1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X Quarterly report pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended August 27, 1995 or _____ Transition report pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934 For the transition period from __________________ to __________________ Commission file number 0-1118 DEAN FOODS COMPANY - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 36-0984820 - ------------------------------------- ---------------------- (State or other jurisdiction of (I.R.S Employer incorporation or organization) Identification No.) 3600 North River Road, Franklin Park, Illinois 60131 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (708) 678-1680 ----------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares of the Registrant's Common Stock, par value $1 per share, outstanding as of the date of this report was 40,125,448. Total number of pages 10. 1 2 PART I - FINANCIAL INFORMATION A. UNAUDITED CONDENSED CONSOLIDATION FINANCIAL STATEMENTS On August 4, 1995, the Registrant acquired the assets of Norcal Crosetti Foods, Inc. Accordingly, the unaudited condensed consolidated financial statements include the results of operations from the date of acquisition. The acquisition did not materially impact the Registrant's financial position or its results of operations. In the opinion of the Registrant, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the following unaudited condensed consolidated financial statements have been included herein. Certain information and footnote disclosures normally included in the financial statements have been omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Registrant's 1995 Annual Report on Form 10-K. 2 3 ITEM 1. CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED AUGUST 27, 1995 AND AUGUST 28, 1994 (In Thousands Except for Per Share Amounts) Three Months Ended --------------------------------------- August 27, August 28, 1995 1994 ----------- ------------- (Unaudited) Net sales $651,505 $614,283 -------- -------- Costs and expenses: Costs of products sold 502,820 472,873 Delivery, selling and administrative expenses 120,756 108,657 Interest expense 5,658 4,743 Other income, net (652) (736) -------- -------- 628,582 585,537 -------- -------- Income before taxes 22,923 28,746 Provision for income taxes 9,262 11,786 -------- -------- Net income $ 13,661 $ 16,960 ======== ======== Earnings per common share $ 0.34 $ 0.43 ======== ======== Dividends per share (Declared and paid) $ 0.18 $ 0.17 ======== ======== Weighted average common shares outstanding 40,092 39,803 ======== ======== See accompanying Notes to Condensed Consolidated Financial Statements. 3 4 CONDENSED CONSOLIDATED BALANCE SHEETS AUGUST 27, 1995 AND MAY 28, 1995 (In Thousands) August 27, May 28, 1995 1995 ------------- ------ (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 3,884 $ 4,826 Accounts and notes receivable, less allowance for doubtful accounts of $4,245 and $4,257, respectively 178,564 184,210 Inventories 359,704 273,114 Other current assets 55.410 56,722 ---------- ---------- Total Current Assets 597,562 518,872 ---------- ---------- PROPERTIES: Property, plant and equipment, at cost 1,028,761 996,663 Accumulated depreciation 443,167 426,518 ---------- ---------- 585,594 570,145 ---------- ---------- OTHER ASSETS 113,687 113,409 ---------- ---------- Total Assets $1,296,843 $1,202,426 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable to banks $ 69,000 $ 29,000 Current installments of long-term obligations 12,071 11,995 Accounts payable and accrued expenses 283,538 248,721 Dividends payable 7,313 6,877 Federal and state income taxes 16,085 7,267 ---------- ---------- Total Current Liabilities 388,007 303,860 ---------- ---------- LONG-TERM OBLIGATIONS (Less current installments included above) 226,873 224,679 ---------- ---------- DEFERRED CREDITS 89,701 89,361 ---------- ---------- SHAREHOLDERS' EQUITY: Preferred stock - - Common stock 41,387 41,339 Capital in excess of par value 13,988 12,705 Retained earnings 567,320 560,881 Cumulative translation adjustment (262) (228) Less - Treasury stock - at cost 30,171 30,171 ---------- ---------- Total Shareholders' Equity 592,262 584,526 ---------- ---------- Total Liabilities and Shareholders' Equity $1,296,843 $1,202,426 ========== ========== See accompanying Notes to Condensed Consolidated Financial Statements. 4 5 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED AUGUST 27, 1995 AND AUGUST 28, 1994 (In Thousands) Three Months Ended ------------------------------------- August 27, August 28, 1995 1994 -------------- ------------- (Unaudited) Net cash provided from operations $ 12,505 $ 13,208 -------- --------- Cash flows from investing activities: Capital expenditures (28,208) (19,111) Proceeds from disposition of property, plant and equipment 527 571 Acquisition of business, net of cash acquired (19,282) (11,581) -------- -------- Net cash used in investing activities (46,963) (30,121) -------- -------- Cash flows from financing activities: Issuance of long-term obligations 3,799 80 Repayment of long-term obligations (1,554) (553) Issuance of notes payable to banks, net 40,000 14,000 Unexpended industrial revenue bond proceeds (3,414) 97 Cash dividends paid (6,646) (6,247) Issuance of common stock 1,331 1,264 --------- --------- Net cash provided by financing activities 33,516 8,641 --------- --------- Decrease in cash and cash equivalents (942) (8,272) Cash and cash equivalents - beginning of period 4,826 10,967 --------- --------- Cash and cash equivalents - end of period $ 3,884 $ 2,695 ========= ========= See accompanying Notes to Condensed Consolidated Financial Statements. 5 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INVENTORIES The following is a tabulation of inventories by class at August 27, 1995, August 28, 1994, and May 28, 1995 (In Thousands). August 27, August 28, May 28, 1995 1994 1995 ----------- ----------- --------- (Unaudited) Raw materials and supplies $ 47,580 $ 60,007 $ 56,283 Materials in process 95,935 73,594 60,554 Finished goods 231,356 191,361 171,378 -------- -------- -------- 374,871 324,962 288,215 Less: Excess of current cost over stated value of last-in, first-out inventories (15,167) (15,622) (15,101) -------- -------- -------- Total inventories $359,704 $309,340 $273,114 ======== ======== ======== Inventories at August 28, 1994 and May 28, 1995 have been reclassified to conform with the August 27, 1995 presentation. LEGAL PROCEEDINGS See PART II, Item 1 for a discussion of pending legal proceedings. 6 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A.) Liquidity and Capital Resources As of August 27, 1995, there has been no material overall change in the Registrant's liquidity or its capital resources from those described in the Management's Discussion and Analysis contained in the Registrant's Annual Report on Form 10-K for the fiscal year ended May 28, 1995. Cash and cash equivalents were $3.9 million at August 27, 1995, a decrease of $0.9 million from the balance at May 28, 1995. The inventories at August 27, 1995, were $359.7 million, an increase of $86.6 million over the balance at May 28, 1995, principally reflecting the 1995 vegetable and cucumber harvest and inventories of a first quarter fiscal 1996 business acquisition. The August 27, 1995, inventories were $50.4 million higher than inventories a year ago reflecting the inventories of the fiscal 1994 and 1995 business acquisitions and the timing of the current year's vegetable harvest compared to last year's harvest. Short-term borrowings outstanding at August 27, 1995, were $69 million, an increase of $40 million from the balance outstanding at May 28, 1995. Working capital at August 27, 1995, was $209.6 million compared to $215.0 million at May 28, 1995. The Registrant's debt-to-capital ratio was 27.7% at August 27, 1995, compared with 27.8% at May 28, 1995. The increase in short-term borrowings and the decrease in working capital principally were the result of borrowings associated with a business acquisition during the quarter ended August 27, 1995. B.) Results of Operations Overall sales for the first quarter ended August 27, 1995, increased 6.1% over the same period a year ago, principally the result of increased Dairy Products and Specialty Food Products unit sales volumes and the sales of business acquisitions in fiscal 1995 and during the first quarter this year. Consolidated after-tax earnings for the quarter declined 19.5% from the earnings for the same period a year ago, principally the result of lower earnings of the Registrant's Specialty Food Products segment. Sales of the Registrant's Dairy Products operations for the first quarter were $390.3 million compared with $371.2 million for the same period a year ago. The sales increase was principally the result of increased unit sales volumes in certain markets, offset by lower selling prices reflecting lower raw milk costs this year compared to the same period a year ago. Dairy Products operating earnings for the first quarter of $20.3 million approximated the earnings for the corresponding period a year ago. Competitive conditions in a couple market areas during the current quarter limited overall increased Dairy Products earnings. Raw milk supplies are plentiful and unusual raw milk cost increases are not expected to occur over the balance of the year. 7 8 Sales of the Registrant's Specialty Food Products operations for the first quarter were $254.8 million, an increase of 7.8% over sales of the corresponding period a year ago. The increased sales principally were the result of: 1) Sales of vegetable operations acquired in the fourth quarter fiscal 1995 and first quarter ended August 27, 1995 and 2) Increased sales unit volume by the vegetable and pickle operations. First quarter sales volumes for the balance of the Registrant's Specialty Food Products operations exceeded sales volumes for the same period a year ago. Specialty Food Products' first quarter earnings of $13.0 million declined significantly over the earnings for the comparable period a year ago, principally the result of lower operating earnings of the Registrant's frozen and canned vegetable operations. Lower vegetable selling prices and higher promotional costs during the first quarter this year compared to the same period a year ago reflected intense competitive activity reflecting the increased industry-wide carryover inventory levels from the 1994 pack. Additionally, 1995 weather conditions in the Midwest vegetable growing areas resulted in increased processing costs due to the lower pack. The Registrant's pickle operations earnings were adversely affected by the spring and early summer weather related conditions in the Registrant's Southeast growing areas, resulting in increased processing costs. The abnormal weather conditions encountered this season should result in an industry-wide reduced vegetable and cucumber packs. Selling prices should increase over the balance of the fiscal year reflecting the lower supply of processed vegetables and pickles. Delivery, selling and administrative expense for the quarter ended August 27, 1995, increased 11.1% from the same period a year ago principally the result of: 1) Increased marketing expense associated with new product introductions; 2) Expenses of businesses acquired in the fourth quarter fiscal 1995 and during the quarter ended August 27, 1995 and 3) Expenses associated with the increased sales volumes and entry into new market areas. Interest expense for the first quarter of $5.7 million increased 19.3% over interest expense for the same period a year ago. The increase reflects the interest on increased borrowings associated with business acquisitions and higher prevailing interest rates during the first quarter as compared with rates during the corresponding period a year ago. The effective income tax rate for the first quarter was 40.4% compared with a rate of 41.0% for the first quarter a year ago. 8 9 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings There has been no material change in the legal proceedings reported under Item 3 - Legal Proceedings, of the Registrant's Form 10-K Annual Report, for the fiscal year ended May 28, 1995. ITEM 6. Exhibits and Reports on Form 8-K a.) Exhibits Item 12 - Computation of Ratio of Earnings to Fixed Charges Item 27 - Financial Data Schedules b.) Reports on Form 8-K None were filed during the quarter for which this report is filed. 9 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DEAN FOODS COMPANY ------------------ (Registrant) DATE: October 11, 1995 Thomas L. Rose ---------------- ------------------ THOMAS L. ROSE President DATE: October 11, 1995 Dale I. Hecox ---------------- ------------------ DALE I. HECOX Treasurer 10