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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 25, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-08262
DEAN HOLDING COMPANY
(Exact name of the registrant as specified in its charter)
[COMPANY LOGO]
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DELAWARE 75-2932967
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2515 MCKINNEY AVENUE, SUITE 1200
DALLAS, TEXAS 75201
(214) 303-3400
(Address, including zip code, and telephone number, including
area code, of the registrant's principal executive offices)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The registrant is a wholly-owned subsidiary of Dean Foods Company, a
corporation organized under the laws of the state of Delaware.
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TABLE OF CONTENTS
<Table>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements........................................................................... 3
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 12
Item 3 - Quantitative and Qualitative Disclosures About Market Risk..................................... 14
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders............................................ 15
Item 6 - Exhibits and Reports on Form 8-K............................................................... 15
</Table>
-2-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEAN HOLDING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
<Table>
<Caption>
NOVEMBER 25, MAY 27,
2001 2001
------------ ------------
(unaudited)
Assets
Current assets:
Cash and temporary cash investments ................... $ 37.4 $ 22.6
Accounts and notes receivable, less allowance for
doubtful accounts of $8.4 and $6.5, respectively ... 353.3 363.1
Inventories ........................................... 261.1 220.1
Other current assets .................................. 78.9 89.2
------------ ------------
Total current assets ............................... 730.7 695.0
------------ ------------
Property, plant and equipment:
Property, plant and equipment, gross .................. 1,587.3 1,550.3
Less accumulated depreciation ......................... (680.0) (631.0)
------------ ------------
Property, plant and equipment, net ................. 907.3 919.3
------------ ------------
Other assets:
Intangibles, net of accumulated amortization of
$71.3 and $62.0, respectively ...................... 656.8 666.4
Other assets .......................................... 43.5 36.7
------------ ------------
Total other assets ................................. 700.3 703.1
------------ ------------
Total ......................................... $ 2,338.3 $ 2,317.4
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to bank ................................. $ 19.1
Current installments of long-term obligations ......... 1.0 $ 4.4
Accounts payable and accrued expenses ................. 439.2 486.4
Dividends payable ..................................... 8.3 8.2
Federal and state income taxes ........................ 43.4 24.6
------------ ------------
Total current liabilities .......................... 511.0 523.6
Long-term obligations ..................................... 936.0 940.2
Deferred liabilities ...................................... 150.6 149.0
------------ ------------
Total liabilities .................................. 1,597.6 1,612.8
Stockholders' equity ...................................... 740.7 704.6
------------ ------------
Total ......................................... $ 2,338.3 $ 2,317.4
============ ============
</Table>
See notes to condensed consolidated financial statements.
-3-
DEAN HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share data)
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- ---------------------------
NOVEMBER 25, NOVEMBER 26, NOVEMBER 25, NOVEMBER 26,
2001 2000 2001 2000
------------ ------------ ------------ ------------
(unaudited) (unaudited)
Net sales ......................................... $ 1,144.6 $ 1,097.6 $ 2,288.5 $ 2,145.4
Costs of products sold ............................ 886.2 847.5 1,787.3 1,649.1
Delivery, selling and administrative expenses ..... 195.7 193.4 391.3 380.8
Merger-related costs .............................. 3.7 13.5
------------ ------------ ------------ ------------
Operating earnings ................................ 59.0 56.7 96.4 115.5
Interest expense, net of interest income .......... 16.0 18.6 32.6 34.7
Gain on sale of note .............................. 10.0 10.0
------------ ------------ ------------ ------------
Income before income taxes ........................ 43.0 48.1 63.8 90.8
Provision for income taxes ........................ 16.0 18.3 23.7 34.6
------------ ------------ ------------ ------------
Net income ........................................ $ 27.0 $ 29.8 $ 40.1 $ 56.2
============ ============ ============ ============
Earnings per share:
Basic ........................................ $ .75 $ .84 $ 1.12 $ 1.58
============ ============ ============ ============
Diluted ...................................... $ .74 $ .84 $ 1.10 $ 1.58
============ ============ ============ ============
Weighted average common shares:
Basic ........................................ 35,939,099 35,549,314 35,842,298 35,526,085
============ ============ ============ ============
Diluted ...................................... 36,494,188 35,669,370 36,346,447 35,680,755
============ ============ ============ ============
</Table>
See notes to condensed consolidated financial statements.
-4-
DEAN HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
<Table>
<Caption>
SIX MONTHS ENDED
----------------------------
NOVEMBER 25, NOVEMBER 26,
2001 2000
------------ ------------
(unaudited)
Cash flows from operating activities:
Net cash provided from operations ........................... $ 55.3 $ 50.1
------------ ------------
Cash flows from investing activities:
Capital expenditures ........................................ (41.1) (91.4)
Proceeds from disposition of property, plant and equipment .. 0.6 6.8
Acquisitions and investments, net of cash acquired .......... (220.0)
Other ....................................................... (2.3) (0.3)
------------ ------------
Net cash used in investing activities ....................... (42.8) (304.9)
------------ ------------
Cash flows from financing activities:
Issuance of notes payable to banks .......................... 19.1
Issuance of long-term obligations, net ...................... 246.3
Issuance of commercial paper, net ........................... 43.1
Repayments of long-term obligations ......................... (4.2) (1.3)
Repayment of revolving credit agreement, net ................ (9.0)
Cash dividends paid ......................................... (16.1) (15.8)
Issuance of common stock .................................... 12.5 2.2
------------ ------------
Net cash provided by financing activities ................... 2.3 274.5
------------ ------------
Increase in cash and temporary cash investments ................. 14.8 19.7
Cash and temporary cash investments, beginning of period ........ 22.6 26.6
------------ ------------
Cash and temporary cash investments, end of period .............. $ 37.4 $ 46.3
============ ============
</Table>
See notes to condensed consolidated financial statements.
-5-
DEAN HOLDING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 25, 2001
1. GENERAL
Basis of Presentation - The unaudited condensed consolidated financial
statements contained in this report have been prepared on the same basis as the
consolidated financial statements in our Annual Report on Form 10-K for the year
ended May 27, 2001. In our opinion, we have made all necessary adjustments
(which include only normal recurring adjustments) in order 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 generally accepted accounting principles have been
omitted. Our results of operations for the two fiscal quarters ended November
25, 2001 may not be indicative of our operating results for the full fiscal
year. The consolidated financial statements contained in this report should be
read in conjunction with our fiscal 2001 consolidated financial statements
contained in our Annual Report on Form 10-K filed with the Securities and
Exchange Commission on August 10, 2001.
Certain previously reported amounts have been reclassified to conform
to current year presentations.
This Quarterly Report, including these notes, have been written in
accordance with the Securities and Exchanges Commission's "Plain English"
guidelines. Unless otherwise indicated, references in this report to "we," "us"
or "our" refer to Dean Holding Company (successor to Dean Foods Company) and its
subsidiaries, as a whole.
Recently Issued Accounting Standards -- Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended, became effective for us as of May 28, 2001. We
hedge a portion of our interest rate exposure related to the $200 million,
6.625% senior notes due 2009 using interest rate swaps. These swaps are
designated as fair value hedges and are required to be recorded on our
consolidated balance sheet at fair value, with any gains or losses recognized
currently in earnings. The gains or losses on our fair value hedges are offset
by the related gains or losses from recording the underlying senior notes at
fair value. Upon adoption of SFAS No. 133, we recorded a derivative asset of
$2.1 million for our interest rate swaps. As of November 25, 2001, the fair
value of our interest rate swap asset was $5.4 million. The change in fair value
of the derivatives exactly offset the change in the fair value of the underlying
notes; therefore, there is no hedge ineffectiveness impact reported in earnings.
In May 2000, the Emerging Issues Task Force of the Financial Accounting
Standards Board (FASB) reached a consensus on Issue No. 00-14, "Accounting for
Certain Sales Incentives." This Issue addresses the recognition, measurement and
income statement classification of sales incentives that have the effect of
reducing the price of a product or service to a customer at the point of sale.
In April 2001, the Task Force reached a consensus on Issue No. 00-25, "Vendor
Income Statement Characterization of Consideration Paid to a Reseller of the
Vendor's Products." This Issue addresses when consideration from a vendor to a
retailer is (a) an adjustment of the selling price of the vendor's products to
the retailer and, therefore, should be deducted from revenue when recognized in
the vendors' income statement or (b) a cost incurred by the vendor for assets
and services provided by the retailer to the vendor and, therefore, should be
included as a cost or an expense when recognized in the vendor's income
statement. We adopted both of these Issues in the first fiscal quarter of 2002.
Upon adoption of these Issues, certain sales incentives and trade spending
amounts, which were classified in delivery, selling and administrative expense,
were reclassified as a reduction of sales. Prior period amounts of $15.4 million
and $30.7 million for the three and six months ended November 26, 2000 were
reclassified to conform to the new requirements. This change did not affect our
financial position or results of operations.
-6-
In June 2001, FASB issued SFAS No. 141, "Business Combinations", and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses
financial accounting and reporting for business combinations. Under the new
standard, all business combinations entered into after June 30, 2001 are to be
accounted for by the purchase method. SFAS No. 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets. SFAS
No. 142 requires that goodwill no longer be amortized, but instead requires a
transitional goodwill impairment assessment and annual impairment tests
thereafter. SFAS No. 142 will also require that recognized intangible assets be
amortized over their respective estimated useful lives. Any recognized
intangible asset determined to have an indefinite useful life will not be
amortized, but instead tested for impairment in accordance with the standard
until its life is determined to no longer be indefinite. We will adopt the
provisions of SFAS 142 on January 1, 2002, as required. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized until December 31, 2001. We are currently evaluating
the impact of adopting these pronouncements on our consolidated financial
statements.
In June 2001, FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. SFAS No. 143 will become effective for us beginning
January 1, 2003. We are currently evaluating the impact of adopting this
pronouncement on our consolidated financial statements.
FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" in August 2001 and it will be effective for us beginning
January 1, 2002. SFAS No. 144 provides a single, comprehensive accounting model
for impairment and disposal of long-lived assets and discontinued operations. We
do not expect adoption of this standard to have a material impact on our
consolidated financial statements.
2. MERGER-RELATED EVENTS
Merger - On December 21, 2001, we merged with Blackhawk Acquisition
Corp., a wholly-owned subsidiary of Suiza Foods Corporation. Blackhawk
Acquisition Corp. survived the merger and immediately thereafter changed its
name to Dean Holding Company, our current name. Also immediately after the
merger, Suiza Foods Corporation changed its name to Dean Foods Company (now
known as Dean Foods Company, or "new Dean"). We are now a wholly-owned direct
subsidiary of new Dean.
Upon consummation of the merger, each share of our common stock was
automatically converted into 0.429 shares of new Dean common stock and the right
to receive $21.00 in cash.
We recorded a pre-tax charge of $3.7 million ($2.3 million after-tax,
or $.06 per share) during the fiscal quarter ended November 25, 2001 for
merger-related costs. These charges consisted of professional fees of $2.6
million and employee stay costs of $1.1 million. During the first six months of
fiscal 2002 we recorded a pre-tax charge of $13.5 million ($8.4 million
after-tax, or $.23 per share) for merger-related costs. These charges consisted
of professional fees of $10.9 million and severance and employee stay costs of
$2.6 million.
Change of Fiscal Year - Immediately after consummation of the merger,
our Board of Directors elected to change our fiscal year to conform to the
fiscal year of new Dean. Accordingly, our fiscal year will now end on December
31, rather than on the last Sunday in May. On or before March 31, 2002, we will
file a transition report on Form 10-KT covering the period from May 28, 2001
through December 31, 2001. Our next fiscal year will begin on January 1, 2002.
-7-
Divestiture of Plants - In order to obtain regulatory approval for the
merger, certain plants located in areas where our operations overlapped with the
operations of Suiza Foods Corporation were required to be divested. Four of the
divested dairies were owned by us, including Coburg Dairy based in North
Charleston, South Carolina, Cream O Weber based in Salt Lake City, Utah, H.
Meyer Dairy based in Cincinnati, Ohio and U.C. Milk (Goldenrod) based in
Madisonville, Kentucky. In order to accomplish the divestitures, on December 21,
2001, immediately after the merger was completed, we transferred these dairies
to new Dean, our sole shareholder, via dividend.
Exchange of National Refrigerated Products for Dean SoCal - Also in
connection with the merger, on December 21, 2001, we entered into a Securities
Exchange Agreement with Morningstar Foods Inc., another wholly-owned subsidiary
of new Dean, pursuant to which, on December 21, 2001 immediately after
consummation of the merger, we exchanged the operations of our National
Refrigerated Products group for the operations of Dean SoCal, LLC, a subsidiary
of new Dean's Dairy Group. Dean SoCal operates two plants in Southern California
and produces a full line of dairy and related products under the Swiss(R) and
Adohr Farms(R) brands. Dean SoCal will be operated as part of our Dairy Group.
Long-Term Debt - On December 21, 2001, in connection with the merger,
new Dean used borrowings under its new credit facility to refinance the
outstanding indebtedness under our revolving credit facility. Accordingly, our
revolving credit facility and our commercial paper program were terminated as of
the merger date. See Note 5. In order to accomplish the retirement of such
indebtedness, new Dean made a capital contribution to us in the amount of the
indebtedness. Certain of new Dean's subsidiaries, including us, were required
to, effective as of the merger date, guarantee new Dean's indebtedness under its
new $2.7 billion credit facility. We pledged our personal property (other than
our ownership interests in our subsidiaries) as security for the guarantee. New
Dean has pledged its ownership interest in the stock of Dean Holding Company as
collateral for its obligations under the facility. Also in connection with the
merger, we sold all of our existing and future accounts receivable into new
Dean's securitization facility, effective December 21, 2001. Our obligations
under the indentures related to our (1) $250 million senior notes, 8.15% due
2007, (2) $200 million senior notes, 6.625% due 2009, (3) $150 million senior
notes, 6.9% due 2017 and (4) $100 million senior notes, 6.75% due 2005 remain
outstanding. Therefore, we will continue to file periodic reports under the
Securities Exchange Act of 1934. The interest rate swap agreements that
hedged our fixed interest rate exposure were terminated in December 2001, in
anticipation of the merger.
3. INVENTORIES
<Table>
<Caption>
NOVEMBER 25, MAY 27,
2001 2001
------------ ------------
(in millions)
Raw materials and supplies .......................... $ 56.1 $ 62.5
Materials in process ................................ 19.0 8.7
Finished goods ...................................... 196.7 159.3
------------ ------------
271.8 230.5
Less excess of current cost over stated value of
last-in, first-out inventories ...................... (10.7) (10.4)
------------ ------------
Total ....................................... $ 261.1 $ 220.1
============ ============
</Table>
-8-
4. DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense for the fiscal quarters ended
November 25, 2001 and November 26, 2000 was $33.0 million and $34.1 million,
respectively. Depreciation and amortization expense for the six months ended
November 25, 2001 and November 26, 2000 was $67.9 million and $66.9 million,
respectively.
5. LONG-TERM DEBT
<Table>
<Caption>
November 25, 2001 May 27, 2001
----------------- ------------
(in millions)
$250 million senior notes, 8.15%, due 2007 $ 246.9 $ 246.7
$200 million senior notes, 6.625%, due 2009 199.9 199.9
$150 million senior notes, 6.9%, due 2017 148.1 148.0
$100 million senior notes, 6.75%, due 2005 99.6 99.6
Revolving Credit Facility 200.0 209.0
Industrial revenue bonds 21.7 25.2
Other 20.8 16.2
---------- ----------
937.0 944.6
Less current portion (1.0) (4.4)
---------- ----------
Total $ 936.0 $ 940.2
========== ==========
</Table>
No commercial paper was outstanding. Our revolving credit facility and
our commercial paper program were refinanced and terminated in connection with
the merger. All senior notes remain outstanding.
6. BUSINESS SEGMENT INFORMATION, GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
In the first quarter of fiscal 2001, we re-aligned our business segment
structure to include (1) Dairy, (2) Specialty Foods, and (3) National
Refrigerated Products.
Our Dairy group manufactures and distributes primarily fluid milk, ice
cream and cultured dairy products. Specialty Foods' products include pickles,
peppers, sauces, powdered creamers and various other specialty food items.
Principal products of our National Refrigerated Products group include extended
shelf-life dairy products, dips and dressings.
In connection with the merger described in Note 2 above, we exchanged
our National Refrigerated Products business for certain of Suiza Foods
Corporation's dairy operations, effective December 21, 2001. Accordingly, we no
longer have a National Refrigerated Products segment.
The accounting policies of our segments are the same as those described
in the summary of significant accounting policies set forth in Note 1 to our
consolidated financial statements contained in our Annual Report on Form 10-K
for the fiscal year ended May 27, 2001.
We do not allocate income taxes, internal management fees or interest
income/expense to segments. In addition, there are no significant non-cash items
other than depreciation and amortization in reported operating income.
Identifiable assets are those used in our operations in each segment. Corporate
assets consist primarily of cash, temporary cash investments and deferred tax
assets. Intersegment sales are immaterial. The amounts in the following tables
are derived from reports used by our executive management team.
-9-
<Table>
<Caption>
NATIONAL
SPECIALTY REFRIGERATED
DAIRY FOODS PRODUCTS CORPORATE CONSOLIDATED
------------ ------------ ------------ ------------ ------------
(in millions)
THREE MONTHS ENDED
November 25, 2001
Net sales $ 864.0 $ 179.2 $ 101.4 $ 1,144.6
Operating earnings 41.3 21.6 11.0 $ (14.9) 59.0
Identifiable assets 1,505.3 457.1 242.7 133.2 2,338.3
November 26, 2000
Net sales $ 814.7 $ 185.3 $ 97.6 $ 1,097.6
Operating earnings 43.6 20.4 0.3 $ (7.6) 56.7
Identifiable assets 1,506.4 466.1 244.4 134.9 2,351.8
SIX MONTHS ENDED
November 25, 2001
Net sales $ 1,737.2 $ 354.4 $ 196.9 $ 2,288.5
Operating earnings 75.6 39.2 16.9 $ (35.3) 96.4
November 26, 2000
Net sales $ 1,606.3 $ 361.7 $ 177.4 $ 2,145.4
Operating earnings 85.5 43.4 4.4 $ (17.8) 115.5
</Table>
Outside the United States, no single country is deemed material for
separate disclosure. We have no one customer that represents greater than 10% of
our consolidated net sales.
7. EARNINGS PER COMMON SHARE
Basic and diluted earnings per share is computed in accordance with
SFAS No. 128, "Earnings per Share." Basic earnings per share is computed by
dividing reported net income by the weighted average number of common shares
outstanding. Diluted earnings per share includes the incremental shares issuable
upon the assumed exercise of stock options and warrants, using the treasury
stock method. Excluded from the diluted earnings per share computation is stock
options and warrants that would be antidilutive at period end. The following is
a reconciliation of the numerators and denominators of the basic and diluted per
share computations.
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- ---------------------------
NOVEMBER 25, NOVEMBER 26, NOVEMBER 25, NOVEMBER 26,
2001 2000 2001 2000
------------ ------------ ------------ ------------
(in millions, except per share amounts)
NET INCOME (NUMERATOR) ..................... $ 27.0 $ 29.8 $ 40.1 $ 56.2
============ ============ ============ ============
SHARES (DENOMINATOR)
Weighted average common shares
outstanding ............................. 35.9 35.5 35.8 35.5
Incremental common shares
attributable to dilutive stock options ... 0.6 0.2 0.5 0.2
------------ ------------ ------------ ------------
Diluted number of shares outstanding ....... 36.5 35.7 36.3 35.7
============ ============ ============ ============
EARNINGS PER SHARE
Basic ...................................... $ .75 $ .84 $ 1.12 $ 1.58
============ ============ ============ ============
Diluted .................................... $ .74 $ .84 $ 1.10 $ 1.58
============ ============ ============ ============
</Table>
-10-
8. ACQUISITIONS
During the first quarter of fiscal 2001, we acquired the Nalley's
pickle business located in Tacoma, Washington and the assets of Land O'Lakes
Upper Midwest fluid dairy and extended shelf life operations. These acquisitions
were accounted for as purchases. In addition, during the first quarter of fiscal
2001, we made an additional equity investment in White Wave, Inc., a processor
of soy-based products.
-11-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
On December 21, 2001, we merged with Blackhawk Acquisition Corp., a
wholly-owned subsidiary of Suiza Foods Corporation (now known as Dean Foods
Company, or "new Dean"). Blackhawk Acquisition Corp. survived the merger and
immediately thereafter changed its name to Dean Holding Company, our current
name. Also immediately after the merger, Suiza Foods Corporation changed its
name to Dean Foods Company.
Prior to completion of the merger, we were the nation's second largest
dairy processor and distributor. We are now a wholly-owned direct subsidiary of
new Dean. Prior to the merger, we had three operating units: Dairy, Specialty
Foods and National Refrigerated Products. Our Dairy group manufactures and
distributes primarily fluid milk, ice cream and cultured dairy products.
Specialty Foods' products include pickles, peppers, sauces, powdered creamers
and various other specialty food items. Principal products of our National
Refrigerated Products group include extended shelf-life dairy products, dips and
dressings. In connection with the merger, we exchanged our National Refrigerated
Products business for certain of Suiza Foods Corporation's dairy operations,
effective December 21, 2001. Accordingly, we no longer have a National
Refrigerated Products segment.
RESULTS OF OPERATIONS
QUARTER ENDED NOVEMBER 25, 2001 VERSUS QUARTER ENDED NOVEMBER 26, 2000
Net sales for the quarter ended November 25, 2001, of $1,144.6 million
were 4.3%, higher than sales of $1,097.6 million in the prior year. The net
sales improvement reflected increases in the Dairy group, in both fluid milk and
ice cream, and growth across the board in the National Refrigerated Products
group. Operating earnings for the quarter ended November 25, 2001, increased to
$59.0 million from $56.7 million in the prior year, reflecting significant
improvement in the National Refrigerated Products group. This was offset by
significantly higher costs for raw milk and butterfat, which impacted both
margins and volume, and by $3.7 million of merger-related costs. Net income for
the quarter ended November 25, 2001 decreased to $27.0 million, or $0.74 per
diluted share, versus $29.8 million, or $0.84 per diluted share, in the prior
year.
Dairy Group - Second quarter sales of $864.0 million were 6.1% higher
than sales of $814.7 million in the prior year. The increase was primarily the
result of higher ice cream sales from the previously announced national alliance
with Baskin-Robbins and higher fluid milk sales resulting from the pass-through
of higher raw milk costs, partly offset by decreased volumes. Operating earnings
decreased $2.3 million, or 5.3%, to $41.3 million, from $43.6 million in the
second quarter of last year. This decline was primarily due to the higher raw
milk and butterfat costs. Raw milk costs increased 33% and butterfat costs
increased 35% compared to the second quarter of last year. While price increases
were taken on milk and ice cream products, all of the cost increases could not
be recovered through price increases.
Specialty Foods Group - Net sales in the quarter were $179.2 million
compared to $185.3 million last year, primarily as a result of lower foodservice
sales. Operating earnings were $21.6 million compared to $20.4 million last
year, as lower foodservice sales were offset by price increases and ongoing cost
control initiatives.
National Refrigerated Products Group - Net sales for the quarter were
$101.4 million, an increase of approximately 4%, compared to $97.6 million in
the prior year. The increase in net sales reflected increases in all major
product lines. Operating earnings of $11.0 million were $10.7 million higher
than the second quarter of the prior year, reflecting lower new product launch
costs, continued efficiency improvements in the plants processing extended shelf
life products, and higher sales.
-12-
Corporate - Corporate expenses increased $7.3 million during the
quarter compared to the same period in the prior year. The increase was
primarily due to higher incentive compensation expenses and merger-related
costs.
Interest Expense, net of interest income - Interest expense, net of
interest income, decreased $2.6 million during the quarter compared to the same
period in the prior year primarily due to lower short-term interest rates.
Merger Costs - We recorded a pre-tax charge of $3.7 million ($2.3
million after-tax, or $.06 per share) during the quarter for merger-related
costs. These charges consisted of professional fees of $2.6 million and employee
stay costs of $1.1 million.
SIX MONTHS ENDED NOVEMBER 25, 2001 VERSUS SIX MONTHS ENDED NOVEMBER 26, 2000
Net sales for the six months ended November 25, 2001, were $2,288.5
million versus net sales of $2,145.4 million in the prior year. The net sales
improvement reflected increases in the Dairy group, in both fluid milk and ice
cream, and growth across the board in the National Refrigerated Products group.
Operating earnings decreased to $96.4 million in the six months ended November
25, 2001, from $115.5 million in the prior year, reflecting significantly higher
costs for raw milk and butterfat, which impacted both margins and volume, and by
$13.5 million of merger-related costs. This decline was despite a significant
earnings improvement in the National Refrigerated Products group. Net income for
the six months ended November 25, 2001, decreased to $40.1 million, or $1.10 per
diluted share, versus $56.2 million, or $1.58 per diluted share, in the prior
year.
Dairy Group - First half net sales of $1,737.2 million were 8.1% higher
than sales in the prior year. The increase was primarily the result of higher
ice cream sales from the previously announced national alliance with
Baskin-Robbins and higher fluid milk sales resulting from the pass-through of
higher raw milk costs. Operating earnings decreased 11.6%, to $75.6 million,
from $85.5 million in the prior year. This decline was primarily due to higher
raw milk and butterfat costs, which could not be recovered through price
increases.
Specialty Foods Group - First half net sales decreased $7.3 million to
$354.4 million when compared to the prior year, as a result of lower foodservice
sales. Operating earnings of $39.2 million decreased by $4.2 million as compared
to the prior year.
National Refrigerated Products Group - First half net sales of $196.9
million were 11.0% higher than sales in the prior year. Operating earnings of
$16.9 million increased $12.5 million from earnings of $4.4 million in the prior
year. The earnings increase reflects lower new product launch costs, continued
efficiency improvements in the plants processing extended shelf life products,
and higher sales.
Corporate - Corporate expenses increased $17.5 million for the first
six months of fiscal 2002 compared to the same period of the prior year, due
primarily to merger-related costs.
Interest Expense, net of interest income - Interest expense, net of
interest income, decreased $2.1 million to $32.6 million for the first six
months of fiscal 2002 compared to the same period in the prior year primarily
due to lower short-term interest rates.
Merger Costs - During the first six months of fiscal 2002, we recorded
a pre-tax charge of $13.5 million ($8.4 million after-tax, or $.23 per share)
for merger-related costs. These charges consisted of professional fees of $10.9
million and severance and employee stay costs of $2.6 million.
-13-
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
Cash and temporary cash investments increased $14.8 million during the
first half of fiscal 2002. Net cash provided from operations was $55.3 million
for the first six months of fiscal 2002, compared to $50.1 million in the prior
year.
Net cash used in investing activities was $42.8 million for the six
months ended November 25, 2001 and was driven by capital expenditures of $41.1
million. Net cash used in investing activities was $304.9 million for the six
months ended November 26, 2000 and included $220.0 million of cash paid for
acquisitions (including the Nalley's and Land O' Lakes acquisitions and an
additional investment in White Wave, Inc.) along with $91.4 of capital
expenditures.
Net cash provided by financing activities was $2.3 million and $274.5
million for the first six months of fiscal 2002 and fiscal 2001, respectively.
Fiscal 2002 financing activities included $19.1 million of short-term notes
issued to banks and $12.5 million of stock issued primarily through exercises of
employee stock options, offset by $16.1 million of dividends paid and $9.0
million of repayments under the revolving credit agreement. Fiscal 2001
financing activities include $246.3 million from the issuance of long-term
obligations and a $43.1 million increase in borrowings under our commercial
paper program, offset by $15.8 million of dividends paid. Our operating cash and
capital expenditure requirements have historically been met from internally
generated funds. Working capital at November 25, 2001 was $219.7 million
compared to $171.4 million at May 27, 2001. Inventories at November 25, 2001
were $261.1 million, an increase of $41.0 million over the balance at May 27,
2001, primarily from seasonal inventory increases for pickles.
Debt Obligations
At November 25, 2001, there was $200 million outstanding under our
revolving credit agreement. No commercial paper was outstanding at November 25,
2001. The revolving credit facility and the commercial paper program were
terminated upon consummation of the merger.
All of our senior notes, industrial revenue bonds and certain other
long-term obligations remain outstanding after completion of the merger. See
Note 5 to the Condensed Consolidated Financial Statements contained herein.
Future Capital Requirements
All future capital requirements will be funded either through cash flow
from operations, or using the resources available from our parent, new Dean.
We believe that we will have the financial resources necessary to meet our
capital requirements for the foreseeable future.
FORWARD LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q are
"forward-looking," as defined by the Private Securities Litigation Reform Act of
1995. We intend these statements to be subject to the safe harbor created by
that law. These statements, which may be indicated by words such as "expect,"
"believe," "forecast" or words of similar meaning, involve certain risks and
uncertainties that may cause actual results to differ materially from
expectations. These risks are described in detail in our Annual Report on Form
10-K for the fiscal year ended May 27, 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of November 25, 2001, there was no material change in our market
risk exposure as described under Item 7A - Quantitative and Qualitative
Disclosures about Market Risk, of our Form 10-K for the fiscal year ended May
27, 2001. In December 2001, in anticipation of the consummation of our merger
with a subsidiary of Suiza Foods Corporation, our interest rate swap agreements
were terminated, which resulted in cash proceeds of $4.7 million.
-14-
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 14, 2001, we held a special meeting of shareholders to
vote on the proposal to merge with a subsidiary of Suiza Foods Corporation. The
proposal was approved. The results of voting on the proposal were as follows:
<Table>
<Caption>
Shares % of Voting
------ -----------
For 22,738,740 63.57%
Against 956,379 2.67%
Abstain 65,970 .18%
</Table>
On September 26, 2001, we held our regular annual meeting of
stockholders. At the meeting, we submitted to a vote of our stockholders a
proposal to re-elect each of Lewis M. Collens, Howard M. Dean, Bert A. Getz and
J. Christopher Reyes as directors. The proposal was approved. The results of
voting on the proposal were as follows:
<Table>
<Caption>
Shares % of Voting
------ -----------
For 28,316,020 79.16%
Withheld 651,547 1.82%
</Table>
The total number of shares outstanding on the record date related to
both meetings was 35,769,877.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends
(b) Reports on Form 8-K
We filed a report on Form 8-K dated September 14, 2001 stating under
Item 5 that we had announced that our shareholders approved the proposed merger
between us and a subsidiary of Suiza Foods Corporation.
We filed a report on Form 8-K dated September 25, 2001 stating under
Item 5 that we had announced results for our first quarter ended August 26,
2001.
We filed a report on Form 8-K dated December 17, 2001 stating under
Item 5 that we had announced results for our second quarter ended November 25,
2001.
We filed a report on Form 8-K dated January 7, 2002 disclosing the
completion of the merger between us and a subsidiary of Suiza Foods Corporation,
and various related matters.
-15-
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 HOLDING COMPANY
/s/ Barry A. Fromberg
------------------------------------------------------------
Barry A. Fromberg
Executive Vice President, Chief Financial Officer (Principal
Accounting Officer)
Date: January 9, 2002
-16-
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends
</Table>