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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 Exchange
Act of 1934
For the quarterly period ended February 27, 2000
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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
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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 (847) 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 35,912,412.
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
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DEAN FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In Thousands, Except for Per Share Amounts)
Third Quarter Ended Nine Months Ended
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February 27, February 28, February 27, February 28,
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net sales $ 976,816 $ 995,169 $ 3,045,186 $ 2,754,650
Costs of products sold 743,366 806,685 2,333,311 2,172,976
Delivery, selling and administrative expenses 179,016 164,667 544,186 465,505
Plant closure charge -- 7,730 -- 7,730
----------- ----------- ----------- -----------
Operating earnings 54,434 16,087 167,689 108,439
Interest expense 13,401 10,898 37,134 27,947
Interest income 241 188 629 733
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Income from continuing operations
before income taxes 41,274 5,377 131,184 81,225
Provision for income taxes 16,097 2,097 51,162 31,678
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Income from continuing operations 25,177 3,280 80,022 49,547
----------- ----------- ----------- -----------
Discontinued operations, net of taxes:
Loss from discontinued operations -- -- -- (2,929)
Gain on sale of discontinued operations -- -- -- 83,820
----------- ----------- ----------- -----------
Total discontinued operations, net of taxes -- -- -- 80,891
----------- ----------- ----------- -----------
Net income $ 25,177 $ 3,280 $ 80,022 $ 130,438
=========== =========== =========== ===========
Basic income (loss) per share:
Income from continuing operations $ .67 $ .08 $ 2.07 $ 1.23
Loss from discontinued operations -- -- -- (.07)
Gain on sale of discontinued operations -- -- -- 2.10
----------- ----------- ----------- -----------
Net income $ .67 $ .08 $ 2.07 $ 3.26
=========== =========== =========== ===========
Diluted income (loss) per share:
Income from continuing operations $ .67 $ .08 $ 2.05 $ 1.22
Loss from discontinued operations -- -- -- (.07)
Gain on sale of discontinued operations -- -- -- 2.05
----------- ----------- ----------- -----------
Net income $ .67 $ .08 $ 2.05 $ 3.20
=========== =========== =========== ===========
Weighted average common shares:
Basic 37,335 40,245 38,584 39,998
=========== =========== =========== ===========
Diluted 37,652 40,737 39,094 40,733
=========== =========== =========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements.
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DEAN FOODS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands)
February 27, May 30,
2000 1999
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(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and temporary cash investments $ 23,682 $ 15,958
Accounts and notes receivable, less allowance for
doubtful accounts of $7,345 and $7,570, respectively 298,477 303,337
Inventories 197,360 168,836
Other current assets 86,316 94,007
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Total Current Assets 605,835 582,138
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PROPERTIES:
Property, plant and equipment, at cost 1,368,053 1,242,238
Accumulated depreciation 571,904 477,292
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Total Properties, net 796,149 764,946
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OTHER ASSETS:
Intangibles, net of amortization of
$37,766 and $24,551, respectively 571,676 551,486
Other assets 23,382 13,306
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Total Other Assets 595,058 564,792
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TOTAL ASSETS $1,997,042 $1,911,876
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of long-term obligations $ 5,253 $ 2,651
Accounts payable and accrued expenses 375,291 398,174
Dividends payable 8,113 8,353
Federal and state income taxes payable 51,456 30,308
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Total Current Liabilities 440,113 439,486
LONG-TERM OBLIGATIONS 764,430 631,286
DEFERRED LIABILITIES 122,337 124,690
SHAREHOLDERS' EQUITY 670,162 716,414
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,997,042 $1,911,876
========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
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DEAN FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
Nine Months Ended
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February 27, February 28,
2000 1999
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Net cash provided from continuing operations $ 150,130 $ 20,816
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Cash flows from investing activities:
Capital expenditures (113,694) (96,141)
Proceeds from disposition of property, plant and equipment 6,173 951
Acquisitions and equity investment (37,273) (127,773)
Other (6,432) --
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Net cash used in investing activities (151,226) (222,963)
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Cash flows from financing activities
Issuance of long-term obligations -- 330,000
Repayment of long-term obligations (2,268) (436,398)
Issuance of commercial paper 137,555 --
Issuance of notes payable to banks, net -- 16,200
Unexpended industrial revenue bond proceeds -- 5,965
Cash dividends paid (25,512) (24,831)
Issuance of common stock 2,953 9,224
Repurchase of treasury stock (103,908) (48,178)
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Net cash provided by (used in) financing activities 8,820 (148,018)
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Net cash provided by discontinued operations -- 352,326
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Increase in cash and temporary cash investments 7,724 2,161
Cash and temporary cash investments - beginning of period 15,958 11,932
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Cash and temporary cash investments - end of period $ 23,682 $ 14,093
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See accompanying Notes to Condensed Consolidated Financial Statements.
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DEAN FOODS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
These unaudited condensed consolidated financial statements should be read in
conjunction with the Company's 1999 Annual Report on Form 10-K. Certain
information and footnote disclosures normally included in these financial
statements have been omitted. The results of operations for the nine-month
periods ended February 27, 2000 and February 28, 1999 are not necessarily
indicative of the operating results for the full year.
2. ACQUISITIONS
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 of 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 acquired an equity investment interest in White Wave, Inc., a processor
of soy based products; the results of which are included in the Specialty
segment earnings. 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 nine months ended
February 28, 1999, net sales of discontinued operations were $139.8 million.
Loss from discontinued operations for the nine months ended February 28, 1999
includes allocated interest expense of $2.5 million and is net of an income tax
benefit of $1.9 million.
4. INVENTORIES
Inventories by class at February 27, 2000 and May 30, 1999 are as follows:
February 27, May 30,
2000 1999
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Raw materials and supplies $ 50,801 $ 52,482
Materials in process 16,237 11,292
Finished goods 140,192 114,776
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207,230 178,550
Less: Excess of current cost over stated
value of last-in, first-out inventories 9,870 9,714
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Total inventories $197,360 $168,836
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DEAN FOODS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense for the third quarters ended February 27,
2000 and February 28, 1999 was $28.5 million and $23.7 million, respectively.
For the nine months ended February 27, 2000 and February 28, 1999, depreciation
and amortization expense was $84.1 million and $66.8 million, respectively.
6. BUSINESS SEGMENT INFORMATION
The Company's business segment information for the quarters and nine months
ended February 27, 2000 and February 28, 1999 is as follows:
Dairy Pickles Specialty Corporate Consolidated
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THIRD QUARTER ENDED
February 27, 2000
Net sales $ 785,541 $ 85,283 $ 105,992 $ - $ 976,816
Operating earnings $ 36,399 $ 5,442 $ 18,920 $ (6,327) $ 54,434
February 28, 1999
Net sales $ 803,333 $ 82,418 $ 109,418 $ - $ 995,169
Operating earnings(1) $ 6,730 $ 1,336 $ 15,957 $ (7,936) $ 16,087
NINE MONTHS ENDED
February 27, 2000
Net sales $2,449,475 $ 272,065 $ 323,646 $ - $3,045,186
Operating earnings $ 114,367 $ 25,770 $ 55,579 $ (28,027) $ 167,689
Identifiable assets $1,367,623 $ 221,295 $ 293,260 $ 114,864 $1,997,042
February 28, 1999
Net sales $2,196,940 $ 261,712 $ 295,998 $ - $2,754,650
Operating earnings(1) $ 69,296 $ 21,322 $ 42,569 $ (24,748) $ 108,439
Identifiable assets $1,225,542 $ 197,895 $ 257,359 $ 70,969 $1,751,765
(1) Pickles segment operating earnings for the fiscal 1999 third quarter and
nine-month periods include a pre-tax charge for a plant closure of $7.7
million.
7. SHARE REPURCHASE
The Company may, from time to time, repurchase shares of its common stock in the
open market or in privately negotiated transactions at a price reasonably
related to the then prevailing market price. During the first nine months of
fiscal 2000 the Company repurchased a total of 2,692,900 shares, which are
carried at cost. During the third quarter of fiscal 2000, the Company's Board of
Directors authorized a 2.0 million share increase in its common share
authorization for repurchase. As of April 11, 2000 the Company has 1,210,001
shares remaining available for repurchase under the current Board of Directors
authorization.
8. LEGAL PROCEEDINGS
See PART II, Item 1 for a discussion of pending legal proceedings.
9. SUBSEQUENT EVENT
On April 12, 2000, Dean Foods announced its intentions to close a Sacramento
dairy plant. This plant closure should take place in the fourth quarter of
fiscal 2000 and will result in a fourth quarter fiscal 2000 charge of
approximately 3 million.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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RESULTS OF OPERATIONS
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THIRD QUARTER FISCAL 2000 VERSUS THIRD QUARTER FISCAL 1999
RESULTS OF CONTINUING OPERATIONS
Net sales for the third quarter of fiscal 2000 were $976.8 million, down $18.4
million, or 1.8%, from $995.2 million in the third quarter of fiscal 1999. The
decline in net sales is primarily the result of the pass-through of lower raw
milk costs in the Dairy segment. Operating earnings for the third quarter of
fiscal 2000 were $54.4 million, an increase of $30.6 million from operating
earnings before plant closure charge of $23.8 million in the third quarter of
fiscal 1999. The operating earnings for the fiscal 1999 third quarter of $16.1
million included a $7.7 million pre-tax, $4.7 million or $.12 per diluted share
after-tax, plant closure charge. Fiscal year 2000 third quarter net income was
$25.2 million, or $.67 per diluted share, compared to $3.3 million, or $.08 per
diluted share, in the comparable period of the prior year.
BUSINESS SEGMENTS
DAIRY - Net sales for the fiscal 2000 third quarter of $785.5 million were
$17.8 million, or 2.2%, lower than sales of $803.3 million in the prior year.
Net sales decreased in the Dairy segment primarily due to the pass-through of
lower raw milk costs. Although net sales decreased, volume increased by 8.8%,
due to acquisitions. Dairy segment operating earnings in the third quarter
increased $29.7 million to $36.4 million compared to the same period of fiscal
1999. The Company's fluid, ice cream, and extended shelf life (ESL) businesses
all benefited from improved commodity prices. Additionally, the fluid business
benefited from increased plant efficiencies and plant rationalization, while the
ESL business benefited from volume growth. Commodity pricing benefits in the ice
cream business were offset by lower volume and a planned one-month shutdown at
one plant for the installation of new and more efficient equipment.
PICKLES - Net sales increased 3.5% to $85.3 million in the third quarter of
fiscal 2000 from $82.4 million in the third quarter of fiscal 1999. The increase
is solely attributable to the first quarter fiscal 2000 acquisition of the
Steinfeld's Pickle Company located in Portland, Oregon. Pickles segment net
sales, excluding the Steinfeld's acquisition, were 4.2% lower than the previous
years' quarter. Operating earnings of $5.4 million decreased $3.6 million from
earnings before plant closure charge of $9.0 million a year ago. The decline in
earnings is a result of depressed pricing and reduced margins due to aggressive
promotion by the branded market leader, as well as poor crop conditions
experienced over the past year. Fiscal 1999 third quarter operating earnings of
$1.3 million include a $7.7 million pre-tax charge related to a Michigan plant
closure.
SPECIALTY - Specialty segment net sales of $106.0 million for the third
quarter were $3.4 million below sales for the same period a year ago. The sales
decrease is primarily due to the decision to discontinue a large volume, low
margin co-packing agreement. When compared to the same period last year,
operating earnings for the third quarter increased 18.6% to $18.9 million. The
increase in earnings is primarily the result of the acquisition of Custom Food
Processors, a powder producer, and the improvement in operating efficiencies in
the Dean Dip and Dressing division.
CORPORATE
Corporate expenses of $6.3 million decreased $1.6 million in the third quarter
of fiscal 2000 versus the same period of the prior year, due to lower incentive
and stock-based compensation expenses.
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INTEREST EXPENSE
Third quarter interest expense of $13.4 million was $2.5 million higher than the
third quarter of fiscal 1999. The increase over the prior year was primarily a
result of higher debt levels due to funding acquisitions and stock repurchases
with debt.
NINE MONTHS ENDED FISCAL 2000 VERSUS NINE MONTHS ENDED FISCAL 1999
RESULTS OF CONTINUING OPERATIONS
Net sales for the first nine months of fiscal 2000 were $3,045.2 million, $290.5
million, or 10.5%, higher than sales of $2,754.7 million in the comparable
period of fiscal 1999. Net sales increased in all business segments primarily as
a result of acquisitions. Operating earnings were $167.7 million in fiscal 2000,
an increase of $51.5 from operating earnings before the plant closure charge of
$116.2 million in fiscal 1999. The operating earnings for the first nine months
of fiscal 1999 of $108.4 million included a $7.7 million pre-tax, $4.7 million
or $.12 per diluted share after-tax, plant closure charge. Net income for the
first nine months of fiscal 2000 was $80.0 million, or $2.05 per diluted share,
versus $130.4 million, or $3.20 per diluted share, in fiscal 1999. Net income in
fiscal 1999 included a $83.8 million, or $2.05 per diluted share, gain on sale
of discontinued operations and a $2.9 million, or $.07 per diluted share, loss
from discontinued operations.
BUSINESS SEGMENTS
DAIRY - Net sales in the Dairy segment of $2,449.5 million were $252.5
million, or 11.5%, higher than sales of $2,196.9 million in the prior year. The
majority of the sales increase was related to acquisitions completed during the
second half of fiscal 1999, as well as a volume increase in the ESL business.
Operating earnings increased $45.1 million to $114.4 million from $69.3 million
in the prior year. The Company's fluid, ice cream and ESL businesses have all
experienced earnings improvements during the first nine months of fiscal 2000 as
a result of better commodity prices and plant efficiencies.
PICKLES - Pickles segment net sales of $272.1 million were $10.4 million
higher than fiscal 1999 primarily due to the Steinfeld's acquisition completed
in early fiscal 2000. Pickles segment net sales, excluding the Steinfeld's
acquisition, were 5.5% lower than the comparable period. Fiscal 2000 operating
earnings of $25.8 million decreased $3.3 million before the plant closure
charge, from $29.1 million in the prior year. The earnings decrease is primarily
the result of depressed market pricing due to aggressive promotion by the
branded market leader, which was partially offset by the earnings of the
Steinfeld's acquisition. Net operating earnings in the first nine months of
fiscal 1999 of $21.3 million include a $7.7 million pre-tax charge related to a
Michigan plant closure.
SPECIALTY - Net sales in the first nine months of fiscal 2000 increased
$27.6 million, or 9.3%, to $323.6 million. Operating earnings of $55.6 million
increased $13.0 million, or 30.6%, compared to the same period of 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 expenses.
CORPORATE
Corporate expenses increased $3.3 million to $28.0 million for the nine months
of fiscal 2000 compared to the same period of the prior year, primarily due to
costs associated with the Company's enterprise-wide information systems
initiative.
INTEREST EXPENSE
Interest expense for the nine months of fiscal 2000 was $37.1 million, an
increase of $9.2 million over the same period in the prior fiscal year. The
increase is the result of higher average borrowings to fund acquisitions and
stock repurchases.
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DISCONTINUED OPERATIONS
Loss from discontinued operations, net of taxes, was $2.9 million for the nine
months ended February 28, 1999. On September 23, 1998, the Company sold the
stock of Dean Foods Vegetable Company to Agrilink 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
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As of February 27, 2000 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
$23.7 million at February 27, 2000.
Working capital at February 27, 2000 was $165.7 million compared to $142.7
million at May 30, 1999. Inventories at February 27, 2000 were $197.4 million,
an increase of $28.5 million over the May 30, 1999 balance. The increase in
inventories was primarily the result of the Dairy and Pickles acquisitions
completed during the fourth quarter of 1999 and the first quarter of fiscal
2000, respectively.
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 February 27, 2000 and
May 30, 1999 there were no short-term borrowings outstanding.
CASH FLOWS - Cash and temporary cash investments increased $7.7 million
during the first nine months of fiscal 2000. Net cash provided from continuing
operations was $150.1 million for the first nine months of fiscal 2000 compared
to $20.8 million in the comparable period of last year. The fiscal 2000 increase
in net cash provided from continuing operations reflects higher operating
earnings before depreciation and amortization.
Net cash used in investing activities was $151.2 million for first nine
months of fiscal 2000 versus $223.0 million in the first nine months of fiscal
1999. Fiscal 2000 investing activities include $37.3 million of cash paid for
acquisitions and an equity investment compared to $127.8 million paid for
acquisitions during the first nine months of fiscal 1999. The Company continues
to assess acquisition candidates in each of its business segments. Capital
expenditures during the first nine months of fiscal 2000 were $113.7 million
versus $96.1 million in the same period of the prior year. The increase in
capital spending reflects 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 include $6.4
million related to the continued investment in the Company's enterprise-wide
information systems initiative.
Net cash provided by financing activities was $8.8 million for the first
nine months of fiscal 2000 versus net cash used in financing activities of
$148.0 million in the prior year. Fiscal 2000 financing activities include
$137.6 million of additional borrowings under the Company's Commercial Paper
program offset in part by the repurchase of treasury shares totaling $103.9
million. Fiscal 1999 financing activities included net long-term debt repayments
totaling $106.4 million and the repurchase of $48.2 million of treasury shares.
Discontinued operations for the nine 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.
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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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of February 27, 2000 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.
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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
10 Severance / Separation Agreement
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
The Company filed a Current Report on Form 8-K, dated February
29, 2000, with regards to the Company's press release dated
February 18, 2000, "McManaman Resigns as Dean Foods Chief
Financial Officer."
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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
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(Registrant)
DATE: April 12, 2000 /s/ WILLIAM M. LUEGERS, JR.
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WILLIAM M. LUEGERS, JR.
Vice President & Treasurer
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