UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



(Mark One)
ý	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended ~~September 30, 2017~~March 31, 2018



¨	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 001-12755

Dean Foods Company

(Exact name of the registrant as specified in its charter)



Delaware		75-2559681
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)

2711 North Haskell Avenue, Suite 3400

Dallas, Texas 75204

(214) 303-3400

(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices)

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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one):



Large accelerated filer	ý		Accelerated filer	¨

Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	¨

			Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No ý

As of ~~November~~May 3, ~~2017,~~2018, the number of shares of the registrant's common stock outstanding was: ~~91,071,660.~~91,345,078.

Common Stock, par value $.01

Table of Contents



			Page
Part I — Financial Information

Item 1	—	Condensed Consolidated Financial Statements (Unaudited)	3
Item 2	—	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3	—	Quantitative and Qualitative Disclosures About Market Risk	4138
Item 4	—	Controls and Procedures	4138

Part II — Other Information

Item 1A	—	Risk Factors	42
~~Item 5~~	—	~~Other Information~~	4339
Item 6	—	Exhibits	4439

Signatures			4540

Part I — Financial Information

Item 1. Unaudited Condensed Consolidated Financial Statements

DEAN FOODS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)


	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	24,348		$	17,980		$	28,125		$	16,512
Receivables, net of allowances of $5,669 and $5,118	673,468			669,200
Receivables, net of allowances of $4,507 and $5,583							637,291			675,826
Income tax receivable	360			5,578			1,957			2,140
Inventories	281,073			284,484			287,234			278,063
Deferred income taxes	—			37,504
Prepaid expenses and other current assets	37,174			43,884			37,829			47,338
Assets held for sale							9,687			—
Total current assets	1,016,423			1,058,630			1,002,123			1,019,879
Property, plant and equipment, net	1,091,429			1,163,851			1,056,036			1,094,064
Goodwill	167,535			154,112			167,387			167,535
Identifiable intangible and other assets, net	210,205			207,897			208,625			211,620
Deferred income taxes	21,119			21,737			10,543			10,731
Total	$	2,506,711		$	2,606,227		$	2,444,714		$	2,503,829
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	648,298		$	706,981		$	625,173		$	671,070
Current portion of debt	142,883			140,806			1,137			1,125
Total current liabilities	791,181			847,787			626,310			672,195
Long-term debt, net	803,598			745,245			906,063			912,074
Deferred income taxes	96,485			126,009			61,009			60,018
Other long-term liabilities	211,029			276,630			200,972			203,595
Commitments and contingencies (Note 13)
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, none issued	—			—			—			—
Common stock, 91,004,209 and 90,586,741 shares issued and outstanding, with a par value of $0.01 per share	910			906
Common stock, 91,332,327 and 91,123,759 shares issued and outstanding, with a par value of $0.01 per share							913			911
Additional paid-in capital	658,109			653,629			660,644			659,227
Retained earnings	30,129			45,654			82,436			74,219
Accumulated other comprehensive loss	(84,730		)	(89,633		)	(93,633		)	(78,410		)
Total stockholders’ equity	604,418			610,556			650,360			655,947
Total	$	2,506,711		$	2,606,227		$	2,444,714		$	2,503,829

See Notes to unaudited Condensed Consolidated Financial Statements.

DEAN FOODS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share data)


	Three Months Ended September 30						Nine Months Ended September 30						Three Months Ended March 31
	2017			2016			2017			2016			2018			2017
Net sales	$	1,937,620		$	1,964,601		$	5,860,028		$	5,692,217		$	1,980,507		$	1,995,686
Cost of sales	1,495,880			1,475,826			4,488,783			4,206,121			1,532,004			1,533,467
Gross profit	441,740			488,775			1,371,245			1,486,096			448,503			462,219
Operating costs and expenses:
Selling and distribution	332,683			341,477			1,016,023			1,005,514			345,996			345,063
General and administrative	68,796			90,840			241,432			262,605			75,522			98,664
Amortization of intangibles	5,232			5,151			15,542			15,596			5,078			5,155
Facility closing and reorganization costs, net	7,844			9,297			22,947			9,063			8,462			9,286
Impairment of long-lived assets	24,970			—			24,970			—
Equity in (earnings) loss of unconsolidated affiliate													(1,900		)	—
Total operating costs and expenses	439,525			446,765			1,320,914			1,292,778			433,158			458,168
Operating income	2,215			42,010			50,331			193,318			15,345			4,051
Other (income) expense:
Other expense:
Interest expense	16,527			16,564			50,410			50,270			14,033			17,464
Other income, net	(662		)	(1,178		)	(2,423		)	(4,385		)
Other expense, net													470			143
Total other expense	15,865			15,386			47,987			45,885			14,503			17,607
Income (loss) from continuing operations before income taxes	(13,650		)	26,624			2,344			147,433
Income (loss) before income taxes													842			(13,556		)
Income tax expense (benefit)	(3,677		)	12,098			4,429			60,335			1,107			(3,797		)
Income (loss) from continuing operations	(9,973		)	14,526			(2,085		)	87,098
Income from discontinued operations, net of tax	11,355			—			11,355			—
Net income	$	1,382		$	14,526		$	9,270		$	87,098
Net loss													$	(265	)	$	(9,759	)
Average common shares:
Basic	90,939,101			90,423,466			90,844,613			91,076,741			91,192,013			90,709,802
Diluted	90,939,101			90,965,375			90,844,613			91,694,838			91,192,013			90,709,802
Basic income (loss) per common share:
Income (loss) from continuing operations	$	(0.11	)	$	0.16		$	(0.03	)	$	0.96
Income from discontinued operations	0.13			—			0.13			—
Net income	$	0.02		$	0.16		$	0.10		$	0.96
Net loss													$	—		$	(0.11	)
Diluted income (loss) per common share:
Income (loss) from continuing operations	$	(0.11	)	$	0.16		$	(0.03	)	$	0.95
Income from discontinued operations	0.13			—			0.13			—
Net income	$	0.02		$	0.16		$	0.10		$	0.95
Net loss													$	—		$	(0.11	)
Cash dividends declared per common share	$	0.09		$	0.09		$	0.27		$	0.27		$	0.09		$	0.09

See Notes to unaudited Condensed Consolidated Financial Statements.

DEAN FOODS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands)


	Three Months Ended September 30					Nine Months Ended September 30					Three Months Ended March 31
	2017		2016			2017		2016			2018			2017
Net income	$	1,382	$	14,526		$	9,270	$	87,098
Net loss											$	(265	)	$	(9,759	)
Other comprehensive income (loss):
Cumulative translation adjustments	—		(521		)	—		(1,576		)
Pension and other postretirement liability adjustment, net of tax	1,627		1,194			4,903		4,229			1,624			1,644
Other comprehensive income	1,627		673			4,903		2,653			1,624			1,644
Comprehensive income	$	3,009	$	15,199		$	14,173	$	89,751
Reclassification of stranded tax effects related to the Tax Act(1)											(16,847		)	—
Comprehensive loss											$	(15,488	)	$	(8,115	)


(1)	Refer to Note 1 - Recently Adopted Accounting Pronouncements within our Notes to unaudited Condensed Consolidated Financial Statements for additional details on the adoption of Accounting Standards Update ("ASU") No. 2018-02 during the first quarter of 2018.

See Notes to unaudited Condensed Consolidated Financial Statements.

DEAN FOODS COMPANY

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share data)


	Common Stock						Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity			Common Stock							Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
	Shares	Amount		Additional Paid-In Capital						Shares					Total Stockholders’ Equity			Amount			Additional Paid-In Capital				Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance, January 1, 2017	90,586,741	$	906	$	653,629		Retained Earnings		$	45,654	Accumulated Other Comprehensive Income (Loss)			$	(89,633	)		$	610,556
Balance, January 1, 2018																		91,123,759		$	911	$	659,227		$	74,219		$	(78,410	)	$	655,947
Issuance of common stock	417,468	4		(230		)	—				—				(226		)	208,568		2		(325		)	—			—			(323		)
Share-based compensation expense	—	—		4,710			—				—				4,710			—		—		1,742			—			—			1,742
Net income	—	—		—			9,270				—				9,270
Net loss																		—		—		—			(265		)	—			(265		)
Dividends	—	—		—			(24,795		)		—				(24,795		)	—		—		—			(8,365		)	—			(8,365		)
Reclassification of stranded tax effects related to the Tax Act(1)																		—		—		—			16,847			(16,847		)	—
Other comprehensive income:
Pension and other postretirement benefit liability adjustment, net of tax of $3,096	—	—		—			—				4,903				4,903
Balance, September 30, 2017	91,004,209	$	910	$	658,109		$	30,129			$	(84,730	)		$	604,418
Pension and other postretirement benefit liability adjustment, net of tax of $521																		—		—		—			—			1,624			1,624
Balance, March 31, 2018																		91,332,327		$	913	$	660,644		$	82,436		$	(93,633	)	$	650,360


(1)	Refer to Note 1 - Recently Adopted Accounting Pronouncements within our Notes to unaudited Condensed Consolidated Financial Statements for additional details on the adoption of ASU No. 2018-02 during the first quarter of 2018.

See Notes to unaudited Condensed Consolidated Financial Statements.

DEAN FOODS COMPANY

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share data)

Common Stock
Total
Stockholders’
Equity
Shares Amount
Additional
Paid-In Capital

Retained Earnings
(Accumulated
Deficit)

Accumulated Other
Comprehensive
Income (Loss)
Balance, January 1, 2016 91,428,274
$ 914
$ 679,916
$ (49,523 ) $ (85,803 ) $ 545,504
Issuance of common stock, net of tax impact of share-based compensation 384,911
4
(1,962 ) —
—
(1,958 )
Share-based compensation expense —
—
6,496
—
—
6,496
Repurchase of common stock (1,371,185 ) (14 ) (24,986 ) —
—
(25,000 )
Net income —
—
—
87,098
—
87,098
Dividends —
—
(8,390 ) (16,514 ) —
(24,904 )
Other comprehensive income (loss):
Cumulative translation adjustment —
—
—
—
(1,576 ) (1,576 )
Pension and other postretirement benefit liability adjustment, net of tax of $2,914 —
—
—
—
4,229
4,229
Balance, September 30, 2016 90,442,000
$ 904
$ 651,074
$ 21,061
$ (83,150 ) $ 589,889



	Common Stock												Total Stockholders’ Equity
	Shares	Amount		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance, January 1, 2017	90,586,741	$	906	$	653,629		$	45,654		$	(89,633	)	$	610,556
Issuance of common stock	286,010	3		(1,224		)	—			—			(1,221		)
Share-based compensation expense	—	—		2,108			—			—			2,108
Net loss	—	—		—			(9,759		)	—			(9,759		)
Dividends	—	—		—			(8,301		)	—			(8,301		)
Other comprehensive income (loss):
Pension and other postretirement benefit liability adjustment, net of tax of $1,022	—	—		—			—			1,644			1,644
Balance, March 31, 2017	90,872,751	$	909	$	654,513		$	27,594		$	(87,989	)	$	595,027

See Notes to unaudited Condensed Consolidated Financial Statements.

DEAN FOODS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Nine Months Ended September 30						Three Months Ended March 31
	2017			2016			2018			2017
Cash flows from operating activities:
Net income	$	9,270		$	87,098
Income from discontinued operations, net of tax	(11,355		)	—
Adjustments to reconcile net income to net cash provided by operating activities:
Net loss							$	(265	)	$	(9,759	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	129,667			132,737			40,077			43,191
Share-based compensation expense	7,561			20,723			2,155			3,957
Loss on divestitures and other, net	3,039			1,166			1,091			1,161
Impairment of long-lived assets	24,970			—
Write-off of financing costs	1,080			—			—			1,080
Deferred income taxes	3,227			12,532			809			(4,757		)
Other, net	5,897			276			(2,191		)	4,525
Changes in operating assets and liabilities, net of acquisitions:
Receivables, net	(3,248		)	25,947			38,535			22,552
Inventories	9,704			3,406			(9,171		)	(6,424		)
Prepaid expenses and other assets	5,421			10,902			9,048			6,632
Accounts payable and accrued expenses	(85,226		)	(94,706		)	(41,318		)	(35,033		)
Income taxes receivable	5,218			3,390			183			431
Litigation settlement	—			(18,853		)
Contributions to company sponsored pension plans	(38,500		)	—
Net cash provided by operating activities	66,725			184,618			38,953			27,556
Cash flows from investing activities:
Payments for property, plant and equipment	(61,384		)	(81,305		)	(16,508		)	(8,372		)
Payments for acquisitions, net of cash acquired	(21,596		)	(157,321		)
Proceeds from sale of fixed assets	3,112			13,742			4,179			1,001
Other investments	(11,000		)	—
Net cash used in investing activities	(90,868		)	(224,884		)	(12,329		)	(7,371		)
Cash flows from financing activities:
Repayments of debt	(1,118		)	(1,178		)	(174		)	(600		)
Payments of financing costs	(1,767		)	—			—			(1,709		)
Proceeds from senior secured revolver	213,600			197,200			95,100			54,300
Payments for senior secured revolver	(209,900		)	(197,200		)	(91,200		)	(59,000		)
Proceeds from receivables securitization facility	1,690,000			525,000			665,000			535,000
Payments for receivables securitization facility	(1,635,000		)	(465,000		)	(675,000		)	(525,000		)
Repurchase of common stock	—			(25,000		)
Cash dividends paid	(24,540		)	(24,681		)	(8,218		)	(8,178		)
Issuance of common stock, net of share repurchases for withholding taxes	(764		)	(775		)	(519		)	(1,396		)
Tax savings on share-based compensation	—			678
Net cash provided by financing activities	30,511			9,044
Effect of exchange rate changes on cash and cash equivalents	—			(1,354		)
Change in cash and cash equivalents	6,368			(32,576		)
Net cash used in financing activities							(15,011		)	(6,583		)
Increase in cash and cash equivalents							11,613			13,602
Cash and cash equivalents, beginning of period	17,980			60,734			16,512			17,980
Cash and cash equivalents, end of period	$	24,348		$	28,158		$	28,125		$	31,582

See Notes to unaudited Condensed Consolidated Financial Statements.

DEAN FOODS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~

(Unaudited)

1. General

Nature of Our Business — We are a leading food and beverage company and the largest processor and direct-to-store distributor of fresh fluid milk and other dairy and dairy case products in the United States, with a vision to be the most admired and trusted provider of wholesome, great-tasting dairy products at every occasion.

We manufacture, market and distribute a wide variety of branded and private label dairy and dairy case products, including fluid milk, ice cream, cultured dairy products, creamers, ice cream mix and other dairy products to retailers, distributors, foodservice outlets, educational institutions and governmental entities across the United States. Our portfolio includes DairyPure^®, the country's first and largest fresh, white milk national brand, and TruMoo^®, the leading national flavored milk brand, along with well-known regional dairy brands such as Alta Dena^®, Berkeley Farms^®, Country Fresh^®, Dean’s^®, Friendly's^®, Garelick Farms^®, LAND O LAKES ^® milk and cultured products (licensed brand), Lehigh Valley Dairy Farms^®, Mayfield ^®, McArthur^®, Meadow Gold ^®, Oak Farms^®, PET ^® (licensed brand), T.G. Lee^®, Tuscan^® and more. In all, we have more than 50 national, regional and local dairy brands, as well as private labels. ~~Additionally, with~~With our acquisition of Uncle Matt's Organic, Inc., which was completed on June 22, 2017, we now sell and distribute organic juice, probiotic-infused juices, and fruit-infused waters under the Uncle Matt's Organic^®brand. Additionally, we are party to the Organic Valley Fresh joint venture which distributes organic milk under the Organic Valley^®brand to retailers. Dean Foods also makes and distributes ~~ice cream, cultured products,~~ juices, teas and bottled water. Due to the perishable nature of our products, we deliver the majority of our products directly to our customers’ locations in refrigerated trucks or trailers that we own or lease. We believe that we have one of the most extensive refrigerated direct-to-store delivery ("DSD") systems in the United States. We sell our products primarily on a local or regional basis through our local and regional sales forces, and in some instances, with the assistance of national brokers. Some national customer relationships are coordinated by our centralized corporate sales department or national brokers.

Basis of Presentation — The unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q have been prepared on the same basis as the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 (the ~~“2016~~“2017 Annual Report on Form 10-K”), which we filed with the Securities and Exchange Commission on February ~~22, 2017.~~26, 2018. In our opinion, we have made all necessary adjustments (which include only normal recurring adjustments) to present fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted. Our results of operations for the three ~~and nine~~ month periods ended ~~September 30, 2017~~March 31, 2018 may not be indicative of our operating results for the full year. The unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements contained in our ~~2016~~2017 Annual Report on Form 10-K.

Unless otherwise indicated, references in this report to “we,” “us,” “our” or "the Company" refer to Dean Foods Company and its subsidiaries, taken as a whole.

Recently Adopted Accounting Pronouncements

Accounting Standards Update ("ASU") No. 2016-09 — In March 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-09, Compensation — Stock Compensation — Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, the accounting for forfeitures, the classification of awards as either equity or liabilities, and the classification of certain share-based payment transactions on the statement of cash flows. We adopted this ASU effective January 1, 2017, and it has been applied in accordance with the transition methods specified in the guidance. As permitted by the standard, we have not changed our accounting policy for forfeitures of share-based awards and will continue estimating forfeitures when determining compensation cost to be recognized over the vesting period. The presentation of excess tax benefits of share-based awards on the statement of cash flows has been applied prospectively; therefore, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows. In addition, we are now recording on a prospective basis excess tax benefits and tax deficiencies related to share-based payments within the provision for income taxes on the statement of operations rather than on the consolidated balance sheet within additional paid-in capital.

ASU No. 2015-17 — In November 2015, the FASB issued ASU 2015-17, Income Taxes — Balance Sheet Classification of Deferred Taxes. ASU 2015-17 simplifies the presentation of deferred income taxes and requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments eliminate the guidance in Accounting Standards Codification ("ASC") Topic 740 that requires an entity to separate deferred tax liabilities and

~~assets into a current amount and a noncurrent amount in a classified statement of financial position. We adopted this ASU on a prospective basis effective January 1, 2017.~~

~~Recently Issued Accounting Pronouncements~~

~~Effective in 2018~~

ASU No. 2017-09 — In May 2017, the FASB issued ASU 2017-09, Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting. The new guidance is intended to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity should account for the effects of a modification unless all the following are met: 1) The fair value (or calculated value or intrinsic value) of the modified award is the same as the fair value (or calculated value or intrinsic value) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification, 2) The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified, and 3) The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. This guidance is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for reporting periods for which financial statements have not yet been issued. The amendments should be applied prospectively to an award modified on or after the adoption date. We do not intend to early adopt this ASU. We do not expect the adoption of ASU 2017-09 to have a material impact on our financial statements.

ASU No. 2017-07 — In March 2017, the FASB issued ASU 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The new guidance is intended to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendments require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net periodic benefit costs (which include interest costs, expected return on plan assets, amortization of prior service cost or credits and actuarial gains and losses) are to be reported separately and outside a subtotal of operating income, if one is presented. Currently, we record all components of net periodic benefit cost on the same line item as the employees' respective compensation expense. Upon adoption of this standard we will be required to present net periodic cost for pension and postretirement benefits in accordance with the new guidance described above. See Note 11 to our unaudited Condensed Consolidated Financial Statements for further information on our pension and postretirement plans. For public companies, this guidance is effective for interim and annual reporting periods beginning after December 15, 2017. The amendment should be applied on a retrospective basis. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. We do not expect the adoption of ASU 2017-07 to have a material impact on our financial statements.

ASU No. 2017-03 — In January 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections and Investments — Equity Method and Joint Ventures: Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 Emerging Issues Task Force ("EITF") Meetings. The new guidance is intended to provide clarity in relation to the disclosure of the impact that ASU 2014-09 and ASU 2016-02, which are described below, will have on our financial statements when adopted. The effective dates for this guidance are the same as the respective effective dates for ASU 2014-09 and ASU 2016-02. We do not expect the adoption of ASU 2017-03 to have a material impact on our financial statements.

ASU No. 2017-01 — In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business. The new guidance clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. For public companies, this standard is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The amendments should be applied prospectively on or after the effective date. Early application of the amendments is allowed with certain restrictions. We do not expect the adoption of ASU 2017-01 to have a material impact on our financial statements and will prospectively apply the guidance to applicable transactions.

ASU No. 2016-16 — In October 2016, the FASB issued ASU 2016-16, Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 reduces complexity by allowing the recognition of current and deferred income taxes for an intra-entity asset transfer (other than inventory) when the transfer occurs. The new guidance is intended to reduce the complexity of GAAP and diversity in practice related to the tax consequences of certain types of intra-entity asset transfers, particularly those involving intellectual property. For public companies, this standard is effective for annual reporting periods

beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We do not expect the adoption of ASU 2016-16 to have a material impact on our financial statements.

ASU No. 2016-15 — In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. The new guidance is intended to eliminate diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted for all entities, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. We do not expect the adoption of ASU 2016-15 to have a material impact on our financial statements.

ASU No. 2016-01 — In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Liabilities. ASU 2016-01 supersedes existing guidance to classify equity securities with readily determinable fair values into different categories and requires equity securities to be measured at fair value with changes in the fair value recognized through net income. An entity’s equity investments that are accounted for under the equity method of accounting or result in consolidation of an investee are not included within the scope of this amended guidance. The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of impairment. The amended guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments in this ASU should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption of the ASU. Early application of certain amendments in this standard to financial statements of fiscal years and interim periods that have not yet been issued is permitted as of the beginning of the fiscal year of adoption. Except for the early application of certain amendments discussed above, early adoption of the standard is not permitted. We do not expect the adoption of ASU 2016-01 to have a material impact on our financial statements.

ASU No. 2014-09 — In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The comprehensive new standard ~~will supersede~~supersedes existing revenue recognition guidance and ~~require~~requires revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. Additionally, the new standard requires enhanced disclosures, including information regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. The new standard was originally effective for reporting periods beginning after December 15, 2016 and early adoption was not permitted. On August 12, 2015, the FASB approved a one year delay of the effective date to reporting periods beginning after December 15, 2017, while permitting companies to voluntarily adopt the new standard as of the original effective date. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which clarifies narrow aspects of ASC 606 or corrects unintended application of the guidance. The effective date and transition requirements for ASU 2016-20 are the same as the effective date and transition requirements for ASU 2014-09.

~~We are currently evaluating~~To assess the ~~overall impact this guidance will have~~potential impacts of the new revenue recognition standard on our consolidated financial ~~statements. We have~~statements and current accounting practices, we formed a steering committee comprised of subject matter experts within the Company to ~~help assess~~assist in the identification and evaluation of our significant revenue streams and other key activities impacting revenue recognition. In particular, we evaluated the impact of the new guidance on our classification of sales of excess raw materials, which primarily consist of bulk cream sales. Historically, we have presented the sale of excess raw materials as a reduction of cost of sales within our Consolidated Statements of Operations; however, upon further evaluation of these sales in connection with our implementation of the new revenue ~~recognition standard may~~guidance, we have ~~on current accounting practices. In particular, we are evaluating the impact the new guidance may have on the classification~~determined that it is appropriate to present these sales as revenue. Sales of ~~bulk cream sales, which are currently presented~~excess raw materials included as a reduction to cost of sales were $171.0 million for the three months ended March 31, 2017. On a prospective basis, effective January 1, 2018, these sales are now reported within the net sales line of our unaudited Condensed Consolidated Statements of ~~Operations as we believe this presentation allows us to report our true cost of fluid milk production.~~ Operations.

Additionally, we ~~have~~ evaluated the impact of the new standard on certain common practices currently employed by us and by other manufacturers of consumer products, such as scan-based trading, product rebates and other pricing allowances, product returns, trade promotions, sales broker commissions and slotting ~~fees~~fees. Based on the results of our evaluation, our current accounting practices for these activities is consistent with the requirements under the new revenue guidance and ~~have formulated preliminary conclusions related~~therefore there were not any material changes to the nature, timing or amount of revenue recognition for these ~~practices. The steering committee is in~~activities upon adoption of the ~~process~~new standard. Due to the nature of ~~gathering~~our business, minimal changes were made to our accounting and ~~evaluating quantitative and qualitative information~~revenue policies, except with respect to ~~these matters, which will assist in informing~~the treatment of our ~~conclusions. Our assessment is ongoing and no final determinations have been made at this time.~~sales of excess raw materials described above.

We ~~currently expect to adopt~~adopted the ~~ASU consistent with the deferred mandatory effective date of~~new revenue standard on January 1, 2018 ~~and to utilize~~using the modified retrospective transition ~~method, which would result in an adjustment to retained earnings for the cumulative effect, if any, of applying the standard to contracts in process as of the adoption date.~~method. Under this method we ~~would not restate the prior financial statements presented; however, we would be required to provide~~have provided additional disclosures, ofincluding the amount by which

each financial statement line item is affected in the current reporting period, ~~during 2018,~~ as compared to the prior revenue recognition guidance. ~~Based~~Additionally, we have provided a disaggregation of our revenue by source and product type and have also included certain qualitative information related to our revenue streams. See Note 2. The adoption of ASU 2014-09 did not materially impact our results of operations or financial position, except with respect to the change in classification of sales of excess raw materials.

The pro forma effect of the change in classification of sales of excess raw materials on our ~~findings~~unaudited Condensed Consolidated Statements of Operations was as follows (in thousands):



	Three Months Ended March 31, 2017
	As Previously Reported		Pro Forma Results Assuming Retrospective Adoption of ASU 2014-09		Increase (Decrease) to Previously Reported Amounts
Net sales	$	1,995,686	$	2,166,689	$	171,003
Cost of sales	1,533,561		1,704,564		171,003
Gross profit	462,125		462,125		—

An adjustment to ~~date,~~opening retained earnings was not required as the change in classification of sales of excess raw materials illustrated in the table above did not result in a change to the earnings reported in prior periods.

ASU No. 2017-07 — In March 2017, the FASB issued ASU 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The new guidance is intended to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendments require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net periodic benefit costs (which include interest costs, expected return on plan assets, amortization of prior service cost or credits and actuarial gains and losses) are to be reported separately and outside a subtotal of operating income, if one is presented. Previously, we dorecorded all components of net periodic benefit cost on the same line item as the employees' respective compensation expense. Upon adoption of this standard we are required to present net periodic cost for pension and postretirement benefits in accordance with the new guidance described above. See Note 12 for further information on our pension and postretirement plans. For public companies, this guidance is effective for interim and annual reporting periods beginning after December 15, 2017. The amendment should be applied on a retrospective basis. Our adoption of this ASU on January 1, 2018 did not ~~expect the standard to~~ have a material impact on our ~~results~~financial statements.

The effect of ~~operations~~the retrospective presentation change related to the net periodic cost for pension and postretirement benefits on our unaudited Condensed Consolidated Statements of Operations was as follows (in thousands):



	Three Months Ended March 31, 2017
	As Previously Reported			Adjustment for Adoption of ASU 2017-07			As Revised
Cost of sales	$	1,533,561		$	(94	)	$	1,533,467
Gross profit	462,125			94			462,219
Selling and distribution	345,196			(133		)	345,063
General and administrative	99,536			(872		)	98,664
Total operating costs and expenses	459,173			(1,005		)	458,168
Operating income	2,952			1,099			4,051
Other expense, net	(956		)	1,099			143

ASU No. 2018-02 — In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in the guidance allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Tax Act"). Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statement users. The standard is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. We early adopted ASU 2018-02 effective January 1, 2018 and have applied the guidance as of the beginning of the period of adoption. Our accounting policy is to release the income tax effects from accumulated other comprehensive income when a pension or ~~financial position; however,~~other postretirement benefit plan is liquidated or extinguished. As permitted under ASU 2018-02, we have elected to record a one-time reclassification for the stranded tax effects resulting from the Tax Act from accumulated other comprehensive income to retained earnings in the amount of $16.8 million on our ~~assessment~~unaudited Condensed Consolidated Balance Sheet during the first quarter of 2018. The only impact of stranded tax effects resulting from the Tax Act is ~~not yet complete. Throughout the remainder of 2017, we plan~~with respect to ~~finalize~~ our ~~review~~pension and ~~method of adoption.~~other postretirement benefit plans.

Recently Issued Accounting Pronouncements

Effective in 2019

ASU No. 2017-12 — In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities. The new guidance improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in this guidance are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after issuance of this guidance. We do not intend to early adopt this ASU. We do not currently expect the adoption of ASU 2017-12 to have a material impact on our financial statements as our derivative instruments are not designated as cash flow or fair value hedges under Topic 815. See Note ~~7 to our unaudited Condensed Consolidated Financial Statements~~8 for further information on our derivative instruments.

ASU No. 2016-02 — In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires lessees to recognize lease assets and lease liabilities in the balance sheet and disclose key information about leasing arrangements, such as information about variable lease payments and options to renew and terminate leases. The amended guidance will require both operating and finance leases to be recognized in the balance sheet. Additionally, the amended guidance aligns lessor accounting to comparable guidance in ASC Topic 606, Revenue from Contracts with Customers. The amended guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The amendments in this ASU should be adopted using a modified retrospective transition approach, which requires application of the new guidance at the beginning of the earliest comparative period presented in the year of adoption. We do not intend to early adopt this ASU. To assess the impacts of the new lease standard on our financial statements and current accounting practices, we have formed a steering committee comprised of subject matter experts within the Company to assist with the assessment of contractual arrangements that may qualify as a lease under the new standard, gather lease data, assist with evaluating and implementing lease management technology solutions, and other key activities. At this time, we are in the process of finalizing our selection of a software vendor to provide a lease management technology solution. We anticipate the impact of this standard to be significant to our Consolidated Balance Sheet due to the amount of our lease commitments. See Note 1718 to the Consolidated Financial Statements contained in our ~~2016~~2017 Annual Report on Form 10-K for further information regarding these commitments. We are currently evaluating the other impacts that ASU 2016-02 will have on our ~~consolidated~~ financial statements.

Effective in 2020

ASU No. 2017-04 — In January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other: Simplifying the Test for Goodwill Impairment. The new guidance simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds a reporting unit’s fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. For public companies, this guidance is effective for annual periods or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not intend to early adopt this ASU. We do not expect the adoption of ASU 2017-04 to have a material impact on our financial statements.

2. Revenue Recognition

Disaggregation of Net Sales

The following table presents a disaggregation of our net sales by product type and revenue source. We believe these categories most appropriately depict the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with our customers.



	Three Months Ended
	March 31, 2018		March 31, 2017(1)
	(In thousands)
Fluid milk	$	1,259,934	$	1,416,656
Ice cream(2)	239,598		255,384
Fresh cream(3)	91,950		87,871
Extended shelf life and other dairy products(4)	45,242		48,138
Cultured	64,166		72,074
Other beverages(5)	70,344		74,934
Other(6)	32,304		27,224
Subtotal	1,803,538		1,982,281
Sales of excess raw materials(7)	151,802		—
Sales of other bulk commodities	25,167		13,405
Total net sales	$	1,980,507	$	1,995,686


(1)	Prior period amounts have not been restated as we have elected to adopt ASC 606 using the modified retrospective method. Sales of excess raw materials of $171.0 million were included as a reduction of cost of sales in our unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2017.


(2)	Includes ice cream, ice cream mix and ice cream novelties.


(3)	Includes half-and-half and whipping creams.


(4)	Includes creamers and other extended shelf life fluids.


(5)	Includes fruit juice, fruit flavored drinks, iced tea and water.


(6)	Includes items for resale such as butter, cheese, eggs and milkshakes.

(7)

Historically, we presented sales of excess raw materials as a reduction of cost of sales within our Consolidated Statements of Operations; however, upon further evaluation of these sales in connection with our implementation of ASC 606, we have determined that it is appropriate to present these sales as revenue. Therefore, on a prospective basis, effective January 1, 2018, we began reporting these sales within the net sales line of our unaudited Condensed Consolidated Statements of Operations.

The following table presents a disaggregation of our net product sales between sales of Company-branded products versus sales of private label products:



	Three Months Ended
	March 31, 2018		March 31, 2017
	(In thousands)
Branded products	$	892,126	$	981,245
Private label products	911,412		1,001,036
Subtotal	1,803,538		1,982,281
Sales of excess raw materials	151,802		—
Sales of other bulk commodities	25,167		13,405
Total net sales	$	1,980,507	$	1,995,686

Revenue Recognition and Nature of Products and Services

The substantial majority of our revenue is derived from the sale of fluid milk, ice cream and other dairy products, which includes sales of both Company-branded products as well as private label products. In addition, we derive revenue from the sale of excess raw materials and the sale of other bulk commodities.

Our portfolio of products includes fluid milk, ice cream, cultured dairy products, creamers, ice cream mix and other dairy and dairy case products. We sell these products under national, regional and local proprietary or licensed brands, or under private labels. Our sales of excess raw materials consist primarily of bulk cream sales. As a result of the purchase of raw milk, we obtain more butterfat than is needed in our production process. Excess butterfat is sold, primarily in the form of bulk cream, to third parties. Additionally, in certain cases we may be required to externally purchase bulk cream in order to fulfill minimum supply requirements for our customers. In these cases, we purchase bulk cream from other processors or suppliers and resell it to our customers to fulfill our contractual requirements with them.

In all cases, we recognize revenue upon delivery to our customers as we have determined that this is the point at which control is transferred, our performance obligation is complete, and we are entitled to consideration.

Contractual Arrangements with Customers

The majority of our sales are to retailers, warehouse clubs, distributors, foodservice outlets, educational institutions and governmental entities with whom we have contractual agreements. Our sales of excess raw materials and other bulk commodities are primarily to dairy cooperatives, dairy processors or other manufacturers for use as a raw ingredient in their respective manufacturing processes. Our customer contracts typically contain standard terms and conditions and a term sheet. In some cases, upon expiration, these arrangements may continue with the same terms and may not be formally renewed. Additionally, we have a number of informal sales arrangements with certain local and regional customers, which we consider to be contracts based on the criteria outlined in ASC 606. Payment terms and conditions vary by customer, but we generally provide credit terms to customers ranging up to 30 days; therefore, we have determined that our contracts do not include a significant financing component. We perform ongoing credit evaluations of our customers and maintain allowances for potential credit losses based on our historical experience.

We have determined that we satisfy our performance obligations related to our customer contracts at a point in time, as opposed to over time, and, accordingly, revenue is recognized at a point in time across all of our revenue streams. Therefore, we do not have any contract balances with our customers recorded on our unaudited Condensed Consolidated Balance Sheets.

Sales Incentives and Other Promotional Programs

We routinely offer sales incentives and discounts through various regional and national programs to our customers and consumers. These programs include scan backs, product rebates, product returns, trade promotions and co-op advertising, product discounts, product coupons and amounts paid to customers for shelf space in retail stores. The expenses associated with these programs are accounted for as reductions to the transaction price of our products and are therefore recorded as reductions to gross sales.

Some of our sales incentives are recorded by estimating incentive costs or redemption rates based on our historical experience and expected levels of performance of the trade promotion or other program. We maintain liabilities at the end of each period for the estimated incentive costs incurred but unpaid for these programs. Differences between estimated and actual incentive costs are normally not material and are recognized in earnings in the period such differences are determined.

3. Acquisitions ~~and Discontinued Operations~~

Acquisitions

Uncle Matt's Organic — On June 22, 2017, we completed the acquisition of Uncle Matt's Organic, Inc. ("Uncle Matt's"). Uncle Matt's is a leading organic juice company offering a wide range of organic juices, including probiotic-infused juices and fruit-infused waters. The total purchase price was $22.0 million. Assets acquired and liabilities assumed in connection with the acquisition have been recorded at their fair values and include identifiable intangible assets of $8.4 million, of which $6.6 million relates to an indefinite-lived trademark and $1.8 million relates to customer relationships that are subject to amortization over a period of 10 years.

We recorded goodwill of ~~$13.4~~$13.3 million in connection with the acquisition, which consists of the excess of the net purchase price over the fair value of the net assets acquired. This goodwill represents the expected value attributable to our expansion into the organic juice category. The goodwill is not deductible for tax purposes.

The acquisition was funded through a combination of cash on hand and borrowings under our receivables securitization facility. The values reflected above may change as we finalize our assessment of the acquired assets and liabilities. A change in these valuations may also impact the income tax related accounts and goodwill. We expect to finalize our fair value assessment by the end of 2017. The pro forma impact of the acquisition on consolidated net earnings would not have materially changed reported net earnings. Uncle Matt's results of operations have been included in our unaudited Condensed Consolidated Statements of Operations from the date of acquisition.

~~Discontinued Operations~~

~~Whitewave~~ — During the three and nine months ended September 30, 2017, we recognized net gains from discontinued operations of $11.4 million due to the lapse of a statute of limitation related to an unrecognized tax benefit previously established as a direct result of the spin-off of the WhiteWave Foods Company, which was completed on May 23, 2013.

3.4. Investments in Unconsolidated Affiliates

Organic Valley Fresh Joint Venture — In the third quarter of 2017, we commenced the operations of our previously announced 50/50 strategic joint venture with Cooperative Regions of Organic Producer Pools (“CROPP”), an independent farmer cooperative that distributes organic milk and other organic dairy products under the Organic Valley^® brand. The joint venture, called Organic Valley Fresh, combines our processing plants and refrigerated DSD system with CROPP's portfolio of recognized brands and products, marketing expertise, and access to an organic milk supply from America's largest cooperative of organic dairy farmers to bring the Organic Valley^® brand to retailers. We and CROPP each made a capital contribution of $2.0 million to the joint venture during the third quarter of 2017.

We have concluded that ~~the Company~~Organic Valley Fresh is a variable interest entity, but we have determined that we are not the primary beneficiary of the Organic Valley Fresh joint venture because we do not have the power to direct the activities that most significantly affect the economic performance of the joint venture; therefore, the financial results of the joint venture have not been consolidated in our ~~consolidated financial statements.~~unaudited Condensed Consolidated Financial Statements. We are accounting for this investment under the equity method of accounting. ~~The~~Our equity in the earnings of the joint venture are included as a component of operating income as we have determined that the joint venture's operations are integral to, and an extension of, our business operations. Our equity in the ~~third quarter~~earnings of ~~2017 are not material to our consolidated financial statements.~~the joint venture was $1.9 million for the three months ended March 31, 2018.

Good Karma — On May 4, 2017, we acquired a non-controlling interest in, and entered into a distribution agreement with, Good Karma Foods, Inc. (“Good Karma”), the leading producer of flax-based milk and yogurt products. This investment allows us to diversify our portfolio to include plant-based dairy alternatives and provides Good Karma the ability to more rapidly expand distribution across the U.S., as well as increase investments in brand building and product innovation. We ~~do not expect our equity in the earnings of this investment to materially impact our consolidated financial statements. We~~ are accounting for this investment under the equity method of accounting based upon our ability to exercise significant influence over the investee through our ownership interest and representation on Good Karma's board of directors. We expect to increase our ownership interest in Good Karma in 2018, subject to the achievement of specified performance criteria. Our equity in the earnings of this investment was not material to our unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2018.

45. Inventories

Inventories at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 consisted of the following:


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
	(In thousands)				(In thousands)
Raw materials and supplies	$	106,823	$	110,095	$	104,965	$	106,814
Finished goods	174,250		174,389		182,269		171,249
Total	$	281,073	$	284,484	$	287,234	$	278,063

56. Goodwill and Intangible Assets

As of ~~September 30, 2017,~~March 31, 2018, the gross carrying value of goodwill was $2.24 billion and accumulated goodwill impairment was $2.08 billion. We recorded a goodwill impairment charge of $2.08 billion in 2011 with no goodwill impairment charges in subsequent years.

The changes in the net carrying amounts of goodwill as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 were as follows (in thousands):

Balance at December 31, 2016 $ 154,112
Acquisitions (Note 2) 13,423
Balance at September 30, 2017 $ 167,535



Balance at December 31, 2017	$	167,535
Acquisitions (Note 3)(1)	(148		)
Balance at March 31, 2018	$	167,387


(1)	The decrease in the net carrying amount of goodwill from December 31, 2017 to March 31, 2018 is related to the finalization of tax matters associated with the Uncle Matt's acquisition. See Note 3.

The net carrying amounts of our intangible assets other than goodwill as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 were as follows:


	September 30, 2017										December 31, 2016										March 31, 2018										December 31, 2017
	Acquisition Costs(1)		Impairment			Accumulated Amortization			Net Carrying Amount		Acquisition Costs		Impairment			Accumulated Amortization			Net Carrying Amount		Acquisition Costs		Impairment			Accumulated Amortization			Net Carrying Amount		Acquisition Costs		Impairment			Accumulated Amortization			Net Carrying Amount
	(In thousands)																				(In thousands)
Intangible assets with indefinite lives:
Trademarks	$	58,600	$	—		$	—		$	58,600	$	52,000	$	—		$	—		$	52,000	$	58,600	$	—		$	—		$	58,600	$	58,600	$	—		$	—		$	58,600
Intangible assets with finite lives:
Customer-related and other	80,685		—			(40,336		)	40,349		78,925		—			(37,050		)	41,875		80,685		—			(42,368		)	38,317		80,685		—			(41,398		)	39,287
Trademarks	230,709		(109,910		)	(54,081		)	66,718		229,777		(109,910		)	(41,824		)	78,043		230,709		(109,910		)	(62,297		)	58,502		230,709		(109,910		)	(58,189		)	62,610
Total	$	369,994	$	(109,910	)	$	(94,417	)	$	165,667	$	360,702	$	(109,910	)	$	(78,874	)	$	171,918	$	369,994	$	(109,910	)	$	(104,665	)	$	155,419	$	369,994	$	(109,910	)	$	(99,587	)	$	160,497

~~(1)~~

The increase in the gross amount of intangible assets from December 31, 2016 to September 30, 2017 is related in part to an indefinite-lived trademark of $6.6 million and a finite-lived customer-related intangible of $1.8 million we recorded as a part of the Uncle Matt's acquisition. See Note 2. Additionally, we acquired a finite-lived trademark of a regional artisan ice cream brand for $0.9 million during the period.

Our finite-lived trademarks will be amortized on a straight-line basis over their remaining useful lives, which range from approximately 32 to 98 years, with a weighted-average remaining useful life of approximately 65 years. Amortization expense on intangible assets for ~~each of~~ the three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ was ~~$5.2 million. Amortization expense on intangible assets for the nine months ended September 30, 2017 and 2016 was $15.5~~$5.1 million and ~~$15.6~~$5.2 million, respectively. The amortization of intangible assets is reported on a separate line item in our unaudited Condensed Consolidated Statements of Operations.

Estimated aggregate intangible asset amortization expense for the next five years is as follows (in millions):


2017	$	20.7
2018	20.3		$	20.3
2019	20.3		20.3
2020	12.2		12.2
2021	10.5		10.5
2022			7.8

67. Debt

Our long-term debt as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 consisted of the following:


	September 30, 2017					December 31, 2016					March 31, 2018					December 31, 2017
	Amount			Interest Rate		Amount			Interest Rate		Amount			Interest Rate		Amount			Interest Rate
	(In thousands, except percentages)										(In thousands, except percentages)
Dean Foods Company debt obligations:
Senior secured revolving credit facility	$	12,800		3.06	% *	$	9,100		2.94	% *	$	15,100		3.68	% *	$	11,200		3.33	% *
Senior notes due 2023	700,000			6.50		700,000			6.50		700,000			6.50		700,000			6.50
	712,800					709,100					715,100					711,200
Subsidiary debt obligations:
Senior notes due 2017	142,000			6.90		142,000			6.90
Receivables securitization facility	95,000			2.21	*	40,000			1.87	*	195,000			2.85	*	205,000			2.48	*
Capital lease and other	2,862			—		3,980			—		2,497			—		2,671			—
	239,862					185,980					197,497					207,671
Subtotal	952,662					895,080					912,597					918,871
Unamortized discounts and debt issuance costs	(6,181		)			(9,029		)
Unamortized debt issuance costs											(5,397		)			(5,672		)
Total debt	946,481					886,051					907,200					913,199
Less current portion	(142,883		)			(140,806		)			(1,137		)			(1,125		)
Total long-term portion	$	803,598				$	745,245				$	906,063				$	912,074

* Represents a weighted average rate, including applicable interest rate margins.

The scheduled debt maturities at ~~September 30, 2017~~March 31, 2018 were as follows (in thousands):


2017	$	142,171
2018	1,125			$	931
2019	1,174			1,174
2020	95,392			195,392
2021	—			—
2022				15,100
Thereafter	712,800			700,000
Subtotal	952,662			912,597
Less unamortized discounts and debt issuance costs	(6,181		)
Less unamortized debt issuance costs				(5,397		)
Total debt	$	946,481		$	907,200

Senior Secured Revolving Credit Facility — In March 2015, we entered into a credit agreement, as amended on January 4, 2017 and as described below (as amended, the "Credit Agreement"), pursuant to which the lenders provided us with a senior secured revolving credit facility in the amount of up to $450 million (the “Credit Facility”). Under the Credit Agreement, we have the right to request an increase of the aggregate commitments under the Credit Facility by up to $200 million, which we may request to be made available as either term loans or revolving loans, without the consent of any lenders not participating in such increase, subject to specified conditions. The Credit Facility is available for the issuance of up to $75 million of letters of credit and up to $100 million of swing line loans.

On January 4, 2017, we amended the Credit Agreement to, among other things, (i) extend the maturity date of the Credit Facility to January 4, 2022; (ii) modify the leverage ratio covenant to add a requirement that we comply with a maximum total net leverage ratio (which, for purposes of calculating indebtedness, excludes borrowings under our receivables securitization facility) not to exceed 4.25 to 1.00 and to eliminate the maximum senior secured net leverage ratio requirement; (iii) modify the definition of “Consolidated EBITDA” to permit certain pro forma cost savings add-backs in connection with permitted acquisitions and dispositions; (iv) modify the definition of “Applicable Rate” to reduce the interest rate margins such that loans outstanding under the Credit Facility will bear interest, at our option, at either (x) the LIBO Rate (as defined in the Credit Agreement) plus a

margin of between 1.75% and 2.50% (2.00% as of ~~September 30, 2017)~~March 31, 2018) based on our total net leverage ratio (as defined in the Credit Agreement), or (y) the Alternate Base Rate (as defined in the Credit Agreement) plus a margin of between 0.75% and 1.50% (1.00% as of ~~September 30, 2017)~~March 31, 2018) based on our total net leverage ratio; (v) modify certain negative covenants to provide additional flexibility for the incurrence of debt, the payment of dividends and the making of certain permitted acquisitions and other investments; (vi) eliminate and release all real property as collateral for loans under the Credit Facility; and (vii) provide the Company the ability to request that increases in the aggregate commitments under the Credit Facility be made available as either revolving loans or term loans.

In connection with the execution of the amendment to the Credit Agreement, we paid certain arrangement fees of approximately $0.7 million to lenders and other fees of approximately $0.3 million, which were capitalized and will be amortized to interest expense over the remaining term of the facility. Additionally, we wrote off $0.9 million of unamortized deferred financing costs in connection with this amendment.

We may make optional prepayments of loans under the Credit Facility, in whole or in part, without premium or penalty (other than applicable breakage costs). Subject to certain exceptions and conditions described in the Credit Agreement, we will be obligated to prepay the Credit Facility, but without a corresponding commitment reduction, with the net cash proceeds of certain asset sales and with casualty insurance proceeds. The Credit Facility is guaranteed by our existing and future domestic material restricted subsidiaries (as defined in the Credit Agreement), which are substantially all of our wholly-owned U.S. subsidiaries other than the receivables securitization facility subsidiaries (the “Guarantors”).

The Credit Facility is secured by a first priority perfected security interest in substantially all of our assets and the assets of the Guarantors, whether consisting of personal, tangible or intangible property, including a pledge of, and a perfected security interest in, (i) all of the shares of capital stock of the Guarantors and (ii) 65% of the shares of capital stock of our and the Guarantors' first-tier foreign subsidiaries that are material restricted subsidiaries, in each case subject to certain exceptions as set forth in the Credit Agreement. The collateral does not include, among other things, (a) any of our real property, (b) the capital stock and any assets of any unrestricted subsidiary, (c) any capital stock of any direct or indirect subsidiary of Dean Holding Company ("Legacy Dean"), a wholly owned subsidiary of the Company, which owns any real property, or (d) receivables sold pursuant to the receivables securitization facility.

The Credit Agreement contains customary representations, warranties and covenants, including, but not limited to specified restrictions on indebtedness, liens, guarantee obligations, mergers, acquisitions, consolidations, liquidations and dissolutions, sales of assets, leases, payment of dividends and other restricted payments during a default or non-compliance with the financial covenants, investments, loans and advances, transactions with affiliates and sale and leaseback transactions. The Credit Agreement also contains customary events of default and related cure provisions. We are required to comply with (a) a maximum total net leverage ratio of 4.25x (which, for purposes of calculating indebtedness, excludes borrowings under our receivables securitization facility); and (b) a minimum consolidated interest coverage ratio of 2.25x. In addition, the Credit Agreement imposes certain restrictions on our ability to pay dividends and make other restricted payments if our total net leverage ratio (including borrowings under our receivables securitization facility) is in excess of 3.50x.

At ~~September 30, 2017,~~March 31, 2018, we had outstanding borrowings of ~~$12.8~~$15.1 million under the Credit Facility. Our average daily balance under the Credit Facility during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018, was ~~$2.1~~$2.7 million. There were no letters of credit issued under the Credit Facility as of ~~September 30, 2017.~~March 31, 2018.

Dean Foods Receivables Securitization Facility — We have a $450 million receivables securitization facility pursuant to which certain of our subsidiaries sell their accounts receivable to two wholly-owned entities intended to be bankruptcy-remote. The entities then transfer the receivables to third-party asset-backed commercial paper conduits sponsored by major financial institutions. The assets and liabilities of these two entities are fully reflected in our unaudited Condensed Consolidated Balance Sheets, and the securitization is treated as a borrowing for accounting purposes.

On January 4, 2017, we amended the purchase agreement governing the receivables securitization facility to, among other things, (i) extend the liquidity termination date to January 4, 2020, (ii) reduce the maximum size of the receivables securitization facility to $450 million, (iii) replace the senior secured net leverage ratio with a total net leverage ratio to be consistent with the amended leverage ratio covenant under the amended Credit Agreement described above, and (iv) modify certain pricing

terms such that advances outstanding under the receivables securitization facility will bear interest between 0.90% and 1.05%, and the Company will pay an unused fee between 0.40% and 0.55% on undrawn amounts, in each case based on the Company's total net leverage ratio.

In connection with the amendment to the receivables purchase agreement, we paid certain arrangement fees of approximately $0.6 million to lenders and other fees of approximately $0.1 million, which were capitalized and will be amortized to interest expense over the remaining term of the facility. Additionally, we wrote off $0.2 million of unamortized deferred financing costs in connection with the amendment.

The receivables purchase agreement contains covenants consistent with those contained in the Credit Agreement.

Based on the monthly borrowing base formula, we had the ability to borrow up to the full $450.0 million commitment amount under the receivables securitization facility as of ~~September 30, 2017.~~March 31, 2018. The total amount of receivables sold to these entities as of ~~September 30, 2017~~March 31, 2018 was ~~$633.7~~$599.7 million. During the first ~~nine~~three months of ~~2017,~~2018, we borrowed ~~$1.7 billion~~$665.0 million and repaid ~~$1.6 billion~~$675.0 million under the facility with a remaining balance of ~~$95.0~~$195.0 million as of ~~September 30, 2017.~~March 31, 2018. In addition to letters of credit in the aggregate amount of ~~$109.7~~$108.7 million that were issued but undrawn, the remaining available borrowing capacity was ~~$245.3~~$146.3 million at ~~September 30, 2017.~~March 31, 2018. Our average daily balance under this facility during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 was ~~$48.1~~$182.2 million. The receivables securitization facility bears interest at a variable rate based upon commercial paper and one-month LIBO rates plus an applicable margin based on our total net leverage ratio.

Dean Foods Company Senior Notes due 2023 — On February 25, 2015, we issued $700 million in aggregate principal amount of 6.50% senior notes due 2023 (the “2023 Notes”) at an issue price of 100% of the principal amount of the 2023 Notes in a private placement for resale to “qualified institutional buyers” as defined in Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and in offshore transactions pursuant to Regulation S under the Securities Act.

In connection with the issuance of the 2023 Notes, we paid certain arrangement fees of approximately $7.0 million to initial purchasers and other fees of approximately $1.8 million, which were deferred and netted against the outstanding debt balance, and will be amortized to interest expense over the remaining term of the 2023 Notes.

The 2023 Notes are our senior unsecured obligations. Accordingly, the 2023 Notes rank equally in right of payment with all of our existing and future senior obligations and are effectively subordinated in right of payment to all of our existing and future secured obligations, including obligations under our Credit Facility and receivables securitization facility, to the extent of the value of the collateral securing such obligations. The 2023 Notes are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally, by our subsidiaries that guarantee obligations under the Credit Facility.

The 2023 Notes will mature on March 15, 2023, and bear interest at an annual rate of 6.50%. Interest on the 2023 Notes is payable semi-annually in arrears in March and September of each year.

We may, at our option, redeem all or a portion of the 2023 Notes at any time on or after March 15, 2018, at the applicable redemption prices specified in the indenture governing the 2023 Notes (the "Indenture"), plus any accrued and unpaid interest to, but excluding, the applicable redemption date. We are also entitled to redeem up to 40% of the aggregate principal amount of the 2023 Notes before March 15, 2018 with the net cash proceeds that we receive from certain equity offerings at a redemption price equal to 106.5% of the principal amount of the 2023 Notes, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. In addition, prior to March 15, 2018, we may redeem all or a portion of the 2023 Notes, at a redemption price equal to 100% of the principal amount thereof, plus a “make-whole” premium and accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.

If we undergo certain kinds of changes of control, holders of the 2023 Notes have the right to require us to repurchase all or any portion of such holder’s 2023 Notes at 101% of the principal amount of the notes being repurchased, plus any accrued and unpaid interest to, but excluding, the date of repurchase.

The Indenture contains covenants that, among other things, limit our ability to: (i) create certain liens; (ii) enter into sale and lease-back transactions; (iii) assume, incur or guarantee indebtedness for borrowed money that is secured by a lien on certain principal properties (or on any shares of capital stock of our subsidiaries that own such principal properties) without securing the 2023 Notes on a pari passu basis; and (iv) consolidate with or merge with or into, or sell, transfer, convey or lease all or substantially all of our properties and assets, taken as a whole, to another person.

The carrying value under the 2023 Notes at ~~September 30, 2017~~March 31, 2018 was ~~$694.1~~$694.6 million, net of unamortized debt issuance costs of ~~$5.9~~$5.4 million.

~~Subsidiary Senior Notes due 2017~~ ~~— Legacy Dean had certain senior notes outstanding at the time of its acquisition, of which one series remains outstanding ($142 million aggregate principal amount)~~and matures on October 15, 2017. The carrying value under these notes at September 30, 2017 was $141.8 million, net of unamortized discounts of $0.2 million, at 6.90% interest. The indenture governing the Legacy Dean senior notes does not contain financial covenants but does contain certain restrictions, including a prohibition against Legacy Dean and its subsidiaries granting liens on certain of their real property interests and a prohibition against Legacy Dean granting liens on the stock of its subsidiaries. The Legacy Dean senior notes are not guaranteed by Dean Foods Company or Legacy Dean’s wholly-owned subsidiaries.

On October 16, 2017 we repaid in full the $142 million outstanding aggregate principal amount of the senior notes, plus remaining accrued and unpaid interest of $4.9 million, with borrowings from our receivables securitization facility.

See Note 78 for information regarding the fair value of the 2023 Notes ~~and the subsidiary senior notes due 2017~~ as of ~~September 30, 2017.~~March 31, 2018.

Capital Lease Obligations and Other — Capital lease obligations of ~~$2.9~~$2.5 million and ~~$4.0~~$2.7 million as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively, were primarily comprised of our leases for information technology equipment.

78. Derivative Financial Instruments and Fair Value Measurements

Derivative Financial Instruments

Commodities — We are exposed to commodity price fluctuations, including in the prices of milk, butterfat, sweeteners and other commodities used in the manufacturing, packaging and distribution of our products, such as natural gas, resin and diesel fuel. To secure adequate supplies of materials and bring greater stability to the cost of ingredients and their related manufacturing, packaging and distribution, we routinely enter into forward purchase contracts and other purchase arrangements with suppliers. Under the forward purchase contracts, we commit to purchasing agreed-upon quantities of ingredients and commodities at agreed-upon prices at specified future dates. The outstanding purchase commitment for these commodities at any point in time typically ranges from one month’s to one year’s anticipated requirements, depending on the ingredient or commodity. These contracts are considered normal purchases.

In addition to entering into forward purchase contracts, from time to time we may purchase over-the-counter contracts from qualified financial institutions or enter into exchange-traded commodity futures contracts for raw materials that are ingredients of our products or components of such ingredients. All commodities contracts are marked to market in our income statement at each reporting period and a derivative asset or liability is recorded on our balance sheet.

Although we may utilize forward purchase contracts and other instruments to mitigate the risks related to commodity price fluctuation, such strategies do not fully mitigate commodity price risk. Adverse movements in commodity prices over the terms of the contracts or instruments could decrease the economic benefits we derive from these strategies. At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, our derivatives recorded at fair value in our unaudited Condensed Consolidated Balance Sheets consisted of the following:


	Derivative Assets				Derivative Liabilities				Derivative Assets				Derivative Liabilities
	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017		March 31, 2018		December 31, 2017
	(In thousands)								(In thousands)
Commodities contracts — current(1)	$	1,410	$	2,416	$	800	$	12	$	1,030	$	1,431	$	1,397	$	1,829
Commodities contracts — non-current(2)	—		—		10		—		—		—		2		15
Total derivatives	$	1,410	$	2,416	$	810	$	12	$	1,030	$	1,431	$	1,399	$	1,844


(1)	Derivative assets and liabilities that have settlement dates equal to or less than 12 months from the respective balance sheet date are included in prepaid expenses and other current assets and accounts payable and accrued expenses, respectively, in our unaudited Condensed Consolidated Balance Sheets.


(2)	Derivative assets and liabilities that have settlement dates greater than 12 months from the respective balance sheet date are included in identifiable intangible and other assets, net and other long-term liabilities, respectively, in our unaudited Condensed Consolidated Balance Sheets.

Fair Value Measurements

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering assumptions, we follow a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 — Quoted prices for identical instruments in active markets.

Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets.

Level 3 — Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

A summary of our derivative assets and liabilities measured at fair value on a recurring basis as of ~~September 30, 2017~~March 31, 2018 is as follows (in thousands):


	Fair Value as of September 30, 2017		Level 1		Level 2		Level 3		Fair Value as of March 31, 2018		Level 1		Level 2		Level 3
Asset — Commodities contracts	$	1,410	$	—	$	1,410	$	—	$	1,030	$	—	$	1,030	$	—
Liability — Commodities contracts	810		—		810		—		1,399		—		1,399		—

A summary of our derivative assets and liabilities measured at fair value on a recurring basis as of December 31, ~~2016~~2017 is as follows (in thousands):


	Fair Value as of December 31, 2016		Level 1		Level 2		Level 3		Fair Value as of December 31, 2017		Level 1		Level 2		Level 3
Asset — Commodities contracts	$	2,416	$	—	$	2,416	$	—	$	1,431	$	—	$	1,431	$	—
Liability — Commodities contracts	12		—		12		—		1,844		—		1,844		—

Due to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are considered equivalent to fair value. In addition, because the interest rates on our Credit Facility, receivables securitization facility, and certain other debt are variable, their fair values approximate their carrying values.

The fair ~~values~~value of the 2023 Notes ~~and subsidiary senior notes were~~was determined based on quoted market prices obtained through an external pricing source which derives its price valuations from daily marketplace transactions, with adjustments to reflect the spreads of benchmark bonds, credit risk and certain other variables. We have determined these fair values to be Level 2 measurements as all significant inputs into the quotes provided by our pricing source are observable in active markets. The following table presents the outstanding principal ~~amounts~~amount and fair ~~values~~value of the 2023 Notes ~~and subsidiary senior notes~~ at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:

September 30, 2017 December 31, 2016
Amount Outstanding Fair Value Amount Outstanding Fair Value
(In thousands)
Dean Foods Company senior notes due 2023 $ 700,000
$ 710,500
$ 700,000
$ 736,750
Subsidiary senior notes due 2017 142,000
142,178
142,000
146,615



	March 31, 2018				December 31, 2017
	Amount Outstanding		Fair Value		Amount Outstanding		Fair Value
	(In thousands)
Dean Foods Company senior notes due 2023	$	700,000	$	665,000	$	700,000	$	698,250

Additionally, we maintain a Supplemental Executive Retirement Plan (“SERP”), which is a nonqualified deferred compensation arrangement for our executive officers and other employees earning compensation in excess of the maximum compensation that can be taken into account with respect to our 401(k) plan. The SERP is designed to provide these employees with retirement benefits from us that are equivalent, as a percentage of total compensation, to the benefits provided to other employees. The assets related to the SERP are primarily invested in money market and mutual funds and are held at fair value. We classify these assets as Level 2 as fair value can be corroborated based on quoted market prices for identical or similar instruments in markets that are not active. The following table presents a summary of the SERP assets measured at fair value on a recurring basis as of ~~September 30, 2017~~March 31, 2018 (in thousands):


	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Money market	$	23	$	—	$	23	$	—	$	20	$	—	$	20	$	—
Mutual funds	1,782		—		1,782		—		1,756		—		1,756		—

The following table presents a summary of the SERP assets measured at fair value on a recurring basis as of December 31, ~~2016~~2017 (in thousands):


	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Money market	$	27	$	—	$	27	$	—	$	22	$	—	$	22	$	—
Mutual funds	1,673		—		1,673		—		1,785		—		1,785		—

89. Common Stock and Share-Based Compensation

Our authorized shares of capital stock include one million shares of preferred stock and 250 million shares of common stock with a par value of $0.01 per share.

Cash Dividends — In accordance with our cash dividend policy, holders of our common stock will receive dividends when and as declared by our Board of Directors. Beginning in 2015, all awards of restricted stock units, performance stock units and phantom shares provide for cash dividend equivalent units, which vest in cash at the same time as the underlying award. Quarterly dividends of $0.09 per share were paid in March ~~June,~~of 2018 and ~~September of~~ 2017, ~~and 2016,~~ totaling approximately ~~$24.5 million and $24.7~~$8.2 million for each of the first ~~nine~~three months of ~~2017~~2018 and ~~2016, respectively.~~2017. We expect to pay quarterly dividends of $0.09 per share ($0.36 per share annually) for the remainder of ~~2017.~~2018. Our cash dividend policy is subject to modification, suspension or cancellation in any manner and at any time. Dividends are presented as a reduction to retained earnings in our unaudited Condensed Consolidated Statement of Stockholders’ Equity unless we have an accumulated deficit as of the end of the period, in which case they are reflected as a reduction to additional paid-in capital.

Stock Repurchase Program — Since 1998, our Board of Directors has from time to time authorized the repurchase of our common stock up to an aggregate of $2.38 billion, excluding fees and commissions. We made no share repurchases during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017. ~~We made no share repurchases during the three months ended September 30, 2016, and we repurchased 1,371,185 shares for $25.0 million during the nine months ended September 30, 2016.~~ As of ~~September 30, 2017,~~March 31, 2018, $197.1 million remained available for repurchases under this program (excluding fees and commissions). Our management is authorized to purchase shares from time to time through open market transactions at prevailing prices or in privately-negotiated transactions, subject to market conditions and other factors. Shares, when repurchased, are retired.

Restricted Stock Units — We issue restricted stock units ("RSUs") to certain senior employees and non-employee directors as part of our long-term incentive compensation program. An RSU represents the right to receive one share of common stock in the future. RSUs have no exercise price. RSUs granted to employees generally vest ratably over three years, subject to certain accelerated vesting provisions based primarily on a change of control, or in certain cases upon death or qualified disability. RSUs granted to non-employee directors vest ratably over three years.

The following table summarizes RSU activity during the ~~nine~~three months ended ~~September 30, 2017:~~March 31, 2018:


	Employees			Non-Employee Directors			Total			Employees			Non-Employee Directors			Total
RSUs outstanding at January 1, 2017	872,785			80,207			952,992
RSUs outstanding at January 1, 2018										545,405			85,829			631,234
RSUs granted	420,144			45,528			465,672			693,850			95,669			789,519
Shares issued upon vesting of RSUs	(230,606		)	(37,204		)	(267,810		)	(149,251		)	(38,454		)	(187,705		)
RSUs canceled or forfeited(1)	(387,540		)	(2,112		)	(389,652		)	(68,849		)	(1,915		)	(70,764		)
RSUs outstanding at September 30, 2017	674,783			86,419			761,202
RSUs outstanding at March 31, 2018										1,021,155			141,129			1,162,284
Weighted average grant date fair value	$	17.76		$	18.46		$	17.84		$	11.63		$	11.98		$	11.67


(1)	Pursuant to the terms of our plans, employees have the option of forfeiting RSUs to cover their minimum statutory tax withholding when shares are issued. Any RSUs surrendered or canceled in satisfaction of participants’ tax withholding obligations are not available for future grants under the plans.

Performance Stock Units — ~~Beginning in~~In 2016, we began granting performance ~~share~~stock units ("PSUs") ~~were granted~~ as a part of our long-term incentive compensation program. PSUs ~~will~~ cliff vest and ~~be settled~~settle in shares of our common stock at the end of a three-year performance period contingent upon the achievement of specific performance goals established for each calendar year during the ~~respective~~ performance ~~periods.~~period. The PSUs are deemed granted in three separate one year tranches on the dates in which our Compensation Committee establishes the applicable annual performance goals. The number of shares that may be earned at the end of the vesting period may range from zero to 200 percent of the target award amount based on the achievement of the performance goals. The fair value of PSUs is estimated using the market price of our common stock on the date of grant, and we recognize compensation expense ratably over the vesting period for the portion of the awards that are expected to vest. The fair value of the PSUs is remeasured at each reporting period. The following table summarizes PSU activity during the ~~nine~~three months ended ~~September 30, 2017:~~March 31, 2018:


	PSUs		Weighted Average Grant Date Fair Value		PSUs		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2017	90,583		$	19.13
Outstanding at January 1, 2018					121,807		$	18.62
Granted	159,102		18.82		286,887		8.78
Vested	—		—		—		—
Forfeited or canceled	(113,405	)	19.22		(5,411	)	14.98
Outstanding at September 30, 2017	136,280		$	18.69
Performance adjustment(1)					(85,795	)	18.13
Outstanding at March 31, 2018					317,488		$	9.92


(1)	Represents an adjustment to the 2017 tranche of the 2016 and 2017 PSU awards based on actual performance during the 2017 annual performance period in relation to the established performance goal for that period. The actual performance for the 2017 annual performance period was certified by the Compensation Committee of our Board of Directors in the first quarter of 2018.

Phantom Shares — We grant phantom shares as part of our long-term incentive compensation program, which are similar to RSUs in that they are based on the price of our stock and vest ratably over a three-year period, but are cash-settled based upon the value of our stock at each vesting date. The fair value of the awards is remeasured at each reporting period. Compensation expense is recognized over the vesting period with a corresponding liability, which is recorded in accounts payable and accrued expenses in our unaudited Condensed Consolidated Balance Sheets. The following table summarizes the phantom share activity during the ~~nine~~three months ended ~~September 30, 2017:~~March 31, 2018:


	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2017	1,361,062		$	17.78
Outstanding at January 1, 2018					1,322,580		$	18.26
Granted	803,006		17.65		1,541,303		8.79
Converted/paid	(619,489	)	16.47		(567,118	)	18.10
Forfeited	(192,002	)	13.40		(118,438	)	15.25
Outstanding at September 30, 2017	1,352,577		$	18.92
Outstanding at March 31, 2018					2,178,327		$	11.77

Stock Options — The following table summarizes stock option activity during the ~~nine~~three months ended ~~September 30, 2017:~~March 31, 2018:


	Options		Weighted Average Exercise Price		Weighted Average Contractual Life (Years)	Aggregate Intrinsic Value		Options		Weighted Average Exercise Price		Weighted Average Contractual Life (Years)	Aggregate Intrinsic Value
Options outstanding and exercisable at January 1, 2017	2,038,829		$	19.78
Options outstanding and exercisable at January 1, 2018								700,467		$	17.21
Forfeited and canceled	(1,041,100	)	23.75					(247,936	)	21.20
Exercised	(204,143	)	11.13					—		—
Options outstanding and exercisable at September 30, 2017	793,586		$	16.80	1.41	$	140,013
Options outstanding and exercisable at March 31, 2018								452,531		$	15.02	1.58	$	—

We recognize share-based compensation expense for stock options ratably over the vesting period. The fair value of each option award is estimated on the date of grant using a Black-Scholes valuation model. We did not grant any stock options

during ~~2016~~2017 or ~~2017,~~2018, nor do we currently plan to in the future. At ~~September 30, 2017,~~March 31, 2018, there was no remaining unrecognized stock option expense related to unvested awards.

Share-Based Compensation Expense — The following table summarizes the share-based compensation expense recognized during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016:~~2017:


	Three Months Ended September 30					Nine Months Ended September 30					Three Months Ended March 31
	2017			2016		2017			2016		2018		2017
	(In thousands)										(In thousands)
RSUs	$	2,084		$	4,728	$	4,738		$	8,165	$	1,146	$	1,608
PSUs~~(1)~~	(1,604		)	1,868		(2,155		)	2,707		596		500
Phantom shares	422			2,330		4,978			9,851		413		1,849
Total	$	902		$	8,926	$	7,561		$	20,723	$	2,155	$	3,957

~~(1)~~

The net credit to PSU expense for the three months ended September 30, 2017 is primarily the result of lower expected performance (relative to the established performance metric) associated with the 2017 tranche of these awards. The net credit to PSU expense for the nine months ended September 30, 2017 reflects the impact of a mark-to-market adjustment with respect to PSUs granted to certain former executives which will be cash settled following the completion of the performance period based on our stock price.

910. Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) is based on the weighted average number of common shares outstanding during each period. Diluted EPS is based on the weighted average number of common shares outstanding and the effect of all dilutive common stock equivalents outstanding during each period. Stock option and stock unit conversions were not included in the computation of diluted loss per share for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and March 31, 2017 as we incurred a loss from continuing operations for these periods and any effect on loss per share would have been anti-dilutive. The following table reconciles the numerators and denominators used in the computations of both basic and diluted EPS:


	Three Months Ended September 30					Nine Months Ended September 30					Three Months Ended March 31
	2017			2016		2017			2016		2018			2017
	(In thousands, except share data)										(In thousands, except share data)
Basic earnings (loss) per share computation:
Numerator:
Income (loss) from continuing operations	$	(9,973	)	$	14,526	$	(2,085	)	$	87,098
Net loss											$	(265	)	$	(9,759	)
Denominator:
Average common shares	90,939,101			90,423,466		90,844,613			91,076,741		91,192,013			90,709,802
Basic earnings (loss) per share from continuing operations	$	(0.11	)	$	0.16	$	(0.03	)	$	0.96
Basic loss per share											$	—		$	(0.11	)
Diluted earnings (loss) per share computation:
Numerator:
Income (loss) from continuing operations	$	(9,973	)	$	14,526	$	(2,085	)	$	87,098
Net loss											$	(265	)	$	(9,759	)
Denominator:
Average common shares — basic	90,939,101			90,423,466		90,844,613			91,076,741		91,192,013			90,709,802
Stock option conversion(1)	—			225,789		—			246,096		—			—
RSUs and PSUs(2)	—			316,120		—			372,001		—			—
Average common shares — diluted	90,939,101			90,965,375		90,844,613			91,694,838		91,192,013			90,709,802
Diluted earnings (loss) per share from continuing operations	$	(0.11	)	$	0.16	$	(0.03	)	$	0.95
Diluted loss per share											$	—		$	(0.11	)
(1) Anti-dilutive options excluded	1,211,592			1,184,449		1,492,474			1,292,766		503,462			1,760,843
(2) Anti-dilutive stock units excluded	1,068,640			4,410		1,010,675			1,481		897,745			1,082,207

1011. Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) by component, net of tax, during the three months ended ~~September 30, 2017~~March 31, 2018 were as follows (in thousands):


	Pension and Other Postretirement Benefits Items			Foreign Currency Items			Total			Pension and Other Postretirement Benefits Items			Foreign Currency Items			Total
Balance at June 30, 2017	$	(81,576	)	$	(4,781	)	$	(86,357	)
Balance at December 31, 2017										$	(73,629	)	$	(4,781	)	$	(78,410	)
Other comprehensive income before reclassifications	3,276			—			3,276			3,233			—			3,233
Amounts reclassified from accumulated other comprehensive loss(1)	(1,649		)	—			(1,649		)	(1,609		)	—			(1,609		)
Net current-period other comprehensive income	1,627			—			1,627			1,624			—			1,624
Balance at September 30, 2017	$	(79,949	)	$	(4,781	)	$	(84,730	)
Reclassification of stranded tax effects related to the Tax Act(2)										(16,847		)	—			(16,847		)
Balance at March 31, 2018										$	(88,852	)	$	(4,781	)	$	(93,633	)


(1)	The accumulated other comprehensive loss reclassification is related to amortization of unrecognized actuarial losses and prior service costs, both of which are included in the computation of net periodic benefit cost. See Note 1112.


(2)	See Note 1 for additional details on the adoption of ASU No. 2018-02 during the first quarter of 2018.

The changes in accumulated other comprehensive income (loss) by component, net of tax, during the three months ended ~~September 30, 2016~~March 31, 2017 were as follows (in thousands):

Pension and
Other
Postretirement
Benefits Items

Foreign
Currency
Items
Total
Balance at June 30, 2016 $ (80,244 ) $ (3,579 ) $ (83,823 )
Other comprehensive income (loss) before reclassifications 2,658
(521 ) 2,137
Amounts reclassified from accumulated other comprehensive loss(1) (1,464 ) —
(1,464 )
Net current-period other comprehensive income (loss) 1,194
(521 ) 673
Balance at September 30, 2016 $ (79,050 ) $ (4,100 ) $ (83,150 )



	Pension and Other Postretirement Benefits Items			Foreign Currency Items			Total
Balance at December 31, 2016	$	(84,852	)	$	(4,781	)	$	(89,633	)
Other comprehensive income before reclassifications	3,291			—			3,291
Amounts reclassified from accumulated other comprehensive loss(1)	(1,647		)	—			(1,647		)
Net current-period other comprehensive income	1,644			—			1,644
Balance at March 31, 2017	$	(83,208	)	$	(4,781	)	$	(87,989	)


(1)	The accumulated other comprehensive loss reclassification is related to amortization of unrecognized actuarial losses and prior service costs, both of which are included in the computation of net periodic benefit cost. See Note 11.

~~The changes in accumulated other comprehensive income (loss) by component, net of tax, during the nine months ended September 30, 2017 were as follows (in thousands):~~

Pension and
Other
Postretirement
Benefits Items

Foreign
Currency
Items
Total
Balance at December 31, 2016 $ (84,852 ) $ (4,781 ) $ (89,633 )
Other comprehensive income before reclassifications 9,845
—
9,845
Amounts reclassified from accumulated other comprehensive loss(1) (4,942 ) —
(4,942 )
Net current-period other comprehensive income 4,903
—
4,903
Balance at September 30, 2017 $ (79,949 ) $ (4,781 ) $ (84,730 )


~~(1)~~	The accumulated other comprehensive loss reclassification is related to amortization of unrecognized actuarial losses and prior service costs, both of which are included in the computation of net periodic benefit cost. See Note 11.

~~The changes in accumulated other comprehensive income (loss) by component, net of tax, during the nine months ended September 30, 2016 were as follows (in thousands):~~

Pension and
Other
Postretirement
Benefits Items

Foreign
Currency
Items
Total
Balance at December 31, 2015 $ (83,279 ) $ (2,524 ) $ (85,803 )
Other comprehensive income (loss) before reclassifications 8,622
(1,576 ) 7,046
Amounts reclassified from accumulated other comprehensive loss(1) (4,393 ) —
(4,393 )
Net current-period other comprehensive income (loss) 4,229
(1,576 ) 2,653
Balance at September 30, 2016 $ (79,050 ) $ (4,100 ) $ (83,150 )


~~(1)~~	The accumulated other comprehensive loss reclassification is related to amortization of unrecognized actuarial losses and prior service costs, both of which are included in the computation of net periodic benefit cost. See Note 1112.

1112. Employee Retirement and Postretirement Benefits

We sponsor various defined benefit and defined contribution retirement plans, including various employee savings and profit sharing plans, and contribute to various multiemployer pension plans on behalf of our employees. All full-time union and non-union employees who have met requirements pursuant to the plans are eligible to participate in one or more of these plans.

Defined Benefit Plans — The benefits under our defined benefit plans are based on years of service and employee compensation. The following table sets forth the components of net periodic benefit cost for our defined benefit plans during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016:~~2017:


	Three Months Ended September 30						Nine Months Ended September 30						Three Months Ended March 31
	2017			2016			2017			2016			2018			2017
	(In thousands)												(In thousands)
Components of net periodic benefit cost:
Service cost	$	752		$	793		$	2,256		$	2,379		$	732		$	752
Interest cost	2,927			3,043			8,781			9,129			2,828			2,927
Expected return on plan assets	(4,758		)	(4,633		)	(14,274		)	(13,899		)	(4,411		)	(4,758		)
Amortizations:
Prior service cost	176			214			528			642			108			176
Unrecognized net loss	2,581			2,206			7,743			6,618			2,130			2,581
Net periodic benefit cost	$	1,678		$	1,623		$	5,034		$	4,869		$	1,387		$	1,678

~~On April 3, 2017, we made a discretionary contribution of $38.5 million~~We do not expect to ~~our~~make any contributions to the company-sponsored pension ~~plans.~~plans in 2018.

Postretirement Benefits — Certain of our subsidiaries provide health care benefits to certain retirees who are covered under specific group contracts. The following table sets forth the components of net periodic benefit cost for our postretirement benefit plans during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016:~~2017:


	Three Months Ended September 30						Nine Months Ended September 30						Three Months Ended March 31
	2017			2016			2017			2016			2018			2017
	(In thousands)												(In thousands)
Components of net periodic benefit cost:
Service cost	$	146		$	160		$	438		$	480		$	170		$	146
Interest cost	240			271			720			813			235			240
Amortizations:
Prior service cost	23			23			69			69			23			23
Unrecognized net gain	(114		)	(61		)	(342		)	(183		)	(118		)	(114		)
Net periodic benefit cost	$	295		$	393		$	885		$	1,179		$	310		$	295

1213. Asset Impairment Charges and Facility Closing and Reorganization Costs

Asset Impairment Charges

We evaluate our finite-lived intangible and long-lived assets for impairment when circumstances indicate that the carrying value may not be recoverable. Indicators of impairment could include, among other factors, significant changes in the business environment, the planned closure of a facility, or deteriorations in operating cash flows. Considerable management judgment is necessary to evaluate the impact of operating changes and to estimate future cash flows.

Testing the assets for recoverability involves developing estimates of future cash flows directly associated with, and that are expected to arise as a direct result of, the use and eventual disposition of the assets. Other inputs are based on assessment of an individual asset’s alternative use within other production facilities, evaluation of recent market data and historical liquidation sales values for similar assets. As the inputs for testing recoverability are largely based on management’s judgments and are not generally observable in active markets, we consider such measurements to be Level 3 measurements in the fair value hierarchy. See Note 78.

The results of our analysis indicated an impairment of our property, plant and equipment at three of our production facilities totaling $25.0 million. The impairments were the result of declines in operating cash flows at these facilities on both a historical and forecasted basis. These charges were recorded during the three months ended September 30, 2017.

The results of our analysis indicated no impairment of our property, plant and equipment, outside of facility closing and reorganization costs, for the three ~~and nine~~ months ended ~~September 30, 2016.~~March 31, 2018 and 2017.

We can provide no assurance that we will not have impairment charges in future periods as a result of changes in our business environment, operating results or the assumptions and estimates utilized in our impairment tests.

Facility Closing and Reorganization Costs

Costs associated with approved plans within our ongoing network optimization strategies are summarized as follows:


	Three Months Ended September 30				Nine Months Ended September 30				Three Months Ended March 31
	2017		2016		2017		2016		2018			2017
	(In thousands)								(In thousands)
Closure of facilities, net(1)	$	3,048	$	9,297	$	10,737	$	9,063	$	2,363		$	3,486
Organizational Effectiveness(2)	4,796		—		12,210		—
Organizational effectiveness(2)									(331		)	5,800
Enterprise-wide cost productivity plan(3)									6,430			—
Facility closing and reorganization costs, net	$	7,844	$	9,297	$	22,947	$	9,063	$	8,462		$	9,286

(1)

Reflects charges, net of gains on the sales of assets, associated with closed facilities that were incurred in ~~2017~~2018 and ~~2016.~~2017. These charges are primarily related to facility closures in Richmond, Virginia; Orem, Utah; New Orleans, Louisiana; Rochester, Indiana; Riverside, California; ~~Delta, Colorado;~~ Denver, Colorado; ~~Springfield, Virginia;~~and Buena Park, ~~California; and Sheboygan, Wisconsin,~~California, as well as other approved closures. We have incurred net charges to date of ~~$60.4~~$54.0 million related to these facility closures through ~~September 30, 2017.~~March 31, 2018. We expect to incur additional charges related to these facility closures of approximately ~~$4.1~~$8.1 million related to shutdown, contract termination and other costs. As we continue the evaluation of our supply chain and distribution network, it is likely that we will close additional facilities in the future.

(2)

During 2017, we initiated a company-wide, multi-phase organizational effectiveness assessment to better align each key function of the Company with our strategic plan. This initiative has resulted in headcount reductions due to changes to our organizational structure, and the charges shown in the table above are primarily comprised of severance benefits and other employee-related costs associated with these organizational changes. We do not expect to incur any material additional costs associated with this initiative.

(3)

In the fourth quarter of 2017, we announced an enterprise-wide cost productivity plan, which includes rescaling our supply chain, optimizing spend management and integrating our operating model. This plan has resulted in headcount reductions due to changes to our organizational structure, and the charges shown in the table above are primarily comprised of severance benefits and other employee-related costs associated with these changes. Efforts with respect to ~~our organizational effectiveness initiative~~the enterprise-wide cost productivity plan are ongoing, and we expect that we will incur additional costs in the coming months associated with the approval and implementation of additional phases of the plan; however, as specific details of these phases have not been finalized and approved, future costs are not yet estimable.

Activity with respect to facility closing and reorganization costs during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 is summarized below and includes items expensed as incurred:


	Accrued Charges at December 31, 2016		Charges and Adjustments		Payments			Accrued Charges at September 30, 2017		Accrued Charges at December 31, 2017		Charges and Adjustments		Payments			Accrued Charges at March 31, 2018
	(In thousands)									(In thousands)
Cash charges:
Workforce reduction costs	$	3,610	$	14,034	$	(6,949	)	$	10,695	$	5,863	$	6,013	$	(1,390	)	$	10,486
Shutdown costs	—		2,974		(2,974		)	—		—		1,151		(1,151		)	—
Lease obligations after shutdown	3,932		921		(1,908		)	2,945		2,606		—		(313		)	2,293
Other	—		275		(275		)	—		—		163		(163		)	—
Subtotal	$	7,542	18,204		$	(12,106	)	$	13,640	$	8,469	7,327		$	(3,017	)	$	12,779
Other charges:
Write-down of assets(1)			4,668
Loss on sale of related assets			67
Other, net			8
Loss on sale/disposal of related assets												1,135
Subtotal			4,743									1,135
Total			$	22,947								$	8,462

~~(1)~~

The write-down of assets relates primarily to owned buildings, land and equipment of those facilities identified for closure. The assets were tested for recoverability at the time the decision to close the facilities was more likely than not to occur. Over time, refinements to our estimates used in testing for recoverability may result in additional asset write-downs. The write-down of assets can include accelerated depreciation recorded for those facilities identified for closure. Our methodology for testing the recoverability of the assets is consistent with the methodology described in the “Asset Impairment Charges” section above.

1314. Commitments and Contingencies

Contingent Obligations Related to Divested Operations — We have divested certain businesses in recent years. In each case, we have retained certain known contingent obligations related to those businesses and/or assumed an obligation to indemnify the purchasers of the businesses for certain unknown contingent liabilities, including environmental liabilities. We believe that we have established adequate reserves, which are immaterial to the financial statements, for potential liabilities and indemnifications related to our divested businesses. Moreover, we do not expect any liability that we may have for these retained liabilities, or any indemnification liability, to materially exceed amounts accrued.

Contingent Obligations Related to Milk Supply Arrangements — On December 21, 2001, in connection with our acquisition of Legacy Dean, we purchased Dairy Farmers of America’s (“DFA”) 33.8% interest in our operations. In connection with that transaction, we issued a contingent, subordinated promissory note to DFA in the original principal amount of $40 million. The promissory note has a 20-year term that bears interest based on the consumer price index. Interest will not be paid in cash but will be added to the principal amount of the note annually, up to a maximum principal amount of $96 million. We may prepay the note in whole or in part at any time, without penalty. The note will become payable only if we materially breach or terminate one of our related milk supply agreements with DFA without renewal or replacement. Otherwise, the note will expire in 2021, without any obligation to pay any portion of the principal or interest. Payments made under the note, if any, would be expensed as incurred. We have not terminated, and we have not materially breached, any of our milk supply agreements with DFA related to the promissory note. We have previously terminated unrelated supply agreements with respect to several plants that were supplied by DFA. In connection with our continued focus on cost control and increased supply chain efficiency, we continue to evaluate our sources of raw milk supply.

Insurance — We use a combination of insurance and self-insurance for a number of risks, including property, workers’ compensation, general liability, automobile liability, product liability and employee health care utilizing high deductibles. Deductibles vary due to insurance market conditions and risk. Liabilities associated with these risks are estimated considering historical claims experience and other actuarial assumptions. Based on current information, we believe that we have established adequate reserves to cover these claims.

Lease and Purchase Obligations — We lease certain property, plant and equipment used in our operations under both capital and operating lease agreements. Such leases, which are primarily for machinery, equipment and vehicles, including our distribution fleet, have lease terms ranging from one to 20 years. Certain of the operating lease agreements require the payment of additional rentals for maintenance, along with additional rentals based on miles driven or units produced. Certain leases require us to guarantee a minimum value of the leased asset at the end of the lease. Our maximum exposure under those guarantees is not a material amount.

We have entered into various contracts, in the normal course of business, obligating us to purchase minimum quantities of raw materials used in our production and distribution processes, including conventional raw milk, diesel fuel, sugar and other ingredients that are inputs into our finished products. We enter into these contracts from time to time to ensure a sufficient supply of raw ingredients. In addition, we have contractual obligations to purchase various services that are part of our production process.

Litigation, Investigations and Audits — On August 9, 2007, two plaintiffs filed a putative class action antitrust complaint against Dean Foods and other milk processors in the United States District Court for the Eastern District of Tennessee. Plaintiffs alleged generally that we, either acting alone or in conjunction with others in the milk industry, lessened competition in the Southeastern United States for the sale of processed fluid Grade A milk to retail outlets and other customers. Plaintiffs further alleged that the defendants’ conduct artificially inflated wholesale prices paid by direct milk purchasers. On January 25, 2016, the district court denied plaintiffs’ motion for class certification. On February 8, 2016, plaintiffs filed a petition for permission to appeal the district court’s order denying class certification. That petition was denied by the Sixth Circuit on June 14, 2016. Although the courts refused to certify the case as a class action, the two original plaintiffs decided to pursue their individual claims for damages. The case was scheduled for trial on March 28, 2017. Prior to trial, the plaintiffs agreed with us to settle the lawsuit. We agreed to pay settlements to the plaintiffs and the parties resolved all outstanding claims in the litigation and agreed to voluntarily dismiss the litigation. The litigation was dismissed on March 21, 2017 with respect to one plaintiff, and on March 26, 2017 with respect to the other plaintiff. We recorded a charge and a corresponding liability in connection with the settlements in the first quarter of 2017.

~~In addition to the legal proceeding described above, we~~ are party from time to time to certain ~~claims, litigations, audits and investigations.~~pending or threatened legal proceedings in the ordinary course of our business. Potential liabilities associated with these ~~other~~ matters are not expected to have a material adverse impact on our financial position, results of operations, or cash flows.

1415. Segment, Geographic and Customer Information

We operate as a single reportable segment in manufacturing, marketing, selling and distributing a wide variety of branded and private label dairy and dairy case products. We operate 65 manufacturing facilities which are geographically located largely based on local and regional customer needs and other market factors. We manufacture, market and distribute a wide variety of branded and private label dairy and dairy case products, including fluid milk, ice cream, cultured dairy products, creamers, ice cream mix and other dairy products to retailers, distributors, foodservice outlets, educational institutions and governmental entities across the United States. Our products are primarily delivered through what we believe to be one of the most extensive refrigerated DSD systems in the United States. Our Chief Executive Officer evaluates the performance of our business based on ~~sales and~~ operating income or loss before facility closing and reorganization costs, litigation settlements, impairments of long-lived assets, gains and losses on the sale of businesses and certain other non-recurring gains and losses.

Geographic Information — Net sales related to our foreign operations comprised less than 1% of our consolidated net sales during each of the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016.~~2017. None of our long-lived assets are associated with our foreign operations.

Significant Customers — Our largest customer accounted for approximately ~~17.5%~~16.6% and ~~16.5%~~17.2% of our consolidated net sales in the three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016, respectively, and accounted for approximately 17.2% and 16.4% of our consolidated net sales in the nine months ended September 30, 2017 and 2016,~~ respectively.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are predictions based on our current expectations and our projections about future events, and are not statements of historical fact. Forward-looking statements include statements concerning our business strategy, among other things, including anticipated trends and developments in, and management plans for, our business and the markets in which we operate. In some cases, you can identify these statements by forward-looking words, such as “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “believe,” “forecast,” “foresee,” “likely,” “may,” “should,” “goal,” “target,” “might,” “will,” “could,” “predict,” and “continue,” the negative or plural of these words and other comparable terminology. All forward-looking statements included in this Form 10-Q are based upon information available to us as of the filing date of this Form 10-Q, and we undertake no obligation to update any of these forward-looking statements for any reason. You should not place undue reliance on these forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these statements. These factors include the matters discussed in “Part I — Item 1A — Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 (the ~~"2016~~"2017 Annual Report on Form 10-K"), as updated herein, and elsewhere in this Form 10-Q. You should carefully consider the risks and uncertainties described under these sections.

Business Overview

We are a leading food and beverage company and the largest processor and direct-to-store distributor of fresh fluid milk and other dairy and dairy case products in the United States, with a vision to be the most admired and trusted provider of wholesome, great-tasting dairy products at every occasion. As we continue to evaluate and seek to maximize the value of our national operational network and our leading brands and product offerings, we have aligned our leadership team, operating strategy, and ~~sales, logistics~~commercial and supply chain initiatives into a single operating and reportable segment.

We manufacture, market and distribute a wide variety of branded and private label dairy and dairy case products, including fluid milk, ice cream, cultured dairy products, creamers, ice cream mix and other dairy products to retailers, distributors, foodservice outlets, educational institutions and governmental entities across the United States. Our portfolio includes DairyPure^®, the country's first and largest fresh, white milk national brand, and TruMoo^®, the leading national flavored milk brand, along with well-known regional dairy brands such as Alta Dena^®, Berkeley Farms^®, Country Fresh^®, Dean’s^®, Friendly's^®, Garelick Farms^®, LAND O LAKES ^® milk and cultured products (licensed brand), Lehigh Valley Dairy Farms^®, Mayfield ^®, McArthur^®, Meadow Gold ^®, Oak Farms^®, PET ^® (licensed brand), T.G. Lee^®, Tuscan^® and more. In all, we have more than 50 national, regional and local dairy brands as well as private labels. ~~Additionally, with~~With our acquisition of Uncle Matt's Organic, Inc., which was completed on June 22, 2017, we now sell and distribute organic juice, probiotic-infused juices, and fruit-infused waters under the Uncle Matt's Organic^®brand. Additionally, we are party to the Organic Valley Fresh joint venture which distributes organic milk under the Organic Valley^®brand to retailers. Dean Foods also makes and distributes ~~ice cream, cultured products,~~ juices, teas, and bottled water. Due to the perishable nature of our products, we deliver the majority of our products directly to our customers' locations in refrigerated trucks or trailers that we own or lease. We believe that we have one of the most extensive refrigerated direct-to-store delivery ("DSD") systems in the United States. We sell our products primarily on a local or regional basis through our local and regional sales forces, and in some instances, with the assistance of national brokers. Some national customer relationships are coordinated by our centralized corporate sales department or national brokers.

~~Recent Developments~~Matters Affecting Comparability

~~Management Changes~~

~~Chris Bellairs,~~Our discussion of the results of operations for the three months ended March 31, 2018 and 2017 is affected by our ~~former Executive Vice President and Chief Financial Officer, departed~~adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606"), on January 1, 2018. Historically, we presented sales of excess raw materials as a reduction of cost of sales within our unaudited Condensed Consolidated Statements of Operations. On a prospective basis, effective January 1, 2018, in connection with the ~~Company effective September 1, 2017. Scott K. Vopni,~~adoption of ASC 606, we began reporting sales of excess raw materials within the Company's Senior Vice President, Finance and Chief Accounting Officer, was appointed interim Chief Financial Officer. Mr. Bellairs will receive compensation and benefits pursuant to the Company’s Amended and Restated Executive Severance Pay Plan.

~~Organic Valley Fresh Joint Venture~~

~~In the third quarter of 2017, we commenced the operations~~net sales line of our ~~previously announced 50/50 strategic joint venture with Cooperative Regions~~unaudited Condensed Consolidated Statements of ~~Organic Producer Pools (“CROPP”), an independent farmer cooperative that distributes organic milk~~Operations.

Sales of excess raw materials included in net sales were $151.8 million in the three months ended March 31, 2018. Sales of excess raw materials included as a reduction to cost of sales were $171.0 million in the three months ended March 31, 2017. See Notes 1 and ~~other organic dairy products under the Organic Valley~~^® brand. The joint venture, called Organic Valley Fresh, combines our processing plants and refrigerated DSD system with CROPP's portfolio of recognized brands and products, marketing expertise, and access to an organic milk supply from America's largest cooperative of organic dairy farmers to bring the Organic Valley^® ~~brand to retailers. See Note 3~~2 to our unaudited Condensed Consolidated Financial Statements for additional ~~information regarding our Organic Valley Fresh Joint Venture.~~

~~Uncle Matt's Organic Acquisition~~

On June 22, 2017, we completed the acquisition of Uncle Matt's Organic, Inc. ("Uncle Matt's"). Uncle Matt's is a leading organic juice company offering a wide range of organic juices, including probiotic-infused juices and fruit-infused waters. The total purchase price was $22.0 million, which was funded through a combination of cash on hand and borrowings under our receivables securitization facility. Uncle Matt's results of operations have been included in our Consolidated Statements of Operations from the date of acquisition.

~~Investment in Good Karma~~

On May 4, 2017, we acquired a non-controlling interest in, and entered into a distribution agreement with, Good Karma Foods, Inc. (“Good Karma”), the leading producer of flax-based milk and yogurt products. This investment allows us to diversify our portfolio to include plant-based dairy alternatives and provides Good Karma the ability to more rapidly expand distribution across the U.S., as well as increase investments in brand building and product innovation. We do not expect our equity in the earnings of this investment to materially impact our consolidated financial statements. We are accounting for this investment under the equity method of accounting based upon our ability to exercise significant influence over the investee through our ownership interest and representation on Good Karma's board of directors.information.

Results of Operations

Our key performance indicators are brand mix and achieving low cost, ~~and volume performance,~~ which are reflected in gross profit and operating income, ~~and net sales,~~ respectively. We evaluate our financial performance based on ~~sales and~~ operating ~~profit~~income or loss before gains and losses on the sale of businesses, facility closing and reorganization costs, asset impairment charges, litigation settlements and other nonrecurring gains and losses. The following table presents certain information concerning our financial results, including information presented as a percentage of net sales:


	Three Months Ended September 30								Nine Months Ended September 30								Three Months Ended March 31
	2017				2016				2017				2016				2018					2017
	Dollars		Percent		Dollars		Percent		Dollars		Percent		Dollars		Percent		Dollars			Percent		Dollars		Percent
	(Dollars in millions)																(Dollars in millions)
Net sales	$	1,937.6	100.0	%	$	1,964.6	100.0	%	$	5,860.0	100.0	%	$	5,692.2	100.0	%	$	1,980.5		100.0	%	$	1,995.7	100.0	%
Cost of sales	1,495.9		77.2		1,475.8		75.1		4,488.8		76.6		4,206.1		73.9		1,532.0			77.4		1,533.5		76.8
Gross profit(1)	441.7		22.8		488.8		24.9		1,371.2		23.4		1,486.1		26.1		448.5			22.6		462.2		23.2
Operating costs and expenses:
Selling and distribution	332.7		17.2		341.5		17.4		1,016.0		17.3		1,005.5		17.7		346.0			17.5		345.1		17.3
General and administrative	68.8		3.6		90.8		4.6		241.4		4.1		262.6		4.6		75.5			3.8		98.5		4.9
Amortization of intangibles	5.2		0.2		5.2		0.3		15.5		0.3		15.6		0.3		5.1			0.3		5.2		0.3
Facility closing and reorganization costs, net	7.8		0.4		9.3		0.5		22.9		0.4		9.1		0.2		8.5			0.4		9.3		0.5
Impairment of long-lived assets	25.0		1.3		—		—		25.0		0.4		—		—
Equity in (earnings) loss of unconsolidated affiliate																	(1.9		)	(0.1	)	—		—
Total operating costs and expenses	439.5		22.7		446.8		22.7		1,320.8		22.5		1,292.8		22.7		433.2			21.9		458.1		23.0
Operating income	$	2.2	0.1	%	$	42.0	2.1	%	$	50.4	0.9	%	$	193.3	3.4	%	$	15.3		0.7	%	$	4.1	0.2	%


(1)	As disclosed in Note 1 to the Consolidated Financial Statements in our ~~2016~~2017 Annual Report on Form 10-K, we include certain shipping and handling costs within selling and distribution expense. As a result, our gross profit may not be comparable to other entities that present all shipping and handling costs as a component of cost of sales.

Quarter Ended ~~September 30, 2017~~March 31, 2018 Compared to Quarter Ended ~~September 30, 2016~~March 31, 2017

Net Sales — The change in net sales was due to the following:


	Three Months Ended September 30, 2017 vs. 2016			Three Months Ended March 31, 2018 vs. 2017
	(In millions)			(In millions)
Volume	$	(130.6	)	$	(71.0	)
Pricing and product mix changes	103.6			(100.9		)
Acquisitions				4.9
Sales of excess raw materials				151.8
Total decrease	$	(27.0	)	$	(15.2	)

Net sales decreased ~~$27.0~~$15.2 million, or ~~1.4%~~0.8%, during the ~~third~~first quarter of ~~2017~~2018 as compared to the ~~third~~first quarter of ~~2016,~~2017, primarily due to volume declines. In the third quarter of 2017, we experienced a total sales volume decline of 6.6% from year-ago levels. Volume declines across our fluid milk business, which accounted for approximately 76% of our total sales volume in the third quarter of 2017, represented an approximately 5.6% year-over-year decrease. Our total branded white milk volumes decreased ~~8.1% year-over-year and our flavored milk volumes decreased 1.9% year-over-year. Net sales decreases were partially offset by increased~~ pricing, as a result of ~~increases~~decreases in dairy commodity costs from year-ago levels. On average, during the ~~third~~first quarter of ~~2017,~~2018, the Class I price was ~~10.3% above~~15.7% below prior-year levels. Net sales were further impacted by fluid milk volume declines from year-ago levels, driven predominantly by overall category declines and lower branded fluid milk volumes due to increased retailer investment in private label products. Net sales decreases were partially offset by sales of excess raw materials of $151.8 million during the first quarter of 2018. Additionally, volumes associated with the Uncle Matt's acquisition contributed $4.9 million to net sales in the first quarter of 2018.

We generally increase or decrease the prices of our private label fluid dairy products on a monthly basis in correlation with fluctuations in the costs of raw materials, packaging supplies and delivery costs. We manage the pricing of our branded fluid milk products on a longer-term basis, balancing consumer demand with net price ~~realization. However, we continue to balance our product pricing with the execution of our strategy to improve net price~~ realization, ~~and,~~but in some cases, we are subject to the terms of our sales agreements with respect to the means and/or timing of price increases, which can negatively impact our

profitability. The following table sets forth the average monthly Class I “mover” and its components, as well as the average monthly

Class II minimum prices for raw skim milk and butterfat for the ~~third~~first quarter of ~~2017~~2018 compared to the ~~third~~first quarter of ~~2016:~~2017:


	Three Months Ended September 30*						Three Months Ended March 31*
	2017		2016		% Change		2018		2017		% Change
Class I mover(1)	$	16.67	$	15.11	10.3	%	$	14.35	$	17.03	(15.7	)%
Class I raw skim milk mover(1)(2)	6.73		6.63		1.5		6.02		8.82		(31.7	)
Class I butterfat mover(2)(3)	2.91		2.49		16.9		2.44		2.43		0.4
Class II raw skim milk minimum(1)(4)	7.23		6.59		9.7		5.54		8.02		(30.9	)
Class II butterfat minimum(3)(4)	2.94		2.47		19.0		2.42		2.46		(1.6	)

The prices noted in this table are not the prices that we actually pay. The federal order minimum prices applicable at any given location for Class I raw skim milk or Class I butterfat are based on the Class I mover prices plus producer premiums and a location differential. Class II prices noted in the table are federal minimum prices, applicable at all locations. Our actual cost also includes procurement costs and other related charges that vary by location and supplier. Please see “Part I — Item 1. Business — Government Regulation — Milk Industry Regulation” in our ~~2016~~2017 Annual Report on Form 10-K and “— Known Trends and Uncertainties — Prices of Conventional Raw Milk and Other Inputs” below for a more complete description of raw milk pricing.


(1)	Prices are per hundredweight.


(2)	We process Class I raw skim milk and butterfat into fluid milk products.


(3)	Prices are per pound.


(4)	We process Class II raw skim milk and butterfat into products such as cottage cheese, creams and creamers, ice cream and sour cream.

Cost of Sales — All expenses incurred to bring a product to completion are included in cost of sales, such as raw material, ingredient and packaging costs; labor costs; and plant and equipment costs. Cost of sales ~~increased 1.4%~~remained materially consistent in the ~~third~~first quarter of ~~2017~~2018 as compared to the ~~third~~first quarter of ~~2016,~~2017, primarily due to ~~increased~~decreased dairy commodity ~~costs.~~costs offset by the change in reporting of sales of excess raw materials discussed above. The Class I price was ~~10.3% above~~15.7% below prior-year levels.

Gross Profit — Our gross profit percentage decreased to ~~22.8%~~22.6% in the ~~third~~first quarter of ~~2017~~2018 as compared to ~~24.9%~~23.2% in the ~~third~~first quarter of ~~2016.~~2017. This decrease was primarily due to ~~higher input costs and~~ overall volume declines and the change in reporting of excess raw materials discussed ~~above.~~above, in addition to a higher mix of private label products in the first quarter of 2018, which carry lower margins than our branded products.

Operating Costs and Expenses — Operating costs and expenses decreased ~~$7.2~~$25.0 million, or ~~1.6%~~5.5%, in the ~~third~~first quarter of ~~2017~~2018 as compared to the ~~third~~first quarter of ~~2016.~~2017. Significant changes to operating costs and expenses in the ~~third~~first quarter of ~~2017~~2018 as compared to the ~~third~~first quarter of ~~2016~~2017 include the following:

Selling and distribution costs ~~decreased~~increased by ~~$8.8~~$0.9 million during the ~~third~~first quarter of ~~2017~~2018 primarily due to ~~lower~~increases in freight costs of $9.1 million and fuel costs of $1.7 million, partially offset by decreases in salaries and wages and other employee-related costs of $6.5 million associated with ~~decreased~~lower headcount ~~and decreased advertising costs, partially offset by higher freight costs compared~~in comparison to the prior ~~period.~~year and the impact of our cost savings initiatives, and advertising costs of $2.4 million.

General and administrative costs decreased by ~~$22.0~~$23.1 million during the ~~third~~first quarter of 2018 in comparison to the prior period. General and administrative costs of $98.7 million in the first quarter of 2017 ~~primarily~~included a charge due to ~~lower incentive compensation~~litigation settlements and ~~lower~~the related legal expenses, ~~compared~~totaling $17.0 million. General and administrative costs of $75.5 million in the first quarter of 2018 were impacted by decreases in salaries and wages and other employee-related costs of $6.5 million associated with lower headcount in comparison to the prior ~~period.~~year and the impact of our cost savings initiatives. These decreases were partially offset by costs incurred in connection with our enterprise-wide cost productivity plan in the first quarter of 2018, totaling $4.1 million.

Facility closing and reorganization costs decreased by ~~$1.5~~$0.8 million during the ~~third~~first quarter of ~~2017.~~2018. See Note 1213 to our unaudited Condensed Consolidated Financial Statements.

We recorded ~~impairment charges to~~$1.9 million of equity in the earnings of our ~~long-lived assets of $25.0 million~~Organic Valley Fresh joint venture during the ~~third~~first quarter of ~~2017. There were no impairment charges during the third quarter of 2016.~~2018. See Note 124 to our unaudited Condensed Consolidated Financial Statements.

Other (Income) Expense — Other expense ~~increased $0.5~~decreased $3.1 million during the ~~third~~first quarter of ~~2017~~2018 as compared to the ~~third~~first quarter of ~~2016.~~2017. This ~~increase~~decrease in expense was primarily due to lower ~~foreign currency exchange gains~~interest expense in the ~~third~~first quarter of ~~2017 as~~2018 compared to the prior ~~period.~~period, primarily due to the repayment in full of the $142 million outstanding aggregate principal amount of subsidiary senior notes on October 16, 2017.

Income Taxes — Income tax ~~benefit~~expense was recorded at an effective rate of ~~26.9%~~131.5% for the ~~third~~first quarter of ~~2017~~2018 compared to a ~~45.4%~~28.0% effective tax rate for the ~~third~~first quarter of ~~2016.~~2017. Generally, our effective tax rate varies primarily based on our profitability level and the relative earnings of our business units. In the ~~third~~first quarter of ~~2017,~~2018, our effective tax rate was impacted by the recognition of excess tax deficiencies related to share-based payments recorded in the provision for income ~~taxes.~~taxes of $0.8 million, return to provision adjustments resulting in a $0.6 million tax benefit, and $0.7 million of other one-time tax impacts related to restructuring, interest on uncertain tax positions, and impacts of state tax rate changes. Excluding the ~~$1.4~~$0.9 million ~~of excess tax deficiencies recorded, our effective tax rate for the third quarter of 2017 was 37.0%.~~

~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~

~~Net Sales~~ ~~— The change in~~ net ~~sales was due to the following:~~

Nine Months Ended September 30, 2017 vs. 2016
(In millions)
Volume $ (236.9 )
Pricing and product mix changes 330.6
Acquisitions 74.1
Total increase $ 167.8

Net sales increased $167.8 million, or 2.9%, during the first nine months of 2017 as compared to the first nine months of 2016, primarily due to increased pricing, as a result of increases in dairy commodity costs from year-ago levels. On average, during the first nine months of 2017, the Class I price was 14.2% above prior-year levels. Additionally, volumes associated with the Friendly's acquisition contributed $129.7 million to net sales in the first nine months of 2017 as compared to $55.6 million in the first nine months of 2016. The Friendly's acquisition closed on June 20, 2016 and net sales in the first nine months of 2016 reflect 103 days of Friendly's operations. Net sales increases were partially offset by a 3.5% total sales volume decline from year-ago levels. Volume declines across our fluid milk business, which accounted for approximately 77% of our total sales volume in first nine months of 2017, represented an approximately 3.6% year-over-year decrease. Our total branded white milk volumes decreased 6.1% year-over-year. These decreases were partially offset by a 1.4% year-over-year increase in our flavored milk volumes.

The following table sets forth the average monthly Class I “mover” and its components, as well as the average monthly Class II minimum prices for raw skim milk and butterfat for the first nine months of 2017 in comparison to the first nine months of 2016:

Nine Months Ended September 30*
2017 2016 % Change
Class I mover(1) $ 16.41
$ 14.37
14.2 %
Class I raw skim milk mover(1)(2) 7.65
6.07
26.0
Class I butterfat mover(2)(3) 2.58
2.43
6.2
Class II raw skim milk minimum(1)(4) 7.34
6.20
18.4
Class II butterfat minimum(3)(4) 2.64
2.36
11.9

The prices noted in this table are not the prices that we actually pay. The federal order minimum prices applicable at any given location for Class I raw skim milk or Class I butterfat are based on the Class I mover prices plus producer premiums and a location differential. Class II prices noted in the table are federal minimum prices, applicable at all locations. Our actual cost also includes procurement costs and other related charges that vary by location and supplier. Please see “Part I — Item 1. Business — Government Regulation — Milk Industry Regulation” in our 2016 Annual Report on Form 10-K and “— Known Trends and Uncertainties — Prices of Conventional Raw Milk and Other Inputs” below for a more complete description of raw milk pricing.


~~(1)~~	~~Prices are per hundredweight.~~


~~(2)~~	~~We process Class I raw skim milk and butterfat into fluid milk products.~~


~~(3)~~	~~Prices are per pound.~~


~~(4)~~	~~We process Class II raw skim milk and butterfat into products such as cottage cheese, creams and creamers, ice cream and sour cream.~~

~~Cost of Sales~~ — Cost of sales increased 6.7% in the first nine months of 2017 as compared to the first nine months of 2016, primarily due to increased dairy commodity costs. The Class I price was 14.2% above prior-year levels.

~~Gross Profit~~ — Our gross profit percentage decreased to 23.4% for the first nine months of 2017 as compared to 26.1% for the first nine months of 2016. This decrease was primarily due to higher input costs and overall volume declines discussed above.

~~Operating Costs and Expenses~~ — Operating costs and expenses increased $28.1 million, or 2.2%, in the first nine months of 2017 as compared to the first nine months of 2016. Significant changes to operating costs and expenses in the first nine months of 2017 as compared to the first nine months of 2016 include the following:

Selling and distribution costs increased by $10.5 million during the first nine months of 2017 primarily due to higher freight, insurance, and external commissions costs, partially offset by decreased incentive compensation and advertising costs.

General and administrative costs decreased by $21.2 million in the first nine months of 2017 in comparison to the prior period. General and administrative costs in the first nine months of 2016 of $262.6 million included severance charges of $10.1 million related to the announcement of our CEO succession plan and acquisition-related expenses of $4.4 million related to the June 2016 acquisition of Friendly's. General and administrative costs of $241.4 million in the first nine months of 2017 were impacted by lower incentive compensation in comparison to the prior year. These decreases were partially offset by litigation settlements reached in the first quarter of 2017 and the related legal expenses.

Facility closing and reorganization costs increased by $13.9 million during the first nine months of 2017 primarily due to costs associated with the implementation of our organizational structure change and asset write-downs and other charges associated with announced facilities closures. See Note 12 ~~to our unaudited Condensed Consolidated Financial Statements.~~

~~We recorded impairment charges to our long-lived assets of $25.0 million during the first nine months of 2017. There were no impairment charges during the first nine months of 2016. See Note~~ 12 ~~to our unaudited Condensed Consolidated Financial Statements.~~

~~Other (Income) Expense~~ — Other expense increased $2.1 million during the first nine months of 2017 as compared to the first nine months of 2016. This increase in expense was primarily due to lower foreign currency exchange gains in the first nine months of 2017 as compared to the prior period.

~~Income Taxes~~ — Income tax expense was recorded at an effective rate of 189.0% for the first nine months of 2017 compared to a 40.9% effective tax rate for the first nine months of 2016. Generally, our effective tax rate varies primarily based on our profitability level and the relative earnings of our business units. In the first nine months of 2017, our effective tax rate was impacted by state law changes and the adoption of Accounting Standards Update ("ASU") 2016-09 which requires excess tax benefits and tax deficiencies related to share-based payments to be recorded in the provision for income taxes. Excluding the $0.8 million of tax expense related to ~~state law changes and $2.7 million of tax expense recorded because of the adoption of ASU 2016-09,~~these items, our effective tax rate for the first ~~nine months~~quarter of ~~2017~~2018 was ~~39.3%~~28.8%.

Liquidity and Capital Resources

We believe that our cash on hand coupled with future cash flows from operations and other available sources of liquidity, including our ~~$450 million~~ senior secured revolving credit facility and our ~~$450 million~~ receivables securitization facility, ~~together~~ will provide sufficient liquidity to allow us to meet our cash requirements for at least the next twelve months. Our anticipated uses of cash for the remainder of ~~2017~~2018 include costs to execute our enterprise-wide cost productivity plan and other strategic initiatives; capital expenditures; working capital; ~~debt repayment;~~ financial obligations, including tax payments; dividend payments; additional investments in unconsolidated affiliates; and ~~certain~~ other costs that may be necessary to ~~execute our strategic initiatives and~~ invest to grow our business. We are also authorized to repurchase shares of our common stock pursuant to a stock repurchase program authorized by our Board of Directors. Additionally, on an ongoing basis, we evaluate and consider strategic acquisitions, divestitures, joint ventures, or other transactions to create shareholder value and enhance financial performance. ~~However, we~~We may also, from time to time, raise additional funds through borrowings or public or private sales of debt or equity securities. The amount, nature and timing of any borrowings or sales of debt or equity securities will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.

As of ~~September 30, 2017,~~March 31, 2018, we had total cash on hand of ~~$24.3~~$28.1 million, of which ~~$12.1~~$12.4 million was attributable to our foreign operations. ~~We are evaluating strategies~~Historically, the cash held by our foreign subsidiary was reinvested indefinitely and ~~alternatives with respect~~was generally subject to U.S. income tax only upon repatriation to the U.S. However, the Tax Cuts and Jobs Act (the "Tax Act") required us to pay a one-time transition tax in 2017 on cumulative undistributed foreign earnings for which we had not previously provided U.S. taxes. We have analyzed our foreign working capital and cash requirements and the potential tax liabilities that would be attributable to ~~our foreign operations.~~a repatriation and currently expect that we will repatriate approximately $10 million of cash in 2018 that was previously deemed to be permanently reinvested.

At ~~September 30, 2017,~~March 31, 2018, we had ~~$952.7~~$912.6 million of long-term debt obligations, excluding unamortized ~~discounts and~~ debt issuance costs of ~~$6.2~~$5.4 million, and ~~$682.5~~$581.2 million of combined available future borrowing capacity under our senior secured revolving credit facility and receivables securitization facility, subject to compliance with the covenants in our credit agreements. Based on our current expectations, we believe our liquidity and capital resources will be sufficient to operate our business.

Quarterly dividends of $0.09 per share were paid in March ~~June,~~of 2018 and ~~September of~~ 2017, ~~and 2016,~~ totaling approximately ~~$24.5 million and $24.7~~$8.2 million for each of the first ~~nine~~three months of ~~2017~~2018 and ~~2016, respectively.~~2017. We expect to pay quarterly dividends of $0.09 per share ($0.36 per share annually) for the remainder of ~~2017.~~2018. Our cash dividend policy is subject to modification, suspension or cancellation in any manner and at any time. Dividends are presented as a reduction to retained earnings in our unaudited Condensed Consolidated Statement of Stockholders’ Equity unless we have an accumulated deficit as of the end of the period, in which case they are reflected as a reduction to additional paid-in capital. See Note 89 to our unaudited Condensed Consolidated Financial Statements.

Senior Secured Revolving Credit Facility — We have a credit agreement (as amended, the "Credit Agreement") pursuant to which the lenders have provided us with a senior secured revolving credit facility in the amount of up to $450 million (the “Credit Facility”) with a maturity date of January 4, 2022. Under the Credit Agreement, we have the right to request an increase of the aggregate commitments under the Credit Facility by up to $200 million, which we may request to be made available as either term loans or revolving loans, without the consent of any lenders not participating in such increase, subject to specified conditions. The Credit Facility is available for the issuance of up to $75 million of letters of credit and up to $100 million of swing line loans.

Loans outstanding under the Credit Facility will bear interest, at our option, at either (i) the LIBO Rate (as defined in the Credit Agreement) plus a margin of between 1.75% and 2.50% (2.00% as of ~~September 30, 2017)~~March 31, 2018) based on our total net leverage ratio (as defined in the Credit Agreement), or (ii) the Alternate Base Rate (as defined in the Credit Agreement) plus a margin of between 0.75% and 1.50% (1.00% as of ~~September 30, 2017)~~March 31, 2018) based on our total net leverage ratio.

We may make optional prepayments of ~~loans under~~ the ~~Credit Facility,~~loans, in whole or in part, without premium or penalty (other than applicable breakage costs). Subject to certain exceptions and conditions described in the Credit Agreement, we will be obligated to prepay the Credit Facility, but without a corresponding commitment reduction, with the net cash proceeds of certain asset sales and with casualty insurance proceeds. The Credit Facility is guaranteed by our existing and future domestic material restricted subsidiaries (as defined in the Credit Agreement), which are substantially all of our wholly-owned U.S. subsidiaries other than the receivables securitization facility subsidiaries (the “Guarantors”).

The Credit Agreement contains customary representations, warranties and covenants, including, but not limited to specified restrictions on indebtedness, liens, guarantee obligations, mergers, acquisitions, consolidations, liquidations and dissolutions, sales of assets, leases, payment of dividends and other restricted payments during a default or non-compliance with the financial covenants, investments, loans and advances, transactions with affiliates and sale and leaseback transactions. The Credit Agreement also contains customary events of default and related cure provisions. We are required to comply with (i) a maximum total net leverage ratio of 4.25x (which, for purposes of calculating indebtedness, excludes borrowings under our receivables securitization facility); and (ii) a minimum consolidated interest coverage ratio of 2.25x. In addition, the Credit Agreement imposes certain restrictions on our ability to pay dividends and make other restricted payments if our total net leverage ratio (including borrowings under our receivables securitization facility) is in excess of 3.50x.

At ~~September 30, 2017,~~March 31, 2018, we had outstanding borrowings of ~~$12.8~~$15.1 million under the Credit Facility. Our average daily balance under the Credit Facility during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 was ~~$2.1~~$2.7 million. There were no letters of credit issued under the Credit Facility as of ~~September 30, 2017.~~March 31, 2018.

Dean Foods Receivables Securitization Facility — We have an amended and restated receivables purchase agreement (as amended), which provides us with a $450 million receivables securitization facility pursuant to which certain of our subsidiaries sell their accounts receivable to two wholly-owned entities intended to be bankruptcy-remote. The entities then transfer the receivables to third-party asset-backed commercial paper conduits sponsored by major financial institutions. The assets and liabilities of these two entities are fully reflected in our unaudited Condensed Consolidated Balance Sheets, and the securitization is treated as a borrowing for accounting purposes.

The receivables securitization facility has a liquidity termination date of January 4, 2020 and bears interest at a variable rate based upon commercial paper and one-month LIBO rates plus an applicable margin based on our net leverage ratio. The receivables purchase agreement contains covenants consistent with those in the Credit Agreement. Advances outstanding

under the receivables securitization facility will bear interest between 0.90% and 1.05%, and the Company will pay an unused fee between 0.40% and 0.55% on undrawn amounts, in each case based on the Company's total net leverage ratio.

At ~~November~~May 3, ~~2017,~~2018, we had ~~$195.0~~$175.0 million of outstanding borrowings under the Credit Facility and the receivables securitization facility, excluding letters of credit in the aggregate amount of ~~$109.7~~$108.7 million that were issued but undrawn.

Covenant Compliance — As of ~~September 30, 2017,~~March 31, 2018, we were in compliance with all covenants under our credit agreements. The following describes our financial covenants pursuant to our current credit agreements.

The Credit Agreement and the purchase agreement governing our receivables securitization facility require us to maintain a total net leverage ratio less than 4.25x as of the end of each fiscal quarter. In addition, the Credit Agreement imposes certain restrictions on our ability to pay dividends and make other restricted payments if our total net leverage ratio (including borrowings under our receivables securitization facility) exceeds ~~3.5x.~~3.50x. As described in more detail in our Credit Agreement and the purchase agreement governing our receivables securitization facility, the total net leverage ratio is calculated as the ratio of

consolidated funded indebtedness, less cash up to $50 million to the extent held by us and our restricted subsidiaries, to consolidated EBITDA for the period of four consecutive fiscal quarters ended on the measurement date. Consolidated funded indebtedness excludes borrowings under our receivables securitization facility and is calculated on a pro forma basis to give effect to permitted acquisitions, divestitures or refinancing of indebtedness.

Consolidated EBITDA is comprised of net income for us and our restricted subsidiaries plus interest expense, taxes, depreciation and amortization expense and other non-cash expenses, certain pro forma cost savings add-backs in connection with permitted acquisitions and dispositions, and certain other add-backs for non-recurring charges and other adjustments permitted in calculating covenant compliance under the Credit Agreement, and is calculated on a pro forma basis.

The Credit Agreement and the purchase agreement governing our receivables securitization facility require us to maintain an interest coverage ratio of at least 2.25x as of the end of each fiscal quarter. As described in more detail in the Credit Agreement and the purchase agreement governing our receivables securitization facility, our interest coverage ratio is calculated as the ratio of consolidated EBITDA to consolidated interest expense for the period of four consecutive fiscal quarters ended on the measurement date. Consolidated EBITDA is calculated as described above in the discussion of our leverage ratio. Consolidated interest expense is comprised of consolidated interest expense paid or payable in cash by us and our restricted subsidiaries, as calculated in accordance with generally accepted accounting principles, but excluding write-offs or amortization of deferred financing fees and amounts paid on early termination of swap agreements, calculated on a pro forma basis.

The 2023 Notes will mature on March 15, 2023 and bear interest at an annual rate of 6.50%. Interest on the 2023 Notes is payable semi-annually in arrears in March and September of each year.

We may, at our option, redeem all or a portion of the 2023 Notes at any time on or after March 15, 2018 at the applicable redemption prices specified in the indenture governing the 2023 Notes (the "Indenture"), plus any accrued and unpaid

interest to, but excluding, the applicable redemption date. We are also entitled to redeem up to 40% of the aggregate principal amount of the 2023 Notes before March 15, 2018 with the net cash proceeds that we receive from certain equity offerings at a redemption price equal to 106.5% of the principal amount of the 2023 Notes, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. In addition, prior to March 15, 2018, we may redeem all or a portion of the 2023 Notes, at a redemption price equal to 100% of the principal amount thereof, plus a “make-whole” premium and accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.

The carrying value under the 2023 Notes at ~~September 30, 2017~~March 31, 2018 was ~~$694.1~~$694.6 million, net of unamortized debt issuance costs of ~~$5.9~~$5.4 million.

~~Subsidiary Senior Notes due 2017~~ — Legacy Dean had $142 million aggregate principal amount of senior notes, which matured on October 15, 2017. The carrying value under these notes at September 30, 2017 was $141.8 million, net of unamortized discounts of $0.2 million, at 6.90% interest. On October 16, 2017 we repaid in full the $142 million outstanding aggregate principal amount of the senior notes, plus remaining accrued and unpaid interest of $4.9 million, with borrowings from our receivables securitization facility.

Historical Cash Flow

The following table summarizes our cash flows from operating, investing and financing activities:


	Nine Months Ended September 30									Three Months Ended March 31
	2017			2016			Change			2018			2017			Change
	(In thousands)									(In thousands)
Net cash flows from continuing operations:
Operating activities	$	66,725		$	184,618		$	(117,893	)	$	38,953		$	27,556		$	11,397
Investing activities	(90,868		)	(224,884		)	134,016			(12,329		)	(7,371		)	(4,958		)
Financing activities	30,511			9,044			21,467			(15,011		)	(6,583		)	(8,428		)
Effect of exchange rate changes on cash and cash equivalents	—			(1,354		)	1,354
Net increase (decrease) in cash and cash equivalents	$	6,368		$	(32,576	)	$	38,944
Net increase in cash and cash equivalents										$	11,613		$	13,602		$	(1,989	)

Operating Activities

Net cash provided by operating activities ~~decreased~~increased by ~~$117.9~~$11.4 million in the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 compared to the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017. The ~~decrease~~increase was primarily attributable to ~~lower~~higher operating income ~~and a discretionary pension contribution of $38.5 million to our company-sponsored pension plans~~ in the first ~~nine~~three months of ~~2017. Additionally, operating cash flows~~2018, in ~~the nine months ended September 30, 2017 were negatively impacted by an increased~~addition to lower dairy commodity costs and better working capital ~~investment, which was primarily driven by a longer cash conversion cycle~~management in comparison to the prior period.

Investing Activities

Net cash used in investing activities ~~decreased~~increased by ~~$134.0~~$5.0 million in the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 compared to the ~~nine~~three months ended ~~September 30, 2016. This decrease was primarily attributable to $157.3~~March 31, 2017. In the first three months of 2018, capital expenditures increased by $8.1 million ~~of cash paid for the Friendly's acquisition during second quarter of 2016, as compared~~in comparison to the ~~purchase price, net of cash acquired, of $21.6 million paid for the Uncle Matt's acquisition, which closed in the second quarter of 2017. This decrease was~~prior period, partially offset by ~~other investments~~$3.2 million of ~~$11.0 million made during~~higher proceeds from the ~~nine months ended September 30, 2017.~~

sale of fixed assets.

Financing Activities

Net cash ~~provided by~~used in financing activities increased by ~~$21.5~~$8.4 million in the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 compared to the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017. This increase was primarily attributable to ~~share repurchase activity under our stock repurchase program. There were no share repurchases made~~net debt repayments of $6.3 million in the first ~~nine~~three months of ~~2017 in comparison~~2018 as compared to ~~$25.0~~net debt proceeds of $4.7 million ~~of share repurchases made~~ in the first ~~nine~~three months of ~~2016.~~2017. Net debt proceeds were partially offset by payments of financing costs related to the amendments to our Credit Agreement and receivables purchase agreement of $1.7 million in the first three months of 2017.

Contractual Obligations

~~As of September 30, 2017, there were~~There have been no material changes outside the ordinary course of business to the information provided with respect to our contractual obligations, including indebtedness and purchase and lease obligations, as ~~reported~~disclosed in our ~~2016~~2017 Annual Report on Form ~~10-K, except as reflected in the table below:~~10-K.

Payments Due by Period
Total 2017 2018 2019 2020 2021 Thereafter
(in millions)
Receivables securitization facility(1) $ 95.0
$ —
$ —
$ —
$ 95.0
$ —
$ —
Credit Facility(1) 12.8
—
—
—
—
—
12.8
Interest payments(2) 329.0
61.0
52.1
52.1
47.8
47.7
68.3
Total $ 436.8
$ 61.0
$ 52.1
$ 52.1
$ 142.8
$ 47.7
$ 81.1

~~(1)~~

Represents amounts outstanding under our receivables securitization facility and Credit Facility at September 30, 2017. On January 4, 2017, we amended our receivables purchase agreement to extend the maturity date to January 4, 2020, and we amended our Credit Agreement to extend the maturity date to January 4, 2022. See Note 6 ~~to our unaudited Condensed Consolidated Financial Statements for additional information regarding the January 4, 2017 amendments to the receivables purchase agreement and the Credit Agreement.~~

~~(2)~~

Includes fixed rate interest obligations and interest on variable rate debt based on the outstanding balances and interest rates in effect at September 30, 2017. Interest that may be due in the future on variable rate borrowings under the Credit Facility and receivables securitization facility will vary based on the interest rate in effect at the time and the borrowings outstanding at the time. On January 4, 2017, we amended the purchase agreement governing the receivables securitization facility to modify certain pricing terms such that advances outstanding under the receivables securitization facility will bear interest between 0.90% and 1.05%, and the Company will pay an unused fee between 0.40% and 0.55% on undrawn amounts, in each case based on the Company's total net leverage ratio. On January 4, 2017, we amended the Credit Agreement to modify the definition of “Applicable Rate” to reduce the interest rate margins such that loans outstanding under the Credit Facility will bear interest, at our option, at either (x) the LIBO Rate (as defined in the Credit Agreement) plus a margin of between 1.75% and 2.50% based on our total net leverage ratio, or (y) the Alternate Base Rate (as defined in the Credit Agreement) plus a margin of between 0.75% and 1.50% based on our total net leverage ratio. See Note 6 ~~to our unaudited Condensed Consolidated Financial Statements for additional information regarding the January 4, 2017 amendments to the receivables purchase agreement and the Credit Agreement.~~

Other Long-Term Liabilities

We offer pension benefits through various defined benefit pension plans and also offer certain health care and life insurance benefits to eligible employees and their eligible dependents upon the retirement of such employees. Reported costs of providing non-contributory defined pension benefits and other postretirement benefits are dependent upon numerous factors, assumptions and estimates. For example, these costs are impacted by actual employee demographics (including age, compensation levels and employment periods), the level of contributions made to the plan and earnings on plan assets. Pension and postretirement costs also may be significantly affected by changes in key actuarial assumptions, including anticipated rates of return on plan assets and the discount rates used in determining the projected benefit obligation and annual periodic pension costs.

On April 3, 2017, we made a discretionary contribution of $38.5 million to our company-sponsored pension plans. We do not expect to make any contributions to our company-sponsored pension plans in 2018.

Other Commitments and Contingencies

In 2001, in connection with our acquisition of Legacy Dean, we purchased Dairy Farmers of America’s (“DFA”) 33.8% interest in our operations. In connection with that transaction, we issued a contingent, subordinated promissory note to DFA in the original principal amount of $40 million. The promissory note has a 20-year term and bears interest based on the consumer price index. Interest will not be paid in cash but will be added to the principal amount of the note annually, up to a maximum principal amount of $96 million. We may prepay the note in whole or in part at any time, without penalty. The note will

become payable only if we materially breach or terminate one of our related milk supply agreements with DFA without renewal or replacement. Otherwise, the note will expire in 2021, without any obligation to pay any portion of the principal or interest. Payments made under the note, if any, would be expensed as incurred. We have not terminated, and we have not materially breached, any of our related milk supply agreements with DFA related to the promissory note. We have previously terminated unrelated supply agreements with respect to several plants that were supplied by DFA. In connection with our goals of cost control and supply chain efficiency, we continue to evaluate our sources of raw milk supply.

We also have the following commitments and contingent liabilities, in addition to contingent liabilities related to ordinary course litigation, investigations and audits:

certain indemnification obligations related to businesses that we have divested;

certain lease obligations, which require us to guarantee the minimum value of the leased asset at the end of the lease;

selected levels of property and casualty risks, primarily related to employee health care, workers’ compensation claims and other casualty losses; and

certain litigation-related contingencies.

See Note 1314 to our unaudited Condensed Consolidated Financial Statements.

Future Capital Requirements

During ~~2017,~~2018, we intend to invest a total of approximately ~~$105~~$135 million to ~~$115~~$160 million in capital expenditures, primarily in support of our enterprise-wide cost productivity plan and other strategic initiatives and for our existing manufacturing ~~facilities and in support of our strategic initiatives.~~facilities. For ~~2017,~~2018, we expect cash interest to be approximately ~~$60~~$57 million based upon current debt levels and projected forward interest rates under our Credit Facility and receivables securitization facility. Cash interest excludes amortization of deferred financing fees ~~and bond discounts~~ of approximately $5$3 million.

On an ongoing basis, we evaluate and consider strategic acquisitions, divestitures, joint ventures, or other transactions to create shareholder value and enhance financial performance. We have also instituted a cash dividend policy and may repurchase shares of our common stock.

Known Trends and Uncertainties

Competitive Environment, ~~and~~ Volume Performance and Enterprise-Wide Cost Productivity Plan

The fluid milk industry remains highly competitive, and we are currently navigating a number of challenging dynamics across our ~~channel, customer,~~cost structure, volumes, customers, and product mix. ~~Volume softness continues~~We continue to ~~weigh on the broader food category,~~navigate a rapidly-changing industry landscape and ~~although~~a dynamic retail environment. Within private label fluid milk, competition for volume has increased significantly, and in some cases, we have lost volume. As a result, we have experienced increased levels of volume deleverage that have negatively impacted our operating income. In addition, retailers continue to ~~invest~~aggressively price their private label products, which we believe negatively impacts our branded product sales, resulting in compressed margins.

During the three months ended March 31, 2018, we experienced fluid milk volume declines from year-ago levels, driven predominantly by overall category declines and lower branded fluid milk volumes due to increased retailer investment in private label ~~milk, they are seeing declines in private label~~products.

We expect marketplace volume ~~growth despite a retailer margin over milk that contracted~~and mix challenges to ~~a historic low in September~~continue for the remainder of ~~2017. We also continue to face pricing pressures from industry consolidation, large-format and vertical retailers, discounters, and dairy cooperatives and other processors.~~2018, including those associated with our larger customers. These ~~factors have created a challenging environment for~~challenges make the execution of our ~~company's volume performance.~~

~~In the third quarter of 2017, our total sales volumes declined 6.6% from year-ago levels. Our total branded white milk volumes, which include~~ ~~DairyPure~~^®commercial initiatives and our ~~other brands, decreased 8.1% year-over-year driven predominantly by~~recently launched enterprise-wide cost productivity plan critical to navigating our volume reductions in the drug store channel, consistent with the overall category in that channel. Our third quarter ice cream volumes declined 6.2% on a year-over-year basis, versus an approximately 2% decline in category. Our ice cream volume performance fell short of our expectations, due to a combination of the overall category decline, consumer trends towards premium products and ~~an internal reduction in promotional activities.~~competitive pressures.

We ~~believe the overall retail landscape continues~~have historically targeted annual cost productivity savings mainly to be challenging, with several factors beyond our control continuing to impact our earnings progression. The downward trend in fluid milk category sales has continued during the first nine months of 2017. Fluid milk sales data published by the USDA through August 2017 shows a quarter-to-date fluid milk category sales volume decline of 2.2% on a year-over-year basis. As a result of our volume performance, our share of the fluid milk category decreased by 50 basis points in the third quarter of 2017 versus the second quarter of 2017.

In consideration of the factors described above, we expect total fourth quarter 2017 volume declines on a year-over-year basis to be comparable to the year-over-year volume declines experienced in the third quarter of 2017.

~~We believe that maintaining a competitive~~offset cost ~~structure is crucial to the ongoing success of our organization, particularly in view of the competitive environment~~inflation and volume ~~pressures~~deleverage, and in 2018, we are ~~currently facing. During the first nine months~~

~~of 2017, we re-engineered our commercial function, with a focus on increasing the effectiveness and efficiency of our sales force, and we identified savings related~~challenging ourselves to our general and administrative expenses. We have built implementation plans for these work streams and are currently in the execution phase. In total, we are targeting $40 million to $50 million of annual cost savings with respect to our selling, general and administrative expenses. We believe that we are on track to deliver these savings, with the majority of the benefit estimated to be realized in 2018.generate additional savings. In addition, we are ~~in the preliminary phases of partnering with a leading consulting firm to develop a comprehensive, integrated,~~implementing an aggressive enterprise-wide cost productivity ~~initiative~~plan to significantly reset our cost structure with targeted cost savings incremental to our annual productivity savings. We currently have legacy processes and systems that are fragmented and decentralized in many areas, which has created a cost structure that is disproportionately sensitive to small percentage declines in volume. We have organized our enterprise-wide cost productivity plan into three targeted work streams: rescaling our supply chain, optimizing spend management and integrating our operating model.We believe this plan is necessary to support our business strategy and deliver more consistent earnings and cash flow over the long term. The plan will be phased over several years and will require significant one-time investments, including investments in people, infrastructure, technology and systems, which will negatively impact our profitability and cash flows in

2018. Additionally, as we continue the evaluation of our supply chain in connection with the execution of our enterprise-wide cost productivity plan, and to rescale our network to align with our projected volume, we expect that certain of our production facilities will be identified for closure in 2018. We will likely incur material asset impairment, severance, shutdown, contract termination and other restructuring costs over the balance of the year associated with the execution of these plans.

Due to ~~deliver significant~~the phased implementation and timing of our initiatives and investments, we will not generate enough cost savings in 2018 to ~~our business.~~

~~While we remain committed to our~~offset the planned investments, cost ~~productivity agenda,~~ inflation ~~soft~~and volume pressures. In addition, inflation, declining volumes ~~the continued shift to private label~~ and competitive pricing pressures have negated, and ~~will likely~~may continue to negate, some of the impact of our ~~ongoing~~ cost saving efforts. ~~Depending on~~We also must execute our plans within our projected time frames in order to meet our financial projections and to remain competitive in the ~~extent~~marketplace. For further discussion of the ~~decline~~risks relating to our cost productivity plan, see “Part I - Item 1A. Risk Factors - Business, Competitive and Strategic Risks - We may not realize anticipated benefits from our enterprise-wide cost productivity plan, and we may not complete this plan within our projected time frames, either of which could materially adversely impact our business, financial condition, results of operations and cash flows" in our ~~financial results and our financial and cash flow projections, we may incur tangible or intangible asset impairment charges in future periods.~~

Additionally, in March 2016, Wal-Mart Stores, Inc. announced that it plans to build a dairy processing plant in Indiana to supply certain Wal-Mart and Sam's Club stores located in the Midwest. Dialogue with Wal-Mart is ongoing, and we have received preliminary information from Wal-Mart regarding the timing and phasing of the transfer of volume into the plant. We are using this data to establish time frames around our network optimization plans. We expect to lose approximately 90 million to 95 million gallons of private label fluid milk volume in 2018 and 2019, and we are actively taking steps to optimize our network to mitigate the impact of volume losses in the affected region when they occur. However, given the volume degradation we have experienced this year, which is expected to continue through the balance of 2017 we may be unable to sufficiently reduce our costs in time to mitigate the negative financial impact of the Wal-Mart volume loss in 2018. As previously disclosed, we expect to continue to supply Wal-Mart's private label milk for other Wal-Mart stores across the United States pursuant to our existing agreements.Annual Report on Form 10-K.

Conventional Raw Milk and Other Inputs

Conventional Raw Milk and Butterfat — — The primary raw materials used in the products we manufacture, distribute and sell are conventional raw milk (which contains both raw skim milk and butterfat) and bulk cream. On a monthly basis, the federal government and certain state governments set minimum prices for raw milk. The regulated minimum prices differ based on how the raw milk is utilized. Raw milk processed into fluid milk is priced at the Class I price and raw milk processed into products such as cottage cheese, creams and creamers, ice cream and sour cream is priced at the Class II price. Generally, we pay the federal minimum prices for raw milk, plus certain producer premiums (or “over-order” premiums) and location differentials. We also incur other raw milk procurement costs in some locations (such as hauling and field personnel). A change in the federal minimum price does not necessarily mean an identical change in our total raw milk costs as over-order premiums may increase or decrease. This relationship is different in every region of the country and can sometimes differ within a region based on supplier arrangements. However, in general, the overall change in our raw milk costs can be linked to the change in federal minimum prices. Because our Class II products typically have a higher fat content than that contained in raw milk, we also purchase bulk cream for use in some of our Class II products. Bulk cream is typically purchased based on a multiple of the Grade AA butter price on the Chicago Mercantile Exchange.

Prices for conventional raw milk induring the ~~third~~first quarter of ~~2017~~2018 were approximately ~~10% higher~~16% lower than year-ago levels and ~~increased~~decreased approximately 7%13% sequentially from the ~~second~~fourth quarter of 2017. We ~~expect~~are currently projecting Class I raw milk costs to ~~remain relatively flat on a sequential basis~~increase sequentially for the remainder of 2018, with costs in the ~~fourth quarter~~second half of ~~2017 (an approximately 2% increase year-over-year).~~2018 relatively consistent with what we experienced in 2017. Commodity price changes primarily impact our branded business as the changes in raw milk costs are essentially a pass-through cost on our private label products. Given the multitude of factors that influence the dairy commodity environment, we acknowledge the potential for future volatility.

Fuel, Resin and External Freight ~~and Resin~~ Costs — — We purchase diesel fuel to operate our extensive DSD system, and we incur fuel surcharge expense related to the products we deliver through third-party carriers. Although we may utilize forward purchase contracts and other instruments to mitigate the risks related to commodity price fluctuations, such strategies do not fully mitigate commodity price risk. Adverse movements in commodity prices over the terms of the contracts or instruments could decrease the economic benefits we derive from these strategies. Another significant raw material we use is resin, which is a fossil fuel-based product used to make plastic bottles. The prices of diesel and resin are subject to fluctuations based on changes in crude oil and natural gas prices.

~~With respect~~ Additionally, in some cases we incur expenses associated with utilizing third-party carriers to deliver our products. The expenses we incur for external freight may vary based on capacity, carrier acceptance rates and other factors. In the ~~recent hurricanes in Florida and Texas, we incurred incremental logistics costs in the third~~first quarter of ~~2017 to transport our products over longer distances from other production facilities within our network to continue serving our customers. Additionally as a result~~2018, we experienced higher levels of ~~the overall~~inflation than expected in external freight, fuel and resin ~~shortage within the industry, we also experienced cost increases consistent with the overall market.~~costs. We expect ~~the increase in fuel, freight and resin costs~~this trend to continue ~~at least~~ for the remainder of ~~2017.~~2018.

Tax Rate

Income tax expense was recorded at an effective rate of ~~189.0%~~131.5% in the first ~~nine~~three months of ~~2017~~2018 compared to a ~~40.9%~~28.0% effective tax rate in the first ~~nine~~three months of ~~2016.~~2017. Our effective tax rate has increased in the first ~~nine~~three months of ~~2017~~2018 as a result

of lower earnings during this ~~period and the adoption of ASU 2016-09 as described in Note~~ 1 ~~to our unaudited Condensed Consolidated Financial Statements.~~period. Changes in our profitability levels and the relative earnings of our business units, as well as changes to federal, state, and foreign tax laws, may cause our tax rate to change from historical rates.

See the risk factors described in “Part I — Item 1A — Risk Factors” in our ~~2016~~2017 Annual Report on Form 10-K and elsewhere in this Form 10-Q for a description of various other risks and uncertainties concerning our business.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our quantitative and qualitative disclosures about market risk as set forth in our ~~2016~~2017 Annual Report on Form 10-K.

Item 4. Controls and Procedures

Controls Evaluation and Related Certifications

We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), referred to herein as “Disclosure Controls”) as of the end of the period covered by this quarterly report. The controls evaluation was performed under the supervision and with the participation of management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"). Based upon our most recent controls evaluation, our CEO and CFO have concluded that our Disclosure Controls were effective as of ~~September 30, 2017.~~March 31, 2018.

Changes in Internal Control over Financial Reporting

During the period covered by this quarterly report, there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II — Other Information

Item 1A. Risk Factors

There have been no material changes in the Company's risk factors from those set forth in our ~~2016~~2017 Annual Report on Form ~~10-K, except as follows:~~

~~We may be adversely impacted by a changing customer landscape.~~

Many of our customers, such as supermarkets, warehouse clubs and food distributors, have experienced industry consolidation in recent years and this consolidation is expected to continue. These consolidations have produced large, more sophisticated customers with increased buying power and negotiating strength, who may seek lower prices or more favorable terms, and they have increased our dependence on key large-format retailers and discount supermarket chains. In addition, some of these customers are vertically integrated and have re-dedicated key shelf-space currently occupied by our branded products for their private label products. We are also facing downward pricing pressure from retailers who sell their own private label products and proprietary brands, such as discount supermarket chains. In addition to the competitive pressures from retail customers, we are facing increased competition from dairy cooperatives and other processors.

The highly competitive retail fluid milk and broader grocery industries are facing additional future uncertainties as a result of the rise of discount supermarket chains and Amazon.com, Inc.’s acquisition of Whole Foods Market. Discount supermarket chains such as Aldi, which has announced a large expansion of its stores in the U.S., and Lidl, which recently entered the U.S. market, create competitive pressure on retailers to lower prices. These developments may trigger significant changes in pricing competition, and the grocery industry, as well as consumer buying patterns, the effects and timing of which are currently unknown.

Higher levels of price competition and higher resistance to price increases have had a significant impact on our business. If we are unable to respond to these customer dynamics and potential future changes in the customer landscape, our business or financial results could be adversely affected.

~~The continuing industry shift from branded to private label products could impede our growth rate and profit margin.~~

We are experiencing a continued shift from branded to private label products. Private label competitors are generally able to sell their products at lower prices because private label products typically have lower marketing costs than their branded competitors. Retailers have invested and may continue to invest in private label milk to drive foot traffic, which has been increasing the price gap between branded and private label milk. Despite recent retailer margin over milk at historic lows, private label volume growth has been declining. These factors have impacted and could continue to impact our volume and mix, which could adversely affect our profitability and growth.

Further, in periods of economic weakness, consumers tend to purchase lower-priced products, including conventional milk, coffee creamers and other private label products, which could reduce sales of our branded products. In addition, in periods of economic disparity and income inequality, certain of our customers may purchase lower-priced products as well as make purchases less frequently. The willingness of consumers to purchase our products will depend upon our ability to offer products providing the right consumer benefits at the right price. Further trade down to lower priced products could adversely affect our sales and the profit margin for our branded products.

This industry shift to private label could be accelerated by the expansion of Aldi and the entry of Lidl in the U.S. market. If our products fail to compete successfully with other branded or private label offerings in the industry, demand for our products and our sales volumes and profits margins could be negatively impacted.

~~Litigation could expose us to significant liabilities and may have a material adverse impact on our reputation and business.~~

Scrutiny of the dairy industry has resulted, and may continue to result, in litigation against us. Such lawsuits are expensive to defend, divert management’s attention and may result in significant judgments or settlements. In some cases, these awards would be trebled by statute and successful plaintiffs are entitled to an award of attorneys’ fees. Depending on its size, such a judgment or settlement could materially and adversely affect our results of operations, cash flows and financial condition and impair our ability to continue operations. We may not be able to pay such judgment or to post a bond for an appeal, given our financial condition and our available cash resources. In addition, depending on its size, failure to pay such a judgment or failure to post an appeal bond could cause us to breach certain provisions of our credit facilities. In either of these or other circumstances, we may seek a waiver of or amendment to the terms of our credit facilities, but we may not be able to obtain such a waiver or amendment. Failure to obtain such a waiver or amendment would materially and adversely affect our results of operations, cash

flows and financial condition and could impair our ability to continue operations. Moreover, such litigation could expose us to negative publicity, which could adversely affect our brands, reputation and/or customer preference for our products.

We were previously a party to a private antitrust lawsuit brought by two plaintiffs that was scheduled for trial beginning March 28, 2017. Prior to trial, the plaintiffs agreed with us to settle the lawsuit. We agreed to pay settlements to the plaintiffs and the parties resolved all outstanding claims in the litigation and agreed to voluntarily dismiss the litigation. The litigation was dismissed on March 21, 2017 with respect to one plaintiff, and on March 26, 2017 with respect to the other plaintiff. The two plaintiffs initiated the case in 2007 as a putative class action. Although the court refused to certify the case as a class action, the court’s denial of class certification did not act as an adjudication on the merits for the class of purchasers the named plaintiffs proposed to represent. Therefore, we may be subject to subsequent litigation by such purchasers.10-K.

~~Item 5. Other Information~~

~~Amendment and Restatement of Executive Severance Pay Plan~~

On November 8, 2017, the Board of Directors approved an amendment and restatement of the Dean Foods Amended and Restated Executive Severance Pay Plan (the “Executive Severance Plan”) to close eligibility to new participants in the plan on and after November 1, 2017. The Executive Severance Plan is filed as Exhibit 10.2 to this Form10-Q and incorporated herein by reference.

~~Amended and Restated Bylaws~~

On November 8, 2017, the Board of Directors of the Company approved amendments to the Company’s Amended and Restated Bylaws. The amendments reflect certain administrative changes to Sections 2(a) and 5 to remove references to a classified board of directors, which was phased out in 2015. The Amended and Restated Bylaws, effective November 8, 2017, is filed as Exhibit 3.1 to this Form 10-Q and incorporated herein by reference.

Item 6. Exhibits



~~3.1~~	~~Amended and Restated Bylaws (filed herewith).~~
10.1	~~Letter Agreement, dated June 9, 2017, between~~ Dean Foods Company ~~and David Bernard (filed herewith)~~2018 Short-Term Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on March 7, 2018).
10.2	Form of Restricted Stock Unit Award Agreement under the Dean Foods Company ~~Amended~~2016 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on March 7, 2018).
10.3	Form of Director’s Restricted Stock Unit Award Agreement under the Dean Foods Company 2016 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on March 7, 2018).
10.4	Form of Performance Stock Unit Award Agreement under the Dean Foods Company 2016 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K filed on March 7, 2018).
10.5	Form of Phantom Shares Award Agreement under the Dean Foods Company 2016 Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to Current Report on Form 8-K filed on March 7, 2018).
*10.6	Letter Agreement, dated January 8, 2018, between Dean Foods Company and ~~Restated Executive Severance Pay Plan (filed herewith)~~Jose A. Motta (incorporated by reference to Exhibit 10.36 to Annual Report on Form 10-K filed on February 26, 2018).
*10.7	Letter Agreement, entered into on January 2, 2018, between Dean Foods Company and Jody Macedonio (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on January 10, 2018).
*10.8	Letter Agreement, dated January 9, 2018, between Dean Foods Company and Jody Macedonio (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on January 10, 2018).
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
99	~~Supplemental Financial Information for Dean Holding Company (filed herewith).~~

101.INS XBRL Instance Document(1).
101.SCH XBRL Taxonomy Extension Schema Document(1).
101.CAL XBRL Taxonomy Calculation Linkbase Document(1).
101.DEF XBRL Taxonomy Extension Definition Linkbase Document(1).
101.LAB XBRL Taxonomy Label Linkbase Document(1).
101.PRE XBRL Taxonomy Presentation Linkbase Document(1).


(1)	Filed electronically herewith.

* This exhibit is a management or compensatory contract.

SIGNATURES

Pursuant to the requirement 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

	/S/ SCOTT K. VOPNI
	Scott K. Vopni
	Senior Vice President ~~– Finance,~~and Chief Accounting Officer ~~and Interim Chief~~ ~~Financial Officer~~

~~November~~May 8, ~~2017~~2018

4540



Balance at December 31, 2016	$	154,112
Acquisitions (Note 2)	13,423
Balance at September 30, 2017	$	167,535



	Nine Months Ended September 30*
	2017		2016		% Change
Class I mover(1)	$	16.41	$	14.37	14.2	%
Class I raw skim milk mover(1)(2)	7.65		6.07		26.0
Class I butterfat mover(2)(3)	2.58		2.43		6.2
Class II raw skim milk minimum(1)(4)	7.34		6.20		18.4
Class II butterfat minimum(3)(4)	2.64		2.36		11.9



	Payments Due by Period
	Total		2017		2018		2019		2020		2021		Thereafter
	(in millions)
Receivables securitization facility(1)	$	95.0	$	—	$	—	$	—	$	95.0	$	—	$	—
Credit Facility(1)	12.8		—		—		—		—		—		12.8
Interest payments(2)	329.0		61.0		52.1		52.1		47.8		47.7		68.3
Total	$	436.8	$	61.0	$	52.1	$	52.1	$	142.8	$	47.7	$	81.1