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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For the quarterly period ended February 23, 1997 or
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Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For the transition period from to
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Commission file number 0-1118
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DEAN FOODS COMPANY
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(Exact name of registrant as specified in its charter)
DELAWARE 36-0984820
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(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
3600 North River Road, Franklin Park, Illinois 60131
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 678-1680
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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The number of shares of the Registrant's Common Stock, par value $1 per share,
outstanding as of the date of this report was 40,226,521.
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Total number of pages 45.
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PART I - FINANCIAL INFORMATION
A. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of the Company, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the following
unaudited condensed consolidated financial statements have been included
herein. Certain information and footnote disclosures normally included in the
financial statements have been omitted. These unaudited condensed consolidated
financial statements should be read in conjunction with the Company's 1996
Annual Report on Form 10-K.
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ITEM 1.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTERS AND NINE MONTHS ENDED
FEBRUARY 23, 1997 AND FEBRUARY 25, 1996
(In Thousands Except for Per Share Amounts)
Third Quarter Ended Nine Months Ended
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February 23, February 25, February 23, February 25,
1997 1996 1997 1996
------------ ------------ ------------ ------------
Net sales $745,012 $717,976 $2,230,781 $2,074,839
Costs of products sold 571,151 572,175 1,726,043 1,622,087
Delivery, selling and
administrative expenses 132,681 127,260 388,794 372,040
-------- -------- ---------- ----------
Operating earnings 41,180 18,541 115,944 80,712
Interest expense (6,647) (8,192) (19,745) (21,061)
Interest income 147 256 645 1,017
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Income before income taxes 34,680 10,605 96,844 60,668
Provision for income taxes 14,045 3,878 39,223 24,268
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Net income $ 20,635 $ 6,727 $ 57,621 $ 36,400
======== ======== ========== ==========
Net income per common
share $ .51 $ .17 $ 1.43 $ .91
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Dividends per share
(Declared and paid) $ .19 $ .18 $ .57 $ .54
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Weighted average common
shares 40,162 40,119
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See accompanying Notes to Condensed Consolidated Financial Statements.
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CONDENSED CONSOLIDATED BALANCE SHEETS
FEBRUARY 23, 1997 AND MAY 26, 1996
(In Thousands)
February 23, May 26,
1997 1996
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(Unaudited)
ASSETS
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CURRENT ASSETS:
Cash and cash equivalents $ 11,345 $ 10,399
Accounts and notes receivable,
less allowance for doubtful
accounts of $3,621 and $3,201, respectively 181,826 188,222
Inventories 302,449 278,731
Other current assets 108,893 107,047
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Total Current Assets 604,513 584,399
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PROPERTIES:
Property, plant and equipment, at cost 1,031,805 993,826
Accumulated depreciation 511,847 468,159
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519,958 525,667
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OTHER ASSETS 117,001 112,174
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Total Assets $1,241,472 $1,222,240
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES:
Notes payable to banks $ 65,000 $ 92,000
Current installments of long-term obligations 11,499 11,855
Accounts payable and accrued expenses 287,821 287,305
Dividends payable 7,718 7,297
Federal and state income taxes 8,486 -
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Total Current Liabilities 380,524 398,457
LONG-TERM OBLIGATIONS (Less current
installments included above) 223,392 221,653
DEFERRED LIABILITIES 93,474 94,438
SHAREHOLDERS' EQUITY 544,082 507,692
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Total Liabilities and Shareholders' Equity $1,241,472 $1,222,240
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See accompanying Notes to Condensed Consolidated Financial Statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
FEBRUARY 23, 1997 AND FEBRUARY 25, 1996
(In Thousands)
Nine Months Ended
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February 23, February 25,
1997 1996
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(Unaudited)
Net cash provided from operations $ 95,859 $ 14,846
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Cash flows from investing activities:
Capital expenditures (47,500) (74,548)
Proceeds from disposition of property,
plant and equipment 1,312 2,038
Acquisition of business, net of
cash acquired - (66,070)
Proceeds from business divested 2,000 -
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Net cash used in investing activities (44,188) (138,580)
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Cash flows from financing activities:
Issuance of long-term obligations 8,200 9,799
Repayment of long-term obligations (3,817) (2,624)
Issuance (Repayment) of notes payable to banks, net (27,000) 148,000
Unexpended industrial revenue bond proceeds (7,524) (3,552)
Cash dividends paid (22,196) (21,108)
Issuance of common stock 1,612 1,519
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Net cash provided by (used in) financing activities (50,725) 132,034
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Increase in cash and cash equivalents 946 8,300
Cash and cash equivalents - beginning of period 10,399 4,826
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Cash and cash equivalents - end of period $ 11,345 $ 13,126
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See accompanying Notes to Condensed Consolidated Financial Statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. INVENTORIES
The following is a tabulation of inventories by class at February 23,
1997, February 25, 1996, and May 26, 1996 (In Thousands).
February 23, February 25, May 26,
1997 1996 1996
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(Unaudited)
Raw materials and supplies $ 47,229 $ 50,231 $ 56,671
Materials in process 90,776 96,642 65,447
Finished goods 183,041 224,591 172,316
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321,046 371,464 294,434
Less: Excess of current cost over stated value
of last-in, first-out inventories 18,597 15,151 15,703
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Total inventories $302,449 $356,313 $278,731
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2. BUSINESS SEGMENT INFORMATION
The following is a tabulation of the Company's business segment
information for the quarters and nine month periods ended February 23, 1997 and
February 25, 1996 (In Thousands).
(Unaudited)
Dairy Vegetables Pickles Specialty Corporate Consolidated
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THIRD QTR. ENDED
February 23, 1997
Net sales $ 443,126 $143,445 $ 82,617 $ 75,824 $ - $ 745,012
Operating earnings $ 26,959 $ 8,509 $ 7,817 $ 9,047 $(11,152) $ 41,180
February 25, 1996
Net sales $ 409,199 $146,515 $ 88,048 $ 74,214 $ - $ 717,976
Operating earnings $ 13,525 $ (547) $ 4,859 $ 6,245 $ (5,541) $ 18,541
NINE MONTHS ENDED
February 23, 1997
Net sales $1,327,758 $410,597 $267,349 $225,077 $ - $2,230,781
Operating earnings $ 69,679 $ 20,996 $ 24,718 $ 27,461 $(26,910) $ 115,944
February 25, 1996
Net sales $1,196,683 $424,128 $268,602 $185,426 $ - $2,074,839
Operating earnings $ 53,028 $ 11,714 $ 14,537 $ 18,796 $(17,363) $ 80,712
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3. LEGAL PROCEEDINGS
See PART II, Item 1 for a discussion of pending legal proceedings.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
A.) Liquidity and Capital Resources
As of February 23, 1997 there have been no material changes in the
Company's liquidity or its capital resources from those described in the
Management's Discussion and Analysis contained in the Company's Annual Report
on Form 10-K for the fiscal year ended May 26, 1996. Cash and cash equivalents
were $11.3 million at February 23, 1997, an increase of $.9 million from the
balance at May 26, 1996.
The inventories at February 23, 1997 were $302.4 million, an increase of
$23.7 million over the balance at May 26, 1996, reflecting the typical seasonal
increase resulting from the vegetable and cucumber harvests. The February 23,
1997 inventories were $53.9 million lower than inventories at February 25, 1996
reflecting the lower value of inventories in the Vegetables and Pickles
segments.
In the fourth quarter of fiscal 1996 the Company recorded a pre-tax
provision of $150.0 million related to the adoption of a plan to reduce costs,
rationalize production capacity and provide for projected severance and
environmental costs. At May 26, 1996 the remaining accruals were $49.0
million. During the first nine months of fiscal 1997 the Company expended
$15.0 million, primarily for plant closure and severance activities.
Short-term borrowings outstanding at February 23, 1997, were $65.0
million, a decrease of $27.0 million from the balance outstanding at May 26,
1996. The short-term borrowings are $112.0 million less than at February 25,
1996, due primarily to lower inventory and receivable balances in the
Vegetables and Pickles segments in fiscal 1997. Working capital at February
23, 1997 was $224.0 million compared to $185.9 million at May 26, 1996. The
Company's debt-to-capital ratio was 35.5% at February 23, 1997 compared with
39.1% at May 26, 1996 and 41.2% at February 25, 1996.
B.) Results of Operations
Sales
Net sales for the third quarter of fiscal 1997 of $745.0 million were 4%
higher than sales of $718.0 million in the prior year. For the nine months,
net sales increased 8% to $2.2 billion in fiscal 1997 from $2.1 billion last
year. The sales increases in both periods are primarily due to increases in
the Dairy and Specialty segments.
Dairy sales for the quarter of $443.1 million were 8% higher than sales of
$409.2 million in the prior year. For the nine months, Dairy sales increased
11%, to $1.3 billion from $1.2 billion in fiscal 1996. The increased sales in
both periods are primarily the result of increased selling prices which
reflected the pass-through of higher raw milk costs, which peaked at record
levels in the second quarter of fiscal 1997 and then declined during the third
quarter. For the nine month period overall dairy volume is up 1%, as a
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4% increase in fluid milk is largely offset by a 2% decline in ice cream and a
decline resulting from the sale of an Extended Shelf Life plant.
The Vegetables segment sales of $143.4 million in the third quarter and
$410.6 million for the nine months in fiscal 1997 are down approximately 2% and
3%, respectively, from sales of $146.5 million and $424.1 million in the same
periods in the prior year. The decline in both periods is due primarily to
lower private label sales.
The Pickles segment sales of $82.6 million in the third quarter of fiscal
1997 were down 6% compared to the same quarter last fiscal year, primarily due
to a shift in customer sales mix which focused on eliminating the sales of low
margin products. Sales for the nine month period of $267.3 million were
relatively flat in relation to the prior year.
The Specialty segment sales for both the third quarter and nine month
periods increased over the prior year. Third quarter sales were up 2% to $75.8
million from $74.2 million in 1996. For the nine months, sales increased 21%
to $225.1 million from $185.4 million, primarily due to sales of a December
1995 acquisition and increased sales of the segment's non-dairy creamer
products.
Operating Earnings
Operating earnings for the third quarter of fiscal 1997 of $41.2 million,
were more than double the operating earnings of $18.5 million in fiscal 1996.
For the nine months, operating earnings of $115.9 million were $35.2 million,
or 44%, higher than in the same period of the prior year. Each of the
Company's business segments reported increased operating earnings in both the
quarter and nine month periods.
Dairy segment operating earnings of $27.0 million in the third quarter of
fiscal 1997 doubled the operating earnings of $13.5 million in the third
quarter of 1996. For the nine months, dairy operating earnings of $69.7
million were $16.7 million, or 31%, higher than in fiscal 1996. The results
for both periods reflect improved earnings from the sales increase discussed
above and improved operating efficiencies in several plants. In the third
quarter of fiscal 1997, an increasing butterfat differential, which effectively
reduces the cost of the Company's skim and lowfat dairy products, benefited the
results in this segment. In the second quarter of 1997, as well as the third
quarter of 1996, a declining butterfat differential negatively effected this
segment's operating results. The net change resulting from the changing
butterfat was favorable by approximately $5.5 million in the third quarter of
fiscal 1997 versus the third quarter of the prior year.
Operating earnings in the Vegetables segment of $8.5 million in the third
quarter of fiscal 1997 represented a significant turnaround from the operating
loss of $.5 million in the same quarter of fiscal 1996. The improved third
quarter results were principally because of favorable manufacturing variances
resulting from improved procurement and increased operating efficiencies, lower
warehousing costs and reduced operating expenses, all of which offset the lower
sales volume in fiscal 1997. For the nine month period, operating earnings of
$21.0 million are up 79% over those of fiscal 1996.
The Pickles segment recorded operating earnings of $7.8 million in the third
quarter of fiscal 1997, a 61% increase over operating earnings of
$4.9 million in the prior fiscal year. For the nine months, fiscal 1997
operating earnings of $24.7 million were 70% higher than those of fiscal 1996.
The improvements in the quarter and nine month periods of 1997 are the result
of improved procurement and manufacturing efficiencies and a shift in customer
sales mix, as discussed above.
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The Specialty segment operating earnings for the third quarter and nine
month periods of fiscal 1997 of $9.0 million and $27.5 million, respectively,
are substantially ahead of the $6.2 million and $18.8 million operating
earnings in the same periods of the prior year. The improvement in operating
earnings in fiscal 1997 is primarily the result of higher sales in the powdered
products operation and the earnings of the December 1995 acquisition.
The increased Corporate expenses in the third quarter of fiscal 1997 are
principally the result of increased compensation and stock plan accruals
reflecting improved 1997 results. The increase in Corporate expenses for the
nine month period reflect the increased compensation expenses as well as
increased pension and other expenses related to the Company's 1997 management
changes.
Interest Expense
Interest expense in the third quarter of $6.6 million is $1.5 million
lower than the interest expense in the same period of the prior year reflecting
significantly lower average borrowings. For the nine month period, interest
expense is down approximately $1.3 million from the prior year primarily as a
result of the lower third quarter average borrowings.
Income Taxes
The effective income tax rate for both the third quarter and nine month
periods of fiscal 1997 was 40.5% compared with a rate of 36.6% in the third
quarter and 40.0% for the first nine months of fiscal 1996.
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PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
There has been no material change in the legal proceedings reported
under Item 3 - Legal Proceedings, of the Company's Form 10-K Annual
Report, for the fiscal year ended May 26, 1996.
ITEM 6. Exhibits and Reports on Form 8-K
a.) Exhibits
Item 10(a) - Employment Agreement dated December 2, 1996 between
the Company and Philip A. Marineau.
Item 10(b) - Severance, Consulting and Non-Complete Agreement
dated December 5, 1996 between the Company and
Thomas L. Rose.
Item 12 - Computation of Ratio of Earnings to Fixed Charges.
Item 27 - Financial Data Schedules.
b.) Reports on Form 8-K
The Company filed a Current Report on Form 8-K, dated December 6,
1996, with regards to the Company's Press Release dated December
2, 1996, "Dean Foods Selects New President".
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEAN FOODS COMPANY
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(Registrant)
DATE: April 7, 1997 William R. McManaman
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WILLIAM R. McMANAMAN
Vice President, Finance and
Chief Financial Officer
DATE: April 7, 1997 William M. Luegers
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WILLIAM M. LUEGERS
Controller
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