1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
For the quarterly period ended November 28, 1999
----------------------
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 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 (847) 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 36,974,954.
1
2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DEAN FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED
NOVEMBER 28, 1999 AND NOVEMBER 29, 1998
(In Thousands, Except for Per Share Amounts)
Second Quarter Ended Six Months Ended
-------------------- ----------------
November 28, November 29, November 28, November 29,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(Unaudited)
Net sales $ 1,067,010 $ 934,377 $ 2,068,370 $ 1,759,481
Costs of products sold 827,941 732,363 1,589,945 1,366,291
Delivery, selling and administrative expenses 182,641 155,971 365,170 300,838
----------- ----------- ----------- -----------
Operating earnings 56,428 46,043 113,255 92,352
Interest expense 12,348 7,993 23,733 17,049
Interest income 199 236 388 545
----------- ----------- ----------- -----------
Income from continuing operations
before income taxes 44,279 38,286 89,910 75,848
Provision for income taxes 17,269 14,932 35,065 29,581
----------- ----------- ----------- -----------
Income from continuing operations 27,010 23,354 54,845 46,267
----------- ----------- ----------- -----------
Discontinued operations, net of taxes:
Loss from discontinued operations - (1,188) - (2,929)
Gain on sale of discontinued operations - 83,820 - 83,820
----------- ----------- ----------- -----------
Total discontinued operations - 82,632 - 80,891
----------- ----------- ----------- -----------
Net income $ 27,010 $ 105,986 $ 54,845 $ 127,158
=========== =========== =========== ===========
Basic income (loss) per share:
Income from continuing operations $ .69 $ .59 $ 1.40 $ 1.16
Loss from discontinued operations - (.03) - (.07)
Gain on sale of discontinued operations - 2.11 - 2.10
----------- ----------- ----------- -----------
Net income $ .69 $ 2.67 $ 1.40 $ 3.19
=========== =========== =========== ===========
Diluted income (loss) per share:
Income from continuing operations $ .68 $ .58 $ 1.38 $ 1.14
Loss from discontinued operations - (.03) - (.07)
Gain on sale of discontinued operations - 2.07 - 2.05
----------- ----------- ----------- -----------
Net income $ .68 $ 2.62 $ 1.38 $ 3.12
=========== =========== =========== ===========
Weighted average common shares:
Basic 39,128 39,722 39,209 39,874
=========== =========== =========== ===========
Diluted 39,756 40,483 39,832 40,723
=========== =========== =========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements.
2
3
DEAN FOODS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
NOVEMBER 28, 1999 AND MAY 30, 1999
(In Thousands)
November 28, May 30,
1999 1999
----------- ----------
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 24,981 $ 15,958
Accounts and notes receivable, less allowance for
doubtful accounts of $7,958 and $7,570, respectively 334,514 303,337
Inventories 217,593 168,836
Other current assets 86,375 94,007
---------- ----------
Total Current Assets 663,463 582,138
---------- ----------
PROPERTIES:
Property, plant and equipment, at cost 1,329,136 1,242,238
Accumulated depreciation 549,825 477,292
---------- ----------
Total Properties, net 779,311 764,946
---------- ----------
OTHER ASSETS:
Intangibles, net of amortization of
$33,370 and $24,551, respectively 576,376 551,486
Other assets 21,944 13,306
---------- ----------
Total Other Assets 598,320 564,792
---------- ----------
TOTAL ASSETS $2,041,094 $1,911,876
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current installments of long-term obligations $ 4,237 $ 2,651
Accounts payable and accrued expenses 422,211 398,174
Dividends payable 8,695 8,353
Federal and state income taxes payable 39,302 30,308
---------- ----------
Total Current Liabilities 474,445 439,486
LONG-TERM OBLIGATIONS 708,403 631,286
DEFERRED LIABILITIES 125,244 124,690
SHAREHOLDERS' EQUITY 733,002 716,414
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,041,094 $1,911,876
========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
3
4
DEAN FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
NOVEMBER 28, 1999 AND NOVEMBER 29, 1998
(In Thousands)
Six Months Ended
--------------------------
November 28, November 29,
1999 1998
----------- -----------
(Unaudited)
Net cash provided from continuing operations $ 77,924 $ 9,515
--------- ---------
Investing activities:
Capital expenditures (68,909) (57,296)
Proceeds from disposition of property, plant and equipment 1,233 517
Acquisitions, net of cash acquired (37,270) (120,677)
Other (4,417) -
--------- ---------
Net cash used in investing activities (109,363) (177,456)
--------- ---------
Financing activities:
Repayment of long-term obligations (1,338) (53,754)
Issuance of commercial paper, net 79,692 -
Repayment of revolving credit agreement, net - (70,000)
Repayment of notes payable to banks, net - (2,500)
Unexpended industrial revenue bond proceeds - 5,965
Cash dividends paid (16,918) (16,401)
Issuance of common stock 2,847 5,574
Repurchase of treasury stock (23,821) (32,949)
--------- ---------
Net cash provided by (used in) financing activities 40,462 (164,065)
--------- ---------
Net cash provided by discontinued operations - 352,326
--------- ---------
Increase in cash and temporary cash investments 9,023 20,320
Cash and temporary cash investments - beginning of period 15,958 11,932
--------- ---------
Cash and temporary cash investments - end of period $ 24,981 $ 32,252
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
4
5
DEAN FOODS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands unless otherwise noted.
1. Basis of Presentation
In the opinion of the Company, 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 Company's 1999 Annual Report
on Form 10-K. The results of operations for the six-month period ended November
28, 1999 are not necessarily indicative of the operating results for the full
year.
2. Acquisitions
During the first six months of fiscal 2000, the Company acquired the assets of
Steinfeld's Pickle Products, a pickle producer located in Portland, Oregon, on
July 1, 1999 and Dairy Express, Inc., a dairy distributor based in the
Philadelphia area, on July 16, 1999. These acquisitions were accounted for as
purchases and have been recorded using preliminary valuations of the assets and
liabilities acquired. Goodwill arising from these acquisitions will be amortized
over periods up to 40 years. Operating results of each acquisition have been
included in the Company's results of operations since the date of acquisition.
On August 23, 1999, the Company announced an equity investment in White Wave,
Inc., a processor of soy based products; the results of which are included in
the Specialty segment. The acquisitions and equity investment were made for
cash, totaling $37.3 million.
3. Discontinued Operations
On September 23, 1998, the Company sold the stock of Dean Foods Vegetable
Company to Agrilink Foods, Inc. Accordingly, fiscal 1999 Vegetables segment
results are presented as discontinued operations. For the six months ended
November 29, 1998, net sales of discontinued operations were $139.8 million.
Loss from discontinued operations for the six months ended November 29, 1998
includes allocated interest expense (based on the short-term interest expense
incurred and changes in working capital levels) of $2.5 million and is net of an
income tax benefit of $1.9 million.
4. Inventories
The following is a tabulation of inventories by class at November 28, 1999,
November 29, 1998, and May 30, 1999.
November 28, November 29, May 30,
1999 1998 1999
---- ---- ----
(Unaudited)
Raw materials and supplies $ 48,369 $ 52,199 $ 52,482
Materials in process 24,745 22,740 11,292
Finished goods 154,297 135,322 114,776
--------- --------- ---------
227,411 210,261 178,550
Less: Excess of current cost over stated
value of last-in, first-out inventories 9,818 9,683 9,714
--------- --------- ---------
Total inventories $ 217,593 $ 200,578 $ 168,836
========= ========= =========
5
6
5. Depreciation and Amortization Expense
Depreciation and amortization expense for the second quarters ended November 28,
1999 and November 29, 1998 was $27.8 million and $21.7 million, respectively.
Depreciation and amortization for the six months ended November 28, 1999 and
November 29, 1998 was $55.6 million and $43.2 million, respectively.
6. Business Segment Information
The following is a tabulation of the Company's business segment information for
the quarters and six months ended November 28, 1999 and November 29, 1998.
(Unaudited)
Dairy Pickles Specialty Corporate Consolidated
----- ------- --------- --------- ------------
Second Quarter Ended
November 28, 1999
Net sales $ 857,721 $ 91,570 $ 117,719 $ - $ 1,067,010
Operating earnings $ 35,077 $ 10,084 $ 21,183 $ (9,916) $ 56,428
November 29, 1998
Net sales $ 741,942 $ 85,889 $ 106,546 $ - $ 934,377
Operating earnings $ 30,063 $ 8,882 $ 15,443 $ (8,345) $ 46,043
Six Months Ended
November 28, 1999
Net sales $ 1,663,934 $ 186,782 $ 217,654 $ - $ 2,068,370
Operating earnings $ 77,968 $ 20,328 $ 36,659 $ (21,700) $ 113,255
Identifiable assets $ 1,390,659 $ 236,055 $ 299,920 $ 114,460 $ 2,041,094
November 29, 1998
Net sales $ 1,393,607 $ 179,294 $ 186,580 $ - $ 1,759,481
Operating earnings $ 62,566 $ 19,986 $ 26,612 $ (16,812) $ 92,352
Identifiable assets $ 1,214,807 $ 208,233 $ 259,053 $ 78,781 $ 1,760,874
7. Share Repurchase
The Company may repurchase shares of its common stock from time to time in the
open market, in privately-negotiated transactions or otherwise at a price or
prices reasonably related to the then prevailing market price. During the first
six months of fiscal 2000 the Company repurchased a total of 608,100 shares,
which are carried at cost. Subsequent to the end of the second quarter of fiscal
2000, the Company has repurchased an additional 1,804,800 shares. As of January
12, 2000, the Company has 276,756 shares remaining available for repurchase
under current Board of Directors authorization.
8. 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
RESULTS OF OPERATIONS
SECOND QUARTER FISCAL 2000 VERSUS SECOND QUARTER FISCAL 1999
RESULTS OF CONTINUING OPERATIONS
Net sales for the second quarter of fiscal 2000 increased $132.6 million, or
14.2%, to $1.1 billion over the second quarter of fiscal 1999. The net sales
increase is primarily the result of acquisitions completed during fiscal 2000
and the latter half of fiscal 1999. Second quarter fiscal 2000 operating
earnings increased 22.6% to $56.4 million from $46.0 million in fiscal 1999.
Each business segment reported higher fiscal 2000 earnings in comparison to the
prior year. Second quarter income from continuing operations was $27.0 million,
or $.68 per diluted share, compared to $23.4 million, or $.58 per diluted share,
in the prior year.
BUSINESS SEGMENTS
DAIRY - Dairy segment net sales for the second quarter of fiscal 2000
of $857.7 million were $115.8 million, or 15.6%, higher than sales of $741.9
million in the prior year. Net sales increased in the Dairy segment primarily
due to acquisitions completed over the past year, but also reflects the
pass-through of higher raw milk costs. Dairy segment operating earnings
increased 16.7% to $35.1 million from $30.1 million in the prior year. The
increase was the result of improved earnings in the Company's ice cream and
extended shelf life (ESL) operations, each of which benefited from improved
plant efficiencies and a better commodity environment, while ESL also benefited
from strong volume growth. Offsetting a portion of these improvements was a
decline in operating earnings for the fluid operations, which was negatively
impacted by commodity pricing.
PICKLES - Net sales in the Pickles segment increased 6.6% to $91.6
million in fiscal 2000 from $85.9 million in fiscal 1999. The increase is
primarily attributable to the first quarter fiscal 2000 acquisition of the
Steinfeld's Pickle Company located in Portland, Oregon. Operating earnings of
$10.1 million increased from earnings of $8.9 million a year ago. The majority
of the earnings increase is due to the Steinfeld's acquisition. Efficiencies
generated by the Company's cost reduction programs also favorably impacted
second quarter fiscal 2000 earnings.
SPECIALTY - Specialty segment net sales of $117.7 million for the
second quarter were 10.5% higher than sales for the same period a year ago. The
sales increase is primarily due to the aseptic foods business acquired in
conjunction with the Vegetables segment disposition and the acquisition of
Custom Foods Processors, a powder producer, completed during the latter half of
fiscal 1999. Operating earnings for the second quarter increased 37.2% to $21.2
million. In addition to the two acquisitions, the Dean Dip and Dressing division
also contributed to the increased earnings through improvement in operating
efficiencies and reduced advertising expenses.
CORPORATE
Corporate expenses increased $1.6 million in the second quarter of fiscal 2000
versus the same period of the prior year primarily due to higher incentive
compensation plan expenses and costs associated with the Company's
enterprise-wide information systems initiative.
INTEREST EXPENSE
Second quarter interest expense of $12.3 million was $4.4 million higher than
the same period of the prior year. The increase over the prior year was
primarily due to the increased debt related to acquisitions completed during
fiscal 2000 and the latter half of fiscal 1999.
7
8
INCOME TAXES
The effective tax rate for the second quarter of fiscal 2000 and fiscal 1999 was
39.0%.
SIX MONTHS ENDED FISCAL 2000 VERSUS SIX MONTHS ENDED FISCAL 1999
RESULTS OF CONTINUING OPERATIONS
Net sales for the six months ended fiscal 2000 were $2.1 billion versus net
sales of $1.8 billion in the prior year. Net sales increased in all business
segments, with the majority of the increase due to acquisitions. Operating
earnings increased to $113.3 million in fiscal 2000 from $92.4 million in fiscal
1999. Income from continuing operations for the six months ended fiscal 2000 was
$54.8 million, or $1.38 per diluted share, versus $46.3 million, or $1.14 per
diluted share, in fiscal 1999.
BUSINESS SEGMENTS
DAIRY - Net sales in the Dairy segment of $1.7 billion were $270.3
million, or 19.4%, higher than sales of $1.4 billion in the prior year. The
majority of the sales increase was related to acquisitions completed during the
latter half of fiscal 1999, as well as a volume increase in the ESL business.
Operating earnings increased 24.6% to $78.0 million from $62.6 million in the
prior year. The increase is primarily attributable to increased earnings in the
ice cream and ESL operations, both of which benefited from improved margins and
plant efficiencies during the first six months of fiscal 2000. The ESL volume
improvement also favorably impacted fiscal 2000 operating earnings. Overall,
fluid operations were up slightly over the prior year despite higher commodity
costs as improved plant efficiencies from last year's plant consolidations began
to be realized.
PICKLES - Pickles segment net sales of $186.8 million were $7.5
million, or 4.2%, higher than fiscal 1999 primarily due to the Steinfeld's
acquisition completed in early fiscal 2000. Fiscal 2000 operating earnings of
$20.3 million increased over earnings of $20.0 million in the prior year. The
earnings increase is primarily attributable to the Steinfeld's acquisition,
which was partially offset by plant inefficiencies experienced during the first
quarter due to weather-related crop shortages.
SPECIALTY - Fiscal 2000 net sales increased 16.7% to $217.7 million in
the Specialty segment. Operating earnings of $36.7 million increased in fiscal
2000 by 37.8%, or $10.0 million, compared to the prior year. The sales and
earnings increases are primarily due to two fiscal 1999 acquisitions.
Additionally, the Dean Dip and Dressing division continued to experience higher
earnings in comparison to the prior year, reflecting improved operating
efficiencies and lower advertising expense.
CORPORATE
Corporate expenses increased $4.9 million, or 29.1%, for the six months of
fiscal 2000 compared to the same period of the prior year, primarily due to
higher incentive compensation expense and costs associated with the Company's
enterprise-wide information systems initiative.
INTEREST EXPENSE
Interest expense for the six months of fiscal 2000 increased $6.7 million, or
39.2%, over the same period in the prior fiscal year. The increase is the result
of higher average borrowings outstanding during fiscal 2000.
INCOME TAXES
The effective income tax rate for the first six months of fiscal 2000 and fiscal
1999 was 39.0%.
DISCONTINUED OPERATIONS
Loss from discontinued operations, net of taxes, was $2.9 million for the six
months ended fiscal 1999. On September 23, 1998, the Company sold the stock of
Dean Foods Vegetable Company to Agrilink
8
9
Foods, Inc. The sale of the discontinued operations resulted in an after-tax
gain of $83.8 million, or $2.05 per diluted share.
LIQUIDITY AND CAPITAL RESOURCES
As of November 28, 1999 there have been no material changes in the Company's
liquidity or its capital resources from those described in the Management's
Discussion and Analysis contained in the Company's Annual Report on Form 10-K
for the fiscal year ended May 30, 1999. Cash and temporary cash investments were
$25.0 million at November 28, 1999.
Working capital at November 28, 1999 was $189.0 million compared to
$142.7 million at May 30, 1999, and inventories at November 28, 1999 were $217.6
million, an increase of $48.8 million over the May 30, 1999 balance. The
increase in working capital and inventories was primarily the result of the
Pickles acquisition completed during the first quarter of fiscal 2000. The
November 28, 1999 inventories were $17.0 million higher than inventories a year
ago due to the inventory of acquisitions completed during fiscal 2000 and the
latter half of fiscal 1999.
Seasonal working capital requirements are funded using the Company's
Commercial Paper Program, which was entered into during the fourth quarter of
fiscal 1999. During fiscal 1999, prior to the Commercial Paper program, seasonal
working capital requirements were funded utilizing the Company's Revolving
Credit Agreement, which matures in 2003. The Company classifies Commercial Paper
and Revolving Credit Agreement borrowings as long-term. At November 28, 1999 and
May 30, 1999 there were no short-term borrowings outstanding.
CASH FLOWS - Cash and temporary cash investments increased $9.0 million
during the first half of fiscal 2000. Net cash provided from continuing
operations was $77.9 million for the first six months of fiscal 2000 compared to
$9.5 million in the prior year. The fiscal 2000 increase in net cash provided
from continuing operations reflects higher operating earnings before
depreciation and amortization and a reduction in the cash necessary to fund
working capital requirements.
Net cash used in investing activities was $109.4 million for first six
months of fiscal 2000 versus $177.5 million in fiscal 1999. Fiscal 2000
investing activities include $37.3 million of cash paid for acquisitions and an
equity investment compared to $120.7 million paid for acquisitions during the
first six months of fiscal 1999. The Company continues to assess acquisition
candidates in each of its business segments. Capital expenditures during the
first half of fiscal 2000 are ahead of last year's spending, reflecting the
Company's continued focus on investing in innovative product growth, improved
production efficiencies and expansion of existing product lines. Fiscal 2000
investing activities also includes $4.4 million related to investment in the
Company's enterprise-wide information systems initiative.
Net cash provided by financing activities was $40.5 million for the six
months ended fiscal 2000 versus net cash used in financing activities of $164.1
million in the prior year. Fiscal 2000 financing activities include $79.7
million of additional borrowings under the Company's Commercial Paper program.
The Company purchased treasury shares totaling $23.8 million during fiscal 2000
and $32.9 million during the first six months of fiscal 1999. Fiscal 1999
financing activities included net debt repayments totaling $126.3 million, which
includes the repayment of $70.0 million of Revolving Credit Agreement
borrowings.
Discontinued operations for the six months of fiscal 1999 generated net
cash of $352.3 million, which included cash proceeds on the sale of the
Vegetables segment of $365.0 million.
9
10
FORWARD LOOKING STATEMENTS
Certain statements in this Quarterly Report are "forward looking statements" as
defined by the Private Securities Litigation Reform Law of 1995. These
statements, which may be indicated by words such as "expects", "intends",
"believes", "forecasts", or other words of similar meaning, involve certain
risks and uncertainties that may cause actual results to differ materially from
expectations as of the date of this Report. These risks include, but are not
limited to, risks associated with the Company's acquisition strategy, adverse
weather conditions resulting in poor harvests, raw milk costs, interest rate
fluctuations, competitive pricing pressures, marketing and cost-management
programs, changes in government programs and shifts in market demand. Additional
information concerning these and other risks is contained in the Company's
Annual Report on Form 10-K for the fiscal year ended May 30, 1999.
Item 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of November 28, 1999 there have been no material changes in the Company's
market risk exposure as described in the Management's Discussion and Analysis
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
May 30, 1999.
10
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There has been no material change in the legal proceedings reported
under Item 3 - Legal Proceedings, of the Company's Annual Report on
Form 10-K for the fiscal year ended May 30, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Basic and Diluted Income per Share
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedules
(b) Reports on Form 8-K
None were filed.
11
12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEAN FOODS COMPANY
------------------
(Registrant)
DATE: January 12, 2000 William R. McManaman
---------------- -------------------------------
WILLIAM R. McMANAMAN
Vice President, Finance and
Chief Financial Officer
12