e10vqza
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
Amendment No. 1
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(Mark One) |
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þ
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Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934 |
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For the Quarterly Period Ended June 30, 2005 |
or |
|
o
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Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 |
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For the Transition Period
from to |
Commission File Number 001-12755
Dean Foods Company
(Exact name of the registrant as specified in its charter)
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Delaware
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75-2559681 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. employer
identification no.) |
2515 McKinney Avenue, Suite 1200
Dallas, Texas 75201
(214) 303-3400
(Address, including zip code, and telephone number,
including
area code, of the registrants principal executive
offices)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ
No o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).
Yes þ
No o
Indicate by check mark whether the registrant is a Shell Company
(as defined in Rule 12b-2 of the Exchange Act).
Yes o
No þ
As of December 8, 2005 the number of shares outstanding of
each class of common stock was: 134,599,560.
Common Stock, par value $.01
Explanatory Note
Dean Foods Company (the Company) is filing this
Amendment No. 1 to its Quarterly Report on Form 10-Q
for the quarter ended June 30, 2005, as filed with the
Securities and Exchange Commission (the SEC) on
August 9, 2005, to (1) refile the full text of the
original Form 10-Q for the quarter ended June 30,
2005, (2) amend Item 6 of Part II, and
(3) correct inadvertent omissions from and refile the
Section 302 certifications. This Amendment No. 1 does
not reflect the restatement of any previously reported financial
statements or, except as noted above, change any other
disclosures.
This Amendment No. 1 continues to speak as of the date of
the original Form 10-Q for the quarter ended June 30,
2005 and the Company has not updated or amended the disclosures
contained herein to reflect events that have occurred since the
filing of the original Form 10-Q, or modified or updated
those disclosures in any way other than as described in the
preceding paragraph. Accordingly, this Amendment No. 1
should be read in conjunction with the Companys filings
made with the SEC subsequent to the filing of the original
Form 10-Q on August 9, 2005.
Table of Contents
-2-
Part I Financial Information
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Item 1. |
Financial Statements |
DEAN FOODS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
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June 30, | |
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December 31, | |
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2005 | |
|
2004 | |
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| |
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| |
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|
(unaudited) | |
|
|
Assets |
Current assets:
|
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|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
32,305 |
|
|
$ |
27,407 |
|
|
Receivables, net
|
|
|
770,803 |
|
|
|
828,754 |
|
|
Inventories
|
|
|
376,585 |
|
|
|
365,403 |
|
|
Deferred income taxes
|
|
|
143,359 |
|
|
|
143,079 |
|
|
Prepaid expenses and other current assets
|
|
|
61,210 |
|
|
|
72,439 |
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|
|
|
|
|
|
|
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Total current assets
|
|
|
1,384,262 |
|
|
|
1,437,082 |
|
Property, plant and equipment
|
|
|
1,850,192 |
|
|
|
1,821,719 |
|
Goodwill
|
|
|
3,167,598 |
|
|
|
3,183,656 |
|
Identifiable intangible and other assets
|
|
|
683,152 |
|
|
|
685,353 |
|
Assets of discontinued operations
|
|
|
|
|
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|
628,558 |
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|
|
|
|
|
|
|
|
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Total
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|
$ |
7,085,204 |
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|
$ |
7,756,368 |
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|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
Current liabilities:
|
|
|
|
|
|
|
|
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Accounts payable and accrued expenses
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|
$ |
861,297 |
|
|
$ |
869,163 |
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|
Income taxes payable
|
|
|
36,908 |
|
|
|
40,000 |
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|
Current portion of long-term debt
|
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|
55,702 |
|
|
|
141,012 |
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|
|
|
|
|
|
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Total current liabilities
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|
953,907 |
|
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|
1,050,175 |
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Long-term debt
|
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|
2,930,887 |
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|
|
3,110,716 |
|
Deferred income taxes
|
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|
524,887 |
|
|
|
497,919 |
|
Other long-term liabilities
|
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|
308,831 |
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|
|
322,378 |
|
Liabilities of discontinued operations
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|
111,581 |
|
Commitments and contingencies (Note 10)
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Stockholders equity:
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Preferred stock, none issued
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Common stock, 151,486,365 and 149,222,997 shares issued and
outstanding, with a par value of $0.01 per share
|
|
|
1,515 |
|
|
|
1,492 |
|
|
Additional paid-in capital
|
|
|
1,368,236 |
|
|
|
1,308,172 |
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|
Retained earnings
|
|
|
1,021,125 |
|
|
|
1,359,632 |
|
|
Accumulated other comprehensive income (loss)
|
|
|
(24,184 |
) |
|
|
(5,697 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,366,692 |
|
|
|
2,663,599 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
7,085,204 |
|
|
$ |
7,756,368 |
|
|
|
|
|
|
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|
See Notes to Condensed Consolidated Financial Statements.
-3-
DEAN FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
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Three Months Ended | |
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Six Months Ended | |
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June 30 | |
|
June 30 | |
|
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| |
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| |
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|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
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| |
|
| |
|
| |
|
| |
|
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|
(unaudited) | |
|
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Net sales
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|
$ |
2,623,251 |
|
|
$ |
2,623,914 |
|
|
$ |
5,201,564 |
|
|
$ |
4,902,496 |
|
Cost of sales
|
|
|
1,961,319 |
|
|
|
2,027,254 |
|
|
|
3,919,240 |
|
|
|
3,732,543 |
|
|
|
|
|
|
|
|
|
|
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|
|
|
Gross profit
|
|
|
661,932 |
|
|
|
596,660 |
|
|
|
1,282,324 |
|
|
|
1,169,953 |
|
Operating costs and expenses:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Selling and distribution
|
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|
388,728 |
|
|
|
366,263 |
|
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|
777,045 |
|
|
|
712,381 |
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|
General and administrative
|
|
|
95,806 |
|
|
|
82,014 |
|
|
|
186,382 |
|
|
|
169,056 |
|
|
Amortization of intangibles
|
|
|
1,506 |
|
|
|
1,167 |
|
|
|
3,195 |
|
|
|
2,007 |
|
|
Facility closing and reorganization costs
|
|
|
2,438 |
|
|
|
11 |
|
|
|
8,828 |
|
|
|
7,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
488,478 |
|
|
|
449,455 |
|
|
|
975,450 |
|
|
|
891,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
173,454 |
|
|
|
147,205 |
|
|
|
306,874 |
|
|
|
278,925 |
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
42,141 |
|
|
|
44,063 |
|
|
|
84,560 |
|
|
|
86,559 |
|
|
Other (income) expense, net
|
|
|
(228 |
) |
|
|
(185 |
) |
|
|
(338 |
) |
|
|
(1,659 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
41,913 |
|
|
|
43,878 |
|
|
|
84,222 |
|
|
|
84,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
131,541 |
|
|
|
103,327 |
|
|
|
222,652 |
|
|
|
194,025 |
|
Income taxes
|
|
|
50,321 |
|
|
|
39,991 |
|
|
|
85,605 |
|
|
|
74,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
81,220 |
|
|
|
63,336 |
|
|
|
137,047 |
|
|
|
119,432 |
|
Income from discontinued operations, net of tax
|
|
|
5,428 |
|
|
|
13,737 |
|
|
|
15,798 |
|
|
|
26,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
86,648 |
|
|
$ |
77,073 |
|
|
$ |
152,845 |
|
|
$ |
146,313 |
|
|
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|
|
|
|
|
|
|
|
|
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|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Income from continuing operations
|
|
$ |
0.54 |
|
|
$ |
0.40 |
|
|
$ |
0.91 |
|
|
$ |
0.76 |
|
|
Income from discontinued operations
|
|
|
0.03 |
|
|
|
0.09 |
|
|
|
0.11 |
|
|
|
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
0.57 |
|
|
$ |
0.49 |
|
|
$ |
1.02 |
|
|
$ |
0.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
0.52 |
|
|
$ |
0.39 |
|
|
$ |
0.88 |
|
|
$ |
0.73 |
|
|
Income from discontinued operations
|
|
|
0.03 |
|
|
|
0.08 |
|
|
|
0.10 |
|
|
|
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
0.55 |
|
|
$ |
0.47 |
|
|
$ |
0.98 |
|
|
$ |
0.90 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Average common shares:
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
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|
Basic
|
|
|
150,833,996 |
|
|
|
157,331,187 |
|
|
|
150,330,585 |
|
|
|
156,718,329 |
|
|
Diluted
|
|
|
157,219,798 |
|
|
|
163,634,332 |
|
|
|
156,442,366 |
|
|
|
163,149,189 |
|
See Notes to Condensed Consolidated Financial Statements.
-4-
DEAN FOODS COMPANY
CONDENSED STATEMENT OF STOCKHOLDERS EQUITY
(In thousands, except share data)
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Accumulated | |
|
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Common Stock | |
|
Additional | |
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Other | |
|
Total | |
|
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|
|
| |
|
Paid-In | |
|
Retained | |
|
Comprehensive | |
|
Stockholders | |
|
Comprehensive | |
|
|
Shares | |
|
Amount | |
|
Capital | |
|
Earnings | |
|
Income (Loss) | |
|
Equity | |
|
Income | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(unaudited) | |
Balance, December 31, 2004
|
|
|
149,222,997 |
|
|
$ |
1,492 |
|
|
$ |
1,308,172 |
|
|
$ |
1,359,632 |
|
|
$ |
(5,697 |
) |
|
$ |
2,663,599 |
|
|
|
|
|
|
Issuance of common stock
|
|
|
2,263,368 |
|
|
|
23 |
|
|
|
60,064 |
|
|
|
|
|
|
|
|
|
|
|
60,087 |
|
|
|
|
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|
Share dividend of TreeHouse common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(491,352 |
) |
|
|
|
|
|
|
(491,352 |
) |
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152,845 |
|
|
|
|
|
|
|
152,845 |
|
|
$ |
152,845 |
|
|
Other comprehensive income (Note 7):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,814 |
|
|
|
1,814 |
|
|
|
1,814 |
|
|
Amounts reclassified to income statement related to hedging
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,409 |
|
|
|
5,409 |
|
|
|
5,409 |
|
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,918 |
) |
|
|
(23,918 |
) |
|
|
(23,918 |
) |
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,792 |
) |
|
|
(1,792 |
) |
|
|
(1,792 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
134,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2005
|
|
|
151,486,365 |
|
|
$ |
1,515 |
|
|
$ |
1,368,236 |
|
|
$ |
1,021,125 |
|
|
$ |
(24,184 |
) |
|
$ |
2,366,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
-5-
DEAN FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
June 30 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(unaudited) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
152,845 |
|
|
$ |
146,313 |
|
|
Income from discontinued operations
|
|
|
(15,798 |
) |
|
|
(26,881 |
) |
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
109,445 |
|
|
|
103,766 |
|
|
|
Loss (gain) on disposition of assets
|
|
|
585 |
|
|
|
(1,532 |
) |
|
|
Write-down of impaired assets
|
|
|
697 |
|
|
|
2,175 |
|
|
|
Deferred income taxes
|
|
|
22,969 |
|
|
|
32,429 |
|
|
|
Tax savings on equity compensation
|
|
|
12,697 |
|
|
|
15,298 |
|
|
|
Other
|
|
|
(2,449 |
) |
|
|
917 |
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
57,811 |
|
|
|
(85,763 |
) |
|
|
Inventories
|
|
|
(11,215 |
) |
|
|
(85,542 |
) |
|
|
Prepaid expenses and other assets
|
|
|
20,807 |
|
|
|
(20,264 |
) |
|
|
Accounts payable and accrued expenses
|
|
|
(8,580 |
) |
|
|
9 |
|
|
|
Income taxes payable
|
|
|
(4,696 |
) |
|
|
(21,158 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by continuing operations
|
|
|
335,118 |
|
|
|
59,767 |
|
|
|
|
Net cash provided by discontinued operations
|
|
|
31,912 |
|
|
|
65,490 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
367,030 |
|
|
|
125,257 |
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(144,268 |
) |
|
|
(155,774 |
) |
|
Cash outflows for acquisitions and investments
|
|
|
(1,702 |
) |
|
|
(350,176 |
) |
|
Proceeds from sale of fixed assets
|
|
|
5,281 |
|
|
|
7,420 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in continuing operations
|
|
|
(140,689 |
) |
|
|
(498,530 |
) |
|
|
|
Net cash used in discontinued operations
|
|
|
(7,631 |
) |
|
|
(9,287 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(148,320 |
) |
|
|
(507,817 |
) |
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
|
16,722 |
|
|
|
478,688 |
|
|
Repayment of debt
|
|
|
(285,796 |
) |
|
|
(155,775 |
) |
|
Payment of deferred financing costs
|
|
|
(3,281 |
) |
|
|
(1,140 |
) |
|
Issuance of common stock, net of expenses
|
|
|
47,390 |
|
|
|
52,474 |
|
|
Redemption of common stock
|
|
|
|
|
|
|
(5,163 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operations
|
|
|
(224,965 |
) |
|
|
369,084 |
|
|
|
|
Net cash provided by (used in) discontinued operations
|
|
|
11,153 |
|
|
|
(3,594 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(213,812 |
) |
|
|
365,490 |
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
4,898 |
|
|
|
(17,070 |
) |
Cash and cash equivalents, beginning of period
|
|
|
27,407 |
|
|
|
46,037 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
32,305 |
|
|
$ |
28,967 |
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
-6-
DEAN FOODS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)
Basis of Presentation The unaudited Condensed
Consolidated Financial Statements contained in this Quarterly
Report have been prepared on the same basis as the Consolidated
Financial Statements in our Annual Report on Form 10-K for
the year ended December 31, 2004. 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
the prior years Consolidated Financial Statements to the
current years 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, 2005 may not be indicative of our
operating results for the full year. The Condensed Consolidated
Financial Statements contained in this Quarterly Report should
be read in conjunction with our 2004 Consolidated Financial
Statements contained in our Annual Report on Form 10-K
(filed with the Securities and Exchange Commission on
March 16, 2005).
On June 27, 2005, we completed the spin-off
(Spin-off) of our indirect majority owned subsidiary
TreeHouse Foods, Inc. (TreeHouse). Immediately prior
to the Spin-off, we transferred to TreeHouse (1) all of the
businesses previously conducted by our Specialty Foods Group
segment, (2) the Mocha Mix® non-dairy coffee
creamer and Second Nature® liquid egg substitute
businesses previously conducted by WhiteWave Foods Company, and
(3) the foodservice salad dressings businesses, previously
conducted by the Dairy Group and WhiteWave Foods Company. The
Condensed Financial Statements as of December 31, 2004 and
for the periods ended June 30, 2004 have been reclassified
to give effect to the businesses transferred to TreeHouse as
discontinued operations.
Unless otherwise indicated, references in this report to
we, us or our refer to Dean
Foods Company and its subsidiaries, taken as a whole.
Shipping and Handling Fees Our shipping and
handling costs are included in both cost of sales and selling
and distribution expense, depending on the nature of such costs.
Shipping and handling costs included in cost of sales reflect
inventory warehouse costs and product loading and handling
costs. Our Dairy Group includes costs associated with
transporting finished products from our manufacturing facilities
to our own distribution warehouses within cost of sales while
WhiteWave Foods Company includes these costs in selling and
distribution expense. Shipping and handling costs included in
selling and distribution expense consist primarily of route
delivery costs for both company-owned delivery routes and
independent distributor routes, to the extent that such
independent distributors are paid a delivery fee, and the cost
of shipping products to customers through third party carriers.
Shipping and handling costs recorded as a component of selling
and distribution expense were approximately $292.2 million
and $265.8 million in the second quarter of 2005 and 2004,
respectively, and $583.5 million and $527.3 million
during the first six months of 2005 and 2004, respectively.
-7-
Stock-Based Compensation We have elected to
follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and
related interpretations in accounting for our stock options. All
options granted to date have been to employees, officers and
directors. No compensation expense has been recognized as the
stock options were granted at exercise prices that were at or
above market value at the grant date. Compensation expense for
grants of stock units is recognized over the vesting period. See
Note 6 for more information about our stock option and
stock unit programs. Had compensation expense been determined
for stock option grants using fair value methods provided for in
SFAS No. 123, Accounting for Stock-Based
Compensation, our pro forma net income and net income per
common share would have been the amounts indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
June 30 | |
|
June 30 | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except share data) | |
Net income, as reported
|
|
$ |
86,648 |
|
|
$ |
77,073 |
|
|
$ |
152,845 |
|
|
$ |
146,313 |
|
Add: Stock-based compensation expense included in net income,
net of tax(1)
|
|
|
4,998 |
|
|
|
919 |
|
|
|
6,422 |
|
|
|
1,825 |
|
Less: Stock-based employee compensation, determined under fair
value-based methods for all awards, net of income tax benefit
|
|
|
(10,020 |
) |
|
|
(9,184 |
) |
|
|
(16,172 |
) |
|
|
(17,888 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$ |
81,626 |
|
|
$ |
68,808 |
|
|
$ |
143,095 |
|
|
$ |
130,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$ |
0.57 |
|
|
$ |
0.49 |
|
|
$ |
1.02 |
|
|
$ |
0.93 |
|
|
Basic pro forma
|
|
|
0.54 |
|
|
|
0.44 |
|
|
|
0.95 |
|
|
|
0.83 |
|
|
Diluted as reported
|
|
|
0.55 |
|
|
|
0.47 |
|
|
|
0.98 |
|
|
|
0.90 |
|
|
Diluted pro forma
|
|
|
0.52 |
|
|
|
0.42 |
|
|
|
0.91 |
|
|
|
0.80 |
|
Stock option share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options granted during period
|
|
|
385,522 |
|
|
|
122,598 |
|
|
|
2,132,052 |
|
|
|
2,177,288 |
|
|
Weighted-average option fair value
|
|
$ |
9.22 |
|
|
$ |
11.04 |
|
|
$ |
8.87 |
|
|
$ |
8.88 |
|
|
|
(1) |
Included in the three and six month periods ended June 30,
2005 is $3.3 million of compensation expense, net of tax,
resulting from the acceleration of vesting on certain stock
units issued in January 2003. See further discussion in
Note 6. |
The fair value of each stock option grant is calculated using
the Black-Scholes option-pricing model, with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
June 30 | |
|
June 30 | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Expected volatility
|
|
|
25 |
% |
|
|
25 |
% |
|
|
25 |
% |
|
|
25 |
% |
Expected dividend yield
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Expected option term
|
|
|
4.5 years |
|
|
|
5 years |
|
|
|
4.5 years |
|
|
|
5 years |
|
Risk-free rate of return
|
|
|
3.72 to 4.13 |
% |
|
|
3.81 |
% |
|
|
3.63 to 4.26 |
% |
|
|
2.98 to 3.81 |
% |
Recently Issued Accounting Pronouncements The
Financial Accounting Standards Board (FASB) issued
Financial Interpretation No. (FIN) 47,
Accounting for Conditional Asset Retirement
Obligations in March 2005. This Interpretation clarifies
the term conditional asset retirement obligation as
used in FASB Statement of Financial Accounting Standards
(SFAS) No. 143 Accounting for Asset
Retirement Obligations, and also clarifies when an entity
would have sufficient information to reasonably estimate the
fair value of an asset retirement obligation. We are currently
evaluating the impact of FIN No. 47, which will become
effective for us in the fourth quarter of 2005, on our
Consolidated Financial Statements.
-8-
The FASB issued SFAS No. 123(R), Share-Based
Payment in December 2004. It will require the cost of
employee compensation paid with equity instruments to be
measured based on grant-date fair values. That cost will be
recognized over the vesting period. SFAS No. 123(R)
will become effective for us in the first quarter of 2006. We
are still evaluating the impact of SFAS No. 123(R) on
our Consolidated Financial Statements and have not yet
determined the transition method we will apply when we adopt the
statement. Refer to the section titled Stock-Based
Compensation in this Note for an illustration of the
pro-forma impact of expensing our stock options in the
historical periods.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs an Amendment of ARB
No. 43, Chapter 4. SFAS No. 151, which
is effective for inventory costs incurred during years beginning
after June 15, 2005, clarifies the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and
wasted material, requiring that those items be recognized as
current-period charges. In addition, SFAS No. 151
requires that allocation of fixed production overheads be based
on the normal capacity of the production facilities. We do not
believe the adoption of this standard will have a material
impact on our Consolidated Financial Statements.
In December 2004, FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets, an amendment of APB
Opinion No. 29. SFAS No. 153 is effective
for nonmonetary exchanges occurring in years beginning after
June 15, 2005. SFAS No. 153 eliminates the rule
in APB No. 29 which excluded from fair value measurement
exchanges of similar productive assets. Instead
SFAS No. 153 excludes from fair value measurement
exchanges of nonmonetary assets that do not have commercial
substance. We do not believe the adoption of this standard will
have a material impact on our Consolidated Financial Statements.
|
|
2. |
Discontinued Operations |
On January 25, 2005, we formed TreeHouse. At that time,
TreeHouse sold shares of common stock to certain members of a
newly retained management team, who purchased approximately
1.67% of the outstanding common stock of TreeHouse, for an
aggregate purchase price of $10 million. The proceeds from
this transaction were distributed to us as a dividend and are
reflected within stockholders equity in our Condensed
Consolidated Balance Sheet.
On June 27, 2005, we completed the Spin-off. Immediately
prior to the Spin-off we transferred to TreeHouse (1) all
of the businesses previously conducted by our Specialty Foods
Group segment, (2) the Mocha Mix® non-dairy
coffee creamer and Second Nature® liquid egg
substitute businesses previously conducted by WhiteWave Foods
Company, and (3) the foodservice salad dressings businesses
previously conducted by the Dairy Group and WhiteWave Foods
Company. The Spin-off was effected by means of a share dividend
of the TreeHouse common stock held by us to our stockholders of
record on June 20, 2005 (the Record Date). In
the distribution, our stockholders received one share of
TreeHouse common stock for every five shares of our common stock
held by them on the Record Date.
Prior to the Spin-off, we entered into certain agreements with
TreeHouse to define our ongoing relationship. These arrangements
include agreements that define our respective responsibilities
for taxes, employee matters and all other liabilities and
obligations related to the transferred businesses. In addition,
we entered into a co-pack agreement under which we will continue
to manufacture certain products for TreeHouse and TreeHouse will
continue to manufacture certain products for us. Our anticipated
future sales to and purchases from TreeHouse are not expected to
be significant. Following the Spin-off, we have no ownership
interest in TreeHouse.
Our financial statements have been reclassified to reflect the
businesses transferred to TreeHouse as discontinued operations.
-9-
Net sales and income before taxes generated by the businesses
transferred to TreeHouse were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
June 30 | |
|
June 30 | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Net sales
|
|
$ |
183,613 |
|
|
$ |
182,650 |
|
|
$ |
348,528 |
|
|
$ |
356,219 |
|
Income before taxes
|
|
|
11,938 |
|
|
|
21,685 |
|
|
|
28,465 |
|
|
|
42,372 |
|
Major classes of assets and liabilities of the businesses
transferred to TreeHouse included in Assets and Liabilities of
Discontinued Operations at December 31, 2004 (in thousands)
were as follows:
|
|
|
|
|
Current assets
|
|
$ |
159,341 |
|
Non-current assets
|
|
|
469,217 |
|
Current liabilities
|
|
|
56,253 |
|
Non-current liabilities
|
|
|
55,328 |
|
Prior to the Spin-off, we transferred the obligation, net of
estimated related plan assets, for pension and other
postretirement benefit plans of transferred employees and
retirees to TreeHouse. During the second half of 2005, we will
finalize the preliminary computations and transfer the plan
assets related to such obligations.
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Raw materials and supplies
|
|
$ |
150,957 |
|
|
$ |
159,365 |
|
Finished goods
|
|
|
225,628 |
|
|
|
206,038 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
376,585 |
|
|
$ |
365,403 |
|
|
|
|
|
|
|
|
Changes in the carrying amount of goodwill for the six months
ended June 30, 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WhiteWave | |
|
|
|
|
|
|
|
|
Foods | |
|
|
|
|
|
|
Dairy Group | |
|
Company | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Balance at December 31, 2004
|
|
$ |
2,442,968 |
|
|
$ |
634,682 |
|
|
$ |
106,006 |
|
|
$ |
3,183,656 |
|
Purchase accounting adjustments
|
|
|
(4,247 |
) |
|
|
(729 |
) |
|
|
|
|
|
|
(4,976 |
) |
Acquisitions
|
|
|
1,263 |
|
|
|
|
|
|
|
|
|
|
|
1,263 |
|
Currency changes
|
|
|
|
|
|
|
|
|
|
|
(12,345 |
) |
|
|
(12,345 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2005
|
|
$ |
2,439,984 |
|
|
$ |
633,953 |
|
|
$ |
93,661 |
|
|
$ |
3,167,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-10-
The gross carrying amount and accumulated amortization of our
intangible assets (other than goodwill) as of June 30, 2005
and December 31, 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
Gross | |
|
|
|
Net | |
|
Gross | |
|
|
|
Net | |
|
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
|
Amount | |
|
Amortization | |
|
Amount | |
|
Amount | |
|
Amortization | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$ |
547,510 |
|
|
$ |
(6,649 |
) |
|
$ |
540,861 |
|
|
$ |
550,137 |
|
|
$ |
(6,649 |
) |
|
$ |
543,488 |
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-related
|
|
|
85,304 |
|
|
|
(17,887 |
) |
|
|
67,417 |
|
|
|
85,167 |
|
|
|
(14,884 |
) |
|
|
70,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
632,814 |
|
|
$ |
(24,536 |
) |
|
$ |
608,278 |
|
|
$ |
635,304 |
|
|
$ |
(21,533 |
) |
|
$ |
613,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense on intangible assets for the three months
ended June 30, 2005 and 2004 was $1.8 million and
$926,000, respectively, and $3.6 million and
$1.8 million for the six months ended June 30, 2005
and 2004, respectively. Estimated aggregate intangible asset
amortization expense for the next five years is as follows:
|
|
|
|
|
2006
|
|
$ |
6.9 million |
|
2007
|
|
|
6.8 million |
|
2008
|
|
|
6.7 million |
|
2009
|
|
|
6.5 million |
|
2010
|
|
|
6.5 million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
Amount | |
|
Interest | |
|
Amount | |
|
Interest | |
|
|
Outstanding | |
|
Rate | |
|
Outstanding | |
|
Rate | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Senior credit facility
|
|
$ |
1,853,600 |
|
|
|
4.18 |
% |
|
$ |
2,031,100 |
|
|
|
3.72 |
% |
Subsidiary debt obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes
|
|
|
566,841 |
|
|
|
6.625-8.15 |
|
|
|
664,696 |
|
|
|
6.625-8.15 |
|
|
Receivables-backed loan
|
|
|
501,400 |
|
|
|
3.71 |
|
|
|
500,000 |
|
|
|
2.83 |
|
|
Other lines of credit
|
|
|
40,395 |
|
|
|
2.76 |
|
|
|
30,750 |
|
|
|
2.64 |
|
|
Capital lease obligations and other
|
|
|
24,353 |
|
|
|
|
|
|
|
25,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,986,589 |
|
|
|
|
|
|
|
3,251,728 |
|
|
|
|
|
|
|
Less current portion
|
|
|
(55,702 |
) |
|
|
|
|
|
|
(141,012 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
2,930,887 |
|
|
|
|
|
|
$ |
3,110,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Credit Facility Our senior credit
facility provides for a $1.5 billion revolving credit
facility and a $1.5 billion term loan. At June 30,
2005 there were outstanding term loan borrowings of
$1.5 billion under the senior credit facility, and
$353.6 million outstanding under the revolving line of
credit. Letters of credit in the aggregate amount of
$108.7 million were issued but undrawn. At June 30,
2005, approximately $1.04 billion was available for future
borrowings under the revolving credit facility, subject to
satisfaction of certain ordinary course conditions contained in
the credit agreement.
In May 2005, we amended our senior credit facility to modify the
interest rate on the revolving credit facility and term loan.
With the amendment, both the revolving credit facility and term
loan bear interest, at our election, at the base rate plus a
margin that varies from zero to 25 basis points depending
on our credit ratings (as issued by Standard &
Poors and Moodys), or LIBOR plus a margin that
varies from 50
-11-
to 150 basis points, depending on our credit ratings (as
issued by Standard & Poors and Moodys).
Prior to the amendment, the base rate margin was zero to
62.5 basis points and the LIBOR margin varied from 75 to
187.5 basis points based on our credit ratings. The blended
interest rate in effect on borrowings under the senior credit
facility, including the applicable interest rate margin, was
4.18% at June 30, 2005. However, we had interest rate swap
agreements in place that hedged $775 million of our
borrowings under the senior credit facility at an average rate
of 4.96%, plus the applicable interest rate margin. Interest is
payable quarterly or at the end of the applicable interest
period.
Principal payments are required on the term loan as follows:
|
|
|
|
|
$56.25 million quarterly beginning on December 31,
2006 through September 30, 2008; |
|
|
|
$262.5 million quarterly beginning on December 31,
2008 through June 30, 2009; and |
|
|
|
A final payment of $262.5 million on the maturity date of
August 13, 2009. |
No principal payments are due on the $1.5 billion revolving
credit facility until maturity on August 13, 2009.
The credit agreement also requires mandatory principal
prepayments upon the occurrence of certain asset dispositions or
recovery events.
In consideration for the revolving commitment, we pay a
quarterly commitment fee on unused amounts of the revolving
credit facility that ranges from 12.5 to 30 basis points,
depending on our credit ratings (as issued by
Standard & Poors and Moodys).
The senior credit facility contains various financial and other
restrictive covenants and requires that we maintain certain
financial ratios, including a leverage and interest coverage
ratio. We are currently in compliance with all covenants
contained in our credit agreement.
Our credit agreement permits us to complete acquisitions that
meet the following conditions without obtaining prior approval:
(1) the acquired company is involved in the manufacture,
processing and distribution of food or packaging products or any
other line of business in which we are currently engaged,
(2) the net cash purchase price is not greater than
$500 million, (3) we acquire at least 51% of the
acquired entity, (4) the transaction is approved by the
Board of Directors or shareholders, as appropriate, of the
target and (5) after giving effect to such acquisition on a
pro-forma basis, we are in compliance with all financial
covenants. All other acquisitions must be approved in advance by
the required lenders.
The senior credit facility also contains limitations on liens,
investments and the incurrence of additional indebtedness, and
prohibits certain dispositions of property and restricts certain
payments, including dividends. The senior credit facility is
secured by liens on substantially all of our domestic assets
including the assets of our subsidiaries, but excluding the
capital stock of the former Dean Foods Companys
(Legacy Deans) subsidiaries, and the real
property owned by Legacy Dean and its subsidiaries.
The credit agreement contains standard default triggers,
including without limitation: failure to maintain compliance
with the financial and other covenants contained in the credit
agreement, default on certain of our other debt, a change in
control and certain other material adverse changes in our
business. The credit agreement does not contain any default
triggers based on our credit rating.
Senior Notes Legacy Dean had certain senior
notes outstanding at the time of the acquisition. One note
($100 million face value at 6.75% interest) matured and was
repaid in June 2005. The outstanding notes carry the following
interest rates and maturities:
|
|
|
|
|
$250.3 million ($250 million face value), at 8.15%
interest, maturing in 2007; |
|
|
|
$189 million ($200 million face value), at 6.625%
interest, maturing in 2009; and |
|
|
|
$127.5 million ($150 million face value), at 6.9%
interest, maturing in 2017. |
-12-
The related indentures do not contain financial covenants but
they do contain certain restrictions including a prohibition
against Legacy Dean and its subsidiaries granting liens on
certain of their real property interests and a prohibition
against Legacy Dean granting liens on the stock of its
subsidiaries.
Receivables-Backed Facility We have entered
into a $600 million receivables securitization facility
pursuant to which certain of our subsidiaries sell their
accounts receivable to three wholly-owned special purpose
entities intended to be bankruptcy-remote. The special purpose
entities then transfer the receivables to third party
asset-backed commercial paper conduits sponsored by major
financial institutions. The assets and liabilities of these
three special purpose entities are fully reflected on our
balance sheet, and the securitization is treated as a borrowing
for accounting purposes. During the first six months of 2005, we
made net borrowings of $1.4 million on this facility
leaving an outstanding balance of $501.4 million at
June 30, 2005. The receivables-backed facility bears
interest at a variable rate based on the commercial paper yield
as defined in the agreement. The average interest rate on this
facility was 3.71% at June 30, 2005. Our ability to
re-borrow under this facility is subject to a standard
borrowing base formula. On January 3, 2005, we
amended our receivables-backed facility to increase the
borrowing limit to $600 million from $500 million and
extended the facility termination date to November 17,
2007. At June 30, 2005 the receivables-backed facility was
fully funded.
Other Lines of Credit Leche Celta, our
Spanish subsidiary, has certain lines of credit separate from
the senior credit facility described above. At June 30,
2005, $40.4 million was outstanding under these lines of
credit at an average interest rate of 2.76%.
Capital Lease Obligations and Other Capital
lease obligations and other subsidiary debt includes various
promissory notes for the purchase of property, plant and
equipment and capital lease obligations. The various promissory
notes payable provide for interest at varying rates and are
payable in monthly installments of principal and interest until
maturity, when the remaining principal balances are due. Capital
lease obligations represent machinery and equipment financing
obligations, which are payable in monthly installments of
principal and interest and are collateralized by the related
assets financed.
Interest Rate Agreements We have interest
rate swap agreements in place that have been designated as cash
flow hedges against variable interest rate exposure on a portion
of our debt, with the objective of minimizing our interest rate
risk and stabilizing cash flows. These swap agreements provide
hedges for loans under our senior credit facility by limiting or
fixing the LIBOR interest rates specified in the senior credit
facility at the interest rates noted below until the indicated
expiration dates of these interest rate swap agreements.
The following table summarizes our various interest rate
agreements in effect at both June 30, 2005 and
December 31, 2004:
|
|
|
|
|
|
|
|
|
Fixed Interest Rates |
|
Expiration Date | |
|
Notional Amounts | |
|
|
| |
|
| |
|
|
|
|
(In millions) | |
5.20% to 6.74%
|
|
|
December 2005 |
|
|
$ |
400 |
|
3.65% to 6.78%
|
|
|
December 2006 |
|
|
|
375 |
|
During the second quarter of 2005, we entered into additional
interest rate swap agreements that become effective for us in
December 2005 and expire in December 2010. These swaps have a
total notional amount of $500 million and fixed interest
rates of 4.07% to 4.27%.
These swaps are required to be recorded as an asset or liability
on our consolidated balance sheet at fair value, with an offset
to other comprehensive income to the extent the hedge is
effective. Derivative gains and losses included in other
comprehensive income are reclassified into earnings as the
underlying transaction occurs. Any ineffectiveness in our hedges
is recorded as an adjustment to interest expense.
-13-
As of June 30, 2005 and December 31, 2004 our
derivative asset and liability balances were:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Current derivative asset
|
|
$ |
492 |
|
|
$ |
|
|
Long-term derivative asset
|
|
|
499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative asset
|
|
$ |
991 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Current derivative liability
|
|
$ |
(6,118 |
) |
|
$ |
(14,993 |
) |
Long-term derivative liability
|
|
|
(1,005 |
) |
|
|
(2,069 |
) |
|
|
|
|
|
|
|
|
Total derivative liability
|
|
$ |
(7,123 |
) |
|
$ |
(17,062 |
) |
|
|
|
|
|
|
|
There was no hedge ineffectiveness for the three and six months
ended June 30, 2005, respectively. Approximately
$2.4 million and $5.4 million of losses (net of taxes)
were reclassified to interest expense from other comprehensive
income during the quarter and six months ended June 30,
2005, respectively. We estimate that approximately
$3.5 million of net derivative losses (net of taxes)
included in other comprehensive income will be reclassified into
earnings within the next 12 months. These losses will
partially offset the lower interest payments recorded on our
variable rate debt.
We are exposed to market risk under these arrangements due to
the possibility of interest rates on the credit facilities
falling below the rates on our interest rate swap agreements.
Credit risk under these arrangements is remote because the
counterparties to our interest rate swap agreements are major
financial institutions.
Stock Award Plans The following table
summarizes stock option activity during the first six months of
2005 under our stock-based compensation programs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted | |
|
|
|
|
Average | |
|
|
Options | |
|
Exercise Price | |
|
|
| |
|
| |
Outstanding at December 31, 2004
|
|
|
16,847,721 |
|
|
$ |
20.32 |
|
|
Options granted during the first six months(1)
|
|
|
2,132,052 |
|
|
|
27.55 |
|
|
Adjustment to options outstanding at the time of the Spin-off(2)
|
|
|
2,002,634 |
|
|
|
18.14 |
|
|
Options canceled or forfeited during the first six months(3)
|
|
|
(256,724 |
) |
|
|
28.52 |
|
|
Options exercised during the first six months
|
|
|
(1,954,572 |
) |
|
|
18.70 |
|
|
|
|
|
|
|
|
Options outstanding at June 30, 2005
|
|
|
18,771,111 |
|
|
|
18.48 |
|
|
|
|
|
|
|
|
|
|
(1) |
Employee options vest as follows: one-third on the first
anniversary of the grant date, one-third on the second
anniversary of the grant date, and one-third on the third
anniversary of the grant date. Options granted to non-employee
directors vest upon grant. On June 30 of each year, each
non-employee director receives an immediately vested option to
purchase 7,500 shares of common stock. |
|
(2) |
The number and exercise prices of certain options outstanding at
the time of the Spin-off were proportionately adjusted to
maintain the aggregate fair value of the options before and
after the Spin-off. |
|
(3) |
Pursuant to the terms of our stock award plans, options that are
canceled or forfeited become available for future grants. |
We issued 15,747 shares of restricted stock during the
first half of 2005 to non-employee directors as compensation for
services rendered. Shares of restricted stock granted to
non-employee directors vest one-third on grant, one-third on the
first anniversary of grant and one-third on the second
anniversary of grant.
-14-
In addition to stock options, we issue stock units to certain
key employees and directors as part of our long-term incentive
program. A stock unit represents the right to receive one share
of common stock in the future. Stock units have no exercise
price. Each employees stock unit grant vests ratably over
five years, subject to certain accelerated vesting provisions
based primarily on our stock price. Stock units granted to
non-employee directors vest ratably over three years. The
following table summarizes the status of our stock unit
compensation program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees | |
|
Directors | |
|
Total | |
|
|
| |
|
| |
|
| |
Stock units outstanding at December 31, 2004
|
|
|
950,500 |
|
|
|
50,150 |
|
|
|
1,000,650 |
|
|
Stock units issued during the first six months
|
|
|
397,550 |
|
|
|
25,500 |
|
|
|
423,050 |
|
|
Shares issued during the first six months upon vesting of stock
units(1)
|
|
|
(153,997 |
) |
|
|
(17,117 |
) |
|
|
(171,114 |
) |
|
Adjustment to stock units outstanding at the time of the Spin-off
|
|
|
199,870 |
|
|
|
8,613 |
|
|
|
208,483 |
|
|
Stock units canceled during the first six months
|
|
|
(114,086 |
) |
|
|
|
|
|
|
(114,086 |
) |
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2005
|
|
|
1,279,837 |
|
|
|
67,146 |
|
|
|
1,346,983 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value
|
|
$ |
24.69 |
|
|
$ |
32.33 |
|
|
$ |
25.01 |
|
Compensation expense (in thousands)
|
|
$ |
7,988 |
|
|
$ |
322 |
|
|
$ |
8,310 |
|
|
|
(1) |
Stock units outstanding at the time of the Spin-off were
proportionately adjusted to maintain the aggregate fair value of
the stock units before and after the Spin-off. |
During the second quarter of 2005 it became probable that the
conditions required to accelerate the vesting of stock units
granted in January 2003 would be achieved in July 2005 because
our stock price had achieved the price target. Therefore, we
reduced the remaining period over which we will recognize the
compensation expense associated with the stock units. We
recognized $3.3 million of compensation expense, net of
tax, in the quarter ended June 30, 2005 resulting from the
acceleration of the vesting period.
-15-
Earnings Per Share Basic earnings per share
is based on the weighted average number of common shares
outstanding during each period. Diluted earnings per share is
based on the weighted average number of common shares
outstanding and the effect of all dilutive common stock
equivalents outstanding during each period. The following table
reconciles the numerators and denominators used in the
computations of both basic and diluted earnings per share
(EPS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
June 30 | |
|
June 30 | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except share data) | |
Basic EPS computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
81,220 |
|
|
$ |
63,336 |
|
|
$ |
137,047 |
|
|
$ |
119,432 |
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares
|
|
|
150,833,996 |
|
|
|
157,331,187 |
|
|
|
150,330,585 |
|
|
|
156,718,329 |
|
|
|
Basic EPS from continuing operations
|
|
$ |
0.54 |
|
|
$ |
0.40 |
|
|
$ |
0.91 |
|
|
$ |
0.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
81,220 |
|
|
$ |
63,336 |
|
|
$ |
137,047 |
|
|
$ |
119,432 |
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares basic
|
|
|
150,833,996 |
|
|
|
157,331,187 |
|
|
|
150,330,585 |
|
|
|
156,718,329 |
|
|
|
Stock option conversion(1)
|
|
|
5,216,310 |
|
|
|
5,340,743 |
|
|
|
4,954,320 |
|
|
|
5,492,044 |
|
|
|
Stock units
|
|
|
1,169,492 |
|
|
|
962,402 |
|
|
|
1,157,461 |
|
|
|
938,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares diluted
|
|
|
157,219,798 |
|
|
|
163,634,332 |
|
|
|
156,442,366 |
|
|
|
163,149,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS from continuing operations
|
|
$ |
0.52 |
|
|
$ |
0.39 |
|
|
$ |
0.88 |
|
|
$ |
0.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
There were no anti-dilutive shares for the quarter or six months
ended June 30, 2005 and 5,951 and 2,975 anti-dilutive
shares for the quarter and six months ended June 30, 2004,
respectively. |
|
|
7. |
Comprehensive Income (Loss) |
Comprehensive income (loss) consists of net income plus all
other changes in equity from non-owner sources. Consolidated
comprehensive income was $76.6 million and
$134.4 million for the three and six months ended
June 30, 2005, respectively. The amounts of income tax
(expense) benefit allocated to each component of other
comprehensive income during the six months ended June 30,
2005 are included below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax | |
|
Tax Benefit | |
|
Net | |
|
|
Income (Loss) | |
|
(Expense) | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Accumulated other comprehensive income (loss), December 31,
2004
|
|
$ |
(33,482 |
) |
|
$ |
27,785 |
|
|
$ |
(5,697 |
) |
|
Cumulative translation adjustment arising during period
|
|
|
(23,918 |
) |
|
|
|
|
|
|
(23,918 |
) |
|
Net change in fair value of derivative instruments
|
|
|
2,610 |
|
|
|
(796 |
) |
|
|
1,814 |
|
|
Amounts reclassified to income statement related to hedging
activities
|
|
|
8,321 |
|
|
|
(2,912 |
) |
|
|
5,409 |
|
|
Minimum pension liability adjustment
|
|
|
(2,310 |
) |
|
|
518 |
|
|
|
(1,792 |
) |
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss),
June 30, 2005
|
|
$ |
(48,779 |
) |
|
$ |
24,595 |
|
|
$ |
(24,184 |
) |
|
|
|
|
|
|
|
|
|
|
-16-
|
|
8. |
Employee Retirement and Postretirement Benefits |
Defined Benefit Plans The benefits under our
defined benefit plans are based on years of service and employee
compensation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Six Months | |
|
|
Ended | |
|
Ended | |
|
|
June 30 | |
|
June 30 | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Components of net period cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$ |
763 |
|
|
$ |
693 |
|
|
$ |
1,526 |
|
|
$ |
1,386 |
|
|
Interest cost
|
|
|
3,952 |
|
|
|
3,973 |
|
|
|
7,904 |
|
|
|
7,946 |
|
|
Expected return on plan assets
|
|
|
(3,358 |
) |
|
|
(3,063 |
) |
|
|
(6,716 |
) |
|
|
(6,126 |
) |
Amortizations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized transition obligation
|
|
|
27 |
|
|
|
36 |
|
|
|
54 |
|
|
|
35 |
|
|
Prior service cost
|
|
|
156 |
|
|
|
171 |
|
|
|
312 |
|
|
|
342 |
|
|
Unrecognized net loss
|
|
|
413 |
|
|
|
423 |
|
|
|
826 |
|
|
|
846 |
|
|
Effect of settlement
|
|
|
439 |
|
|
|
444 |
|
|
|
878 |
|
|
|
888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$ |
2,392 |
|
|
$ |
2,677 |
|
|
$ |
4,784 |
|
|
$ |
5,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We expect to contribute $33.7 million to the pension plans
during 2005.
Postretirement Benefits Certain of our
subsidiaries provide healthcare benefits to certain retirees who
are covered under specific group contracts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Six Months | |
|
|
Ended | |
|
Ended | |
|
|
June 30 | |
|
June 30 | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Components of net period cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$ |
229 |
|
|
$ |
211 |
|
|
$ |
458 |
|
|
$ |
422 |
|
|
Interest cost
|
|
|
291 |
|
|
|
299 |
|
|
|
582 |
|
|
|
598 |
|
Amortizations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
(52 |
) |
|
|
(17 |
) |
|
|
(104 |
) |
|
|
(34 |
) |
|
Unrecognized net loss
|
|
|
69 |
|
|
|
76 |
|
|
|
138 |
|
|
|
152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$ |
537 |
|
|
$ |
569 |
|
|
$ |
1,074 |
|
|
$ |
1,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We expect to contribute $1.8 million to the postretirement
health plans during 2005.
|
|
9. |
Facility Closing And Reorganization Costs |
Facility Closing and Reorganization Costs We
recorded net facility closing and reorganization costs of
$2.4 million and $11,000 during the second quarter of 2005
and 2004, respectively, and $8.8 million and
$7.6 million during the first six months of 2005 and 2004,
respectively.
The charges recorded during 2005 are primarily related to the
following:
|
|
|
|
|
Consolidation of certain administrative functions in the Midwest
and Southwest regions of our Dairy Group; and |
|
|
|
Previously announced plans including reorganizing WhiteWave
Foods Company and closing Dairy Group manufacturing facilities
in Madison, Wisconsin and South Gate, California. |
We expect to incur additional charges related to these
restructuring plans of approximately $3.6 million,
including approximately $260,000 in work force reduction costs
and approximately
-17-
$3.3 million in shutdown and other costs. Approximately
$2.5 million and approximately $900,000 of these additional
charges are expected to be incurred by December 2005 and
December 2006, respectively.
The principal components of our continued reorganization and
cost reduction efforts include the following:
|
|
|
|
|
Workforce reductions as a result of facility closings, facility
reorganizations and consolidation of administrative functions; |
|
|
|
Shutdown costs, including those costs necessary to prepare
abandoned facilities for closure; |
|
|
|
Costs incurred after shutdown such as lease obligations or
termination costs, utilities and property taxes; |
|
|
|
Costs associated with the reorganization of WhiteWave Foods
Companys supply chain and distribution activities,
including termination of certain contractual agreements; and |
|
|
|
Write-downs of property, plant and equipment and other assets,
primarily for asset impairments as a result of facilities that
are no longer used in operations. The impairments relate
primarily to owned buildings, land and equipment at the
facilities, which are written down to their estimated fair value
and held for sale. The effect of suspending depreciation on the
buildings and equipment related to the closed facilities was not
significant. The carrying value of closed facilities at
June 30, 2005 was approximately $8.5 million. We are
marketing these properties for sale. |
We consider several factors when evaluating a potential facility
closure, including, among other things, the impact of such a
closure on our customers, the impact on production, distribution
and overhead costs, the investment required to complete any such
closure, and the impact on future investment decisions. Some
facility closures are pursued to improve our operating cost
structure, while others enable us to avoid unnecessary capital
expenditures, allowing us to more prudently invest our capital
expenditure dollars in our production facilities and better
serve our customers.
Activity for the first six months of 2005 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued | |
|
|
|
|
|
Accrued | |
|
|
Charges at | |
|
|
|
|
|
Charges at | |
|
|
December 31, | |
|
|
|
|
|
June 30, | |
|
|
2004 | |
|
Charges | |
|
Payments | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Cash charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce reduction costs
|
|
$ |
5,175 |
|
|
$ |
5,359 |
|
|
$ |
(3,992 |
) |
|
$ |
6,542 |
|
|
Shutdown costs
|
|
|
|
|
|
|
390 |
|
|
|
(390 |
) |
|
|
|
|
|
Lease obligations after shutdown
|
|
|
74 |
|
|
|
281 |
|
|
|
(290 |
) |
|
|
65 |
|
|
Other
|
|
|
2 |
|
|
|
2,101 |
|
|
|
(2,101 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$ |
5,251 |
|
|
|
8,131 |
|
|
$ |
(6,773 |
) |
|
$ |
6,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-down of assets
|
|
|
|
|
|
|
697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charges
|
|
|
|
|
|
$ |
8,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired Facility Closing and Other Exit
Costs As part of our purchase price allocations,
we accrue costs from time to time pursuant to plans to exit
certain facilities and activities of acquired businesses in
order to rationalize production and reduce costs and
inefficiencies. During 2004, we accrued costs to close two Dairy
Group facilities acquired in 2003 and the Horizon Organic Farm
and Education Center acquired in 2004, as well as to exit
certain acquired contractual obligations.
The principal components of the plans include the following:
|
|
|
|
|
Workforce reductions as a result of facility closings, facility
reorganizations and consolidation of administrative functions
and offices; |
-18-
|
|
|
|
|
Shutdown costs, including those costs necessary to clean and
prepare abandoned facilities for closure; and |
|
|
|
Costs incurred after shutdown such as lease or termination
costs, utilities and property taxes after shutdown of the
facility, as well as, costs to exit certain contractual
obligations. |
Activity with respect to these acquisition liabilities during
the first six months of 2005 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued | |
|
|
|
|
|
|
|
Accrued | |
|
|
Charges at | |
|
|
|
|
|
|
|
Charges at | |
|
|
December 31, | |
|
|
|
|
|
|
|
June 30, | |
|
|
2004 | |
|
Accruals | |
|
Payments | |
|
Adjustments | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Workforce reduction costs
|
|
$ |
2,135 |
|
|
$ |
173 |
|
|
$ |
(539 |
) |
|
$ |
(1,324 |
) |
|
$ |
445 |
|
Shutdown and exit costs
|
|
|
81,766 |
|
|
|
|
|
|
|
(705 |
) |
|
|
(1,583 |
) |
|
|
79,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
83,901 |
|
|
$ |
173 |
|
|
$ |
(1,244 |
) |
|
$ |
(2,907 |
) |
|
$ |
79,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. |
Commitments and Contingencies |
Contingent Obligations Related to Divested
Operations We have divested several businesses
in recent years. In each case, we have retained certain known
contingent obligations related to those businesses and/or
assumed an obligation to indemnify the purchasers of the
businesses for certain unknown contingent liabilities, including
environmental liabilities. We believe we have established
adequate reserves for any potential liability 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 be material.
Contingent Obligations Related to Milk Supply
Arrangements On December 21, 2001, in
connection with our acquisition of the former Dean Foods
Company, we purchased Dairy Farmers of Americas
(DFA) 33.8% interest in our Dairy Group. In
connection with that transaction, we entered into two agreements
with DFA designed to ensure that DFA has the opportunity to
continue to supply raw milk to certain of our facilities, or be
paid for the loss of that business. One such agreement is a
promissory note with a 20-year term that bears interest based on
the consumer price index. Interest will not be paid in cash but
will be added to the principal amount of the note annually, up
to a maximum principal amount of $96 million. We may prepay
the note in whole or in part at any time, without penalty. The
note will only become payable if we ever materially breach or
terminate one of our milk supply agreements with DFA without
renewal or replacement. Otherwise, the note will expire in 2021,
without any obligation to pay any portion of the principal or
interest. Payments made under the note, if any, would be
expensed as incurred. The other agreement would require us to
pay damages to DFA if we fail to offer DFA the right to supply
milk to certain facilities that we acquired as part of the
former Dean Foods after the pre-existing agreements with certain
other suppliers or producers expire.
Insurance We retain selected levels of
property and casualty risks, primarily related to employee
health care, workers compensation claims and other
casualty losses. Many of these potential losses are covered
under conventional insurance programs with third party carriers
with high deductible limits. In other areas, we are self-insured
with stop-loss coverages. These deductibles range from $350,000
for medical claims to $2 million for casualty claims. We
believe we have established adequate reserves to cover these
claims.
Leases and Purchase Obligations We lease
certain property, plant and equipment used in our operations
under both capital and operating lease agreements. Such leases,
which are primarily for machinery, equipment and vehicles, have
lease terms ranging from one to 20 years. Certain of the
operating lease agreements require the payment of additional
rentals for maintenance, along with additional rentals based on
miles driven or units produced. Certain leases require us to
guarantee a minimum value of the leased asset at the end of the
lease. Our maximum exposure under those guarantees is not a
material amount.
-19-
We have entered into various contracts obligating us to purchase
minimum quantities of raw materials used in our production
processes, including organic soybeans and organic raw milk. We
enter into these contracts from time to time to ensure a
sufficient supply of raw ingredients. In 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 claims, litigation, audits
and investigations. We believe that we have established adequate
reserves to satisfy any probable liability we may have under all
such claims, litigations, audits and investigations that are
currently pending. In our opinion, the settlement of any such
currently pending or threatened matter is not expected to have a
material adverse impact on our financial position, results of
operations or cash flows.
|
|
11. |
Business and Geographic Information and Major Customers |
We currently have two reportable segments: the Dairy Group and
WhiteWave Foods Company. Due to the Spin-off, prior periods have
been reclassified to give effect to the businesses transferred
to TreeHouse as discontinued operations.
Our Dairy Group segment is our largest segment. It manufactures,
markets and distributes a wide variety of branded and private
label dairy case products, such as milk, cream, ice cream,
cultured dairy products and juices, to retailers, distributors,
foodservice outlets, schools and governmental entities across
the United States. Effective January 1, 2005 we moved the
marketing and sales responsibility for our Deans®
Dips product line to our Dairy Group from WhiteWave Foods
Company. Segment results for 2004 have been reclassified to
reflect this change.
Our WhiteWave Foods Company segment manufactures, develops,
markets and sells a variety of nationally branded soy, dairy and
dairy-related products, such as Silk® soymilk and
cultured soy products; Horizon Organic® milk, juice
and other products; International Delight® coffee
creamers; and LAND OLAKES® creamers and
cultured products. WhiteWave Foods Company sells its products to
a variety of customers, including grocery stores, club stores,
natural foods stores, mass merchandisers, convenience stores and
foodservice outlets. WhiteWave Foods Companys operations
have historically been conducted through three distinct
operating units: White Wave, Inc., Horizon Organic and Dean
National Brand Group. We are currently in the process of
consolidating these three operating units and expect the
consolidation to be completed in 2006.
The Dairy Group, which manufactures a portion of WhiteWave Foods
Companys products, transfers finished products to
WhiteWave Foods Company at or near cost. A small percentage of
WhiteWave Foods Companys products (approximately
$13.5 million and $10.6 million for the quarter ended
June 30, 2005 and 2004, respectively and $26 million
and $20.4 million for the six months ended June 30,
2005 and 2004, respectively) are sold through the Dairy
Groups direct store delivery network. Those sales,
together with their related costs, are included in WhiteWave
Foods Company for segment reporting purposes. Fixed assets,
capital expenditures and depreciation related to the Dairy Group
facilities that manufacture WhiteWave Foods Companys
products are reported as part of the Dairy Group, while
intangibles and any associated amortization related to WhiteWave
Foods Companys brands are reported as part of WhiteWave
Foods Company.
Our International Group, which does not qualify as a reportable
segment, consists of our Leche Celta and Rachels Organic
businesses. Leche Celta manufactures, markets and sells private
label and branded milk, butter and cream through its internal
sales force to retailers and distributors across Spain and
Portugal. Rachels Organic markets and sells premium
organic milk, yogurt and desserts in the United Kingdom.
Effective January 1, 2005 the Rachels Organic
business, which had historically been included with our
WhiteWave Foods Company segment, was moved to our International
Group. Segment results for 2004 have been restated to reflect
the Rachels Organic business in Corporate/ Other. Net
sales, income and assets of the International Group are
reflected in the charts below on the Corporate/ Other lines.
We evaluate the performance of our segments based on operating
profit or loss before gains and losses on the sale of assets,
facility closing and reorganization costs and foreign exchange
gains and losses.
-20-
Therefore, the measure of segment profit or loss presented below
is before such items. The accounting policies of our segments
are the same as those described in the summary of significant
accounting policies set forth in Note 1 to our 2004
Consolidated Financial Statements contained in our 2004 Annual
Report on Form 10-K.
The amounts in the following tables are obtained from reports
used by our executive management team and do not include any
allocated income taxes or management fees. There are no
significant non-cash items reported in segment profit or loss
other than depreciation and amortization.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
June 30(1) | |
|
June 30(1) | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Net sales to external customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dairy Group
|
|
$ |
2,234,653 |
|
|
$ |
2,280,575 |
|
|
$ |
4,431,101 |
|
|
$ |
4,244,118 |
|
|
WhiteWave Foods Company
|
|
|
284,076 |
|
|
|
253,495 |
|
|
|
562,827 |
|
|
|
485,889 |
|
|
Corporate/ Other
|
|
|
104,522 |
|
|
|
89,844 |
|
|
|
207,636 |
|
|
|
172,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
2,623,251 |
|
|
$ |
2,623,914 |
|
|
$ |
5,201,564 |
|
|
$ |
4,902,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dairy Group
|
|
$ |
16,177 |
|
|
$ |
13,331 |
|
|
$ |
36,476 |
|
|
$ |
24,126 |
|
|
WhiteWave Foods Company
|
|
|
13,589 |
|
|
|
1,585 |
|
|
|
27,286 |
|
|
|
2,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
29,766 |
|
|
$ |
14,916 |
|
|
$ |
63,762 |
|
|
$ |
27,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dairy Group
|
|
$ |
175,068 |
|
|
$ |
157,938 |
|
|
$ |
324,848 |
|
|
$ |
297,833 |
|
|
WhiteWave Foods Company
|
|
|
28,667 |
|
|
|
11,030 |
|
|
|
38,108 |
|
|
|
23,585 |
|
|
Corporate/ Other
|
|
|
(27,843 |
) |
|
|
(21,752 |
) |
|
|
(47,254 |
) |
|
|
(34,909 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
|
|
175,892 |
|
|
|
147,216 |
|
|
|
315,702 |
|
|
|
286,509 |
|
|
Facility closing and reorganization costs
|
|
|
(2,438 |
) |
|
|
(11 |
) |
|
|
(8,828 |
) |
|
|
(7,584 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
173,454 |
|
|
$ |
147,205 |
|
|
$ |
306,874 |
|
|
$ |
278,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Assets:
|
|
|
|
|
|
|
|
|
|
Dairy Group
|
|
$ |
5,373,771 |
|
|
$ |
5,397,694 |
|
|
WhiteWave Foods Company
|
|
|
1,137,852 |
|
|
|
1,181,790 |
|
|
Corporate/ Other
|
|
|
573,581 |
|
|
|
548,326 |
|
|
Discontinued operations
|
|
|
|
|
|
|
628,558 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
7,085,204 |
|
|
$ |
7,756,368 |
|
|
|
|
|
|
|
|
-21-
Geographic Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales(1) | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
Long-Lived Assets(1) | |
|
|
June 30 | |
|
June 30 | |
|
| |
|
|
| |
|
| |
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(In thousands) | |
|
|
(In thousands) | |
|
|
United States
|
|
$ |
2,518,729 |
|
|
$ |
2,534,069 |
|
|
$ |
4,993,928 |
|
|
$ |
4,730,007 |
|
|
$ |
5,465,381 |
|
|
$ |
5,446,197 |
|
Europe
|
|
|
104,522 |
|
|
|
89,845 |
|
|
|
207,636 |
|
|
|
172,489 |
|
|
|
235,561 |
|
|
|
244,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
2,623,251 |
|
|
$ |
2,623,914 |
|
|
$ |
5,201,564 |
|
|
$ |
4,902,496 |
|
|
$ |
5,700,942 |
|
|
$ |
5,690,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Balances have been reclassified to remove the businesses
transferred to TreeHouse. |
Significant Customers Our Dairy Group and
WhiteWave Foods segments each had a single customer that
represented greater than 10% of their sales in the first six
months of 2005. Approximately 14.5% of our consolidated sales in
the first six months of 2005 were to this same customer. In
addition, our International Group had a single customer that
represented greater than 10% of their sales in the first six
months of 2005. This customer represented less than 1% of our
consolidated sales during the first six months of 2005.
Stock Repurchase Between July 1 and
August 5, 2005 we spent approximately $86.5 million to
repurchase 2.4 million shares of our common stock for an
average price of $35.92 per share, excluding commissions
and fees. At August 5, 2005, approximately
$31.5 million remained available under our stock repurchase
authorization.
Sale of Maries and Dean Dips As part of
our strategy to further focus on our core dairy and branded
businesses, we entered into an asset purchase agreement with
Ventura Foods, LLC on July 2, 2005 pursuant to which we
agreed to sell certain tangible and intangible assets related to
the production and distribution of Maries salad
dressings and dips and Deans dips. We also agreed
to license the Dean trademark to Ventura Foods for use on
certain non-dairy dips. The sales price is approximately
$194 million, subject to certain adjustments, as defined in
the asset purchase agreement. Net sales of the businesses to be
sold were $37 million in the six month period ended
June 30, 2005 and $78 million in the year ended
December 31, 2004. The completion of the transaction, which
is expected to be in the third quarter of 2005, is contingent
upon the achievement of customary closing conditions.
-22-
|
|
Item 2. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
Business Overview
We are a leading food and beverage company. Our Dairy Group is
the largest processor and distributor of milk and various other
dairy products in the United States. The Dairy Group
manufactures and sells its products under a variety of local and
regional brand names and under customer private labels. Our
WhiteWave Foods Company segment manufactures, markets and sells
a variety of well known soy, dairy and dairy-related nationally
branded products including, for example: Silk®
soymilk and cultured soy products; Horizon Organic®
dairy products, juices and other products; International
Delight® coffee creamers; Maries®
refrigerated dips and dressings; and LAND O
LAKES® creamers and cultured products. We also own the
fourth largest dairy processor in Spain and an organic dairy
business in the United Kingdom.
Dairy Group Our Dairy Group segment is our
largest segment, with approximately 85% of our consolidated
sales in the six months ended June 30, 2005. Our Dairy
Group manufactures, markets and distributes a wide variety of
branded and private label dairy case products, such as milk,
cream, ice cream, cultured dairy products and juices to
retailers, distributors, foodservice outlets, schools and
governmental entities across the United States. The Dairy Group
also manufactures a portion of the products marketed and sold by
WhiteWave Foods Company. Due to the perishable nature of the
Dairy Groups products, our Dairy Group delivers the
majority of its products directly to its customers stores
in refrigerated trucks or trailers that we own or lease. This
form of delivery is called a direct store delivery
or DSD system and we believe we have one of the most
extensive refrigerated DSD systems in the United States.
Effective January 1, 2005 we transferred the sales and
marketing responsibilities for our Deans® Dips
product line to our Dairy Group from WhiteWave Foods
Company. Segment results for 2004 have been reclassified to
reflect this change.
WhiteWave Foods Company WhiteWave Foods
Companys operations have historically been conducted
through three distinct operating units: White Wave, Inc.,
Horizon Organic and Dean National Brand Group. We are currently
in the process of consolidating these three operating units and
expect the consolidation to be completed in 2006. WhiteWave
Foods Company manufactures, develops, markets and sells a
variety of nationally-branded soy, dairy and dairy-related
products, such as Silk soymilk and cultured soy products;
Horizon Organic dairy products, juices and other
products; International Delight coffee creamers; and
LAND OLAKES creamers and cultured products.
WhiteWave Foods Company also sells Sun Soy®
soymilk; The Organic Cow of Vermont® organic dairy
products; White Wave® and Tofu Town®
branded tofu; Hersheys® milks and milkshakes;
Maries dips and dressings; and Naturally
Yours® sour cream. We license the LAND OLAKES
and Hersheys names from third parties.
International Group Our International Group,
which consists of our Leche Celta and Rachels Organic
businesses, does not qualify as a reportable segment. Leche
Celta manufactures, markets and sells private label and branded
milk, butter and cream through its internal sales force to
retailers and distributors across Spain and Portugal.
Rachels Organic markets and sells premium organic milk,
yogurt and desserts in the United Kingdom. Effective
January 1, 2005, our Rachels Organic Dairy business,
which has historically been part of our WhiteWave Foods Company
segments operations, was transferred to the International
Group. Our segment discussion for 2004 has been reclassified to
reflect the results of Rachels Organic Dairy business in
our Corporate/ Other segment.
Recent Developments
Spin-Off of TreeHouse Foods, Inc.
On June 27, 2005, we completed the spin-off
(Spin-off) of our indirect majority owned subsidiary
TreeHouse Foods, Inc. (TreeHouse). Immediately prior
to the Spin-off, we transferred to TreeHouse (1) the
businesses previously conducted by our Specialty Foods Group
segment, (2) the Mocha Mix® and Second
Nature® liquid egg substitute businesses previously
conducted by WhiteWave Foods Company, and (3) the
foodservice salad dressings businesses previously conducted by
the Dairy Group and WhiteWave
-23-
Foods Company. The Spin-off was effected by means of a share
dividend of the TreeHouse common stock held by us to our
stockholders of record on June 20, 2005 (the Record
Date). In the distribution, our stockholders received one
share of TreeHouse common stock for every five shares of our
common stock held by them on the Record Date. Prior periods have
been revised to remove the results of our former Specialty Foods
Group segment and Mocha Mix®, Second
Nature® and private label dressings businesses, which
have been reclassified as discontinued operations.
Sale of Maries and Deans Dips
As part of our strategy to further focus on our core dairy and
branded businesses, we entered into an asset purchase agreement
with Ventura Foods, LLC on July 2, 2005 pursuant to which
we agreed to sell certain tangible and intangible assets related
to the production and distribution of Maries salad
dressings and dips and Deans dips. We also agreed
to license the Dean trademark to Ventura Foods for use on
certain non-dairy dips. The sales price is approximately
$194 million, subject to certain adjustments, as defined in
the asset purchase agreement. Net sales of the businesses to be
sold were $37 million in the six month period ended
June 30, 2005 and $78 million in the year ended
December 31, 2004. The completion of the transaction, which
is expected to be in the third quarter of 2005, is contingent
upon the achievement of customary closing conditions.
Stock Repurchases
Between July 1 and August 5, 2005 we spent
approximately $86.5 million to repurchase 2.4 million
shares of our common stock for an average price of
$35.92 per share, excluding commissions and fees. At
August 5, 2005, approximately $31.5 million remained
available under our stock repurchase authorization.
Facility Closing and Reorganization Activities
We recorded a total of approximately $8.8 million in
facility closing and reorganization costs during the first six
months of 2005, primarily related to plans announced in 2004. We
expect to incur additional charges related to these
restructuring plans of approximately $3.6 million,
primarily in 2005. These charges include the following costs:
|
|
|
|
|
Workforce reductions as a result of facility closings, facility
reorganizations and consolidation of administrative functions; |
|
|
|
Shutdown costs, including those costs necessary to prepare
abandoned facilities for closure; |
|
|
|
Costs incurred after shutdown such as lease obligations or
termination costs, utilities and property taxes; |
|
|
|
Costs associated with the reorganization of WhiteWave Foods
Companys supply chain and distribution activities,
including termination of certain contractual agreements; and |
|
|
|
Write-downs of property, plant and equipment and other assets,
primarily for asset impairments as a result of facilities that
are no longer used in operations. The impairments relate
primarily to owned buildings, land and equipment at the
facilities, which are written down to their estimated fair value
and held for sale. |
See Note 9 to our Condensed Consolidated Financial
Statements for more information regarding our facility closing
and reorganization activities.
-24-
Results of Operations
The following table presents certain information concerning our
financial results, including information presented as a
percentage of net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30 | |
|
Six Months Ended June 30 | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Dollars | |
|
Percent | |
|
Dollars | |
|
Percent | |
|
Dollars | |
|
Percent | |
|
Dollars | |
|
Percent | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Net sales
|
|
$ |
2,623.3 |
|
|
|
100.0 |
% |
|
$ |
2,623.9 |
|
|
|
100.0 |
% |
|
$ |
5,201.6 |
|
|
|
100.0 |
% |
|
$ |
4,902.5 |
|
|
|
100.0 |
% |
Cost of sales
|
|
|
1,961.3 |
|
|
|
74.8 |
|
|
|
2,027.2 |
|
|
|
77.3 |
|
|
|
3,919.2 |
|
|
|
75.3 |
|
|
|
3,732.5 |
|
|
|
76.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
662.0 |
|
|
|
25.2 |
|
|
|
596.7 |
|
|
|
22.7 |
|
|
|
1,282.4 |
|
|
|
24.7 |
|
|
|
1,170.0 |
|
|
|
23.9 |
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and distribution
|
|
|
388.8 |
|
|
|
14.8 |
|
|
|
366.3 |
|
|
|
14.0 |
|
|
|
777.1 |
|
|
|
15.0 |
|
|
|
712.4 |
|
|
|
14.5 |
|
|
General and administrative
|
|
|
95.8 |
|
|
|
3.7 |
|
|
|
82.0 |
|
|
|
3.1 |
|
|
|
186.4 |
|
|
|
3.5 |
|
|
|
169.1 |
|
|
|
3.4 |
|
|
Amortization of intangibles
|
|
|
1.5 |
|
|
|
|
|
|
|
1.2 |
|
|
|
|
|
|
|
3.2 |
|
|
|
0.1 |
|
|
|
2.0 |
|
|
|
0.1 |
|
|
Facility closing and reorganization costs
|
|
|
2.4 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
8.8 |
|
|
|
0.2 |
|
|
|
7.6 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
488.5 |
|
|
|
18.6 |
|
|
|
449.5 |
|
|
|
17.1 |
|
|
|
975.5 |
|
|
|
18.8 |
|
|
|
891.1 |
|
|
|
18.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$ |
173.5 |
|
|
|
6.6 |
% |
|
$ |
147.2 |
|
|
|
5.6 |
% |
|
$ |
306.9 |
|
|
|
5.9 |
% |
|
$ |
278.9 |
|
|
|
5.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, 2005 Compared to Quarter Ended
June 30, 2004 Consolidated Results
Net Sales Consolidated net sales were
consistent at $2.62 billion during the second quarter of
2005 and 2004, respectively. Net sales by segment are shown in
the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30 | |
|
|
| |
|
|
|
|
$ Increase/ | |
|
% Increase/ | |
|
|
2005 | |
|
2004 | |
|
(Decrease) | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Dairy Group
|
|
$ |
2,234.7 |
|
|
$ |
2,280.6 |
|
|
$ |
(45.9 |
) |
|
|
(2.0 |
)% |
WhiteWave Foods Company
|
|
|
284.1 |
|
|
|
253.5 |
|
|
|
30.6 |
|
|
|
12.1 |
|
Corporate/ Other
|
|
|
104.5 |
|
|
|
89.8 |
|
|
|
14.7 |
|
|
|
16.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
2,623.3 |
|
|
$ |
2,623.9 |
|
|
$ |
(0.6 |
) |
|
|
(0.03 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in net sales was due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, 2005 vs. | |
|
|
Quarter Ended June 30, 2004 | |
|
|
| |
|
|
|
|
Pricing, Volume | |
|
Total | |
|
|
|
|
Foreign | |
|
and Product | |
|
Increase/ | |
|
|
Acquisitions | |
|
Exchange | |
|
Mix Changes | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Dairy Group
|
|
$ |
12.8 |
|
|
$ |
|
|
|
$ |
(58.7 |
) |
|
$ |
(45.9 |
) |
WhiteWave Foods Company
|
|
|
|
|
|
|
|
|
|
|
30.6 |
|
|
|
30.6 |
|
Corporate/ Other
|
|
|
6.1 |
|
|
|
4.3 |
|
|
|
4.3 |
|
|
|
14.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
18.9 |
|
|
$ |
4.3 |
|
|
$ |
(23.8 |
) |
|
$ |
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluid dairy volume growth in our Dairy Group segment and overall
volume increases at WhiteWave Foods Company increased sales,
however these increases were offset by the effects of lower
selling prices resulting from the pass-through of lower
Class I raw skim milk costs. In addition, sales increased
due to the acquisitions of a small dairy in our Dairy Group
segment and Tiger Foods in our Corporate/ Other segment.
See Results by Segment for more
information.
-25-
Cost of Sales All expenses incurred to bring
a product to completion are included in cost of sales, such as
raw material, ingredient and packaging costs; labor costs; and
plant and equipment costs, including costs to operate and
maintain our coolers and freezers. In addition, our Dairy Group
includes costs associated with transporting finished products
from our manufacturing facilities to our own distribution
facilities. Our cost of sales ratio decreased to 74.8% in the
second quarter of 2005 compared to 77.3% in the second quarter
of 2004 primarily due to lower raw milk costs in our Dairy Group
segment in the second quarter of 2005.
Operating Costs and Expenses Our operating
expenses increased approximately $39 million during the
second quarter of 2005 as compared to the same period in the
prior year. Our operating expense ratio was 18.6% in the second
quarter of 2005 compared to 17.1% during the second quarter of
2004. Operating expenses increased primarily due to (1) an
increase in distribution costs of $26.4 million resulting
from increased volumes and higher fuel prices, (2) higher
employee compensation costs of approximately $11.1 million,
including a $3.9 million charge related to the accelerated
vesting of certain stock units, and (3) increased facility
closing and reorganization costs of $2.4 million. These
increases were partly offset by lower marketing expenses at
WhiteWave Foods Company. See Results by
Segment for more information.
Operating Income Operating income during the
second quarter of 2005 was $173.5 million, an increase of
$26.3 million from the second quarter of 2004 operating
income of $147.2 million. Our operating margin in the
second quarter of 2005 was 6.6% compared to 5.6% in the second
quarter of 2004. Our operating margin increased primarily as a
result of lower raw milk costs and improved results at WhiteWave
Foods Company.
Other (Income) Expense Total other expense
decreased to $41.9 million in the second quarter of 2005
compared to $43.9 million in the second quarter of 2004.
Interest expense decreased to $42.1 million in the second
quarter of 2005 from $44.1 million in the second quarter of
2004 primarily due to lower average debt balances and benefits
resulting from our credit facility amendments.
Income Taxes Income tax expense was recorded
at an effective rate of 38.3% in the second quarter of 2005
compared to 38.7% in the prior year. Our tax rate varies as the
mix of earnings contributed by our various business units
changes.
Quarter Ended June 30, 2005 Compared to Quarter Ended
June 30, 2004 Results by Segment
The key performance indicators of our Dairy Group are sales
volumes, gross profit and operating income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Dollars | |
|
Percent | |
|
Dollars | |
|
Percent | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Net sales
|
|
$ |
2,234.7 |
|
|
|
100.0 |
% |
|
$ |
2,280.6 |
|
|
|
100.0 |
% |
Cost of sales
|
|
|
1,694.2 |
|
|
|
75.8 |
|
|
|
1,778.2 |
|
|
|
78.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
540.5 |
|
|
|
24.2 |
|
|
|
502.4 |
|
|
|
22.0 |
|
Operating costs and expenses
|
|
|
365.4 |
|
|
|
16.4 |
|
|
|
344.5 |
|
|
|
15.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
$ |
175.1 |
|
|
|
7.8 |
% |
|
$ |
157.9 |
|
|
|
6.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
-26-
The Dairy Groups net sales decreased by approximately
$45.9 million, or 2%, in the second quarter of 2005 versus
the second quarter of 2004. The change in net sales from the
second quarter of 2004 to the second quarter of 2005 was due to
the following:
|
|
|
|
|
|
|
|
|
|
|
|
Dollars | |
|
Percent | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
2004 Net sales
|
|
$ |
2,280.6 |
|
|
|
|
|
|
Acquisitions
|
|
|
12.8 |
|
|
|
0.6 |
% |
|
Volume
|
|
|
66.0 |
|
|
|
2.9 |
|
|
Pricing and product mix
|
|
|
(124.7 |
) |
|
|
(5.5 |
) |
|
|
|
|
|
|
|
2005 Net sales
|
|
$ |
2,234.7 |
|
|
|
(2.0 |
)% |
|
|
|
|
|
|
|
The Dairy Groups net sales decreased due to price
decreases. In general, we change the prices that we charge our
customers for fluid dairy products on a monthly basis, as the
costs of our raw materials fluctuate. Class I raw skim milk
prices were approximately 14% lower in the second quarter of
2005 compared to the second quarter of 2004. The following table
sets forth the average monthly Class I mover
and average monthly Class II minimum prices for raw skim
milk and butterfat for the second quarter of 2005 compared to
the second quarter of 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30* | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
% Change | |
|
|
| |
|
| |
|
| |
Class I raw skim milk mover(3)
|
|
$ |
8.69 |
(1) |
|
$ |
10.15 |
(1) |
|
|
(14 |
)% |
Class I butterfat mover(3)
|
|
|
1.66 |
(2) |
|
|
2.38 |
(2) |
|
|
(30 |
) |
Class II raw skim milk minimum(4)
|
|
|
7.63 |
(1) |
|
|
6.77 |
(1) |
|
|
13 |
|
Class II butterfat minimum(4)
|
|
|
1.62 |
(2) |
|
|
2.38 |
(2) |
|
|
(32 |
) |
|
|
|
|
* |
The prices noted in this table are not the prices that we
actually pay. The federal order minimum prices at any given
location for Class I raw skim milk or Class I
butterfat are based on the Class I mover prices plus a
location differential. Class II prices noted in the table
are federal minimum prices, applicable at all locations. Our
actual cost also includes producer premiums, procurement costs
and other related charges that vary by location and vendor.
Please see Part I Item 1.
Business Government Regulation Milk
Industry Regulation in our Annual Report on Form 10-K
for 2004, and Known Trends and
Uncertainties Prices of Raw Milk, Cream and Other
Inputs in this Quarterly Report for a more complete
description of raw milk pricing. |
|
|
(1) |
Prices are per hundredweight. |
|
(2) |
Prices are per pound. |
|
(3) |
We process Class I raw skim milk and butterfat into fluid
milk products. |
|
(4) |
We process Class II raw skim milk and butterfat into
products such as cottage cheese, creams and creamers, ice cream
and sour cream. |
These price decreases were partly offset by fluid milk volume
increases during the second quarter of 2005. Fluid milk volumes
(which represented approximately 67% of the Dairy Groups
sales volume during the quarter) increased approximately 4%. We
believe the increase in volumes is a result of the superior
value and service that we are able to offer our customers as the
largest dairy processor in the nation. The Dairy Groups
net sales also increased $12.8 million due to the
acquisition of a small dairy in late 2004.
The Dairy Groups cost of sales ratio was 75.8% in the
second quarter of 2005 compared to 78% in the second quarter of
2004 primarily due to the decrease in raw milk costs compared to
the prior year. In addition, we reduced expense by
$4.5 million for a cash settlement from a class-action
lawsuit related to our high fructose corn syrup purchases over
the last several years. These decreases were partly offset by
higher resin costs of approximately $7 million during the
second quarter of 2005 compared to the second quarter of 2004.
Resin is the primary component used in our plastic bottles.
-27-
The Dairy Groups operating expenses increased
$20.9 million to $365.4 million during the second
quarter of 2005 compared to $344.5 in the second quarter of
2004, primarily due to a $15.6 million increase in
distribution costs. Distribution costs increased as a result of
higher fuel prices of approximately $7 million, increased
deliveries in our DSD system due to the addition of certain
customers and the acquisition of several distributors in 2004
and 2005.
|
|
|
WhiteWave Foods Company |
The key performance indicators of WhiteWave Foods Company are
sales dollars, gross profit and operating income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Dollars | |
|
Percent | |
|
Dollars | |
|
Percent | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Net sales
|
|
$ |
284.1 |
|
|
|
100.0 |
% |
|
$ |
253.5 |
|
|
|
100.0 |
% |
Cost of sales
|
|
|
181.1 |
|
|
|
63.7 |
|
|
|
172.1 |
|
|
|
67.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
103.0 |
|
|
|
36.3 |
|
|
|
81.4 |
|
|
|
32.1 |
|
Operating costs and expenses
|
|
|
74.3 |
|
|
|
26.2 |
|
|
|
70.4 |
|
|
|
27.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
$ |
28.7 |
|
|
|
10.1 |
% |
|
$ |
11.0 |
|
|
|
4.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
WhiteWave Foods Companys net sales increased by
$30.6 million, or 12.1%, in the second quarter of 2005
versus the second quarter of 2004. The change in net sales from
the second quarter of 2004 to the second quarter of 2005 was due
to the following:
|
|
|
|
|
|
|
|
|
|
|
|
Dollars | |
|
Percent | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
2004 Net sales
|
|
$ |
253.5 |
|
|
|
|
|
|
Volume
|
|
|
16.6 |
|
|
|
6.6 |
% |
|
Pricing and product mix
|
|
|
14.0 |
|
|
|
5.5 |
|
|
|
|
|
|
|
|
2005 Net sales
|
|
$ |
284.1 |
|
|
|
12.1 |
% |
|
|
|
|
|
|
|
The increase in net sales was primarily due to increased volumes
related to the growth of our brands, particularly Silk
and Horizon Organic. In addition, we increased prices
in response to higher raw material costs.
The cost of sales ratio for WhiteWave Foods Company decreased to
63.7% in the second quarter of 2005 from 67.9% in the second
quarter of 2004 primarily due to the relatively smaller increase
in cost of goods sold dollars compared to the increase in sales
dollars. Cost of goods sold dollars increased $9 million
primarily due to higher sales volumes. This increase was partly
offset by efficiencies we achieved as a result of our continued
increase of in-house production versus the utilization of third
party co-packers.
Operating expenses increased approximately $3.9 million in
the second quarter of 2005 compared to the same period in the
prior year primarily due to higher distribution costs partly
offset by lower marketing expenses. Distribution costs increased
$9.4 million due to higher sales volumes and to a lesser
extent, higher fuel costs. Marketing expenses for our brands
were approximately 38% lower during the second quarter of 2005
compared to the same period in the prior year. We believe we are
managing our advertising and promotional activity more
efficiently and effectively. In addition, marketing expenses
were higher in the second quarter of 2004 due to heavy
introductory spending related to the initial launch of
television advertising for Silk.
-28-
Six Months Ended June 30, 2005 Compared to Six Months
Ended June 30, 2004 Consolidated Results
Net Sales Consolidated net sales increased
approximately 6.1% to $5.2 billion during the first six
months of 2005 from $4.9 billion during the first six
months of 2004. Net sales by segment are shown in the table
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30 | |
|
|
| |
|
|
|
|
$ Increase/ | |
|
% Increase/ | |
|
|
2005 | |
|
2004 | |
|
(Decrease) | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Dairy Group
|
|
$ |
4,431.1 |
|
|
$ |
4,244.1 |
|
|
$ |
187.0 |
|
|
|
4.4 |
% |
WhiteWave Foods Company
|
|
|
562.8 |
|
|
|
485.9 |
|
|
|
76.9 |
|
|
|
15.8 |
|
Corporate/ Other
|
|
|
207.7 |
|
|
|
172.5 |
|
|
|
35.2 |
|
|
|
20.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
5,201.6 |
|
|
$ |
4,902.5 |
|
|
$ |
299.1 |
|
|
|
6.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in net sales was due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2005 vs. | |
|
|
Six Months Ended June 30, 2004 | |
|
|
| |
|
|
|
|
Pricing, Volume | |
|
Total | |
|
|
|
|
Foreign | |
|
and Product | |
|
Increase/ | |
|
|
Acquisitions | |
|
Exchange | |
|
Mix Changes | |
|
(Decrease) | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Dairy Group
|
|
$ |
22.6 |
|
|
$ |
|
|
|
$ |
164.4 |
|
|
$ |
187.0 |
|
WhiteWave Foods Company
|
|
|
9.2 |
|
|
|
|
|
|
|
67.7 |
|
|
|
76.9 |
|
Corporate/ Other
|
|
|
14.5 |
|
|
|
8.9 |
|
|
|
11.8 |
|
|
|
35.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
46.3 |
|
|
$ |
8.9 |
|
|
$ |
243.9 |
|
|
$ |
299.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales increased approximately $299.1 million during the
first six months of 2005 compared to the same period in the
prior year primarily due to increased volumes and the
pass-through of increased Class I raw skim milk costs in
the first six months of 2005. In addition, we benefited from the
acquisitions of a small dairy in our Dairy Group segment;
LAND O LAKES East in our WhiteWave Foods Company
segment; and Tiger Foods in our Corporate/ Other segment.
See Results by Segment for more
information.
Cost of Sales All expenses incurred to bring
a product to completion are included in cost of sales, such as
raw material, ingredient and packaging costs; labor costs; and
plant and equipment costs, including costs to operate and
maintain our coolers and freezers. In addition, our Dairy Group
includes costs associated with transporting finished products
from our manufacturing facilities to our own distribution
facilities. Our cost of sales ratio decreased slightly to 75.3%
in the first six months of 2005 compared to 76.1% in the first
six months of 2004.
Operating Costs and Expenses Our operating
expenses increased $84.4 million during the first six
months of 2005 as compared to the same period in the prior year.
Our operating expense ratio was 18.8% in the first six months of
2005 compared to 18.2% during the first six months of 2004.
Operating expenses increased primarily due to an increase in
distribution costs of $56.2 million related to increased
volumes and higher fuel costs, and increased employee
compensation costs of approximately $15.7 million,
including a charge of $3.9 million related to the
accelerated vesting of certain stock units.
Operating Income Our operating margin in the
first six months of 2005 was 5.9% compared to 5.7% in the first
six months of 2004. Operating income during the first six months
of 2005 was $306.9 million, an increase of $28 million
from the first six months of 2004 operating income of
$278.9 million. Operating income increased primarily due to
higher sales volumes and the pass-through of higher raw material
costs. See Results by Segment for more
information.
-29-
Other (Income) Expense Total other expense
decreased slightly to $84.2 million in the first six months
of 2005 compared to $84.9 million in the first six months
of 2004. Interest expense decreased to $84.6 million in the
first six months of 2005 from $86.6 million in the first
six months of 2004 primarily due to lower average debt balances.
Income Taxes Income tax expense was recorded
at an effective rate of 38.4% in the first six months of 2005
and 2004. Our tax rate varies as the mix of earnings contributed
by our various business units changes.
Six Months Ended June 30, 2005 Compared to Six Months
Ended June 30, 2004 Results by Segment
The key performance indicators of our Dairy Group are sales
volumes, gross profit and operating income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Dollars | |
|
Percent | |
|
Dollars | |
|
Percent | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Net sales
|
|
$ |
4,431.1 |
|
|
|
100.0 |
% |
|
$ |
4,244.1 |
|
|
|
100.0 |
% |
Cost of sales
|
|
|
3,376.2 |
|
|
|
76.2 |
|
|
|
3,257.0 |
|
|
|
76.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,054.9 |
|
|
|
23.8 |
|
|
|
987.1 |
|
|
|
23.3 |
|
Operating costs and expenses
|
|
|
730.1 |
|
|
|
16.5 |
|
|
|
689.3 |
|
|
|
16.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
$ |
324.8 |
|
|
|
7.3 |
% |
|
$ |
297.8 |
|
|
|
7.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Dairy Groups net sales increased by approximately
$187 million, or 4.4%, in the first six months of 2005
versus the first six months of 2004. The change in net sales
from the first six months of 2004 to the first six months of
2005 was due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
Dollars | |
|
Percent | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
2004 Net sales
|
|
$ |
4,244.1 |
|
|
|
|
|
|
Acquisitions
|
|
|
22.6 |
|
|
|
0.5 |
% |
|
Volume
|
|
|
58.9 |
|
|
|
1.4 |
|
|
Pricing and product mix
|
|
|
105.5 |
|
|
|
2.5 |
|
|
|
|
|
|
|
|
2005 Net sales
|
|
$ |
4,431.1 |
|
|
|
4.4 |
% |
|
|
|
|
|
|
|
The most significant cause of the increase in the Dairy
Groups net sales was price increases. In general, we
change the prices that we charge our customers for fluid dairy
products on a monthly basis, as the costs of our raw materials
fluctuate. Class I raw skim milk prices were approximately
6% higher in the first six months of 2005 compared to the first
six months of 2004. The following table sets forth the average
monthly Class I mover and average monthly
Class II minimum prices for raw skim milk and butterfat for
the first six months of 2005 compared to the same period
in 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30* | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
% Change | |
|
|
| |
|
| |
|
| |
Class I raw skim milk mover(3)
|
|
$ |
8.89 |
(1) |
|
$ |
8.40 |
(1) |
|
|
6 |
% |
Class I butterfat mover(3)
|
|
|
1.76 |
(2) |
|
|
1.96 |
(2) |
|
|
(10 |
) |
Class II raw skim milk minimum(4)
|
|
|
7.48 |
(1) |
|
|
6.71 |
(1) |
|
|
11 |
|
Class II butterfat minimum(4)
|
|
|
1.69 |
(2) |
|
|
2.15 |
(2) |
|
|
(21 |
) |
|
|
|
|
* |
The prices noted in this table are not the prices that we
actually pay. The federal order minimum prices at any given
location for Class I raw skim milk or Class I
butterfat are based on the Class I |
-30-
|
|
|
|
|
mover prices plus a location differential. Class II prices
noted in the table are federal minimum prices, applicable at all
locations. Our actual cost also includes producer premiums,
procurement costs and other related charges that vary by
location and vendor. Please see Part I
Item 1. Business Government
Regulation Milk Industry Regulation in our
Annual Report on Form 10-K for 2004, and
Known Trends and Uncertainties
Prices of Raw Milk, Cream and Other Inputs in this
Quarterly Report for a more complete description of raw milk
pricing. |
|
|
(1) |
Prices are per hundredweight. |
|
(2) |
Prices are per pound. |
|
(3) |
We process Class I raw skim milk and butterfat into fluid
milk products. |
|
(4) |
We process Class II raw skim milk and butterfat into
products such as cottage cheese, creams and creamers, ice cream
and sour cream. |
The Dairy Groups sales volumes also increased by 1.4%
during the first six months of 2005 compared to the first six
months of 2004. Fluid milk volumes (which represented
approximately 68% of the Dairy Groups sales volume during
the first six months of 2005) increased approximately 3% during
the first six months of 2005 compared to the same period in the
prior year. We believe the increase in volumes is a result of
the superior value and service that we are able to offer our
customers as the largest dairy processor in the nation. The
Dairy Groups net sales also increased $22.6 million
due to the acquisition of a small dairy in late 2004.
The Dairy Groups cost of sales ratio decreased to 76.2% in
the first six months of 2005 compared to 76.7% in the first six
months of 2004. Cost of sales dollars increased
$119.2 million primarily due to higher raw milk costs in
the first quarter of 2005 and higher volumes compared to the
prior year. In addition, increased resin costs negatively
impacted cost of goods sold by approximately $21 million.
Resin is the primary component used in our plastic bottles.
The Dairy Groups operating expense ratio increased
slightly to 16.5% in the first six months of 2005 from 16.3% in
the first six months of 2004. Operating expense dollars
increased approximately $40.8 million during the first six
months of 2005 compared to the first six months of 2004,
primarily due to an increase in distribution costs. Total
distribution costs increased $30.9 million primarily as a
result of higher fuel prices which impacted distribution costs
by approximately $12 million, increased deliveries in our
DSD system due to the addition of certain customers and the
acquisition of several distributors in 2004 and 2005.
|
|
|
WhiteWave Foods Company |
The key performance indicators of WhiteWave Foods Company are
sales dollars, gross profit and operating income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Dollars | |
|
Percent | |
|
Dollars | |
|
Percent | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Net sales
|
|
$ |
562.8 |
|
|
|
100.0 |
% |
|
$ |
485.9 |
|
|
|
100.0 |
% |
Cost of sales
|
|
|
368.6 |
|
|
|
65.5 |
|
|
|
330.8 |
|
|
|
68.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
194.2 |
|
|
|
34.5 |
|
|
|
155.1 |
|
|
|
31.9 |
|
Operating costs and expenses
|
|
|
156.1 |
|
|
|
27.7 |
|
|
|
131.5 |
|
|
|
27.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
$ |
38.1 |
|
|
|
6.8 |
% |
|
$ |
23.6 |
|
|
|
4.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
-31-
WhiteWave Foods Companys net sales increased by
$76.9 million, or 15.8%, in the first six months of 2005
versus the first six months of 2004. The change in net sales
from the first six months of 2004 to the first six months of
2005 was due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
Dollars | |
|
Percent | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
2004 Net sales
|
|
$ |
485.9 |
|
|
|
|
|
|
Acquisitions
|
|
|
9.2 |
|
|
|
1.9 |
% |
|
Volume
|
|
|
37.5 |
|
|
|
7.7 |
|
|
Pricing and product mix
|
|
|
30.2 |
|
|
|
6.2 |
|
|
|
|
|
|
|
|
2005 Net sales
|
|
$ |
562.8 |
|
|
|
15.8 |
% |
|
|
|
|
|
|
|
The increase in net sales was primarily due to increased volumes
related to the growth of our brands, particularly Silk
and Horizon Organic. In addition, we increased prices
in response to higher raw material costs.
The cost of sales ratio for WhiteWave Foods Company decreased to
65.5% in the first six months of 2005 from 68.1% in the first
six months of 2004. Cost of goods sold dollars increased
$37.8 million primarily due to higher sales volumes.
Operating expenses increased approximately $24.6 million in
the first six months of 2005 compared to the same period in the
prior year primarily due to higher distribution costs which
increased $22.7 million. Distribution costs were negatively
impacted by certain temporary inefficiencies in our Horizon
Organic distribution system due to an industry-wide shortage of
raw milk in the first quarter of 2005. In addition, distribution
expenses increased due to higher sales volumes and to a lesser
extent, higher fuel costs.
Marketing expenses for our brands were approximately 12% lower
during the first six months of 2005 compared to the same period
in the prior year. We believe we are managing our advertising
and promotional activity more efficiently and effectively. In
addition, marketing expenses were higher in the first six months
of 2004 due to heavy introductory spending related to the
initial launch of television advertising for Silk.
Liquidity and Capital Resources
Historical Cash Flow
During the first six months of 2005, we met our working capital
needs with cash flow from operations.
Net cash provided by operating activities from continuing
operations was $335.1 million for the first six months of
2005 as contrasted to $59.8 million for the same period in
2004, an increase of $275.3 million. Net cash provided by
operating activities was primarily impacted by changes in
operating assets and liabilities, which improved by
$266.8 million in the first six months of 2005 compared to
the first six months of the prior year. The improvement in
working capital reflects the benefits of falling raw milk costs
leading up to and during the second quarter of 2005 compared to
the increasing costs we experienced in the second quarter of
2004.
Net cash used in investing activities from continuing operations
was $140.7 million in the first six months of 2005 compared
to $498.5 million in the first six months of 2004, a
decrease of $357.8 million. We used approximately
$1.7 million for acquisitions in the first six months of
2005 compared to $350.2 million in the first six months of
2004. Our capital expenditures totaled $144.3 million in
the first six months of 2005 compared to $155.8 in the first six
months of 2004.
We repaid a net amount of $269.1 million of debt in the
first six months of 2005.
-32-
Current Debt Obligations
At June 30, 2005, we had outstanding borrowings of
$1.85 billion under our senior credit facility (compared to
$2.03 billion at December 31, 2004), including
$1.5 billion in term loan borrowings, and
$353.6 million outstanding under the revolving credit
facility. In addition, at June 30, 2005, there were
$108.7 million of letters of credit under the revolver that
were issued but undrawn. We are currently, and have always been,
in compliance with all covenants contained in our credit
agreement.
In addition to our senior credit facility, we also have a
$600 million receivables-backed credit facility, which had
$501.4 million outstanding at June 30, 2005 (compared
to $500 million at December 31, 2004).
Other indebtedness outstanding at June 30, 2005 included
$600 million face value of outstanding indebtedness under
senior notes issued by a subsidiary, $40.4 million under
lines of credit at our Spanish subsidiary and approximately
$24.4 million of capital lease and other obligations.
See Note 5 to our Condensed Consolidated Financial
Statements.
The table below summarizes our obligations for indebtedness and
purchase and lease obligations at June 30, 2005.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period | |
|
|
| |
Indebtedness, Purchase & |
|
|
|
7/1/05- | |
|
7/1/06- | |
|
7/1/07- | |
|
7/1/08- | |
|
7/1/09- | |
|
|
Lease Obligations |
|
Total | |
|
6/30/06 | |
|
6/30/07 | |
|
6/30/08 | |
|
6/30/09 | |
|
6/30/10 | |
|
Thereafter | |
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| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions) | |
Senior credit facility
|
|
$ |
1,853.6 |
|
|
$ |
|
|
|
$ |
168.7 |
|
|
$ |
225.0 |
|
|
$ |
843.8 |
|
|
$ |
616.1 |
|
|
$ |
|
|
Senior notes(1)
|
|
|
600.0 |
|
|
|
|
|
|
|
|
|
|
|
250.0 |
|
|
|
200.0 |
|
|
|
|
|
|
|
150.0 |
|
Receivables-backed facility
|
|
|
501.4 |
|
|
|
|
|
|
|
|
|
|
|
501.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign line of credit
|
|
|
40.4 |
|
|
|
39.5 |
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations and other
|
|
|
24.4 |
|
|
|
16.3 |
|
|
|
2.5 |
|
|
|
2.2 |
|
|
|
1.8 |
|
|
|
1.2 |
|
|
|
0.4 |
|
Purchasing obligations(2)
|
|
|
378.9 |
|
|
|
237.3 |
|
|
|
56.1 |
|
|
|
28.5 |
|
|
|
14.9 |
|
|
|
9.7 |
|
|
|
32.4 |
|
Operating leases
|
|
|
446.0 |
|
|
|
95.1 |
|
|
|
80.1 |
|
|
|
69.2 |
|
|
|
59.0 |
|
|
|
49.2 |
|
|
|
93.4 |
|
Interest payments(3)
|
|
|
279.0 |
|
|
|
81.3 |
|
|
|
55.3 |
|
|
|
27.0 |
|
|
|
23.6 |
|
|
|
15.9 |
|
|
|
75.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
4,123.7 |
|
|
$ |
469.5 |
|
|
$ |
363.2 |
|
|
$ |
1,103.7 |
|
|
$ |
1,143.1 |
|
|
$ |
692.1 |
|
|
$ |
352.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represents face value. |
|
(2) |
Primarily represents commitments to purchase minimum quantities
of raw materials used in our production processes, including
organic soybeans and organic raw milk. We enter into these
contracts from time to time in an effort to ensure a sufficient
supply of raw ingredients. In addition, we have contractual
obligations to purchase various services that are part of our
production process. |
|
(3) |
Only includes our fixed rate interest obligations, which consist
of our senior notes and our interest rate swap agreements. |
Other Long-Term Liabilities
We offer pension benefits through various defined benefit
pension plans and also offer certain health care and life
insurance benefits to eligible employees and their eligible
dependents upon the retirement of such employees. Reported costs
of providing non-contributory defined pension benefits and other
postretirement benefits are dependent upon numerous factors,
assumptions and estimates.
For example, these costs are impacted by actual employee
demographics (including age, compensation levels and employment
periods), the level of contributions made to the plan and
earnings on plan assets. Our pension plan assets are primarily
made up of equity and fixed income investments. Changes made to
the provisions of the plan may impact current and future pension
costs. Fluctuations in actual equity market returns, as well as
changes in general interest rates may result in increased or
decreased pension costs in future periods. Pension costs may be
significantly affected by changes in key actuarial assumptions,
including anticipated rates of return on plan assets and the
discount rates used in determining the projected benefit
obligation and pension costs.
-33-
We expect to contribute approximately $33.7 million to the
pension plans and approximately $1.8 million to the
postretirement health plans in 2005.
Other Commitments and Contingencies
On December 21, 2001, in connection with our acquisition of
Legacy Dean, we issued a contingent, subordinated promissory
note to Dairy Farmers of America (DFA) in the
original principal amount of $40 million. DFA is our
primary supplier of raw milk, and the promissory note is
designed to ensure that DFA has the opportunity to continue to
supply raw milk to certain of our facilities until 2021, or be
paid for the loss of that business. The promissory note has a
20-year term and bears interest based on the consumer price
index. Interest will not be paid in cash, but will be added to
the principal amount of the note annually, up to a maximum
principal amount of $96 million. We may prepay the note in
whole or in part at any time, without penalty. The note will
only become payable if we ever materially breach or terminate
one of our milk supply agreements with DFA without renewal or
replacement. Otherwise, the note will expire at the end of
20 years, without any obligation to pay any portion of the
principal or interest. Payments we make under this note, if any,
will be expensed as incurred.
We also have the following commitments and contingent
liabilities, in addition to contingent liabilities related to
ordinary course litigation, investigations and audits:
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|
certain indemnification obligations related to businesses that
we have divested; |
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|
|
certain lease obligations, which require us to guarantee the
minimum value of the leased asset at the end of the
lease; and |
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|
|
selected levels of property and casualty risks, primarily
related to employee health care, workers compensation
claims and other casualty losses. |
See Note 10 to our Condensed Consolidated Financial
Statements for more information about our commitments and
contingent obligations.
Future Capital Requirements
During 2005, we intend to invest a total of approximately
$300 million to $325 million in capital expenditures
primarily for our existing manufacturing facilities and
distribution capabilities. We intend to fund these expenditures
using cash flow from operations. We intend to spend this amount
as follows:
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|
Operating Division |
|
Amount | |
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| |
|
|
(In millions) | |
Dairy Group
|
|
$ |
180 to $190 |
|
WhiteWave Foods Company
|
|
|
105 to 110 |
|
Other
|
|
|
15 to 25 |
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|
|
|
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Total
|
|
$ |
300 to $325 |
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|
|
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|
In 2005, we expect cash interest to be approximately
$160 million based on current debt levels and cash taxes to
be approximately $205 million, including approximately
$60 million in taxes related to the sale of Maries.
We expect that cash flow from operations will be sufficient to
meet our requirements for our existing businesses for the
foreseeable future.
In the future, we expect to make additional repurchases of our
securities. We base our decision regarding when to repurchase
shares on a variety of factors, including primarily an analysis
of the optimal use of capital, taking into account the market
value of our securities and the relative expected return on
alternative investments. We expect to fund these repurchases
with borrowings under our senior credit facility.
As of August 5, 2005, approximately $1.04 billion was
available for future borrowings under our senior credit facility.
-34-
Known Trends and Uncertainties
Prices of Raw Milk, Cream and Other Inputs
Dairy Group The primary raw material used in
our Dairy Group is raw milk (which contains both raw skim milk
and butterfat). The federal government and certain state
governments set minimum prices for raw milk, and those prices
change on a monthly basis. The regulated minimum prices differ
based on how the raw milk is utilized. Raw milk processed into
fluid milk is priced at the Class I price, and raw milk
processed into products such as cottage cheese, creams and
creamers, ice cream and sour cream is priced at the
Class II price. Generally, we pay the federal minimum
prices for raw milk, plus certain producer premiums (or
over-order premiums) and location differentials. We
also incur other raw milk procurement costs in some locations
(such as hauling, field personnel, etc.). A change in the
federal minimum price does not necessarily mean an identical
change in our total raw milk costs, as over-order premiums may
increase or decrease. This relationship is different in every
region of the country, and sometimes within a region based on
supplier arrangements. However, in general, the overall change
in our raw milk costs can be linked to the change in federal
minimum prices.
In general, our Dairy Group changes the prices that it charges
for Class I dairy products on a monthly basis, as the costs
of raw milk and other materials fluctuate. Prices for some
Class II products are also changed monthly while others are
changed from time to time as circumstances warrant. There can be
a lag between the time of a raw material cost increase or
decrease and the effectiveness of a corresponding price change
to our customers, especially in the case of Class II
butterfat because Class II butterfat prices for each month
are not announced by the government until after the end of that
month. Also, in some cases we are competitively or contractually
constrained with the means and timing of implementing price
changes. These factors can cause volatility in our earnings. Our
sales and operating profit margin fluctuate with the price of
our raw materials and other inputs.
In 2004, our Dairy Group was adversely affected by extreme
volatility in the prices of raw skim milk and butterfat. In
2005, we expect prices to be somewhat less volatile; however, we
do not expect a significant decrease from the average prices
incurred in 2004. Of course raw milk prices are difficult to
predict and we change our forecasts frequently based on current
market activity.
Because our Class II products typically have a higher fat
content than that contained in raw milk, we also purchase bulk
cream for use in some of our Class II products. Bulk cream
is typically purchased based on a multiple of the AA butter
price on the Chicago Mercantile Exchange. The prices of AA
butter increased significantly in 2004. We expect the average
price to be somewhat lower in 2005 than the average price in
2004. Of course, like raw milk prices, bulk cream prices are
difficult to predict and we change our forecasts frequently
based on current market activity. We try to change the prices of
our products based on changes in the price of bulk cream, but
sometimes we are competitively or contractually constrained.
Therefore, increases in bulk cream prices can have an adverse
effect on our results of operations.
Prices for resin, which is used in plastic milk bottles, are
also extremely high and are expected to remain high for the
foreseeable future. Finally, the Dairy Group uses a great deal
of diesel fuel in its direct store delivery system, and diesel
fuel prices are currently very high and expected to remain high
for the foreseeable future. High or volatile fuel and resin
costs can adversely affect the Dairy Groups profitability.
WhiteWave Foods Company A significant raw
material used to manufacture products sold by WhiteWave Foods
Company is organic soybeans. We have entered into supply
agreements for organic soybeans, which we believe will meet our
needs for 2005. Generally, these agreements provide for pricing
at fixed levels. However, should our need for organic soybeans
exceed the quantity that we have under contract, or if the
suppliers do not perform under the contracts, we may have
difficulty obtaining sufficient supply, and the price we would
be required to pay would likely be significantly higher. The
increase in soymilk consumption combined with the increased
demand for organic cattle feed has put pressure on the
-35-
supply of organic soybeans and there is significant upward
pressure on organic soybean prices. We believe prices for
organic soybeans will continue to increase as the pressure on
supply continues.
Another significant raw material used in our organic products is
organic raw milk. Organic raw milk is not readily available and
the growth of our organic dairy business depends on us being
able to procure sufficient quantities of organic raw milk in
time to meet our needs. We obtain our supply of organic raw milk
by entering into one to two year agreements with farmers
pursuant to which the farmers agree to sell us specified
quantities of organic raw milk for fixed prices for the duration
of the agreement. In the first quarter of 2005 the industry-wide
demand for organic raw milk exceeded supply resulting in our
inability to fully meet customer demand. We believe, based on
currently projected sales levels, that we have secured a
sufficient supply of organic raw milk to meet our raw organic
milk needs for the foreseeable future. However, should our need
for organic raw milk exceed the quantity that we have under
contract, or if the suppliers do not perform under the
contracts, we may have difficulty obtaining sufficient supply,
and the price we would be required to pay, if we could obtain
supply at all, would likely be significantly higher. Also, as
our contracts with farmers expire, we are generally required to
agree to higher prices to renew as a result of increased
competition for organic raw milk supply. The increase in the
demand for organic milk combined with competitive activity and a
limited supply has put significant upward pressure on organic
milk costs. For competitive reasons, WhiteWave Foods Company is
not able to pass along price increases to customers as quickly
as the Dairy Group.
Competitive Environment
There has been significant consolidation in the retail grocery
industry in recent years, and this trend is continuing. As our
customer base consolidates, we expect competition to intensify
as we compete for the business of fewer customers. There can be
no assurance that we will be able to keep our existing
customers, or gain new customers. There are several large
regional grocery chains that have captive dairy operations. As
the consolidation of the grocery industry continues, we could
lose sales if any one or more of our existing customers were to
be sold to a chain with captive dairy operations.
Many of our retail customers have become increasingly price
sensitive in the current intensely competitive environment. Over
the past few years, we have been subject to a number of
competitive bidding situations in our Dairy Group segment which
reduced our profitability on sales to several customers. We
expect this trend to continue. In bidding situations we are
subject to the risk of losing certain customers altogether. The
loss of any of our largest customers could have a material
adverse impact on our financial results. We do not have
contracts with many of our largest customers, and most of the
contracts that we do have are generally terminable at will by
the customer.
Both the difficult economic environment and the increased
competitive environment at the retail level have caused
competition to become increasingly intense at the processor
level. We expect this trend to continue for the foreseeable
future.
Tax Rate
In the first six months of 2005 and 2004 our tax rate on
continuing operations was 38.4%, respectively. We estimate the
effective tax for 2005 will be in the range of 38% to 38.5%.
Changes in the relative profitability of our operating segments,
as well as recent and proposed changes to federal and state tax
codes may cause the rate to change from historical rates.
See Risk Factors for a description of
various other risks and uncertainties concerning our business.
Risk Factors
This report contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act.
Statements that are not historical in nature are forward-looking
statements about our future that are not statements of
historical fact. Most of these statements are found in this
report
-36-
under the following subheadings: Managements
Discussion and Analysis of Financial Condition and Results of
Operations and Quantitative and Qualitative
Disclosures About Market Risk. In some cases, you can
identify these statements by terminology such as
may, should, could,
expects, seek to,
anticipates, plans,
believes, estimates,
intends, predicts, projects,
potential or continue or the negative of
such terms and other comparable terminology. These statements
are only predictions, and in evaluating those statements, you
should carefully consider the information above, including in
Known Trends and Uncertainties, as well
as the risks outlined below. Actual performance or results may
differ materially and adversely.
Reorganization of Our WhiteWave Foods Company Segment
Could Temporarily Adversely Affect the Performance of the
Segment
In the third quarter of 2004, we began the process of
consolidating the operations of the three operating units that
comprise our WhiteWave Foods Company segment into a single
business. We have substantially completed the consolidation of
the sales, marketing and research and development organization
for the three companies. We expect to move to a new headquarters
located in Broomfield, Colorado in the second half of 2005. The
full integration of these businesses will be a lengthy process
involving all aspects of the three companys operations,
including purchasing, manufacturing, distribution and
administration, and will include the selection and
implementation of a new information technology platform. As part
of our overall reorganization of WhiteWave Foods Company into a
unified branded consumer packaged goods company, we also intend
to bring in-house certain manufacturing activities that are
currently being done by third parties. We expect the
consolidation to be completed in 2006. This process presents a
number of challenges and requires a significant amount of
managements attention. Our failure to successfully manage
this process could cause us to incur unexpected costs or to lose
customers or sales, which could have a material adverse effect
on our financial results.
In addition, effective March 11, 2005, Mr. Steve
Demos, President of WhiteWave Foods Company, resigned his
position. We have retained a leading executive recruiting firm
to assist in the search for a new president. Mr. Gregg
Engles, our Chairman of the Board and Chief Executive Officer,
has assumed direct leadership of WhiteWave Foods Company on an
interim basis. This transition could be disruptive to us in the
short term.
Recent Successes of Our Products Could Attract Increased
Competitive Activity, Which Could Impede Our Growth Rate and
Cost Us Sales and, in the Case of Organic Products, Put Pressure
on the Availability of Raw Materials
Our Silk soymilk and Horizon Organic organic food
and beverage products have leading market shares in their
categories and have benefited in many cases from being the first
to introduce products in their categories. As soy and organic
products continue to gain in popularity with consumers, we
expect our products in these categories to continue to attract
competitors. Many large food and beverage companies have
substantially more resources than we do and they may be able to
market their soy and organic products more successfully than us,
which could cause our growth rate in these categories to be
slower than our forecast and could cause us to lose sales. The
increase in popularity of soy and organic milks is also
attracting private label competitors who sell their products at
a lower price. The success of private label brands could
adversely affect our sales and profitability. Finally, there is
a limited supply of organic raw materials in the United States,
especially organic soybeans and organic raw milk. New entrants
into our markets can reduce available supply and drive up costs.
Even without new entrants, our own rapid growth can put pressure
on the availability and price of organic raw materials.
Our International Delight coffee creamer competes
intensely with Nestlé CoffeeMate business, and our
Hersheys milks and milkshakes compete intensely
with Nestlé Nesquik. Nestle has significantly
greater resources than we do, which allows them to promote their
products more aggressively. Our failure to successfully compete
with Nestle could have a material adverse effect on the sales
and profitability of our International Delight and/or our
Hersheys businesses.
-37-
Loss of Rights to Any of Our Licensed Brands Could
Adversely Affect Our Sales and Profits
We sell certain of our products under licensed brand names such
as Borden®, Hersheys, LAND OLAKES,
Pet® and others. In some cases, we have invested
significant capital in product development and marketing and
advertising related to these licensed brands. Should our rights
to manufacture and sell products under any of these names be
terminated for any reason, our financial performance and results
of operations could be materially and adversely affected.
We Have Substantial Debt and Other Financial Obligations
and We May Incur Even More Debt
We have substantial debt and other financial obligations and
significant unused borrowing capacity. See
Liquidity and Capital Resources.
We have pledged substantially all of our assets (including the
assets of our subsidiaries) to secure our indebtedness. Our high
debt level and related debt service obligations:
|
|
|
|
|
require us to dedicate significant cash flow to the payment of
principal and interest on our debt which reduces the funds we
have available for other purposes, |
|
|
|
may limit our flexibility in planning for or reacting to changes
in our business and market conditions, |
|
|
|
impose on us additional financial and operational
restrictions, and |
|
|
|
expose us to interest rate risk since a portion of our debt
obligations are at variable rates. |
The interest rate on our debt is based on our debt rating, as
issued by Standard & Poors and Moodys. We
have no ability to control the ratings issued by
Standard & Poors and Moodys. A downgrade in
our debt rating could cause our interest rate to increase, which
could adversely affect our ability to achieve our targeted
profitability level, as well as our cash flow.
Our ability to make scheduled payments on our debt and other
financial obligations depends on our financial and operating
performance. Our financial and operating performance is subject
to prevailing economic conditions and to financial, business and
other factors, some of which are beyond our control. A
significant increase in interest rates could adversely impact
our net income. If we do not comply with the financial and other
restrictive covenants under our credit facilities, we may
default under them. Upon default, our lenders could accelerate
the indebtedness under the facilities, foreclose against their
collateral or seek other remedies, which would jeopardize our
ability to continue our current operations.
|
|
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
Interest Rate Fluctuations
In order to reduce the volatility of earnings that arises from
changes in interest rates, we manage interest rate risk through
the use of interest rate swap agreements. These swap agreements
provide hedges for loans under our senior credit facility by
limiting or fixing the LIBOR interest rates specified in the
senior credit facility at the interest rates noted below until
the indicated expiration dates.
The following table summarizes our various interest rate swap
agreements at both June 30, 2005 and December 31, 2004:
|
|
|
|
|
|
|
|
|
Fixed Interest Rates |
|
Expiration Date | |
|
Notional Amounts | |
|
|
| |
|
| |
|
|
|
|
(In millions) | |
5.20% to 6.74%
|
|
|
December 2005 |
|
|
$ |
400 |
|
3.65% to 6.78%
|
|
|
December 2006 |
|
|
|
375 |
|
During the second quarter of 2005, we entered into additional
interest rate swap agreements that become effective for us in
December 2005 and expire in December 2010. These swaps have a
total notional amount of $500 million and fixed interest
rates of 4.07% to 4.27%.
-38-
We are exposed to market risk under these arrangements due to
the possibility of interest rates on our credit facilities
falling below the rates on our interest rate derivative
agreements. We incurred $5.4 million of additional interest
expense, net of taxes, during the first six months of 2005 as a
result of interest rates on our variable rate debt falling below
the agreed-upon interest rate on our existing swap agreements.
Credit risk under these arrangements is remote since the
counterparties to our interest rate derivative agreements are
major financial institutions.
A majority of our debt obligations are currently at variable
rates. We have performed a sensitivity analysis assuming a
hypothetical 10% adverse movement in interest rates. As of
June 30, 2005, the analysis indicated that such interest
rate movement would not have a material effect on our financial
position, results of operations or cash flows. However, actual
gains and losses in the future may differ materially from that
analysis based on changes in the timing and amount of interest
rate movement and our actual exposure and hedges.
Foreign Currency
We are exposed to foreign currency risk due to operating cash
flows and various financial instruments that are denominated in
foreign currencies. Our most significant foreign currency
exposures relate to the euro and the British pound. We have
performed a sensitivity analysis assuming a hypothetical 10%
adverse movement in foreign currency exchange rates. As of
June 30, 2005 and December 31, 2004, the analysis
indicated that such foreign currency exchange rate change would
not have a material effect on our financial position, results of
operations or cash flows.
Butterfat
Our Dairy Group utilizes a significant amount of butterfat to
produce Class II products. This butterfat is acquired
through the purchase of raw milk and bulk cream. Butterfat
acquired in raw milk is priced based on the Class II
butterfat price in federal orders, which is announced near the
end of the applicable month. The Class II butterfat price
can generally be tied to the pricing of AA butter traded on the
Chicago Mercantile Exchange (CME). The cost of
butterfat acquired in bulk cream is typically based on a
multiple of the AA butter price on the CME. From time to time,
we purchase butter futures and butter inventory in an effort to
better manage our butterfat cost in Class II products.
Futures contracts are marked to market in accordance with
SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities, and physical inventory
is valued at the lower of cost or market. We are exposed to
market risk under these arrangements if the cost of butter falls
below the cost that we have agreed to pay in a futures contract
or that we actually paid for the physical inventory and we are
unable to pass on the difference to our customers. At this time
we believe that potential losses due to butterfat hedging
activities would not have a material impact on our consolidated
financial position, results of operations or operating cash flow.
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Item 4. |
Controls and Procedures |
Controls Evaluation and Related CEO and CFO Certifications
We conducted an evaluation of the effectiveness of the design
and operation of our disclosure controls and
procedures (Disclosure Controls) as of the end
of the period covered by this quarterly report. The controls
evaluation was done under the supervision and with the
participation of management, including our Chief Executive
Officer (CEO) and Chief Financial Officer (CFO).
Attached as exhibits to this quarterly report are certifications
of the CEO and the CFO, which are required in accordance with
Rule 13a-14 of the Exchange Act. This Controls and
Procedures section includes the information concerning the
controls evaluation referred to in the certifications and it
should be read in conjunction with the certifications for a more
complete understanding of the topics presented.
-39-
Definition of Disclosure Controls
Disclosure Controls are controls and procedures designed to
reasonably assure that information required to be disclosed in
our reports filed with the Securities and Exchange Commission
(the SEC) is recorded, processed, summarized and
reported within the time periods specified in the SECs
rules and forms. Disclosure Controls are also designed to
reasonably assure that such information is accumulated and
communicated to our management, including the CEO and CFO, as
appropriate to allow timely decisions regarding required
disclosure. Our Disclosure Controls include components of our
internal control over financial reporting, which consists of
control processes designed to provide reasonable assurance
regarding the reliability of our financial reporting and the
preparation of financial statements in accordance with US
generally accepted accounting principles.
Limitations on the Effectiveness of Controls
We do not expect that our Disclosure Controls or our internal
controls over financial reporting will prevent all error and all
fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance
that the control systems objectives will be met. Further,
the design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and
instances of fraud, if any, within the company have been
detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Controls can also
be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of
the controls. The design of any system of controls is based in
part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions. Over time, controls may become inadequate because of
changes in conditions or deterioration in the degree of
compliance with policies or procedures. Because of the inherent
limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.
Scope of the Controls Evaluation
Our evaluations of our Disclosure Controls include reviews of
the controls objectives and design, our implementation of
the controls and the effect of the controls on the information
generated for use in our SEC filings. In the course of our
controls evaluations, we seek to identify data errors, controls
problems or acts of fraud and confirm that appropriate
corrective actions, including process improvements, are
undertaken. Many of the components of our Disclosure Controls
are evaluated on an ongoing basis by our Audit Services
department. The overall goals of these various evaluation
activities are to monitor our Disclosure Controls, and to modify
them as necessary. Our intent is to maintain the Disclosure
Controls as dynamic systems that change as conditions warrant.
Conclusions
Based upon our most recent controls evaluation, our CEO and CFO
have concluded that as of the end of the period covered by this
quarterly report, our Disclosure Controls were effective at the
reasonable assurance level. In the first six months of 2005,
there was no change in our internal control over financial
reporting that has materially affected, or is reasonably likely
to materially affect, our internal control over financial
reporting.
-40-
Part II Other Information
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Item 1. |
Legal Proceedings |
We are not party to, nor are our properties the subject of, any
material pending legal proceedings. However, we are parties from
time to time to certain claims, litigation, audits and
investigations. We believe that we have established adequate
reserves to satisfy any potential liability we may have under
all such claims, litigations, audits and investigations that are
currently pending. In our opinion, the settlement of any such
currently pending or threatened matter is not expected to have a
material adverse impact on our financial position, results of
operations or cash flows.
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Item 2. |
Unregistered Sales of Equity Securities and Use of
Proceeds |
No shares were repurchased in the first six months of 2005. As
of June 30, 2005 $118 million was available for
spending under our share repurchase program.
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Item 4. |
Submission of Matters to a Vote of Security |
On May 24, 2005, we held our annual meeting of
stockholders. At the annual meeting, we submitted the following
matters to a vote of our stockholders:
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|
The re-elections of Tom C. Davis, Stephen L. Green, Joseph S.
Hardin, Jr. and John R. Muse as members of our Board of
Directors, and |
|
|
|
The ratification of our Board of Directors selection of
Deloitte & Touche LLP as our independent auditor for
fiscal year 2005, and |
|
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|
A proposal from the Office of the Comptroller of New York City,
as the custodian and trustee of the New York City
Employees Retirement System, the New York City
Teachers Retirement System, the New York City Police
Pension Fund and the New York City Fire Department Pension Fund. |
At the annual meeting, the stockholders re-elected the directors
named above and ratified the selection of Deloitte &
Touche LLP as our independent auditor. The stockholder proposal
was rejected.
The vote of the stockholders with respect to each such matter
was as follows:
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|
|
|
|
|
|
|
|
Tom C. Davis
|
|
|
130,221,015 votes for |
|
|
|
2,294,726 votes withheld |
|
Stephen L. Green
|
|
|
124,896,630 votes for |
|
|
|
7,619,111 votes withheld |
|
Joseph S. Hardin, Jr.
|
|
|
126,114,712 votes for |
|
|
|
6,401,029 votes withheld |
|
John R. Muse
|
|
|
129,266,007 votes for |
|
|
|
3,249,734 votes withheld |
|
|
|
|
|
|
Ratification of our selection of Deloitte & Touche LLP
as our independent auditor: |
|
|
|
129,879,921 votes for |
2,554,117 votes against |
81,703 abstentions |
|
|
|
|
|
The shareholder proposal: |
|
|
|
28,916,223 votes for |
77,867,164 votes against |
12,444,883 abstentions |
-41-
(a) Exhibits
|
|
|
|
|
|
31 |
.1+ |
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31 |
.2+ |
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31 |
.3 |
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31 |
.4 |
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32 |
.1 |
|
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32 |
.2 |
|
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
-42-
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.
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|
DEAN FOODS COMPANY |
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/s/ Ronald L. McCrummen
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|
Ronald L. McCrummen |
|
Senior Vice President and Chief Accounting Officer |
December 12, 2005
-43-
INDEX TO EXHIBITS
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
31 |
.3 |
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31 |
.4 |
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32 |
.1 |
|
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32 |
.2 |
|
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|