<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 November 26, 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
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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 35,566,016.
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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>
Second Quarter Ended Six Months Ended
-------------------- ----------------
November 26, November 28, November 26, November 28,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 1,103.5 $1,067.0 $ 2,157.8 $ 2,068.4
Costs of products sold 847.0 828.0 1,648.0 1,590.0
Delivery, selling and administrative expenses 199.8 182.6 394.3 365.2
---------- -------- --------- ---------
Operating earnings 56.7 56.4 115.5 113.2
Interest expense, net of interest income 18.6 12.1 34.7 23.3
Gain on sale of note 10.0 - 10.0 -
---------- -------- --------- ---------
Income before income taxes 48.1 44.3 90.8 89.9
Provision for income taxes 18.3 17.3 34.6 35.1
---------- -------- --------- ---------
Net income $ 29.8 $ 27.0 $ 56.2 $ 54.8
========== ======== ========= =========
Net income per share:
Basic $ .84 $ .69 $ 1.58 $ 1.40
========== ======== ========= =========
Diluted $ .84 $ .68 $ 1.58 $ 1.38
========== ======== ========= =========
Weighted average common shares:
Basic 35.5 39.1 35.5 39.2
========== ======= ========= =========
Diluted 35.7 39.8 35.7 39.8
========== ======= ========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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Dean Foods Company
Condensed Consolidated Balance Sheet
(In Millions)
<TABLE>
<CAPTION>
November 26, May 28,
2000 2000
-------------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and temporary cash investments $ 46.3 $ 26.6
Accounts and notes receivable, less allowance for
doubtful accounts of $6.1 and $6.3, respectively 365.0 302.6
Inventories 239.5 178.4
Other current assets 73.4 92.8
-------------- -----------
Total Current Assets 724.2 600.4
-------------- -----------
Property, Plant and Equipment
Property, plant and equipment, at cost 1,505.4 1,356.1
Accumulated depreciation 592.2 540.9
-------------- -----------
Total Property, Plant and Equipment, net 913.2 815.2
-------------- -----------
Other Assets
Intangibles, net of amortization of
$52.1 and $42.1, respectively 680.2 563.8
Other assets 34.2 24.1
-------------- -----------
Total Other Assets 714.4 587.9
-------------- -----------
Total Assets $ 2,351.8 $ 2,003.5
============== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current installments of long-term obligations $ 5.1 $ 3.6
Accounts payable 177.2 151.4
Accrued expenses 246.6 245.0
Dividends payable 8.1 7.9
Federal and state income taxes 36.6 41.2
-------------- -----------
Total Current Liabilities 473.6 449.1
Long-Term Obligations 1,045.5 758.7
Deferred Liabilities 133.2 138.0
-------------- -----------
Total Liabilities 1,652.3 1,345.8
Shareholders' Equity 699.5 657.7
-------------- -----------
Total Liabilities and Shareholders' Equity $ 2,351.8 $ 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>
Six Months Ended
--------------------------------------------
November 26, November 28,
2000 1999
---------------- ---------------
<S> <C> <C>
Net cash provided from operations $ 50.1 $ 77.9
---------------- ---------------
Investing activities
Capital expenditures (91.4) (68.9)
Proceeds from disposition of property, plant and equipment 6.8 1.2
Acquisitions and investments, net of cash acquired (220.0) (37.3)
Other (0.3) (4.4)
---------------- ---------------
Net cash used in investing activities (304.9) (109.4)
---------------- ---------------
Financing activities
Issuance of long-term obligations 250.0 -
Net debt issue costs (3.7) -
Repayments of long-term obligations (1.3) (1.3)
Issuance of commercial paper, net 43.1 79.7
Cash dividends paid (15.8) (16.9)
Issuance of common stock 2.2 2.8
Repurchase of treasury stock - (23.8)
---------------- ---------------
Net cash provided by financing activities 274.5 40.5
---------------- ---------------
Increase in cash and temporary cash investments 19.7 9.0
Cash and temporary cash investments - beginning of period 26.6 16.0
---------------- ---------------
Cash and temporary cash investments - end of period $ 46.3 $ 25.0
================ ===============
</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 the interim periods. All such adjustments
are of a normal, recurring nature. Results of operations for the interim periods
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
During the first six months of fiscal 2001, 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 of 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 six months 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. On August 23, 1999, the Company announced
an initial investment in White Wave, Inc.
5
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Dean Foods Company
Notes To Condensed Consolidated Financial Statements (continued)
(Unaudited)
3. GAIN ON SALE OF NOTE
On December 1, 2000 the Company sold for $10.0 million, a $30.0 million
subordinated note which was received as a part of the proceeds from the sale of
the Company's vegetables segment to Agrilink Foods, Inc. in fiscal 1999. Due to
the uncertainty of the collectibility of the $30.0 million subordinated note,
the note was originally valued at a nominal amount. As a result of the sale, the
Company reversed $10.0 million of the original reserve against the note,
resulting in the recognition of a $10.0 million pre-tax gain in the second
quarter of fiscal 2001.
4. INVENTORIES
The following is a tabulation of inventories by class at November 26, 2000,
November 28, 1999 and May 28, 2000.
<TABLE>
<CAPTION>
November 26, November 28, May 28,
2000 1999 2000
------------ ------------ -------
(Unaudited)
<S> <C> <C> <C>
Raw materials and supplies $ 55.8 $ 48.4 $ 53.7
Materials in process 19.1 24.7 9.6
Finished goods 173.8 154.3 124.4
-------- --------- -------
248.7 227.4 187.7
Less: Excess of current cost over
stated value of last-in, first-
out inventories 9.2 9.8 9.3
-------- --------- -------
Total inventories $ 239.5 $ 217.6 $ 178.4
======== ========= =======
</TABLE>
5. DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense for the second quarters ended November 26,
2000 and November 28, 1999 was $34.1 million and $27.8 million, respectively.
Depreciation and amortization expense for the six months ended November 26, 2000
and November 28, 1999 was $66.9 million and $55.6 million, respectively.
6. 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.
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Dean Foods Company
Notes To Condensed Consolidated Financial Statements (continued)
(Unaudited)
7. BUSINESS SEGMENT INFORMATION
During the first quarter of fiscal 2001, 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 Group, which will serve national
and regional dairy customers through its system of direct route sales. The
second largest segment, Specialty Foods Group, 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 National Refrigerated Products Group, 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 second quarter and six months ended November 26, 2000 and November 28, 1999.
<TABLE>
<CAPTION>
National
Specialty Refrigerated
Dairy Foods Products Corporate Consolidated
------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
SECOND QUARTER ENDED
November 26, 2000
Net sales $ 811.9 $ 189.3 $ 102.3 $ - $ 1,103.5
Operating earnings 43.8 20.4 0.1 (7.6) 56.7
Identifiable assets 1,506.4 466.1 244.4 134.9 2,351.8
November 28, 1999
Net sales $ 808.6 $ 184.5 $ 73.9 $ - $ 1,067.0
Operating earnings 31.1 25.0 10.0 (9.7) 56.4
Identifiable assets 1,336.5 443.6 146.5 114.5 2,041.1
SIX MONTHS ENDED
November 26, 2000
Net sales $ 1,600.7 $ 370.5 $ 186.6 $ - $ 2,157.8
Operating earnings 85.5 43.4 4.4 (17.8) 115.5
November 28, 1999
Net sales $ 1,572.4 $ 355.1 $ 140.9 $ - $ 2,068.4
Operating earnings 71.0 45.2 18.3 (21.3) 113.2
</TABLE>
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Dean Foods Company
Notes To Condensed Consolidated Financial Statements (continued)
(Unaudited)
8. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued in June 1998 and
amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities," in June 2000. These Statements standardize 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. SFAS No. 133 was to be effective for fiscal years beginning after
June 15, 1999. In July 1999 the FASB issued SFAS No. 137 "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective date
of SFAS No. 133," which delayed the effective date by one year. The adoption of
SFAS No. 133, in fiscal 2002, it is not expected to have a material impact on
the Company's results of operations or financial condition.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which was amended by SAB No. 101A in March 2000 and further amended
by SAB No. 101B in June 2000. SAB No. 101B delayed the implementation date of
SAB 101. The SAB, which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements, is required to be adopted by the
Company in the fourth quarter of fiscal 2001. The adoption of this Statement is
not expected to have a material impact on the Company's results of operations or
financial condition.
In September 2000, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board reached a final consensus on Issue No. 00-10
"Accounting for Shipping and Handling Costs." This issue addresses the
recognition, measurement and income statement classification of shipping and
handling fees and costs. The Company currently classifies certain shipping and
handling costs as a reduction of sales. Upon adoption of Issue No. 00-10,
shipping and handling costs classified as a reduction in sales will be
reclassified to delivery, selling and administrative expense, resulting in an
increase in sales. The Company is currently evaluating the impact of this Issue,
which is required to be adopted in the fourth quarter fiscal 2001. Prior period
amounts will be reclassified to conform to the new requirements. This change
will not affect the Company's financial position or earnings.
In May 2000, the EITF reached consensus on Issue No. 00-14 "Accounting for
Certain Sales Incentives." This Issue addresses the recognition, measurement and
income statement classification of sales incentives that have the effect of
reducing the price of a product or service to a customer at the point of sale.
The Company is continuing to evaluate the impact of this Issue. Upon adoption,
in the first quarter of fiscal 2002, certain sales incentives, which are
currently classified in delivery and selling expense, will be reclassified as a
reduction of sales. Prior period amounts will be reclassified to conform to the
new requirements. This change will not affect the Company's financial position
or earnings.
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Dean Foods Company
Notes To Condensed Consolidated Financial Statements (concluded)
(Unaudited)
9. EARNINGS PER COMMON SHARE
Basic and diluted earnings per share are calculated in accordance with SFAS No.
128, "Earnings Per Share." Basic EPS is computed by dividing reported net income
by the weighted average shares outstanding. Diluted EPS includes the incremental
shares issuable upon the assumed exercise of stock options and warrants, using
the treasury stock method. The following is a reconciliation of the numerators
and denominators of the basic and diluted per share computations.
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
-------------------- ----------------
November 26, November 28, November 26, November 28,
2000 1999 2000 1999
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
NET INCOME (NUMERATOR) $ 29.8 $ 27.0 $ 56.2 $ 54.8
============== ============== ============= =============
SHARES (DENOMINATOR)
Weighted average common shares
outstanding during the period 35.5 39.1 35.5 39.2
Incremental common shares attributable
to dilutive stock options 0.2 0.7 0.2 0.6
-------------- -------------- ------------- -------------
Diluted number of shares outstanding 35.7 39.8 35.7 39.8
during the period ============== ============== ============= =============
NET INCOME PER SHARE
Basic $ .84 $ .69 $ 1.58 $ 1.40
============== ============== ============= =============
Diluted $ .84 $ .68 $ 1.58 $ 1.38
============== ============== ============= =============
</TABLE>
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
RESULTS OF OPERATIONS
SECOND QUARTER ENDED NOVEMBER 26, 2000 VERSUS SECOND QUARTER ENDED
NOVEMBER 28, 1999
RESULTS OF CONTINUING OPERATIONS
Net sales for the second quarter of fiscal 2001 of $1,103.5 million were $36.5
million, or 3.4%, higher than sales of $1,067.0 million in the prior year. Net
sales increased in all business segments, with strong organic sales growth in
the National Refrigerated Products (NRP) Group and acquisition driven growth in
each segment. Operating earnings increased slightly to $56.7 million from $56.4
million in the second quarter of fiscal 2000, reflecting significantly higher
operating earnings in the Dairy Group, offset by earnings declines in the
Specialty Foods and NRP Groups. Net income for the second quarter increased to
$29.8 million, or $0.84 per diluted share, versus $27.0 million, or $0.68 per
diluted share, in fiscal 2000. The year over year increase is primarily due to a
$10.0 million pre-tax gain ($6.2 million after-tax, or $0.18 per share) on the
sale of a note, offset in part by higher interest expense associated with
increased debt levels to finance acquisitions and share repurchases.
BUSINESS SEGMENTS
DAIRY - Dairy Group sales of $811.9 million were $3.3 million, or 0.4%
higher than sales of $808.6 million in the prior year. Dairy sales volume
improved 5.1% versus the prior year. The volume increase was partially offset by
lower pricing due to lower raw milk costs in Fiscal 2001. The increase in sales
volume was primarily the result of the fiscal 2001 acquisition of the Land
O'Lakes (LOL) Upper Midwest fluid milk business and volume growth with key
retailers as they continue to expand nationally. Operating earnings increased
40.8%, to $43.8 million, from $31.1 million in the second quarter of last year.
The increase in earnings is primarily a result of improved margins in branded
fluid milk products, cost reduction efforts, a stable commodity environment and
the acquisition of LOL. 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 second
quarter earnings compared to last year, in which butterfat costs and a
relatively high raw milk price adversely impacted earnings. Prices of raw milk
were relatively low and stable during the second quarter of fiscal 2001.
10
<PAGE> 11
SPECIALTY FOODS - Specialty Foods Group sales increased $4.8 million, or
2.6%, to $189.3 million in the second quarter of fiscal 2001. The sales increase
was primarily due to the fiscal 2001 acquisition of the Nalley's pickle
business, offset by the softening sales of powdered products, primarily in the
international export business, and branded pickles. Operating earnings decreased
18.4%, to $20.4 million, from $25.0 million last year. The decrease in earnings
was a result of lower powdered products and branded pickles sales, higher
packaging, distribution and energy costs and increased promotional and other
spending to support the consolidation of a number of regional pickle brands in
order to improve distribution and increase operating efficiencies.
NATIONAL REFRIGERATED PRODUCTS - NRP Group sales for the second quarter of
fiscal 2001 were $102.3 million, an increase of $28.4 million, or 38.4%, from
$73.9 million in the prior year. The increase in net sales is due to increased
sales of extended shelf life (ESL) and intermediate shelf life (ISL) products,
new product introductions and the acquisition of LOL extended shelf life
operations. Operating earnings of $0.1 million were $9.9 million lower than the
second quarter of the prior fiscal year, primarily as a result of approximately
$6 million of planned advertising and promotional spending for new product
launches, including "Dips-For-One"TM and Marie's pourable salad dressings, and
approximately $4 million of costs associated with the significant ramp-up of
complex, state-of-the-art technology to produce ISL and ESL products.
CORPORATE
Corporate expenses decreased $2.1 million in the second quarter of fiscal 2001
versus the same period in the prior year. The decrease is primarily due to lower
stock price-based and incentive compensation expenses and other cost reductions
achieved through cost reduction plans.
INTEREST EXPENSE, NET OF INTEREST INCOME
Interest expense, net of interest income, increased $6.5 million, or 53.7%,
during the second quarter compared to the prior year, primarily due to increased
borrowings used to fund fiscal 2001 acquisitions and fiscal 2000 stock
repurchases.
GAIN ON SALE OF NOTE
On December 1, 2000, the Company sold for $10.0 million, a $30.0 million
subordinated note which was received as a part of the proceeds from the sale of
the Company's vegetables segment to Agrilink Foods, Inc. in fiscal 1999. Due to
the uncertainty of the collectibility of the $30.0 million subordinated note,
the note was originally valued at a nominal amount. As a result of the sale, the
Company reversed $10.0 million of the original reserve against the note,
resulting in the recognition of a $10.0 million pre-tax gain ($6.2 million
after-tax, or $0.18 per share) in the second quarter of fiscal 2001.
SIX MONTHS ENDED NOVEMBER 26, 2000 VERSUS SIX MONTHS ENDED NOVEMBER 28, 1999
RESULTS OF CONTINUING OPERATIONS
Net sales for the six months ended November 26, 2000 were $2,157.8 million
versus net sales of $2,068.4 million in the prior year. Net sales increased in
all business segments, with the majority of the increase due to acquisitions.
Operating earnings increased to $115.5 million in fiscal 2001 from $113.2
million in fiscal 2000. Net income for the first six months of fiscal 2001
increased to $56.2 million, or $1.58 per diluted share, versus $54.8 million, or
$1.38 per diluted share, in fiscal 2000. The year over year increase is
primarily due to a $10.0 million pre-tax gain ($6.2 million after-tax, or $0.18
per share) on the sale of a note, offset by higher interest expense associated
with higher debt levels to finance acquisitions and share repurchases.
11
<PAGE> 12
BUSINESS SEGMENTS
DAIRY - Fiscal 2001 net sales in the Dairy Group of $1,600.7 million were
$28.3 million, or 1.8%, higher than sales in the prior year. Dairy sales volumes
were 2.4% higher than the prior year. The increase in sales is largely
attributable to the LOL Upper Midwest fluid milk business acquisition completed
during the first half of fiscal 2001 and volume growth with key national
customers. Operating earnings increased 20.4%, to $85.5 million, from $71.0
million in the prior year. The increase is primarily attributable to the LOL
acquisition, improved margins in branded fluid milk products and ongoing cost
reduction efforts. Butterfat and milk prices had a minimal net impact on first
half year over year earnings.
SPECIALTY FOODS - Fiscal 2001 net sales increased $15.4 million to $370.5
million when compared to Fiscal 2000. The net sales improvement can be primarily
attributed to the acquisition of the Nalley's pickle business, in July of this
fiscal year. Operating earnings of $43.4 million decreased in fiscal 2001 by
4.0%, or $1.8 million, when compared to the prior year. The decrease is due to
lower volumes and higher packaging, distribution and energy costs, as well as
increased promotional and other spending associated with the consolidation of a
number of regional pickle brands to fewer, stronger brands.
NATIONAL REFRIGERATED PRODUCTS - Net sales of $186.6 million were $45.7
million, or 32.4%, higher than fiscal 2000, primarily due to increased sales of
ISL and ESL products, new product introductions and the acquisition of the LOL
extended shelf life operations. Fiscal 2001 operating earnings of $4.4 million
declined $13.9 million from earnings of $18.3 million in the prior year. The
earnings decline is attributable to approximately $12 million of increased
marketing and promotional expenses for new product launches and increased
manufacturing costs associated with the significant ramp-up of complex,
state-of-the-art technology to produce ISL and ESL products.
CORPORATE
Corporate expenses decreased $3.5 million, or 16.4%, for the first six months of
fiscal 2001 compared to the same period of the prior year, primarily due to
lower stock price-based and incentive compensation expenses and other cost
reductions achieved through cost reduction plans.
INTEREST EXPENSE, NET OF INTEREST INCOME
Interest expense, net of interest income, increased $11.4 million, or 48.9%, to
$34.7 million in the first half of fiscal 2001 when compared to the same period
in the prior fiscal year. The increase is the result of higher average
borrowings outstanding during fiscal 2001 due to fiscal 2001 acquisitions and
fiscal 2000 stock repurchases.
GAIN ON SALE OF NOTE
On December 1, 2000, the Company sold for $10.0 million, a $30.0 million
subordinated note which was received as a part of the proceeds from the sale of
the Company's vegetables segment to Agrilink Foods, Inc. in fiscal 1999. Due to
the uncertainty of the collectibility of the $30.0 million subordinated note,
the note was originally valued at a nominal amount. As a result of the sale, the
Company reversed $10.0 million of the original reserve against the note,
resulting in the recognition of a $10.0 million pre-tax gain ($6.2 million
after-tax or $0.18 per share) in the second quarter of fiscal 2001.
12
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
Working capital at November 26, 2000 was $250.6 million compared to $151.3
million at May 28, 2000. Inventories at November 26, 2000 were $239.5 million,
an increase of $61.1 million over May 28, 2000 levels. The increase in working
capital and inventories was primarily the result of the Land O'Lakes and
Nalley's acquisitions, completed in the first quarter of this year, and typical
seasonal inventory increases from the cucumber harvest for the pickles business.
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. As the Company has the ability and intent to refinance such borrowing on
a long-term basis, the outstanding commercial paper balance has been classified
as long-term. At November 26, 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 Groups as well as to repay commercial paper.
The Company's debt to capitalization ratio was approximately 60% at the end of
the second quarter versus approximately 54% at May 28, 2000.
CASH FLOWS - Cash and temporary cash investments increased $19.7 million
during the first half of fiscal 2001. Net cash provided from continuing
operations was $50.1 million for the first six months of fiscal 2001, compared
to $77.9 million in the prior year.
Net cash used in investing activities was $304.9 million for the six months
ended November 26, 2000 versus $109.4 million in fiscal 2000. Year to date
fiscal 2001 investing activities included $220.0 million of cash paid for
acquisitions and investments compared to $37.3 million paid during the first
half of fiscal 2000. 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. Fiscal 2000 acquisitions included
Steinfeld's Pickle Products and Dairy Express, Inc. Capital expenditures during
the first half of fiscal 2001 were $91.4 million compared to $68.9 million in
the same period of last year, primarily reflecting expanded investments in ESL
and ISL production capabilities. Capital expenditures are funded through
operating cash flow and our Commercial Paper program.
Net cash provided by financing activities was $274.5 million and $40.5 million
for the first six months of fiscal 2001 and fiscal 2000, respectively. Fiscal
2001 financing activities include $250.0 million from the issuance of long-term
obligations and a $43.1 million increase in borrowings under the Company's
Commercial Paper program.
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NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued in June 1998 and
amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities," in June 2000. These Statements standardize 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. SFAS No. 133 was to be effective for fiscal years beginning after
June 15, 1999. In July 1999 the FASB issued SFAS No. 137 "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective date
of SFAS No. 133," which delayed the effective date by one year. The adoption of
SFAS No. 133, in fiscal 2002, it is not expected to have a material impact on
the Company's results of operations or financial condition.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which was amended by SAB No. 101A in March 2000 and further amended
by SAB No. 101B in June 2000. SAB No. 101B delayed the implementation date of
SAB 101. The SAB, which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements, is required to be adopted by the
Company in the fourth quarter of fiscal 2001. The adoption of this Statement is
not expected to have a material impact on the Company's results of operations or
financial condition.
In September 2000, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board reached a final consensus on Issue No. 00-10
"Accounting for Shipping and Handling Costs." This issue addresses the
recognition, measurement and income statement classification of shipping and
handling fees and costs. The Company currently classifies certain shipping and
handling costs as a reduction of sales. Upon adoption of Issue No. 00-10,
shipping and handling costs classified as a reduction in sales will be
reclassified to delivery, selling and administrative expense, resulting in an
increase in sales. The Company is currently evaluating the impact of this Issue,
which is required to be adopted in the fourth quarter fiscal 2001. Prior period
amounts will be reclassified to conform to the new requirements. This change
will not affect the Company's financial position or earnings.
In May 2000, the EITF reached consensus on Issue No. 00-14 "Accounting for
Certain Sales Incentives." This Issue addresses the recognition, measurement and
income statement classification of sales incentives that have the effect of
reducing the price of a product or service to a customer at the point of sale.
The Company is continuing to evaluate the impact of this Issue. Upon adoption,
in the first quarter of fiscal 2002, certain sales incentives, which are
currently classified in delivery and selling expense, will be reclassified as a
reduction of sales. Prior period amounts will be reclassified to conform to the
new requirements. This change will not affect the Company's financial position
or earnings.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of November 26, 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
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends
(b) Reports on Form 8-K
The Company filed a Current Report dated November 21, 2000,
with regards to the Company's press release dated November 21, 2000,
"Dean Foods Lowers Second Quarter Earnings Expectations."
The Company filed a Current Report dated December 27, 2000,
with regards to the Company's press release dated December 20, 2000,
"Dean Foods Reports Second Quarter Results."
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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
------------------
(Registrant)
DATE: January 10, 2001 /s/ Barbara A. Klein
----------------------------
BARBARA A. KLEIN
Vice President, Finance and
Chief Financial Officer
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