UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
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(Mark One)
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[X]
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Quarterly report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 | |
| For the Quarterly Period Ended June 30, 2003 | ||
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[ ]
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the Transition Period from to | ||
| Commission File Number 001-12755 | ||
Dean Foods Company
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Delaware (State or other jurisdiction of incorporation or organization) |
75-2559681 (I.R.S. Employer Identification No.) |
2515 McKinney Avenue, Suite 1200
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
As of August 8, 2003 the number of shares outstanding of each class of common stock was:
Common Stock, par value $.01 154,802,645
Table of Contents
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Part I — Financial
Information
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| Item 1 — Financial Statements | 3 | ||||
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Item 2 — Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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24 | ||||
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Item 3 — Quantitative and
Qualitative Disclosures About Market Risk
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38 | ||||
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Item 4 — Controls and Procedures
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39 | ||||
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Part II — Other
Information
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|||||
| Item 4 — Submission of Matters to a Vote of Security Holders | 40 | ||||
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Item 6 — Exhibits and Reports on
Form 8-K
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40 | ||||
-2-
Part I — Financial Information
| Item 1. | Financial Statements |
DEAN FOODS COMPANY
| June 30, | December 31, | ||||||||||
| 2003 | 2002 | ||||||||||
| (unaudited) | |||||||||||
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Assets
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Current assets:
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Cash and cash equivalents
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$ | 28,003 | $ | 45,896 | |||||||
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Accounts receivable, net
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621,122 | 656,938 | |||||||||
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Inventories
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423,801 | 400,347 | |||||||||
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Deferred income taxes
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148,395 | 158,337 | |||||||||
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Prepaid expenses and other current assets
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59,112 | 49,628 | |||||||||
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Total current assets
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1,280,433 | 1,311,146 | |||||||||
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Property, plant and equipment, net
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1,689,176 | 1,628,424 | |||||||||
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Goodwill
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3,074,376 | 3,035,417 | |||||||||
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Identifiable intangible and other assets
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609,369 | 607,279 | |||||||||
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Total
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$ | 6,653,354 | $ | 6,582,266 | |||||||
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Liabilities and Stockholders’
Equity
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Current liabilities:
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Accounts payable and accrued expenses
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$ | 925,179 | $ | 1,056,213 | |||||||
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Income taxes payable
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57,639 | 38,488 | |||||||||
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Current portion of long-term debt
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175,475 | 173,442 | |||||||||
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Total current liabilities
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1,158,293 | 1,268,143 | |||||||||
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Long-term debt
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2,603,030 | 2,554,482 | |||||||||
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Other long-term liabilities
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229,448 | 236,915 | |||||||||
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Deferred income taxes
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336,928 | 294,256 | |||||||||
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Mandatorily redeemable convertible trust issued
preferred securities
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585,177 | ||||||||||
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Commitments and contingencies (See
Note 10)
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Stockholders’ equity:
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Common stock, 154,976,839 and
132,961,440 shares issued and outstanding
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1,550 | 1,330 | |||||||||
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Additional paid-in capital
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1,513,380 | 979,113 | |||||||||
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Retained earnings
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865,552 | 718,555 | |||||||||
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Accumulated other comprehensive income
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(54,827 | ) | (55,705 | ) | |||||||
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Total stockholders’ equity
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2,325,655 | 1,643,293 | |||||||||
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Total
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$ | 6,653,354 | $ | 6,582,266 | |||||||
See Notes to Condensed Consolidated Financial Statements.
-3-
DEAN FOODS COMPANY
| Three Months Ended | Six Months Ended | |||||||||||||||||
| June 30 | June 30 | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||||
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Net sales
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$ | 2,222,572 | $ | 2,295,243 | $ | 4,367,450 | $ | 4,521,463 | ||||||||||
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Cost of sales
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1,621,419 | 1,694,786 | 3,195,064 | 3,376,174 | ||||||||||||||
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Gross profit
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601,153 | 600,457 | 1,172,386 | 1,145,289 | ||||||||||||||
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Operating costs and expenses:
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Selling and distribution
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340,510 | 329,856 | 670,183 | 646,140 | ||||||||||||||
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General and administrative
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72,154 | 85,091 | 156,786 | 164,382 | ||||||||||||||
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Amortization expense
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998 | 1,867 | 2,634 | 4,079 | ||||||||||||||
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Plant closing costs
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3,025 | 5,269 | 1,335 | 6,503 | ||||||||||||||
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Total operating costs and expenses
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416,687 | 422,083 | 830,938 | 821,104 | ||||||||||||||
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Operating income
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184,466 | 178,374 | 341,448 | 324,185 | ||||||||||||||
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Other (income) expense:
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Interest expense, net
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44,341 | 50,903 | 91,212 | 101,423 | ||||||||||||||
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Financing charges on trust issued preferred
securities
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5,769 | 8,395 | 14,164 | 16,790 | ||||||||||||||
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Equity in earnings of unconsolidated affiliates
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17 | (1,404 | ) | (179 | ) | (1,807 | ) | |||||||||||
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Other (income) expense, net
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(304 | ) | 744 | (771 | ) | 464 | ||||||||||||
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Total other (income) expense
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49,823 | 58,638 | 104,426 | 116,870 | ||||||||||||||
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Income from continuing operations before income
taxes and minority interest
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134,643 | 119,736 | 237,022 | 207,315 | ||||||||||||||
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Income taxes
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50,854 | 45,699 | 90,024 | 78,606 | ||||||||||||||
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Minority interest in earnings
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7 | 16 | ||||||||||||||||
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Income from continuing operations
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83,789 | 74,030 | 146,998 | 128,693 | ||||||||||||||
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Loss from discontinued operations, net of tax
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(804 | ) | (108 | ) | ||||||||||||||
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Income before cumulative effect of accounting
change
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83,789 | 73,226 | 146,998 | 128,585 | ||||||||||||||
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Cumulative effect of accounting change
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(84,983 | ) | ||||||||||||||||
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Net income
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$ | 83,789 | $ | 73,226 | $ | 146,998 | $ | 43,602 | ||||||||||
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Average common shares: Basic
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139,477,076 | 135,074,735 | 134,908,010 | 134,199,345 | ||||||||||||||
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Average common shares: Diluted
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160,758,274 | 163,483,061 | 160,073,296 | 162,725,267 | ||||||||||||||
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Basic earnings per common share:
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Income from continuing operations
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$ | 0.60 | $ | 0.55 | $ | 1.09 | $ | 0.96 | ||||||||||
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Loss from discontinued operations
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(0.01 | ) | ||||||||||||||||
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Cumulative effect of accounting change
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(0.64 | ) | ||||||||||||||||
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Net income
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$ | 0.60 | $ | 0.54 | $ | 1.09 | $ | 0.32 | ||||||||||
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Diluted earnings per common share:
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Income from continuing operations
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$ | 0.54 | $ | 0.49 | $ | 0.97 | $ | 0.86 | ||||||||||
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Loss from discontinued operations
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(0.01 | ) | ||||||||||||||||
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Cumulative effect of accounting change
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(0.53 | ) | ||||||||||||||||
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Net income
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$ | 0.54 | $ | 0.48 | $ | 0.97 | $ | 0.33 | ||||||||||
See Notes to Condensed Consolidated Financial Statements.
-4-
DEAN FOODS COMPANY
| Six Months Ended | ||||||||||||
| June 30 | ||||||||||||
| 2003 | 2002 | |||||||||||
| (unaudited) | ||||||||||||
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Cash flows from operating
activities:
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Net income
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$ | 146,998 | $ | 43,602 | ||||||||
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Loss from discontinued operations
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108 | |||||||||||
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Adjustments to reconcile net income to net cash
provided by operating activities:
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Depreciation and amortization
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94,120 | 87,688 | ||||||||||
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Loss (gain) on disposition of assets
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(1,223 | ) | 1,597 | |||||||||
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Equity in earnings of unconsolidated affiliates
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(179 | ) | (1,807 | ) | ||||||||
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Cumulative effect of accounting change
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84,983 | |||||||||||
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Write-down of impaired assets
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3,737 | |||||||||||
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Deferred income taxes
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52,755 | (17,044 | ) | |||||||||
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Other, net
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(4,306 | ) | 1,555 | |||||||||
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Changes in operating assets and liabilities, net
of acquisitions:
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Accounts receivable
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44,808 | 57,798 | ||||||||||
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Inventories
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(20,623 | ) | 15,252 | |||||||||
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Prepaid expenses and other assets
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2,468 | 10,957 | ||||||||||
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Accounts payable, accrued expenses and other
liabilities
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(134,096 | ) | (66,072 | ) | ||||||||
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Income taxes
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36,247 | 66,257 | ||||||||||
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Net cash provided by continuing operations
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216,969 | 288,611 | ||||||||||
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Net cash used in discontinued operations
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(1,216 | ) | ||||||||||
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Net cash provided by operating activities
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216,969 | 287,395 | ||||||||||
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Cash flows from investing
activities:
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Net additions to property, plant and equipment
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(130,580 | ) | (89,383 | ) | ||||||||
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Cash outflows for acquisitions
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(52,048 | ) | (214,900 | ) | ||||||||
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Net proceeds from divestitures
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2,561 | |||||||||||
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Proceeds from sale of fixed assets
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5,170 | 2,122 | ||||||||||
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Net cash used in continuing operations
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(177,458 | ) | (299,600 | ) | ||||||||
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Net cash used in discontinued operations
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(2,313 | ) | ||||||||||
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Net cash used in investing activities
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(177,458 | ) | (301,913 | ) | ||||||||
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Cash flows from financing
activities:
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Proceeds from issuance of debt
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131,049 | 189,235 | ||||||||||
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Repayment of debt
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(107,745 | ) | (242,102 | ) | ||||||||
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Payment of deferred financing costs
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(762 | ) | ||||||||||
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Issuance of common stock, net of expenses
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64,277 | 51,209 | ||||||||||
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Redemption of common stock
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(142,565 | ) | ||||||||||
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Redemption of TIPES
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(2,420 | ) | ||||||||||
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Net cash used in financing activities
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(57,404 | ) | (2,420 | ) | ||||||||
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Decrease in cash and cash equivalents
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(17,893 | ) | (16,938 | ) | ||||||||
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Cash and cash equivalents, beginning of period
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45,896 | 78,260 | ||||||||||
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Cash and cash equivalents, end of period
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$ | 28,003 | $ | 61,322 | ||||||||
See Notes to Condensed Consolidated Financial Statements.
-5-
DEAN FOODS COMPANY
June 30, 2003
| 1. | General |
Basis of Presentation — The unaudited Condensed Consolidated Financial Statements contained in this report have been prepared on the same basis as the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2002 (as amended). In our opinion, we have made all necessary adjustments (which include only normal recurring adjustments) in order to present fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods presented. Certain reclassifications have been made to conform our 2002 Consolidated Financial Statements to the current classifications. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. Our results of operations for the period ended June 30, 2003 may not be indicative of our operating results for the full year. The Condensed Consolidated Financial Statements contained in this report should be read in conjunction with our 2002 Consolidated Financial Statements contained in our Annual Report on Form 10-K (filed with the Securities and Exchange Commission on March 27, 2003), as amended on our Annual Report on Form 10-K/ A (filed with the Securities and Exchange Commission on July 3, 2003).
On June 9, 2003, we effected a three-for-two split of our common stock. Pursuant to the split, all shareholders of record as of May 23, 2003 received an additional half share of common stock for each share held on that date. All share numbers contained in our Condensed Consolidated Financial Statements and in these notes have been adjusted for all periods to reflect the stock split.
This Quarterly Report, including these notes, have been written in accordance with the Securities and Exchange Commission’s “Plain English” guidelines. Unless otherwise indicated, references in this report to “we,” “us” or “our” refer to Dean Foods Company and its subsidiaries, taken as a whole.
Recently Adopted Accounting Pronouncements — In June 2001, FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which the associated legal obligation for the liability is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and amortized over the useful life of the asset. SFAS No. 143 became effective for us in 2003. The adoption of this pronouncement did not have a material impact on our Consolidated Financial Statements.
SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” was issued in April 2002 and is applicable to fiscal years beginning after May 15, 2002. One of the provisions of this technical statement is the rescission of SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” whereby any gain or loss on the early extinguishment of debt that was classified as an extraordinary item in prior periods in accordance with SFAS No. 4, which does not meet the criteria of an extraordinary item as defined by APB Opinion 30, must be reclassified. Adoption of this standard requires us to reclassify extraordinary losses previously reported from the early extinguishment of debt as a component of “other expense.”
In June 2002, FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The statement requires that a liability for a cost associated with an exit or disposal activit