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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 27, 2000
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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
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DEAN FOODS COMPANY
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(Exact name of registrant as specified in its charter)
DELAWARE 36-0984820
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(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
3600 North River Road, Franklin Park, Illinois 60131
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 678-1680
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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
--- ---
The number of shares of the Registrant's Common Stock, par value $1 per share,
outstanding as of the date of this report was 35,542,737.
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Dean Foods Company
Condensed Consolidated Statement of Income
(In Millions, Except for Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
The Three Months Ended
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August 27, August 29,
2000 1999
--------- ---------
<S> <C> <C>
Net sales $ 1,054.3 $ 1,001.3
Costs of products sold 801.0 762.0
Delivering, selling and administrative expenses 194.5 182.5
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Operating earnings 58.8 56.8
Interest expense, net of interest income 16.1 11.2
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Income before income taxes 42.7 45.6
Provision for income taxes 16.3 17.8
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Net income $ 26.4 $ 27.8
========= =========
Earnings per share:
Basic $ .74 $ .71
========= =========
Diluted $ .74 $ .70
========= =========
Weighted average common shares:
Basic 35.5 39.3
========= =========
Diluted 35.8 39.9
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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Dean Foods Company
Condensed Consolidated Balance Sheet
(In Millions)
<TABLE>
<CAPTION>
August 27, May 28,
2000 2000
--------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and temporary cash investments $ 29.7 $ 26.6
Accounts and notes receivable, less allowance for
doubtful accounts of $7.1 and $6.3, respectively 326.3 302.6
Inventories 229.2 178.4
Other current assets 86.9 92.8
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Total Current Assets 672.1 600.4
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Property, Plant and Equipment
Property, plant and equipment, at cost 1,457.3 1,356.1
Accumulated depreciation 567.4 540.9
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Total Property, Plant and Equipment, net 889.9 815.2
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Other Assets
Intangibles, net of amortization of
$46.8 and $42.1, respectively 679.0 563.8
Other assets 34.4 24.1
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Total Other Assets 713.4 587.9
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Total Assets $2,275.4 $2,003.5
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current installments of long-term obligations $ 3.4 $ 3.6
Accounts payable and accrued expenses 429.1 396.4
Dividends payable 8.1 7.9
Federal and state income taxes 56.8 41.2
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Total Current Liabilities 497.4 449.1
Long-Term Obligations 964.5 758.7
Deferred Liabilities 136.2 138.0
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Total Liabilities 1,598.1 1,345.8
Shareholders' Equity 677.3 657.7
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Total Liabilities and Shareholders' Equity $2,275.4 $2,003.5
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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Dean Foods Company
Condensed Consolidated Statement of Cash Flows
(In Millions)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
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August 27, August 29,
2000 1999
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<S> <C> <C>
Net cash provided from continuing operations $ 60.3 $ 52.1
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Investing activities
Capital expenditures (39.9) (31.8)
Proceeds from disposition of property, plant and equipment 3.4 0.1
Acquisitions and investments, net of cash acquired (220.0) (32.3)
Other (0.1) (2.6)
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Net cash used in investing activities (256.6) (66.6)
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Financing activities
Issuance of long-term obligations 250.0 --
Debt issue costs (3.8) --
Repayment of long-term obligations (0.9) (0.9)
Issuance (Repayment) of commercial paper, net (39.8) 27.0
Cash dividends paid (7.8) (8.2)
Issuance of common stock 1.7 1.4
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Net cash provided by financing activities 199.4 19.3
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Increase in cash and temporary cash investments 3.1 4.8
Cash and temporary cash investments - beginning of period 26.6 16.0
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Cash and temporary cash investments - end of period $ 29.7 $ 20.8
====== ======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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Dean Foods Company
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Dollar amounts in millions unless otherwise noted.
1. BASIS OF PRESENTATION
The unaudited financial information presented reflects all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
consolidated financial statements for an interim period. All such adjustments
are of a normal, recurring nature. Results of operations for an interim period
are not necessarily indicative of results for the full year. These interim
financial statements should be read in conjunction with the financial statements
and related notes contained in the Annual Report on Form 10-K for the fiscal
year ended May 28, 2000.
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 disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
Certain previously reported amounts have been reclassified to conform to current
year presentations.
2. ACQUISITIONS
The Company acquired for cash consideration the assets of the Nalley's pickle
business located in Tacoma, Washington, on June 27, 2000 and the assets of Land
O'Lakes Upper Midwest fluid dairy and extended shelf life operations, on July
10, 2000. 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 on a straight-line
basis over periods up to forty years. The operating results of each acquisition
have been included in the Company's results of operations since the date of
acquisition. During the first quarter, the Company made an additional equity
investment in White Wave, Inc. and an initial investment in a joint venture with
Land O'Lakes.
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.
3. INVENTORIES
The following is a tabulation of inventories by class at August 27, 2000 and
May 28, 2000.
<TABLE>
<CAPTION>
August 27, May 28,
2000 2000
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<S> <C> <C>
Raw materials and supplies $ 54.5 $ 53.7
Materials in process 21.2 9.6
Finished goods 162.7 124.4
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238.4 187.7
Less: Excess of current cost over stated
value of last-in, first-out inventories 9.2 9.3
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Total inventories $229.2 $178.4
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</TABLE>
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Dean Foods Company
Notes To Condensed Consolidated Financial Statements - (continued)
(Unaudited)
4. DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense for the first quarters ended August 27,
2000 and August 29, 1999 was $32.8 million and $27.8 million, respectively.
5. BORROWING ARRANGEMENTS
On June 23, 2000, the Company filed a shelf registration to issue, from time to
time, up to $650 million in various debt and equity securities. During the first
quarter of fiscal 2001, the Company issued $250 million of 8.15% Notes due in
2007. The proceeds of these notes were used to fund first quarter acquisitions
and to repay commercial paper.
6. BUSINESS SEGMENT INFORMATION
The Company announced the realignment of its business segment structure and the
formation of a new business segment, focusing on refrigerated national dairy and
related brands. Under the new structure, the Company will continue to operate
under three business segments. The largest segment continues to be the Dairy
segment, which will serve national and regional dairy customers through its
system of direct route sales. The second largest segment, Specialty Foods,
combines the pickles business with the non-dairy creamer products, aseptic and
ingredient products and the Company's transportation group, all of which were
part of the former Specialty segment. The third segment is the newly formed
National Refrigerated Products segment, which includes refrigerated owned and
licensed national dairy brands along with the Company's extended shelf life
products.
The following is a tabulation of the Company's business segment information for
the first quarters ended August 27, 2000 and August 29, 1999.
<TABLE>
<CAPTION>
National
Specialty Refrigerated
Dairy Foods Products Corporate Consolidated
----- ----- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
August 27, 2000
Net sales $ 788.8 $ 181.2 $ 84.3 $ -- $ 1,054.3
Operating earnings 41.7 23.0 4.3 (10.2) 58.8
Identifiable assets 1,471.8 464.6 215.2 123.8 2,275.4
August 29, 1999
Net sales $ 763.8 $ 170.6 $ 66.9 $ -- $ 1,001.3
Operating earnings 39.9 20.2 8.3 (11.6) 56.8
Identifiable assets 1,290.2 440.8 132.7 115.7 1,979.4
</TABLE>
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER FISCAL 2001 VERSUS FIRST QUARTER FISCAL 2000
RESULTS OF CONTINUING OPERATIONS
Net sales for the first quarter of fiscal 2001 of $1,054.3 million were $53.0
million, or 5.3%, higher than sales of $1,001.3 million in the prior year. Net
sales increased in all business segments, with the majority of the sales
increase due to fiscal 2001 Dairy and Specialty Foods segment acquisitions.
Operating earnings increased $2.0 million, or 3.5%, over the prior year,
reflecting improvements in the Dairy and Specialty Foods segments, which were
slightly offset by expenses associated with new product launches in the National
Refrigerated Products (NRP) segment.
BUSINESS SEGMENTS
The Company announced the realignment of its business segment structure and the
formation of a new business segment, focusing on refrigerated national dairy and
related brands. Under the new structure, the Company will continue to operate
under three business segments. The largest segment continues to be the Dairy
segment, which will serve national and regional dairy customers through its
system of direct route sales. The second largest segment, Specialty Foods,
combines the pickles business with the non-dairy creamer products, aseptic and
ingredient products and the Company's transportation group, all of which were
part of the former Specialty segment. The third segment is the newly formed
National Refrigerated Products segment, which includes refrigerated owned and
licensed national dairy brands along with the Company's extended shelf life
products.
DAIRY - Dairy segment sales of $788.8 million were $25.0 million, or 3.3%
higher than sales of $763.8 million in the prior year. Operating earnings
increased 4.5% to $41.7 million from $39.9 million in the first quarter of last
year. The increase in sales and earnings is largely attributable to the fiscal
2001 acquisition of the Land O'Lakes Upper Midwest fluid milk business. Dairy
earnings were also favorably impacted by improved margins in fluid milk
operations and a stable commodity environment, offset in part by lower ice cream
earnings resulting from lower volumes from a cooler than normal summer and
reduced ice cream promotions in certain key markets. Advanced forward milk
pricing was adopted by the national federal order system in January of 2000,
substantially reducing the quarterly earnings volatility associated with the
previous federal order milk pricing system. As a result, raw milk pricing had a
limited impact on first quarter earnings compared to last year in which rising
prices resulted in a positive impact on fluid operations. Prices of raw milk
were relatively low and remained stable during the first quarter.
SPECIALTY FOODS - Specialty Foods segment sales increased $10.6 million,
or 6.2%, to $181.2 million in the first quarter. Sales increases were due to the
fiscal 2001 acquisition of the Nalley's pickle business and improved sales in
the pickles and non-dairy creamer products businesses. Sales of pickles
rebounded in the first quarter of fiscal 2001, following a decrease in the
aggressive promotional and advertising activities by the branded market leader
that had occurred during the second half of fiscal 2000. Operating earnings
increased 13.8%, to $23.0 million, from $20.2 million last year, as a result of
the Nalley's acquisition, improved performance by pickles and powdered products,
and property gains from the Company's ongoing program to rationalize production
facilities.
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NATIONAL REFRIGERATED PRODUCTS - Net sales in the NRP segment for the
first quarter of fiscal 2001 were $84.3 million, an increase of $17.4 million,
or 26.0%, from $66.9 million in the prior year. The increase in net sales is due
to the acquisition of the Land O'Lakes extended shelf life (ESL) operations,
increased sales of the Deans dips and dressing division and improved sales of
ESL and intermediate shelf life (ISL) owned and licensed brands. Increased sales
of the Dean dips and dressing division were due primarily to the successful
introduction of the "Dips-For-One"(TM) product. Operating earnings of $4.3
million were 48.2% lower than the first quarter of the prior fiscal year,
primarily as a result of planned advertising and promotional spending for new
product launches, including "Dips-For-One"(TM), Marie's pourable salad
dressings, the introduction of the ISL Chugs on a national basis and the market
expansion of the Land O'Lakes "Grip `n Go"(TM) product.
CORPORATE
Corporate expenses decreased $1.4 million in the first quarter of fiscal 2001
versus the same period in the prior year. The decrease is primarily due to lower
stock-based compensation expenses.
INTEREST EXPENSE, NET OF INTEREST INCOME
Interest expense, net of interest income increased $4.9 million, or 43.8%,
during the first quarter compared to the prior year, primarily due to interest
expense associated with increased borrowings used to fund fiscal 2001
acquisitions and fiscal 2000 stock repurchases.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at August 27, 2000 was $174.7 million compared to $151.3 million
at May 28, 2000. Inventories at August 27, 2000 were $229.2 million, an increase
of $50.8 million over the balance at May 28, 2000. The increase in working
capital and inventories were primarily the result of typical seasonal inventory
increases from the cucumber harvest within the pickles business as well as
acquisitions completed during the first quarter of fiscal 2001.
Seasonal working capital requirements are funded using the Company's Commercial
Paper Program, which was entered into during fiscal 1999, and bilateral lines of
credit. The Company classifies commercial paper borrowings as long-term. At
August 27, 2000 and May 28, 2000 there were no short-term borrowings
outstanding.
During the first quarter, the Company issued $250 million of 8.15% Notes due in
2007. The proceeds of these notes were used to fund the fiscal 2001 acquisitions
in the Dairy and Specialty Foods segments as well as to repay commercial paper.
The Company's debt to capitalization ratio was approximately 59% at the end of
the first quarter up from 54% at May 28, 2000.
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CASH FLOWS - Cash and temporary cash investments increased $3.1 million
during the first quarter of fiscal 2001. Net cash provided from continuing
operations was $60.3 million for the first quarter of fiscal 2001, compared to
$52.1 million in the prior year.
Net cash used in investing activities was $256.6 million for first quarter
fiscal 2001 versus $66.6 million in fiscal 2000. First quarter fiscal 2001
investing activities included $220.0 million of cash paid for acquisitions and
investments compared to $32.3 million paid during the first quarter of fiscal
2000. First quarter fiscal 2001 acquisitions and investments included the
Nalley's and Land O'Lakes acquisitions and the investments made in White Wave,
Inc. and the joint venture with Land O'Lakes. First quarter fiscal 2000
acquisitions included the Steinfeld's Pickle Products and Dairy Express, Inc.
acquisitions. Capital expenditures during the first quarter of fiscal 2001 were
$39.9 million compared to $31.8 million in the first quarter of last year.
Net cash provided by financing activities was $199.4 million and $19.3 million
for the first quarters of fiscal 2001 and fiscal 2000, respectively. Fiscal 2001
financing activities include $245.3 million of net borrowings from long-term
obligations offset by $39.8 million of repayments of the Company's Commercial
Paper program.
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 28, 2000.
Item 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of August 27, 2000, 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 28, 2000.
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There has been no material change in the legal proceedings reported
under Item 3 - Legal Proceedings, of the Company's Annual Report on
Form 10-K for the fiscal year ended May 28, 2000.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Basic and Diluted Earnings per Share
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report dated September 22, 2000, with
regards to the Company's press release dated September 20, 2000, "Dean
Foods Reports First Quarter Results and Business Unit Realignment to
Drive National Brands".
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SIGNATURE
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
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(Registrant)
DATE: October 11, 2000 /s/ BARBARA A. KLEIN
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BARBARA A. KLEIN
Vice President, Finance and
Chief Financial Officer
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