, respectively.
DFC Transportation
DFC Transportation Company, a transportation and logistics subsidiary of
the Company, operates nationwide with a fleet of approximately 130 tractors and
265 trailers, providing less-than-truckload refrigerated and frozen cartage
service. Its customers include food and industrial companies. A significant
portion of its revenues is derived from the brokerage of various types of
freight.
Revenues from unaffiliated customers were $32 million in fiscal year 1999
and $27 million in each of the fiscal years ended 1998 and 1997. 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 generally does not have
long-term purchase contracts for agricultural products. The price of raw milk is
extensively regulated. Early fiscal 1999 raw milk costs were higher in
comparison to the same period of the prior year and continued to increase to
record high levels by the end of the third quarter and beginning of the fourth
quarter. Costs fell sharply during the last two months of the fourth quarter of
fiscal 1999 to a level below fiscal 1998 year-end costs. Raw milk costs during
the first half of fiscal 1998 were significantly lower in comparison to the same
period in fiscal 1997; raw milk costs rose during the last half of fiscal 1998
to a level above the same period in the prior year. Raw milk costs peaked at
then 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. Early
indications are that raw milk costs will rise significantly during the second
quarter of fiscal 2000; however, average raw milk costs in fiscal 2000 are
expected to be comparable to or below fiscal 1999 costs.
The Company produces most of its plastic gallon and half-gallon container
requirements for its fluid milk business. Glass containers for pickles and
related products are purchased from one main supplier.
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 cucumbers purchased under seasonal grower contracts.
The Company is confident that any lost supplier requirements could be replaced
in the ordinary course of business.
In its Pickles 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.
Favorable volume from Midwest crops helped offset higher cost crops from
Mexico and the South during fiscal 1999. As a result fiscal 1999 cucumber costs
approximated fiscal 1998 costs. Although Southeast crops were late and short of
expectations due to adverse growing conditions, fiscal 1998 cucumber costs
approximated fiscal 1997 costs. Fiscal 1997 cucumber costs approximated fiscal
1996 costs. Due to drought conditions in some regions of the United States,
fiscal 2000 cucumber costs are expected to be slightly higher than fiscal 1999
costs.
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DISTRIBUTION
Dairy products are principally delivered to grocery chain stores or
warehouses directly from the Company's processing plants by the Company, in
trucks that 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 Pickles and
Specialty products are delivered to warehouses and food distributors by the
Company's fleet of trucks and outside freight carriers.
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 several 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 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 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 employs approximately 13,600 employees (12,300 full-time).
Approximately 5,600 employees are represented by the International Brotherhood
of Teamsters and other unions under sixty-three collective bargaining
agreements. Eight of these agreements expire during fiscal 2000. Generally, the
Company considers its employee relations to be good.
The Company has approximately 1,100 seasonal positions at its pickle
processing plants, principally during the summer months. At times, the Company
has experienced difficulties in meeting seasonal employee needs. A number of
strategies have been employed to retain seasonal employees including incentive
programs and employee sharing programs.
ENVIRONMENT
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 continues to
give considerable attention to the impact or potential impact of its operations
on the environment.
ITEM 2. PROPERTIES.
The Company owns sixty of its processing plants (three of which are subject
to mortgage) and leases the other four under leases expiring from fiscal 2000
through fiscal 2007. 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. 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
1999 Annual Report (Exhibit 13a hereto) on page 32. 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:
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DAIRY
Fluid Milk and Cultured Products
Birmingham, Alabama Evart, Michigan
Mobile, Alabama Albuquerque, New Mexico
Buena Park, California Barberton, Ohio
City of Industry, California Cincinnati, Ohio
Escondido, California Cleveland Heights, Ohio
Hayward, California Springfield, Ohio
San Leandro, California Belleville, Pennsylvania
Sacramento, California Erie, Pennsylvania
Miami, Florida Lebanon, Pennsylvania
Orange City, Florida Sharpsville, Pennsylvania
Orlando, Florida North Charleston, South
Carolina
Braselton, Georgia Athens, Tennessee
Chemung, Illinois Nashville, Tennessee
Huntley, Illinois El Paso, Texas
Rockford, Illinois Lubbock, Texas
Rochester, Indiana Salt Lake City, Utah
Louisville, Kentucky Sheyboygan, Wisconsin
Madisonville, Kentucky
Ice Cream and Frozen Desserts
Birmingham, Alabama Albuquerque, New Mexico
Buena Park, California Athens, Tennessee
City of Industry, California Nashville, Tennessee
Belvidere, Illinois Barberton, Ohio
Extended Shelf Life
Jacksonville, Florida Murray, Kentucky
PICKLES
Pickles, Relishes and Specialty Items
Atkins, Arkansas Plymouth, Indiana
LaJunta, Colorado Faison, North Carolina
Sanford, Florida Portland, Oregon
Cairo, Georgia Green Bay, Wisconsin
Chicago, Illinois
SPECIALTY
Powdered Products
Pecatonica, Illinois Wayland, Michigan
Rockford, Illinois Abingdon, Oxon, United Kingdom
New Hampton, Iowa
Salad Dressings, Dips, Sauces and Puddings
City of Industry, California Thornton, Illinois
Dixon, Illinois Benton Harbor, Michigan
Rockford, Illinois
</TABLE>
Distribution branches for the Dairy segment are located in Alabama,
California, Florida, Georgia, Illinois, Indiana, Kentucky, Nevada, New Mexico,
New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas,
and West Virginia.
Distribution warehouses for the Pickles and Specialty segments are
maintained adjacent to many processing plants. The Company maintains powdered
product warehouses utilized throughout the United States.
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ITEM 3. LEGAL PROCEEDINGS.
Information on legal proceedings is contained in the Company's Fiscal 1999
Annual Report (Exhibit 13a hereto) on page 34 in Note 14 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 30, 1999.
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 1999 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 6, 1999 was 8,622.
Restrictions on the Company's ability to pay dividends on its Common Stock
are described in the seventh paragraph of Note 5 to the consolidated financial
statements at page 30 of the Company's Fiscal 1999 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 1999 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 17 through 21 of the Company's Fiscal 1999
Annual Report (Exhibit 13a hereto) under the caption "Financial Review", which
discussion is hereby incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information set forth at page 21 of the Company's Fiscal 1999 Annual
report (Exhibit 13a hereto) under the caption "Quantitative and Qualitative
Disclosures about Market Risk" is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's consolidated balance sheets as of May 30, 1999 and May 31,
1998 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 30,
1999, and the notes thereto, together with the report thereon of independent
accountants, are set forth on pages 22 through 38 of the Company's Fiscal 1999
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 1999 Annual Report (Exhibit 13a hereto) in the rows captioned
"Net Sales", "Gross Profit", "Income from Continuing Operations", "Net Income"
and "Per Common Share Data: Basic Income (Loss) Per Share and Diluted Income
(Loss) Per Share". 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
28, 1999) is set forth at pages 2 through 7 of the Company's 1999 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>
Eric A. Blanchard............... Vice President and President, 43 1999
Dairy Division
Jenny L. Carpenter.............. Group Vice President, Specialty 53 1995
Business Unit
Gary A. Corbett................. Vice President, Governmental and 51 1993
Dairy Industry Relations
Daniel M. Dressel............... Vice President, Human Resources 56 1999
Neil J. Finerty................. Vice President, Industrial 54 1997
Relations
Gary D. Flickinger.............. Vice President, Manufacturing 57 1993
and Engineering
Daniel E. Green................. Vice President, Special Projects 54 1999
and Acquisition Integration
James R. Greisinger............. Group Vice President and 58 1992
President, Dean Pickle and
Specialty Products Company
Cameron C. Hitchcock............ Treasurer 37 1997
Alan W. Hooper.................. Vice President, Special 50 1997
Operation Projects
Dale E. Kleber.................. Vice President, Secretary and 43 1999
General Counsel
William M. Luegers, Jr. ........ Corporate Controller 45 1997
William R. McManaman............ Vice President, Finance and 52 1996
Chief Financial Officer
George A. Muck.................. Vice President, Research and 61 1970
Development
Kevin M. Nemetz................. Group Vice President, Specialty 43 1999
Business Unit
Luis P. Nieto................... Vice President, Business 44 1999
Strategy
Douglas A. Parr................. Vice President, Dairy Sales and 57 1993
Marketing
Dennis J. Purcell............... Group Vice President and 56 1993
President, Specialty Business
Unit
Gary P. Rietz................... Chief Information Officer 43 1997
</TABLE>
12
<PAGE> 13
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 28, 1999.
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. Dressel, Mr. Finerty, Mr. Hitchcock, Mr. Luegers, Mr. Nemetz, Mr. Nieto, Mr.
McManaman and Mr. Rietz. Prior to assuming their current positions,
- Mr. Blanchard was a Company Vice President and 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 Group Vice President and President-Ryan Foods Company;
- Mr. Greisinger was a Company Vice President and President of Dean Pickle
and Specialty Products Company;
- Mr. Hooper was the Company's Director of Strategic Projects;
- 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. Dressel was employed by the Company during fiscal 1999. Mr. Dressel,
prior to his employment with the Company, was Vice President -- Human Resources
at Kraft Foods, Inc., 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 the 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 his employment by the Company, was the Vice President -- Finance of
Brunswick Corporation, a diversified marine and recreational products company.
Mr. Nemetz has been employed by the Company since 1998. Mr. Nemetz, prior
to his employment with the Company, was Manager -- Sales and Marketing Strategy
in the Strategic Consulting Division of PricewaterhouseCoopers, a professional
services firm.
Mr. Nieto was employed by the Company during fiscal 1999. Prior to assuming
his present duties, he was Vice President-Marketing of the Specialty business
unit. Mr. Nieto, prior to his employment with the Company, was
Director -- Ethnic Marketing of Kraft Foods, Inc., a diversified food company.
Mr. Rietz was employed by the Company in 1997. Mr. Rietz, 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 28, 1999) is set forth in the Company's 1999
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 1999 Proxy Statement at page 19 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.
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
(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.
(1) Financial Statements
The consolidated balance sheets at May 30,
1999 and May 31, 1998, and 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 30, 1999, and the notes thereto, together
with the report thereon of
PricewaterhouseCoopers LLP dated June 28, 1999,
as incorporated by reference in Part II, Item 8
of this Report.
(2) Financial Statement Schedules
Report of independent accountants on
financial statement schedules 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 30, 1999, 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.
None were filed.
</TABLE>
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 27, 1999
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:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
HOWARD M. DEAN Chairman of the Board August 27, 1999
- --------------------------------------------------- and Director
Howard M. Dean
RICHARD E. BAILEY President and Director August 27, 1999
- ---------------------------------------------------
Richard E. Bailey
EDWARD A. BRENNAN Director August 27, 1999
- ---------------------------------------------------
Edward A. Brennan
LEWIS M. COLLENS Director August 27, 1999
- ---------------------------------------------------
Lewis M. Collens
PAULA H. CROWN Director August 27, 1999
- ---------------------------------------------------
Paula H. Crown
JOHN P. FRAZEE, JR. Director August 27, 1999
- ---------------------------------------------------
John P. Frazee, Jr.
BERT A. GETZ Director August 27, 1999
- ---------------------------------------------------
Bert A. Getz
JANET HILL Director August 27, 1999
- ---------------------------------------------------
Janet Hill
JOHN S. LLEWELLYN, JR. Director August 27, 1999
- ---------------------------------------------------
John S. Llewellyn, Jr.
RICHARD P. MAYER Director August 27, 1999
- ---------------------------------------------------
Richard P. Mayer
ANDREW J. MCKENNA Director August 27, 1999
- ---------------------------------------------------
Andrew J. McKenna
THOMAS A. RAVENCROFT Senior Vice President August 27, 1999
- --------------------------------------------------- and Director
Thomas A. Ravencroft
</TABLE>
16
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of Dean Foods Company:
Our audits of the consolidated financial statements referred to in our
report dated June 28, 1999 appearing in the Annual Report to Shareholders of
Dean Foods Company (which report and consolidated financial statements are
incorporated by reference in the Annual Report on Form 10-K) also included an
audit of the financial statement schedules listed in Item 14(a)(2) of this Form
10-K. In our opinion, these financial statement schedules present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Chicago, Illinois
June 28, 1999
17
<PAGE> 18
DEAN FOODS COMPANY AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
AMOUNT
CHARGED
BALANCE AT (CREDITED) ACCOUNTS ADDITIONS BALANCE AT
BEGINNING OF TO COSTS AND WRITTEN DUE TO END
CLASSIFICATION PERIOD EXPENSES OFF ACQUISITIONS OF PERIOD
-------------- ------------ ------------ -------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended May 30, 1999
Allowance for doubtful
accounts and notes
receivable........................... $4,212 $1,410 $1,302 $3,250 $7,570
====== ====== ====== ====== ======
Fiscal Year Ended May 31, 1998
Allowance for doubtful
accounts and notes
receivable........................... $3,085 $2,790 $2,822 $1,159 $4,212
====== ====== ====== ====== ======
Fiscal Year Ended May 25, 1997
Allowance for doubtful
accounts and notes
receivable........................... $2,691 $ 846 $ 452 $ -- $3,085
====== ====== ====== ====== ======
</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.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
- ------- ----------- --------
<S> <C> <C>
(3) Articles of Incorporation and By-Laws
a. Dean Foods Company Restated Certificate of
Incorporation dated February 8, 1988 as amended
September 29, 1998 (filed as Exhibit 3(a) to
Registrant's Form 10-Q Quarterly Report for
quarterly period ended August 30, 1998 and
incorporated herein by reference)
b. By-Laws of Registrant, as amended May 22, 1998 (filed
as Exhibit 4(a) to the Registrant's Form 10-K Annual
Report for the Fiscal Year Ended May 31, 1998 and
incorporated herein by reference)
(4) Instruments defining the rights of security holders, including
indentures
c. Rights Agreement dated May 22, 1998 (filed as Exhibit
4(a) to the Registrant's Form 10-K Annual Report for
the Fiscal Year Ended May 31, 1998 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
Annua 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)
</TABLE>
<PAGE> 20
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
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. $500 million Credit Agreement dated as of March 31,
1998 (filed as Exhibit 10(i) to Registrant's Form 10-K
Annual Report for Fiscal Year Ended May 31, 1998 and
incorporated herein by reference)
(11) Computation of Basic and Diluted Income Per Share 21
(12) Computation of Ratio of Earnings to Fixed Charges 22
(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 30, 1999 23-62
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 30, 1999 is
not to be deemed filed as part of this Report.
(21) Subsidiaries of the Registrant
a. Subsidiaries of the Registrant as of May 30, 1999 63
(23) Consents of Experts and Counsel
a. Consent of Independent Accountants dated August 27,
1999 64
(27) Financial Data Schedules
a. Fiscal Year Ended May 30, 1999 65
</TABLE>
<PAGE> 1
EXHIBIT 11
Dean Foods Company and Subsidiaries
Computation of Basic and Diluted Income Per Share
(In thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income from Continuing Operations $ 70,331 $ 87,980 $ 73,988
Income (Loss) from Discontinued Operations (2,929) 18,322 12,716
Gain on Sale of Discontinued Operations 83,820 -- --
---------- ---------- ----------
Net Income $ 151,222 $ 106,302 $ 86,704
========== ========== ==========
BASIC INCOME (LOSS) PER SHARE:
Income from Continuing Operations $ 1.77 $ 2.17 $ 1.84
Income (Loss) from Discontinued Operations (.07) .46 .32
Gain on Sale of Discontinued Operations 2.10 -- --
---------- ---------- ----------
Net Income $ 3.80 $ 2.63 $ 2.16
========== ========== ==========
Weighted average common shares outstanding 39,842 40,469 40,181
========== ========== ==========
DILUTED INCOME (LOSS) PER SHARE:
Income from Continuing Operations $ 1.74 $ 2.13 $ 1.83
Income (Loss) from Discontinued Operations (.07) .44 .32
Gain on Sale of Discontinued Operations 2.07 -- --
---------- ---------- ----------
Net Income $ 3.74 $ 2.57 $ 2.15
========== ========== ==========
Adjusted weighted average common shares* 40,482 41,395 40,377
========== ========== ==========
</TABLE>
* Includes weighted average number of potential common shares outstanding.
Potential common shares consist solely of the outstanding options under the
Company's stock options plan.
<PAGE> 1
EXHIBIT 12
Dean Foods Company and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
FISCAL YEARS ENDING MAY
----------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing operations
before taxes $115,297 $143,730 $124,529 $(15,586) $100,582
----------------------------------------------------------------
Fixed charges:
Interest expense 39,098 21,101 15,071 16,316 13,298
Portion of rentals (33%) 13,916 10,758 8,417 8,735 6,772
----------------------------------------------------------------
Total fixed charges 53,014 31,859 23,488 25,051 20,070
----------------------------------------------------------------
Earnings from continuing operations before
taxes and fixed charges $168,311 $175,589 $148,017 $ 9,465 $120,652
================================================================
Ratio of earnings to fixed charges 3.2 5.5 6.3 0.4(*) 6.0
================================================================
</TABLE>
(*) The Fiscal 1996 Ratio of Earnings to Fixed Charges and "Income (Loss) from
Continuing Operations before Taxes" includes the effect of a pre-tax
special charge to earnings of $102.4 million.
<PAGE> 1
EXHIBIT 13a
DEAN FOODS
COMPANY [LOGO]
FINANCIAL HIGHLIGHTS
<PAGE> 2
FISCAL 1999
SEGMENT COMPARISON
NET SALES
DAIRY 79%
SPECIALTY 11%
PICKLES 10%
OPERATING EARNINGS*
DAIRY 50%
SPECIALTY 29%
PICKLES 21%
*Operating Earnings before plant closure charges and excluding
corporate expenses.
DEAN FOODS COMPANY
In thousands, except for items marked with an*
OPERATIONS
Net Sales
Operating Earnings
Income from Continuing Operations
Net Income
COMMON STOCK DATA*
Income from Continuing Operations
per Diluted Share
Net Income per Diluted Share
Dividend Rate per Share
YEAR-END POSITION
Working Capital
Identifiable Assets
Long-Term Obligations
Shareholders' Equity
Shares Outstanding
OTHER DATA*
Production Plants
Employees
Shareholders
<PAGE> 3
1999 1998 1997
---------- ---------- ----------
$3,755,148 $2,735,834 $2,460,563
---------- ---------- ----------
$ 153,338(a) $ 16,2519 $ 138,671
---------- ---------- ----------
$ 70,331(a) $ 87,980 $ 73,988
---------- ---------- ----------
$ 151,222(a) $ 106,302 $ 86,704
---------- ---------- ----------
$ 1.74(a) $ 2.13 $ 1.83
---------- ---------- ----------
$ 3.74(a) $ 2.57 $ 2.15
---------- ---------- ----------
$ .84 $ .80 $ .76
---------- ---------- ----------
$ 142,652 $ 67,324 $ 64,988
---------- ---------- ----------
$1,911,876 $1,319,152 $ 820,825
---------- ---------- ----------
$ 631,286 $ 558,233 $ 208,931
---------- ---------- ----------
$ 716,414 $ 619,266 $ 567,681
---------- ---------- ----------
39,276 39,970 40,284
---------- ---------- ----------
59 52 37
---------- ---------- ----------
13,600 11,200 8,300
---------- ---------- ----------
8,469 8,690 8,838
---------- ---------- ----------
(a) 1999 continuing operations results include a pre-tax charge of $18,105
($11,044 after-tax, or $.27 per diluted share) related to plant closures.
1999 net income includes $83,820 ($2.07 per diluted share) from the gain on
the sale of discontinued operations, net of income taxes.
C O N T E N T S
Letter to Shareholders 2
Dairy Segment Review 6
Pickles Segment Review 12
Specialty Segment Review 14
Financial Review 17
Financial Statements 22
Notes to Financial Statements 27
Board of Directors and Officers 39
Corporate Data 40
1
<PAGE> 4
LETTER TO SHAREHOLDERS
In a year highlighted by
innovative ideas, strategic
acquisitions and our continuing
philosophy that consumer focus
and quality products enhance
shareholder value, we reported
a record $3.8 billion in revenues.
TO OUR SHAREHOLDERS:
Over the past few years, we have shared with you our business strategies and how
they relate to our four key constituencies: shareholders, customers, employees
and consumers. Our 1999 Annual Report focuses on the consumer and our efforts in
satisfying consumer needs while maintaining the highest quality product and
enhancing shareholder value.
Fiscal 1999 was a year of transition for Dean Foods Company. During the year, we
completed a total of nine acquisitions in our Dairy and Specialty segments, and
we finalized the divestiture of the Vegetables business. We faced the highest
raw milk costs in history and the greatest volatility. The year was also marked
by further consolidation in the dairy industry and even more rapid consolidation
of food retailers. While fiscal 1999 was not without its challenges, we believe
the actions we took during the year leave us poised to benefit from these
consolidation trends.
We made several significant moves during the year to better position ourselves
for the future. We continued our aggressive pace of dairy acquisitions by
strategically expanding our market reach into the western United States. Among
the dairy acquisitions completed during fiscal 1999 were Berkeley Farms and Alta
Dena, two well-established brand-name dairies serving California.
2
<PAGE> 5
Milk Chug production lines were installed at Berkeley Farms, and Chugs, the most
exciting dairy product to be introduced in the last fifty years, were rolled out
to the California market this past June. Our innovative Milk Chugs are now
available throughout our dairy marketing areas.
During this fiscal year, we consolidated nine dairy plants. Our strategy was to
move quickly and efficiently to strategically position ourselves for the
future as the premier processor and low-cost producer of fluid milk nationwide.
We believe the plant efficiencies and economies of scale gained from these
decisions will significantly benefit our results in the upcoming year and
beyond.
In both the Pickles and Specialty segments, key acquisitions, new product and
packaging developments, and increased marketing efforts have helped to drive
improved operating results and strengthen our market position and penetration.
These activities, along with aggressive cost compression programs, position Dean
Foods for an opportunistic future in these two segments.
All of our constituencies demand the highest quality of service we can provide.
We are constantly focusing our efforts on better understanding consumer needs
and on how to provide convenient, on-the-go, consumer-friendly products. The
HOWARD M. DEAN RICHARD E. BAILEY
Chairman of the Board and President and
Chief Executive Officer Chief Operating Officer
3
<PAGE> 6
LETTER TO SHAREHOLDERS
As we look forward to our
75th anniversary on the
eve of the new millennium,
we see a future full of new
opportunities and innovations.
"You can taste
how much we care!"
management of Dean Foods remains committed to the following key strategies:
achieving profitable growth, increasing return on invested capital and
maximizing shareholder value. We want Dean Foods to be the consumer's "product
of choice."
During fiscal 1999, we invested heavily in our operations, especially in Dairy,
reflecting our commitment to introducing innovative new products, such as the
Chug. Additionally, we have recently launched "Project Destiny," a company-wide
initiative to upgrade and integrate information systems across the supply chain.
As we continue to grow internally and through acquisitions, it is obvious that
we must be ready for the information demands of a consolidating customer base
and industry. Additionally, our LIFT (Leveraging Ideas for Tomorrow) cost
compression teams reported further successes, helping to reduce costs throughout
the Company during 1999. These value-added teams will continue to drive this
effort going forward.
At Dean Foods, we recognize that it is our employees who create value. We are
committed to continually investing in employee growth and development, both as
individuals and as teams, and are working to create an environment that is
supportive of every employee. We recognize that excellent companies value and
foster a diverse organization. Our goal is to be a well-focused,
results-oriented organization that is ready for the challenges of the 21st
century.
4
<PAGE> 7
As part of our overall succession planning, several management changes were
announced over the past year. Eric Blanchard, who previously directed the
Company's merger and acquisition efforts, was named President of the Dairy
segment, responsible for sales and marketing of that group. Concurrently, Thomas
Ravencroft, Senior Vice President, assumed responsibility for business
development, including mergers and acquisitions. Gary Flickinger was given
responsibility for the entire supply chain across the Dairy and Specialty
segments; Kevin Nemetz was named Vice President, General Manager of the Food
Products business; and Dale Kleber assumed the position of Vice President,
Secretary and General Counsel. Additionally, in July 1999, Luis Nieto was
elected Vice President of Business Strategy. We believe these moves further
strengthen our industry leadership and better position Dean Foods for the
future.
Looking ahead to fiscal year 2000, which will be the 75th anniversary of the
founding of Dean Foods Company, we foresee various challenges as part of the
competitive landscape. We are confident of the soundness of our business
strategy and that we have the strength and flexibility to adapt to an
ever-changing marketplace. In preparing to meet the issues of tomorrow, we
remain convinced that the new millennium will bring unparalleled opportunity.
[SIG] [SIG]
Howard M. Dean Richard E. Bailey
Chairman of the Board and President and
Chief Executive Officer Chief Operating Officer
August 6, 1999
5
<PAGE> 8
DAIRY SEGMENT
Consumers continue to spend
less time shopping, preparing
food or even thinking about their
next meal. Providing products
that appeal to today's
on-the-go consumer
is a major opportunity for Dean
Foods. We are developing healthy,
convenient products designed for
the faster-paced lifestyle of
today's shopper. Our focus is on
providing consumer value in every
product that we offer.
The Dairy segment enhanced its position as the nation's leading processor of
fluid milk, while also strengthening its market leadership in several key
geographic areas during fiscal 1999. The Dairy group generated record revenues
of $3.0 billion during the year. The group was challenged by a volatile
commodity environment and slower than anticipated realization of acquisition
benefits; however, our Dairy segment faces the future with high performance
expectations and a more focused vision.
FLUID MILK Fiscal 1999 was a year of continued growth through acquisition and
extension of our Milk Chugs product line throughout all of our distribution
areas. We are very excited about our expansion into the California market with
the acquisitions of Berkeley Farms in the San Francisco Bay area and Alta Dena
in Southern California. Alta Dena gives us a consumer-trusted organic dairy
products brand. Alta Dena organic products include a wide variety of homogenized
and pasteurized milk and cultured dairy products, including Alta Dena yogurt
drinkables. Other new members of the Dean dairy family include Barber Dairies in
Birmingham, Alabama; U.C. Milk in Madisonville, Kentucky; and Hillside Dairy in
Cleveland Heights, Ohio.
6
<PAGE> 9
By the close of fiscal 1999, Milk Chugs were poised for introduction into the
populous California market, via our acquisitions of Berkeley Farms and Alta
Dena. We now have Milk Chugs in all of our markets and have added strawberry-
flavored milk to our Chug line-up. Our market research indicates that consumers
are flocking to Chugs as a desired snack or beverage replacement. To hasten
consumer commitment to Chugs as a healthy beverage of choice, Dean Foods has
become a nationwide sponsor of U.S. Youth Soccer and is aggressively providing
marketing support for the Chugs nationwide. We are particularly proud of two
"Best New Packaging" awards bestowed on the Chug bottle design.
One of our key initiatives during the year was to create a more
consumer-oriented direction without sacrificing our strategic focus of
profitable growth through acquisitions and continuous cost improvements. Our
Milk Chugs product continued to be a prime example of this commitment to meeting
the needs of a changing consumer.
Before Milk Chugs, on-the-go consumers found it difficult to readily include
milk in their diet on a daily basis. Partially
MILK WHERE
YOU WANT IT.
7
<PAGE> 10
as a result of existing packaging, people didn't think of milk as an everyday,
all-occasion beverage - it was simply not "on the menu" at the times when people
were thirsty or at the locations where they purchased beverages. Milk Chugs,
with its cool, contemporary, portable, resealable package, pushed Dean Foods
into the forefront of the fluid milk industry by delivering a real benefit to
consumers - milk when and where they want it. We created a product that changed
the way consumers drink and think about milk.
We've touched consumers hearts and minds with highly publicized events,
including awarding a trip to Walt Disney World to a 12-year old who came closest
to guessing the number of Milk Chug bottles stuffed into a full-sized,
ad-wrapped Chicago city bus. Similarly, we also sponsored numerous "Chug Bug"
contests developed by several dairies in their markets using the hot new
Volkswagen Beetle. In addition, at a product sampling at a Pittsburgh youth
soccer tournament, a member of the U.S. Women's World Cup Championship team held
a clinic on our behalf. In short, we wanted to get our products into the hands
of as many
8
<PAGE> 11
people as possible in a way that created a strong brand association, and worked
to develop long-term Dean Foods customers and consumers.
We have also had an extremely favorable reaction in the Florida market from both
consumers and key retailers to our new wrap-around gallon label. The larger,
more visible label permits bigger and bolder graphics, which enhances our brand
positioning in the dairy case. Other benefits include a package that is easier
to hold and the ability to print marketing messages on the label, such as a
recent tie-in promotion offering milk and a popular sandwich cookie.
ICE CREAM Ice cream and fun are a natural combination. Although the industry
continues to be highly competitive, Dean's Country Charm ice creams capitalized
on fun with the continued introduction of unique "Really Cool Flavors."
Following the success of Moose Tracks and Pecan Caramel Turtle, we introduced
Caramel Caribou, Glacier Mint, Purple Passion and Banana Split. Quirky,
memorable advertising supported the new flavor launches, with strong results.
Fun flavor names and
colorful packaging
catch the consumer's eye in the
grocery store aisle --
but it's the taste and
quality of our products
that keep the consumer
coming back.
9
<PAGE> 12
DAIRY SEGMENT
Dean Foods is committed to being
the leader in the dairy industry.
Our dairy products appeal to
all ages -- from kids to senior
citizens. Whether it is strawberry-
flavored Milk Chugs, Purple Passion
ice cream, or whipping cream for
a holiday pie, Dean Foods is there.
In certain markets, we have moved to a new tapered, oval-shaped gallon container
which improves "scoopability" and is viewed by consumers as more contemporary.
Our ice cream and frozen dessert strategy focuses on the needs of our customers
for a total program of regionally branded and private label ice cream and
novelties, as well as an efficient distribution system to move the product to
the shelf in a timely fashion. At the same time, we are building a larger base
of brand-loyal consumers who have come to expect fun new flavors along with
superior taste.
Many of the sixteen dairy acquisitions completed over the last two years
included a significant ice cream business. As a result, we have almost doubled
our sales base and greatly expanded our geographic reach. This has presented a
challenging opportunity to consolidate certain regional brands and plant assets.
We are well along in this process and believe we will emerge with stronger
brands and more efficient operations.
EXTENDED SHELF LIFE Our extended shelf life business continues to grow and
expand through innovative
10
<PAGE> 13
packaging and technological initiatives. The product mix includes regional
brands and private label offerings of fresh and aerosol whipped cream,
half-and-half creamers, flavored milks, cottage cheese, sour cream,
lactose-reduced milk and non-dairy milk substitutes.
This division had a solid year, highlighted by a major technological
breakthrough achieved at our Murray, Kentucky facility. The new technology
enables us to bottle an aseptic product in plastic, portable, pint-sized bottles
with an extended shelf life. We are currently bottling a nationally-advertised
product utilizing this proprietary process. In the future, we hope to be able to
further penetrate this market for on-the-go consumer beverages and other fluids
using this upscale package.
Our Dairy group is committed to being the leader in the dairy industry. To do
so, we will use our consumer and product insight to find innovative ways to
continue to provide real consumer value.
11
<PAGE> 14
PICKLES SEGMENT
The Pickles segment experienced another successful year, reporting $364 million
in revenues. A strong first-year performance by the Schwartz Pickle Company,
acquired in May 1998, helped pace the excellent results in this business
segment. During fiscal 1999, Schwartz, the nation's largest supplier of
refrigerated pickle products to the foodservice industry, added to their already
significant market leadership in this popular category.
The Pickles group also improved the effectiveness of its trade promotions
management, and increased its ability to improve operating efficiencies across
the board. Both of these factors contributed significantly to the group's 1999
performance.
A state-of-the-art renovation of our Faison, North Carolina facility, which
produces Roddenbery and Cates brand pickles, substantially lowered operating
costs by utilizing automation and warehouse efficiencies to reduce labor and
improve productivity. Production consolidation, with the closing of the Michigan
plant, will further reduce costs and better utilize available capacity.
Picklevator(TM)
"It Brings the Pickles to You"
12
<PAGE> 15
The LIFT (Leveraging Ideas for Tomorrow) cost compression process has been
enthusiastically adopted by the Pickles group. Two of its plants have already
benefited from LIFT findings, and the team is currently in action at a third
plant.
Buoyed by highly positive consumer test research, our Pickles business unveiled
a radical new packaging innovation called the Picklevator(TM) in the Florida
area. Marketed under the Peter Piper label, and also offered to select accounts
nationally, the Picklevator(TM) features a serving basket inside the jar
enabling consumers to lift and remove pickles in a simpler, more sanitary
fashion. The package also features a clear film wrap-around label, which
improves product visibility and shelf appeal. Introduced this past May,
Picklevator(TM) packaging has been met with enthusiastic consumer response.
While the Pickles segment remains highly focused on market demands and consumer
needs, it also continues searching for ways to improve shareholder return by
aggressively reducing its asset base, utilizing its assets more efficiently and
further reducing costs.
The Picklevator(TM), a serving basket inside the jar that enables people to lift
and remove pickles easily, has been enthusiastically received by consumers since
its introduction this past year. Continual product innovation and new
acquisitions will ensure the Pickles segment's success rolling into the new
millennium.
13
<PAGE> 16
SPECIALTY SEGMENT
Dean Foods has become a dominant player in the specialty foods categories. We
continue to build our business through market expansion, developing innovative
products and acquiring successful food companies that add strength and diversity
to our operations.
The Specialty segment turned in a strong fiscal 1999 operating performance,
reporting a record $407 million in revenues, which was aided by the September
1998 acquisition of an aseptic foods operation acquired in conjunction with the
disposition of our Vegetables business. This acquisition both complements and
supplements our established and successful Amboy Specialty Foods aseptic
operation. We have become the country's number one supplier of aseptic food
products.
Amboy Specialty Foods' strategy of developing and introducing new innovative
products and packaging helped drive this division to a record year. To meet
increased market demand, Amboy also added another production line at its Dixon,
Illinois facility. We are also prepared to launch the first flexible,
individual-portion aseptic package to the foodservice and food ingredient
markets. The new three-ounce package, under the Dean`s label, is believed to be
the first market introduction of this size.
In March 1999 we also acquired Custom Food Processors, an Iowa-based producer of
non-dairy creamers and other powdered products. This addition to the Dean family
fits strategically with
14
<PAGE> 17
"THE FRESHER. THE BETTER". "MARIE'S"
our three existing Food Products facilities. These operations primarily produce
non-dairy creamers and other ingredients for use with coffee, tea and other
beverages. Dean Foods is the number one non-dairy creamer supplier across all
channels: retail, foodservice, institutional and international.
Food Products' strategy is to continue to grow our non-dairy creamer business,
while beginning to capitalize on consumer interest in functional foods, beverage
enhancements and improved baking ingredients. Specifically, we will offer
consumers a family of private label, nutritionally-based products, including
nutrition, weight loss and sport supplements. This introductory launch will
leverage our core competency of private label leadership and, given our
involvement in the three nutritional segments, afford us the opportunity for
category support and leadership. Consumers are expanding their taste into
cappuccinos, chai teas, frozen granitas and other cream-based products, all of
which position Food Products for foodservice and institutional leadership.
Our Dean Dip and Dressing business moved more forcefully into ethnic markets for
their products during the year. After
15
<PAGE> 18
SPECIALTY SEGMENT
extensive consumer testing, including focus groups and taste testing, we
introduced a new creamy taco dip. The new dip, sold under the Dean's label east
of the Rocky Mountains and under the Imo label west of the Rockies, joins the
Company's extremely popular guacamole dip, introduced last year, as the
nationwide craze for Mexican foods and snack items continues.
This business holds the number one market position in the refrigerated salad
dressing category. To protect and expand that leadership, three new flavors of
Marie's salad dressings were rolled out with strong consumer acceptance during
the year.
Our EBI Foods affiliate, located in the United Kingdom, is a leading
manufacturer of food ingredient blends sold to industrial customers throughout
Europe, and to the Middle East, Far East and Africa.
Our DFC Transportation division provides transportation services for many Dean
Foods product lines, as well as serving the logistics needs of other premier
food companies.
16
<PAGE> 19
STRATEGIC DIRECTION
The Company's primary objective is the maximization of shareholder value through
long-term stock appreciation and dividend growth. The Company's strategy remains
focused on profitable top-line growth, primarily through acquisitions and new
product introductions and continuous margin improvements through cost
compression initiatives. The Company continues to refine and execute its
previously announced long-term strategic plan, the underlying goal of which is
to improve profitability and enhance shareholder value.
On July 27, 1998, as part of the Company's on-going strategic review, the
Company announced the divestiture of the Vegetables segment to Agrilink Foods,
Inc. ("Agrilink"). On September 23, 1998, the transaction closed for cash
consideration of $378.2 million, a $30.0 million Agrilink subordinated note and
Agrilink's aseptic foods business, which has been valued at $80.2 million. As a
result of the divestiture, the Vegetables segment operation results are
presented as a discontinued operation. The following management discussion and
analysis pertains to continuing operations and excludes the impact of fiscal
1999 plant closure charges, unless otherwise noted.
FINANCIAL OBJECTIVES AND STRATEGIES
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. Due to the quick turn of the Company's
current assets, which consist primarily of accounts receivable and inventory,
working capital investment is expected to be relatively moderate in the future.
CAPITAL INVESTMENTS
The Company's goal is to maintain and improve the productivity of its assets,
making capital investments which offer returns to the Company greater than its
weighted average cost of capital.
MODERATE AND PRUDENT USE OF DEBT
The Company maintains moderate debt levels considering its business strategy,
cash flow, access to both short- and long-term debt capital markets and the
leverage of comparable firms in the food industry. The Company allocates its
borrowings between the short- and long-term debt markets after considering
factors such as cost, depth and liquidity. The long-term debt market has
primarily been used to fund acquisitions and major capital expenditures. In the
fourth quarter of fiscal 1999, the Company issued commercial paper for the first
time. Commercial paper borrowings will primarily be utilized to fund working
capital needs and for aquisitions. In May 1999, the Company issued $200 million
of 6.625% Senior Notes due in 2009. At May 30, 1999, the Company's total debt to
total capitalization ratio was 46.9%, compared to 48.3% at May 31, 1998. Both
are levels at which the Company believes it will continue to be able to fund
future growth through access to both short- and long-term debt markets.
FINANCIAL RISK MANAGEMENT
The Company's primary financial risk is interest rate exposure, which is managed
through maintaining a mix of fixed and floating rate debt. Foreign currency risk
is not significant. The Company's policies and controls preclude the use of
"leveraged" derivatives and the use of financial derivatives for purposes
considered speculative.
DIVIDEND POLICY
The Company paid quarterly dividends of $.21 per share in fiscal 1999, up from
$.20 and $.19 per share in fiscal 1998 and 1997, respectively. On July 23, 1999,
the Company increased the quarterly dividend rate 4.8% to $.22 per share, the
Company's twenty-seventh increase since 1974. The Company has paid a dividend
for 56 consecutive years.
STOCK REPURCHASE
The Company may, from time to time, repurchase stock on the open market. In
March 1999, the Board of Directors authorized a two million share increase in
the number of shares available for repurchase. The primary purpose of any such
repurchases will be to offset dilution from Company stock programs and to
provide shares to utilize in acquisitions made for Company common stock. During
fiscal years 1999 and 1998, the Company repurchased 1,782,865 and 730,500 common
shares, respectively. At May 30, 1999, the Company had authorization to
repurchase up to 1,963,000 additional shares of its common stock.
OPERATING RESULTS
The Company's fiscal year ends on the last Sunday in May; therefore, the 1999
and 1997 fiscal years included 52 weeks, while fiscal 1998 included 53 weeks.
FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998
RESULTS OF CONTINUING OPERATIONS
Net sales increased 37.3% to $3.8 billion in fiscal 1999, from $2.7 billion in
fiscal 1998. The sales increase over the prior year is primarily due to business
acquisitions completed in each of the Company's business operating segments.
Earnings for fiscal year 1999 decreased from fiscal 1998 with income from
continuing operations of $70.3 million, or $1.74 per diluted share, compared to
$88.0 million, or $2.13 per diluted share, in the prior year. Fiscal 1999
results include pre-tax plant closure charges of $18.1 million ($11.0 million
after-tax, or $.27 per share). Absent the plant closure charges, fiscal 1999
operating earnings increased by 5.5% over the prior year. Increased earnings in
the Pickles and Specialty segments and decreased Corporate expenses more than
offset the Dairy segment earnings decrease. Net interest expense was $38.0
million in fiscal 1999 versus $18.8 million in the prior fiscal year. The
Company's return on invested capital was 9.4%(pre-plant closure charges) versus
16.0% in fiscal 1998. The decline in return on invested capital reflects the
additional invested capital related to fiscal 1999 acquisitions and capital
expenditures.
During fiscal 1999, the Company announced plant closures in the Dairy,
Pickles and Specialty segments, which resulted in a pre-tax charge of $18.1
million ($11.0 million after-tax, or $.27 per share). The announced plant
closures are expected to be completed by the end of the first quarter of fiscal
2000 and will result in the elimination of approximately 400 manufacturing and
administrative positions. Production from the Dairy and Pickles plants will be
consolidated into existing facilities. The Specialty segment warehouse closed in
fiscal 1999 has been replaced by public warehousing. Further discussion of the
plant closure charges appears in Note 3 to the consolidated financial
statements. The pre-tax impact of the plant closure charges on the Company's
fiscal 1999 operating earnings by business segment is summarized on the
following page:
<PAGE> 20
FINANCIAL REVIEW
<TABLE>
<CAPTION>
Operating Plant Closure Operating Earnings
(In Thousands) Earnings Charges Before Closure Charges
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Dairy $ 95,577 $ 8,882 $104,459
- --------------------------------------------------------------------------------
Pickles 34,229 8,530 42,759
- --------------------------------------------------------------------------------
Specialty 59,234 693 59,927
- --------------------------------------------------------------------------------
Corporate (35,702) 0 (35,702)
- --------------------------------------------------------------------------------
Consolidated $153,338 $18,105 $171,443
================================================================================
</TABLE>
BUSINESS SEGMENTS
The Company is a diversified food processor and distributor engaged in three
business segments. Dairy is the Company's largest segment, accounting for 79% of
total fiscal 1999 sales, with the Pickles and Specialty segments accounting for
10% and 11% of total sales,respectively. The Company is a major processor of
fluid milk and related products, ice cream and extended shelf life dairy
products serving various regional markets, with some products distributed
nationwide and to Mexico. 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
profit margins in the food industry necessitate timely adjustment of the
Company's pricing to reflect changes in commodity prices, 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.
DAIRY - Dairy sales for fiscal 1999 increased 45.4%, primarily due to
business acquisitions. Excluding the impact of acquisitions and an extra week in
fiscal 1998, dairy volume was up 2% overall, with increases experienced in each
of the fluid milk, ice cream and extended shelf life operations. Fiscal 1999
Dairy operating earnings of $104.5 million, before the plant closure charge,
reflect an 8.4% decrease from 1998. The segment's operating margins declined
from 5.6% in fiscal 1998 to 3.5% in fiscal 1999. The decline in Dairy earnings
is due to a combination of volatile commodity costs, which include raw milk
prices and butterfat costs, that were experienced throughout most of the fiscal
year, and costs associated with the integration and assimilation of recent
acquisitions into the Company's existing production and distribution structures.
Raw milk costs peaked at record levels in the third quarter of fiscal 1999
before declining during the fourth quarter. Dairy segment return on invested
capital for fiscal 1999 was 7.2% compared to 15.0% for fiscal 1998. The decline
is due to lower earnings and the additional invested capital associated with
fiscal 1999 business acquisitions and capital expenditures.
During the fourth quarter of fiscal 1999 the Company announced the closure
of an Indianapolis, Indiana fluid milk plant, which resulted in an $8.9 million
pre-tax charge. Production volume from this facility will be integrated into
existing plants. The closure is expected to be finalized by the end of the first
quarter of fiscal 2000, with expected annual benefits totaling approximately $4
million to begin in fiscal 2000.
PICKLES - Sales in fiscal 1999 of $363.7 million increased 4.3% compared to
fiscal 1998 sales of $348.7 million. Fiscal 1999 Pickles segment operating
earnings, before the plant closure charge, of $42.8 million increased 15.4%
compared to fiscal 1998. The sales and earnings increases are primarily
attributable to the acquisition of the Schwartz Pickle Company, a refrigerated
foodservice pickle company acquired at the end of fiscal 1998. Also contributing
to the earnings increase were improved plant efficiencies resulting from
operations improvement initiatives and more effective trade promotion spending.
Return on invested capital for the Pickles segment of 16.0% for fiscal 1999 was
relatively unchanged from 16.1% for fiscal 1998, as increased earnings, before
the plant closure charge, were offset by additional invested capital related to
the Schwartz acquisition.
The $8.5 million plant closure charge includes an initial charge of $7.7
million, recorded in the third quarter, to cover the costs of the Michigan plant
shutdown and an additional $800 thousand of costs primarily related to the
removal and relocation of equipment, recorded in the fourth quarter. Integration
of production from the closed Michigan plant into existing facilities is
virtually complete. Annual benefits of approximately $4 million are expected to
begin in fiscal 2000.
SPECIALTY - Sales for fiscal 1999 increased $72.2 million, or 21.6%, to
$406.8 million from $334.6 million in fiscal 1998. Operating earnings, before
the plant closure charge, increased $7.7 million, or 14.8%, to $59.9 million in
fiscal 1999 compared to $52.2 million in fiscal 1998. The sales and earnings
increases are largely due to the acquisition of the aseptic business acquired
from Agrilink in conjunction with the disposition of the Company's Vegetables
business. Also contributing to the increase were the results of Custom Food
Processors International, Inc., a producer of powdered products, acquired early
in the fourth quarter of fiscal 1999. The Specialty segment's 18.5% return on
invested capital for fiscal 1999 declined from 23.7% for fiscal 1999. The
reduction was due to the additional invested capital of business acquisitions.
During the fourth quarter of 1999, the transportation division of the
Specialty segment announced the closure of an Illinois warehouse, which will be
replaced by public warehousing. Costs related to the closure were approximately
$700 thousand.
CORPORATE
Corporate expenses in fiscal 1999 decreased $5.1 million versus fiscal 1998 due
to lower incentive and stock-related compensation expenses.
INTEREST EXPENSE
Fiscal 1999 interest expense increased $18.0 million, or 85.3%, principally due
to significantly higher average borrowings outstanding under the Company's
short- and long-term facilities as a result of the Company's fiscal 1998 and
1999 acquisitions and increased capital expenditures.
INCOME TAXES
The Company's effective tax rate was 39.0% in fiscal 1999 versus an effective
rate of 38.8% for fiscal 1998.
DISCONTINUED OPERATIONS
Loss from discontinued operations, net of taxes, was $2.9 million in fiscal 1999
versus income of $18.3 million in fiscal 1998. The fiscal 1999 loss reflects the
results of operations until September 23, 1998, the date of sale of the
Company's Vegetables segment. Fiscal 1998 earnings from discontinued operations
include a full fiscal year of operations.
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
RESULTS OF CONTINUING OPERATIONS
The Company's net sales for fiscal 1998 were $2.7 billion compared to $2.5
billion for fiscal 1997, an increase of 11.2%. Acquisitions in
<PAGE> 21
FINANCIAL REVIEW
the Dairy and Specialty segments accounted for most of the fiscal 1998 increase.
Improved sales volume in the Dairy and Specialty segments also contributed to
the overall sales increase, with the Specialty segment experiencing a 16% growth
in volume, exclusive of acquisitions. Income from continuing operations for
fiscal 1998 increased 18.9% to $88.0 million, or $2.13 per diluted share,
compared to $74.0 million, or $1.83 per diluted share, in the prior year. Fiscal
1998 earnings growth was primarily due to the Dairy and Specialty business
segments. The Company's return on invested capital decreased from 17.5% in
fiscal 1997 to 16.0% in fiscal 1998. This decline was primarily due to the
additional invested capital associated with acquisitions and new product
initiatives, which did not contribute substantially to 1998 earnings.
BUSINESS SEGMENTS
DAIRY - Net sales for the Dairy segment increased 14.8%, from $1.8 billion
in fiscal 1997, to $2.1 billion in fiscal 1998. The Dairy sales growth can
largely be attributed to the eight acquisitions completed during fiscal 1998,
the introduction of the Milk Chug product line and an extra week of sales
activity due to the 53 week fiscal year. Dairy volume for the fiscal year
increased by 20%, also attributable to the fluid milk and ice cream acquisitions
completed during the year and in late fiscal 1997.
Dairy operating earnings for fiscal 1998 were $114.1 million, a 9.9%
increase over the $103.8 in fiscal 1997. The fiscal 1998 earnings benefited from
the impact of 1997 acquisitions and favorable raw milk costs early in the fiscal
year, which resulted in significantly improved first half operating earnings.
The segment's second half operating earnings declined from fiscal 1997 levels as
less favorable raw milk costs, competitive pricing conditions in selected
regions and increased distribution costs in the extended shelf life operation
more than offset the benefits of the 1997 and 1998 acquisitions.
The Dairy segment's return on invested capital declined from 18.5% in
fiscal 1997 to 15.0% in fiscal 1998 due to the additional invested capital from
fiscal 1998 acquisitions and increased capital spending associated with the Milk
Chug product line.
PICKLES - Fiscal year 1998 Pickles net sales declined to $348.7 million, a
6.0% decrease from $370.8 million in fiscal year 1997. Pickle category trends,
which were flat to declining during fiscal 1998, combined with competitive
market pressures and rationalization of the segment's product offerings led to
lower fiscal year sales. The Pickles segment volume decline was in line with the
overall industry volume decline of approximately 3%. Pickles operating earnings
of $37.1 million in fiscal 1998 increased from $36.0 million in fiscal 1997 due
largely to overall lower operating costs. Additionally, the Pickles segment
benefited from aggressive invested capital management, increasing the segment's
return on invested capital from 16.1% in fiscal year 1997 to 18.7% in fiscal
year 1998.
SPECIALTY - Fiscal 1998 net sales increased 10.8%, from $301.9 million in
fiscal 1997, to $334.6 million. The addition of Marie's refrigerated salad
dressing business in early fiscal 1998 accounted for most of this increase. Each
of the businesses in this segment reported increased sales and volumes during
fiscal 1998 compared to the prior year. Operating earnings of $52.2 million in
fiscal 1998 were 42.3% higher than the $36.7 million in fiscal 1997, primarily
due to earnings generated by the Marie's acquisition, increased operating
efficiencies at the Dean Dip and Dressing California operation and significantly
improved performance in the Amboy aseptic cheese and pudding business. Return on
invested capital for the Specialty segment dropped to 23.7% in fiscal 1998 from
28.9% in fiscal 1997 due to the additional invested capital associated with the
Marie's acquisition and a new dryer in the powdered products business.
CORPORATE
Fiscal 1998 Corporate expenses of $40.8 million were $3.0 million higher than
fiscal 1997 expenses of $37.8 million. This change was primarily due to
increased incentive and stock-based compensation expenses as a result of overall
improved fiscal year performance.
INTEREST EXPENSE
Interest expense increased $6.0 million, to $21.1 million, in fiscal 1998
primarily due to the issuance of additional short- and long-term debt to fund
acquisitions and a significantly higher level of capital expenditures during the
fiscal year.
INCOME TAXES
The effective tax rate for fiscal year 1998 was 38.8% compared to a rate of
40.6% in the prior year. The decline in the effective rate was due to lower
state taxes and increased export and other tax credits in fiscal 1998.
DISCONTINUED OPERATIONS
Income from discontinued operations, net of taxes, was $18.3 million in fiscal
1998 versus $12.7 million in fiscal 1997.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating cash and capital expenditure requirements have
historically been met from internally generated funds.
Working capital at May 30, 1999 was $142.7 million compared to $67.3
million at May 31, 1998. The Company's fiscal 1999 current ratio was 1.32
compared 1.19 at the end of fiscal 1998. The $75.3 million increase in working
capital principally resulted from businesses acquired during fiscal 1999.
Net property, plant, and equipment at May 30, 1999 increased $213.9 million
this year principally due to the assets of businesses acquired and capital
expenditures, net of dispositions and depreciation. The increased level of
fiscal 1999 capital expenditures reflects the Company's continued emphasis on
investing to achieve growth from new products, improved operating efficiencies,
and expansion of existing product lines.
The Company's financial strategy includes utilizing a combination of debt
and equity that will maintain a competitive weighted average cost of capital and
provide sufficient liquidity for growth. The Company has access to significant
capital via debt and equity markets. The Company will continue to use both
short-term and long-term debt markets in its funding of acquisitions and major
capital expenditures.
Seasonal working capital requirements of operations have been funded using
short-term debt under the Company's Revolving Credit Agreement or its bilateral
lines of credit. During fiscal 1999, funds drawn under the Revolving Credit
Agreement and bilateral lines of credit were also used to fund acquisitions. A
$500 million Commercial Paper program initiated in March 1999 was used to pay
down the Revolving Credit Agreement and will be utilized to fund working capital
needs and provide interim funding for aquisitions.
The Commercial Paper program provides flexible maturities at lower rates, in
comparison to existing bank borrowing lines, and is
19
<PAGE> 22
FINANCIAL REVIEW
important in the Company's goal to diversify its funding sources and optimize
its capital structure. Borrowings outstanding under this program as of May 30,
1999, were $136.4 million. During fiscal 1998, the Company entered into a $500
million Revolving Credit Agreement which matures in 2003. Commercial Paper
borrowings are backed entirely by the Revolving Credit Agreement and are thus
classified as long-term debt. There were no borrowings outstanding under the
Revolving Credit Agreement at May 30, 1999, versus $210.0 million outstanding at
May 31, 1998.
In May 1999, the Company issued $200 million of 6.625% Notes due 2009. The
proceeds of these notes were used to repay commercial paper, but in effect, the
proceeds financed the fiscal 1999 acquisition activity. In October 1997, the
Company issued $150 million of 6.9% Notes due 2017.
Long-term obligations at May 30, 1999 were $631.3 million, an increase of
$73.1 million from last year-end. In addition to financing acquisitions, the
increased debt was used to finance increased capital expenditures. The Company's
total debt to total capital ratio at May 30, 1999 was 46.9% compared to 48.3% a
year ago.
The net cash proceeds received upon the completion of the sale of the
Company's Vegetables segment were utilized to repay borrowings under the
Revolving Credit Agreement, which provided the additional capacity to fund 1999
acquisitions and capital expenditures. Shareholders' equity at May 30, 1999 was
$716.4 million, an increase of $97.1 million from last year-end, reflecting
fiscal year 1999 earnings, including the gain associated with the Vegetables
segment disposition, less dividends paid to shareholders and common stock
repurchased. The Treasury Stock held at May 30, 1999 is available for use in
future acquisitions, stock option issuance and other general business purposes.
CASH FLOWS
Cash and temporary cash investments at May 30, 1999 increased $4.0 million over
the balance at May 31, 1998. The changes in cash for fiscal 1998 and fiscal 1997
were an increase of $7.5 million and a decrease of $6.0 million, respectively.
The Company's cash flow activities are as follows:
OPERATING ACTIVITIES - Fiscal 1999 cash provided from operations was $163.9
million compared to $162.7 million and $147.3 million for fiscal 1998 and 1997,
respectively. Excluding plant closure charges, fiscal 1999 operating earnings
before depreciation and amortization were $259.4 million versus $222.9 million
in fiscal 1998.
INVESTING ACTIVITIES - Net cash used in the Company's investing activities
in fiscal 1999 was $380.7 million compared to $472.3 million and $67.8 million
in fiscal years 1998 and 1997, respectively. Business acquisitions and capital
expenditures are the Company's principal investing activities. The Company
invested $238.8 million and $369.6 million in 1999 and 1998, respectively, to
acquire sixteen dairy operations and distributorships, as well as one pickle and
two specialty operations. During the three years ended May 30, 1999, a total of
$624.7 million was spent to acquire businesses, which are discussed further in
Note 2 to the consolidated financial statements. The Company continues to be
committed to its focus on profitable growth in its core business segments.
During 1999, the Company invested $139.3 million in capital expenditures,
compared to $104.7 million and $55.6 million in fiscal 1998 and 1997,
respectively. The $34.7 million increase between fiscal 1999 and 1998, as well
as the $49.1 million increase between fiscal 1998 and 1997, reflects the
Company's continued focus on investing in innovative product growth, such as the
small bottle initiative, improved production efficiencies and expansion of
existing product lines. Fiscal 2000 capital expenditures are expected to
approximate fiscal 1999 expenditures. Also included in investing activities in
fiscal 1999 was $7.3 million related to the Company's investment to upgrade and
integrate the Company's sales, production and financial information systems.
Subsequent to the end of fiscal 1999, the Company completed the acquisitions
of Steinfeld's Products Company, a pickle processor located in Portland, Oregon,
and Dairy Express, Inc., a distributor of dairy and related products based in
the Philadelphia area, both for cash consideration. The Company continues to
assess acquisition candidates in each of its business segments.
FINANCING ACTIVITIES- Net cash used in financing activities during fiscal
1999 was $76.7 million, compared to net cash provided by financing activities of
$279.0 million in fiscal 1998 and net cash used in financing activities of
$125.0 million in fiscal 1997. The cash provided by the disposition of the
Vegetables segment allowed for repayment of short-term borrowings, as that cash
effectively offset the cash invested in capital expenditures and business
acquisitions. The Company purchased treasury shares during fiscal 1999 totaling
$70.4 million versus $35.8 million in fiscal 1998. The issuance of long-term
obligations to fund acquisitions and increased capital expenditure activity is
the principal reason for the change in net financing activities between fiscal
1998 and 1997. There were no short-term borrowings outstanding at fiscal
year-end 1999 compared to borrowings outstanding of $12.0 million at May 31,
1998. Cash dividends paid were $33.3 million in fiscal 1999 compared to $32.0
million and $30.1 million during fiscal years 1998 and 1997, respectively.
DISCONTINUED OPERATIONS - On September 23, 1998, the Company sold the stock
of Dean Foods Vegetable Company to Agrilink Foods, Inc. Net cash provided by
discontinued operations of $297.6 million includes the proceeds from the sale of
$378.2 million, less cash used for the payment of income taxes related to the
gain and for business operations until the date of sale.
YEAR 2000 COMPLIANCE
The Year 2000 issue results from computer programs using two digits rather than
four to define the applicable year. As the year 2000 approaches, systems using
such programs may be unable to accurately process certain date-based
information. To address the Year 2000 issue, the Company has developed and is
executing a plan that includes assessing the computer functionality of its
information systems, plant systems and equipment, personal computers and related
applications, networks and communications, and laboratory and facility equipment
and systems. The plan also includes the Company's assessment as to the readiness
of external parties, including its suppliers, vendors and banking and insurance
companies, and to coordinate efforts in addressing the Year 2000 issue with
these entities.
In addition, the Company is addressing the Year 2000 issue by both
augmenting previously scheduled computer maintenance with procedures designed to
locate and correct Year 2000 problems and by slightly accelerating normal
equipment and software replacement schedules. The Company expects that
substantially all new system upgrades or reprogramming efforts and related
testing, which was approximately 85% complete as of May 30, 1999, will be
completed by September 30, 1999.
20
<PAGE> 23
FINANCIAL REVIEW
As of May 30, 1999, the Company has incurred and expensed approximately $3
million of costs associated with the Year 2000 efforts and expects to incur and
expense an additional $1 million through plan completion. In addition to costs
expensed,the Company has capitalized approximately $2 million of capital
expenditures through May 30, 1999 for the replacement and upgrade of software
and hardware for both existing systems and the systems of acquired businesses.
The Company has also budgeted an additional $1 million of capital expenditures
for fiscal 2000. Remaining expected costs and budgeted capital expenditures are
based on conservative estimates and actual results could differ as the plan is
further implemented. The estimated aggregate costs do not include any costs
associated with the implementation of contingency plans, which are in the
process of being finalized.
The Company believes that modification of existing software and conversions
to new software will result in Year 2000 compliance. However, given the
complexity of the Year 2000 issue, the impact on business operations due to
failure by the Company to achieve compliance or failure by external entities,
such as suppliers and vendors, to achieve compliance, which the Company cannot
control, could adversely affect the Company's consolidated results of
operations. Although the Company does not anticipate any major non-compliance
issues, it currently believes that the greatest risk of disruption in its
business exists in the event of non-compliance by its material external parties.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The principal market risks to which the Company is exposed that may adversely
affect results of operations and financial position include changes in future
interest rates, commodity prices and, to a lesser extent, foreign currency
exchange rates. The Company seeks to minimize or manage these market risks
through normal operating and financing activities and through the use of
commodity contracts, where applicable. Management believes that its use of these
instruments to manage risk is in the Company's best interest. The Company does
not trade or use instruments with the objective of earning financial gains on
the commodity price, exchange rate or interest rate fluctuations. Complex
instruments involving leverage or multipliers are not used.
The Company's exposure to market risk for changes in interest rates relates
primarily to debt obligations under the Company's Commercial Paper program and
Revolving Credit Agreement; however, the Company's current long-term debt
structure does consist of both fixed and floating rate debt. Long-term floating
rate debt consists of four percent of the Company's total debt portfolio. The
Company enters into short-term debt obligations primarily to support general
corporate purposes, including capital expenditures and working capital needs,
and to fund acquisitions. At May 30, 1999, the Company had $136.4 million of
commercial paper outstanding at approximately 4.9%. A 10% increase in the
commercial paper interest rate would result in an interest expense increase of
approximately $700 thousand.
Company products are manufactured from raw materials and ingredients,
including raw milk, cucumbers and corn syrup, and packaging materials, including
resin, cartons and glass, the costs of which are affected by the supply and
demand for the underlying commodities. Although these items are expected to
remain in adequate supply, market prices can be influenced by external factors
such as weather conditions and crop yields, as well as industry capacity.
On occasion, the Company enters into contracts for certain materials and
ingredients. Fluctuations in commodity costs are typically passed through to the
Company's customers. The Company does not have significant exposure to market
risk associated with foreign currency exchange rates and as a result does not
maintain foreign exchange contracts.
ENVIRONMENTAL MATTERS
The Company's compliance with current federal, state and local regulations
relating to the protection of the environment has not had, nor is it expected to
have, a material effect on the Company's earnings, capital expenditures or
competitive position. The Company continues to give attention to the impact of
operations on the environment and compliance with current federal, state and
local regulations relating to the protection of the environment.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." This
pronouncement establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. During fiscal 1999, the only item applicable to the
Company under this Statement was a cumulative translation adjustment and due to
its immateriality, no comprehensive income disclosures have been presented.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was also issued in June 1997. This Statement established new
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to shareholders. SFAS No. 131 also established
standards for related disclosures about products and services, geographic areas
and major customers. The adoption of this Statement during fiscal 1999 did not
change the segment information previously disclosed.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued in June 1998. This Statement standardizes the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts, by requiring that an entity recognize those items as assets or
liabilities in the statement of financial position and measure them at fair
value. Upon adoption of this Statement in fiscal 2000, it is not expected to
have a material impact on the Company's results of operations.
FORWARD LOOKING STATEMENTS
Certain statements in this Annual Report are "forward looking statements" as
defined by the Private Securities Litigation Reform Law of 1995. These
statements, which may be indicated by words such as "expects", "intends",
"believes", "forecasts", or other words of similar meaning, 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, risks associated with the Company's acquisition strategy, adverse
weather conditions resulting in poor harvests, raw milk costs, interest rate
fluctuations, competitive pricing pressures, marketing and cost-management
programs, changes in government programs and shifts in market demand.
21
<PAGE> 24
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 30, 1999 and May 31, 1998 (In thousands)
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS
Cash and temporary cash investments $ 15,958 $ 11,932
Accounts and notes receivable, less allowance for doubtful
accounts of $7,570 and $4,212, respectively 303,337 225,970
Inventories 168,836 135,405
Deferred tax assets 54,354 12,329
Other 39,653 34,602
----------- -----------
TOTAL CURRENT ASSETS 582,138 420,238
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land 57,860 35,072
Buildings and improvements 357,266 280,567
Machinery and equipment 672,345 542,782
Transportation equipment 72,729 64,033
Construction in progress 82,038 43,772
----------- -----------
1,242,238 966,226
Less - Accumulated depreciation 477,292 415,162
----------- -----------
TOTAL PROPERTIES, NET 764,946 551,064
----------- -----------
NET ASSETS OF DISCONTINUED OPERATIONS -- 288,037
OTHER ASSETS ----------- -----------
Goodwill, net of amortization of $21,568 and $9,984, respectively 547,153 329,692
Other intangible assets, net of amortization of $2,983 and
$1,553, respectively 4,333 4,905
Other 13,306 13,253
----------- -----------
TOTAL OTHER ASSETS 564,792 347,850
----------- -----------
TOTAL ASSETS $ 1,911,876 $ 1,607,189
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 25
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to banks $ -- $ 12,000
Current installments of long-term obligations 2,651 9,014
Accounts payable and accrued expenses 398,174 311,303
Dividends payable 8,353 8,079
Federal and state income taxes 30,308 12,518
----------- -----------
TOTAL CURRENT LIABILITIES 439,486 352,914
----------- -----------
LONG-TERM OBLIGATIONS 631,286 558,233
----------- -----------
DEFERRED LIABILITIES
Deferred income taxes 79,345 43,536
Other 45,345 33,240
----------- -----------
TOTAL DEFERRED LIABILITIES 124,690 76,776
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value, 10,000,000 shares authorized,
none issued -- --
Common stock, $1 par value, 150,000,000 shares authorized,
42,275,564 and 41,962,091 shares issued, respectively 42,276 41,962
Capital in excess of par value 62,120 31,127
Retained earnings 730,074 612,390
Cumulative translation adjustment (21) (290)
Less - Treasury stock, at cost, 2,999,246 and 1,992,240
shares, respectively 118,035 65,923
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 716,414 619,266
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES -- --
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,911,876 $ 1,607,189
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 26
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Fiscal Years Ended May 30, 1999 (In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $3,755,148 $2,735,834 $2,460,563
- ----------------------------------------------------------------------------------------------------------------------
Costs of products sold 2,941,170 2,105,849 1,901,791
- ----------------------------------------------------------------------------------------------------------------------
Delivery, selling and administrative expenses 642,535 467,466 420,101
- ----------------------------------------------------------------------------------------------------------------------
Plant closure charges 18,105 - -
- ----------------------------------------------------------------------------------------------------------------------
OPERATING EARNINGS 153,338 162,519 138,671
- ----------------------------------------------------------------------------------------------------------------------
Interest expense 39,098 21,101 15,071
- ----------------------------------------------------------------------------------------------------------------------
Interest income 1,057 2,312 929
- ----------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 115,297 143,730 124,529
- ----------------------------------------------------------------------------------------------------------------------
Provision for income taxes 44,966 55,750 50,541
- ----------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 70,331 87,980 73,988
- ----------------------------------------------------------------------------------------------------------------------
Discontinued operations, net of taxes:
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations (2,929) 18,322 12,716
---------------------------------------------------------------------------------------------------------------
Gain on sale of discontinued operations 83,820 - -
---------------------------------------------------------------------------------------------------------------
Total discontinued operations, net of taxes 80,891 18,322 12,716
---------------------------------------------------------------------------------------------------------------
NET INCOME $ 151,222 $ 106,302 $ 86,704
======================================================================================================================
BASIC INCOME (LOSS) PER SHARE:
- ----------------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 1.77 $ 2.17 $ 1.84
---------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations (.07) 0.46 0.32
---------------------------------------------------------------------------------------------------------------
Gain on sale of discontinued operations 2.10 - -
---------------------------------------------------------------------------------------------------------------
Net income $ 3.80 $ 2.63 $ 2.16
- ----------------------------------------------------------------------------------------------------------------------
DILUTED INCOME (LOSS) PER SHARE:
- ----------------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 1.74 $ 2.13 $ 1.83
---------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations (.07) 0.44 0.32
---------------------------------------------------------------------------------------------------------------
Gain on sale of discontinued operations 2.07 - -
---------------------------------------------------------------------------------------------------------------
Net income $ 3.74 $ 2.57 $ 2.15
===============================================================================================================
WEIGHTED AVERAGE COMMON SHARES:
- ----------------------------------------------------------------------------------------------------------------------
Basic 39,842 40,469 40,181
---------------------------------------------------------------------------------------------------------------
Diluted 40,482 41,395 40,377
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 27
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the Three Fiscal Years Ended May 30, 1999 (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>
BALANCES AT MAY 26, 1996 40,134 $41,395 $ 14,158 $482,299 $ 11 $ (30,171)
- -------------------------------------------------------------------------------------------------------------------------------
Net income - - - 86704 - -
- -------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock 120 120 3,222 - - -
- -------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 30 30 692 - - -
- -------------------------------------------------------------------------------------------------------------------------------
Issuance of treasury stock - - 1 - - 2
- -------------------------------------------------------------------------------------------------------------------------------
Cash dividends declared, $.76 per share - - - (30,553) - -
- -------------------------------------------------------------------------------------------------------------------------------
Cumulative translation adjustment - - - - (229) -
- -------------------------------------------------------------------------------------------------------------------------------
BALANCES AT MAY 25, 1997 40,284 41,545 18,073 538,450 (218) (30,169)
- -------------------------------------------------------------------------------------------------------------------------------
Net income - - - 106,302 - -
- -------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock 358 358 2,397 - - -
- -------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 59 59 10,657 - - -
- -------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (731) - - - - (35,754)
- -------------------------------------------------------------------------------------------------------------------------------
Cash dividends declared, $.80 per share - - - (32,362) - -
- -------------------------------------------------------------------------------------------------------------------------------
Cumulative translation adjustment - - - - (72) -
- -------------------------------------------------------------------------------------------------------------------------------
BALANCES AT MAY 31, 1998 39,970 41,962 31,127 612,390 (290) (65,923)
- -------------------------------------------------------------------------------------------------------------------------------
Net income - - - 151,222 - -
- -------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock 250 250 2,765 - - -
- -------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 64 64 9,101 - - -
- -------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (1,783) - - - - (70,384)
- -------------------------------------------------------------------------------------------------------------------------------
Issuance of treasury stock 6 - (155) - - 155
- -------------------------------------------------------------------------------------------------------------------------------
Treasury stock issued for acquisition 769 - 19,282 - - 18,117
- -------------------------------------------------------------------------------------------------------------------------------
Cash dividends declared, $.84 per share - - - (33,538) - -
- -------------------------------------------------------------------------------------------------------------------------------
Cumulative translation adjustment - - - - 269 -
- -------------------------------------------------------------------------------------------------------------------------------
BALANCES AT MAY 30, 1999 39,276 $42,276 $62,120 $730,074 ($21) ($118,035)
===============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 28
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Fiscal Years Ended May 30, 1999 (In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
CONTINUING OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations $ 70,331 $ 87,980 $ 73,988
-------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile income from continuing
operations to net cash provided from continuing operations:
------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 87,942 60,418 51,434
---------------------------------------------------------------------------------------------------------------------
Deferred income taxes 9,834 16,131 6,888
---------------------------------------------------------------------------------------------------------------------
Other long-term deferred liabilities (4,240) (5,409) 5,351
---------------------------------------------------------------------------------------------------------------------
Plant closure charge 18,105 - -
(Increase) decrease in working capital items, net of acquisitions:
---------------------------------------------------------------------------------------------------------------------
Accounts and notes receivable (15,108) (16,581) (16,925)
-----------------------------------------------------------------------------------------------------------------
Inventories and other current assets (963) 19,857 (3,059)
-----------------------------------------------------------------------------------------------------------------
Accounts payable and accrued expenses (17,102) (10,294) 21,199
-----------------------------------------------------------------------------------------------------------------
Federal and state income taxes 18,096 9,342 8,402
-----------------------------------------------------------------------------------------------------------------
Other (2,977) 1,266 (14)
---------------------------------------------------------------------------------------------------------------------
Net cash provided from continuing operations 163,918 162,710 147,264
- ------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
- ------------------------------------------------------------------------------------------------------------------------------
Capital expenditures (139,346) (104,683) (55,580)
-------------------------------------------------------------------------------------------------------------------------
Proceeds from dispositions of property, plant and equipment 4,693 1,943 2,093
-------------------------------------------------------------------------------------------------------------------------
Acquisitions, net of cash acquired (238,786) (369,560) (16,332)
-------------------------------------------------------------------------------------------------------------------------
Proceeds from businesses divested - - 2000
-------------------------------------------------------------------------------------------------------------------------
Other (7,284) - -
-------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (380,723) (472,300) (67,819)
-------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
- ------------------------------------------------------------------------------------------------------------------------------
Issuance of long-term obligations 201,627 147,575 8,200
-------------------------------------------------------------------------------------------------------------------------
Repayment of long-term obligations (107,256) (35,509) (13,475)
-------------------------------------------------------------------------------------------------------------------------
Issuance of commercial paper, net 136,410 - -
-------------------------------------------------------------------------------------------------------------------------
Issuance (repayment) of revolving credit agreement, net (210,000) 210,000 -
-------------------------------------------------------------------------------------------------------------------------
Issuance (repayment) of notes payable to banks, net (12,000) 9,000 (89,000)
-------------------------------------------------------------------------------------------------------------------------
Unexpended industrial revenue bond proceeds 5,965 4,656 (4,662)
-------------------------------------------------------------------------------------------------------------------------
Cash dividends paid (33,263) (32,021) (30,113)
-------------------------------------------------------------------------------------------------------------------------
Issuance of common stock 12,180 11,020 4,064
-------------------------------------------------------------------------------------------------------------------------
Issuance (purchase) of treasury stock (70,384) (35,754) 3
-------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (76,721) 278,967 (124,983)
-------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY DISCONTINUED OPERATIONS 297,552 38,169 39,525
- ------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS 4,026 7,546 (6,013)
- ------------------------------------------------------------------------------------------------------------------------------
CASH AND TEMPORARY CASH INVESTMENTS - BEGINNING OF YEAR 11,932 4,386 10,399
- ------------------------------------------------------------------------------------------------------------------------------
CASH AND TEMPORARY CASH INVESTMENTS - END OF YEAR $ 15,958 $ 11,932 $ 4,386
==============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 29
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, pickle and other
specialty food products. The Company operates in three business segments. The
Company's principal products in the Dairy segment are fluid milk and cultured
products, ice cream and extended shelf life products. 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.
DEFINITION OF FISCAL YEAR - The Company's fiscal year ends on the last Sunday in
May. There were 52 weeks in the fiscal years ended May 1999 and 1997, whereas
there were 53 weeks in fiscal 1998.
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 Pickles inventories are valued on the last-in, first-out (LIFO)
method. Dairy and certain Specialty inventories are valued on the first-in,
first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at
cost. Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the assets, as follows:
<TABLE>
<CAPTION>
ASSET USEFUL LIFE
<S> <C>
Buildings and improvements 5 to 40 years
Machinery and equipment 2 to 25 years
Transportation equipment 5 to 12 years
</TABLE>
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 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 impairment exists.
The Company believes that no indicators of impairment of long-lived assets
existed at May 30, 1999.
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 provisions 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.
INCOME PER COMMON SHARE - Income per share is computed in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128,"Earnings per Share."
Basic income per common share is based upon the weighted average number of
common shares outstanding during each year. Diluted income per common share is
calculated based upon the sum of the weighted average number of shares
outstanding and the weighted average number of potential common shares
outstanding. Potential common shares consist solely of the outstanding options
under the Company's stock option plans. There are no differences in the income
used to compute the Company's basic and diluted income per share.
STOCK-BASED COMPENSATION - Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," encourages, but does not require,
companies to record
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
compensation cost for stock-based employee compensation plans at fair value. 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 (APB) No. 25, "Accounting for Stock Issued to Employees." Income tax
benefits attributable to stock options exercised are credited to capital in
excess of par value.
COMPREHENSIVE INCOME - During fiscal 1999, Statement of Financial Accounting
Standard No. 130, "Reporting Comprehensive Income," which requires reporting and
display of comprehensive income and its components to be disclosed in the
financial statements for all periods presented, became applicable. The only item
of comprehensive income applicable to the Company was a cumulative translation
adjustment and due to its immateriality, comprehensive income disclosures have
not been presented.
SEGMENT REPORTING - Statement of Financial Accounting Standard No. 131,
"Disclosures about Segments of an Enterprise and Related Information," requires
disclosures of certain information about operating segments on a basis
consistent with the way in which the Company manages and operates. The adoption
of this Statement during fiscal 1999 did not change the segment information
previously disclosed.
RECLASSIFICATIONS - Certain previously reported amounts have been reclassified
to conform to current year-end presentations.
2. Business Acquisitions
During fiscal 1999 the Company completed the following six acquisitions:
<TABLE>
<CAPTION>
FISCAL 1999 ACQUISITION CLOSING DATE
- ---------------------------------------------------------------------------
<S> <C>
DAIRY SEGMENT:
Alta Dena Certified Dairy May 5, 1999
Berkeley Farms November 4, 1998
U.C. Milk Company September 17, 1998
Barber Dairies August 11, 1998
Hillside Dairy July 1, 1998
SPECIALTY SEGMENT:
Custom Food Processors, International March 8, 1999
- ---------------------------------------------------------------------------
</TABLE>
The Company also acquired three dairy distributors and, in conjunction with the
sale of the Company's vegetable operations, an aseptic business, which is
included in the Specialty segment.
All of the fiscal 1999 acquisitions were asset purchases, except U.C. Milk
Company and Berkeley Farms, which were stock purchases. Cash consideration for
fiscal 1999 acquisitions totaled $238.8 million. In addition to the cash
consideration paid for these operations, the Company assumed certain
liabilities.
On a pro forma basis, the net sales (unaudited) of the Company would have been
$4,116.9 million in 1999 and $3,995.4 million in 1998. The pro forma sales
amounts assume that all of the fiscal 1999 acquisitions occurred at the
beginning of each period presented. On a pro forma basis, the results of
operations (unaudited) of the companies acquired would not have had a material
effect on the Company's net income or income per common share in 1999 or 1998.
During fiscal 1998, the Company completed the following ten acquisitions:
<TABLE>
<CAPTION>
FISCAL 1998 ACQUISITION CLOSING DATE
- ---------------------------------------------------------------------------
<S> <C>
DAIRY SEGMENT:
Purity Dairies May 14, 1998
Coburg Dairy March 31, 1998
Dairy Business of American
Stores Company (Lucky Stores) March 2, 1998
Wengert's Dairy February 23, 1998
Sani-Dairy Division of the
Penn Traffic Company January 20, 1998
Maplehurst Dairy, Inc. January 6, 1998
H. Meyer Dairy Company November 24, 1997
Milk Products LLC November 21, 1997
PICKLES SEGMENT:
Schwartz Pickle May 18, 1998
SPECIALTY SEGMENT:
Marie's Salad Dressing May 27, 1997
- ---------------------------------------------------------------------------
</TABLE>
With the exception of the Coburg Dairy and Purity Dairies acquisitions, which
were stock purchases, all of the fiscal 1998 acquisitions were assets purchases.
Cash consideration for fiscal 1998 acquisitions totaled $369.6 million. In
addition to the cash consideration paid for these operations, the Company
assumed certain liabilities.
On a pro forma basis, the net sales (unaudited) of the Company would have been
$3,254.5 million in 1998 and $3,178.0 million in 1997. The pro forma sales
amounts assume that all of the above acquisitions occurred at the beginning of
each period presented. On a pro forma basis, the results of operations
(unaudited) of the companies acquired would not have had a material effect on
the Company's net income or income per common share in 1998 or 1997.
During fiscal 1997, the Company acquired a dairy operation and a dairy
distributor for $16.3 million in cash consideration. The pro forma impact as if
these acquisitions had taken place at the beginning of the fiscal year prior to
acquisition is not significant.
All of the acquisitions were accounted for using the purchase method of
accounting as of their respective acquisition dates,
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and, accordingly, the operating results of the acquired companies subsequent to
their respective acquisition dates are included in the Company's consolidated
financial statements. The fiscal 1999 acquisitions have been recorded at their
estimated fair values using preliminary valuations of the opening balance
sheets. These estimates of fair value are subject to change when final
information concerning asset and liability valuations are obtained. Goodwill
arising from the acquisitions, totaling an estimated $221.4 million in 1999,
$284.4 million in 1998 and $13.5 million in 1997, will be amortized using the
straight-line method over periods up to forty years.
3. Plant Closure Charges
During fiscal 1999, the Company announced plant closures in the Dairy, Pickles
and Specialty segments, which resulted in a pre-tax charge of $18.1 million
($11.0 million after-tax or $.27 per share). Cash charges related to the plant
closures, which include primarily severance, lease termination and exit costs,
totaled $8.9 million. As of May 30, 1999, charges against the provision include
cash payments of $1.5 million. All of the remaining cash charges are expected to
be paid by the end of calendar year 1999. Non-cash charges of $9.2 million
associated with the write-down to net realizable value of certain assets
comprise the remainder of the provision.
All of the announced plant closures are expected to be completed by the end of
the first quarter of fiscal year 2000. Production from the Dairy and Pickles
operations will be relocated and consolidated into existing facilities. The
Specialty segment warehouse closure will be replaced by public warehousing. The
closures resulted in the elimination of approximately 400 manufacturing and
administrative positions.
4. Discontinued Operations
On September 23, 1998, the Company sold the stock of Dean Foods Vegetable
Company to Agrilink Foods, Inc. ("Agrilink") for $378.2 million in cash, a $30.0
million Agrilink subordinated note and Agrilink's aseptic foods business, which
has been valued at $80.2 million. Cash proceeds were utilized to repay debt
outstanding under the Company's Revolving Credit Agreement. Due to the
uncertainty of the realizability of the $30.0 million subordinated note, the
note has been valued at a nominal amount. The Company recorded an after-tax gain
on the sale of the Vegetables segment of $83.8 million ($2.07 per diluted
share). Accordingly, Vegetables segment results are presented as discontinued
operations.
Net Assets of Discontinued Operations at May 31, 1998, are summarized as
follows.
<TABLE>
<CAPTION>
1998
<S> <C>
Current assets $180,930
- ------------------------------------------------------------------------------
Net plant, property and equipment 133,276
Other assets 46,204
- ------------------------------------------------------------------------------
Current liabilities 49,251
- ------------------------------------------------------------------------------
Long-term obligations 2,450
Deferred liabilities 20,672
- ------------------------------------------------------------------------------
Net assets of discontinued operations $288,037
- ------------------------------------------------------------------------------
</TABLE>
Net sales of discontinued operations were $139.8 million, $533.3 million and
$557.8 million in 1999, 1998 and 1997, respectively. The income tax provision
(benefit) included in Income (Loss) from Discontinued Operations was $(1.9)
million, $12.2 million and $8.5 million for 1999, 1998 and 1997, respectively.
Income from operations of the discontinued segment includes interest expense
allocations (based on short-term interest expense incurred and changes in
working capital levels) of $2.5 million, $9.2 million and $10.3 million in 1999,
1998 and 1997, respectively.
5. Borrowing Arrangements
Long-term obligations, less installments due within one year, are summarized
below:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
Senior note, 6.75%, maturing in 2005 $ 99,394 $99,293
- ------------------------------------------------------------------------------------------------------
Senior note, 6.9%, maturing in 2017 147,772 147,650
- ------------------------------------------------------------------------------------------------------
Senior note, 6.625%, maturing in 2009 199,826 --
- ------------------------------------------------------------------------------------------------------
Commercial paper, maturing in 2003
(average 4.88%) 136,410 --
- ------------------------------------------------------------------------------------------------------
Revolving Credit Agreement,
maturing in 2003 (average 5.6%) -- 210,000
- ------------------------------------------------------------------------------------------------------
Installment note, 9.64%, maturing in
equal amounts of $6,500 through 2005 -- 45,500
- ------------------------------------------------------------------------------------------------------
Industrial revenue bonds, maturing in
varying amounts through 2021:
Fixed rate, 4.75% to 6.63%, (average 5.92%) 4,235 1,900
Floating rate, 3.3% to 3.9%,
(average 3.45%) 25,600 39,355
- ------------------------------------------------------------------------------------------------------
Capitalized lease obligations, 2.0% to
10.0%, maturing in various installments
through 2011 (average 8.0%) 19,622 20,464
- ------------------------------------------------------------------------------------------------------
Other obligations, 4.8% to 10.0%,
maturing in varying amounts through
2004 (average 7.1%) 1,078 3,085
- ------------------------------------------------------------------------------------------------------
633,937 567,247
- ------------------------------------------------------------------------------------------------------
Less: Installments due within one year 2,651 9,014
- ------------------------------------------------------------------------------------------------------
Total long-term obligations $631,286 $558,233
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 1999, the Company entered into a $500 million Commercial Paper program
backed entirely by the Company's $500 million Revolving Credit Agreement. As the
Company has the ability and intent to refinance such borrowings under the
Revolving Credit Agreement, the outstanding commercial paper balance has been
classified as long-term. During fiscal 1999, the maximum commercial paper issued
was $377.5 million; average commercial paper issued during the year was $50.1
million at a weighted average interest rate of 4.88%. At May 30, 1999, the
Company had $136.4 million of outstanding commercial paper.
In fiscal 1998, the Company entered into a $500 million Revolving Credit
Agreement maturing in 2003. The borrowings under the Credit Agreement are
unsecured and for which the Company presently 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 public debt credit
rating. During fiscal 1999, the maximum borrowings under the Credit Agreement
were $350.0 million; average borrowings were $131.0 million at a weighted
average interest rate of 5.6%. At May 30, 1999, there were no borrowings
outstanding under this facility. During fiscal 1998, the maximum borrowings
under the Credit Agreement were $210.0 million; average borrowings were $14.9
million at a weighted average interest rate of 6.0%. At May 31, 1998, there were
$210.0 million of direct borrowings outstanding under this facility.
The Company has $50 million in committed short-term lines of credit available
for borrowing needs. Lending banks are compensated on a fee basis for the credit
lines. During 1999, maximum borrowings under the Company's committed and
uncommitted lines of credit were $198.0 million; average borrowings for the year
were $34.7 million at a weighted average interest rate of 5.4%. At May 30, 1999,
the Company did not have any debt outstanding from uncommitted short-term lines
of credit. During 1998, maximum borrowings under the Company's committed and
uncommitted lines of credit were $150.0 million; average borrowings for the year
were $29.3 million at a weighted average interest rate of 5.8%. There were $12.0
million of borrowings outstanding from uncommitted short-term lines of credit at
May 31, 1998.
In May 1999, the Company issued $200 million of 6.625% Notes due 2009. The net
proceeds were used to repay existing commercial paper indebtedness.
In October 1997, the Company issued $150 million of 6.9% Notes due 2017. The net
proceeds were used to repay existing short-term indebtedness under the bank
credit facilities and for acquisitions.
At May 30, 1999, the most restrictive provisions of the Company's borrowing
arrangements were as follows: the Company's fixed charge coverage ratio must
exceed 3.0; and the Company's ratio of Consolidated Debt to Consolidated Total
Capital cannot exceed 65%. The Company was in compliance with all debt covenants
as of May 30, 1999.
Maturities of long-term obligations during each of the fiscal years 2001 through
2004 are $5,658, $2,173, $139,777 and $2,197, respectively.
Certain land, buildings and machinery and equipment having a net carrying value
of approximately $23 million were mortgaged or otherwise encumbered against
long-term debt of $20 million at May 30, 1999.
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
30, 1999 and May 31, 1998 the fair value of long-term debt is estimated to be
$633.7 million and $579.0 million, respectively.
6. Shareholders' Equity
The 1998 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 share
purchase right for each share of Dean Foods Company common stock. Each right is
attached to and traded with the Company's common stock, but will detach and
become exercisable ten days after a public announcement that a person or group
has acquired, or has announced a tender offer for, 15% or more of the Company's
common stock. The rights will initially be exercisable to purchase common stock
equivalents for $200 per share. Upon a person acquiring 15% or more of the
Company's common stock, the rights will entitle the holders (other than the
acquiring person) to purchase shares of common stock at a 50% discount. The
rights may be redeemed by the Company for $.01 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, 2008, 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.
10
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. 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 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
- ----------------------------------------------------------------------------------------------------------
Changes during the year:
- ----------------------------------------------------------------------------------------------------------
Granted 828,074 34.77
- ----------------------------------------------------------------------------------------------------------
Terminated (92,771) 30.23
- ----------------------------------------------------------------------------------------------------------
Exercised (416,924) 27.44
- ----------------------------------------------------------------------------------------------------------
Options outstanding at May 31, 1998 2,211,173 30.07
- ----------------------------------------------------------------------------------------------------------
Changes during the year:
- ----------------------------------------------------------------------------------------------------------
Granted 600,300 48.89
- ----------------------------------------------------------------------------------------------------------
Terminated (21,689) 40.14
- ----------------------------------------------------------------------------------------------------------
Exercised (300,075) 28.45
- ----------------------------------------------------------------------------------------------------------
Options outstanding at May 30, 1999 2,489,709 $34.72
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Options exercisable and available for grants at the end of each respective year
are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Exercisable 1,351,210 1,020,194 880,533
- ----------------------------------------------------------------------------------------------------------
Average option
price per share $30.53 $28.92 $28.03
- ----------------------------------------------------------------------------------------------------------
Available for grants 1,691,193 2,330,613 697,969
- ----------------------------------------------------------------------------------------------------------
</TABLE>
All outstanding options are within the range of $22.87 to $49.43 per share,
except for 60,000 shares granted in fiscal 1998 at approximately $55.00 per
share. Options vest in accordance with provisions as set forth in the applicable
option agreements. The weighted average contractual life of all outstanding
options is six years.
The Company adopted the disclosure-only provision under SFAS No. 123,
"Accounting for Stock-Based Compensation," while continuing to measure
compensation cost under APB Opinion No.25, "Accounting for Stock Issued to
Employees." If the accounting provisions of SFAS No.123 had been adopted over
the last three years, the Company's income from continuing operations and income
per share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations:
As reported $70,331 $87,980 $73,988
- ----------------------------------------------------------------------------------------------------------
Pro forma $65,195 $84,180 $72,161
- ----------------------------------------------------------------------------------------------------------
Basic income per share:
As reported $ 1.77 $ 2.17 $ 1.84
Pro forma $ 1.64 $ 2.08 $ 1.80
- ----------------------------------------------------------------------------------------------------------
Diluted income per share:
As reported $ 1.74 $ 2.13 $ 1.83
Pro forma $ 1.61 $ 2.03 $ 1.79
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average fair value of options at date of grant was $15.20, $15.00
and $6.64 during 1999, 1998 and 1997, respectively. The fair value of each
option at date of grant was estimated using the Black-Scholes model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected life (years) 8.0 8.0 8.0
- ----------------------------------------------------------------------------------------------------------
Risk-free rate of return 5.6% 6.9% 6.9%
- ----------------------------------------------------------------------------------------------------------
Volatility 22.2% 20.6% 20.0%
- ----------------------------------------------------------------------------------------------------------
Dividend yield 2.0% 2.0% 2.0%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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 5,415,000 shares of the Company's common stock. Of these shares, a
maximum of 215,000 may be granted to non-employee directors. A total of 142,500
shares have been granted to non-employee directors. A total of 78,932
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 43,788
and 47,225 shares under the Stock Bonus Awards Program which related to bonuses
in fiscal 1999 and 1998, respectively.
31
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Inventories
At May 30, 1999 and May 31, 1998, inventories comprised the following:
1999 1998
Raw materials and supplies $ 52,482 $ 45,266
Materials in process 11,292 12,432
Finished goods 114,776 87,390
- ----------------------------------------------------------------------------
178,550 145,088
Less: Excess of current cost over
stated value of last-in,
first-out inventories 9,714 9,683
- ----------------------------------------------------------------------------
Total inventories $168,836 $135,405
============================================================================
The percentage of costs of products sold determined on the basis of last-in,
first-out cost approximated 12.6% and 23.9% for 1999 and 1998, respectively.
9. 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.
Provision for income taxes was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Current tax expense:
Federal $28,013 $34,196 $37,859
State and foreign 7,119 5,423 5,794
- -----------------------------------------------------------------------------------------
35,132 39,619 43,653
Deferred tax expense (benefit):
Federal 10,070 12,852 5,191
State and foreign (236) 3,279 1,697
- -----------------------------------------------------------------------------------------
9,834 16,131 6,888
- -----------------------------------------------------------------------------------------
Provision for income taxes $44,966 $55,750 $50,541
=========================================================================================
</TABLE>
The effective tax rates differ from the prevailing statutory federal rate as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Statutory federal tax rate 35.0% 35.0% 35.0%
State and foreign,
net of federal benefit 4.0 4.0 4.6
Goodwill 1.5 0.3 0.2
Other, net (1.5) (0.5) 0.8
- -----------------------------------------------------------------------------------------
Effective tax rate 39.0% 38.8% 40.6%
=========================================================================================
</TABLE>
The components of the deferred income tax assets and liabilities were as
follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 2,136 $ (3,100)
Inventory (3,036) (4,089)
Self-insurance reserves 18,040 14,472
Plant shutdown, idle facilities
and environmental costs 10,145 -
Notes receivable 12,400 -
Marketing accruals 2,900 4,176
Employee benefits and compensation 7,749 (1,807)
Other 4,020 2,677
- ----------------------------------------------------------------------------
Total deferred tax assets $ 54,354 $ 12,329
============================================================================
</TABLE>
Deferred tax liabilities:
Fixed assets $(57,661) $ 35,626
Deferred compensation 13,127 10,070
Deferred export income (2,456) (2,763)
Goodwill and other intangibles (40,106) (15,441)
Special charge accruals - 2,740
Loss carryforwards 5,761 -
Other 1,990 (2,516)
- ----------------------------------------------------------------------------
Total deferred tax liabilities $(79,345) $(43,536)
============================================================================
10. Leases
Net rental expense, including amounts for leases of one year or less, was
$42,171, $32,601 and $25,505 in 1999, 1998 and 1997, 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 30, 1999, 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>
2000 $ 3,200 $ 14,525
2001 3,220 10,994
2002 3,008 9,489
2003 2,805 7,692
2004 2,804 5,170
Thereafter 14,525 14,369
Total minimum lease payments 29,562 $ 62,239
==========================================================================
Less: Imputed interest 9,940
Present value of minimum
lease payments $19,622
====================================================
</TABLE>
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Accounts Payable and Accrued Expenses Consolidated accounts payable and
accrued expenses at May 30, 1999 and May 31, 1998 comprised the following items:
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------
<S> <C> <C>
Trade payables $156,993 $115,597
- -------------------------------------------------------------------
Accrued expenses 108,194 97,104
Accrued insurance 53,089 42,608
- -------------------------------------------------------------------
Plant closure reserve 16,033 5,217
- -------------------------------------------------------------------
Accrued payroll 48,025 41,610
Accrued taxes, other than income 6,349 6,207
- -------------------------------------------------------------------
Accrued pension and profit sharing 9,491 2,960
- -------------------------------------------------------------------
Total accounts payable
and accrued expenses $398,174 $311,303
===================================================================
</TABLE>
12. Cash Flow Data
Interest and taxes paid included in the Company's cash flow from operations were
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------
<S> <C> <C> <C>
Interest paid $ 39,125 $ 19,358 $ 15,099
- -------------------------------------------------------------
Taxes paid 83,313 33,573 26,049
=============================================================
</TABLE>
Liabilities assumed in conjunction with business acquisitions were:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------
<S> <C> <C> <C>
Fair value of assets
acquired $367,470 $ 460,650 $ 31,172
- ------------------------------------------------------------------
Consideration paid (238,786) (369,560) (16,332)
- ------------------------------------------------------------------
Liabilities assumed $128,684 $ 91,090 $ 14,840
==================================================================
</TABLE>
13. Employee Benefits Plans
The Company maintains or participates in defined benefit plans or
union-management-administered pension or profit sharing plans covering
substantially all of its employees. Benefits are based on years of service and
comprehensive or stated amounts for each year of service. Plan assets are
invested in equities and fixed income securities. The Company's funding policy
is to contribute annually not less than the ERISA minimum funding standards nor
more than the maximum funding standards nor more than the maximum amount which
can be deducted for federal income tax purposes.
The Company also 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.
Effective with May 30, 1999, the Company adopted Statement of Financial
Accounting Standard No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." SFAS No. 132 does not change the measurement or
recognition of those plans, but revises the disclosure requirements for pension
and other postretirement benefit plans for all years presented.
Net periodic benefit cost included the following components:
<TABLE>
<CAPTION>
Pension Benefits
- -------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $12,429 $ 3,919 $2,732
- -------------------------------------------------------------------------------------------------------------
Interest cost 7,429 4,068 4,096
- -------------------------------------------------------------------------------------------------------------
Expected return on assets (6,867) (3,403) (3,264)
- -------------------------------------------------------------------------------------------------------------
Amortization of unrecognized net
transition obligation (asset) (461) (281) (293)
- -------------------------------------------------------------------------------------------------------------
Amortization of prior service cost 203 93 97
- -------------------------------------------------------------------------------------------------------------
Amortization of unrecognized
net loss 722 279 190
- -------------------------------------------------------------------------------------------------------------
Net benefit cost - company plans 13,455 4,675 3,558
- -------------------------------------------------------------------------------------------------------------
Net benefit cost -
multi-employer plans 9,891 6,606 5,061
- -------------------------------------------------------------------------------------------------------------
Total net benefit cost $23,346 $11,281 $8,619
=============================================================================================================
<CAPTION>
Postretirement Benefits
- -------------------------------------------------------------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Service cost $ 98 $ 68 $ 56
- -------------------------------------------------------------------------------------------------------------
Interest cost 290 230 208
- -------------------------------------------------------------------------------------------------------------
Amortization of unrecognized net
loss (gain) 46 (16) (49)
- -------------------------------------------------------------------------------------------------------------
Net benefit cost - company plans 434 282 215
- -------------------------------------------------------------------------------------------------------------
Net benefit cost -
multi-employer plans - - -
- -------------------------------------------------------------------------------------------------------------
Total net benefit cost $ 434 $ 282 $ 215
=============================================================================================================
</TABLE>
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The changes in benefit obligations and plan assets, as well as the funded status
of the Company's pension and postretirement benefit plans are as follows:
<TABLE>
<CAPTION>
Pension Postretirement
Benefits Benefits
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at
beginning of year $113,309 $91,696 $ 4,653 $3,444
Service cost 13,139 6,791 102 75
Interest cost 7,854 7,049 302 253
Plan amendments - 840 379 -
Liability from
merged plans 17,027 - - -
Actuarial loss 7,497 14,992 3,242 1,436
Curtailment (10,188) - - -
Benefits paid (10,057) (8,058) (980) (555)
Benefit obligation
at end of year 138,581 113,310 7,698 4,653
Change in plan assets:
Fair value of plan assets
at beginning of year 103,134 71,834 - -
Actual return on
plan assets 3,231 24,884 - -
Assets from merged plans 17,082 - - -
Company contributions 797 14,474 980 555
Benefits paid (10,057) (8,058) (980) (555)
Fair value of plan assets
at end of year 114,187 103,134 - -
Funded status (24,394) (10,176) 7,698 (4,653)
Unrecognized net
transition asset (2,272) (2,760) - -
Unrecognized
prior service cost 2,337 2,814 379 -
Unrecognized net loss 10,035 9,516 4,140 946
Accrued pension cost $(14,294) $ (606) $ (3,179) $(3,707)
=================================================================================
Amounts recognized
in the consolidated
balance sheet:
Prepaid benefit cost $ - $ 5,403 $ - $ -
Accrued benefit liability (14,294) (6,009) (3,179) (3,707)
Total amounts recognized $(14,294) (606) $ (3,179) $(3,707)
=================================================================================
</TABLE>
Included in the preceding pension benefits table is an unfunded supplemental
retirement plan with a recorded liability of $7,018 and $6,009 at May 30, 1999
and May 31, 1998, respectively.
The following weighted average assumptions were used to determine the Company's
obligations under the plans:
Pension Postretirement
Benefits Benefits
1999 1998 1999 1998
Discount rate 7.00% 7.25% 7.00% 7.25%
Expected return
on plan assets 9.00% 9.00% - -
Rate of compensation
increase 0-5.0% 0-5.0% - -
The assumed health care cost trend was 6.5% in 1999, decreasing gradually to
5.0% over three years and remaining level thereafter. If the health care trend
was increased one percentage point, postretirement benefit costs for the year
ended May 30, 1999, would have been $40 higher, and the accumulated
postretirement benefit obligation as of May 30, 1999, would have been $304
higher. If the health care trend was decreased one percentage point,
postretirement benefit costs for the year ended May 30, 1999, would have been
$37 lower, and the accumulated postretirement benefit obligation as of May 30,
1999, would have been $291 lower.
The Company retained the earned pension liability related to the Vegetables
operations for liabilities through the date of disposition. Accordingly, the
projected benefit obligation, change in plan assets, funded status and prepaid
benefit cost tables above include continuing and discontinued operations.
As of January 1, 1998, the Company discontinued the noncontributory profit
sharing plans for certain employees. Contributions under these plans were made
at the discretion of the Board of Directors. Several recently acquired companies
maintained profit sharing plans. Expense for these plans was $253, $6,244 and
$5,830 in 1999, 1998 and 1997, respectively.
14. 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. The ultimate resolution of these matters is not expected to have a
material adverse effect on the financial position or results of operations of
the Company.
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Business Segment Information
The nature of products classified in the business segments presented herein is
described on pages 6 through 16. Outside the United States, no single country
would be deemed material for separate disclosure. Intersegment sales are not
material. The Company has no single customer which represents greater than ten
percent of consolidated net sales.
Operating earnings of segments do not include interest income or expense and
provision for income taxes. Identifiable assets are those used in the Company's
operations in each segment. Corporate assets consist primarily of cash and
temporary cash investments and deferred tax assets.
<TABLE>
<CAPTION>
DAIRY PICKLES SPECIALTY CORPORATE CONSOLIDATED
<S> <C> <C> <C> <C> <C>
1999
Net sales $2,984,626 $ 363,681 $ 406,841 $ -- $3,755,148
Operating earnings 95,577 34,229 59,234 (35,702) 153,338
Identifiable assets 1,329,629 185,572 287,515 109,160 1,911,876
Depreciation and amortization 65,989 8,566 9,922 3,465 87,942
Capital expenditures 118,993 10,349 5,510 4,494 139,346
1998
Net sales $2,052,532 $ 348,695 $ 334,607 $ -- $2,735,834
Operating earnings 114,084 37,054 52,187 (40,806) 162,519
Identifiable assets 919,116 182,463 164,956 52,617 1,319,152
Depreciation and amortization 43,568 6,880 6,958 3,012 60,418
Capital expenditures 68,142 12,095 18,829 5,617 104,683
1997
Net sales $1,787,862 $ 370,825 $ 301,876 $ -- $2,460,563
Operating earnings 103,764 35,974 36,685 (37,752) 138,671
Identifiable assets 510,499 141,344 107,623 61,359 820,825
Depreciation and amortization 36,913 7,360 5,133 2,028 51,434
Capital expenditures 34,429 5,751 11,298 4,102 55,580
</TABLE>
Fiscal 1999 segment operating earnings include plant closure charges of $8,882,
$8,530 and $693 in the Dairy, Pickles and Specialty segments, respectively.
35
<PAGE> 38
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
Unaudited (In thousands, except for share data) FIRST SECOND THIRD FOURTH FISCAL YEAR
<S> <C> <C> <C> <C> <C>
FISCAL 1999
Net sales $825,104 934,377 995,169 1,000,498 3,755,148
Gross profit $191,176 202,014 188,484 232,304 813,978
Income from continuing operations $ 22,913 23,354 3,280 20,784 70,331
Net income $ 21,172 105,986 3,280 20,784 151,222
Per common share data:
Basic income (loss) per share
Continuing operations $ .57 .59 .08 .53 1.77
Discontinued operations $ (.04) (.03) -- -- (.07)
Gain on sale of discontinued operations $ -- 2.10 -- -- 2.10
Net income $ .53 2.66 .08 .53 3.80
Diluted income (loss) per share
Continuing operations $ .56 .58 .08 .52 1.74
Discontinued operations $ (.04) (.03) -- -- (.07)
Gain on sale of discontinued operations $ -- 2.05 -- -- 2.07
Net income $ .52 2.60 .08 .52 3.74
Stock price range
High $ 57 7/16 50 46 5/16 39 3/4 57 7/16
Low $ 45 1/4 41 33 3/8 32 15/16 32 15/16
Dividend rate $ .21 .21 .21 .21 .84
FISCAL 1998
Net sales $619,856 624,933 665,375 825,670 2,735,834
Gross profit $150,101 145,413 148,234 186,237 629,985
Income from continuing operations $ 24,308 20,525 18,512 24,635 87,980
Net income $ 21,547 26,575 24,995 33,185 106,302
Per common share data:
Basic income (loss) per share
Continuing operations $ .60 .51 .45 .61 2.17
Discontinued operations $ (.07) .15 .16 .22 .46
Net income $ .53 .66 .61 .83 2.63
Diluted income (loss) per share
Continuing operations $ .59 .50 .44 .60 2.13
Discontinued operations $ (.07) .14 .16 .21 .44
Net income $ .52 .64 .60 .81 2.57
Stock price range
High $ 48 1/2 51 3/16 60 5/16 57 5/8 60 5/16
Low $ 37 5/8 43 7/16 51 3/4 45 1/2 37 5/8
Dividend rate $ .20 .20 .20 .20 .80
</TABLE>
The Company's common stock is traded on the New York Stock Exchange under the
ticker symbol: DF.
36
<PAGE> 39
SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
(In thousands, except for items marked with an *)
Fiscal Year Ended May, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING DATA
<S> <C> <C> <C> <C> <C>
Net sales $ 3,755,148 2,735,834 2,460,563 2,240,517 2,087,079
Operating earnings (loss) 153,338(a) 162,519 138,671 (593)(b) 112,368
Interest expense $ 39,098 21,101 15,071 16,316 13,298
Income (loss) from continuing operations 70,331(a) 87,980 73,988 (16,865)(b) 58,504
Income (loss) from discontinued operations $ (2,929) 18,322 12,716 (32,823) 21,555
Net income (loss) 151,222(a) 106,302 86,704 (49,688)(b) 80,059
Depreciation on properties $ 72,774 54,060 48,566 47,968 45,788
Capital expenditures $ 139,346 104,683 55,580 71,086 66,597
Number of employees* 13,600 11,200 8,300 8,600 9,200
BALANCE SHEET DATA
Working capital $ 142,652 67,324 64,988 24,649 52,150
Total assets $ 1,911,876 1,607,189 1,133,680 1,131,625 1,114,157
Net plant and equipment $ 764,946 551,064 381,800 375,072 399,340
Long-term obligations $ 631,286 558,233 208,931 217,984 220,553
Shareholders' equity $ 716,414 619,266 567,681 507,692 584,526
COMMON STOCK DATA*
Basic income (loss) per share
Continuing operations $ 1.77(a) 2.17 1.84 (.42)(b) 1.47
Discontinued operations $ (.07) .46 .32 (.82) .54
Gain on sale of discontinued operations $ 2.10 -- -- -- --
Net income (loss) 3.80(a) 2.63 2.16 (1.24)(b) 2.01
Diluted income (loss) per share
Continuing operations $ 1.74(a) 2.13 1.83 (.42)(b) 1.46
Discontinued operations $ (.07) .44 .32 (.82) .54
Gain on sale of discontinued operations $ 2.07 -- -- -- --
Net income (loss) $ 3.74(a) 2.57 2.15 (1.24)(b) 2.00
Cash dividends per share $ .84 .80 .76 .72 .68
Book value per share $ 18.24 15.49 14.09 12.65 14.58
Number of shareholders 8,469 8,690 8,838 9,481 9,989
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) 1999 continuing operations results include a pre-tax charge of $18,105
($11,044 after-tax, or $.27 per share) related to plant closures.
(b) 1996 continuing operations results include a pre-tax charge of $102,439
($64,906 after-tax, or $1.62 per share) related to the adoption of a plan
to reduce costs, rationalize production capacity and provide for severance
and environmental costs. The 1996 Net Loss includes a pre-tax charge of
$150,000 ($97,720 after-tax, or $2.44 per share) related to the plan
adoption.
37
<PAGE> 40
REPORT OF INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS
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 shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Dean Foods
Company and subsidiaries at May 30, 1999 and May 31, 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended May 30, 1999, 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.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, IL
June 28, 1999
38
<PAGE> 41
BOARD OF DIRECTORS
HOWARD M. DEAN (1)
Chairman of the Board and
Chief Executive Officer
RICHARD E. BAILEY(1)
President and Chief Operating Officer
EDWARD A. BRENNAN(1)(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)
Chairman, President and Chief Executive
Officer, Paging Network, Inc., a wireless
messaging and information delivery company
BERT A. GETZ(3)(4)
Chairman, President and Director, Globe
Corporation, a diversified investment firm
JANET HILL(2)
Vice President, Alexander & Associates,
a corporate consulting 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
(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
RICHARD E. BAILEY
President and Chief Operating Officer
ERIC A. BLANCHARD
Vice President and President, Dairy Division
JENNY L. CARPENTER
Group Vice President, Specialty Business
Unit and General Manager, Dean Dip and
Dressing Company
GARY A. CORBETT
Vice President, Governmental
and Dairy Industry Relations
DANIEL M. DRESSEL
Vice President, Human Resources
NEIL J. FINERTY
Vice President, Industrial Relations
GARY D. FLICKINGER
Vice President, Manufacturing and
Engineering
DANIEL E. GREEN
Vice President, Special Projects and
Acquisition Integration
JAMES R. GREISINGER
Group Vice President and President,
Dean Pickle and Specialty Products Company
CAMERON C. HITCHCOCK
Treasurer
ALAN W. HOOPER
Vice President, Special Operation Projects
DALE E. KLEBER
Vice President, Secretary and
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
KEVIN M. NEMETZ
Group Vice President, Specialty Business
Unit and General Manager, Food Products
Division
LUIS P. NIETO
Vice President, Business Strategy
DOUGLAS A. PARR
Vice President, Dairy Sales and Marketing
DENNIS J. PURCELL
Group Vice President and President,
Specialty Business Unit
THOMAS A. RAVENCROFT
Senior Vice President
GARY P. RIETZ
Chief Information Officer
39
<PAGE> 42
CORPORATE DATA
<TABLE>
<S> <C>
DIVIDEND REINVESTMENT SERVICE TRANSFER AGENT AND REGISTRAR
A service for Dean Foods shareholders is available whereby dividends For inquiries regarding change of address, stock
can be automatically reinvested in the Company's common stock. The transfer, registered shareholdings, dividends and lost
plan also provides for a voluntary quarterly cash payment option for certificates, please contact:
the purchase of additional stock and safekeeping of shares.
If interested in this service, please write to the transfer agent Harris Trust and Savings Bank
and request a copy of Dean Foods dividend reinvestment brochure: 311 West Monroe Street
Chicago, Illinois 60606
800/721-5167
Harris Trust and Savings Bank
Dividend Reinvestment Service
P.O. Box A3309
Chicago, Illinois 60690 ANNUAL MEETING
September 28, 1999, 10:00 A.M.
Rosemont Convention Center
5555 North River Road
Rosemont, Illinois 60018
(Location map appears in Proxy Statement.)
FORM 10-K
Single copies of the Company's 1999 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. CORPORATE OFFICE
3600 North River Road
Franklin Park, Illinois 60131
847/678-1680
STOCK EXCHANGE
New York Stock Exchange Ticker Symbol: DF
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 our web site at: www.deanfoods.com
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 North River Road
Franklin Park, Illinois 60131
E-Mail address: [email protected]
</TABLE>
40
<PAGE> 43
DEAN FOODS COMPANY
3600 NORTH RIVER ROAD
FRANKLIN PARK, ILLINOIS 60131
<PAGE> 1
EXHIBIT 21(a)
SUBSIDIARIES OF THE REGISTRANT AS OF MAY 30, 1999
<TABLE>
<CAPTION>
Jurisdiction In
Which Organized
---------------
<S> <C>
Alta Dena Certified Dairy, Inc. Delaware
Amboy Specialty Foods Company Delaware
Barber Dairies, Inc. Delaware
Bell Dairy Products, Inc. Texas
Berkeley Farms, Inc. California
Bowman Dairy Company, Inc. Delaware
Coburg, Inc. South Carolina
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 California Delaware
Dean Foods Company of Indiana Delaware
Dean Foods Products Company Delaware
Dean Milk Company, Inc. Kentucky
Dean Pickle and Specialty Products Company Wisconsin
DFC Transportation Company Delaware
E.B.I. Foods, Ltd. United Kingdom
Elgin Blenders, Inc. Illinois
Gandy's Dairies, Inc. Texas
H. Meyer Dairy Company Delaware
Ice Cream Products, LLC Illinois
Liberty Dairy Company Michigan
McArthur Dairy, Inc. Florida
Mayfield Dairy Farms, Inc. Tennessee
Meadow Brook Dairy Company Pennsylvania
Meadows Distributing Company Illinois
Purity Dairies, Inc. Tennessee
Reiter Dairy, Inc. Ohio
Ryan Foods Company Kentucky
Sani-Dairy, Inc. Delaware
Schwartz Pickle Company Delaware
T.G. Lee Foods, Inc. Florida
Verifine Dairy Products Corporation of Sheyboygan Wisconsin
W.B. Roddenbery Co., Inc. Georgia
Wengert's Dairy, Inc. Delaware
</TABLE>
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.
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 (No. 333-36643) and Form S-3 (No. 333-44851) of our report
dated June 28, 1999 relating to the financial statements, which appears in the
Annual Report to Shareholders, which is incorporated in this Annual Report on
Form 10-K. We also consent to the incorporation by reference of our report dated
June 28, 1999 relating to the financial statement schedules, which appears in
this Form 10-K.
PricewaterhouseCoopers LLP
Chicago, Illinois
August 27, 1999
<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 30, 1999
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-30-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> MAY-30-1999
<CASH> 15,958
<SECURITIES> 0
<RECEIVABLES> 310,907
<ALLOWANCES> 7,570
<INVENTORY> 168,836
<CURRENT-ASSETS> 582,138
<PP&E> 1,242,238
<DEPRECIATION> 477,292
<TOTAL-ASSETS> 1,911,876
<CURRENT-LIABILITIES> 439,486
<BONDS> 631,286
0
0
<COMMON> 42,276
<OTHER-SE> 674,138
<TOTAL-LIABILITY-AND-EQUITY> 1,911,876
<SALES> 3,755,148
<TOTAL-REVENUES> 3,755,148
<CGS> 2,941,170
<TOTAL-COSTS> 2,941,170
<OTHER-EXPENSES> 659,230
<LOSS-PROVISION> 1,410
<INTEREST-EXPENSE> 39,098
<INCOME-PRETAX> 115,297
<INCOME-TAX> 44,966
<INCOME-CONTINUING> 70,331
<DISCONTINUED> 80,891
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151,222
<EPS-BASIC> 3.80
<EPS-DILUTED> 3.74
</TABLE>
