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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For the quarterly period ended February 22, 1998
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or
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For the transition period from __________________ to __________________
Commission file number 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 40,386,299.
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PART I - FINANCIAL INFORMATION
ITEM 1.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTERS AND NINE MONTHS ENDED
FEBRUARY 22, 1998 AND FEBRUARY 23, 1997
(In Thousands Except for Per Share Amounts)
(Unaudited)
Third Quarter Ended Nine Months Ended
------------------- ------------------
February 22, February 23, February 22, February 23,
1998 1997 1998 1997
------------ ------------ ------------ ------------
Net sales $802,621 $745,012 $2,304,028 $2,230,781
Costs of products sold 615,702 571,151 1,760,657 1,726,043
Delivery, selling and
administrative expenses 139,056 132,681 405,033 388,794
-------- -------- ---------- ----------
Operating earnings 47,863 41,180 138,338 115,944
Interest expense (7,712) (6,647) (20,622) (19,745)
Interest income 825 147 2,148 645
-------- -------- ---------- ----------
Income before income taxes 40,976 34,680 119,864 96,844
Provision for income taxes 15,981 14,045 46,747 39,223
-------- -------- ---------- ----------
Net income $ 24,995 $ 20,635 $ 73,117 $ 57,621
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Net earnings per common share
-Basic $ .61 $ .51 $ 1.80 $ 1.43
======== ======== ========== ==========
-Diluted $ .60 $ .51 $ 1.76 $ 1.43
======== ======== ========== ==========
Dividends per share
(Declared and paid) $ .20 $ .19 $ .60 $ .57
======== ======== ========== ==========
Weighted average common
shares - Basic 40,643 40,181 40,556 40,162
======== ======== ========== ==========
Weighted average common
shares - Diluted 41,697 40,403 41,491 40,256
======== ======== ========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
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CONDENSED CONSOLIDATED BALANCE SHEETS
FEBRUARY 22, 1998 AND MAY 25, 1997
(In Thousands)
February 22, May 25,
1998 1997
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(Unaudited)
ASSETS
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CURRENT ASSETS:
Cash and cash equivalents $ 32,955 $ 4,386
Accounts and notes receivable,
less allowance for doubtful
accounts of $5,491 and $3,585, respectively 221,114 210,528
Inventories 291,149 265,691
Other current assets 73,252 81,528
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Total Current Assets 618,470 562,133
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PROPERTIES:
Property, plant and equipment, at cost 1,148,270 1,049,528
Accumulated depreciation 558,707 522,355
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589,563 527,173
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Intangibles, net of amortization of
$17,884 and $11,980. respectively 206,467 109,912
OTHER ASSETS 12,414 18,140
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Total Assets $1,426,914 $1,217,358
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES:
Notes payable to banks $ 7,004 $ 3,000
Current installments of long-term obligations 11,254 13,369
Accounts payable and accrued expenses 289,421 313,374
Dividends payable 8,228 7,738
Federal and state income taxes payable 38,751 16,620
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Total Current Liabilities 354,658 354,101
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LONG-TERM OBLIGATIONS 359,668 211,926
DEFERRED LIABILITIES 84,288 83,650
SHAREHOLDERS' EQUITY 628,300 567,681
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Total Liabilities and Shareholders' Equity $1,426,914 $1,217,358
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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 22, 1998 AND FEBRUARY 23, 1997
(In Thousands)
Nine Months Ended
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February 22, February 23,
1998 1997
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(Unaudited)
Net cash provided from operations $ 109,949 $ 95,859
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Cash flows from investing activities:
Capital expenditures (84,433) (47,500)
Proceeds from disposition of property,
plant and equipment 2,156 1,312
Acquisitions of businesses, net of
cash acquired (141,280) -
Proceeds from business divested - 2,000
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Net cash used in investing activities (223,557) (44,188)
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Cash flows from financing activities:
Issuance of long-term obligations 147,574 8,200
Repayment of long-term obligations (2,068) (3,817)
Issuance (repayment) of notes payable to banks, net 4,004 (27,000)
Unexpended industrial revenue bond proceeds 4,741 (7,524)
Cash dividends paid (23,879) (22,196)
Issuance of common stock upon exercise of options 11,805 1,612
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Net cash provided by (used in) financing activities 142,177 (50,725)
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Increase in cash and cash equivalents 28,569 946
Cash and cash equivalents - beginning of period 4,386 10,399
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Cash and cash equivalents - end of period $ 32,955 $ 11,345
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See accompanying Notes to Condensed Consolidated Financial Statements.
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Dean Foods Company
Notes to Consolidated Financial Statements
February 23, 1997, May 25, 1997 and February 22, 1998
(Unaudited)
Note 1 - Basis of Presentation
In the opinion of Company management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
accompanying 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 1997 Annual Report on Form 10-K. The results of operations for
the nine-month period ended February 22, 1998 are not necessarily indicative of
the operating results for the full year.
Note 2 - Acquisitions
In the first nine months of the fiscal year, the Company has made several
acquisitions: on January 20, 1998, the Company purchased the Sani-Dairy
division of The Penn Traffic Company; on January 6, 1998, the Company
purchased Maplehurst Dairy; on November 24, 1997, the Company purchased the H.
Meyer Dairy Company and on May 27, 1997, the Company purchased the Marie's
salad dressing business from Campbell Soup Company. All of these acquisitions
were asset purchases.
Total cash consideration for all of the above mentioned transactions was
approximately $141 million. These acquisitions were accounted for as purchases
and have been recorded using preliminary valuations of the assets and
liabilities acquired. Goodwill arising from these acquisitions will be
amortized using the straight-line method over 40 years. The operating results
of each acquisition are included in the Company's results of operations since
the date of acquisition.
Subsequent to the third quarter, the Company has completed three additional
transactions. On February 23, 1998, the Company purchased the assets of
Wengert's Dairy; on March 2, 1998, the Company purchased the dairy
processing operations of American Stores Company's two California Lucky
divisions and on March 31, 1998, the Company acquired the stock of Coburg
Dairy.
Total cash consideration for transactions completed subsequent to the third
quarter was approximately $110 million. These acquisitions will be accounted
for as purchases and goodwill arising from these acquisitions will be amortized
using the straight-line method over 40 years. The operating results of each of
these acquisitions will be included in the Company's results of operations in
the fourth quarter, from the date of acquisition.
On December 30, 1997, the Company reached an agreement to acquire the stock of
Purity Dairies of Nashville, Tennessee. This transaction has not been
completed as of the date of this filing.
Note 3 - Shareholders' Equity
The Company may, from time to time, repurchase stock on the open market.
Subsequent to the close of the third quarter, the Company repurchased
approximately 400,000 shares of its stock.
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Note 4 - Debt
In January 1998, the Company filed a Form S-3 Registration Statement ("shelf
registration") with the Securities and Exchange Commission for $300 million of
incremental debt capacity. $50 million is available under a shelf
registration filed in April 1995. Currently, the Company has $350 million in
shelf debt capacity. Any debt issued under the shelf registration will be used
for general corporate purposes, including future acquisitions.
Subsequent to the third quarter, on March 31, 1998, the Company entered into a 5
year, $500 million revolving credit agreement ("the facility") with a
syndicate of banks. The $500 million facility replaced the Company's $300
million 5 year facility which was cancelled on March 31, 1998. Borrowings
under the facility will be used for general corporate purposes, to include
working capital and acquisition funding needs.
Note 5 - Inventories
The following is a tabulation of inventories by class at February 22,
1998, February 23, 1997 and May 25, 1997 (In Thousands).
February 22, February 23, May 25,
1998 1997 1997
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(Unaudited)
Raw materials and supplies $ 47,282 $ 47,229 $ 52,321
Materials in process 72,320 90,776 59,846
Finished goods 188,376 183,041 172,353
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307,978 321,046 284,520
Less: Excess of current cost over stated value
of last-in, first-out inventories 16,829 18,597 18,829
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Total inventories $291,149 $302,449 $265,691
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Note 6 - Legal Proceedings
See PART II, Item 1 for a discussion of pending legal proceedings.
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Note 7 - Business Segment Information
The following is a tabulation of the Company's business segment
information for the quarters and nine months ended February 22, 1998 and
February 23, 1997 (In Thousands).
(Unaudited)
Dairy Vegetables Pickles Specialty Corporate Consolidated
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THIRD QTR. ENDED
FEBRUARY 22, 1998
Net sales $ 503,840 $137,246 $ 75,661 $ 85,874 $ - $ 802,621
Operating earnings $ 22,036 $ 13,573 $ 8,263 $ 13,777 $ (9,786) $ 47,863
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
NINE MONTHS ENDED
FEBRUARY 22, 1998
Net sales $1,417,038 $393,864 $245,458 $247,668 $ - $2,304,028
Operating earnings $ 82,010 $ 23,742 $ 25,648 $ 37,766 $(30,828) $ 138,338
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
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
A.) Liquidity and Capital Resources
As of February 22, 1998 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 25, 1997, except that in October 1997
the Company issued $150 million of 6.90% senior notes, due October 15, 2017,
which were used for general corporate purposes, including the refinancing of the
then outstanding short-term debt and to fund acquisitions. In January 1998, the
Company filed a Form S-3 Registration Statement ("shelf registration") with the
Securities and Exchange Commission. Refer to "Note 4 - Debt for a discussion of
the shelf registration and resulting debt capacity. Subsequent to the third
quarter, the Company entered into a $500 million revolving Credit agreement,
which is discussed in "Note 4 - Debt". Cash and cash equivalents were $33.0
million at February 22, 1998, an increase of $28.6 million from the balance at
May 25, 1997.
The inventories at February 22, 1998 were $291.1 million, an increase of
$25.4 million over the balance at May 25, 1997, reflecting the impact of
acquisitions and the typical seasonal increases resulting from the vegetable
and cucumber harvests. The February 22, 1998 inventories were $11.3 million
lower than inventories at February 23, 1997, despite the additional inventory
associated with acquisitions, due to the planned reduction of the inventories
in the Vegetables and Pickles segments.
Short-term borrowings outstanding at February 22, 1998, were $7.0 million,
an increase of $4.0 million from the balance outstanding at May 25, 1997.
Working capital at February 22, 1998 was $263.8 million compared to $208.0
million at May 25, 1997. The increase in working capital was primarily due to
the increases in short-term cash investments and inventories. The company's
debt-to-capital ratio was 37.6% at February 22, 1998 compared with 28.7% at May
25, 1997.
B.) Results of Operations
THIRD QUARTER FISCAL 1998 VERSUS THIRD QUARTER FISCAL 1997
Net sales for the third quarter of fiscal 1998 of $802.6 million were
$57.6 million or 7.7% higher than sales of $745.0 million in the prior year.
Net sales increased in the Dairy and Specialty segments, while net sales
decreased slightly in the Vegetables and Pickles segments. Operating earnings
increased 16.3% to $47.9 million for the third quarter of fiscal 1998, from
$41.2 million in fiscal 1997. The increase in operating earnings was driven by
improved earnings in the Vegetables, Pickles and Specialty segments.
Dairy segment sales of $503.8 million were 13.7%, or $60.7 million higher
than sales of $443.1 million in the prior year. Net sales increases were
primarily the result of acquisitions, with a 5% volume increase in the core
fluid business adding to the increase. Dairy segment operating earnings of
$22.0 million in the third quarter of fiscal 1998 were $5.0 million, or 18.5%,
lower than operating earnings of $27.0 million in fiscal 1997. Approximately
one half of the operating earnings decline is due to a declining butterfat
differential, which effectively increases the cost of the Company's skim and
lowfat dairy products. Butterfat is expected to decline further during the
fourth quarter of fiscal 1998. The remaining decline in operating earnings is
due to costs associated with a co-packer which declared bankruptcy and the
loss of a government program.
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Vegetables segment net sales of $137.2 million in the third quarter of
fiscal 1998 were down 4.3% from sales of $143.4 million in the same period of
the prior year. The decline in sales was primarily due to lower case volume in
the private label product lines. Vegetables segment operating earnings of
$13.6 million in the third quarter of fiscal 1998 were $5.1 million, or
60.0%, higher than operating earnings of $8.5 million in the prior year. The
segment continues to recognize the benefits of lower costs resulting from the
consolidation of operations initiated in the spring of 1996. Improved
performance in the branded portion of the Vegetables business is also
responsible for the increased operating earnings in the third quarter of fiscal
1998.
Net sales in the Pickles segment for the third quarter of $75.7 million
decreased $6.9 million, or 8.4%, compared to the same period in the prior year.
The sales decline was the result of the loss of certain private label
customers. Third quarter operating earnings for the Pickles segment increased
to $8.3 million from $7.8 million in fiscal 1997 due primarily to favorable
price and manufacturing variances.
Specialty segment net sales of $85.9 million in the third quarter were
13.3% higher than sales for the same period a year ago. The net sales
improvement is due primarily to the early fiscal 1998 acquisition of the
Marie's refrigerated salad dressing business, and significant volume increases
in the aseptic cheese and pudding business. Operating earnings for the third
quarter of fiscal 1998 of $13.8 million were significantly greater than the
$9.0 million of operating earnings in the same period of the prior year.
Improved operating earnings are primarily due to the inclusion of the Marie's
business, and improved operating efficiencies in the Dean Dip and Dressing
Division's California operation.
NINE MONTHS ENDED FEBRUARY 22, 1998 VERSUS NINE MONTHS ENDED FEBRUARY 23, 1997
Net sales for the nine months of fiscal 1998 were $2.3 billion, or 4.5% ,
higher than sales of $2.2 billion in the prior year. Operating earnings of
$138.3 million for the first nine months of fiscal 1998 were $22.4 million, or
19.3%, higher than the same period of the prior fiscal year. Increases in the
Dairy and Specialty segments were primarily responsible for the improvements in
net sales and operating earnings for the nine month period.
For the first nine months, Dairy net sales increased to $1.4 billion from
$1.3 billion in fiscal 1997. The sales increase was primarily the result of
acquisitions. Dairy operating earnings were $82.0 million versus $69.7 million
for the same period in the prior fiscal year, a 17.6% increase. Dairy segment
improvements were the result of overall Dairy volume increases and the
favorable impact from late fiscal 1997 acquisitions.
Vegetables segment net sales of $393.9 million for the first nine months
of fiscal 1998 were down approximately 4% from sales of $411.0 million in the
same period in the prior year, due primarily to a volume decline in the private
label portion of the business. Operating earnings of $23.7 million were $2.7
million, or 12.9%, higher than operating earnings of $21.0 million reported in
fiscal 1997. The Vegetables segment has recognized the benefits of lower costs
resulting from the consolidation of operations initiated in the spring of 1996,
including lower distribution expenses.
For the nine months, Pickles net sales of $245.5 million were lower than
sales of $267.3 million in fiscal 1997. The decline is the result of the
business continuing to focus on identifying and eliminating unprofitable
products and customers. Earnings for the nine months ended February 22, 1998
versus the same period of the prior year were up approximately 4% because of
lower overall operating costs.
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Specialty segment net sales for the nine months of $247.7 million were 10%
higher than sales of $225.1 million for the same period of fiscal 1997. The
increase in net sales is due primarily to the early fiscal 1998 acquisition of
the Marie's refrigerated salad dressing business and increased volume in all
the businesses in the segment. Specialty segment operating earnings for fiscal
1998 of $37.8 million were 37.5% above the $27.5 million operating earnings
for the prior year. The improvement in operating earnings is due to the
acquisition of the Marie's business, volume increases in the aseptic and
powdered products businesses, and improved operating efficiencies in the Dean
Dip and Dressing Division's California business.
CORPORATE
Corporate expenses decreased $1.4 million in the third quarter of fiscal
1998 versus the same period in the prior year. The decrease is primarily due
to lower compensation expense related to certain stock based incentive plans.
For the nine months ended February 22, 1998, corporate expenses increased $3.9
million over the same period in the prior year. The increase was primarily
related to stock-based and incentive compensation expenses, which increased
significantly in the first half of the fiscal year before declining in the
third quarter.
INTEREST EXPENSE
Interest expense increased $1.1 million and $0.9 million in the third
quarter and nine months, respectively, compared to the same periods in the
prior year. The increases are primarily the result of additional interest
expense associated with the issuance of $150 million of senior notes in October
1997.
INCOME TAXES
The effective tax rate for both the third quarter and nine month periods
of fiscal 1998 was 39% compared to a rate of 40.5% in the same periods of the
prior year. The decrease in the rate is largely due to reductions in state
income taxes, and increased export and research and development incentives.
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 25, 1997.
ITEM 6. Exhibits and Reports on Form 8-K
a.) Exhibits
Item 11 - Basic and Diluted Earnings per Share.
Item 12 - Computation of Ratio of Earnings to Fixed Charges.
Item 27 - Financial Data Schedules.
b.) Reports on Form 8-K
None Filed
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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 8, 1998 William R. McManaman
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WILLIAM R. McMANAMAN
Vice President, Finance and
Chief Financial Officer
DATE: April 8, 1998 William M. Luegers, Jr.
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WILLIAM M. LUEGERS, Jr.
Controller
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