<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ------- Exchange Act of 1934
For the quarterly period ended August 29, 1999
-----------------------
or
Transition report pursuant to Section 13 or 15(d) of the Securities
- ------ Exchange Act of 1934
For the transition period from to
------------------ ---------------------
Commission file number 1-08262
-------------
DEAN FOODS COMPANY
(Exact name of registrant as specified in its charter)
- --------------------------------------------------------------------------------
DELAWARE 36-0984820
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
3600 North River Road, Franklin Park, Illinois 60131
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 678-1680
-----------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares of the Registrant's Common Stock, par value $1 per share,
outstanding as of the date of this report was 39,130,103.
1
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DEAN FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
AUGUST 29,1999 AND AUGUST 30, 1998
(In Thousands, Except for Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
------------------
August 29, August 30,
1999 1998
------------ -----------
(Unaudited)
<S> <C> <C>
Net sales $ 1,001,360 $ 825,104
Costs of products sold 762,004 633,928
Delivery, selling and administrative expenses 182,529 144,867
------------ -----------
Operating earnings 56,827 46,309
Interest expense 11,385 9,056
Interest income 189 309
------------ -----------
Income from continuing operations before income taxes 45,631 37,562
Provision for income taxes 17,796 14,649
------------ -----------
Income from continuing operations 27,835 22,913
Loss from discontinued operations, net of taxes - (1,741)
------------ -----------
Net income $ 27,835 $ 21,172
============ ===========
Basic income (loss) per share:
Income from continuing operations $ .71 $ .57
Loss from discontinued operations - (.04)
------------ -----------
Net income $ .71 $ .53
============ ===========
Diluted income (loss) per share:
Income from continuing operations $ .70 $ .56
Loss from discontinued operations - (.04)
------------ -----------
Net income $ .70 $ .52
============ ===========
Weighted average common shares:
Basic 39,290 40,023
============ ===========
Diluted 39,911 40,983
============ ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
2
<PAGE> 3
DEAN FOODS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
AUGUST 29, 1999 AND MAY 30, 1999
(In Thousands)
<TABLE>
<CAPTION>
August 29, May 30,
1999 1999
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 20,798 $ 15,958
Accounts and notes receivable, less allowance for
doubtful accounts of $7,407 and $7,570, respectively 295,414 303,337
Inventories 210,035 168,836
Other current assets 90,826 94,007
------------ ------------
Total Current Assets 617,073 582,138
------------ ------------
PROPERTIES
Property, plant and equipment, at cost 1,302,280 1,242,238
Accumulated depreciation 528,433 477,292
------------ ------------
Total Properties, net 773,847 764,946
------------ ------------
OTHER ASSETS
Intangibles, net of amortization of
$28,799 and $24,551, respectively 572,970 551,486
Other assets 15,471 13,306
------------ ------------
Total Other Assets 588,441 564,792
------------ ------------
TOTAL ASSETS $ 1,979,361 $ 1,911,876
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current installments of long-term obligations $ 2,542 $ 2,651
Accounts payable and accrued expenses 397,696 398,174
Dividends payable 8,747 8,353
Federal and state income taxes payable 47,465 30,308
------------ ------------
Total Current Liabilities 456,450 439,486
LONG-TERM OBLIGATIONS 657,758 631,286
DEFERRED LIABILITIES 128,185 124,690
SHAREHOLDERS' EQUITY 736,968 716,414
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,979,361 $ 1,911,876
============ ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
DEAN FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
AUGUST 29, 1999 AND AUGUST 30, 1998
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------
August 29, August 30,
1999 1998
-------------- -------------
(Unaudited)
<S> <C> <C>
Net cash provided from continuing operations $ 52,096 $ 13,210
----------- -----------
Investing activities
Capital expenditures (31,835) (30,368)
Proceeds from disposition of property, plant and equipment 129 282
Acquisitions, net of cash acquired (32,286) (85,768)
Other (2,552) -
------------ -----------
Net cash used in investing activities (66,544) (115,854)
----------- -----------
Financing activities
Repayment of long-term obligations (857) (11,324)
Issuance of commercial paper, net 27,032 -
Issuance of revolving credit agreement, net - 140,000
Repayment of notes payable to banks, net - (12,000)
Unexpended industrial revenue bond proceeds - 5,965
Cash dividends paid (8,255) (7,983)
Issuance of common stock 1,368 4,268
----------- -----------
Net cash provided by financing activities 19,288 118,926
----------- -----------
Net cash used by discontinued operations - (5,701)
----------- -----------
Increase in cash and temporary cash investments 4,840 10,581
Cash and temporary cash investments - beginning of period 15,958 11,932
----------- -----------
Cash and temporary cash investments - end of period $ 20,798 $ 22,513
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 5
DEAN FOODS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands unless otherwise noted.
1. BASIS OF PRESENTATION
In the opinion of the Company, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the following
unaudited condensed consolidated financial statements have been included herein.
Certain information and footnote disclosures normally included in the financial
statements have been omitted. These unaudited condensed consolidated financial
statements should be read in conjunction with the Company's 1999 Annual Report
on Form 10-K. The results of operations for the three-month period ended August
29, 1999 are not necessarily indicative of the operating results for the full
year.
2. ACQUISITIONS
During the first quarter of fiscal 2000, the Company acquired the assets of
Steinfeld's Pickle Products, a pickle producer located in Portland, Oregon, on
July 1, 1999 and Dairy Express, Inc., a dairy distributor based in the
Philadelphia area, on July 16, 1999. Each of the acquisitions was made for
cash, totaling $32.3 million. These acquisitions were accounted for as purchases
and have been recorded using preliminary valuations of the assets and
liabilities acquired. Goodwill arising from these acquisitions will be amortized
over periods up to 40 years. The operating results of each acquisition have been
included in the Company's results of operations since the date of acquisition.
3. DISCONTINUED OPERATIONS
On September 23, 1998, the Company sold the stock of Dean Foods Vegetable
Company to Agrilink Foods, Inc. Accordingly, fiscal 1999 Vegetables segment
results are presented as discontinued operations. For the first quarter ended
August 30, 1998, net sales of discontinued operations were $110.8 million. Loss
from discontinued operations for the quarter ended August 30, 1998 included
allocated interest expense (based on the short-term interest expense incurred
and changes in working capital levels) of $2.0 million and is net of an income
tax benefit of $1.2 million.
4. INVENTORIES
The following is a tabulation of inventories by class at August 29, 1999, August
30, 1998, and May 30, 1999.
<TABLE>
<CAPTION>
August 29, August 30, May 30,
1999 1998 1999
---------- ----------- ---------
(Unaudited)
<S> <C> <C> <C>
Raw materials and supplies $ 51,016 $ 40,444 $ 52,482
Materials in process 23,121 34,122 11,292
Finished goods 145,664 116,696 114,776
---------- ----------- ---------
219,801 191,262 178,550
Less: Excess of current cost over stated
value of last-in, first-out inventories 9,766 9,683 9,714
---------- ----------- ---------
Total inventories $ 210,035 $ 181,579 $ 168,836
========== =========== =========
</TABLE>
5
<PAGE> 6
5. DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense for the first quarters ended August 29,
1999 and August 30, 1998 was $27.8 million and $21.5 million, respectively.
6. BUSINESS SEGMENT INFORMATION
The following is a tabulation of the Company's business segment information for
the first quarters ended August 29, 1999 and August 30, 1998.
<TABLE>
<CAPTION>
(Unaudited)
Dairy Pickles Specialty Corporate Consolidated
----- ------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
August 29, 1999
Net sales $ 806,213 $ 95,212 $ 99,935 $ - $ 1,001,360
Operating earnings $ 42,891 $ 10,244 $ 15,476 $ (11,784) $ 56,827
Identifiable assets $ 1,343,429 $ 232,768 $ 287,535 $ 115,629 $ 1,979,361
August 30, 1998
Net sales $ 651,665 $ 93,405 $ 80,034 $ - $ 825,104
Operating earnings $ 32,503 $ 11,104 $ 11,169 $ (8,467) $ 46,309
Identifiable assets $ 1,319,758 $ 208,559 $ 166,618 $ 64,975 $ 1,759,910
</TABLE>
7. LEGAL PROCEEDINGS
See PART II, Item 1 for a discussion of pending legal proceedings.
6
<PAGE> 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER FISCAL 2000 VERSUS FIRST QUARTER FISCAL 1999
RESULTS OF CONTINUING OPERATIONS
Net sales for the first quarter of fiscal 2000 of $1.0 billion were $176.3
million, or 21.4%, higher than sales of $825.1 million in the prior year. While
net sales increased in all business segments, the majority of the sales increase
was due to fiscal 1999 Dairy segment acquisitions. Operating earnings increased
$10.5 million, or 22.7%, over the prior year, reflecting strong improvements in
the Dairy and Specialty segments.
BUSINESS SEGMENTS
DAIRY - Dairy segment sales of $806.2 million were 23.7%, or $154.5
million, higher than sales of $651.7 million in the prior year. Net sales
increases were primarily the result of fiscal 1999 acquisitions. Operating
earnings increased 32.0% to $42.9 million from $32.5 million in the first
quarter of last year. The increase is primarily attributable to increased
earnings in the ice cream and extended shelf life (ESL) operations, both of
which benefited from improved margins and plant efficiencies during the quarter,
as well as a more favorable commodity environment. ESL also benefited from
strong volume growth. Although butterfat prices rose slightly during the
quarter, the increase was significantly less than the increase in fiscal 1999,
resulting in a negative impact on fluid operations and a benefit for both ice
cream and ESL in comparison to the prior year. Overall, fluid operations were up
slightly over the prior year despite the negative butterfat impact as improved
plant efficiencies related to last year's plant consolidations began to be
realized during the quarter. Higher raw milk costs were experienced during the
first quarter, which resulted from reduced fluid available from dairy farmers
due to the extremely hot, dry weather in many parts of the country. Current
forecasts indicate that with increased production capacity, raw milk costs
should experience less volatility throughout the remainder of the year than in
fiscal 1999.
PICKLES - Net sales in the Pickles segment for the first quarter of $95.2
million increased $1.8 million, or 1.9%, from $93.4 million in the prior year.
The increase in net sales is due to the first quarter fiscal 2000 acquisition of
Steinfeld's Pickle Company. Excluding the impact of the acquisition, base
business sales were down approximately 3% from the prior year. Operating
earnings of $10.2 million were 7.7% lower than the first quarter of the prior
fiscal year. The earnings decline is primarily due to weather-related crop
shortages that caused plant inefficiencies, as well as the sales decline
mentioned above.
SPECIALTY - The Specialty segment experienced increased sales of $19.9
million, or 24.9%, to $99.9 million. Operating earnings increased 38.6% to $15.5
million. Sales and earnings increases are primarily attributable to the fiscal
1999 acquisitions of the Benton Harbor aseptic business and Custom Food
Processors International, a powdered product producer. Additionally, the Dean
Dip and Dressing division experienced higher earnings in comparison to the prior
fiscal year's first quarter.
CORPORATE
Corporate expenses increased $3.3 million in the first quarter of fiscal 2000
versus the same period in the prior year. The increase is due to higher
stock-based and incentive compensation expenses, as well as costs associated
with the Company's enterprise-wide information systems initiative.
7
<PAGE> 8
INTEREST EXPENSE
Interest expense increased $2.3 million, or 25.7%, during the first quarter
compared to the prior year, primarily due to the interest expense associated
with increased borrowings used to fund fiscal 1999 acquisitions.
INCOME TAXES
The effective income tax rate was 39.0% for the first quarters of fiscal 2000
and fiscal 1999.
DISCONTINUED OPERATIONS
Loss from discontinued operations, net of taxes, was $1.7 million for the first
quarter of fiscal 1999. On September 23, 1998, the Company sold the stock of
Dean Foods Vegetable Company to Agrilink Foods, Inc.
LIQUIDITY AND CAPITAL RESOURCES
As of August 29, 1999 there have been no material changes in the Company's
liquidity or its capital resources from those described in the Management's
Discussion and Analysis contained in the Company's Annual Report on Form 10-K
for the fiscal year ended May 30, 1999. Cash and temporary cash investments were
$20.8 million at August 29, 1999.
Working capital at August 29, 1999 was $160.6 million compared to $142.7
million at May 30, 1999, and inventories at August 29, 1999 were $210.0 million,
an increase of $41.2 million over the balance at May 30, 1999. The increase in
working capital and inventories were primarily the result of the Pickles
segment's typical seasonal inventory increase from the cucumber harvest as well
as the Pickles acquisition completed during the first quarter of fiscal 2000.
The August 29, 1999 inventories were $28.5 million higher than inventories a
year ago due to the inventory of acquisitions completed during fiscal 2000 and
the latter half of fiscal 1999.
Seasonal working capital requirements are funded using the Company's
Commercial Paper Program, which was entered into during the fourth quarter of
fiscal 1999, and bilateral lines of credit. During fiscal 1999, prior to the
Commercial Paper program, seasonal working capital requirements were funded
utilizing the Company's Revolving Credit Agreement, which matures in 2003. The
Company classifies Commercial Paper and Revolving Credit Agreement borrowings as
long-term. At August 29, 1999 and May 30, 1999 there were no short-term
borrowings outstanding.
CASH FLOWS - Cash and temporary cash investments increased $4.8 million
during the first quarter of fiscal 2000. Net cash provided from continuing
operations was $52.1 million for the first quarter of fiscal 2000 compared to
$13.2 million in the prior year. The first quarter fiscal 2000 increase in net
cash provided from continuing operations is primarily due to higher operating
earnings before depreciation and amortization and a decrease in the fiscal 2000
accounts receivable balance.
Net cash used in investing activities was $66.5 million for first quarter
fiscal 2000 versus $115.9 million in fiscal 1999. First quarter fiscal 2000
investing activities include $32.3 million of cash paid for acquisitions
compared to $85.8 million paid during the first quarter of fiscal 1999. Capital
expenditures during the first quarter of fiscal 2000 were slightly ahead of last
year's spending. Fiscal 2000 investing activities also includes $2.6 million
related to investment in the Company's enterprise-wide information systems
initiative.
Net cash provided by financing activities was $19.3 million and $118.9
million for the first quarters of fiscal 2000 and fiscal 1999, respectively.
Fiscal 2000 financing activities include $27.0 million of net borrowings under
the Company's Commercial Paper program. Fiscal 1999 financing activities
included $140.0 million of additional Revolving Credit Agreement borrowings.
First quarter fiscal 1999 financing activities also reflects the repayment of
$12.0 million of short-term notes payable.
8
<PAGE> 9
On August 23, 1999 the Company announced an equity investment in White
Wave, Inc., a processor of soy based products; the results of which will be
included in the Specialty segment. The Company continues to assess acquisition
candidates in each of its business segments.
YEAR 2000 COMPLIANCE
As discussed in the Company's Annual Report on Form 10-K, 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 application, 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 suppliers, vendors
and banking and insurance companies, and to coordinate efforts in addressing the
Year 2000 issue with these entities. The Company is 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 has completed 97% of new systems upgrades, reprogramming
efforts and related testing necessary for Year 2000 compliance. The Company
expects to incur and expense a total of approximately $4 million associated with
its Year 2000 efforts, of which approximately $3.8 million has been incurred
since the project's inception in fiscal 1997 through the end of the first
quarter of fiscal 2000. In addition to costs expensed, the Company estimates to
capitalize a total of approximately $3 million of capital expenditures for the
replacement and upgrade of system software and hardware, of which approximately
$2.5 million has been capitalized to date. The estimated aggregate costs do not
include any costs associated with contingency plans, which are in the process of
being finalized. The costs associated with these procedures have not been and
are not expected to be material to the Company's financial condition or results
of operations.
The Company believes completed 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.
FORWARD LOOKING STATEMENTS
Certain statements in this Quarterly 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 this 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. Additional
information concerning these and other risks is contained in the Company's
Annual Report on Form 10-K for the fiscal year ended May 30, 1999.
Item 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of August 29, 1999 there have been no material changes in the Company's
market risk exposure as described in the Management's Discussion and Analysis
contained in the Company's Annual Report on Form 10-K for the fiscal year
ended May 30, 1999.
9
<PAGE> 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There has been no material change in the legal proceedings reported
under Item 3 - Legal Proceedings, of the Company's Annual Report on
Form 10-K for the fiscal year ended May 30, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Basic and Diluted Income per Share
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K
None were filed.
10
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEAN FOODS COMPANY
----------------------------
(Registrant)
DATE: October 12, 1999 William R. McManaman
---------------- ------------------------------
WILLIAM R. McMANAMAN
Vice President, Finance and
Chief Financial Officer
DATE: October 12, 1999 William M. Luegers, Jr.
---------------- ------------------------------
WILLIAM M. LUEGERS, JR.
Controller
11
<PAGE> 1
Exhibit 11
Dean Foods Company
Computation of Basic and Diluted Income Per Share
(In thousands, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
------------------
August 29, August 30,
1999 1998
----------- -----------
<S> <C> <C>
Income from Continuing Operations $ 27,835 $ 22,913
Loss from Discontinued Operations - (1,741)
----------- -----------
Net Income $ 27,835 $ 21,172
=========== ===========
BASIC INCOME (LOSS) PER SHARE:
Income from Continuing Operations $ .71 $ .57
Loss from Discontinued Operations - (.04)
----------- -----------
Net Income $ .71 $ .53
=========== ===========
Weighted average common shares outstanding 39,290 40,023
=========== ===========
DILUTED INCOME (LOSS) PER SHARE:
Income from Continuing Operations $ .70 $ .56
Loss from Discontinued Operations - (.04)
----------- -----------
Net Income $ .70 $ .52
=========== ===========
Adjusted weighted average common shares* 39,911 40,983
=========== ===========
</TABLE>
* Includes weighted average number of potential common shares outstanding.
Potential common shares consist solely of outstanding options under the
Company's stock option plan.
<PAGE> 1
Exhibit 12
Dean Foods Company
Computation of Ratio of Earnings to Fixed Charges
(In thousands)
<TABLE>
<CAPTION>
13 Weeks Ended
August 29, 1999
---------------
<S> <C>
Income before taxes $ 45,631
---------------
Fixed charges:
Interest expense 11,385
Portion of rentals (33%) 3,479
---------------
Total fixed charges 14,864
---------------
Earnings before taxes and fixed charges $ 60,495
===============
Ratio of earnings to fixed charges 4.1
===============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS' QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
AUGUST 29, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-28-2000
<PERIOD-START> MAY-31-1999
<PERIOD-END> AUG-29-1999
<CASH> 20,798
<SECURITIES> 0
<RECEIVABLES> 302,821
<ALLOWANCES> 7,407
<INVENTORY> 210,035
<CURRENT-ASSETS> 90,826
<PP&E> 1,302,280
<DEPRECIATION> 528,433
<TOTAL-ASSETS> 1,979,361
<CURRENT-LIABILITIES> 456,450
<BONDS> 657,758
0
0
<COMMON> 42,314
<OTHER-SE> 694,654
<TOTAL-LIABILITY-AND-EQUITY> 1,979,361
<SALES> 1,001,360
<TOTAL-REVENUES> 1,001,360
<CGS> 762,004
<TOTAL-COSTS> 762,004
<OTHER-EXPENSES> 181,914
<LOSS-PROVISION> 615
<INTEREST-EXPENSE> 11,385
<INCOME-PRETAX> 45,631
<INCOME-TAX> 17,796
<INCOME-CONTINUING> 27,835
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,835
<EPS-BASIC> .71
<EPS-DILUTED> .70
</TABLE>
