e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For The Fiscal Year Ended
December 31, 2007
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period
from to
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Commission File Number
001-12755
Dean Foods Company
(Exact name of Registrant as
specified in its charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
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75-2559681
(I.R.S. Employer
Identification No.)
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2515 McKinney Avenue
Suite 1200
Dallas, Texas 75201
(214) 303-3400
(Address, including zip code,
and telephone number, including
area code, of Registrants
principal executive offices)
Securities Registered Pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $.01 par value
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New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned-issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K 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):
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Large accelerated filer
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Accelerated filer
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
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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
The aggregate market value of the registrants voting and
non-voting common stock held by non-affiliates of the registrant
at June 30, 2007, based on the $31.87 per share closing
price for the registrants common stock on the New York
Stock Exchange on June 30, 2007, was $4.15 billion.
The number of shares of the registrants common stock
outstanding as of February 22, 2008 was 132,653,146.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive Proxy Statement for
its Annual Meeting of Stockholders to be held on or about
May 22, 2008 (to be filed) are incorporated by reference
into Part III of this
Form 10-K.
PART I
We are one of the leading food and beverage companies in the
United States. Our Dairy Group 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 Foods (WhiteWave) segment markets and
sells a variety of well-known dairy and dairy-related products,
such as
Silk®
soymilk, Horizon
Organic®
milk and other dairy products, International
Delight®
coffee creamers, and LAND
OLAKES®
creamers and other fluid dairy products. WhiteWaves
Rachels
Organic®
brand is the second largest organic yogurt brand in the
United Kingdom.
Our principal executive offices are located at 2515 McKinney
Avenue, Suite 1200, Dallas, Texas 75201. Our telephone
number is
(214) 303-3400.
We maintain a worldwide web site at
www.deanfoods.com. We were incorporated in
Delaware in 1994.
Segments
and Operating Divisions
We have two segments: the Dairy Group and WhiteWave.
Dairy
Group
Our Dairy Group segment manufactures, markets and distributes a
wide variety of branded and private label dairy case products,
including milk, creamers, ice cream, cultured dairy products and
juices to retailers, distributors, foodservice outlets,
educational institutions, and governmental entities across the
United States.
The Dairy Groups net sales totaled $10.45 billion in
2007 or 88% of our consolidated net sales. The following charts
graphically depict the Dairy Groups 2007 net sales by
product, customer and delivery channel, as well as present the
mix of private label versus company branded products.
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(1) |
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Includes
half-and-half,
whipping cream, dairy coffee creamers, and ice cream mix. |
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(2) |
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Includes ice cream and ice cream novelties. |
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(3) |
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Includes yogurt, cottage cheese, sour cream, and dairy-based
dips. |
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(4) |
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Includes fruit juice, fruit-flavored drinks, ice tea, and water. |
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(5) |
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Includes items for resale such as butter, cheese, eggs, and milk
shakes. |
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(6) |
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Such as restaurants, hotels and other foodservice outlets. |
Products not sold under private labels are sold under the Dairy
Groups local and regional proprietary or licensed brands.
Our local and regional proprietary and licensed brands include
the following:
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Alta
Dena®
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Friendship
Dairies®
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Oak
Farms®
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Arctic
Splash®
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Gandystm
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Over the
Moontm
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Barbers®
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Garelick
Farms®
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Pet®
(licensed brand)
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Barbes®
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Hersheys®
(licensed brand)
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Pricestm
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Berkeley
Farmstm
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Hygeia®
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Puritytm
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Broughton®
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Kohlertm
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Reitertm
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Borden®
(licensed brand)
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LAND
OLAKES®
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Robinson®
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Brown
Cow®
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(licensed brand)
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Saunderstm
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Browns
Dairy®
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Land-O-Sun &
design®
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Schenkels
All*Startm
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Buds
Ice
Creamtm
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Lehigh
Valley®
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Schepps®
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Chug®
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Libertytm
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Sealtest®
(licensed brand)
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Country
Charm®
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Louis
Trauth®
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Shenandoahs
Pride®
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Country
Churntm
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Maplehurst®
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Skinny
Cowtm
(licensed brand)
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Country
Delitetm
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Mayfield®
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Strohs®
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Country
Fresh®
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McArthur®
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Swiss
Dairytm
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Country
Love®
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Meadow
Brooktm
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Swiss
Premiumtm
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Creamlandtm
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Meadow
Gold®
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TG
Lee®
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Dairy
Fresh®
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Melody
Farms®
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Tuscan®
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Deans®
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Mile High Ice
Creamtm
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Turtle
Tracks®
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Dipzz®
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Model
Dairy®
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Verifine®
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Fieldcrest®
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Mountain
High®
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Viva®
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Foremost®
(licensed brand)
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Natures
Pride®
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The Dairy Group 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 Dairy Groups corporate sales department. Most of the
Dairy Groups customers, including its largest customer
Wal-Mart including its subsidiaries, such as Sams Club,
purchase products from the Dairy Group either by purchase order
or pursuant to contracts that are generally terminable at will
by the customer.
Wal-Mart
accounted for approximately 18.5% of the Dairy Groups net
sales in 2007.
Our Dairy Group currently operates 100 manufacturing facilities
in 35 states. For more information about facilities in the
Dairy Group, see Item 2. Properties. Due to the
perishable nature of its products, our Dairy Group delivers the
majority of its products directly to its customers stores
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 Dairy Group has
one of the most extensive refrigerated DSD systems in the United
States. In addition to our DSD channel, approximately 11% of our
Dairy Group products are distributed through customer warehouse
systems.
The primary raw material used by our Dairy Group is raw milk. We
purchase raw milk primarily from farmers cooperatives,
typically pursuant to requirements contracts (with no minimum
purchase obligation). Raw milk is generally readily available.
The federal government and certain state governments set minimum
prices for raw milk, and those prices are set on a monthly
basis. Another significant raw material used by our Dairy Group
is resin, which is a petroleum-based product used to make
plastic bottles. The price of resin is subject to fluctuations
based on
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changes in crude oil prices and supplies have, from time to
time, been insufficient to meet demand. Other raw materials used
by the Dairy Group, such as juice concentrates and sweeteners,
in addition to diesel fuel used to operate our extensive DSD
system, are generally available from numerous suppliers and we
are not dependent on any single supplier for these materials.
Certain of our Dairy Groups raw materials and packaging
supplies are purchased under long-term contracts in order to
obtain lower costs. The prices of our raw materials increase and
decrease based on supply and demand. For more information, see
Government Regulation Milk
Industry Regulation and Part II
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations Known
Trends and Uncertainties Prices of Raw Materials and
Other Inputs.
The Dairy Group generally increases or decreases the net sales
price of its fluid dairy products on a monthly basis in
correlation with fluctuations in the costs of raw materials,
packaging, 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 Dairy Groups profitability.
The dairy industry is a mature industry that has traditionally
been characterized by slow to flat growth, low profit margins,
fragmentation, and excess capacity. Excess capacity resulted
from the development of more efficient manufacturing techniques
and declining demand for fluid milk products. From 1990 through
2001, the dairy industry experienced significant consolidation,
led by us. Consolidation has resulted in lower operating costs,
less excess capacity and greater efficiency. According to the
United States Department of Agriculture (USDA), per
capita consumption of fluid milk and cream decreased by over 10%
from 1990 to the end of 2007, although total consumption has
remained relatively flat over the same period due to population
increases. Therefore, volume growth across the industry
generally remains flat to modest, profit margins generally
remain low and excess manufacturing capacity continues to exist.
In this environment, price competition is particularly intense,
as smaller processors seek to retain enough volume to cover
their fixed costs. In response to this dynamic and significant
competitive pressure caused by the ongoing consolidation among
food retailers, many processors, including us, are now placing
an increased emphasis on product differentiation and cost
reduction in an effort to increase consumption, sales and
margins. Historically, our Dairy Group volume growth has paced
with or exceeded the industry, which we attribute largely to our
national DSD system, brand recognition, and service quality.
Our Dairy Group has several competitors in each of our major
product and geographic markets. Competition between dairy
processors for shelf-space with retailers is based primarily on
price, service, and quality, while competition for consumer
sales is based on a variety of factors such as brand
recognition, price, taste preference, and quality. Dairy
products also compete with many other beverages and nutritional
products for consumer sales.
For more information about our Dairy Group, see
Part II Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations and Note 19 to our Consolidated Financial
Statements.
WhiteWave
Our WhiteWave segment develops, manufactures, 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.
WhiteWaves net sales totaled $1.37 billion in 2007 or
12% of our consolidated net sales. WhiteWave sells its products
to a variety of customers, including grocery stores, club
stores, natural foods stores, mass merchandisers,
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convenience stores and foodservice outlets. The following charts
graphically depict WhiteWaves net sales by brand and
customer:
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(1) |
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Includes Horizon Organic and The Organic Cow
organic dairy products. |
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WhiteWave sells its products through its internal sales force
and through independent brokers. The majority of
WhiteWaves products including sales to its largest
customer Wal-Mart including its subsidiaries, such as Sams
Club, are sold pursuant to customer purchase orders or pursuant
to contracts that are generally terminable at will by the
customer.
Wal-Mart
accounted for approximately 14.1% of WhiteWaves net sales
in 2007.
Approximately 70% of the products sold by WhiteWave were
manufactured in facilities operated by either WhiteWave or our
Dairy Group. The remaining 30% were manufactured by third-party
manufacturers under processing agreements. WhiteWave currently
operates six manufacturing facilities. The majority of
WhiteWaves products are delivered through warehouse
delivery systems.
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.
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, 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 milk is currently very dynamic
and is beginning to shift back to an under supply situation in
the first quarter of 2008.
The primary raw material used in our LAND OLAKES
and other non-organic dairy products is raw milk. Other raw
materials used in WhiteWaves products, such as palm oil,
flavorings, organic sugar and packaging materials, are generally
available from several suppliers and we are not dependent on any
single supplier for these materials. Certain of these raw
materials are purchased under long-term contracts in order to
obtain lower costs. The prices of raw materials increase and
decrease based on supply and demand. For more information, see
Part II Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations Known Trends and
Uncertainties Prices of Raw Materials and Other
Inputs.
WhiteWave has several competitors in each of its product
markets. Competition to obtain shelf-space with retailers for a
particular product is based primarily on the expected or
historical sales performance of the product compared to its
competitors. Also, in some cases, WhiteWave pays fees to
retailers to obtain shelf-space for a
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particular product. Competition for consumer sales is based on
many factors, including brand recognition, price, taste
preferences and quality. Consumer demand for soy and organic
foods has grown rapidly in recent years due to growing consumer
confidence in the health benefits of soy and organic foods, and
WhiteWave has a leading position in the soy and organic foods
category. However, our soy and organic food products compete
with many other beverages and nutritional products for consumer
sales.
For more information about WhiteWave, see
Part II Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations and Note 19 to our Consolidated Financial
Statements.
Current
Business Strategy
The Companys strategy historically has been centered on
growth through acquisitions and aligning our operating
activities with a consolidating customer base. Since 1994, we
have completed over 40 acquisitions, increasing our net sales
from $150 million to more than $11.8 billion. Based on
relative net sales, we are greater than five times the size of
our next closest competitor in the fluid dairy industry. We have
acquired in excess of 150 manufacturing facilities over the last
13 years and have made efforts to consolidate production
activity within the more efficient operations, closing in excess
of 50 facilities since 1994. Our portfolio of manufacturing and
distribution assets enable the Company to offer products across
a variety of product categories ranging from short shelf life
(less than 20 days) to extended shelf life (45 to
60 days) to shelf stable products (6 to 12 months). We
believe that our Dairy Group has one of the most extensive
refrigerated DSD systems in the United States. In addition, our
nationally branded products maintain significant market share
positions in the soy-based beverage, organic dairy, and creamer
categories.
To ensure that we capture the benefits of our scale and create
lasting competitive advantages in the food and beverage
industry, we are aligning our leadership teams and strategy
around distinct supply chain and delivery channels. In
connection with this direction, beginning in 2008, we will
disaggregate the Dairy Group into a DSD fluid and ice cream
platform and a Morningstar platform. The strategy for these
platforms, as well as our WhiteWave platform is summarized as
follows:
DSD
Platform
Our DSD platform consists of over 80 manufacturing facilities
operating largely based on local and regional customer and
competitor dynamics. The DSD fluid and ice cream platform is
focused on high velocity DSD products where delivering low cost
and high levels of customer service are critical to success. The
DSD products are currently offered under more than 50 regional
branded and private-label names. While a portion of our ice
cream products are distributed through customer warehouse
delivery channels, the supply chain remains highly integrated
within our DSD system.
The DSD platform strategy includes:
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Being the lowest cost, most effective manufacturer in every
market that we compete;
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Being the most capable and lowest cost refrigerated DSD system
in every market where we compete. In doing so, we must operate
as a national rather than regional system.
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Leveraging our DSD system to distribute the full range of Dean
Foods products; and
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Providing selling capability in every market that drives growth.
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We are currently evaluating our entire DSD supply chain to
identify opportunities to optimize our manufacturing and
distribution capabilities. The development and execution of this
initiative will be a multi-year effort and will require
investments in people, systems, tools, and facilities. As one
component of this initiative, we will evaluate the breadth of
our brands and trademarks with the intent of placing greater
sales, marketing, and innovation focus on those brands that will
drive growth. In 2007, in excess of $100 million of White
Wave products were distributed through the Dairy Groups
DSD and warehouse delivery channels. We believe there are
opportunities to increase the distribution of WhiteWave and
Morningstar products through the DSD system, in addition to
products of other processors.
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Morningstar
Platform
Our Morningstar platform 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. Its supply chain is extensive
both in respect to its manufacturing and refrigerated
distribution capability, as well as its nationwide geographic
footprint. Morningstars 15 manufacturing facilities and 2
distribution locations enable us to cost effectively service
customers nationwide. We service a diverse customer base, which
include traditional grocery, mass merchandisers, foodservice,
and convenience store customers.
The Morningstar platform strategy includes:
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Being the lowest cost, national extended shelf life dairy supply
chain in the industry;
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Providing our customers with innovative private label products
and category solutions to help them grow their business;
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Building a highly effective value-based selling
organization; and
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Supplying low cost, high quality extended shelf life and
cultured products through our DSD system.
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Effective on January 1, 2008, we aligned the reporting of
our Morningstar and WhiteWave businesses given the similarity of
their supply chains. As part of this change in alignment, we are
evaluating the entire Morningstar and WhiteWave platforms to
identify opportunities to increase the leverage of our
manufacturing, warehousing, distribution, and customer service
capabilities.
WhiteWave
Platform
Our WhiteWave platform enjoys a robust portfolio of premium
national food and beverage brands including Horizon
Organic, Silk, International Delight, and
LAND OLAKES.
The WhiteWave platform strategy includes:
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Growing our core business through consumer insight leading to
superior marketing;
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Achieving cost excellence by operating low cost owned facilities
and co-packaging arrangements;
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Accelerating growth in new businesses by segmenting consumers
and innovating in value-added products; and
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Building a highly effective branded refrigerated warehouse
selling organization.
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During 2007, we completed the consolidation of the three
operating units that comprise our WhiteWave platform. We also
completed the full implementation of the SAP enterprise
operating system onto all brands and operating facilities.
Additionally, we completed the transition of our selling
organization from a predominately broker-managed system to a
hybrid direct selling and brokered model. The implementation of
these moves across WhiteWave will enable us to more effectively
and efficiently sell and distribute our brands across our supply
chain.
Developments
Since January 1, 2007
Conventional
Milk Environment
In 2007, we experienced rapidly increasing and record high dairy
commodity costs. A declining dollar, constraints on global dairy
supply growth, and rising global demand for dairy-based protein
combined to sharply increase foreign demand for
U.S. produced non-fat dry milk powder. This export demand
drove the U.S. dairy complex steeply higher in 2007. The
fourth quarter average Class I mover, which is
an indicator of our raw milk costs, averaged $21.03 per
hundred-weight, a 69% increase from that same period a year ago.
Competitive pressure and contractual arrangements limited our
ability to pass-through all of the higher dairy commodity costs
in 2007, particularly those increased costs related to inventory
shrink in the manufacturing process. Further, market pricing
mechanisms surrounding bulk cream negatively impacted our
results as the price we were able to realize from the sale of
excess bulk cream did not fully reflect the significant
increases in raw milk costs.
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At the same time, as retail prices rose throughout 2007, we saw
a softening of sales volumes in certain markets in addition to a
shift from branded to private label fluid milk products. This
softening was compounded by the loss of a significant customer
during the first quarter of 2007. The sales volume in the fourth
quarter of 2007 began to flatten compared to prior year levels.
Organic
Milk Environment
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 in the organic milk market with the
Horizon Organic volume growing in excess of 30% in the fourth
quarter of 2007 and 18% for the year when compared to similar
periods in the prior year. However, the increased level of
discounting negatively impacted the profitability of our
WhiteWave segment. The market for organic milk is currently very
dynamic and is beginning to shift back to an under supply
situation in the first quarter of 2008.
Credit
Facility and Special Cash Dividend
On April 2, 2007, we recapitalized our balance sheet
through the completion of a new $4.8 billion senior credit
facility and the return of $1.94 billion to shareholders of
record on March 27, 2007, through a $15 per share special
cash dividend. We entered into an amended and restated credit
agreement that consists 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. The completion of the new senior
credit facility and special cash dividend resulted in the
write-off of $13.5 million of financing costs, and
$6.2 million of professional fees and expenses,
respectively. In addition, we entered into an amendment and
restatement of our receivables facility that extended the
facility termination date from November 15, 2009 to
March 30, 2010. See note 9 to our Condensed
Consolidated Financial Statements for more information.
Management
Changes and Alignment
We continued to build our leadership team in 2007 with key
additions in the area of supply chain, human resources, sales,
and marketing.
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On November 5, 2007, Gregg Tanner joined Dean Foods as
Executive Vice President and Chief Supply Chain Officer. Before
joining our Company, he served as Senior Vice President, Global
Operations, at the Hershey Company. Prior to his role at
Hershey, Mr. Tanner held the position of Senior Vice
President, Retail Supply Chain at ConAgra Foods, as well as
various positions at the Quaker Oats Company and Ralston Purina.
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On June 18, 2007, Paul Moskowitz joined Dean Foods as
Executive Vice President, Human Resources. Prior to joining our
Company, Mr. Moskowitz served as the Chief People Officer
for Pizza Hut, a division of Yum! Brands. Prior to his role at
Pizza Hut he served in various Human Resources roles with Yum!
Brands, Darden Restaurants, Brinker International, and Towers
Perrin.
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In late 2007 and into 2008, we began to align our leadership
teams and the development of strategic initiatives around more
clearly defined business platforms.
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Chris Sliva was promoted to Chief Operating Officer of
Morningstar. Mr. Sliva joined the Company in 2006 as Senior
Vice President of Sales and Chief Customer Officer at WhiteWave.
Prior to joining our Company, Mr. Sliva served in various
positions at Eastman Kodak Corporation, Fort James
Corporation, and Procter & Gamble. Mr. Sliva
reports to Joe Scalzo, President and Chief Executive Officer of
Morningstar and WhiteWave.
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Harrald Kroeker was promoted to President, Direct Store Delivery
Group. Mr. Kroeker joined the Company in November 2006.
Prior to joining our Company, Mr. Kroeker served in various
executive capacities at Pepsi Bottling Group, Polaroid, and
Procter & Gamble.
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Greg McKelvey was promoted to Senior Vice President, Dean Foods
Strategy and Marketing Services. Mr. McKelvey joined the
Company in 2005 as the Senior Vice President, Strategic Planning
for our WhiteWave segment. Prior to joining our Company,
Mr. McKelvey was a consultant with Bain & Company.
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As part of these initiatives, we eliminated a number of
positions in the Dairy Group, including that held by Alan
Bernon, the former President of the Dairy Group. Over time, we
believe this management alignment between Morningstar and
WhiteWave will leverage the manufacturing, innovation, and
systems infrastructure of both Morningstar and WhiteWave across
an extended warehouse platform. Mr. Tanner,
Mr. Moskowitz, Mr. Kroeker and Mr. McKelvey
report directly to Gregg Engles, our Chairman and CEO.
Centralization
of Finance and Transaction Processing Activities
In late 2006, we began centralizing our finance and transaction
processing activities within five regional finance and
transaction processing centers across the United States, the
largest of which is located in Dallas, Texas. Centralizing these
activities will allow us to better leverage our people, systems,
and tools. It also will provide the foundational base to execute
the platform strategies. All five of the facilities were
operational as of the end of 2007. We will substantially
complete the centralization of the finance and payroll
processing activities in the first half of 2008. We will
continue to centralize specific processing activities, largely
accounts payable, through 2009.
Facility
Closing and Reorganization Activities
In 2007, we recorded a charge of $34.4 million as part of
our ongoing supply chain and cost savings initiatives. We
recorded a charge of $28.1 million related to our Dairy
Group operations for realignment of management positions,
workforce reductions, and the closing of three Dairy Group
facilities and other previously announced plans. We also
recorded a charge of $6.3 million related to the previously
announced centralization of certain finance and transaction
processing activities from local to regional facilities. These
charges include the following costs:
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Workforce reductions as a result of facility closings, facility
reorganizations and consolidation of administrative functions;
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Shutdown costs, including those costs necessary to prepare
abandoned facilities for closure;
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Costs incurred after shutdown, such as lease obligations or
termination costs, utilities and property taxes;
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Costs associated with the centralization of certain finance and
transaction processing activities from local to regional
facilities; and
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Write-downs of property, plant and equipment and other assets,
primarily for asset impairments as a result of facilities that
are no longer used in operations. 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.
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We expect to incur additional charges related to all of these
restructuring plans of $6.5 million through the end of 2008.
Acquisitions
and Discontinued Operations
Friendship Dairies On March 13, 2007,
our Dairy Group completed the acquisition of Friendship Dairies,
Inc., a manufacturer, marketer and distributor of cultured dairy
products primarily in the northeastern United States. This
transaction expanded our cultured dairy product capabilities and
added a strong regional brand. We paid approximately
$130 million, including transaction costs, for the purchase
of Friendship Dairies and funded the purchase price with
borrowings under our senior credit facility.
Other Acquisitions We have noted an increase
in opportunities to acquire additional dairy manufacturing
facilities. We attribute this recent trend largely to the rising
commodity prices and competitive environment. In early
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2008, we acquired two manufacturing facilities that supplement
our DSD platform. These facilities were acquired from Wells
Dairy, Inc. and SUPERVALU INC. The purchase price of these two
facilities aggregated to approximately $50 million. As we
move forward, we may choose to make additional acquisitions of
attractively valued and strategically desirable facilities.
Iberian Operations Our former Iberian
operations included the manufacture and distribution of private
label and branded milk across Spain and Portugal. On
September 14, 2006, we completed the sale of our operations
in Spain for net cash proceeds of approximately $96 million.
In connection with the sale of our operations in Spain, we
entered into an agreement to sell our Portuguese operations
(that comprised the remainder of our Iberian operations) for
$11.4 million subject to regulatory approvals and working
capital settlements. We completed the sale of our Portuguese
operations in January 2007. The Iberian operations have been
reclassified as discontinued operations for all periods
presented.
Employees
As of December 31, 2007, we had the following employees:
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No. of
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% of
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Employees
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Total
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Dairy Group
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23,679
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93
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%
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WhiteWave
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1,359
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5
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Corporate
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547
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2
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Total
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25,585
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100
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%
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Approximately 37% of the Dairy Groups and 38% of
WhiteWaves employees participate in collective bargaining
agreements. We believe our relationship with these organizations
is satisfactory.
Government
Regulation
Public
Health
As a manufacturer and distributor of food products, we are
subject to a number of food-related regulations, including the
Federal Food, Drug and Cosmetic Act and regulations promulgated
thereunder by the U.S. Food and Drug Administration
(FDA). This comprehensive regulatory framework
governs the manufacture (including composition and ingredients),
labeling, packaging and safety of food in the United States. The
FDA:
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regulates manufacturing practices for foods through its current
good manufacturing practices regulations,
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specifies the standards of identity for certain foods, including
many of the products we sell, and
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prescribes the format and content of certain information
required to appear on food product labels.
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In addition, the FDA enforces the Public Health Service Act and
regulations issued thereunder, which authorizes regulatory
activity necessary to prevent the introduction, transmission or
spread of communicable diseases. These regulations require, for
example, pasteurization of milk and milk products. We are
subject to numerous other federal, state and local regulations
involving such matters as the licensing and registration of
manufacturing facilities, enforcement by government health
agencies of standards for our products, inspection of our
facilities and regulation of our trade practices in connection
with the sale of food products.
We use quality control laboratories in our manufacturing
facilities to test raw ingredients. Product quality and
freshness are essential to the successful distribution of our
products. To monitor product quality at our facilities, we
maintain quality control programs to test products during
various processing stages. We believe our facilities and
manufacturing practices comply with all material government
regulations.
9
Employee
Safety Regulations
We are subject to certain safety regulations, including
regulations issued pursuant to the U.S. Occupational Safety
and Health Act. These regulations require us to comply with
certain manufacturing safety standards to protect our employees
from accidents. We believe that we are in material compliance
with all employee safety regulations.
Environmental
Regulations
We are subject to various environmental regulations. Ammonia, a
refrigerant used extensively in our operations, is considered an
extremely hazardous substance pursuant to
U.S. federal environmental laws due to its toxicity. Also,
certain of our facilities discharge biodegradable wastewater
into municipal waste treatment facilities in excess of levels
permitted under local regulations. As a result, certain of our
subsidiaries are required to pay wastewater surcharges or to
construct wastewater pretreatment facilities. To date, such
wastewater surcharges have not had a material effect on our
Consolidated Financial Statements.
We maintain above- and under-ground petroleum storage tanks at
many of our facilities. These tanks are periodically inspected
to determine compliance with applicable regulations. We are
required to make expenditures from time to time in order to
maintain compliance of these tanks. Upon removal of these tanks,
it is generally necessary to restore the site to its original
condition. To date, such expenditures have not had a material
effect on our Consolidated Financial Statements.
We believe that we are in material compliance with the
environmental regulations applicable to our business. We do not
expect environmental compliance to have a material impact on our
capital expenditures, earnings or competitive position in the
foreseeable future.
Milk
Industry Regulation
The federal government establishes minimum prices that we must
pay to producers in federally regulated areas for raw milk. Raw
milk contains primarily raw skim milk, in addition to a small
percentage of butterfat. The federal government establishes
separate minimum prices for raw skim milk and butterfat. Raw
milk delivered to our facilities is tested to determine the
percentage of butterfat, and we pay our suppliers separate
prices for the raw skim milk and butterfat based on the results
of these tests.
The federal governments minimum prices are calculated by
economic formula based on supply and demand and vary depending
on the processors geographic location or sales area and
the type of product manufactured using the raw product. Federal
minimum prices change monthly. Class I butterfat and raw
skim milk prices (which are the minimum prices we are required
to pay for butterfat and raw skim milk that is processed into
milk) and Class II raw skim milk prices (which are the
prices we are required to pay for raw skim milk that is
processed into products such as cottage cheese, creams,
creamers, ice cream and sour cream) for each month are announced
by the federal government by the 23rd day of the
immediately preceding month. Class II butterfat prices for
each month are announced on or before the fifth day after the
end of that month.
Some states have established their own rules for determining
minimum prices for raw milk. In addition to the federal or state
minimum prices, we also pay producer premiums, procurement costs
and other related charges that vary by location and vendor. A
few states also have retail pricing requirements.
Organic
Regulations
Our organic products are required to meet the standards set
forth in the Organic Foods Production Act (OFPA) and
the regulations adopted thereunder by the National Organic
Standards Board. These regulations require strict methods of
production for organic food products and limit the ability of
food processors to use non-organic or synthetic materials in the
production of organic foods or in the raising of organic
livestock. We believe that we are in compliance with the organic
regulations applicable to our business.
10
Brief
History
We commenced operations in 1988 through a predecessor entity.
Our original operations consisted solely of a packaged ice
business. Since then the following activity has occurred:
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December 1993
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Acquired Suiza Dairy Corporation, a regional dairy processor
located in Puerto Rico. We then began acquiring other local and
regional U.S. dairy processors, growing our dairy business
rapidly primarily through acquisitions.
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April 1996
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Completed our initial public offering under our former name
Suiza Foods Corporation and began trading on NASDAQ
National Market.
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January 1997
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Completed a secondary offering.
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March 1997
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Began trading on the New York Stock Exchange.
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August 1997
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Acquired Franklin Plastics, Inc., a company engaged in the
business of manufacturing and selling plastic containers. After
the acquisition, we began acquiring other companies in the
plastic packaging industry.
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November 1997
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Acquired Morningstar Foods Inc., whose business was a
predecessor to our WhiteWave segment. This was our first
acquisition of a company with national brands.
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April 1998
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Sold our packaged ice operations.
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May 1998
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Acquired Continental Can Company, making us one of the largest
plastic packaging companies in the United States.
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July 1999
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Sold all of our U.S. plastic packaging operations to
Consolidated Container Company in exchange for cash and a
minority interest in the purchaser.
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January 2000
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Acquired Southern Foods Group, L.P., the third largest dairy
processor in the United States, making us the largest dairy
processor in the country.
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February 2000
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Acquired Leche Celta, one of the largest dairy processors in
Spain.
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March and May 2000
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Sold our European packaging operations.
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December 2001
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Acquired Dean Foods Company (Legacy Dean) and
changed our name from Suiza Foods Corporation to Dean Foods
Company. Legacy Dean changed its name to Dean Holding Company.
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May 2002
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Acquired the portion of White Wave, Inc. that we did not already
own.
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January 2004
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Acquired the portion of Horizon Organic that we did not already
own.
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2005
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Consolidated our nationally branded business, including White
Wave, Horizon Organic and Dean National Brand Group into a
single operating unit called WhiteWave.
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June 2005
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Spun-off our Specialty Foods Group segment to our shareholders.
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September 2006
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Sold our Leche Celta operations in Spain.
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January 2007
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Sold our Leche Celta operations in Portugal.
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March 2007
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Acquired Friendship Dairies, one of the largest dairy products
manufacturer, marketer and distributor in the northeastern
United states.
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April 2007
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Paid a special cash dividend of $15 per share to our
shareholders.
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January 2008
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Acquisition of a fresh fluid facility from Wells Dairy, Inc.
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February 2008
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Acquisition of a fresh fluid facility from SUPERVALU INC.
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Minority
Holdings
We own an approximately 25% interest, on a fully diluted basis,
in Consolidated Container Company (CCC), one of the
nations largest manufacturers of rigid plastic containers
and our largest supplier of plastic bottles and bottle
components. We have owned a minority interest in CCC since July
1999 when we sold our
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U.S. plastic packaging operations to CCC. Vestar Capital
Partners controls CCC through a majority ownership interest.
Less than 1% of CCC is owned indirectly by Alan Bernon, a member
of our Board of Directors, and his brother Peter Bernon.
Pursuant to our agreements with Vestar, we control two of the
eight seats on CCCs Management Committee. We also have
entered into various supply agreements with CCC pursuant to
which we have agreed to purchase certain of our requirements for
plastic bottles and bottle components from CCC. In 2007, we
spent $264.0 million on products purchased from CCC.
See Note 3 to our Consolidated Financial Statements for
more information about our investment in CCC.
Where You
Can Get More Information
Our fiscal year ends on December 31. We furnish our
stockholders with annual reports containing audited financial
statements. In addition, we file annual, quarterly and current
reports, proxy statements and other information with the
Securities and Exchange Commission.
You may read and copy any reports, statements or other
information that we file with the Securities and Exchange
Commission at the Securities and Exchange Commissions
Public Reference Room at 100 F Street, N.E.,
Washington D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the
Securities and Exchange Commission. Please call the Securities
and Exchange Commission at
1-800-SEC-0330
for further information on the operation of the Public Reference
Room.
We file our reports with the Securities and Exchange Commission
electronically through the Securities and Exchange
Commissions Electronic Data Gathering, Analysis and
Retrieval (EDGAR) system. The Securities and
Exchange Commission maintains an Internet site that contains
reports, proxy and information statements, and other information
regarding companies that file electronically with the Securities
and Exchange Commission through EDGAR. The address of this
Internet site is
http://www.sec.gov.
We also make available free of charge through our website at
www.deanfoods.com our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the Securities and
Exchange Commission.
Our Code of Ethics, which is applicable to all of our employees
and directors, is available on our corporate website at
www.deanfoods.com, together with the Corporate
Governance Principles of our Board of Directors and the charters
of all of the Committees of our Board of Directors. Any waivers
that we may grant to our executive officers or directors under
the Code of Ethics, and any amendments to our Code of Ethics,
will be posted on our corporate website. If you would like hard
copies of any of these documents, or of any of our filings with
the Securities and Exchange Commission, write or call us at:
Dean Foods Company
2515 McKinney Avenue, Suite 1200
Dallas, Texas 75201
(214) 303-3400
Attention: Investor Relations
We
Have Substantial Debt and Other Financial Obligations and We May
Incur Even More Debt.
We have substantial debt and other financial obligations and
significant unused borrowing capacity. See Part II
Item 7. Management Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources.
As a result of the recapitalization of our balance sheet on
April 2, 2007, we entered into a new $4.8 billion
senior secured credit facility. This transaction significantly
increased our leverage profile and interest expense. Our debt
level and related debt service obligations:
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require us to dedicate significant cash flow to the payment of
principal and interest on our debt which reduces the funds we
have available for other purposes;
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may limit our flexibility in planning for or reacting to changes
in our business and market conditions;
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impose on us additional financial and operational restrictions;
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expose us to interest rate risk since a portion of our debt
obligations are at variable rates; and
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restrict our ability to fund acquisitions.
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Under our senior secured credit facility, we are required to
maintain certain financial covenants, including, but not limited
to, maximum leverage and minimum interest coverage ratios.
Throughout 2007, significant increases in raw material and other
input costs, as well as the oversupply of raw organic milk,
increased our working capital requirements, decreased our
operating profitability, and limited our ability in the near
term to reduce the borrowings under the senior secured credit
facility. Our ability to make scheduled payments on our debt and
other financial obligations and comply with financial covenants
depends on our financial and operating performance. Our
financial and operating performance will continue to be subject
to prevailing economic conditions and to financial, business and
other factors, some of which are beyond our control.
As of December 31, 2007, our maximum permitted leverage
ratio was 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 credit facility and our receivables
facility. As of December 31, 2007, our leverage ratio was
5.95. The maximum permitted leverage ratio under both the senior
secured credit facility and the receivables facility will
decline to 5.75 as of December 31, 2008. Failure to comply
with the leverage ratio, or any other financial or restrictive
covenant, could create a default under our senior secured credit
facility and under our receivables facility. We have pledged
substantially all of our assets (including the assets of our
subsidiaries) to secure our indebtedness. Upon a default, our
lenders could accelerate the indebtedness under the facilities,
foreclose against their collateral or seek other remedies, which
would jeopardize our ability to continue our current operations.
In addition, we may be required to amend our credit facility,
refinance all or part of our existing debt, sell assets, incur
additional indebtedness or raise equity. Further, our actual
performance levels under this reduced leverage ratio or our
other financial covenants could limit our ability to incur
additional debt under our senior secured credit facility, which
could hinder our ability to execute our current business
strategy.
Changes
in Our Credit Ratings May Have a Negative Impact on Our
Financing Cost or the Availability of Capital.
Some of our debt is rated by Standard & Poors
and Moodys, and there are a number of factors beyond our
control with respect to these ratings. During 2007, in response
to our increased leverage and the difficult dairy operating
environment, both Standard & poors and
Moodys downgraded our debt ratings. A further downgrade
could increase our cost of capital and reduce our access to
financial markets.
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 Dairy Group. Organic raw milk, organic soybeans and sugar
are significant inputs utilized by WhiteWave. The prices of
these materials increase and decrease based on supply and
demand, and in some cases, governmental regulation. In 2007, we
experienced rapidly rising, all time-high prices in conventional
raw milk prices. A declining dollar, constraints on global dairy
supply growth and rising global demand for dairy-based protein
combined to sharply increase foreign demand for
U.S.-produced
non-fat dry milk powder. This export demand drove prices for raw
conventional milk sharply higher in 2007. The rising milk prices
increased our costs from shrink, as lost product became more
costly. At the same time, the pricing dynamics in the dairy
industry resulted in sharply reduced profit contribution from
our sales of excess cream to third parties. There continues to
be significant volatility in the pricing of conventional raw
milk and we anticipate that volatility to continue throughout
2008. In many cases we are able to adjust our pricing to reflect
changes in raw material costs; however, volatility in the cost
of our raw materials can adversely affect our performance and
erode our profit margins as price changes often lag changes in
costs. Furthermore, cost increases may exceed the price
increases we are able to pass along to our customers. While we
currently expect conventional raw milk prices to decline in 2008
from the levels experienced in the fourth quarter of 2007, we
expect the prices to remain higher than in past periods. High
raw material costs can put downward pressure on our margins and
our volumes.
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, strong economic incentives for
conventional farmers to become
13
organic plus a change in the organic farm transition rules
caused supply to increase significantly in 2007. This oversupply
led to significant discounting and aggressive distribution
expansion by processors in an effort to sell their supply in the
organic milk market. The market for organic raw milk is
currently very dynamic and is beginning to shift back to an
undersupply situation, with some farmers moving back to
conventional due to high feed costs and attractive prices being
paid for conventional milk. These factors could increase costs
and cause our sales of Horizon Organic to decline as consumers
look for lower cost alternatives. Uncertainties surrounding
organic milk supply, increased costs associated with organic
farming, and competitive pressures could continue to negatively
impact the profitability of our WhiteWave segment.
Because our Dairy Group delivers the majority of its products
directly to customers through its direct store
delivery system, we are a large consumer of fuel.
Similarly, WhiteWave is impacted by the costs of petroleum-based
products through the use of common carriers in delivering their
products. We also utilize a significant amount of resin, which
is the primary component used in our plastic bottles. During
2007, the prices of resin decreased slightly, while diesel
prices were largely unchanged. Future increases in fuel and
resin prices may adversely affect our results of operations. In
addition, resin supplies have from time to time been
insufficient to meet demand. A disruption in our ability to
secure an adequate resin supply could adversely affect our
operations.
We May
Not Realize Anticipated Benefits from Our Multi-Year
Initiatives.
We have several multi-year initiatives underway, which we
believe are necessary in order to position our business for
future success and growth. These initiatives include the
following: centralizing certain of our functions, including our
finance and analytical systems; and optimizing our manufacturing
and distribution capabilities. Over the next several years,
these initiatives will require investments in people, systems,
tools and facilities. Our future success and earnings growth
depends in part on our ability to reduce costs, improve
efficiencies and better serve our customers. If we are unable to
successfully implement these initiatives, or fail to implement
them as timely as we anticipate, we could become cost
disadvantaged in the market place, lose customers and experience
declines in market share.
Centralization of certain functions. We are
currently realigning certain functions of our business in order
to further streamline our organization, improve efficiency and
better meet the needs of our customers. These initiatives
involve centralizing certain of our purchasing, selling, support
and decision making and brand building activities, which we
anticipate will enable us to more effectively and efficiently
manage our business. Our failure to successfully manage these
transitions could cause us to incur unexpected costs, which
could have a material adverse effect on our financial results.
In addition, the impact of these actions on our earnings growth
and profitability may be influenced by factors including but not
limited to: (1) our ability to retain and attract key
employees and operating officers; (2) our ability to
execute these initiatives in a cost effective manner;
(3) our ability to maintain satisfactory relationships with
our customers; and (4) our ability to maintain satisfactory
relationships with our suppliers.
Realignment of our financial and analytical
systems. In 2007, we centralized many of the
administrative functions that were historically accomplished at
the plant level into regional accounting and transaction
centers, which we anticipate will increase quality, capability,
and standardization across the business. However, we must
continue to improve and standardize our systems and processes to
deliver the data we need to accurately analyze, plan and
forecast our business and capitalize on opportunities.
Optimizing our manufacturing and distribution
capabilities. Due to the perishable nature of its
products, our Dairy Group delivers the majority of its products
directly to its customers stores 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 system is one of the most extensive
refrigerated DSD systems in the United States. We also have an
extensive network of manufacturing plants across the country.
These plants and their related distribution systems were
acquired by us over time and are not yet designed or configured
to fully maximize productivity and efficiency. We are evaluating
our entire supply chain and anticipate over the next several
years that we will realign our manufacturing and distribution
capabilities and will close additional facilities. However, if
we are unsuccessful in our efforts to streamline and upgrade our
manufacturing and distribution capabilities, we could be faced
with unrealized profit potential through waste and inefficiency,
leaving us vulnerable to technological obsolescence, low returns
on our capital investments, and a decline in our profitability.
14
We
Must Identify Changing Consumer Preferences and Develop and
Offer Innovative Products to Meet Their
Preferences.
Consumer preferences evolve over time and the success of our
products depends on our ability to identify the tastes and
dietary habits of consumers and to offer products that appeal to
their preferences. Introduction of new products and product
extensions requires significant development and marketing
investment. Currently, we believe consumers are trending toward
health and wellness beverages. Although we have increased our
innovation efforts and spend in order to capitalize on this
trend, there are currently several global competitors with
greater resources with whom we compete in these areas. If our
products fail to meet consumer preferences, the return on our
investment in those areas will be less than anticipated and our
innovation strategy will not succeed.
Our
Business is Subject to Various Environmental Laws, Which May
Increase Our Compliance Costs.
Our business operations are subject to numerous environmental
and other air pollution control laws, including the federal
Clean Air Act, the federal Clean Water Act, and the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, as well as state and local statutes.
These laws and regulations cover the discharge of pollutants,
wastewater, and hazardous materials into the environment. In
addition, various laws and regulations addressing climate change
are being considered or implemented at the federal and state
levels. New legislation, as well as current federal and other
state regulatory initiatives relating to these environmental
matters, could require us to replace equipment, install
additional pollution controls, purchase various emission
allowances or curtail operations. These costs could adversely
affect our results.
The
Consolidation of Retail Customers May Put Pressures on Our
Operating Margins and Profitability.
Our customers such as supermarkets, warehouse clubs and food
distributors, have consolidated in recent years and
consolidation is expected to continue. These consolidations have
produced large, sophisticated customers with increased buying
power. Some of these customers are vertically integrated and may
use shelf space currently used for our products for their
private label products. In addition, our large retail customers
may seek to use their position to improve their profitability
through improved efficiency, lower pricing and increased
promotional programs. If we are unable to use our scale,
marketing expertise, product innovation and category leadership
positions to respond to these trends, our volume growth could
slow or we may need to lower prices or increase promotional
spending for our products, any of which would adversely affect
our profitability.
The
Loss of One of Our Largest Customers Could Negatively Impact Our
Sales and Profits.
Our largest customer, Wal-Mart Stores, Inc. and its
subsidiaries, including Sams Club, accounted for
approximately 17.9% of consolidated net sales during 2007,
consisting of 18.5% of the Dairy Groups net sales and
14.1% of WhiteWaves net sales. During 2007, our top five
customers, collectively, accounted for approximately 30.0% of
our consolidated net sales, or approximately 31.2% of the Dairy
Groups net sales and 23.4% of WhiteWaves net sales.
The loss of any large customer for an extended length of time
could negatively impact our sales and profits. In addition, we
do not have agreements with many of our largest customers, and
most of the agreements that we do have are generally terminable
at will by the customer. Finally, 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 Dairy Group, which reduced our profitability on sales to
several customers. We expect this trend to continue. In bidding
situations, we are subject to the risk of losing certain
customers altogether.
Our
Products Could Attract Increased Competitive Activity, Which
Could Impede Our Growth Rate and Cost Us Sales.
Our Silk soymilk and Horizon Organic organic food
and beverage products have leading market shares in their
categories and have benefited in many cases from being the first
to introduce products in their categories. As soy and organic
products continue to gain in popularity with consumers, we
expect our products in these categories to continue to attract
competitors. Many large food and beverage companies have
substantially more resources than we do, and they may be able to
market their soy and organic products more successfully than us,
which could cause our growth rate in these categories to be
slower than our forecast and could cause us to lose sales. The
increase in popularity of soy and organic milks is also
attracting private label competitors who sell their products at
a lower
15
price. The success of private label brands could adversely
affect our sales and profitability. The willingness of consumers
to purchase our products will depend upon our ability to offer
products providing the right consumer benefits at the right
price. Furthermore, in periods of economic uncertainty,
consumers tend to purchase more private label or other
lower-priced products, which could result in a reduction of
sales of our branded products.
Our International Delight coffee creamer competes
intensely with Nestlé
CoffeeMate®
business. Our failure to successfully compete with
Nestlé could have a material adverse effect on the sales
and profitability of our International
Delight®
business.
We May
Experience Liabilities or Negative Effects on Our Reputation as
a Result of Product Recalls, Product Injuries or Other Legal
Claims.
We sell products for human consumption, which involves a number
of legal risks. Product contamination, spoilage or other
adulteration, product misbranding or product tampering could
require us to recall products. We also may be subject to
liability if our products or operations violate applicable laws
or regulations or in the event our products cause injury,
illness or death. In addition, we advertise our products and
could be the target of claims relating to false or deceptive
advertising under U.S. federal and state laws, including
consumer protection statutes of some states. A significant
product liability or other legal judgment against us or a
widespread product recall may negatively impact our
profitability. Even if a product liability or consumer fraud
claim is unsuccessful or is not merited, the negative publicity
surrounding such assertions regarding our products or processes
could adversely affect our reputation and brand image.
The
Loss of Rights to Any of Our Licensed Brands Could Adversely
Affect Our Sales and Profits.
We sell certain of our products under licensed brand names such
as Borden, LAND OLAKES, Pet, and others. In some
cases, we have invested significant capital in product
development and marketing and advertising related to these
licensed brands. Should our rights to manufacture and sell
products under any of these names be terminated for any reason,
our financial performance and results of operations could be
materially and adversely affected.
Changes
in Laws, Regulations and Accounting Standards Could Have an
Adverse Effect on Our Financial Results.
We are subject to federal, state, local and foreign governmental
laws and regulations, including those promulgated by the United
States Food and Drug Administration, the United States
Department of Agriculture, the Sarbanes-Oxley Act of 2002 and
numerous related regulations promulgated by the Securities and
Exchange Commission, the Public Company Accounting Oversight
Board and the Financial Accounting Standards Board. Changes in
federal, state or local laws, or the interpretations of such
laws and regulations, may negatively impact our financial
results or our ability to market our products.
Pension
Costs Could Increase at a Higher Than Anticipated
Rate.
Changes in interest rates or in the market value of plan assets
could affect the funded status of our pension plans. This could
cause volatility in our benefits costs and increase future
funding requirements of our plans. Pension and post-retirement
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 annual periodic pension costs.
A significant increase in future funding requirements could have
a negative impact on our results of operations, financial
condition and cash flows.
16
Disruption
of Our Supply Chain Could Adversely Affect Our
Business.
Damage or disruption to our manufacturing or distribution
capabilities due to weather, natural disaster, fire, terrorism,
pandemic, strikes, the financial
and/or
operational instability of key suppliers, distributors,
warehousing and transportation providers, or other reasons could
impair our ability to manufacture or distribute our products. To
the extent the we are unable, or it is not financially feasible,
to mitigate the likelihood or potential impact of such events,
or to effectively manage such events if they occur, there could
be an adverse affect on our business and results of operations,
and additional resources could be required to restore our supply
chain.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
17
Dairy
Group
Our Dairy Group currently conducts its manufacturing operations
within the following 100 facilities, most of which are owned:
|
|
|
|
|
Birmingham, Alabama (2)
|
|
Newport, Kentucky
|
|
Marietta, Ohio
|
Decatur, Alabama
|
|
New Orleans, Louisiana
|
|
Springfield, Ohio
|
Buena Park, California (2)
|
|
Shreveport, Louisiana
|
|
Toledo, Ohio
|
City of Industry, California
|
|
Bangor, Maine
|
|
Belleville, Pennsylvania
|
Fullerton, California
|
|
Franklin, Massachusetts
|
|
Erie, Pennsylvania
|
Gustine, California
|
|
Lynn, Massachusetts
|
|
Landsdale, Pennsylvania
|
Hayward, California
|
|
Mendon, Massachusetts
|
|
Lebanon, Pennsylvania
|
Riverside, California
|
|
Evart, Michigan
|
|
Schuylkill Haven, Pennsylvania
|
Tulare, California
|
|
Flint, Michigan
|
|
Sharpsville, Pennsylvania
|
Delta, Colorado
|
|
Grand Rapids, Michigan
|
|
Florence, South Carolina
|
Denver, Colorado (3)
|
|
Livonia, Michigan
|
|
Spartanburg, South Carolina
|
Englewood, Colorado
|
|
Marquette, Michigan
|
|
Sioux Falls, South Dakota
|
Greeley, Colorado
|
|
Thief River Falls, Minnesota
|
|
Athens, Tennessee
|
Newington, Connecticut
|
|
White Bear Lake, Minnesota
|
|
Kingsport, Tennessee
|
Miami, Florida
|
|
Woodbury, Minnesota
|
|
Nashville, Tennessee(2)
|
Orange City, Florida
|
|
Billings, Montana
|
|
Dallas, Texas(2)
|
Orlando, Florida
|
|
Great Falls, Montana
|
|
El Paso, Texas
|
Baxley, Georgia
|
|
Kalispell, Montana
|
|
Houston, Texas
|
Braselton, Georgia
|
|
Lincoln, Nebraska
|
|
Lubbock, Texas
|
Hilo, Hawaii
|
|
Las Vegas, Nevada
|
|
McKinney, Texas
|
Honolulu, Hawaii
|
|
Reno, Nevada
|
|
San Antonio, Texas
|
Boise, Idaho
|
|
Burlington, New Jersey
|
|
Sulphur Springs, Texas(2)
|
Belvidere, Illinois
|
|
Albuquerque, New Mexico
|
|
Waco, Texas
|
Chemung, Illinois
|
|
Friendship, New York
|
|
Orem, Utah
|
Huntley, Illinois
|
|
New Delhi, New York
|
|
Salt Lake City, Utah
|
OFallon, Illinois
|
|
Rensselaer, New York
|
|
Portsmouth, Virginia
|
Rockford, Illinois
|
|
Hickory, North Carolina
|
|
Richmond, Virginia
|
Huntington, Indiana
|
|
High Point, North Carolina
|
|
Springfield, Virginia
|
Rochester, Indiana
|
|
Winston-Salem, North Carolina
|
|
Richland Center, Wisconsin
|
LeMars, Iowa
|
|
Bismarck, North Dakota
|
|
Sheboygan, Wisconsin
|
Louisville, Kentucky
|
|
Tulsa, Oklahoma
|
|
|
Murray, Kentucky
|
|
|
|
|
Each of the Dairy Groups manufacturing facilities also
serves as a distribution facility. In addition, our Dairy Group
has numerous distribution branches located across the country,
some of which are owned but most of which are leased. The Dairy
Groups headquarters are located in Dallas, Texas in leased
premises.
WhiteWave
WhiteWave currently conducts its manufacturing operations from
the following six facilities, all but one of which is owned:
|
|
|
|
|
City of Industry, California
|
|
|
|
Jacksonville, Florida
|
18
|
|
|
|
|
Bridgeton, New Jersey
|
|
|
|
Cedar City, Utah
|
|
|
|
Mt. Crawford, Virginia
|
|
|
|
Aberystwyth, United Kingdom
|
WhiteWave also owns two organic dairy farms located in Paul,
Idaho and Kennedyville, Maryland and leases an organic dairy
farm in Portales, New Mexico.
WhiteWaves headquarters are located in leased premises in
Broomfield, Colorado.
Corporate
Our corporate headquarters are located in leased premises at
2515 McKinney Avenue, Suite 1200, Dallas, Texas 75201.
|
|
Item 3.
|
Legal
Proceedings
|
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 allegations contained in this third complaint are
similar to those in the first and second complaints except that
the new suit added a claim that defendants conduct also
artificially inflated retail prices for direct milk purchasers.
Two additional class actions were filed on August 27, 2007
and October 3, 2007 in 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. All actions on all
pending cases are stayed pending an initial pretrial conference
and status conference scheduled for March 11, 2008. We
believe that the claims against us are without merit and we will
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.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matter was submitted by us during the fourth quarter of 2007
to a vote of security holders, through the solicitation of
proxies or otherwise.
19
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
|
Our common stock trades on the New York Stock Exchange under the
symbol DF. The following table sets forth the high
and low closing prices of our common stock as quoted on the New
York Stock Exchange for the last two fiscal years. At
February 22, 2008, there were 4,664 record holders of our
common stock.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2006:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
39.69
|
|
|
$
|
37.02
|
|
Second Quarter
|
|
|
39.79
|
|
|
|
34.70
|
|
Third Quarter
|
|
|
42.81
|
|
|
|
35.97
|
|
Fourth Quarter
|
|
|
43.51
|
|
|
|
39.36
|
|
2007:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
48.31
|
|
|
|
41.26
|
|
Second Quarter
|
|
|
47.33
|
|
|
|
31.00
|
|
Third Quarter
|
|
|
31.85
|
|
|
|
24.30
|
|
Fourth Quarter
|
|
|
27.77
|
|
|
|
24.51
|
|
2008:
|
|
|
|
|
|
|
|
|
First Quarter (through February 22, 2008)
|
|
|
28.90
|
|
|
|
23.89
|
|
We have not historically declared or paid a cash dividend on our
common stock. However, on April 2, 2007, we declared a
special cash dividend of $15 per share, which decreased our
stock price. We have no current plans to pay a cash dividend in
the future. No adjustment has been made to the historical stock
prices related to the impact of the cash dividend.
See Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources Current Debt
Obligations and Note 9 to our Consolidated Financial
Statements for further information regarding the terms of our
senior credit facility.
A summary of the increases in our stock repurchase program, as
authorized by our Board of Directors, is shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
Cumulative
|
|
|
|
|
|
|
Increase in Stock
|
|
|
Authorized Stock
|
|
|
|
|
Date of Authorization
|
|
Repurchase Program
|
|
|
Repurchase Program
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
September 15, 1998
|
|
$
|
100
|
|
|
$
|
100
|
|
|
|
|
|
September 28, 1999
|
|
|
100
|
|
|
|
200
|
|
|
|
|
|
November 17, 1999
|
|
|
100
|
|
|
|
300
|
|
|
|
|
|
May 19, 2000
|
|
|
100
|
|
|
|
400
|
|
|
|
|
|
November 2, 2000
|
|
|
100
|
|
|
|
500
|
|
|
|
|
|
January 8, 2003
|
|
|
150
|
|
|
|
650
|
|
|
|
|
|
February 12, 2003
|
|
|
150
|
|
|
|
800
|
|
|
|
|
|
September 7, 2004
|
|
|
200
|
|
|
|
1,000
|
|
|
|
|
|
November 2, 2004
|
|
|
100
|
|
|
|
1,100
|
|
|
|
|
|
August 10, 2005
|
|
|
300
|
|
|
|
1,400
|
|
|
|
|
|
November 2, 2005
|
|
|
300
|
|
|
|
1,700
|
|
|
|
|
|
May 3, 2006
|
|
|
300
|
|
|
|
2,000
|
|
|
|
|
|
November 29, 2006
|
|
|
300
|
|
|
|
2,300
|
|
|
|
|
|
We made no share repurchases in 2007. As of December 31,
2007, $218.7 million was available for repurchases under
this program (excluding fees and commissions). Repurchased
shares are treated as effectively retired in the Consolidated
Financial Statements.
20
|
|
Item 6.
|
Selected
Financial Data
|
The following selected financial data as of and for each of the
five years in the period ended December 31, 2007 has been
derived from our audited Consolidated Financial Statements. The
selected financial data do not purport to indicate results of
operations as of any future date or for any future period. The
selected financial data should be read in conjunction with our
Consolidated Financial Statements and related Notes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in thousands except share data)
|
|
|
Operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
11,821,903
|
|
|
$
|
10,098,555
|
|
|
$
|
10,174,718
|
|
|
$
|
9,725,548
|
|
|
$
|
8,146,103
|
|
Cost of sales
|
|
|
9,084,318
|
|
|
|
7,358,676
|
|
|
|
7,591,548
|
|
|
|
7,338,138
|
|
|
|
5,985,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit(1)
|
|
|
2,737,585
|
|
|
|
2,739,879
|
|
|
|
2,583,170
|
|
|
|
2,387,410
|
|
|
|
2,160,576
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and distribution
|
|
|
1,721,617
|
|
|
|
1,648,860
|
|
|
|
1,581,028
|
|
|
|
1,472,112
|
|
|
|
1,309,498
|
|
General and administrative
|
|
|
419,518
|
|
|
|
409,225
|
|
|
|
380,490
|
|
|
|
355,772
|
|
|
|
330,751
|
|
Amortization of intangibles
|
|
|
6,744
|
|
|
|
5,983
|
|
|
|
6,106
|
|
|
|
5,105
|
|
|
|
3,576
|
|
Facility closing and reorganization costs
|
|
|
34,421
|
|
|
|
25,116
|
|
|
|
35,451
|
|
|
|
24,575
|
|
|
|
11,787
|
|
Other operating (income) expense(2)
|
|
|
1,688
|
|
|
|
|
|
|
|
|
|
|
|
(5,899
|
)
|
|
|
(68,719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
2,183,988
|
|
|
|
2,089,184
|
|
|
|
2,003,075
|
|
|
|
1,851,665
|
|
|
|
1,586,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
553,597
|
|
|
|
650,695
|
|
|
|
580,095
|
|
|
|
535,745
|
|
|
|
573,683
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense(3)
|
|
|
333,202
|
|
|
|
194,547
|
|
|
|
160,230
|
|
|
|
191,788
|
|
|
|
166,897
|
|
Financing charges on trust issued preferred securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,164
|
|
Equity in (earnings) losses of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(244
|
)
|
Other (income) expense, net
|
|
|
5,926
|
|
|
|
435
|
|
|
|
(683
|
)
|
|
|
(722
|
)
|
|
|
(2,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
339,128
|
|
|
|
194,982
|
|
|
|
159,547
|
|
|
|
191,066
|
|
|
|
178,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
214,469
|
|
|
|
455,713
|
|
|
|
420,548
|
|
|
|
344,679
|
|
|
|
395,574
|
|
Income taxes
|
|
|
84,007
|
|
|
|
175,450
|
|
|
|
163,898
|
|
|
|
138,472
|
|
|
|
159,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
130,462
|
|
|
|
280,263
|
|
|
|
256,650
|
|
|
|
206,207
|
|
|
|
236,188
|
|
Gain (loss) on sale of discontinued operations, net of tax
|
|
|
608
|
|
|
|
(1,978
|
)
|
|
|
38,763
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
283
|
|
|
|
(52,871
|
)
|
|
|
14,793
|
|
|
|
47,514
|
|
|
|
85,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of accounting change
|
|
|
131,353
|
|
|
|
225,414
|
|
|
|
310,206
|
|
|
|
253,721
|
|
|
|
321,485
|
|
Cumulative effect of accounting change, net of tax(4)
|
|
|
|
|
|
|
|
|
|
|
(1,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
131,353
|
|
|
$
|
225,414
|
|
|
$
|
308,654
|
|
|
$
|
253,721
|
|
|
$
|
321,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend paid per share
|
|
$
|
15.00
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.00
|
|
|
$
|
2.09
|
|
|
$
|
1.75
|
|
|
$
|
1.33
|
|
|
$
|
1.63
|
|
Income (loss) from discontinued operations
|
|
|
0.01
|
|
|
|
(0.41
|
)
|
|
|
0.36
|
|
|
|
0.31
|
|
|
|
0.58
|
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.01
|
|
|
$
|
1.68
|
|
|
$
|
2.10
|
|
|
$
|
1.64
|
|
|
$
|
2.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.95
|
|
|
$
|
2.01
|
|
|
$
|
1.67
|
|
|
$
|
1.28
|
|
|
$
|
1.53
|
|
Income (loss) from discontinued operations
|
|
|
0.01
|
|
|
|
(0.40
|
)
|
|
|
0.35
|
|
|
|
0.30
|
|
|
|
0.53
|
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.96
|
|
|
$
|
1.61
|
|
|
$
|
2.01
|
|
|
$
|
1.58
|
|
|
$
|
2.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
130,310,811
|
|
|
|
133,938,777
|
|
|
|
146,673,322
|
|
|
|
154,635,979
|
|
|
|
145,201,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
137,291,998
|
|
|
|
139,762,104
|
|
|
|
153,438,636
|
|
|
|
160,704,576
|
|
|
|
160,695,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed charges(5)
|
|
|
1.56
|
x
|
|
|
2.87
|
x
|
|
|
3.01
|
x
|
|
|
2.69
|
x
|
|
|
2.89x
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in thousands except share data)
|
|
|
Balance sheet data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,033,356
|
|
|
$
|
6,770,173
|
|
|
$
|
7,050,884
|
|
|
$
|
7,756,368
|
|
|
$
|
6,992,536
|
|
Long-term debt(6)
|
|
|
5,272,351
|
|
|
|
3,355,851
|
|
|
|
3,386,848
|
|
|
|
3,214,269
|
|
|
|
2,777,928
|
|
Other long-term liabilities
|
|
|
320,256
|
|
|
|
238,682
|
|
|
|
225,479
|
|
|
|
321,252
|
|
|
|
256,371
|
|
Total stockholders equity(7)
|
|
|
51,267
|
|
|
|
1,809,399
|
|
|
|
1,902,213
|
|
|
|
2,692,985
|
|
|
|
2,567,390
|
|
|
|
|
|
|
|
|
(1) |
|
As disclosed in Note 1 to our Consolidated Financial
Statements 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. |
|
(2) |
|
Results for 2007 include a loss of $1.7 million relating to
the sale of our tofu business. Results for 2004 include a gain
of $5.9 million primarily related to the settlement of
litigation. Results for 2003 include a gain of
$66.2 million on the sale of our frozen pre-whipped topping
and frozen creamer operations and a gain of $2.5 million
related to the divestiture of 11 facilities in 2001 in
connection with our acquisition of Legacy Dean. |
|
(3) |
|
Results for 2007 and 2004 include a charge of $13.5 million
and $32.6 million, respectively, to write-off financing
costs related to the refinancing of our senior credit facility. |
|
(4) |
|
In the fourth quarter of 2005, we adopted Financial Accounting
Standards Board (FASB) Interpretation No.
(FIN) 47 Accounting for Conditional Asset
Retirement Obligations. If FIN 47 had always been in
effect, we would have expensed this amount for depreciation in
periods prior to January 1, 2005. |
|
(5) |
|
For purposes of calculating the ratio of earnings to fixed
charges, earnings represents income before income
taxes plus fixed charges. Fixed charges consist of
interest on all debt, amortization of deferred financing costs
and the portion of rental expense that we believe is
representative of the interest component of rent expense. |
|
(6) |
|
Includes the current portion of long-term debt. |
|
(7) |
|
On April 2, 2007, we recapitalized our balance sheet with
the completion of a new $4.8 billion senior credit facility
and the return of $1.94 billion to shareholders on record
as of March 27, 2007, through a $15 per share special cash
dividend. |
|
|
|
Effective January 1, 2007, we adopted Financial
Interpretation Number (FIN) 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109, as a result we recognized a
$25.9 million increase in our liability for uncertain tax
positions, a $20.1 million increase in deferred income tax
assets, a $0.3 million decrease to additional paid-in
capital, a $0.2 million decrease to goodwill, and a
$5.7 million decrease to retained earnings. |
|
|
|
The balance at December 31, 2006 reflects a
$14.8 million reduction related to the adoption of
SFAS No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans an
Amendment of FASB Statements No. 87, 88, 106, and
132(R). The reduction had no impact on net income. |
22
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Business
Overview
We are one of the leading food and beverage companies in the
United States. Our Dairy Group 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 Foods (WhiteWave) segment markets and
sells a variety of nationally branded dairy and dairy-related
products such as
Silk®
soymilk , Horizon
Organic®
milk and other dairy products, International
Delight®
coffee creamers, LAND
OLAKES®
creamers and other fluid dairy products. White Waves
Rachels
Organic®
dairy products brand is the second largest organic yogurt brand
in the United Kingdom.
Dairy Group Our Dairy Group segment is our
largest segment, with approximately 88% of our consolidated net
sales in 2007. Our Dairy Group manufactures, markets and
distributes a wide variety of branded and private label dairy
case products, including milk, creamers, ice cream, cultured
dairy products and juices to retailers, distributors,
foodservice outlets, educational institutions and governmental
entities across the United States. Due to the perishable nature
of the Dairy Groups products, our Dairy Group delivers the
majority of its products directly to its customers stores
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 Dairy Group has
one of the most extensive refrigerated DSD systems in the United
States. The Dairy Group 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 Dairy Groups corporate sales department. Most of the
Dairy Groups customers, including its largest customer,
purchase products from the Dairy Group either by purchase order
or pursuant to contracts that are generally terminable at will
by the customer.
The dairy industry is a mature industry that has traditionally
been characterized by slow to flat growth, low profit margins,
fragmentation and excess capacity. Excess capacity resulted from
the development of more efficient manufacturing techniques and
declining demand for fluid milk products. From 1990 through
2001, the dairy industry experienced significant consolidation
led by us. Consolidation has resulted in lower operating costs,
less excess capacity and greater efficiency. According to the
United States Department of Agriculture (USDA), per
capita consumption of fluid milk and cream decreased by over 10%
from 1990 to the end of 2007, although total consumption has
remained relatively flat over the same period due to population
increases. Therefore, volume sales growth across the industry
generally remains flat to modest, profit margins generally
remain low and excess manufacturing capacity continues to exist.
In this environment, price competition is particularly intense,
as smaller processors seek to retain enough volume to cover
their fixed costs. In response to this dynamic and significant
competitive pressure caused by the ongoing consolidation among
food retailers, many processors, including us, are now placing
an increased emphasis on product differentiation and cost
reduction in an effort to increase consumption, sales and
margins. Historically, our Dairy Group volume growth has paced
with or exceeded the industry, which we attribute largely to our
national DSD system, brand recognition, and service quality.
Our Dairy Group has several competitors in each of our major
product and geographic markets. Competition between dairy
processors for shelf-space with retailers is based primarily on
price, service and quality, while competition for consumer sales
is based on a variety of factors such as brand recognition,
price, taste preference and quality. In some cases the Dairy
Group pays fees to customers for shelf space or supply
agreements. Dairy products also compete with many other
beverages and nutritional products for consumer sales.
WhiteWave Our WhiteWave segment net sales are
approximately 12% of our consolidated net sales. WhiteWave
develops, manufactures, 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. WhiteWave also sells The Organic
Cow®
organic dairy products. We license the LAND OLAKES
name from third parties.
WhiteWave sells its products to a variety of customers,
including grocery stores, club stores, natural foods stores,
mass merchandisers, convenience stores and foodservice outlets.
WhiteWave sells its products through its internal sales force
and through independent brokers. The majority of
WhiteWaves products, including sales to its
23
largest customer, are sold pursuant to customer purchase orders
or pursuant to contracts that are generally terminable at will
by the customer.
WhiteWave has several competitors in each of its product
markets. Competition to obtain shelf-space with retailers for a
particular product is based primarily on the expected or
historical sales performance of the product compared to its
competitors. Also, in some cases, WhiteWave pays fees to
retailers to obtain shelf-space for a particular product.
Competition for consumer sales is based on many factors,
including brand recognition, price, taste preferences and
quality. Consumer demand for soy and organic foods has grown
rapidly in recent years due to growing consumer confidence in
the health benefits of soy and organic foods, and WhiteWave has
a leading position in the soy and organic foods category.
However, our soy and organic food products compete with many
other beverages and nutritional products for consumer sales.
Recent
Developments
Conventional
Milk Environment
In 2007, we experienced rapidly increasing and record high dairy
commodity costs. A declining dollar, constraints on global dairy
supply growth, and rising global demand for dairy-based protein
combined to sharply increase foreign demand for
U.S. produced non-fat dry milk powder. This export demand
drove the U.S. dairy complex steeply higher in 2007. The
fourth quarter average Class I mover, which is
an indicator of the Companys raw milk costs, averaged
$21.03 per hundred-weight, a 69% increase from that same period
a year ago. Competitive pressure and contractual arrangements
limited our ability to pass-through all of the higher dairy
commodity costs in 2007, particularly those increased costs
related to inventory shrink in the manufacturing process.
Further, market pricing mechanisms surrounding bulk cream
negatively impacted our results as the price we were able to
realize from the sale of excess bulk cream did not fully reflect
the significant increases in raw milk costs.
At the same time, as retail prices rose throughout 2007, we saw
a softening of sales volumes in certain markets in addition to a
shift from branded to private label fluid milk products. This
softening was compounded by the loss of a significant customer
during the first quarter of 2007. The sales volume in the fourth
quarter of 2007 began to flatten compared to prior year levels.
Organic
Milk Environment
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 in the organic milk market with the
Horizon Organic volume growing in excess of 30% in the fourth
quarter of 2007 and 18% for the year when compared to similar
periods in the prior year. However, the increased level of
discounting negatively impacted the profitability of our
WhiteWave segment. The market for organic milk is currently very
dynamic and is beginning to shift back to an under supply
situation in the first quarter of 2008.
Credit
Facility and Special Cash Dividend
On April 2, 2007, we recapitalized our balance sheet
through the completion of a new $4.8 billion senior credit
facility and the return of $1.94 billion to shareholders of
record on March 27, 2007, through a $15 per share special
cash dividend. We entered into an amended and restated credit
agreement that consists 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. The completion of the new senior
credit facility and special cash dividend resulted in the
write-off of $13.5 million of financing costs and
$6.2 million of professional fees and expenses,
respectively. In addition, we entered into an amendment and
restatement of our receivables facility that
24
extended the facility termination date from November 15,
2009 to March 30, 2010. See note 9 to our Condensed
Consolidated Financial Statements for more information.
Management
Changes and Alignment
We continued to build our leadership team in 2007 with key
additions in the area of supply chain, human resources, sales,
and marketing.
|
|
|
|
|
On November 5, 2007, Gregg Tanner joined Dean Foods as
Executive Vice President and Chief Supply Chain Officer. Before
joining our Company, he served as Senior Vice President, Global
Operations, at the Hershey Company. Prior to his role at
Hershey, Mr. Tanner held the position of Senior Vice
President , Retail Supply Chain at ConAgra Foods, as well as
various positions at the Quaker Oats Company and Ralston Purina.
|
|
|
|
On June 18, 2007, Paul Moskowitz joined Dean Foods as
Executive Vice President, Human Resources. Prior to joining our
Company, Mr. Moskowitz served as the Chief People Officer
for Pizza Hut, a division of Yum! Brands. Prior to his role at
Pizza Hut he served in various Human Resources roles with Yum!
Brands, Darden Restaurants, Brinker International, and Towers
Perrin.
|
In late 2007 and into 2008, we began to align our leadership
teams and the development of strategic initiatives around more
clearly defined business platforms.
|
|
|
|
|
Chris Sliva was promoted to Chief Operating Officer of
Morningstar. Mr. Sliva joined the Company in 2006 as Senior
Vice President of Sales and Chief Customer Officer at WhiteWave.
Prior to joining our Company, Mr. Sliva served in various
positions at Eastman Kodak Corporation, Fort James
Corporation, and Procter & Gamble. Mr. Sliva
reports to Joe Scalzo, President and Chief Executive Officer of
Morningstar and WhiteWave.
|
|
|
|
Harrald Kroeker was promoted to President, Direct Store Delivery
Group. Mr. Kroeker joined the Company in November 2006.
Prior to joining our Company, Mr. Kroeker served in various
executive capacities at Pepsi Bottling Group, Polaroid, and
Procter & Gamble.
|
|
|
|
Greg McKelvey was promoted to Senior Vice President, Dean Foods
Strategy and Marketing Services. Mr. McKelvey joined the
Company in 2005 as the Senior Vice President, Strategic Planning
for our WhiteWave segment. Prior to joining our Company,
Mr. McKelvey was a consultant with Bain & Company.
|
As part of these initiatives we eliminated a number of positions
in the Dairy Group, including that held by Alan Bernon, the
former President of the Dairy Group. Over time, we believe this
management alignment between Morningstar and WhiteWave will
leverage the manufacturing, innovation, and systems
infrastructure of both Morningstar and WhiteWave across an
extended warehouse platform. Mr. Tanner,
Mr. Moskowitz, Mr. Kroeker and Mr. McKelvey
report directly to Gregg Engles, our Chairman and CEO.
Centralization
of Finance and Transaction Processing Activities
In late 2006, we began centralizing our finance and transaction
processing activities within five regional finance and
transaction processing centers across the United States, the
largest of which is located in Dallas, Texas. Centralizing these
activities will allow us to better leverage our people, systems,
and tools. It also will provide the foundational base to execute
the platform strategies. All five of the facilities were
operational as of the end of 2007. We will substantially
complete the centralization of the finance and payroll
processing activities in the first half of 2008. We will
continue to centralize specific processing activities, largely
accounts payable, through 2009.
Facility
Closing and Reorganization Activities
In 2007, we recorded a charge of $34.4 million as part of
our ongoing costs savings initiatives. We recorded a charge of
$28.1 million related to our Dairy Group operations for
realignment of management positions, workforce reductions, and
the closing of three Dairy Group facilities and other previously
announced plans. We also recorded a
25
charge of $6.3 million related to the previously announced
centralization of certain finance and transaction processing
activities from local to regional facilities. These charges
include the following costs:
|
|
|
|
|
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 facilities that
are no longer used in operations. 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.
|
We expect to incur additional charges related to all of these
restructuring plans of $6.5 million through the end of 2008.
Acquisitions
and Discontinued Operations
Friendship Dairies On March 13, 2007,
our Dairy Group completed the acquisition of Friendship Dairies,
Inc., a manufacturer, marketer and distributor of cultured dairy
products primarily in the northeastern United States. This
transaction expanded our cultured dairy product capabilities and
added a strong regional brand. We paid approximately
$130 million, including transaction costs, for the purchase
of Friendship Dairies and funded the purchase price with
borrowings under our senior credit facility.
Other Acquisitions We have noted an increase
in opportunities to acquire additional dairy manufacturing
facilities. We attribute this recent trend largely to the rising
commodity prices and competitive environment. In early 2008, we
acquired two manufacturing facilities that supplement our DSD
platform. These facilities were acquired from Wells Dairy, Inc.
and SUPERVALU INC. The purchase price of these facilities
aggregated to approximately $50 million. As we move
forward, we may choose to make additional acquisitions of
attractively valued and strategically desirable facilities.
Iberian Operations Our former Iberian
operations included the manufacture and distribution of private
label and branded milk across Spain and Portugal. On
September 14, 2006, we completed the sale of our operations
in Spain for net cash proceeds of approximately $96 million.
In connection with the sale of our operations in Spain, we
entered into an agreement to sell our Portuguese operations
(that comprised the remainder of our Iberian operations) for
$11.4 million subject to regulatory approvals and working
capital settlements. We completed the sale of our Portuguese
operations in January 2007. The Iberian operations have been
reclassified as discontinued operations for all periods
presented.
26
Results
of Operations
The following table presents certain information concerning our
financial results, including information presented as a
percentage of net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
Dollars
|
|
|
Percent
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
11,821.9
|
|
|
|
100.0
|
%
|
|
$
|
10,098.6
|
|
|
|
100.0
|
%
|
|
$
|
10,174.7
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
9,084.3
|
|
|
|
76.8
|
|
|
|
7,358.7
|
|
|
|
72.9
|
|
|
|
7,591.5
|
|
|
|
74.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit(1)
|
|
|
2,737.6
|
|
|
|
23.2
|
|
|
|
2,739.9
|
|
|
|
27.1
|
|
|
|
2,583.2
|
|
|
|
25.4
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and distribution
|
|
|
1,721.7
|
|
|
|
14.6
|
|
|
|
1,648.9
|
|
|
|
16.3
|
|
|
|
1,581.0
|
|
|
|
15.5
|
|
General and administrative
|
|
|
419.5
|
|
|
|
3.5
|
|
|
|
409.2
|
|
|
|
4.1
|
|
|
|
380.5
|
|
|
|
3.7
|
|
Amortization of intangibles
|
|
|
6.7
|
|
|
|
0.1
|
|
|
|
6.0
|
|
|
|
0.1
|
|
|
|
6.1
|
|
|
|
0.1
|
|
Facility closing and reorganization costs
|
|
|
34.4
|
|
|
|
0.3
|
|
|
|
25.1
|
|
|
|
0.2
|
|
|
|
35.5
|
|
|
|
0.4
|
|
Other operating expense
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
2,184.0
|
|
|
|
18.5
|
|
|
|
2,089.2
|
|
|
|
20.7
|
|
|
|
2,003.1
|
|
|
|
19.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
553.6
|
|
|
|
4.7
|
%
|
|
$
|
650.7
|
|
|
|
6.4
|
%
|
|
$
|
580.1
|
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As disclosed in Note 1 to our Consolidated Financial
Statements, 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. |
Year
Ended December 31, 2007 Compared to Year Ended
December 31, 2006 Consolidated
Results
Net Sales Consolidated net sales increased
17.1% to $11.82 billion during 2007 from
$10.10 billion in 2006. Net sales by segment are shown in
the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Increase/
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
(Dollars in millions)
|
|
|
Dairy Group
|
|
$
|
10,449.4
|
|
|
$
|
8,841.8
|
|
|
$
|
1,607.6
|
|
|
|
18.2
|
%
|
WhiteWave
|
|
|
1,372.5
|
|
|
|
1,256.8
|
|
|
|
115.7
|
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,821.9
|
|
|
$
|
10,098.6
|
|
|
$
|
1,723.3
|
|
|
|
17.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in net sales was due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Net Sales 2007 vs. 2006
|
|
|
|
|
|
|
Pricing, Volume
|
|
|
Total
|
|
|
|
|
|
|
and Product
|
|
|
Increase/
|
|
|
|
Acquisitions
|
|
|
Mix Changes
|
|
|
(Decrease)
|
|
|
|
(In millions)
|
|
|
Dairy Group
|
|
$
|
98.7
|
|
|
|
1,508.9
|
|
|
|
1,607.6
|
|
WhiteWave
|
|
|
|
|
|
|
115.7
|
|
|
|
115.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
98.7
|
|
|
|
1,624.6
|
|
|
|
1,723.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales increased $1.72 billion during 2007 compared to
the prior year primarily due to the pass through of higher
conventional milk prices, other commodity and distribution costs.
27
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
23.4% to $9.08 billion in 2007 from $7.36 billion in
2006 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 76.8% in 2007 compared to 72.9% in 2006.
Operating Costs and Expenses Our operating
expenses increased $94.8 million, or 4.5% during 2007
compared to the prior year. Significant changes to operating
costs and expenses include the following:
|
|
|
|
|
Selling and distribution costs increased $72.8 million due
to higher employee costs, fuel and delivery equipment, outside
storage, advertising, and bad debt expense.
|
|
|
|
General and administrative costs increased $10.3 million on
higher employee costs, professional fees and infrastructure
costs, partially offset by lower employee incentive compensation
plans tied to operating performance.
|
|
|
|
Net facility closing and reorganization costs that were
$9.3 million higher than 2006. See Note 15 to our
Consolidated Financial Statements for further information on our
facility closing and reorganization activities.
|
Our operating expense as a percentage of net sales decreased to
18.5% for 2007 as compared to 20.7% for 2006 primarily due to
the increase in sales in response to higher commodity costs that
outpaced growth in operating costs and expenses.
Operating Income For the reasons noted above,
operating income was $553.6 million in 2007, a decrease of
$97.1 million from 2006 operating income of
$650.7 million. Our operating margin was 4.7% in 2007
compared to 6.4% in 2006.
Other (Income) Expense Interest expense
increased to $333.2 million in 2007 from
$194.5 million in 2006 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 the special cash dividend.
Income Taxes Income tax expense was recorded
at an effective rate of 39.2% in 2007 compared to 38.5% in 2006.
Our effective tax rate varies based on the relative earnings of
our business units. In 2006, our income tax rate was positively
impacted by the settlement of certain state and federal tax
matters.
Year
Ended December 31, 2007 Compared to Year Ended
December 31, 2006 Results by
Segment
Dairy
Group
The key performance indicators of our Dairy Group segment are
sales volumes, gross profit and operating income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
10,449.4
|
|
|
|
100.0
|
%
|
|
$
|
8,841.8
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
8,172.0
|
|
|
|
78.2
|
|
|
|
6,541.3
|
|
|
|
74.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,277.4
|
|
|
|
21.8
|
|
|
|
2,300.5
|
|
|
|
26.0
|
|
Operating costs and expenses
|
|
|
1,652.9
|
|
|
|
15.8
|
|
|
|
1,615.8
|
|
|
|
18.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
624.5
|
|
|
|
6.0
|
%
|
|
$
|
684.7
|
|
|
|
7.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Net Sales Our Dairy Groups net sales
increased $1.61 billion, or 18.2%, in 2007 versus 2006. The
change in net sales from 2006 to 2007 was due to the following:
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
2006 Net sales
|
|
$
|
8,841.8
|
|
|
|
|
|
Acquisitions
|
|
|
98.7
|
|
|
|
1.1
|
%
|
Volume
|
|
|
(7.1
|
)
|
|
|
(0.1
|
)
|
Pricing and product mix
|
|
|
1,516.0
|
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
2007 Net sales
|
|
$
|
10,449.4
|
|
|
|
18.2
|
%
|
|
|
|
|
|
|
|
|
|
The increase in the Dairy Groups net sales was due largely
to the pass through of higher conventional milk prices. The
Dairy Group 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 Dairy Groups 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 2007 compared to 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31*
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
|
Class I mover(1)
|
|
$
|
18.14
|
|
|
$
|
11.88
|
|
|
|
52.7
|
%
|
Class I raw skim milk mover(1)(2)
|
|
|
13.47
|
|
|
|
7.47
|
|
|
|
80.3
|
|
Class I butterfat mover(3)(4)
|
|
|
1.47
|
|
|
|
1.34
|
|
|
|
9.7
|
|
Class II raw skim milk minimum(1)(2)
|
|
|
13.67
|
|
|
|
7.35
|
|
|
|
86.0
|
|
Class II butterfat minimum(3)(4)
|
|
|
1.48
|
|
|
|
1.33
|
|
|
|
11.3
|
|
|
|
|
|
|
|
|
* |
|
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 and Known Trends and
Uncertainties Prices of Materials and Other
Inputs 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. |
In 2007, we experienced rapidly increasing and record high dairy
commodity costs. A declining dollar, constraints on global dairy
supply growth, and rising global demand for dairy-based protein
combined to sharply increase foreign demand for
U.S. produced non-fat dry milk powder. This export demand
drove the U.S. dairy complex steeply higher in 2007. The
fourth quarter average Class I mover, which is
an indicator of the Companys raw milk costs, averaged
$21.03 per hundred-weight, a 69% increase from that same period
a year ago. Competitive pressure and contractual arrangements
limited our ability to pass-through all of the higher dairy
commodity costs in 2007, particularly those increased costs
related to inventory shrink in the manufacturing process.
Further, market pricing mechanisms surrounding bulk cream
negatively impacted our results as the price we were able to
realize from the sale of excess bulk cream did not fully reflect
the significant increases in raw milk costs.
At the same time, as retail prices rose throughout 2007, we saw
a softening of sales volumes in certain markets in addition to a
shift from branded to private label fluid milk products. This
softening was compounded by the loss
29
of a significant customer during the first quarter of 2007. The
sales volume in the fourth quarter of 2007 began to flatten
compared to prior year levels.
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
$1.63 billion or 24.9% to $8.17 billion in 2007 from
$6.54 billion in 2006 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 78.2% in 2007 compared to
74.0% in 2006.
Operating Costs and Expenses The Dairy Group
operating costs and expenses increased $37.1 million or
2.3% to $1.65 billion during 2007, compared to
$1.62 billion during 2006 primarily due to:
|
|
|
|
|
Higher selling and distribution costs of $48.4 million
primarily due to higher employee costs, fuel and delivery
equipment, commissions and bad debt expense, partially offset by
lower advertising expense.
|
|
|
|
Lower general and administrative costs of $12.1 million
primarily due to lower employee incentive compensation under
plans tied to operating performance.
|
Our Dairy Groups operating expense as a percentage of net
sales decreased to 15.8% in 2007 from 18.3% in 2006, primarily
due to the increase in sales in response to higher commodity
costs that out paced growth in operating costs and expenses.
WhiteWave
The key performance indicators of WhiteWave are sales volumes,
net sales dollars, gross profit and operating income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
1,372.5
|
|
|
|
100.0
|
%
|
|
$
|
1,256.8
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
910.9
|
|
|
|
66.4
|
|
|
|
816.1
|
|
|
|
64.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
461.6
|
|
|
|
33.6
|
|
|
|
440.7
|
|
|
|
35.1
|
|
Operating costs and expenses
|
|
|
343.2
|
|
|
|
25.0
|
|
|
|
308.0
|
|
|
|
24.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
118.4
|
|
|
|
8.6
|
%
|
|
$
|
132.7
|
|
|
|
10.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WhiteWave net sales increased $115.7 million, or 9.2%, in
2007 versus 2006. The change in net sales from 2006 to 2007 was
due to the following:
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
2006 Net sales
|
|
$
|
1,256.8
|
|
|
|
|
|
Volume
|
|
|
91.8
|
|
|
|
7.3
|
%
|
Pricing and product mix
|
|
|
23.9
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
2007 Net sales
|
|
$
|
1,372.5
|
|
|
|
9.2
|
%
|
|
|
|
|
|
|
|
|
|
The increase in WhiteWave net sales was principally due to
higher volume, pricing on certain products and product mix. Due
to an increase in competitive activity and market conditions
surrounding organic dairy products the pricing increases related
to International Delight, and LAND O LAKES were
largely offset by lower pricing on Horizon Organic products.
30
The volume of Silk, International Delight and LAND O
LAKES products grew by high single digits in 2007. We
believe the increased volumes were due primarily to increased
consumer acceptance and more effective marketing of our products.
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 in the organic milk market with the
Horizon Organic volume growing in excess of 30% in the fourth
quarter of 2007 and 18% for the year when compared to similar
periods in the prior year. However, the increased level of
discounting negatively impacted the profitability of our
WhiteWave segment. The market for organic milk is currently very
dynamic and is beginning to shift back to an under supply
situation in the first quarter of 2008.
Cost of sales for WhiteWave increased to $910.9 million in
2007 from $816.1 million in 2006, primarily driven by
higher volumes, but also by higher raw material costs,
particularly raw conventional milk and raw organic milk, which
increased cost of sales by $31.0 million. Cost of sales, as
a percentage of net sales, increased to 66.4% in 2007 from 64.9%
in 2006.
Operating expenses increased $35.2 million in 2007 compared
to the prior year primarily due to higher distribution costs of
$17.5 million, driven by higher volumes and rising fuel
costs, and by higher marketing spending of $7.6 million,
and higher SAP related costs of $5.2 million.
Year
Ended December 31, 2006 Compared to Year Ended
December 31, 2005 Consolidated
Results
Net Sales Consolidated net sales decreased
0.7% to $10.10 billion during 2006 from $10.17 billion
in 2005. Net sales by segment are shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Increase/
|
|
|
|
2006
|
|
|
2005
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
(Dollars in millions)
|
|
|
Dairy Group
|
|
$
|
8,841.8
|
|
|
$
|
8,999.5
|
|
|
$
|
(157.7
|
)
|
|
|
(1.8
|
)%
|
WhiteWave
|
|
|
1,256.8
|
|
|
|
1,175.2
|
|
|
|
81.6
|
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,098.6
|
|
|
$
|
10,174.7
|
|
|
$
|
(76.1
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in net sales was due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Net Sales 2006 vs. 2005
|
|
|
|
|
|
|
Pricing, Volume
|
|
|
Total
|
|
|
|
|
|
|
and Product
|
|
|
Increase/
|
|
|
|
Acquisitions
|
|
|
Mix Changes
|
|
|
(Decrease)
|
|
|
|
(Dollars in millions)
|
|
|
Dairy Group
|
|
$
|
8.0
|
|
|
$
|
(165.7
|
)
|
|
$
|
(157.7
|
)
|
WhiteWave
|
|
|
|
|
|
|
81.6
|
|
|
|
81.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8.0
|
|
|
$
|
(84.1
|
)
|
|
$
|
(76.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales decreased $76.1 million during 2006 compared to
the prior year primarily due to lower raw milk costs in our
Dairy Group, partly offset by volume growth in the Dairy Group
and WhiteWave segments and increased pricing at WhiteWave.
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
31
and maintain our coolers and freezers. In addition, our Dairy
Group includes costs associated with transporting our finished
products from our manufacturing facilities to our own
distribution facilities. Cost of sales decreased by 3.1% to
$7.36 billion in 2006 from $7.59 billion in 2005
primarily due to lower raw milk costs in our Dairy Group, partly
offset by increased volumes at the Dairy Group and WhiteWave and
higher commodity costs at WhiteWave. Our cost of sales as a
percentage of net sales decreased to 72.9% in 2006 compared to
74.6% in 2005.
Operating Costs and Expenses Our operating
expenses increased $86.1 million, or 4.3% during 2006
compared to the prior year. Significant changes to operating
expenses include the following:
|
|
|
|
|
Selling and distribution costs increased $67.9 million due
to higher employee costs, fuel and delivery equipment,
advertising and commissions, partially offset by lower bad debt
expense. Bad debt expense decreased $10.6 million in 2006
compared to 2005. The expense in 2005 was higher due to the
impact of Hurricane Katrina and the write-off of a receivable
from a large customer.
|
|
|
|
General and administrative costs increased $28.7 million on
higher employee costs and professional fees.
|
|
|
|
Net facility closing and reorganization costs that were
$10.4 million lower than 2005. See Note 15 to our
Consolidated Financial Statements for further information on our
facility closing and reorganization activities.
|
Our operating expense as a percentage of net sales increased to
20.7% for 2006 as compared to 19.7% for 2005.
Operating Income For the reasons noted above,
our operating income was $650.7 million in 2006, an
increase of $70.6 million from 2005 operating income of
$580.1 million. Our operating margin was 6.4% in 2006
compared to 5.7% in 2005.
Other (Income) Expense Interest expense
increased to $194.5 million in 2006 from
$160.2 million in 2005 primarily due to higher interest
rates, including higher interest rates on our $500 million
aggregate principal amount of senior notes issued on
May 17, 2006, and higher average debt outstanding.
Income Taxes Income tax expense was recorded
at an effective rate of 38.5% in 2006 compared to 39.0% in 2005.
Our effective tax rate varies based on the relative earnings of
our business units. In 2006, our income tax rate was positively
impacted by the settlement of certain state and federal tax
matters.
Year
Ended December 31, 2006 Compared to Year Ended
December 31, 2005 Results by
Segment
Dairy
Group
Net Sales The key performance indicators of
our Dairy Group segment are sales volumes, gross profit and
operating income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
8,841.8
|
|
|
|
100.0
|
%
|
|
$
|
8,999.5
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
6,541.3
|
|
|
|
74.0
|
|
|
|
6,829.1
|
|
|
|
75.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,300.5
|
|
|
|
26.0
|
|
|
|
2,170.4
|
|
|
|
24.1
|
|
Operating costs and expenses
|
|
|
1,615.8
|
|
|
|
18.3
|
|
|
|
1,523.2
|
|
|
|
16.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
684.7
|
|
|
|
7.7
|
%
|
|
$
|
647.2
|
|
|
|
7.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Our Dairy Groups net sales decreased $157.7 million,
or 1.8%, in 2006 versus 2005. The change in net sales from 2005
to 2006 was due to the following:
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
2005 Net sales
|
|
$
|
8,999.5
|
|
|
|
|
|
Acquisitions
|
|
|
8.0
|
|
|
|
0.1
|
%
|
Volume
|
|
|
163.4
|
|
|
|
1.8
|
|
Pricing and product mix
|
|
|
(329.1
|
)
|
|
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
|
2006 Net sales
|
|
$
|
8,841.8
|
|
|
|
(1.8
|
)%
|
|
|
|
|
|
|
|
|
|
The decrease in the Dairy Groups net sales was due to
lower raw milk costs, partly offset by increased volumes. The
decrease in the Dairy Groups net sales due to pricing and
product mix shown in the above table primarily resulted from
decreased pricing due to the pass through of lower raw milk
costs in 2006. In general, our Dairy Group changes the prices it
charges customers for fluid dairy products on a monthly basis,
as the costs of raw materials and other variable costs
fluctuate. Because of competitive pressures, the price increases
do not always reflect the entire increase in raw material and
other input costs that we may experience.
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 2006 compared to 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31*
|
|
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
|
Class I mover(1)
|
|
$
|
11.88
|
|
|
$
|
14.40
|
|
|
|
(18
|
)%
|
Class I raw skim milk mover(1),(2)
|
|
|
7.47
|
|
|
|
8.54
|
|
|
|
(13
|
)%
|
Class I butterfat mover(3),(4)
|
|
|
1.34
|
|
|
|
1.76
|
|
|
|
(24
|
)
|
Class II raw skim milk minimum(1),(2)
|
|
|
7.35
|
|
|
|
7.74
|
|
|
|
(5
|
)
|
Class II butterfat minimum(3),(4)
|
|
|
1.33
|
|
|
|
1.72
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
* |
|
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 and Known Trends and
Uncertainties Prices of Materials and Other
Inputs 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. |
Volume sales of all Dairy Group products, excluding the impact
of acquisitions, increased 1.5% in 2006 compared to 2005. Volume
sales of fresh milk, which were approximately 69% of the Dairy
Groups 2006 volumes, were up approximately 1.9% for the
year compared to USDA data showing a 1.0% increase in total
consumption of milk in the U.S. during the year.
Cost of Sales Cost of sales decreased by
$287.8 million or 4.2% to $6.54 billion in 2006 from
$6.83 billion in 2005, primarily due to lower conventional
raw milk costs, partially offset by higher resin, packaging and
conversion costs. The Dairy Groups cost of sales as a
percentage of net sales decreased to 74.0% in 2006 compared to
75.9% in 2005.
33
Operating Costs and Expenses The Dairy Group
operating costs and expenses increased $92.6 million or
6.1% to $1.62 billion during 2006, compared to
$1.52 billion during 2005 primarily due to:
|
|
|
|
|
Selling and distribution increased $67.2 million due to
higher employee costs, fuel and delivery equipment, advertising
and commissions partially offset by lower bad debt expense. Bad
debt expense decreased in comparison to 2005. The bad debt
expense in 2005 was higher due to the impact of Hurricane
Katrina and the write-off of a receivable from a large customer.
|
|
|
|
General and administrative costs increased $25.1 million on
higher employee costs and professional fees.
|
Operating costs and expenses as a percentage of net sales
increased to 18.3% in 2006 from 16.9% in 2005.
WhiteWave
The key performance indicators of WhiteWave are sales volumes,
net sales dollars, gross profit and operating income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
1,256.8
|
|
|
|
100.0
|
%
|
|
$
|
1,175.2
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
816.1
|
|
|
|
64.9
|
|
|
|
760.7
|
|
|
|
64.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
440.7
|
|
|
|
35.1
|
|
|
|
414.5
|
|
|
|
35.3
|
|
Operating costs and expenses
|
|
|
308.0
|
|
|
|
24.5
|
|
|
|
304.7
|
|
|
|
26.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
132.7
|
|
|
|
10.6
|
%
|
|
$
|
109.8
|
|
|
|
9.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WhiteWave net sales increased $81.6 million, or 6.9%, in
2006 versus 2005. The change in net sales from 2005 to 2006 was
due to the following:
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
2005 Net sales
|
|
$
|
1,175.2
|
|
|
|
|
|
Volume
|
|
|
27.7
|
|
|
|
2.3
|
%
|
Pricing and product mix
|
|
|
53.9
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
2006 Net sales
|
|
$
|
1,256.8
|
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
The increase in WhiteWave net sales was largely due to higher
pricing. The two primary drivers of this increase were increased
selling prices in response to increased commodity costs and a
decline in slotting fees, couponing and certain other
promotional costs that are required to be recorded as reductions
of net sales.
Volume growth in our Silk, Horizon Organic, International
Delight, LAND OLAKES and Rachels Organic brands
was partly offset by the elimination of certain product
offerings in late 2005 and early 2006. We believe increased
Horizon Organic and Silk volumes were due
primarily to increased consumer acceptance and increased
marketing efforts.
Cost of sales for WhiteWave increased to $816.1 million in
2006 from $760.7 million in 2005 primarily due to the
impact of higher raw material costs, particularly organic raw
milk and sugar, which increased cost of sales by approximately
$41 million and increased volumes. The cost of sales as a
percentage of net sales increased to 64.9% in 2006 from 64.7% in
2005 due to increased selling prices and improved product mix,
principally driven by the product rationalization in 2006.
Operating expenses increased $3.3 million in 2006 compared
to the prior year primarily due to higher marketing spending of
$6.1 million, higher fuel costs of $3.5 million and
SAP related costs of $2.9 million, partly offset by
increased distribution efficiencies.
34
Liquidity
and Capital Resources
Historical
Cash Flow
During 2007, we met our working capital needs with cash flow
from operations. Net cash provided by operating activities from
continuing operations was $350.3 million for 2007 as
compared to $561.6 million for 2006, a decrease of
$211.3 million. Net cash provided by operating activities
from continuing operations was impacted by lower net income and
an increase in our working capital of $51.5 million in 2007
compared to a increase of $86.4 million in 2006 due
primarily to increase in accounts receivable with a slight
offset from accounts payable and accrued expenses. In addition,
income taxes payable decreased $32.0 million in 2007
compared to an increase of $11.3 million in 2006 due to the
timing of tax payments.
Net cash used in investing activities from continuing operations
was $351.9 million in 2007 compared to $248.3 million
in 2006, an increase of $103.6 million. We used
$132.2 million for acquisitions and $241.4 million for
capital expenditures in 2007 compared to $17.2 million and
$237.2 million in 2006, respectively.
Net cash used in financing activities from continuing operations
was $7.6 million in 2007 compared to $397.0 million in
2006, a decrease of $389.4 million primarily due to the
repurchase of stock during 2006. We had no stock repurchases
during 2007.
We had a net borrowing of $1.90 billion of debt in 2007
compared to the repayment of $53.5 million of debt in 2006
as a result of the recapitalization of our balance sheet through
the completion of a new credit facility and the return of
$1.94 billion to shareholders of record on March 27,
2007, through a $15 per share special cash dividend.
We received $48.1 million in 2007, net of minimum
withholding taxes paid from cash proceeds, compared to
$32.3 million in 2006 as a result of stock option exercises
and employee stock purchases through our employee stock purchase
plan. Our employee stock purchase plan was terminated during
2006.
Current
Debt Obligations
Senior Credit Facility On April 2, 2007,
we recapitalized our balance sheet through the completion of a
new $4.8 billion senior credit facility and the return of
$1.94 billion to shareholders of record on March 27,
2007 through a $15 per share special cash dividend. This
transaction significantly increased our leverage profile and
interest expense. We entered into an amended and restated credit
agreement that consists 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. The senior credit facility bears
interest, 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. The blended
interest rate in effect on borrowings under the senior credit
facility, including the applicable interest rate margin, was
6.44% at December 31, 2007. However, we had interest rate
swap agreements in place that hedged $3.4 billion of our
borrowings under the senior credit facility at an average rate
of 4.81%, plus the applicable interest rate margin. Interest is
payable quarterly or at the end of the applicable interest
period.
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
35
principal prepayments upon the occurrence of certain asset
dispositions, recovery events, or as a result of exceeding
certain leverage limits.
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).
The completion of the new senior credit facility resulted in the
write-off of $13.5 million of financing costs in the second
quarter of 2007.
The credit facility contains various financial and other
restrictive covenants and requires that we comply with certain
financial ratios, including a maximum leverage ratio and a
minimum interest coverage ratio.
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 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
have been 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 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.
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.
Significant increases in raw material and other input costs, as
well as the oversupply of raw organic milk, have increased our
working capital requirements, decreased our operating
profitability, and limited our ability in the near term to
reduce the borrowings under the senior secured credit facility.
Our actual performance levels under the financial covenants
could limit our ability to incur additional debt.
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
December 31, 2007, this leverage ratio was 5.95 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. This reduced leverage
ratio could limit our ability to incur additional debt under our
senior secured credit facility. Failure to comply with the
leverage ratio could create a default under our senior secured
credit facility and under our receivables facility.
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.
At December 31, 2007, there were outstanding borrowings of
$3.84 billion under our senior credit facility (compared to
$1.76 billion at December 31, 2006), including
$3.3 billion in term loan borrowings and $550 million
outstanding under the revolving line of credit. At
December 31, 2007, there were $174.0 million of
letters of credit under the revolving line that were issued but
undrawn. As of February 22, 2008, $3.79 billion was
outstanding under our senior credit facility.
In addition to our senior credit facility, we also have a
$600 million receivables-backed facility subject to a
borrowing base formula. The receivables-backed facility had
$600 million available and drawn at December 31, 2007.
The average interest rate on this facility at December 31,
2007 was 6.00%. At February 22, 2008, $584.6 million
was outstanding under this facility.
36
Our outstanding borrowings under the senior credit facility
increased from 2006 to 2007 primarily due to the
recapitalization of our balance sheet, the proceeds of which
were used for a $15 per share special cash dividend and to
refinance all existing debt under the old credit facility, and
to pay related fees and expenses.
Other indebtedness outstanding at December 31, 2007 also
included $350 million face value of outstanding
indebtedness under Legacy Deans senior notes,
$500 million face value of outstanding indebtedness under
Dean Foods Companys senior notes and $11.3 million of
capital lease and other obligations.
See Note 9 to our Consolidated Financial Statements for
more information about our indebtedness.
The table below summarizes our obligations for indebtedness,
purchase and lease obligations at December 31, 2007. See
Note 17 to our Consolidated Financial Statements for more
detail about our lease and purchase obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indebtedness, Purchase &
|
|
Payments Due by Period
|
|
Lease Obligations(1)
|
|
Total
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
|
(In millions)
|
|
|
Senior credit facility
|
|
$
|
3,836.8
|
|
|
$
|
18.0
|
|
|
$
|
186.8
|
|
|
$
|
243.0
|
|
|
$
|
861.8
|
|
|
$
|
830.8
|
|
|
$
|
1,696.4
|
|
Dean Foods Company senior notes(2)
|
|
|
500.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500.0
|
|
Subsidiary senior notes(2)
|
|
|
350.0
|
|
|
|
|
|
|
|
200.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150.0
|
|
Receivables-backed facility
|
|
|
600.0
|
|
|
|
|
|
|
|
|
|
|
|
600.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations and other
|
|
|
11.3
|
|
|
|
7.2
|
|
|
|
0.7
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
1.6
|
|
Purchase obligations(3)
|
|
|
832.2
|
|
|
|
440.8
|
|
|
|
169.1
|
|
|
|
108.8
|
|
|
|
28.3
|
|
|
|
13.3
|
|
|
|
71.9
|
|
Operating leases
|
|
|
498.6
|
|
|
|
112.9
|
|
|
|
99.6
|
|
|
|
82.6
|
|
|
|
67.0
|
|
|
|
51.6
|
|
|
|
84.9
|
|
Interest payments(4)
|
|
|
1,538.7
|
|
|
|
288.4
|
|
|
|
283.8
|
|
|
|
250.0
|
|
|
|
233.1
|
|
|
|
169.9
|
|
|
|
313.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,167.6
|
|
|
$
|
867.3
|
|
|
$
|
940.0
|
|
|
$
|
1,285.0
|
|
|
$
|
1,190.8
|
|
|
$
|
1,066.2
|
|
|
$
|
2,818.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excluded from this table are estimated obligations of
$46.1 million 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 13 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 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 rates and balances in effect
at December 31, 2007. 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 also 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
37
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 annual periodic
pension costs.
In accordance with SFAS No. 87, Employers
Accounting for Pensions, and SFAS No. 106,
Employers Accounting for Postretirement
Benefits, changes in obligations associated with these
factors may not be immediately recognized as pension costs on
the income statement, but generally are recognized in future
years over the remaining average service period of plan
participants. As such, significant portions of pension costs
recorded in any period may not reflect the actual level of cash
benefits provided to plan participants. In 2007, we recorded
non-cash pension expense of $5.3 million, of which
$4.9 million was attributable to periodic expense and
$437,000 was attributable to settlements compared to a total of
$8.1 million in 2006, of which $7.7 million was
attributable to periodic expense and $350,000 was attributable
to settlements. These amounts were determined in accordance with
the provisions of SFAS No. 87, SFAS No. 106
and SFAS No. 88, Employers Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits.
The assumed discount rate used to determine plan obligations was
6.40% and 5.85% at December 31, 2007 and 2006,
respectively. In order to select a discount rate for purposes of
valuing the plan obligations and fiscal year-end disclosure, an
analysis is performed in which the duration of projected cash
flows from defined benefit and retiree health care plans are
matched with a yield curve based on an appropriate universe of
high-quality corporate bonds that are available. We use the
results of the yield curve analysis to select the discount rate
that matches the duration and payment stream of the benefits in
each plan. In selecting the assumed rate of return on plan
assets, we consider past performance and economic forecasts for
the types of investments held by the plan, as well as our
investment allocation policy and the effect of periodic target
asset allocation rebalancing. We rebalance the investments when
the allocation is not within the target range. The results are
adjusted for the payment of reasonable expenses of the plan from
plan assets. We believe these assumptions are appropriate based
upon the mix of investments and the long-term nature of the
plans investments. Plan asset returns were
$13.1 million in 2007, a $11.2 million decrease from
plan asset returns of $24.3 million in 2006. Based on
current projections, 2008 funding requirements will be
$22.5 million as compared to $23.2 million for 2007.
The postretirement benefit plans are not funded. Based on
current projections, 2008 cash requirements to pay benefits for
our other postretirement benefit obligations will be
$2.3 million as compared to $2.4 million for 2007.
See Notes 13 and 14 to our Consolidated Financial
Statements for information regarding retirement plans and other
postretirement benefits.
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
|
38
|
|
|
|
|
selected levels of property and casualty risks, primarily
related to employee health care, workers compensation
claims and other casualty losses.
|
See Note 17 to our 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 $330 million to
$335 million based on current debt levels under our new
senior credit facility. Cash interest excludes amortization of
deferred financing fees and bond discounts. The portion of our
long-term debt due within the next 12 months totals
$25.2 million. 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.
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
December 31, 2007, this leverage ratio was 5.95 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. This reduced leverage
ratio could limit our ability to incur additional debt under our
senior secured credit facility.
At December 31, 2007, approximately $775.7 million was
available under the revolving credit facility, subject to the
limitations of our credit agreement. Of this amount,
approximately $270 million was available to finance working
capital and other general corporate purposes. Available
borrowings in excess of this amount would require that the
financed transaction be accretive to our leverage and coverage
ratios. At February 22, 2008, approximately
$855.8 million was available under the revolving credit
facility, subject to the limitations of our credit agreement.
Known
Trends and Uncertainties
Prices
of Raw Materials and Other Inputs
Dairy Group The primary raw material used in
our Dairy Group is raw 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).
In general, our Dairy Group changes the prices that it charges
for Class I dairy products on a monthly basis, as the costs
of raw milk , other commodity, packaging, and delivery costs
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 based products 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. These
factors can cause volatility in our earnings. Our sales and
operating profit margin fluctuate with the price of our raw
materials and other inputs.
39
In 2007, we experienced rapidly rising and all time high prices
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.
While we currently expect conventional raw milk prices to
decline in 2008 from the levels experienced in the fourth
quarter of 2007, we expect the prices to remain high. The Dairy
Group generally increases or decreases the net sales price of
its fluid dairy products on a monthly basis in correlation to
fluctuations in the costs of raw materials, packaging, 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 Dairy Groups profitability. However, raw milk,
butterfat and cream prices are difficult to predict, and we
change our forecasts frequently based on current market
activity. The Dairy Group 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. In
addition, we generally change the prices we charge on products
other than fluid milk on a less frequent basis.
Our Dairy Group purchases approximately four million gallons of
diesel fuel per month to operate its extensive DSD system.
Another significant raw material used by our Dairy Group is
resin, which is a petroleum-based product and 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. During 2007, the prices of resin decreased mildly while
diesel prices were largely unchanged. We expect prices of both
resin and diesel fuel to fluctuate throughout 2008.
WhiteWave 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. 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 has increased
competitive pressure from both branded and private label
participants. The market for organic milk is currently very
dynamic and is beginning to shift back to an under supply
situation in 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 Dairy Group, which reduced
our profitability on sales to several customers. We expect this
trend to 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.
The supply-demand imbalance in the organic milk market has
increased competition in the marketplace as competitors attempt
to stimulate demand through lower retail prices and aggressive
distribution expansion. As a result, we have experienced and may
continue to experience downward pricing pressure on the sale of
our organic products.
40
Tax
Rate
In 2007, our income tax expense was recorded at an effective
rate of 39.2%. Our tax rate for 2006 was 38.5%. We estimate that
our effective tax rate for 2008 will be approximately 39.0%.
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.
Critical
Accounting Policies
Critical accounting policies are defined as those
that are both most important to the portrayal of a
companys financial condition and results, and that require
our most difficult, subjective or complex judgments. In many
cases the accounting treatment of a particular transaction is
specifically dictated by generally accepted accounting
principles with no need for the application of our judgment. In
certain circumstances, however, the preparation of our
Consolidated Financial Statements in conformity with generally
accepted accounting principles requires us to use our judgment
to make certain estimates and assumptions. These estimates
affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of
the Consolidated Financial Statements and the reported amounts
of net sales and expenses during the reporting period. We have
identified the policies described below as our critical
accounting policies. See Note 1 to our Consolidated
Financial Statements for a detailed discussion of these and
other accounting policies.
Accounts Receivable We provide credit terms
to customers generally ranging up to 30 days, perform
ongoing credit evaluations of our customers and maintain
allowances for estimated credit losses. As these factors change,
our estimates change and we could accrue different amounts for
doubtful accounts in different accounting periods. At
December 31, 2007, our allowance for doubtful accounts was
$19.8 million, or 2.2% of the accounts receivable balance
at December 31, 2007. The allowance for doubtful accounts,
expressed as a percent of accounts receivable, was 2.1% at
December 31, 2006. Each 0.10% change in the ratio of
allowance for doubtful accounts to accounts receivable would
impact bad debt expense by $933,000.
Employee Benefit Plan Costs We provide a
range of benefits including pension and postretirement benefits
to our eligible employees and retirees. We record annual amounts
relating to these plans based on calculations specified by
generally accepted accounting principles, which include various
actuarial assumptions, such as discount rates, assumed
investment rates of return, compensation increases, employee
turnover rates and health care cost trend rates. We review our
actuarial assumptions on an annual basis and make modifications
to the assumptions based on current rates and trends when it is
deemed appropriate. As required by generally accepted accounting
principles, the effect of the modifications is generally
recorded and amortized over future periods. Different
assumptions could result in the recognition of different amounts
of expense over different periods of time.
Substantially all of our qualified pension plans are
consolidated into one master trust. We have established
investment targets to balance investment risk and desired
long-term rate of return. Our current targets are equities at
65% to 75% of the portfolio and fixed income at 25% to 35%. At
December 31, 2007, our master trust was invested as
follows: equity securities and limited partnerships
68%; fixed income securities 30%; and cash and cash
equivalents 2%.
We determine our expected long-term rate of return based on our
expectations of future returns for the pension plans
investments based on target allocations of the pension
plans investments. Additionally, we consider the
weighted-average return of a capital markets model that was
developed by the plans investment consultants and
historical returns on comparable equity, debt and other
investments. The resulting weighted average expected long-term
rate of return on plan assets is 8.0% for the year ended
December 31, 2007, the same as 2006.
While a number of the key assumptions related to our qualified
pension plans are long-term in nature, including assumed
investment rates of return, compensation increases, employee
turnover rates and mortality rates, generally accepted
accounting principles require that our discount rate assumption
reflect current market conditions. As such, our discount rate
likely will change more frequently than in prior years. The
discount rate utilized to determine our estimated future benefit
obligations increased from 5.85% at December 31, 2006 to
6.4% at December 31, 2007.
41
A 0.25% reduction in the assumed rate of return on plan assets
or a 0.25% reduction in the discount rate would increase our
annual pension expense by $585,000 and $363,000, respectively.
In addition, a 1% increase in assumed healthcare costs trends
would increase the aggregate annual post retirement medical
expense by $419,000.
Property, Plant and Equipment Our property,
plant and equipment totaled $1.80 billion as of
December 31, 2007. Such assets are depreciated over their
estimated useful lives. We perform impairment tests when
circumstances indicate that the carrying value may not be
recoverable. Indicators of impairment could include significant
changes in business environment or planned closure of a
facility. In 2007 limited assets were evaluated for impairment
and found not be be impaired. Considerable management judgment
is necessary to evaluate the impact of operating changes and to
estimate future cash flows. Assumptions used in our impairment
evaluations include product development, volume growth, and
contribution margins.
Goodwill and Intangible Assets Our goodwill
and intangible assets totaled $3.61 billion as of
December 31, 2007 resulting primarily from acquisitions.
Upon acquisition, the purchase price is first allocated to
identifiable assets and liabilities, including trademarks and
customer-related intangible assets, with any remaining purchase
price recorded as goodwill. Goodwill and trademarks with
indefinite lives are not amortized.
We believe that a trademark has an indefinite life if it has a
history of strong sales and cash flow performance that we expect
to continue for the foreseeable future. If these perpetual
trademark criteria are not met, the trademarks are amortized
over their expected useful lives. Determining the expected life
of a trademark requires considerable management judgment and is
based on an evaluation of a number of factors including the
competitive environment, trademark history and anticipated
future trademark support.
Perpetual trademarks and goodwill are evaluated for impairment
at least annually to ensure that future cash flows continue to
exceed the related book value. A perpetual trademark is impaired
if its book value exceeds its estimated fair value. Goodwill is
evaluated for impairment if the book value of its reporting unit
exceeds its estimated fair value. Currently, our reporting units
are our two segments. If the fair value of an evaluated asset is
less than its book value, the asset is written down to fair
value based on its discounted future cash flows.
Amortizable intangible assets are only evaluated for impairment
upon a significant change in the operating environment. If an
evaluation of the undiscounted cash flows indicates impairment,
the asset is written down to its estimated fair value, which is
generally based on discounted future cash flows.
Considerable management judgment is necessary to evaluate the
impact of operating changes and to estimate future cash flows.
Assumptions used in our impairment evaluations, such as
forecasted growth rates and our cost of capital, are consistent
with our internal projections and operating plans.
We did not recognize any impairment charges in continuing
operations for goodwill during 2007, 2006 or 2005. As a result
of the decision to close a facility and shift customers from one
regional brand to another, we recognized immaterial impairment
charges to certain trademarks during 2007 and 2006. No trademark
impairments were recognized in 2005.
Income Taxes Deferred taxes are recognized
for future tax effects of temporary differences between
financial and income tax reporting using tax rates in effect for
the years in which the differences are expected to reverse.
Future business results may affect deferred tax liabilities or
the valuation of deferred tax assets over time. We estimate our
probable tax obligations using historical experience in tax
jurisdictions and informed judgments. There are inherent
uncertainties related to the interpretations of tax regulations
in the jurisdictions in which we operate. These judgments and
estimates made at a point in time may change based on the
outcome of tax audits and changes to or further interpretations
of regulations. If such changes take place, there is a risk that
our tax rate may increase or decrease in any period, which could
have an impact on our earnings.
Insurance Accruals 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. Accrued liabilities for incurred but
not reported losses related to these retained risks are
calculated based upon loss development factors which contemplate
a number of variables including claims history and expected
trends. These loss development factors are developed by us in
consultation
42
with external insurance brokers and actuaries. At
December 31, 2007 and 2006, we recorded accrued liabilities
related to these retained risks of $180.4 million and
$172.9 million, respectively, including both current and
long-term liabilities.
Recent
Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Effective January 1, 2007, we adopted Financial
Interpretation No. (FIN) 48, Accounting for
Uncertainty in Income Taxes an interpretation of
SFAS No. 109, Accounting for Income Taxes.
FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a
tax return. As a result of adopting the provisions of
FIN 48, we recognized a $25.9 million increase in our
liability for uncertain tax positions to $41.6 million, a
$20.1 million increase in deferred income tax assets, a
$0.3 million decrease to additional paid-in capital, a
$0.2 million decrease to goodwill, and a $5.7 million
decrease to retained earnings. See Note 8 to our
Consolidated Financial Statements for more information.
Recently Issued Accounting Pronouncements The
Financial Accounting Standards Board (FASB) issued
SFAS No. 157, Fair Value Measurements in
September 2006. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP), and expands
disclosures about fair value measurements.
SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurements
but does not require any new fair value measurements. We do not
believe the adoption of this standard will have a material
impact on our Consolidated Financial Statements. This standard
will become effective for us in the first quarter of 2008.
The FASB issued SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities in
February 2007. 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. This
standard will become effective for us in the first quarter of
2008, and will not have a material impact on our Consolidated
Financial Statements.
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 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
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
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 Consolidated Financial Statements. This statement will
become effective for us in the first quarter of 2009.
|
|
Item 7A.
|
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 noted below until
the indicated expiration dates.
43
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 derivative
agreements. Credit risk under these arrangements is remote since
the counterparties to our interest rate derivative 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 December 31, 2007, 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
Our Dairy Group utilizes 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 December 31, 2007 we had no material
physical or financial positions.
44
|
|
Item 8.
|
Consolidated
Financial Statements
|
Our Consolidated Financial Statements for 2007 are included in
this report on the following pages.
45
DEAN
FOODS COMPANY
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands, except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
32,555
|
|
|
$
|
31,140
|
|
Receivables, net of allowance for doubtful accounts of $19,830
and $17,070
|
|
|
913,074
|
|
|
|
799,038
|
|
Income tax receivable
|
|
|
17,885
|
|
|
|
|
|
Inventories
|
|
|
379,773
|
|
|
|
360,754
|
|
Deferred income taxes
|
|
|
128,841
|
|
|
|
117,991
|
|
Prepaid expenses and other current assets
|
|
|
59,856
|
|
|
|
70,367
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,531,984
|
|
|
|
1,379,290
|
|
Property, plant and equipment, net
|
|
|
1,798,378
|
|
|
|
1,786,907
|
|
Goodwill
|
|
|
3,017,746
|
|
|
|
2,943,139
|
|
Identifiable intangible and other assets
|
|
|
685,248
|
|
|
|
640,857
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
19,980
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,033,356
|
|
|
$
|
6,770,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
907,270
|
|
|
$
|
822,122
|
|
Income taxes payable
|
|
|
|
|
|
|
30,776
|
|
Current portion of long-term debt
|
|
|
25,246
|
|
|
|
483,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
932,516
|
|
|
|
1,336,556
|
|
Long-term debt
|
|
|
5,247,105
|
|
|
|
2,872,193
|
|
Deferred income taxes
|
|
|
482,212
|
|
|
|
504,552
|
|
Other long-term liabilities
|
|
|
320,256
|
|
|
|
238,682
|
|
Liabilities of discontinued operations
|
|
|
|
|
|
|
8,791
|
|
Commitments and contingencies (Note 17)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, none issued
|
|
|
|
|
|
|
|
|
Common stock 132,236,217 and 128,371,104 shares issued and
outstanding, with a par value of $0.01 per share
|
|
|
1,322
|
|
|
|
1,284
|
|
Additional paid-in capital
|
|
|
70,214
|
|
|
|
624,475
|
|
Retained earnings
|
|
|
67,533
|
|
|
|
1,229,427
|
|
Accumulated other comprehensive loss
|
|
|
(87,802
|
)
|
|
|
(45,787
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
51,267
|
|
|
|
1,809,399
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,033,356
|
|
|
$
|
6,770,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-1
DEAN
FOODS COMPANY
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands, except share data)
|
|
|
Net sales
|
|
$
|
11,821,903
|
|
|
$
|
10,098,555
|
|
|
$
|
10,174,718
|
|
Cost of sales
|
|
|
9,084,318
|
|
|
|
7,358,676
|
|
|
|
7,591,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,737,585
|
|
|
|
2,739,879
|
|
|
|
2,583,170
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and distribution
|
|
|
1,721,617
|
|
|
|
1,648,860
|
|
|
|
1,581,028
|
|
General and administrative
|
|
|
419,518
|
|
|
|
409,225
|
|
|
|
380,490
|
|
Amortization of intangibles
|
|
|
6,744
|
|
|
|
5,983
|
|
|
|
6,106
|
|
Facility closing and reorganization costs
|
|
|
34,421
|
|
|
|
25,116
|
|
|
|
35,451
|
|
Other operating expense
|
|
|
1,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
2,183,988
|
|
|
|
2,089,184
|
|
|
|
2,003,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
553,597
|
|
|
|
650,695
|
|
|
|
580,095
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
333,202
|
|
|
|
194,547
|
|
|
|
160,230
|
|
Other (income) expense, net
|
|
|
5,926
|
|
|
|
435
|
|
|
|
(683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
339,128
|
|
|
|
194,982
|
|
|
|
159,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
214,469
|
|
|
|
455,713
|
|
|
|
420,548
|
|
Income taxes
|
|
|
84,007
|
|
|
|
175,450
|
|
|
|
163,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
130,462
|
|
|
|
280,263
|
|
|
|
256,650
|
|
Gain (loss) on sale of discontinued operations, net of tax
|
|
|
608
|
|
|
|
(1,978
|
)
|
|
|
38,763
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
283
|
|
|
|
(52,871
|
)
|
|
|
14,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of accounting change
|
|
|
131,353
|
|
|
|
225,414
|
|
|
|
310,206
|
|
Cumulative effect of accounting change, net of tax
|
|
|
|
|
|
|
|
|
|
|
(1,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
131,353
|
|
|
$
|
225,414
|
|
|
$
|
308,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
130,310,811
|
|
|
|
133,938,777
|
|
|
|
146,673,322
|
|
Diluted
|
|
|
137,291,998
|
|
|
|
139,762,104
|
|
|
|
153,438,636
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.00
|
|
|
$
|
2.09
|
|
|
$
|
1.75
|
|
Income (loss) from discontinued operations
|
|
|
0.01
|
|
|
|
(0.41
|
)
|
|
|
0.36
|
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.01
|
|
|
$
|
1.68
|
|
|
$
|
2.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.95
|
|
|
$
|
2.01
|
|
|
$
|
1.67
|
|
Income (loss) from discontinued operations
|
|
|
0.01
|
|
|
|
(0.40
|
)
|
|
|
0.35
|
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.96
|
|
|
$
|
1.61
|
|
|
$
|
2.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-2
DEAN
FOODS COMPANY
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands, except share data)
|
|
|
|
|
|
|
|
|
Balance, January 1, 2005
|
|
|
149,222,997
|
|
|
$
|
1,492
|
|
|
$
|
1,509,218
|
|
|
$
|
1,187,972
|
|
|
$
|
(5,697
|
)
|
|
$
|
2,692,985
|
|
|
|
|
|
Issuance of common stock
|
|
|
3,867,493
|
|
|
|
39
|
|
|
|
73,195
|
|
|
|
|
|
|
|
|
|
|
|
73,234
|
|
|
|
|
|
Share dividend of TreeHouse common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(492,613
|
)
|
|
|
|
|
|
|
(492,613
|
)
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
40,067
|
|
|
|
|
|
|
|
|
|
|
|
40,067
|
|
|
|
|
|
Purchase and retirement of treasury stock
|
|
|
(18,881,300
|
)
|
|
|
(189
|
)
|
|
|
(699,689
|
)
|
|
|
|
|
|
|
|
|
|
|
(699,878
|
)
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308,654
|
|
|
|
|
|
|
|
308,654
|
|
|
$
|
308,654
|
|
Other comprehensive income (Note 12):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,290
|
|
|
|
11,290
|
|
|
|
11,290
|
|
Amounts reclassified to income statement related to derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,510
|
|
|
|
8,510
|
|
|
|
8,510
|
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,220
|
)
|
|
|
(28,220
|
)
|
|
|
(28,220
|
)
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,816
|
)
|
|
|
(11,816
|
)
|
|
|
(11,816
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
288,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
134,209,190
|
|
|
$
|
1,342
|
|
|
$
|
922,791
|
|
|
$
|
1,004,013
|
|
|
$
|
(25,933
|
)
|
|
$
|
1,902,213
|
|
|
|
|
|
Issuance of common stock
|
|
|
4,184,114
|
|
|
|
42
|
|
|
|
64,775
|
|
|
|
|
|
|
|
|
|
|
|
64,817
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
36,871
|
|
|
|
|
|
|
|
|
|
|
|
36,871
|
|
|
|
|
|
Purchase and retirement of treasury stock
|
|
|
(10,022,200
|
)
|
|
|
(100
|
)
|
|
|
(399,962
|
)
|
|
|
|
|
|
|
|
|
|
|
(400,062
|
)
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,414
|
|
|
|
|
|
|
|
225,414
|
|
|
$
|
225,414
|
|
Other comprehensive income (Note 12):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,737
|
|
|
|
8,737
|
|
|
|
8,737
|
|
Amounts reclassified to income statement related to derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,455
|
)
|
|
|
(7,455
|
)
|
|
|
(7,455
|
)
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,336
|
)
|
|
|
(10,336
|
)
|
|
|
(10,336
|
)
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,003
|
|
|
|
4,003
|
|
|
|
4,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
220,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to pension and other postretirement liabilities
related to adoption of SFAS No. 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,803
|
)
|
|
|
(14,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
128,371,104
|
|
|
$
|
1,284
|
|
|
$
|
624,475
|
|
|
$
|
1,229,427
|
|
|
$
|
(45,787
|
)
|
|
$
|
1,809,399
|
|
|
|
|
|
Issuance of common stock
|
|
|
3,865,113
|
|
|
|
38
|
|
|
|
66,445
|
|
|
|
|
|
|
|
|
|
|
|
66,483
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
34,817
|
|
|
|
|
|
|
|
|
|
|
|
34,817
|
|
|
|
|
|
Special cash dividend ($15. per share)
|
|
|
|
|
|
|
|
|
|
|
(655,218
|
)
|
|
|
(1,287,520
|
)
|
|
|
|
|
|
|
(1,942,738
|
)
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131,353
|
|
|
|
|
|
|
|
131,353
|
|
|
$
|
131,353
|
|
Other comprehensive income (Note 12):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,066
|
|
|
|
52,066
|
|
|
|
52,066
|
|
Amounts reclassified to income statement related to hedging
activities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,679
|
|
|
|
9,679
|
|
|
|
9,679
|
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
534
|
|
|
|
534
|
|
|
|
534
|
|
Pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,196
|
|
|
|
19,196
|
|
|
|
19,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
89,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
(305
|
)
|
|
|
(5,727
|
)
|
|
|
|
|
|
|
(6,032
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
132,236,217
|
|
|
$
|
1,322
|
|
|
$
|
70,214
|
|
|
$
|
67,533
|
|
|
$
|
(87,802
|
)
|
|
$
|
51,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-3
DEAN
FOODS COMPANY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
131,353
|
|
|
$
|
225,414
|
|
|
$
|
308,654
|
|
(Income) loss from discontinued operations
|
|
|
(283
|
)
|
|
|
52,871
|
|
|
|
(14,793
|
)
|
(Gain) loss on sale of discontinued operations
|
|
|
(608
|
)
|
|
|
1,978
|
|
|
|
(38,763
|
)
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
231,898
|
|
|
|
227,682
|
|
|
|
214,630
|
|
Share-based compensation expense
|
|
|
34,817
|
|
|
|
36,871
|
|
|
|
40,067
|
|
Loss on disposition of assets and operations
|
|
|
4,208
|
|
|
|
7,841
|
|
|
|
1,525
|
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
1,552
|
|
Write-down of impaired assets
|
|
|
7,969
|
|
|
|
13,589
|
|
|
|
11,297
|
|
Write-off of financing costs
|
|
|
13,545
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
10,578
|
|
|
|
66,994
|
|
|
|
34,141
|
|
Other
|
|
|
254
|
|
|
|
3,401
|
|
|
|
(2,700
|
)
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net
|
|
|
(106,731
|
)
|
|
|
23,317
|
|
|
|
(53,618
|
)
|
Inventories
|
|
|
(16,918
|
)
|
|
|
(5,226
|
)
|
|
|
(10,427
|
)
|
Prepaid expenses and other assets
|
|
|
18,870
|
|
|
|
12,442
|
|
|
|
24,359
|
|
Accounts payable and accrued expenses
|
|
|
53,319
|
|
|
|
(116,945
|
)
|
|
|
63,068
|
|
Income taxes payable
|
|
|
(32,021
|
)
|
|
|
11,323
|
|
|
|
(37,054
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by continuing operations
|
|
|
350,250
|
|
|
|
561,552
|
|
|
|
541,938
|
|
Net cash provided by (used in) discontinued operations
|
|
|
|
|
|
|
(334
|
)
|
|
|
13,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
350,250
|
|
|
|
561,218
|
|
|
|
555,776
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property, plant and equipment
|
|
|
(241,448
|
)
|
|
|
(237,242
|
)
|
|
|
(287,129
|
)
|
Payments for acquisitions and investments, net of cash received
|
|
|
(132,204
|
)
|
|
|
(17,244
|
)
|
|
|
(1,378
|
)
|
Net proceeds from divestitures
|
|
|
1,536
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of fixed assets
|
|
|
20,192
|
|
|
|
6,190
|
|
|
|
8,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in continuing operations
|
|
|
(351,924
|
)
|
|
|
(248,296
|
)
|
|
|
(280,150
|
)
|
Net cash provided by discontinued operations
|
|
|
10,705
|
|
|
|
80,831
|
|
|
|
162,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(341,219
|
)
|
|
|
(167,465
|
)
|
|
|
(117,720
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
|
1,912,500
|
|
|
|
498,020
|
|
|
|
|
|
Repayment of debt
|
|
|
(336,880
|
)
|
|
|
(70,473
|
)
|
|
|
(118,554
|
)
|
Net proceeds from (payments for) revolver and receivables backed
facility
|
|
|
324,300
|
|
|
|
(481,000
|
)
|
|
|
275,900
|
|
Payments of financing costs
|
|
|
(31,281
|
)
|
|
|
(6,974
|
)
|
|
|
(4,279
|
)
|
Issuance of common stock
|
|
|
48,114
|
|
|
|
32,311
|
|
|
|
57,718
|
|
Payment of special cash dividend
|
|
|
(1,942,738
|
)
|
|
|
|
|
|
|
|
|
Tax savings on share-based compensation
|
|
|
18,369
|
|
|
|
31,211
|
|
|
|
20,614
|
|
Redemption of common stock
|
|
|
|
|
|
|
(400,062
|
)
|
|
|
(699,878
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in continuing operations
|
|
|
(7,616
|
)
|
|
|
(396,967
|
)
|
|
|
(468,479
|
)
|
Net cash provided by discontinued operations
|
|
|
|
|
|
|
9,898
|
|
|
|
29,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(7,616
|
)
|
|
|
(387,069
|
)
|
|
|
(438,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
1,415
|
|
|
|
6,684
|
|
|
|
(901
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
31,140
|
|
|
|
24,456
|
|
|
|
25,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
32,555
|
|
|
$
|
31,140
|
|
|
$
|
24,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-4
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2007, 2006 and 2005
|
|
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Nature of Our Business We are one of the
leading food and beverage companies in the United States. Our
Dairy Group 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 Foods
(WhiteWave) segment markets and sells a variety of
well-known dairy and dairy-related products, such as
Silk®
soymilk, Horizon
Organic®
milk and other dairy products, International
Delight®
coffee creamers, and LAND
OLAKES®
creamers and other fluid dairy products. WhiteWaves
Rachels
Organic®
brand is the second largest organic yogurt brand in the
United Kingdom.
Basis of Presentation Our Consolidated
Financial Statements include the accounts of our wholly-owned
subsidiaries. All intercompany balances and transactions are
eliminated in consolidation.
On September 14, 2006, we completed the sale of our
operations based in Spain. The sale of our remaining Iberian
operations was completed in January 2007 following the
completion of Portuguese regulatory proceedings. In our
Consolidated Financial Statements for the years ended
December 31, 2007, 2006 and 2005, the Iberian operations
have been reclassified as discontinued operations.
On June 27, 2005, we completed the spin-off
(Spin-off) of our indirect majority-owned subsidiary
TreeHouse Foods, Inc. (TreeHouse). Immediately prior
to the Spin-off, we transferred to TreeHouse (1) the
businesses previously conducted by our Specialty Foods Group
segment, (2) the Mocha Mix
®
and Second Nature
®
businesses previously conducted by WhiteWave and (3) the
foodservice salad dressings businesses previously conducted by
the Dairy Group and WhiteWave. In August 2005, we completed the
sale of our Maries
®
dips and dressings and Deans
®
dips businesses to Ventura Foods. In our Consolidated Financial
Statements for the year ended December 31, 2005, the
businesses transferred to TreeHouse and the Maries dips
and dressings and Deans dips businesses have been
reclassified as discontinued operations.
Use of Estimates The preparation of our
Consolidated Financial Statements in conformity with generally
accepted accounting principles (GAAP) requires us to
use our judgment to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the
Consolidated Financial Statements and the reported amounts of
net sales and expenses during the reporting period. Actual
results could differ from these estimates under different
assumptions or conditions.
Cash Equivalents We consider temporary
investments with an original maturity of three months or less to
be cash equivalents.
Inventories Inventories are stated at the
lower of cost or market. Our products are valued using the
first-in,
first-out (FIFO) method. The costs of finished goods
inventories include raw materials, direct labor and indirect
production and overhead costs.
Property, Plant and Equipment Property, plant
and equipment are stated at acquisition cost, plus capitalized
interest on borrowings during the actual construction period of
major capital projects. Also included in property, plant and
equipment are certain direct costs related to the implementation
of computer software for internal use. Depreciation is
calculated using the straight-line method over the estimated
useful lives of the assets, as follows:
|
|
|
|
|
Asset
|
|
Useful Life
|
|
Buildings and improvements
|
|
|
7 to 40 years
|
|
Machinery and equipment
|
|
|
3 to 20 years
|
|
We perform impairment tests when circumstances indicate that the
carrying value may not be recoverable. Indicators of impairment
could include significant changes in business environment or
planned closure of a facility. In 2007 limited assets were
evaluated for impairment and found not to be impaired.
Considerable management judgment is necessary to evaluate the
impact of operating changes and to estimate future cash flows.
Assumptions
F-5
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
used in our impairment evaluations include product development,
volume growth, and contribution margins. Capitalized leases are
amortized over the shorter of their lease term or their
estimated useful lives. Expenditures for repairs and
maintenance, which do not improve or extend the life of the
assets, are expensed as incurred.
Intangible and Other Assets Identifiable
intangible assets, other than trademarks that have indefinite
lives, are amortized over their estimated useful lives as
follows:
|
|
|
Asset
|
|
Useful Life
|
|
Customer relationships
|
|
5 to 20 years
|
Customer supply contracts
|
|
Over the terms of the agreements
|
Noncompetition agreements
|
|
Over the terms of the agreements
|
Deferred financing costs
|
|
Over the terms of the related debt
|
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 142, goodwill and other intangible
assets determined to have indefinite useful lives are not
amortized. Instead, we conduct impairment tests on our goodwill,
trademarks and other intangible assets with indefinite lives
annually and when circumstances indicate that the carrying value
may not be recoverable. To determine whether an impairment
exists, we primarily utilize a discounted future cash flow
analysis.
Foreign Currency Translation The financial
statements of our foreign subsidiaries are translated to
U.S. dollars in accordance with the provisions of
SFAS No. 52, Foreign Currency Translation.
The functional currency of our foreign subsidiaries is generally
the local currency of the country. Accordingly, assets and
liabilities of the foreign subsidiaries are translated to
U.S. dollars at year-end exchange rates. Income and expense
items are translated at the average rates prevailing during the
year. Changes in exchange rates that affect cash flows and the
related receivables or payables are recognized as transaction
gains and losses in the determination of net income. The
cumulative translation adjustment in stockholders equity
reflects the unrealized adjustments resulting from translating
the financial statements of our foreign subsidiaries.
Share-Based Compensation In accordance with
SFAS No. 123(R), Share-Based Payment,
share-based compensation expense is recognized for equity awards
over the vesting period based on their grant date fair value.
The fair value of option awards is estimated at the date of
grant using the Black-Scholes valuation model. The fair value of
restricted stock unit awards is equal to the closing price of
our stock on the date of grant. Compensation expense is
recognized only for equity awards expected to vest. We estimate
forfeitures at the date of grant based on the Companys
historical experience and future expectations. Share-based
compensation expense is included within the same financial
statement caption where the recipients cash compensation
is reported and is classified as a corporate item for business
segment reporting.
Sales Recognition and Accounts Receivable
Sales are recognized when persuasive evidence of an arrangement
exists, the price is fixed or determinable, the product has been
delivered to the customer and there is a reasonable assurance of
collection of the sales proceeds. In accordance with Emerging
Issues Task Force (EITF)
01-09,
Accounting for Consideration Given by a Vendor to a
Customer, sales are reduced by certain sales incentives,
some of which are recorded by estimating expense based on our
historical experience. We provide credit terms to customers
generally ranging up to 30 days, perform ongoing credit
evaluation of our customers and maintain allowances for
potential credit losses based on historical experience.
Estimated product returns, which have not been material, are
deducted from sales at the time of shipment.
Income Taxes All of our wholly-owned
U.S. operating subsidiaries are included in our
U.S. federal consolidated tax return. In addition, our
proportional share of the operations of our former
majority-owned subsidiaries and certain of our equity method
affiliates, all of which are organized as limited liability
companies or limited partnerships, are included in our
consolidated tax return. Our foreign subsidiaries are required
to file separate income tax returns in their local
jurisdictions. Certain distributions from these subsidiaries are
subject to U.S. income taxes; however, available tax
credits of these subsidiaries may reduce or eliminate these
U.S. income
F-6
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
tax liabilities. Other foreign earnings are expected to be
reinvested indefinitely. At December 31, 2007, no provision
had been made for U.S. federal or state income tax on
approximately $16.2 million of accumulated foreign earnings.
Deferred income taxes are provided for temporary differences
between amounts recorded in the Consolidated Financial
Statements and tax bases of assets and liabilities using current
tax rates. Deferred tax assets, including the benefit of net
operating loss carry forwards, are evaluated based on the
guidelines for realization and are reduced by a valuation
allowance if deemed necessary.
Advertising Expense Advertising expense is
comprised of media, agency, coupon, trade shows and other
promotional expenses. Advertising expenses are charged to income
during the period incurred, except for expenses related to the
development of a major commercial or media campaign which are
charged to income during the period in which the advertisement
or campaign is first presented by the media. Advertising
expenses charged to income totaled $116.0 million in 2007,
$113.5 million in 2006 and $93.6 million in 2005.
Additionally, prepaid advertising costs were $3.6 million
and $3.3 million at December 31, 2007 and 2006,
respectively.
Shipping and Handling Fees Our shipping and
handling costs are included in both cost of sales and selling
and distribution expense, depending on the nature of such costs.
Shipping and handling costs included in cost of sales reflect
inventory warehouse costs and product loading and handling
costs. Our Dairy Group includes costs associated with
transporting finished products from our manufacturing facilities
to our own distribution warehouses within cost of sales while
WhiteWave includes these costs in selling and distribution
expense. Shipping and handling costs included in selling and
distribution expense consist primarily of route delivery costs
for both company-owned delivery routes and independent
distributor routes, to the extent that such independent
distributors are paid a delivery fee, and the cost of shipping
products to customers through third party carriers. Shipping and
handling costs that were recorded as a component of selling and
distribution expense were $1.34 billion, $1.28 billion
and $1.22 billion during 2007, 2006 and 2005, respectively.
Insurance Accruals 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 coverage. Accrued liabilities for incurred but
not reported losses related to these retained risks are
calculated based upon loss development factors which contemplate
a number of factors including claims history and expected trends.
Facility Closing and Reorganization Costs We
have an on-going facility closing and reorganization strategy.
We record facility closing and reorganization charges when we
have identified a facility for closure, or other reorganization
opportunity, developed a plan and notified the affected
employees.
Comprehensive Income We consider all changes
in equity from transactions and other events and circumstances,
except those resulting from investments by owners and
distributions to owners, to be comprehensive income.
Recently Adopted Accounting Pronouncements
Effective January 1, 2007, we adopted Financial
Interpretation No. (FIN) 48, Accounting for
Uncertainty in Income Taxes, an interpretation of SFAS
No. 109, Accounting for Income Taxes.
FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a
tax return. As a result of adopting the provisions of
FIN 48, we recognized a $25.9 million increase in our
liability for uncertain tax positions to $41.6 million, a
$20.1 million increase in deferred income tax assets, a
$0.3 million decrease to additional paid-in capital, a
$0.2 million decrease to goodwill, and a $5.7 million
decrease to retained earnings.
Recently Issued Accounting Pronouncements The
Financial Accounting Standards Board (FASB) issued
SFAS No. 157, Fair Value Measurements in
September 2006. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP), and expands
disclosures about fair value measurements.
SFAS No. 157 applies under other accounting
pronouncements that require or
F-7
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
permit fair value measurements but does not require any new fair
value measurements. We do not believe the adoption of this
standard will have a material impact on our Consolidated
Financial Statements. This standard will become effective for us
in the first quarter of 2008.
The FASB issued SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities in
February 2007. 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. This
standard will become effective for us in the first quarter of
2008, and will not have a material impact on our Consolidated
Financial Statements.
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 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
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
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 Consolidated Financial Statements. This statement will
become effective for us in the first quarter of 2009.
Reclassifications In 2007, we changed the
presentation within our Statements of Cash Flows to report net
proceeds from divestitures of discontinued operations from
within investing activities used in continuing operations to net
cash provided by discontinued operations.
|
|
2.
|
ACQUISITIONS,
DISCONTINUED OPERATIONS AND DIVESTITURES
|
Acquisitions
We completed the acquisitions of seven businesses during 2007,
2006 and 2005 including the acquisition of Friendship Dairies in
2007. These acquisitions were not material individually or in
the aggregate, including the pro forma impact on earnings. All
of these acquisitions were funded with cash flows from
operations and borrowings under our senior credit facility and
our receivables-backed facility. The results of operations of
the acquired companies are included in our Consolidated
Financial Statements subsequent to their respective acquisition
dates. At the acquisition date, the purchase price was allocated
to assets acquired, including identifiable intangibles and
liabilities assumed based on their fair market values. The
excess of the total purchase prices over the fair values of the
net assets acquired represented goodwill.
Friendship Dairies On March 13, 2007, we
completed the acquisition of Friendship Dairies, Inc., a
manufacturer, marketer and distributor of cultured dairy
products primarily in the northeastern United States. This
transaction expanded our cultured dairy product capabilities and
added a strong regional brand. We paid approximately
$130 million, including transaction costs, and funded the
purchase price with borrowings under our senior credit facility.
We have not completed a final allocation of the purchase price
to the fair values of Friendship Dairies assets and
liabilities pending final valuations of certain tangible and
intangible assets.
F-8
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Discontinued
Operations
Our financial statements have been reclassified to give effect
to the following businesses as discontinued operations.
Iberian Operations Our former Iberian
operations included the manufacture and distribution of private
label and branded milk across Spain and Portugal. In connection
with our decision to sell our Iberian operation, a non-cash
impairment charge of $46.4 million, net of an income tax
benefit of $8.1 million was recognized in 2006 representing
our best estimate of the impairment required based on our
expected proceeds upon sale of the Iberian operations.
On September 14, 2006, we completed the sale of our
operations in Spain for net cash proceeds of $96.0 million.
In addition to customary indemnifications of the purchaser of
the business, we retained contingent obligations related to
regulatory compliance, including an obligation to pay the
purchaser a maximum of 15 million euros ($22.1 million
as of December 31, 2007) if certain regulatory
approvals are not received with respect to a specific facility.
A loss on the sale of our operations in Spain of
$6.8 million (net of tax) was recognized during 2006. In
connection with the sale of our operations in Spain, we entered
into an agreement to sell our Portuguese operations (that
comprised the remainder of our Iberian operations) for
$11.4 million subject to regulatory approvals and working
capital settlements. We completed the sale of our Portuguese
operations in January 2007. The sale of our Iberian operations
was part of our strategy to focus on our businesses in the
United States.
Sale of Maries Dips and Dressings and Deans
Dips On August 22, 2005, we completed the
sale of tangible and intangible assets related to the production
and distribution of Maries dips and dressings and
Deans dips to Ventura Foods. We also agreed to
license the Dean trademark to Ventura Foods for use on certain
non-dairy dips. Our net proceeds were $189.9 million. The
sale of these brands was part of our strategy to focus on our
core dairy and branded businesses.
Spin-off of TreeHouse On January 25,
2005, we formed TreeHouse. At that time, TreeHouse sold shares
of common stock to certain members of a newly retained
management team, who purchased 1.67% of the outstanding common
stock of TreeHouse, for an aggregate purchase price of
$10 million. The proceeds from this transaction were
distributed to us as a dividend and are reflected within
stockholders equity in our Consolidated Balance Sheet.
On June 27, 2005, we completed the Spin-off. Immediately
prior to the Spin-off, we transferred to TreeHouse (1) the
businesses previously conducted by our Specialty Foods Group
segment, (2) the Mocha Mix non-dairy coffee creamer
and Second Nature liquid egg substitute businesses
previously conducted by WhiteWave and (3) the foodservice
salad dressings businesses previously conducted by the Dairy
Group and WhiteWave. The Spin-off was affected by means of a
share dividend of the TreeHouse common stock held by us to our
stockholders of record on June 20, 2005 (the Record
Date). In the distribution, our stockholders received one
share of TreeHouse common stock for every five shares of our
common stock held by them on the Record Date.
Other In 2006, we recognized a
$4.8 million gain from the favorable resolution of
contingencies related to prior discontinued operations.
Net sales and income before taxes generated by discontinued
operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31(1)
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
|
|
|
Net sales
|
|
$
|
240,470
|
|
|
$
|
725,602
|
|
Income (loss) before taxes(2)
|
|
|
(52,842
|
)
|
|
|
25,524
|
|
|
|
|
|
|
|
|
(1) |
|
All intercompany sales and expenses have been appropriately
eliminated in the table. |
|
|
|
|
|
(2) |
|
Interest expense of $4.8 million in the year ended
December 31, 2006 was allocated to our Iberian discontinued
operations based on the net assets of our discontinued
operations relative to our total net assets. Interest expense |
F-9
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
of $9.2 million and $10.6 million in the years ended
December 31, 2005 and 2004, respectively, was allocated to
our Iberian operations and Maries dips and
dressings and Deans dips discontinued operations
based on the net assets of our discontinued operations relative
to our total net assets. |
Major classes of assets and liabilities of discontinued
operations included in our Consolidated Balance Sheets at
December 31, 2006 are as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
Current assets
|
|
$
|
14,255
|
|
Other non-current assets
|
|
|
5,725
|
|
Current liabilities
|
|
|
8,791
|
|
Divestitures
On June 8, 2007, we completed the sale of our tofu
business, including a dedicated facility in Boulder, Colorado
for cash proceeds of approximately $1.5 million. We
recorded a pre-tax loss of $1.7 million on the sale. Such
loss is included within other operating expense. The historical
sales and contribution margin of these operations were not
material.
|
|
3.
|
INVESTMENT
IN UNCONSOLIDATED AFFILIATE
|
We own an approximately 25% minority interest, on a fully
diluted basis, in Consolidated Container Company
(CCC), one of the nations largest
manufacturers of rigid plastic containers and our largest
supplier of plastic bottles and bottle components. We have owned
our minority interest since July 2, 1999, when we sold our
U.S. plastic packaging operations to CCC. Vestar Capital
Partners controls CCC through a majority ownership interest.
Less than 1% of CCC is owned indirectly by Alan Bernon, a member
of our Board of Directors, and his brother Peter Bernon.
Pursuant to our agreements with Vestar, we control two of the
eight seats on CCCs Management Committee.
Since July 2, 1999, our investment in CCC has been
accounted for under the equity method of accounting. During
2001, due to a variety of operational difficulties, CCC
consistently reported operating results that were significantly
weaker than expected, which resulted in significant losses in
the third and fourth quarters of 2001. As a result, by late 2001
CCC had become unable to comply with the financial covenants
contained in its credit facility. We concluded that our
investment was impaired and that the impairment was not
temporary so we wrote off our remaining investment during the
fourth quarter of 2001. Our investment in CCC has been recorded
at $0 since we wrote-off our remaining investment in 2001. As
the tax basis of our investment in CCC is less than the carrying
value of the investment recognized in our Consolidated Financial
Statements, the sale or liquidation of our investment could
result in a disproportionate tax obligation.
We have supply agreements with CCC to purchase certain of our
requirements for plastic bottles and bottle components from CCC.
We spent $264.0 million, $284.4 million and
$324.1 million on products purchased from CCC for the years
ended December 31, 2007, 2006 and 2005, respectively.
Inventories at years ended December 31, 2007 and 2006
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Raw materials and supplies
|
|
$
|
172,099
|
|
|
$
|
173,208
|
|
Finished goods
|
|
|
207,674
|
|
|
|
187,546
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
379,773
|
|
|
$
|
360,754
|
|
|
|
|
|
|
|
|
|
|
F-10
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
5.
|
PROPERTY,
PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Land
|
|
$
|
180,441
|
|
|
$
|
176,425
|
|
Buildings and improvements
|
|
|
795,281
|
|
|
|
749,163
|
|
Machinery and equipment
|
|
|
1,959,566
|
|
|
|
1,800,868
|
|
|
|
|
|
|
|
|
|
|
Construction in progress
|
|
|
79,618
|
|
|
|
91,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,014,906
|
|
|
|
2,817,616
|
|
Less accumulated depreciation
|
|
|
(1,216,528
|
)
|
|
|
(1,030,709
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,798,378
|
|
|
$
|
1,786,907
|
|
|
|
|
|
|
|
|
|
|
For 2007 and 2006, we capitalized $2.0 million and
$3.4 million in interest related to borrowings during the
actual construction period of major capital projects, which is
included as part of the cost of the related asset.
The changes in the carrying amount of goodwill for the years
ended December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dairy Group
|
|
|
WhiteWave
|
|
|
Total
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$
|
2,400,843
|
|
|
$
|
522,097
|
|
|
$
|
2,922,940
|
|
Purchase accounting adjustments
|
|
|
(3,303
|
)
|
|
|
12,629
|
|
|
|
9,326
|
|
Acquisitions
|
|
|
10,873
|
|
|
|
|
|
|
|
10,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
2,408,413
|
|
|
|
534,726
|
|
|
|
2,943,139
|
|
Purchase accounting adjustments
|
|
|
(1,148
|
)
|
|
|
|
|
|
|
(1,148
|
)
|
Acquisitions (divestitures)
|
|
|
76,380
|
|
|
|
(625
|
)
|
|
|
75,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
2,483,645
|
|
|
$
|
534,101
|
|
|
$
|
3,017,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross carrying amount and accumulated amortization of our
intangible assets other than goodwill as of December 31,
2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
517,756
|
|
|
$
|
|
|
|
$
|
517,756
|
|
|
$
|
505,417
|
|
|
$
|
|
|
|
$
|
505,417
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-related and other
|
|
|
98,273
|
|
|
|
(27,621
|
)
|
|
|
70,652
|
|
|
|
72,789
|
|
|
|
(21,490
|
)
|
|
|
51,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
616,029
|
|
|
$
|
(27,621
|
)
|
|
$
|
588,408
|
|
|
$
|
578,206
|
|
|
$
|
(21,490
|
)
|
|
$
|
556,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-11
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Amortization expense on intangible assets for the years ended
December 31, 2007, 2006 and 2005 was $6.3 million,
$6.2 million and $6.1 million, respectively. Estimated
aggregate intangible asset amortization expense for the next
five years is as follows:
|
|
|
|
|
2008
|
|
$
|
7.2 million
|
|
2009
|
|
|
7.1 million
|
|
2010
|
|
|
7.0 million
|
|
2011
|
|
|
5.2 million
|
|
2012
|
|
|
4.8 million
|
|
Our goodwill and intangible assets have resulted primarily from
acquisitions. Upon acquisition, the purchase price is first
allocated to identifiable assets and liabilities, including
trademarks and customer-related intangible assets, with any
remaining purchase price recorded as goodwill. Goodwill and
trademarks with indefinite lives are not amortized.
A trademark is recorded with an indefinite life if it has a
history of strong sales and cash flow performance that we expect
to continue for the foreseeable future. If these perpetual
trademark criteria are not met, the trademarks are amortized
over their expected useful lives. Determining the expected life
of a trademark is based on a number of factors including the
competitive environment, trademark history and anticipated
future trademark support. Our trademarks that have been
determined to have finite lives are not material.
In accordance with SFAS No. 142, we conduct impairment
tests of goodwill and intangible assets with indefinite lives
annually in the fourth quarter or when circumstances arise that
indicate a possible impairment might exist. If the fair value of
an evaluated asset is less than its book value, the asset is
written down to fair value based on its discounted future cash
flows. Our 2007, 2006 and 2005 annual impairment tests of
goodwill indicated no impairments. Our 2007 and 2006 annual
impairment tests of intangibles with indefinite lives indicated
impairment on perpetual trademarks for regional brands in our
Dairy Group as a result of the decision to close facilities and
shift customers from one regional brand to another. In 2007 and
2006, we recognized an immaterial impairment charge related to
these trademarks which is included within amortization of
intangibles in the consolidated statements of income. Our 2005
annual impairment tests of intangibles with indefinite lives
indicated no impairment.
Amortizable intangible assets are only evaluated for impairment
upon a significant change in the operating environment. If an
evaluation of the undiscounted cash flows indicates impairment,
the asset is written down to its estimated fair value, which is
based on discounted future cash flows.
|
|
7.
|
ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
|
Accounts payable and accrual expenses at years ended
December 31, 2007 and 2006 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Accounts payable
|
|
$
|
556,919
|
|
|
$
|
463,965
|
|
Payroll and benefits
|
|
|
103,246
|
|
|
|
123,507
|
|
Health insurance, workers compensation and other insurance
costs
|
|
|
73,310
|
|
|
|
84,988
|
|
Other accrued liabilities
|
|
|
173,795
|
|
|
|
149,662
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
907,270
|
|
|
$
|
822,122
|
|
|
|
|
|
|
|
|
|
|
F-12
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table presents the 2007, 2006 and 2005 provisions
for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007(1)
|
|
|
2006(2)
|
|
|
2005(3)
|
|
|
|
(In thousands)
|
|
|
Federal
|
|
$
|
64,071
|
|
|
$
|
96,245
|
|
|
$
|
113,025
|
|
State
|
|
|
6,378
|
|
|
|
12,183
|
|
|
|
14,514
|
|
Foreign
|
|
|
959
|
|
|
|
517
|
|
|
|
853
|
|
Deferred income taxes
|
|
|
12,599
|
|
|
|
66,505
|
|
|
|
35,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
84,007
|
|
|
$
|
175,450
|
|
|
$
|
163,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes $700,000 income tax benefit related to discontinued
operations. |
|
|
|
|
|
(2) |
|
Excludes $12.0 million income tax benefit related to
discontinued operations. |
|
(3) |
|
Excludes $53.1 million income tax expense related to
discontinued operations and $900,000 income tax benefit
related to cumulative effect of accounting change. |
The following is a reconciliation of income taxes computed at
the U.S. federal statutory tax rate to income taxes
reported in the Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Tax expense at statutory rate of 35%
|
|
$
|
75,064
|
|
|
$
|
159,500
|
|
|
$
|
147,192
|
|
State income taxes
|
|
|
8,834
|
|
|
|
12,455
|
|
|
|
11,903
|
|
Change in valuation allowance
|
|
|
(976
|
)
|
|
|
(1,036
|
)
|
|
|
(481
|
)
|
Nondeductible compensation
|
|
|
2,010
|
|
|
|
3,256
|
|
|
|
4,603
|
|
Favorable tax settlement
|
|
|
|
|
|
|
(259
|
)
|
|
|
(1,709
|
)
|
Other
|
|
|
(925
|
)
|
|
|
1,534
|
|
|
|
2,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
84,007
|
|
|
$
|
175,450
|
|
|
$
|
163,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-13
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The tax effects of temporary differences giving rise to deferred
income tax assets (liabilities) were:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007(1)
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
163,771
|
|
|
$
|
162,805
|
|
Stock options
|
|
|
29,674
|
|
|
|
27,026
|
|
Asset valuation reserves
|
|
|
22,262
|
|
|
|
16,910
|
|
Derivative instruments
|
|
|
25,663
|
|
|
|
|
|
Net operating loss carryforwards
|
|
|
10,747
|
|
|
|
12,797
|
|
State and foreign tax credits
|
|
|
11,182
|
|
|
|
10,173
|
|
Other
|
|
|
5,682
|
|
|
|
|
|
Valuation allowances
|
|
|
(8,695
|
)
|
|
|
(9,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
260,286
|
|
|
|
220,040
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(588,323
|
)
|
|
|
(566,521
|
)
|
Basis differences in unconsolidated affiliates
|
|
|
(25,334
|
)
|
|
|
(23,214
|
)
|
Derivative instruments
|
|
|
|
|
|
|
(9,951
|
)
|
Other
|
|
|
|
|
|
|
(6,915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(613,657
|
)
|
|
|
(606,601
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liability
|
|
$
|
(353,371
|
)
|
|
$
|
(386,561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $22.0 million of deferred tax assets related to
implementation of FIN 48. |
These net deferred income tax assets (liabilities) are
classified in our Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Current assets
|
|
$
|
128,841
|
|
|
$
|
117,991
|
|
Noncurrent liabilities
|
|
|
(482,212
|
)
|
|
|
(504,552
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(353,371
|
)
|
|
$
|
(386,561
|
)
|
|
|
|
|
|
|
|
|
|
At December 31, 2007, we had approximately
$11.2 million of state and foreign tax credits available
for carryover to future years. The credits are subject to
certain limitations and begin to expire in 2010.
A valuation allowance of $8.7 million has been established
because we do not believe it is more likely than not that all of
the deferred tax assets related to state net operating loss and
credit carryforwards and foreign tax credit carryforwards will
be realized prior to expiration. Our valuation allowance
decreased $1.0 million in 2007 for expected realization of
state net operating loss and credit carryforwards not previously
recognized.
F-14
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following is a reconciliation of gross unrecognized tax
benefits, including interest, recorded in other long-term
liabilities in our Consolidated Balance Sheets:
|
|
|
|
|
|
|
(in thousands)
|
|
Balance at January 1, 2007 (adoption)
|
|
$
|
41,596
|
|
Increases in tax positions for current year
|
|
|
3,294
|
|
Increases in tax positions for prior years
|
|
|
4,712
|
|
Decreases in tax positions for prior years
|
|
|
(1,422
|
)
|
Settlement of tax matters
|
|
|
(1,697
|
)
|
Lapse of applicable statute of limitations
|
|
|
(394
|
)
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
46,089
|
|
|
|
|
|
|
Of the balance at December 31, 2007, $20.2 million would
impact our effective tax rate, $1.3 million would be
recorded in discontinued operations, and $2.6 million would
reduce goodwill if recognized. The remaining $22.0 million
represents tax positions for which the ultimate deductibility is
highly certain but for which there is uncertainty about the
timing of such deductibility. Due to the impact of deferred
income tax accounting, the disallowance of the shorter
deductibility period would not affect our effective tax rate but
would accelerate payment of cash to the applicable taxing
authority. We do not expect any material changes to our
liability for uncertain tax positions during the next
12 months.
Consistent with periods prior to the adoption of FIN 48, we
recognize accrued interest related to uncertain tax positions as
a component of income tax expense. Penalties, if incurred, are
recognized as a component of operating income. Income tax
expense for 2007 included interest expense, net of tax benefit,
of $2.8 million and our liability for uncertain tax
positions included accrued interest of $7.9 million at
December 31, 2007.
Our U.S. federal income tax returns for the years 2004 and 2005
are currently under examination by the Internal Revenue Service.
We expect the examination of these years to be completed no
earlier that the first quarter of 2009. The IRS also has
notified us that they will begin the examination of our 2006
U.S. federal income tax return in 2008 with completion expected
no earlier that the second quarter of 2009. State income tax
returns are generally
F-15
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
subject to examination for a period of 3 to 5 years after
filing. We have various state income tax returns in the process
of examination or appeals.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Amount
|
|
|
Interest
|
|
|
Amount
|
|
|
Interest
|
|
|
|
Outstanding
|
|
|
Rate
|
|
|
Outstanding
|
|
|
Rate
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Dean Foods Company debt obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior credit facility
|
|
$
|
3,836,800
|
|
|
|
6.44
|
%
|
|
$
|
1,757,250
|
|
|
|
5.99
|
%
|
Senior notes
|
|
|
498,258
|
|
|
|
7.00
|
|
|
|
498,112
|
|
|
|
7.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,335,058
|
|
|
|
|
|
|
|
2,255,362
|
|
|
|
|
|
Subsidiary debt obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes
|
|
|
325,973
|
|
|
|
6.625-6.90
|
|
|
|
572,037
|
|
|
|
6.625-8.15
|
|
Receivables-backed facility
|
|
|
600,000
|
|
|
|
6.00
|
|
|
|
512,500
|
|
|
|
5.68
|
|
Capital lease obligations and other
|
|
|
11,320
|
|
|
|
|
|
|
|
15,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
937,293
|
|
|
|
|
|
|
|
1,100,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,272,351
|
|
|
|
|
|
|
|
3,355,851
|
|
|
|
|
|
Less current portion
|
|
|
(25,246
|
)
|
|
|
|
|
|
|
(483,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term portion
|
|
$
|
5,247,105
|
|
|
|
|
|
|
$
|
2,872,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The scheduled maturities of long-term debt, at December 31,
2007, were as follows (in thousands):
|
|
|
|
|
2008
|
|
$
|
25,246
|
|
2009
|
|
|
387,400
|
|
2010
|
|
|
843,622
|
|
2011
|
|
|
862,330
|
|
2012
|
|
|
831,378
|
|
Thereafter
|
|
|
2,348,144
|
|
|
|
|
|
|
Subtotal
|
|
|
5,298,120
|
|
Less discounts
|
|
|
(25,769
|
)
|
|
|
|
|
|
Total outstanding debt
|
|
$
|
5,272,351
|
|
|
|
|
|
|
Senior Credit Facility On April 2, 2007,
we recapitalized our balance sheet through the completion of a
new $4.8 billion senior credit facility and the return of
$1.94 billion to shareholders of record on March 27,
2007 through a $15 per share special cash dividend. We entered
into an amended and restated credit agreement that consists 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 December 31, 2007, there
were outstanding borrowings of $1.5 billion under the
senior secured term loan A, $1.79 billion under the senior
secured term loan B, and $550.3 million outstanding under
the revolving credit facility. Letters of credit in the
aggregate amount of $174.0 million were issued but undrawn.
At December 31, 2007, approximately $775.7 million was
available for future borrowings under the revolving credit
facility, subject to satisfaction of certain ordinary course
conditions contained in the credit agreement.
F-16
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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.
Significant increases in raw material and other input costs, as
well as the oversupply of raw organic milk, have increased our
working capital requirements, decreased our operating
profitability, and limited our ability in the near term to
reduce the borrowings under the senior secured credit facility.
Our actual performance levels under the financial covenants
could result in an increase to the cost of borrowings
outstanding under the senior secured credit facility or limit
our ability to incur additional debt.
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
December 31, 2007, this leverage ratio was 5.95 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. This reduced leverage
ratio could limit our ability to incur additional debt under our
senior secured credit facility. Failure to comply with the
leverage ratio could create a default under our senior secured
credit facility and under our receivables facility.
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 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
have been 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
F-17
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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).
The completion of the new senior credit facility resulted in the
write-off of $13.5 million of financing costs in the second
quarter of 2007.
The senior credit facility prior to the new senior credit
facility entered into on April 2, 2007 provided for a
$1.5 billion revolving credit facility and
$1.5 billion term loan. At December 31, 2006 there
were outstanding term loan borrowings of $1.44 billion
under the senior credit facility and $313.5 million
outstanding under the revolving line of credit. Letters of
credit in the aggregate amount of $136.6 million were
issued but undrawn as of December 31, 2006.
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 December 31, 2007 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:
|
|
|
|
|
$195.6 million ($200 million face value), at 6.625%
interest, maturing May 15, 2009; and
|
|
|
|
$130.4 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 Consolidated Balance
Sheet, and the securitization is treated as a borrowing for
accounting purposes. This facility was amended and restated on
April 2, 2007, which extended the facility termination date
from November 15, 2009 to March 30, 2010. During 2007,
we made net borrowings of $87.5 million on this facility.
This facility was fully drawn at December 31, 2007. 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 6.00% at
December 31, 2007. Our ability to re-borrow under this
facility is subject to a monthly borrowing base formula.
Capital Lease Obligations and Other Capital
lease obligations and other subsidiary debt include 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.
F-18
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 December 31, 2007:
|
|
|
|
|
|
|
Fixed Interest Rates
|
|
Expiration Date
|
|
Notional Amounts
|
|
|
|
|
|
(In millions)
|
|
|
4.07% to 4.27%
|
|
December 2010
|
|
$
|
450
|
|
4.91%(1)
|
|
March 2008 2012
|
|
|
2,950
|
|
|
|
|
(1) |
|
The notional amount of the swap amortizes by $150 million
on March 31, 2008, and then by $500 million,
$800 million, and $250 million annually each
March 31 thereafter until termination on March 30,
2012. |
The following table summarizes our various interest rate
agreements in effect as of December 31, 2006:
|
|
|
|
|
|
|
Fixed Interest Rates
|
|
Expiration Date
|
|
Notional Amounts
|
|
|
|
|
|
(In millions)
|
|
|
4.81% to 4.84%
|
|
December 2007
|
|
$
|
500
|
|
4.07% to 4.27%
|
|
December 2010
|
|
|
450
|
|
These swaps are required to be recorded as an asset or liability
on our Consolidated Balance Sheets 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 December 31, 2007 and 2006, our derivative asset and
liability balances were:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Current derivative asset
|
|
$
|
|
|
|
$
|
6,525
|
|
Long-term derivative asset
|
|
|
|
|
|
|
8,322
|
|
|
|
|
|
|
|
|
|
|
Total derivative asset
|
|
$
|
|
|
|
$
|
14,847
|
|
|
|
|
|
|
|
|
|
|
Current derivative liability
|
|
$
|
(24,750
|
)
|
|
$
|
|
|
Long-term derivative liability
|
|
|
(57,278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liability
|
|
$
|
(82,028
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
There was no hedge ineffectiveness for the years ended 2007,
2006 and 2005. Approximately $9.8 million and
$7.5 million of gains (net of tax) and $8.5 million of
losses (net of tax) were reclassified to interest expense from
other comprehensive income during the years ended 2007, 2006 and
2005, respectively. We estimate that $15.7 million of net
derivative losses (net of tax) included in other comprehensive
income will be reclassified into earnings within the next
12 months. These losses will offset a portion of the lower
anticipated interest expense over the next 12 months on our
variable rate debt based upon present interest rate levels and
the currently prevailing forward outlook on interest rates.
We are exposed to market risk under these arrangements due to
the possibility of interest rates on the credit facilities
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.
F-19
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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, joint and
severally guaranteed by substantially all of our wholly-owned
U.S. subsidiaries other than our receivables securitization
subsidiaries.
F-20
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet as of December 31,
2006
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
579
|
|
|
$
|
26,254
|
|
|
$
|
4,307
|
|
|
$
|
|
|
|
$
|
31,140
|
|
Receivables, net
|
|
|
301
|
|
|
|
32,720
|
|
|
|
766,017
|
|
|
|
|
|
|
|
799,038
|
|
Intercompany receivables
|
|
|
126,707
|
|
|
|
2,702,858
|
|
|
|
309,747
|
|
|
|
(3,139,312
|
)
|
|
|
|
|
Inventories
|
|
|
|
|
|
|
360,754
|
|
|
|
|
|
|
|
|
|
|
|
360,754
|
|
Other current assets
|
|
|
105,882
|
|
|
|
82,456
|
|
|
|
20
|
|
|
|
|
|
|
|
188,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
233,469
|
|
|
|
3,205,042
|
|
|
|
1,080,091
|
|
|
|
(3,139,312
|
)
|
|
|
1,379,290
|
|
Property, plant and equipment, net
|
|
|
608
|
|
|
|
1,767,734
|
|
|
|
18,565
|
|
|
|
|
|
|
|
1,786,907
|
|
Goodwill
|
|
|
|
|
|
|
2,943,048
|
|
|
|
91
|
|
|
|
|
|
|
|
2,943,139
|
|
Identifiable intangible and other assets
|
|
|
54,410
|
|
|
|
586,443
|
|
|
|
4
|
|
|
|
|
|
|
|
640,857
|
|
Investment in subsidiaries
|
|
|
6,507,028
|
|
|
|
|
|
|
|
|
|
|
|
(6,507,028
|
)
|
|
|
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
19,980
|
|
|
|
|
|
|
|
19,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,795,515
|
|
|
$
|
8,502,267
|
|
|
$
|
1,118,731
|
|
|
$
|
(9,646,340
|
)
|
|
$
|
6,770,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
39,077
|
|
|
$
|
782,507
|
|
|
$
|
538
|
|
|
$
|
|
|
|
$
|
822,122
|
|
Other current liabilities
|
|
|
28,347
|
|
|
|
2,295
|
|
|
|
134
|
|
|
|
|
|
|
|
30,776
|
|
Intercompany notes
|
|
|
2,194,952
|
|
|
|
437,725
|
|
|
|
506,635
|
|
|
|
(3,139,312
|
)
|
|
|
|
|
Current portion of long-term debt
|
|
|
225,000
|
|
|
|
258,658
|
|
|
|
|
|
|
|
|
|
|
|
483,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,487,376
|
|
|
|
1,481,185
|
|
|
|
507,307
|
|
|
|
(3,139,312
|
)
|
|
|
1,336,556
|
|
Long-term debt
|
|
|
2,030,362
|
|
|
|
329,331
|
|
|
|
512,500
|
|
|
|
|
|
|
|
2,872,193
|
|
Other long-term liabilities
|
|
|
468,378
|
|
|
|
274,856
|
|
|
|
|
|
|
|
|
|
|
|
743,234
|
|
Liabilities of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
8,791
|
|
|
|
|
|
|
|
8,791
|
|
Total stockholders equity
|
|
|
1,809,399
|
|
|
|
6,416,895
|
|
|
|
90,133
|
|
|
|
(6,507,028
|
)
|
|
|
1,809,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,795,515
|
|
|
$
|
8,502,267
|
|
|
$
|
1,118,731
|
|
|
$
|
(9,646,340
|
)
|
|
$
|
6,770,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Income for
|
|
|
|
the Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
11,811,391
|
|
|
$
|
10,512
|
|
|
$
|
|
|
|
$
|
11,821,903
|
|
Cost of sales
|
|
|
|
|
|
|
9,076,408
|
|
|
|
7,910
|
|
|
|
|
|
|
|
9,084,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
2,734,983
|
|
|
|
2,602
|
|
|
|
|
|
|
|
2,737,585
|
|
Selling and distribution
|
|
|
|
|
|
|
1,720,761
|
|
|
|
856
|
|
|
|
|
|
|
|
1,721,617
|
|
General and administrative
|
|
|
4,756
|
|
|
|
419,471
|
|
|
|
2,035
|
|
|
|
|
|
|
|
426,262
|
|
Facility closing, reorganization, and other costs
|
|
|
464
|
|
|
|
35,645
|
|
|
|
|
|
|
|
|
|
|
|
36,109
|
|
Interest expense
|
|
|
267,442
|
|
|
|
65,727
|
|
|
|
33
|
|
|
|
|
|
|
|
333,202
|
|
Other (income) expense, net
|
|
|
6,232
|
|
|
|
401
|
|
|
|
(707
|
)
|
|
|
|
|
|
|
5,926
|
|
Income from subsidiaries
|
|
|
(493,363
|
)
|
|
|
|
|
|
|
|
|
|
|
493,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
214,469
|
|
|
|
492,978
|
|
|
|
385
|
|
|
|
(493,363
|
)
|
|
|
214,469
|
|
Income taxes
|
|
|
84,007
|
|
|
|
188,445
|
|
|
|
114
|
|
|
|
(188,559
|
)
|
|
|
84,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
130,462
|
|
|
|
304,533
|
|
|
|
271
|
|
|
|
(304,804
|
)
|
|
|
130,462
|
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
891
|
|
|
|
|
|
|
|
891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
130,462
|
|
|
$
|
304,533
|
|
|
$
|
1,162
|
|
|
$
|
(304,804
|
)
|
|
$
|
131,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income for
|
|
|
|
the Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
10,088,080
|
|
|
$
|
10,475
|
|
|
$
|
|
|
|
$
|
10,098,555
|
|
Cost of sales
|
|
|
|
|
|
|
7,350,026
|
|
|
|
8,650
|
|
|
|
|
|
|
|
7,358,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
2,738,054
|
|
|
|
1,825
|
|
|
|
|
|
|
|
2,739,879
|
|
Selling and distribution
|
|
|
|
|
|
|
1,648,191
|
|
|
|
669
|
|
|
|
|
|
|
|
1,648,860
|
|
General and administrative
|
|
|
5,725
|
|
|
|
407,225
|
|
|
|
2,258
|
|
|
|
|
|
|
|
415,208
|
|
Facility closing, reorganization, and other costs
|
|
|
|
|
|
|
25,116
|
|
|
|
|
|
|
|
|
|
|
|
25,116
|
|
Interest expense
|
|
|
120,679
|
|
|
|
74,308
|
|
|
|
(440
|
)
|
|
|
|
|
|
|
194,547
|
|
Other (income) expense, net
|
|
|
(14
|
)
|
|
|
377
|
|
|
|
72
|
|
|
|
|
|
|
|
435
|
|
Income from subsidiaries
|
|
|
(582,103
|
)
|
|
|
|
|
|
|
|
|
|
|
582,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
455,713
|
|
|
|
582,837
|
|
|
|
(734
|
)
|
|
|
(582,103
|
)
|
|
|
455,713
|
|
Income taxes
|
|
|
175,450
|
|
|
|
222,732
|
|
|
|
(293
|
)
|
|
|
(222,439
|
)
|
|
|
175,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
280,263
|
|
|
|
360,105
|
|
|
|
(441
|
)
|
|
|
(359,664
|
)
|
|
|
280,263
|
|
Loss on sale of discontinued operations, net of tax
|
|
|
|
|
|
|
(379
|
)
|
|
|
(1,599
|
)
|
|
|
|
|
|
|
(1,978
|
)
|
Loss from discontinued operations, net of tax
|
|
|
|
|
|
|
(2,440
|
)
|
|
|
(50,431
|
)
|
|
|
|
|
|
|
(52,871
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
280,263
|
|
|
$
|
357,286
|
|
|
$
|
(52,471
|
)
|
|
$
|
(359,664
|
)
|
|
$
|
225,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income for
|
|
|
|
the Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
10,168,883
|
|
|
$
|
5,835
|
|
|
$
|
|
|
|
$
|
10,174,718
|
|
Cost of sales
|
|
|
|
|
|
|
7,586,940
|
|
|
|
4,608
|
|
|
|
|
|
|
|
7,591,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
2,581,943
|
|
|
|
1,227
|
|
|
|
|
|
|
|
2,583,170
|
|
Selling and distribution
|
|
|
|
|
|
|
1,580,458
|
|
|
|
570
|
|
|
|
|
|
|
|
1,581,028
|
|
General and administrative
|
|
|
1,337
|
|
|
|
384,249
|
|
|
|
1,010
|
|
|
|
|
|
|
|
386,596
|
|
Facility closing, reorganization, and other costs
|
|
|
|
|
|
|
35,451
|
|
|
|
|
|
|
|
|
|
|
|
35,451
|
|
Interest expense
|
|
|
81,594
|
|
|
|
76,835
|
|
|
|
1,801
|
|
|
|
|
|
|
|
160,230
|
|
Other (income), net
|
|
|
(8
|
)
|
|
|
(263
|
)
|
|
|
(412
|
)
|
|
|
|
|
|
|
(683
|
)
|
Income from subsidiaries
|
|
|
(503,471
|
)
|
|
|
|
|
|
|
|
|
|
|
503,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
420,548
|
|
|
|
505,213
|
|
|
|
(1,742
|
)
|
|
|
(503,471
|
)
|
|
|
420,548
|
|
Income taxes
|
|
|
163,898
|
|
|
|
194,630
|
|
|
|
(658
|
)
|
|
|
(193,972
|
)
|
|
|
163,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
256,650
|
|
|
|
310,583
|
|
|
|
(1,084
|
)
|
|
|
(309,499
|
)
|
|
|
256,650
|
|
Gain on sale of discontinued operations, net of tax
|
|
|
|
|
|
|
38,763
|
|
|
|
|
|
|
|
|
|
|
|
38,763
|
|
Gain (loss) from discontinued operations, net of tax
|
|
|
|
|
|
|
17,847
|
|
|
|
(3,054
|
)
|
|
|
|
|
|
|
14,793
|
|
Cumulative effect of accounting change, net of tax
|
|
|
|
|
|
|
(1,552
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
256,650
|
|
|
$
|
365,641
|
|
|
$
|
(4,138
|
)
|
|
$
|
(309,499
|
)
|
|
$
|
308,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows for
|
|
|
|
the Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(187,500
|
)
|
|
$
|
670,031
|
|
|
$
|
(132,281
|
)
|
|
$
|
350,250
|
|
Additions to property, plant and equipment
|
|
|
(820
|
)
|
|
|
(240,288
|
)
|
|
|
(340
|
)
|
|
|
(241,448
|
)
|
Cash outflows for acquisitions
|
|
|
(132,204
|
)
|
|
|
|
|
|
|
|
|
|
|
(132,204
|
)
|
Net proceeds from divestitures
|
|
|
12,241
|
|
|
|
|
|
|
|
|
|
|
|
12,241
|
|
Proceeds from sale of fixed assets
|
|
|
|
|
|
|
13,726
|
|
|
|
6,466
|
|
|
|
20,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(120,783
|
)
|
|
|
(226,562
|
)
|
|
|
6,126
|
|
|
|
(341,219
|
)
|
Proceeds from issuance of debt
|
|
|
1,912,500
|
|
|
|
|
|
|
|
|
|
|
|
1,912,500
|
|
Repayment of debt
|
|
|
(69,750
|
)
|
|
|
(267,130
|
)
|
|
|
|
|
|
|
(336,880
|
)
|
Net proceeds from revolver and receivables-backed facility
|
|
|
236,800
|
|
|
|
|
|
|
|
87,500
|
|
|
|
324,300
|
|
Payments of financing costs
|
|
|
(31,281
|
)
|
|
|
|
|
|
|
|
|
|
|
(31,281
|
)
|
Payment of special cash dividend
|
|
|
(1,942,738
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,942,738
|
)
|
Issuance of common stock
|
|
|
48,114
|
|
|
|
|
|
|
|
|
|
|
|
48,114
|
|
Tax savings on share-based compensation
|
|
|
18,369
|
|
|
|
|
|
|
|
|
|
|
|
18,369
|
|
Net change in intercompany balances
|
|
|
136,291
|
|
|
|
(176,036
|
)
|
|
|
39,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
308,305
|
|
|
|
(443,166
|
)
|
|
|
127,245
|
|
|
|
(7,616
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
22
|
|
|
|
303
|
|
|
|
1,090
|
|
|
|
1,415
|
|
Cash and cash equivalents, beginning of period
|
|
|
579
|
|
|
|
26,254
|
|
|
|
4,307
|
|
|
|
31,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
601
|
|
|
$
|
26,557
|
|
|
$
|
5,397
|
|
|
$
|
32,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows for
|
|
|
|
the Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(488,275
|
)
|
|
$
|
1,038,833
|
|
|
$
|
10,660
|
|
|
$
|
561,218
|
|
Additions to property, plant and equipment
|
|
|
(2,435
|
)
|
|
|
(229,721
|
)
|
|
|
(5,086
|
)
|
|
|
(237,242
|
)
|
Cash outflows for acquisitions
|
|
|
(17,244
|
)
|
|
|
|
|
|
|
|
|
|
|
(17,244
|
)
|
Net proceeds from divestitures
|
|
|
95,982
|
|
|
|
|
|
|
|
|
|
|
|
95,982
|
|
Proceeds from sale of fixed assets
|
|
|
|
|
|
|
6,190
|
|
|
|
|
|
|
|
6,190
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(15,151
|
)
|
|
|
(15,151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
76,303
|
|
|
|
(223,531
|
)
|
|
|
(20,237
|
)
|
|
|
(167,465
|
)
|
Proceeds from issuance of debt
|
|
|
498,020
|
|
|
|
|
|
|
|
|
|
|
|
498,020
|
|
Repayment of debt
|
|
|
(501,350
|
)
|
|
|
(9,612
|
)
|
|
|
(40,511
|
)
|
|
|
(551,473
|
)
|
Payments of financing costs
|
|
|
(6,974
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,974
|
)
|
Issuance of common stock
|
|
|
32,311
|
|
|
|
|
|
|
|
|
|
|
|
32,311
|
|
Tax savings on share-based compensation
|
|
|
31,211
|
|
|
|
|
|
|
|
|
|
|
|
31,211
|
|
Redemption of common stock
|
|
|
(400,062
|
)
|
|
|
|
|
|
|
|
|
|
|
(400,062
|
)
|
Net change in intercompany balances
|
|
|
759,145
|
|
|
|
(798,112
|
)
|
|
|
38,967
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
9,898
|
|
|
|
9,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
412,301
|
|
|
|
(807,724
|
)
|
|
|
8,354
|
|
|
|
(387,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
329
|
|
|
|
7,578
|
|
|
|
(1,223
|
)
|
|
|
6,684
|
|
Cash and cash equivalents, beginning of period
|
|
|
249
|
|
|
|
18,677
|
|
|
|
5,530
|
|
|
|
24,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
578
|
|
|
$
|
26,255
|
|
|
$
|
4,307
|
|
|
$
|
31,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows for
|
|
|
|
the Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(49,675
|
)
|
|
$
|
671,635
|
|
|
$
|
(66,184
|
)
|
|
$
|
555,776
|
|
Additions to property, plant and equipment
|
|
|
(681
|
)
|
|
|
(282,697
|
)
|
|
|
(3,751
|
)
|
|
|
(287,129
|
)
|
Cash outflows for acquisitions
|
|
|
(1,378
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,378
|
)
|
Net proceeds from divestitures
|
|
|
189,862
|
|
|
|
|
|
|
|
|
|
|
|
189,862
|
|
Proceeds from sale of fixed assets
|
|
|
|
|
|
|
6,157
|
|
|
|
2,200
|
|
|
|
8,357
|
|
Other
|
|
|
|
|
|
|
(7,875
|
)
|
|
|
(19,557
|
)
|
|
|
(27,432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
187,803
|
|
|
|
(284,415
|
)
|
|
|
(21,108
|
)
|
|
|
(117,720
|
)
|
Proceeds from issuance of debt
|
|
|
227,500
|
|
|
|
|
|
|
|
48,400
|
|
|
|
275,900
|
|
Repayment of debt
|
|
|
(1,250
|
)
|
|
|
(114,413
|
)
|
|
|
(2,891
|
)
|
|
|
(118,554
|
)
|
Payments of financing costs
|
|
|
(4,279
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,279
|
)
|
Issuance of common stock
|
|
|
57,718
|
|
|
|
|
|
|
|
|
|
|
|
57,718
|
|
Tax savings on share-based compensation
|
|
|
20,614
|
|
|
|
|
|
|
|
|
|
|
|
20,614
|
|
Redemption of common stock
|
|
|
(699,878
|
)
|
|
|
|
|
|
|
|
|
|
|
(699,878
|
)
|
Net change in intercompany balances
|
|
|
261,522
|
|
|
|
(289,609
|
)
|
|
|
28,087
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
11,153
|
|
|
|
18,369
|
|
|
|
29,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(138,053
|
)
|
|
|
(392,869
|
)
|
|
|
91,965
|
|
|
|
(438,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
75
|
|
|
|
(5,649
|
)
|
|
|
4,673
|
|
|
|
(901
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
174
|
|
|
|
24,326
|
|
|
|
857
|
|
|
|
25,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
249
|
|
|
$
|
18,677
|
|
|
$
|
5,530
|
|
|
$
|
24,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
COMMON
STOCK AND SHARE-BASED COMPENSATION
|
Our authorized shares of capital stock include one million
shares of preferred stock and 500 million shares of common
stock with a par value of $.01 per share.
Special Cash Dividend On April 2, 2007,
we recapitalized our balance sheet through the completion of a
new $4.8 billion senior credit facility and the return of
$1.94 billion to shareholders of record on March 27,
2007 through a $15 per share special cash dividend. In
connection with the dividend, we recorded a charge to retained
earnings equal to the retained earnings balance at the date of
the dividend with the excess charged to additional paid-in
capital.
Stock Award Plans As of December 31,
2007 we had three award plans with shares remaining available
for issuance. These plans, which are our 1997 Stock Option and
Restricted Stock Plan, the 1989 Dean Foods Company Stock Awards
Plan (which we adopted upon completion of our acquisition of
Legacy Dean) and the Dean Foods Company 2007 Stock Incentive
Plan provide for grants of stock options, stock units,
restricted stock and other stock-based awards to employees,
officers, directors and, in some cases, consultants, up to a
maximum of 37.5 million, 5.7 million shares and
6 million respectively. Options and other stock-based
awards vest in accordance with provisions set forth in the
applicable award agreements.
Under our stock award plans, we grant stock options and
restricted stock units to certain employees and directors.
Non-employee directors also can elect to receive their
directors fees in the form of restricted stock in lieu of
cash.
F-28
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Stock Options Under the terms of our stock
option plans, employees and non-employee directors may be
granted options to purchase our stock at a price equal to the
market price on the date the option is granted. In general,
employee options vest one-third on the first anniversary of the
grant date, one-third on the second anniversary of the grant
date and one-third on the third anniversary of the grant date.
All unvested options vest immediately upon a change of control
or in certain cases upon death or qualified disability. Each
non-employee director receives an immediately vested option to
purchase 7,500 shares of common stock on June 30 of each
year.
We recognize share-based compensation expense for stock options
ratably over the vesting period. The fair value of each option
award is estimated on the date of grant using the Black-Scholes
valuation model, using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Expected volatility
|
|
|
25%
|
|
|
|
25%
|
|
|
|
25%
|
|
Expected dividend yield
|
|
|
0%
|
|
|
|
0%
|
|
|
|
0%
|
|
Expected option term
|
|
|
4.5 years
|
|
|
|
4.5 years
|
|
|
|
4.5 years
|
|
Risk-free rate of return
|
|
|
3.28 to 5.07%
|
|
|
|
4.28 to 5.10%
|
|
|
|
3.63 to 4.27%
|
|
The expected term of the options represents the estimated period
of time until exercise and is based on historical experience of
similar awards, giving consideration to contractual terms
(generally 10 years), vesting schedules and expectations of
future employee and director behavior. Expected stock price
volatility is based on a combination of historical volatility of
the Companys stock and expectations with regard to future
volatility. The risk-free rates are based on the implied yield
available on U.S. Treasury zero-coupon issues with an
equivalent remaining term. We have not historically declared or
paid a cash dividend on our common stock. However, on
April 2, 2007, we declared a special cash dividend of $15
per share. We have no current plans to pay a cash dividend in
the future.
F-29
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes stock option activity during the
years ended December 31, 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
|
Value
|
|
|
Options outstanding at January 1, 2005
|
|
|
16,847,721
|
|
|
$
|
20.32
|
|
|
|
|
|
|
|
|
|
Granted(1)
|
|
|
2,466,594
|
|
|
|
28.90
|
|
|
|
|
|
|
|
|
|
Adjustment to options granted prior to December 31, 2004
and outstanding at the time of the Spin-off(1)
|
|
|
2,016,291
|
|
|
|
18.14
|
|
|
|
|
|
|
|
|
|
Cancelled(2)
|
|
|
(343,241
|
)
|
|
|
28.22
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(3,128,082
|
)
|
|
|
18.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2005
|
|
|
17,859,283
|
|
|
|
18.87
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,686,305
|
|
|
|
37.77
|
|
|
|
|
|
|
|
|
|
Cancelled(2)
|
|
|
(857,571
|
)
|
|
|
19.17
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4,365,619
|
)
|
|
|
15.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2006
|
|
|
15,322,398
|
|
|
|
23.09
|
|
|
|
|
|
|
|
|
|
Granted(3)
|
|
|
3,549,541
|
|
|
|
29.97
|
|
|
|
|
|
|
|
|
|
Adjustment to options granted prior to December 31, 2006
and outstanding at the time of the special cash dividend(3)
|
|
|
6,707,790
|
|
|
|
15.89
|
|
|
|
|
|
|
|
|
|
Cancelled(2)
|
|
|
(309,178
|
)
|
|
|
25.83
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(3,253,888
|
)
|
|
|
14.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2007
|
|
|
22,016,663
|
|
|
|
18.40
|
|
|
|
5.52
|
|
|
$
|
178,453,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2005
|
|
|
12,935,984
|
|
|
|
16.07
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2006
|
|
|
10,780,307
|
|
|
|
18.75
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2007
|
|
|
15,765,968
|
|
|
|
14.95
|
|
|
|
4.53
|
|
|
|
172,749,232
|
|
|
|
|
|
|
|
|
(1) |
|
The number and exercise prices of certain options outstanding at
the time of the Spin-off were proportionately adjusted to
maintain the aggregate fair value of the options before and
after the Spin-off. |
|
|
|
|
|
(2) |
|
Pursuant to the terms of our stock option plans, options that
are canceled or forfeited become available for future grants. |
|
|
|
|
|
(3) |
|
The number and exercise prices of options outstanding at the
time of the special cash dividend were proportionately adjusted
to maintain the aggregate fair value of the options before and
after the special cash dividend. |
F-30
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes information about options
outstanding and exercisable at December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Options Exercisable
|
|
Range of
|
|
Number
|
|
|
Remaining
|
|
|
Weighted-Average
|
|
|
Number
|
|
|
Weighted-Average
|
|
Exercise Prices
|
|
Outstanding
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
Exercise Price
|
|
|
$6.56 to $9.50
|
|
|
2,210,113
|
|
|
|
2.38
|
|
|
$
|
8.06
|
|
|
|
2,210,113
|
|
|
$
|
8.06
|
|
$9.94 to $11.48
|
|
|
538,999
|
|
|
|
2.23
|
|
|
|
10.65
|
|
|
|
538,999
|
|
|
|
10.65
|
|
$11.69
|
|
|
4,317,057
|
|
|
|
3.82
|
|
|
|
11.69
|
|
|
|
4,317,057
|
|
|
|
11.69
|
|
$11.77 to $14.24
|
|
|
531,721
|
|
|
|
3.90
|
|
|
|
13.99
|
|
|
|
531,721
|
|
|
|
13.99
|
|
$14.25
|
|
|
2,535,314
|
|
|
|
4.68
|
|
|
|
14.25
|
|
|
|
2,535,314
|
|
|
|
14.25
|
|
$14.87 to $18.30
|
|
|
3,921,002
|
|
|
|
6.23
|
|
|
|
18.07
|
|
|
|
3,297,850
|
|
|
|
18.02
|
|
$18.84 to $25.44
|
|
|
1,112,523
|
|
|
|
7.64
|
|
|
|
23.25
|
|
|
|
745,210
|
|
|
|
22.86
|
|
$25.68
|
|
|
2,960,915
|
|
|
|
6.01
|
|
|
|
25.68
|
|
|
|
1,165,768
|
|
|
|
25.68
|
|
$25.81 to $29.41
|
|
|
772,794
|
|
|
|
8.70
|
|
|
|
26.51
|
|
|
|
281,419
|
|
|
|
26.14
|
|
$30.11 to $31.90
|
|
|
3,116,225
|
|
|
|
8.70
|
|
|
|
30.28
|
|
|
|
142,517
|
|
|
|
30.94
|
|
The weighted-average grant date fair value of options granted
during the years ended December 31, 2007, 2006 and 2005 was
$12.22 per share, $11.00 per share and $8.13 per share,
respectively, and the total intrinsic value of options exercised
during the same periods was $65.1 million,
$100.6 million and $58.6 million, respectively. The
fair value of shares vested during the years ended
December 31, 2007, 2006 and 2005 was $20.8 million,
$24.9 million and $42.3 million, respectively.
During the years ended December 31, 2007, 2006 and 2005, we
recognized stock option expense of $22.9 million,
$21.5 million and $24.7 million, respectively, and an
income tax benefit related to stock option expense of
$7.2 million, $6.1 million and $5.8 million,
respectively.
During the year ended December 31, 2007, cash received from
stock option exercises was $46.6 million and the total cash
benefit for tax deductions to be realized for these option
exercises was $22.6 million.
At December 31, 2007, there was $29.4 million of total
unrecognized stock option expense, all of which is related to
nonvested awards. This compensation expense is expected to be
recognized over the weighted-average remaining period of
1.1 years.
Restricted Stock Units We issue restricted
stock units to certain senior employees and non-employee
directors as part of our long-term incentive program. A
restricted stock unit represents the right to receive one share
of common stock in the future. Restricted stock units have no
exercise price. Restricted stock units granted to employees
generally vest ratably over five years, subject to certain
accelerated vesting provisions based primarily on our stock
price, a change of control, or in certain cases upon death or
qualified disability. Stock units granted to non-employee
directors vest ratably over three years.
F-31
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes stock unit activity during the
years ended December 31, 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees
|
|
|
Directors
|
|
|
Total
|
|
|
Stock units outstanding at January 1, 2005
|
|
|
950,500
|
|
|
|
50,150
|
|
|
|
1,000,650
|
|
Stock units issued
|
|
|
433,550
|
|
|
|
25,500
|
|
|
|
459,050
|
|
Shares issued
|
|
|
(461,809
|
)
|
|
|
(17,117
|
)
|
|
|
(478,926
|
)
|
Adjustment to stock units outstanding at the time of the
Spin-off(1)
|
|
|
198,411
|
|
|
|
9,241
|
|
|
|
207,652
|
|
Stock units cancelled or forfeited(2)
|
|
|
(295,404
|
)
|
|
|
|
|
|
|
(295,404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock units outstanding at December 31, 2005
|
|
|
825,248
|
|
|
|
67,774
|
|
|
|
893,022
|
|
Stock units issued
|
|
|
460,750
|
|
|
|
25,500
|
|
|
|
486,250
|
|
Shares issued
|
|
|
(334,023
|
)
|
|
|
(23,598
|
)
|
|
|
(357,621
|
)
|
Stock units cancelled or forfeited(2)
|
|
|
(177,714
|
)
|
|
|
|
|
|
|
(177,714
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock units outstanding at December 31, 2006
|
|
|
774,261
|
|
|
|
69,676
|
|
|
|
843,937
|
|
Stock units issued
|
|
|
536,370
|
|
|
|
22,950
|
|
|
|
559,320
|
|
Shares issued
|
|
|
(528,547
|
)
|
|
|
(46,471
|
)
|
|
|
(575,018
|
)
|
Adjustment to stock units outstanding at the time of special
cash dividend(3)
|
|
|
471,691
|
|
|
|
32,708
|
|
|
|
504,399
|
|
Stock units cancelled or forfeited(2)
|
|
|
(113,623
|
)
|
|
|
|
|
|
|
(113,623
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock units outstanding at December 31, 2007
|
|
|
1,140,152
|
|
|
|
78,863
|
|
|
|
1,219,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value
|
|
$
|
28.30
|
|
|
$
|
24.40
|
|
|
$
|
28.10
|
|
|
|
|
|
|
|
|
(1) |
|
Stock units outstanding at the time of the Spin-off were
proportionately adjusted to maintain the aggregate fair value of
the stock units before and after the Spin-off. |
|
|
|
|
|
(2) |
|
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 cancelled or forfeited become available for future
grants. |
|
(3) |
|
The number and exercise prices of options outstanding at the
time of the special cash dividend were proportionately adjusted
to maintain the aggregate fair value of the options before and
after the special cash dividend. |
During the years ended December 31, 2007, 2006 and 2005, we
recognized stock unit expense of $11.9 million,
$15.3 million and $15.3 million, respectively, and an
income tax benefit related to stock unit expense of
$3.0 million, $4.4 million and $2.5 million,
respectively.
The weighted-average grant date fair value of stock units
granted during the years ended December 31, 2007, 2006 and
2005 was $29.98 per share, $37.78 per share and $28.24 per
share, respectively. At December 31, 2007, there was
$27.2 million of total unrecognized stock unit expense, all
of which is related to nonvested awards. This compensation
expense is expected to be recognized over the weighted-average
remaining vesting period of 3.7 years.
Restricted Stock We offer our non-employee
directors the option to receive their compensation for services
rendered in either cash or shares of restricted stock. Shares of
restricted stock vest one-third on grant, one-third on
F-32
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
the first anniversary of grant and one-third on the second
anniversary of grant. The following table summarizes restricted
stock activity during the years ended December 31, 2007,
2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average Grant
|
|
|
|
|
|
|
Shares
|
|
|
Date Fair Value
|
|
|
|
|
|
Nonvested at January 1, 2005
|
|
|
32,655
|
|
|
$
|
32.49
|
|
|
|
|
|
Restricted shares granted
|
|
|
28,586
|
|
|
|
36.31
|
|
|
|
|
|
Restricted shares vested
|
|
|
(31,725
|
)
|
|
|
33.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2005
|
|
|
29,516
|
|
|
|
35.27
|
|
|
|
|
|
Restricted shares granted
|
|
|
28,098
|
|
|
|
39.97
|
|
|
|
|
|
Restricted shares vested
|
|
|
(30,029
|
)
|
|
|
36.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2006
|
|
|
27,585
|
|
|
|
38.83
|
|
|
|
|
|
Restricted shares granted
|
|
|
36,518
|
|
|
|
32.21
|
|
|
|
|
|
Restricted shares vested
|
|
|
(32,070
|
)
|
|
|
36.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2007
|
|
|
32,033
|
|
|
|
34.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rights Plan On February 27, 1998, our
Board of Directors declared a dividend of the right to purchase
one half of one common share for each outstanding share of
common stock to the stockholders of record on March 18,
1998. The rights are not exercisable until ten days subsequent
to the announcement of the acquisition of or intent to acquire a
beneficial ownership of 15% or more in Dean Foods Company. At
such time, each right entitles the registered holder to purchase
from us that number of shares of common stock at an exercise
price of $145.00, with a market value of up to two times the
exercise price. At any time prior to such date, we may, by
action of a majority of our Board of Directors, redeem the
rights in whole, but not in part, at a price of $0.01 per right.
The rights will expire on March 18, 2008, unless our Board
of Directors extends the term of, or earlier redeems, the rights.
Stock Repurchases Since 1998, our Board of
Directors has from time to time authorized the repurchase of our
common stock up to an aggregate of $2.3 billion, excluding
fees and expense. We made no share repurchases in 2007. As of
December 31, 2007, $218.7 million was available for
repurchases under this program (excluding fees and commissions).
Repurchased shares are treated as effectively retired in the
Consolidated Financial Statements.
F-33
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Basic earnings per share are 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 during each period. The following table
reconciles the numerators and denominators used in the
computations of both basic and diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except share data)
|
|
|
Basic EPS computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
130,462
|
|
|
$
|
280,263
|
|
|
$
|
256,650
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares
|
|
|
130,310,811
|
|
|
|
133,938,777
|
|
|
|
146,673,322
|
|
Basic EPS from continuing operations
|
|
$
|
1.00
|
|
|
$
|
2.09
|
|
|
$
|
1.75
|
|
Diluted EPS computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
130,462
|
|
|
$
|
280,263
|
|
|
$
|
256,650
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares basic
|
|
|
130,310,811
|
|
|
|
133,938,777
|
|
|
|
146,673,322
|
|
Stock option conversion(1)
|
|
|
6,590,345
|
|
|
|
5,463,791
|
|
|
|
5,736,543
|
|
Stock units
|
|
|
390,842
|
|
|
|
359,536
|
|
|
|
1,028,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares diluted
|
|
|
137,291,998
|
|
|
|
139,762,104
|
|
|
|
153,438,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS from continuing operations
|
|
$
|
0.95
|
|
|
$
|
2.01
|
|
|
$
|
1.67
|
|
|
|
|
(1) |
|
Stock option conversion excludes anti-dilutive shares of
2,680,337, 2,708,364 and 123,560 at December 31, 2007, 2006
and 2005, respectively. |
F-34
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
12.
|
OTHER
COMPREHENSIVE INCOME (LOSS)
|
Comprehensive income (loss) comprises net income plus all other
changes in equity from non-owner sources. The amount of income
tax (expense) benefit allocated to each component of other
comprehensive income for December 31, 2007 and 2006 are
included below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
Tax Benefit
|
|
|
Net
|
|
|
|
(Loss)
|
|
|
(Expense)
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Accumulated other comprehensive income (loss), December 31,
2005
|
|
$
|
(49,547
|
)
|
|
$
|
23,614
|
|
|
$
|
(25,933
|
)
|
Cumulative translation adjustment
|
|
|
(10,336
|
)
|
|
|
|
|
|
|
(10,336
|
)
|
Net change in fair value of derivative instruments
|
|
|
14,002
|
|
|
|
(5,265
|
)
|
|
|
8,737
|
|
Amounts reclassified to income statement related to derivatives
|
|
|
(11,854
|
)
|
|
|
4,399
|
|
|
|
(7,455
|
)
|
Minimum pension liability adjustment
|
|
|
6,454
|
|
|
|
(2,451
|
)
|
|
|
4,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to pension and other postretirement liability related
to adoption of SFAS No. 158
|
|
|
(23,875
|
)
|
|
|
9,072
|
|
|
|
(14,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), December 31,
2006
|
|
|
(75,156
|
)
|
|
|
29,369
|
|
|
|
(45,787
|
)
|
Cumulative translation adjustment
|
|
|
534
|
|
|
|
|
|
|
|
534
|
|
Net change in fair value of derivative instruments
|
|
|
(81,556
|
)
|
|
|
29,490
|
|
|
|
(52,066
|
)
|
Amounts reclassified to income statement related to derivatives
|
|
|
(15,920
|
)
|
|
|
6,241
|
|
|
|
(9,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension liability adjustment
|
|
|
31,155
|
|
|
|
(11,959
|
)
|
|
|
19,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), December 31,
2007
|
|
$
|
(140,943
|
)
|
|
$
|
53,141
|
|
|
$
|
(87,802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income (loss)
at December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cumulative translation adjustment
|
|
$
|
2,457
|
|
|
$
|
1,922
|
|
Fair value of derivative instruments, net of tax
|
|
|
(51,218
|
)
|
|
|
10,527
|
|
Pension and other postretirement liability adjustment, net of tax
|
|
|
(39,041
|
)
|
|
|
(58,236
|
)
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income (loss)
|
|
$
|
(87,802
|
)
|
|
$
|
(45,787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
EMPLOYEE
RETIREMENT AND PROFIT SHARING PLANS
|
We sponsor various defined benefit and defined contribution
retirement plans, including various employee savings and profit
sharing plans, and contribute to various multi-employer pension
plans on behalf of our employees. Substantially all full-time
union and non-union employees who have completed one or more
years
F-35
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
of service and have met other requirements pursuant to the plans
are eligible to participate in one or more of these plans.
During 2007, 2006 and 2005, our retirement and profit sharing
plan expenses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Defined benefit plans
|
|
$
|
5,346
|
|
|
$
|
8,074
|
|
|
$
|
11,506
|
|
Defined contribution plans
|
|
|
25,492
|
|
|
|
23,806
|
|
|
|
22,219
|
|
Multi-employer pension and certain union plans
|
|
|
27,164
|
|
|
|
27,231
|
|
|
|
23,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
58,002
|
|
|
$
|
59,111
|
|
|
$
|
57,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans The benefits under our
defined benefit plans are based on years of service and employee
compensation. Our funding policy is to contribute annually the
minimum amount required under ERISA regulations plus additional
amounts as we deem appropriate.
Effective October 1, 2006, we adopted the recognition and
disclosure provisions of SFAS No. 158.
SFAS No. 158 required us to recognize the funded
status (i.e., the difference between the fair value of plan
assets and the projected benefit obligations) of our defined
benefit plans in the December 31, 2006 Consolidated Balance
Sheet, with a corresponding adjustment to accumulated other
comprehensive income, net of tax. The adjustment to accumulated
other comprehensive income at adoption represents the net
unrecognized actuarial losses, unrecognized prior service costs,
and unrecognized transition obligation remaining from the
initial adoption of SFAS No. 87, Employers
Accounting for Pensions, all of which were previously
netted against the plans funded status in our Consolidated
Balance Sheet pursuant to the provisions of
SFAS No. 87. These amounts will be subsequently
recognized as net periodic pension cost pursuant to our
historical policy for amortizing such amounts. Further,
actuarial gains and losses that arise in subsequent periods and
are not recognized as net periodic pension cost in the same
periods will be recognized as a component of other comprehensive
income. Those amounts will be subsequently recognized as a
component of net periodic pension cost on the same basis as the
amounts recognized in accumulated other comprehensive income at
adoption of SFAS No. 158.
Included in accumulated other comprehensive income at
December 31, 2007 and 2006 are the following amounts that
have not yet been recognized in net periodic pension cost:
unrecognized transition obligation of $562,000
($342,000 net of tax) and $675,000 ($420,000 net of tax),
unrecognized prior service costs of $9.5 million
($5.8 million net of tax) and $9.7 million
($6.1 million net of tax) and unrecognized actuarial losses
of $45.9 million ($27.9 million net of tax) and
$73.1 million ($45.6 million net of tax). The
transition obligation, prior service costs, and actuarial losses
included in accumulated other comprehensive income and expected
to be recognized in net periodic pension cost during the year
ended December 31, 2008 are $112,000 ($68,000 net of
tax), $890,000 ($541,000 net of tax), and $2.0 million
($1.2 million net of tax), respectively.
F-36
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The reconciliation of the beginning and ending balances of the
projected benefit obligation and the fair value of plans assets
for the years ended December 31, 2007 and 2006 and the
funded status of the plans at December 31, 2007 and 2006 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
298,275
|
|
|
$
|
295,106
|
|
Service cost
|
|
|
2,781
|
|
|
|
2,530
|
|
Interest cost
|
|
|
17,003
|
|
|
|
16,573
|
|
Plan participants contributions
|
|
|
61
|
|
|
|
|
|
Plan amendments
|
|
|
730
|
|
|
|
|
|
Actuarial (gain) loss
|
|
|
(29,926
|
)
|
|
|
5,215
|
|
Benefits paid
|
|
|
(27,443
|
)
|
|
|
(21,149
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
261,481
|
|
|
|
298,275
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
231,215
|
|
|
|
190,568
|
|
Actual return on plan assets
|
|
|
13,094
|
|
|
|
24,343
|
|
Employer contribution
|
|
|
24,406
|
|
|
|
37,453
|
|
Plan participants contributions
|
|
|
61
|
|
|
|
|
|
Benefits paid
|
|
|
(27,443
|
)
|
|
|
(21,149
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
241,333
|
|
|
|
231,215
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(20,148
|
)
|
|
$
|
(67,060
|
)
|
|
|
|
|
|
|
|
|
|
The underfunded status of the plans of $20.1 million at
December 31, 2007 is recognized in our Consolidated Balance
Sheet and includes $925,000 classified as a current accrued
pension liability. No plan assets are expected to be returned to
us during the year ended December 31, 2008.
A summary of our key actuarial assumptions used to determine
benefit obligations as of December 31, 2007 and 2006
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Weighted average discount rate
|
|
|
6.40
|
%
|
|
|
5.85
|
%
|
Expected return on plan assets
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
Rate of compensation increase
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
A summary of our key actuarial assumptions used to determine net
periodic benefit cost for 2007, 2006 and 2005 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Weighted average discount rate
|
|
|
5.85
|
%
|
|
|
5.75
|
%
|
|
|
5.75
|
%
|
Expected return on plan assets
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.50
|
%
|
Rate of compensation increase
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
F-37
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Components of net periodic pension cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
2,781
|
|
|
$
|
2,530
|
|
|
$
|
2,909
|
|
Interest cost
|
|
|
17,003
|
|
|
|
16,573
|
|
|
|
17,003
|
|
Expected return on plan assets
|
|
|
(18,724
|
)
|
|
|
(15,783
|
)
|
|
|
(15,698
|
)
|
Amortizations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized transition obligation
|
|
|
112
|
|
|
|
111
|
|
|
|
107
|
|
Prior service cost
|
|
|
891
|
|
|
|
850
|
|
|
|
628
|
|
Unrecognized net loss
|
|
|
2,846
|
|
|
|
3,443
|
|
|
|
3,010
|
|
Effect of settlement
|
|
|
437
|
|
|
|
350
|
|
|
|
3,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
5,346
|
|
|
$
|
8,074
|
|
|
$
|
11,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plans with an accumulated benefit obligation in excess
of plan assets follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Projected benefit obligation
|
|
$
|
260.0
|
|
|
$
|
296.7
|
|
Accumulated benefit obligation
|
|
|
256.9
|
|
|
|
292.3
|
|
Fair value of plan assets
|
|
|
239.4
|
|
|
|
229.6
|
|
The accumulated benefit obligation for all defined benefit plans
was $258.4 million and $293.9 million at
December 31, 2007 and 2006, respectively.
Substantially all of our qualified pension plans are
consolidated into one master trust. We retained investment
consultants to assist our Investment Committee with the
transition of the plans assets to the master trust and to
help our Investment Committee formulate a long-term investment
policy for the master trust. Our current asset mix guidelines
under our investment policy target equities at 65% to 75% of the
portfolio and fixed income at 25% to 35%. At December 31,
2007, our master trust was invested as follows: equity
securities and limited partnerships 68%; fixed
income securities 30%; and cash and cash
equivalents 2%.
We determine our expected long-term rate of return based on our
expectations of future returns for the pension plans
investments based on target allocations of the pension
plans investments and the effect of periodic target asset
allocation rebalancing. It is intended that the investments will
be rebalanced when the allocation is not within the target
range. The results are adjusted for the payment of reasonable
expenses of the plan from plan assets. Additionally, we consider
the weighted-average return of a capital markets model that was
developed by the plans investment consultants and
historical returns on comparable equity, debt and other
investments. The resulting weighted average expected long-term
rate of return on plan assets is 8.00%. We believe these
assumptions are appropriate based upon the mix of investments
and the long-term nature of the plans investments.
F-38
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Our pension plan weighted average asset allocations at
December 31, 2007 and 2006 by asset category were as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
Asset Category
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities and limited partnerships
|
|
|
68
|
%
|
|
|
71
|
%
|
Fixed income securities
|
|
|
30
|
|
|
|
26
|
|
Cash and cash equivalents
|
|
|
2
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Equity securities of the plan did not include any investment in
our common stock at December 31, 2007 or 2006.
We expect to contribute $22.5 million to the pension plans
in 2008. Estimated pension plan benefit payments for the next
ten years are as follows:
|
|
|
|
|
2008
|
|
$
|
17.9 million
|
|
2009
|
|
|
18.1 million
|
|
2010
|
|
|
17.9 million
|
|
2011
|
|
|
18.1 million
|
|
2012
|
|
|
18.9 million
|
|
Next five years
|
|
|
100.5 million
|
|
Defined Contribution Plans Certain of our
non-union personnel may elect to participate in savings and
profit sharing plans sponsored by us. These plans generally
provide for salary reduction contributions to the plans on
behalf of the participants of between 1% and 20% of a
participants annual compensation and provide for employer
matching and profit sharing contributions as determined by our
Board of Directors. In addition, certain union hourly employees
are participants in company-sponsored defined contribution
plans, which provide for employer contributions in various
amounts ranging from $24 to $91 per pay period per participant.
Multi-Employer Pension and Certain Union
Plans Certain of our subsidiaries contribute to
various multi-employer pension and certain union plans, which
are administered jointly by management and union representatives
and cover substantially all full-time and certain part-time
union employees who are not covered by our other plans. The
Multi-Employer Pension Plan Amendments Act of 1980 amended ERISA
to establish funding requirements and obligations for employers
participating in multi-employer plans, principally related to
employer withdrawal from or termination of such plans. We could,
under certain circumstances, be liable for unfunded vested
benefits or other expenses of jointly administered
union/management plans. At this time, we have not established
any significant liabilities because withdrawal from these plans
is not probable or reasonably possible.
|
|
14.
|
POSTRETIREMENT
BENEFITS OTHER THAN PENSIONS
|
Certain of our subsidiaries provide health care benefits to
certain retirees who are covered under specific group contracts.
As defined by the specific group contract, qualified covered
associates may be eligible to receive major medical insurance
with deductible and co-insurance provisions subject to certain
lifetime maximums.
Effective October 1, 2006, we adopted the recognition and
disclosure provisions of SFAS No. 158.
SFAS No. 158 required us to recognize the unfunded
portion (i.e., the difference between the fair value of plan
assets and the accumulated postretirement benefit obligations)
of our defined benefit plans in the December 31, 2006
Consolidated Balance Sheet, with a corresponding adjustment to
accumulated other comprehensive income, net of tax. Prior to our
adoption of SFAS No. 158, no other comprehensive
income was recognized in our Consolidated Balance Sheets for our
postretirement benefits other than pensions. Included in
accumulated other
F-39
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
comprehensive income at December 31, 2007 and 2006 are the
following amounts that have not yet been recognized in net
periodic benefit cost: negative unrecognized prior service costs
of $69,000 ($42,000 net of tax) and $512,000 ($319,000 net
of tax) and unrecognized actuarial losses of $1.1 million
($669,000 net of tax) and $10.5 million
($6.5 million net of tax). The negative prior service cost
and actuarial loss included in accumulated other comprehensive
income and expected to be recognized in net periodic benefit
cost during the year ended December 31, 2008 is negative
$69,000 ($42,000 net of tax) and $840,000
($511,000 net of tax), respectively.
The following table sets forth the funded status of these plans:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
29,317
|
|
|
$
|
27,397
|
|
Service cost
|
|
|
1,430
|
|
|
|
1,062
|
|
Interest cost
|
|
|
1,646
|
|
|
|
1,496
|
|
Actuarial (gain) loss
|
|
|
(2,623
|
)
|
|
|
1,788
|
|
Benefits paid
|
|
|
(2,014
|
)
|
|
|
(2,426
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
27,756
|
|
|
|
29,317
|
|
Fair value of plan assets at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(27,756
|
)
|
|
$
|
(29,317
|
)
|
|
|
|
|
|
|
|
|
|
The unfunded portion of the liability of $27.8 million at
December 31, 2007 is recognized in our Consolidated Balance
Sheet and includes $2.3 million classified as a current
accrued postretirement liability.
A summary of our key actuarial assumptions used to determine the
benefit obligation as of December 31, 2007 and 2006 as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
Healthcare inflation:
|
|
|
|
|
|
|
|
|
Initial rate
|
|
|
9.00
|
%
|
|
|
12.00
|
%
|
Ultimate rate
|
|
|
5.40
|
%
|
|
|
5.05
|
%
|
Year of ultimate rate achievement
|
|
|
2012
|
|
|
|
2011
|
|
Weighted average discount rate
|
|
|
6.40
|
%
|
|
|
5.85
|
%
|
A summary of our key actuarial assumptions used to determine net
periodic benefit cost follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Healthcare inflation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial rate
|
|
|
12.00
|
%
|
|
|
12.00
|
%
|
|
|
10.00
|
%
|
Ultimate rate
|
|
|
5.05
|
%
|
|
|
5.05
|
%
|
|
|
5.09
|
%
|
Year of ultimate rate achievement
|
|
|
2011
|
|
|
|
2010
|
|
|
|
2009
|
|
Weighted average discount rate
|
|
|
5.85
|
%
|
|
|
5.75
|
%
|
|
|
5.75
|
%
|
F-40
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and interest cost
|
|
$
|
3,077
|
|
|
$
|
2,558
|
|
|
$
|
2,111
|
|
Amortizations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
(69
|
)
|
|
|
(69
|
)
|
|
|
(69
|
)
|
Unrecognized net loss
|
|
|
1,064
|
|
|
|
941
|
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
4,072
|
|
|
$
|
3,430
|
|
|
$
|
2,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plans. A one percent
change in assumed health care cost trend rates would have the
following effects:
|
|
|
|
|
|
|
|
|
|
|
1-Percentage-
|
|
|
1-Percentage-
|
|
|
|
Point Increase
|
|
|
Point Decrease
|
|
|
|
(In thousands)
|
|
|
Effect on total of service and interest cost components
|
|
$
|
256
|
|
|
$
|
(232
|
)
|
Effect on postretirement obligation
|
|
|
1,781
|
|
|
|
(3,105
|
)
|
We expect to contribute $2.3 million to the postretirement
health care plans in 2008. Estimated postretirement health care
plan benefit payments for the next ten years are as follows:
|
|
|
|
|
2008
|
|
$
|
2.3 million
|
|
2009
|
|
|
2.6 million
|
|
2010
|
|
|
2.8 million
|
|
2011
|
|
|
3.0 million
|
|
2012
|
|
|
3.1 million
|
|
Next five years
|
|
|
18.5 million
|
|
|
|
15.
|
FACILITY
CLOSING AND REORGANIZATION COSTS
|
We recorded net facility closing and reorganization costs of
$34.4 million, $25.1 million, and $35.5 million
during 2007, 2006, and 2005, 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.
|
F-41
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Approved plans within our multi-year initiatives and related
charges, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Closure of facilities(1)
|
|
$
|
8,177
|
|
|
$
|
21,472
|
|
|
$
|
22,704
|
|
Workforce reductions within the Dairy Group segment resulting
from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Realignment of finance and transaction processing activities(2)
|
|
|
6,291
|
|
|
|
600
|
|
|
|
|
|
Management realignment(3)
|
|
|
10,555
|
|
|
|
|
|
|
|
|
|
Broad-based reduction of facility and distribution personnel(4)
|
|
|
9,398
|
|
|
|
|
|
|
|
|
|
Other(5)
|
|
|
|
|
|
|
3,044
|
|
|
|
12,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,421
|
|
|
$
|
25,116
|
|
|
$
|
35,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Charges primarily relate to the closure of the Dairy Group
segment facilities in Madison, Wisconsin; San Leandro and
South Gate, California; Westwego, Louisiana; Pocatello, Idaho;
Union, New Jersey; Albuquerque, New Mexico; Akron, Ohio;
Detroit, Michigan; and Union, New Jersey. We expect to incur
additional charges related to these facility closures of
$3.4 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 $6.9 million of workforce
reduction costs since the inception of this initiative and
anticipate incurring $3.1 million of additional costs
through the end of 2008 related to activities currently being
transitioned to the regional facilities. We will continue to
evaluate additional opportunities for centralization of
activities, which could result in additional charges in the
future. |
|
(3) |
|
In 2007, we began realigning management positions within the
Dairy Group 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
shared-based compensation. |
|
(4) |
|
In 2007, we approved a plan to reduce the Dairy Groups
manufacturing and distribution workforce by approximately
600-700
positions. The decision to reduce employment is part of our
multi-year productivity initiative to increase efficiency and
capability of the Dairy Group operations. We have incurred
$9.4 million of workforce reduction costs related to the
elimination of these positions. We do not anticipate any future
costs. |
|
(5) |
|
Charges related primarily to the reorganization within the
WhiteWave segment including consolidating the operations of the
three distinct operating units: WhiteWave, Horizon Organic, and
Dean National Brand Group; and the consolidation of certain
activities within the Dairy Group. We do not anticipate any
future costs related to this initiative. |
F-42
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Activity for 2007 and 2006 with respect to facility closing and
reorganization costs is summarized below and includes items
expensed as incurred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
Charges at
|
|
|
|
|
|
|
|
|
Charges at
|
|
|
|
|
|
|
|
|
Charges at
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
Charges
|
|
|
Payments
|
|
|
2006
|
|
|
Charges
|
|
|
Payments
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce reduction costs
|
|
$
|
8,302
|
|
|
$
|
4,954
|
|
|
$
|
(8,934
|
)
|
|
$
|
4,322
|
|
|
$
|
22,974
|
|
|
$
|
(14,234
|
)
|
|
$
|
13,062
|
|
Shutdown costs
|
|
|
209
|
|
|
|
4,895
|
|
|
|
(5,088
|
)
|
|
|
16
|
|
|
|
2,809
|
|
|
|
(2,806
|
)
|
|
|
19
|
|
Lease obligations after shutdown
|
|
|
2,072
|
|
|
|
1,123
|
|
|
|
(1,882
|
)
|
|
|
1,313
|
|
|
|
181
|
|
|
|
(1,451
|
)
|
|
|
43
|
|
Settlement of contracts
|
|
|
724
|
|
|
|
45
|
|
|
|
(769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
470
|
|
|
|
1,991
|
|
|
|
(2,245
|
)
|
|
|
216
|
|
|
|
2,634
|
|
|
|
(2,762
|
)
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
11,777
|
|
|
|
13,008
|
|
|
$
|
(18,918
|
)
|
|
$
|
5,867
|
|
|
|
28,598
|
|
|
$
|
(21,253
|
)
|
|
$
|
13,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acceleration of non-vested share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,369
|
|
|
|
|
|
|
|
|
|
Write-down of assets(1)
|
|
|
|
|
|
|
12,108
|
|
|
|
|
|
|
|
|
|
|
|
2,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charges
|
|
|
|
|
|
$
|
25,116
|
|
|
|
|
|
|
|
|
|
|
$
|
34,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
December 31, 2007 was $14.1 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.
F-43
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
16.
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Cash paid for interest and financing charges, net of capitalized
interest
|
|
$
|
329,902
|
|
|
$
|
184,902
|
|
|
$
|
161,580
|
|
Cash paid for taxes
|
|
|
80,817
|
|
|
|
63,037
|
|
|
|
166,224
|
|
Other noncash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock dividend related to the Spin-off
|
|
|
|
|
|
|
|
|
|
|
(492,613
|
)
|
|
|
17.
|
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 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) 33.8% interest
in our Dairy Group. 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 from $350,000
for medical claims to $2.0 million for casualty claims. We
believe that we have established adequate reserves to cover
these claims. At December 31, 2007 and 2006, we recorded
accrued liabilities related to these retained risks of
$180.4 million and $172.9 million, respectively,
including both current and long-term liabilities.
During 2005, we experienced operational disruptions in our Dairy
Group segment caused by Hurricanes Katrina and Rita. Our
insurance policies cover a portion of our business interruption
losses for 12 months following the restoration of our
property. During 2007 and 2006, we received $4.6 million
and $5.8 million, respectively, in settlement of a portion
of our business interruption claim for those twelve months. The
insurance proceeds are recorded within cost of sales. The claim
was settled and closed March 31, 2007.
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
F-44
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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. Rent
expense was $133.6 million, $132.3 million and
$129.0 million for 2007, 2006 and 2005, respectively.
The composition of capital leases which are reflected as
property, plant and equipment in our Consolidated Balance Sheets
are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Machinery and equipment
|
|
$
|
2,550
|
|
|
$
|
7,509
|
|
Less accumulated amortization
|
|
|
(728
|
)
|
|
|
(785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,822
|
|
|
$
|
6,724
|
|
|
|
|
|
|
|
|
|
|
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.
Future minimum payments at December 31, 2007, under
non-cancelable capital leases and operating leases with terms in
excess of one year and purchase obligations are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
Purchase
|
|
|
|
Leases
|
|
|
Leases
|
|
|
Obligations
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
2008
|
|
$
|
437
|
|
|
$
|
112,922
|
|
|
$
|
440,766
|
|
2009
|
|
|
307
|
|
|
|
99,565
|
|
|
|
169,086
|
|
2010
|
|
|
279
|
|
|
|
82,599
|
|
|
|
108,859
|
|
2011
|
|
|
266
|
|
|
|
66,957
|
|
|
|
28,286
|
|
2012
|
|
|
266
|
|
|
|
51,633
|
|
|
|
13,375
|
|
Thereafter
|
|
|
133
|
|
|
|
84,896
|
|
|
|
71,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
1,688
|
|
|
$
|
498,572
|
|
|
$
|
832,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest
|
|
|
(169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of capital lease obligations
|
|
$
|
1,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 allegations contained in this third complaint are
similar to those in the first and second complaints except that
the new suit added a claim that defendants conduct also
artificially inflated retail
F-45
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
prices for direct milk purchasers. Two additional class actions
were filed on August 27, 2007 and October 3, 2007 in
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. All actions on all pending cases are stayed
pending an initial pretrial conference and status conference
scheduled for March 11, 2008. We believe that the claims
against us are without merit and we will 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.
|
|
18.
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
Pursuant to SFAS No. 107, Disclosure About Fair
Value of Financial Instruments, we are required to
disclose an estimate of the fair value of our financial
instruments as of December 31, 2007 and 2006.
SFAS No. 107 defines the fair value of financial
instruments as the amount at which the instrument could be
exchanged in a current transaction between willing parties.
Due to their near-term maturities, the carrying amounts of
accounts receivable and accounts payable are considered
equivalent to fair value. In addition, because the interest
rates on our senior credit facility and certain other debt are
variable, their fair values approximate their carrying values.
We have senior notes with an aggregate face value of
$350 million with fixed interest rates ranging from 6.625%
to 6.9% at December 31, 2007. These notes were issued by
Legacy Dean prior to our acquisition of Legacy Dean. On May 17
2006, we issued $500 million aggregate principal amount of
senior notes with a fixed interest rate of 7.0%.
We have entered into various interest rate agreements to reduce
our sensitivity to changes in interest rates on our variable
rate debt. The fair values of these instruments and our senior
notes were determined based on fair values for similar
instruments with similar terms. The following table presents the
carrying value and fair value of our senior notes and interest
rate agreements at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Subsidiary senior notes
|
|
$
|
(325,973
|
)
|
|
$
|
(327,750
|
)
|
|
$
|
(572,037
|
)
|
|
$
|
(604,500
|
)
|
Dean Foods Company senior notes
|
|
|
(498,258
|
)
|
|
|
(445,000
|
)
|
|
|
(498,112
|
)
|
|
|
(508,750
|
)
|
Interest rate agreements
|
|
|
(82,028
|
)
|
|
|
(82,028
|
)
|
|
|
14,847
|
|
|
|
14,847
|
|
|
|
19.
|
SEGMENT,
GEOGRAPHIC AND CUSTOMER INFORMATION
|
We have two reportable segments: the Dairy Group and WhiteWave.
Our Dairy Group segment is our largest segment. It manufactures,
markets and distributes a wide variety of branded and private
label dairy case products, including milk, creamers, ice cream,
cultured dairy products and juices, to retailers, distributors,
foodservice outlets, educational institutions and governmental
entities across the United States.
F-46
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Our WhiteWave segment 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 products, International
Delight®
coffee creamers, LAND
OLAKES®
creamer and fluid dairy products and Rachels
Organic®
dairy products. WhiteWave sells its products to a variety of
customers, including grocery stores, club stores, natural foods
stores, mass merchandisers, convenience stores and foodservice
outlets. A portion of our WhiteWave products are sold through
the Dairy Groups distribution network. Those sales,
together with their related costs, are included in WhiteWave for
segment reporting purposes.
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 decision maker.
Due to changes in our business strategy, primary responsibility
for the
Hershey®
relationship was moved into the Dairy Group in the first quarter
of 2007 from WhiteWave. In addition, we aligned the results
related to the sales of certain foodservice products between
segments. In order to present results on a comparable basis,
segment results for 2006 and 2005 have been adjusted to reflect
the way management evaluates performance related to the
Hershey®
relationship, as well as certain foodservice relationships.
These changes had no impact on consolidated operating income.
F-47
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Net sales to external customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dairy Group
|
|
$
|
10,449,378
|
|
|
$
|
8,841,839
|
|
|
$
|
8,999,523
|
|
WhiteWave
|
|
|
1,372,525
|
|
|
|
1,256,716
|
|
|
|
1,175,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,821,903
|
|
|
$
|
10,098,555
|
|
|
$
|
10,174,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dairy Group
|
|
$
|
30,151
|
|
|
$
|
13,208
|
|
|
$
|
76,324
|
|
WhiteWave
|
|
|
103,602
|
|
|
|
96,322
|
|
|
|
101,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
133,753
|
|
|
$
|
109,530
|
|
|
$
|
177,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dairy Group
|
|
$
|
624,510
|
|
|
$
|
684,659
|
|
|
$
|
647,218
|
|
WhiteWave
|
|
|
118,404
|
|
|
|
132,704
|
|
|
|
109,775
|
|
Corporate
|
|
|
(153,208
|
)
|
|
|
(141,552
|
)
|
|
|
(141,447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
|
|
589,706
|
|
|
|
675,811
|
|
|
|
615,546
|
|
Facility closing and reorganization costs
|
|
|
(34,421
|
)
|
|
|
(25,116
|
)
|
|
|
(35,451
|
)
|
Other operating expense
|
|
|
(1,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
553,597
|
|
|
|
650,695
|
|
|
|
580,095
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
333,202
|
|
|
|
194,547
|
|
|
|
160,230
|
|
Other (income) expense, net
|
|
|
5,926
|
|
|
|
435
|
|
|
|
(683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income from continuing operations before tax
|
|
$
|
214,469
|
|
|
$
|
455,713
|
|
|
$
|
420,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dairy Group
|
|
$
|
172,549
|
|
|
$
|
179,304
|
|
|
$
|
190,849
|
|
WhiteWave
|
|
|
45,282
|
|
|
|
37,361
|
|
|
|
12,224
|
|
Corporate
|
|
|
14,067
|
|
|
|
11,017
|
|
|
|
11,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
231,898
|
|
|
$
|
227,682
|
|
|
$
|
214,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dairy Group
|
|
$
|
5,414,184
|
|
|
$
|
5,141,662
|
|
|
$
|
5,197,092
|
|
WhiteWave
|
|
|
1,347,050
|
|
|
|
1,372,946
|
|
|
|
1,308,388
|
|
Corporate
|
|
|
272,122
|
|
|
|
235,585
|
|
|
|
243,677
|
|
Discontinued operations
|
|
|
|
|
|
|
19,980
|
|
|
|
301,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,033,356
|
|
|
$
|
6,770,173
|
|
|
$
|
7,050,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-48
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dairy Group
|
|
$
|
175,909
|
|
|
$
|
149,381
|
|
|
$
|
181,400
|
|
WhiteWave
|
|
|
58,092
|
|
|
|
77,275
|
|
|
|
99,994
|
|
Corporate
|
|
|
7,447
|
|
|
|
10,586
|
|
|
|
5,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
241,448
|
|
|
$
|
237,242
|
|
|
$
|
287,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Information Less than 1% of our
net sales and long-lived assets relate to operations outside of
the United States.
Significant Customers Our WhiteWave and Dairy
Group segments each had a single customer that represented
greater than 10% of their net sales. Approximately 17.9%, 17.7%
and 15.4%, respectively, of our consolidated net sales were to
that same customer in 2007, 2006 and 2005.
|
|
20.
|
RELATED
PARTY TRANSACTIONS
|
Real Property Lease We lease the land for our
Franklin, Massachusetts facility from a partnership in which
Alan Bernon, a member of our Board of Directors, owns a 13.45%
minority interest. (The remaining interests are owned by members
of Mr. Bernons family.) Our lease payments were
approximately $785,000 in 2007 and $700,000 in 2006 and 2005.
Minority Interest in Consolidated Container Holding
Company We hold our minority interest in
Consolidated Container Company through our subsidiary Franklin
Plastics, Inc., in which we own an approximately 99% interest.
Alan Bernon, a member of our Board of Directors, and his
brother, Peter Bernon, collectively own less than 1% of Franklin
Plastics, Inc.
F-49
DEAN
FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
21.
|
QUARTERLY
RESULTS OF OPERATIONS (unaudited)
|
The following is a summary of our unaudited quarterly results of
operations for 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(In thousands, except share data)
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,629,749
|
|
|
$
|
2,843,645
|
|
|
$
|
3,116,796
|
|
|
$
|
3,231,713
|
|
Gross profit
|
|
|
687,275
|
|
|
|
688,050
|
|
|
|
659,323
|
|
|
|
702,937
|
|
Income from continuing operations
|
|
|
63,203
|
|
|
|
28,177
|
|
|
|
6,517
|
|
|
|
32,565
|
|
Net income(1)
|
|
|
63,820
|
|
|
|
28,416
|
|
|
|
6,482
|
|
|
|
32,635
|
|
Earnings per common share(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.50
|
|
|
|
0.22
|
|
|
|
0.05
|
|
|
|
0.25
|
|
Diluted
|
|
|
0.47
|
|
|
|
0.21
|
|
|
|
0.05
|
|
|
|
0.24
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,509,041
|
|
|
$
|
2,477,884
|
|
|
$
|
2,517,792
|
|
|
$
|
2,593,838
|
|
Gross profit
|
|
|
651,346
|
|
|
|
683,847
|
|
|
|
694,006
|
|
|
|
710,680
|
|
Income from continuing operations
|
|
|
54,694
|
|
|
|
74,795
|
|
|
|
74,498
|
|
|
|
76,276
|
|
Net income(3)
|
|
|
52,792
|
|
|
|
28,868
|
|
|
|
70,793
|
|
|
|
72,961
|
|
Earnings per common share(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.39
|
|
|
|
0.21
|
|
|
|
0.53
|
|
|
|
0.55
|
|
Diluted
|
|
|
0.37
|
|
|
|
0.21
|
|
|
|
0.51
|
|
|
|
0.53
|
|
|
|
|
(1) |
|
The results for the first, second, third and fourth quarters of
2007 include facility closing and reorganization costs, net of
tax, of $3.5 million, $1.5 million, $11.8 million
and $4.1 million, respectively. |
|
(2) |
|
Earnings per common share calculations for each of the quarters
were based on the basic and diluted weighted average number of
shares outstanding for each quarter. The sum of the quarters may
not necessarily be equal to the full year earnings per common
share amount. |
|
(3) |
|
The results for the first, second, third and fourth quarters of
2006 include facility closing and reorganization costs, net of
tax, of $2.7 million, $1.8 million, $3.4 million
and $7.6 million, respectively. |
F-50
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Dean Foods Company
Dallas, Texas
We have audited the accompanying consolidated balance sheets of
Dean Foods Company and subsidiaries (the Company) as
of December 31, 2007 and 2006, and the related consolidated
statements of income, stockholders equity, and cash flows
for each of the three years in the period ended
December 31, 2007. Our audits also included the financial
statement schedule listed in the Index at Item 15. These
financial statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Dean
Foods Company and subsidiaries as of December 31, 2007 and
2006, and the results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2007, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
As discussed in Note 1 to the consolidated financial
statements, in 2007 the Company adopted the provisions of
Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109. Also, as
discussed in Notes 10 and 13, in 2006 the Company adopted
the provisions of Statement of Financial Accounting Standards
No. 123(R), Share-Based Payment, and the provisions
of Statement of Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2007, based on the criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 27, 2008 expressed an
unqualified opinion on the Companys internal control over
financial reporting.
/s/ Deloitte &
Touche LLP
Dallas, Texas
February 27, 2008
F-51
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
During our three most recent fiscal years, no independent
accountant who was engaged as the principal accountant to audit
our financial statements, nor any independent accountant who was
engaged to audit a significant subsidiary and on whom our
principal accountant expressed reliance in its report, has
resigned or been dismissed.
|
|
Item 9A.
|
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
December 31, 2007. 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).
Attached as exhibits to this annual 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.
Definition
of Disclosure Controls
Disclosure Controls are controls and procedures designed to
reasonably assure that information required to be disclosed in
our reports filed with the Securities and Exchange Commission
(the SEC) is recorded, processed, summarized and
reported within the time periods specified in the SECs
rules and forms. Disclosure Controls are also designed to
reasonably assure that such information is accumulated and
communicated to our management, including the CEO and CFO, as
appropriate to allow timely decisions regarding required
disclosure. Our Disclosure Controls include components of our
internal control over financial reporting, which consists of
control processes designed to provide reasonable assurance
regarding the reliability of our financial reporting and the
preparation of financial statements in accordance with
U.S. generally accepted accounting principles.
Limitations
on the Effectiveness of Controls
We do not expect that our Disclosure Controls or our internal
control over financial reporting will prevent all error and all
fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance
that the control systems objectives will be met. Further,
the design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and
instances of fraud, if any, within the company have been
detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Controls can also
be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of
the controls. The design of any system of controls is based in
part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions. Over time, controls may become inadequate because of
changes in conditions or deterioration in the degree of
compliance with policies or procedures. Because of the inherent
limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.
Scope of
the Controls Evaluation
Our evaluations of our Disclosure Controls include reviews of
the controls objectives and design, our implementation of
the controls and the effect of the controls on the information
generated for use in our SEC filings. In the course of our
controls evaluations, we seek to identify data errors, controls
problems or acts of fraud and confirm that appropriate
corrective actions, including process improvements, are
undertaken. Many of the components of our Disclosure Controls
are evaluated on an ongoing basis by our Audit Services
department. The overall goals of these various evaluation
activities are to monitor our Disclosure Controls, and to modify
them
46
as necessary. Our intent is to maintain the Disclosure Controls
as dynamic systems that change as conditions warrant.
Changes
in Internal Control over Financial Reporting
We are currently in the process of reorganizing the Dairy Group
financial reporting and certain transaction processing
activities into regional centers. Other than these changes,
which are ongoing, there was no change in our internal control
over financial reporting in the quarter ended December 31,
2007 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Conclusions
Based upon our most recent controls evaluation, our CEO and CFO
have concluded that as of December 31, 2007, our Disclosure
Controls were effective at the reasonable assurance level. In
the fourth quarter of 2007, other than the reorganization
activities within our Dairy Group as discussed above, there was
no change in our internal control over financial reporting that
has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
MANAGEMENT
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Our internal
control system was designed to provide reasonable assurance to
our management and Board of Directors regarding the preparation
and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
We have assessed the effectiveness of our internal control over
financial reporting as of December 31, 2007. In making this
assessment, we used the criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on our assessment we believe that, as of
December 31, 2007, our internal control over financial
reporting is effective based on those criteria.
Our independent registered public accounting firm has issued an
audit report on our internal control over financial reporting.
This report appears on page 48.
February 27, 2008
47
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Dean Foods Company
Dallas, Texas
We have audited the internal control over financial reporting of
Dean Foods Company and subsidiaries (the Company) as
of December 31, 2007, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Management Report on Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2007, based on the criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2007 of
the Company and our report dated February 27, 2008
expressed an unqualified opinion on those financial statements
and included an explanatory paragraph regarding the adoption of
Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109, in 2007, and
the adoption of Statement of Financial Accounting Standards
No. 123(R), Share-Based Payment, and Statement of
Financial Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans an amendment of FASB Statements No. 87,
88, 106, and 132(R), in 2006.
/s/ Deloitte &
Touche LLP
Dallas, Texas
February 27, 2008
48
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers
|
Incorporated herein by reference to our proxy statement (to be
filed) for our May 22, 2008 Annual Meeting of Stockholders.
|
|
Item 11.
|
Executive
Compensation
|
Incorporated herein by reference to our proxy statement (to be
filed) for our May 22, 2008 Annual Meeting of Stockholders.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Incorporated herein by reference to our proxy statement (to be
filed) for our May 22, 2008 Annual Meeting of Stockholders.
|
|
Item 13.
|
Certain
Relationships and Related Transactions
|
Incorporated herein by reference to our proxy statement (to be
filed) for our May 22, 2008 Annual Meeting of Stockholders.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
Incorporated herein by reference to our proxy statement (to be
filed) for our May 22, 2008 Annual Meeting of Stockholders.
49
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
Financial
Statements
The following Consolidated Financial Statements are filed as
part of this report or are incorporated herein as indicated:
|
|
|
|
|
|
|
Page
|
|
Consolidated Balance Sheets as of December 31, 2007 and 2006
|
|
|
F-1
|
|
Consolidated Statements of Income for the years ended
December 31, 2007, 2006 and 2005
|
|
|
F-2
|
|
Consolidated Statements of Stockholders Equity for the
years ended December 31, 2007, 2006 and 2005
|
|
|
F-3
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2007, 2006 and 2005
|
|
|
F-4
|
|
Notes to Consolidated Financial Statements
|
|
|
F-5
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-51
|
|
|
|
|
|
|
Financial Statement Schedules
|
|
|
|
|
Schedule II Valuation and Qualifying Accounts
|
|
|
|
|
Exhibits
|
|
|
|
|
See Index to Exhibits.
|
|
|
|
|
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
|
|
By:
|
/s/ Ronald
L. McCrummen
|
Ronald L. McCrummen
Senior Vice President and
Chief Accounting Officer
Dated February 27, 2008
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the registrant and in the capacity and on the dates
indicated.
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Gregg
L. Engles
Gregg
L. Engles
|
|
Chief Executive Officer and
Chairman of the Board
|
|
February 27, 2008
|
|
|
|
|
|
/s/ Jack
F. Callahan, Jr.
Jack
F. Callahan, Jr.
|
|
Executive Vice President and Chief Financial Officer
|
|
February 27, 2008
|
|
|
|
|
|
/s/ Ronald
L. McCrummen
Ronald
L. McCrummen
|
|
Senior Vice President and Chief Accounting Officer
|
|
February 27, 2008
|
|
|
|
|
|
/s/ Alan
Bernon
Alan
Bernon
|
|
Director
|
|
February 27, 2008
|
|
|
|
|
|
/s/ Lewis
M. Collens
Lewis
M. Collens
|
|
Director
|
|
February 27, 2008
|
|
|
|
|
|
/s/ Tom
Davis
Tom
Davis
|
|
Director
|
|
February 27, 2008
|
|
|
|
|
|
/s/ Stephen
L. Green
Stephen
L. Green
|
|
Director
|
|
February 27, 2008
|
|
|
|
|
|
/s/ Janet
Hill
Janet
Hill
|
|
Director
|
|
February 27, 2008
|
|
|
|
|
|
/s/ Joseph
S. Hardin, Jr.
Joseph
S. Hardin, Jr.
|
|
Director
|
|
February 27, 2008
|
|
|
|
|
|
/s/ Ron
Kirk
Ron
Kirk
|
|
Director
|
|
February 27, 2008
|
|
|
|
|
|
/s/ John
S. Llewellyn, Jr.
John
S. Llewellyn, Jr.
|
|
Director
|
|
February 27, 2008
|
S-1
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ John
Muse
John
Muse
|
|
Director
|
|
February 27, 2008
|
|
|
|
|
|
/s/ Hector
M. Nevares
Hector
M. Nevares
|
|
Director
|
|
February 27, 2008
|
|
|
|
|
|
/s/ Pete
Schenkel
Pete
Schenkel
|
|
Director
|
|
February 27, 2008
|
|
|
|
|
|
/s/ Jim
Turner
Jim
Turner
|
|
Director
|
|
February 27, 2008
|
S-2
SCHEDULE II
DEAN
FOODS COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2007, 2006 and 2005
Allowance for doubtful accounts deducted from accounts
receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
(Reduction in)
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
Costs and
|
|
|
|
|
|
|
|
|
Balance at
|
|
Year
|
|
Period
|
|
|
Expenses
|
|
|
Other
|
|
|
Deductions
|
|
|
End of Period
|
|
|
|
(In thousands)
|
|
|
2005
|
|
$
|
23,925
|
|
|
$
|
7,800
|
|
|
$
|
|
|
|
$
|
9,660
|
|
|
$
|
22,065
|
|
2006
|
|
|
22,065
|
|
|
|
(2,816
|
)
|
|
|
524
|
|
|
|
2,703
|
|
|
|
17,070
|
|
2007
|
|
|
17,070
|
|
|
|
5,788
|
|
|
|
100
|
|
|
|
3,128
|
|
|
|
19,830
|
|
INDEX TO
EXHIBITS
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously Filed as an Exhibit to and
|
|
|
Exhibit No.
|
|
Description
|
|
Incorporated by Reference From
|
|
Date Filed
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation
|
|
Annual Report on Form 10-K for the year ended December 31, 2001
|
|
April 1, 2002
|
|
3
|
.2
|
|
Amended and Restated Bylaws
|
|
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
|
|
August 13, 1999
|
|
4
|
.1
|
|
Specimen of Common Stock Certificate
|
|
Annual Report on Form 10-K for the year ended December 31, 2001
|
|
April 1, 2002
|
|
4
|
.2
|
|
Rights Agreement dated March 6, 1998 among us and Harris
Trust & Savings Bank, as rights agent, which includes
as Exhibit A the Form of Rights Certificate
|
|
Registration Statement of Form 8-A
|
|
March 10, 1998
|
|
4
|
.3
|
|
Amendment No. 1 to Rights Agreement dated May 26, 2004
by and between us and The Bank of New York, as rights agent
|
|
Current Report on Form 8-K
|
|
May 27, 2004
|
|
4
|
.4
|
|
Indenture, dated as of May 15, 2007, between us, the
subsidiary guarantors listed therein and The Bank of New York
Trust Company, N.A., as trustee
|
|
Current Report on Form 8-K
|
|
May 19, 2006
|
|
4
|
.5
|
|
Supplemental Indenture No. 1, dated as of May 17,
2006, between us, the subsidiary guarantors listed therein and
The Bank of New York Trust Company, N.A., as trustee
|
|
Current Report on Form 8-K
|
|
May 19, 2006
|
|
4
|
.6
|
|
Supplemental Indenture No. 2, dated as of July 31,
2007, between us, the subsidiary guarantors listed therein and
The Bank of New York Trust Company, N.A., as trustee
|
|
Quarterly Report on Form 10-Q for the quarter ended September
30, 2007
|
|
November 9, 2007
|
|
*10
|
.1
|
|
Eighth Amended and Restated 1997 Stock Option and Restricted
Stock Plan
|
|
Annual Report on Form 10-K for the year ended December 31, 2006
|
|
March 1, 2007
|
|
*10
|
.2
|
|
Third Amended and Restated 1989 Dean Foods Company Stock Awards
Plan
|
|
Annual Report on Form 10-K for the year ended December 31, 2004
|
|
March 16, 2005
|
|
*10
|
.3
|
|
Amended and Restated Executive Deferred Compensation Plan
|
|
Annual Report on Form 10-K for the year ended December 31, 2006
|
|
March 1, 2007
|
|
*10
|
.4
|
|
Post-2004 Executive Deferred Compensation Plan
|
|
Annual Report on Form 10-K for the year ended December 31, 2006
|
|
March 1, 2007
|
|
*10
|
.5
|
|
Revised and Restated Supplemental Executive Retirement Plan
|
|
Annual Report on Form 10-K for the year ended December 31, 2006
|
|
March 1, 2007
|
|
*10
|
.6
|
|
Amendment No. 1 to the Dean Foods Company Supplemental
Executive Retirement Plan
|
|
Annual Report on Form 10-K for the year ended December 31, 2006
|
|
March 1, 2007
|
|
*10
|
.7
|
|
Amendment No. 2 to the Dean Foods Company Supplemental
Executive Retirement Plan
|
|
Annual Report on Form 10-K for the year ended December 31, 2006
|
|
March 1, 2007
|
|
*10
|
.8
|
|
Form of stock option award agreement for awards to executive
officers
|
|
Annual Report on Form 10-K for the year ended December 31, 2006
|
|
March 1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously Filed as an Exhibit to and
|
|
|
Exhibit No.
|
|
Description
|
|
Incorporated by Reference From
|
|
Date Filed
|
|
|
*10
|
.9
|
|
Form of stock unit award agreement for awards to executive
officers
|
|
Annual Report on Form 10-K for the year ended December 31, 2006
|
|
March 1, 2007
|
|
*10
|
.10
|
|
Dean Foods Company Executive Severance Pay Plan
|
|
Annual Report on Form 10-K for the year ended December 31, 2006
|
|
March 1, 2007
|
|
*10
|
.11
|
|
Proprietary Information, Invention, and Non-Compete Agreement
dated September 7, 2005 between us and Alan Bernon
|
|
Quarterly Report on Form 10-Q for the quarter ended September
30, 2005
|
|
November 8, 2005
|
|
*10
|
.12
|
|
Employment Agreement dated October 7, 2005 between us and
Joseph Scalzo
|
|
Quarterly Report on Form 10-Q for the quarter ended September
30, 2005
|
|
November 8, 2005
|
|
*10
|
.13
|
|
Change of Control Agreement dated October 7, 2005 between
us and Joseph Scalzo
|
|
Quarterly Report on Form 10-Q for the quarter ended September
30, 2005
|
|
November 8, 2005
|
|
*10
|
.14
|
|
Proprietary Information, Inventions and Non-Compete Agreement
dated October 7, 2005 between us and Joseph Scalzo
|
|
Quarterly Report on Form 10-Q for the quarter ended September
30, 2005
|
|
November 8, 2005
|
|
*10
|
.15
|
|
Non Qualified Stock Option Agreement dated October 7, 2005
between us and Joseph Scalzo
|
|
Quarterly Report on Form 10-Q for the quarter ended September
30, 2005
|
|
November 8, 2005
|
|
*10
|
.16
|
|
Employment Agreement dated December 2, 2005 between us and
Pete Schenkel
|
|
Annual Report on Form 10-K for the year ended December 31, 2005
|
|
March 10, 2006
|
|
*10
|
.17
|
|
Independent Contractors and Non-Competition Agreement dated
December 1, 2005 between us and Pete Schenkel
|
|
Annual Report on Form 10-K for the year ended December 31, 2005
|
|
March 10, 2006
|
|
*10
|
.18
|
|
Employment Agreement dated April 27, 2006 between us and
Jack F. Callahan
|
|
Quarterly Report on Form 10-Q for the quarter ended March 31,
2006
|
|
March 1, 2007
|
|
*10
|
.19
|
|
Change in Control Agreement dated May 9, 2006 between us
and Jack F. Callahan
|
|
Quarterly Report on Form 10-Q for the quarter ended June 30, 2006
|
|
August 9, 2006
|
|
*10
|
.20
|
|
Proprietary Information, Inventions and Non-Compete Agreement
dated May 9, 2006 between us and Jack F. Callahan
|
|
Quarterly Report on Form 10-Q for the quarter ended June 30, 2006
|
|
August 9, 2006
|
|
*10
|
.21
|
|
Form of Change in Control Agreement for our executive officers
|
|
Annual Report on Form 10-K for the year ended December 31, 2002
|
|
March 27, 2003
|
|
*10
|
.22
|
|
Form of Change in Control Agreement for certain senior officers
|
|
Annual Report on Form 10-K for the year ended December 31, 2002
|
|
March 27, 2003
|
|
*10
|
.23
|
|
Form of Change in Control Agreement for certain other officers
|
|
Annual Report on Form 10-K for the year ended December 31, 2002
|
|
March 27, 2003
|
|
*10
|
.24
|
|
Dean Foods Company 2007 Stock Incentive Plan
|
|
Quarterly Report on Form 10-Q for the quarter ended June 30, 2007
|
|
August 9, 2007
|
|
*10
|
.25
|
|
Dean Foods Company Short Term Incentive Compensation Plan
|
|
Quarterly Report on Form 10-Q for the quarter ended June 30, 2007
|
|
August 9, 2007
|
|
*10
|
.26
|
|
Employment Agreement between us and Paul Moskowitz dated
May 3, 2007
|
|
Quarterly Report on Form 10-Q for the quarter ended June 30, 2007
|
|
August 9, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously Filed as an Exhibit to and
|
|
|
Exhibit No.
|
|
Description
|
|
Incorporated by Reference From
|
|
Date Filed
|
|
|
*10
|
.27
|
|
Change in Control Agreement between us and Paul Moskowitz
effective June 18, 2007
|
|
Quarterly Report on Form 10-Q for the quarter ended June 30, 2007
|
|
August 9, 2007
|
|
*10
|
.28
|
|
Separation and Release Agreement between us and Alan Bernon
dated September 21, 2007
|
|
Quarterly Report on Form 10-Q for the quarter ended September
30, 2007
|
|
November 9, 2007
|
|
*10
|
.29
|
|
Employment Agreement between us and Gregg Tanner
|
|
Quarterly Report on Form 10-Q for the quarter ended September
30, 2007
|
|
November 9, 2007
|
|
*10
|
.30
|
|
Change in Control Agreement between us and Gregg Tanner
effective November 5, 2007
|
|
Quarterly Report on Form 10-Q for the quarter ended September
30, 2007
|
|
November 9, 2007
|
|
*10
|
.31
|
|
Proprietary Information, Inventions and Non-Compete Agreement
between us and Gregg Tanner dated November 1, 2007
|
|
Quarterly Report on Form 10-Q for the quarter ended September
30, 2007
|
|
November 9, 2007
|
|
*10
|
.32
|
|
Employment Agreement between us and Rick Fehr dated
September 25, 2007
|
|
Filed herewith
|
|
|
|
*10
|
.33
|
|
Employment Agreement between us and Harrald Kroeker dated
January 14, 2008
|
|
Filed herewith
|
|
|
|
*10
|
.34
|
|
Employment Agreement between us and Greg McKelvey dated
January 15, 2008
|
|
Filed herewith
|
|
|
|
*10
|
.35
|
|
Employment Agreement between us and Debbie Carosella dated
March 14, 2007
|
|
Filed herewith
|
|
|
|
*10
|
.36
|
|
Form of Incentive Stock Option Agreement under the Dean Foods
Company 2007 Stock Incentive Plan
|
|
Filed herewith
|
|
|
|
*10
|
.37
|
|
Form of Non-Qualified Stock Option Agreement under the Dean
Foods Company 2007 Stock Incentive Plan
|
|
Filed herewith
|
|
|
|
*10
|
.38
|
|
Form of Directors Non-Qualified Stock Option Agreement
under the Dean Foods Company 2007 Stock Incentive Plan
|
|
Filed herewith
|
|
|
|
*10
|
.39
|
|
Form of Restricted Stock Unit Award Agreement (Dairy Group and
Corporate) under the Dean Foods Company 2007 Stock Incentive Plan
|
|
Filed herewith
|
|
|
|
*10
|
.40
|
|
Form of Restricted Stock Unit Award Agreement (WhiteWave) under
the Dean Foods Company 2007 Stock Incentive Plan
|
|
Filed herewith
|
|
|
|
10
|
.41
|
|
Stockholders Agreement dated July 31, 1997 among us,
Franklin Plastics, Peter M. Bernon and Alan J. Bernon
|
|
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, as amended on October 24, 1997
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October 24, 1997
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Previously Filed as an Exhibit to and
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Exhibit No.
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Description
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Incorporated by Reference From
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Date Filed
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10
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.42
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Amended and Restated Limited Liability Company Agreement of
Consolidated Container Holdings, LLC
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Annual Report on Form 10-K for the year ended December 31, 2006
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March 1, 2007
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10
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.43
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Distribution Agreement between us and TreeHouse Foods dated
June 27, 2005
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Current Report on Form 8-K
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June 27, 2005
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10
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.44
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Tax Sharing Agreement dated June 27, 2005 between us and
TreeHouse Foods
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Current Report on Form 8-K
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June 27, 2005
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10
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.45
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Amended and Restated Credit Agreement among us and our Senior
Lenders dated August 13, 2004
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Quarterly Report on Form 10-Q for the quarter ended September
30, 2004
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November 9, 2004
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10
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.46
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Amendment No. 1 to Amended and Restated Credit Agreement
among us and our Senior Lenders dated May 27, 2005
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Current Report on Form 8-K
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June 1, 2005
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10
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.47
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Amendment No. 2 to Amended and Restated Credit Agreement
among us and our Senior Lenders dated November 18, 2005
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Current Report on Form 8-K
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November 28, 2005
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10
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.48
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Amendment No. 3 to Amended and Restated Credit Agreement
among us and our Senior Lenders dated March 14, 2006
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Quarterly Report on Form 10-Q for the quarter ended March 31,
2006
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May 10, 2006
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10
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.49
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Fourth Amended and Restated Receivables Purchase Agreement among
certain subsidiaries of Dean Foods Company, as sellers, the
Servicers, the Companies, the Financial Institutions (each as
defined in the agreement) and Bank One NA, as Agent
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Current Report on Form 8-K
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November 21, 2006
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10
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.50
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Amendment No. 11 to Fourth Amended and Restated Receivables
Purchase Agreement among certain subsidiaries of Dean Foods
Company, as sellers, the Servicers, the Companies, the Financial
Institutions (each as defined in the agreement) and Bank One NA,
as Agent
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Current Report on Form 8-K
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November 21, 2006
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Previously Filed as an Exhibit to and
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Exhibit No.
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Description
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Incorporated by Reference From
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Date Filed
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10
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.51
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Amended and Restated Credit Agreement, dated as of April 2,
2007 among Dean Foods Company; J.P. Morgan Securities,
Inc., Banc of America Securities LLC, Wachovia Capital Markets,
LLC, as Lead Arrangers; JPMorgan Chase Bank, National
Association, as Administrative Agent; Bank of America, N.A., as
Syndication Agent; Wachovia Bank, National Association, as
Documentation Agent; and certain other lenders that are parties
thereto
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Current Report on Form 8-K
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April 4, 2007
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10
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.52
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Fifth Amended and Restated Receivables Purchase Agreement, dated
as of April 2, 2007 among Dairy Group Receivables L.P.,
Dairy Group Receivables II, L.P., WhiteWave Receivables, L.P.,
as Sellers; the Servicers, Companies and Financial Institutions
listed therein; and JPMorgan Chase Bank, N.A., as Agent
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Current Report on Form 8-K
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April 4, 2007
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10
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.53
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Commitment letter, dated March 1, 2007, among Dean Foods
Company, J.P. Morgan Securities Inc., Banc of America
Securities LLC, Wachovia Capital Markets, LLC, JPMorgan Chase
Bank, National Association, Bank of America, N.A. and Wachovia
Bank, National Association
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Current Report on Form 8-K
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March 2, 2007
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12
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Computation of Ratio of Earnings to Fixed Charges
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Filed herewith
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21
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List of Subsidiaries
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Filed herewith
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23
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Consent of Deloitte & Touche LLP
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Filed herewith
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31
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.1
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Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
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Filed herewith
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31
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.2
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Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
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Filed herewith
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32
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.1
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Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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Filed herewith
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32
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.2
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Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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Filed herewith
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99
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Supplemental Financial Information for Dean Holding Company
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Filed herewith
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* |
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This exhibit is a management or compensatory contract. |