e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
|
|
|
(Mark One)
|
|
|
|
þ
|
|
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
|
|
For the Quarterly Period Ended March 31, 2008
|
|
or
|
|
|
|
o
|
|
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
001-12755
|
Dean Foods Company
(Exact name of the registrant as
specified in its charter)
|
|
|
Delaware
|
|
75-2559681
|
(State or other jurisdiction of
|
|
(I.R.S. employer
|
incorporation or organization)
|
|
identification no.)
|
2515
McKinney Avenue, Suite 1200
Dallas, Texas 75201
(214) 303-3400
(Address,
including zip code, and telephone number, including
area code, of the registrants principal executive
offices)
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 þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer
þ
|
|
Accelerated filer
o
|
|
Non-accelerated
filer o
(Do not check if a smaller reporting company)
|
|
Smaller reporting
company o
|
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act.)
Yes o No þ
As of May 2, 2008, the number of shares outstanding of each
class of common stock was: 151,943,493
Common Stock, par value $.01
Table of
Contents
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
26
|
|
|
|
|
37
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
39
|
|
|
|
|
41
|
|
|
|
|
42
|
|
-2-
Part I
Financial Information
|
|
Item 1.
|
Financial
Statements
|
DEAN
FOODS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
40,976
|
|
|
$
|
32,555
|
|
Receivables, net
|
|
|
848,061
|
|
|
|
913,074
|
|
Income tax receivable
|
|
|
23,371
|
|
|
|
17,885
|
|
Inventories
|
|
|
389,786
|
|
|
|
379,773
|
|
Deferred income taxes
|
|
|
118,054
|
|
|
|
128,841
|
|
Prepaid expenses and other current assets
|
|
|
61,531
|
|
|
|
59,856
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,481,779
|
|
|
|
1,531,984
|
|
Property, plant and equipment, net
|
|
|
1,807,868
|
|
|
|
1,798,378
|
|
Goodwill
|
|
|
3,048,899
|
|
|
|
3,017,746
|
|
Identifiable intangible and other assets
|
|
|
675,535
|
|
|
|
685,248
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,014,081
|
|
|
$
|
7,033,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
956,904
|
|
|
$
|
907,270
|
|
Current portion of long-term debt
|
|
|
21,067
|
|
|
|
25,246
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
977,971
|
|
|
|
932,516
|
|
Long-term debt
|
|
|
4,791,312
|
|
|
|
5,247,105
|
|
Deferred income taxes
|
|
|
463,011
|
|
|
|
482,212
|
|
Other long-term liabilities
|
|
|
345,291
|
|
|
|
320,256
|
|
Commitments and contingencies (Note 11)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, none issued
|
|
|
|
|
|
|
|
|
Common stock, 151,604,452 and 132,236,217 shares issued and
outstanding, with a par value of $0.01 per share
|
|
|
1,515
|
|
|
|
1,322
|
|
Additional paid-in capital
|
|
|
483,976
|
|
|
|
70,214
|
|
Retained earnings
|
|
|
98,305
|
|
|
|
67,533
|
|
Accumulated other comprehensive loss
|
|
|
(147,300
|
)
|
|
|
(87,802
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
436,496
|
|
|
|
51,267
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,014,081
|
|
|
$
|
7,033,356
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
-3-
DEAN
FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
|
2007
|
|
|
Net sales
|
|
$
|
3,076,960
|
|
|
$
|
2,629,749
|
|
Cost of sales
|
|
|
2,388,386
|
|
|
|
1,942,474
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
688,574
|
|
|
|
687,275
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
Selling and distribution
|
|
|
438,003
|
|
|
|
415,635
|
|
General and administrative
|
|
|
110,681
|
|
|
|
109,390
|
|
Amortization of intangibles
|
|
|
1,571
|
|
|
|
2,322
|
|
Facility closing and reorganization costs
|
|
|
2,215
|
|
|
|
5,775
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
552,470
|
|
|
|
533,122
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
136,104
|
|
|
|
154,153
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
83,832
|
|
|
|
52,241
|
|
Other (income) expense, net
|
|
|
619
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
84,451
|
|
|
|
52,541
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
51,653
|
|
|
|
101,612
|
|
Income taxes
|
|
|
20,881
|
|
|
|
38,409
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
30,772
|
|
|
|
63,203
|
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
617
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
30,772
|
|
|
$
|
63,820
|
|
|
|
|
|
|
|
|
|
|
Average common shares:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
137,883,317
|
|
|
|
128,889,506
|
|
Diluted
|
|
|
143,289,035
|
|
|
|
134,521,467
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.22
|
|
|
$
|
0.49
|
|
Income from discontinued operations
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.22
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.21
|
|
|
$
|
0.47
|
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.21
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
-4-
DEAN
FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(Unaudited)
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
Income (Loss)
|
|
|
Balance, December 31, 2007
|
|
|
132,236,217
|
|
|
$
|
1,322
|
|
|
$
|
70,214
|
|
|
$
|
67,533
|
|
|
$
|
(87,802
|
)
|
|
$
|
51,267
|
|
|
|
|
|
Issuance of common stock
|
|
|
667,908
|
|
|
|
6
|
|
|
|
5,458
|
|
|
|
|
|
|
|
|
|
|
|
5,464
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
8,491
|
|
|
|
|
|
|
|
|
|
|
|
8,491
|
|
|
|
|
|
Public offering of equity securities
|
|
|
18,700,327
|
|
|
|
187
|
|
|
|
399,813
|
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,772
|
|
|
|
|
|
|
|
30,772
|
|
|
$
|
30,772
|
|
Other comprehensive income (loss) (Note 8):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative instruments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59,517
|
)
|
|
|
(59,517
|
)
|
|
|
(59,517
|
)
|
Amounts reclassified to income statement related to hedging
activities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84
|
)
|
|
|
(84
|
)
|
|
|
(84
|
)
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
|
|
|
|
103
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(28,726
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2008
|
|
|
151,604,452
|
|
|
$
|
1,515
|
|
|
$
|
483,976
|
|
|
$
|
98,305
|
|
|
$
|
(147,300
|
)
|
|
$
|
436,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
-5-
DEAN
FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
|
2007
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
30,772
|
|
|
$
|
63,820
|
|
Income from discontinued operations
|
|
|
|
|
|
|
(617
|
)
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
59,379
|
|
|
|
57,343
|
|
Share-based compensation expense
|
|
|
8,491
|
|
|
|
8,303
|
|
(Gain) loss on disposition of assets
|
|
|
(368
|
)
|
|
|
802
|
|
Write-down of impaired assets
|
|
|
649
|
|
|
|
4,760
|
|
Deferred income taxes
|
|
|
26,709
|
|
|
|
5,756
|
|
Other
|
|
|
25
|
|
|
|
(133
|
)
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
65,256
|
|
|
|
469
|
|
Inventories
|
|
|
(7,001
|
)
|
|
|
(17,126
|
)
|
Prepaid expenses and other assets
|
|
|
(945
|
)
|
|
|
8,681
|
|
Accounts payable and accrued expenses
|
|
|
(19,220
|
)
|
|
|
10,650
|
|
Income taxes payable/receivable
|
|
|
(5,486
|
)
|
|
|
(4,700
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
158,261
|
|
|
|
138,008
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Payments for property, plant and equipment
|
|
|
(44,759
|
)
|
|
|
(51,781
|
)
|
Payments for acquisitions and investments, net of cash received
|
|
|
(51,800
|
)
|
|
|
(125,839
|
)
|
Net proceeds from divestitures
|
|
|
|
|
|
|
10,706
|
|
Proceeds from sale of fixed assets
|
|
|
2,550
|
|
|
|
1,550
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(94,009
|
)
|
|
|
(165,364
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayment of debt
|
|
|
(8,995
|
)
|
|
|
(61,075
|
)
|
Net proceeds from (payments for) revolver and receivables-backed
facility
|
|
|
(452,300
|
)
|
|
|
71,400
|
|
Issuance of common stock
|
|
|
405,464
|
|
|
|
18,026
|
|
Tax savings on share-based compensation
|
|
|
|
|
|
|
5,819
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(55,831
|
)
|
|
|
34,170
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
8,421
|
|
|
|
6,814
|
|
Cash and cash equivalents, beginning of period
|
|
|
32,555
|
|
|
|
31,140
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
40,976
|
|
|
$
|
37,954
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
-6-
DEAN
FOODS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Periods ended March 31, 2008 and 2007
(Unaudited)
Basis of Presentation The unaudited Condensed
Consolidated Financial Statements contained in this Quarterly
Report have been prepared on the same basis as the Consolidated
Financial Statements in our Annual Report on
Form 10-K
for the year ended December 31, 2007. In our opinion, we
have made all necessary adjustments (which include only normal
recurring adjustments) in order to present fairly, in all
material respects, our consolidated financial position, results
of operations and cash flows as of the dates and for the periods
presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of
America have been omitted. Our results of operations for the
period ended March 31, 2008 may not be indicative of
our operating results for the full year. The Condensed
Consolidated Financial Statements contained in this Quarterly
Report should be read in conjunction with our Consolidated
Financial Statements contained in our 2007 Annual Report on
Form 10-K
(filed with the Securities and Exchange Commission on
February 28, 2008).
Effective January 1, 2008, we changed our presentation of
reportable segments to reflect changes in the way our chief
operating decision maker evaluates the performance of our
operations, develops strategy, and allocates capital resources.
Our reporting segments now consist of our DSD Dairy and
WhiteWave-Morningstar operations. Included in the
WhiteWave-Morningstar segment are the operations previously
included in our former WhiteWave reportable segment and our
Morningstar operations that were previously included in our
former Dairy Group segment. Our historical segment disclosures
have been recast to be consistent with our current presentation.
Unless otherwise indicated, references in this report to
we, us or our refer to Dean
Foods Company and its subsidiaries, taken as a whole.
Recently Adopted Accounting Pronouncements
Effective January 1, 2008, we adopted Statement of
Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurements for financial assets and
liabilities that are measured at fair value and nonfinancial
assets and liabilities that are measured at fair value on a
recurring basis. SFAS No. 157 establishes a framework for
measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value
measurements. SFAS No. 157 clarifies that fair value is an exit
price, representing the amount that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants. As such, fair value is a
market-based measurement that should be determined based on
assumptions that market participants would use in pricing an
asset or liability. As a basis for considering assumptions, SFAS
No. 157 establishes a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value as follows:
|
|
|
|
|
Level 1 Quoted prices for identical instruments in
active markets.
|
|
|
|
Level 2 Quoted prices for similar instruments in
active markets, quoted prices for identical or similar
instruments in markets that are not active and model-derived
valuations, in which all significant inputs are observable in
active markets.
|
|
|
|
Level 3 Unobservable inputs in which there is little
or no market data, which require the reporting entity to develop
its own assumptions.
|
In February 2008, the Financial Accounting Standards Board
(FASB) issued staff position No. 157-2 (FSP
157-2), which delays the effective date of SFAS No. 157
one year for all non-financial assets and non-financial
liabilities that are not measured at fair value on a recurring
basis. We do not believe the adoption of this delayed provision
will have a material impact on our Condensed Consolidated
Financial Statements.
-7-
Effective January 1, 2008, we adopted
SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities.
SFAS No. 159 permits entities to choose to measure
many financial instruments and certain other items at fair
value. Most of the provisions of SFAS No. 159 apply
only to entities that elect the fair value option. The adoption
of this statement did not have a material impact on our
Condensed Consolidated Financial Statements.
Recently Issued Accounting Pronouncements The
FASB issued SFAS No. 141R, Significant Changes
in Acquisition Accounting in December 2007. SFAS
No. 141R contains a number of major changes affecting the
allocation of the value of acquired assets and liabilities,
including requiring an acquirer to measure the identifiable
assets acquired, the liabilities assumed and any noncontrolling
interest in the acquiree at their fair values on the acquisition
date, with goodwill being the excess value over the net
identifiable assets acquired. This standard also requires the
fair value measurement of certain other assets and liabilities
related to the acquisition such as contingencies and research
and development. The provisions of SFAS No. 141R apply only
to acquisition transactions completed in fiscal years beginning
after December 15, 2008. We are currently evaluating what impact
the adoption of this revised standard will have on our future
Condensed Consolidated Financial Statements. This standard will
become effective for us in the first quarter of 2009.
The FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements in December
2007. SFAS No. 160 clarifies that a noncontrolling interest
in a subsidiary should be reported as equity in the condensed
consolidated financial statements. Consolidated net income
should include the net income for both the parent and the
noncontrolling interest with disclosure of both amounts on the
condensed consolidated statement of income. The calculation of
earnings per share will continue to be based on income amounts
attributable to the parent. We are currently evaluating what
impact the adoption of this revised standard will have on our
future Condensed Consolidated Financial Statements. This
statement will become effective for us in the first quarter of
2009.
The FASB issued SFAS No. 161, Disclosures About
Derivative Instruments and Hedging Activities an
amendment of FASB Statement No. 133 in March 2008.
SFAS No. 161 requires enhanced disclosures about an
entitys derivative and hedging activities and thereby
improves the transparency of financial reporting. We do not
believe the adoption of this standard will have a material
impact on our Condensed Consolidated Financial Statements. This
standard will become effective for us in the first quarter of
2009.
On January 9, 2008, our DSD Dairy segment completed the
acquisition of the milk, cottage cheese and sour cream products
business of Wells Dairy, Inc. in Le Mars, Iowa. We paid
approximately $27 million, including transaction costs. On
February 21, 2008, our DSD Dairy segment completed the
acquisition of a fluid dairy manufacturing facility in Richmond,
Virginia from SUPERVALU INC. We paid approximately
$23 million, including transaction costs. These
transactions were funded with borrowings under our senior credit
facility. We have not completed a final allocation of the
purchase price related to these transactions. The pro forma
impact of these acquisitions on consolidated net earnings would
not have materially changed reported net earnings.
Inventories at March 31, 2008 and December 31, 2007
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Raw materials and supplies
|
|
$
|
170,428
|
|
|
$
|
172,099
|
|
Finished goods
|
|
|
219,358
|
|
|
|
207,674
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
389,786
|
|
|
$
|
379,773
|
|
|
|
|
|
|
|
|
|
|
-8-
Changes in the carrying amount of goodwill for the three months
ended March 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WhiteWave-
|
|
|
|
|
|
|
DSD Dairy
|
|
|
Morningstar
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance at December 31, 2007
|
|
$
|
2,149,233
|
|
|
$
|
868,513
|
|
|
$
|
3,017,746
|
|
Acquisitions
|
|
|
29,539
|
|
|
|
|
|
|
|
29,539
|
|
Purchase accounting adjustments
|
|
|
|
|
|
|
1,614
|
|
|
|
1,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008
|
|
$
|
2,178,772
|
|
|
$
|
870,127
|
|
|
$
|
3,048,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross carrying amount and accumulated amortization of our
intangible assets other than goodwill as of March 31, 2008
and December 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
|
December 31, 2007
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
517,753
|
|
|
$
|
|
|
|
$
|
517,753
|
|
|
$
|
517,756
|
|
|
$
|
|
|
|
$
|
517,756
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-related and other
|
|
|
100,199
|
|
|
|
(29,433
|
)
|
|
|
70,766
|
|
|
|
98,273
|
|
|
|
(27,621
|
)
|
|
|
70,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
617,952
|
|
|
$
|
(29,433
|
)
|
|
$
|
588,519
|
|
|
$
|
616,029
|
|
|
$
|
(27,621
|
)
|
|
$
|
588,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense on intangible assets for the three months
ended March 31, 2008 and 2007 was $1.9 million and
$1.6 million, respectively. Estimated aggregate intangible
asset amortization expense for the next five years is as follows:
|
|
|
|
|
2008
|
|
$
|
7.5 million
|
|
2009
|
|
|
7.4 million
|
|
2010
|
|
|
7.3 million
|
|
2011
|
|
|
5.5 million
|
|
2012
|
|
|
5.0 million
|
|
-9-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
|
December 31, 2007
|
|
|
|
Amount
|
|
|
Interest
|
|
|
Amount
|
|
|
Interest
|
|
|
|
Outstanding
|
|
|
Rate
|
|
|
Outstanding
|
|
|
Rate
|
|
|
|
(In thousands)
|
|
|
Dean Foods Company debt obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior credit facility
|
|
$
|
3,421,900
|
|
|
|
4.32
|
%
|
|
$
|
3,836,800
|
|
|
|
6.44
|
%
|
Senior notes
|
|
|
498,296
|
|
|
|
7.00
|
|
|
|
498,258
|
|
|
|
7.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,920,196
|
|
|
|
|
|
|
|
4,335,058
|
|
|
|
|
|
Subsidiary debt obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes
|
|
|
327,032
|
|
|
|
6.625-6.90
|
|
|
|
325,973
|
|
|
|
6.625-6.90
|
|
Receivables-backed facility
|
|
|
558,100
|
|
|
|
3.99
|
|
|
|
600,000
|
|
|
|
6.00
|
|
Capital lease obligations and other
|
|
|
7,051
|
|
|
|
|
|
|
|
11,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
892,183
|
|
|
|
|
|
|
|
937,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,812,379
|
|
|
|
|
|
|
|
5,272,351
|
|
|
|
|
|
Less current portion
|
|
|
(21,067
|
)
|
|
|
|
|
|
|
(25,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term portion
|
|
$
|
4,791,312
|
|
|
|
|
|
|
$
|
5,247,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Credit Facility During the three
months ended March 31, 2008, our senior credit facility
consisted of a combination of a $1.5 billion
5-year
senior secured revolving credit facility, a $1.5 billion
5-year
senior secured term loan A, and a $1.8 billion
7-year
senior secured term loan B. At March 31, 2008, there were
outstanding borrowings of $1.5 billion under the senior
secured term loan A, $1.78 billion under the senior secured
term loan B, and $139.9 million outstanding under the
revolving credit facility. Letters of credit in the aggregate
amount of $148.0 million were issued but undrawn. At
March 31, 2008, approximately $1.21 billion was
available for future borrowings under the revolving credit
facility, subject to satisfaction of certain ordinary course
conditions contained in the credit agreement.
The term loan A is payable in 12 consecutive quarterly
installments of:
|
|
|
|
|
$56.25 million in each of the first eight installments,
beginning on June 30, 2009 and ending on March 31,
2011; and
|
|
|
|
$262.5 million in each of the next four installments,
beginning on June 30, 2011 and ending on
April 2, 2012.
|
The term loan B will amortize 1% per year, or $4.5 million
on a quarterly basis, with any remaining principal balance due
at final maturity on April 2, 2014. The revolving credit
facility will be available for the issuance of up to
$350 million of letters of credit and up to
$150 million for swing line loans. No principal payments
are due on the $1.5 billion revolving credit facility until
maturity on April 2, 2012. The credit agreement also
requires mandatory principal prepayments upon the occurrence of
certain asset dispositions, recovery events, or as a result of
exceeding certain leverage limits.
Under the senior secured credit facility, we are required to
maintain certain financial covenants, including, but not limited
to, maximum leverage and minimum interest coverage ratios. As of
March 31, 2008, we were in compliance with all covenants
contained in this agreement. We currently have a maximum
permitted leverage ratio of 6.25 times consolidated funded
indebtedness to consolidated EBITDA for the prior four
consecutive quarters, each as defined under and calculated in
accordance with the terms of our senior secured credit facility
and our receivables facility. As of March 31, 2008, this
leverage ratio was 5.56 times. The maximum permitted leverage
ratio under both the senior secured credit facility and the
receivables facility will decline to 5.75 times as of
December 31, 2008.
Our credit agreement permits us to complete acquisitions that
meet all of the following conditions without obtaining prior
approval: (1) the acquired company is involved in the
manufacture, processing and distribution
-10-
of food or packaging products or any other line of business in
which we are currently engaged, (2) the net cash purchase
price for any single acquisition is not greater than
$500 million, (3) we acquire at least 51% of the
acquired entity, (4) the transaction is approved by the
board of directors or shareholders, as appropriate, of the
target and (5) after giving effect to such acquisition on a
pro forma basis, we would be in compliance with all financial
covenants. All other acquisitions must be approved in advance by
the required lenders.
The senior credit facility contains limitations on liens,
investments and the incurrence of additional indebtedness, and
prohibits certain dispositions of property and conditionally
restricts certain payments, including dividends. The senior
credit facility is secured by liens on substantially all of our
domestic assets including the assets of our subsidiaries, but
excluding the capital stock of subsidiaries of the former Dean
Foods Company (Legacy Dean), and the real property
owned by Legacy Dean and its subsidiaries.
The credit agreement contains standard default triggers,
including without limitation: failure to maintain compliance
with the financial and other covenants contained in the credit
agreement, default on certain of our other debt, a change in
control and certain other material adverse changes in our
business. The credit agreement does not contain any default
triggers based on our credit rating.
Interest on the outstanding balances under the senior credit
facility is payable, at our election, at the Alternative Base
Rate (as defined in our credit agreement) plus a margin
depending on our Leverage Ratio (as defined in our credit
agreement) or LIBOR plus a margin depending on our Leverage
Ratio. The Applicable Base Rate margin under our revolving
credit and term loan A varies from zero to 75 basis points
while the Applicable LIBOR Rate margin varies from 62.5 to
175 basis points. The Applicable Base Rate margin under our
term loan B varies from 37.5 to 75 basis points while the
Applicable LIBOR Rate margin varies from 137.5 to 175 basis
points.
In consideration for the revolving commitment, we are required
to pay a quarterly commitment fee on unused amounts of the
revolving credit facility that ranges from 12.5 to
37.5 basis points, depending on our Leverage Ratio (as
defined under our credit agreement dated April 2, 2007).
Dean Foods Company Senior Notes On
May 17, 2006, we issued $500 million aggregate
principal amount of 7.0% senior unsecured notes. The senior
unsecured notes mature on June 1, 2016 and interest is
payable on June 1 and December 1 of each year, beginning
December 1, 2006. The indenture under which we issued the
senior unsecured notes does not contain financial covenants but
does contain covenants that, among other things, limit our
ability to incur certain indebtedness, enter into sale-leaseback
transactions and engage in mergers, consolidations and sales of
all or substantially all of our assets. The outstanding balance
at March 31, 2008 was $498.3 million.
Subsidiary Senior Notes Legacy Dean had
certain senior notes outstanding at the time of its acquisition,
of which two remain outstanding. The outstanding notes carry the
following interest rates and maturities:
|
|
|
|
|
$196.3 million ($200 million face value), at 6.625%
interest, maturing May 15, 2009; and
|
|
|
|
$130.7 million ($150 million face value), at 6.9%
interest, maturing October 15, 2017.
|
The related indentures do not contain financial covenants but
they do contain certain restrictions, including a prohibition
against Legacy Dean and its subsidiaries granting liens on
certain of their real property interests and a prohibition
against Legacy Dean granting liens on the stock of its
subsidiaries.
Receivables-Backed Facility We have a
$600 million receivables securitization facility pursuant
to which certain of our subsidiaries sell their accounts
receivable to three wholly-owned special purpose entities
intended to be bankruptcy-remote. The special purpose entities
then transfer the receivables to third party asset-backed
commercial paper conduits sponsored by major financial
institutions. The assets and liabilities of these three special
purpose entities are fully reflected on our Condensed
Consolidated Balance Sheet, and the securitization is treated as
a borrowing for accounting purposes. This facility was amended
on March 31, 2008, which extended the liquidity termination
date from April 1, 2008 to May 30, 2008. The
March 30, 2010 facility termination date remains unchanged.
During the first quarter of 2008, we made payments of
$41.9 million on this facility leaving a drawn balance of
$558.1 million at March 31, 2008. This facility had
-11-
$15.9 million of availability at March 31, 2008. The
receivables-backed facility bears interest at a variable rate
based on the commercial paper yield as defined in the agreement.
The average interest rate on this facility was 3.99% at
March 31, 2008. Our ability to re-borrow under this
facility is subject to a borrowing base formula.
Subsequent to the end of the quarter, this facility was amended
on April 4, 2008, which extended the liquidity termination
date 364 days to March 30, 2009. The March 30,
2010 facility termination date remains unchanged. In addition,
on April 30, 2008, we amended the facility to reflect the
reallocation of commitments among the financial institutions
following the assignment of the rights and obligations of one
financial institution under the facility to an existing
financial institution.
Capital Lease Obligations and Other Capital
lease obligations and other subsidiary debt includes various
promissory notes for financing current year property and
casualty insurance premiums, as well as the purchase of
property, plant and equipment and capital lease obligations. The
various promissory notes payable provide for interest at varying
rates and are payable in monthly installments of principal and
interest until maturity, when the remaining principal balances
are due. Capital lease obligations represent machinery and
equipment financing obligations, which are payable in monthly
installments of principal and interest and are collateralized by
the related assets financed.
Interest Rate Agreements We have interest
rate swap agreements in place that have been designated as cash
flow hedges against variable interest rate exposure on a portion
of our debt, with the objective of minimizing the impact of
interest rate fluctuations and stabilizing cash flows. These
swap agreements provide hedges for loans under our senior credit
facility by fixing the LIBOR interest rates specified in the
senior credit facility at the interest rates noted below until
the indicated expiration dates of these interest rate swap
agreements.
The following table summarizes our various interest rate
agreements in effect as of March 31, 2008:
|
|
|
|
|
|
|
Fixed Interest Rates
|
|
Expiration Date
|
|
Notional Amounts
|
|
|
|
|
|
(In millions)
|
|
|
4.07% to 4.27%
|
|
December 2010
|
|
$
|
450
|
|
4.91%(1)
|
|
March 2009-2012
|
|
|
2,800
|
|
|
|
|
(1) |
|
The notional amount of the swap amortizes by $500 million
on March 31, 2009, $800 million on March 31,
2010, and $250 million on March 31, 2011 until
termination on March 30, 2012. |
The following table summarizes our various interest rate
agreements in effect as of December 31, 2007:
|
|
|
|
|
|
|
Fixed Interest Rates
|
|
Expiration Date
|
|
Notional Amounts
|
|
|
|
|
|
(In millions)
|
|
|
4.07% to 4.27%
|
|
December 2010
|
|
$
|
450
|
|
4.91%
|
|
March 2008-2012
|
|
|
2,950
|
|
These swaps are required to be recorded as an asset or liability
on our Condensed Consolidated Balance Sheet at fair value, with
an offset to other comprehensive income to the extent the hedge
is effective. Derivative gains and losses included in other
comprehensive income are reclassified into earnings as the
underlying transaction occurs. Any ineffectiveness in our hedges
is recorded as an adjustment to interest expense.
As of March 31, 2008 and December 31, 2007, our
derivative liability balances were:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Current derivative liability
|
|
$
|
81,704
|
|
|
$
|
24,750
|
|
Long-term derivative liability
|
|
|
96,981
|
|
|
|
57,278
|
|
|
|
|
|
|
|
|
|
|
Total derivative liability
|
|
$
|
178,685
|
|
|
$
|
82,028
|
|
|
|
|
|
|
|
|
|
|
-12-
In accordance with SFAS No. 157, our derivatives are measured at
fair value using direct observable swap rates at commonly quoted
intervals for the full term of the swap. Since we only use
observable inputs in our valuation of derivative assets and
liabilities, they are considered Level 2, as described in Note 1
to our Condensed Consolidated Financial Statements.
Hedge ineffectiveness for the three months ended March 31,
2008 was not material. Interest income (net of taxes) of $84,000
was reclassified to interest expense from other comprehensive
income during the three months ended March 31, 2008. We
estimate that $51.1 million of net derivative losses (net
of taxes) included in other comprehensive income will be
reclassified into earnings within the next 12 months. These
losses will increase the interest expense recorded on our
variable rate debt.
We are exposed to market risk under these arrangements due to
the possibility of interest rates on our senior credit facility
rising above the rates on our interest rate swap agreements.
Credit risk under these arrangements is believed to be remote as
the counterparties to our interest rate swap agreements are
major financial institutions.
Guarantor Information On May 17, 2006,
we issued $500 million aggregate principal amount of
7.0% senior notes. The senior notes are unsecured
obligations and are fully and unconditionally, jointly and
severally guaranteed by substantially all of our wholly-owned
U.S. subsidiaries other than our receivables securitization
subsidiaries.
The following condensed consolidating financial statements
present the financial position, results of operations and cash
flows of Dean Foods Company (Parent), the subsidiary
guarantors of the senior notes and separately the combined
results of the subsidiaries that are not a party to the
guarantees. The non-guarantor subsidiaries reflect our foreign
subsidiary operations in addition to our three receivables
securitization subsidiaries. We do not allocate interest expense
from the receivables-backed facility to the three receivables
securitization subsidiaries. Therefore, the interest costs
related to this facility are reflected within the guarantor
financial information presented.
-13-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet as of March 31, 2008
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,036
|
|
|
$
|
35,775
|
|
|
$
|
4,165
|
|
|
$
|
|
|
|
$
|
40,976
|
|
Receivables, net
|
|
|
264
|
|
|
|
5,968
|
|
|
|
841,829
|
|
|
|
|
|
|
|
848,061
|
|
Income tax receivable
|
|
|
20,889
|
|
|
|
2,482
|
|
|
|
|
|
|
|
|
|
|
|
23,371
|
|
Inventories
|
|
|
|
|
|
|
389,786
|
|
|
|
|
|
|
|
|
|
|
|
389,786
|
|
Intercompany receivables
|
|
|
1,639,696
|
|
|
|
4,648,815
|
|
|
|
330,022
|
|
|
|
(6,618,533
|
)
|
|
|
|
|
Other current assets
|
|
|
98,538
|
|
|
|
80,961
|
|
|
|
86
|
|
|
|
|
|
|
|
179,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,760,423
|
|
|
|
5,163,787
|
|
|
|
1,176,102
|
|
|
|
(6,618,533
|
)
|
|
|
1,481,779
|
|
Property, plant and equipment, net
|
|
|
379
|
|
|
|
1,795,670
|
|
|
|
11,819
|
|
|
|
|
|
|
|
1,807,868
|
|
Goodwill
|
|
|
|
|
|
|
3,048,899
|
|
|
|
|
|
|
|
|
|
|
|
3,048,899
|
|
Identifiable intangible and other assets
|
|
|
60,861
|
|
|
|
613,614
|
|
|
|
1,060
|
|
|
|
|
|
|
|
675,535
|
|
Investment in subsidiaries
|
|
|
7,268,399
|
|
|
|
|
|
|
|
|
|
|
|
(7,268,399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,090,062
|
|
|
$
|
10,621,970
|
|
|
$
|
1,188,981
|
|
|
$
|
(13,886,932
|
)
|
|
$
|
7,014,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
125,596
|
|
|
$
|
831,071
|
|
|
$
|
237
|
|
|
$
|
|
|
|
$
|
956,904
|
|
Other current liabilities
|
|
|
(2,011
|
)
|
|
|
1,818
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
Intercompany notes
|
|
|
4,095,926
|
|
|
|
1,971,952
|
|
|
|
550,655
|
|
|
|
(6,618,533
|
)
|
|
|
|
|
Current portion of long-term debt
|
|
|
18,000
|
|
|
|
3,067
|
|
|
|
|
|
|
|
|
|
|
|
21,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,237,511
|
|
|
|
2,807,908
|
|
|
|
551,085
|
|
|
|
(6,618,533
|
)
|
|
|
977,971
|
|
Long-term debt
|
|
|
3,902,196
|
|
|
|
331,016
|
|
|
|
558,100
|
|
|
|
|
|
|
|
4,791,312
|
|
Other long-term liabilities
|
|
|
513,859
|
|
|
|
294,093
|
|
|
|
350
|
|
|
|
|
|
|
|
808,302
|
|
Total stockholders equity
|
|
|
436,496
|
|
|
|
7,188,953
|
|
|
|
79,446
|
|
|
|
(7,268,399
|
)
|
|
|
436,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,090,062
|
|
|
$
|
10,621,970
|
|
|
$
|
1,188,981
|
|
|
$
|
(13,886,932
|
)
|
|
$
|
7,014,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-14-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet as of December 31,
2007
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
601
|
|
|
$
|
26,557
|
|
|
$
|
5,397
|
|
|
$
|
|
|
|
$
|
32,555
|
|
Receivables, net
|
|
|
162
|
|
|
|
14,723
|
|
|
|
898,189
|
|
|
|
|
|
|
|
913,074
|
|
Income tax receivable
|
|
|
15,504
|
|
|
|
2,381
|
|
|
|
|
|
|
|
|
|
|
|
17,885
|
|
Inventories
|
|
|
|
|
|
|
379,773
|
|
|
|
|
|
|
|
|
|
|
|
379,773
|
|
Intercompany receivables
|
|
|
1,312,750
|
|
|
|
4,247,006
|
|
|
|
357,341
|
|
|
|
(5,917,097
|
)
|
|
|
|
|
Other current assets
|
|
|
109,844
|
|
|
|
78,843
|
|
|
|
10
|
|
|
|
|
|
|
|
188,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,438,861
|
|
|
|
4,749,283
|
|
|
|
1,260,937
|
|
|
|
(5,917,097
|
)
|
|
|
1,531,984
|
|
Property, plant and equipment, net
|
|
|
197
|
|
|
|
1,786,063
|
|
|
|
12,118
|
|
|
|
|
|
|
|
1,798,378
|
|
Goodwill
|
|
|
|
|
|
|
3,017,746
|
|
|
|
|
|
|
|
|
|
|
|
3,017,746
|
|
Identifiable intangible and other assets
|
|
|
69,971
|
|
|
|
614,218
|
|
|
|
1,059
|
|
|
|
|
|
|
|
685,248
|
|
Investment in subsidiaries
|
|
|
7,103,613
|
|
|
|
|
|
|
|
|
|
|
|
(7,103,613
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,612,642
|
|
|
$
|
10,167,310
|
|
|
$
|
1,274,114
|
|
|
$
|
(13,020,710
|
)
|
|
$
|
7,033,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
62,179
|
|
|
$
|
844,886
|
|
|
$
|
205
|
|
|
$
|
|
|
|
$
|
907,270
|
|
Other current liabilities
|
|
|
(232
|
)
|
|
|
441
|
|
|
|
(209
|
)
|
|
|
|
|
|
|
|
|
Intercompany notes
|
|
|
3,652,553
|
|
|
|
1,670,913
|
|
|
|
593,631
|
|
|
|
(5,917,097
|
)
|
|
|
|
|
Current portion of long-term debt
|
|
|
18,000
|
|
|
|
7,246
|
|
|
|
|
|
|
|
|
|
|
|
25,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,732,500
|
|
|
|
2,523,486
|
|
|
|
593,627
|
|
|
|
(5,917,097
|
)
|
|
|
932,516
|
|
Long-term debt
|
|
|
4,317,059
|
|
|
|
330,046
|
|
|
|
600,000
|
|
|
|
|
|
|
|
5,247,105
|
|
Other long-term liabilities
|
|
|
511,816
|
|
|
|
290,302
|
|
|
|
350
|
|
|
|
|
|
|
|
802,468
|
|
Total stockholders equity
|
|
|
51,267
|
|
|
|
7,023,476
|
|
|
|
80,137
|
|
|
|
(7,103,613
|
)
|
|
|
51,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,612,642
|
|
|
$
|
10,167,310
|
|
|
$
|
1,274,114
|
|
|
$
|
(13,020,710
|
)
|
|
$
|
7,033,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-15-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Income
|
|
|
|
for the Three Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
3,072,764
|
|
|
$
|
4,196
|
|
|
$
|
|
|
|
$
|
3,076,960
|
|
Cost of sales
|
|
|
|
|
|
|
2,385,063
|
|
|
|
3,323
|
|
|
|
|
|
|
|
2,388,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
687,701
|
|
|
|
873
|
|
|
|
|
|
|
|
688,574
|
|
Selling and distribution
|
|
|
|
|
|
|
437,793
|
|
|
|
210
|
|
|
|
|
|
|
|
438,003
|
|
General, administrative and other
|
|
|
170
|
|
|
|
111,502
|
|
|
|
580
|
|
|
|
|
|
|
|
112,252
|
|
Facility closing, reorganization and other costs
|
|
|
|
|
|
|
2,215
|
|
|
|
|
|
|
|
|
|
|
|
2,215
|
|
Interest (income) expense
|
|
|
70,391
|
|
|
|
13,535
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
83,832
|
|
Other (income) expense, net
|
|
|
571
|
|
|
|
(464
|
)
|
|
|
512
|
|
|
|
|
|
|
|
619
|
|
Income from subsidiaries
|
|
|
(122,785
|
)
|
|
|
|
|
|
|
|
|
|
|
122,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
51,653
|
|
|
|
123,120
|
|
|
|
(335
|
)
|
|
|
(122,785
|
)
|
|
|
51,653
|
|
Income taxes
|
|
|
20,881
|
|
|
|
47,766
|
|
|
|
(142
|
)
|
|
|
(47,624
|
)
|
|
|
20,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
30,772
|
|
|
$
|
75,354
|
|
|
$
|
(193
|
)
|
|
$
|
(75,161
|
)
|
|
$
|
30,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Income
|
|
|
|
for the Three Months Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
2,628,457
|
|
|
$
|
1,292
|
|
|
$
|
|
|
|
$
|
2,629,749
|
|
Cost of sales
|
|
|
|
|
|
|
1,941,495
|
|
|
|
979
|
|
|
|
|
|
|
|
1,942,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
686,962
|
|
|
|
313
|
|
|
|
|
|
|
|
687,275
|
|
Selling and distribution
|
|
|
|
|
|
|
415,495
|
|
|
|
140
|
|
|
|
|
|
|
|
415,635
|
|
General, administrative and other
|
|
|
1,402
|
|
|
|
109,402
|
|
|
|
908
|
|
|
|
|
|
|
|
111,712
|
|
Facility closing, reorganization and other costs
|
|
|
|
|
|
|
5,775
|
|
|
|
|
|
|
|
|
|
|
|
5,775
|
|
Interest (income) expense
|
|
|
33,691
|
|
|
|
18,503
|
|
|
|
47
|
|
|
|
|
|
|
|
52,241
|
|
Other (income) expense, net
|
|
|
378
|
|
|
|
(90
|
)
|
|
|
12
|
|
|
|
|
|
|
|
300
|
|
Income from subsidiaries
|
|
|
(137,083
|
)
|
|
|
|
|
|
|
|
|
|
|
137,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
101,612
|
|
|
|
137,877
|
|
|
|
(794
|
)
|
|
|
(137,083
|
)
|
|
|
101,612
|
|
Income taxes
|
|
|
38,409
|
|
|
|
52,019
|
|
|
|
(306
|
)
|
|
|
(51,713
|
)
|
|
|
38,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
63,203
|
|
|
|
85,858
|
|
|
|
(488
|
)
|
|
|
(85,370
|
)
|
|
|
63,203
|
|
Loss from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
617
|
|
|
|
|
|
|
|
617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
63,203
|
|
|
$
|
85,858
|
|
|
$
|
129
|
|
|
$
|
(85,370
|
)
|
|
$
|
63,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-16-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
|
|
for the Three Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(25,357
|
)
|
|
$
|
126,875
|
|
|
$
|
56,743
|
|
|
$
|
158,261
|
|
Additions to property, plant and equipment
|
|
|
|
|
|
|
(44,759
|
)
|
|
|
|
|
|
|
(44,759
|
)
|
Payments for acquisitions and investments, net of cash received
|
|
|
(51,800
|
)
|
|
|
|
|
|
|
|
|
|
|
(51,800
|
)
|
Proceeds from sale of fixed assets
|
|
|
|
|
|
|
2,550
|
|
|
|
|
|
|
|
2,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(51,800
|
)
|
|
|
(42,209
|
)
|
|
|
|
|
|
|
(94,009
|
)
|
Net proceeds from (repayment of) debt
|
|
|
(414,900
|
)
|
|
|
(4,495
|
)
|
|
|
(41,900
|
)
|
|
|
(461,295
|
)
|
Issuance of common stock, net of expenses
|
|
|
405,464
|
|
|
|
|
|
|
|
|
|
|
|
405,464
|
|
Net change in intercompany balances
|
|
|
87,028
|
|
|
|
(70,953
|
)
|
|
|
(16,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
77,592
|
|
|
|
(75,448
|
)
|
|
|
(57,975
|
)
|
|
|
(55,831
|
)
|
Increase (decrease) in cash and cash equivalents
|
|
|
435
|
|
|
|
9,218
|
|
|
|
(1,232
|
)
|
|
|
8,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
601
|
|
|
|
26,557
|
|
|
|
5,397
|
|
|
|
32,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,036
|
|
|
$
|
35,775
|
|
|
$
|
4,165
|
|
|
$
|
40,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Cash Flows
|
|
|
|
for the Three Months Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
41,955
|
|
|
$
|
111,309
|
|
|
$
|
(15,256
|
)
|
|
$
|
138,008
|
|
Additions to property, plant and equipment
|
|
|
(262
|
)
|
|
|
(51,431
|
)
|
|
|
(88
|
)
|
|
|
(51,781
|
)
|
Payments for acquisitions and investments, net of cash received
|
|
|
(125,839
|
)
|
|
|
|
|
|
|
|
|
|
|
(125,839
|
)
|
Net proceeds from divestitures
|
|
|
10,706
|
|
|
|
|
|
|
|
|
|
|
|
10,706
|
|
Proceeds from sale of fixed assets
|
|
|
|
|
|
|
1,550
|
|
|
|
|
|
|
|
1,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(115,395
|
)
|
|
|
(49,881
|
)
|
|
|
(88
|
)
|
|
|
(165,364
|
)
|
Net proceeds from (repayment) of debt
|
|
|
27,250
|
|
|
|
(4,825
|
)
|
|
|
(12,100
|
)
|
|
|
10,325
|
|
Issuance of common stock, net of expenses
|
|
|
18,026
|
|
|
|
|
|
|
|
|
|
|
|
18,026
|
|
Tax savings on share-based compensation
|
|
|
5,819
|
|
|
|
|
|
|
|
|
|
|
|
5,819
|
|
Net change in intercompany balances
|
|
|
26,709
|
|
|
|
(54,019
|
)
|
|
|
27,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
77,804
|
|
|
|
(58,844
|
)
|
|
|
15,210
|
|
|
|
34,170
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
4,364
|
|
|
|
2,584
|
|
|
|
(134
|
)
|
|
|
6,814
|
|
Cash and cash equivalents, beginning of period
|
|
|
579
|
|
|
|
26,254
|
|
|
|
4,307
|
|
|
|
31,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
4,943
|
|
|
$
|
28,838
|
|
|
$
|
4,173
|
|
|
$
|
37,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-17-
|
|
6.
|
Common
Stock and Share-Based Compensation
|
Rights Plan The rights plan, as disclosed in
Note 10 to our Consolidated Financial Statements in our
2007 Annual Report on Form
10-K,
expired pursuant to its terms effective March 18, 2008.
Stock Options The following table summarizes
stock option activity during the first quarter of 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Contractual Life
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
(Years)
|
|
|
Value
|
|
|
Options outstanding at December 31, 2007
|
|
|
22,016,663
|
|
|
$
|
18.40
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
2,695,659
|
|
|
|
25.37
|
|
|
|
|
|
|
|
|
|
Options canceled or forfeited(1)
|
|
|
(125,190
|
)
|
|
|
27.15
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(495,185
|
)
|
|
|
13.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at March 31, 2008
|
|
|
24,091,947
|
|
|
|
19.23
|
|
|
|
5.96
|
|
|
$
|
90,716,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 31, 2008
|
|
|
17,749,002
|
|
|
|
16.45
|
|
|
|
4.84
|
|
|
|
90,709,084
|
|
|
|
|
(1) |
|
Pursuant to the terms of our stock option plans, options that
are canceled or forfeited become available for future grants. |
During the three months ended March 31, 2008 and 2007, we
recognized stock option expense of $5.6 million and
$5.1 million, respectively.
Restricted Stock Units The following table
summarizes restricted stock unit (stock units)
activity during the first quarter of 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees
|
|
|
Directors
|
|
|
Total
|
|
|
Stock units outstanding at December 31, 2007
|
|
|
1,140,152
|
|
|
|
78,863
|
|
|
|
1,219,015
|
|
Stock units issued
|
|
|
855,514
|
|
|
|
|
|
|
|
855,514
|
|
Shares issued upon vesting of stock units
|
|
|
(146,395
|
)
|
|
|
|
|
|
|
(146,395
|
)
|
Stock units canceled or forfeited(1)
|
|
|
(93,133
|
)
|
|
|
|
|
|
|
(93,133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock units outstanding at March 31, 2008
|
|
|
1,756,138
|
|
|
|
78,863
|
|
|
|
1,835,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value
|
|
$
|
26.88
|
|
|
$
|
24.40
|
|
|
$
|
26.79
|
|
|
|
|
(1) |
|
Pursuant to the terms of our stock unit plans, employees have
the option of forfeiting stock units to cover their minimum
statutory tax withholding when shares are issued. Stock units
that are canceled or forfeited become available for future
grants. |
During the three months ended March 31, 2008 and 2007, we
recognized stock unit expense of $2.9 million and
$3.2 million, respectively.
-18-
Basic earnings per share is based on the weighted average number
of common shares outstanding during each period. Diluted
earnings per share is based on the weighted average number of
common shares outstanding and the effect of all dilutive common
stock equivalents outstanding during each period. The following
table reconciles the numerators and denominators used in the
computations of both basic and diluted earnings per share
(EPS):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share data)
|
|
|
Basic EPS computation:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
30,772
|
|
|
$
|
63,203
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Average common shares
|
|
|
137,883,317
|
|
|
|
128,889,506
|
|
|
|
|
|
|
|
|
|
|
Basic EPS from continuing operations
|
|
$
|
0.22
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS computation:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
30,772
|
|
|
$
|
63,203
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Average common shares basic
|
|
|
137,883,317
|
|
|
|
128,889,506
|
|
Stock option conversion(1)
|
|
|
5,186,544
|
|
|
|
5,406,785
|
|
Stock units
|
|
|
219,174
|
|
|
|
225,176
|
|
|
|
|
|
|
|
|
|
|
Average common shares diluted
|
|
|
143,289,035
|
|
|
|
134,521,467
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS from continuing operations
|
|
$
|
0.21
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Stock option conversion excludes anti-dilutive shares of
9,627,015 and 1,121,578 at March 31, 2008 and 2007,
respectively. |
|
|
8.
|
Comprehensive
Income (Loss)
|
The components of comprehensive income (loss) are summarized
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax
|
|
|
|
|
|
Net
|
|
|
|
Income (Loss)
|
|
|
Tax Benefit
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Accumulated other comprehensive income (loss),
December 31, 2007
|
|
$
|
(140,943
|
)
|
|
$
|
53,141
|
|
|
$
|
(87,802
|
)
|
Cumulative translation adjustment arising during period
|
|
|
103
|
|
|
|
|
|
|
|
103
|
|
Net change in fair value of derivative instruments
|
|
|
(96,533
|
)
|
|
|
37,016
|
|
|
|
(59,517
|
)
|
Amounts reclassified to income statement related to derivatives
|
|
|
(135
|
)
|
|
|
51
|
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), March 31,
2008
|
|
$
|
(237,508
|
)
|
|
$
|
90,208
|
|
|
$
|
(147,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-19-
|
|
9.
|
Employee
Retirement and Postretirement Benefits
|
Defined Benefit Plans The benefits under our
defined benefit plans are based on years of service and employee
compensation.
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Components of net periodic pension cost:
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
620
|
|
|
$
|
675
|
|
Interest cost
|
|
|
4,040
|
|
|
|
4,246
|
|
Expected return on plan assets
|
|
|
(4,796
|
)
|
|
|
(4,681
|
)
|
Amortizations:
|
|
|
|
|
|
|
|
|
Unrecognized transition obligation
|
|
|
28
|
|
|
|
28
|
|
Prior service cost
|
|
|
222
|
|
|
|
211
|
|
Unrecognized net loss
|
|
|
510
|
|
|
|
719
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
624
|
|
|
$
|
1,198
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits Certain of our
subsidiaries provide health care benefits to certain retirees
who are covered under specific group contracts.
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
380
|
|
|
$
|
358
|
|
Interest cost
|
|
|
426
|
|
|
|
411
|
|
Amortizations:
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
(17
|
)
|
|
|
(17
|
)
|
Unrecognized net loss
|
|
|
155
|
|
|
|
266
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
944
|
|
|
$
|
1,018
|
|
|
|
|
|
|
|
|
|
|
-20-
|
|
10.
|
Facility
Closing And Reorganization Costs
|
We recorded net facility closing and reorganization costs of
$2.2 million and $5.8 million during the three months
ended March 31, 2008 and 2007, respectively. Those costs
included the following types of cash and non-cash charges:
|
|
|
|
|
Workforce reductions as a result of facility closings, facility
reorganizations and consolidation of administrative functions;
|
|
|
|
Shutdown costs, including those costs necessary to prepare
abandoned facilities for closure;
|
|
|
|
Costs incurred after shutdown, such as lease obligations or
termination costs, utilities and property taxes;
|
|
|
|
Costs associated with the centralization of certain finance and
transaction processing activities from local to regional
facilities; and
|
|
|
|
Write-downs of property, plant and equipment and other assets,
primarily for asset impairments as a result of the decision to
close a facility. The impairments relate primarily to owned
buildings, land and equipment at the facilities, which are
written down to their estimated fair value and held for sale.
|
Approved plans within our multi-year initiatives and related
charges are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Closure of facilities(1)
|
|
$
|
2,058
|
|
|
$
|
3,408
|
|
Workforce reductions within the DSD Dairy segment resulting from:
|
|
|
|
|
|
|
|
|
Realignment of finance and transaction processing activities(2)
|
|
|
157
|
|
|
|
191
|
|
Management realignment(3)
|
|
|
|
|
|
|
2,176
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,215
|
|
|
$
|
5,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Charges primarily relate to the closure of our DSD Dairy segment
facilities in Denver, Colorado; Union, New Jersey; Detroit,
Michigan; and Akron, Ohio. We expect to incur additional charges
related to these facility closures of $3.7 million, related
to shutdown and other costs. As we continue the evaluation of
our supply chain, it is likely that we will close additional
facilities in the future. |
|
(2) |
|
In 2006, we began the centralization of certain finance and
transaction processing activities from local to regional
facilities. We have incurred $7.1 million of workforce
reduction costs since the inception of this initiative and
anticipate incurring $1.4 million of additional costs
through the end of 2008. We will continue to evaluate additional
opportunities for centralization of activities, which could
result in additional charges in the future. |
|
(3) |
|
In 2007, we realigned certain management positions within our
former Dairy Group segment to facilitate supply-chain focused
platforms. This resulted in the elimination of certain regional
and corporate office positions, including the former President
of the Dairy Group. These positions will not be replaced. Since
the inception of this initiative, we have incurred
$10.6 million of workforce reduction costs,
$3.4 million of which was a non-cash charge resulting from
acceleration of vesting on share-based compensation. |
-21-
Activity for the first quarter of 2008 with respect to facility
closing and reorganization costs is summarized below and
includes items expensed as incurred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
Charges at
|
|
|
|
|
|
|
|
|
Charges at
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
Charges
|
|
|
Payments
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce reduction costs
|
|
$
|
13,062
|
|
|
$
|
434
|
|
|
$
|
(4,663
|
)
|
|
$
|
8,833
|
|
Shutdown costs
|
|
|
19
|
|
|
|
658
|
|
|
|
(673
|
)
|
|
|
4
|
|
Lease obligations after shutdown
|
|
|
43
|
|
|
|
65
|
|
|
|
(91
|
)
|
|
|
17
|
|
Other
|
|
|
88
|
|
|
|
416
|
|
|
|
(458
|
)
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
13,212
|
|
|
|
1,573
|
|
|
$
|
(5,885
|
)
|
|
$
|
8,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-down of assets(1)
|
|
|
|
|
|
|
642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charges
|
|
|
|
|
|
$
|
2,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The write-down of assets relates primarily to owned buildings,
land and equipment of those facilities identified for closure.
The assets are written down to their estimated fair value and
held for sale. The effect of suspending depreciation on the
buildings and equipment related to the closed facilities was not
significant. The carrying value of closed facilities at
March 31, 2008 was $14.0 million. We are marketing
these properties for sale. |
We are currently working through a multi-year initiative to
optimize our manufacturing and distribution capabilities. This
initiative will have multiple phases as we evaluate and modify
historical activities surrounding purchasing, support, and
decision-making infrastructure, supply chain, selling
organization, brand building, and product innovation. These
initiatives will require investments in people, systems, tools,
and facilities. As a direct result of these initiatives, over
the next several years, we will incur facility closing and
reorganization costs including:
|
|
|
|
|
One-time termination benefits to employees;
|
|
|
|
Write-down of operating assets prior to the end of their
respective economic useful lives;
|
|
|
|
Shutdown costs, including those costs necessary to prepare
abandoned facilities for closure; and
|
|
|
|
Costs incurred after shutdown, such as lease obligations or
termination costs, utilities and property taxes.
|
We consider several factors when evaluating a potential facility
closure, including, among other things, the impact of such a
closure on our customers, the impact on production, distribution
and overhead costs, the investment required to complete any such
closure, and the impact on future investment decisions. Some
facility closures are pursued to improve our operating cost
structure, while others enable us to avoid unnecessary capital
expenditures, allowing us to more prudently invest our capital
expenditure dollars in our production facilities and better
serve our customers.
|
|
11.
|
Commitments
and Contingencies
|
Contingent Obligations Related to Divested
Operations We have divested several businesses
in recent years. In each case, we have retained certain known
contingent obligations related to those businesses
and/or
assumed an obligation to indemnify the purchasers of the
businesses for certain unknown contingent liabilities, including
environmental liabilities. We believe that we have established
adequate reserves for potential liabilities and indemnifications
related to our divested businesses. Moreover, we do not expect
any liability
-22-
that we may have for these retained liabilities, or any
indemnification liability, to materially exceed amounts accrued.
Contingent Obligations Related to Milk Supply
Arrangements On December 21, 2001, in
connection with our acquisition of Legacy Dean, we purchased
Dairy Farmers of Americas (DFA) interest in
our operations. In connection with that transaction, we entered
into two agreements with DFA designed to ensure that DFA has the
opportunity to continue to supply raw milk to certain of our
facilities, or be paid for the loss of that business. One such
agreement is a promissory note with a
20-year term
that bears interest based on the consumer price index. Interest
will not be paid in cash but will be added to the principal
amount of the note annually, up to a maximum principal amount of
$96 million. We may prepay the note in whole or in part at
any time, without penalty. The note will only become payable if
we materially breach or terminate one of our milk supply
agreements with DFA without renewal or replacement. Otherwise,
the note will expire in 2021, without any obligation to pay any
portion of the principal or interest. Payments made under the
note, if any, would be expensed as incurred. The other agreement
would require us to pay damages to DFA if we fail to offer DFA
the right to supply milk to certain facilities that we acquired
as part of the former Dean Foods after the pre-existing
agreements with certain other suppliers or producers expire. We
have not breached or terminated any of our milk supply
agreements with DFA.
Insurance We retain selected levels of
property and casualty risks, primarily related to employee
health care, workers compensation claims and other
casualty losses. Many of these potential losses are covered
under conventional insurance programs with third party carriers
with high deductible limits. In other areas, we are self-insured
with stop-loss coverages. These deductibles range between
$350,000 for medical claims to $2.0 million for casualty
claims, but may vary higher or lower due to insurance market
conditions and risk. We believe that we have established
adequate reserves to cover these claims.
Leases and Purchase Obligations We lease
certain property, plant and equipment used in our operations
under both capital and operating lease agreements. Such leases,
which are primarily for machinery, equipment and vehicles, have
lease terms ranging from one to 20 years. Certain of the
operating lease agreements require the payment of additional
rentals for maintenance, along with additional rentals based on
miles driven or units produced. Certain leases require us to
guarantee a minimum value of the leased asset at the end of the
lease. Our maximum exposure under those guarantees is not a
material amount.
We have entered into various contracts obligating us to purchase
minimum quantities of raw materials used in our production
processes, including organic soybeans and organic raw milk. We
enter into these contracts from time to time to ensure a
sufficient supply of raw ingredients. In general, we expect to
utilize all quantities under the purchase commitments in the
normal course of business. In addition, we have contractual
obligations to purchase various services that are part of our
production process.
Litigation, Investigations and Audits We are
not party to, nor are our properties the subject of, any
material pending legal proceedings, other than set forth below.
However, we are party from time to time to certain claims,
litigation, audits and investigations. We believe that we have
established adequate reserves to satisfy any potential liability
we may have under all such claims, litigations, audits and
investigations that are currently pending. In our opinion, the
settlement of any such currently pending or threatened matter is
not expected to have a material adverse impact on our financial
position, results of operations or cash flows.
We were named, among several defendants, in two purported class
action antitrust complaints filed on July 5, 2007. The
complaints were filed in the United States District Court for
the Middle District of Tennessee, Columbia Division, and allege
generally that we and others in the milk industry worked
together to limit the price Southeastern dairy farmers are paid
for their raw milk and to deny these farmers access to fluid
Grade A milk processing facilities. A third purported class
action was filed on August 9, 2007 in the United States
District Court for the Eastern District of Tennessee, Greenville
Division. The third complaint was amended on March 28,
2008. The amended complaint alleges generally that we, either
acting alone or in conjunction with others in the milk industry,
lessened competition in the Southeastern United States for the
sale of processed fluid Grade A milk to retail outlets and that
the defendants conduct also artificially inflated retail
prices for direct milk purchasers. Four additional purported
class action complaints were filed on August 27, 2007,
October 3, 2007, November 15, 2007 and
February 13, 2008 in the United States District
-23-
Court for the Eastern District of Tennessee, Greenville
Division. The allegations in these complaints are similar to
those in the first and second complaints. On January 7,
2008, a United States Judicial Panel on Multidistrict Litigation
ordered the consolidation of all of the pending cases to the
Eastern District of Tennessee, Greenville Division. Motions to
dismiss each of these actions are currently pending before the
Court. We intend to vigorously defend the actions.
On January 18, 2008, our subsidiary, Kohler Mix
Specialties, LLC (Kohler), was named as defendant in
a civil complaint filed in the Superior Court, Judicial District
of Hartford. The plaintiff in the case is the Commissioner of
Environmental Protection of the State of Connecticut. The
complaint alleges generally that Kohler improperly discharged
wastewater in to the waters of the State of Connecticut, and
bypassed certain wastewater treatment equipment. The plaintiff
is seeking injunctive relief and civil penalties with respect to
the claims. We are currently investigating the matter and the
claims presented. At this time, it is not possible for us to
predict the ultimate outcome of this matter.
|
|
12.
|
Segment,
Geographic and Customers Information
|
We currently have two reportable segments: DSD Dairy and
WhiteWave-Morningstar.
Our DSD Dairy segment is our largest segment with over 80
manufacturing facilities operating largely based on local and
regional customer and competitor dynamics. It manufactures,
markets and distributes more than 50 regional branded and
private-label dairy case products, including milk, creamers, ice
cream, juices and teas, to retailers, distributors, foodservice
outlets, educational institutions, and governmental entities
across the United States. Our DSD or direct store
delivery business is delivered through what we believe to
be one of the most extensive refrigerated DSD systems in the
United States.
Our WhiteWave-Morningstar segment consists of two platforms:
WhiteWave and Morningstar. Our WhiteWave platform
(WhiteWave) manufactures, develops, markets and
sells a variety of nationally branded soy, dairy and
dairy-related products, such as
Silk®
soymilk and cultured soy products, Horizon
Organic®
dairy and other products, International
Delight®
coffee creamers, LAND
OLAKES®
creamers and fluid dairy products and Rachels
Organic®
dairy products. Our Morningstar platform
(Morningstar) is one of the leading
U.S. manufacturers of private label cultured and extended
shelf life dairy products such as ice cream mix, sour and
whipped cream, and cottage cheese. Our WhiteWave-Morningstar
segment sells its products to a variety of customers, including
grocery stores, club stores, natural foods stores, mass
merchandisers, convenience stores, drug stores, and foodservice
outlets. The majority of the White Wave and Morningstar products
are delivered through warehouse delivery systems.
We evaluate the performance of our segments based on sales and
operating profit or loss before gains and losses on the sale of
businesses, facility closing and reorganization costs and
foreign exchange gains and losses. In addition, the expense
related to share-based compensation has not been allocated to
our segments and is reflected entirely within the caption
Corporate. Therefore, the measure of segment profit
or loss presented below is before such items. Our Chief
Executive Officer is our chief operating decision maker. The
accounting policies of our segments are the same as those
described in the summary of significant accounting policies set
forth in Note 1 to our Consolidated Financial Statements
contained in our 2007 Annual Report on
Form 10-K.
Due to changes in our reportable segments as discussed in
Note 1 to our Condensed Consolidated Financial Statements,
segment results for the first quarter of 2007 have been recast
to present results on a comparable basis. These changes had no
impact on consolidated net sales or operating income.
-24-
The amounts in the following tables are obtained from reports
used by our executive management team and do not include any
allocated income taxes or management fees. There are no
significant non-cash items reported in segment profit or loss
other than depreciation and amortization.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Net sales to external customers:
|
|
|
|
|
|
|
|
|
DSD Dairy
|
|
$
|
2,458,476
|
|
|
$
|
2,100,066
|
|
WhiteWave-Morningstar
|
|
|
618,484
|
|
|
|
529,683
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,076,960
|
|
|
$
|
2,629,749
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales:
|
|
|
|
|
|
|
|
|
DSD Dairy
|
|
$
|
12,478
|
|
|
$
|
9,356
|
|
WhiteWave-Morningstar
|
|
|
64,898
|
|
|
|
52,745
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
77,376
|
|
|
$
|
62,101
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
DSD Dairy
|
|
$
|
130,908
|
|
|
$
|
153,650
|
|
WhiteWave-Morningstar
|
|
|
45,392
|
|
|
|
45,178
|
|
|
|
|
|
|
|
|
|
|
Total reportable segment operating income
|
|
|
176,300
|
|
|
|
198,828
|
|
Corporate
|
|
|
(37,981
|
)
|
|
|
(38,900
|
)
|
Facility closing, reorganization and other costs
|
|
|
(2,215
|
)
|
|
|
(5,775
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
136,104
|
|
|
$
|
154,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
DSD Dairy
|
|
$
|
4,998,653
|
|
|
$
|
4,750,747
|
|
WhiteWave-Morningstar
|
|
|
1,762,301
|
|
|
|
2,010,487
|
|
Corporate
|
|
|
253,127
|
|
|
|
272,122
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,014,081
|
|
|
$
|
7,033,356
|
|
|
|
|
|
|
|
|
|
|
Geographic Information Less than 1% of our
net sales and long-lived assets relate to operations outside of
the United States.
Significant Customers Our DSD Dairy and
WhiteWave-Morningstar segments each had a single customer that
represented greater than 10% of their net sales in the first
quarter of 2008 and 2007. Approximately 18.7% and 18.8% of our
consolidated net sales in the first quarter of 2008 and 2007,
respectively, were to that same customer.
Subsequent to the end of the quarter we acquired the customer
relationships and distribution assets of a fluid dairy facility
in Atlanta, Georgia. In addition, we announced the planned
closure of a DSD Dairy facility in Kalispell, Montana and a
Morningstar facility in Belleville, Pennsylvania. These closures
are anticipated to be completed by the end of 2008.
-25-
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Cautionary
Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (the Form 10-Q)
contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, which are
subject to risks, uncertainties and assumptions that are
difficult to predict. Forward-looking statements are predictions
based on our current expectations and our projections about
future events, and are not statements of historical fact.
Forward-looking statements include statements concerning our
business strategy, among other things, including anticipated
trends and developments in and management plans for our business
and the markets in which we operate. In some cases, you can
identify these statements by forward-looking words, such as
estimate, expect,
anticipate, project, plan,
intend, believe, forecast,
foresee, likely, may,
should, goal, target,
might, will, could,
predict, and continue, the negative or
plural of these words and other comparable terminology. All
forward-looking statements included in this Form 10-Q are based
upon information available to us as of the filing date of this
Form 10-Q, and we undertake no obligation to update any of these
forward-looking statements for any reason. You should not place
undue reliance on these forward-looking statements. These
forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual
results, levels of activity, performance, or achievements to
differ materially from those expressed or implied by these
statements. These factors include the matters discussed in the
section entitled Part II Item 1A
Risk Factors in this Form 10-Q and Part
I Item 1A Risk Factors in our 2007
Annual Report on Form 10-K, and elsewhere in this Form 10-Q. You
should carefully consider the risks and uncertainties described
under these sections.
Business
Overview
We are one of the leading food and beverage companies in the
United States. Our DSD Dairy segment is the largest processor
and distributor of milk and other dairy products in the country,
with products sold under more than 50 familiar local and
regional brands and a wide array of private labels. Our
WhiteWave-Morningstar
segment markets and sells a variety of nationally branded dairy
and dairy-related products, such as
Silk®
soymilk and cultured soy products, Horizon
Organic®
milk and other dairy products, International
Delight®
coffee creamers, LAND
OLAKES®
creamers and other fluid dairy products. Our
WhiteWave-Morningstar segments Rachels
Organic®
dairy products brand is the second largest organic yogurt
brand in the United Kingdom. Additionally, our
WhiteWave-Morningstar segment markets and sells private label
cultured and extended shelf life dairy products through our
Morningstar platform.
During 2007, we began aligning our leadership teams and strategy
around distinct supply chain and delivery channels. Effective
January 1, 2008, consistent with this direction, we
disaggregated the former Dairy Group segment into a DSD Dairy
fluid and ice cream platform and a Morningstar platform. The
Morningstar platform is now a part of our WhiteWave-Morningstar
segment.
DSD Dairy Our DSD Dairy segment is our
largest segment, with approximately 80% of our consolidated net
sales in the three months ended March 31, 2008. The DSD
Dairy segment manufactures, markets and distributes a wide
variety of branded and private label dairy case products,
including milk, creamers, ice cream, juices and teas, to
retailers, distributors, foodservice outlets, educational
institutions, and governmental entities across the United
States. Due to the perishable nature of its products, our DSD
Dairy segment delivers the majority of its products directly to
its customers locations in refrigerated trucks or trailers
that we own or lease. This form of delivery is called a
direct store delivery or DSD system. We
believe that our DSD Dairy segment has one of the most extensive
refrigerated DSD systems in the United States. The DSD
Dairy segment sells its products primarily on a local or
regional basis through its local and regional sales forces,
although some national customer relationships are coordinated by
the DSD Dairy segments corporate sales department. Most of
the DSD Dairy segments customers, including its largest
customer, purchase products from the DSD Dairy segment either by
purchase order or pursuant to contracts that are generally
terminable at will by the customer.
WhiteWave-Morningstar Our
WhiteWave-Morningstar segment net sales are approximately 20% of
our consolidated net sales. The WhiteWave-Morningstar segment
manufactures, develops, markets and sells a variety of
nationally branded soy, dairy and dairy-related products, such
as Silk soymilk and cultured soy
-26-
products, Horizon Organic dairy and other products,
International Delight coffee creamers, LAND
OLAKES creamers and fluid dairy products and
Rachels Organic dairy products. Our
WhiteWave-Morningstar segment also sells The Organic
Cow®
organic dairy products. We license the LAND
OLAKES name from a third party. With the addition of
Morningstar, our WhiteWave-Morningstar segment now includes
private label cultured and extended shelf life dairy products
such as ice cream mix, sour and whipped cream, and cottage
cheese. The WhiteWave-Morningstar segment sells its products to
a variety of customers, including grocery stores, club stores,
natural foods stores, mass merchandisers, convenience stores,
drug stores, and foodservice outlets. The WhiteWave-Morningstar
segment sells its products through its internal sales force and
through independent brokers. The majority of its products,
including sales to its largest customer, are sold pursuant to
customer purchase orders or pursuant to contracts that are
generally terminable at will by the customer.
Recent
Developments
Developments
Since January 1, 2008
Current Dairy Environment Rapidly increasing
and record high dairy commodity costs created a challenging
operating environment throughout 2007. While conventional raw
milk prices decreased in the first quarter of 2008 from the
levels experienced in the fourth quarter of 2007, they remain
significantly higher than prices in the first quarter of the
prior year. As a result of this extreme commodity environment,
we face unprecedented cost challenges in our DSD Dairy segment
operations. As a consequence of higher raw milk costs, we have
seen a related increase in shrink costs and reduced profits from
excess cream sales. We also are seeing a continuing shift from
our branded fluid milk products to private label products
resulting in reduced gross profit.
Throughout most of 2007, the industry, including us, experienced
an oversupply in organic raw milk. This oversupply led to
aggressive discounting within this product category. In the
first quarter of 2008, the industry supply began to shift to an
undersupply position that has lessened, but not eliminated, the
extent of product discounting. The discounting has continued to
negatively impact the operating income of our
WhiteWave-Morningstar
segment. As supply tightens within the organic dairy category,
retail prices are beginning to rise across the industry. At the
same time, pay prices to farmers are increasing to reflect the
sharp rise in feed and fuel costs experienced by our network of
over 400 organic family farmers.
Public Offering of Equity Securities On
March 5, 2008, we issued and sold 18.7 million shares
of our common stock, $0.01 par value per share, in a public
offering pursuant to a registration statement on
Form S-3.
We received net proceeds of approximately $400.0 million
from the offering. The net proceeds from the offering were used
to reduce debt outstanding under the revolving portion of our
senior credit facility.
Acquisitions In the first quarter of 2008,
our DSD Dairy segment completed two acquisitions. The aggregate
purchase price of these acquisitions was approximately
$50 million, including transaction costs. Subsequent to the
end of the quarter we acquired the customer relationship and
distribution assets of a fluid dairy facility in Atlanta,
Georgia. We have noted an increase in potential transaction
activity. We attribute this increase in activity in part to the
higher commodity prices and tightening of financial markets.
Management Changes On May 5, 2008, Kelly
Duffin-Maxwell joined Dean Foods Company as Executive Vice
President, Research & Development. Prior to joining
our Company, Ms. Duffin-Maxwell served as Senior Vice
President, Breakthrough Innovation for Kraft Foods, Inc.
Ms. Duffin-Maxwell will report jointly to Gregg Engles, our
Chairman and CEO, and Joe Scalzo, President and CEO, WhiteWave
Foods Company and Morningstar Foods.
-27-
Results
of Operations
The following table presents certain information concerning our
financial results, including information presented as a
percentage of net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
3,077.0
|
|
|
|
100.0
|
%
|
|
$
|
2,629.8
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
2,388.4
|
|
|
|
77.6
|
|
|
|
1,942.5
|
|
|
|
73.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit(1)
|
|
|
688.6
|
|
|
|
22.4
|
|
|
|
687.3
|
|
|
|
26.1
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and distribution
|
|
|
438.0
|
|
|
|
14.2
|
|
|
|
415.6
|
|
|
|
15.8
|
|
General and administrative
|
|
|
110.7
|
|
|
|
3.6
|
|
|
|
109.4
|
|
|
|
4.1
|
|
Amortization of intangibles
|
|
|
1.6
|
|
|
|
0.1
|
|
|
|
2.3
|
|
|
|
0.1
|
|
Facility closing and reorganization costs
|
|
|
2.2
|
|
|
|
0.1
|
|
|
|
5.8
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
552.5
|
|
|
|
18.0
|
|
|
|
533.1
|
|
|
|
20.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
136.1
|
|
|
|
4.4
|
%
|
|
$
|
154.2
|
|
|
|
5.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As disclosed in Note 1 to our Consolidated Financial
Statements in our 2007 Annual Report on Form
10-K, we
include certain shipping and handling costs within selling and
distribution expense. As a result, our gross profit may not be
comparable to other entities that present all shipping and
handling costs as a component of cost of sales. |
Quarter
Ended March 31, 2008 Compared to Quarter Ended
March 31, 2007 Consolidated
Results
Net Sales Consolidated net sales increased by
17.0% to $3.08 billion in the first quarter of 2008 from
$2.63 billion in the first quarter of 2007. Net sales by
segment are shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31
|
|
|
|
|
|
|
|
|
|
$ Increase/
|
|
|
% Increase/
|
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
(Dollars in millions)
|
|
|
DSD Dairy
|
|
$
|
2,458.5
|
|
|
$
|
2,100.1
|
|
|
$
|
358.4
|
|
|
|
17.1
|
%
|
WhiteWave-Morningstar
|
|
|
618.5
|
|
|
|
529.7
|
|
|
|
88.8
|
|
|
|
16.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,077.0
|
|
|
$
|
2,629.8
|
|
|
$
|
447.2
|
|
|
|
17.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in net sales was due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31, 2008
|
|
|
|
vs Quarter Ended March 31, 2007
|
|
|
|
|
|
|
Pricing, Volume
|
|
|
|
|
|
|
|
|
|
And Product
|
|
|
Total Increase/
|
|
|
|
Acquisitions
|
|
|
Mix Changes
|
|
|
(Decrease)
|
|
|
|
(Dollars in millions)
|
|
|
DSD Dairy
|
|
$
|
28.2
|
|
|
$
|
330.2
|
|
|
$
|
358.4
|
|
WhiteWave-Morningstar
|
|
|
19.6
|
|
|
|
69.2
|
|
|
|
88.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
47.8
|
|
|
$
|
399.4
|
|
|
$
|
447.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-28-
Net sales increased $447.2 million during the first quarter
of 2008 as compared to the first quarter of 2007 primarily due
to the pass through of higher conventional milk prices, other
commodity and distribution costs, as well as growth in our
national brands and Morningstar operations.
Cost of Sales All expenses incurred to bring
a product to completion are included in cost of sales, such as
raw material, ingredient and packaging costs; labor costs; and
plant and equipment costs, including costs to operate and
maintain our coolers and freezers. Cost of sales increased by
23.0% to $2.39 billion in the first quarter of 2008 from
$1.94 billion in the first quarter of 2007 primarily due to
higher conventional and organic raw milk costs. The higher
commodity prices, as well as relative pricing movement between
raw skim milk and butterfat, impacted other components of cost
of sales including shrink and sale of excess cream. Our cost of
sales as a percentage of net sales increased to 77.6% in the
first quarter of 2008 compared to 73.9% in the first quarter of
2007.
Operating Costs and Expenses Our operating
expenses increased $19.4 million, or 3.6% in the first
quarter of 2008 as compared to the same period in the prior
year. Significant changes to operating costs and expenses
include the following:
|
|
|
|
|
Selling and distribution costs increased $22.4 million due
to higher fuel and delivery equipment, insurance, advertising,
and utilities expense.
|
|
|
|
General and administrative costs increased $1.3 million on
higher employee costs, professional fees and infrastructure
costs.
|
|
|
|
Net facility closing and reorganization costs that were
$3.6 million lower than the first quarter of 2007. See
Note 10 to our Condensed Consolidated Financial Statements
for further information on our facility closing and
reorganization activities.
|
Operating Income For the reasons noted above,
operating income during the first quarter of 2008 was
$136.1 million, a decrease of $18.1 million from the
first quarter of 2007 operating income of $154.2 million.
Our operating margin in the first quarter of 2008 was 4.4%
compared to 5.9% in the first quarter of 2007.
Other (Income) Expense Interest expense
increased to $83.8 million in the first quarter of 2008
from $52.2 million in the first quarter of 2007 primarily
due to higher average debt balances and interest rates. The
higher debt balances resulted from the recapitalization of our
balance sheet in April 2007 and payment of a special cash
dividend.
Income Taxes Income tax expense was recorded
at an effective rate of 40.4% in the first quarter of 2008
compared to 37.8% in the first quarter of 2007. Our effective
tax rate varies based on the relative earnings of our business
units. During the first quarter of 2008, our income tax rate was
unfavorably impacted by changes to certain state tax rates and
regulations.
Quarter
Ended March 31, 2008 Compared to Quarter Ended
March 31, 2007 Results by Segment
DSD
Dairy
The key performance indicators of our DSD Dairy segment are
sales volumes, gross profit and operating income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
2,458.5
|
|
|
|
100.0
|
%
|
|
$
|
2,100.1
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
1,933.8
|
|
|
|
78.7
|
|
|
|
1,560.0
|
|
|
|
74.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
524.7
|
|
|
|
21.3
|
|
|
|
540.1
|
|
|
|
25.7
|
|
Operating costs and expenses
|
|
|
393.8
|
|
|
|
16.0
|
|
|
|
386.4
|
|
|
|
18.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
$
|
130.9
|
|
|
|
5.3
|
%
|
|
$
|
153.7
|
|
|
|
7.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-29-
Net Sales Our DSD Dairy segments net
sales increased $358.4 million, or 17.1%, in the first
quarter of 2008 versus the first quarter of 2007. The change in
net sales from the first quarter of 2007 to the first quarter of
2008 was due to the following:
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
2007 Net sales
|
|
$
|
2,100.1
|
|
|
|
|
|
Acquisitions
|
|
|
28.2
|
|
|
|
1.3
|
%
|
Volume
|
|
|
(30.8
|
)
|
|
|
(1.4
|
)
|
Pricing and product mix
|
|
|
361.0
|
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
2008 Net sales
|
|
$
|
2,458.5
|
|
|
|
17.1
|
%
|
|
|
|
|
|
|
|
|
|
The increase in the DSD Dairy segments net sales was due
largely to the pass through of higher conventional milk prices.
The DSD Dairy segment generally increases or decreases the
prices of its fluid dairy products on a monthly basis in
correlation to fluctuations in the costs of raw materials,
packaging supplies and delivery costs. However, in some cases,
we are competitively or contractually constrained with respect
to the means
and/or
timing of price increases. This can have a negative impact on
the DSD Dairy segments profitability. The following table
sets forth the average monthly Class I mover
and its components, as well as the average monthly Class II
minimum prices for raw skim milk and butterfat for the first
quarter of 2008 compared to the first quarter of 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31*
|
|
|
|
2008
|
|
|
2007
|
|
|
% Change
|
|
|
Class I mover(1)
|
|
$
|
19.12
|
|
|
$
|
13.74
|
|
|
|
39
|
%
|
Class I raw skim milk mover(1)(2)
|
|
|
14.84
|
|
|
|
9.45
|
|
|
|
57
|
|
Class I butterfat mover(3)(4)
|
|
|
1.37
|
|
|
|
1.32
|
|
|
|
4
|
|
Class II raw skim milk minimum(1)(2)
|
|
|
13.75
|
|
|
|
8.80
|
|
|
|
56
|
|
Class II butterfat minimum(3)(4)
|
|
|
1.34
|
|
|
|
1.34
|
|
|
|
|
|
|
|
|
* |
|
The prices noted in this table are not the prices that we
actually pay. The federal order minimum prices applicable at any
given location for Class I raw skim milk or Class I
butterfat are based on the Class I mover prices plus a
location differential. Class II prices noted in the table
are federal minimum prices, applicable at all locations. Our
actual cost also includes producer premiums, procurement costs
and other related charges that vary by location and vendor.
Please see Part I Item 1.
Business Government Regulation Milk
Industry Regulation in our 2007 Annual Report on Form
10-K and
Known Trends and Uncertainties
Prices of Raw Milk and Other Inputs below for a more
complete description of raw milk pricing. |
|
(1) |
|
Prices are per hundredweight. |
|
(2) |
|
We process Class I raw skim milk and butterfat into fluid
milk products. |
|
(3) |
|
Prices are per pound. |
|
(4) |
|
We process Class II raw skim milk and butterfat into
products such as cottage cheese, creams and creamers, ice cream
and sour cream. |
Cost of Sales All expenses incurred to bring
a product to completion are included in cost of sales, such as
raw material, ingredient and packaging costs; labor costs; and
plant and equipment costs, including costs to operate and
maintain our coolers and freezers. Cost of sales increased by
$373.8 million or 24.0% to $1.93 billion in the first
quarter of 2008 from $1.56 billion in the first quarter of
2007 primarily due to higher conventional raw milk costs, resin
and packaging, partially offset by lower conversion costs. The
higher commodity prices as well as relative pricing movement
between raw skim milk and butterfat resulted and impacted other
components of cost of sales including shrink and sale of excess
cream. Our cost of sales as a percentage of net sales increased
to 78.7% in the first quarter of 2008 compared to 74.3% in the
first quarter of 2007.
-30-
Operating Costs and Expenses DSD Dairys
operating costs and expenses increased $7.4 million, or
1.9% to $393.8 million during the first quarter of 2008,
compared to $386.4 million during the first quarter of 2007
primarily due to higher distribution costs of $12.3 million
driven by higher fuel and delivery equipment expense, partially
offset by lower advertising expense of $4.3 million.
Our DSD Dairy segments operating expense as a percentage
of net sales decreased to 16.0% in the first quarter of 2008
from 18.4% in the first quarter of 2007, primarily due to the
increase in sales in response to higher commodity costs that
outpaced growth in operating costs and expenses.
WhiteWave-Morningstar
The key performance indicators of our WhiteWave-Morningstar
segment are sales volumes, net sales dollars, gross profit and
operating income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
618.5
|
|
|
|
100.0
|
%
|
|
$
|
529.7
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
454.3
|
|
|
|
73.5
|
|
|
|
382.2
|
|
|
|
72.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
164.2
|
|
|
|
26.5
|
|
|
|
147.5
|
|
|
|
27.8
|
|
Operating costs and expenses
|
|
|
118.8
|
|
|
|
19.2
|
|
|
|
102.3
|
|
|
|
19.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
$
|
45.4
|
|
|
|
7.3
|
%
|
|
$
|
45.2
|
|
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales Our WhiteWave-Morningstar
segments net sales increased $88.8 million, or 16.8%
in the first quarter of 2008 versus the first quarter of 2007.
The change in net sales from the first quarter of 2007 to the
first quarter of 2008 was due to the following:
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
2007 Net sales
|
|
$
|
529.7
|
|
|
|
|
|
Acquisitions
|
|
|
19.6
|
|
|
|
3.7
|
%
|
Volume
|
|
|
40.0
|
|
|
|
7.6
|
|
Pricing and product mix
|
|
|
29.2
|
|
|
|
5.5
|
|
|
|
|
|
|
|
|
|
|
2008 Net sales
|
|
$
|
618.5
|
|
|
|
16.8
|
%
|
|
|
|
|
|
|
|
|
|
The increase in WhiteWave-Morningstar sales reflects increased
volume and pricing primarily due to increased consumer
acceptance and more effective marketing of our products. For the
first quarter of the year, total net sales for the WhiteWave
brands increased 13% to $364 million, with continued strong
sales growth across all of our core brands. Net sales of Horizon
Organic milk sales increased nearly 30% in the quarter on even
higher volume. Silk and International Delight net sales both
increased in the low double digits. Land OLakes growth was
in the high single digits. Morningstar also posted strong sales
growth in the quarter, increasing net sales 23% to
$255 million, with the benefit of an acquisition completed
in March 2007.
In the past, the industry-wide demand for organic raw milk has
generally exceeded supply, resulting in our inability to fully
meet customer demand. However, in 2006 economic incentives for
conventional farmers to begin the transition to organic farming
combined with a change in the organic farm transition
regulations dramatically increased the growth of supply in 2007.
This oversupply led to significant discounting and aggressive
distribution expansion by processors in an effort to stimulate
incremental demand and sell their supply in the organic milk
market. Faced with the potential of losing market share in the
organic milk market, we made the strategic decision to defend
the long-term value of the Horizon Organic brand by
increasing our price competitiveness and marketing investment
behind the brand in 2007. Our efforts were successful in
maintaining and expanding our market share. The market for
organic milk is currently very dynamic and began to shift back
to an undersupply situation during the first quarter of 2008.
-31-
Cost of sales WhiteWave-Morningstars
cost of sales increased by $72.1 million or 18.9% to
$454.3 million in the first quarter of 2008 from
$382.2 million in the first quarter of 2007 primarily
driven by higher volumes, but also by higher raw material costs,
particularly raw conventional milk and raw organic milk. Our
cost of sales as a percentage of net sales increased to 73.5% in
the first quarter of 2008 from 72.2% in the first quarter of
2007.
Operating Costs and Expenses
WhiteWave-Morningstars operating costs and expenses
increased $16.5 million, or 16.1% to $118.8 million
during the first quarter of 2008, compared to the first quarter
of 2007 primarily due to higher distribution costs driven by
higher volumes and rising fuel costs, higher marketing and
advertising, information technology, and employee-related costs.
Liquidity
and Capital Resources
Historical
Cash Flow
During the first quarter of 2008, we met our working capital
needs with cash flow from operations. Net cash provided by
operating activities increased $20.3 million to
$158.3 million in the first quarter of 2008 compared to
$138.0 million for the same period in 2007. The impact of
lower net income in the quarter was more than offset by the
decrease in working capital requirements due in part to the
decline in conventional raw milk in the first quarter of 2008
compared to the fourth quarter of 2007. Net cash flow from
operations also benefited from an increase in anticipated
deferred income tax benefits.
Net cash used in investing activities was $94.0 million in
the first quarter of 2008 compared to $165.4 million in the
first quarter of 2007. In the first quarter of 2008, we made
approximately $44.8 million in capital expenditures and our
DSD Dairy segment completed two acquisitions requiring the use
of approximately $50 million in cash. In the first quarter
of 2007, we made approximately $51.8 million in capital
expenditures and our Morningstar platform acquired Friendship
Dairies, requiring the use of approximately $125.8 million
in cash.
In the first quarter of 2008 we reduced our debt by
approximately $461.3 million with cash generated from
operations and an equity offering completed in March 2008. We
issued and sold 18.7 million shares of our common stock
resulting in net proceeds of approximately $400.0 million
from the offering.
Financial
Covenants
Under the senior secured credit facility, we are required to
maintain certain financial covenants, including, but not limited
to, maximum leverage and minimum interest coverage ratios. As of
March 31, 2008, we were in compliance with all covenants
contained in this agreement. We currently have a maximum
permitted leverage ratio of 6.25 times consolidated funded
indebtedness to consolidated EBITDA for the prior four
consecutive quarters, each as defined under and calculated in
accordance with the terms of our senior secured credit facility
and our receivables facility. As of March 31, 2008, this
leverage ratio was 5.56 times. The maximum permitted leverage
ratio under both the senior secured credit facility and the
receivables facility will decline to 5.75 times as of
December 31, 2008. We anticipate further reductions of our
revolving credit facility over the balance of 2008.
-32-
Contractual
Obligations as of March 31, 2008
The table below summarizes our obligations for indebtedness,
purchases and lease obligations at March 31, 2008. See
Note 5 to our Condensed Consolidated Financial Statements
for additional information regarding our indebtedness.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
Indebtedness, Purchase &
|
|
|
|
|
4/1/08-
|
|
|
4/1/09-
|
|
|
4/1/10-
|
|
|
4/1/11-
|
|
|
4/1/12-
|
|
|
|
|
Lease Obligations(1)
|
|
Total
|
|
|
3/31/09
|
|
|
3/31/10
|
|
|
3/31/11
|
|
|
3/31/12
|
|
|
3/31/13
|
|
|
Thereafter
|
|
|
|
(In millions)
|
|
|
Senior credit facility
|
|
$
|
3,421.9
|
|
|
$
|
18.0
|
|
|
$
|
243.0
|
|
|
$
|
243.0
|
|
|
$
|
805.5
|
|
|
$
|
420.4
|
|
|
$
|
1,692.0
|
|
Dean Foods Company senior notes(2)
|
|
|
500.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500.0
|
|
Subsidiary senior notes(2)
|
|
|
350.0
|
|
|
|
|
|
|
|
200.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150.0
|
|
Receivables-backed facility
|
|
|
558.1
|
|
|
|
|
|
|
|
558.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations and other
|
|
|
7.1
|
|
|
|
3.1
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
1.6
|
|
Purchase obligations(3)
|
|
|
761.5
|
|
|
|
347.0
|
|
|
|
216.8
|
|
|
|
82.3
|
|
|
|
22.9
|
|
|
|
18.8
|
|
|
|
73.7
|
|
Operating leases
|
|
|
481.9
|
|
|
|
112.3
|
|
|
|
98.1
|
|
|
|
80.9
|
|
|
|
64.4
|
|
|
|
50.6
|
|
|
|
75.6
|
|
Interest payments(4)
|
|
|
1,312.8
|
|
|
|
251.0
|
|
|
|
241.1
|
|
|
|
211.3
|
|
|
|
187.5
|
|
|
|
155.1
|
|
|
|
266.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,393.3
|
|
|
$
|
731.4
|
|
|
$
|
1,557.7
|
|
|
$
|
618.1
|
|
|
$
|
1,080.9
|
|
|
$
|
645.5
|
|
|
$
|
2,759.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excluded from this table are estimated obligations accrued under
FIN 48 Accounting for Uncertainty in Income
Taxes as the timing of such payments cannot be reasonably
determined. Also excluded are future contributions under our
company-sponsored defined retirement and other post employee
benefit plans. See Note 9 to our Condensed Consolidated
Financial Statements for a summary of our employee retirement
and profit sharing plans. |
|
(2) |
|
Represents face value. |
|
(3) |
|
Primarily represents commitments to purchase minimum quantities
of raw materials used in our production processes, including
organic soybeans and organic raw milk. We enter into these
contracts from time to time in an effort to ensure a sufficient
supply of raw ingredients. In addition, we have contractual
obligations to purchase various services that are part of our
production process. |
|
(4) |
|
Includes fixed rate interest obligations, as well as interest on
our variable rate debt based on the average rates for the three
months ended March 31, 2008, and balances in effect at
March 31, 2008. Interest that may be due in the future on
the variable rate portion of our senior credit facility and
receivables-backed facility will vary based on the interest rate
in effect at the time and the borrowings outstanding at the time. |
Other
Long-Term Liabilities
We offer pension benefits through various defined benefit
pension plans and also offer certain health care and life
insurance benefits to eligible employees and their eligible
dependents upon the retirement of such employees. Reported costs
of providing non-contributory defined pension benefits and other
postretirement benefits are dependent upon numerous factors,
assumptions and estimates. For example, these costs are impacted
by actual employee demographics (including age, compensation
levels and employment periods), the level of contributions made
to the plan and earnings on plan assets. Our pension plan assets
are primarily made up of equity and fixed income investments.
Changes made to the provisions of the plan may impact current
and future pension costs. Fluctuations in actual equity market
returns, as well as changes in general interest rates may result
in increased or decreased pension costs in future periods.
Pension and postretirement costs also may be significantly
affected by changes in key actuarial assumptions, including
anticipated rates of return on plan assets and the discount
rates used in determining the projected benefit obligation and
pension costs.
We expect to contribute approximately $22.5 million to the
pension plans and approximately $2.3 million to the
postretirement health plans in 2008.
-33-
Other
Commitments and Contingencies
On December 21, 2001, in connection with our acquisition of
Legacy Dean, we issued a contingent, subordinated promissory
note to Dairy Farmers of America (DFA) in the
original principal amount of $40 million. DFA is our
primary supplier of raw milk, and the promissory note is
designed to ensure that DFA has the opportunity to continue to
supply raw milk to certain of our facilities until 2021, or be
paid for the loss of that business. The promissory note has a
20-year term
and bears interest based on the consumer price index. Interest
will not be paid in cash, but will be added to the principal
amount of the note annually, up to a maximum principal amount of
$96 million. We may prepay the note in whole or in part at
any time, without penalty. The note will only become payable if
we materially breach or terminate one of our milk supply
agreements with DFA without renewal or replacement. Otherwise,
the note will expire at the end of 20 years, without any
obligation to pay any portion of the principal or interest.
Payments we make under this note, if any, will be expensed as
incurred. We have not breached or terminated any of our milk
supply agreements with DFA.
We also have the following commitments and contingent
liabilities, in addition to contingent liabilities related to
ordinary course litigation, investigations and audits:
|
|
|
|
|
Certain indemnification obligations related to businesses that
we have divested;
|
|
|
|
Certain lease obligations, which require us to guarantee the
minimum value of the leased asset at the end of the
lease; and
|
|
|
|
Selected levels of property and casualty risks, primarily
related to employee health care, workers compensation
claims and other casualty losses.
|
See Note 11 to our Condensed Consolidated Financial
Statements for more information about our commitments and
contingent obligations.
Future
Capital Requirements
During 2008, we intend to invest a total of approximately
$250 million in capital expenditures primarily for our
existing manufacturing facilities and distribution capabilities.
We expect cash interest to be approximately $305 million
based on anticipated debt levels and interest rate expectations.
Cash interest excludes amortization of deferred financing fees
and bond discounts of approximately $10.0 million. The
portion of our long-term debt due within the next 12 months
totals $21.1 million through March 2009. We expect that
cash flow from operations and borrowings under our senior credit
facility will be sufficient to meet our future capital
requirements for the foreseeable future. At May 2, 2008,
approximately $1.28 billion was available under the
revolving credit facility, subject to the limitations of our
credit agreement.
Known
Trends and Uncertainties
Prices
of Raw Milk and Other Inputs
DSD Dairy The primary raw material used in
our DSD Dairy segment is raw conventional milk (which contains
both raw milk and butterfat). The federal government and certain
state governments set minimum prices for raw milk, and those
prices are set on a monthly basis. The regulated minimum prices
differ based on how the raw milk is utilized. Raw milk processed
into fluid milk is priced at the Class I price, and raw
milk processed into products such as cottage cheese, creams and
creamers, ice cream and sour cream is priced at the
Class II price. Generally, we pay the federal minimum
prices for raw milk, plus certain producer premiums (or
over-order premiums) and location differentials. We
also incur other raw milk procurement costs in some locations
(such as hauling, field personnel, etc.). A change in the
federal minimum price does not necessarily mean an identical
change in our total raw milk costs, as over-order premiums may
increase or decrease. This relationship is different in every
region of the country, and sometimes within a region based on
supplier arrangements. However, in general, the overall change
in our raw milk costs can be linked to the change in federal
minimum prices. Because our Class II products typically
have a higher fat content than that contained in raw milk, we
also purchase bulk cream for use in some of our Class II
products. Bulk cream is typically purchased based on a multiple
of the AA butter price on the Chicago Mercantile Exchange
(CME).
-34-
In general, our DSD Dairy segment changes the prices that it
charges for Class I dairy products on a monthly basis, as
the costs of raw milk, packaging, fuel and other materials
fluctuate. Prices for some Class II products are also
changed monthly while others are changed from time to time as
circumstances warrant. However, there can be a lag between the
timing of a raw material cost increase or decrease and a
corresponding price change to our customers, especially in the
case of Class II butterfat because Class II butterfat
prices for each month are not announced by the government until
after the end of that month. Also, in some cases we are
competitively or contractually constrained with respect to the
implementation of price changes. This can have a negative impact
on the DSD Dairys profitability and can cause volatility
in our earnings. Our sales and operating profit margin fluctuate
with the price of our raw materials and other inputs.
In the first quarter of 2008, we experienced significant
fluctuations in conventional raw milk prices. There continues to
be significant volatility in the pricing of conventional raw
milk and we anticipate that volatility to continue throughout
2008. Raw milk, butterfat and cream prices are difficult to
predict, and we change our forecasts frequently based on current
market activity. The DSD Dairy segment generally has been
effective at passing through the changes in the prices of
underlying commodities. However, the pass through is not perfect
when prices move up steadily over a period of several months.
Our DSD Dairy segment purchases approximately four million
gallons of diesel fuel per month to operate its extensive DSD
system. Another significant raw material used by our DSD Dairy
segment is resin, which is a petroleum-based product used to
make plastic bottles. We purchase approximately 27 million
pounds of resin and bottles per month. The price of diesel and
resin are subject to fluctuations based on changes in crude oil
prices. We expect prices of both resin and diesel fuel to
fluctuate throughout 2008.
WhiteWave-Morningstar The primary raw
material used in our soy-based products is organic soybeans.
Organic soybeans are generally available from several suppliers
and we are not dependent on any single supplier for these
products. We have entered into supply agreements for organic
soybeans, which we believe will meet our needs in 2008. These
agreements provide pricing at fixed levels. Consistent with the
general economic upward pressure and volatility currently
existing in the commodities markets, the cost of organic
soybeans continues to rise. If such market conditions persist,
the cost of our soybeans could increase substantially in 2009
and could exert pressure on our operating margins.
The primary raw material used in our organic milk-based products
is organic raw milk. We currently purchase organic raw milk from
a network of over 400 dairy farmers across the United States. We
also produce approximately 20% of our own organic raw milk needs
in the U.S. at two organic farms that we own and operate
and an additional farm that we lease and have contracted with a
third party to manage. We generally enter into supply agreements
with organic dairy farmers with typical terms of one to two
years, which obligate us to purchase certain minimum quantities.
In the past, the industry-wide demand for organic raw milk has
generally exceeded supply, resulting in our inability to fully
meet customer demand. However, due to the recent industry
efforts to increase the supply of organic raw milk, in 2007 we
experienced a significant oversupply of organic raw milk that
increased competitive pressure from both branded and private
label participants. The market for organic milk is currently
very dynamic and began to shift back to an undersupply situation
during the first quarter of 2008.
Competitive
Environment
There has been significant consolidation in the retail grocery
industry in recent years, and this trend is continuing. As our
customer base consolidates, we expect competition to intensify
as we compete for the business of fewer customers. There can be
no assurance that we will be able to keep our existing
customers, or gain new customers. There are several large
regional grocery chains that have captive dairy operations. As
the consolidation of the grocery industry continues, we could
lose sales if any one or more of our existing customers were to
be sold to a chain with captive dairy operations.
Many of our retail customers have become increasingly price
sensitive in the current intensely competitive environment. Over
the past few years, we have been subject to a number of
competitive bidding situations in our DSD Dairy segment, which
reduced our profitability on sales to several customers. We
expect this trend to
-35-
continue. In bidding situations, we are subject to the risk of
losing certain customers altogether. The loss of any of our
largest customers could have a material adverse impact on our
financial results. We do not have contracts with many of our
largest customers, and most of the contracts that we do have are
generally terminable at will by the customer.
Tax
Rate
Income tax expense was recorded at an effective rate of 40.4% in
the first quarter of 2008. Our tax rate during the first quarter
of 2007 was 37.8%. We estimate that our effective tax rate will
be between 39% and 40% for the full year 2008. Changes in the
relative profitability of our operating segments, as well as
changes to federal and state tax laws, may cause the rate to
change from historical rates.
See Part II Item 1A Risk
Factors below and Part I
Item 1A Risk Factors in our 2007 Annual
Report on Form
10-K for a
description of various other risks and uncertainties concerning
our business.
-36-
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Interest
Rate Fluctuations
In order to reduce the volatility of earnings that arises from
changes in interest rates, we manage interest rate risk through
the use of interest rate swap agreements. These swap agreements
provide hedges for loans under our senior credit facility by
limiting or fixing the LIBOR interest rates specified in the
senior credit facility at the interest rates summarized in
Note 5 to our Condensed Consolidated Financial Statements
until the indicated expiration dates.
We are exposed to market risk under these arrangements due to
the possibility of interest rates on our senior credit facility
rising above the rates on our interest rate swap agreements.
Credit risk under these arrangements is believed to be remote
since the counterparties to our interest rate swap agreements
are major financial institutions.
A majority of our debt obligations, excluding hedges, are
currently at variable rates. We have performed a sensitivity
analysis assuming a hypothetical 10% adverse movement in
interest rates. As of March 31, 2008, the analysis
indicated that such interest rate movement would not have a
material effect on our financial position, results of operations
or cash flows. However, actual gains and losses in the future
may differ materially from that analysis based on changes in the
timing and amount of interest rate movement and our actual
exposure and hedges.
Other
We currently do not have material exposure to foreign currency
risk as we do not have significant amounts of operating cash
flows denominated in foreign currencies.
Butterfat
We utilize a significant amount of butterfat to produce
Class II products. This butterfat is acquired through the
purchase of raw milk and bulk cream. Butterfat acquired in raw
milk is priced based on the Class II butterfat price in
federal orders, which is announced near the end of the
applicable month. The Class II butterfat price can
generally be tied to the pricing of AA butter traded on the CME.
The cost of butterfat acquired in bulk cream is typically based
on a multiple of the AA butter price on the CME. From time to
time, we purchase butter futures and butter inventory in an
effort to better manage our butterfat cost in Class II
products. Futures contracts are marked to market in accordance
with SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities, and physical inventory
is valued at the lower of cost or market. We are exposed to
market risk under this risk management strategy if the cost of
butter falls below the cost that we have agreed to pay in a
futures contract or that we actually paid for the physical
inventory and we are unable to pass on the difference to our
customers. As of March 31, 2008, we had no material
physical or financial positions related to butterfat.
-37-
|
|
Item 4.
|
Controls
and Procedures
|
Controls
Evaluation and Related Certifications
We conducted an evaluation of the effectiveness of the design
and operation of our disclosure controls and
procedures (Disclosure Controls) as of the end
of the period covered by this quarterly report. The controls
evaluation was done under the supervision and with the
participation of management, including our Chief Executive
Officer (CEO) and Chief Financial Officer (CFO). Based upon our
most recent controls evaluation, our CEO and CFO have concluded
that as of the end of the period covered by this quarterly
report, our Disclosure Controls were effective at the reasonable
assurance level.
Attached as exhibits to this quarterly report are certifications
of the CEO and the CFO, which are required in accordance with
Rule 13a-14
of the Exchange Act. This Controls and Procedures section
includes the information concerning the controls evaluation
referred to in the certifications and it should be read in
conjunction with the certifications for a more complete
understanding of the topics presented.
Changes
in Internal Control over Financial Reporting
During the period covered by this report, there have been no
changes in our internal control over financial reporting that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
-38-
Part II
Other Information
|
|
Item 1.
|
Legal
Proceedings
|
We are not party to, nor are our properties the subject of, any
material pending legal proceedings, other than as set forth
below. However, we are party from time to time to certain
claims, litigation, audits and investigations. We believe that
we have established adequate reserves to satisfy any potential
liability we may have under all such claims, litigations, audits
and investigations that are currently pending. In our opinion,
the settlement of any such currently pending or threatened
matter is not expected to have a material adverse impact on our
financial position, results of operations or cash flows.
We were named, among several defendants, in two purported class
action antitrust complaints filed on July 5, 2007. The
complaints were filed in the United States District Court for
the Middle District of Tennessee, Columbia Division, and allege
generally that we and others in the milk industry worked
together to limit the price Southeastern dairy farmers are paid
for their raw milk and to deny these farmers access to fluid
Grade A milk processing facilities. A third purported class
action was filed on August 9, 2007 in the
United States District Court for the Eastern District of
Tennessee, Greenville Division. The third complaint was amended
on March 28, 2008. The amended complaint alleges generally
that we, either acting alone or in conjunction with others in
the milk industry, lessened competition in the Southeastern
United States for the sale of processed fluid Grade A milk to
retail outlets and that the defendants conduct also
artificially inflated retail prices for direct milk purchasers.
Four additional purported class action complaints were filed on
August 27, 2007, October 3, 2007, November 15,
2007 and February 13, 2008 in the United States District
Court for the Eastern District of Tennessee, Greenville
Division. The allegations in these complaints are similar to
those in the first and second complaints. On January 7,
2008, a United States Judicial Panel on Multidistrict Litigation
ordered the consolidation of all of the pending cases to the
Eastern District of Tennessee, Greenville Division. Motions to
dismiss each of these actions are currently pending before the
Court. We intend to vigorously defend the actions.
On January 18, 2008, our subsidiary, Kohler Mix
Specialties, LLC (Kohler), was named as defendant in
a civil complaint filed in the Superior Court, Judicial District
of Hartford. The plaintiff in the case is the Commissioner of
Environmental Protection of the State of Connecticut. The
complaint alleges generally that Kohler improperly discharged
wastewater into the waters of the State of Connecticut, and
bypassed certain wastewater treatment equipment. The plaintiff
is seeking injunctive relief and civil penalties with respect to
the claims. We are currently investigating the matter and the
claims presented. At this time, it is not possible for us to
predict the ultimate outcome of this matter.
There have been no material changes from the risk factors
disclosed in our 2007 Annual Report on Form 10-K, other
than as set forth below.
Availability
and Changes in Raw Material and Other Input Costs Can Adversely
Affect Us
Raw skim milk is the most significant raw material that we use
in our DSD Dairy segment. Organic raw milk, organic soybeans and
sugar are significant inputs utilized by our
WhiteWave-Morningstar segment. The prices of these materials
increase and decrease based on supply and demand, and in some
cases, governmental regulation. Weather also affects the
availability and pricing of these inputs. In many cases we are
able to adjust our pricing to reflect changes in raw material
costs. Volatility in the cost of our raw materials can adversely
affect our performance as price changes often lag changes in
costs. These lags tend to erode our profit margins. Furthermore,
cost increases may exceed the price increases we are able to
pass along to our customers. Extremely high raw material costs
also can put downward pressure on our margins and our volumes.
In 2007, we experienced rapidly rising and all time-high prices
in conventional raw milk prices, and in the first quarter of
2008, we experienced significant fluctuations in conventional
raw milk prices. There continues to be significant volatility in
the pricing of conventional raw milk and we anticipate that
volatility to continue throughout 2008.
-39-
In the past, the industry-wide demand for organic raw milk has
generally exceeded supply, resulting in our inability to fully
meet customer demand. However, in 2006 economic incentives for
conventional farmers to begin the transition to organic farming
combined with a change in the organic farm transition
regulations dramatically increased the growth of supply in 2007.
This oversupply led to significant discounting and aggressive
distribution expansion by processors in an effort to stimulate
incremental demand and sell their supply in the organic milk
market. The market for organic raw milk is currently very
dynamic and began to shift back to an undersupply situation
during the first quarter of 2008 with some farmers switching
back to conventional due to high feed costs and the currently
attractive prices being paid for conventional milk.
Uncertainties surrounding organic milk supply, increased costs
associated with organic farming, and competitive pressures could
continue to negatively impact the profitability of our
WhiteWave-Morningstar segment.
Because our DSD Dairy segment delivers the majority of its
products directly to customers through its direct store
delivery system, we are a large consumer of fuel.
Similarly, our WhiteWave-Morningstar segment is impacted by the
costs of petroleum-based products through the use of common
carriers in delivering their products. We utilize a significant
amount of resin, which is the primary component used in our
plastic bottles. Resin supplies have from time to time been
insufficient to meet demand. Increases in fuel and resin prices
can adversely affect our results of operations. In addition, a
disruption in our ability to secure an adequate resin supply
could adversely affect our operations.
Consistent with the general economic upward pressure and
volatility currently existing in the commodities markets, the
cost of organic soybeans continues to rise. If such market
conditions persist, the cost of our soybeans could increase
substantially in 2009 and could exert pressure on our operating
margins.
-40-
(a) Exhibits
|
|
|
|
|
|
*10
|
.1
|
|
Dean Foods Company Corporate 2008
Short-Term
Incentive Plan, which is filed herewith.
|
|
*10
|
.2
|
|
Dean Foods Company DSD Platform 2008
Short-Term
Incentive Plan, which is filed herewith.
|
|
*10
|
.3
|
|
Dean Foods Company WhiteWave Platform 2008
Short-Term
Incentive Plan, which is filed herewith.
|
|
*10
|
.4
|
|
Dean Foods Company Morningstar Platform 2008
Short-Term
Incentive Plan, which is filed herewith.
|
|
*10
|
.5
|
|
Dean Foods Company Innovation Group 2008
Short-Term
Incentive Plan, which is filed herewith.
|
|
*10
|
.6
|
|
Employment Agreement dated April 9, 2008 between us and
Kelly
Duffin-Maxwell,
which is filed herewith.
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, which is
filed herewith.
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, which is
filed herewith.
|
|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, which is
filed herewith.
|
|
32
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, which is
filed herewith.
|
|
99
|
|
|
Supplemental Financial Information for Dean Holding Company,
which is filed herewith.
|
|
|
|
* |
|
This exhibit is a management or compensatory agreement. |
-41-
SIGNATURES
Pursuant to the requirement 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
Ronald L. McCrummen
Senior Vice President and Chief Accounting Officer
May 12, 2008
-42-