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EXHIBIT 13
DEAN FOODS COMPANY 1996 Annual Report
focus
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DEAN FOODS COMPANY
DEAN FOODS COMPANY HAS STEADILY GROWN TO BECOME ONE OF THE NATION'S LARGEST
DIVERSIFIED PROCESSORS OF DAIRY PRODUCTS AND SPECIALTY FOODS. FOR MORE THAN 70
YEARS, WE HAVE WORKED TO BUILD OUR COMPANY THROUGH INTERNAL GROWTH - BY
INTRODUCING NEW PRODUCTS AND EXPANDING OUR MARKETS - AS WELL AS THROUGH
STRATEGICALLY PLANNED AND CAREFULLY SELECTED ACQUISITIONS OF SUCCESSFUL
FOOD COMPANIES THAT ADD TO THE BREADTH AND DEPTH OF OUR OPERATIONS.
FOUNDED IN THE HEART OF THE MIDWEST IN 1925, DEAN FOODS IS NOW A LEADING
NATIONAL FOOD COMPANY, AND THE LARGEST FLUID MILK, FROZEN VEGETABLE AND
PICKLE PROCESSOR IN THE U.S. OUR FAMILY OF PRODUCTS ALSO INCLUDES ICE CREAM AND
FROZEN DESSERTS, EXTENDED SHELF LIFE AND OTHER SPECIALTY DAIRY ITEMS, CANNED
VEGETABLES, PEPPERS, RELISHES AND SPECIALTY ITEMS, NON-DAIRY COFFEE CREAMERS
AND ASSORTED POWDERED PRODUCTS, SNACK DIPS, DRESSINGS, ASEPTICALLY PACKAGED
SAUCES AND DIPS, AND MORE. FROM 59 PROCESSING PLANTS, WE SELL OUR PRODUCTS
UNDER OUR OWN BRAND NAMES AND MANY PRIVATE LABELS TO RETAIL, FOODSERVICE AND
FOOD MANUFACTURING CUSTOMERS THROUGHOUT THE U.S. AND ABROAD.
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[LOGOS]
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FINANCIAL HIGHLIGHTS DEAN FOODS COMPANY AND SUBSIDIARIES
1996 1995 1994
In thousands, except for items marked with an*
Operations
Net Sales $ 2,814,268 $ 2,630,182 $ 2,431,203
Operating Earnings (Loss) $ (42,430)(a) $ 157,103 $ 133,056
Income (Loss) Before Taxes $ (69,395)(a) $ 136,388 $ 118,313
Net Income (Loss) $ (49,688)(a) $ 80,059 $ 71,941(c)
Net Income (Loss) Per Common Share* $ (1.24)(a) $ 2.01 $ 1.81(c)
Dividends Per Common Share* $ .72 $ .68 $ .64
Year-End Position
Working Capital $ 185,942 $ 215,012 $ 92,915
Total Assets $ 1,222,240 $ 1,202,426 $ 1,109,154
Long-Term Obligations $ 221,653 $ 224,679 $ 136,150
Shareholders' Equity $ 507,692 $ 584,526 $ 524,774
Shares Outstanding 40,133 40,078 39,789
Other Data
Production Plants* 59(b) 59 59
Employees* 11,500(b) 11,800 12,100
Shareholders* 9,481 9,989 8,936
a) 1996 includes a pre-tax charge of $150,000 ($97,720 after-tax or $2.44 per
share) related to the adoption of a plan to reduce costs, rationalize
production capacity and provide for severance and environmental costs.
b) 1996 includes certain plants that will be closed or disposed and certain
employees that will be affected by the adoption of a plan to reduce costs,
rationalize production capacity and provide for severance and environmental
costs.
c) 1994 includes an after-tax gain of $1,179 ($.03 per share) related to
changes in accounting principles.
TABLE OF CONTENTS
MANUFACTURING MAP SIX LETTER TO SHAREHOLDERS EIGHT KEY STRATEGIES TEN
OPERATIONS REVIEW TWELVE FINANCIAL REVIEW TWENTY FINANCIAL STATEMENTS TWENTY
SIX NOTES TO FINANCIAL STATEMENTS THIRTY ONE SUMMARY OF OPERATIONS THIRTY NINE
DIRECTORS AND OFFICERS FORTY CORPORATE DATA INSIDE BACK COVER
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[DEAN FOODS LOGO]
DEAN FOODS COMPANY
Harvard, IL - 192 Employees
Fluid Milk, Cultured Products, Juices/Drinks
Brands: Dean's, Guilt Free, Private Labels
[BIRDSEYE LOGO]
[FRESHLIKE LOGO]
DEAN FOODS VEGETABLE COMPANY
Waseca, MN - 165 Employees
Frozen Vegetables
Brands: Birds Eye, Freshlike, Private Labels
[DEAN FOODS LOGO]
DEAN FOODS COMPANY
Huntley, IL - 137 Employees
Fluid Milk, Juices/Drinks
Brands: Dean's, Private Labels
[BIRDSEYE LOGO]
DEAN FOODS VEGETABLE COMPANY
Bellingham, WA - 81 Employees
Frozen Vegetables
Brands: Birds Eye, Private Labels
DFC TRANSPORTATION COMPANY
Huntley, IL - 127 Employees
Transportation
[DEAN FOODS LOGO]
[BIRDSEYE LOGO]
DEAN FOODS COMPANY
Rockford, IL - 102 Employees
Non-Dairy Powder Creamers,
Cultured Products, Dips
Brands: Dean's, Birds Eye, Guilt Free,
Private Labels
[DEAN FOODS LOGO]
DEAN FOODS COMPANY
Franklin Park, IL -148 Employees
Corporate
[DEAN FOODS LOGO]
DEAN FOODS COMPANY
Pecatonica, IL - 109 Employees
Non-Dairy Powder Creamers
Brands: Private Labels
[DEAN FOODS LOGO]
DEAN FOODS COMPANY
Belvidere, IL - 138 Employees
Frozen Desserts, Frozen Novelties
Brands: Dean's, Guilt Free, Private Labels
[DEAN FOODS LOGO]
DEAN FOODS AMBOY
PACKAGING DIVISION
Dixon, IL - 119 Employees
Aseptically Packaged, Cheese Sauce,
Puddings, Specialty Sauces
Brands: Dean's, Private Labels
[CREAM O'WEBER LOGO]
CREAM O'WEBER DAIRY, INC.
Salt Lake City, UT - 178 Employees
Fluid Milk, Juices/Drinks
Brands: Cream o'Weber, Private Labels
[BIRDSEYE LOGO]
[FRESHLIKE LOGO]
DEAN FOODS VEGETABLE COMPANY
Watsonville, CA - 356 Employees
Frozen Vegetables
Brands: Birds Eye, Freshlike, Private Labels
[BIRDSEYE LOGO]
[FRESHLIKE LOGO]
DEAN FOODS VEGETABLE COMPANY
Oxnard, CA - 26 Employees
Frozen Vegetables
Brands: Birds Eye, Freshlike, Private Labels
ROD'S FOOD PRODUCTS
City of Industry, CA - 147 Employees
Salad Dressings, Dips, Aerosol,
Non-Dairy Creamers, Sour Cream
Brands: Rod's, Rod's Imo, Pen & Quill
[DEAN FOODS LOGO]
[CREAMLAND LOGO]
[PRICE'S LOGO]
[GANDY'S LOGO]
[CREAM O'WEBER LOGO]
CREAMLAND DAIRIES, INC.
Albuquerque, NM - 228 Employees
Fluid Milk, Cultured Products, Frozen
Desserts
Brands: Creamland, Price's, Gandy's,
Cream o'Weber, Private Labels
[BIRDSEYE LOGO]
DEAN FOODS VEGETABLE COMPANY
Uvalde, TX - 53 Employees
Frozen Vegetables
Brands: Birds Eye, Private Labels
[ATKINS LOGO]
[AUNT JANE'S LOGO]
[PETER PIPERS LOGO]
[CATES LOGO]
DEAN PICKLE & SPECIALTY
PRODUCTS COMPANY
La Junta, C - 165 Employees
Pickles, Peppers, Relish
Brands: Private Labels, Company Brands
[PRICE'S LOGO]
PRICE'S CREAMERIES
El Paso, TX - 79 Employees
Fluid Milk, Juices/Drinks
Brands: Price's, Private Labels
[BELL LOGO]
[GANDY'S LOGO]
BELL DAIRY PRODUCTS, INC.
Lubbock, TX - 192 Employees
Fluid Milk, Juices/Drinks
Brands: Bell, Gandy's, Private Labels
[BIRDSEYE LOGO]
[FRESHLIKE LOGO]
DEAN FOODS VEGETABLE COMPANY
McAllen, TX - 228 Employees
Frozen Vegetables
Brands: Birds Eye, Freshlike, Private Labels
[DEAN FOODS LOGO]
DEAN FOODS COMPANY
Rochester, IN - 113 Employees
Fluid Milk, Cultured Products, Juices/Drinks
Brands: Dean's, Guilt Free, Private Labels
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[DEAN FOODS LOGO]
LIBERTY DAIRY COMPANY
Evart, MI - 190 Employees
Fluid Milk, Juices/Drinks
Brands: Dean's, Private Labels
[ATKINS PICKLES LOGO] [AUNT JANE'S LOGO] [PETER PIPER LOGO] [CATES LOGO]
[HOFFMAN HOUSE LOGO]
DEAN PICKLE & SPECIALTY
PRODUCTS COMPANY
Green Bay, WI - 256 Employees
Pickles, Peppers, Relish, Cranberry Sauce,
Sauces
Brands: Bennett's, Hoffman House, Indian
Trail, Peter Piper, Arnold, Atkins, Aunt
Jane's, Cates, Heifetz, Ma Brown,
Pilgrim Farms, Paramount, Rainbow,
Private Labels
[VERIFINE LOGO] [DEAN FOODS LOGO]
VERIFINE DAIRY PRODUCTS
CORPORATION
Sheboygan, WI - 65 Employees
Fluid Milk, Juices/Drinks
Brands: Verifine, Dean's, Private Labels
[ATKINS PICKLES LOGO] [AUNT JANE'S LOGO] [PETER PIPER LOGO] [CATES LOGO]
DEAN PICKLE & SPECIALTY
PRODUCTS COMPANY
Croswell, MI - 182 Employees
Pickles, Peppers, Relish
Brands: Private Labels, Company Brands
[DEAN FOODS LOGO]
DEAN FOODS COMPANY
Wayland, MI - 52 Employees
Non-Dairy Powder Creamers,
Instant Breakfast Drinks
Brands: Private Labels
[BIRDSEYE LOGO]
DEAN FOODS VEGETABLE COMPANY
Fulton, NY - 307 Employees
Frozen Vegetables
Brands: Birds Eye, Private Labels
[BIRDSEYE LOGO] [FRESHLIKE LOGO]
DEAN FOODS VEGETABLE COMPANY
Hartford, MI - 58 Employees
Frozen Vegetables
Brands: Birds Eye, Freshlike, Private Labels
[BIRDSEYE LOGO] [FRESHLIKE LOGO] [VEG-ALL LOGO]
DEAN FOODS VEGETABLE COMPANY
Green Bay, WI - 1,027 Employees
Frozen and Canned Vegetables
Brands: Birds Eye, Freshlike, Veg-All,
Private Labels
[DEAN FOODS LOGO] [MEADOW BROOK LOGO]
MEADOW BROOK DAIRY COMPANY
Erie, PA - 140 Employees
Fluid Milk, Juices/Drinks
Brands: Meadow Brook, Private Labels
[DEAN FOODS LOGO]
DEAN DAIRY PRODUCTS COMPANY
Sharpsville, PA - 212 Employees
Fluid Milk, Juices/Drinks
Brands: Dean's, Guilt Free, Private Labels
[DEAN FOODS LOGO] [MEADOW BROOK LOGO] [REITER LOGO]
FAIRMONT PRODUCTS
Belleville, PA - 81 Employees
Cultured Products, Ice Cream Mixes
Brands: Fairmont, Meadow Brook, Reiter
Dean's, Private Labels
[DEAN FOODS LOGO]
READY FOOD PRODUCTS, INC.
Philadelphia, PA - 81 Employees
Extended Shelf Life Fluid Products
Brands: Dean's, Dairy Pure, Dean Ultra,
Private Labels
[REITER LOGO]
REITER DAIRY, INC.
Akron, OH - 533 Employees
Fluid Milk, Juices/Drinks, Frozen Desserts
Brands: Reiter, Private Labels
[DEAN FOODS LOGO] [REITER LOGO]
REITER DAIRY, INC.
Springfield, OH - 107 Employees
Fluid Milk, Juices/Drinks, Water
Brands: Reiter, Private Labels
[ATKINS PICKLES LOGO] [AUNT JANE'S LOGO] [PETER PIPER LOGO] [CATES LOGO]
DEAN PICKLE & SPECIALTY
PRODUCTS COMPANY
Plymouth, IN - 167 Employees
Pickles, Peppers, Relish
Brands: Private Labels, Company Brands
[DEAN FOODS LOGO]
DEAN MILK COMPANY, INC.
Louisville, KY - 133 Employees
Fluid Milk, Cultured Products,
Juices/Drinks
Brands: Dean's, Bowman, Guilt Free,
Private Labels
[MAYFIELD LOGO]
MAYFIELD DAIRY, INC.
Athens, TN - 1,233 Employees
Fluid Milk, Cultured Products, Frozen
Desserts, Frozen Novelties
Brands: Mayfield, Guilt Free
[ATKINS PICKLES LOGO] [AUNT JANE'S LOGO] [PETER PIPER LOGO] [CATES LOGO]
DEAN PICKLE & SPECIALTY
PRODUCTS COMPANY
Faison, NC - 260 Employees
Pickles, Peppers, Relish
Brands: Private Labels, Company Brands
[DEAN FOODS LOGO]
RYAN MILK COMPANY, INC.
Murray, KY - 175 Employees
Extended Shelf Life Fluid and Cultured
Products, Aerosol
Brands: Dean's, Dean Ultra, Dairy Pure,
Private Labels
[LONG LIFE LOGO]
LONG LIFE DAIRY PRODUCTS
Jacksonville, FL - 99 Employees
Extended Shelf Life Products
Brands: Long Life, Private Labels
[MCARTHUR DAIRY LOGO]
MCARTHUR DAIRY, INC.
Miami, FL - 462 Employees
Fluid Milk, Juices/Drinks
Brands: McArthur, Private Labels
[ATKINS PICKLES LOGO] [AUNT JANE'S LOGO] [PETER PIPER LOGO] [CATES LOGO]
DEAN PICKLE & SPECIALTY
PRODUCTS COMPANY
Sanford, FL - 13 Employees
Pickles (Refrigerated Only)
Brands: Private Labels
[T.G. LEE LOGO]
T.G. LEE FOODS, INC.
Orange City, FL - 58 Employees
Fluid Milk, Juices/Drinks
Brands: T.G. Lee, Private Labels
[ATKINS PICKLES LOGO] [AUNT JANE'S LOGO] [PETER PIPER LOGO] [CATES LOGO]
DEAN PICKLE & SPECIALTY
PRODUCTS COMPANY
Atkins, AR - 176 Employees
Pickles, Peppers, Okra, Relish
Brands: Private Labels, Company Brands
[T.G. LEE LOGO]
T.G. LEE FOODS, INC.
Orlando, FL - 306 Employees
Fluid Milk, Juices/Drinks
Brands: T.G. Lee, Guilt Free, Private Labels
[RODDENBERY'S LOGO]
DEAN PICKLE & SPECIALTY
PRODUCTS COMPANY
Cairo, GA - 224 Employees
Pickles, Syrup, Boiled Peanuts
Brands: Cane Patch, Northwoods,
Peanut Patch, Roddenbery's, Private Labels
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LETTER TO SHAREHOLDERS
Fiscal 1996 was a transitional year for Dean Foods Company. We updated
our strategy and thoroughly evaluated all our strategic business units. We
announced a special charge of $150 million and a refocusing of the Company on
its core business strengths, the strengths that in the past made Dean Foods one
of the fastest growing companies in the food industry.
The fiscal 1996 environment was a very difficult one and one that
adversely affected operating results. Reported earnings, before the special
charge, were $1.20 per share in fiscal 1996, down from $2.01 per share in the
prior year. After the pre-tax special charge of $150 million related to the
strategic business review and the decision to close or dispose of 13 plants,
the Company reported a net loss of $1.24 per share. Net sales were $2.8
billion, an increase of 7% from fiscal 1995. During the year, several of the
industries in which we participate were confronted with significant challenges,
including low crop yields, fierce price competition, cost and availability of
raw materials, excess capacity, high inventory levels, and a more demanding
marketplace. Simply put, our results were disappointing.
We must lead the change in our industries and are responding to the
challenge aggressively with a renewed strategic direction. We believe the
actions taken in that direction, although difficult, are necessary to create a
focused organization, well-positioned to create and deliver superior
shareholder value.
STRATEGIC DIRECTION
In fiscal 1996, we conducted a strategic business review of all of our
operations, focusing on their markets, competitors and capabilities, and
identified a strategic plan designed to enhance long-term shareholder
value. We organized our businesses into four groups - Dairy, Vegetables,
Pickles and Specialty Foods - and assembled a strong management team to lead
the Company into the future. As actions associated with these strategies are
completed over the next twenty-four months, we expect improvement in our
pre-tax operating results of $40 to $50 million annually. The results of this
strategic review have confirmed that our core businesses offer opportunities to
create and deliver sustainable long-term shareholder value. In short, we will
focus on doing what we have done well in the past, even better in the future.
CREATING AND DELIVERING VALUE
Five principal strategies to create and deliver long-term sustainable value are
in various stages of execution throughout Dean Foods Company. These strategies
are:
FOCUS ON CORE BUSINESSES
We intend to aggressively grow our fluid milk and other core businesses in
which we enjoy leadership positions. Our core businesses create product and
service opportunities of important value to our customers and consumers. We
continue to develop and introduce healthy products in convenient packages. More
specifically, in fiscal 1996 we successfully introduced unique fluid milk
packaging in the Southeast, resulting in increased sales and the ability to
serve a new segment of the market. We plan additional market introductions in
the near term.
PRUDENTLY MANAGE INVESTED CAPITAL
As we continue to develop and grow our businesses, we will invest capital
resources and working capital in a way that creates long-term value for our
shareholders. We will begin to integrate value-based management tools into our
future capital
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spending decisions. Relatedly, we will be closely monitoring our working
capital. As an example, we will reduce our vegetable inventory investment by
over $30 million by the middle of fiscal 1997 through concentrating both on the
levels and the turnover of inventory in our crop-related businesses.
REDUCE OPERATING COSTS
We operate in industries with thin margins, making ongoing cost reduction a
necessity to sustain and improve profitability. As the year closed, we
commenced an aggressive cost compression process in our Dairy business. This
process encourages employees throughout our organization to develop and
implement improvement ideas. We are pleased with the progress of this
initiative and plan to share the results with our other operations and build a
"best practices" model for the Company.
Near year-end, we also initiated a review of the effectiveness of our
trade promotions, with the goals of providing increased incentives to the
retailer and influencing the consumer more directly.
ACQUISITIONS
Over the last twenty-five years, we have been successful in building and
creating value from acquired businesses. We believe that the management
experience, culture, capital and other resources we offer create an environment
in which acquired companies and their management can best succeed. We are
optimistic about the acquisition opportunities present in our core businesses.
FINANCIAL STRATEGY
We recognize the need to strike a balance between investing in the future
growth of Dean Foods and providing financial returns to our shareholders. A key
element of our financial flexibility is to maintain an investment grade credit
rating. This enables us to lower our cost of debt and leverage our financial
resources for greater growth. At year-end our debt to capitalization was 39.1%.
Dividends are also a key component to total shareholder return. On July 26,
1996, we increased the dividend to an annual rate of $.76 per share. This
represents the 53rd year we have paid a dividend and the 24th consecutive
increase in the dividend rate since 1974. Free cash flow beyond capital
expenditures and dividends will be used to finance acquisitions and future
stock repurchases.
MANAGEMENT AND BOARD CHANGES
We have begun the implementation of a succession plan which will allow for
the orderly transition of our top management over the next several years.
We announced the search for a President and Chief Operating Officer.
Thomas L. Rose will become Vice Chairman when that search is complete. The
addition of William R. McManaman as Chief Financial Officer last October
brought strong financial leadership to the Company.
We are also pleased to report that Edward A. Brennan, retired Chairman and
CEO of Sears, Roebuck and Co. and Richard P. Mayer, former Chairman and CEO of
Kraft General Foods North America joined the Board of Directors in March of
1996. These two directors bring a wealth of experience and knowledge to the
future direction of Dean Foods. We extend sincere thanks for the outstanding
contributions of William D. Fischer, who retired from the Board of Directors
after 17 years of service. The food industry will continue to be challenging.
Yet, we believe that our people will meet these challenges and, by doing so,
once again deliver to our shareholders the value that Dean Foods has
successfully delivered in the past. We take this opportunity to thank our
employees, customers, suppliers and shareholders for their continued support.
HOWARD M. DEAN
HOWARD M. DEAN
Chairman of the Board
and Chief Executive Officer
THOMAS L. ROSE
THOMAS L. ROSE
President and
Chief Operating Officer
August 9, 1996
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KEY STRATEGIES
As part of the strategic review completed in fiscal 1996, a number of key
strategies designed to focus the Company on its core business strengths were
identified. Dean Foods is committed to the successful pursuit of these
strategies in fiscal 1997 and beyond.
Grow core business through acquisitions, as well as geographic and product line
expansion.
Growth opportunities for Dean Foods core businesses, especially in the fluid
milk and several of the specialty food businesses, remain significant.
Understand the needs of customers and consumers in a rapidly changing
marketplace.
Information, customer relationships and a constant eye to the future are some
of the keys to understanding customer and consumer needs. Dean Foods is
committing the resources to assure that understanding.
STRATEGIES Pursue opportunities to improve and expand upon
fluid milk leadership position.
Regional fluid milk companies looking for new
ownership find in Dean Foods a corporate
culture and commitment to the industry that
offer unique opportunities to their businesses
and people.
Capitalize on the talents of employees through empowerment and development.
Dean's decentralized management style, years of experience and eagerness to
learn and improve create an environment in which employee involvement and
development occur naturally.
Consolidate and streamline operations to be low cost producer.
Improving productivity and reducing costs are a continual way of life for a
company that strives to remain a low cost producer.
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Continue traditions of quality, hard work, and focus on the fundamentals.
Dean Foods' reputation for quality was built over generations by the hard work
and disciplined approach of thousands of employees. That reputation
continues to be earned everyday.
Utilize value-based management tools in all planning and decision-making
processes. Capital expenditures, acquisitions and virtually all other
significant investment decisions are analyzed today through the use of a
variety of methods that tie these decisions directly to their effects on
shareholder value.
Maintain Dean's leadership position in the pickle industry while extending its
growth in complementary specialty items.
Dean Foods' strong position in the pickle industry has allowed it to extend its
product offerings to include niche specialty items such as sauces, olives,
boiled peanuts and other items. Acquisition and internal growth opportunities
will continue to be pursued.
Maximize the customer's profitability through continuous replenishment
programs, efficient promotions and overall category management.
Customers are looking to Dean to partner with them in managing the supply
chain from manufacturer to consumer to maximize profitability for both
partners.
Leverage position of premier full-line frozen and canned vegetable supplier.
The breadth and depth of products and services offered by Dean Foods Vegetable
Company are unparalleled in the industry. Capturing the value of this
position is a priority for the future.
Support and grow successful regional dairy brands.
Strong regional brands, together with complete private label programs, allow
Dean to fulfill all of the customers' dairy needs.
[LOGO]
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DAIRY PRODUCTS
Dean Foods Company is a national leader in dairy products, including fluid
milk, juices, yogurt, cottage cheese, sour cream, ice cream, frozen desserts
and a variety of extended shelf life items. Beginning as a small Midwest dairy,
Dean pursued an aggressive strategy of expansion and acquisition, building a
nationwide network of 28 regional dairy operations in 13 states. We are a
full-line dairy supplier offering our own popular brands, custom private label
programs and foodservice items.
DAIRY
TOTAL SALES
DAIRY PRODUCTS
(in millions of dollars)
96 $1,611
95 $1,513
94 $1,469
93 $1,437
92 $1,430
FLUID MILK AND CULTURED PRODUCTS
Fluid milk was Dean Foods' first product when the company was founded more than
70 years ago. Today, fluid milk items, including homogenized whole milk,
low-fat milk, skim milk, buttermilk and chocolate milk, make up our largest
product group, as Dean has grown to become the largest fluid milk processor in
the nation.
Our line of juice products complements our fluid milk items. Juice
products continue to command an increasing share of the market for healthy
beverages. We also bottle water, another growing product category. Fresh
cultured items, including cottage cheese, yogurt, and sour cream products,
are produced at many of our plants around the nation. During fiscal 1996, sales
for the category were $1.2 billion.
All of these products are sold under brand names which are market leaders
in their regions. Our family of milk and cultured dairy brands includes Bell,
Cream o'Weber, Creamland, Dean's, Fieldcrest, Gandy's,
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T.G. Lee, Mayfield, McArthur, Meadow Brook, Price's, Reiter, and Verifine.
Additionally, as a full-line supplier, Dean is able to provide custom-tailored
private label programs to retailers nationwide.
We purchased the rights to serve selected customers of a Youngstown, OH
dairy operation in late calendar 1995. This acquisition expanded our customer
base and improved the efficiency of our production and distribution operations
in Ohio and western Pennsylvania.
SALES FLUID MILK AND CULTURED PRODUCTS (in millions of dollars)
96 $1,235
95 $1,190
94 $1,156
93 $1,163
92 $1,149
While we have built our leadership position through our decentralized
network of regional dairies and brand names, our national roll-out of Guilt Free
brand nonfat dairy products has expanded our consumer reach and brought
additional distribution opportunities. Besides fortified skim milk and egg nog,
the Guilt Free line also includes frozen desserts and cultured products.
We are continuing our efforts to create a dynamic new market position for
milk products. We believe that milk should not be thought of only as a
nutritional part of a balanced diet. We are working to position milk products
as delicious, refreshing beverages that people can enjoy with a meal or snack,
or just as a healthy beverage.
To support this message, we are developing a new generation of fluid milk
products. New forms of packaging and updated package graphics are integral
parts of this shift in positioning. We have recently completed testing of
plastic, resealable bottles in one-pint and ten-ounce sizes at our Mayfield
plant in Athens, TN and successfully increased sales and distribution of these
single-serve items, especially in the rapidly growing convenience store segment.
We expect to take this exciting new packaging innovation to other dairy
operations during fiscal 1997.
We also completely redesigned all of the packaging for our Dean label
products sold throughout the Midwest. Our new design has given the brand an
exciting new look, conveying a contemporary and stylish image to our consumers.
Fluid milk is one of the two largest sales and profit categories in most
supermarket grocery departments. Retailers are therefore turning to the most
qualified dairy suppliers to partner with them in utilizing the latest methods
of managing this category to meet the needs of consumers. Information on
demographics and industry trends, consumer research, category definition and
product mix decisions, space and merchandising schematics and inventory
replenishment systems are some of the tools now being utilized by Dean Foods and
its forward-thinking customers. We intend to lead the dairy industry in
utilizing these tools.
Among the many capital expenditure projects completed during fiscal 1996 at
our fluid milk and cultured dairy processing facilities were expansions of the
milk cooler at our Erie, PA plant and the processing capacity at our Rochester,
IN and Huntley, IL fluid milk plants to accommodate growth in these markets.
We also made investments in material handling equipment at our El Paso, TX,
Evart, MI and Sheboygan, WI facilities to improve customer service and lower
cost. In addition, the consolidation of two fluid milk plants in the Southwest
into existing facilities improved our cost efficiencies and maintained our
excellent quality and service records.
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The strategic review of our businesses, which we completed in fiscal 1996,
provided further confirmation of our belief that fluid milk and cultured
products will play a pivotal role in our strategic direction for the future. We
plan to continue growing internally through market expansion and externally
through additional acquisitions, and to optimize the performance of our dairy
operations nationwide.
ICE CREAM AND FROZEN DESSERTS
Sales in 1996 of $235 million reflected continued growth for Dean Foods in this
category, despite a highly competitive marketplace. Dean manufactures and
markets a complete line of frozen desserts and frozen novelties, and we remain
one of America's premier suppliers of ice cream to the retail marketplace.
Like fluid milk and cultured dairy products, our ice cream and other frozen
desserts are known by many names throughout the nation, including Bell, Cream
o'Weber, Creamland, Dean's, Dean's Country Charm, Fieldcrest, Fitzgerald's,
Gandy's, Mayfield, McArthur/T.G. Lee, Price's and Reiter. Each brand is marketed
regionally, targeting local taste preferences and brand loyalties.
This year we marked the 50th anniversary of Dean's ice cream with a total
relaunch of Dean's Country Charm ice cream. Bold new package graphics were
followed by aggressive advertising, including our "Really Cool Flavors" campaign
featuring the brand's three most exciting flavors: Double Fudge Plunge, Spumoni
and Moose Tracks.
Sales of our Mayfield brand continued to grow, thanks to expanding volume
and new product introductions. A new low-fat ice cream introduced by Mayfield
throughout its Southeast market in April is off to a successful start.
SALES ICE CREAM AND FROZEN DESSERTS
(in millions of dollars)
96 $235
95 $219
94 $208
93 $199
92 $202
We've furthered our successful participation in the growing healthy
desserts category with our Guilt Free product line. The Guilt Free Nonfat Fudge
Bar, introduced in 1995, is now the number one product of its kind in the
nation. We followed that winning introduction with Guilt Free Lowfat Ice Cream
Sandwiches, launched this past spring.
This fall we will complete a three-year expansion of our Belvidere, IL
facility, giving us one of America's largest and most efficient ice cream
plants. The Belvidere plant will be able to manufacture over 30 million
gallons of Dean's frozen desserts annually.
The planned closure of our facility in Ft. Lauderdale, FL, announced as
part of the results of our strategic review, will allow us to move this volume
into the more efficient Belvidere plant. Production capacity to support our
sales in the Southeast, as well as continued sales growth in the Midwest and the
South, is also available from our Reiter and Mayfield facilities in Ohio and
Tennessee.
EXTENDED SHELF LIFE PRODUCTS
Our Extended Shelf Life Division provides a broad line of extended shelf life
fluid, aerosol and other dairy products to customers throughout the U.S. and in
selected foreign markets. Sales in the category were $141 million for 1996.
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We operate three plants in Murray, KY, Jacksonville, FL and Philadelphia, PA. In
order to be able to accommodate our nationwide marketing programs, we also
established an exclusive supply arrangement with an extended shelf life
processor of like products on the West Coast. Our acquisition of Rod's Food
Products, City of Industry, CA also provided needed capacity for extended shelf
life fluid and aerosol products, in addition to expanding our western U.S.
customer base.
Dairy distributors, retail grocery warehouse groups, national chain
restaurants and foodservice distributor warehouses buy our extended shelf life
milk products under Dean brands such as Dairy Pure, Dean Ultra, and Easy 2%, as
well as well-known licensed national brands and private labels.
Our national brands business strengthened during the year. We won an
exclusive license to produce, distribute and sell ultrapasteurized Nestle
flavored milks in the same 25 markets where we already provide Nestle's
Carnation Coffee-Mate Liquid non-dairy coffee creamer. We added a nonfat version
to our Vitamite non-dairy beverage line. And for the holiday season, Guilt Free
egg nog was introduced with great success and will see additional distribution
in fiscal 1997.
Growing popularity of lactose-free products prompted us to position our
Easy 2% milk for growth by converting it from reduced-lactose to lactose-free.
The Dairy Ease brand we supply was also converted. We continue to see
significant opportunities for increasing both branded and private-label sales in
this specialized market niche.
We completed several capital expenditure projects in our Murray, KY plant
during the year in order to satisfy increasing demand and improve distribution
and quality control. The cooler was expanded and new racking and cooler
inventory management systems were installed.
SALES EXTENDED SHELF LIFE PRODUCTS
(in millions of dollars)
96 $141
95 $104
94 $105
93 $75
92 $79
Over the past three years, management has sought to widen the customer,
trade channel and product mix of our extended shelf life business. We have added
aerosol products and several new specialty dairy beverages and non-dairy items.
As a result, the division is poised for profitable growth in the coming years.
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SPECIALTY FOOD PRODUCTS
DEAN'S SPECIALTY FOOD PRODUCTS CONTINUE TO EXPAND IN NUMBER AND GROW IN
POPULARITY. WE HAVE BECOME A MAJOR SUPPLIER OF FROZEN AND CANNED VEGETABLES,
PICKLES, PEPPERS, RELISHES AND OTHER SPECIALTY ITEMS, ASSORTED POWDERED
PRODUCTS, SNACK DIPS, DRESSINGS, SAUCES AND PUDDINGS. BOTH BRANDED AND PRIVATE
LABEL PRODUCTS ARE SOLD TO RETAIL, FOODSERVICE AND FOOD MANUFACTURING CUSTOMERS
THROUGHOUT THE U.S. AND IN SELECTED FOREIGN MARKETS. DEAN FOODS IS COMMITTED
TO CONTINUED GROWTH OF OUR SPECIALTY FOOD BUSINESSES BY EXPANDING GEOGRAPHIC
MARKETS, INTRODUCING NEW PRODUCTS AND ACQUIRING FOOD COMPANIES THAT WILL
ADD TO OUR STRENGTH.
SPECIALTY
FROZEN AND CANNED VEGETABLES
Our vegetable division, the Dean Foods Vegetable Company (DFVC), is the largest
processor of frozen vegetables in the nation and the third largest processor of
vegetables overall. The company is a major player in retail and foodservice
markets with its branded and private label products. From 19 plants and four
distribution centers strategically located around the nation, DFVC markets a
full line of vegetable products, including many regional varieties and
value-added items, throughout North America, Mexico, Puerto Rico, Europe and
Japan. Sales for the year totaled $574 million.
Our own brand names remain market leaders as their sales volumes continue
to increase. Birds Eye is the second leading frozen vegetable brand in the U.S.
Freshlike is the number one brand of vegetables in its Midwest marketing area.
And Veg-All is the number one canned
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mixed vegetable brand nationally. In addition, we are the
country's largest supplier of frozen private label vegetables.
SALES FROZEN & CANNED VEGETABLES
(in millions of dollars)
96 $574
95 $543
94 $420
93 $357
92 $389
More and more consumers are looking for variety and convenience in the
vegetable products they buy. Our best-selling selections include distinctive
and easy-to-prepare items such as Birds Eye Easy Recipe and Pasta Secrets, and
Freshlike Pasta Combos, and this year we increased distribution for all of
these products. We also developed a new baby blend line, new Easy Recipe
mixtures and Freshlike Family Recipe meal starters (just add meat for a
complete meal) for introduction early in fiscal 1997. We anticipate that such
value-added products will continue to offer important opportunities for growth,
and additional new product offerings are already being planned for fiscal 1997.
This year we acquired Norcal Crossetti Foods, Inc., a frozen vegetable
and fruit processor located in Watsonville, CA, with annual sales of $45
million. The acquisition enhanced our ability to provide full-line service to
our frozen vegetable customers. By consolidating Norcal's production into our
existing Watsonville operations, we have achieved greater operating efficiency
in the region.
We continue to build strategic alliances with our customers. Our
consolidated operations mean that we can provide them single-source ordering,
shipping and invoicing for branded and private label vegetables. This year we
established category management programs with two major customers, including
full implementation of continuous replenishment programs for several of their
divisions.
Operating efficiency and quality are top priorities for DFVC. During the
year, we invested in new electronic sorting equipment, upgraded freezing
capacity, improved warehousing and installed a new management information
system. We completed a new Technical Center in Green Bay, WI to enhance
research and development, quality assurance and engineering activities. We also
initiated a company-wide strategy to consolidate our operations. These steps
should reduce costs, balance plant capacities, lower inventories and thereby
strengthen Dean Foods Vegetable Company's position as a low cost, high quality
leader.
PICKLES, RELISHES AND SPECIALTY ITEMS
The Dean Pickle and Specialty Products Company supplies retail and foodservice
customers nation-wide with regional branded and private label pickles, peppers,
relishes and assorted specialty items. With sales for the segment of $373
million, we posted our sixth straight year of record sales.
SALES PICKLES, RELISHES & SPECIALTY ITEMS
(in millions of dollars)
96 $373
95 $367
94 $353
93 $305
92 $282
Dean is the nation's largest supplier of private label and foodservice
pickles. We also market a number of regional brands, including Arnold's, Atkins,
Aunt Jane's, Cates, Dailey, Heifetz, Paramount, Pesta, Peter Piper, Rainbo,
Roddenbery, Tree, and Warsaw Falcon. These brands remain hometown favorites in
their regional markets.
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Growth was achieved by increased sales of many of these brands, as well as by
the acquisition in December of the branded and foodservice product lines of
Paramount Foods in Louisville, KY. In addition to adding the strong Paramount
name to our family of brands, the acquisition strengthened our procurement,
warehousing and distribution capabilities.
Sales of olives, sauces, syrups and boiled peanuts also made significant
gains during the year. All of our olive sales are under private labels, while
Bennett's and Hoffman House sauces, Northwoods and Roddenbery table syrups, and
Peanut Patch boiled peanuts all have strong branded positions in their
respective regional markets.
During the year we continued to make capital improvements in order to
upgrade and modernize our manufacturing facilities, control inventories and
reduce transportation costs. Additional funds have been earmarked for retooling
of our Faison, NC plant which supplies many of our regional brands in the
Southeast. This plant will take on much of the pickle production volume slated
to be transferred from our Cairo, GA facility in fiscal 1997.
OTHER SPECIALTY FOOD PRODUCTS
In this diverse category, Dean markets powdered products such as non-dairy
coffee creamers and dry ingredient blends, plus an assortment of snack dips,
dressings, sauces and puddings. This segment also includes the sales of the
Company's transportation and logistics unit, DFC Transportation. Total sales
of this product group last year were $256 million.
For the sixth consecutive year, sales of powdered products outpaced our
previous year's results. Dean is the largest producer of powdered non-dairy
coffee creamer in North America. In fact, we are the leading seller in each of
the trade channels through which the product is sold, including retail,
foodservice, office coffee service, vending, industrial and export. We provide
a wide assortment of powdered coffee creamers ranging from fat-free to premium
non-dairy creamers that are so rich they can be whipped like whipping cream!
As the popularity of coffee and coffee-based products such as cappuccinos
continues to accelerate, the use of non-dairy creamer products is keeping pace.
This year, we added a non-dairy, lactose-free beverage fortified with vitamins
A and D to our product line-up. This innovative, shelf-stable powdered product
was formulated to be reconstituted with water. It makes a delicious drink or
can be poured over cereal or fruit.
Our industrial business also continues to grow. We provide ingredients
developed specifically for customers' product formulas ranging from cake mixes,
soup sauces and gravies to soft serve ice cream mixes.
SALES POWDERED PRODUCTS
(in millions of dollars)
96 $129
95 $110
94 $100
93 $88
92 $82
Exporting activity remains strong as we continue to open new markets
internationally. We expanded into the Israel market during fiscal 1996.
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We now maintain a substantial presence in Canada, Central and South America,
Eastern Europe, the Pacific Rim and Honduras.
Our E.B.I. Foods affiliate in the U.K. again experienced substantial
growth. Annual sales of E.B.I.'s dry ingredient blends continue to rise as
their customers expand their base in foreign markets. E.B.I. exports to
virtually every country in Europe plus markets in the Middle East, the Far
East and Africa. During 1996, the company won the prestigious Queen's Award for
Export for the second time, an extraordinary accomplishment. E.B.I. is
scheduled to move into its newly-constructed production facility in August.
Refrigerated snack dips and salad dressings now constitute a much larger
portion of our specialty foods sales. Our Dean's brand dips are number one in
the refrigerated dip category and our Birds Eye Veggie Dips are the second
leading produce dip after their first year in distribution.
SALES SAUCES, PUDDINGS & DIPS
(in millions of dollars)
96 $100
95 $74
94 $69
93 $66
92 $61
This year's acquisition of the Rod's Food Products operation in City of
Industry, CA brought a significant West Coast presence to several of Dean's
product lines. In addition to aerosol toppings and extended shelf life
products, Rod's supplies a large and growing Western U.S. customer base with
retail snack dips and other oil-based products, as well as flavored salad
dressings for the foodservice trade. Retail products are sold under the Rod's,
Imo, Slender Choice, Chivo and Zesty brand names and a number of private labels.
Our Amboy Specialty Division is one of the largest aseptic manufacturers
of shelf-stable cheese sauce and pudding products in the United States,
marketing to foodservice and food manufacturing customers nationwide. This year
Amboy added to its cheese sauce and pudding line by introducing tomato sauce,
marinara sauce, pouch-pack Alfredo sauce and cheddar & salsa cheese sauce.
These products represent significant increased volume potential for us. Amboy's
ingredient business also continued its growth with a line of innovative, custom
specialty sauces supplied to frozen food manufacturers.
DFC TRANSPORTATION
DFC Transportation serves the transportation needs of Dean divisions as well
as other well-known food and consumer product companies. It provides expertise
in the consolidation and distribution of dry, refrigerated and frozen products
throughout the U.S. and internationally.
SALES DFC TRANSPORTATION
(in millions of dollars)
96 $27
95 $23
94 $20
93 $21
92 $45
Exceeding its sales goals for the fourth straight year, despite a highly
competitive and recessionary business environment, DFC Transportation has
demonstrated its capability to provide the effective distribution logistics its
customers demand.
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FINANCIAL REVIEW DEAN FOODS COMPANY AND SUBSIDIARIES
The financial review should be read in conjunction with the letter to
shareholders, the operations review of the Company's business segments
and the consolidated financial statements and the notes related thereto
contained in this annual report.
DIVIDENDS PER SHARE (in dollars)
96 $0.72
95 $0.68
94 $0.64
93 $0.60
92 $0.56
91 $0.49
90 $0.44
89 $0.40
88 $0.36
87 $0.32
86 $0.27
WORKING CAPITAL (in millions of dollars)
96 $186
95 $215
94 $ 93
93 $198
92 $184
91 $198
90 $183
89 $156
88 $130
87 $115
86 $108
SHAREHOLDERS' EQUITY (in millions of dollars)
96 $508
95 $585
94 $525
93 $476
92 $430
91 $417
90 $363
89 $293
88 $266
87 $236
86 $207
CAPITAL EXPENDITURES (in millions of dollars)
96 $90
95 $83
94 $81
93 $75
92 $78
91 $73
90 $68
89 $56
88 $39
87 $42
86 $37
TOTAL DEBT TO TOTAL CAPITAL (in percent)
96 39.1%
95 31.2%
94 33.6%
93 24.4%
92 27.0%
91 27.1%
90 29.5%
89 23.8%
88 17.3%
87 19.1%
86 21.5%
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FINANCIAL REVIEW DEAN FOODS COMPANY AND SUBSIDIARIES
STRATEGIC DIRECTION
The Company's primary objective is the maximization of shareholder value
through dividend growth and long-term stock appreciation. As the Company
entered fiscal year 1996, faced with the same significant factors impacting the
overall packaged food industry - slow economic growth, low product growth rates
and increasing competitive pressures - it was evident achieving our
primary objective long-term could be difficult. Consequently, the Company
undertook a comprehensive strategic review of all of its businesses, markets
and products with the underlying purpose to improve profitability and enhance
shareholder value.
In May the Company announced a strategic direction plan resulting in a
$150.0 million ($97.7 million after-tax or $2.44 per share) special charge to
earnings in the fiscal 1996 fourth quarter. The expected post execution,
pre-tax savings of the plan are approximately $21 million annually with about
$15 million in cash. Additional strategies reducing operating costs and
improving marketing/trade promotion effectiveness are expected to produce
additional pre-tax savings of $20 to $30 million annually. The realization of
the savings from the execution of these strategies are expected to occur over
the next twelve to twenty-four months. Additional information relative to the
key elements of the strategic direction plan and the related special charge is
contained in the Letter to Shareholders and in Note 2 to the consolidated
financial statements.
FINANCIAL OBJECTIVES AND STRATEGIES
Among the financial objectives and strategies employed by the Company are:
SOUND WORKING CAPITAL MANAGEMENT
The Company employs various procedures to monitor and control the quality and
levels of current assets using short-term borrowings primarily to meet seasonal
crop-related cash requirements. During the last three fiscal years
the Company also utilized short-term borrowings under bank lines of credit
to acquire businesses. At fiscal 1995 year-end, amounts borrowed under such
lines for business acquisitions were refinanced, as further discussed in Note 4
to the consolidated financial statements.
CAPITAL INVESTMENTS
The Company's goal is to maintain and improve the productivity of its assets,
making those capital investments which offer returns to the Company greater
than its cost of capital.
PRUDENT USE OF DEBT
The Company maintains debt levels considered prudent based upon its cash flows
and financial ratios. The long-term debt market has been used primarily to fund
acquisitions and major capital expenditures. Based upon the Company's total
debt to total capitalization ratio at fiscal 1996 year-end of 39.1%, the
Company believes it has sufficient debt capacity to fund future growth.
FINANCIAL RISK MANAGEMENT
The Company's primary financial risk is interest rate exposure, which is
managed through the mix of fixed and floating rate debt. Foreign currency risk
is not significant. The Company's policies and controls preclude leveraged or
structured derivatives and financial derivatives for trading purposes.
DIVIDEND POLICY
On July 26, 1996, the Company increased its quarterly dividend 6% to $.19 per
share, the twenty-fourth increase since 1974. The total increase in the
dividend rate since 1974 is 2,400%.
STOCK REPURCHASE
No shares were purchased during the last three fiscal years, as funds generated
from operations were used in connection with the acquisitions of businesses. On
May 26, 1996, the Company had authorization to purchase 1.7 million shares of
the Company's stock.
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FINANCIAL REVIEW DEAN FOODS COMPANY AND SUBSIDIARIES
FINANCIAL CONDITION
CAPITAL RESOURCES AND LIQUIDITY
The Company's operating cash and capital expenditure requirements have
historically been met through funds generated internally from assets employed
(working capital and long-term assets).
Working capital at May 26, 1996 was $185.9 million, a decrease of $29.1
million from a year ago. The Company's current ratio was 1.47 compared to 1.71
at the end of fiscal 1995. The decreased working capital was primarily the
result of funds used to acquire businesses during fiscal 1996. Cash and
temporary cash investments at May 26, 1996 was $10.4 million, an increase of
$5.6 million from last year end. Inventories increased $5.6 million principally
the result of inventories of businesses acquired during fiscal 1996. Dairy
inventory turnover is at a high rate, whereas inventories of the Vegetables,
Pickles and Specialty segments generally have lower turnover rates.
Crop-related Vegetable and Pickle inventory levels may vary from year to year.
A large part of the Vegetables, Pickles and Specialty inventories are valued on
the LIFO inventory valuation method which enhances the Company's cash flow.
Crop-related requirements are funded under the Company's short-term
bank lines of credit or its bank revolving credit agreement. During fiscal 1996
the lines of credit and revolving credit agreement were also the source of
funds for business acquisitions. The short-term borrowings outstanding at the
end of fiscal 1996 were $92.0 million, whereas the borrowings outstanding at
the end of fiscal 1995 were $29.0 million.
Net property, plant and equipment decreased $44.5 million this year
reflecting the write-off of non-performing assets and classification of assets
held for resale as a result of the strategic review offset by capital
expenditures and assets of businesses acquired. Major capital expenditures
during fiscal 1996 were primarily for plant expansions required to process
increased production volumes and new products.
The Company's long-term objective is to provide a mix of debt and
equity that will provide sufficient flexibility for growth. During fiscal 1996,
the Company consolidated its two syndicated bank revolving credit agreements
into a single $300 million credit facility extending the maturity to the year
2001. Short-term borrowings outstanding under this facility at year-end were
$70.0 million. In June 1995, the Company issued $100 million ten-year senior
notes. Long-term obligations at May 26, 1996 were $221.7 million, a decrease of
$3.0 million from last year-end. The Company's total debt to total capital at
May 26, 1996 was 39.1% compared to 31.2% a year ago. The Company is in
compliance with the covenants and restrictions under its debt agreements, the
most restrictive of which are discussed in Note 4 to the consolidated financial
statements.
Shareholders' equity at May 26, 1996 was $507.7 million, a decrease of
$76.8 million from last year-end primarily as a result of the special charge to
earnings of $97.7 million after-tax. The treasury stock held at May 26, 1996 is
available for use in future acquisitions, for stock options or for other
general business purposes.
CASH FLOWS
Net cash flow for fiscal 1996 increased $5.6 million whereas cash declined by
$6.1 million in fiscal 1995. Particulars of the Company's cash flow activities
are as follows:
Operating Activities - Cash provided from operations for fiscal 1996 was
$129.2 million compared to $128.1 million and $122.0 million for fiscal years
1995 and 1994, respectively. The cash provided in fiscal 1996 was comparable to
that provided in fiscal 1995; despite the net loss of $49.7 million in 1996, as
the $150.0 million special charge was a non-cash item.
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FINANCIAL REVIEW DEAN FOODS COMPANY AND SUBSIDIARIES
Investing Activities - Net cash used in the Company's investing activities
in fiscal 1996 was $153.8 million compared to $115.4 million and $242.7 million
in fiscal years 1995 and 1994, respectively. Capital expenditures and
business acquisitions are the Company's principal investing activities. Capital
expenditures for 1996 were $89.8 million compared with $83.3 million and $81.0
million in fiscal years 1995 and 1994, respectively. Capital expenditures for
fiscal 1997 are expected to approximate fiscal 1996 capital expenditures.
During fiscal 1996, the Company used $66.1 million to acquire businesses,
an important aspect of the Company's growth. During the three years ended May
26, 1996, a total of $272.8 million was spent to acquire businesses which are
discussed in Note 3 to the consolidated financial statements.
Financing Activities - Net cash provided from financing activities during
fiscal 1996 was $30.2 million compared to net cash used in 1995 of $18.8
million and net cash provided in 1994 of $90.1 million. The principal financing
activity during fiscal 1996 was the use of short-term borrowings for funding
cash outlays for acquisitions. Short-term borrowings outstanding at fiscal
year-end 1996 and 1995 were $92.0 million and $29.0 million, respectively. Cash
dividends paid were $28.5 million during fiscal 1996, compared to
$26.7 million and $25.0 million during fiscal years 1995 and 1994,
respectively.
RESULTS OF OPERATIONS
Fiscal 1996 results show a loss of $49.7 million or $1.24 per share compared to
earnings last year of $80.1 million or $2.01 per share. The 1996 loss included
a pre-tax charge of $150.0 million ($97.7 after-tax or $2.44 per share) related
to the adoption of a strategic plan to reduce costs, rationalize production
capacity and provide for severance and environmental costs.
The pre-tax impact of the special charge on the Company's business
segments fiscal 1996 operating earnings (loss) is summarized below:
Operating Operating Earnings
(In thousands) Earnings (Loss) Special Charge before Special Charge
---------------------------------------------------------------------
Dairy $ (2,644) $ 76,694 $ 74,050
---------------------------------------------------------------------
Vegetables (41,837) 47,561 5,724
---------------------------------------------------------------------
Pickles 10,299 13,704 24,003
---------------------------------------------------------------------
Specialty 25,737 999 26,736
---------------------------------------------------------------------
Corporate (33,985) 11,042 (22,943)
---------------------------------------------------------------------
Consolidated $ (42,430) $ 150,000 $ 107,570
---------------------------------------------------------------------
Further discussion of the charge appears in Note 2 to the consolidated
financial statements. Fiscal 1995 earnings benefited from improved earnings of
the Company's Vegetables and Pickles operations. The fiscal 1994 earnings were
impacted by the Revenue Reconciliation Act of 1993 and the adoption of new
accounting principles which are discussed in Notes 8 and 9 to the consolidated
financial statements. Fiscal 1994 results included a charge of $1.5 million or
$.04 per share as a result of the increase in the corporate tax rate to 35%
retroactive to January 1, 1993.
Net sales for fiscal 1996 were $2.8 billion compared to $2.6 billion last
year, a 7.0% increase. All the Company's business segments recorded sales
increases as unit sales volume exceeded fiscal 1995 levels. Net sales for
fiscal years 1995 and 1994 were $2.6 million and $2.4 million, respectively.
BUSINESS SEGMENTS
The Company is a diversified food processor and distributor engaged in four
business segments. The Company is the country's largest processor of fluid milk
products serving various regional markets, with some products distributed
nationwide and to Mexico. Dairy is the Company's largest segment, accounting
for 57% of the total fiscal 1996 sales. The Vegetables segment, which includes
frozen and canned vegetables, is the Company's second largest segment
accounting for 20% of the total fiscal 1996 sales. The other two business
segments are Pickles and Specialty products, accounting for 14% and 9% of total
fiscal sales, respectively. Vegetables, Pickles and Specialty products are sold
in regional markets and nationally, with certain products sold internationally.
The Company is a large user of certain agricultural related commodities, the
prices for which can vary greatly. The competitive conditions and relatively
low profit margins in the food industry necessitate timely adjustment of the
Company's pricing to reflect changes in commodity pricing as well as changes
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FINANCIAL REVIEW DEAN FOODS COMPANY AND SUBIDIARIES
in other production and distribution related costs. Segment operating earnings
represent total sales less operating expenses with the following items not
deducted: general corporate expenses, interest expense and federal and state
income taxes. The following discussions of segment earnings exclude the impact
of the fiscal 1996 special charge.
Dairy - Dairy sales for fiscal 1996 increased 6%, the result of increased
unit sales volumes and higher raw milk costs than those prevailing during
fiscal 1995. Sales for fiscal year 1995 were 3% greater than fiscal 1994 as
increased unit sales volume and inclusion of the sales of a business acquired
in 1995 offset lower selling prices reflecting lower milk costs during the
year.
Raw milk costs rose throughout fiscal 1996. In fiscal 1995, raw milk costs
fell substantially in the first quarter and then remained stable throughout
the balance of the year. Early indications are that raw milk costs will
increase significantly in early fiscal 1997, however, milk supplies are
adequate for the Company's operations. Prices for resin used in dairy containers
were lower in fiscal 1996 compared to fiscal 1995. Indications are that prices
for resin in fiscal 1997 will approximate fiscal 1996 prices.
Dairy fiscal 1996 operating earnings declined 4% principally the result
of competitive conditions in certain markets and increased advertising costs
associated with the introduction of new products and new packaging. Fiscal 1995
operating earnings declined 1% from fiscal 1994 principally as a result
of competitive conditions in certain markets and costs associated with the
introduction of new products and expansion into new markets.
Vegetables - Sales for fiscal 1996 increased 6% principally as a result of
sales of acquired companies as selling prices were depressed throughout the
year. Fiscal 1995 sales increased 29% over fiscal 1994 largely the result of
the full year's inclusion of the fiscal 1994 Birds Eye business acquisition.
Fiscal 1996 Vegetables operating earnings declined $39.0 million from
fiscal 1995 earnings principally the result of weather-related higher costs
associated with the 1995 poor Midwest harvest, industrywide excess inventory
levels and highly competitive market conditions that prevailed throughout the
year, both on frozen and canned vegetables. Operating results for fiscal 1995
increased $17.7 million as a result of the full year's contribution of the
fiscal 1994 Birds Eye acquisition, strong unit sales volume increases and
favorable crop and processing costs. The competitive pressures on canned
vegetables were more than offset by the sales and margins of frozen vegetables.
Early indications are that the 1996 crop industrywide will be a normal or below
normal harvest with fiscal 1997 crop costs approximating fiscal 1996 costs.
Pickles - Fiscal 1996 sales increased 2% principally as a result of sales
of a business acquired mid-year in fiscal 1996 which offset competitive
pressures on selling prices. Sales for fiscal 1995 were 4% greater than fiscal
1994 sales as the result of increased unit sales volumes and improved pricing.
Operating earnings declined $6.4 million from fiscal 1995 earnings
principally as a result of a poor Southeast cucumber harvest with resulting
higher processing costs and the necessity to source cucumber requirements from
higher cost growing areas. Fiscal 1995 operating earnings increased $11.0
million over 1994 earnings as a result of a strong unit sales increase and
favorable crop and processing costs. The spring 1996 cucumber harvest was good
and, although Midwest crop plantings were late due to adverse planting
conditions, fiscal 1997 cucumber costs should approximate fiscal 1996 costs.
Specialty - Sales of a business acquired during fiscal 1996 and increased
unit sales volumes resulted in fiscal 1996 sales exceeding fiscal 1995 sales
by 24%. Fiscal 1995 sales were 9% greater than fiscal 1994 sales largely the
result of increased unit sales volumes.
Fiscal 1996 operating earnings decreased 2% as lower margins offset strong
unit sales increases and the contribution of a fiscal 1995 business
acquisition. Operating earnings for fiscal 1995 increased 6% over fiscal 1994
earnings as a result of increased unit sales volumes and improved margins. This
segment is a large user of corn syrup, vegetable oils and casein. Prices for
these commodities, after initially increasing in fiscal 1996, declined and
pricing is expected to remain stable or decline in fiscal 1997.
CORPORATE
Excluding the impact of the special charge, fiscal 1996 Corporate expense
approximated fiscal 1995 Corporate expense. Fiscal 1995 Corporate expense
increased $5.3 million over fiscal 1994 expense principally the result of
non-recurring items in both fiscal years.
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FINANCIAL REVIEW DEAN FOODS COMPANY AND SUBSIDIARIES
INTEREST EXPENSE
Fiscal 1996 interest expense increased 27%, principally as a result of
increased borrowings related to businesses acquired late in fiscal 1995 and
during fiscal 1996. Interest expense for fiscal 1995 increased 45% over fiscal
1994, the result of increased borrowings associated with fiscal 1994 and fiscal
1995 business acquisitions and increased interest rates.
INCOME TAXES
The Company recognized an effective tax benefit rate of 28.4% for fiscal 1996
reflecting the net loss for the year and the impact of the special charge to
earnings. The effective tax rates for fiscal years 1995 and 1994 were 41.3%
and 40.2%, respectively. Explanations of the differences from statutory rates
are explained in Note 8 to the consolidated financial statements.
ENVIRONMENTAL MATTERS
On July 10, 1996, a subsidiary of the Company was fined approximately
$4.0 million in a lawsuit filed by the United States of America in the
United States District Court for the Middle District of Pennsylvania alleging
violations of the Federal Water Pollution Control Act relating to the discharge
of conventional, non-hazardous substances. The Company has filed various
post-trial motions seeking to reduce or eliminate the fine. If the Company's
efforts in this regard are unsuccessful, the fine would be covered by reserves
existing at May 26, 1996. The Company continues to give attention to the impact
of its operations on the environment and compliance with current federal, state
and local regulations relating to the discharge of materials into the
environment or otherwise relating to the protection of the environment. The
Company's fiscal 1996 special charge to earnings included a provision covering
the estimated potential environmental cleanup costs associated with the closure
of certain manufacturing facilities.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This new standard requires that long-lived assets be reviewed for impairment
whenever the carrying amount of those assets may not be recoverable. The
recoverability is based on the estimated future cash flows resulting from the
use of the asset. Adoption of SFAS No. 121 is required in fiscal 1997. The
Company does not expect the adoption of SFAS No. 121 to have a material impact
on the Company's financial condition or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-based
Compensation." This new standard encourages, but does not require, a fair-value
based method of accounting for stock-based compensation plans. Adoption of the
disclosure requirements of SFAS No. 123 is required in fiscal 1997. The Company
expects to adopt only the disclosure provisions of SFAS No. 123 and, therefore,
there will be no impact on the Company's financial condition or results of
operations.
twenty five
27
CONSOLIDATED BALANCE SHEETS DEAN FOODS COMPANY AND SUBSIDIARIES
May 26, 1996 and May 28, 1995 (In thousands)
- -------------------------------------------------------------------------------------------------
Assets 1996 1995
- -------------------------------------------------------------------------------------------------
Current Assets:
- -------------------------------------------------------------------------------------------------
Cash and temporary cash investments $ 10,399 $ 4,826
- -------------------------------------------------------------------------------------------------
Accounts and notes receivable, less allowance for doubtful
accounts of $3,201 and $4,257, respectively 188,222 184,210
- -------------------------------------------------------------------------------------------------
Inventories 278,731 273,114
- -------------------------------------------------------------------------------------------------
Deferred tax assets 58,497 22,456
- -------------------------------------------------------------------------------------------------
Income tax refund receivable 7,244 --
- -------------------------------------------------------------------------------------------------
Other 41,306 34,266
- -------------------------------------------------------------------------------------------------
Total Current Assets 584,399 518,872
- -------------------------------------------------------------------------------------------------
Property, Plant and Equipment, at cost:
- -------------------------------------------------------------------------------------------------
Land 30,745 30,280
- -------------------------------------------------------------------------------------------------
Buildings and improvements 262,402 262,552
- -------------------------------------------------------------------------------------------------
Machinery and equipment 602,138 608,108
- -------------------------------------------------------------------------------------------------
Transportation equipment 54,735 54,411
- -------------------------------------------------------------------------------------------------
Construction in progress 43,806 41,312
- -------------------------------------------------------------------------------------------------
993,826 996,663
- -------------------------------------------------------------------------------------------------
Less - Accumulated depreciation 468,159 426,518
- -------------------------------------------------------------------------------------------------
Total Properties, net 525,667 570,145
- -------------------------------------------------------------------------------------------------
Other Assets:
- -------------------------------------------------------------------------------------------------
Goodwill, net of amortization of
$6,798 and $7,012, respectively 69,253 69,640
- -------------------------------------------------------------------------------------------------
Other intangible assets, net of amortization
of $3,153 and $3,157, respectively 26,635 28,380
- -------------------------------------------------------------------------------------------------
Other 16,286 15,389
- -------------------------------------------------------------------------------------------------
Total Other Assets 112,174 113,409
- -------------------------------------------------------------------------------------------------
Total Assets $1,222,240 $1,202,426
- -------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
twenty six
28
(In thousands)
- -------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity 1996 1995
- -------------------------------------------------------------------------------------------------------
Current Liabilities:
- -------------------------------------------------------------------------------------------------------
Notes payable to banks $ 92,000 $ 29,000
- -------------------------------------------------------------------------------------------------------
Current installments of long-term obligations 11,855 11,995
- -------------------------------------------------------------------------------------------------------
Accounts payable and accrued expenses 287,305 248,721
- -------------------------------------------------------------------------------------------------------
Dividends payable 7,297 6,877
- -------------------------------------------------------------------------------------------------------
Federal and state income taxes -- 7,267
- -------------------------------------------------------------------------------------------------------
Total Current Liabilities 398,457 303,860
- -------------------------------------------------------------------------------------------------------
Long-Term Obligations 221,653 224,679
- -------------------------------------------------------------------------------------------------------
Deferred Liabilities:
- -------------------------------------------------------------------------------------------------------
Deferred income taxes 61,042 70,051
- -------------------------------------------------------------------------------------------------------
Other 33,396 19,310
- -------------------------------------------------------------------------------------------------------
Total Deferred Liabilities 94,438 89,361
- -------------------------------------------------------------------------------------------------------
Shareholders' Equity:
- -------------------------------------------------------------------------------------------------------
Preferred stock, $1 par value, 10,000,000 shares
authorized, none issued -- --
- -------------------------------------------------------------------------------------------------------
Common stock, $1 par value, 80,000,000 shares authorized,
41,395,009 and 41,339,495 shares issued, respectively 41,395 41,339
- -------------------------------------------------------------------------------------------------------
Capital in excess of par value 14,158 12,705
- -------------------------------------------------------------------------------------------------------
Retained earnings 482,299 560,881
- -------------------------------------------------------------------------------------------------------
Cumulative translation adjustment 11 (228)
- -------------------------------------------------------------------------------------------------------
Less - Treasury stock, at cost, 1,261,990 and 1,261,990
shares, respectively 30,171 30,171
- -------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 507,692 584,526
- -------------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities -- --
- -------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,222,240 $1,202,426
- -------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
twenty seven
29
CONSOLIDATED STATEMENTS OF INCOME DEAN FOODS COMPANY AND SUBSIDIARIES
For the Three Fiscal Years Ended May 26, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales $2,814,268 $2,630,182 $2,431,203
- -----------------------------------------------------------------------------------------------------------------------------------
Costs of products sold 2,211,645 2,005,099 1,885,012
- -----------------------------------------------------------------------------------------------------------------------------------
Delivery, selling and administrative expenses 495,053 467,980 413,135
- -----------------------------------------------------------------------------------------------------------------------------------
Special charge 150,000 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Operating earnings (loss) (42,430) 157,103 133,056
- -----------------------------------------------------------------------------------------------------------------------------------
Interest expense (28,349) (22,397) (15,471)
- -----------------------------------------------------------------------------------------------------------------------------------
Interest income 1,384 1,682 728
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes and cumulative effect of changes in accounting principles (69,395) 136,388 118,313
- -----------------------------------------------------------------------------------------------------------------------------------
Provision (benefit) for income taxes (19,707) 56,329 47,551
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of changes in accounting principles (49,688) 80,059 70,762
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative effect of changes in accounting principles -- -- 1,179
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) for the year $ (49,688) $ 80,059 $ 71,941
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share:
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share before cumulative effect of changes in accounting principles $ (1.24) $ 2.01 $ 1.78
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative effect of changes in accounting principles -- -- .03
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share $ (1.24) $ 2.01 $ 1.81
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
twenty eight
30
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY DEAN FOODS COMPANY AND
SUBSIDIARIES
For the Three Fiscal Years Ended May 26, 1996
(In thousands) Common Common Capital in Cumulative
Stock Stock Excess of Retained Translation Treasury
Shares Value Par Value Earnings Adjustment Stock
- ---------------------------------------------------------------------------------------------------------------------
Balance May 30, 1993 39,689 $ 40,946 $ 3,955 $ 461,479 $ -- $ (30,061)
Net income -- -- -- 71,941 -- --
Exercise of stock options 104 104 1,956 -- -- --
Return of treasury stock (4) -- -- -- -- (107)
Cash dividends declared, $.64 per share -- -- -- (25,439) -- --
- ---------------------------------------------------------------------------------------------------------------------
Balance May 29, 1994 39,789 41,050 5,911 507,981 -- (30,168)
Net income -- -- -- 80,059 -- --
Issuance of common stock 145 145 3,902 -- -- --
Exercise of stock options 144 144 2,892 -- -- --
Purchase of treasury stock -- -- -- -- -- (3)
Cash dividends declared, $.68 per share -- -- -- (27,159) -- --
Cumulative translation adjustment -- -- -- -- (228) --
- ---------------------------------------------------------------------------------------------------------------------
Balance May 28, 1995 40,078 41,339 12,705 560,881 (228) (30,171)
Net loss -- -- -- (49,688) -- --
Issuance of common stock 47 47 1,275 -- -- --
Exercise of stock options 9 9 178 -- -- --
Purchase of treasury stock -- -- -- -- -- --
Cash dividends declared, $.72 per share -- -- -- (28,894) -- --
Cumulative translation adjustment -- -- -- -- 239 --
- ---------------------------------------------------------------------------------------------------------------------
Balance May 26, 1996 40,134 $ 41,395 $ 14,158 $ 482,299 $ 11 $ (30,171)
=====================================================================================================================
See accompanying notes to consolidated financial statements.
twenty nine
31
CONSOLIDATED STATEMENTS OF CASH FLOWS DEAN FOODS COMPANY AND SUBSIDIARIES
For the Three Fiscal Years Ended May 26, 1996
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from operations:
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (49,688) $ 80,059 $ 71,941
- ------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net cash provided from operations:
- ------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 77,048 70,027 61,875
- ------------------------------------------------------------------------------------------------------------------------------
Deferred income taxes (44,005) 6,641 3,307
- ------------------------------------------------------------------------------------------------------------------------------
Other long-term deferred liabilities 6,143 1,757 288
- ------------------------------------------------------------------------------------------------------------------------------
Special charge 150,000 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Changes in accounting principles, net -- -- (1,179)
- ------------------------------------------------------------------------------------------------------------------------------
(Increase) decrease in working capital items, net of acquisitions:
- ------------------------------------------------------------------------------------------------------------------------------
Accounts and notes receivable (4,172) (11,591) (5,687)
- ------------------------------------------------------------------------------------------------------------------------------
Inventories and other current assets 10,669 (35,217) (16,933)
- ------------------------------------------------------------------------------------------------------------------------------
Accounts payable and accrued expenses (6,877) 20,635 12,863
- ------------------------------------------------------------------------------------------------------------------------------
Federal and state income taxes (7,478) 2,770 (1,361)
- ------------------------------------------------------------------------------------------------------------------------------
Other (2,405) (7,012) (3,126)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided from operations 129,235 128,069 121,988
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
- ------------------------------------------------------------------------------------------------------------------------------
Capital expenditures (89,799) (83,280) (80,977)
- ------------------------------------------------------------------------------------------------------------------------------
Proceeds from dispositions of property, plant and equipment 621 3,153 3,640
- ------------------------------------------------------------------------------------------------------------------------------
Acquisitions of businesses, net of cash acquired (66,053) (35,273) (171,479)
- ------------------------------------------------------------------------------------------------------------------------------
Proceeds from businesses divested 1,399 -- 6,163
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (153,832) (115,400) (242,653)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
- ------------------------------------------------------------------------------------------------------------------------------
Issuance of long-term obligations 9,799 100,861 2,000
- ------------------------------------------------------------------------------------------------------------------------------
Repayment of long-term obligations (12,056) (7,218) (12,368)
- ------------------------------------------------------------------------------------------------------------------------------
Issuance (repayment) of notes payable to banks, net 63,000 (93,000) 122,000
- ------------------------------------------------------------------------------------------------------------------------------
Unexpended industrial revenue bond proceeds (3,608) 211 1,382
- ------------------------------------------------------------------------------------------------------------------------------
Cash dividends paid (28,474) (26,744) (25,014)
- ------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock 1,509 7,083 2,060
- ------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock -- (3) --
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 30,170 (18,810) 90,060
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and temporary cash investments 5,573 (6,141) (30,605)
- ------------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments - beginning of year 4,826 10,967 41,572
- ------------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments - end of year $ 10,399 $ 4,826 $ 10,967
- ------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
thirty
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DEAN FOODS COMPANY AND SUBSIDIARIES
Dollar amounts in thousands unless otherwise noted
1. NATURE OF THE BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
Nature of Business - Dean Foods Company and its subsidiaries ("the Company") are
engaged in the processing, distribution and sales of dairy, vegetable, pickle
and other specialty food products. The Company operates in four business
segments. The Company's principal products in the Dairy segment are fluid milk
and cultured products, ice cream and extended shelf life products. In the
Vegetables segment, the Company processes and sells frozen and canned
vegetables. The Pickles segment's principal products are pickles, relishes and
related items. Specialty segment products include powdered products, sauces,
puddings and dips as well as the operations of the Company's transportation
subsidiary.
Use of Estimates in the Financial Statements - The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Reclassifications - Certain previously reported amounts have been
reclassified to conform with year-end 1996 presentations.
Definition of Fiscal Year - The Company's fiscal year ends on the last
Sunday in May. There were 52 weeks in each of the three fiscal years ended May
1996.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and all of its wholly-owned and majority-owned
subsidiaries. All significant intercompany transactions and balances are
excluded from the statements.
Cash and Temporary Cash Investments - The Company considers temporary cash
investments with an original maturity of three months or less to be cash
equivalents.
Inventories - Inventories are stated at the lower of cost or market. The
majority of Vegetables and Pickles inventories are valued on the last-in,
first-out (LIFO) method. The majority of Dairy and certain Specialty inventories
are valued on the first-in, first-out (FIFO) method.
Property, Plant and Equipment - Major renewals and betterments are
capitalized while repairs and maintenance which do not improve or extend useful
life are expensed currently. Upon sale, retirement, abandonment or other
disposition of property, the cost and related accumulated depreciation are
eliminated from the accounts and any gain or loss is reflected in income. For
financial statement purposes, depreciation is calculated by the straight-line
method. For income tax purposes, depreciation is calculated using accelerated
methods for certain assets.
Intangible Assets - Excess of cost over fair market value of net
identifiable assets of acquired companies and other intangible assets are
amortized on a straight-line basis over various periods between three years and
forty years. The carrying value of intangible assets is periodically reviewed by
the Company based on the expected future undiscounted operating cash flows of
the related business unit. Based upon its most recent analysis, the Company
believes that no material impairment of intangible assets exists at May 26,
1996.
Pensions - Substantially all of the Company's employees are covered by
Company or union-management-administered pension plans or profit sharing plans.
The policy with respect to Company-administered pension plans is to fund
accrued pension costs based on determinations made by independent actuaries
which include provision for service cost, interest cost, return on pension
assets and amortization of prior service cost and unrecognized initial net
assets.
Income Taxes - Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Effective in the first quarter of fiscal year 1994 with
the adoption of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes," deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Revenue Recognition - Revenues are recognized when products are shipped.
Net Income per Common Share - Net income per common share is based upon the
weighted average number of common and common equivalent shares outstanding
during each year.
thirty one
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DEAN FOODS COMPANY AND SUBSIDIARIES
Dollar amounts in thousands unless otherwise noted
2. SPECIAL CHARGE
In May, 1996 the Company recorded a pre-tax provision of $150.0 million ($97.7
million after-tax or $2.44 per share) related to the adoption of a plan to
reduce costs, rationalize production capacity and provide for projected
severance and environmental costs. The implementation of the plan will result
in the elimination of more than 800 manufacturing and administrative positions
and the disposition or closure of 13 manufacturing facilities.
The provision includes costs associated with facility closures and
consolidations and the write-down to net realizable value of assets that are for
sale of $99.1 million, of which $73.6 million are non-cash asset write-offs and
$25.5 million are cash costs related to asset dispositions. The write-off of
intangibles is $22.8 million. The cash cost of severance and other termination
benefits is expected to be approximately $10.2 million. The remaining $17.9
million of the provision primarily represents anticipated cash expenditures for
environmental remediation and other costs and expenses. These actions are
currently in process and should be substantially completed by the end of fiscal
1997.
The following table presents the details of the 1996 activity:
<Caption
(In millions)
1996 Cash Non-Cash Balance at
Accrual Payments Charges May 26, 1996
Asset write-offs/
closure costs $ 99.1 $ -- $ 73.6 $25.5
Intangibles
write-off 22.8 -- 22.8 --
Termination
benefits 10.2 -- -- 10.2
Environmental
and other 17.9 -- 4.6 13.3
- ------------------------------------------------------------------------------
$ 150.0 $ -- $ 101.0 $ 49.0
- ------------------------------------------------------------------------------
Of the remaining $49.0 million special charge reserve balance, $8.0
million is classified as Other Deferred Liabilities in the Consolidated
Balance Sheet.
3. BUSINESS ACQUISITIONS
During fiscal 1996, the Company acquired one operation in each of the
Vegetables, Pickles and Specialty segments for cash consideration. The pro forma
impact as if these acquisitions had occurred at the beginning of the 1995 fiscal
year is not significant. During fiscal 1995, the Company acquired a Dairy
operation and a Vegetables operation also for cash consideration. The pro forma
impact as if these acquisitions had occurred at the beginning of the 1994 fiscal
year is not significant. Each of these acquisitions were accounted for as
purchases and their results of operations are included in the consolidated
financial statements from their respective dates of acquisition.
On December 27, 1993, the Company completed the acquisition of the Birds
Eye Frozen Vegetable business (Birds Eye) from the All-American Gourmet Company,
a wholly-owned subsidiary of Kraft General Foods, Inc., for approximately $140
million. The acquisition has been accounted for as a purchase and, accordingly,
the operating results of Birds Eye have been included in the consolidated
operating results since the date of acquisition. The funds used to acquire Birds
Eye were provided by the Company's short-term lines of credit with its banks.
The acquisition resulted in intangible assets of $47 million.
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations as if Birds Eye had been acquired as of the
beginning of the 1993 fiscal year.
Unaudited
1994 1993
Net sales $2,549,452 $2,474,784
Net income $ 73,110 $ 74,407
Net income per share $ 1.84 $ 1.88
The pro forma results are not necessarily indicative of the results
which would have occurred if the acquisition had taken place on the basis
assumed. In addition, the pro forma results are not intended to be a projection
of future results and do not reflect any synergies that might be achieved from
combined operations.
During fiscal 1994, the Company also acquired a Dairy operation and a
Pickles operation for cash consideration. The pro forma impact as if these
acquisitions had occurred at the beginning of the 1993 fiscal year is not
significant.
thirty two
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DEAN FOODS COMPANY AND SUBSIDIARIES
Dollar amounts in thousands unless otherwise noted
4. BORROWING ARRANGEMENTS
Long-term obligations, less installments due within one year, are summarized
below:
- --------------------------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------------------
Senior note, 6.75%, maturing in 2005 $ 99,091 $ 100,000
- --------------------------------------------------------------------------------------------------------------
Installment note, 9.64%, maturing in
equal amounts of $6,500
through 2005 58,500 65,000
- -------------------------------------------------------------------------------------------------------------
Installment note, 10.1%, maturing
in equal amounts of $3,500
through 2004 28,000 31,500
- -------------------------------------------------------------------------------------------------------------
Industrial revenue bonds, maturing
in varying amounts through 2013:
Fixed rate, (7.3% to 8.0%; average 7.58%) 4,208 4,775
- -------------------------------------------------------------------------------------------------------------
Floating rate, (3.7% to 7.26%;
average 3.88%) 31,136 21,810
- -------------------------------------------------------------------------------------------------------------
Capitalized lease obligations, 4.9% to
9.75%, maturing in various
installments through 2011 9,472 9,453
- -------------------------------------------------------------------------------------------------------------
Other obligations, maturing in varying
amounts through 2025, (6.0% to
10.0%; average 7.06%) 3,101 4,136
- -------------------------------------------------------------------------------------------------------------
233,508 236,674
- -------------------------------------------------------------------------------------------------------------
Less: Installments due within one year 11,855 11,995
- -------------------------------------------------------------------------------------------------------------
Total long-term obligations $ 221,653 $ 224,679
=============================================================================================================
In fiscal 1995, the Company entered into two syndicated bank Credit
Agreements, a $200 million revolving credit facility maturing in year 2000 and
a $100 million revolving credit facility (convertible to a term loan) maturing
in 1997. These Credit Agreements were renegotiated in 1996 to a single $300
million Credit Agreement maturing in 2001. The borrowings under the Credit
Agreement are unsecured and the Company pays a commitment fee of 0.09% on the
unused portions of the revolving credit and term loan facilities. Borrowings
under the Credit Agreement bear interest at either fixed or variable rates
linked to the Company's overall public debt credit rating. During fiscal 1996,
the maximum borrowings under the Credit Agreement were $140.0 million; average
borrowings were $77.5 million at a weighted average interest rate of 5.8%. At
May 26, 1996, there were $70.0 million of borrowings outstanding under this
facility.
The Company has $60.0 million committed short-term lines of credit
available for borrowing needs. Lending banks are compensated on a fee basis of
1/8 of 1% of the credit line. During 1996, maximum borrowings under the
Company's committed and uncommitted lines of credit were $112.0 million;
average borrowings for the year were $43.9 million at a weighted average
interest rate of 5.8%. At May 26, 1996, the Company had $22.0 million
outstanding from uncommitted short-term lines of credit.
In fiscal 1995, the Company filed a $300 million Senior note facility and
a $200 million medium-term note facility pursuant to a shelf registration with
the Securities and Exchange Commission. In June 1995, the Company issued $100
million of 6.75% Notes due 2005. The net proceeds were used to repay $50
million in long-term obligations and $50 million in short-term borrowings,
which were outstanding under the Credit Agreements at May 28, 1995.
Accordingly, at May 28, 1995, the Company classified $100 million as long-term
indebtedness.
At May 26, 1996, the most restrictive provisions of the Company's
borrowing arrangements were as follows: tangible net worth of at least $175
million, working capital of at least $60 million, and a current ratio of at
least 1.25 were required to be maintained; approximately $38 million of
retained earnings was unrestricted for the payment of cash dividends and
repurchase of common stock; and the Company could not incur total long-term
debt in excess of 50% of total capitalization.
Maturities of long-term obligations during each of the years 1998 through
2001 are $13,629, $11,337, $14,943 and $11,587, respectively. Certain land,
buildings and machinery and equipment having a net carrying value of
approximately $25 million were mortgaged or otherwise encumbered against
long-term debt of $12 million at May 26, 1996.
The fair value of the Company's long-term debt was determined using
valuation techniques that considered cash flows discounted at current market
rates and management's best estimate for instruments without quoted market
prices. At May 26, 1996 and May 28, 1995 the fair value of long-term debt is
estimated to be $235.8 million and $248.9 million, respectively.
5. SHAREHOLDERS' EQUITY
The 1988 shareholders' rights plan, as amended, protects shareholders in the
event the Company becomes the target of coercive and unfair takeover tactics.
The rights were distributed to shareholders on the basis of one preferred stock
purchase right for each share of Dean Foods Company common stock. Each right
entitles shareholders to purchase one one-hundredth of a share of preferred
stock and will become exercisable only if a person or group acquires 15% or
more of the Company's common stock. The rights may be redeemed by the Company
for $.05 per right at any time prior to a public announcement that a person or
group has acquired 15% or more of the Company's common stock. The rights
expire on August 10, 1998, unless previously redeemed or exercised.
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.
thirty three
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DEAN FOODS COMPANY AND SUBSIDIARIES
Dollar amount in thousands unless otherwise noted
6. STOCK PLANS
A summary of stock option activity for the Company's stock option plans follows:
Number Average
of Shares Option Price
Under Option Per Share
- -----------------------------------------------------------------------------------------------------
Options outstanding at May 30, 1993 922,529 $ 26.26
- -----------------------------------------------------------------------------------------------------
Changes during the year:
- -----------------------------------------------------------------------------------------------------
Granted 250,119 26.87
- -----------------------------------------------------------------------------------------------------
Terminated (14,032) 29.17
- -----------------------------------------------------------------------------------------------------
Exercised (118,586) 21.82
- -----------------------------------------------------------------------------------------------------
Options outstanding at May 29, 1994 1,040,030 26.87
- -----------------------------------------------------------------------------------------------------
Changes during the year:
- -----------------------------------------------------------------------------------------------------
Granted 251,105 29.87
- -----------------------------------------------------------------------------------------------------
Terminated (52,392) 28.74
- -----------------------------------------------------------------------------------------------------
Exercised (165,941) 22.94
- -----------------------------------------------------------------------------------------------------
Options outstanding at May 28, 1995 1,072,802 28.09
- -----------------------------------------------------------------------------------------------------
Changes during the year:
- -----------------------------------------------------------------------------------------------------
Granted 313,564 28.08
- -----------------------------------------------------------------------------------------------------
Terminated (18,222) 29.04
- -----------------------------------------------------------------------------------------------------
Exercised (17,380) 24.87
- -----------------------------------------------------------------------------------------------------
Options outstanding at May 26, 1996 1,350,764 $ 28.12
=====================================================================================================
Exercisable at end of year 715,167 $ 27.96
=====================================================================================================
Available for grants:
- -------------------------------------------------------------------------------
Beginning of year 1,765,427
- -------------------------------------------------------------------------------
End of year 1,381,444
- -------------------------------------------------------------------------------
Under the stock option plans, key employees and directors may be granted
stock awards or options to purchase, at fair market value on the date of grant,
a maximum of 3,315,000 shares of the Company's common stock. Of these shares,
a maximum of 115,000 may be granted to non-employee directors. A total of
67,500 shares have been granted to non-employee directors. A total of 299,036
non-qualified options are outstanding, which obligate the Company to make a
cash payment to the optionee, upon exercise, of an amount up to the aggregate
increase in the market value of the common stock since the date of grant.
Options terminate five to ten years after date of grant.
The Company may, from time to time, offer key employees the opportunity to
elect to receive, in lieu of all or a portion of the cash bonuses otherwise
payable to them, stock awards of shares of the Company's common stock
having a fair market value on the date of the award equal to 115% of such cash
bonuses or portions thereof (Stock Bonus Awards Program.) Key employees elected
to receive 47,131 and 36,023 shares under the Stock Bonus Awards Program which
related to bonuses in fiscal 1996 and 1995, respectively.
7. INVENTORIES
At May 26, 1996 and May 28, 1995, inventories comprised the following:
- -------------------------------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------------
Raw materials and supplies $ 56,671 $ 56,283
- -------------------------------------------------------------------------------------------------------
Materials in process 65,447 60,554
- -------------------------------------------------------------------------------------------------------
Finished goods 172,316 171,378
- -------------------------------------------------------------------------------------------------------
294,434 288,215
Less: Excess of current cost over stated
value of last-in, first-out inventories 15,703 15,101
- -------------------------------------------------------------------------------------------------------
Total inventories $ 278,731 $ 273,114
=======================================================================================================
The percentage of costs of products sold determined on the basis of
last-in, first-out cost approximated 43.6% and 42.4% for 1996 and 1995,
respectively.
8. INCOME TAXES
The Company adopted the provisions of the Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes," as of May 31, 1993. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
As permitted under the Statement, prior years' financial statements have
not been restated. The cumulative effect of the change in accounting principle
on prior fiscal periods increased fiscal 1994 net income by $2.2 million, net
of taxes, or $0.06 per share.
The Statement also requires that deferred taxes be recorded for the tax
effects of differences between the assigned values and the tax basis of assets
acquired and liabilities assumed in business acquisitions. This change in
method increased the values assigned to such net assets by $22.7 million with a
corresponding increase in deferred income taxes.
Provision (benefit) from income taxes was
as follows:
- --------------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------
Current tax expense:
- --------------------------------------------------------------------------------------------------
Federal $ 20,169 $ 45,585 $ 37,387
- --------------------------------------------------------------------------------------------------
State and foreign 4,129 9,309 8,385
- --------------------------------------------------------------------------------------------------
24,298 54,894 45,772
- --------------------------------------------------------------------------------------------------
Deferred tax expense
(benefit):
- --------------------------------------------------------------------------------------------------
Federal (39,540) 1,068 708
- --------------------------------------------------------------------------------------------------
State and foreign (4,465) 367 150
- --------------------------------------------------------------------------------------------------
Effect of tax rate change -- -- 921
- --------------------------------------------------------------------------------------------------
(44,005) 1,435 1,779
- --------------------------------------------------------------------------------------------------
Provision (benefit) for
income taxes $ (19,707) $ 56,329 $ 47,551
==================================================================================================
The effective tax rates differ from the prevailing statutory federal rate
as follows:
- --------------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------
Statutory federal tax rate 35.0% 35.0% 35.0%
- --------------------------------------------------------------------------------------------------
State and foreign, net of
federal benefit (1.4) 4.4 4.3
- --------------------------------------------------------------------------------------------------
Other, net (5.2) 1.9 0.9
- --------------------------------------------------------------------------------------------------
Effective tax rate 28.4% 41.3% 40.2%
==================================================================================================
thirty four
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DEAN FOODS COMPANY AND SUBSIDIARIES
Dollar amounts in thousands unless otherwise noted
The components of the deferred income taxes were as follows:
1996 1995
Deferred tax assets:
Accounts receivable $ 3,003 $ 2,552
LIFO inventory (5,178) (3,721)
Self-insurance reserves 14,655 12,652
Vacation pay 4,276 4,585
Marketing accruals 6,518 3,860
Future benefit of special charge 33,817 --
Other 1,406 2,528
- --------------------------------------------------------------------------------------------------
Total deferred tax assets $ 58,497 $ 22,456
==================================================================================================
Deferred tax liabilities:
Fixed assets $ (74,429) $ (70,007)
Deferred compensation 6,420 4,585
DISC deferral (2,953) (2,420)
Intangibles (5,265) (4,450)
Future benefit of special charge 12,531 --
Other 2,654 2,241
- --------------------------------------------------------------------------------------------------
Total deferred tax liabilities $ (61,042) $ (70,051)
==================================================================================================
9. EMPLOYEE BENEFIT PLANS
The Company has various profit sharing and retirement plans covering certain
salaried and hourly employees. Amounts charged to operations under all plans
were $20,836, $16,969 and $15,502 in 1996, 1995 and 1994, respectively.
Defined Benefit Pension Plans - Costs for noncontributory defined benefit
plans were $5,762, $4,650, and $4,265 in 1996, 1995 and 1994, respectively.
Plan assets are primarily invested in bonds, stocks and real estate.
Significant weighted average assumptions used in determining net pension
costs were:
1996 1995
Discount rate 8.0% 8.0%
Expected long-term rate of return on assets 8.0% 8.0%
Rate of increase in compensation
levels (range) 0-5.0% 0-5.0%
The Company's defined benefit net pension costs included the following
components:
1996 1995 1994
Current service costs $ 3,621 $ 3,013 $ 2,765
Interest cost on projected
benefit obligation 6,189 5,654 5,679
Actual return on plan assets (16,452) (4,339) (4,189)
Net amortization and deferral 12,404 322 10
- ----------------------------------------------------------------------------------------------
Net pension costs $ 5,762 $ 4,650 $ 4,265
==============================================================================================
The following table sets forth the funded status of the Company's defined
benefit plans reconciled to accrued pension costs:
1996 1995
Present value of projected benefit
obligation:
Vested employees $ 62,762 $ 56,781
Non-vested employees 4,522 3,806
- -------------------------------------------------------------------------------------
Accumulated benefit obligation 67,284 60,587
Additional amounts due to
future salary increases 21,869 16,275
- -------------------------------------------------------------------------------------
Total projected benefit obligation 89,153 76,862
Fair value of net assets available
for benefits (74,690) (55,093)
- -------------------------------------------------------------------------------------
Projected benefit obligation greater
than net assets available 14,463 21,769
Unrecognized prior service cost (2,297) (2,642)
Unrecognized net obligation (112) (908)
Unrecognized net transition asset 3,735 3,850
Unrecognized net loss (9,702) (16,628)
- ------------------------------------------------------------------------------------
Net accrued pension costs $ 6,087 $ 5,441
====================================================================================
The majority of retirement benefits are based upon the highest five year
average qualifying earnings (base compensation) for service prior to
January 1, 1986 and, for service since then, based upon the participant's
qualifying earnings each year.
The Company participates in various multi-employer union-management-
administered defined contribution pension plans that principally cover
production workers. Pension expense under these plans was $6,398, $5,557 and
$4,810 in 1996, 1995 and 1994, respectively.
Profit Sharing Plans - The Company maintains noncontributory profit
sharing plans for certain employees. Company contributions under these plans
are made at the discretion of the Board of Directors. Expense for these plans
was $6,012, $4,965 and $5,299 in 1996, 1995 and 1994, respectively.
Postretirement Benefits - The Company provides health care and life
insurance benefits to certain of its retired employees and eligible dependents.
Employees are eligible for such benefits subject to minimum age and service
requirements. Eligible employees that retire before the normal retirement age,
along with their dependents, are entitled to benefits on a shared contribution
basis. Substantially all benefits terminate at age sixty-five. The Company
retains the right to modify or eliminate these benefits.
Effective May 31, 1993, the Company implemented Statement of Financial
Accounting Standard No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions," which requires recognition of the cost of postretirement
benefits on the accrual basis rather than the cash basis, which was the
Company's previous accounting policy. The cumulative effect of the accounting
change resulted in a non-cash charge of $1,027 (net of $657 of taxes) or $.03
per share which represents the accumulated postretirement benefit obligation
(APBO) existing at May 31, 1993. Additionally, in connection with the Birds Eye
acquisition, the Company assumed a postretirement obligation of $4,252 which was
recorded as part of the acquisition accounting.
thirty five
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DEAN FOODS COMPANY AND SUBSIDIARIES
Dollar amounts in thousands unless otherwise noted
Net periodic postretirement benefits expense was $704, $1,140 and $508 in
1996, 1995 and 1994, respectively. The components of expense follows:
----------------------------------------------------------
1996 1995 1994
----------------------------------------------------------
Service cost of benefits earned $ 273 $ 589 $ 237
----------------------------------------------------------
Interest cost on liability 431 551 271
----------------------------------------------------------
Net periodic postretirement
benefit cost $ 704 $ 1,140 $ 508
==========================================================
As a result of changes in employee benefit plans during fiscal 1996,
postretirement medical benefits for certain union plans were eliminated
resulting in a curtailment gain of $3,994.
The following table summarizes the postretirement benefit liability:
- ------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------
Retirees $ 2,151 $ 1,699
- ------------------------------------------------------------------------------------
Fully eligible active participants 280 161
- ------------------------------------------------------------------------------------
Other active participants 764 3,668
- ------------------------------------------------------------------------------------
Total 3,195 5,528
- ------------------------------------------------------------------------------------
Unrecognized net gain 1,095 2,052
- ------------------------------------------------------------------------------------
Accrued postretirement benefits $ 4,290 $ 7,580
====================================================================================
The accumulated postretirement benefit obligation was determined using a
weighted average discount rate of 8.0% in fiscal 1996 and 1995, and an assumed
compensation increase of 5.0%. The health care cost trend rates were assumed to
be 8.0% in 1996, gradually declining to 5.0% over six years and remaining at
that level thereafter. In 1995 the cost trend rates were assumed to be 10.5%,
gradually declining to 5.5% over ten years. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example, a 1%
increase in the health care cost trend rate would increase the accumulated
postretirement benefit obligation by $170 at May 26, 1996, and the net periodic
cost by $21.
10. LEASES
Net rental expense, including amounts for leases of one year or less, was
$30,733, $25,062 and $21,203 in 1996, 1995 and 1994, respectively. Sublease
rental income is not significant. A majority of the Company's leases provide
that the Company pay taxes, maintenance, insurance and certain other operating
expenses.
At May 26, 1996, annual minimum rental payments under capital and
operating leases that have initial noncancelable terms in excess of one year
were as follows:
Capital Operating
Leases Leases
--------------------------------------------------
1997 $ 1,299 $ 11,661
--------------------------------------------------
1998 1,268 10,285
--------------------------------------------------
1999 1,027 8,678
--------------------------------------------------
2000 1,008 5,917
--------------------------------------------------
2001 1,084 3,148
--------------------------------------------------
Thereafter 14,098 4,350
--------------------------------------------------
Total minimum lease payments 19,784 $ 44,039
-----------------------------------------=========
Less: Imputed interest 10,144
---------------------------------------
Present value of minimum
lease payments $ 9,640
=======================================
Table
11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Consolidated accounts payable and accrued expenses at May 26, 1996 and May 28,
1995 comprised the following items:
- ------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Trade payables $ 98,387 $ 102,074
- ------------------------------------------------------------------------------
Accrued expenses 62,894 61,388
- ------------------------------------------------------------------------------
Accrued insurance 41,848 37,945
- ------------------------------------------------------------------------------
Special charge reserve 41,012 --
- ------------------------------------------------------------------------------
Accrued payroll 32,965 33,939
- ------------------------------------------------------------------------------
Accrued taxes, other than income 4,578 4,656
- ------------------------------------------------------------------------------
Accrued pension and profit sharing 5,621 8,719
- ------------------------------------------------------------------------------
Total accounts payable and
accrued expenses $ 287,305 $ 248,721
==============================================================================
12. CASH FLOW DATA
Interest and taxes paid included in the Company's cash flow from operations were
as follows:
- -------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
Interest paid $ 25,363 $ 22,579 $ 15,591
- -------------------------------------------------------------------------------
Taxes paid 39,687 54,752 46,753
- -------------------------------------------------------------------------------
Liabilities assumed in conjunction with business acquisitions were:
- ---------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------
Fair value of assets
acquired $ 67,574 $ 35,908 $ 197,090
- ---------------------------------------------------------------------------
Consideration paid (66,053) (35,273) (171,479)
- ---------------------------------------------------------------------------
Liabilities assumed $ 1,521 $ 635 $ 25,611
- ---------------------------------------------------------------------------
13. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a defendant in various legal matters and is currently the subject
of investigations by various state and federal authorities relating to the
pricing of contracts to supply milk and certain environmental matters. On July
10, 1996, a federal judge imposed a fine of approximately $4.0 million on a
subsidiary of the Company, alleging violations of the Federal Water Pollution
Control Act relating to the discharge of conventional, non-hazardous substances.
The Company has filed various post-trial motions seeking to reduce or eliminate
the fine. The Company provided for this exposure in 1996 and in light of
reserves existing at May 26, 1996, the ultimate resolution of these matters,
including the resolution of the imposed fine, is not expected to have a material
effect on the financial position or results of operations of the Company.
thirty six
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DEAN FOODS COMPANY AND SUBSIDIARIES
Dollar amounts in thousands unless otherwise noted
14. BUSINESS SEGMENT INFORMATION
The nature of products classified in the business segments presented herein is
described on pages 12 through 19. Intersegment sales are not material.
Operating earnings (loss) of segments do not include interest income or expense
and provisions (benefits) for income taxes.
Identifiable assets are those used in the Company's operations in each
segment. Corporate assets consist primarily of cash and marketable securities
and deferred tax assets.
Dairy Vegetables Pickles Specialty Corporate Consolidated
- -----------------------------------------------------------------------------------------------------------------------
1996
- -----------------------------------------------------------------------------------------------------------------------
Net sales $ 1,611,266 $ 573,751 $ 373,213 $ 256,038 $ -- $ 2,814,268
- -----------------------------------------------------------------------------------------------------------------------
Operating earnings (loss) (2,644) (41,837) 10,299 25,737 (33,985) (42,430)
- -----------------------------------------------------------------------------------------------------------------------
Identifiable assets 456,632 406,541 151,578 98,480 109,009 1,222,240
- -----------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 37,633 25,086 7,903 4,476 1,950 77,048
- -----------------------------------------------------------------------------------------------------------------------
Capital expenditures 49,905 18,713 6,733 13,544 904 89,799
- -----------------------------------------------------------------------------------------------------------------------
1995
- -----------------------------------------------------------------------------------------------------------------------
Net sales $ 1,513,560 $ 543,103 $ 367,182 $ 206,337 $ -- $ 2,630,182
- -----------------------------------------------------------------------------------------------------------------------
Operating earnings 77,242 44,736 30,395 27,239 (22,509) 157,103
- -----------------------------------------------------------------------------------------------------------------------
Identifiable assets 491,638 428,781 155,368 56,996 69,643 1,202,426
- -----------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 36,418 21,364 7,735 3,184 1,326 70,027
- -----------------------------------------------------------------------------------------------------------------------
Capital expenditures 49,150 16,683 9,138 7,019 1,290 83,280
- -----------------------------------------------------------------------------------------------------------------------
1994
- -----------------------------------------------------------------------------------------------------------------------
Net sales $ 1,469,198 $ 419,930 $ 352,560 $ 189,515 $ -- $ 2,431,203
- -----------------------------------------------------------------------------------------------------------------------
Operating earnings 77,987 27,021 19,419 25,815 (17,186) 133,056
- -----------------------------------------------------------------------------------------------------------------------
Identifiable assets 459,986 385,537 139,007 55,384 69,240 1,109,154
- -----------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 35,424 15,918 6,554 2,515 1,464 61,875
- -----------------------------------------------------------------------------------------------------------------------
Capital expenditures 51,466 12,931 9,097 6,285 1,198 80,977
- -----------------------------------------------------------------------------------------------------------------------
Fiscal 1996 segment operating earnings (loss) include the special charge related
to the adoption of a plan to reduce costs, rationalize production capacity
and provide for severance and environmental costs of $76,694, $47,561, $13,704,
$999 and $11,042 in the Dairy, Vegetables, Pickles, Specialty and Corporate
segments, respectively.
thirty seven
39
QUARTERLY FINANCIAL DATA DEAN FOODS COMPANY AND SUBSIDIARIES
Unaudited (In thousands, except for per share data)
First Second Third Fourth Fiscal Year
- --------------------------------------------------------------------------------------------------------------------
Fiscal 1996
- --------------------------------------------------------------------------------------------------------------------
Net sales $ 651,505 $ 705,358 $ 717,976 $ 739,429 $ 2,814,268
- --------------------------------------------------------------------------------------------------------------------
Gross profit $ 148,685 158,266 145,801 149,871 602,623
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 13,661 16,012 6,727 (86,088)(a) (49,688)(a)
- --------------------------------------------------------------------------------------------------------------------
Per common share data:
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ .34 .40 .17 (2.15)(a) (1.24)(a)
- --------------------------------------------------------------------------------------------------------------------
Stock price range -
- --------------------------------------------------------------------------------------------------------------------
High $ 29 1/4 28 3/4 29 3/4 26 5/8 29 3/4
- --------------------------------------------------------------------------------------------------------------------
Low $ 26 5/8 26 1/4 25 5/8 22 1/4 22 1/4
- --------------------------------------------------------------------------------------------------------------------
Dividend rate (cents) 18.0 18.0 18.0 18.0 72.0
- --------------------------------------------------------------------------------------------------------------------
Fiscal 1995
- --------------------------------------------------------------------------------------------------------------------
Net sales $ 614,283 $ 662,848 $ 665,895 $ 687,156 $ 2,630,182
- --------------------------------------------------------------------------------------------------------------------
Gross profit $ 141,410 157,969 154,794 170,910 625,083
- --------------------------------------------------------------------------------------------------------------------
Net income $ 16,960 20,026 17,176 25,897 80,059
- --------------------------------------------------------------------------------------------------------------------
Per common share data:
- --------------------------------------------------------------------------------------------------------------------
Net income $ .43 .50 .43 .65 2.01
- --------------------------------------------------------------------------------------------------------------------
Stock price range -
- --------------------------------------------------------------------------------------------------------------------
High $ 31 7/8 32 3/4 30 3/4 31 5/8 32 3/4
- --------------------------------------------------------------------------------------------------------------------
Low $ 25 1/4 27 1/4 28 1/8 27 1/4 25 1/4
- --------------------------------------------------------------------------------------------------------------------
Dividend rate (cents) 17.0 17.0 17.0 17.0 68.0
- --------------------------------------------------------------------------------------------------------------------
(a) 1996 includes an after-tax charge of $97,720 ($2.44 per share) related to
the adoption of a plan to reduce costs, rationalize production capacity and
provide for severance and environmental costs.
The Company's common stock is traded on the New York Stock Exchange under the
ticker symbol: DF.
REPORT OF INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP [LOGO]
200 East Randolph Drive
Chicago, IL 60601
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
DEAN FOODS COMPANY
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Dean Foods
Company and subsidiaries at May 26, 1996 and May 28, 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended May 26, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
June 25, 1996, except as to
the second sentence of Note 13,
which is as of July 10, 1996
thirty eight
40
SUMMARY OF OPERATIONS DEAN FOODS COMPANY AND SUBSIDIARIES
(In thousands, except for items marked with an *)
- --------------------------------------------------------------------------------------------------------------
Fiscal Year Ended May, 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
Operating Data:
- --------------------------------------------------------------------------------------------------------------
Net sales $2,814,268 2,630,182 2,431,203 2,274,340 2,289,441
- --------------------------------------------------------------------------------------------------------------
Costs of products sold
and all operating expenses $2,856,698 (a) 2,473,079 2,298,147 2,145,687 2,169,886(c)
- --------------------------------------------------------------------------------------------------------------
Operating earnings (loss) $ (42,430)(a) 157,103 133,056 128,653 119,555(c)
- --------------------------------------------------------------------------------------------------------------
Interest expense $ 28,349 22,397 15,471 14,888 15,551
- --------------------------------------------------------------------------------------------------------------
Income (loss) before taxes $ (69,395)(a) 136,388 118,313 114,759 105,527(c)
- --------------------------------------------------------------------------------------------------------------
Provision (benefit) for income taxes $ (19,707) 56,329 47,551 46,350 43,511
- --------------------------------------------------------------------------------------------------------------
Net income (loss) $ (49,688)(a) 80,059 71,941(b) 68,409 62,016(c)
- --------------------------------------------------------------------------------------------------------------
Depreciation on properties $ 70,220 65,056 58,549 51,815 48,348
- --------------------------------------------------------------------------------------------------------------
Capital expenditures $ 89,799 83,280 80,977 74,803 77,867
- --------------------------------------------------------------------------------------------------------------
Number of employees* 11,500 11,800 12,100 10,500 10,100
- --------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
- --------------------------------------------------------------------------------------------------------------
Working capital $ 185,942 215,012 92,915 198,393 183,577
- --------------------------------------------------------------------------------------------------------------
Total assets $1,222,240 1,202,426 1,109,154 892,836 857,152
- --------------------------------------------------------------------------------------------------------------
Net plant and equipment $ 525,667 570,145 543,211 443,764 415,791
- --------------------------------------------------------------------------------------------------------------
Long-term obligations $ 221,653 224,679 136,150 151,127 155,478
- --------------------------------------------------------------------------------------------------------------
Shareholders' equity $ 507,692 584,526 524,774 476,319 430,443
- --------------------------------------------------------------------------------------------------------------
Common Stock Data:
- --------------------------------------------------------------------------------------------------------------
Net income (loss) per share* $ (1.24)(a) 2.01 1.81(b) 1.73 1.53(c)
- --------------------------------------------------------------------------------------------------------------
Cash dividends per share* $ .72 .68 .64 .60 .56
- --------------------------------------------------------------------------------------------------------------
Book value per share* $ 12.65 14.58 13.19 12.00 10.87
- --------------------------------------------------------------------------------------------------------------
Number of shareholders* 9,481 9,989 8,936 8,654 8,929
- --------------------------------------------------------------------------------------------------------------
(In thousands, except for items marked with an *)
- --------------------------------------------------------------------------------------------------------------
Fiscal Year Ended May, 1991 1990 1989 1988 1987
- --------------------------------------------------------------------------------------------------------------
Operating Data:
- --------------------------------------------------------------------------------------------------------------
Net sales 2,157,997 1,987,517 1,683,578 1,551,832 1,434,600
- --------------------------------------------------------------------------------------------------------------
Costs of products sold
and all operating expenses 2,018,374 1,875,149 1,576,512 1,471,261 1,348,118
- --------------------------------------------------------------------------------------------------------------
Operating earnings (loss) 139,623 112,368 107,066 80,571 86,482
- --------------------------------------------------------------------------------------------------------------
Interest expense 16,780 12,682 7,646 6,149 5,814
- --------------------------------------------------------------------------------------------------------------
Income (loss) before taxes 124,340 102,066 101,793(d) 76,542(e) 82,794
- --------------------------------------------------------------------------------------------------------------
Provision (benefit) for income taxes 51,807 40,834 41,360 33,787 41,727
- --------------------------------------------------------------------------------------------------------------
Net income (loss) 72,533 61,232 60,433(d) 42,755(e) 41,067
- --------------------------------------------------------------------------------------------------------------
Depreciation on properties 44,465 37,338 31,046 29,028 25,559
- --------------------------------------------------------------------------------------------------------------
Capital expenditures 72,844 68,196 55,917 39,258 41,618
- --------------------------------------------------------------------------------------------------------------
Number of employees* 9,600 8,900 7,500 7,100 6,900
- --------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
- --------------------------------------------------------------------------------------------------------------
Working capital 198,429 182,852 156,469 130,355 114,819
- --------------------------------------------------------------------------------------------------------------
Total assets 816,999 744,759 586,702 499,150 450,116
- --------------------------------------------------------------------------------------------------------------
Net plant and equipment 375,930 337,068 253,972 211,711 194,878
- --------------------------------------------------------------------------------------------------------------
Long-term obligations 149,980 146,622 84,162 48,884 47,024
- --------------------------------------------------------------------------------------------------------------
Shareholders' equity 416,560 362,760 293,249 265,739 236,417
- --------------------------------------------------------------------------------------------------------------
Common Stock Data:
- --------------------------------------------------------------------------------------------------------------
Net income (loss) per share* 1.79 1.53 1.52(d) 1.07(e) 1.03
- --------------------------------------------------------------------------------------------------------------
Cash dividends per share* .49 .44 .40 .36 .32
- --------------------------------------------------------------------------------------------------------------
Book value per share* 10.23 8.93 7.43 6.60 5.89
- --------------------------------------------------------------------------------------------------------------
Number of shareholders* 8,380 8,005 8,290 8,671 8,357
- --------------------------------------------------------------------------------------------------------------
(a) 1996 includes a pre-tax charge of $150,000 ($97,720 after-tax or $2.44 per
share) related to the adoption of a plan to reduce costs, rationalize
production capacity and provide for severance and environmental costs.
(b) 1994 includes an after-tax net gain of $1,179 ($.03 per share) related to
changes in accounting principles.
(c) 1992 includes a charge against operations of $9,100 related to the
termination of the Company's refrigerated truckload transportation business
($5,685 after taxes, or $.14 per share).
(d) 1989 includes a net gain of $10,132 for unusual items ($5,442 after taxes,
or $.14 per share).
(e) 1988 includes a net charge against operations of $11,606 for unusual items
($9,686 after taxes, or $.24 per share).
thirty nine
41
DIRECTORS DEAN FOODS COMPANY AND SUBSIDIARIES
HOWARD M. DEAN -
Chairman of the Board and
Chief Executive Officer
THOMAS L. ROSE - @
President and Chief
Operating Officer
EDWARD A. BRENNAN *
Retired Chairman and
Chief Executive Officer,
Sears, Roebuck & Co.,
a merchandising company.
LEWIS M. COLLENS * #
President, Illinois Institute
of Technology, and Chairman
and Chief Executive Officer,
IIT Research Institute
PAULA H. CROWN * +
Vice President of
Henry Crown and Company,
a private investment firm.
JOHN P. FRAZEE, JR. * +
Retired Chairman and
Chief Executive Officer, Centel Corporation, a leader in local exchange
telephone and cellular
communications services.
BERT A. GETZ # @ +
Chairman, President and
Director, Globe Corporation,
a diversified investment firm.
JOHN S. LLEWELLYN, JR. # +
President and Chief Executive
Officer, Ocean Spray Cranberries, Inc., a marketing cooperative of
cranberry and citrus growers.
RICHARD P. MAYER #
Retired Chairman and Chief Executive Officer, Kraft General Foods North
America, a diversified food company.
ANDREW J. MCKENNA - # +
Chairman and Chief Executive Officer, Schwarz Paper Company, a national
distributor and converter of paper products and specialty printer.
THOMAS A. RAVENCROFT @
Senior Vice President and President,
Dairy Division
ALEXANDER J. VOGL - * #
Chairman and Chief Executive Officer, Wilton Corporation,
a diversified manufacturer of
industrial products.
- Executive Committee
* Audit Committee
# Compensation Committee
@ Pension Committee
+ Nominating Committee
OFFICERS DEAN FOODS COMPANY AND SUBSIDIARIES
HOWARD M. DEAN
Chairman of the Board and
Chief Executive Officer
THOMAS L. ROSE
President and Chief
Operating Officer
ERIC A. BLANCHARD
Vice President, Secretary and
General Counsel
JENNY L. CARPENTER
Vice President, Sales and
Marketing - Specialty Food
Products
GARY A. CORBETT
Vice President, Governmental
and Dairy Industry Relations
GARY D. FLICKINGER
Vice President, Production
DANIEL E. GREEN
Group Vice President,
Specialty Dairy Division
JAMES R. GREISINGER
Group Vice President and
President of Dean Pickle and Specialty Products Company
DALE I. HECOX
Treasurer
CHARLES D. KINSER
Vice President, Engineering
RODNEY T. LIDDLE
Vice President, Strategic Planning
WILLIAM R. MCMANAMAN
Vice President, Finance and
Chief Financial Officer
GEORGE A. MUCK
Vice President, Research and Development
DOUGLAS A. PARR
Vice President, Dairy Sales
and Marketing
DENNIS J. PURCELL
Corporate Group Vice President
ROGER A. RAGLAND
Group Vice President - International
THOMAS A. RAVENCROFT
Senior Vice President and President,
Dairy Division
JEFFREY P. SHAW
Group Vice President and President
of Dean Foods Vegetable Company
forty
42
Design: BAGBY and COMPANY INC. Chicago
Printing: Lake County Press
CORPORATE DATA DEAN FOODS COMPANY AND SUBSIDIARIES
FORM 10-K
Single copies of the Company's 1996 Annual Report on Securities and Exchange
Commission Form 10-K without exhibits will be provided without charge to
shareholders upon written request directed to the Secretary, Dean Foods
Company, 3600 N. River Road, Franklin Park, Illinois 60131.
DIVIDEND REINVESTMENT SERVICE
A service for Dean shareholders is available through the Harris Trust and
Savings Bank, whereby dividends can be automatically reinvested in Company
Common Stock. The plan also provides for a voluntary cash payment option for
the purchase of additional stock and safekeeping of shares.
If interested in this service, please write to the bank and request a
copy of Dean's dividend reinvestment brochure: Harris Trust and Savings Bank,
Dividend Reinvestment Service, P. O. Box A3309, Chicago, Illinois 60690.
DUPLICATE MAILINGS
When shares owned by one shareholder are held in different forms of the same
name Jane R. Doe, J. R. Doe and J. Rose Doe, duplicate mailing of
shareholder information results. The Company mails to each name on the
shareholder list unless the shareholder requests that duplicate mailings be
eliminated.
Shareholders that receive duplicate reports can help eliminate the
added expense by requesting that only one copy be sent. Send the labels or
label information to our transfer agent, Harris Trust and Savings Bank,
indicating the name to keep on the list and the names to be deleted. This
change will not affect dividend or proxy mailings.
FINANCIAL INFORMATION & INVESTOR RELATIONS INQUIRIES
The Company maintains a direct mailing list to ensure that shareholders
with stock held in broker nominee accounts "street name" and other
interested parties receive information on a timely basis.
To be added to this list, or to request financial information, please
direct requests to the Director of Corporate Communications, Dean Foods
Company, 3600 N. River Road, Franklin Park, Illinois 60131.
TRANSFER AGENT AND REGISTRAR
For inquiries regarding change of address, stock transfer, registered
shareholdings, dividends and lost certificates, please contact: Harris Trust
and Savings Bank,111 West Monroe Street, Chicago, Illinois 60690
312/461-3309
STOCK EXCHANGE
New York Stock Exchange
Ticker Symbol: DF
ANNUAL MEETING
10:00 A.M., October 1, 1996
Drury Lane Oak Brook Terrace
100 Drury Lane
Oak Brook Terrace, Illinois 60181
(Location map appears in Proxy Statement.)
CORPORATE OFFICE
3600 N. River Road
Franklin Park, Illinois 60131
(847) 678-1680
(312) 625-6200
Dairy Ease is a registered trademark of Sterling Winthrop, Inc.
Guilt Free is a registered trademark of Yarnell's Ice Cream Co., Inc.
Nestle Quik and Carnation Coffeemate are registered trademarks of Nestle Food
Company.
43
DEAN FOODS COMPANY, 3600 NORTH RIVER ROAD, FRANKLIN PARK, ILLINOIS 60131