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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 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
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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)
(847) 678-1680
Registrant's telephone number, including area code
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 35,595,328.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEAN FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In Millions, Except for Per Share Amounts)
Third Quarter Ended Nine Months Ended
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February 25, February 27, February 25, February 27,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net sales $ 1,093.3 $ 976.8 $ 3,251.1 $ 3,045.2
Costs of products sold 844.5 743.3 2,492.5 2,333.3
Delivery, selling and administrative expenses 202.9 179.0 597.2 544.2
----------- --------- ----------- -----------
Operating earnings 45.9 54.5 161.4 167.7
Interest expense, net of interest income 18.6 13.2 53.3 36.5
Gain on sale of note -- -- 10.0 --
----------- --------- ----------- -----------
Income before income taxes 27.3 41.3 118.1 131.2
Provision for income taxes 10.6 16.1 45.2 51.2
----------- --------- ----------- -----------
Net income $ 16.7 $ 25.2 $ 72.9 $ 80.0
=========== ========= =========== ===========
Net income per share:
Basic $ .47 $ .67 $ 2.05 $ 2.07
========== ========= =========== ==========
Diluted $ .47 $ .67 $ 2.04 $ 2.05
========== ========= =========== ==========
Weighted average common shares:
Basic 35.6 37.3 35.5 38.6
========== ========= =========== ==========
Diluted 35.7 37.7 35.7 39.1
========== ========= =========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
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DEAN FOODS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Millions)
February 25, May 28,
2001 2000
--------------- ---------------
(Unaudited)
ASSETS
Current Assets:
Cash and temporary cash investments $ 41.0 $ 26.6
Accounts and notes receivable, less allowance for
doubtful accounts of $6.0 and $6.3, respectively 330.2 302.6
Inventories 223.7 178.4
Other current assets 75.2 92.8
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Total Current Assets 670.1 600.4
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Property, Plant and Equipment:
Property, plant and equipment, at cost 1,535.4 1,356.1
Accumulated depreciation 615.0 540.9
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Total Property, Plant and Equipment, net 920.4 815.2
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Other Assets:
Intangibles, net of amortization of
$57.1 and $42.1, respectively 677.0 563.8
Other assets 34.5 24.1
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Total Other Assets 711.5 587.9
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Total Assets $ 2,302.0 $ 2,003.5
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current installments of long-term obligations $ 5.1 $ 3.6
Accounts payable 179.6 151.4
Accrued expenses 251.8 245.0
Dividends payable 8.1 7.9
Federal and state income taxes 41.1 41.2
--------------- ---------------
Total Current Liabilities 485.7 449.1
Long-Term Obligations 972.7 758.7
Deferred Liabilities 134.7 138.0
--------------- ---------------
Total Liabilities 1,593.1 1,345.8
Shareholders' Equity 708.9 657.7
--------------- ---------------
Total Liabilities and Shareholders' Equity $ 2,302.0 $ 2,003.5
=============== ===============
See accompanying Notes to Condensed Consolidated Financial Statements.
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DEAN FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Millions)
Nine Months Ended
-----------------
February 25, February 27,
2001 2000
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Net cash provided by operating activities $ 158.4 $ 150.1
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Cash flows from investing activities:
Capital expenditures (123.7) (113.7)
Proceeds from disposition of property, plant and equipment 6.5 6.2
Acquisitions and investments, net of cash acquired (220.3) (37.3)
Other (1.3) (6.4)
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Net cash used in investing activities (338.8) (151.2)
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Cash flows from financing activities
Issuance of short-term obligations 0.5 --
Issuance of long-term obligations 250.0 --
Net debt issue costs (3.6) --
Repayments of long-term obligations (3.1) (2.3)
(Repayment) issuance of commercial paper, net (28.1) 137.6
Cash dividends paid (23.8) (25.5)
Issuance of common stock 2.9 2.9
Repurchase of treasury stock -- (103.9)
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Net cash provided by financing activities 194.8 8.8
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Increase in cash and temporary cash investments 14.4 7.7
Cash and temporary cash investments - beginning of period 26.6 16.0
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Cash and temporary cash investments - end of period $ 41.0 $ 23.7
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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 millions unless otherwise noted.
1. BASIS OF PRESENTATION
All references herein to the "Company" shall mean Dean Foods Company, a Delaware
corporation, and its consolidated subsidiaries. The accompanying unaudited
condensed consolidated financial statements present information in accordance
with generally accepted accounting principles for interim financial information
and have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. In the opinion of management, the information furnished
reflects all adjustments necessary for a fair statement of the results of the
interim periods and all such adjustments are of a normal, recurring nature.
Results of operations for the interim periods are not necessarily indicative of
results for the full year. These interim financial statements should be read in
conjunction with the financial statements and related notes contained in the
Company's Annual Report on Form 10-K for the fiscal year ended May 28, 2000.
2. ACQUISITIONS
During the first nine months of fiscal 2001, the Company acquired for cash
consideration the assets of the Nalley's pickle business located in Tacoma,
Washington, on June 27, 2000, and the assets of Land O'Lakes Upper Midwest fluid
dairy and extended shelf life operations on July 10, 2000. 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 on a straight-line basis over periods of up to
forty years. The operating results of each acquisition have been included in the
Company's results of operations since the date of acquisition. During the first
quarter of fiscal 2001, the Company made an additional equity investment in
White Wave, Inc. and an initial investment in a joint venture with Land O'Lakes.
During the first nine 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. On August 23, 1999, the Company announced
an initial investment in White Wave, Inc.
3. GAIN ON SALE OF NOTE
On December 1, 2000, the Company sold for $10.0 million, a $30.0 million
subordinated note which was received as a part of the proceeds from the sale of
the Company's vegetables segment to Agrilink Foods, Inc. in fiscal 1999. Due to
the uncertainty of the collectibility of the $30.0 million subordinated note,
the note was originally valued at a nominal amount. As a result of the sale, the
Company reversed $10.0 million of the original reserve against the note,
resulting in the recognition of a $10.0 million pre-tax gain in the second
quarter of fiscal 2001.
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DEAN FOODS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
4. INVENTORIES
The following is a tabulation of inventories by class at February 25, 2001 and
May 28, 2000.
February 25, May 28,
2001 2000
-------- --------
Raw materials and supplies $ 59.3 $ 53.7
Materials in process 15.0 9.6
Finished goods 159.1 124.4
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233.4 187.7
Less: Excess of current cost over stated
value of last-in, first-out inventories 9.7 9.3
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Total inventories $ 223.7 $ 178.4
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5. DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense for the third quarters ended February 25,
2001 and February 27, 2000 was $30.4 million and $28.5 million, respectively.
For the nine months ended February 25, 2001 and February 27, 2000, depreciation
and amortization expense was $97.3 million and $84.1 million, respectively.
6. BORROWING ARRANGEMENTS
On June 23, 2000, the Company filed a shelf registration to issue, from time to
time, up to $650 million in various debt and equity securities. During the first
quarter of fiscal 2001, the Company issued $250 million of 8.15% Notes due in
2007. The proceeds of these notes were used to fund acquisitions and to repay
commercial paper.
7. BUSINESS SEGMENT INFORMATION
During the first quarter of fiscal 2001, the Company announced the realignment
of its business segment structure and the formation of a new business segment,
focusing on refrigerated national dairy and related brands. Under the new
structure, the Company will continue to operate under three business segments.
The largest segment continues to be the Dairy Group, which will serve national
and regional dairy customers through its system of direct route sales. The
second largest segment, Specialty Foods Group, combines the pickles business
with the non-dairy creamer products, aseptic and ingredient products and the
Company's transportation group, all of which were part of the former Specialty
Segment. The third segment is the National Refrigerated Products Group, which
includes refrigerated owned and licensed national dairy brands along with the
Company's extended shelf life products.
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DEAN FOODS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following is a tabulation of the Company's business segment information for
the third quarters and nine months ended February 25, 2001 and February 27,
2000.
National
Specialty Refrigerated
Dairy Foods Products Corporate Consolidated
----- --------- ------------ --------- ------------
THIRD QUARTER ENDED
February 25, 2001
Net sales $ 806.6 $ 185.4 $ 101.3 $ -- $ 1,093.3
Operating earnings 32.9 18.2 2.7 (7.9) 45.9
Identifiable assets 1,483.1 445.0 243.1 130.8 2,302.0
February 27, 2000
Net sales $ 739.7 $ 166.4 $ 70.7 $ -- $ 976.8
Operating earnings 32.4 18.6 9.6 (6.1) 54.5
Identifiable assets 1,308.3 426.4 142.5 119.8 1,997.0
NINE MONTHS ENDED
February 25, 2001
Net sales $ 2,407.3 $ 555.9 $ 287.9 $ -- $ 3,251.1
Operating earnings 118.4 61.6 7.1 (25.7) 161.4
February 27, 2000
Net sales $ 2,312.1 $ 521.5 $ 211.6 $ -- $ 3,045.2
Operating earnings 103.4 63.8 27.9 (27.4) 167.7
8. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued in June 1998 and
amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities," in June 2000. These Statements standardize the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring that an entity recognize those items
as assets or liabilities in the statement of financial position and measure them
at fair value. SFAS No. 133 was to be effective for fiscal years beginning after
June 15, 1999. In July 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective date
of SFAS No. 133," which delayed the effective date by one year. The adoption of
SFAS No. 133, in fiscal 2002, is not expected to have a material impact on the
Company's results of operations or financial condition.
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DEAN FOODS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which was amended by SAB No. 101A in March 2000 and further amended
by SAB No. 101B in June 2000. SAB No. 101B delayed the implementation date of
SAB 101. The SAB, which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements, is required to be adopted by the
Company in the fourth quarter of fiscal 2001. The adoption of this Statement is
not expected to have a material impact on the Company's results of operations or
financial condition.
In September 2000, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board reached a final consensus on Issue No. 00-10
"Accounting for Shipping and Handling Costs." This issue addresses the
recognition, measurement and income statement classification of shipping and
handling fees and costs. The Company currently classifies certain shipping and
handling costs as a reduction of sales. Upon adoption, in the fourth quarter of
fiscal 2001, shipping and handling costs classified as a reduction in sales will
be reclassified to delivery, selling and administrative expense. Prior period
amounts will be reclassified to conform to the new requirements. This change
will not affect the Company's financial position or results of operations.
In May 2000, the EITF reached 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.
Upon adoption, in the first quarter of fiscal 2002, certain sales incentives,
which are currently classified in delivery and selling expense, will be
reclassified as a reduction of sales. Prior period amounts will be reclassified
to conform to the new requirements. This change will not affect the Company's
financial position or results of operations.
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DEAN FOODS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. EARNINGS PER COMMON SHARE
Basic and diluted earnings per share are calculated in accordance with SFAS No.
128, "Earnings Per Share." Basic EPS is computed by dividing reported net income
by the weighted average shares outstanding. Diluted EPS includes the incremental
shares issuable upon the assumed exercise of stock options and warrants, using
the treasury stock method. The following is a reconciliation of the numerators
and denominators of the basic and diluted per share computations.
Third Quarter Ended Nine Months Ended
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February 25, February 27, February 25, February 27,
2001 2000 2001 2000
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NET INCOME (NUMERATOR) $ 16.7 $ 25.2 $ 72.9 $ 80.0
============ ============ ============ ============
SHARES (DENOMINATOR)
Weighted average common shares
outstanding during the period 35.6 37.3 35.5 38.6
Incremental common shares attributable
to dilutive stock options 0.1 0.4 0.2 0.5
------------ ------------ ------------ ------------
Diluted number of shares outstanding
during the period 35.7 37.7 35.7 39.1
============ ============ ============ ============
NET INCOME PER SHARE
Basic $ .47 $ .67 $ 2.05 $ 2.07
============ ============ ============ ============
Diluted $ .47 $ .67 $ 2.04 $ 2.05
============ ============ ============ ============
10. SUBSEQUENT EVENT
On April 5, 2001, the Company announced it had signed a definitive agreement
under which it and Suiza Foods Corporation ("Suiza") will merge to form a
national dairy and specialty foods company. Under the terms of the agreement,
shareholders of Dean Foods Company will receive $21.00 in cash and 0.429 shares
of Suiza common stock for each share of the Company's common stock. The total
consideration would be $40.92 per common share, based upon the closing prices of
both companies common stock on April 4, 2001. Suiza will also assume $1.0
billion of the Company's debt. The transaction received the unanimous approval
of both companies' Board of Directors and is expected to close by the third
quarter of calendar year 2001. Completion of the transaction is contingent upon
approval by a majority of shareholders in both companies, certain regulatory
approvals and other customary closing conditions.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-Q 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 Form 10-Q. These risks include, but are not limited to, the ability to
integrate acquisitions, adverse weather conditions resulting in poor harvest
conditions, raw milk, resin, and fuel costs, interest rate fluctuations, the
level of promotional spending, competitive pricing pressures, the effectiveness
of marketing and cost-management programs and shifts in market demand.
RESULTS OF OPERATIONS
THIRD QUARTER ENDED FEBRUARY 25, 2001 VERSUS THIRD QUARTER ENDED FEBRUARY 27,
2000
Net sales for the third quarter of fiscal 2001 were $1,093.3 million, an
increase of $116.5 million, or 11.9%, from $976.8 million in the third quarter
of fiscal 2000. The increase in net sales was primarily the result of
acquisitions made in the Dairy and Specialty Foods Groups, along with strong
sales of intermediate and extended shelf life products in the National
Refrigerated Products Group. Operating earnings for the third quarter of fiscal
2001 were $45.9 million, a decrease of $8.6 million from operating earnings of
$54.5 million in the third quarter of fiscal 2000. Fiscal year 2001 third
quarter net income was $16.7 million, or $.47 per diluted share, compared to
$25.2 million, or $.67 per diluted share, in the comparable period of the prior
year.
Business Segments
Dairy - The Dairy Group's net sales for the third quarter of fiscal
2001 were $806.6 million, an increase of $66.9 million, or 9.0%, from $739.7
million in the third quarter of fiscal 2000. The increase in net sales was
primarily the result of the Land O' Lakes acquisition, which was completed in
July of 2000. Dairy Group volumes including Land O'Lakes increased 3.8% when
compared to the prior period. Excluding Land O' Lakes, volumes decreased
approximately 3% due to lower fluid milk volumes in certain markets. Dairy Group
operating earnings improved to $32.9 million from $32.4 million in the prior
year, primarily due to acquisitions, offset by lower fluid volumes in certain
markets and increased energy and fuel costs.
Specialty Foods - The Specialty Foods Group's net sales for the third
quarter of fiscal 2001 were $185.4 million, an increase of $19.0 million, or
11.4%, from $166.4 million in the third quarter of fiscal 2000. The increase in
net sales was primarily the result of the acquisition of the Nally's pickle
business in July of 2000, and increased sales of neutraceutical beverages.
Operating earnings of $18.2 million decreased $0.4 million from $18.6 million a
year ago as increased earnings in pickles products were more than offset by
lower earnings in both powdered products and aseptic products. The increased
earnings for pickles products were primarily due to improved crop costs, the
Nalley's acquisition, and a better overall pricing environment than in the prior
year. Powdered products earnings were negatively impacted by higher natural gas
prices and the strong U.S. dollar, which resulted in lower export sales. Aseptic
products earnings were also impacted by higher energy and fuel costs as well as
lower volumes.
National Refrigerated Products - The National Refrigerated Products
Group's net sales for the third quarter of fiscal 2001 were $101.3 million, an
increase of $30.6 million, or 43.3%, from $70.7 million in the third quarter of
fiscal 2000. The increase in net sales was primarily due to sales of Land
O'Lakes extended shelf life products, increases for existing intermediate and
extended shelf life products and continued sales growth for
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Dips-for-One and Marie's pourable salad dressings. Third quarter operating
earnings decreased to $2.7 million from $9.6 million in the prior year. The
decrease in operating earnings was primarily due to increased promotional
spending associated with the new product introductions and costs associated with
the ramp-up of complex, state-of-the-art technology used to produce intermediate
and extended shelf life products.
Corporate
Corporate expenses for the third quarter of fiscal 2001 were $7.9 million, an
increase of $1.8 million from the third quarter of fiscal 2000. In the third
quarter of Fiscal 2000, executive compensation expense was reduced to reflect
expected payout levels. In fiscal 2001, these expenses were reduced in both the
second and third quarters.
Interest Expense, net of interest income
Interest expense, net of interest income, for the third quarter of fiscal 2001
was $18.6 million, an increase of $5.4 million from the third quarter of fiscal
2000. The increase was primarily due to increased borrowings used to fund fiscal
2001 acquisitions and fiscal 2000 stock repurchases.
NINE MONTHS ENDED FEBRUARY 25, 2000 VERSUS NINE MONTHS ENDED FEBRUARY 27, 2000
Net sales for the first nine months of fiscal 2001 were $3,251.1 million versus
net sales of $3,045.2 million in fiscal 2000. Net sales increased in all
business segments, with the majority of the increase due to acquisitions.
Operating earnings decreased to $161.4 million in fiscal 2001 from $167.7
million in fiscal 2000. Net income for the first nine months of fiscal 2001
decreased to $72.9 million, or $2.04 per diluted share, versus $80.0 million, or
$2.05 per diluted share, in fiscal 2000. The decrease in net income was due to
lower operating earnings and higher interest expense, which were partially
offset by a gain on the sale of a note.
Business Segments
Dairy - Net sales in the Dairy Group of $2,407.3 million were $95.2
million, or 4.1%, higher than sales of $2,312.1 million in the prior year. The
increase in sales is primarily the result of the Land O'Lakes acquisition made
in the beginning of fiscal 2001. Dairy Group volumes including Land O'Lakes were
2.8% higher than the prior year. Excluding Land O' Lakes, volumes decreased
approximately 3% due to lower fluid milk volumes in certain markets. Operating
earnings increased $15.0 million to $118.4 million from $103.4 million in the
prior year, primarily due to acquisitions, however earnings were negatively
impacted by lower fluid volumes in certain markets and increased energy and fuel
costs.
Specialty Foods - Net sales in the Specialty Foods Group of $555.9
million were $34.4 million, or 6.6%, higher than fiscal 2000. The sales increase
was primarily due to the acquisitions of the Nally's pickle business made near
the beginning of fiscal 2001. Fiscal 2001 operating earnings of $61.6 million
decreased $2.2 million, from $63.8 million in the prior year. The decrease in
operating earnings is due to higher packaging, distribution and energy costs, as
well as increased promotional and other spending associated with the
consolidation of a number of regional pickle brands to fewer, stronger brands.
National Refrigerated Products - Net sales in the National Refrigerated
Products Group increased $76.3 million, or 36.1%, to $287.9 million, primarily
as a result of growth in intermediate and extended shelf life products and new
product introductions. Operating earnings of $7.1 million decreased $20.8
million compared to the same period of the prior year. The earnings decline is
attributable to approximately $16 million of increased marketing and promotional
expenses for new product launches along with increased manufacturing
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costs associated with the significant ramp-up of complex, state-of-the-art
technology to produce intermediate and extended shelf life products.
Corporate
Corporate expenses decreased $1.7 million, to $25.7 million for the first nine
months of fiscal 2001 compared to the same period of the prior year, primarily
due to lower incentive compensation expenses and other cost reductions achieved
through activities associated with cost reduction plans.
Interest Expense, net of interest income
Interest expense, net of interest income, for the first nine months of fiscal
2001 was $53.3 million, an increase of $16.8 million over the same period in the
prior fiscal year. The increase is the result of higher average borrowings
outstanding during fiscal 2001 due to fiscal 2001 acquisitions and fiscal 2000
stock repurchases.
Gain on Sale of Note
On December 1, 2000, the Company sold for $10.0 million, a $30.0 million
subordinated note which was received as a part of the proceeds from the sale of
the Company's vegetables segment to Agrilink Foods, Inc. in fiscal 1999. Due to
the uncertainty of the collectibility of the $30.0 million subordinated note,
the note was originally valued at a nominal amount. As a result of the sale, the
Company reversed $10.0 million of the original reserve against the note,
resulting in the recognition of a $10.0 million pre-tax gain ($6.2 million
after-tax or $0.18 per share) in the second quarter of fiscal 2001.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at February 25, 2001 was $184.4 million compared to $151.3
million at May 28, 2000. Inventories at February 25, 2001 were $223.7 million,
an increase of $45.3 million over the May 28, 2000 balance. The increase in
working capital and inventories was primarily the result of the Land O'Lakes and
Nalley's acquisitions, completed in the first quarter of this year.
Seasonal working capital requirements are funded using the Company's commercial
paper program, which was entered into during fiscal 1999, and bilateral lines of
credit. As the Company has the ability and intent to refinance such borrowing on
a long-term basis, the outstanding commercial paper balance has been classified
as long-term. At February 25, 2001 and May 28, 2000, there were no short-term
borrowings outstanding.
During the first quarter, the Company issued $250 million of 8.15% Notes due in
2007. The proceeds of these notes were used to fund the fiscal 2001 acquisitions
in the Dairy and Specialty Foods Groups as well as to repay commercial paper.
The Company's debt to capitalization ratio was approximately 58% at February 25,
2001, versus approximately 54% at May 28, 2000.
Cash Flows - Cash and temporary cash investments increased $14.4 million during
the first nine months of fiscal 2001. Net cash provided from operations was
$158.4 million for the first nine months of fiscal 2001, compared to $150.1
million in the comparable period of last year.
Net cash used in investing activities was $338.8 million for first nine months
of fiscal 2001 versus $151.2 million in the first nine months of fiscal 2000.
Year-to-date 2001 investing activities included $220.3 million of cash paid for
acquisitions and investments, compared to $37.3 million paid for acquisitions
during the first nine months of fiscal 2000. Fiscal 2001 acquisitions and
investments included the Nalley's and Land O'Lakes acquisitions and the
investments made in White Wave, Inc. and the joint venture with Land O'Lakes.
Fiscal 2000 acquisitions included Steinfeld's Pickle Products and Dairy Express,
Inc. Capital expenditures during the first nine months of fiscal 2001 were
$123.7 million
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compared to $113.7 million in the same period of the prior year, primarily
reflecting expanded investments in extended shelf life and intermediate shelf
life production capabilities. Capital expenditures are funded through operating
cash flow and the Company's commercial paper program.
Net cash provided by financing activities was $194.8 million for the first nine
months of fiscal 2001 versus $8.8 million in the prior year. Fiscal 2001
financing activities include $250.0 million from the issuance of long-term
obligations and a $28.1 million decrease in borrowings under the Company's
commercial paper program. 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.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued in June 1998 and
amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities," in June 2000. These Statements standardize the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring that an entity recognize those items
as assets or liabilities in the statement of financial position and measure them
at fair value. SFAS No. 133 was to be effective for fiscal years beginning after
June 15, 1999. In July 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective date
of SFAS No. 133," which delayed the effective date by one year. The adoption of
SFAS No. 133, in fiscal 2002, is not expected to have a material impact on the
Company's results of operations or financial condition.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which was amended by SAB No. 101A in March 2000 and further amended
by SAB No. 101B in June 2000. SAB No. 101B delayed the implementation date of
SAB 101. The SAB, which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements, is required to be adopted by the
Company in the fourth quarter of fiscal 2001. The adoption of this Statement is
not expected to have a material impact on the Company's results of operations or
financial condition.
In September 2000, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board reached a final consensus on Issue No. 00-10
"Accounting for Shipping and Handling Costs." This issue addresses the
recognition, measurement and income statement classification of shipping and
handling fees and costs. The Company currently classifies certain shipping and
handling costs as a reduction of sales. Upon adoption, in the fourth quarter of
fiscal 2001, shipping and handling costs classified as a reduction in sales will
be reclassified to delivery, selling and administrative expense. Prior period
amounts will be reclassified to conform to the new requirements. This change
will not affect the Company's financial position or results of operations.
In May 2000, the EITF reached 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.
Upon adoption, in the first quarter of fiscal 2002, certain sales incentives,
which are currently classified in delivery and selling expense, will be
reclassified as a reduction of sales. Prior period amounts will be reclassified
to conform to the new requirements. This change will not affect the Company's
financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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As of February 25, 2001, there were 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 28,
2000.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the three months ended February 25, 2001, there was 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 28, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
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2.1 Agreement and Plan of Merger dated as of April 4, 2001, by and among Suiza Foods
Corp., Blackhawk Acquisition Corp. and Dean Foods Company
4.1 Amendment No. 1, dated as of January 1, 2001, to Rights Agreement, dated May 22, 1998
10.1 Form of Change in Control Agreement between Dean Foods Company and Executives*
10.2 Dean Foods Company Supplemental Benefit Plan, as amended and restated effective as of
October 1, 1996*
10.3 Dean Foods Company Director Stock Award Plan, dated October 1, 1996 and the First
Amendment there to be effective as of May 26, 2000*
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
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* Represents a management contract, compensation plan or
arrangement.
(b) Reports on Form 8-K
The Company filed an Amended Current Report dated January 12,
2001, with regards to the Company's press release dated December
20, 2000, "Dean Foods Reports Second Quarter Results."
The Company filed a Current Report dated March 9, 2001, with
regards to the Company's press release dated March 9, 2001, "Dean
Foods Lowers Earnings Expectations."
The Company filed a Current Report dated March 23, 2001, with
regards to the Company's press release dated March 21, 2001,
"Dean Foods Reports Third Quarter Earnings".
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEAN FOODS COMPANY
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(Registrant)
DATE: April 9, 2001 /S/ Barbara A. Klein
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BARBARA A. KLEIN
Vice President, Finance and
Chief Financial Officer
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