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 February 26, 1995 or
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Transition report pursuant to Section 13 of 15(d) of the Securities
- ------- Exchange Act of 1934
For the transition period from to
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Commission file number 0-1118
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DEAN FOODS COMPANY
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(Exact name of registrant as specified in its charter)
DELAWARE 36-0984820
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(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
3600 North River Road, Franklin Park, Illinois 60131
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 678-1680
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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The number of shares of the Registrant's Common Stock, par value $1 per share,
outstanding as of the date of this report was 39,930,852.
Total number of pages 170.
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PART I - FINANCIAL INFORMATION
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A. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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In the opinion of the Registrant, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
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 1994 Annual Report on Form 10-K.
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ITEM 1.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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FOR THE QUARTERS AND NINE MONTHS ENDED
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FEBRUARY 26, 1995 AND FEBRUARY 27, 1994
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(Unaudited)
(In Thousands Except for Per Share Amounts)
Third Quarters Ended Nine Months Ended
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February 26, February 27, February 26, February 27,
1995 1994 1995 1994
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Net sales $665,895 $622,890 $1,943,026 $1,759,654
-------- -------- ---------- ----------
Cost and expenses:
Costs of products sold 511,101 483,012 1,488,853 1,375,022
Delivery, selling and
administrative expenses 119,700 105,074 346,903 296,364
Interest expense 6,187 4,410 16,567 11,101
Other (income) expense, net (673) 112 (1,566) (1,279)
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636,315 592,608 1,850,757 1,681,208
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Income before income taxes and
cumulative effect of changes
in accounting principles 29,580 30,282 92,269 78,446
Provision for income taxes 12,404 11,840 38,107 31,963
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Income before cumulative
effect of changes in
accounting principles 17,176 18,442 54,162 46,483
Cumulative effect of changes
in accounting principles,
net of taxes - - - 1,179
-------- -------- ---------- ----------
Net income $ 17,176 $ 18,442 $ 54,162 $ 47,662
======== ======== ========== ==========
Earnings per common share:
Earnings before cumulative
effect of changes in
accounting principles $ .43 $ .46 $ 1.36 $ 1.17
Cumulative effect of changes
in accounting principles - - - .03
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Earnings per common share $ .43 $ .46 $ 1.36 $ 1.20
======== ======== ========== ==========
Dividends per share
(Declared and paid) $ .17 $ .16 $ .51 $ .48
======== ======== ========== ==========
Weighted average common
shares outstanding 39,875 39,724
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See accompanying Notes to Condensed Consolidated Financial Statements.
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CONDENSED CONSOLIDATED BALANCE SHEETS
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FEBRUARY 26, 1995 AND MAY 29, 1994
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(In Thousands)
February 26, May 29,
1995 1994
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(Unaudited)
ASSETS
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CURRENT ASSETS:
Cash and temporary cash investments $ 23,771 $ 10,967
Accounts and notes receivable,
less allowance for doubtful
accounts of $4,458 and $3,875,
respectively 171,602 169,395
Inventories 289,241 233,324
Other current assets 41,823 46,496
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Total Current Assets 526,437 460,182
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PROPERTIES:
Property, plant and equipment, at cost 961,882 906,411
Accumulated depreciation 406,609 363,200
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555,273 543,211
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OTHER ASSETS 113,286 105,761
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Total Assets $1,194,996 $1,109,154
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES: $ 117,000 $ 122,000
Notes payable to banks
Current installments of long-term
obligations 6,792 6,960
Accounts payable and accrued expenses 232,161 227,348
Dividends payable 6,865 6,462
Federal and state income taxes 3,880 4,497
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Total Current Liabilities 366,698 367,267
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LONG-TERM OBLIGATIONS (Less current
installments included above) 184,914 136,150
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DEFERRED CREDITS 81,893 80,963
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SHAREHOLDERS' EQUITY:
Preferred stock - -
Common stock 41,189 41,050
Capital in excess of par value 8,695 5,911
Retained earnings 541,797 507,981
Cumulative translation adjustment (19) -
Less - Treasury stock - at cost 30,171 30,168
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Total Shareholders' Equity 561,491 524,774
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Total Liabilities and
Shareholders' Equity $1,194,996 $1,109,154
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See accompanying Notes to Condensed Consolidated Financial Statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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FOR THE NINE MONTHS ENDED
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FEBRUARY 26, 1995 AND FEBRUARY 27, 1994
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(Unaudited)
(In Thousands)
Nine Months Ended
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February 26, February 27,
1995 1994
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Net cash provided by operations $ 52,807 $ 55,922
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Cash flows from investing activities:
Capital expenditures (57,814) (63,450)
Proceeds from disposition of property,
plant and equipment 2,447 5,675
Acquisitions of businesses, net of
cash acquired (11,581) (154,523)
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Net cash used in investing activities (66,948) (212,298)
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Cash flows from financing activities:
Issuance of notes payable to banks, 45,000 147,121
net 310 -
Issuance of long-term obligations (1,714) (2,889)
Repayment of long-term obligations
Unexpended industrial revenue
bond proceeds 207 1,334
Cash dividends paid (19,778) (18,756)
Issuance of common stock 2,923 1,483
Purchase of treasury stock (3) -
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Net cash provided by financing
activities 26,945 128,293
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Increase (decrease) in cash and
temporary cash investments 12,804 (28,083)
Cash and temporary cash investments -
beginning of period 10,967 41,572
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Cash and temporary cash investments -
end of period $ 23,771 $ 13,489
======== =========
See accompanying Notes to Condensed Consolidated Financial Statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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INVENTORIES
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The following is a tabulation of inventories by class at
February 26, 1995, February 27, 1994 and May 29, 1994 (In Thousands).
February 26, February 27, May 29,
1995 1994 1994
------------ ------------ --------
(Unaudited)
Raw materials and supplies $ 46,099 $ 48,749 $ 51,427
Materials in process 80,724 81,493 49,654
Finished goods 177,257 171,367 148,225
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304,080 301,609 249,306
Less: Excess of current cost
over stated value of
last-in, first-out
inventories (14,839) (14,234) (15,982)
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Total inventories $289,241 $287,375 $233,324
======== ======== ========
Inventories at February 27, 1994 and May 29, 1994 have been reclassified to
conform with the February 26, 1995 presentation.
LEGAL PROCEEDINGS
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See PART II, Item 1 for a discussion of pending legal proceedings.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A.) Liquidity and Capital Resources
As of February 26, 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
29, 1994. Borrowings outstanding under bank lines of credit at the end
of fiscal 1994 were used principally to fund 1994 business acquisitions.
The Registrant entered into a $150 million bank revolving credit
agreement in the first quarter 1995 which was refinanced during the
third quarter this year with $300 million in syndicated bank credit
agreements. Reflecting the commitment and borrowings under the bank
credit agreements, $50 million was classified as long-term debt with the
balance of the borrowings outstanding under said agreements classified
as short-term debt. Cash and temporary cash investments were $23.8
million at February 26, 1995, a $12.8 million increase over the balance
at May 29, 1994.
Working capital at February 26, 1995, was $159.7 million
compared to $92.9 million at May 29, 1994. The increase in working
capital reflects:
1.) The reclassification to long-term obligations of $50 million in
borrowing under the Company's syndicated bank agreements.
2.) Increased inventories largely related to the normal seasonal
pack in the Registrant's vegetable and pickle operations and
3.) Increased cash and temporary cash investments balances.
Inventories at February 26, 1995 approximated the inventories on hand at
February 27, 1994.
The Registrant's debt-to-capital ratio was 24.8% at February
26, 1995, compared with 20.6% at May 29, 1994. Long-term obligations at
February 26, 1995 totaled $184.9 million compared to $136.2 million at
May 29, 1994. The increased long-term obligations resulted from the
classification of the long-term portion of the bank revolving credit
borrowing commitment ($50 million) less normal maturities.
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B.) Results of Operations
Consolidated sales for the third quarter and for the nine month
period ended February 26, 1995 increased 6.9% and 10.4% respectively
over the same periods a year ago. Consolidated after-tax earnings for
the third quarter declined 6.9% from the earnings of the third quarter
last year. Consolidated after-tax earnings for the nine months ended
February 26, 1995 increased 13.6% over earnings for the same period a
year ago. The decreased third quarter earnings compared to the same
period last year principally were the result of increased interest
expense, lower operating results of the Registrants ice cream operations
and an increase in the effective income tax rate. Earnings for the nine
months ended February 27, 1994 included a charge of $1.5 million related
to the tax provisions of the Revenue Reconciliation Act of 1993 and a
net after-tax credit of $1.2 million related to the Registrant's
adoption of new accounting principles for income taxes and
postretirement benefits other than pension.
Sales of the Registrant's Dairy Products operations for the
third quarter ($378.1 million) and for the nine months ($1.12 billion)
increased 1.6% and 2.8% respectively over sales of the comparable period
a year ago. The increased sales both for the quarter and the nine months
principally were the result of increased unit sales volume offset by
lower average selling during the current fiscal year reflecting lower
raw milk costs this year. The nine month period ended February 26, 1995
also benefited from the sales of a dairy business acquired during fiscal
year 1994 and a dairy business acquired during the first quarter this
year.
Dairy Product's operating earnings declined in the third
quarter principally due to competitive pressures on margins and costs
associated with entry into new markets and the introduction of a new ice
cream product line. Operating earnings for the nine months were slightly
below last year because of lower third quarter earnings this year and a
$1.7 million charge in the second quarter this year related to costs
associated with the closure of two small fluid milk plants to align
production capacities with the sales levels in the associated market
areas. Raw milk supplies continue to be plentiful and raw milk costs are
expected to remain below year ago levels. Improved ice cream earnings
are anticipated with the seasonal increase in ice cream consumption and
greater distribution of the new ice cream product line.
Sales of the Registrant's Specialty Food Products operations
for the third quarter ($275.5 million) and for the nine months ended
February 26, 1995 ($793.9 million) increased 13.1% and 22.5%
respectively over sales of the comparable periods a year ago. The
increased sales principally were the result of:
1.) The sales of a vegetable operation acquired during the third
quarter of fiscal 1994,
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2.) Higher selling prices for frozen vegetables reflecting market
conditions, and
3.) Increased sales of the Registrant's pickle and specialty
products operation.
Specialty Foods Products earnings both for the third quarter
and the nine months improved significantly over the earnings for the
comparable periods a year ago. The improved earnings both for the third
quarter and the nine months this year were principally the result of:
1.) The earnings of a vegetable operation acquired during the third
quarter of fiscal 1994, and
2.) Improved earnings by the Registrant's pickle and specialty
products operation.
Margins a year ago were unfavorably impacted by weather-related costs,
crop shortages and competitive market conditions. Margins this year
improved as the result of improved pricing and more favorable crop
related and plant processing costs compared to last year for both the
vegetable and pickle operations as a result of the normal growing and
harvest conditions this year.
Delivery, selling and administrative expenses for the third
quarter and the nine months ended February 26, 1995, increased 13.9% and
17.1% respectively over comparable periods a year ago. The principal
reasons for the increased expenses this year are:
1.) Marketing and promotional expenses associated with a vegetable
business acquired during the third quarter a year ago, and
2.) Expenses associated with a Dairy Products and Specialty Food
Products businesses acquired in fiscal 1994 and a dairy
operation acquired during the first quarter this year.
Interest expense for the third quarter ($6.3 million) and for
the nine month period ended February 26, 1995 ($16.6 million) increased
40.3% and 49.2% respectively over interest expense of the comparable
periods a year ago. The increased interest expense was the result of:
1.) The interest on borrowings associated with business
acquisitions during fiscal year 1994 and first quarter this
year,
2.) Increased level of borrowings to meet seasonal crop
requirements associated with the increased sales of the
Registrant's vegetable and pickle operations, and
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3). Higher prevailing interest rates this year as compared with
rates during the corresponding periods a year ago.
The effective income tax rate for the third quarter was 41.9%
compared with a rate of 39.1% for the same period a year ago. The
effective tax rate for the nine month period ended February 26, 1995 was
41.3% compared to 40.7% for the same period a year ago. The effective
income tax rate last year reflected the adoption in the first quarter
last year of SFAS 109, "Accounting for Income Taxes" offset by the
increased statutory corporate tax rate and the retroactive provisions of
the Revenue Reconciliations Act of 1993. Additionally, last year's
effective rate was favorably impacted by the non-taxable proceeds on a
key-person life insurance policy of one of the former owners of an
acquired enterprise. This year's third quarter tax rate was impacted by
the difference in the tax basis and book basis of non-production related
assets acquired in an acquisition which were sold during the third
quarter. There was no book gain recognized on this sale. The effective
income tax rate for the fourth quarter this year should exceed the
effective tax rate for the fourth quarter last year, but should be lower
than the effective rate for the third quarter this year.
On March 3, 1995, Timothy J. Bondy, the Company's Vice
President - Finance, resigned from the Company. Mr. Bondy's resignation
letter stated that he was resigning for personal reasons. The Company is
currently seeking a replacement for Mr. Bondy. Dale I. Hecox, the
Company's Treasurer has assumed many of Mr. Bondy's duties until a
replacement is located.
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PART II - OTHER INFORMATION
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ITEM 1. Legal Proceedings
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There has been no material change in the legal proceedings reported
under Item 3 - Legal Proceedings, of the Form 10-K Annual Report, for
the fiscal year ended May 29, 1994.
ITEM 6. Exhibits and Reports on Form 8-K
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a.) Exhibits
Item 10 - Material Contracts
1) $100 Million Credit Agreement dated as of February 16, 1995
2) $200 Million Credit Agreement dated as of February 16, 1995
Item 27 - Financial Data Schedules
b.) Reports on Form 8-K
None were filed during the quarter for which this report is
filed.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEAN FOODS COMPANY
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(Registrant)
DATE: April 11, 1995 /s/ Thomas L. Rose
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Thomas L. Rose
President
DATE: April 11, 1995 /s/ Dale I. Hecox
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DALE I. HECOX
Treasurer
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