Edgar Filing: DEAN FOODS CO

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



(Mark One)
ý	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, 2018



¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from to

Commission File Number 001-12755

Dean Foods Company

(Exact name of the registrant as specified in its charter)



Delaware		75-2559681
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)

2711 North Haskell Avenue, Suite 3400

Dallas, Texas 75204

(214) 303-3400

(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one):



Large accelerated filer	ý	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	¨

		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No ý

As of November 2, 2018, the number of shares of the registrant's common stock outstanding was: 91,400,522.

Common Stock, par value $.01

Table of Contents



			Page
Part I — Financial Information

Item 1	—	Condensed Consolidated Financial Statements (Unaudited)	3
Item 2	—	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3	—	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4	—	Controls and Procedures	45

Part II — Other Information

Item 1A	—	Risk Factors	46
Item 6	—	Exhibits	46

Signatures			47

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Part I — Financial Information

Item 1. Unaudited Condensed Consolidated Financial Statements

DEAN FOODS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)



	September 30, 2018			December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	21,785		$	16,512
Receivables, net of allowances of $4,263 and $5,583	612,254			675,826
Income tax receivable	4,146			2,140
Inventories	262,173			278,063
Prepaid expenses and other current assets	34,095			47,338
Assets held for sale	4,188			—
Total current assets	938,641			1,019,879
Property, plant and equipment, net	999,438			1,094,064
Goodwill	190,714			167,535
Identifiable intangible and other assets, net	210,205			211,620
Deferred income taxes	15,464			10,731
Total	$	2,354,462		$	2,503,829
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	644,383		$	671,070
Current portion of debt	1,162			1,125
Total current liabilities	645,545			672,195
Long-term debt, net	886,002			912,074
Deferred income taxes	42,365			60,018
Other long-term liabilities	196,216			203,595
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, none issued	—			—
Common stock, 91,401,589 and 91,123,759 shares issued and outstanding, with a par value of $0.01 per share	914			911
Additional paid-in capital	663,031			659,227
Retained earnings (accumulated deficit)	(825		)	74,219
Accumulated other comprehensive loss	(90,668		)	(78,410		)
Total Dean Foods Company stockholders’ equity	572,452			655,947
Non-controlling interest	11,882			—
Total stockholders’ equity	584,334			655,947
Total	$	2,354,462		$	2,503,829

See Notes to unaudited Condensed Consolidated Financial Statements.

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DEAN FOODS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share data)



	Three Months Ended September 30						Nine Months Ended September 30
	2018			2017			2018			2017
Net sales	$	1,894,066		$	1,937,620		$	5,825,803		$	5,860,028
Cost of sales	1,503,469			1,495,782			4,553,919			4,488,491
Gross profit	390,597			441,838			1,271,884			1,371,537
Operating costs and expenses:
Selling and distribution	349,244			332,551			1,031,961			1,015,624
General and administrative	66,582			67,950			208,076			238,895
Amortization of intangibles	5,150			5,232			15,306			15,542
Facility closing and reorganization costs, net	(2,679		)	7,844			73,444			22,947
Impairment of long-lived assets	—			24,970			2,232			24,970
Other operating income	—			—			(2,289		)	—
Equity in (earnings) loss of unconsolidated affiliate	(1,917		)	—			(5,516		)	—
Total operating costs and expenses	416,380			438,547			1,323,214			1,317,978
Operating income (loss)	(25,783		)	3,291			(51,330		)	53,559
Other expense:
Interest expense	13,810			16,527			41,912			50,410
Other expense, net	432			414			1,684			805
Total other expense	14,242			16,941			43,596			51,215
Income (loss) before income taxes	(40,025		)	(13,650		)	(94,926		)	2,344
Income tax expense (benefit)	(13,377		)	(3,677		)	(25,997		)	4,429
Loss from continuing operations	(26,648		)	(9,973		)	(68,929		)	(2,085		)
Income from discontinued operations, net of tax	—			11,355			—			11,355
Gain on sale of discontinued operations, net of tax	—			—			1,922			—
Net income (loss)	(26,648		)	1,382			(67,007		)	9,270
Net loss attributable to non-controlling interest	224			—			224			—
Net income (loss) attributable to Dean Foods Company	$	(26,424	)	$	1,382		$	(66,783	)	$	9,270
Average common shares:
Basic	91,372,325			90,939,101			91,302,990			90,844,613
Diluted	91,372,325			90,939,101			91,302,990			90,844,613
Basic income (loss) per common share:
Loss from continuing operations attributable to Dean Foods Company	$	(0.29	)	$	(0.11	)	$	(0.75	)	$	(0.03	)
Income from discontinued operations attributable to Dean Foods Company	—			0.13			0.02			0.13
Net income (loss) attributable to Dean Foods Company	$	(0.29	)	$	0.02		$	(0.73	)	$	0.10
Diluted income (loss) per common share:
Loss from continuing operations attributable to Dean Foods Company	$	(0.29	)	$	(0.11	)	$	(0.75	)	$	(0.03	)
Income from discontinued operations attributable to Dean Foods Company	—			0.13			0.02			0.13
Net income (loss) attributable to Dean Foods Company	$	(0.29	)	$	0.02		$	(0.73	)	$	0.10
Cash dividends declared per common share	$	0.09		$	0.09		$	0.27		$	0.27

See Notes to unaudited Condensed Consolidated Financial Statements.

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DEAN FOODS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands)



	Three Months Ended September 30					Nine Months Ended September 30
	2018			2017		2018			2017
Net income (loss)	$	(26,648	)	$	1,382	$	(67,007	)	$	9,270
Other comprehensive income (loss):
Pension and other postretirement liability adjustment, net of tax	1,363			1,627		4,589			4,903
Other comprehensive income	1,363			1,627		4,589			4,903
Reclassification of stranded tax effects related to the Tax Act(1)	—			—		(16,847		)	—
Comprehensive income (loss)	(25,285		)	3,009		(79,265		)	14,173
Comprehensive loss attributable to non-controlling interest	224			—		224			—
Comprehensive income (loss) attributable to Dean Foods Company	$	(25,061	)	$	3,009	$	(79,041	)	$	14,173


(1)	Refer to Note 1 - Recently Adopted Accounting Pronouncements within our Notes to unaudited Condensed Consolidated Financial Statements for additional details on the adoption of Accounting Standards Update ("ASU") No. 2018-02 during the first quarter of 2018.

See Notes to unaudited Condensed Consolidated Financial Statements.

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DEAN FOODS COMPANY

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share data)



	Dean Foods Company Stockholders
	Common Stock					Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)			Non- controlling Interest			Total Stockholders’ Equity
	Shares	Amount		Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)			Non- controlling Interest			Total Stockholders’ Equity
Balance, January 1, 2018	91,123,759	$	911	$	659,227	$	74,219		$	(78,410	)	$	—		$	655,947
Issuance of common stock	277,830	3		137		—			—			—			140
Share-based compensation expense	—	—		3,667		—			—			—			3,667
Reclassification of stranded tax effects related to the Tax Act(1)	—	—		—		16,847			(16,847		)	—			—
Net loss attributable to Dean Foods Company	—	—		—		(66,783		)	—			—			(66,783		)
Fair value of non-controlling interest acquired	—	—		—		—			—			11,752			11,752
Net loss attributable to non-controlling interest	—	—		—		—			—			(224		)	(224		)
Issuance of subsidiary's common stock	—	—		—		—			—			354			354
Dividends	—	—		—		(25,108		)	—			—			(25,108		)
Other comprehensive income:
Pension and other postretirement benefit liability adjustment, net of tax of $1,840	—	—		—		—			4,589			—			4,589
Balance, September 30, 2018	91,401,589	$	914	$	663,031	$	(825	)	$	(90,668	)	$	11,882		$	584,334


(1)	Refer to Note 1 - Recently Adopted Accounting Pronouncements within our Notes to unaudited Condensed Consolidated Financial Statements for additional details on the adoption of ASU No. 2018-02 during the first quarter of 2018.

See Notes to unaudited Condensed Consolidated Financial Statements.

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DEAN FOODS COMPANY

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except share data)



	Dean Foods Company Stockholders
	Common Stock												Total Stockholders’ Equity
	Shares	Amount		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance, January 1, 2017	90,586,741	$	906	$	653,629		$	45,654		$	(89,633	)	$	610,556
Issuance of common stock	417,468	4		(230		)	—			—			(226		)
Share-based compensation expense	—	—		4,710			—			—			4,710
Net income	—	—		—			9,270			—			9,270
Dividends	—	—		—			(24,795		)	—			(24,795		)
Other comprehensive income:
Pension and other postretirement benefit liability adjustment, net of tax of $3,096	—	—		—			—			4,903			4,903
Balance, September 30, 2017	91,004,209	$	910	$	658,109		$	30,129		$	(84,730	)	$	604,418

See Notes to unaudited Condensed Consolidated Financial Statements.

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DEAN FOODS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



	Nine Months Ended September 30
	2018			2017
Cash flows from operating activities:
Net income (loss)	$	(67,007	)	$	9,270
Income from discontinued operations, net of tax	—			(11,355		)
Gain on sale of discontinued operations, net of tax	(1,922		)	—
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	118,210			129,667
Share-based compensation expense	7,245			7,561
Non-cash facility closing and reorganization costs, net	38,862			4,740
Impairment of long-lived assets	2,232			24,970
Write-off of financing costs	—			1,080
Other operating income	(2,289		)	—
Equity in (earnings) loss of unconsolidated affiliate	(5,516		)	—
Deferred income taxes	(26,727		)	3,227
Other, net	(2,216		)	4,196
Changes in operating assets and liabilities, net of acquisitions:
Receivables, net	65,058			(3,248		)
Inventories	16,565			9,704
Prepaid expenses and other assets	11,237			5,421
Accounts payable and accrued expenses	(31,928		)	(85,226		)
Income taxes receivable	(2,006		)	5,218
Contributions to company-sponsored pension plans	—			(38,500		)
Net cash provided by operating activities	119,798			66,725
Cash flows from investing activities:
Payments for property, plant and equipment	(68,680		)	(61,384		)
Payments for acquisitions, net of cash acquired	(13,324		)	(21,596		)
Proceeds from sale of fixed assets	19,083			3,112
Other investments	—			(11,000		)
Net cash used in investing activities	(62,921		)	(90,868		)
Cash flows from financing activities:
Repayments of debt	(759		)	(1,118		)
Payments of financing costs	—			(1,767		)
Proceeds from senior secured revolver	236,200			213,600
Payments for senior secured revolver	(247,300		)	(209,900		)
Proceeds from receivables securitization facility	1,810,000			1,690,000
Payments for receivables securitization facility	(1,825,000		)	(1,635,000		)
Proceeds from issuance of subsidiary's common stock	354			—
Cash dividends paid	(24,663		)	(24,540		)
Issuance of common stock, net of share repurchases for withholding taxes	(436		)	(764		)
Net cash provided by (used in) financing activities	(51,604		)	30,511
Increase in cash and cash equivalents	5,273			6,368
Cash and cash equivalents, beginning of period	16,512			17,980
Cash and cash equivalents, end of period	$	21,785		$	24,348

See Notes to unaudited Condensed Consolidated Financial Statements.

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DEAN FOODS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and Nine Months Ended September 30, 2018 and 2017

(Unaudited)

1. General

Nature of Our Business — We are a leading food and beverage company and the largest processor and direct-to-store distributor of fresh fluid milk and other dairy and dairy case products in the United States, with a vision to be the most admired and trusted provider of wholesome, great-tasting dairy products at every occasion.

We manufacture, market and distribute a wide variety of branded and private label dairy and dairy case products, including fluid milk, ice cream, cultured dairy products, creamers, ice cream mix and other dairy products to retailers, distributors, foodservice outlets, educational institutions and governmental entities across the United States. Our portfolio includes DairyPure^®, the country's first and largest fresh, national white milk brand, and TruMoo^®, the leading national flavored milk brand, along with well-known regional dairy brands such as Alta Dena^®, Berkeley Farms^®, Country Fresh^®, Dean’s^®, Friendly's^®, Garelick Farms^®, LAND O LAKES ^® milk and cultured products (licensed brand), Lehigh Valley Dairy Farms^®, Mayfield ^®, McArthur^®, Meadow Gold ^®, Oak Farms^®, PET ^® (licensed brand), T.G. Lee^®, Tuscan^® and more. In all, we have more than 50 national, regional and local dairy brands, as well as private labels. We also sell and distribute organic juice, probiotic-infused juices, and fruit-infused waters under the Uncle Matt's Organic^®brand. Additionally, we are party to the Organic Valley Fresh joint venture which distributes organic milk under the Organic Valley^® brand to retailers. With our majority interest acquisition of Good Karma Foods, Inc., which was completed on June 29, 2018, we now sell and distribute flax-based milk and yogurt products under the Good Karma^® brand. Dean Foods also makes and distributes juices, teas and bottled water. Due to the perishable nature of our products, we deliver the majority of our products directly to our customers’ locations in refrigerated trucks or trailers that we own or lease. We believe that we have one of the most extensive refrigerated direct-to-store delivery ("DSD") systems in the United States. We sell our products primarily on a local or regional basis through our local and regional sales forces, and in some instances, with the assistance of brokers. Some national customer relationships are coordinated by our centralized corporate sales department or national brokers.

Basis of Presentation and Consolidation — The unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q have been prepared on the same basis as the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Annual Report on Form 10-K”), which we filed with the Securities and Exchange Commission on February 26, 2018. The unaudited Condensed Consolidated Financial Statements include the accounts of the Company and entities controlled by the Company through its direct ownership of a majority interest. The Company eliminates from its financial results all intercompany transactions between entities included in the consolidated financial statements. In our opinion, we have made all necessary adjustments (which include only normal recurring adjustments) to present fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted. Our results of operations for the three and nine month periods ended September 30, 2018 may not be indicative of our operating results for the full year. The unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements contained in our 2017 Annual Report on Form 10-K.

Unless otherwise indicated, references in this report to “we,” “us,” “our” or "the Company" refer to Dean Foods Company and its subsidiaries, taken as a whole.

Recently Adopted Accounting Pronouncements

ASU No. 2014-09 — As of January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers. The comprehensive new standard supersedes existing revenue recognition guidance and requires revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The Company adopted the new standard using the modified retrospective approach. Under this method we have provided additional disclosures, including the amount by which each financial statement line item is affected in the current reporting period, as compared to the prior revenue recognition guidance. Additionally, we have provided a disaggregation of our revenue by source and product type and have also included certain qualitative information related to our revenue streams. See Note 2. The adoption of ASU 2014-09 did not materially impact our results of operations or financial position, except with respect to the change in classification of sales of excess raw materials.

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The pro forma effect of the change in classification of sales of excess raw materials on our unaudited Condensed Consolidated Statements of Operations was as follows (in thousands):



	Three Months Ended September 30, 2017						Nine Months Ended September 30, 2017
	As Previously Reported		Pro Forma Results Assuming Retrospective Adoption of ASU 2014-09		Increase (Decrease) to Previously Reported Amounts		As Previously Reported		Pro Forma Results Assuming Retrospective Adoption of ASU 2014-09		Increase (Decrease) to Previously Reported Amounts
Net sales	$	1,937,620	$	2,085,944	$	148,324	$	5,860,028	$	6,316,559	$	456,531
Cost of sales	1,495,880		1,644,204		148,324		4,488,783		4,945,314		456,531
Gross profit	$	441,740	$	441,740	$	—	$	1,371,245	$	1,371,245	$	—

An adjustment to opening retained earnings was not required as the change in classification of sales of excess raw materials illustrated in the table above did not result in a change to the earnings reported in prior periods.

ASU No. 2017-07 — As of January 1, 2018, we adopted ASU 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires employers who offer defined benefit pension plans or other post-retirement benefit plans to report the service cost component within the same income statement caption as other compensation costs arising from services rendered by employees during the period. The ASU also requires the other components of net periodic benefit cost to be presented separately from the service cost component, in a caption outside of a subtotal of income from operations. Additionally, the ASU provides that only the service cost component is eligible for capitalization. See Note 12 for further information on our pension and postretirement plans.

The effect of the retrospective presentation change related to the net periodic cost for pension and postretirement benefits on our unaudited Condensed Consolidated Statements of Operations was as follows (in thousands):



	Three Months Ended September 30, 2017								Nine Months Ended September 30, 2017
	As Previously Reported			Adjustment for Adoption of ASU 2017-07			As Revised		As Previously Reported			Adjustment for Adoption of ASU 2017-07			As Revised
Cost of sales	$	1,495,880		$	(98	)	$	1,495,782	$	4,488,783		$	(292	)	$	4,488,491
Gross profit	441,740			98			441,838		1,371,245			292			1,371,537
Selling and distribution	332,683			(132		)	332,551		1,016,023			(399		)	1,015,624
General and administrative	68,796			(846		)	67,950		241,432			(2,537		)	238,895
Total operating costs and expenses	439,525			(978		)	438,547		1,320,914			(2,936		)	1,317,978
Operating income	2,215			1,076			3,291		50,331			3,228			53,559
Other (income) expense, net	(662		)	1,076			414		(2,423		)	3,228			805

ASU No. 2018-02 — We early adopted ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, effective January 1, 2018 and have applied the guidance as of the beginning of the period of adoption. Our accounting policy is to release the income tax effects from accumulated other comprehensive income when a pension or other postretirement benefit plan is liquidated or extinguished. As permitted under ASU 2018-02, we have elected to record a one-time reclassification for the stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Tax Act") from accumulated other comprehensive income to retained earnings in the amount of $16.8 million on our unaudited Condensed Consolidated Balance Sheet during the first quarter of 2018. The only impact of stranded tax effects resulting from the Tax Act is with respect to our pension and other postretirement benefit plans.

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Recently Issued Accounting Pronouncements

Effective in 2019

ASU No. 2017-12 — In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities. The new guidance improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in this guidance are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after issuance of this guidance. We do not intend to early adopt this ASU. We do not currently expect the adoption of ASU 2017-12 to have a material impact on our financial statements as our derivative instruments are not designated as cash flow or fair value hedges under Topic 815. See Note 8 for further information on our derivative instruments.

ASU No. 2016-02 — In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires lessees to recognize lease assets and lease liabilities in the balance sheet and disclose key information about leasing arrangements, such as information about variable lease payments and options to renew and terminate leases. The amended guidance will require both operating and finance leases to be recognized in the balance sheet. Additionally, the amended guidance aligns lessor accounting to comparable guidance in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606"). The amended guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. In July 2018, the FASB issued ASU 2018-11, Leases: Targeted Improvements, allowing ASU 2016-02 to be adopted using either 1) a modified retrospective transition approach, which requires application of the new guidance at the beginning of the earliest comparative period presented in the year of adoption; or 2) application of the new standard at the January 1, 2019 adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Early adoption is permitted. We do not intend to early adopt this ASU. To assess the impacts of the new lease standard on our financial statements and current accounting practices, we have formed a steering committee comprised of subject matter experts within the Company to assist with the assessment of contractual arrangements that may qualify as a lease under the new standard, gather lease data, assist with evaluating and implementing lease management technology solutions, and other key activities. At this time, we have finalized our selection of a software vendor and are in the process of implementing a lease management technology solution. We anticipate the impact of this standard to be significant to our Consolidated Balance Sheet due to the amount of our lease commitments. See Note 18 to the Consolidated Financial Statements contained in our 2017 Annual Report on Form 10-K for further information regarding these commitments. We are currently evaluating the other impacts that ASU 2016-02 will have on our financial statements.

Effective in 2020

ASU No. 2018-15 — In August 2018, the FASB issued ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new guidance is effective for public entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The amendments should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently evaluating the impact ASU 2018-15 will have on our financial statements.

ASU No. 2018-13 — In August 2018, the FASB issued ASU 2018-13, Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The amendments were issued as a part of the FASB's disclosure framework project, which seeks to improve the effectiveness of disclosures in the notes to the financial statements. The new guidance is effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance of this guidance. We do not intend to early adopt this ASU. We do not expect the adoption of ASU 2018-13 to have a material impact on our financial statements.

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ASU No. 2017-04 — In January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other: Simplifying the Test for Goodwill Impairment. The new guidance simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds a reporting unit’s fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. For public companies, this guidance is effective for annual periods or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the adoption of ASU 2017-04 to have a material impact on our financial statements.

Effective in 2021

ASU No. 2018-14 — In August 2018, the FASB issued ASU 2018-14, Compensation — Retirement Benefits —Defined Benefit Plans — General (Subtopic 715-20): Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing disclosures that no longer are considered cost beneficial, clarifying the specific requirements of disclosures, and adding disclosure requirements identified as relevant. The amendments were issued as a part of the FASB's disclosure framework project, which seeks to improve the effectiveness of disclosures in the notes to the financial statements. The new guidance is effective for public entities for fiscal years beginning after December 15, 2020. Early adoption is permitted. We do not intend to early adopt this ASU. The amendments should be applied retrospectively. We do not expect the adoption of ASU 2018-14 to have a material impact on our financial statements.

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2. Revenue Recognition

Disaggregation of Net Sales

The following table presents a disaggregation of our net sales by product type and revenue source. We believe these categories most appropriately depict the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with our customers.



	Three Months Ended				Nine Months Ended
	September 30, 2018		September 30, 2017(1)		September 30, 2018		September 30, 2017(1)
	(In thousands)
Fluid milk	$	1,118,474	$	1,266,951	$	3,535,696	$	3,950,295
Ice cream(2)	303,740		307,319		864,343		887,658
Fresh cream(3)	99,771		99,930		291,537		280,712
Extended shelf life and other dairy products(4)	44,379		47,410		135,804		142,126
Cultured	65,343		72,223		195,013		216,408
Other beverages(5)	71,506		73,825		208,550		220,859
Other(6)	32,577		33,621		95,675		88,640
Subtotal	1,735,790		1,901,279		5,326,618		5,786,698
Sales of excess raw materials(7)	112,446		—		387,128		—
Sales of other bulk commodities	45,830		36,341		112,057		73,330
Total net sales	$	1,894,066	$	1,937,620	$	5,825,803	$	5,860,028


(1)	Prior period amounts have not been restated as we have elected to adopt ASC 606 using the modified retrospective method. Sales of excess raw materials of $148.3 million and $456.5 million for the three and nine months ended September 30, 2017, respectively, were included as a reduction of cost of sales in our unaudited Condensed Consolidated Statements of Operations.


(2)	Includes ice cream, ice cream mix and ice cream novelties.


(3)	Includes half-and-half and whipping creams.


(4)	Includes creamers and other extended shelf life fluids.


(5)	Includes fruit juice, fruit flavored drinks, iced tea, water and flax-based milk.


(6)	Includes items for resale such as butter, cheese, eggs and milkshakes.

(7)

Historically, we presented sales of excess raw materials as a reduction of cost of sales within our Consolidated Statements of Operations; however, upon further evaluation of these sales in connection with our implementation of ASC 606, we have determined that it is appropriate to present these sales as revenue. Therefore, on a prospective basis, effective January 1, 2018, we began reporting these sales within the net sales line of our unaudited Condensed Consolidated Statements of Operations.

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The following table presents a disaggregation of our net product sales between sales of Company-branded products versus sales of private label products:



	Three Months Ended				Nine Months Ended
	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
	(In thousands)
Branded products	$	844,356	$	909,186	$	2,607,751	$	2,816,782
Private label products	891,434		992,093		2,718,867		2,969,916
Subtotal	1,735,790		1,901,279		5,326,618		5,786,698
Sales of excess raw materials	112,446		—		387,128		—
Sales of other bulk commodities	45,830		36,341		112,057		73,330
Total net sales	$	1,894,066	$	1,937,620	$	5,825,803	$	5,860,028

Revenue Recognition and Nature of Products and Services

The substantial majority of our revenue is derived from the sale of fluid milk, ice cream and other dairy products, which includes sales of both Company-branded products as well as private label products. In addition, we derive revenue from the sale of excess raw materials and the sale of other bulk commodities.

Our portfolio of products includes fluid milk, ice cream, cultured dairy products, creamers, ice cream mix and other dairy and dairy case products. We sell these products under national, regional and local proprietary or licensed brands, or under private labels. Our sales of excess raw materials consist primarily of bulk cream sales. As a result of the purchase of raw milk, we obtain more butterfat than is needed in our production process. Excess butterfat is sold, primarily in the form of bulk cream, to third parties. Additionally, in certain cases we may be required to externally purchase bulk cream in order to fulfill minimum supply requirements for our customers. In these cases, we purchase bulk cream from other processors or suppliers and resell it to our customers to fulfill our contractual requirements with them.

In all cases, we recognize revenue upon delivery to our customers as we have determined that this is the point at which control is transferred, our performance obligation is complete, and we are entitled to consideration.

Contractual Arrangements with Customers

The majority of our sales are to retailers, warehouse clubs, distributors, foodservice outlets, educational institutions and governmental entities with whom we have contractual agreements. Our sales of excess raw materials and other bulk commodities are primarily to dairy cooperatives, dairy processors or other manufacturers for use as a raw ingredient in their respective manufacturing processes. Our customer contracts typically contain standard terms and conditions and a term sheet. In some cases, upon expiration, these arrangements may continue with the same terms and may not be formally renewed. Additionally, we have a number of informal sales arrangements with certain local and regional customers, which we consider to be contracts based on the criteria outlined in ASC 606. Payment terms and conditions vary by customer, but we generally provide credit terms to customers ranging up to 30 days; therefore, we have determined that our contracts do not include a significant financing component. We perform ongoing credit evaluations of our customers and maintain allowances for potential credit losses based on our historical experience.

We have determined that we satisfy our performance obligations related to our customer contracts at a point in time, as opposed to over time, and, accordingly, revenue is recognized at a point in time across all of our revenue streams. Therefore, we do not have any contract balances with our customers recorded on our unaudited Condensed Consolidated Balance Sheets.

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Sales Incentives and Other Promotional Programs

We routinely offer sales incentives and discounts through various regional and national programs to our customers and consumers. These programs include scan backs, product rebates, product returns, trade promotions and co-op advertising, product discounts, product coupons and amounts paid to customers for shelf space in retail stores. The expenses associated with these programs are accounted for as reductions to the transaction price of our products and are therefore recorded as reductions to gross sales.

Some of our sales incentives are recorded by estimating incentive costs or redemption rates based on our historical experience and expected levels of performance of the trade promotion or other program. We maintain liabilities at the end of each period for the estimated incentive costs incurred but unpaid for these programs. Differences between estimated and actual incentive costs are normally not material and are recognized in earnings in the period such differences are determined.

3. Acquisitions and Discontinued Operations

Acquisitions

Good Karma — On May 4, 2017, we acquired a non-controlling interest in, and entered into a distribution agreement with, Good Karma Foods, Inc. (“Good Karma”), the leading producer of flax-based milk and yogurt products. This investment allows us to diversify our portfolio to include plant-based dairy alternatives and provides Good Karma the ability to more rapidly expand distribution across the U.S., as well as increase investments in brand building and product innovation.

On June 29, 2018, we increased our ownership interest in Good Karma to 67% with an additional investment of $15.0 million, resulting in control under acquisition method accounting. The acquisition was accounted for as a step-acquisition within a business combination. Our equity interest in Good Karma was remeasured to fair value of $9.0 million, resulting in a non-taxable gain of $2.3 million which was recognized during the three months ended June 30, 2018 and is included in other operating income in our unaudited Condensed Consolidated Statements of Operations.

The aggregate fair value purchase price was $35.7 million. Assets acquired and liabilities assumed in connection with the acquisition have been recorded at their fair values and include identifiable intangible assets of $13.6 million, of which $10.7 million relates to an indefinite-lived trademark and $2.9 million relates to customer relationships that are subject to amortization over a period of 10 years.

We recorded goodwill of $23.3 million in connection with the acquisition, which consists of the excess of the net purchase price over the fair value of the net assets acquired. This goodwill represents the expected value attributable to our expansion into the plant-based dairy alternatives category. The goodwill is not deductible for tax purposes. We recorded the fair value of the non-controlling interest in Good Karma of $11.8 million in our unaudited Condensed Consolidated Balance Sheets.

The acquisition was funded through cash on hand. The pro forma impact of the acquisition on consolidated net earnings would not have materially changed reported net earnings. Good Karma’s results of operations have been consolidated in our unaudited Condensed Consolidated Statements of Operations from the date of acquisition.

Prior to the June 29, 2018 step-acquisition, we accounted for our investment in Good Karma under the equity method of accounting based upon our ability to exercise significant influence over the investee through our ownership interest and representation on Good Karma's board of directors. Our equity in the earnings of this investment was not material to our unaudited Condensed Consolidated Financial Statements for the nine months ended September 30, 2018.

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Uncle Matt's Organic — On June 22, 2017, we completed the acquisition of Uncle Matt's Organic, Inc. ("Uncle Matt's"). Uncle Matt's is a leading organic juice company offering a wide range of organic juices, including probiotic-infused juices and fruit-infused waters. The total purchase price was $22.0 million. Assets acquired and liabilities assumed in connection with the acquisition have been recorded at their fair values and include identifiable intangible assets of $8.4 million, of which $6.6 million relates to an indefinite-lived trademark and $1.8 million relates to customer relationships that are subject to amortization over a period of 10 years.

We recorded goodwill of $13.3 million in connection with the acquisition, which consists of the excess of the net purchase price over the fair value of the net assets acquired. This goodwill represents the expected value attributable to our expansion into the organic juice category. The goodwill is not deductible for tax purposes.

The acquisition was funded through a combination of cash on hand and borrowings under our receivables securitization facility. The pro forma impact of the acquisition on consolidated net earnings would not have materially changed reported net earnings. Uncle Matt's results of operations have been included in our unaudited Condensed Consolidated Statements of Operations from the date of acquisition.

Discontinued Operations

During the second quarter of 2018, we recognized a net gain from discontinued operations of $1.9 million, net of tax, resulting from a tax refund received from the settlement of a state tax refund claim related to our 2013 sale of Morningstar Foods, LLC.

During the three and nine months ended September 30, 2017, we recognized net gains from discontinued operations of $11.4 million due to the lapse of a statute of limitation related to an unrecognized tax benefit previously established as a direct result of the spin-off of the WhiteWave Foods Company, which was completed on May 23, 2013.

4. Investments in Unconsolidated Affiliates

Organic Valley Fresh Joint Venture — In the third quarter of 2017, we commenced the operations of our 50/50 strategic joint venture with Cooperative Regions of Organic Producer Pools (“CROPP”), an independent farmer cooperative that distributes organic milk and other organic dairy products under the Organic Valley^® brand. The joint venture, called Organic Valley Fresh, combines our processing plants and refrigerated DSD system with CROPP's portfolio of recognized brands and products, marketing expertise, and access to an organic milk supply from America's largest cooperative of organic dairy farmers to bring the Organic Valley^® brand to retailers. We and CROPP each made a capital contribution of $2.0 million to the joint venture during the third quarter of 2017. We received cash distributions from the joint venture of $2.8 million for the nine months ended September 30, 2018.

We have concluded that Organic Valley Fresh is a variable interest entity, but we have determined that we are not the primary beneficiary of the Organic Valley Fresh joint venture because we do not have the power to direct the activities that most significantly affect the economic performance of the joint venture; therefore, the financial results of the joint venture have not been consolidated in our unaudited Condensed Consolidated Financial Statements. We are accounting for this investment under the equity method of accounting. Our equity in the earnings of the joint venture are included as a component of operating income as we have determined that the joint venture's operations are integral to, and an extension of, our business operations. Our equity in the earnings of the joint venture was $1.9 million and $5.5 million for the three and nine months ended September 30, 2018, respectively.

5. Inventories

Inventories at September 30, 2018 and December 31, 2017 consisted of the following:



	September 30, 2018		December 31, 2017
	(In thousands)
Raw materials and supplies	$	107,951	$	106,814
Finished goods	154,222		171,249
Total	$	262,173	$	278,063

6. Goodwill and Intangible Assets

As of September 30, 2018, the gross carrying value of goodwill was $2.26 billion and accumulated goodwill impairment was $2.08 billion. We recorded a goodwill impairment charge of $2.08 billion in 2011 with no goodwill impairment charges in subsequent years.

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The changes in the net carrying amounts of goodwill as of September 30, 2018 and December 31, 2017 were as follows (in thousands):



Balance at December 31, 2017	$	167,535
Acquisitions(1)	23,179
Balance at September 30, 2018	$	190,714


(1)	The increase in the net carrying amount of goodwill from December 31, 2017 to September 30, 2018 is related to the Good Karma acquisition and the finalization of tax matters associated with the Uncle Matt's acquisition. See Note 3.

The net carrying amounts of our intangible assets other than goodwill as of September 30, 2018 and December 31, 2017 were as follows:



	September 30, 2018										December 31, 2017
	Acquisition Costs(1)		Impairment			Accumulated Amortization			Net Carrying Amount		Acquisition Costs		Impairment			Accumulated Amortization			Net Carrying Amount
	(In thousands)
Intangible assets with indefinite lives:
Trademarks	$	69,315	$	—		$	—		$	69,315	$	58,600	$	—		$	—		$	58,600
Intangible assets with finite lives:
Customer-related and other	83,545		—			(44,381		)	39,164		80,685		—			(41,398		)	39,287
Trademarks	230,709		(109,910		)	(70,513		)	50,286		230,709		(109,910		)	(58,189		)	62,610
Total	$	383,569	$	(109,910	)	$	(114,894	)	$	158,765	$	369,994	$	(109,910	)	$	(99,587	)	$	160,497


(1)	The increase in the carrying amount of intangible assets from December 31, 2017 to September 30, 2018 is related to an indefinite-lived trademark of $10.7 million and a finite-lived customer-related intangible of $2.9 million we recorded as a part of the Good Karma acquisition. See Note 3.

Our finite-lived trademarks will be amortized on a straight-line basis over their remaining useful lives, which range from approximately 2 to 8 years, with a weighted-average remaining useful life of approximately 5 years. Amortization expense on intangible assets for the three months ended September 30, 2018 and 2017 was $5.2 million and $5.2 million, respectively. Amortization expense on intangible assets for the nine months ended September 30, 2018 and 2017 was $15.3 million and $15.5 million, respectively. The amortization of intangible assets is reported on a separate line item in our unaudited Condensed Consolidated Statements of Operations.

Estimated aggregate intangible asset amortization expense for the next five years is as follows (in millions):



2018	$	20.5
2019	20.6
2020	12.5
2021	10.8
2022	8.1

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7. Debt

Our long-term debt as of September 30, 2018 and December 31, 2017 consisted of the following:



	September 30, 2018					December 31, 2017
	Amount			Interest Rate		Amount			Interest Rate
	(In thousands, except percentages)
Dean Foods Company debt obligations:
Senior secured revolving credit facility	$	100		4.18	% *	$	11,200		3.33	% *
Senior notes due 2023	700,000			6.50		700,000			6.50
	700,100					711,200
Subsidiary debt obligations:
Receivables securitization facility	190,000			3.21	*	205,000			2.48	*
Capital lease and other	1,912			—		2,671			—
	191,912					207,671
Subtotal	892,012					918,871
Unamortized debt issuance costs	(4,848		)			(5,672		)
Total debt	887,164					913,199
Less current portion	(1,162		)			(1,125		)
Total long-term portion	$	886,002				$	912,074

* Represents a weighted average rate, including applicable interest rate margins.

The scheduled debt maturities at September 30, 2018 were as follows (in thousands):



2018	$	346
2019	1,174
2020	190,392
2021	—
2022	100
Thereafter	700,000
Subtotal	892,012
Less unamortized debt issuance costs	(4,848		)
Total debt	$	887,164

Senior Secured Revolving Credit Facility — In March 2015, we entered into a credit agreement, as amended on January 4, 2017 and as further amended on November 6, 2018, in each case as described below (as amended, the "Credit Agreement"), pursuant to which the lenders provided us with a senior secured revolving credit facility in the amount of up to $450 million (the “Credit Facility”). Under the Credit Agreement, we have the right to request an increase of the aggregate commitments under the Credit Facility by up to $200 million, which we may request to be made available as either term loans or revolving loans, without the consent of any lenders not participating in such increase, subject to specified conditions. The Credit Facility is available for the issuance of up to $75 million of letters of credit and up to $100 million of swing line loans.

On January 4, 2017, we amended the Credit Agreement to, among other things, (i) extend the maturity date of the Credit Facility to January 4, 2022; (ii) modify the leverage ratio covenant to add a requirement that we comply with a maximum total net leverage ratio (which, for purposes of calculating indebtedness, excludes borrowings under our receivables securitization facility) not to exceed 4.25 to 1.00 and to eliminate the maximum senior secured net leverage ratio requirement; (iii) modify the definition of “Consolidated EBITDA” to permit certain pro forma cost savings add-backs in connection with permitted acquisitions and dispositions; (iv) modify the definition of “Applicable Rate” to reduce the interest rate margins such that loans outstanding under the Credit Facility will bear interest, at our option, at either (x) the LIBO Rate (as defined in the Credit Agreement) plus a margin of between 1.75% and 2.50% (2.25% as of September 30, 2018) based on our total net leverage ratio (as defined in the Credit Agreement), or (y) the Alternate Base Rate (as defined in the Credit Agreement) plus a margin of between 0.75% and 1.50%

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(1.25% as of September 30, 2018) based on our total net leverage ratio; (v) modify certain negative covenants to provide additional flexibility for the incurrence of debt, the payment of dividends and the making of certain permitted acquisitions and other investments; (vi) eliminate and release all real property as collateral for loans under the Credit Facility; and (vii) provide the Company the ability to request that increases in the aggregate commitments under the Credit Facility be made available as either revolving loans or term loans.

In connection with the execution of this amendment to the Credit Agreement, we paid certain arrangement fees of approximately $0.7 million to lenders and other fees of approximately $0.3 million, which were capitalized and will be amortized to interest expense over the remaining term of the facility. Additionally, we wrote off $0.9 million of unamortized deferred financing costs in connection with this amendment.

On November 6, 2018, we amended the Credit Agreement, to modify the leverage ratio covenant and set the maximum total leverage ratio required to be complied with, (i) for the fiscal quarters ending on September 30, 2018 and December 31, 2018, at 4.25x, (ii) for the fiscal quarter ending on March 31, 2019, at 5.00x, (iii) for the fiscal quarter ending on June 30, 2019, at 5.50x, (iv) for the fiscal quarter ending on September 30, 2019, at 5.25x and (v) for each fiscal quarter ending thereafter, at 4.25x.

In connection with the execution of this amendment to the Credit Agreement, we paid certain arrangement fees of approximately $0.7 million to lenders and other fees of approximately $0.1 million, which were capitalized and will be amortized to interest expense over the remaining term of the facility.

We may make optional prepayments of loans under the Credit Facility, in whole or in part, without premium or penalty (other than applicable breakage costs). Subject to certain exceptions and conditions described in the Credit Agreement, we will be obligated to prepay the Credit Facility, but without a corresponding commitment reduction, with the net cash proceeds of certain asset sales and with casualty insurance proceeds. The Credit Facility is guaranteed by our existing and future domestic material restricted subsidiaries (as defined in the Credit Agreement), which are substantially all of our wholly-owned U.S. subsidiaries other than the receivables securitization facility subsidiaries (the “Guarantors”).

The Credit Facility is secured by a first priority perfected security interest in substantially all of our assets and the assets of the Guarantors, whether consisting of personal, tangible or intangible property, including a pledge of, and a perfected security interest in, (i) all of the shares of capital stock of the Guarantors and (ii) 65% of the shares of capital stock of our and the Guarantors' first-tier foreign subsidiaries that are material restricted subsidiaries, in each case subject to certain exceptions as set forth in the Credit Agreement. The collateral does not include, among other things, (a) any of our real property, (b) the capital stock and any assets of any unrestricted subsidiary, (c) any capital stock of any direct or indirect subsidiary of Dean Holding Company ("Legacy Dean"), a wholly owned subsidiary of the Company, which owns any real property, or (d) receivables sold pursuant to the receivables securitization facility.

The Credit Agreement contains customary representations, warranties and covenants, including, but not limited to specified restrictions on indebtedness, liens, guarantee obligations, mergers, acquisitions, consolidations, liquidations and dissolutions, sales of assets, leases, payment of dividends and other restricted payments during a default or non-compliance with the financial covenants, investments, loans and advances, transactions with affiliates and sale and leaseback transactions. The Credit Agreement also contains customary events of default and related cure provisions. We are required to comply with (a) a maximum total net leverage ratio of (i) for the fiscal quarters ending on September 30, 2018 and December 31, 2018, of 4.25x, (ii) for the fiscal quarter ending on March 31, 2019, of 5.00x, (iii) for the fiscal quarter ending on June 30, 2019, of 5.50x, (iv) for the fiscal quarter ending on September 30, 2019, of 5.25x and (v) for each fiscal quarter ending thereafter, of 4.25x (which, for purposes of calculating indebtedness, excludes borrowings under our receivables securitization facility); and (b) a minimum consolidated interest coverage ratio of 2.25x. In addition, the Credit Agreement imposes certain restrictions on our ability to pay dividends and make other restricted payments if our total net leverage ratio (including borrowings under our receivables securitization facility) is in excess of 3.50x.

At September 30, 2018, we had $0.1 million outstanding borrowings under the Credit Facility. Our average daily balance under the Credit Facility during the nine months ended September 30, 2018, was $2.4 million. There were no letters of credit issued under the Credit Facility as of September 30, 2018.

Dean Foods Receivables Securitization Facility — We have a $450 million receivables securitization facility pursuant to which certain of our subsidiaries sell their accounts receivable to two wholly-owned entities intended to be bankruptcy-remote. The entities then transfer the receivables to third-party asset-backed commercial paper conduits sponsored by major financial institutions. The assets and liabilities of these two entities are fully reflected in our unaudited Condensed Consolidated Balance Sheets, and the securitization is treated as a borrowing for accounting purposes.

On January 4, 2017, we amended the purchase agreement governing the receivables securitization facility to, among other things, (i) extend the liquidity termination date to January 4, 2020, (ii) reduce the maximum size of the receivables

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securitization facility to $450 million, (iii) replace the senior secured net leverage ratio with a total net leverage ratio to be consistent with the amended leverage ratio covenant under the January 4, 2017 amendment to the Credit Agreement described above, and (iv) modify certain pricing terms such that advances outstanding under the receivables securitization facility will bear interest between 0.90% and 1.05%, and the Company will pay an unused fee between 0.40% and 0.55% on undrawn amounts, in each case based on the Company's total net leverage ratio.

In connection with the amendment to the receivables purchase agreement, we paid certain arrangement fees of approximately $0.6 million to lenders and other fees of approximately $0.1 million, which were capitalized and will be amortized to interest expense over the remaining term of the facility. Additionally, we wrote off $0.2 million of unamortized deferred financing costs in connection with the amendment.

The receivables purchase agreement contains covenants consistent with those contained in the Credit Agreement. We expect to enter into an amendment replacing the total net leverage ratio covenant in the receivables securitization facility to be consistent with the amendment to the Credit Agreement entered into on November 6, 2018, as described above.

Based on the monthly borrowing base formula, we had the ability to borrow up to $400.1 million of the total commitment amount under the receivables securitization facility as of September 30, 2018. The total amount of receivables sold to these entities as of September 30, 2018 was $578.6 million. During the first nine months of 2018, we borrowed $1.8 billion and repaid $1.8 billion under the facility with a remaining balance of $190.0 million as of September 30, 2018. In addition to letters of credit in the aggregate amount of $109.6 million that were issued but undrawn, the remaining available borrowing capacity was $100.5 million at September 30, 2018. Our average daily balance under this facility during the nine months ended September 30, 2018 was $152.9 million. The receivables securitization facility bears interest at a variable rate based upon commercial paper and one-month LIBO rates plus an applicable margin based on our total net leverage ratio.

Dean Foods Company Senior Notes due 2023 — On February 25, 2015, we issued $700 million in aggregate principal amount of 6.50% senior notes due 2023 (the “2023 Notes”) at an issue price of 100% of the principal amount of the 2023 Notes in a private placement for resale to “qualified institutional buyers” as defined in Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and in offshore transactions pursuant to Regulation S under the Securities Act.

In connection with the issuance of the 2023 Notes, we paid certain arrangement fees of approximately $7.0 million to initial purchasers and other fees of approximately $1.8 million, which were deferred and netted against the outstanding debt balance, and will be amortized to interest expense over the remaining term of the 2023 Notes.

The 2023 Notes are our senior unsecured obligations. Accordingly, the 2023 Notes rank equally in right of payment with all of our existing and future senior obligations and are effectively subordinated in right of payment to all of our existing and future secured obligations, including obligations under our Credit Facility and receivables securitization facility, to the extent of the value of the collateral securing such obligations. The 2023 Notes are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally, by our subsidiaries that guarantee obligations under the Credit Facility.

The 2023 Notes will mature on March 15, 2023, and bear interest at an annual rate of 6.50%. Interest on the 2023 Notes is payable semi-annually in arrears in March and September of each year.

We may, at our option, redeem all or a portion of the 2023 Notes at any time on or after March 15, 2018, at the applicable redemption prices specified in the indenture governing the 2023 Notes (the "Indenture"), plus any accrued and unpaid interest to, but excluding, the applicable redemption date. If we undergo certain kinds of changes of control, holders of the 2023 Notes have the right to require us to repurchase all or any portion of such holder’s 2023 Notes at 101% of the principal amount of the notes being repurchased, plus any accrued and unpaid interest to, but excluding, the date of repurchase.

The Indenture contains covenants that, among other things, limit our ability to: (i) create certain liens; (ii) enter into sale and lease-back transactions; (iii) assume, incur or guarantee indebtedness for borrowed money that is secured by a lien on certain principal properties (or on any shares of capital stock of our subsidiaries that own such principal properties) without securing the 2023 Notes on a pari passu basis; and (iv) consolidate with or merge with or into, or sell, transfer, convey or lease all or substantially all of our properties and assets, taken as a whole, to another person.

The carrying value under the 2023 Notes at September 30, 2018 was $695.2 million, net of unamortized debt issuance costs of $4.8 million.

See Note 8 for information regarding the fair value of the 2023 Notes as of September 30, 2018.

Capital Lease Obligations and Other — Capital lease obligations of $1.9 million and $2.7 million as of September 30, 2018 and December 31, 2017, respectively, were primarily comprised of our leases for information technology equipment.

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8. Derivative Financial Instruments and Fair Value Measurements

Derivative Financial Instruments

Commodities — We are exposed to commodity price fluctuations, including in the prices of milk, butterfat, sweeteners and other commodities used in the manufacturing, packaging and distribution of our products, such as natural gas, resin and diesel fuel. To secure adequate supplies of materials and bring greater stability to the cost of ingredients and their related manufacturing, packaging and distribution, we routinely enter into forward purchase contracts and other purchase arrangements with suppliers. Under the forward purchase contracts, we commit to purchasing agreed-upon quantities of ingredients and commodities at agreed-upon prices at specified future dates. The outstanding purchase commitment for these commodities at any point in time typically ranges from one month’s to one year’s anticipated requirements, depending on the ingredient or commodity. These contracts are considered normal purchases.

In addition to entering into forward purchase contracts, from time to time we may purchase over-the-counter contracts from qualified financial institutions or enter into exchange-traded commodity futures contracts for raw materials that are ingredients of our products or components of such ingredients. All commodities contracts are marked to market in our income statement at each reporting period and a derivative asset or liability is recorded on our balance sheet.

Although we may utilize forward purchase contracts and other instruments to mitigate the risks related to commodity price fluctuation, such strategies do not fully mitigate commodity price risk. Adverse movements in commodity prices over the terms of the contracts or instruments could decrease the economic benefits we derive from these strategies. At September 30, 2018 and December 31, 2017, our derivatives recorded at fair value in our unaudited Condensed Consolidated Balance Sheets consisted of the following:



	Derivative Assets				Derivative Liabilities
	September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017
	(In thousands)
Commodities contracts — current(1)	$	2,056	$	1,431	$	310	$	1,829
Commodities contracts — non-current(2)	—		—		—		15
Total derivatives	$	2,056	$	1,431	$	310	$	1,844


(1)	Derivative assets and liabilities that have settlement dates equal to or less than 12 months from the respective balance sheet date are included in prepaid expenses and other current assets and accounts payable and accrued expenses, respectively, in our unaudited Condensed Consolidated Balance Sheets.


(2)	Derivative assets and liabilities that have settlement dates greater than 12 months from the respective balance sheet date are included in identifiable intangible and other assets, net and other long-term liabilities, respectively, in our unaudited Condensed Consolidated Balance Sheets.

Fair Value Measurements

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering assumptions, we follow a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:


•	Level 1 — Quoted prices for identical instruments in active markets.


•	Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets.


•	Level 3 — Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

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A summary of our derivative assets and liabilities measured at fair value on a recurring basis as of September 30, 2018 is as follows (in thousands):



	Fair Value as of September 30, 2018		Level 1		Level 2		Level 3
Asset — Commodities contracts	$	2,056	$	—	$	2,056	$	—
Liability — Commodities contracts	310		—		310		—

A summary of our derivative assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 is as follows (in thousands):



	Fair Value as of December 31, 2017		Level 1		Level 2		Level 3
Asset — Commodities contracts	$	1,431	$	—	$	1,431	$	—
Liability — Commodities contracts	1,844		—		1,844		—

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 Credit Facility, receivables securitization facility, and certain other debt are variable, their fair values approximate their carrying values.

The fair value of the 2023 Notes was determined based on quoted market prices obtained through an external pricing source which derives its price valuations from daily marketplace transactions, with adjustments to reflect the spreads of benchmark bonds, credit risk and certain other variables. We have determined these fair values to be Level 2 measurements as all significant inputs into the quotes provided by our pricing source are observable in active markets. The following table presents the outstanding principal amount and fair value of the 2023 Notes at September 30, 2018 and December 31, 2017:



	September 30, 2018				December 31, 2017
	Amount Outstanding		Fair Value		Amount Outstanding		Fair Value
	(In thousands)
Dean Foods Company senior notes due 2023	$	700,000	$	658,700	$	700,000	$	698,250

Additionally, we maintain a Supplemental Executive Retirement Plan (“SERP”), which is a nonqualified deferred compensation arrangement for our executive officers and other employees earning compensation in excess of the maximum compensation that can be taken into account with respect to our 401(k) plan. The SERP is designed to provide these employees with retirement benefits from us that are equivalent, as a percentage of total compensation, to the benefits provided to other employees. The assets related to the SERP are primarily invested in money market and mutual funds and are held at fair value. We classify these assets as Level 2 as fair value can be corroborated based on quoted market prices for identical or similar instruments in markets that are not active. The following table presents a summary of the SERP assets measured at fair value on a recurring basis as of September 30, 2018 (in thousands):



	Total		Level 1		Level 2		Level 3
Money market	$	7	$	—	$	7	$	—
Mutual funds	1,782		—		1,782		—

The following table presents a summary of the SERP assets measured at fair value on a recurring basis as of December 31, 2017 (in thousands):



	Total		Level 1		Level 2		Level 3
Money market	$	22	$	—	$	22	$	—
Mutual funds	1,785		—		1,785		—

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9. Common Stock and Share-Based Compensation

Our authorized shares of capital stock include one million shares of preferred stock and 250 million shares of common stock with a par value of $0.01 per share.

Cash Dividends — In accordance with our cash dividend policy, holders of our common stock will receive dividends when and as declared by our Board of Directors. Beginning in 2015, all awards of restricted stock units, performance stock units and phantom shares provide for cash dividend equivalent units, which vest in cash at the same time as the underlying award. Quarterly dividends of $0.09 per share were paid in March, June and September of 2018 and 2017, totaling approximately $24.7 million and $24.5 million for the first nine months of 2018 and 2017, respectively. On November 8, 2018, the Board of Directors declared a quarterly dividend of $0.03 per share to be paid in December, 2018. Our cash dividend policy is subject to modification, suspension or cancellation in any manner and at any time. Dividends are presented as a reduction to retained earnings in our unaudited Condensed Consolidated Statement of Stockholders’ Equity unless we have an accumulated deficit as of the end of the period, in which case they are reflected as a reduction to additional paid-in capital.

Stock Repurchase Program — Since 1998, our Board of Directors has from time to time authorized the repurchase of our common stock up to an aggregate of $2.38 billion, excluding fees and commissions. We made no share repurchases during the three and nine months ended September 30, 2018 and 2017. As of September 30, 2018, $197.1 million remained available for repurchases under this program (excluding fees and commissions). Our management is authorized to purchase shares from time to time through open market transactions at prevailing prices or in privately-negotiated transactions, subject to market conditions and other factors. Shares, when repurchased, are retired.

Restricted Stock Units — We issue restricted stock units ("RSUs") to certain senior employees and non-employee directors as part of our long-term incentive compensation program. An RSU represents the right to receive one share of common stock in the future. RSUs have no exercise price. RSUs granted to employees generally vest ratably over three years, subject to certain accelerated vesting provisions based primarily on a change of control, or in certain cases upon death or qualified disability. RSUs granted to non-employee directors vest ratably over three years.

The following table summarizes RSU activity during the nine months ended September 30, 2018:



	Employees			Non-Employee Directors			Total
RSUs outstanding at January 1, 2018	545,405			85,829			631,234
RSUs granted	739,982			95,669			835,651
Shares issued upon vesting of RSUs	(173,463		)	(38,454		)	(211,917		)
RSUs canceled or forfeited(1)	(265,253		)	(1,915		)	(267,168		)
RSUs outstanding at September 30, 2018	846,671			141,129			987,800
Weighted average grant date fair value	$	11.53		$	11.98		$	11.60


(1)	Pursuant to the terms of our plans, employees have the option of forfeiting RSUs to cover their minimum statutory tax withholding when shares are issued. Any RSUs surrendered or canceled in satisfaction of participants’ tax withholding obligations are not available for future grants under the plans.

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Performance Stock Units — In 2016, we began granting performance stock units ("PSUs") as a part of our long-term incentive compensation program. PSUs cliff vest and settle in shares of our common stock at the end of a three-year performance period contingent upon the achievement of specific performance goals established for each calendar year during the performance period. The PSUs are deemed granted in three separate one year tranches on the dates in which our Compensation Committee establishes the applicable annual performance goals. The number of shares that may be earned at the end of the vesting period may range from zero to 200 percent of the target award amount based on the achievement of the performance goals. The fair value of PSUs is estimated using the market price of our common stock on the date of grant, and we recognize compensation expense ratably over the vesting period for the portion of the awards that are expected to vest. The fair value of the PSUs is remeasured at each reporting period. The following table summarizes PSU activity during the nine months ended September 30, 2018:



	PSUs		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2018	121,807		$	18.62
Granted	295,191		8.80
Vested	—		—
Forfeited or canceled	(36,340	)	10.51
Performance adjustment(1)	(85,795	)	18.13
Outstanding at September 30, 2018	294,863		$	9.93


(1)	Represents an adjustment to the 2017 tranche of the 2016 and 2017 PSU awards based on actual performance during the 2017 annual performance period in relation to the established performance goal for that period. The actual performance for the 2017 annual performance period was certified by the Compensation Committee of our Board of Directors in the first quarter of 2018.

Phantom Shares — We grant phantom shares as part of our long-term incentive compensation program, which are similar to RSUs in that they are based on the price of our stock and vest ratably over a three-year period, but are cash-settled based upon the value of our stock at each vesting date. The fair value of the awards is remeasured at each reporting period. Compensation expense is recognized over the vesting period with a corresponding liability, which is recorded in accounts payable and accrued expenses in our unaudited Condensed Consolidated Balance Sheets. The following table summarizes the phantom share activity during the nine months ended September 30, 2018:



	Shares		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2018	1,322,580		$	18.26
Granted	1,696,007		8.80
Converted/paid	(612,363	)	17.98
Forfeited	(356,587	)	13.13
Outstanding at September 30, 2018	2,049,637		$	11.41

Stock Options — The following table summarizes stock option activity during the nine months ended September 30, 2018:



	Options		Weighted Average Exercise Price		Weighted Average Contractual Life (Years)	Aggregate Intrinsic Value
Options outstanding and exercisable at January 1, 2018	700,467		$	17.21
Forfeited and canceled	(299,914	)	20.61
Exercised	—		—
Options outstanding and exercisable at September 30, 2018	400,553		$	14.65	1.26	$	—

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 a Black-Scholes valuation model. We did not grant any stock options

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during 2017 or 2018, nor do we currently plan to in the future. At September 30, 2018, there was no remaining unrecognized stock option expense related to unvested awards.

Share-Based Compensation Expense — The following table summarizes the share-based compensation expense recognized during the three and nine months ended September 30, 2018 and 2017:



	Three Months Ended September 30						Nine Months Ended September 30
	2018			2017			2018			2017
	(In thousands)
RSUs	$	1,190		$	2,084		$	3,735		$	4,738
PSUs(1)	(1,215		)	(1,604		)	(68		)	(2,155		)
Phantom shares	645			422			3,578			4,978
Total	$	620		$	902		$	7,245		$	7,561


(1)	The net credit to PSU expense for the three months ended September 30, 2018 is primarily the result of lower expected performance (relative to the established performance metric) associated with the 2018 tranche of these awards.

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10. Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) is based on the weighted average number of common shares outstanding during each period. Diluted EPS is based on the weighted average number of common shares outstanding and the effect of all dilutive common stock equivalents outstanding during each period. Stock option and stock unit conversions were not included in the computation of diluted loss per share for the three and nine months ended September 30, 2018 and 2017 as we incurred a loss from continuing operations for these periods and any effect on loss per share would have been anti-dilutive. The following table reconciles the numerators and denominators used in the computations of both basic and diluted EPS:



	Three Months Ended September 30						Nine Months Ended September 30
	2018			2017			2018			2017
	(In thousands, except share data)
Basic loss per share computation:
Numerator:
Loss from continuing operations	$	(26,648	)	$	(9,973	)	$	(68,929	)	$	(2,085	)
Net loss attributable to non-controlling interest	224			—			224			—
Loss from continuing operations attributable to Dean Foods Company	$	(26,424	)	$	(9,973	)	$	(68,705	)	$	(2,085	)
Denominator:
Average common shares	91,372,325			90,939,101			91,302,990			90,844,613
Basic loss per share from continuing operations attributable to Dean Foods Company	$	(0.29	)	$	(0.11	)	$	(0.75	)	$	(0.03	)
Diluted loss per share computation:
Numerator:
Loss from continuing operations	$	(26,648	)	$	(9,973	)	$	(68,929	)	$	(2,085	)
Net loss attributable to non-controlling interest	224			—			224			—
Loss from continuing operations attributable to Dean Foods Company	$	(26,424	)	$	(9,973	)	$	(68,705	)	$	(2,085	)
Denominator:
Average common shares — basic	91,372,325			90,939,101			91,302,990			90,844,613
Stock option conversion(1)	—			—			—			—
RSUs and PSUs(2)	—			—			—			—
Average common shares — diluted	91,372,325			90,939,101			91,302,990			90,844,613
Diluted loss per share from continuing operations attributable to Dean Foods Company	$	(0.29	)	$	(0.11	)	$	(0.75	)	$	(0.03	)
(1) Anti-dilutive options excluded	401,269			1,211,592			448,925			1,492,474
(2) Anti-dilutive stock units excluded	1,142,746			1,068,640			1,085,982			1,010,675

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11. Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) by component, net of tax, during the three months ended September 30, 2018 were as follows (in thousands):



	Pension and Other Postretirement Benefits Items			Foreign Currency Items			Total
Balance at June 30, 2018	$	(87,250	)	$	(4,781	)	$	(92,031	)
Other comprehensive income before reclassifications	(235		)	—			(235		)
Amounts reclassified from accumulated other comprehensive loss(1)	1,598			—			1,598
Net current-period other comprehensive income	1,363			—			1,363
Balance at September 30, 2018	$	(85,887	)	$	(4,781	)	$	(90,668	)


(1)	The accumulated other comprehensive loss reclassification is related to amortization of unrecognized actuarial losses and prior service costs, both of which are included in the computation of net periodic benefit cost. See Note 12.

The changes in accumulated other comprehensive income (loss) by component, net of tax, during the three months ended September 30, 2017 were as follows (in thousands):



	Pension and Other Postretirement Benefits Items			Foreign Currency Items			Total
Balance at June 30, 2017	$	(81,576	)	$	(4,781	)	$	(86,357	)
Other comprehensive income before reclassifications	3,276			—			3,276
Amounts reclassified from accumulated other comprehensive loss(1)	(1,649		)	—			(1,649		)
Net current-period other comprehensive income	1,627			—			1,627
Balance at September 30, 2017	$	(79,949	)	$	(4,781	)	$	(84,730	)


(1)	The accumulated other comprehensive loss reclassification is related to amortization of unrecognized actuarial losses and prior service costs, both of which are included in the computation of net periodic benefit cost. See Note 12.

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The changes in accumulated other comprehensive income (loss) by component, net of tax, during the nine months ended September 30, 2018 were as follows (in thousands):



	Pension and Other Postretirement Benefits Items			Foreign Currency Items			Total
Balance at December 31, 2017	$	(73,629	)	$	(4,781	)	$	(78,410	)
Other comprehensive income before reclassifications	(215		)	—			(215		)
Amounts reclassified from accumulated other comprehensive loss(1)	4,804			—			4,804
Net current-period other comprehensive income	4,589			—			4,589
Reclassification of stranded tax effects related to the Tax Act(2)	(16,847		)	—			(16,847		)
Balance at September 30, 2018	$	(85,887	)	$	(4,781	)	$	(90,668	)


(1)	The accumulated other comprehensive loss reclassification is related to amortization of unrecognized actuarial losses and prior service costs, both of which are included in the computation of net periodic benefit cost. See Note 12.


(2)	See Note 1 for additional details on the adoption of ASU No. 2018-02 during the first quarter of 2018.

The changes in accumulated other comprehensive income (loss) by component, net of tax, during the nine months ended September 30, 2017 were as follows (in thousands):



	Pension and Other Postretirement Benefits Items			Foreign Currency Items			Total
Balance at December 31, 2016	$	(84,852	)	$	(4,781	)	$	(89,633	)
Other comprehensive income before reclassifications	9,845			—			9,845
Amounts reclassified from accumulated other comprehensive loss(1)	(4,942		)	—			(4,942		)
Net current-period other comprehensive income	4,903			—			4,903
Balance at September 30, 2017	$	(79,949	)	$	(4,781	)	$	(84,730	)


(1)	The accumulated other comprehensive loss reclassification is related to amortization of unrecognized actuarial losses and prior service costs, both of which are included in the computation of net periodic benefit cost. See Note 12.

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12. Employee Retirement and Postretirement Benefits

We sponsor various defined benefit and defined contribution retirement plans, including various employee savings and profit sharing plans, and contribute to various multiemployer pension plans on behalf of our employees. All full-time union and non-union employees who have met requirements pursuant to the plans are eligible to participate in one or more of these plans.

Defined Benefit Plans — The benefits under our defined benefit plans are based on years of service and employee compensation. The following table sets forth the components of net periodic benefit cost for our defined benefit plans during the three and nine months ended September 30, 2018 and 2017:



	Three Months Ended September 30						Nine Months Ended September 30
	2018			2017			2018			2017
	(In thousands)
Components of net periodic benefit cost:
Service cost	$	732		$	752		$	2,196		$	2,256
Interest cost	2,828			2,927			8,484			8,781
Expected return on plan assets	(4,411		)	(4,758		)	(13,233		)	(14,274		)
Amortizations:
Prior service cost	108			176			324			528
Unrecognized net loss	2,130			2,581			6,390			7,743
Net periodic benefit cost	$	1,387		$	1,678		$	4,161		$	5,034

We do not expect to make any contributions to the company-sponsored pension plans in 2018.

Postretirement Benefits — Certain of our subsidiaries provide health care benefits to certain retirees who are covered under specific group contracts. The following table sets forth the components of net periodic benefit cost for our postretirement benefit plans during the three and nine months ended September 30, 2018 and 2017:



	Three Months Ended September 30						Nine Months Ended September 30
	2018			2017			2018			2017
	(In thousands)
Components of net periodic benefit cost:
Service cost	$	170		$	146		$	510		$	438
Interest cost	235			240			705			720
Amortizations:
Prior service cost	23			23			69			69
Unrecognized net gain	(118		)	(114		)	(354		)	(342		)
Net periodic benefit cost	$	310		$	295		$	930		$	885

13. Asset Impairment Charges and Facility Closing and Reorganization Costs

Asset Impairment Charges

We evaluate our finite-lived intangible and long-lived assets for impairment when circumstances indicate that the carrying value may not be recoverable. Indicators of impairment could include, among other factors, significant changes in the business environment, the planned closure of a facility, or deteriorations in operating cash flows. Considerable management judgment is necessary to evaluate the impact of operating changes and to estimate future cash flows.

Testing the assets for recoverability involves developing estimates of future cash flows directly associated with, and that are expected to arise as a direct result of, the use and eventual disposition of the assets. Other inputs are based on assessment of an individual asset’s alternative use within other production facilities, evaluation of recent market data and historical liquidation sales values for similar assets. As the inputs for testing recoverability are largely based on management’s judgments and are not generally observable in active markets, we consider such measurements to be Level 3 measurements in the fair value hierarchy. See Note 8.

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The results of our analysis indicated an impairment to our property, plant and equipment at one of our production facilities of $2.2 million. The impairment was the result of declines in operating cash flows at this facility on both a historical and forecasted basis. This charge was recorded during the nine months ended September 30, 2018.

The results of our analysis indicated an impairment of our property, plant and equipment at three of our production facilities totaling $25.0 million. These impairments were the result of declines in operating cash flows at these facilities on both a historical and forecasted basis. These charges were recorded during the three months ended September 30, 2017.

We can provide no assurance that we will not have impairment charges in future periods as a result of changes in our business environment, operating results or the assumptions and estimates utilized in our impairment tests.

Facility Closing and Reorganization Costs

Costs associated with approved plans within our ongoing network optimization and reorganization strategies are summarized as follows:



	Three Months Ended September 30					Nine Months Ended September 30
	2018			2017		2018			2017
	(In thousands)
Closure of facilities, net(1)	$	(2,679	)	$	3,048	$	58,912		$	10,737
Organizational effectiveness(2)	—			4,796		(331		)	12,210
Enterprise-wide cost productivity plan(3)	—			—		14,863			—
Facility closing and reorganization costs, net	$	(2,679	)	$	7,844	$	73,444		$	22,947

(1)

Reflects charges, net of gains on the sales of assets, associated with closed facilities that were incurred in 2018 and 2017. These charges are primarily related to facility closures in Braselton, GA; Louisville, KY; Erie, PA; Huntley, IL; Thief River Falls, MN; Lynn, MA; Livonia, MI; Richmond, Virginia; Orem, Utah; New Orleans, Louisiana; Rochester, Indiana; Riverside, California; Denver, Colorado; and Buena Park, California. The net gain during the three months ended September 30, 2018 was primarily due to gains from the sale of properties for which we recognized restructuring charges in previous periods. We have incurred net charges to date of $110.4 million related to these facility closures through September 30, 2018. We expect to incur additional charges related to these facility closures of approximately $10.7 million related to shutdown, contract termination and other costs. As we continue the evaluation of our supply chain and distribution network, it is likely that we will close additional facilities in the future.

(2)

During 2017, we initiated a company-wide, multi-phase organizational effectiveness assessment to better align each key function of the Company with our strategic plan. This initiative has resulted in headcount reductions due to changes to our organizational structure, and the charges shown in the table above are primarily comprised of severance benefits and other employee-related costs associated with these organizational changes. We do not expect to incur any material additional costs associated with this initiative.

(3)

In the fourth quarter of 2017, we announced an enterprise-wide cost productivity plan, which includes rescaling our supply chain, optimizing spend management and integrating our operating model. This plan has resulted in headcount reductions due to changes to our organizational structure, and the charges shown in the table above are primarily comprised of severance benefits and other employee-related costs associated with these changes. Efforts with respect to the enterprise-wide cost productivity plan are ongoing, and we expect that we will incur additional costs in the coming months associated with the approval and implementation of additional phases of the plan; however, as specific details of these phases have not been finalized and approved, future costs are not yet estimable.

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Activity with respect to facility closing and reorganization costs during the nine months ended September 30, 2018 is summarized below and includes items expensed as incurred:



	Accrued Charges at December 31, 2017		Charges and Adjustments			Payments			Accrued Charges at September 30, 2018
	(In thousands)
Cash charges:
Workforce reduction costs	$	5,863	$	30,318		$	(11,508	)	$	24,673
Shutdown costs	—		3,784			(3,784		)	—
Lease obligations after shutdown	2,606		74			(1,005		)	1,675
Other	—		406			(406		)	—
Subtotal	$	8,469	34,582			$	(16,703	)	$	26,348
Non-cash charges:
Write-down of assets(1)			44,700
Gain on sale/disposal of related assets			(5,976		)
Other, net			138
Subtotal			38,862
Total			$	73,444

(1)

The write-down of assets relates primarily to owned buildings, land and equipment of those facilities identified for closure. The assets were tested for recoverability at the time the decision to close the facilities was more likely than not to occur. Over time, refinements to our estimates used in testing for recoverability may result in additional asset write-downs. The write-down of assets can include accelerated depreciation recorded for those facilities identified for closure. Our methodology for testing the recoverability of the assets is consistent with the methodology described in the “Asset Impairment Charges” section above.

14. Commitments and Contingencies

Contingent Obligations Related to Divested Operations — We have divested certain 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, which are immaterial to the financial statements, 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 America’s (“DFA”) 33.8% interest in our operations. In connection with that transaction, we issued a contingent, subordinated promissory note to DFA in the original principal amount of $40 million. The promissory note has 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 become payable only if we materially breach or terminate one of our related 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. We have not terminated, and we have not materially breached, any of our milk supply agreements with DFA related to the promissory note. We have previously terminated unrelated supply agreements with respect to several plants that were supplied by DFA. In connection with our continued focus on cost control and increased supply chain efficiency, we continue to evaluate our sources of raw milk supply.

Insurance — We use a combination of insurance and self-insurance for a number of risks, including property, workers’ compensation, general liability, automobile liability, product liability and employee health care utilizing high deductibles. Deductibles vary due to insurance market conditions and risk. Liabilities associated with these risks are estimated considering historical claims experience and other actuarial assumptions. Based on current information, we believe that we have established adequate reserves to cover these claims.

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Lease 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, including our distribution fleet, have lease terms ranging from one to 20 years. Certain of the operating lease agreements require the payment of additional rentals for maintenance, along with additional rentals based on miles driven or units produced. Certain leases require us to guarantee a minimum value of the leased asset at the end of the lease. Our maximum exposure under those guarantees is not a material amount.

We have entered into various contracts, in the normal course of business, obligating us to purchase minimum quantities of raw materials used in our production and distribution processes, including conventional raw milk, diesel fuel, sugar and other ingredients that are inputs into our finished products. 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.

Litigation, Investigations and Audits — We are party from time to time to certain pending or threatened legal proceedings in the ordinary course of our business. Potential liabilities associated with these matters are not expected to have a material adverse impact on our financial position, results of operations, or cash flows.

15. Segment, Geographic and Customer Information

We operate as a single reportable segment in manufacturing, marketing, selling and distributing a wide variety of branded and private label dairy and dairy case products. We operate 58 manufacturing facilities which are geographically located largely based on local and regional customer needs and other market factors. We manufacture, market and distribute a wide variety of branded and private label dairy and dairy case products, including fluid milk, ice cream, cultured dairy products, creamers, ice cream mix and other dairy products to retailers, distributors, foodservice outlets, educational institutions and governmental entities across the United States. Our products are primarily delivered through what we believe to be one of the most extensive refrigerated DSD systems in the United States. Our Chief Executive Officer evaluates the performance of our business based on operating income or loss before facility closing and reorganization costs, litigation settlements, impairments of long-lived assets, gains and losses on the sale of businesses and certain other non-recurring gains and losses.

Geographic Information — Net sales related to our foreign operations comprised less than 1% of our consolidated net sales during each of the three and nine months ended September 30, 2018 and 2017. None of our long-lived assets are associated with our foreign operations.

Significant Customers — Our largest customer accounted for approximately 15.0% and 17.5% of our consolidated net sales in the three months ended September 30, 2018 and 2017, respectively and accounted for approximately 15.8% and 17.2% of our consolidated net sales in the nine months ended September 30, 2018 and 2017, respectively. As disclosed in Note 1, on a prospective basis, effective January 1, 2018, we began reporting sales of excess raw materials within the net sales line of our unaudited Condensed Consolidated Statements of Operations. As such, the computation, and comparison, of the percentages of our largest customer between fiscal periods is slightly impacted by the change in the presentation of excess raw material sales.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are predictions based on our current expectations and our projections about future events, and are not statements of historical fact. Forward-looking statements include statements concerning our business strategy, among other things, including anticipated trends and developments in, and management plans for, our business and the markets in which we operate. In some cases, you can identify these statements by forward-looking words, such as “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “believe,” “forecast,” “foresee,” “likely,” “may,” “should,” “goal,” “target,” “might,” “will,” “could,” “predict,” and “continue,” the negative or plural of these words and other comparable terminology. All forward-looking statements included in this Form 10-Q are based upon information available to us as of the filing date of this Form 10-Q, and we undertake no obligation to update any of these forward-looking statements for any reason. You should not place undue reliance on these forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these statements. These factors include the matters discussed in “Part I — Item 1A — Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017 (the "2017 Annual Report on Form 10-K"), as updated herein, and elsewhere in this Form 10-Q. You should carefully consider the risks and uncertainties described under these sections.

Business Overview

We are a leading food and beverage company and the largest processor and direct-to-store distributor of fresh fluid milk and other dairy and dairy case products in the United States, with a vision to be the most admired and trusted provider of wholesome, great-tasting dairy products at every occasion. As we continue to evaluate and seek to maximize the value of our national operational network and our leading brands and product offerings, we have aligned our leadership team, operating strategy, and commercial and supply chain initiatives into a single operating and reportable segment.

We manufacture, market and distribute a wide variety of branded and private label dairy and dairy case products, including fluid milk, ice cream, cultured dairy products, creamers, ice cream mix and other dairy products to retailers, distributors, foodservice outlets, educational institutions and governmental entities across the United States. Our portfolio includes DairyPure^®, the country's first and largest fresh, white milk national brand, and TruMoo^®, the leading national flavored milk brand, along with well-known regional dairy brands such as Alta Dena^®, Berkeley Farms^®, Country Fresh^®, Dean’s^®, Friendly's^®, Garelick Farms^®, LAND O LAKES ^® milk and cultured products (licensed brand), Lehigh Valley Dairy Farms^®, Mayfield ^®, McArthur^®, Meadow Gold ^®, Oak Farms^®, PET ^® (licensed brand), T.G. Lee^®, Tuscan^® and more. In all, we have more than 50 national, regional and local dairy brands as well as private labels. We also sell and distribute organic juice, probiotic-infused juices, and fruit-infused waters under the Uncle Matt's Organic^®brand. Additionally, we are party to the Organic Valley Fresh joint venture which distributes organic milk under the Organic Valley^® brand to retailers. With our majority interest acquisition of Good Karma Foods, Inc. ("Good Karma"), which was completed on June 29, 2018, we now sell and distribute flax-based milk and yogurt products under the Good Karma^® brand. Dean Foods also makes and distributes juices, teas, and bottled water. Due to the perishable nature of our products, we deliver the majority of our products directly to our customers' locations in refrigerated trucks or trailers that we own or lease. We believe that we have one of the most extensive refrigerated direct-to-store delivery ("DSD") systems in the United States. We sell our products primarily on a local or regional basis through our local and regional sales forces, and in some instances, with the assistance of national brokers. Some national customer relationships are coordinated by our centralized corporate sales department or national brokers.

Recent Developments

2018 Significant Developments

On November 8, 2018, the Company announced that its Board of Directors reduced the quarterly dividend from $0.09 per share to $0.03 per share for the fourth quarter of 2018. See Note 9 to our unaudited Condensed Consolidated Financial Statements for additional information regarding our cash dividends.

Matters Affecting Comparability

Our discussion of the results of operations for the three and nine months ended September 30, 2018 and 2017 is affected by our adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606"), on January 1, 2018. Historically, we presented sales of excess raw materials as a reduction of cost of sales within our unaudited Condensed Consolidated Statements of Operations. On a prospective basis, effective January 1, 2018, in connection with the

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adoption of ASC 606, we began reporting sales of excess raw materials within the net sales line of our unaudited Condensed Consolidated Statements of Operations.

Sales of excess raw materials included in net sales were $112.4 million and $387.1 million in the three and nine months ended September 30, 2018, respectively. Sales of excess raw materials included as a reduction to cost of sales were $148.3 million and $456.5 million in the three and nine months ended September 30, 2017, respectively. See Notes 1 and 2 to our unaudited Condensed Consolidated Financial Statements for additional information.

Results of Operations

Our key performance indicators are brand mix and achieving low cost, which are reflected in gross margin and operating income, respectively. We evaluate our financial performance based on operating income or loss before gains and losses on the sale of businesses, facility closing and reorganization costs, asset impairment charges, litigation settlements and other nonrecurring gains and losses. The following table presents certain information concerning our financial results, including information presented as a percentage of net sales:



	Three Months Ended September 30									Nine Months Ended September 30
	2018					2017				2018					2017
	Dollars			Percent		Dollars		Percent		Dollars			Percent		Dollars		Percent
	(Dollars in millions)
Net sales	$	1,894.1		100.0	%	$	1,937.6	100.0	%	$	5,825.8		100.0	%	$	5,860.0	100.0	%
Cost of sales	1,503.5			79.4		1,495.8		77.2		4,553.9			78.2		4,488.5		76.6
Gross profit(1)	390.6			20.6		441.8		22.8		1,271.9			21.8		1,371.5		23.4
Operating costs and expenses:
Selling and distribution	349.2			18.4		332.6		17.2		1,032.0			17.7		1,015.6		17.3
General and administrative	66.6			3.5		67.9		3.5		208.1			3.6		238.9		4.1
Amortization of intangibles	5.2			0.3		5.2		0.2		15.3			0.3		15.5		0.3
Facility closing and reorganization costs, net	(2.7		)	(0.1	)	7.8		0.4		73.4			1.2		22.9		0.4
Impairment of long-lived assets	—			—		25.0		1.3		2.2			—		25.0		0.4
Other operating income	—			—		—		—		(2.3		)	—		—		—
Equity in (earnings) loss of unconsolidated affiliate	(1.9		)	(0.1	)	—		—		(5.5		)	(0.1	)	—		—
Total operating costs and expenses	416.4			22.0		438.5		22.6		1,323.2			22.7		1,317.9		22.5
Operating income (loss)	$	(25.8	)	(1.4	)%	$	3.3	0.2	%	$	(51.3	)	(0.9	)%	$	53.6	0.9	%


(1)	As disclosed in Note 1 to the Consolidated Financial Statements in our 2017 Annual Report on Form 10-K, we include certain shipping and handling costs within selling and distribution expense. As a result, our gross profit may not be comparable to other entities that present all shipping and handling costs as a component of cost of sales.

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Quarter Ended September 30, 2018 Compared to Quarter Ended September 30, 2017

Net Sales — The change in net sales was due to the following:



	Three Months Ended September 30, 2018 vs. 2017
	(In millions)
Volume, pricing and product mix changes	$	(160.6	)
Acquisitions	4.6
Sales of excess raw materials	112.4
Total decrease	$	(43.6	)

Net sales decreased $43.6 million, or 2.2%, during the third quarter of 2018 as compared to the third quarter of 2017, primarily due to fluid milk volume declines from year-ago levels, partly offset by the change in reporting of the sales of excess raw materials of $112.4 million during the third quarter of 2018. Excluding the impact of sales of excess raw materials, net sales decreased $156.0 million, or 8.1%. Fluid milk volume declines were driven predominantly by the the first full quarter of volume losses from two large retailers, overall category declines and lower branded fluid milk volumes due to continued retailer investment in private label products. Net sales were further impacted by decreased pricing, as a result of decreases in dairy commodity costs from year-ago levels. On average, during the third quarter of 2018, the Class I price was 11.3% below prior-year levels. Net sales declines were partially offset by volumes associated with the Good Karma acquisition, which contributed $4.6 million to net sales in the third quarter of 2018.

We generally increase or decrease the prices of our private label fluid dairy products on a monthly basis in correlation with fluctuations in the costs of raw materials, packaging supplies and delivery costs. We manage the pricing of our branded fluid milk products on a longer-term basis, balancing consumer demand with net price realization, but in some cases, we are subject to the terms of our sales agreements with respect to the means and/or timing of price increases, which can negatively impact our profitability. The following table sets forth the average monthly Class I “mover” and its components, as well as the average monthly Class II minimum prices for raw skim milk and butterfat for the third quarter of 2018 compared to the third quarter of 2017:



	Three Months Ended September 30*
	2018		2017		% Change
Class I mover(1)	$	14.79	$	16.67	(11.3	)%
Class I raw skim milk mover(1)(2)	5.88		6.73		(12.6	)
Class I butterfat mover(2)(3)	2.60		2.91		(10.7	)
Class II raw skim milk minimum(1)(4)	6.38		7.23		(11.8	)
Class II butterfat minimum(3)(4)	2.56		2.94		(12.9	)

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 producer premiums and a location differential. Class II prices noted in the table are federal minimum prices, applicable at all locations. Our actual cost also includes procurement costs and other related charges that vary by location and supplier. Please see “Part I — Item 1. Business — Government Regulation — Milk Industry Regulation” in our 2017 Annual Report on Form 10-K and “— Known Trends and Uncertainties — Conventional Raw Milk and Other Inputs” below for a more complete description of raw milk pricing.


(1)	Prices are per hundredweight.


(2)	We process Class I raw skim milk and butterfat into fluid milk products.


(3)	Prices are per pound.


(4)	We process Class II raw skim milk and butterfat into products such as cottage cheese, creams and creamers, ice cream and sour cream.

Cost of Sales — All expenses incurred to bring a product to completion are included in cost of sales, such as raw material, ingredient and packaging costs; labor costs; and plant and equipment costs. Cost of sales increased $7.7 million, or 0.5%, in the third quarter of 2018 as compared to the third quarter of 2017, primarily due to the change in reporting of sales of excess raw materials discussed above. Excluding the impact of sales of excess raw materials, cost of sales decreased $104.8 million, or 7.0%, primarily due to decreased dairy commodity costs. The Class I price was 11.3% below prior-year levels. This overall decrease was partly offset by incremental short-term costs associated with our accelerated facility closure activity during the third quarter of 2018.

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Gross Margin — Our gross margin decreased to 20.6% in the third quarter of 2018 as compared to 22.8% in the third quarter of 2017. Excluding the impact of the change in reporting of excess raw materials discussed above, our gross margin would have been 21.9% in the third quarter of 2018. The decrease was primarily due to lost volumes that transitioned out of our network at a pace ahead of our ability to remove fixed costs, coupled with the incremental short-term costs we experienced related to our accelerated facility closure activity during the third quarter of 2018. With the impact of the lost volumes and the associated accelerated facility closure activity that we executed in the third quarter of 2018, production cost declines lagged the decline in volumes, resulting in higher per-unit costs and lower overall gross profit.

Operating Costs and Expenses — Operating costs and expenses decreased $22.2 million, or 5.1%, in the third quarter of 2018 as compared to the third quarter of 2017. Significant changes to operating costs and expenses in the third quarter of 2018 as compared to the third quarter of 2017 include the following:


•	Selling and distribution costs increased by $16.7 million during the third quarter of 2018 primarily due to increases in external freight costs of $7.6 million, fuel costs of $6.6 million and advertising and promotion costs of $1.7 million.

•

General and administrative costs decreased by $1.4 million during the third quarter of 2018 in comparison to the prior year primarily due to decreases in salaries and wages and employee-related costs of $3.5 million associated with lower headcount in comparison to the prior year as we execute our enterprise-wide cost productivity plan. These decreases were partially offset by costs incurred in connection with our enterprise-wide cost productivity plan in the third quarter of 2018.


•	Facility closing and reorganization costs, net decreased by $10.5 million during the third quarter of 2018. The net gain during the three months ended September 30, 2018 was primarily due to gains from the sale of properties for which we recognized restructuring charges in previous periods. See Note 13 to our unaudited Condensed Consolidated Financial Statements.


•	There were no impairment charges to our long-lived assets during the third quarter of 2018. We recorded impairment charges of $25.0 million during the third quarter of 2017. See Note 13 to our unaudited Condensed Consolidated Financial Statements.


•	We recorded $1.9 million of equity in the earnings of our Organic Valley Fresh joint venture during the third quarter of 2018. See Note 4 to our unaudited Condensed Consolidated Financial Statements.

Other Expense — Other expense decreased $2.7 million during the third quarter of 2018 as compared to the third quarter of 2017. This decrease in expense was primarily due to lower interest expense in the third quarter of 2018 compared to the prior period, primarily due to the repayment in full of the $142 million outstanding aggregate principal amount of subsidiary senior notes on October 16, 2017.

Income Taxes — Income tax benefit was recorded at an effective rate of 33.4% for the third quarter of 2018 compared to a 26.9% effective tax rate for the third quarter of 2017. Generally, our effective tax rate varies primarily based on our profitability level and the relative earnings of our business units. In the third quarter of 2018, the Company recorded a discrete tax expense of $0.2 million, primarily related to one-time tax impacts related to facility closing and reorganization costs and state tax legislative changes. Excluding the impact of these discrete items, our effective tax rate for the third quarter of 2018 was 31.9%.

Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017

Net Sales — The change in net sales was due to the following:



	Nine Months Ended September 30, 2018 vs. 2017
	(In millions)
Volume, pricing and product mix changes	$	(434.4	)
Acquisitions	13.1
Sales of excess raw materials	$	387.1
Total increase	$	(34.2	)

Net sales decreased $34.2 million, or 0.6%, during the first nine months of 2018 as compared to the first nine months of 2017, primarily due to fluid milk volume declines from year-ago levels, partly offset by the change in reporting of sales of excess raw materials of $387.1 million during the first nine months of 2018. Excluding the impact of sales of excess raw materials, net sales decreased $421.3 million, or 7.2%. Fluid milk volume declines were driven predominantly by the loss of volume from two large retailers, overall category declines and lower branded fluid milk volumes due to continued retailer investment in private

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label products. Net sales were further impacted by decreased pricing, as a result of decreases in dairy commodity costs from year-ago levels. On average, during the first nine months of 2018, the Class I price was 11.2% below prior-year levels. Net sales declines were partially offset by volumes associated with the Uncle Matt's and Good Karma acquisitions, which contributed $17.2 million to net sales during the first nine months of 2018 as compared to $4.1 million associated with the Uncle Matt's acquisition during the first nine months of 2017. The Uncle Matt's acquisition closed on June 22, 2017 and net sales during the first nine months of 2017 reflect 101 days of Uncle Matt's operations.

The following table sets forth the average monthly Class I “mover” and its components, as well as the average monthly Class II minimum prices for raw skim milk and butterfat for the first nine months of 2018 in comparison to the first nine months of 2017:



	Nine Months Ended September 30*
	2018		2017		% Change
Class I mover(1)	$	14.58	$	16.41	(11.2	)%
Class I raw skim milk mover(1)(2)	5.98		7.65		(21.8	)
Class I butterfat mover(2)(3)	2.52		2.58		(2.3	)
Class II raw skim milk minimum(1)(4)	5.88		7.34		(19.9	)
Class II butterfat minimum(3)(4)	2.53		2.64		(4.2	)


(1)	Prices are per hundredweight.


(2)	We process Class I raw skim milk and butterfat into fluid milk products.


(3)	Prices are per pound.


(4)	We process Class II raw skim milk and butterfat into products such as cottage cheese, creams and creamers, ice cream and sour cream.

Cost of Sales — Cost of sales increased $65.4 million, or 1.5%, in the first nine months of 2018 as compared to the first nine months of 2017, primarily due to the change in reporting of sales of excess raw materials discussed above. Excluding the impact of sales of excess raw materials, costs of sales decreased $321.7 million, or 7.2%, primarily due to decreased dairy commodity costs. The Class I price was 11.2% below prior-year levels.

Gross Margin — Our gross margin decreased to 21.8% for the first nine months of 2018 as compared to 23.4% for the first nine months of 2017. This decrease was primarily due to the change in reporting of excess raw materials discussed above. Excluding the impact of the change in reporting of excess raw materials, our gross margin would have been 23.4% for the first nine months of 2018.

Operating Costs and Expenses — Operating costs and expenses increased $5.2 million, or 0.4%, in the first nine months of 2018 as compared to the first nine months of 2017. Significant changes to operating costs and expenses in the first nine months of 2018 as compared to the first nine months of 2017 include the following:

•

Selling and distribution costs increased by $16.3 million during the first nine months of 2018 primarily due to increases in external freight costs of $22.9 million and fuel costs of $10.6 million. These increases were partially offset by decreases in salaries and wages and other employee-related costs of $7.4 million associated with lower headcount in comparison to the prior year as we execute our enterprise-wide cost productivity plan and decreases in insurance costs of $3.7 million.

•

General and administrative costs decreased by $30.8 million in the first nine months of 2018 in comparison to the prior period. General and administrative costs of $238.9 million in the first nine months of 2017 included a charge due to litigation settlements and related legal expenses of $17.0 million. General and administrative costs of $208.1 million in the first nine months of 2018 reflect decreases in salaries and wages and other employee-related costs of $18.1 million associated with lower headcount in comparison to the prior year as we execute our enterprise-wide cost productivity plan.

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These decreases were partially offset by costs incurred in connection with our enterprise-wide cost productivity plan in the first nine months of 2018.


•	Facility closing and reorganization costs, net increased by $50.5 million during the first nine months of 2018. See Note 13 to our unaudited Condensed Consolidated Financial Statements.


•	We recorded impairment charges to our long-lived assets of $2.2 million during the first nine months of 2018 compared to $25.0 million during the first nine months of 2017. See Note 13 to our unaudited Condensed Consolidated Financial Statements.


•	We recorded a $2.3 million gain from the remeasurement of our investment in Good Karma during the first nine months of 2018 in connection with a step-acquisition on June 29, 2018. See Note 3 to our unaudited Condensed Consolidated Financial Statements.


•	We recorded $5.5 million of equity in the earnings of our Organic Valley Fresh joint venture during the first nine months of 2018. See Note 4 to our unaudited Condensed Consolidated Financial Statements.

Other Expense — Other expense decreased $7.6 million during the first nine months of 2018 as compared to the first nine months of 2017. This decrease in expense was primarily due to lower interest expense in the first nine months of 2018 compared to the prior period, primarily due to the repayment in full of the $142 million outstanding aggregate principal amount of subsidiary senior notes on October 16, 2017.

Income Taxes — Income tax benefit was recorded at an effective rate of 27.4% in the first nine months of 2018 compared to income tax expense at a 189.0% effective tax rate in the first nine months of 2017. Generally, our effective tax rate varies primarily based on our profitability level and the relative earnings of our business units. In the first nine months of 2018, our effective tax rate was impacted by the recognition of excess tax deficiencies related to share-based payments recorded in the provision for income taxes of $1.0 million, return to provision adjustments resulting in a $0.5 million tax benefit, a $17.9 million tax benefit of one-time tax impacts related to facility closing and reorganization costs and impairment charges, $0.6 million related to the gain on the Good Karma step-acquisition and $0.2 million of other one-time tax impacts, including interest on uncertain tax positions and state tax legislative changes. Excluding the impact of these discrete items, our effective tax rate for the first nine months of 2018 was 34.0%.

Liquidity and Capital Resources

We believe that our cash on hand coupled with future cash flows from operations and other available sources of liquidity, including our senior secured revolving credit facility and our receivables securitization facility, will provide sufficient liquidity to allow us to meet our cash requirements for at least the next twelve months. Our anticipated uses of cash for the remainder of 2018 include costs to execute our enterprise-wide cost productivity plan and other strategic initiatives; capital expenditures; working capital; financial obligations, including tax payments; dividend payments; and other costs that may be necessary to invest to grow our business. We are also authorized to repurchase shares of our common stock pursuant to a stock repurchase program authorized by our Board of Directors. Additionally, on an ongoing basis, we evaluate and consider strategic acquisitions, divestitures, joint ventures, or other transactions to create shareholder value and enhance financial performance. We may also, from time to time, raise additional funds through borrowings or public or private sales of debt or equity securities. The amount, nature and timing of any borrowings or sales of debt or equity securities will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.

As of September 30, 2018, we had total cash on hand of $21.8 million, of which $4.0 million was attributable to our foreign operations. Historically, the cash held by our foreign subsidiary was reinvested indefinitely and was generally subject to U.S. income tax only upon repatriation to the U.S. However, the Tax Cuts and Jobs Act (the "Tax Act") required us to pay a one-time transition tax in 2017 on cumulative undistributed foreign earnings for which we had not previously provided U.S. taxes. We analyzed our foreign working capital and cash requirements and the potential tax liabilities that would be attributable to a repatriation of previously taxed earnings. In the second quarter 2018, we repatriated $9.9 million of cash resulting in no additional tax expense. Additionally, we will not consider the future earnings of our foreign subsidiary to be permanently reinvested and have determined that any tax effects resulting from this change would be immaterial.

At September 30, 2018, we had $892.0 million of long-term debt obligations, excluding unamortized debt issuance costs of $4.8 million, and $550.4 million of combined available future borrowing capacity under our senior secured revolving credit facility and receivables securitization facility, subject to compliance with the covenants in our credit agreements. Based on our current expectations, we believe our liquidity and capital resources will be sufficient to operate our business.

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and phantom shares provide for cash dividend equivalent units, which vest in cash at the same time as the underlying award. Quarterly dividends of $0.09 per share were paid in March, June and September of 2018 and 2017, totaling approximately $24.7 million and $24.5 million for the first nine months of 2018 and 2017, respectively. On November 8, 2018, the Board of Directors declared a quarterly dividend of $0.03 per share to be paid in December, 2018. Our cash dividend policy is subject to modification, suspension or cancellation in any manner and at any time. Dividends are presented as a reduction to retained earnings in our unaudited Condensed Consolidated Statement of Stockholders’ Equity unless we have an accumulated deficit as of the end of the period, in which case they are reflected as a reduction to additional paid-in capital. See Note 9 to our unaudited Condensed Consolidated Financial Statements.

Senior Secured Revolving Credit Facility — We have a credit agreement (as amended, the "Credit Agreement") pursuant to which the lenders have provided us with a senior secured revolving credit facility in the amount of up to $450 million (the “Credit Facility”) with a maturity date of January 4, 2022. Under the Credit Agreement, we have the right to request an increase of the aggregate commitments under the Credit Facility by up to $200 million, which we may request to be made available as either term loans or revolving loans, without the consent of any lenders not participating in such increase, subject to specified conditions. The Credit Facility is available for the issuance of up to $75 million of letters of credit and up to $100 million of swing line loans.

Loans outstanding under the Credit Facility will bear interest, at our option, at either (i) the LIBO Rate (as defined in the Credit Agreement) plus a margin of between 1.75% and 2.50% (2.25% as of September 30, 2018) based on our total net leverage ratio (as defined in the Credit Agreement), or (ii) the Alternate Base Rate (as defined in the Credit Agreement) plus a margin of between 0.75% and 1.50% (1.25% as of September 30, 2018) based on our total net leverage ratio.

We may make optional prepayments of the loans, in whole or in part, without premium or penalty (other than applicable breakage costs). Subject to certain exceptions and conditions described in the Credit Agreement, we will be obligated to prepay the Credit Facility, but without a corresponding commitment reduction, with the net cash proceeds of certain asset sales and with casualty insurance proceeds. The Credit Facility is guaranteed by our existing and future domestic material restricted subsidiaries (as defined in the Credit Agreement), which are substantially all of our wholly-owned U.S. subsidiaries other than the receivables securitization facility subsidiaries (the “Guarantors”).

The Credit Agreement contains customary representations, warranties and covenants, including, but not limited to specified restrictions on indebtedness, liens, guarantee obligations, mergers, acquisitions, consolidations, liquidations and dissolutions, sales of assets, leases, payment of dividends and other restricted payments during a default or non-compliance with the financial covenants, investments, loans and advances, transactions with affiliates and sale and leaseback transactions. The Credit Agreement also contains customary events of default and related cure provisions. We are required to comply with (i) a maximum total net leverage ratio of (i) for the fiscal quarters ending on September 30, 2018 and December 31, 2018, of 4.25x, (ii) for the fiscal quarter ending on March 31, 2019, of 5.00x, (iii) for the fiscal quarter ending on June 30, 2019, of 5.50x, (iv) for the fiscal quarter ending on September 30, 2019, of 5.25x and (v) for each fiscal quarter ending thereafter, of 4.25x (which, for purposes of calculating indebtedness, excludes borrowings under our receivables securitization facility); and (ii) a minimum consolidated interest coverage ratio of 2.25x. In addition, the Credit Agreement imposes certain restrictions on our ability to pay dividends and make other restricted payments if our total net leverage ratio (including borrowings under our receivables securitization facility) is in excess of 3.50x.

At September 30, 2018, we had $0.1 million outstanding borrowings under the Credit Facility. Our average daily balance under the Credit Facility during the nine months ended September 30, 2018 was $2.4 million. There were no letters of credit issued under the Credit Facility as of September 30, 2018.

Dean Foods Receivables Securitization Facility — We have an amended and restated receivables purchase agreement (as amended), which provides us with a $450 million receivables securitization facility pursuant to which certain of our subsidiaries sell their accounts receivable to two wholly-owned entities intended to be bankruptcy-remote. The entities then transfer the receivables to third-party asset-backed commercial paper conduits sponsored by major financial institutions. The assets and

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liabilities of these two entities are fully reflected in our unaudited Condensed Consolidated Balance Sheets, and the securitization is treated as a borrowing for accounting purposes.

The receivables securitization facility has a liquidity termination date of January 4, 2020 and bears interest at a variable rate based upon commercial paper and one-month LIBO rates plus an applicable margin based on our net leverage ratio. The receivables purchase agreement contains covenants consistent with those in the Credit Agreement. We expect to enter into an amendment replacing the total net leverage ratio covenant in the receivables securitization facility to be consistent with the amendment to the Credit Agreement entered into on November 6, 2018, as described above. Advances outstanding under the receivables securitization facility will bear interest at a variable rate based on commercial paper and one month LIBO rates plus an applicable margin, and the Company will pay an unused fee between 0.40% and 0.55% on undrawn amounts, in each case based on the Company's total net leverage ratio.

At November 2, 2018, we had $163.2 million of outstanding borrowings under the Credit Facility and the receivables securitization facility, excluding letters of credit in the aggregate amount of $109.6 million that were issued but undrawn.

Covenant Compliance — As of September 30, 2018, we were in compliance with all covenants under our credit agreements. The following describes our financial covenants pursuant to our current credit agreements.

The Credit Agreement requires us to maintain a total net leverage ratio less than (i) for the fiscal quarters ending on September 30, 2018 and December 31, 2018, 4.25x, (ii) for the fiscal quarter ending on March 31, 2019, 5.00x, (iii) for the fiscal quarter ending on June 30, 2019, 5.50x, (iv) for the fiscal quarter ending on September 30, 2019, 5.25x and (v) for each fiscal quarter ending thereafter, 4.25x. In addition, the Credit Agreement imposes certain restrictions on our ability to pay dividends and make other restricted payments if our total net leverage ratio (including borrowings under our receivables securitization facility) exceeds 3.50x. As described in more detail in our Credit Agreement, the total net leverage ratio is calculated as the ratio of consolidated funded indebtedness, less cash up to $50 million to the extent held by us and our restricted subsidiaries, to consolidated EBITDA for the period of four consecutive fiscal quarters ended on the measurement date. Consolidated funded indebtedness excludes borrowings under our receivables securitization facility and is calculated on a pro forma basis to give effect to permitted acquisitions, divestitures or refinancing of indebtedness. We expect to enter into an amendment replacing the total net leverage ratio covenant in the receivables securitization facility to be consistent with the amendment to the Credit Agreement entered into on November 6, 2018, as described above.

Consolidated EBITDA is comprised of net income for us and our restricted subsidiaries plus interest expense, taxes, depreciation and amortization expense and other non-cash expenses, certain pro forma cost savings add-backs in connection with permitted acquisitions and dispositions, and certain other add-backs for non-recurring charges and other adjustments permitted in calculating covenant compliance under the Credit Agreement, and is calculated on a pro forma basis.

The Credit Agreement and the purchase agreement governing our receivables securitization facility require us to maintain an interest coverage ratio of at least 2.25x as of the end of each fiscal quarter. As described in more detail in the Credit Agreement and the purchase agreement governing our receivables securitization facility, our interest coverage ratio is calculated as the ratio of consolidated EBITDA to consolidated interest expense for the period of four consecutive fiscal quarters ended on the measurement date. Consolidated EBITDA is calculated as described above in the discussion of our leverage ratio. Consolidated interest expense is comprised of consolidated interest expense paid or payable in cash by us and our restricted subsidiaries, as calculated in accordance with generally accepted accounting principles, but excluding write-offs or amortization of deferred financing fees and amounts paid on early termination of swap agreements, calculated on a pro forma basis.

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the value of the collateral securing such obligations. The 2023 Notes are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally, by our subsidiaries that guarantee obligations under the Credit Facility.

The 2023 Notes will mature on March 15, 2023, and bear interest at an annual rate of 6.50%. Interest on the 2023 Notes is payable semi-annually in arrears in March and September of each year.

The carrying value under the 2023 Notes at September 30, 2018 was $695.2 million, net of unamortized debt issuance costs of $4.8 million.

Historical Cash Flow

The following table summarizes our cash flows from operating, investing and financing activities:



	Nine Months Ended September 30
	2018			2017			Change
	(In thousands)
Net cash flows from continuing operations:
Operating activities	$	119,798		$	66,725		$	53,073
Investing activities	(62,921		)	(90,868		)	27,947
Financing activities	(51,604		)	30,511			(82,115		)
Net increase in cash and cash equivalents	$	5,273		$	6,368		$	(1,095	)

Operating Activities

Net cash provided by operating activities increased by $53.1 million in the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increase was primarily attributable to lower dairy commodity costs and better working capital management in comparison to the prior period, partially offset by lower operating income in the first nine months of 2018. Additionally, in the nine months ended September 30, 2017, we made a discretionary pension contribution of $38.5 million to our company-sponsored pension plans.

Investing Activities

Net cash used in investing activities decreased by $27.9 million in the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The decrease was primarily attributable to the purchase price, net of cash acquired, of $21.6 million paid for the Uncle Matt's acquisition, which closed in the second quarter of 2017, and other investments of $11.0 million in the first nine months of 2017, as compared to the purchase price, net of cash acquired, of $13.3 million paid for the Good Karma acquisition, which closed in the second quarter of 2018. Additionally, proceeds from the sale of fixed assets were $16.0 million higher in the first nine months of 2018 in comparison to the prior period. Partially offsetting the decrease, capital expenditures were $7.3 million higher in the first nine months of 2018 in comparison to the prior period.

Financing Activities

Net cash used in financing activities was $51.6 million in the nine months ended September 30, 2018 compared to net cash provided by financing activities of $30.5 million in the nine months ended September 30, 2017. This change was primarily attributable to net debt repayments of $26.9 million in the first nine months of 2018 as compared to net debt proceeds of $57.6 million in the first nine months of 2017. Net debt proceeds were partially offset by payments of financing costs related to the amendments to our Credit Agreement and receivables purchase agreement of $1.8 million in the first nine months of 2017.

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Contractual Obligations

There have been no material changes outside the ordinary course of business to the information provided with respect to our contractual obligations, including indebtedness and purchase and lease obligations, as disclosed in our 2017 Annual Report on Form 10-K.

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. 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.

On April 3, 2017, we made a discretionary contribution of $38.5 million to our company-sponsored pension plans. We do not expect to make any contributions to our company-sponsored pension plans in 2018.

Other Commitments and Contingencies

In 2001, in connection with our acquisition of Legacy Dean, we purchased Dairy Farmers of America’s (“DFA”) 33.8% interest in our operations. In connection with that transaction, we issued a contingent, subordinated promissory note to DFA in the original principal amount of $40 million. 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 become payable only if we materially breach or terminate one of our related 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. We have not terminated, and we have not materially breached, any of our related milk supply agreements with DFA related to the promissory note. We have previously terminated unrelated supply agreements with respect to several plants that were supplied by DFA. In connection with our goals of cost control and supply chain efficiency, we continue to evaluate our sources of raw milk supply.

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;


•	selected levels of property and casualty risks, primarily related to employee health care, workers’ compensation claims and other casualty losses; and


•	certain litigation-related contingencies.

See Note 14 to our unaudited Condensed Consolidated Financial Statements.

Future Capital Requirements

During 2018, we intend to invest a total of approximately $100 million to $120 million in capital expenditures, primarily in support of our enterprise-wide cost productivity plan and other strategic initiatives and for our existing manufacturing facilities. For 2018, we expect cash interest to be approximately $54 million based upon current debt levels and projected forward interest rates under our Credit Facility and receivables securitization facility. Cash interest excludes amortization of deferred financing fees of approximately $2 million.

On an ongoing basis, we evaluate and consider strategic acquisitions, divestitures, joint ventures, or other transactions to create shareholder value and enhance financial performance. We have also instituted a cash dividend policy and may repurchase shares of our common stock.

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Known Trends and Uncertainties

Competitive Environment, Volume Performance and Enterprise-Wide Cost Productivity Plan

The fluid milk industry remains highly competitive, and we are currently navigating a number of challenging dynamics across our cost structure, volumes, customers, consumers and product mix. We continue to navigate a rapidly-changing industry landscape and a dynamic retail environment. Within private label fluid milk, competition for volume has increased significantly, and in some cases, we have lost volume. As a result, we have experienced increased levels of volume deleverage that have negatively impacted our operating income. In addition, retailers continue to aggressively price their private label products, which we believe negatively impacts our branded product sales, resulting in compressed margins.

During the nine months ended September 30, 2018, we experienced fluid milk volume declines from year-ago levels, driven predominantly by the loss of volume from two large retailers, overall category declines and lower branded fluid milk volumes due to continued retailer investment in private label products. We expect volume and mix challenges to continue for the remainder of 2018. The effects of the volume declines on our operating results are being compounded by our accelerated facility closure activity. With the impact of the lost volumes, production cost declines lagged the decline in volumes, resulting in lower overall operating results. We believe some of these increased costs will continue through the remainder of 2018 and will subsequently stabilize as we move past this period of accelerated facility closure activity.

We are executing an aggressive enterprise-wide cost productivity plan to significantly reset our cost structure with targeted cost savings incremental to our annual productivity savings. We currently have legacy processes and systems that are fragmented and decentralized in many areas, which has created a cost structure that is disproportionately sensitive to small percentage declines in volume. We have organized our enterprise-wide cost productivity plan into three targeted work streams: rescaling our supply chain, optimizing spend management and integrating our operating model.We believe this plan is necessary to support our business strategy and deliver more consistent earnings and cash flow over the long term. The plan is phased over several years and requires significant one-time investments, including investments in people, infrastructure, technology and systems, which will negatively impact our profitability and cash flows.

Due to the phased implementation and timing of our initiatives and investments, we will not generate enough cost savings in 2018 to offset the planned investments, cost inflation, costs associated with accelerated facility closure activities and overall volume pressures. In addition, inflation, declining volumes and competitive pricing pressures have negated, and may continue to negate, some of the impact of our cost saving efforts. We also must execute our plans within our projected time frames in order to meet our financial projections and to remain competitive in the marketplace. In addition, if we continue to experience deteriorations in our profitability and cash flows, we may incur material asset impairments in the future. For further discussion of the risks relating to our cost productivity plan, see “Part I - Item 1A. Risk Factors - Business, Competitive and Strategic Risks - We may not realize anticipated benefits from our enterprise-wide cost productivity plan, and we may not complete this plan within our projected time frames, either of which could materially adversely impact our business, financial condition, results of operations and cash flows" in our 2017 Annual Report on Form 10-K.

Conventional Raw Milk and Other Inputs

Conventional Raw Milk and Butterfat — The primary raw materials used in the products we manufacture, distribute and sell are conventional raw milk (which contains both raw skim milk and butterfat) and bulk cream. On a monthly basis, the federal government and certain state governments set minimum prices for raw milk. 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 and field personnel). 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 can sometimes differ 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 Grade AA butter price on the Chicago Mercantile Exchange.

Prices for conventional raw milk during the third quarter of 2018 were approximately 11% lower than year-ago levels and increased approximately 1% sequentially from the second quarter of 2018. We are currently projecting Class I raw milk costs to increase for the remainder of 2018. Commodity price changes primarily impact our branded business as the changes in raw milk costs are essentially a pass-through cost on our private label products. Given the multitude of factors that influence the dairy commodity environment, we acknowledge the potential for future volatility.

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Fuel, Resin and External Freight Costs — We purchase diesel fuel to operate our extensive DSD system, and we incur fuel surcharge expense related to the products we deliver through third-party carriers. Although we may utilize forward purchase contracts and other instruments to mitigate the risks related to commodity price fluctuations, such strategies do not fully mitigate commodity price risk. Adverse movements in commodity prices over the terms of the contracts or instruments could decrease the economic benefits we derive from these strategies. Another significant raw material we use is resin, which is a fossil fuel-based product used to make plastic bottles. The prices of diesel and resin are subject to fluctuations based on changes in crude oil and natural gas prices. Additionally, in some cases we incur expenses associated with utilizing third-party carriers to deliver our products. The expenses we incur for external freight may vary based on capacity, carrier acceptance rates and other factors. In the first nine months of 2018, we experienced significant inflation in fuel, external freight and resin costs. In addition, our freight and fuel usage has increased due to the recent facility closure activity. We expect the headwinds for freight and fuel to continue for the remainder of 2018 due to rate and increased usage related to facility closure activities. While we work to mitigate these headwinds through usage reductions other route optimization productivity initiatives, we will not be able to fully offset the rate increases within the year.

Tax Rate

Income tax benefit was recorded at an effective rate of 27.4% in the first nine months of 2018 compared to income tax expense at a 189.0% effective tax rate in the first nine months of 2017. Our effective tax rate decreased in the first nine months of 2018, primarily as a result of the 2017 Tax Act and the one-time tax impacts related to facility closing and reorganization costs and impairment charges. Changes in our profitability levels and the relative earnings of our business units, as well as changes to federal, state, and foreign tax laws, may cause our tax rate to change from historical rates.

See the risk factors described in “Part I — Item 1A — Risk Factors” in our 2017 Annual Report on Form 10-K and elsewhere in this Form 10-Q for a description of various other risks and uncertainties concerning our business.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our quantitative and qualitative disclosures about market risk as set forth in our 2017 Annual Report on Form 10-K.

Item 4. Controls and Procedures

Controls Evaluation and Related Certifications

We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), referred to herein as “Disclosure Controls”) as of the end of the period covered by this quarterly report. The controls evaluation was performed under the supervision and with the participation of management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"). Based upon our most recent controls evaluation, our CEO and CFO have concluded that our Disclosure Controls were effective as of September 30, 2018.

Changes in Internal Control over Financial Reporting

During the period covered by this quarterly report, there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II — Other Information

Item 1A. Risk Factors

There have been no material changes in the Company's risk factors from those set forth in our 2017 Annual Report on Form 10-K.

Item 6. Exhibits



10.1	Third Amendment to Credit Agreement, dated November 6, 2018, among the Company, Bank of America, N.A., as Administrative Agent, and each lender party thereto (filed herewith).
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

101.INS XBRL Instance Document(1).
101.SCH XBRL Taxonomy Extension Schema Document(1).
101.CAL XBRL Taxonomy Calculation Linkbase Document(1).
101.DEF XBRL Taxonomy Extension Definition Linkbase Document(1).
101.LAB XBRL Taxonomy Label Linkbase Document(1).
101.PRE XBRL Taxonomy Presentation Linkbase Document(1).


(1)	Filed electronically herewith.

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SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	DEAN FOODS COMPANY

	/S/ SCOTT K. VOPNI
	Scott K. Vopni
	Senior Vice President and Chief Accounting Officer

November 8, 2018