e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
For Annual and Transition
Reports Pursuant to
Sections 13 or 15(d) of the Securities Exchange Act of
1934
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For The Fiscal Year Ended
December 31, 2006
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period
from to
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Commission File Number
001-12755
Dean Foods Company
(Exact name of
Registrant as specified in its charter)
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Delaware
(State or other
jurisdiction of
incorporation or organization)
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75-2559681
(I.R.S. Employer
Identification No.)
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2515 McKinney Avenue
Suite 1200
Dallas, Texas 75201
(214) 303-3400
(Address, including zip code,
and telephone number, including
area code, of Registrants
principal executive offices)
Securities Registered Pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $.01 par value
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New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned-issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the registrants voting and
non-voting common stock held by non-affiliates of the registrant
at June 30, 2006, based on the $37.19 per share
closing price for the registrants common stock on the New
York Stock Exchange on June 30, 2006, was approximately
$4.78 billion.
The number of shares of the registrants common stock
outstanding as of February 23, 2007 was 128,948,976.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants definitive Proxy Statement for
its Annual Meeting of Stockholders to be held on or about
May 18, 2007 (to be filed) are incorporated by reference
into Part III of this
Form 10-K.
PART I
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 private labels. Our WhiteWave
Foods Company develops, manufactures, markets and sells a
variety of nationally branded soy, dairy and dairy-related
products, such as
Silk®
soymilk and cultured soy products, Horizon
Organic®
dairy products, International
Delight®
coffee creamers, LAND
OLAKES®
creamers and fluid dairy products and Rachels
Organic®
dairy products.
Our principal executive offices are located at 2515 McKinney
Avenue, Suite 1200, Dallas, Texas 75201. Our telephone
number is
(214) 303-3400.
We maintain a worldwide web site at www.deanfoods.com. We
were incorporated in Delaware in 1994.
Segments
and Operating Divisions
We have two reportable segments: the Dairy Group and WhiteWave
Foods Company. Our reportable segments are described below.
Dairy
Group
Our Dairy Group manufactures, markets and distributes a wide
variety of branded and private label dairy case products to
retailers, distributors, foodservice outlets, schools and
governmental entities across the United States.
The Dairy Groups net sales totaled approximately
$8.82 billion in 2006, or approximately 87% of our
consolidated net sales. The following charts graphically depict
the Dairy Groups 2006 net sales by product and by
channel, and indicate the percentage of private label versus
company branded sales in 2006.
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(1) |
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Includes, among other things,
half-and-half,
whipping cream, dairy coffee creamers and ice cream mix. |
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(2) |
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Includes ice cream and ice cream novelties. |
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(3) |
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Includes yogurt, cottage cheese, sour cream and dairy-based dips. |
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(4) |
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Includes fruit juice, fruit-flavored drinks and water. |
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(5) |
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Includes, among other things, items for resale such as butter,
cheese and eggs. |
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(6) |
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Such as restaurants, hotels and other foodservice outlets. |
1
Products not sold under private labels are sold under the Dairy
Groups local and regional proprietary or licensed brands.
Our local and regional proprietary and licensed brands include
the following:
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Alta
Dena®
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Gandystm
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Oak
Farms®
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Arctic
Splash®
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Garelick
Farms®
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Over the
Moontm
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Barbers®
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Hersheys®
(licensed brand)
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Pet®
(licensed brand)
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Barbes®
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Hygeia®
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Pricestm
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Berkeley
Farmstm
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Kohlertm
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Puritytm
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Broughton®
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LAND
OLAKES®
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Reitertm
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Borden®
(licensed brand)
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(licensed brand)
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Robinson®
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Brown
Cow®
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Land-O-Sun &
design®
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Saunderstm
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Browns
Dairy®
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Lehigh
Valley®
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Schenkels
All*Startm
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Buds Ice
Creamtm
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Libertytm
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Schepps®
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Chug®
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Louis
Trauth®
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Sealtest®
(licensed brand)
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Country
Charm®
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Maplehurst®
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Shenandoahs
Pride®
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Country
Churntm
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Mayfield®
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Skinny
Cowtm
(licensed brand)
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Country
Delitetm
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McArthur®
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Strohs®
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Country
Fresh®
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Meadow
Brooktm
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Swiss
Dairytm
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Country
Love®
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Meadow
Gold®
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Swiss
Premiumtm
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Creamlandtm
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Melody
Farms®
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TG
Lee®
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Dairy
Fresh®
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Mile High Ice
Creamtm
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Tuscan®
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Deans®
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Model
Dairy®
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Turtle
Tracks®
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Dipzz®
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Mountain
High®
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Verifine®
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Fieldcrest®
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Natures
Pride®
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Viva®
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Foremost®
(licensed brand)
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The Dairy Group sells its products primarily on a local or
regional basis through its local and regional sales forces,
although some national customer relationships are coordinated by
the Dairy Groups corporate sales department. Most of the
Dairy Groups customers, including its largest customer
(Wal-Mart including its subsidiaries, such as Sams Club,
which accounted for approximately 18.2% of the Dairy
Groups 2006 net sales), purchase products from the
Dairy Group either by purchase order or pursuant to contracts
that are generally terminable at will by the customer.
Our Dairy Group currently operates 98 manufacturing facilities
in 34 states. For more information about facilities in the
Dairy Group, see Item 2. Properties.
Due to the perishable nature of the Dairy Groups products,
our Dairy Group delivers the majority of its products from its
facilities directly to its customers stores in
refrigerated trucks or trailers that we own or lease. This form
of delivery is called a direct store delivery or
DSD system. We believe our Dairy Group has one of
the most extensive refrigerated DSD systems in the United States.
The primary raw material used in our Dairy Group is raw milk. We
purchase our raw milk primarily from farmers cooperatives,
typically pursuant to requirements contracts (with no minimum
purchase obligation). Raw milk is generally readily available.
The minimum price of raw milk is regulated in most parts of the
country by the federal government. Several states also regulate
raw milk pricing through their own programs. Another significant
raw material used by our Dairy Group is resin, which is used to
make plastic bottles. Resin is a petroleum-based product, and
the price of resin is subject to fluctuations based on changes
in crude oil prices. Resin supplies have from time to time been
insufficient to meet demand. Other raw materials used by the
Dairy Group, such as juice concentrates and sweeteners, in
addition to diesel fuel used to operate our extensive DSD
system, are generally available from numerous suppliers and we
are not dependent on any single supplier for these materials.
Certain of our Dairy Groups raw materials and packaging
supplies are purchased under long- term contracts in order to
obtain lower costs. The prices of our raw materials increase and
decrease based on supply and demand. For more
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information, see Government
Regulation Milk Industry Regulation and
Part II Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations Known Trends and
Uncertainties Prices of Raw Materials and Other
Inputs.
The Dairy Group generally increases or decreases the prices of
its fluid dairy products on a monthly basis in correlation to
fluctuations in the costs of raw materials, packaging supplies
and delivery costs. However, in some cases, we are competitively
or contractually constrained with respect to the means
and/or
timing of price increases. This can have a negative impact on
the Dairy Groups profitability.
The dairy industry is a mature industry that has traditionally
been characterized by slow to flat growth, low profit margins,
fragmentation and excess capacity. Excess capacity resulted from
the development of more efficient manufacturing techniques, the
establishment of captive dairy manufacturing operations by some
grocery retailers and declining demand for fluid milk products.
From 1990 through 2001, the dairy industry experienced
significant consolidation, led by us. Consolidation has resulted
in lower operating costs, less excess capacity and greater
efficiency. According to the United States Department of
Agriculture (USDA), per capita consumption of fluid
milk and cream decreased by over 10% from 1990 to the end of
2005, although total consumption has remained relatively flat
over the same period due to population increases. Therefore,
volume growth across the industry generally remains flat to
modest, profit margins generally remain low and excess
manufacturing capacity continues to exist. In this environment,
price competition is particularly intense, as smaller processors
seek to retain enough volume to cover their fixed costs. In
response to this dynamic and significant competitive pressure
caused by the ongoing consolidation among food retailers, many
processors, including us, are now placing an increased emphasis
on product differentiation and cost reduction in an effort to
increase consumption, sales and margins.
Our Dairy Group has several competitors in each of our major
product and geographic markets. Competition between dairy
processors for shelf-space with retailers is based primarily on
price, service and quality, while competition for consumer sales
is based on a variety of factors such as brand recognition,
price, taste preference and quality. Dairy products also compete
with many other beverages and nutritional products for consumer
sales.
For more information about our Dairy Group, see
Part II Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations and Note 20 to our Consolidated Financial
Statements.
WhiteWave
Foods Company
WhiteWave Foods Company develops, manufactures, markets and
sells a variety of nationally branded soy, dairy and
dairy-related products, such as Silk soymilk and cultured
soy products, Horizon Organic dairy products,
International Delight coffee creamers, LAND
OLAKES creamers and fluid dairy products and
Rachels Organic dairy products. WhiteWave Foods
Company also sells The Organic
Cow®
organic dairy products, White
Wave®
and Tofu
Town®
branded tofu and
Hersheys®
milks and milkshakes. We license the LAND OLAKES
and Hersheys names from third parties.
WhiteWave Foods Companys net sales totaled approximately
$1.28 billion in 2006, or approximately 13% of our
consolidated net sales. WhiteWave Foods Company sells its
products to a variety of customers, including
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grocery stores, club stores, natural foods stores, mass
merchandisers, convenience stores and foodservice outlets. The
following charts graphically depict WhiteWave Foods
Companys net sales by brand and by channel:
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(1) |
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Includes Horizon Organic and The Organic Cow
organic dairy products. |
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(2) |
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Includes Hersheys milk and milk shakes and White
Wave and Tofu Town tofu. |
WhiteWave Foods Company sells its products through its internal
sales force and through independent brokers. The majority of
WhiteWave Foods Companys products including sales to its
largest customer (Wal-Mart including its subsidiaries, such as
Sams Club, which accounted for approximately 14.3% of
WhiteWave Foods Companys 2006 net sales) are sold
pursuant to customer purchase orders or pursuant to contracts
that are generally terminable at will by the customer.
In 2006, approximately 75% of the products sold by WhiteWave
Foods Company were manufactured in facilities operated by either
WhiteWave Foods Company or our Dairy Group. The remaining 25%
were manufactured by third-party manufacturers under processing
agreements. WhiteWave Foods Company currently operates seven
manufacturing facilities, including three facilities that were
previously operated by our Dairy Group. The majority of
WhiteWave Foods Companys products are delivered by common
carrier to customer warehouses, although some products are
distributed through third-party distributors or through our
Dairy Groups DSD system.
The primary raw material used in our soy-based products is
organic soybeans. Organic soybeans are generally available from
several suppliers and we are not dependent on any single
supplier for these products. We have entered into supply
agreements for organic soybeans, which we believe will meet our
needs in 2007. These agreements provide pricing at fixed levels.
The primary raw material used in our organic milk-based products
is organic raw milk. We currently purchase organic raw milk from
a network of over 360 dairy farmers across the United States. We
also produce certain of our own organic raw milk needs in the
U.S. at two organic farms that we own and operate and an
additional farm that we lease and have contracted with a third
party to manage. We generally enter into supply agreements with
dairy farmers with typical terms of one to two years, which
obligate us to purchase certain minimum quantities. In the
recent past, the industry-wide demand for organic raw milk has
generally exceeded supply, resulting in our inability to fully
meet customer demand. However, we expect that our efforts to
foster increased supply and overall industry supply growth will
ease the historical shortfall in supply over the near term. We
are currently taking steps to increase consumer demand for our
products to avoid a meaningful oversupply of raw organic milk;
however, there can be no assurance that the supply of raw
organic milk in the market will not exceed demand in an amount
that could exert downward pricing pressure on the sale of our
products and negatively impact our profitability. The primary
raw material used in our LAND OLAKES and other
non-organic dairy products is raw milk. We purchase raw milk
from farmers cooperatives, typically pursuant to
requirements contracts (with no minimum purchase obligation).
Raw milk is generally readily available. The minimum price of
raw milk is regulated in most parts of the country by the
federal government. Several states also regulate raw milk
pricing through their own programs. Other raw materials used in
WhiteWave Foods Companys products, such as flavorings,
organic sugar and packaging materials, are generally available
from several suppliers and we are not dependent on any single
supplier for these materials. Certain of these raw materials are
purchased
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under long-term contracts in order to obtain lower costs. The
prices of raw materials increase and decrease based on supply
and demand. For more information, see
Part II Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations Known Trends and
Uncertainties Prices of Raw Materials and Other
Inputs.
WhiteWave Foods Company has several competitors in each of its
product markets. Competition to obtain shelf-space with
retailers for a particular product is based primarily on the
expected or historical sales performance of the product compared
to its competitors. Also, in some cases, WhiteWave Foods Company
pays fees to retailers to obtain shelf-space for a particular
product. Competition for consumer sales is based on many
factors, including brand recognition, price, taste preferences
and quality. Consumer demand for soy and organic foods has grown
rapidly in recent years due to growing consumer confidence in
the health benefits of soy and organic foods, and WhiteWave
Foods Company has a leading position in the soy and organic
foods category. However, our soy and organic food products
compete with many other beverages and nutritional products for
consumer sales.
For more information about WhiteWave Foods Company, see
Part II Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations and Note 20 to our Consolidated Financial
Statements.
Current
Business Strategy
Lead
Growth in The Dairy Category
As the largest dairy processor in the United States, our Dairy
Group is in a unique position to provide unmatched service,
convenience and value to our customers. We are intently focused
on maintaining and extending our Dairy Groups leadership
position by focusing on our customer needs.
In 2006, our Dairy Groups fresh milk volumes were up 1.9%
compared to total U.S. consumption growth of approximately
1%, according to data published by the US Department of
Agriculture. We believe this increase in market share is an
indication of the success of our strategy. In 2007, we will
maintain our focus on the highest level of service, quality and
value.
Drive
Efficiencies and Productivity to Fund Growth
In 2006, we began a multi-year project designed to extend our
Dairy Groups competitive advantage through leveraging of
our nation-wide purchasing power, as well as a realignment of
our finance and accounting organization. As part of this
project, we announced that we hired a Chief Procurement Officer
in December 2006. In 2007, we will continue to evaluate our
purchasing activities with a focus on reducing costs through
consolidated purchase agreements. Throughout 2007, we will
transition our finance and transaction personnel into regional
accounting and transaction centers, improving the consistency,
quality and cost of these activities.
Fully
Leverage our Selling Systems, Especially DSD
Our Dairy Group operations include one of the largest
refrigerated DSD networks in the United States. In addition to
products manufactured within our Dairy Group facilities, we
utilize the DSD network to deliver products manufactured by
WhiteWave Foods Company, as well as third party products. In
2007, we will continue to focus on leveraging our DSD
capabilities including the expansion of fresh fluid organic milk
and single serve products.
Bring
Innovation to the Category
Given our relative strength in people, facilities and
customer-base, we have an opportunity to bring product
innovation to the dairy case. In 2006, we significantly expanded
the distribution of Rbst Free dairy products, further expanding
our product line to meet customer demand for healthy nutritional
products. In 2007, we will introduce a new Silk Plus line of
products. This extension of the Silk product line will feature
additional fortifications designed to offer specific health
benefits.
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Maximize
the Performance of WhiteWave Foods Company
In 2004, we began the process of consolidating the operations of
the three operating units that comprise our WhiteWave Foods
segment into a single business. We are building a vertically
integrated branded business with a focused product portfolio,
efficient manufacturing processes and an efficient distribution
system. During 2005, we completed the consolidation of our
sales, marketing and research and development organization and
began the process of integrating our supply chain. We
consolidated most product manufacturing into five primary
facilities, three of which were transferred from our Dairy
Group, and we narrowed our network of co-packers. Further, we
began building a leadership team with significant experience in
growing a branded products company. In 2006, we focused on
streamlining our product portfolio, focusing on our most
profitable long-term opportunities, and on continuing to
optimize our supply chain. In addition, in 2006 we installed the
Silk and Horizon Organic brands and a portion of
our plant network onto the SAP enterprise operating software
platform. We expect to complete the installation of the
remainder of our brands and production facilities in 2007. The
implementation of the SAP platform across WhiteWave Foods
Company will enable us to more effectively and efficiently
manage our supply chain and business processes.
Developments
Since January 1, 2006
Discontinued
Operations
Our former Iberian operations included the manufacture and
distribution of private label and branded milk across Spain and
Portugal. In the second quarter of 2006, we committed to a plan
to sell our Iberian operations with the expectation that such
sale could be completed within one year. At that time, we
recognized a non-cash impairment charge of $46.4 million,
net of an income tax benefit of $8.1 million, representing
our best estimate as of June 30, 2006 of the impairment
required based on our expected proceeds upon sale of the Iberian
operations.
On September 14, 2006, we completed the sale of our
operations in Spain for net cash proceeds of approximately
$96.0 million. In addition to customary indemnifications of
the purchaser of the business, we retained contingent
obligations related to regulatory compliance, including an
obligation to pay the purchaser a maximum of 15 million
euros (approximately $19.8 million as of December 31,
2006) if certain regulatory approvals are not received with
respect to a specific facility. A loss on the sale of our
operations in Spain of $6.8 million (net of tax) was
recognized during 2006.
In connection with the sale of our operations in Spain, we
entered into an agreement to sell our Portuguese operations
(that comprised the remainder of our Iberian operations) for
approximately $11.4 million subject to regulatory approvals
and working capital adjustments. We completed the sale of our
Portuguese operations in January 2007. No significant loss is
expected on the sale.
The Iberian operations have been reclassified as discontinued
operations for all periods presented.
Management
Changes
On April 27, 2006, we announced Jack F. Callahan Jr.
as our Executive Vice President and Chief Financial Officer. He
began his employment in May 2006. Previously, Mr. Callahan
served as Senior Vice President of Corporate Strategy and
Development at PepsiCo, where he oversaw all corporate strategy
and merger and acquisition activity.
On November 21, 2006, we announced Harrald Kroeker as our
Senior Vice President and Chief Operating Officer, Dairy Group.
Previously, Mr. Kroeker served in multiple executive
capacities at Pepsi Bottling Group most recently as
Vice President and General Manager, Great West Business Unit.
On December 12, 2006, we announced Bradley J. Holcomb as
our Senior Vice President and Chief Procurement Officer, Dairy
Group. Previously, Mr. Holcomb served as Senior Vice
President of Global Materials and Supply at Royal Group
Technologies Limited.
On February 22, 2007, we announced Blaine E. McPeak as our
President, Horizon Organic. Previously, Mr. McPeak served
as President of Kellogg Companys Wholesome Portable
Breakfast and Snacks division.
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Stock
Repurchases
Between February 1 and December 31, 2006, we spent
approximately $399.9 million to repurchase
10.0 million shares of our common stock for an average
price of $39.90 per share, excluding commissions and fees.
On May 3, 2006, and again on November 29, 2006, our
Board of Directors authorized increases in our stock repurchase
program in the aggregate amount of $600 million. At
February 23, 2007, approximately $218.7 million
remained available under our stock repurchase authorization.
Facility
Closing and Reorganization Activities
In 2006, we recorded a charge of $25.1 million as part of
our ongoing costs savings initiative. We recorded a charge of
$23.0 million related to our Dairy Group operations for the
closing of three Dairy Group facilities and other previously
announced plans. We also recorded a charge of $2.1 million
related to the previously announced reorganization of WhiteWave
Foods Company. We expect to incur additional charges related to
all of these restructuring plans of approximately
$15.4 million, primarily in 2007. A significant portion of
the 2007 charges relate to the realignment of our Dairy
Groups finance and accounting organization. These charges
include the following costs:
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Workforce reductions as a result of facility closings, facility
reorganizations and consolidation of administrative functions;
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Shutdown costs, including those costs necessary to prepare
abandoned facilities for closure;
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Costs incurred after shutdown, such as lease obligations or
termination costs, utilities and property taxes;
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Costs associated with the reorganization of WhiteWave Foods
Companys supply chain and distribution activities; and
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Write-downs of property, plant and equipment and other assets,
primarily for asset impairments as a result of facilities that
are no longer used in operations. The impairments relate
primarily to owned buildings, land and equipment at the
facilities, which are written down to their estimated fair value
and held for sale.
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Dean
Foods Company Senior Notes
On May 17, 2006, we issued $500 million aggregate
principal amount of 7.0% senior unsecured notes. The senior
unsecured notes mature on June 1, 2016 and interest is
payable on June 1 and December 1 of each year,
beginning December 1, 2006. The indenture under which we
issued the senior unsecured notes does not contain financial
covenants but does contain covenants that, among other things,
limit our ability to incur secured indebtedness, enter into
sale-leaseback transactions and engage in mergers,
consolidations and sales of all or substantially all of our
assets. The notes are senior unsecured obligations and are
effectively subordinated to the indebtedness outstanding under
our senior credit facility and any other secured debt we may
incur. The notes are fully and unconditionally guaranteed by the
subsidiaries that are guarantors under our senior credit
facility, which are substantially all of our wholly owned
U.S. subsidiaries other than our receivables securitization
subsidiaries. We used all of the net proceeds from the sale of
the notes to reduce a corresponding amount of borrowings under
our senior credit facility.
Employees
As of December 31, 2006, we had the following employees:
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No. of
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% of
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Employees
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Total
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Dairy Group
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24,828
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94
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%
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WhiteWave Foods Company
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1,311
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5
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Corporate
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209
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1
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Total
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26,348
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100
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%
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Approximately 35% of the Dairy Groups and 38% of WhiteWave
Foods Companys employees participate in collective
bargaining agreements.
Government
Regulation
Public
Health
As a manufacturer and distributor of food products, we are
subject to a number of food-related regulations, including the
Federal Food, Drug and Cosmetic Act and regulations promulgated
thereunder by the U.S. Food and Drug Administration
(FDA). This comprehensive regulatory framework
governs the manufacture (including composition and ingredients),
labeling, packaging and safety of food in the United States. The
FDA:
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regulates manufacturing practices for foods through its current
good manufacturing practices regulations,
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specifies the standards of identity for certain foods, including
many of the products we sell, and
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prescribes the format and content of certain information
required to appear on food product labels.
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In addition, the FDA enforces the Public Health Service Act and
regulations issued thereunder, which authorize regulatory
activity necessary to prevent the introduction, transmission or
spread of communicable diseases. These regulations require, for
example, pasteurization of milk and milk products. We are
subject to numerous other federal, state and local regulations
involving such matters as the licensing and registration of
manufacturing facilities, enforcement by government health
agencies of standards for our products, inspection of our
facilities and regulation of our trade practices in connection
with the sale of food products.
We use quality control laboratories in our manufacturing
facilities to test raw ingredients. Product quality and
freshness are essential to the successful distribution of our
products. To monitor product quality at our facilities, we
maintain quality control programs to test products during
various processing stages. We believe our facilities and
manufacturing practices comply with all material government
regulations.
Employee
Safety Regulations
We are subject to certain safety regulations, including
regulations issued pursuant to the U.S. Occupational Safety
and Health Act. These regulations require us to comply with
certain manufacturing safety standards to protect our employees
from accidents. We believe that we are in material compliance
with all employee safety regulations.
Environmental
Regulations
We are subject to various environmental regulations. Ammonia, a
refrigerant used extensively in our operations, is considered an
extremely hazardous substance pursuant to
U.S. federal environmental laws due to its toxicity. Also,
certain of our facilities discharge biodegradable wastewater
into municipal waste treatment facilities in excess of levels
permitted under local regulations. As a result, certain of our
subsidiaries are required to pay wastewater surcharges or to
construct wastewater pretreatment facilities. To date, such
wastewater surcharges have not had a material effect on our
Consolidated Financial Statements.
We maintain above-ground or underground petroleum storage tanks
at many of our facilities. These tanks are periodically
inspected to determine compliance with applicable regulations.
We are required to make expenditures from time to time in order
to maintain compliance of these tanks. To date, such
expenditures have not had a material effect on our Consolidated
Financial Statements. In accordance with Financial Accounting
Standards Board Interpretation No. 47 Accounting for
Conditional Asset Retirement Obligations, we recognized a
liability of $2.8 million as of December 31, 2005,
representing the estimated future cost of removing certain
underground fuel storage tanks. As we generally have ceased
construction of new underground fuel storage tanks, the impact
of this Interpretation was not material in 2006 and we do not
anticipate the impact to be material in future periods.
We believe that we are in material compliance with the
environmental regulations applicable to our business. We do not
expect environmental compliance to have a material impact on our
capital expenditures, earnings or competitive position in the
foreseeable future.
8
Milk
Industry Regulation
The federal government establishes minimum prices that we must
pay to producers in federally regulated areas for raw milk. Raw
milk contains primarily raw skim milk, in addition to a small
percentage of butterfat. The federal government establishes
separate minimum prices for raw skim milk and butterfat. Raw
milk delivered to our facilities is tested to determine the
percentage of butterfat, and we pay our suppliers separate
prices for the raw skim milk and butterfat based on the results
of these tests.
The federal governments minimum prices are calculated by
economic formula based on supply and demand and vary depending
on the processors geographic location or sales area and
the type of product manufactured using the raw product. Federal
minimum prices change monthly. Class I butterfat and raw
skim milk prices (which are the minimum prices we are required
to pay for butterfat and raw skim milk that is processed into
milk) and Class II raw skim milk prices (which are the
prices we are required to pay for raw skim milk that is
processed into products such as cottage cheese, creams,
creamers, ice cream and sour cream) for each month are announced
by the federal government by the 23rd day of the
immediately preceding month. Class II butterfat prices for
each month are announced on or before the fifth day after the
end of that month.
Some states have established their own rules for determining
minimum prices for raw milk. In addition to the federal or state
minimum prices, we also pay producer premiums, procurement costs
and other related charges that vary by location and vendor. A
few states also have retail pricing requirements.
Organic
Regulations
Our organic products are required to meet the standards set
forth in the Organic Foods Production Act (OFPA) and
the regulations adopted thereunder by the National Organic
Standards Board. These regulations require strict methods of
production for organic food products and limit the ability of
food processors to use non organic or synthetic materials in the
production of organic foods or in the raising of organic
livestock. We believe that we are in material compliance with
the organic regulations applicable to our business.
9
Brief
History
We commenced operations in 1988 through a predecessor entity.
Our original operations consisted solely of a packaged ice
business. Since then the following activity has occurred:
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December 1993
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Acquired Suiza Dairy Corporation,
a regional dairy processor located in Puerto Rico. We then began
acquiring other local and regional U.S. dairy processors,
growing our dairy business rapidly primarily through
acquisitions.
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April 1996
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Completed our initial public
offering under our former name Suiza Foods
Corporation and began trading on NASDAQ National Market.
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January 1997
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Completed a secondary offering.
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March 1997
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Began trading on the New York
Stock Exchange.
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August 1997
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Acquired Franklin Plastics, Inc.,
a company engaged in the business of manufacturing and selling
plastic containers. After the acquisition, we began acquiring
other companies in the plastic packaging industry.
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November 1997
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Acquired Morningstar Foods Inc.,
whose business was a predecessor to our WhiteWave Foods Company.
This was our first acquisition of a company with national brands.
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April 1998
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Sold our packaged ice operations.
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May 1998
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Acquired Continental Can Company,
making us one of the largest plastic packaging companies in the
United States.
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July 1999
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Sold all of our U.S. plastic
packaging operations to Consolidated Container Company in
exchange for cash and a minority interest in the purchaser.
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January 2000
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Acquired Southern Foods Group,
L.P., the third largest dairy processor in the United States,
making us the largest dairy processor in the country.
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February 2000
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Acquired Leche Celta, one of the
largest dairy processors in Spain.
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March and May 2000
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Sold our European packaging
operations.
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December 2001
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Acquired Dean Foods Company
(Legacy Dean) and changed our name from Suiza Foods
Corporation to Dean Foods Company. Legacy Dean changed its name
to Dean Holding Company.
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May 2002
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Acquired the portion of White
Wave, Inc. that we did not already own.
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January 2004
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Acquired the portion of Horizon
Organic that we did not already own.
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2005
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Consolidated our nationally
branded business, including White Wave, Horizon Organic and Dean
National Brand Group into a single operating unit called
WhiteWave Foods Company.
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June 2005
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Spun-off our Specialty Foods Group
segment to our shareholders.
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September 2006
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Sold our Leche Celta operations in
Spain.
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January 2007
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Sold our Leche Celta operations in
Portugal.
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Minority
Holdings
We own an approximately 25% interest, on a fully diluted basis,
in Consolidated Container Company (CCC), one of the
nations largest manufacturers of rigid plastic containers
and our largest supplier of plastic bottles and bottle
components. We have owned a minority interest in CCC since July
1999 when we sold our U.S. plastic packaging operations to
CCC. Vestar Capital Partners controls CCC through a majority
ownership interest. Less than 1% of CCC is owned indirectly by
Alan Bernon, President of our Dairy Group and a member of our
Board of Directors, and his brother Peter Bernon. Pursuant to
our agreements with Vestar, we control two of the eight seats on
CCCs Management Committee. We also have entered into
various supply agreements with CCC pursuant to which we have
agreed to purchase certain of our requirements for plastic
bottles and bottle components from CCC. In 2006, we spent
approximately $284.4 million on products purchased from
CCC. Because CCC has
10
issued certain senior notes, CCC files annual, quarterly and
other reports with the Securities and Exchange Commission. More
information about CCC can be found on its website at
www.cccllc.com or in its filings with the Securities and
Exchange Commission available at www.sec.gov.
See Note 3 to our Consolidated Financial Statements for
more information about our investment in CCC.
Where You
Can Get More Information
Our fiscal year ends on December 31. We furnish our
stockholders with annual reports containing audited financial
statements. In addition, we file annual, quarterly and current
reports, proxy statements and other information with the
Securities and Exchange Commission.
You may read and copy any reports, statements or other
information that we file with the Securities and Exchange
Commission at the Securities and Exchange Commissions
Public Reference Room at 100 F Street, N.E., Washington D.C.
20549. You can request copies of these documents, upon payment
of a duplicating fee, by writing to the Securities and Exchange
Commission. Please call the Securities and Exchange Commission
at
1-800-SEC-0330
for further information on the operation of the Public Reference
Room.
We file our reports with the Securities and Exchange Commission
electronically through the Securities and Exchange
Commissions Electronic Data Gathering, Analysis and
Retrieval (EDGAR) system. The Securities and
Exchange Commission maintains an Internet site that contains
reports, proxy and information statements, and other information
regarding companies that file electronically with the Securities
and Exchange Commission through EDGAR. The address of this
Internet site is http://www.sec.gov.
We also make available free of charge through our website at
www.deanfoods.com our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the Securities and
Exchange Commission.
Our Code of Ethics, which is applicable to all of our employees
and directors, is available on our corporate website at
www.deanfoods.com, together with the Corporate Governance
Principles of our Board of Directors and the charters of all of
the Committees of our Board of Directors. Any waivers that we
may grant to our executive officers or directors under the Code
of Ethics, and any amendments to our Code of Ethics, will be
posted on our corporate website. If you would like hard copies
of any of these documents, or of any of our filings with the
Securities and Exchange Commission, write or call us at:
Dean Foods Company
2515 McKinney Avenue, Suite 1200
Dallas, Texas 75201
(214) 303-3400
Attention: Investor Relations
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 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 them, 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.
11
Reorganization
of Our WhiteWave Foods Company Segment Could Temporarily
Adversely Affect the Performance of the Segment
In 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. During 2005, we
appointed a new President of WhiteWave Foods Company, which was
a key step in the development of a consolidated leadership team
for the organization. We also completed the consolidation of the
sales, marketing and research and development organization and
began the process of integrating our supply chain. We
consolidated most product manufacturing into five primary
facilities, three of which were transferred from our Dairy Group
in 2005, and we narrowed our network of co-packers. In 2006, we
focused on streamlining our product portfolio, focusing on the
most profitable opportunities, and on continuing to optimize our
supply chain. On January 1, 2006, we transferred our
Rachels Organic business in the United Kingdom from our
former International division to WhiteWave Foods Company. In
addition, in 2006 we installed the Silk and Horizon
Organic brands and a portion of our plant network onto the
SAP enterprise operating software platform. We expect to
complete the installation of the remainder of our brands and
production facilities in 2007. The implementation of the SAP
platform across WhiteWave Foods Company will enable us to more
effectively and efficiently manager our supply chain and
business processes. 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.
Reorganization
of Our Dairy Group Segment Could Temporarily Adversely Affect
the Performance of the Segment
In 2006, we started the process of realigning our Dairy Group
segment in order to further streamline our organization, improve
efficiency within our operations and better meet the needs of
our customers. We are currently focused on reorganizing our
purchasing, finance and other administrative functions to better
leverage our scale, which we expect will enable us to more
effectively and efficiently manage our business processes.
Furthermore, we are in the process of consolidating our
information technology systems, including the implementation of
standard accounting and distribution software packages. Our
failure to successfully manage this process could cause us to
incur unexpected costs, which could have a material adverse
effect on our financial results.
The
Consolidation of Retail Customers May Put Pressures on Our
Operating Margins and Profitability
Our customers such as supermarkets, warehouse clubs and food
distributors, have consolidated in recent years and
consolidation is expected to continue. These consolidations have
produced large, sophisticated customers with increased buying
power. These customers may use shelf space currently used for
our products for their private label products. If we fail to
respond to these trends, our volume growth could slow or we may
need to lower prices or increase promotional spending for our
products, any of which would adversely affect our profitability.
Availability
and Changes in Raw Material and Other Input Costs Can Adversely
Affect Us
Raw skim milk is the most significant raw material that we use
in our Dairy Group. Organic raw milk, organic soybeans and sugar
are significant inputs utilized by WhiteWave Foods Company. The
prices of these materials increase and decrease based on supply
and demand, and in some cases, governmental regulation. Weather
also affects the availability and pricing of these inputs. In
many cases we are able to adjust our pricing to reflect changes
in raw material costs. Volatility in the cost of our raw
materials can adversely affect our performance as price changes
often lag changes in costs. These lags tend to erode our profit
margins. Furthermore, cost increases may exceed the price
increases we are able to pass along to our customers. Extremely
high raw material costs also can put downward pressure on our
margins and our volumes. We expect certain raw material prices,
including raw skim milk prices, to increase in 2007.
In the recent past, the industry-wide demand for organic raw
milk has generally exceeded supply, resulting in our inability
to fully meet customer demand. However, our efforts to foster
increased supply have increased overall industry supply which
has eased the historical shortfall in supply. We are currently
taking steps to increase consumer demand for our products to
avoid a meaningful oversupply of raw organic milk; however,
there can be no
12
assurance that the supply of raw organic milk in the market will
not exceed demand in an amount that could exert downward pricing
pressure on the sale of our products and negatively impact our
profitability.
Because our Dairy Group delivers the majority of its products
directly to customers through its direct store
delivery system, we are a large consumer of fuel.
Similarly, our WhiteWave Foods business is impacted by the costs
of petroleum-based products through the use of common carriers
in delivering their products. The Dairy Group utilizes a
significant amount of resin, which is the primary component used
in our plastic bottles. Resin supplies have from time to time
been insufficient to meet demand. Over the first nine months of
2006, the prices of resin and fuel increased before decreasing
over the last three months of the year. Increases in fuel and
resin prices can adversely affect our results of operations. In
addition, a disruption in our ability to secure an adequate
resin supply could adversely affect our operations.
Our
Products Could Attract Increased Competitive Activity, Which
Could Impede Our Growth Rate and Cost Us Sales
Our Silk soymilk and Horizon Organic organic food
and beverage products have leading market shares in their
categories and have benefited in many cases from being the first
to introduce products in their categories. As soy and organic
products continue to gain in popularity with consumers, we
expect our products in these categories to continue to attract
competitors. Many large food and beverage companies have
substantially more resources than we do, and they may be able to
market their soy and organic products more successfully than us,
which could cause our growth rate in these categories to be
slower than our forecast and could cause us to lose sales. The
increase in popularity of soy and organic milks is also
attracting private label competitors who sell their products at
a lower price. The success of private label brands could
adversely affect our sales and profitability. The willingness of
consumers to purchase our products will depend upon our ability
to offer products providing the right consumer benefits at the
right price. Furthermore, in periods of economic uncertainty,
consumers tend to purchase more private label or other
lower-priced products which could result in a reduction of sales.
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.
We May
Experience Liabilities or Negative Effects on Our Reputation as
a Result of Product Recalls, Product Injuries or Other Legal
Claims
We sell products for human consumption, which involves a number
of legal risks. Product contamination, spoilage or other
adulteration, product misbranding or product tampering could
require us to recall products. We also may be subject to
liability if our products or operations violate applicable laws
or regulations or in the event our products cause injury,
illness or death. In addition, we advertise our products and
could be the target of claims relating to false or deceptive
advertising under U.S. federal and state laws, including
consumer protection statutes of some states. A significant
product liability or other legal judgment against us or a
widespread product recall may negatively impact our
profitability. Even if a product liability or consumer fraud
claim is unsuccessful or is not merited, the negative publicity
surrounding such assertions regarding our products or processes
could adversely affect our reputation and brand image.
Changes
in Laws, Regulations and Accounting Standards Could Have an
Adverse Effect on Our Financial Results
We are subject to federal, state, local and foreign governmental
laws and regulations, including those promulgated by the United
States Food and Drug Administration, the United States
Department of Agriculture, the Sarbanes-Oxley Act of 2002 and
numerous related regulations promulgated by the Securities and
Exchange Commission, the Public Company Accounting Oversight
Board and the Financial Accounting Standards Board. Changes in
federal, state or local laws, or the interpretations of such
laws and regulations may negatively impact our financial results
or our ability to market our products.
13
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 Part II
Item 7. Management Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources.
We have pledged substantially all of our assets (including the
assets of our subsidiaries) to secure our indebtedness. Our debt
level and related debt service obligations:
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require us to dedicate significant cash flow to the payment of
principal and interest on our debt which reduces the funds we
have available for other purposes,
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may limit our flexibility in planning for or reacting to changes
in our business and market conditions,
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impose on us additional financial and operational restrictions,
and
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expose us to interest rate risk since a portion of our debt
obligations are at variable rates.
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The interest rate on certain of 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.
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Item 1B.
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Unresolved
Staff Comments
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None.
14
Dairy
Group
Our Dairy Group currently conducts its manufacturing operations
within the following 98 facilities, most of which are owned:
Birmingham, Alabama (2)
Decatur, Alabama
Buena Park, California (2)
City of Industry, California
Fullerton, California
Gustine, California
Hayward, California
Riverside, California
Tulare, California
Delta, Colorado
Denver, Colorado (3)
Englewood, Colorado
Greeley, Colorado
Newington, Connecticut
Miami, Florida
Orange City, Florida
Orlando, Florida
Baxley, Georgia
Braselton, Georgia
Hilo, Hawaii
Honolulu, Hawaii
Boise, Idaho
Belvidere, Illinois
Chemung, Illinois
Huntley, Illinois
OFallon, Illinois
Rockford, Illinois
Huntington, Indiana
Rochester, Indiana
Louisville, Kentucky
Murray, Kentucky
Newport, Kentucky
New Orleans, Louisiana
Shreveport, Louisiana
Bangor, Maine
Franklin, Massachusetts
Lynn, Massachusetts
Mendon, Massachusetts
Detroit, Michigan
Evart, Michigan
Flint, Michigan
Grand Rapids, Michigan
Livonia, Michigan
Marquette, Michigan
Thief River Falls, Minnesota
White Bear Lake, Minnesota
Woodbury, Minnesota
Billings, Montana
Great Falls, Montana
Kalispell, Montana
Lincoln, Nebraska
Las Vegas, Nevada
Reno, Nevada
Burlington, New Jersey
Albuquerque, New Mexico
New Delhi, New York
Rensselaer, New York
Hickory, North Carolina
High Point, North Carolina
Winston-Salem, North Carolina
Bismarck, North Dakota
Tulsa, Oklahoma
Marietta, Ohio
Springfield, Ohio
Toledo, Ohio
Belleville, Pennsylvania
Erie, Pennsylvania
Lansdale, Pennsylvania
Lebanon, Pennsylvania
Schuylkill Haven, Pennsylvania
Sharpsville, Pennsylvania
Florence, South Carolina
Spartanburg, South Carolina
Sioux Falls, South Dakota
Athens, Tennessee
Kingsport, Tennessee
Nashville, Tennessee (2)
Dallas, Texas (2)
El Paso, Texas
Houston, Texas
Lubbock, Texas
McKinney, Texas
San Antonio, Texas
Sulphur Springs, Texas (2)
Waco, Texas
Orem, Utah
Salt Lake City, Utah
Portsmouth, Virginia
Springfield, Virginia
Richland Center, Wisconsin
Sheboygan, Wisconsin
Each of the Dairy Groups manufacturing facilities also
serves as a distribution facility. In addition, our Dairy Group
has numerous distribution branches located across the country,
some of which are owned but most of which are leased. The Dairy
Groups headquarters are located in Dallas, Texas in leased
premises.
WhiteWave
Foods Company
WhiteWave Foods Company currently conducts its manufacturing
operations from the following seven facilities, all but one
of which is owned:
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City of Industry, California
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Boulder, Colorado
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Jacksonville, Florida
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Bridgeton, New Jersey
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Cedar City, Utah
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Mt. Crawford, Virginia
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Aberystwyth, United Kingdom
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WhiteWave Foods Company also owns two organic dairy farms
located in Paul, Idaho and Kennedyville, Maryland and leases an
organic dairy farm in Portales, New Mexico.
WhiteWave Foods Companys headquarters are located in
leased premises in Broomfield, Colorado.
Corporate
Our corporate headquarters are located in leased premises at
2515 McKinney Avenue, Suite 1200, Dallas, Texas 75201.
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Item 3.
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Legal
Proceedings
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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.
Two shareholder derivative complaints were filed in July and
October 2006 in the district court of Dallas County, Texas,
which allege stock option backdating. The complaints name
certain current and former members of the Board of Directors and
certain current and former members of management. In response to
the litigation, a special litigation committee of our Board of
Directors was established in August 2006. The Committee has
conducted its own independent review of our stock option grants
and the allegations made in the complaints. The committee
consists of independent board members not named in the
litigation. This Committee has determined that there were no
fraudulent acts by management.
The staff of the Securities and Exchange Commission (the
SEC) is conducting an informal inquiry into our
stock option practices. We are cooperating fully with the
SECs inquiry.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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No matter was submitted by us during the fourth quarter of 2006
to a vote of security holders, through the solicitation of
proxies or otherwise.
16
PART II
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Item 5.
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Market
for Our Common Stock, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
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Our common stock began trading on the NASDAQ National Market on
April 17, 1996, and continued trading on the NASDAQ until
March 5, 1997, when it began trading on the New York Stock
Exchange under the symbol SZA. We changed our
trading symbol to DF effective December 24,
2001. The following table sets forth the high and low sales
prices of our common stock as quoted on the New York Stock
Exchange for the last two fiscal years. At February 23,
2007, there were approximately 4,854 record holders of our
common stock.
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High
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Low
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2005:
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First Quarter
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$
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35.60
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$
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31.74
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Second Quarter
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41.07
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33.87
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Third Quarter
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38.86
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34.80
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Fourth Quarter
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39.45
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34.45
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2006:
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First Quarter
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39.69
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37.02
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Second Quarter
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39.79
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34.70
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Third Quarter
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42.81
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35.97
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Fourth Quarter
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43.51
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39.36
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2007:
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|
|
|
|
First Quarter (through
February 23, 2007)
|
|
|
46.22
|
|
|
|
41.26
|
|
On June 27, 2005, we declared a stock dividend related to
the Spin-off of TreeHouse Foods, which decreased our stock
price. No adjustment has been made to the historical stock
prices related to the impact of the stock dividend.
We have not historically declared or paid a cash dividend on our
common stock. See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital
Resources Current Debt Obligations and
Note 9 to our Consolidated Financial Statements for further
information regarding the terms of our senior credit facility.
17
A summary of the increases in our stock repurchase program, as
authorized by our Board of Directors, is shown below.
|
|
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
Cumulative
|
|
|
|
Increase in Stock
|
|
|
Authorized Stock
|
|
Date of Authorization
|
|
Repurchase Program
|
|
|
Repurchase Program
|
|
|
|
(In millions)
|
|
|
September 15, 1998
|
|
$
|
100
|
|
|
$
|
100
|
|
September 28, 1999
|
|
|
100
|
|
|
|
200
|
|
November 17, 1999
|
|
|
100
|
|
|
|
300
|
|
May 19, 2000
|
|
|
100
|
|
|
|
400
|
|
November 2, 2000
|
|
|
100
|
|
|
|
500
|
|
January 8, 2003
|
|
|
150
|
|
|
|
650
|
|
February 12, 2003
|
|
|
150
|
|
|
|
800
|
|
September 7, 2004
|
|
|
200
|
|
|
|
1,000
|
|
November 2, 2004
|
|
|
100
|
|
|
|
1,100
|
|
August 10, 2005
|
|
|
300
|
|
|
|
1,400
|
|
November 2, 2005
|
|
|
300
|
|
|
|
1,700
|
|
May 3, 2006
|
|
|
300
|
|
|
|
2,000
|
|
November 29, 2006
|
|
|
300
|
|
|
|
2,300
|
|
The following table summarizes the repurchase of our common
stock during 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number
|
|
|
|
|
|
|
|
|
|
|
|
|
(or Approximate
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Dollar Value) of
|
|
|
|
|
|
|
|
|
|
Shares (or Units)
|
|
|
Shares (or Units)
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
|
that May Yet
|
|
|
|
Total Number of
|
|
|
Average
|
|
|
Part of Publicly
|
|
|
be Purchased
|
|
|
|
Shares (or Units)
|
|
|
Price Paid
|
|
|
Announced Plans
|
|
|
Under the Plans
|
|
Period(1)
|
|
Purchased
|
|
|
Per Share(2)
|
|
|
or Programs
|
|
|
or Programs(3)
|
|
|
February 2006
|
|
|
400,000
|
|
|
$
|
38.37
|
|
|
|
70,382,766
|
|
|
$
|
3.2 million
|
|
May 2006
|
|
|
2,050,800
|
|
|
|
36.25
|
|
|
|
72,433,566
|
|
|
|
228.8 million
|
|
June 2006
|
|
|
1,286,400
|
|
|
|
35.69
|
|
|
|
73,719,966
|
|
|
|
182.9 million
|
|
October 2006
|
|
|
716,100
|
|
|
|
41.63
|
|
|
|
74,436,066
|
|
|
|
153.1 million
|
|
November 2006
|
|
|
3,493,600
|
|
|
|
41.53
|
|
|
|
77,929,666
|
|
|
|
308.0 million
|
|
December 2006
|
|
|
2,075,300
|
|
|
|
43.06
|
|
|
|
80,004,966
|
|
|
|
218.7 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,022,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Repurchases during 2006 were made only in the months listed. |
|
(2) |
|
Excludes fees and commissions paid on stock repurchases. |
|
(3) |
|
Amount represents maximum amount authorized for share
repurchases. At December 31, 2006, approximately
$218.7 million remained available pursuant to the stock
repurchase program approved by our Board of Directors on
November 29, 2006, which allowed for the repurchase of an
additional $300 million in stock beyond amounts previously
authorized. The amount can be increased by actions of our Board
of Directors. |
18
|
|
Item 6.
|
Selected
Financial Data
|
The following selected financial data as of and for each of the
five years in the period ended December 31, 2006 has been
derived from our audited Consolidated Financial Statements.
Balances for 2002 through 2006 have been adjusted to remove our
Leche Celta operations which have been reclassified as
discontinued operations. The selected financial data do not
purport to indicate results of operations as of any future date
or for any future period. The selected financial data should be
read in conjunction with our Consolidated Financial Statements
and related Notes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(Dollars in thousands except share data)
|
|
|
Operating data(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
10,098,555
|
|
|
$
|
10,174,718
|
|
|
$
|
9,725,548
|
|
|
$
|
8,146,103
|
|
|
$
|
8,002,677
|
|
Cost of sales(2)
|
|
|
7,358,676
|
|
|
|
7,591,548
|
|
|
|
7,338,138
|
|
|
|
5,985,527
|
|
|
|
5,895,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,739,879
|
|
|
|
2,583,170
|
|
|
|
2,387,410
|
|
|
|
2,160,576
|
|
|
|
2,107,032
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and distribution(2)
|
|
|
1,648,860
|
|
|
|
1,581,028
|
|
|
|
1,472,112
|
|
|
|
1,309,498
|
|
|
|
1,262,492
|
|
General and administrative
|
|
|
409,225
|
|
|
|
380,490
|
|
|
|
355,772
|
|
|
|
330,751
|
|
|
|
343,355
|
|
Amortization of intangibles
|
|
|
5,983
|
|
|
|
6,106
|
|
|
|
5,105
|
|
|
|
3,576
|
|
|
|
6,229
|
|
Facility closing and reorganization
costs
|
|
|
25,116
|
|
|
|
35,451
|
|
|
|
24,575
|
|
|
|
11,787
|
|
|
|
19,050
|
|
Other operating income(3)
|
|
|
|
|
|
|
|
|
|
|
(5,899
|
)
|
|
|
(68,719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
2,089,184
|
|
|
|
2,003,075
|
|
|
|
1,851,665
|
|
|
|
1,586,893
|
|
|
|
1,631,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
650,695
|
|
|
|
580,095
|
|
|
|
535,745
|
|
|
|
573,683
|
|
|
|
475,906
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense(4)
|
|
|
194,547
|
|
|
|
160,230
|
|
|
|
191,788
|
|
|
|
166,897
|
|
|
|
181,795
|
|
Financing charges on trust issued
preferred securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,164
|
|
|
|
33,578
|
|
Equity in (earnings) losses of
unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(244
|
)
|
|
|
7,899
|
|
Other (income) expense, net
|
|
|
435
|
|
|
|
(683
|
)
|
|
|
(722
|
)
|
|
|
(2,708
|
)
|
|
|
2,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
194,982
|
|
|
|
159,547
|
|
|
|
191,066
|
|
|
|
178,109
|
|
|
|
226,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes
|
|
|
455,713
|
|
|
|
420,548
|
|
|
|
344,679
|
|
|
|
395,574
|
|
|
|
249,681
|
|
Income taxes
|
|
|
175,450
|
|
|
|
163,898
|
|
|
|
138,472
|
|
|
|
159,386
|
|
|
|
94,623
|
|
Minority interest in earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
280,263
|
|
|
|
256,650
|
|
|
|
206,207
|
|
|
|
236,188
|
|
|
|
155,028
|
|
Gain (loss) on sale of discontinued
operations, net of tax
|
|
|
(1,978
|
)
|
|
|
38,763
|
|
|
|
|
|
|
|
|
|
|
|
(8,231
|
)
|
Income (loss) from discontinued
operations, net of tax
|
|
|
(52,871
|
)
|
|
|
14,793
|
|
|
|
47,514
|
|
|
|
85,297
|
|
|
|
58,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of
accounting change
|
|
|
225,414
|
|
|
|
310,206
|
|
|
|
253,721
|
|
|
|
321,485
|
|
|
|
205,685
|
|
Cumulative effect of accounting
change, net of tax(5)
|
|
|
|
|
|
|
(1,552
|
)
|
|
|
|
|
|
|
|
|
|
|
(61,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
225,414
|
|
|
$
|
308,654
|
|
|
$
|
253,721
|
|
|
$
|
321,485
|
|
|
$
|
144,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.09
|
|
|
$
|
1.75
|
|
|
$
|
1.33
|
|
|
$
|
1.63
|
|
|
$
|
1.15
|
|
Income (loss) from discontinued
operations
|
|
|
(0.41
|
)
|
|
|
0.36
|
|
|
|
0.31
|
|
|
|
0.58
|
|
|
|
0.39
|
|
Cumulative effect of accounting
change
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.68
|
|
|
$
|
2.10
|
|
|
$
|
1.64
|
|
|
$
|
2.21
|
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.01
|
|
|
$
|
1.67
|
|
|
$
|
1.28
|
|
|
$
|
1.53
|
|
|
$
|
1.08
|
|
Income (loss) from discontinued
operations
|
|
|
(0.40
|
)
|
|
|
0.35
|
|
|
|
0.30
|
|
|
|
0.53
|
|
|
|
0.31
|
|
Cumulative effect of accounting
change
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.61
|
|
|
$
|
2.01
|
|
|
$
|
1.58
|
|
|
$
|
2.06
|
|
|
$
|
1.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
133,938,777
|
|
|
|
146,673,322
|
|
|
|
154,635,979
|
|
|
|
145,201,412
|
|
|
|
135,031,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
139,762,104
|
|
|
|
153,438,636
|
|
|
|
160,704,576
|
|
|
|
160,695,670
|
|
|
|
163,163,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed
charges(6)
|
|
|
2.87
|
x
|
|
|
3.01
|
x
|
|
|
2.69
|
x
|
|
|
2.89
|
x
|
|
|
2.16
|
x
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(Dollars in thousands except share data)
|
|
|
Balance sheet data (at end of
period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,770,173
|
|
|
$
|
7,050,884
|
|
|
$
|
7,756,368
|
|
|
$
|
6,992,536
|
|
|
$
|
6,582,265
|
|
Long-term debt(7)
|
|
|
3,355,851
|
|
|
|
3,386,848
|
|
|
|
3,214,269
|
|
|
|
2,777,928
|
|
|
|
2,674,122
|
|
Other long-term liabilities
|
|
|
238,682
|
|
|
|
225,479
|
|
|
|
321,252
|
|
|
|
256,371
|
|
|
|
287,567
|
|
Mandatorily redeemable convertible
trust issued preferred securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
585,177
|
|
Total stockholders equity(8)
|
|
|
1,809,399
|
|
|
|
1,902,213
|
|
|
|
2,692,985
|
|
|
|
2,567,390
|
|
|
|
1,665,512
|
|
|
|
|
(1) |
|
On January 1, 2006, we adopted Statement of Financial
Accounting Standards (SFAS) No. 123(R),
Share-Based Payment, which requires, among its
provisions, that compensation expense for equity awards be
recognized over the vesting period based on their grant date
fair values. In order to enhance comparability among all periods
presented, we elected to adopt SFAS No. 123(R) using
the modified retrospective approach. Under this transition
method, the results for prior periods reflect the recognition of
the compensation expense and related income tax benefit
historically disclosed in our financial statements. For
financial reporting purposes, share-based compensation expense
is included within the same financial statement caption where
the recipients cash compensation is reported. As a result
of adopting SFAS No. 123(R) using the modified
retrospective approach, our net income was reduced by
$18.9 million, $31.7 million, $34.2 million and
$31.2 million in 2005, 2004, 2003 and 2002, respectively. |
|
(2) |
|
In 2006, we reclassified the presentation of expense recognition
for reusable packaging utilized in the distribution of our
products from cost of sales to distribution expense. The
reclassification reduced cost of sales and increased
distribution expense by $42.0 million, $36.2 million,
$27.5 million and $22.1 million in 2005, 2004, 2003
and 2002, respectively. The reclassification had no impact on
net income. |
|
(3) |
|
Results for 2004 include a gain of $5.9 million primarily
related to the settlement of litigation. Results for 2003
include a gain of $66.2 million on the sale of our frozen
pre-whipped topping and frozen creamer operations and a gain of
$2.5 million related to the divestiture of 11 facilities in
2001 in connection with our acquisition of Dean Holding Company. |
|
(4) |
|
Results for 2004 include a charge of $32.6 million to
write-off deferred financing costs related to the refinancing of
our senior credit facility. |
|
(5) |
|
In the fourth quarter of 2005, we adopted Financial Accounting
Standards Board (FASB) Interpretation No.
(FIN) 47 Accounting for Conditional Asset
Retirement Obligations. If FIN 47 had always been in
effect, we would have expensed this amount for depreciation in
periods prior to January 1, 2005. |
|
(6) |
|
For purposes of calculating the ratio of earnings to fixed
charges, earnings represents income before income
taxes plus fixed charges. Fixed charges consist of
interest on all debt, amortization of deferred financing costs
and the portion of rental expense that we believe is
representative of the interest component of rent expense. |
|
(7) |
|
Includes the current portion of long-term debt. |
|
(8) |
|
The balance at December 31, 2006 reflects a
$14.8 million reduction related to the adoption of
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement
Plans an Amendment of FASB Statements No. 87,
88, 106, and 132(R). The reduction had no impact on net
income. |
20
|
|
Item 7.
|
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 private labels. Our WhiteWave
Foods Company develops, manufactures, markets and sells a
variety of nationally branded soy, dairy and dairy-related
products such as
Silk®
soymilk and cultured soy products, Horizon
Organic®
dairy products, International
Delight®
coffee creamers, LAND
OLAKES®
creamers and fluid dairy products and Rachels
Organic®
dairy products.
Dairy Group Our Dairy Group segment is our
largest segment, with approximately 87% of our consolidated net
sales in 2006. 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. 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. The Dairy Group sells its products
primarily on a local or regional basis through its local and
regional sales forces, although some national customer
relationships are coordinated by the Dairy Groups
corporate sales department. Most of the Dairy Groups
customers, including its largest customer, purchase products
from the Dairy Group either by purchase order or pursuant to
contracts that are generally terminable at will by the customer.
The dairy industry is a mature industry that has traditionally
been characterized by slow to flat growth, low profit margins,
fragmentation and excess capacity. Excess capacity resulted from
the development of more efficient manufacturing techniques, the
establishment of captive dairy manufacturing operations by some
grocery retailers and declining demand for fluid milk products.
From 1990 through 2001, the dairy industry experienced
significant consolidation, led by us. Consolidation has resulted
in lower operating costs, less excess capacity and greater
efficiency. According to the United States Department of
Agriculture (USDA), per capita consumption of fluid
milk and cream decreased by over 10% from 1990 to the end of
2005, although total consumption has remained relatively flat
over the same period due to population increases. Therefore,
volume sales growth across the industry generally remains flat
to modest, profit margins generally remain low and excess
manufacturing capacity continues to exist. In this environment,
price competition is particularly intense, as smaller processors
struggle to retain enough volume to cover their fixed costs. In
response to this dynamic and significant competitive pressure
caused by the ongoing consolidation among food retailers, many
processors, including us, are now placing an increased emphasis
on product differentiation, and cost reduction in an effort to
increase consumption, sales and margins.
Our Dairy Group has several competitors in each of our major
product and geographic markets. Competition between dairy
processors for shelf-space with retailers is based primarily on
price, service and quality, while competition for consumer sales
is based on a variety of factors such as brand recognition,
price, taste preference and quality. Dairy products also compete
with many other beverages and nutritional products for consumer
sales.
WhiteWave Foods Company WhiteWave Foods
Company develops, manufactures, markets and sells a variety of
nationally branded soy, dairy and dairy-related products such as
Silk soymilk and cultured soy products, Horizon
Organic dairy products, International Delight coffee
creamers, LAND OLAKES creamers and fluid dairy
products and Rachels Organic dairy products.
WhiteWave Foods Company also sells The Organic
Cow®
organic dairy products, White
Wave®
and Tofu
Town®
branded tofu and
Hersheys®
milks and milkshakes. We license the LAND OLAKES
and Hersheys names from third parties.
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 Company sells its products through its
internal sales force and through independent brokers. Most of
the WhiteWave Foods Companys customers, including its
largest customer, purchase products from WhiteWave Foods Company
either by purchase order or pursuant to contracts that are
generally terminable at will by the customer.
WhiteWave Foods Company has several competitors in each of its
product markets. Competition to obtain shelf-space with
retailers for a particular product is based primarily on the
expected or historical sales performance
21
of the product compared to its competitors. In some cases,
WhiteWave Foods Company pays fees to retailers to obtain
shelf-space for a particular product. Competition for consumer
sales is based on many factors, including brand recognition,
price, taste preferences and quality. Consumer demand for soy
and organic foods has grown rapidly in recent years due to
growing consumer confidence in the health benefits of soy and
organic foods, and WhiteWave Foods Company has a leading
position in the soy and organic foods category. However, our soy
and organic food products compete with many other beverages and
nutritional products for consumer sales.
Recent
Developments
Discontinued
Operations
Our former Iberian operations included the manufacture and
distribution of private label and branded milk across Spain and
Portugal. We entered the Iberian market in February 2000 prior
to the merger of Suiza Foods Corporation and Dean Foods Company,
which occurred in December 2001, when we believed that
opportunities for domestic expansion appeared limited. With the
emergence of the WhiteWave Foods Company platform and additional
growth opportunities within our domestic Dairy Group, our
primary focus has been on our domestic operations. Accordingly,
with the change in our strategic focus, we concluded that there
are other organizations that may be better positioned to take
advantage of the Iberian market. In the second quarter of 2006,
we committed to a plan to sell our Iberian operations with the
expectation that such sale could be completed within one year.
At that time, we recognized a non-cash impairment charge of
$46.4 million, net of an income tax benefit of
$8.1 million, representing our best estimate as of
June 30, 2006 of the impairment required based on our
expected proceeds upon sale of the Iberian operations.
On September 14, 2006, we completed the sale of our
operations in Spain for net cash proceeds of approximately
$96.0 million. In addition to customary indemnifications of
the purchaser of the business, we retained contingent
obligations related to regulatory compliance, including an
obligation to pay the purchaser a maximum of 15 million
euros (approximately $19.8 million as of December 31,
2006) if certain regulatory approvals are not received with
respect to a specific facility. A loss on the sale of our
operations in Spain of $6.8 million (net of tax) was
recognized during 2006.
In connection with the sale of our operations in Spain, we
entered into an agreement to sell our Portuguese operations
(that comprised the remainder of our Iberian operations) for
approximately $11.4 million subject to regulatory approvals
and working capital settlements. We completed the sale of our
Portuguese operations in January 2007. No significant loss is
expected on the sale.
The Iberian operations have been reclassified as discontinued
operations for all periods presented.
Acquisitions
In February 2007, our Dairy Group entered into an agreement to
acquire Friendship Dairies, Inc., a manufacturer, marketer and
distributor of cultured dairy products primarily in the
northeastern United States. This transaction will expand our
cultured dairy product capabilities and add a strong regional
brand. The purchase price will be approximately
$130 million, including the costs of the acquisition. We
expect to complete the transaction by the second quarter of
2007, subject to regulatory approval.
Management
Changes
On April 27, 2006, we announced Jack F. Callahan Jr. as our
Executive Vice President and Chief Financial Officer. He began
his employment in May 2006. Previously, Mr. Callahan served
as Senior Vice President of Corporate Strategy and Development
at PepsiCo, where he oversaw all corporate strategy and merger
and acquisition activity.
On November 21, 2006, we announced Harrald Kroeker as our
Senior Vice President and Chief Operating Officer, Dairy Group.
Previously, Mr. Kroeker served in multiple executive
capacities at Pepsi Bottling Group most recently as
Vice President and General Manager, Great West Business Unit.
22
On December 12, 2006, we announced Bradley J. Holcomb as
our Senior Vice President and Chief Procurement Officer, Dairy
Group. Previously, Mr. Holcomb served as Senior Vice
President of Global Materials and Supply at Royal Group
Technologies Limited.
On February 22, 2007, we announced Blaine E. McPeak as our
President, Horizon Organic. Previously, Mr. McPeak served
as President of Kellogg Companys Wholesome Portable
Breakfast and Snacks division.
Stock
Repurchases
Between February 1 and December 31, 2006, we spent
approximately $399.9 million to repurchase
10.0 million shares of our common stock for an average
price of $39.90 per share, excluding commissions and fees.
On May 3, 2006, and again on November 29, 2006 our
Board of Directors authorized increases in our stock repurchase
program in the aggregate amount of $600 million. At
February 23, 2007, approximately $218.7 million
remained available under our stock repurchase authorization.
Facility
Closing and Reorganization Activities
In 2006, we recorded a charge of $25.1 million as part of
our ongoing costs savings initiative. We recorded a charge of
$23.0 million related to our Dairy Group operations for the
closing of three Dairy Group facilities and other previously
announced plans. We also recorded a charge of $2.1 million
related to the previously announced reorganization of WhiteWave
Foods Company. We expect to incur additional charges related to
all of these restructuring plans of approximately
$15.4 million, primarily in 2007. A significant portion of
the 2007 charges relate to the realignment of our Dairy
Groups finance and accounting organization. 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; 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.
|
Dean
Foods Company Senior Notes
On May 17, 2006, we issued $500 million aggregate
principal amount of 7.0% senior unsecured notes. The senior
unsecured notes mature on June 1, 2016 and interest is
payable on June 1 and December 1 of each year,
beginning December 1, 2006. The indenture under which we
issued the senior unsecured notes does not contain financial
covenants but does contain covenants that, among other things,
limit our ability to incur secured indebtedness, enter into
sale-leaseback transactions and engage in mergers,
consolidations and sales of all or substantially all of our
assets. The notes are senior unsecured obligations and are
effectively subordinated to the indebtedness outstanding under
our senior credit facility and any other secured debt we may
incur. The notes are fully and unconditionally guaranteed by the
subsidiaries that are guarantors under our senior credit
facility, which are substantially all of our wholly owned
U.S. subsidiaries other than our receivables securitization
subsidiaries. We used all of the net proceeds from the sale of
the notes to reduce a corresponding amount of borrowings under
our senior credit facility.
23
Results
of Operations
The following table presents certain information concerning our
financial results, including information presented as a
percentage of net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
Dollars
|
|
|
Percent
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
10,098.6
|
|
|
|
100.0
|
%
|
|
$
|
10,174.7
|
|
|
|
100.0
|
%
|
|
$
|
9,725.5
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
7,358.7
|
|
|
|
72.9
|
|
|
|
7,591.5
|
|
|
|
74.6
|
|
|
|
7,338.1
|
|
|
|
75.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,739.9
|
|
|
|
27.1
|
|
|
|
2,583.2
|
|
|
|
25.4
|
|
|
|
2,387.4
|
|
|
|
24.5
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and distribution
|
|
|
1,648.9
|
|
|
|
16.3
|
|
|
|
1,581.0
|
|
|
|
15.5
|
|
|
|
1,472.1
|
|
|
|
15.1
|
|
General and administrative
|
|
|
409.2
|
|
|
|
4.1
|
|
|
|
380.5
|
|
|
|
3.7
|
|
|
|
355.8
|
|
|
|
3.7
|
|
Amortization of intangibles
|
|
|
6.0
|
|
|
|
0.1
|
|
|
|
6.1
|
|
|
|
0.1
|
|
|
|
5.1
|
|
|
|
0.1
|
|
Facility closing and
reorganization costs
|
|
|
25.1
|
|
|
|
0.2
|
|
|
|
35.5
|
|
|
|
0.4
|
|
|
|
24.6
|
|
|
|
0.2
|
|
Other operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.9
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
2,089.2
|
|
|
|
20.7
|
|
|
|
2,003.1
|
|
|
|
19.7
|
|
|
|
1,851.7
|
|
|
|
19.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
650.7
|
|
|
|
6.4
|
%
|
|
$
|
580.1
|
|
|
|
5.7
|
%
|
|
$
|
535.7
|
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2006 Compared to Year Ended
December 31, 2005 Consolidated
Results
Net Sales Consolidated net sales decreased
approximately 0.7% to $10.10 billion during 2006 from
$10.17 billion in 2005. Net sales by segment are shown in
the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
$ Increase/
|
|
|
% Increase/
|
|
|
|
2006
|
|
|
2005
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
(Dollars in millions)
|
|
|
Dairy Group
|
|
$
|
8,821.0
|
|
|
$
|
8,973.4
|
|
|
$
|
(152.4
|
)
|
|
|
(1.7
|
)%
|
WhiteWave Foods Company
|
|
|
1,277.6
|
|
|
|
1,201.3
|
|
|
|
76.3
|
|
|
|
6.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,098.6
|
|
|
$
|
10,174.7
|
|
|
$
|
(76.1
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in net sales was due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Net Sales 2006 vs. 2005
|
|
|
|
|
|
|
Pricing, Volume
|
|
|
Total
|
|
|
|
|
|
|
and Product
|
|
|
Increase/
|
|
|
|
Acquisitions
|
|
|
Mix Changes
|
|
|
(Decrease)
|
|
|
|
(In millions)
|
|
|
Dairy Group
|
|
$
|
8.0
|
|
|
$
|
(160.4
|
)
|
|
$
|
(152.4
|
)
|
WhiteWave Foods Company
|
|
|
|
|
|
|
76.3
|
|
|
|
76.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8.0
|
|
|
$
|
(84.1
|
)
|
|
$
|
(76.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales decreased approximately $76.1 million during 2006
compared to the prior year primarily due to lower raw milk costs
in our Dairy Group, partly offset by volume growth at the Dairy
Group and WhiteWave Foods Company and increased pricing at
WhiteWave Foods Company.
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 our finished
products from our manufacturing facilities to our own
distribution facilities. Cost of sales decreased by
24
approximately 3.1% to $7.36 billion in 2006 from
$7.59 billion in 2005 primarily due to lower raw milk costs
in our Dairy Group, partly offset by increased volumes at the
Dairy Group and WhiteWave Foods Company and higher commodity
costs at WhiteWave Foods Company. Our cost of sales as a
percentage of net sales decreased to 72.9% in 2006 compared to
74.6% in 2005 primarily due to the impact of lower raw milk
prices and higher volumes.
Operating Costs and Expenses Our operating
expenses increased approximately $86.1 million, or
approximately 4.3%, during 2006 versus the prior year.
Significant changes to operating expenses include the following:
|
|
|
|
|
Distribution costs increased approximately $60.1 million
due to increased volumes and higher fuel costs partly offset by
distribution efficiencies at WhiteWave Foods Company;
|
|
|
|
General and administrative expenses at our Dairy Group were
approximately $24.2 million higher than last year,
primarily due to higher information technology spending and
higher salaries and benefits;
|
|
|
|
Marketing costs increased approximately $10.2 million due
to higher spending at WhiteWave Foods Company and our Dairy
Group;
|
|
|
|
Bad debt expense decreased $10.6 million compared to 2005.
The expense in 2005 was higher due to the impact of Hurricane
Katrina and the write-off of a receivable from a large customer;
and
|
|
|
|
Net facility closing and reorganization costs that were
approximately $10.3 million lower than 2005. See
Note 15 to our Consolidated Financial Statements for
further information on our facility closing and reorganization
activities.
|
Our operating expense as a percentage of net sales increased to
20.7% for 2006 as compared to 19.7% for 2005, partly due to
lower net sales resulting from lower raw milk costs.
Operating Income For the reasons noted above,
operating income was $650.7 million in 2006, an increase of
$70.6 million from 2005 operating income of
$580.1 million. Our operating margin was 6.4% in 2006
compared to 5.7% in 2005.
Other (Income) Expense Interest expense
increased to $194.5 million in 2006 from
$160.2 million in 2005 primarily due to higher interest
rates, including higher interest rates on our $500 million
aggregate principal amount of senior notes issued on
May 17, 2006, and higher average debt outstanding.
Income Taxes Income tax expense was recorded
at an effective rate of 38.5% in 2006 compared to 39.0% in 2005.
Our effective tax rate varies based on the relative earnings of
our business units. In 2006, our income tax rate was positively
impacted by the settlement of certain state and federal tax
matters.
Year
Ended December 31, 2006 Compared to Year Ended
December 31, 2005 Results by
Segment
Dairy
Group
The key performance indicators of our Dairy Group segment are
sales volumes, gross profit and operating income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
8,821.0
|
|
|
|
100.0
|
%
|
|
$
|
8,973.4
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
6,529.3
|
|
|
|
74.0
|
|
|
|
6,809.5
|
|
|
|
75.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,291.7
|
|
|
|
26.0
|
|
|
|
2,163.9
|
|
|
|
24.1
|
|
Operating costs and expenses
|
|
|
1,613.7
|
|
|
|
18.3
|
|
|
|
1,521.9
|
|
|
|
16.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
678.0
|
|
|
|
7.7
|
%
|
|
$
|
642.0
|
|
|
|
7.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Our Dairy Groups net sales decreased approximately
$152.4 million, or 1.7%, in 2006 versus 2005. The change in
net sales from 2005 to 2006 was due to the following:
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
2005 Net sales
|
|
$
|
8,973.4
|
|
|
|
|
|
Acquisitions
|
|
|
8.0
|
|
|
|
0.1
|
%
|
Volume
|
|
|
133.0
|
|
|
|
1.5
|
|
Pricing and product mix
|
|
|
(293.4
|
)
|
|
|
(3.3
|
)
|
|
|
|
|
|
|
|
|
|
2006 Net sales
|
|
$
|
8,821.0
|
|
|
|
(1.7
|
)%
|
|
|
|
|
|
|
|
|
|
The decrease in the Dairy Groups net sales was due to
lower raw milk costs, partly offset by increased volumes.
The decrease in the Dairy Groups net sales due to pricing
and product mix shown in the above table primarily resulted from
decreased pricing due to the pass through of lower raw milk
costs in 2006. In general, our Dairy Group changes the prices it
charges customers for fluid dairy products on a monthly basis,
as the costs of raw materials and other variable costs
fluctuate. Because of competitive pressures, the price increases
do not always reflect the entire increase in raw material and
other input costs that we may experience. The following table
sets forth the average monthly Class I mover
and average monthly Class II minimum prices for raw skim
milk and butterfat for 2006 compared to 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31*
|
|
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
|
Class I raw skim milk
mover(1),(2)
|
|
$
|
7.47
|
|
|
$
|
8.54
|
|
|
|
(13
|
)%
|
Class I butterfat mover(1),(3)
|
|
|
1.34
|
|
|
|
1.76
|
|
|
|
(24
|
)
|
Class II raw skim milk
minimum(2),(4)
|
|
|
7.35
|
|
|
|
7.74
|
|
|
|
(5
|
)
|
Class II butterfat
minimum(3),(4)
|
|
|
1.33
|
|
|
|
1.72
|
|
|
|
(23
|
)
|
|
|
|
* |
|
The prices noted in this table are not the prices that we
actually pay. The minimum prices applicable at any given
location for Class I raw skim milk or Class I
butterfat are based on the Class I mover plus a location
differential. Class II prices noted in the table are
federal minimum prices, applicable at all locations. Our actual
cost also includes producer premiums, procurement costs and
other related charges that vary by location and vendor. Please
see Part I Item 1.
Business Government Regulation Milk
Industry Regulation and Known Trends and
Uncertainties Prices of Materials and Other
Inputs for a more complete description of raw milk pricing. |
|
(1) |
|
We process Class I raw skim milk and butterfat into fluid
milk products. |
|
(2) |
|
Prices are per hundredweight. |
|
(3) |
|
Prices are per pound. |
|
(4) |
|
We process Class II raw skim milk and butterfat into
products such as cottage cheese, creams and creamers, ice cream
and sour cream. |
Volume sales of all Dairy Group products, excluding the impact
of acquisitions, increased 1.5% in 2006 compared to 2005. Volume
sales of fresh milk, which were approximately 69% of the Dairy
Groups 2006 volumes, were up approximately 1.9% for the
year compared to USDA data showing a 1.0% increase in total
consumption of milk in the U.S. during the year.
Our Dairy Group acquired Jilbert Dairy in July 2006, which we
estimate contributed an additional $8.0 million in net
sales during 2006.
Our Dairy Groups cost of sales decreased to
$6.53 billion in 2006 compared to $6.81 billion in
2005 primarily due to lower raw milk costs, partly offset by
increased volumes. The Dairy Groups cost of sales as a
percentage of net sales decreased to 74.0% in 2006 compared to
75.9% in 2005 primarily due to the impact of lower raw milk
costs and higher volumes.
26
Our Dairy Groups operating expenses increased
approximately $91.8 million during 2006 compared to 2005
primarily due to: (1) higher distribution costs of
$64.2 million, approximately $15 million of which was
due to increased fuel prices and the remaining increase was due
to increased volumes, higher salaries and benefits and higher
repairs and maintenance costs; (2) higher general and
administrative costs of $24.2 million due to higher
information technology spending and higher compensation costs
and (3) higher marketing costs of $4.1 million.
Increases in selling costs were more than offset by lower bad
debt expense of $8.1 million compared to 2005 due to higher
bad debt expense in 2005 related to the impact of Hurricane
Katrina and the write-off of a receivable from a large customer.
Our Dairy Groups operating expense as a percentage of net
sales increased to 18.3% in 2006 from 16.9% in 2005.
WhiteWave
Foods Company
The key performance indicators of WhiteWave Foods Company are
net sales dollars, gross profit and operating income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
1,277.6
|
|
|
|
100.0
|
%
|
|
$
|
1,201.3
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
828.2
|
|
|
|
64.8
|
|
|
|
780.4
|
|
|
|
65.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
449.4
|
|
|
|
35.2
|
|
|
|
420.9
|
|
|
|
35.0
|
|
Operating costs and expenses
|
|
|
310.0
|
|
|
|
24.3
|
|
|
|
306.0
|
|
|
|
25.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
139.4
|
|
|
|
10.9
|
%
|
|
$
|
114.9
|
|
|
|
9.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WhiteWave Foods Companys net sales increased by
approximately $76.3 million, or 6.4%, in 2006 versus 2005.
The change in net sales from 2005 to 2006 was due to the
following:
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
2005 Net sales
|
|
$
|
1,201.3
|
|
|
|
|
|
Volume
|
|
|
24.6
|
|
|
|
2.1
|
%
|
Pricing and product mix
|
|
|
51.7
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
2006 Net sales
|
|
$
|
1,277.6
|
|
|
|
6.4
|
%
|
|
|
|
|
|
|
|
|
|
The increase in WhiteWave Foods Companys net sales was
largely due to higher pricing. The two primary drivers of this
increase were (1) increased selling prices in response to
increased commodity costs and (2) a decline in slotting
fees, couponing and certain other promotional costs that are
required to be recorded as reductions of net sales.
Volume growth in our Silk, Horizon Organic, International
Delight, LAND OLAKES and Rachels Organic brands
was partly offset by the elimination of certain product
offerings in late 2005 and early 2006. We believe increased
Horizon Organic and Silk volumes were due
primarily to increased consumer acceptance and increased
marketing efforts.
Cost of sales for WhiteWave Foods Company increased to
$828.2 million in 2006 from $780.4 million in 2005
primarily due to the impact of higher raw material costs,
particularly organic raw milk and sugar, which increased cost of
sales by approximately $41 million and increased volumes.
The cost of sales as a percentage of net sales declined to 64.8%
in 2006 from 65.0% in 2005 due to increased selling prices and
improved product mix, principally driven by the product
rationalization in 2006.
Operating expenses increased approximately $4.0 million in
2006 compared to the prior year primarily due to higher
marketing spending of $6.1 million, higher fuel costs of
$3.5 million and SAP related costs of $2.9 million,
partly offset by increased distribution efficiencies.
27
Year
Ended December 31, 2005 Compared to Year Ended
December 31, 2004 Consolidated
Results
Net Sales Consolidated net sales increased
approximately 4.6% to $10.17 billion during 2005 from
$9.73 billion in 2004. Net sales by segment are shown in
the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
|
2005
|
|
|
2004
|
|
|
$ Increase
|
|
|
% Increase
|
|
|
|
(Dollars in millions)
|
|
|
Dairy Group
|
|
$
|
8,973.4
|
|
|
$
|
8,683.1
|
|
|
$
|
290.3
|
|
|
|
3.3
|
%
|
WhiteWave Foods Company
|
|
|
1,201.3
|
|
|
|
1,042.4
|
|
|
|
158.9
|
|
|
|
15.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,174.7
|
|
|
$
|
9,725.5
|
|
|
$
|
449.2
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in net sales was due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Net Sales 2005 vs. 2004
|
|
|
|
|
|
|
Pricing, Volume
|
|
|
|
|
|
|
|
|
|
and Product
|
|
|
Total
|
|
|
|
Acquisitions
|
|
|
Mix Changes
|
|
|
Increase
|
|
|
|
(Dollars in millions)
|
|
|
Dairy Group
|
|
$
|
35.4
|
|
|
$
|
254.9
|
|
|
$
|
290.3
|
|
WhiteWave Foods Company
|
|
|
9.2
|
|
|
|
149.7
|
|
|
|
158.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
44.6
|
|
|
$
|
404.6
|
|
|
$
|
449.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales increased approximately $449.2 million during
2005 compared to the prior year primarily due to strong volume
growth and increased pricing in the Dairy Group and WhiteWave
Foods Company segments.
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 our finished
products from our manufacturing facilities to our own
distribution facilities. Cost of sales increased by
approximately 3.5% to $7.59 billion in 2005 from
$7.34 billion in 2004 primarily due to increased volumes
and increased resin and other commodity costs, partly offset by
lower raw milk costs in our Dairy Group. Our cost of sales as a
percentage of net sales decreased to 74.6% in 2005 compared to
75.5% in 2004 primarily due to the impact of higher volumes and
efficiencies gained through our facility rationalization
activities.
Operating Costs and Expenses Our operating
expenses increased approximately $151.4 million, or
approximately 8.2%, during 2005 versus the prior year. Operating
expenses increased primarily due to the following:
|
|
|
|
|
Distribution costs increased approximately $95.2 million
due to higher fuel costs and increased volumes at our Dairy
Group and WhiteWave Foods Company segments;
|
|
|
|
Incentive compensation costs at our Dairy Group increased
approximately $12 million due to improved operating results;
|
|
|
|
Bad debt expense at our Dairy Group increased approximately
$9 million in 2005 due to the impact of Hurricane Katrina,
the write-off of a receivable from a large customer, as well as
the relatively higher level of bad debt recoveries recognized in
2004;
|
|
|
|
Corporate expenses were approximately $10.1 million higher
than in 2004, primarily due to higher professional fees of
approximately $11 million, primarily related to the
reorganization of our WhiteWave Foods Company, and higher
compensation costs, partly offset by lower share-based
compensation expense;
|
|
|
|
Net facility closing and reorganization costs that were
approximately $10.9 million higher than 2004. See
Note 15 to our Consolidated Financial Statements for
further information on our facility closing and reorganization
activities; and
|
|
|
|
Other operating income declined by approximately
$5.9 million in 2005 compared to 2004 due to a gain
recorded in 2004 related to the settlement of litigation.
|
28
Our operating expense as a percentage of net sales increased to
19.7% for 2005 as compared to 19.0% for 2004.
Operating Income Operating income was
$580.1 million in 2005, an increase of $44.4 million
from 2004 operating income of $535.7 million. Our operating
margin was 5.7% in 2005 compared to 5.5% in 2004.
Other (Income) Expense Interest expense
decreased to $160.2 million in 2005 from
$191.8 million in 2004, primarily due to a charge of
$32.6 million in 2004 to write-off deferred financing costs
related to our senior credit facility amendment in August 2004.
Income Taxes Income tax expense was recorded
at an effective rate of 39.0% in 2005 compared to 40.2% in 2004.
Our effective tax rate varies based on the relative earnings of
our business units. In 2005, our income tax rate was positively
impacted by a favorable tax settlement and the change in
expected realization of net operating loss carryforwards. In
2004, our tax rate was negatively impacted by the write-off of
deferred financing costs that were incurred in a business unit
with a lower relative effective tax rate.
Year
Ended December 31, 2005 Compared to Year Ended
December 31, 2004 Results by
Segment
Dairy
Group
The key performance indicators of our Dairy Group segment are
sales volumes, gross profit and operating income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2005
|
|
|
2004
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
8,973.4
|
|
|
|
100.0
|
%
|
|
$
|
8,683.1
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
6,809.5
|
|
|
|
75.9
|
|
|
|
6,646.5
|
|
|
|
76.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,163.9
|
|
|
|
24.1
|
|
|
|
2,036.6
|
|
|
|
23.5
|
|
Operating costs and expenses
|
|
|
1,521.9
|
|
|
|
16.9
|
|
|
|
1,438.6
|
|
|
|
16.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
642.0
|
|
|
|
7.2
|
%
|
|
$
|
598.0
|
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Dairy Groups net sales increased approximately
$290.3 million, or 3.3%, in 2005 versus 2004. The change in
net sales from 2004 to 2005 was due to the following:
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
2004 Net sales
|
|
$
|
8,683.1
|
|
|
|
|
|
Acquisitions
|
|
|
35.4
|
|
|
|
0.4
|
%
|
Volume
|
|
|
159.4
|
|
|
|
1.8
|
|
Pricing and product mix
|
|
|
95.5
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
2005 Net sales
|
|
$
|
8,973.4
|
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
The increase in the Dairy Groups net sales was driven
primarily by increased volumes. Volume sales of all Dairy Group
products, excluding the impact of acquisitions, increased 1.8%
in 2005 compared to 2004. Volume sales of fresh milk, which were
approximately 68% of the Dairy Groups 2005 volumes, were
up approximately 2.5% for the year compared to USDA data showing
a relatively flat total consumption of milk in the
U.S. during the year.
The increase in the Dairy Groups net sales due to pricing
and product mix shown in the above table primarily resulted from
increased pricing due to the pass through of increased fuel and
packaging costs, partly offset by lower raw milk costs in 2005.
In general, our Dairy Group changes the prices it charges
customers for fluid dairy products on a monthly basis, as the
costs of raw materials and other variable costs fluctuate.
Because of competitive pressures, the price increases do not
always reflect the entire increase in raw material and other
input costs that we
29
may experience. 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
2005 compared to 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31*
|
|
|
|
2005
|
|
|
2004
|
|
|
% Change
|
|
|
Class I raw skim milk
mover(1),(2)
|
|
$
|
8.54
|
|
|
$
|
8.44
|
|
|
|
1
|
%
|
Class I butterfat mover(1),(3)
|
|
|
1.76
|
|
|
|
1.95
|
|
|
|
(10
|
)
|
Class II raw skim milk
minimum(2),(4)
|
|
|
7.74
|
|
|
|
6.90
|
|
|
|
12
|
|
Class II butterfat
minimum(3),(4)
|
|
|
1.72
|
|
|
|
2.06
|
|
|
|
(17
|
)
|
|
|
|
* |
|
The prices noted in this table are not the prices that we
actually pay. The minimum prices applicable at any given
location for Class I raw skim milk or Class I
butterfat are based on the Class I mover plus a location
differential. Class II prices noted in the table are
federal minimum prices, applicable at all locations. Our actual
cost also includes producer premiums, procurement costs and
other related charges that vary by location and vendor. Please
see Part I Item 1.
Business Government Regulation Milk
Industry Regulation and Known Trends and
Uncertainties Prices of Materials and Other
Inputs for a more complete description of raw milk pricing. |
|
(1) |
|
We process Class I raw skim milk and butterfat into fluid
milk products. |
|
(2) |
|
Prices are per hundredweight. |
|
(3) |
|
Prices are per pound. |
|
(4) |
|
We process Class II raw skim milk and butterfat into
products such as cottage cheese, creams and creamers, ice cream
and sour cream. |
The Dairy Group acquired Milk Products of Alabama in October
2004, which we estimate contributed an additional
$35.4 million in sales during 2005.
The Dairy Groups cost of sales increased to
$6.81 billion in 2005 compared to $6.65 billion in
2004 primarily due to increased volumes and an approximately
$43 million increase in resin costs, partly offset by lower
raw milk costs. Resin prices increased primarily due to
significant supply constraints resulting from the Gulf Coast
hurricanes. Resin is the primary raw material in our plastic
bottles. The Dairy Groups cost of sales as a percentage of
net sales decreased to 75.9% in 2005 compared to 76.5% in 2004
primarily due to the impact of higher volumes and efficiencies
gained through our facility rationalization activities.
The Dairy Groups operating expenses increased
approximately $83.3 million during 2005 compared to 2004
primarily due to (1) higher distribution costs of
$66.7 million, $31 million of which was due to
increased fuel prices and the remaining increase was driven by
increased volumes; (2) higher incentive compensation costs
of approximately $12 million due to improved operating
results and (3) higher bad debt expense. Bad debt expense
increased approximately $9 million in 2005 compared to the
prior year due to the impact of Hurricane Katrina, the write-off
of a receivable from a large customer, as well as the relatively
higher level of bad debt recoveries recognized in 2004. The
Dairy Groups operating expense as a percentage of net
sales increased to 16.9% in 2005 from 16.6% in 2004.
30
WhiteWave
Foods Company
The key performance indicators of WhiteWave Foods Company are
net sales dollars, gross profit and operating income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2005
|
|
|
2004
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
1,201.3
|
|
|
|
100.0
|
%
|
|
$
|
1,042.4
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
780.4
|
|
|
|
65.0
|
|
|
|
684.8
|
|
|
|
65.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
420.9
|
|
|
|
35.0
|
|
|
|
357.6
|
|
|
|
34.3
|
|
Operating costs and expenses
|
|
|
306.0
|
|
|
|
25.4
|
|
|
|
269.9
|
|
|
|
25.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
114.9
|
|
|
|
9.6
|
%
|
|
$
|
87.7
|
|
|
|
8.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WhiteWave Foods Companys net sales increased by
approximately $158.9 million, or 15.2%, in 2005 versus
2004. The change in net sales from 2004 to 2005 was due to the
following:
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(Dollars in millions)
|
|
|
2004 Net sales
|
|
$
|
1,042.4
|
|
|
|
|
|
Acquisitions
|
|
|
9.2
|
|
|
|
0.9
|
%
|
Volume
|
|
|
100.2
|
|
|
|
9.6
|
|
Pricing and product mix
|
|
|
49.5
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
2005 Net sales
|
|
$
|
1,201.3
|
|
|
|
15.2
|
%
|
|
|
|
|
|
|
|
|
|
Double digit volume growth in our Silk and Horizon
Organic brands, combined with somewhat slower growth in
International Delight and LAND OLAKES, was
partly offset by the elimination of certain product offerings.
We believe increased Silk and Horizon Organic
volumes were due primarily to increased consumer acceptance
and increased marketing efforts.
Higher pricing also contributed to the increase in sales. The
two primary drivers of this increase were (1) increased
selling prices in response to increased commodity costs and
(2) a decline in slotting fees, couponing and certain other
promotional costs that are required to be recorded as reductions
of net sales. We also benefited from the 2004 acquisition of the
LAND OLAKES cream, sour cream, and whipping cream
business in the Eastern part of the U.S., which we estimate
added $9.2 million to our sales growth.
Cost of sales for WhiteWave Foods Company increased to
$780.4 million in 2005 from $684.8 million in 2004
primarily due to increased volumes and the impact of higher raw
material costs, particularly organic raw milk and organic
soybeans, which increased cost of sales by approximately
$26 million. Cost of sales as a percentage of net sales
declined to 65.0% in 2005 from 65.7% in 2004 due to the impact
of supply chain changes and product rationalization in 2005.
Operating expenses increased approximately $36.1 million in
2005 compared to the prior year primarily due to increased
volumes and higher fuel costs which together contributed
approximately $22 million to distribution expenses.
Compensation expense also increased as a result of increased
staffing levels to support the growth of our organization.
Liquidity
and Capital Resources
Historical
Cash Flow
During 2006, we met our working capital needs with cash flow
from operations. Net cash provided by operating activities from
continuing operations was $561.6 million for 2006 as
compared to $541.9 million for 2005, an increase of
$19.7 million. Net cash provided by operating activities
from continuing operations was impacted by an increase in our
working capital of $86.4 million in 2006 compared to a
decrease of $23.4 million in
31
2005 due primarily to several large obligations that were
accrued at the end of 2005 and paid early in 2006. In addition,
income taxes payable decreased $11.3 million in 2006
compared to an increase of $37.1 million in 2005 due to the
timing of tax payments.
Net cash used in investing activities from continuing operations
was $152.3 million in 2006 compared to $90.3 million
in 2005, an increase of $62.0 million. We used
approximately $17.2 million for acquisitions and
$237.2 million for capital expenditures in 2006 compared to
$1.4 million and $287.1 million in 2005, respectively.
We received cash proceeds from the sale of operations of
$96.0 million in 2006 compared to $189.9 million in
2005.
We used approximately $400.1 million to repurchase our
stock during 2006. Set forth in the chart below is a summary of
the stock we repurchased in 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of Shares of
|
|
|
Aggregate
|
|
|
Average
|
|
|
|
Common Stock
|
|
|
Purchase
|
|
|
Purchase Price
|
|
Period
|
|
Repurchased
|
|
|
Price(1)
|
|
|
Per Share(1)
|
|
|
|
|
|
|
(Dollars in millions
|
|
|
|
|
|
|
except per share data)
|
|
|
February 2006
|
|
|
400,000
|
|
|
$
|
15.4
|
|
|
$
|
38.39
|
|
May 2006
|
|
|
2,050,800
|
|
|
|
74.4
|
|
|
|
36.27
|
|
June 2006
|
|
|
1,286,400
|
|
|
|
45.9
|
|
|
|
35.71
|
|
October 2006
|
|
|
716,100
|
|
|
|
29.8
|
|
|
|
41.65
|
|
November 2006
|
|
|
3,493,600
|
|
|
|
145.2
|
|
|
|
41.55
|
|
December 2006
|
|
|
2,075,300
|
|
|
|
89.4
|
|
|
|
43.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,022,200
|
|
|
$
|
400.1
|
|
|
|
39.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes commissions and fees. |
We repaid $53.5 million of debt in 2006 compared to a net
borrowing of $157.3 million in 2005.
We received approximately $32.3 million in 2006, net of
minimum withholding taxes paid from cash proceeds, compared to
$57.7 million in 2005 as a result of stock option exercises
and employee stock purchases through our employee stock purchase
plan.
Current
Debt Obligations
Senior Credit Facility Our senior credit
facility provides for a $1.5 billion revolving credit
facility and a $1.5 billion term loan. Both the revolving
credit facility and term loan bear interest, at our election, at
the base rate plus a margin that varies from 0 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 to 150 basis points, depending
on our credit ratings (as issued by Standard &
Poors and Moodys). The blended interest rate in
effect on borrowings under the senior credit facility, including
the applicable interest rate margin, was 5.99% at
December 31, 2006. However, we had interest rate swap
agreements in place that hedged $950.0 million of our
borrowings under the senior credit facility at an average rate
of 4.53%, 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:
|
|
|
|
|
$56.3 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.
32
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 maximum leverage ratio and a
minimum 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 Dean Holding Companys subsidiaries, and
the real property owned by Dean Holding Company 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, certain other
material adverse changes in our business, and a change in
control. The credit agreement does not contain any default
triggers based on our credit rating.
At December 31, 2006, we had outstanding borrowings of
$1.76 billion under our senior credit facility (compared to
$2.26 billion at December 31, 2005), including
$1.44 billion in term loan borrowings and
$313.5 million outstanding under the revolving line of
credit. At December 31, 2006, there were
$136.6 million of letters of credit under the revolving
line that were issued but undrawn. As of February 23, 2007,
approximately $1.20 billion was outstanding under our
senior credit facility.
In addition to our senior credit facility, we also have a
$600 million receivables-backed facility subject to a
borrowing base formula. The receivables-backed facility had
$512.5 million available and drawn at December 31,
2006. The average interest rate on this facility at
December 31, 2006 was 5.68%. Approximately
$488.4 million was outstanding under this facility at
February 23, 2007.
Our outstanding borrowings under the senior credit facility
decreased from 2005 to 2006 primarily due to our paydown of this
facility as a result of our issuance of $500 million
aggregate principal amount of senior notes on May 17, 2006,
the proceeds of which were used to repay borrowings under our
senior credit facility.
Other indebtedness outstanding at December 31, 2006 also
included $600 million face value of outstanding
indebtedness under Dean Holding Companys senior notes,
$500 million face value of outstanding indebtedness under
Dean Foods Companys senior notes and approximately
$16.0 million of capital lease and other obligations.
See Note 9 to our Consolidated Financial Statements for
more information about our indebtedness.
33
The table below summarizes our obligations for indebtedness,
purchase and lease obligations at December 31, 2006. See
Note 18 to our Consolidated Financial Statements for more
detail about our lease and purchase obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indebtedness, Purchase &
|
|
Payments Due by Period
|
|
Lease Obligations
|
|
Total
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
|
|
(In millions)
|
|
|
Senior credit facility
|
|
$
|
1,757.3
|
|
|
$
|
225.0
|
|
|
$
|
431.3
|
|
|
$
|
1,101.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Dean Foods Company senior notes(1)
|
|
|
500.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500.0
|
|
Subsidiary senior notes(1)
|
|
|
600.0
|
|
|
|
250.0
|
|
|
|
|
|
|
|
200.0
|
|
|
|
|
|
|
|
|
|
|
|
150.0
|
|
Receivables-backed facility
|
|
|
512.5
|
|
|
|
|
|
|
|
|
|
|
|
512.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations and other
|
|
|
16.0
|
|
|
|
8.6
|
|
|
|
1.6
|
|
|
|
1.6
|
|
|
|
1.7
|
|
|
|
1.7
|
|
|
|
0.8
|
|
Purchasing obligations(2)
|
|
|
602.3
|
|
|
|
310.4
|
|
|
|
106.2
|
|
|
|
60.0
|
|
|
|
41.7
|
|
|
|
8.2
|
|
|
|
75.8
|
|
Operating leases
|
|
|
489.4
|
|
|
|
107.0
|
|
|
|
95.7
|
|
|
|
85.7
|
|
|
|
68.1
|
|
|
|
49.5
|
|
|
|
83.4
|
|
Interest payments(3)
|
|
|
762.2
|
|
|
|
201.5
|
|
|
|
169.6
|
|
|
|
85.5
|
|
|
|
45.3
|
|
|
|
45.3
|
|
|
|
215.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,239.7
|
|
|
$
|
1,102.5
|
|
|
$
|
804.4
|
|
|
$
|
2,046.3
|
|
|
$
|
156.8
|
|
|
$
|
104.7
|
|
|
$
|
1,025.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 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) |
|
Includes fixed rate interest obligations as well as interest on
our variable rate debt based on the rates and balances in effect
at December 31, 2006. Interest that may be due in the
future on the variable rate portion of our senior credit
facility and receivables-backed facility will vary based on the
interest rate in effect at the time and the borrowings
outstanding at the time. |
Other
Long-Term Liabilities
We offer pension benefits through various defined benefit
pension plans and also offer certain health care and life
insurance benefits to eligible employees and their eligible
dependents upon the retirement of such employees. Reported costs
of providing non-contributory defined pension benefits and other
postretirement benefits are dependent upon numerous factors,
assumptions and estimates. For example, these costs are impacted
by actual employee demographics (including age, compensation
levels and employment periods), the level of contributions made
to the plan and earnings on plan assets. Our pension plan assets
are primarily made up of equity and fixed income investments.
Changes made to the provisions of the plan also may impact
current and future pension costs. Fluctuations in actual equity
market returns as well as changes in general interest rates may
result in increased or decreased pension costs in future
periods. Pension and postretirement costs also may be
significantly affected by changes in key actuarial assumptions,
including anticipated rates of return on plan assets and the
discount rates used in determining the benefit obligation and
annual periodic pension costs.
In accordance with SFAS No. 87, Employers
Accounting for Pensions, and SFAS No. 106,
Employers Accounting for Postretirement
Benefits, changes in obligations associated with these
factors may not be immediately recognized as pension costs on
the income statement, but generally are recognized in future
years over the remaining average service period of plan
participants. As such, significant portions of pension costs
recorded in any period may not reflect the actual level of cash
benefits provided to plan participants. In 2006, we recorded
non-cash pension expense of $8.1 million, of which
$7.7 million was attributable to periodic expense and
$350,000 was attributable to settlements compared to a total of
$11.5 million in 2005, of which $3.5 million was
attributable to settlements. These amounts were determined in
accordance with the provisions of SFAS No. 87,
SFAS No. 106 and SFAS No. 88,
Employers Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for
Termination Benefits.
34
The assumed discount rate used to determine plan obligations was
5.85% and 5.75% at December 31, 2006 and 2005,
respectively. In order to select a discount rate for purposes of
valuing the plan obligations and fiscal year-end disclosure, an
analysis is performed in which the duration of projected cash
flows from defined benefit and retiree health care plans are
matched with a yield curve based on an appropriate universe of
high-quality corporate bonds that are available. We use the
results of the yield curve analysis to select the discount rate
that matches the duration and payment stream of the benefits in
each plan. In selecting the assumed rate of return on plan
assets, we consider past performance and economic forecasts for
the types of investments held by the plan, as well as our
investment allocation policy and the effect of periodic target
asset allocation rebalancing. We rebalance the investments when
the allocation is not within the target range. The results are
adjusted for the payment of reasonable expenses of the plan from
plan assets. We believe these assumptions are appropriate based
upon the mix of investments and the long-term nature of the
plans investments. Plan asset returns were
$24.3 million in 2006, a $10.2 million increase from
plan asset returns of $14.1 million in 2005. Net periodic
pension expense for our plans is expected to increase in 2007 to
approximately $9.5 million. Based on current projections,
2007 funding requirements will be approximately
$23.2 million as compared to $37.5 million for 2006.
The postretirement benefit plans are not funded. Based on
current projections, 2007 cash requirements to pay benefits for
our other postretirement benefit obligations will remain at
approximately $2.4 million, the same as the 2006 cash
requirements.
See Notes 13 and 14 to our Consolidated Financial
Statements for information regarding retirement plans and other
postretirement benefits.
Other
Commitments and Contingencies
On December 21, 2001, in connection with our acquisition of
Dean Holding Company, 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 have not breached or terminated any of our milk
supply agreements with DFA.
We also have the following commitments and contingent
liabilities, in addition to contingent liabilities related to
ordinary course litigation, investigations and audits:
|
|
|
|
|
certain indemnification obligations related to businesses that
we have divested;
|
|
|
|
certain lease obligations, which require us to guarantee the
minimum value of the leased asset at the end of the
lease; and
|
|
|
|
selected levels of property and casualty risks, primarily
related to employee health care, workers compensation
claims and other casualty losses.
|
See Note 18 to our Consolidated Financial Statements for
more information about our commitments and contingent
obligations.
35
Future
Capital Requirements
During 2007, we intend to invest a total of approximately
$250 million in capital expenditures primarily for our
existing manufacturing facilities and distribution capabilities.
We intend to fund these expenditures using cash flow from
operations and borrowings under our senior credit facility. We
intend to spend this amount approximately as follows:
|
|
|
|
|
Operating Division
|
|
Amount
|
|
|
|
(In millions)
|
|
|
Dairy Group
|
|
$
|
165
|
|
WhiteWave Foods Company
|
|
|
80
|
|
Corporate
|
|
|
5
|
|
|
|
|
|
|
Total
|
|
$
|
250
|
|
|
|
|
|
|
We expect that cash flow from operations and borrowings under
our senior credit facility will be sufficient to meet our
requirements for our existing businesses for the foreseeable
future. As of February 23, 2007, approximately
$1.20 billion was available for future borrowings under our
senior credit facility.
Known
Trends and Uncertainties
Prices
of Raw Materials and Other Inputs
Dairy Group The primary raw material used in
our Dairy Group is raw milk (which contains both raw 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. 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.
Another significant raw material used by our Dairy Group is
resin, which is used to make plastic bottles. We purchase
approximately 27 million pounds of resin and bottles per
month. Resin is a petroleum-based product and the price of resin
is subject to fluctuations based on changes in crude oil prices.
Our Dairy Group purchases approximately four million gallons of
diesel fuel per month to operate our extensive direct store
delivery system.
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, packaging, fuel and other materials fluctuate.
Prices for some Class II products are also changed monthly
while others are changed from time to time as circumstances
warrant. However, there can be a lag between the 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 2005, prices for raw skim milk, butterfat and cream remained
high. In 2006, prices for raw skim milk, butterfat and cream
declined. We expect raw milk, butterfat and cream prices to
increase in 2007. However, raw milk, butterfat and cream prices
are difficult to predict and we change our forecasts frequently
based on current market activity.
36
During the first nine months of 2006, the prices of resin and
fuel increased before decreasing over the last three months of
the year. As resin supplies have from time to time been
insufficient to meet demand, we are undertaking all reasonable
measures to attempt to secure an adequate resin supply; however,
there can be no assurance that we will always be successful in
our attempts. We expect prices of both resin and diesel fuel to
fluctuate throughout 2007.
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 2007. 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 could be required to pay
could be significantly higher.
Significant raw materials used in our products include organic
raw milk and sugar. 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. We also source approximately 20% of our organic raw
milk supply from our own farms. In the recent past, the
industry-wide demand for organic raw milk has generally exceeded
supply, resulting in our inability to fully meet customer
demand. However, we expect that our efforts to foster increased
supply and overall industry supply growth will ease the
historical shortfall in supply over the near term. We are
currently taking steps to increase consumer demand for our
products to avoid a meaningful oversupply of raw organic milk;
however, there can be no assurance that the supply of raw
organic milk in the market will not exceed demand in an amount
that could exert downward pricing pressure on the sale of our
products and negatively impact our profitability. We also
experienced an increase in organic sugar costs in 2006. We have
entered into supply agreements for organic sugar, which we
believe will meet our needs in 2007.
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 2006, our tax rate on continuing operations was 38.5%. We
estimate the effective tax rate for 2007 will be approximately
39%. Changes in the relative profitability of our operating
segments, as well as changes to federal and state tax laws may
cause the rate to change from historical rates.
37
Critical
Accounting Policies
Critical accounting policies are defined as those
that are both most important to the portrayal of a
companys financial condition and results, and that require
our most difficult, subjective or complex judgments. In many
cases the accounting treatment of a particular transaction is
specifically dictated by generally accepted accounting
principles with no need for the application of our judgment. In
certain circumstances, however, the preparation of our
Consolidated Financial Statements in conformity with generally
accepted accounting principles requires us to use our judgment
to make certain estimates and assumptions. These estimates
affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of
the Consolidated Financial Statements and the reported amounts
of net sales and expenses during the reporting period. We have
identified the policies described below as our critical
accounting policies. See Note 1 to our Consolidated
Financial Statements for a detailed discussion of these and
other accounting policies.
Accounts Receivable We provide credit terms
to customers generally ranging up to 30 days, perform
ongoing credit evaluations of our customers and maintain
allowances for estimated credit losses. As these factors change,
our estimates change and we could accrue different amounts for
doubtful accounts in different accounting periods. At
December 31, 2006, our allowance for doubtful accounts was
approximately $17.1 million, or approximately 2.1% of the
accounts receivable balance at December 31, 2006. The
allowance for doubtful accounts, expressed as a percent of
accounts receivable, was approximately 2.6% at December 31,
2005. Each 0.10% change in the ratio of allowance for doubtful
accounts to accounts receivable would impact bad debt expense by
approximately $816,000.
Employee Benefit Plan Costs We provide a
range of benefits including pension and postretirement benefits
to our eligible employees and retirees. We record annual amounts
relating to these plans based on calculations specified by
generally accepted accounting principles, which include various
actuarial assumptions, such as discount rates, assumed
investment rates of return, compensation increases, employee
turnover rates and health care cost trend rates. We review our
actuarial assumptions on an annual basis and make modifications
to the assumptions based on current rates and trends when it is
deemed appropriate. As required by generally accepted accounting
principles, the effect of the modifications is generally
recorded and amortized over future periods. Different
assumptions could result in the recognition of different amounts
of expense over different periods of time.
Substantially all of our qualified pension plans are
consolidated into one master trust. We retained investment
consultants to assist our Investment Committee with the
transition of the plans assets to the master trust and to
help our Investment Committee formulate a long-term investment
policy for the master trust. Our current asset mix guidelines
under the investment policy target equities at 65% to 75% of the
portfolio and fixed income at 25% to 35%. At December 31,
2006, our master trust was invested as follows: equity
securities and limited partnerships 71%; fixed
income securities 26%; and cash and cash
equivalents 3%.
We determine our expected long-term rate of return based on our
expectations of future returns for the pension plans
investments based on target allocations of the pension
plans investments. Additionally, we consider the
weighted-average return of a capital markets model that was
developed by the plans investment consultants and
historical returns on comparable equity, debt and other
investments. The resulting weighted average expected long-term
rate of return on plan assets is 8.0% for the year ended
December 31, 2006 compared to 8.5% for the year ended
December 31, 2005.
While a number of the key assumptions related to our qualified
pension plans are long-term in nature, including assumed
investment rates of return, compensation increases, employee
turnover rates and mortality rates, generally accepted
accounting principles require that our discount rate assumption
reflect current market conditions. As such, our discount rate
likely will change more frequently than in prior years. The
discount rate utilized to determine our estimated future benefit
obligations increased from 5.75% at December 31, 2005 to
5.85% at December 31, 2006.
A 0.25% reduction in the assumed rate of return on plan assets
or a 0.25% reduction in the discount rate would increase our
annual pension expense by approximately $585,000 and $363,000,
respectively. In addition, a 1% increase in assumed healthcare
costs trends would increase the aggregate annual post retirement
medical expense by approximately $419,000.
38
Goodwill and Intangible Assets Our goodwill
and intangible assets totaled $3.51 billion as of
December 31, 2006 resulting primarily from acquisitions.
Upon acquisition, the purchase price is first allocated to
identifiable assets and liabilities, including trademarks and
customer-related intangible assets, with any remaining purchase
price recorded as goodwill. Goodwill and trademarks with
indefinite lives are not amortized.
We believe that a trademark has an indefinite life if it has
sufficient market share and a history of strong sales and cash
flow performance that we expect to continue for the foreseeable
future. If these perpetual trademark criteria are not met, the
trademarks are amortized over their expected useful lives, which
generally range from five to 40 years. Determining the
expected life of a trademark requires considerable management
judgment and is based on an evaluation of a number of factors
including the competitive environment, market share, trademark
history and anticipated future trademark support.
Perpetual trademarks and goodwill are evaluated for impairment
at least annually to ensure that future cash flows continue to
exceed the related book value. A perpetual trademark is impaired
if its book value exceeds its estimated fair value. Goodwill is
evaluated for impairment if the book value of its reporting unit
exceeds its estimated fair value. Currently, our reporting units
are our two segments. If the fair value of an evaluated asset is
less than its book value, the asset is written down to fair
value based on its discounted future cash flows.
Amortizable intangible assets are only evaluated for impairment
upon a significant change in the operating environment. If an
evaluation of the undiscounted cash flows indicates impairment,
the asset is written down to its estimated fair value, which is
generally based on discounted future cash flows.
Considerable management judgment is necessary to evaluate the
impact of operating changes and to estimate future cash flows.
Assumptions used in our impairment evaluations, such as
forecasted growth rates and our cost of capital, are consistent
with our internal projections and operating plans.
We did not recognize any impairment charges in continuing
operations for goodwill during 2006. As a result of the decision
to close a facility and shift customers from one regional brand
to another, we recognized an impairment charge of approximately
$700,000 on a perpetual trademark for a regional brand during
2006.
Income Taxes Deferred taxes are recognized
for future tax effects of temporary differences between
financial and income tax reporting using tax rates in effect for
the years in which the differences are expected to reverse.
Future business results may affect deferred tax liabilities or
the valuation of deferred tax assets over time. We estimate our
probable tax obligations using historical experience in tax
jurisdictions and informed judgments. There are inherent
uncertainties related to the interpretations of tax regulations
in the jurisdictions in which we operate. These judgments and
estimates made at a point in time may change based on the
outcome of tax audits and changes to or further interpretations
of regulations. If such changes take place, there is a risk that
our tax rate may increase or decrease in any period, which could
have an impact on our earnings.
Insurance Accruals We retain selected levels
of property and casualty risks, primarily related to employee
health care, workers compensation claims and other
casualty losses. Many of these potential losses are covered
under conventional insurance programs with third-party carriers
with high deductible limits. In other areas, we are self-insured
with stop-loss coverages. Accrued liabilities for incurred but
not reported losses related to these retained risks are
calculated based upon loss development factors which contemplate
a number of variables including claims history and expected
trends. These loss development factors are developed by us in
consultation with external insurance brokers and actuaries. At
December 31, 2006 and 2005, we recorded accrued liabilities
related to these retained risks of $172.9 million and
$161.2 million, respectively, including both current and
long-term liabilities.
Recent
Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Effective October 1, 2006, we adopted Statement of
Financial Accounting Standards (SFAS) No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an Amendment of FASB
Statements No. 87, 88, 106, and 132(R).
SFAS No. 158 requires plan sponsors of defined benefit
pension and other postretirement benefit plans (collectively,
postretirement benefit plans) to recognize the
overfunded or underfunded status of its postretirement benefit
plans (other than multiemployer plans) as an asset or liability
in its statement of financial position, measure the fair value
of plan
39
assets and benefit obligations as of the date of its year-end
statement of financial position, and provide additional
disclosures. The effect of adopting SFAS No. 158 on
our financial condition at December 31, 2006 has been
included in our Consolidated Financial Statements.
SFAS No. 158 did not have an effect on our financial
condition at December 31, 2005 or 2004.
SFAS No. 158s provisions regarding the change in
measurement date of postretirement benefit plans are not
applicable as we already use a measurement date of
December 31 for our postretirement benefit plans. See
Notes 1, 13 and 14 to our Consolidated Financial Statements
for further discussion of our postretirement benefit plans and
the effect of adopting SFAS No. 158 on our
Consolidated Financial Statements.
Effective January 1, 2006, we adopted
SFAS No. 123(R), Share-Based Payment.
Among its provisions, SFAS No. 123(R) requires us to
recognize compensation expense for equity awards over the
vesting period based on their grant-date fair value. Prior to
the adoption of SFAS No. 123(R), we utilized the
intrinsic-value based method of accounting under APB Opinion
No. 25, Accounting for Stock Issued to
Employees and related interpretations, and adopted the
disclosure requirements of SFAS No. 123,
Accounting for Stock-Based Compensation. Under the
intrinsic-value based method of accounting, compensation expense
for stock options granted to our employees and directors was
measured as the excess of the quoted market price of common
stock at the grant date over the amount the recipient must pay
for the stock. Our policy is to grant stock options at fair
value on the date of grant and as a result no compensation
expense was historically recognized for stock options. As our
restricted stock units do not require the recipients to pay for
the stock, we have historically recognized compensation expense
for the fair value at the date of grant over the vesting period.
The fair value for the restricted stock unit grants is equal to
the closing price of our stock on the date immediately prior to
the date of grant.
Compensation expense is recognized only for share-based payments
expected to vest. We estimate forfeitures at the date of grant
based on our historical experience and future expectations.
Prior to the adoption of SFAS No. 123(R), the effect
of forfeitures on the pro forma expense was recognized based on
estimated forfeitures.
In order to enhance comparability among all periods presented,
we elected to adopt SFAS No. 123(R) using the modified
retrospective approach. Under this transition method, the
results for prior periods reflect the recognition of the
compensation expense and related income tax benefit historically
disclosed in our financial statements.
For financial reporting purposes, share-based compensation
expense is included within the same financial statement caption
where the recipients cash compensation is reported, and is
classified as a corporate item for business segment reporting.
See Notes 1 and 10 to our Consolidated Financial Statements
for further discussion of our share-based compensation plans and
the effect of adopting SFAS No. 123(R) on our
Consolidated Financial Statements.
Effective January 1, 2006, we adopted
SFAS No. 151, Inventory Costs an
Amendment of ARB No. 43, Chapter 4. This
statement 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. The adoption of this
statement did not have a material impact on our Consolidated
Financial Statements.
Effective January 1, 2006, we adopted
SFAS No. 153, Exchanges of Nonmonetary Assets,
an amendment of APB Opinion No. 29.
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. The adoption of this statement
did not have a material impact on our Consolidated Financial
Statements.
Recently Issued Accounting Pronouncements The
Financial Accounting Standards Board (FASB) issued
Financial Interpretation No. (FIN) 48,
Accounting for Uncertainty in Income Taxes in June
2006. This interpretation clarifies the accounting for income
taxes recognized in an enterprises financial statements in
accordance with SFAS No. 109, Accounting for
Income Taxes. This interpretation prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. We are currently evaluating the
impact of FIN No. 48 on our Consolidated Financial
Statements. This interpretation will become effective for us in
the first quarter of 2007.
40
The FASB issued SFAS No. 157, Fair Value
Measurements in September 2006. SFAS No. 157
defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands
disclosures about fair value measurements.
SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurements
but does not require any new fair value measurements. We do not
believe the adoption of this standard will have a material
impact on our Consolidated Financial Statements. This standard
will become effective for us in the first quarter of 2008.
The FASB issued SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities in
February 2007. SFAS No. 159 permits entities to choose
to measure many financial instruments and certain other items at
fair value. Most of the provisions of SFAS No. 159
apply only to entities that elect the fair value option. We do
not believe the adoption of this standard will have a material
impact on our Consolidated Financial Statements. This standard
will become effective for us in the first quarter of 2008.
Item 7A. Quantitative
and Qualitative Disclosures About Market Risk
Interest
Rate Fluctuations
In order to reduce the volatility of earnings that arises from
changes in interest rates, we manage interest rate risk through
the use of interest rate swap agreements. These swap agreements
provide hedges for loans under our senior credit facility by
limiting or fixing the LIBOR interest rates specified in the
senior credit facility at the interest rates noted below until
the indicated expiration dates.
The following table summarizes our various interest rate swap
agreements as of December 31, 2006:
|
|
|
|
|
|
|
|
|
Fixed Interest Rates
|
|
Expiration Date
|
|
|
Notional Amounts
|
|
|
|
|
|
|
(In millions)
|
|
|
4.81% to 4.84%
|
|
|
December 2007
|
|
|
$
|
500
|
|
4.07% to 4.27%
|
|
|
December 2010
|
|
|
|
450
|
|
The following table summarizes our various interest rate swap
agreements as of December 31, 2005:
|
|
|
|
|
|
|
|
|
Fixed Interest Rates
|
|
Expiration Date
|
|
|
Notional Amounts
|
|
|
|
|
|
|
(In millions)
|
|
|
3.65% to 6.78%
|
|
|
December 2006
|
|
|
$
|
625
|
|
4.81% to 4.84%
|
|
|
December 2007
|
|
|
|
500
|
|
4.07% to 4.27%
|
|
|
December 2010
|
|
|
|
500
|
|
We are exposed to market risk under these arrangements due to
the possibility of interest rates on our senior credit facility
falling below the rates on our interest rate derivative
agreements. We recorded $7.5 million of interest income,
net of taxes, during 2006 as a result of interest rates on our
variable rate debt rising above the
agreed-upon
interest rate on our existing swap agreements. Credit risk under
these arrangements is remote because the counter parties 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
December 31, 2006, 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 that are denominated in foreign currencies. Our most
significant foreign currency exposure relates to the British
pound. We have performed a sensitivity analysis assuming a
hypothetical 10% adverse movement in foreign currency exchange
rates. As of December 31, 2006 and 2005, 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.
41
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 this risk management strategy if the cost of
butter falls below the cost that we have agreed to pay in a
futures contract or that we actually paid for the physical
inventory and we are unable to pass on the difference to our
customers. 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.
42
|
|
Item 8.
|
Consolidated
Financial Statements
|
Our Consolidated Financial Statements for 2006 are included in
this report on the following pages.
43
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Dean Foods Company
Dallas, Texas
We have audited the accompanying consolidated balance sheets of
Dean Foods Company and subsidiaries (the Company) as
of December 31, 2006 and 2005, and the related consolidated
statements of income, stockholders equity, and cash flows
for each of the three years in the period ended
December 31, 2006. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Dean
Foods Company and subsidiaries as of December 31, 2006 and
2005, and the results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2006, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial
statements, in 2006 the Company changed its method of accounting
for share based compensation to adopt Statement of Financial
Accounting Standards No. 123(R) and its method of
accounting for defined benefit pension and other postretirement
plans to adopt Statement of Financial Accounting Standards
No. 158. As discussed in Note 1 to the consolidated
financial statements, in 2005 the Company changed its method of
accounting for conditional asset retirement obligations to adopt
Financial Accounting Standards Board Interpretation No. 47.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Companys internal control over
financial reporting as of December 31, 2006, based on the
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated
February 28, 2007 expressed an unqualified opinion on
managements assessment of the effectiveness of the
Companys internal control over financial reporting and an
unqualified opinion on the effectiveness of the Companys
internal control over financial reporting.
/s/ Deloitte
& Touche LLP
Dallas, Texas
February 28, 2007
F-1
DEAN
FOODS COMPANY
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands, except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
31,140
|
|
|
$
|
24,456
|
|
Receivables, net of allowance for
doubtful accounts of $17,070 and $22,065
|
|
|
799,038
|
|
|
|
818,431
|
|
Inventories
|
|
|
360,754
|
|
|
|
355,004
|
|
Deferred income taxes
|
|
|
117,991
|
|
|
|
137,776
|
|
Prepaid expenses and other current
assets
|
|
|
70,367
|
|
|
|
65,526
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,379,290
|
|
|
|
1,401,193
|
|
Property, plant and equipment, net
|
|
|
1,786,907
|
|
|
|
1,776,801
|
|
Goodwill
|
|
|
2,943,139
|
|
|
|
2,922,940
|
|
Identifiable intangible and other
assets
|
|
|
640,857
|
|
|
|
648,223
|
|
Assets of discontinued operations
|
|
|
19,980
|
|
|
|
301,727
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,770,173
|
|
|
$
|
7,050,884
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
expenses
|
|
$
|
822,122
|
|
|
$
|
926,067
|
|
Income taxes payable
|
|
|
30,776
|
|
|
|
34,541
|
|
Current portion of long-term debt
|
|
|
483,658
|
|
|
|
65,326
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,336,556
|
|
|
|
1,025,934
|
|
Long-term debt
|
|
|
2,872,193
|
|
|
|
3,321,522
|
|
Deferred income taxes
|
|
|
504,552
|
|
|
|
449,707
|
|
Other long-term liabilities
|
|
|
238,682
|
|
|
|
225,479
|
|
Liabilities of discontinued
operations
|
|
|
8,791
|
|
|
|
126,029
|
|
Commitments and contingencies
(Note 18)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, none issued
|
|
|
|
|
|
|
|
|
Common stock 128,371,104 and
134,209,190 shares issued and outstanding, with a par value
of $0.01 per share
|
|
|
1,284
|
|
|
|
1,342
|
|
Additional paid-in capital
|
|
|
624,475
|
|
|
|
922,791
|
|
Retained earnings
|
|
|
1,229,427
|
|
|
|
1,004,013
|
|
Accumulated other comprehensive
loss
|
|
|
(45,787
|
)
|
|
|
(25,933
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,809,399
|
|
|
|
1,902,213
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,770,173
|
|
|
$
|
7,050,884
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-2
DEAN
FOODS COMPANY
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands, except share data)
|
|
|
Net sales
|
|
$
|
10,098,555
|
|
|
$
|
10,174,718
|
|
|
$
|
9,725,548
|
|
Cost of sales
|
|
|
7,358,676
|
|
|
|
7,591,548
|
|
|
|
7,338,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,739,879
|
|
|
|
2,583,170
|
|
|
|
2,387,410
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and distribution
|
|
|
1,648,860
|
|
|
|
1,581,028
|
|
|
|
1,472,112
|
|
General and administrative
|
|
|
409,225
|
|
|
|
380,490
|
|
|
|
355,772
|
|
Amortization of intangibles
|
|
|
5,983
|
|
|
|
6,106
|
|
|
|
5,105
|
|
Facility closing and
reorganization costs
|
|
|
25,116
|
|
|
|
35,451
|
|
|
|
24,575
|
|
Other operating income
|
|
|
|
|
|
|
|
|
|
|
(5,899
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
2,089,184
|
|
|
|
2,003,075
|
|
|
|
1,851,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
650,695
|
|
|
|
580,095
|
|
|
|
535,745
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
194,547
|
|
|
|
160,230
|
|
|
|
191,788
|
|
Other (income) expense, net
|
|
|
435
|
|
|
|
(683
|
)
|
|
|
(722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
194,982
|
|
|
|
159,547
|
|
|
|
191,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes
|
|
|
455,713
|
|
|
|
420,548
|
|
|
|
344,679
|
|
Income taxes
|
|
|
175,450
|
|
|
|
163,898
|
|
|
|
138,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
280,263
|
|
|
|
256,650
|
|
|
|
206,207
|
|
Gain (loss) on sale of
discontinued operations, net of tax
|
|
|
(1,978
|
)
|
|
|
38,763
|
|
|
|
|
|
Income (loss) from discontinued
operations, net of tax
|
|
|
(52,871
|
)
|
|
|
14,793
|
|
|
|
47,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of
accounting change
|
|
|
225,414
|
|
|
|
310,206
|
|
|
|
253,721
|
|
Cumulative effect of accounting
change, net of tax
|
|
|
|
|
|
|
(1,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
225,414
|
|
|
$
|
308,654
|
|
|
$
|
253,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
133,938,777
|
|
|
|
146,673,322
|
|
|
|
154,635,979
|
|
Diluted
|
|
|
139,762,104
|
|
|
|
153,438,636
|
|
|
|
160,704,576
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.09
|
|
|
$
|
1.75
|
|
|
$
|
1.33
|
|
Income (loss) from discontinued
operations
|
|
|
(0.41
|
)
|
|
|
0.36
|
|
|
|
0.31
|
|
Cumulative effect of accounting
change
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.68
|
|
|
$
|
2.10
|
|
|
$
|
1.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
2.01
|
|
|
$
|
1.67
|
|
|
$
|
1.28
|
|
Income (loss) from discontinued
operations
|
|
|
(0.40
|
)
|
|
|
0.35
|
|
|
|
0.30
|
|
Cumulative effect of accounting
change
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.61
|
|
|
$
|
2.01
|
|
|
$
|
1.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-3
DEAN
FOODS COMPANY
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands, except share data)
|
|
|
|
|
|
|
|
|
Balance, January 1,
2004
|
|
|
154,993,214
|
|
|
$
|
1,550
|
|
|
$
|
1,661,443
|
|
|
$
|
934,251
|
|
|
$
|
(29,854
|
)
|
|
$
|
2,567,390
|
|
|
|
|
|
Issuance of common stock
|
|
|
3,539,783
|
|
|
|
35
|
|
|
|
75,872
|
|
|
|
|
|
|
|
|
|
|
|
75,907
|
|
|
|
|
|
Horizon Organic stock option
conversion
|
|
|
|
|
|
|
|
|
|
|
20,635
|
|
|
|
|
|
|
|
|
|
|
|
20,635
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
48,193
|
|
|
|
|
|
|
|
|
|
|
|
48,193
|
|
|
|
|
|
Purchase and retirement of treasury
stock
|
|
|
(9,310,000
|
)
|
|
|
(93
|
)
|
|
|
(296,925
|
)
|
|
|
|
|
|
|
|
|
|
|
(297,018
|
)
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
253,721
|
|
|
|
|
|
|
|
253,721
|
|
|
$
|
253,721
|
|
Other comprehensive income
(Note 12):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative
instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(717
|
)
|
|
|
(717
|
)
|
|
|
(717
|
)
|
Amounts reclassified to income
statement related to derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,723
|
|
|
|
20,723
|
|
|
|
20,723
|
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,313
|
|
|
|
17,313
|
|
|
|
17,313
|
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,162
|
)
|
|
|
(13,162
|
)
|
|
|
(13,162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
277,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2004
|
|
|
149,222,997
|
|
|
|
1,492
|
|
|
|
1,509,218
|
|
|
|
1,187,972
|
|
|
|
(5,697
|
)
|
|
|
2,692,985
|
|
|
|
|
|
Issuance of common stock
|
|
|
3,867,493
|
|
|
|
39
|
|
|
|
73,195
|
|
|
|
|
|
|
|
|
|
|
|
73,234
|
|
|
|
|
|
Share dividend of TreeHouse common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(492,613
|
)
|
|
|
|
|
|
|
(492,613
|
)
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
40,067
|
|
|
|
|
|
|
|
|
|
|
|
40,067
|
|
|
|
|
|
Purchase and retirement of treasury
stock
|
|
|
(18,881,300
|
)
|
|
|
(189
|
)
|
|
|
(699,689
|
)
|
|
|
|
|
|
|
|
|
|
|
(699,878
|
)
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308,654
|
|
|
|
|
|
|
|
308,654
|
|
|
$
|
308,654
|
|
Other comprehensive income
(Note 12):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative
instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,290
|
|
|
|
11,290
|
|
|
|
11,290
|
|
Amounts reclassified to income
statement related to derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,510
|
|
|
|
8,510
|
|
|
|
8,510
|
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,220
|
)
|
|
|
(28,220
|
)
|
|
|
(28,220
|
)
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,816
|
)
|
|
|
(11,816
|
)
|
|
|
(11,816
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
288,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2005
|
|
|
134,209,190
|
|
|
|
1,342
|
|
|
|
922,791
|
|
|
|
1,004,013
|
|
|
|
(25,933
|
)
|
|
|
1,902,213
|
|
|
|
|
|
Issuance of common stock
|
|
|
4,184,114
|
|
|
|
42
|
|
|
|
64,775
|
|
|
|
|
|
|
|
|
|
|
|
64,817
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
36,871
|
|
|
|
|
|
|
|
|
|
|
|
36,871
|
|
|
|
|
|
Purchase and retirement of treasury
stock
|
|
|
(10,022,200
|
)
|
|
|
(100
|
)
|
|
|
(399,962
|
)
|
|
|
|
|
|
|
|
|
|
|
(400,062
|
)
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,414
|
|
|
|
|
|
|
|
225,414
|
|
|
$
|
225,414
|
|
Other comprehensive income
(Note 12):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative
instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,737
|
|
|
|
8,737
|
|
|
|
8,737
|
|
Amounts reclassified to income
statement related to derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,455
|
)
|
|
|
(7,455
|
)
|
|
|
(7,455
|
)
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,336
|
)
|
|
|
(10,336
|
)
|
|
|
(10,336
|
)
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,003
|
|
|
|
4,003
|
|
|
|
4,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
220,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to pension and other
postretirement liabilities related to adoption of
SFAS No. 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,803
|
)
|
|
|
(14,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2006
|
|
|
128,371,104
|
|
|
$
|
1,284
|
|
|
$
|
624,475
|
|
|
$
|
1,229,427
|
|
|
$
|
(45,787
|
)
|
|
$
|
1,809,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-4
DEAN
FOODS COMPANY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
225,414
|
|
|
$
|
308,654
|
|
|
$
|
253,721
|
|
Loss (income) from discontinued
operations
|
|
|
52,871
|
|
|
|
(14,793
|
)
|
|
|
(47,514
|
)
|
Loss (gain) on sale of discontinued
operations
|
|
|
1,978
|
|
|
|
(38,763
|
)
|
|
|
|
|
Adjustments to reconcile net income
to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
227,682
|
|
|
|
214,630
|
|
|
|
202,289
|
|
Share-based compensation expense
|
|
|
36,871
|
|
|
|
40,067
|
|
|
|
48,193
|
|
Loss on disposition of assets
|
|
|
7,841
|
|
|
|
1,525
|
|
|
|
4,093
|
|
Cumulative effect of accounting
change
|
|
|
|
|
|
|
1,552
|
|
|
|
|
|
Write-down of impaired assets
|
|
|
13,589
|
|
|
|
11,297
|
|
|
|
5,385
|
|
Deferred income taxes
|
|
|
66,994
|
|
|
|
34,141
|
|
|
|
124,641
|
|
Costs related to early
extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
32,613
|
|
Other
|
|
|
3,401
|
|
|
|
(2,700
|
)
|
|
|
236
|
|
Changes in operating assets and
liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
23,317
|
|
|
|
(53,618
|
)
|
|
|
(64,816
|
)
|
Inventories
|
|
|
(5,226
|
)
|
|
|
(10,427
|
)
|
|
|
(49,863
|
)
|
Prepaid expenses and other assets
|
|
|
12,442
|
|
|
|
24,359
|
|
|
|
(2,769
|
)
|
Accounts payable and accrued
expenses
|
|
|
(116,945
|
)
|
|
|
63,068
|
|
|
|
(80,900
|
)
|
Income taxes payable
|
|
|
11,323
|
|
|
|
(37,054
|
)
|
|
|
(11,694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by continuing
operations
|
|
|
561,552
|
|
|
|
541,938
|
|
|
|
413,615
|
|
Net cash provided by (used in)
discontinued operations
|
|
|
(334
|
)
|
|
|
13,838
|
|
|
|
115,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
561,218
|
|
|
|
555,776
|
|
|
|
528,726
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and
equipment
|
|
|
(237,242
|
)
|
|
|
(287,129
|
)
|
|
|
(301,186
|
)
|
Cash outflows for acquisitions
|
|
|
(17,244
|
)
|
|
|
(1,378
|
)
|
|
|
(378,164
|
)
|
Net proceeds from divestitures
|
|
|
95,982
|
|
|
|
189,862
|
|
|
|
|
|
Proceeds from sale of fixed assets
|
|
|
6,190
|
|
|
|
8,357
|
|
|
|
10,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in continuing
operations
|
|
|
(152,314
|
)
|
|
|
(90,288
|
)
|
|
|
(669,322
|
)
|
Net cash used in discontinued
operations
|
|
|
(15,151
|
)
|
|
|
(27,432
|
)
|
|
|
(77,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(167,465
|
)
|
|
|
(117,720
|
)
|
|
|
(746,571
|
)
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt
|
|
|
498,020
|
|
|
|
275,900
|
|
|
|
1,642,000
|
|
Repayment of debt
|
|
|
(551,473
|
)
|
|
|
(118,554
|
)
|
|
|
(1,222,630
|
)
|
Payments of deferred financing costs
|
|
|
(6,974
|
)
|
|
|
(4,279
|
)
|
|
|
(9,801
|
)
|
Issuance of common stock
|
|
|
32,311
|
|
|
|
57,718
|
|
|
|
61,969
|
|
Tax savings on share-based
compensation
|
|
|
31,211
|
|
|
|
20,614
|
|
|
|
18,527
|
|
Redemption of common stock
|
|
|
(400,062
|
)
|
|
|
(699,878
|
)
|
|
|
(297,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
continuing operations
|
|
|
(396,967
|
)
|
|
|
(468,479
|
)
|
|
|
193,047
|
|
Net cash provided by discontinued
operations
|
|
|
9,898
|
|
|
|
29,522
|
|
|
|
18,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
(387,069
|
)
|
|
|
(438,957
|
)
|
|
|
211,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and
cash equivalents
|
|
|
6,684
|
|
|
|
(901
|
)
|
|
|
(5,951
|
)
|
Cash and cash equivalents,
beginning of period
|
|
|
24,456
|
|
|
|
25,357
|
|
|
|
31,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
31,140
|
|
|
$
|
24,456
|
|
|
$
|
25,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-5
DEAN
FOODS COMPANY
Years
Ended December 31, 2006, 2005 and 2004
|
|
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Nature of Our Business 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 sells its products under a
variety of local and regional brands and under private labels.
Our 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, International
Delight®
coffee creamers, LAND
OLAKES®
creamers and fluid dairy products and Rachels
Organic®
dairy products.
Basis of Presentation Our Consolidated
Financial Statements include the accounts of our wholly-owned
subsidiaries. All intercompany balances and transactions are
eliminated in consolidation.
On September 14, 2006, we completed the sale of our
operations based in Spain. The sale of our remaining Iberian
operations was completed in January 2007 following the
completion of Portuguese regulatory proceedings. In our
Consolidated Financial Statements for the years ended
December 31, 2006, 2005 and 2004, the Iberian operations
have been reclassified as discontinued operations.
On June 27, 2005, we completed the spin-off
(Spin-off) of our indirect majority-owned subsidiary
TreeHouse Foods, Inc. (TreeHouse). Immediately prior
to the Spin-off, we transferred to TreeHouse (1) the
businesses previously conducted by our Specialty Foods Group
segment, (2) the Mocha
Mix®
and Second
Nature®
businesses previously conducted by WhiteWave Foods Company and
(3) the foodservice salad dressings businesses previously
conducted by the Dairy Group and WhiteWave Foods Company. In
August 2005, we completed the sale of our
Maries®
dips and dressings and
Deans®
dips businesses to Ventura Foods. In our Consolidated Financial
Statements for the years ended December 31, 2005 and 2004,
the businesses transferred to TreeHouse and the Maries
dips and dressings and Deans dips businesses have been
reclassified as discontinued operations.
Use of Estimates The preparation of our
Consolidated Financial Statements in conformity with generally
accepted accounting principles (GAAP) requires us to
use our judgment to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the
Consolidated Financial Statements and the reported amounts of
net sales and expenses during the reporting period. Actual
results could differ from these estimates under different
assumptions or conditions.
Cash Equivalents We consider temporary cash
investments with an original maturity of three months or less to
be cash equivalents.
Inventories Inventories are stated at the
lower of cost or market. Our products are valued using the
first-in, first-out (FIFO) method. The costs of
finished goods inventories include raw materials, direct labor
and indirect production and overhead costs.
Property, Plant and Equipment Property, plant
and equipment are stated at acquisition cost, plus capitalized
interest on borrowings during the actual construction period of
major capital projects. Also included in property, plant and
equipment are certain direct costs related to the implementation
of computer software for internal use. Depreciation and
amortization are calculated using the straight-line method over
the estimated useful lives of the assets, as follows:
|
|
|
|
|
Asset
|
|
Useful Life
|
|
Buildings and improvements
|
|
|
7 to 40 years
|
|
Machinery and equipment
|
|
|
3 to 20 years
|
|
We perform impairment tests when circumstances indicate that the
carrying value may not be recoverable. Capitalized leases are
amortized over the shorter of their lease term or their
estimated useful lives. Expenditures for repairs and
maintenance, which do not improve or extend the life of the
assets, are expensed as incurred.
F-6
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Intangible and Other Assets Identifiable
intangible assets are amortized over their estimated useful
lives as follows:
|
|
|
Asset
|
|
Useful Life
|
|
Customer relationships
|
|
Straight-line method over 5 to
15 years
|
Customer supply contracts
|
|
Straight-line method over the
terms of the agreements
|
Trademarks/trade names
|
|
Straight-line method over 10 to
40 years
|
Noncompetition agreements
|
|
Straight-line method over the
terms of the agreements
|
Deferred financing costs
|
|
Interest method over the terms of
the related debt
|
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 142, goodwill and other intangible
assets determined to have indefinite useful lives are not
amortized. Instead, we conduct impairment tests on our goodwill,
trademarks and other intangible assets with indefinite lives
annually and when circumstances indicate that the carrying value
may not be recoverable. To determine whether an impairment
exists, we use present value techniques.
Foreign Currency Translation The financial
statements of our foreign subsidiaries are translated to
U.S. dollars in accordance with the provisions of
SFAS No. 52, Foreign Currency Translation.
The functional currency of our foreign subsidiaries is generally
the local currency of the country. Accordingly, assets and
liabilities of the foreign subsidiaries are translated to U.S.
dollars at year-end exchange rates. Income and expense items are
translated at the average rates prevailing during the year.
Changes in exchange rates that affect cash flows and the related
receivables or payables are recognized as transaction gains and
losses in the determination of net income. The cumulative
translation adjustment in stockholders equity reflects the
unrealized adjustments resulting from translating the financial
statements of our foreign subsidiaries.
Share-Based Compensation In accordance with
SFAS No. 123(R), Share-Based Payment,
share-based compensation expense is recognized for equity awards
over the vesting period based on their grant date fair value.
The fair value of option awards is estimated at the date of
grant using the Black-Scholes valuation model. The fair value of
restricted stock unit awards is equal to the closing price of
our stock on the date of grant. Compensation expense is
recognized only for equity awards expected to vest. We estimate
forfeitures at the date of grant based on the Companys
historical experience and future expectations. Share-based
compensation expense is included within the same financial
statement caption where the recipients cash compensation
is reported and is classified as a corporate item for business
segment reporting.
Sales Recognition and Accounts Receivable
Sales are recognized when persuasive evidence of an arrangement
exists, the price is fixed or determinable, the product has been
shipped to the customer and there is a reasonable assurance of
collection of the sales proceeds. In accordance with Emerging
Issues Task Force (EITF)
01-09,
Accounting for Consideration Given by a Vendor to a
Customer, sales are reduced by certain sales incentives,
some of which are recorded by estimating expense based on our
historical experience. We provide credit terms to customers
generally ranging up to 30 days, perform ongoing credit
evaluation of our customers and maintain allowances for
potential credit losses based on historical experience.
Estimated product returns, which have not been material, are
deducted from sales at the time of shipment.
Income Taxes All of our wholly-owned U.S.
operating subsidiaries are included in our U.S. federal
consolidated tax return. In addition, our proportional share of
the operations of our former majority-owned subsidiaries and
certain of our equity method affiliates, all of which are
organized as limited liability companies or limited
partnerships, are included in our consolidated tax return. Our
foreign subsidiaries are required to file separate income tax
returns in their local jurisdictions. Certain distributions from
these subsidiaries are subject to U.S. income taxes; however,
available tax credits of these subsidiaries may reduce or
eliminate these U.S. income tax liabilities. Other foreign
earnings are expected to be reinvested indefinitely. At
December 31, 2006, no provision had been made for U.S.
federal or state income tax on approximately $11 million of
accumulated foreign earnings.
F-7
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred income taxes are provided for temporary differences
between amounts recorded in the Consolidated Financial
Statements and tax bases of assets and liabilities using current
tax rates. Deferred tax assets, including the benefit of net
operating loss carry forwards, are evaluated based on the
guidelines for realization and are reduced by a valuation
allowance if deemed necessary.
Advertising Expense Advertising expense is
comprised of media, agency, coupon, trade shows and other
promotional expenses. Advertising expenses are charged to income
during the period incurred, except for expenses related to the
development of a major commercial or media campaign which are
charged to income during the period in which the advertisement
or campaign is first presented by the media. Advertising
expenses charged to income totaled $113.5 million in 2006,
$93.6 million in 2005 and $114.1 million in 2004.
Additionally, prepaid advertising costs were $3.3 million
and $4.9 million at December 31, 2006 and 2005,
respectively.
Shipping and Handling Fees Our shipping and
handling costs are included in both cost of sales and selling
and distribution expense, depending on the nature of such costs.
Shipping and handling costs included in cost of sales reflect
inventory warehouse costs and product loading and handling
costs. Our Dairy Group includes costs associated with
transporting finished products from our manufacturing facilities
to our own distribution warehouses within cost of sales while
WhiteWave 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 that were recorded as a component of
selling and distribution expense were approximately
$1.28 billion, $1.22 billion and $1.13 billion
during 2006, 2005 and 2004, respectively.
Insurance Accruals We retain selected levels
of property and casualty risks, primarily related to employee
health care, workers compensation claims and other
casualty losses. Many of these potential losses are covered
under conventional insurance programs with third party carriers
with high deductible limits. In other areas, we are self-insured
with stop-loss coverages. Accrued liabilities for incurred but
not reported losses related to these retained risks are
calculated based upon loss development factors which contemplate
a number of factors including claims history and expected
trends. These loss development factors are developed by us in
consultation with external insurance brokers and actuaries.
Facility Closing and Reorganization Costs We
have an on-going facility closing and reorganization strategy.
We record facility closing and reorganization charges when we
have identified a facility for closure or other reorganization
opportunity, developed a plan and notified the affected
employees.
Comprehensive Income We consider all changes
in equity from transactions and other events and circumstances,
except those resulting from investments by owners and
distributions to owners, to be comprehensive income.
Recently Adopted Accounting Pronouncements In
2006, we adopted SFAS No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans an Amendment of FASB Statements No. 87,
88, 106, and 132(R). SFAS No. 158 requires plan
sponsors of defined benefit pension and other postretirement
benefit plans (collectively, postretirement benefit
plans) to recognize the overfunded or underfunded status
of its postretirement benefit plans (other than multiemployer
plans) as an asset or liability in its statement of financial
position, measure the fair value of plan assets and benefit
obligations as of the date of its year-end statement of
financial position, and provide additional disclosures.
F-8
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The incremental effects of adopting the provisions of
SFAS No. 158 on our Consolidated Balance Sheet at
December 31, 2006 are presented in the following table. The
adoption of SFAS No. 158 did not have an effect on our
Consolidated Balance Sheets at December 31, 2005 or 2004
and our Consolidated Statements of Income for the years ended
December 31, 2006, 2005 and 2004, and it will not effect
our Consolidated Statements of Income in future periods. Had we
not been required to adopt SFAS No. 158 at
December 31, 2006, we would have recognized an additional
minimum liability pursuant to the provisions of
SFAS No. 87. The effect of recognizing the additional
minimum liability is included in table below in the column
labeled Prior to Adopting SFAS No. 158.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
Prior to
|
|
Effect of
|
|
As Reported
|
|
|
Adopting
|
|
Adopting
|
|
At December 31,
|
|
|
SFAS No. 158
|
|
SFAS No. 158
|
|
2006
|
|
|
|
|
(In thousands)
|
|
|
|
Non-current pension asset
|
|
$
|
10,383
|
|
|
$
|
(10,383
|
)
|
|
$
|
|
|
Pension and other postretirement
plan liabilities
|
|
|
82,885
|
|
|
|
13,492
|
|
|
|
96,377
|
|
Deferred income taxes
|
|
|
26,195
|
|
|
|
9,072
|
|
|
|
35,267
|
|
Accumulated other comprehensive
loss
|
|
|
(43,433
|
)
|
|
|
(14,803
|
)
|
|
|
(58,236
|
)
|
SFAS No. 158s provisions regarding the change in
measurement date of postretirement benefit plans are not
applicable as we already use a measurement date of
December 31 for our postretirement benefit plans. See
Notes 13 and 14 for further discussion of our
postretirement benefit plans.
Effective January 1, 2006, we adopted
SFAS No. 123(R), Share-Based Payment.
Among its provisions, SFAS No. 123(R) requires the
Company to recognize compensation expense for equity awards over
the vesting period based on their grant-date fair value. Prior
to the adoption of SFAS No. 123(R), we utilized the
intrinsic-value based method of accounting under APB Opinion
No. 25, Accounting for Stock Issued to
Employees and related interpretations, and adopted the
disclosure requirements of SFAS No. 123,
Accounting for Stock-Based Compensation.
In order to enhance comparability among all periods presented,
we elected to adopt SFAS No. 123(R) using the modified
retrospective approach. Under this transition method, the
results for prior periods reflect the recognition of the
compensation expense and related income tax benefit historically
disclosed in our financial statements. As a result of adopting
SFAS No. 123(R), our income before taxes, net income,
basic earnings per share and diluted earnings per share were
lower than if we had continued to account for share-based
compensation under APB Opinion No. 25 as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
December 31, 2005
|
|
December 31, 2004
|
|
|
(In thousands, except share data)
|
|
Decrease in:
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
$
|
24,723
|
|
|
$
|
42,216
|
|
Net income
|
|
|
18,877
|
|
|
|
31,654
|
|
Basic EPS
|
|
$
|
0.13
|
|
|
$
|
0.20
|
|
Diluted EPS
|
|
|
0.12
|
|
|
|
0.20
|
|
See Note 10 for information regarding our share-based
compensation programs.
Effective January 1, 2006, we adopted
SFAS No. 151, Inventory Costs an
Amendment of ARB No. 43, Chapter 4. This
statement 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. The adoption of this
statement did not have a material impact on our Consolidated
Financial Statements.
F-9
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Effective January 1, 2006, we adopted
SFAS No. 153, Exchanges of Nonmonetary Assets,
an amendment of APB Opinion No. 29.
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. The adoption of this statement
did not have a material impact on our Consolidated Financial
Statements.
Effective in the fourth quarter of 2005, we adopted Financial
Interpretation No. (FIN) 47, Accounting for
Conditional Asset Retirement Obligations. See Note 5
for additional information.
Recently Issued Accounting Pronouncements The
Financial Accounting Standards Board (FASB) issued
FIN 48, Accounting for Uncertainty in Income
Taxes in June 2006. This interpretation clarifies the
accounting for income taxes recognized in an enterprises
financial statements in accordance with SFAS No. 109,
Accounting for Income Taxes. This interpretation
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. We are
currently evaluating the impact of FIN 48 on our
Consolidated Financial Statements. This interpretation will
become effective for us in the first quarter of 2007.
The FASB issued SFAS No. 157, Fair Value
Measurements in September 2006. SFAS No. 157
defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands
disclosures about fair value measurements.
SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurements
but does not require any new fair value measurements. We do not
believe the adoption of this standard will have a material
impact on our Consolidated Financial Statements. This standard
will become effective for us in the first quarter of 2008.
The FASB issued SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities in
February 2007. SFAS No. 159 permits entities to choose
to measure many financial instruments and certain other items at
fair value. Most of the provisions of SFAS No. 159
apply only to entities that elect the fair value option. We do
not believe the adoption of this standard will have a material
impact on our Consolidated Financial Statements. This standard
will become effective for us in the first quarter of 2008.
Reclassifications Certain reclassifications
have been made to conform the prior years Consolidated
Financial Statements to the current years classifications.
During the year ended December 31, 2006, we reclassified
the presentation of expense recognition for reusable packaging
utilized in the distribution of our products from cost of sales
to distribution expense. The reclassification reduced cost of
sales and increased distribution expense by $42.0 million
and $36.2 million for the years ended December 31,
2005 and 2004, respectively. The reclassification had no impact
on net income.
F-10
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
ACQUISITIONS
AND DISCONTINUED OPERATIONS
|
Acquisitions
We completed the acquisitions of 15 businesses during 2006, 2005
and 2004. All of these acquisitions were funded with cash flows
from operations and borrowings under our senior credit facility
and our receivables-backed facility. The results of operations
of the acquired companies are included in our Consolidated
Financial Statements subsequent to their respective acquisition
dates. At the acquisition date, the purchase price was allocated
to assets acquired, including identifiable intangibles, and
liabilities assumed based on their fair market values. The
excess of the total purchase prices over the fair values of the
net assets acquired represented goodwill. In connection with the
acquisitions, assets were acquired and liabilities were assumed
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Purchase prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid, net of cash acquired(1)
|
|
$
|
17,244
|
|
|
$
|
2,312
|
|
|
$
|
378,164
|
|
Forgiveness of debt
|
|
|
|
|
|
|
1,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase prices
|
|
|
17,244
|
|
|
|
3,363
|
|
|
|
378,164
|
|
Fair value of net assets acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired
|
|
|
11,207
|
|
|
|
2,114
|
|
|
|
244,690
|
|
Liabilities assumed
|
|
|
(4,836
|
)
|
|
|
(782
|
)
|
|
|
(160,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of net assets
acquired
|
|
|
6,371
|
|
|
|
1,332
|
|
|
|
84,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
10,873
|
|
|
$
|
2,031
|
|
|
$
|
293,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In 2005, excludes $934,000 received in 2005 related to a 2004
acquisition. |
Our Dairy Group completed several small acquisitions for an
aggregate purchase price of $17.2 million and
$3.4 million in 2006 and 2005, respectively.
Milk Products of Alabama On October 15,
2004, our Dairy Group acquired Milk Products of Alabama, a dairy
manufacturer based in Decatur, Alabama. Milk Products of Alabama
had net sales of approximately $34 million in 2003. As a
result of this acquisition, we expanded our production
capabilities in the southeastern United States, allowing us to
better serve our customers. Milk Products of Alabamas
results of operations are now included in our Dairy Group. We
paid approximately $23.2 million for the purchase of Milk
Products of Alabama, including costs of acquisition, and funded
the purchase price with borrowings under our senior credit
facility.
Soy Processing Facility On April 5,
2004, our WhiteWave Foods Company acquired a soy processing and
packaging plant located in Bridgeton, New Jersey. Prior to the
acquisition, the previous owner of the facility co-packed
Silk products for us at the facility. As a result of the
acquisition, we increased our in-house processing and packaging
capabilities for our soy products, resulting in cost reductions.
We paid approximately $25.7 million for the purchase of the
facility, all of which was funded using borrowings under our
senior credit facility.
LAND OLAKES East In 2002, we purchased
a perpetual license to use the LAND
OLAKES®
brand on certain dairy products nationally, excluding cheese
and butter. This perpetual license was subject, however, to a
pre-existing sublicense entitling a competitor to manufacture
and sell cream, sour cream and whipping cream in certain
channels in the eastern United States. Effective March 31,
2004, WhiteWave Foods Company acquired that sublicense and
certain customer relationships of the sublicensee (LAND
OLAKES East) for an aggregate purchase price of
approximately $17 million, all of which was funded using
borrowings under our senior credit facility. We now have the
exclusive right to use the LAND OLAKES brand on
certain dairy products (other than cheese and butter) throughout
the entire United States.
F-11
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Ross Swiss Dairies On January 26, 2004,
our Dairy Group acquired Ross Swiss Dairies, a dairy distributor
based in Los Angeles, California, which had net sales of
approximately $120 million in 2003. As a result of this
acquisition, we increased the distribution capability of our
Dairy Group in southern California, allowing us to better serve
our customers. Ross Swiss Dairies historically purchased a
significant portion of its products from other processors. The
fluid dairy products distributed by Ross Swiss Dairies are now
manufactured in our southern California facilities. We paid
approximately $21.8 million, including transaction costs,
for the purchase of Ross Swiss Dairies and funded the purchase
price with borrowings under our receivables-backed facility.
Horizon Organic On January 2, 2004, we
completed the acquisition of the 87% of Horizon Organic Holding
Corporation (Horizon Organic) that we did not
already own. Horizon Organic had sales of over $200 million
during 2003. We already owned approximately 13% of the
outstanding common stock of Horizon Organic as a result of
investments made in 1998. Third-party co-packers, including us,
historically manufactured all of Horizon Organics
products. During 2003, we produced approximately 27% of Horizon
Organics fluid dairy products. We also distributed Horizon
Organics products in several parts of the country. Horizon
Organic is a leading branded organic foods company in the United
States. Because organic foods are gaining popularity with
consumers and because Horizon Organics products offer
consumers an alternative to our Dairy Groups traditional
dairy products, we believe Horizon Organic is an important
addition to our portfolio of brands. The aggregate purchase
price for the 87% of Horizon Organic that we did not already own
was approximately $287 million, including approximately
$217 million of cash paid to Horizon Organics
stockholders, the repayment of approximately $40 million of
borrowings under Horizon Organics former credit
facilities, and transaction expenses of approximately
$9 million, all of which was funded using borrowings under
our senior credit facility and our receivables-backed facility.
In addition, each of the options to purchase Horizon
Organics common stock outstanding on January 2, 2004
was converted into an option to purchase .7301 shares of
our stock, with an aggregate fair value of approximately
$21 million. Beginning with the first quarter of 2004,
Horizon Organics financial results are reported in our
WhiteWave Foods Company segment.
Other During 2004, our Dairy Group completed
four smaller acquisitions for an aggregate purchase price of
$23.3 million.
Discontinued
Operations
Our financial statements have been reclassified to give effect
to the following businesses as discontinued operations.
Iberian Operations Our former Iberian
operations included the manufacture and distribution of private
label and branded milk across Spain and Portugal. In the second
quarter of 2006, we committed to a plan to sell our Iberian
operations with the expectation that such sale could be
completed within one year. The decision to sell such operations
is part of our strategy to focus on our core dairy and branded
businesses. At that time, we recognized a non-cash impairment
charge of $46.4 million, net of an income tax benefit of
$8.1 million, representing our best estimate as of
June 30, 2006 of the impairment required based on our
expected proceeds upon sale of the Iberian operations.
On September 14, 2006, we completed the sale of our
operations in Spain for net cash proceeds of approximately
$96.0 million. In addition to customary indemnifications of
the purchaser of the business, we retained contingent
obligations related to regulatory compliance, including an
obligation to pay the purchaser a maximum of 15 million
euros (approximately $19.8 million as of December 31,
2006) if certain regulatory approvals are not received with
respect to a specific facility. A loss on the sale of our
operations in Spain of $6.8 million (net of tax) was
recognized during 2006.
In connection with the sale of our operations in Spain, we
entered into an agreement to sell our Portuguese operations
(that comprised the remainder of our Iberian operations) for
approximately $11.4 million subject to
F-12
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
regulatory approvals and working capital settlements. We
completed the sale of our Portuguese operations in January 2007.
No significant loss is expected on the sale.
Sale of Maries Dips and Dressings and Deans
Dips On August 22, 2005, we completed the
sale of tangible and intangible assets related to the production
and distribution of Maries dips and dressings and
Deans dips to Ventura Foods. We also agreed to
license the Dean trademark to Ventura Foods for use on certain
non-dairy dips. Our net proceeds were approximately
$189.9 million. The sale of these brands was part of our
strategy to focus on our core dairy and branded businesses.
Spin-off of TreeHouse On January 25,
2005, we formed TreeHouse. At that time, TreeHouse sold shares
of common stock to certain members of a newly retained
management team, who purchased 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 Consolidated Balance Sheet.
On June 27, 2005, we completed the Spin-off. Immediately
prior to the Spin-off, we transferred to TreeHouse (1) the
businesses previously conducted by our Specialty Foods Group
segment, (2) the Mocha Mix non-dairy coffee creamer
and Second Nature liquid egg substitute businesses
previously conducted by WhiteWave 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. At the time
of the Spin-off, we transferred the obligation for pension and
other postretirement benefit plans of transferred employees and
retirees to TreeHouse. In the second half of 2005, we
transferred a portion of the related plan assets. In 2006, we
transferred the remaining plan assets related to such
obligations. Following the Spin-off, we have no ownership
interest in TreeHouse.
Other In 2006, we recognized a
$4.8 million gain from the favorable resolution of
contingencies related to prior discontinued operations.
Net sales and income before taxes generated by discontinued
operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2006(1)
|
|
2005(1)
|
|
2004(1)
|
|
|
|
|
(In thousands)
|
|
|
|
Net sales
|
|
$
|
240,470
|
|
|
$
|
725,602
|
|
|
$
|
1,096,737
|
|
Income (loss) before taxes(2)
|
|
|
(52,842
|
)
|
|
|
25,524
|
|
|
|
75,480
|
|
|
|
|
(1) |
|
All intercompany sales and expenses have been appropriately
eliminated in the table. |
|
(2) |
|
Interest expense of $4.8 million in the year ended
December 31, 2006 was allocated to our Iberian discontinued
operations based on the net assets of our discontinued
operations relative to our total net assets. Interest expense of
$9.2 million and $10.6 million in the years ended
December 31, 2005 and 2004, respectively, was allocated to
our Iberian operations and Maries dips and
dressings and Deans dips discontinued operations
based on the net assets of our discontinued operations relative
to our total net assets. |
F-13
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Major classes of assets and liabilities of discontinued
operations included in our Consolidated Balance Sheets at
December 31, 2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
2006
|
|
2005
|
|
|
(In thousands)
|
|
Current assets
|
|
$
|
14,255
|
|
|
$
|
75,774
|
|
Goodwill
|
|
|
|
|
|
|
91,938
|
|
Other non-current assets
|
|
|
5,725
|
|
|
|
134,015
|
|
Current liabilities
|
|
|
8,791
|
|
|
|
111,397
|
|
Non-current liabilities
|
|
|
|
|
|
|
14,632
|
|
|
|
3.
|
INVESTMENTS
IN UNCONSOLIDATED AFFILIATES
|
Investment in Consolidated Container Company
We own an approximately 25% minority interest, on a fully
diluted basis, in Consolidated Container Company
(CCC), one of the nations largest
manufacturers of rigid plastic containers and our largest
supplier of plastic bottles and bottle components. We have owned
our minority interest since July 2, 1999, when we sold our
U.S. plastic packaging operations to CCC.
Since July 2, 1999, our investment in CCC has been
accounted for under the equity method of accounting. During
2001, due to a variety of operational difficulties, CCC
consistently reported operating results that were significantly
weaker than expected, which resulted in significant losses in
the third and fourth quarters of 2001. As a result, by late 2001
CCC had become unable to comply with the financial covenants
contained in its credit facility. We concluded that our
investment was impaired and that the impairment was not
temporary so we wrote off our remaining investment during the
fourth quarter of 2001. Our investment in CCC has been recorded
at $0 since we wrote-off our remaining investment in 2001. As
the tax basis of our investment in CCC is less than the carrying
value of the investment recognized in our Consolidated Financial
Statements, the sale or liquidation of our investment could
result in a disproportionate tax obligation.
In 2002, we agreed to loan CCC $10 million of their
$35 million financing requirements in exchange for
cancellation of a pre-existing $10 million loan guaranty we
provided to them, as well as for the receipt of additional
equity. Vestar Capital Partners, majority owner of CCC, loaned
CCC the remaining $25 million. We were required to
recognize a portion of CCCs 2002 losses, up to the amount
of the loan. The loan was written off in its entirety in the
fourth quarter of 2002. In 2004, in connection with a
refinancing of CCC, our $10 million loan plus
$1.9 million in accrued interest was repaid through the
issuance of 11,938,056 Series B Preferred Units from CCC.
The Series B Units are convertible into common shares or a
combination of common shares and Series C Preferred Units,
at various times and subject to certain conditions. This
transaction had no impact on our 2004 Consolidated Statement of
Income.
Less than 1% of CCC is owned indirectly by Alan Bernon,
President of our Dairy Group, and his brother Peter Bernon.
Pursuant to our agreements with Vestar, we control two of the
eight seats on CCCs Management Committee. We have supply
agreements with CCC to purchase certain of our requirements for
plastic bottles and bottle components from CCC. We spent
approximately $284.4 million, $324.1 million and
$235.5 million on products purchased from CCC for the years
ended December 31, 2006, 2005 and 2004, respectively. In
the third quarter of 2006, we reached a favorable resolution of
a dispute with CCC resulting in a $7.0 million reduction in
cost of sales. In the fourth quarter of 2004, we purchased
equipment previously owned and operated by CCC totaling
$3.2 million.
Investment in Momentx As of December 31,
2006 and 2005, we had an approximately 16% voting interest in
Momentx, Inc. Our investment in Momentx at both
December 31, 2006 and 2005 was $1.2 million. Momentx
is the owner and operator of dairy.com, an online
vertical exchange dedicated to the dairy industry. We account
for this
F-14
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
investment under the cost method of accounting. We spent
approximately $600,000, $444,000 and $664,000 on products
purchased from dairy.com for the years ended
December 31, 2006, 2005 and 2004, respectively.
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Raw materials and supplies
|
|
$
|
173,208
|
|
|
$
|
151,442
|
|
Finished goods
|
|
|
187,546
|
|
|
|
203,562
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
360,754
|
|
|
$
|
355,004
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
PROPERTY,
PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Land
|
|
$
|
176,425
|
|
|
$
|
166,750
|
|
Buildings and improvements
|
|
|
749,163
|
|
|
|
709,159
|
|
Machinery and equipment
|
|
|
1,892,028
|
|
|
|
1,758,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,817,616
|
|
|
|
2,634,664
|
|
Less accumulated depreciation
|
|
|
(1,030,709
|
)
|
|
|
(857,863
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,786,907
|
|
|
$
|
1,776,801
|
|
|
|
|
|
|
|
|
|
|
For 2006 and 2005, we capitalized $3.4 million and
$3.8 million in interest related to borrowings during the
actual construction period of major capital projects, which is
included as part of the cost of the related asset.
In the fourth quarter of 2005 we adopted FIN No. 47,
Accounting for Conditional Asset Retirement
Obligations. As a result of the adoption we increased the
carrying value of our assets by $285,000, net of accumulated
depreciation, and recognized asset retirement obligations of
$2.8 million at December 31, 2005. We recognized
$2.5 million ($1.6 million, net of tax) as a
cumulative change in accounting principal in 2005 for
depreciation expense on the increase in property, plant and
equipment related to the anticipated removal costs of
underground fuel storage tanks.
F-15
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The changes in the carrying amount of goodwill for the years
ended December 31, 2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WhiteWave
|
|
|
|
|
|
|
|
|
|
Foods
|
|
|
|
|
|
|
Dairy Group
|
|
|
Company
|
|
|
Total
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$
|
2,442,968
|
|
|
$
|
551,472
|
|
|
$
|
2,994,440
|
|
Purchase accounting adjustments
|
|
|
(44,156
|
)
|
|
|
(29,375
|
)
|
|
|
(73,531
|
)
|
Acquisitions
|
|
|
2,031
|
|
|
|
|
|
|
|
2,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
2,400,843
|
|
|
|
522,097
|
|
|
|
2,922,940
|
|
Purchase accounting adjustments
|
|
|
(3,303
|
)
|
|
|
12,629
|
|
|
|
9,326
|
|
Acquisitions
|
|
|
10,873
|
|
|
|
|
|
|
|
10,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
2,408,413
|
|
|
$
|
534,726
|
|
|
$
|
2,943,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase accounting adjustments generally represent adjustments
of the preliminary allocation of the purchase price to the fair
values of assets and liabilities purchased in recent
acquisitions. Included in the Dairy Group 2006 purchase
accounting adjustments is $3.5 million related to a
reduction in tax reserves from the Dean Holding Company
acquisition and the revision of deferred tax assets on other
acquisitions. Included in the Dairy Group 2005 purchase
accounting adjustments is $35.6 million related to the
revision of tax attributes of assets from the Dean Holding
Company acquisition. Deferred tax liabilities were reduced by a
similar amount. The adjustments to WhiteWave Foods Company in
2006 represent a reduction in deferred tax assets due to an
adjustment in the tax basis of liabilities related to the
Horizon Organic acquisition. The adjustments to WhiteWave Foods
Company in 2005 primarily represent the difference between the
cost of eliminating certain contractual obligations entered into
by Horizon prior to our acquisition of that company and the
estimated costs to exit entirely from such activities and
related obligations as originally estimated in the purchase
price allocation. These adjustments have no impact on the
Consolidated Statements of Income.
The gross carrying amount and accumulated amortization of our
intangible assets other than goodwill as of December 31,
2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Intangible assets with indefinite
lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
511,294
|
|
|
$
|
(5,877
|
)
|
|
$
|
505,417
|
|
|
$
|
511,662
|
|
|
$
|
(5,877
|
)
|
|
$
|
505,785
|
|
Intangible assets with finite
lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-related and other
|
|
|
87,616
|
|
|
|
(28,474
|
)
|
|
|
59,142
|
|
|
|
86,525
|
|
|
|
(21,358
|
)
|
|
|
65,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
598,910
|
|
|
$
|
(34,351
|
)
|
|
$
|
564,559
|
|
|
$
|
598,187
|
|
|
$
|
(27,235
|
)
|
|
$
|
570,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-16
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amortization expense on intangible assets for the years ended
December 31, 2006, 2005 and 2004 was $7.7 million,
$7.2 million and $5.4 million, respectively. Estimated
aggregate intangible asset amortization expense for the next
five years is as follows:
|
|
|
|
|
2007
|
|
$
|
7.6 million
|
|
2008
|
|
|
7.4 million
|
|
2009
|
|
|
7.1 million
|
|
2010
|
|
|
7.0 million
|
|
2011
|
|
|
5.2 million
|
|
Our goodwill and intangible assets have resulted primarily from
acquisitions. Upon acquisition, the purchase price is first
allocated to identifiable assets and liabilities, including
trademarks and customer-related intangible assets, with any
remaining purchase price recorded as goodwill. Goodwill and
trademarks with indefinite lives are not amortized.
A trademark is recorded with an indefinite life if it has
sufficient market share and a history of strong sales and cash
flow performance that we expect to continue for the foreseeable
future. If these perpetual trademark criteria are not met, the
trademarks are amortized over their expected useful lives, which
range from five to 40 years. Determining the expected life
of a trademark is based on a number of factors including the
competitive environment, market share, trademark history and
anticipated future trademark support.
In accordance with SFAS No. 142, we conduct impairment
tests of goodwill and intangible assets with indefinite lives
annually in the fourth quarter or when circumstances arise that
indicate a possible impairment might exist. If the fair value of
an evaluated asset is less than its book value, the asset is
written down to fair value based on its discounted future cash
flows. Our 2006, 2005 and 2004 annual impairment tests of
goodwill indicated no impairments. Our 2006 annual impairment
tests of intangibles with indefinite lives indicated an
impairment on a perpetual trademark for a regional brand in our
Dairy Group as a result of the decision to close a facility and
shift customers from one regional brand to another. In 2006, we
recognized an impairment charge of approximately $700,000
related to this trademark. Our 2005 and 2004 annual impairment
tests of intangibles with indefinite lives indicated no
impairment.
Amortizable intangible assets are only evaluated for impairment
upon a significant change in the operating environment. If an
evaluation of the undiscounted cash flows indicates impairment,
the asset is written down to its estimated fair value, which is
based on discounted future cash flows.
|
|
7.
|
ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Accounts payable
|
|
$
|
463,965
|
|
|
$
|
498,331
|
|
Payroll and benefits
|
|
|
123,507
|
|
|
|
148,548
|
|
Health insurance, workers
compensation and other insurance costs
|
|
|
84,988
|
|
|
|
85,250
|
|
Other accrued liabilities
|
|
|
149,662
|
|
|
|
193,938
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
822,122
|
|
|
$
|
926,067
|
|
|
|
|
|
|
|
|
|
|
F-17
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the 2006, 2005 and 2004 provisions
for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006(1)
|
|
|
2005(2)
|
|
|
2004(3)
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Federal
|
|
$
|
96,245
|
|
|
$
|
113,025
|
|
|
$
|
5,505
|
|
State
|
|
|
12,183
|
|
|
|
14,514
|
|
|
|
3,240
|
|
Foreign and other
|
|
|
517
|
|
|
|
853
|
|
|
|
2,250
|
|
Deferred income taxes
|
|
|
66,505
|
|
|
|
35,506
|
|
|
|
127,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
175,450
|
|
|
$
|
163,898
|
|
|
$
|
138,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes $12.0 million income tax benefit related to
discontinued operations. |
|
(2) |
|
Excludes $53.1 million income tax expense related to
discontinued operations and $900,000 income tax benefit related
to cumulative effect of accounting change. |
|
(3) |
|
Excludes $28.0 million income tax expense related to
discontinued operations. |
The following is a reconciliation of income taxes computed at
the U.S. federal statutory tax rate to income taxes
reported in the Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Tax expense at statutory rates
|
|
$
|
159,500
|
|
|
$
|
147,192
|
|
|
$
|
120,638
|
|
State income taxes
|
|
|
11,419
|
|
|
|
11,422
|
|
|
|
8,581
|
|
Change in valuation allowance
|
|
|
(1,036
|
)
|
|
|
(481
|
)
|
|
|
1,208
|
|
Nondeductible compensation
|
|
|
3,446
|
|
|
|
4,603
|
|
|
|
512
|
|
Favorable tax settlement
|
|
|
(259
|
)
|
|
|
(1,709
|
)
|
|
|
|
|
Other
|
|
|
2,380
|
|
|
|
2,871
|
|
|
|
7,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
175,450
|
|
|
$
|
163,898
|
|
|
$
|
138,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax effects of temporary differences giving rise to deferred
income tax assets (liabilities) were:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
162,805
|
|
|
$
|
182,715
|
|
Stock options
|
|
|
27,026
|
|
|
|
30,133
|
|
Asset valuation reserves
|
|
|
16,910
|
|
|
|
11,121
|
|
Net operating loss carryforwards
|
|
|
12,797
|
|
|
|
11,528
|
|
State and foreign tax credits
|
|
|
10,173
|
|
|
|
15,193
|
|
Valuation allowances
|
|
|
(9,671
|
)
|
|
|
(14,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
220,040
|
|
|
|
236,410
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(566,521
|
)
|
|
|
(508,836
|
)
|
Basis differences in
unconsolidated affiliates
|
|
|
(23,214
|
)
|
|
|
(25,821
|
)
|
Derivative instruments
|
|
|
(9,951
|
)
|
|
|
(8,333
|
)
|
Other
|
|
|
(6,915
|
)
|
|
|
(5,351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(606,601
|
)
|
|
|
(548,341
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liability
|
|
$
|
(386,561
|
)
|
|
$
|
(311,931
|
)
|
|
|
|
|
|
|
|
|
|
These net deferred income tax assets (liabilities) are
classified in our Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Current assets
|
|
$
|
117,991
|
|
|
$
|
137,776
|
|
Noncurrent liabilities
|
|
|
(504,552
|
)
|
|
|
(449,707
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(386,561
|
)
|
|
$
|
(311,931
|
)
|
|
|
|
|
|
|
|
|
|
At December 31, 2006, we had approximately
$10.2 million of state and foreign tax credits available
for carryover to future years. The credits are subject to
certain limitations and begin to expire in 2010.
A valuation allowance of $9.7 million has been established
because we do not believe it is more likely than not that all of
the deferred tax assets related to state net operating loss and
credit carryforwards and foreign tax credit carryforwards will
be realized prior to expiration. Our valuation allowance
decreased $4.6 million in 2006 including $3.6 million
related to a previously discontinued operation and the expected
realization of state net operating loss carryforwards not
previously recognized.
F-19
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Amount
|
|
|
Interest
|
|
|
Amount
|
|
|
Interest
|
|
|
|
Outstanding
|
|
|
Rate
|
|
|
Outstanding
|
|
|
Rate
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Dean Foods Company debt
obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior credit facility
|
|
$
|
1,757,250
|
|
|
|
5.99
|
%
|
|
$
|
2,258,600
|
|
|
|
5.16
|
%
|
Senior notes
|
|
|
498,112
|
|
|
|
7.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,255,362
|
|
|
|
|
|
|
|
2,258,600
|
|
|
|
|
|
Subsidiary debt obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes
|
|
|
572,037
|
|
|
|
6.625-8.15
|
|
|
|
568,493
|
|
|
|
6.625-8.15
|
|
Receivables-backed facility
|
|
|
512,500
|
|
|
|
5.68
|
|
|
|
548,400
|
|
|
|
4.60
|
|
Capital lease obligations and other
|
|
|
15,952
|
|
|
|
|
|
|
|
11,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,100,489
|
|
|
|
|
|
|
|
1,128,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,355,851
|
|
|
|
|
|
|
|
3,386,848
|
|
|
|
|
|
Less current portion
|
|
|
(483,658
|
)
|
|
|
|
|
|
|
(65,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term portion
|
|
$
|
2,872,193
|
|
|
|
|
|
|
$
|
3,321,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The scheduled maturities of long-term debt, at December 31,
2006, were as follows (in thousands):
|
|
|
|
|
2007
|
|
$
|
483,576
|
|
2008
|
|
|
432,891
|
|
2009
|
|
|
1,815,121
|
|
2010
|
|
|
1,643
|
|
2011
|
|
|
1,689
|
|
Thereafter
|
|
|
650,782
|
|
|
|
|
|
|
Subtotal
|
|
|
3,385,702
|
|
Less discounts
|
|
|
(29,851
|
)
|
|
|
|
|
|
Total outstanding debt
|
|
$
|
3,355,851
|
|
|
|
|
|
|
Senior Credit Facility Our senior credit
facility provides for a $1.5 billion revolving credit
facility and a $1.5 billion term loan. At December 31,
2006, there were outstanding term loan borrowings of
$1.44 billion under the senior credit facility and
$313.5 million outstanding under the revolving line of
credit. Letters of credit in the aggregate amount of
$136.6 million were issued but undrawn. At
December 31, 2006, approximately $1.05 billion was
available for future borrowings under the revolving credit
facility, subject to satisfaction of certain ordinary course
conditions contained in the credit agreement.
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 to 150 basis
points, depending on our credit ratings (as issued by
Standard & Poors and Moodys). The blended
interest rate in effect on borrowings under the senior credit
facility, including the applicable interest rate margin, was
5.99% at December 31, 2006. However, we had interest rate
swap agreements in place that hedged $950.0 million of our
borrowings under the senior credit facility at an average rate
of 4.53%, plus the applicable interest rate margin. Interest is
payable quarterly or at the end of the applicable interest
period.
F-20
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Principal payments are required on the term loan as follows:
|
|
|
|
|
$56.3 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 maximum leverage and minimum
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 Holding Companys
subsidiaries, and the real property owned by Dean Holding
Company 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.
Dean Foods Company Senior Notes On
May 17, 2006, we issued $500 million aggregate
principal amount of 7.0% senior unsecured notes. The senior
unsecured notes mature on June 1, 2016 and interest is
payable on June 1 and December 1 of each year,
beginning December 1, 2006. The outstanding balance at
December 31, 2006 was $498.1 million net of discount.
The indenture under which we issued the senior unsecured notes
does not contain financial covenants but does contain covenants
that, among other things, limit our ability to incur secured
indebtedness, enter into sale-leaseback transactions and engage
in mergers, consolidations and sales of all or substantially all
of our assets.
The notes are senior unsecured obligations and are effectively
subordinated to the indebtedness outstanding under our senior
credit facility and any other secured debt we may incur. The
notes are fully and unconditionally guaranteed by the
subsidiaries that are guarantors under our senior credit
facility, which are substantially all of our wholly owned
U.S. subsidiaries other than our receivables securitization
subsidiaries.
We may, at our option, redeem some or all of the notes at any
time at a redemption price equal to the greater of:
|
|
|
|
|
100% of the principal amount of the notes being
redeemed; and
|
F-21
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
The sum of the present values of the remaining scheduled
payments of principal and interest on the notes being redeemed
(excluding interest accrued to the redemption date) from the
redemption date to the maturity date discounted to the date of
redemption on a semi-annual basis (assuming a
360-day year
consisting of twelve
30-day
months) at a discount rate equal to the Treasury rate plus
50 basis points,
|
plus, in each case, accrued and unpaid interest on the principal
amount being redeemed to the redemption date.
If we experience a change in control, we may be required to
offer to purchase the notes at a purchase price equal to 101% of
the principal amount, plus accrued and unpaid interest.
We used all of the net proceeds from the sale of the notes to
reduce a corresponding amount of borrowings under our senior
credit facility.
Subsidiary Senior Notes Dean Holding Company
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:
|
|
|
|
|
$250.1 million ($250 million face value), at 8.15%
interest, maturing in August 2007;
|
|
|
|
$192.7 million ($200 million face value), at 6.625%
interest, maturing in May 2009; and
|
|
|
|
$129.2 million ($150 million face value), at 6.9%
interest, maturing in October 2017.
|
The related indentures do not contain financial covenants but
they do contain certain restrictions including a prohibition
against Dean Holding Company and its subsidiaries granting liens
on certain of their real property interests and a prohibition
against Dean Holding Company 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
Consolidated Balance Sheets, and the securitization is treated
as a borrowing for accounting purposes. During 2006, we had net
payments of $35.9 million on this facility leaving an
available and drawn balance of $512.5 million at
December 31, 2006. 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 5.68% at December 31, 2006. Our ability to
re-borrow under this facility is subject to a borrowing base
formula.
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.
F-22
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes our various interest rate
agreements in effect as of December 31, 2006:
|
|
|
|
|
|
|
|
|
Fixed Interest Rates
|
|
Expiration Date
|
|
|
Notional Amounts
|
|
|
|
|
|
|
(In millions)
|
|
|
4.81% to 4.84%
|
|
|
December 2007
|
|
|
$
|
500
|
|
4.07% to 4.27%
|
|
|
December 2010
|
|
|
|
450
|
|
The following table summarizes our various interest rate
agreements in effect as of December 31, 2005:
|
|
|
|
|
|
|
|
|
Fixed Interest Rates
|
|
Expiration Date
|
|
|
Notional Amounts
|
|
|
|
|
|
|
(In millions)
|
|
|
3.65% to 6.78%
|
|
|
December 2006
|
|
|
$
|
625
|
|
4.81% to 4.84%
|
|
|
December 2007
|
|
|
|
500
|
|
4.07% to 4.27%
|
|
|
December 2010
|
|
|
|
500
|
|
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.
As of December 31, 2006 and 2005, our derivative asset and
liability balances were:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Current derivative asset
|
|
$
|
6,525
|
|
|
$
|
5,877
|
|
Long-term derivative asset
|
|
|
8,322
|
|
|
|
10,028
|
|
|
|
|
|
|
|
|
|
|
Total derivative asset
|
|
$
|
14,847
|
|
|
$
|
15,905
|
|
|
|
|
|
|
|
|
|
|
Current derivative liability
|
|
$
|
|
|
|
$
|
1,926
|
|
Long-term derivative liability
|
|
|
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
Total derivative liability
|
|
$
|
|
|
|
$
|
2,326
|
|
|
|
|
|
|
|
|
|
|
There was no hedge ineffectiveness for the years ended 2006,
2005 and 2004. Approximately $7.5 million of gains (net of
tax) and $8.5 million and $20.7 million of losses (net
of tax) were reclassified to interest expense from other
comprehensive income during the years ended 2006, 2005 and 2004,
respectively. We estimate that approximately $4.1 million
of net derivative gains (net of tax) included in other
comprehensive income will be reclassified into earnings within
the next 12 months. These gains will decrease the interest
expense recorded on our variable rate debt.
We are exposed to market risk under these arrangements due to
the possibility of interest rates on 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.
Guarantor Information On May 17, 2006,
we issued $500 million aggregate principal amount of
7.0% senior notes. The senior notes are unsecured
obligations and are fully and unconditionally guaranteed by
substantially all of our wholly-owned U.S. subsidiaries
other than our receivables securitization subsidiaries.
F-23
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following condensed consolidating financial statements
present the financial position, results of operations and cash
flows of Dean Foods Company (Parent), the subsidiary
guarantors of the senior notes and separately the combined
results of the subsidiaries that are not a party to the
guarantees. The non-guarantor subsidiaries reflect our foreign
subsidiary operations in addition to our three receivables
securitization subsidiaries. We do not allocate interest expense
from the receivables-backed facility to the three receivables
securitization subsidiaries. Therefore, the interest costs
related to this facility are reflected within the guarantor
financial information presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet as of December 31,
2006
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
579
|
|
|
$
|
26,254
|
|
|
$
|
4,307
|
|
|
$
|
|
|
|
$
|
31,140
|
|
Receivables, net
|
|
|
301
|
|
|
|
32,720
|
|
|
|
766,017
|
|
|
|
|
|
|
|
799,038
|
|
Intercompany receivables
|
|
|
126,707
|
|
|
|
2,702,858
|
|
|
|
309,747
|
|
|
|
(3,139,312
|
)
|
|
|
|
|
Other current assets
|
|
|
105,882
|
|
|
|
443,210
|
|
|
|
20
|
|
|
|
|
|
|
|
549,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
233,469
|
|
|
|
3,205,042
|
|
|
|
1,080,091
|
|
|
|
(3,139,312
|
)
|
|
|
1,379,290
|
|
Property, plant and equipment, net
|
|
|
608
|
|
|
|
1,767,734
|
|
|
|
18,565
|
|
|
|
|
|
|
|
1,786,907
|
|
Goodwill
|
|
|
|
|
|
|
2,943,048
|
|
|
|
91
|
|
|
|
|
|
|
|
2,943,139
|
|
Identifiable intangible and other
assets
|
|
|
54,410
|
|
|
|
586,443
|
|
|
|
4
|
|
|
|
|
|
|
|
640,857
|
|
Investment in subsidiaries
|
|
|
6,507,028
|
|
|
|
|
|
|
|
|
|
|
|
(6,507,028
|
)
|
|
|
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
19,980
|
|
|
|
|
|
|
|
19,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,795,515
|
|
|
$
|
8,502,267
|
|
|
$
|
1,118,731
|
|
|
$
|
(9,646,340
|
)
|
|
$
|
6,770,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
expenses
|
|
$
|
39,077
|
|
|
$
|
782,507
|
|
|
$
|
538
|
|
|
$
|
|
|
|
$
|
822,122
|
|
Income taxes payable
|
|
|
28,347
|
|
|
|
2,295
|
|
|
|
134
|
|
|
|
|
|
|
|
30,776
|
|
Intercompany notes
|
|
|
2,194,952
|
|
|
|
437,725
|
|
|
|
506,635
|
|
|
|
(3,139,312
|
)
|
|
|
|
|
Current portion of long-term debt
|
|
|
225,000
|
|
|
|
258,658
|
|
|
|
|
|
|
|
|
|
|
|
483,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,487,376
|
|
|
|
1,481,185
|
|
|
|
507,307
|
|
|
|
(3,139,312
|
)
|
|
|
1,336,556
|
|
Long-term debt
|
|
|
2,030,362
|
|
|
|
329,331
|
|
|
|
512,500
|
|
|
|
|
|
|
|
2,872,193
|
|
Other long-term liabilities
|
|
|
468,378
|
|
|
|
274,856
|
|
|
|
|
|
|
|
|
|
|
|
743,234
|
|
Liabilities of discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
8,791
|
|
|
|
|
|
|
|
8,791
|
|
Total stockholders equity
|
|
|
1,809,399
|
|
|
|
6,416,895
|
|
|
|
90,133
|
|
|
|
(6,507,028
|
)
|
|
|
1,809,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,795,515
|
|
|
$
|
8,502,267
|
|
|
$
|
1,118,731
|
|
|
$
|
(9,646,340
|
)
|
|
$
|
6,770,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet as of December 31,
2005
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
249
|
|
|
$
|
18,677
|
|
|
$
|
5,530
|
|
|
$
|
|
|
|
$
|
24,456
|
|
Receivables, net
|
|
|
21
|
|
|
|
41,962
|
|
|
|
776,448
|
|
|
|
|
|
|
|
818,431
|
|
Intercompany receivables
|
|
|
281,842
|
|
|
|
2,217,898
|
|
|
|
373,488
|
|
|
|
(2,873,228
|
)
|
|
|
|
|
Other current assets
|
|
|
106,684
|
|
|
|
451,378
|
|
|
|
244
|
|
|
|
|
|
|
|
558,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
388,796
|
|
|
|
2,729,915
|
|
|
|
1,155,710
|
|
|
|
(2,873,228
|
)
|
|
|
1,401,193
|
|
Property, plant and equipment, net
|
|
|
613
|
|
|
|
1,761,208
|
|
|
|
14,980
|
|
|
|
|
|
|
|
1,776,801
|
|
Goodwill
|
|
|
|
|
|
|
2,922,849
|
|
|
|
91
|
|
|
|
|
|
|
|
2,922,940
|
|
Identifiable intangible and other
assets
|
|
|
54,468
|
|
|
|
593,746
|
|
|
|
9
|
|
|
|
|
|
|
|
648,223
|
|
Investment in subsidiaries
|
|
|
6,105,506
|
|
|
|
|
|
|
|
|
|
|
|
(6,105,506
|
)
|
|
|
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
301,727
|
|
|
|
|
|
|
|
301,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,549,383
|
|
|
$
|
8,007,718
|
|
|
$
|
1,472,517
|
|
|
$
|
(8,978,734
|
)
|
|
$
|
7,050,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
expenses
|
|
$
|
55,354
|
|
|
$
|
870,336
|
|
|
$
|
377
|
|
|
$
|
|
|
|
$
|
926,067
|
|
Income taxes payable
|
|
|
233,928
|
|
|
|
(199,518
|
)
|
|
|
131
|
|
|
|
|
|
|
|
34,541
|
|
Intercompany notes
|
|
|
1,674,132
|
|
|
|
655,000
|
|
|
|
544,096
|
|
|
|
(2,873,228
|
)
|
|
|
|
|
Current portion of long-term debt
|
|
|
56,250
|
|
|
|
4,465
|
|
|
|
4,611
|
|
|
|
|
|
|
|
65,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,019,664
|
|
|
|
1,330,283
|
|
|
|
549,215
|
|
|
|
(2,873,228
|
)
|
|
|
1,025,934
|
|
Long-term debt
|
|
|
2,202,350
|
|
|
|
570,772
|
|
|
|
548,400
|
|
|
|
|
|
|
|
3,321,522
|
|
Other long-term liabilities
|
|
|
425,156
|
|
|
|
250,030
|
|
|
|
|
|
|
|
|
|
|
|
675,186
|
|
Liabilities of discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
126,029
|
|
|
|
|
|
|
|
126,029
|
|
Total stockholders equity
|
|
|
1,902,213
|
|
|
|
5,856,633
|
|
|
|
248,873
|
|
|
|
(6,105,506
|
)
|
|
|
1,902,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,549,383
|
|
|
$
|
8,007,718
|
|
|
$
|
1,472,517
|
|
|
$
|
(8,978,734
|
)
|
|
$
|
7,050,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Income for
|
|
|
|
the Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
10,088,080
|
|
|
$
|
10,475
|
|
|
$
|
|
|
|
$
|
10,098,555
|
|
Cost of sales
|
|
|
|
|
|
|
7,350,026
|
|
|
|
8,650
|
|
|
|
|
|
|
|
7,358,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
2,738,054
|
|
|
|
1,825
|
|
|
|
|
|
|
|
2,739,879
|
|
Selling and distribution
|
|
|
|
|
|
|
1,648,191
|
|
|
|
669
|
|
|
|
|
|
|
|
1,648,860
|
|
General and administrative
|
|
|
5,725
|
|
|
|
407,225
|
|
|
|
2,258
|
|
|
|
|
|
|
|
415,208
|
|
Facility closing and
reorganization costs
|
|
|
|
|
|
|
25,116
|
|
|
|
|
|
|
|
|
|
|
|
25,116
|
|
Interest expense
|
|
|
120,679
|
|
|
|
74,308
|
|
|
|
(440
|
)
|
|
|
|
|
|
|
194,547
|
|
Other (income) expense, net
|
|
|
(14
|
)
|
|
|
377
|
|
|
|
72
|
|
|
|
|
|
|
|
435
|
|
Income from subsidiaries
|
|
|
(582,103
|
)
|
|
|
|
|
|
|
|
|
|
|
582,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes
|
|
|
455,713
|
|
|
|
582,837
|
|
|
|
(734
|
)
|
|
|
(582,103
|
)
|
|
|
455,713
|
|
Income taxes
|
|
|
175,450
|
|
|
|
222,732
|
|
|
|
(293
|
)
|
|
|
(222,439
|
)
|
|
|
175,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
|
280,263
|
|
|
|
360,105
|
|
|
|
(441
|
)
|
|
|
(359,664
|
)
|
|
|
280,263
|
|
Loss on sale of discontinued
operations, net of tax
|
|
|
|
|
|
|
(379
|
)
|
|
|
(1,599
|
)
|
|
|
|
|
|
|
(1,978
|
)
|
Loss from discontinued operations,
net of tax
|
|
|
|
|
|
|
(2,440
|
)
|
|
|
(50,431
|
)
|
|
|
|
|
|
|
(52,871
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
280,263
|
|
|
$
|
357,286
|
|
|
$
|
(52,471
|
)
|
|
$
|
(359,664
|
)
|
|
$
|
225,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Income for
|
|
|
|
the Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
10,168,883
|
|
|
$
|
5,835
|
|
|
$
|
|
|
|
$
|
10,174,718
|
|
Cost of sales
|
|
|
|
|
|
|
7,586,940
|
|
|
|
4,608
|
|
|
|
|
|
|
|
7,591,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
2,581,943
|
|
|
|
1,227
|
|
|
|
|
|
|
|
2,583,170
|
|
Selling and distribution
|
|
|
|
|
|
|
1,580,458
|
|
|
|
570
|
|
|
|
|
|
|
|
1,581,028
|
|
General and administrative
|
|
|
1,337
|
|
|
|
384,249
|
|
|
|
1,010
|
|
|
|
|
|
|
|
386,596
|
|
Facility closing and
reorganization costs
|
|
|
|
|
|
|
35,451
|
|
|
|
|
|
|
|
|
|
|
|
35,451
|
|
Interest expense
|
|
|
81,594
|
|
|
|
76,835
|
|
|
|
1,801
|
|
|
|
|
|
|
|
160,230
|
|
Other (income), net
|
|
|
(8
|
)
|
|
|
(263
|
)
|
|
|
(412
|
)
|
|
|
|
|
|
|
(683
|
)
|
Income from subsidiaries
|
|
|
(503,471
|
)
|
|
|
|
|
|
|
|
|
|
|
503,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes
|
|
|
420,548
|
|
|
|
505,213
|
|
|
|
(1,742
|
)
|
|
|
(503,471
|
)
|
|
|
420,548
|
|
Income taxes
|
|
|
163,898
|
|
|
|
194,630
|
|
|
|
(658
|
)
|
|
|
(193,972
|
)
|
|
|
163,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
|
256,650
|
|
|
|
310,583
|
|
|
|
(1,084
|
)
|
|
|
(309,499
|
)
|
|
|
256,650
|
|
Gain on sale of discontinued
operations, net of tax
|
|
|
|
|
|
|
38,763
|
|
|
|
|
|
|
|
|
|
|
|
38,763
|
|
Gain (loss) from discontinued
operations, net of tax
|
|
|
|
|
|
|
17,847
|
|
|
|
(3,054
|
)
|
|
|
|
|
|
|
14,793
|
|
Cumulative effect of accounting
change, net of tax
|
|
|
|
|
|
|
(1,552
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
256,650
|
|
|
$
|
365,641
|
|
|
$
|
(4,138
|
)
|
|
$
|
(309,499
|
)
|
|
$
|
308,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Income
|
|
|
|
for the Year Ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
9,712,991
|
|
|
$
|
12,557
|
|
|
$
|
|
|
|
$
|
9,725,548
|
|
Cost of sales
|
|
|
|
|
|
|
7,328,528
|
|
|
|
9,610
|
|
|
|
|
|
|
|
7,338,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
2,384,463
|
|
|
|
2,947
|
|
|
|
|
|
|
|
2,387,410
|
|
Selling and distribution
|
|
|
|
|
|
|
1,471,475
|
|
|
|
637
|
|
|
|
|
|
|
|
1,472,112
|
|
General and administrative
|
|
|
2,079
|
|
|
|
359,633
|
|
|
|
(835
|
)
|
|
|
|
|
|
|
360,877
|
|
Facility closing and
reorganization costs
|
|
|
|
|
|
|
24,575
|
|
|
|
|
|
|
|
|
|
|
|
24,575
|
|
Other operating income
|
|
|
|
|
|
|
(5,899
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,899
|
)
|
Interest expense
|
|
|
108,619
|
|
|
|
82,630
|
|
|
|
539
|
|
|
|
|
|
|
|
191,788
|
|
Other (income) expense, net
|
|
|
(13
|
)
|
|
|
461
|
|
|
|
(1,170
|
)
|
|
|
|
|
|
|
(722
|
)
|
Income from subsidiaries
|
|
|
(455,364
|
)
|
|
|
|
|
|
|
|
|
|
|
455,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes
|
|
|
344,679
|
|
|
|
451,588
|
|
|
|
3,776
|
|
|
|
(455,364
|
)
|
|
|
344,679
|
|
Income taxes
|
|
|
138,472
|
|
|
|
177,147
|
|
|
|
1,373
|
|
|
|
(178,520
|
)
|
|
|
138,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
|
206,207
|
|
|
|
274,441
|
|
|
|
2,403
|
|
|
|
(276,844
|
)
|
|
|
206,207
|
|
Gain (loss) on sale of
discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from discontinued operations,
net of tax
|
|
|
|
|
|
|
46,213
|
|
|
|
1,301
|
|
|
|
|
|
|
|
47,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
206,207
|
|
|
$
|
320,654
|
|
|
$
|
3,704
|
|
|
$
|
(276,844
|
)
|
|
$
|
253,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
|
|
for the Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
Net cash provided by (used in)
operating activities
|
|
$
|
(488,275
|
)
|
|
$
|
1,038,833
|
|
|
$
|
10,660
|
|
|
$
|
561,218
|
|
Additions to property, plant and
equipment
|
|
|
(2,435
|
)
|
|
|
(229,721
|
)
|
|
|
(5,086
|
)
|
|
|
(237,242
|
)
|
Cash outflows for acquisitions
|
|
|
(17,244
|
)
|
|
|
|
|
|
|
|
|
|
|
(17,244
|
)
|
Net proceeds from divestitures
|
|
|
95,982
|
|
|
|
|
|
|
|
|
|
|
|
95,982
|
|
Proceeds from sale of fixed assets
|
|
|
|
|
|
|
6,190
|
|
|
|
|
|
|
|
6,190
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(15,151
|
)
|
|
|
(15,151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
76,303
|
|
|
|
(223,531
|
)
|
|
|
(20,237
|
)
|
|
|
(167,465
|
)
|
Proceeds from issuance of debt
|
|
|
498,020
|
|
|
|
|
|
|
|
|
|
|
|
498,020
|
|
Repayment of debt
|
|
|
(501,350
|
)
|
|
|
(9,612
|
)
|
|
|
(40,511
|
)
|
|
|
(551,473
|
)
|
Payments of deferred financing
costs
|
|
|
(6,974
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,974
|
)
|
Issuance of common stock
|
|
|
32,311
|
|
|
|
|
|
|
|
|
|
|
|
32,311
|
|
Tax savings on share-based
compensation
|
|
|
31,211
|
|
|
|
|
|
|
|
|
|
|
|
31,211
|
|
Redemption of common stock
|
|
|
(400,062
|
)
|
|
|
|
|
|
|
|
|
|
|
(400,062
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
9,898
|
|
|
|
9,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities
|
|
|
(346,844
|
)
|
|
|
(9,612
|
)
|
|
|
(30,613
|
)
|
|
|
(387,069
|
)
|
Net change in intercompany balances
|
|
|
759,145
|
|
|
|
(798,112
|
)
|
|
|
38,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash end
cash equivalents
|
|
|
329
|
|
|
|
7,578
|
|
|
|
(1,223
|
)
|
|
|
6,684
|
|
Cash and cash equivalents,
beginning of period
|
|
|
249
|
|
|
|
18,677
|
|
|
|
5,530
|
|
|
|
24,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
578
|
|
|
$
|
26,255
|
|
|
$
|
4,307
|
|
|
$
|
31,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
|
|
for the Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
Net cash provided by (used in)
operating activities
|
|
$
|
(49,675
|
)
|
|
$
|
671,635
|
|
|
$
|
(66,184
|
)
|
|
$
|
555,776
|
|
Additions to property, plant and
equipment
|
|
|
(681
|
)
|
|
|
(282,697
|
)
|
|
|
(3,751
|
)
|
|
|
(287,129
|
)
|
Cash outflows for acquisitions
|
|
|
(1,378
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,378
|
)
|
Net proceeds from divestitures
|
|
|
189,862
|
|
|
|
|
|
|
|
|
|
|
|
189,862
|
|
Proceeds from sale of fixed assets
|
|
|
|
|
|
|
6,157
|
|
|
|
2,200
|
|
|
|
8,357
|
|
Other
|
|
|
|
|
|
|
(7,875
|
)
|
|
|
(19,557
|
)
|
|
|
(27,432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
187,803
|
|
|
|
(284,415
|
)
|
|
|
(21,108
|
)
|
|
|
(117,720
|
)
|
Proceeds from issuance of debt
|
|
|
227,500
|
|
|
|
|
|
|
|
48,400
|
|
|
|
275,900
|
|
Repayment of debt
|
|
|
(1,250
|
)
|
|
|
(114,413
|
)
|
|
|
(2,891
|
)
|
|
|
(118,554
|
)
|
Payments of deferred financing
costs
|
|
|
(4,279
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,279
|
)
|
Issuance of common stock
|
|
|
57,718
|
|
|
|
|
|
|
|
|
|
|
|
57,718
|
|
Tax savings on share-based
compensation
|
|
|
20,614
|
|
|
|
|
|
|
|
|
|
|
|
20,614
|
|
Redemption of common stock
|
|
|
(699,878
|
)
|
|
|
|
|
|
|
|
|
|
|
(699,878
|
)
|
Other
|
|
|
|
|
|
|
11,153
|
|
|
|
18,369
|
|
|
|
29,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
(399,575
|
)
|
|
|
(103,260
|
)
|
|
|
63,878
|
|
|
|
(438,957
|
)
|
Net change in intercompany balances
|
|
|
261,522
|
|
|
|
(289,609
|
)
|
|
|
28,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and
cash equivalents
|
|
|
75
|
|
|
|
(5,649
|
)
|
|
|
4,673
|
|
|
|
(901
|
)
|
Cash and cash equivalents,
beginning of period
|
|
|
174
|
|
|
|
24,326
|
|
|
|
857
|
|
|
|
25,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
249
|
|
|
$
|
18,677
|
|
|
$
|
5,530
|
|
|
$
|
24,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
|
|
for the Year Ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Entities
|
|
|
Subsidiaries
|
|
|
Totals
|
|
|
|
(In thousands)
|
|
|
Net cash provided by (used in)
operating activities
|
|
$
|
(99,943
|
)
|
|
$
|
713,590
|
|
|
$
|
(84,921
|
)
|
|
$
|
528,726
|
|
Additions to property, plant and
equipment
|
|
|
(641
|
)
|
|
|
(300,485
|
)
|
|
|
(60
|
)
|
|
|
(301,186
|
)
|
Cash outflows for acquisitions
|
|
|
(378,164
|
)
|
|
|
|
|
|
|
|
|
|
|
(378,164
|
)
|
Proceeds from sale of fixed assets
|
|
|
|
|
|
|
10,028
|
|
|
|
|
|
|
|
10,028
|
|
Other
|
|
|
|
|
|
|
(23,349
|
)
|
|
|
(53,900
|
)
|
|
|
(77,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(378,805
|
)
|
|
|
(313,806
|
)
|
|
|
(53,960
|
)
|
|
|
(746,571
|
)
|
Proceeds from issuance of debt
|
|
|
1,444,500
|
|
|
|
|
|
|
|
197,500
|
|
|
|
1,642,000
|
|
Repayment of debt
|
|
|
(1,198,286
|
)
|
|
|
(23,378
|
)
|
|
|
(966
|
)
|
|
|
(1,222,630
|
)
|
Payments of deferred financing
costs
|
|
|
(9,801
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,801
|
)
|
Issuance of common stock
|
|
|
61,969
|
|
|
|
|
|
|
|
|
|
|
|
61,969
|
|
Tax savings on share-based
compensation
|
|
|
(297,018
|
)
|
|
|
|
|
|
|
|
|
|
|
(297,018
|
)
|
Redemption of common stock
|
|
|
18,527
|
|
|
|
|
|
|
|
|
|
|
|
18,527
|
|
Other
|
|
|
|
|
|
|
18,847
|
|
|
|
|
|
|
|
18,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
19,891
|
|
|
|
(4,531
|
)
|
|
|
196,534
|
|
|
|
211,894
|
|
Net change in intercompany balances
|
|
|
458,037
|
|
|
|
(400,481
|
)
|
|
|
(57,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and
cash equivalents
|
|
|
(820
|
)
|
|
|
(5,228
|
)
|
|
|
97
|
|
|
|
(5,951
|
)
|
Cash and cash equivalents,
beginning of period
|
|
|
994
|
|
|
|
29,554
|
|
|
|
760
|
|
|
|
31,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
174
|
|
|
$
|
24,326
|
|
|
$
|
857
|
|
|
$
|
25,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
COMMON
STOCK AND SHARE-BASED COMPENSATION
|
Our authorized shares of capital stock include one million
shares of preferred stock and 500 million shares of common
stock with a par value of $.01 per share.
Stock Award Plans We currently have two stock
award plans with shares remaining available for issuance. These
plans, which are our 1997 Stock Option and Restricted Stock Plan
and the 1989 Dean Foods Company Stock Awards Plan (which we
adopted upon completion of our acquisition of Dean Holding
Company), provide for grants of stock options, stock units,
restricted stock and other stock-based awards to employees,
officers, directors and, in some cases, consultants, up to a
maximum of 37.5 million and approximately 5.7 million
shares, respectively. Options and other stock-based awards vest
in accordance with provisions set forth in the applicable award
agreements.
Under our stock award plans (including inducement grants to
newly-hired employees), we grant stock options and restricted
stock units to certain employees and directors. Non-employee
directors also can elect to receive their compensation in the
form of restricted stock in lieu of cash.
Stock Options Under the terms of our stock
option plans, employees and non-employee directors may be
granted options to purchase our stock at a price equal to the
market price on the date the option is granted. Employee options
vest one-third on the first anniversary of the grant date,
one-third on the second anniversary of the grant date and
one-third on the third anniversary of the grant date. All
unvested options vest immediately upon a change of control. Each
non-employee director receives an immediately vested option to
purchase 7,500 shares of common stock on June 30 of
each year.
F-31
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We recognize share-based compensation expense for stock options
ratably over the vesting period. The fair value of each option
award is estimated on the date of grant using the Black-Scholes
valuation model, using the following assumptions:
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2006
|
|
2005
|
|
2004
|
|
Expected volatility
|
|
25%
|
|
25%
|
|
25%
|
Expected dividend yield
|
|
0%
|
|
0%
|
|
0%
|
Expected option term
|
|
4.5 years
|
|
4.5 years
|
|
5 years
|
Risk-free rate of return
|
|
4.28 to 5.10%
|
|
3.63 to 4.27%
|
|
2.98 to 3.81%
|
The expected term of the options represents the estimated period
of time until exercise and is based on historical experience of
similar awards, giving consideration to contractual terms
(generally 10 years), vesting schedules and expectations of
future employee and director behavior. Expected stock price
volatility is based on a combination of historical volatility of
the Companys stock and expectations with regard to future
volatility. The risk-free rates are based on the implied yield
available on U.S. Treasury zero-coupon issues with an
equivalent remaining term. Historically, we have not paid
dividends.
F-32
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes stock option activity during the
years ended December 31, 2006, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
|
Value
|
|
|
Options outstanding at
January 1, 2004
|
|
|
16,599,126
|
|
|
$
|
18.50
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,392,658
|
|
|
|
31.37
|
|
|
|
|
|
|
|
|
|
Options issued to Horizon Organic
Option Holders(1)
|
|
|
1,137,308
|
|
|
|
16.37
|
|
|
|
|
|
|
|
|
|
Cancelled(2)
|
|
|
(208,152
|
)
|
|
|
22.56
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(3,073,219
|
)
|
|
|
17.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at
December 31, 2004
|
|
|
16,847,721
|
|
|
|
20.32
|
|
|
|
|
|
|
|
|
|
Granted(3)
|
|
|
2,466,594
|
|
|
|
28.90
|
|
|
|
|
|
|
|
|
|
Adjustment to options granted
prior to December 31, 2004 and outstanding at the time of
the Spin-off(3)
|
|
|
2,016,291
|
|
|
|
18.14
|
|
|
|
|
|
|
|
|
|
Cancelled(2)
|
|
|
(343,241
|
)
|
|
|
28.22
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(3,128,082
|
)
|
|
|
18.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at
December 31, 2005
|
|
|
17,859,283
|
|
|
|
18.87
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,686,305
|
|
|
|
37.77
|
|
|
|
|
|
|
|
|
|
Cancelled(2)
|
|
|
(857,571
|
)
|
|
|
19.17
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4,365,619
|
)
|
|
|
15.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at
December 31, 2006
|
|
|
15,322,398
|
|
|
|
23.09
|
|
|
|
6.05
|
|
|
$
|
294,030,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at
December 31, 2004
|
|
|
10,642,287
|
|
|
|
17.16
|
|
|
|
|
|
|
|
|
|
Options exercisable at
December 31, 2005
|
|
|
12,935,984
|
|
|
|
16.07
|
|
|
|
|
|
|
|
|
|
Options exercisable at
December 31, 2006
|
|
|
10,780,307
|
|
|
|
18.75
|
|
|
|
5.05
|
|
|
|
253,619,324
|
|
|
|
|
(1) |
|
In connection with our acquisition of Horizon Organic in January
2004, all options to purchase Horizon Organic stock outstanding
at the time of the acquisition were converted into options to
purchase our stock, most of which were automatically vested when
we completed the acquisition. |
|
(2) |
|
Pursuant to the terms of our stock option plans, options that
are canceled or forfeited become available for future grants. |
|
(3) |
|
The number and exercise prices of 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. |
F-33
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information about options
outstanding and exercisable at December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Options Exercisable
|
|
Range of
|
|
Number
|
|
|
Remaining
|
|
|
Weighted-Average
|
|
|
Number
|
|
|
Weighted-Average
|
|
Exercise Prices
|
|
Outstanding
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
Exercise Price
|
|
|
$0.45 to $12.14
|
|
|
2,044,553
|
|
|
|
2.82
|
|
|
$
|
10.90
|
|
|
|
2,044,553
|
|
|
$
|
10.90
|
|
$12.28 to $16.87
|
|
|
862,774
|
|
|
|
2.69
|
|
|
|
15.01
|
|
|
|
862,774
|
|
|
|
15.01
|
|
$17.18
|
|
|
3,369,258
|
|
|
|
5.02
|
|
|
|
17.18
|
|
|
|
3,369,258
|
|
|
|
17.18
|
|
$17.29 to $20.92
|
|
|
386,597
|
|
|
|
4.84
|
|
|
|
20.52
|
|
|
|
386,597
|
|
|
|
20.52
|
|
$20.94
|
|
|
2,027,869
|
|
|
|
5.98
|
|
|
|
20.94
|
|
|
|
2,027,869
|
|
|
|
20.94
|
|
$21.85 to $25.73
|
|
|
107,812
|
|
|
|
6.42
|
|
|
|
25.24
|
|
|
|
84,533
|
|
|
|
25.28
|
|
$26.32
|
|
|
1,646,297
|
|
|
|
6.85
|
|
|
|
26.32
|
|
|
|
1,012,661
|
|
|
|
26.32
|
|
$26.60 to $26.89
|
|
|
1,556,922
|
|
|
|
7.90
|
|
|
|
26.88
|
|
|
|
541,896
|
|
|
|
26.84
|
|
$27.38 to $37.39
|
|
|
819,941
|
|
|
|
8.40
|
|
|
|
33.80
|
|
|
|
365,165
|
|
|
|
33.09
|
|
$37.74 to $42.75
|
|
|
2,500,375
|
|
|
|
8.99
|
|
|
|
37.87
|
|
|
|
85,001
|
|
|
|
38.01
|
|
The weighted-average grant date fair value of options granted
during the years ended December 31, 2006, 2005 and 2004 was
$11.00 per share, $8.13 per share and $8.87 per
share, respectively, and the total intrinsic value of options
exercised during the same periods was $100.6 million,
$58.6 million and $52.7 million, respectively. The
fair value of shares vested during the years ended
December 31, 2006, 2005 and 2004 was $24.9 million,
$42.3 million and $45.3 million, respectively.
During the years ended December 31, 2006, 2005 and 2004, we
recognized stock option expense of $21.5 million,
$24.7 million and $42.2 million, respectively, and an
income tax benefit related to stock option expense of
$8.2 million, $5.8 million and $10.6 million,
respectively.
During the year ended December 31, 2006, we recognized a
pre-tax cumulative non-cash charge of approximately $500,000
resulting from administrative errors associated with historical
stock option compensation expense related to a few stock option
grants in 1997 and 2000. As the aggregate differences were not
deemed material, no restatement of our historical financial
statements is necessary and the full impact of the cumulative
non-cash charge was recognized in 2006.
During the year ended December 31, 2006, cash received from
stock option exercises was $50.9 million and the total tax
benefit for tax deductions to be realized for these option
exercises was $41.3 million. In addition, we received
610,757 shares of common stock in lieu of cash for stock
option exercises.
At December 31, 2006, there was $25.1 million of total
unrecognized stock option expense, all of which is related to
nonvested awards. This compensation expense is expected to be
recognized over the weighted-average remaining period of
1.1 years.
Stock Units We issue restricted stock units
to certain senior employees and non-employee 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 typically 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. All unvested stock units vest
immediately upon a change of
F-34
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
control. The following table summarizes stock unit activity
during the years ended December 31, 2006, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees
|
|
|
Directors
|
|
|
Total
|
|
|
Stock units outstanding at
January 1, 2004
|
|
|
653,500
|
|
|
|
28,050
|
|
|
|
681,550
|
|
Stock units issued
|
|
|
447,700
|
|
|
|
28,050
|
|
|
|
475,750
|
|
Shares issued
|
|
|
(101,402
|
)
|
|
|
(5,950
|
)
|
|
|
(107,352
|
)
|
Stock units cancelled or
forfeited(1)
|
|
|
(49,298
|
)
|
|
|
|
|
|
|
(49,298
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock units outstanding at
December 31, 2004
|
|
|
950,500
|
|
|
|
50,150
|
|
|
|
1,000,650
|
|
Stock units issued
|
|
|
433,550
|
|
|
|
25,500
|
|
|
|
459,050
|
|
Shares issued
|
|
|
(461,809
|
)
|
|
|
(17,117
|
)
|
|
|
(478,926
|
)
|
Adjustment to stock units
outstanding at the time of the Spin-off(2)
|
|
|
198,411
|
|
|
|
9,241
|
|
|
|
207,652
|
|
Stock units cancelled or
forfeited(1)
|
|
|
(295,404
|
)
|
|
|
|
|
|
|
(295,404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock units outstanding at
December 31, 2005
|
|
|
825,248
|
|
|
|
67,774
|
|
|
|
893,022
|
|
Stock units issued
|
|
|
460,750
|
|
|
|
25,500
|
|
|
|
486,250
|
|
Shares issued
|
|
|
(334,023
|
)
|
|
|
(23,598
|
)
|
|
|
(357,621
|
)
|
Stock units cancelled or
forfeited(1)
|
|
|
(177,714
|
)
|
|
|
|
|
|
|
(177,714
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock units outstanding at
December 31, 2006
|
|
|
774,261
|
|
|
|
69,676
|
|
|
|
843,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair
value
|
|
$
|
33.55
|
|
|
$
|
35.47
|
|
|
$
|
33.68
|
|
|
|
|
(1) |
|
Pursuant to the terms of our stock unit plans, employees have
the option of forfeiting stock units to cover their minimum
statutory tax withholding when shares are issued. Stock units
that are cancelled or forfeited become available for future
grants. |
|
(2) |
|
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 years ended December 31, 2006, 2005 and 2004, we
recognized stock unit expense of $15.3 million,
$15.3 million and $6.0 million, respectively,
including certain accelerated vestings in 2006 and 2005, and an
income tax benefit related to stock unit expense of
$4.4 million, $2.5 million and $1.5 million,
respectively.
The weighted-average grant date fair value of stock units
granted during the years ended December 31, 2006, 2005 and
2004 was $37.78 per share, $28.24 per share and
$27.54 per share, respectively. At December 31, 2006,
there was $19.8 million of total unrecognized stock unit
expense, all of which is related to nonvested awards. This
compensation expense is expected to be recognized over the
weighted-average remaining vesting period of 2.9 years.
F-35
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted Stock We offer our non-employee
directors the option to receive their compensation for services
rendered in either cash or shares of restricted stock. Shares of
restricted stock vest one-third on grant, one-third on the first
anniversary of grant and one-third on the second anniversary of
grant. The following table summarizes restricted stock activity
during 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average Grant
|
|
|
|
Shares
|
|
|
Date Fair Value
|
|
|
Nonvested at January 1, 2004
|
|
|
28,286
|
|
|
$
|
29.95
|
|
Restricted shares granted
|
|
|
31,374
|
|
|
|
33.39
|
|
Restricted shares vested
|
|
|
(27,005
|
)
|
|
|
30.87
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2004
|
|
|
32,655
|
|
|
|
32.49
|
|
Restricted shares granted
|
|
|
28,586
|
|
|
|
36.31
|
|
Restricted shares vested
|
|
|
(31,725
|
)
|
|
|
33.35
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2005
|
|
|
29,516
|
|
|
|
35.27
|
|
Restricted shares granted
|
|
|
28,098
|
|
|
|
39.97
|
|
Restricted shares vested
|
|
|
(30,029
|
)
|
|
|
36.39
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2006
|
|
|
27,585
|
|
|
|
38.83
|
|
|
|
|
|
|
|
|
|
|
Rights Plan On February 27, 1998, our
Board of Directors declared a dividend of the right to purchase
one half of one common share for each outstanding share of
common stock to the stockholders of record on March 18,
1998. The rights are not exercisable until ten days subsequent
to the announcement of the acquisition of or intent to acquire a
beneficial ownership of 15% or more in Dean Foods Company. At
such time, each right entitles the registered holder to purchase
from us that number of shares of common stock at an exercise
price of $145.00, with a market value of up to two times the
exercise price. At any time prior to such date, we may, by
action of a majority of our Board of Directors, redeem the
rights in whole, but not in part, at a price of $0.01 per
right. The rights will expire on March 18, 2008, unless our
Board of Directors extends the term of, or earlier redeems, the
rights.
Stock Repurchases A summary of the increases
in our stock repurchase program, as authorized by our Board of
Directors, is shown below.
|
|
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
Cumulative
|
|
|
|
Increase in Stock
|
|
|
Authorized Stock
|
|
Date of Authorization
|
|
Repurchase Program
|
|
|
Repurchase Program
|
|
|
|
(In millions)
|
|
|
September 15, 1998
|
|
$
|
100
|
|
|
$
|
100
|
|
September 28, 1999
|
|
|
100
|
|
|
|
200
|
|
November 17, 1999
|
|
|
100
|
|
|
|
300
|
|
May 19, 2000
|
|
|
100
|
|
|
|
400
|
|
November 2, 2000
|
|
|
100
|
|
|
|
500
|
|
January 8, 2003
|
|
|
150
|
|
|
|
650
|
|
February 12, 2003
|
|
|
150
|
|
|
|
800
|
|
September 7, 2004
|
|
|
200
|
|
|
|
1,000
|
|
November 2, 2004
|
|
|
100
|
|
|
|
1,100
|
|
August 10, 2005
|
|
|
300
|
|
|
|
1,400
|
|
November 2, 2005
|
|
|
300
|
|
|
|
1,700
|
|
May 3, 2006
|
|
|
300
|
|
|
|
2,000
|
|
November 29, 2006
|
|
|
300
|
|
|
|
2,300
|
|
F-36
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Set forth in the chart below is a summary of the stock we
repurchased pursuant to this program through December 31,
2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of Shares of
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
Year
|
|
|
Quarter
|
|
Repurchased
|
|
|
Purchase Price
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
1998
|
|
|
Third
|
|
|
3,000,000
|
|
|
$
|
30.4
|
|
|
|
|
|
Fourth
|
|
|
1,531,200
|
|
|
|
15.6
|
|
|
1999
|
|
|
Second
|
|
|
239,100
|
|
|
|
3.0
|
|
|
|
|
|
Third
|
|
|
5,551,545
|
|
|
|
66.7
|
|
|
|
|
|
Fourth
|
|
|
10,459,524
|
|
|
|
128.4
|
|
|
2000
|
|
|
First
|
|
|
2,066,400
|
|
|
|
27.2
|
|
|
|
|
|
Second
|
|
|
2,898,195
|
|
|
|
42.2
|
|
|
|
|
|
Third
|
|
|
4,761,000
|
|
|
|
77.0
|
|
|
|
|
|
Fourth
|
|
|
120,000
|
|
|
|
2.1
|
|
|
2001
|
|
|
First
|
|
|
370,002
|
|
|
|
6.1
|
|
|
2002
|
|
|
Fourth
|
|
|
4,126,200
|
|
|
|
101.2
|
|
|
2003
|
|
|
First
|
|
|
4,854,900
|
|
|
|
128.5
|
|
|
|
|
|
Third
|
|
|
360,000
|
|
|
|
9.9
|
|
|
|
|
|
Fourth
|
|
|
1,453,400
|
|
|
|
47.1
|
|
|
2004
|
|
|
First
|
|
|
150,000
|
|
|
|
5.1
|
|
|
|
|
|
Third
|
|
|
7,825,000
|
|
|
|
251.9
|
|
|
|
|
|
Fourth
|
|
|
1,335,000
|
|
|
|
39.6
|
|
|
2005
|
|
|
Third
|
|
|
9,926,000
|
|
|
|
361.1
|
|
|
|
|
|
Fourth
|
|
|
8,955,300
|
|
|
|
338.4
|
|
|
2006
|
|
|
First
|
|
|
400,000
|
|
|
|
15.3
|
|
|
|
|
|
Second
|
|
|
3,337,200
|
|
|
|
120.3
|
|
|
|
|
|
Fourth
|
|
|
6,285,000
|
|
|
|
264.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
80,004,966
|
|
|
$
|
2,081.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006, $218.7 million was available
for repurchases under this program (excluding fees and
commissions).
Repurchased shares are treated as effectively retired in the
Consolidated Financial Statements.
F-37
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 during each period. The following table
reconciles the numerators and denominators used in the
computations of both basic and diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except share data)
|
|
|
Basic EPS computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
280,263
|
|
|
$
|
256,650
|
|
|
$
|
206,207
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares
|
|
|
133,938,777
|
|
|
|
146,673,322
|
|
|
|
154,635,979
|
|
Basic EPS from continuing
operations
|
|
$
|
2.09
|
|
|
$
|
1.75
|
|
|
$
|
1.33
|
|
Diluted EPS computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
280,263
|
|
|
$
|
256,650
|
|
|
$
|
206,207
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares
basic
|
|
|
133,938,777
|
|
|
|
146,673,322
|
|
|
|
154,635,979
|
|
Stock option conversion(1)
|
|
|
5,463,791
|
|
|
|
5,736,543
|
|
|
|
5,125,070
|
|
Stock units
|
|
|
359,536
|
|
|
|
1,028,771
|
|
|
|
943,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares
diluted
|
|
|
139,762,104
|
|
|
|
153,438,636
|
|
|
|
160,704,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS from continuing
operations
|
|
$
|
2.01
|
|
|
$
|
1.67
|
|
|
$
|
1.28
|
|
|
|
|
(1) |
|
Stock option conversion excludes anti-dilutive shares of
2,708,364, 123,560 and 49,742 at December 31, 2006, 2005
and 2004, respectively. |
F-38
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
OTHER
COMPREHENSIVE INCOME
|
Comprehensive income comprises net income plus all other changes
in equity from non-owner sources. The amount of income tax
(expense) benefit allocated to each component of other
comprehensive income for December 31, 2006 and 2005 are
included below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
Tax Benefit
|
|
|
Net
|
|
|
|
(Loss)
|
|
|
(Expense)
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Accumulated other comprehensive
income, December 31, 2004
|
|
$
|
(33,482
|
)
|
|
$
|
27,785
|
|
|
$
|
(5,697
|
)
|
Cumulative translation adjustment
|
|
|
(28,220
|
)
|
|
|
|
|
|
|
(28,220
|
)
|
Net change in fair value of
derivative instruments
|
|
|
17,538
|
|
|
|
(6,248
|
)
|
|
|
11,290
|
|
Amounts reclassified to income
statement related to derivatives
|
|
|
13,093
|
|
|
|
(4,583
|
)
|
|
|
8,510
|
|
Minimum pension liability
adjustment
|
|
|
(18,476
|
)
|
|
|
6,660
|
|
|
|
(11,816
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive
income, December 31, 2005
|
|
|
(49,547
|
)
|
|
|
23,614
|
|
|
|
(25,933
|
)
|
Cumulative translation adjustment
|
|
|
(10,336
|
)
|
|
|
|
|
|
|
(10,336
|
)
|
Net change in fair value of
derivative instruments
|
|
|
14,002
|
|
|
|
(5,265
|
)
|
|
|
8,737
|
|
Amounts reclassified to income
statement related to derivatives
|
|
|
(11,854
|
)
|
|
|
4,399
|
|
|
|
(7,455
|
)
|
Minimum pension liability
adjustment
|
|
|
6,454
|
|
|
|
(2,451
|
)
|
|
|
4,003
|
|
Adjustment to pension and other
postretirement liability related to adoption of
SFAS No. 158
|
|
|
(23,875
|
)
|
|
|
9,072
|
|
|
|
(14,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive
income, December 31, 2006
|
|
$
|
(75,156
|
)
|
|
$
|
29,369
|
|
|
$
|
(45,787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income (loss)
at December 31, 2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Cumulative translation adjustment
|
|
$
|
1,922
|
|
|
$
|
12,258
|
|
Fair value of derivative
instruments, net of tax
|
|
|
10,527
|
|
|
|
9,245
|
|
Pension and other postretirement
liability adjustment, net of tax
|
|
|
(58,236
|
)
|
|
|
(47,436
|
)
|
|
|
|
|
|
|
|
|
|
Total accumulated other
comprehensive income (loss)
|
|
$
|
(45,787
|
)
|
|
$
|
(25,933
|
)
|
|
|
|
|
|
|
|
|
|
F-39
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
13.
|
EMPLOYEE
RETIREMENT AND PROFIT SHARING PLANS
|
We sponsor various defined benefit and defined contribution
retirement plans, including various employee savings and profit
sharing plans, and contribute to various multi-employer pension
plans on behalf of our employees. Substantially all full-time
union and non-union employees who have completed one or more
years of service and have met other requirements pursuant to the
plans are eligible to participate in one or more of these plans.
During 2006, 2005 and 2004, our retirement and profit sharing
plan expenses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Defined benefit plans
|
|
$
|
8,074
|
|
|
$
|
11,506
|
|
|
$
|
9,833
|
|
Defined contribution plans
|
|
|
23,806
|
|
|
|
22,219
|
|
|
|
18,006
|
|
Multi-employer pension and certain
union plans
|
|
|
27,231
|
|
|
|
23,939
|
|
|
|
22,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
59,111
|
|
|
$
|
57,664
|
|
|
$
|
50,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans The benefits under our
defined benefit plans are based on years of service and employee
compensation. Our funding policy is to contribute annually the
minimum amount required under ERISA regulations plus additional
amounts as we deem appropriate.
Effective October 1, 2006, we adopted the recognition and
disclosure provisions of SFAS No. 158.
SFAS No. 158 required us to recognize the funded
status (i.e., the difference between the fair value of plan
assets and the projected benefit obligations) of our defined
benefit plans in the December 31, 2006 Consolidated Balance
Sheet, with a corresponding adjustment to accumulated other
comprehensive income, net of tax. The adjustment to accumulated
other comprehensive income at adoption represents the net
unrecognized actuarial losses, unrecognized prior service costs,
and unrecognized transition obligation remaining from the
initial adoption of SFAS No. 87, Employers
Accounting for Pensions, all of which were previously
netted against the plans funded status in our Consolidated
Balance Sheet pursuant to the provisions of
SFAS No. 87. These amounts will be subsequently
recognized as net periodic pension cost pursuant to our
historical policy for amortizing such amounts. Further,
actuarial gains and losses that arise in subsequent periods and
are not recognized as net periodic pension cost in the same
periods will be recognized as a component of other comprehensive
income. Those amounts will be subsequently recognized as a
component of net periodic pension cost on the same basis as the
amounts recognized in accumulated other comprehensive income at
adoption of SFAS No. 158.
Included in accumulated other comprehensive income at
December 31, 2006 are the following amounts that have not
yet been recognized in net periodic pension cost: unrecognized
transition obligation of $675,000 ($420,000 net of tax),
unrecognized prior service costs of $9.7 million
($6.1 million net of tax) and unrecognized actuarial losses
of $73.1 million ($45.6 million net of tax). The
transition obligation, prior service cost, and actuarial loss
included in accumulated other comprehensive income and expected
to be recognized in net periodic pension cost during the year
ended December 31, 2007 is $112,000 ($70,000 net of
tax), $843,000 ($525,000 net of tax), and $2.9 million
($1.8 million net of tax), respectively.
F-40
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The reconciliation of the beginning and ending balances of the
projected benefit obligation and the fair value of plans assets
for the years ended December 31, 2006 and 2005 and the
funded status of the plans at December 31, 2006 and 2005 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of
year
|
|
$
|
295,106
|
|
|
$
|
274,993
|
|
Service cost
|
|
|
2,530
|
|
|
|
2,909
|
|
Interest cost
|
|
|
16,573
|
|
|
|
17,003
|
|
Plan participants
contributions
|
|
|
|
|
|
|
65
|
|
Plan amendments
|
|
|
|
|
|
|
2,459
|
|
Actuarial loss
|
|
|
5,215
|
|
|
|
20,300
|
|
Divestiture
|
|
|
|
|
|
|
1,818
|
|
Benefits paid
|
|
|
(21,149
|
)
|
|
|
(24,441
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
298,275
|
|
|
|
295,106
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at
beginning of year
|
|
|
190,568
|
|
|
|
165,254
|
|
Actual return on plan assets
|
|
|
24,343
|
|
|
|
14,090
|
|
Employer contribution
|
|
|
37,453
|
|
|
|
34,113
|
|
Plan participants
contributions
|
|
|
|
|
|
|
65
|
|
Divestiture
|
|
|
|
|
|
|
1,487
|
|
Benefits paid
|
|
|
(21,149
|
)
|
|
|
(24,441
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end
of year
|
|
|
231,215
|
|
|
|
190,568
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(67,060
|
)
|
|
$
|
(104,538
|
)
|
|
|
|
|
|
|
|
|
|
At December 31, 2005, the plans included unrecognized
transition obligations of $785,000, unrecognized prior service
costs of $10.6 million, and unrecognized net losses of
$80.6 million, resulting in a net unfunded accrued pension
cost of $12.6 million. Our Consolidated Balance Sheet at
December 31, 2005 included an accrued pension liability of
$100.1 million, an intangible pension asset of
$11.3 million and an accumulated other comprehensive loss
of $76.1 million determined in accordance with
SFAS No. 87.
The underfunded status of the plans of $67.1 million at
December 31, 2006 is recognized in our Consolidated Balance
Sheet and includes $920,000 classified as a current accrued
pension liability. No plan assets are expected to be returned to
us during the year ended December 31, 2007.
A summary of our key actuarial assumptions used to determine
benefit obligations as of December 31, 2006 and 2005 was:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
Discount rate
|
|
|
5.85
|
%
|
|
|
5.75
|
%
|
Expected return on plan assets
|
|
|
8.00
|
%
|
|
|
8.50
|
%
|
Rate of compensation increase
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
F-41
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of our key actuarial assumptions used to determine net
periodic benefit cost for 2006, 2005 and 2004 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Discount rate
|
|
|
5.75
|
%
|
|
|
5.75
|
%
|
|
|
6.00 to 6.50
|
%
|
Expected return on plan assets
|
|
|
8.00
|
%
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
Rate of compensation increase
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Components of net periodic pension
cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
2,530
|
|
|
$
|
2,909
|
|
|
$
|
2,364
|
|
Interest cost
|
|
|
16,573
|
|
|
|
17,003
|
|
|
|
16,231
|
|
Expected return on plan assets
|
|
|
(15,783
|
)
|
|
|
(15,698
|
)
|
|
|
(12,899
|
)
|
Amortizations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized transition obligation
|
|
|
111
|
|
|
|
107
|
|
|
|
107
|
|
Prior service cost
|
|
|
850
|
|
|
|
628
|
|
|
|
628
|
|
Unrecognized net loss
|
|
|
3,443
|
|
|
|
3,010
|
|
|
|
1,652
|
|
Effect of settlement
|
|
|
350
|
|
|
|
3,547
|
|
|
|
1,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
8,074
|
|
|
$
|
11,506
|
|
|
$
|
9,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plans with accumulated benefit obligations in excess of
plan assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In millions)
|
|
|
Projected benefit obligation
|
|
$
|
296.7
|
|
|
$
|
293.3
|
|
Accumulated benefit obligation
|
|
|
292.3
|
|
|
|
287.6
|
|
Fair value of plan assets
|
|
|
229.6
|
|
|
|
189.1
|
|
Substantially all of our qualified pension plans maintain their
plan assets in a single master trust. We retained investment
consultants to assist our Investment Committee with the
transition of the plans assets to the master trust and to
help our Investment Committee formulate a long-term investment
policy for the newly established master trust. Our current asset
mix guidelines under our investment policy target equities at
65% to 75% of the portfolio and fixed income at 25% to 35%.
We determine our expected long-term rate of return based on our
expectations of future returns for the pension plans
investments based on target allocations of the pension
plans investments and the effect of periodic target asset
allocation rebalancing. It is intended that the investments will
be rebalanced when the allocation is not within the target
range. The results are adjusted for the payment of reasonable
expenses of the plan from plan assets. Additionally, we consider
the weighted-average return of a capital markets model that was
developed by the plans investment consultants and
historical returns on comparable equity, debt and other
investments. The resulting weighted average expected long-term
rate of return on plan assets is 8.00%. We believe these
assumptions are appropriate based upon the mix of investments
and the long-term nature of the plans investments.
F-42
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Our pension plan weighted average asset allocations at
December 31, 2006 and 2005 by asset category were as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
Asset Category
|
|
2006
|
|
|
2005
|
|
|
Equity securities and limited
partnerships
|
|
|
71
|
%
|
|
|
71
|
%
|
Fixed income securities
|
|
|
26
|
|
|
|
27
|
|
Cash and cash equivalents
|
|
|
3
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Equity securities of the plan did not include any investment in
our common stock at December 31, 2006 or 2005.
We expect to contribute $23.2 million to the pension plans
for 2007. Estimated pension plan benefit payments for the next
ten years are as follows:
|
|
|
|
|
2007
|
|
$
|
15.9 million
|
|
2008
|
|
|
16.1 million
|
|
2009
|
|
|
16.5 million
|
|
2010
|
|
|
16.8 million
|
|
2011
|
|
|
16.5 million
|
|
Next five years
|
|
|
102.7 million
|
|
Defined Contribution Plans Certain of our
non-union personnel may elect to participate in savings and
profit sharing plans sponsored by us. These plans generally
provide for salary reduction contributions to the plans on
behalf of the participants of between 1% and 20% of a
participants annual compensation and provide for employer
matching and profit sharing contributions as determined by our
Board of Directors. In addition, certain union hourly employees
are participants in company-sponsored defined contribution
plans, which provide for employer contributions in various
amounts ranging from $24 to $91 per pay period per
participant.
Multi-Employer Pension and Certain Union
Plans Certain of our subsidiaries contribute to
various multi-employer pension and certain union plans, which
are administered jointly by management and union representatives
and cover substantially all full-time and certain part-time
union employees who are not covered by our other plans. The
Multi-Employer Pension Plan Amendments Act of 1980 amended ERISA
to establish funding requirements and obligations for employers
participating in multi-employer plans, principally related to
employer withdrawal from or termination of such plans. We could,
under certain circumstances, be liable for unfunded vested
benefits or other expenses of jointly administered
union/management plans. At this time, we have not established
any significant liabilities because withdrawal from these plans
is not probable or reasonably possible.
|
|
14.
|
POSTRETIREMENT
BENEFITS OTHER THAN PENSIONS
|
Certain of our subsidiaries provide health care benefits to
certain retirees who are covered under specific group contracts.
As defined by the specific group contract, qualified covered
associates may be eligible to receive major medical insurance
with deductible and co-insurance provisions subject to certain
lifetime maximums.
Effective October 1, 2006, we adopted the recognition and
disclosure provisions of SFAS No. 158.
SFAS No. 158 required us to recognize the unfunded
portion (i.e., the difference between the fair value of plan
assets and the accumulated postretirement benefit obligations)
of our defined benefit plans in the December 31, 2006
Consolidated Balance Sheet, with a corresponding adjustment to
accumulated other comprehensive income, net of tax. Prior to our
adoption of SFAS No. 158, no other comprehensive
income was recognized in our Consolidated Balance Sheets for our
postretirement benefits other than pensions. Included in
accumulated other
F-43
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
comprehensive income at December 31, 2006 are the following
amounts that have not yet been recognized in net periodic
benefit cost: negative unrecognized prior service costs of
$512,000 ($319,000 net of tax) and unrecognized actuarial losses
of $10.5 million ($6.5 million net of tax). The
negative prior service cost and actuarial loss included in
accumulated other comprehensive income and expected to be
recognized in net periodic benefit cost during the year ended
December 31, 2007 is negative $69,000 ($43,000 net of tax)
and $1.1 million ($663,000 net of tax), respectively.
The following table sets forth the funded status of these plans:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of
year
|
|
$
|
27,397
|
|
|
$
|
22,677
|
|
Service cost
|
|
|
1,062
|
|
|
|
1,004
|
|
Interest cost
|
|
|
1,496
|
|
|
|
1,107
|
|
Actuarial loss
|
|
|
1,788
|
|
|
|
5,241
|
|
Benefits paid
|
|
|
(2,426
|
)
|
|
|
(2,633
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
29,317
|
|
|
|
27,396
|
|
Fair value of plan assets at end
of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(29,317
|
)
|
|
$
|
(27,396
|
)
|
|
|
|
|
|
|
|
|
|
At December 31, 2005, the plans included unrecognized
negative prior service costs of $581,000 and unrecognized net
losses of $9.6 million, resulting in a net unfunded accrued
postretirement cost of $18.3 million determined in
accordance with SFAS No. 87.
The unfunded portion of the liability of $29.3 million at
December 31, 2006 is recognized in our Consolidated Balance
Sheet and includes $2.4 million classified as a current
accrued postretirement liability.
A summary of our key actuarial assumptions used to determine the
benefit obligation as of December 31, 2006 and 2005 as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
Healthcare inflation:
|
|
|
|
|
|
|
|
|
Initial rate
|
|
|
12.00
|
%
|
|
|
12.00
|
%
|
Ultimate rate
|
|
|
5.05
|
%
|
|
|
5.05
|
%
|
Year of ultimate rate achievement
|
|
|
2011
|
|
|
|
2010
|
|
Discount rate
|
|
|
5.85
|
%
|
|
|
5.75
|
%
|
The weighted average discount rate used to determine net
periodic benefit cost was 5.75%, 5.75% and 6.0% to 6.5% for
2006, 2005 and 2004, respectively.
F-44
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Components of net periodic benefit
cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and interest cost
|
|
$
|
2,558
|
|
|
$
|
2,111
|
|
|
$
|
2,034
|
|
Amortizations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
(69
|
)
|
|
|
(69
|
)
|
|
|
(69
|
)
|
Unrecognized net loss
|
|
|
941
|
|
|
|
284
|
|
|
|
291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
3,430
|
|
|
$
|
2,326
|
|
|
$
|
2,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plans. A one percent
change in assumed health care cost trend rates would have the
following effects:
|
|
|
|
|
|
|
|
|
|
|
1-Percentage-
|
|
|
1-Percentage-
|
|
|
|
Point Increase
|
|
|
Point Decrease
|
|
|
|
(In thousands)
|
|
|
Effect on total of service and
interest cost components
|
|
$
|
224
|
|
|
$
|
(195
|
)
|
Effect on postretirement obligation
|
|
|
2,139
|
|
|
|
(1,912
|
)
|
We expect to contribute $2.4 million to the postretirement
health care plans for 2007. Estimated postretirement health care
plan benefit payments for the next ten years are as follows:
|
|
|
|
|
2007
|
|
$
|
2.4 million
|
|
2008
|
|
|
2.7 million
|
|
2009
|
|
|
2.9 million
|
|
2010
|
|
|
3.1 million
|
|
2011
|
|
|
3.1 million
|
|
Next five years
|
|
|
18.3 million
|
|
|
|
15.
|
FACILITY
CLOSING AND REORGANIZATION COSTS
|
Facility Closing and Reorganization Costs We
recorded net facility closing and reorganization costs of
$25.1 million, $35.5 million and $24.6 million
during 2006, 2005 and 2004, respectively. Our facility closing
and reorganization costs are not allocated to our segments as we
evaluate segment performance before such costs.
The charges recorded during 2006 are primarily related to the
following:
|
|
|
|
|
The closing of Dairy Group facilities in Akron, Ohio and
Madison, Wisconsin; and
|
|
|
|
Previously announced plans including reorganizing WhiteWave
Foods Company and closing Dairy Group manufacturing facilities.
|
The charges recorded during 2005 are primarily related to the
following:
|
|
|
|
|
The closing of Dairy Group manufacturing facilities in Union,
New Jersey and Albuquerque, New Mexico; and
|
|
|
|
Previously announced plans including reorganizing WhiteWave
Foods Company and closing Dairy Group manufacturing facilities.
|
The charges recorded during 2004 are primarily related to the
following:
|
|
|
|
|
Closing Dairy Group manufacturing facilities in Madison,
Wisconsin; San Leandro and South Gate, California;
Westwego, Louisiana; Pocatello, Idaho and Wilkesboro, North
Carolina;
|
F-45
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Reorganizing our WhiteWave Foods Company including consolidating
the operations of the three distinct operating units: White
Wave, Horizon Organic, and Dean National Brand Group; and
|
|
|
|
Transferring Morningstar Foods private label and
manufacturing operations to the Dairy Group.
|
These charges were accounted for in accordance with
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, which became effective
for us in January 2003. We expect to incur additional charges
related to these restructuring plans of approximately
$15.4 million, including an additional $10.0 million
in work force reduction costs and approximately
$5.4 million in shut down and other costs. Approximately
$14.9 million and $500,000 of these additional charges are
expected to be completed by December 2007 and December 2008,
respectively. A significant portion of the 2007 charges relate
to the realignment of our Dairy Groups finance and
accounting organization.
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 and related
equipment at December 31, 2006 was approximately
$15.8 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.
F-46
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Activity for 2006 and 2005 with respect to facility closing and
reorganization costs is summarized below and includes items
expensed as incurred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
Charges at
|
|
|
|
|
|
|
|
|
Charges at
|
|
|
|
|
|
|
|
|
Charges at
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2004
|
|
|
Charges
|
|
|
Payments
|
|
|
2005
|
|
|
Charges
|
|
|
Payments
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce reduction costs
|
|
$
|
5,568
|
|
|
$
|
14,373
|
|
|
$
|
(11,639
|
)
|
|
$
|
8,302
|
|
|
$
|
4,954
|
|
|
$
|
(8,934
|
)
|
|
$
|
4,322
|
|
Shutdown costs
|
|
|
287
|
|
|
|
2,644
|
|
|
|
(2,722
|
)
|
|
|
209
|
|
|
|
4,895
|
|
|
|
(5,088
|
)
|
|
|
16
|
|
Lease obligations after shutdown
|
|
|
74
|
|
|
|
2,559
|
|
|
|
(561
|
)
|
|
|
2,072
|
|
|
|
1,123
|
|
|
|
(1,882
|
)
|
|
|
1,313
|
|
Settlement of contracts
|
|
|
|
|
|
|
724
|
|
|
|
|
|
|
|
724
|
|
|
|
45
|
|
|
|
(769
|
)
|
|
|
|
|
Other
|
|
|
236
|
|
|
|
4,084
|
|
|
|
(3,850
|
)
|
|
|
470
|
|
|
|
1,991
|
|
|
|
(2,245
|
)
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
6,165
|
|
|
$
|
24,384
|
|
|
$
|
(18,772
|
)
|
|
$
|
11,777
|
|
|
$
|
13,008
|
|
|
$
|
(18,918
|
)
|
|
$
|
5,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-down of assets
|
|
|
|
|
|
|
11,067
|
|
|
|
|
|
|
|
|
|
|
|
12,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charges
|
|
|
|
|
|
$
|
35,451
|
|
|
|
|
|
|
|
|
|
|
$
|
25,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. During 2005, we
resolved a contractual obligation for less than we had
previously reserved. The accruals and subsequent adjustments, if
any, are reflected within the determination of the purchase
price. The accruals and subsequent adjustments had no impact on
our Consolidated Statements of Income.
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;
|
|
|
|
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 for 2006
and 2005 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
|
Accrued
|
|
|
|
Charges at
|
|
|
|
|
|
|
|
|
|
|
|
Charges at
|
|
|
|
|
|
Charges at
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
2004
|
|
|
Accruals
|
|
|
Payments
|
|
|
Adjustments
|
|
|
2005
|
|
|
Payments
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Workforce reduction costs
|
|
$
|
2,135
|
|
|
$
|
431
|
|
|
$
|
(876
|
)
|
|
$
|
(1,324
|
)
|
|
$
|
366
|
|
|
$
|
(296
|
)
|
|
$
|
70
|
|
Shutdown and exit costs
|
|
|
81,766
|
|
|
|
|
|
|
|
(11,164
|
)
|
|
|
(30,123
|
)
|
|
|
40,479
|
|
|
|
(38,905
|
)
|
|
|
1,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
83,901
|
|
|
$
|
431
|
|
|
$
|
(12,040
|
)
|
|
$
|
(31,447
|
)
|
|
$
|
40,845
|
|
|
$
|
(39,201
|
)
|
|
$
|
1,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.
|
OTHER
OPERATING INCOME
|
In the fourth quarter of 2004, we recognized a $5.9 million
gain primarily related to the settlement of litigation.
F-47
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
17.
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Cash paid for interest and
financing charges, net of capitalized interest
|
|
$
|
184,902
|
|
|
$
|
161,580
|
|
|
$
|
155,015
|
|
Cash paid for taxes
|
|
|
63,037
|
|
|
|
166,224
|
|
|
|
27,453
|
|
Noncash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock dividend related to the
Spin-off
|
|
|
|
|
|
|
(492,613
|
)
|
|
|
|
|
|
|
18.
|
COMMITMENTS
AND CONTINGENCIES
|
Contingent Obligations Related to Divested
Operations We have sold 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 have established reserves for
estimated probable liabilities related to our divested
businesses.
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 Dean Holding Company after the pre-existing
agreements with certain other suppliers or producers expire. We
have not breached or terminated any of our milk supply
agreements with DFA.
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. Rent expense, including additional rent, was
$132.3 million, $129.0 million and $119.7 million
for 2006, 2005 and 2004, respectively.
The composition of capital leases which are reflected as
property, plant and equipment in our Consolidated Balance Sheets
are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Machinery and equipment
|
|
$
|
7,509
|
|
|
$
|
2,550
|
|
Less accumulated amortization
|
|
|
(785
|
)
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,724
|
|
|
$
|
2,387
|
|
|
|
|
|
|
|
|
|
|
F-48
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
Future minimum payments at December 31, 2006, under
non-cancelable capital leases and operating leases with terms in
excess of one year and purchase obligations are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
Purchase
|
|
|
|
Leases
|
|
|
Leases
|
|
|
Obligations
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
2007
|
|
$
|
918
|
|
|
$
|
107,021
|
|
|
$
|
310,416
|
|
2008
|
|
|
1,299
|
|
|
|
95,739
|
|
|
|
106,222
|
|
2009
|
|
|
1,278
|
|
|
|
85,725
|
|
|
|
59,997
|
|
2010
|
|
|
1,300
|
|
|
|
68,134
|
|
|
|
41,667
|
|
2011
|
|
|
1,375
|
|
|
|
49,488
|
|
|
|
8,259
|
|
Thereafter
|
|
|
393
|
|
|
|
83,323
|
|
|
|
75,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
6,563
|
|
|
$
|
489,430
|
|
|
$
|
602,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest
|
|
|
(656
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of capital lease
obligations
|
|
$
|
5,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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.
Two shareholder derivative complaints were filed against us
which allege stock option backdating. The complaints name
certain current and former members of the Board of Directors and
certain current and former members of management. In response to
the litigation, a special litigation committee of our Board of
Directors was established and has been conducting its own
independent review of our stock option grants and the
allegations made in the complaints. The committee consists of
independent board members not named in the litigation.
We also have been informed by the staff of the Securities and
Exchange Commission (the SEC) that it is conducting
an informal inquiry into our stock option practices. We are
cooperating fully with the SECs inquiry.
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. At December 31, 2006 and 2005, we recorded accrued
liabilities related to these retained risks of
$172.9 million and $161.2 million, respectively,
including both current and long-term liabilities.
During 2005, we experienced operational disruptions in our Dairy
Group segment caused by Hurricanes Katrina and Rita. Our
insurance policies cover a portion of our business interruption
losses for 12 months following the restoration of our
property. During 2006, we received approximately
$5.8 million in settlement of a portion of our business
interruption claim for the period of August 29, 2005
through June 30, 2006. The insurance proceeds are recorded
within cost of sales. We will continue to submit additional
business interruption claims during 2007, and we will recognize
these amounts upon settlement of the claims.
F-49
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19.
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
Pursuant to SFAS No. 107, Disclosure About Fair
Value of Financial Instruments, we are required to
disclose an estimate of the fair value of our financial
instruments as of December 31, 2006 and 2005.
SFAS No. 107 defines the fair value of financial
instruments as the amount at which the instrument could be
exchanged in a current transaction between willing parties.
Due to their near-term maturities, the carrying amounts of
accounts receivable and accounts payable are considered
equivalent to fair value. In addition, because the interest
rates on our senior credit facility and certain other debt are
variable, their fair values approximate their carrying values.
We have senior notes with an aggregate face value of
$600 million with fixed interest rates ranging from 6.625%
to 8.15% at December 31, 2006. These notes were issued by
Dean Holding Company prior to our acquisition of Dean Holding
Company. On May 17, 2006, we issued $500 million
aggregate principal amount of senior notes with a fixed interest
rate of 7.0%.
We have entered into various interest rate agreements to reduce
our sensitivity to changes in interest rates on our variable
rate debt. The fair values of these instruments and our senior
notes were determined based on fair values for similar
instruments with similar terms. The following table presents the
carrying value and fair value of our senior notes and interest
rate agreements at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Subsidiary senior notes
|
|
$
|
(572,037
|
)
|
|
$
|
(604,500
|
)
|
|
$
|
(568,493
|
)
|
|
$
|
(615,625
|
)
|
Dean Foods Company senior notes
|
|
|
(498,112
|
)
|
|
|
(508,750
|
)
|
|
|
|
|
|
|
|
|
Interest rate agreements
|
|
|
14,847
|
|
|
|
14,847
|
|
|
|
13,579
|
|
|
|
13,579
|
|
|
|
20.
|
SEGMENT,
GEOGRAPHIC AND CUSTOMER INFORMATION
|
We have two reportable segments: the Dairy Group and WhiteWave
Foods Company.
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.
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®
dairy products, International
Delight®
coffee creamers, LAND
OLAKES®
creamer and fluid dairy products and Rachels
Organic®
dairy 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. A portion of our WhiteWave Foods
Companys products are sold through the Dairy Groups
distribution network. Those sales, together with their related
costs, are included in WhiteWave Foods Company for segment
reporting purposes.
On January 1, 2006, we transferred Rachels Organic
from our former International division to WhiteWave Foods
Company. Our results have been restated for this transfer for
all periods presented.
We evaluate the performance of our segments based on operating
profit or loss before other operating income, gains and losses
on the sale of assets, facility closing and reorganization costs
and foreign exchange gains and losses. In addition, the expense
related to share-based compensation has not been allocated to
our segments and is reflected entirely within the caption
Corporate. Therefore, the measure of segment profit
or loss presented below is before such items.
F-50
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The amounts in the following tables are obtained from reports
used by our executive management team and do not include any
allocated income taxes or management fees. There are no
significant non-cash items reported in segment profit or loss
other than depreciation and amortization.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Net sales to external customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dairy Group
|
|
$
|
8,820,950
|
|
|
$
|
8,973,442
|
|
|
$
|
8,683,135
|
|
WhiteWave Foods Company
|
|
|
1,277,605
|
|
|
|
1,201,276
|
|
|
|
1,042,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,098,555
|
|
|
$
|
10,174,718
|
|
|
$
|
9,725,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dairy Group
|
|
$
|
13,208
|
|
|
$
|
76,324
|
|
|
$
|
56,844
|
|
WhiteWave Foods Company
|
|
|
96,322
|
|
|
|
101,459
|
|
|
|
58,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
109,530
|
|
|
$
|
177,783
|
|
|
$
|
115,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dairy Group
|
|
$
|
678,011
|
|
|
$
|
642,043
|
|
|
$
|
598,013
|
|
WhiteWave Foods Company
|
|
|
139,352
|
|
|
|
114,950
|
|
|
|
87,723
|
|
Corporate
|
|
|
(141,552
|
)
|
|
|
(141,447
|
)
|
|
|
(131,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
|
|
675,811
|
|
|
|
615,546
|
|
|
|
554,421
|
|
Facility closing and
reorganization costs
|
|
|
(25,116
|
)
|
|
|
(35,451
|
)
|
|
|
(24,575
|
)
|
Other operating income
|
|
|
|
|
|
|
|
|
|
|
5,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
650,695
|
|
|
|
580,095
|
|
|
|
535,745
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
194,547
|
|
|
|
160,230
|
|
|
|
191,788
|
|
Other (income) expense, net
|
|
|
435
|
|
|
|
(683
|
)
|
|
|
(722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income from
continuing operations before tax
|
|
$
|
455,713
|
|
|
$
|
420,548
|
|
|
$
|
344,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dairy Group
|
|
$
|
179,304
|
|
|
$
|
190,849
|
|
|
$
|
177,649
|
|
WhiteWave Foods Company
|
|
|
37,361
|
|
|
|
12,224
|
|
|
|
8,685
|
|
Corporate
|
|
|
11,017
|
|
|
|
11,557
|
|
|
|
15,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
227,682
|
|
|
$
|
214,630
|
|
|
$
|
202,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dairy Group
|
|
$
|
5,141,662
|
|
|
$
|
5,197,092
|
|
|
$
|
5,389,258
|
|
WhiteWave Foods Company
|
|
|
1,372,946
|
|
|
|
1,308,388
|
|
|
|
1,108,181
|
|
Corporate
|
|
|
235,585
|
|
|
|
243,677
|
|
|
|
198,879
|
|
Discontinued operations
|
|
|
19,980
|
|
|
|
301,727
|
|
|
|
1,060,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,770,173
|
|
|
$
|
7,050,884
|
|
|
$
|
7,756,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-51
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dairy Group
|
|
$
|
149,381
|
|
|
$
|
181,400
|
|
|
$
|
270,255
|
|
WhiteWave Foods Company
|
|
|
77,275
|
|
|
|
99,994
|
|
|
|
27,969
|
|
Corporate
|
|
|
10,586
|
|
|
|
5,735
|
|
|
|
2,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
237,242
|
|
|
$
|
287,129
|
|
|
$
|
301,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Information Less than 1% of our
net sales and long-lived assets relate to operations outside of
the United States.
Major Customers Our WhiteWave Foods Company
and Dairy Group segments each had a single customer that
represented greater than 10% of their net sales.
Approximately 17.7%, 15.4% and 14.0%, respectively, of our
consolidated net sales were to that same customer in 2006, 2005
and 2004.
|
|
21.
|
RELATED
PARTY TRANSACTIONS
|
Real Property Lease We lease the land for our
Franklin, Massachusetts facility from a partnership in which
Alan Bernon, President of our Dairy Group and a member of our
Board of Directors, owns a 13.45% minority interest. (The
remaining interests are owned by members of
Mr. Bernons family.) Our lease payments were
approximately $700,000 in 2006, 2005 and 2004.
Minority Interest in Consolidated Container Holding
Company We hold our minority interest in
Consolidated Container Company through our subsidiary Franklin
Plastics, Inc., in which we own an approximately 99% interest.
Alan Bernon, President of our Dairy Group and a member of our
Board of Directors, and his brother, Peter Bernon, collectively
own less than 1% of Franklin Plastics, Inc.
F-52
DEAN
FOODS COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
22.
|
QUARTERLY
RESULTS OF OPERATIONS (unaudited)
|
The following is a summary of our unaudited quarterly results of
operations for 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(In thousands, except share data)
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,509,041
|
|
|
$
|
2,477,884
|
|
|
$
|
2,517,792
|
|
|
$
|
2,593,838
|
|
Gross profit
|
|
|
651,346
|
|
|
|
683,847
|
|
|
|
694,006
|
|
|
|
710,680
|
|
Income from continuing operations
|
|
|
54,694
|
|
|
|
74,795
|
|
|
|
74,498
|
|
|
|
76,276
|
|
Net income(1)
|
|
|
52,792
|
|
|
|
28,868
|
|
|
|
70,793
|
|
|
|
72,961
|
|
Earnings per common share(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.39
|
|
|
|
0.21
|
|
|
|
0.53
|
|
|
|
0.55
|
|
Diluted
|
|
|
0.37
|
|
|
|
0.21
|
|
|
|
0.51
|
|
|
|
0.53
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,474,571
|
|
|
$
|
2,515,130
|
|
|
$
|
2,569,405
|
|
|
$
|
2,615,612
|
|
Gross profit
|
|
|
611,223
|
|
|
|
647,235
|
|
|
|
651,049
|
|
|
|
673,663
|
|
Income from continuing operations
|
|
|
50,692
|
|
|
|
74,026
|
|
|
|
62,181
|
|
|
|
69,751
|
|
Net income(3)
|
|
|
61,469
|
|
|
|
81,626
|
|
|
|
99,384
|
|
|
|
66,175
|
|
Earnings per common share(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.41
|
|
|
|
0.54
|
|
|
|
0.67
|
|
|
|
0.48
|
|
Diluted
|
|
|
0.39
|
|
|
|
0.52
|
|
|
|
0.64
|
|
|
|
0.45
|
|
|
|
|
(1) |
|
The results for the first, second, third and fourth quarters
include facility closing and reorganization costs, net of tax,
of $2.7 million, $1.8 million, $3.4 million and
$7.6 million, respectively. |
|
(2) |
|
Earnings per common share calculations for each of the quarters
were based on the basic and diluted weighted average number of
shares outstanding for each quarter, and the sum of the quarters
may not necessarily be equal to the full year earnings per
common share amount. |
|
(3) |
|
The results for the first, second, third and fourth quarters
include facility closing and reorganization costs, net of tax,
of $3.9 million, $1.5 million, $11.3 million and
$5.3 million, respectively. |
|
|
23.
|
SUBSEQUENT
EVENTS (unaudited)
|
Sale of Iberian Operations On
January 18, 2007, we completed the sale of our Portuguese
operations (that comprised the remainder of our Iberian
operations). Our net cash proceeds were approximately
$11.0 million subject to final working capital settlements.
No significant loss was recorded on the sale. The sale of these
operations is part of our strategy to focus on our core dairy
and branded business.
Acquisition of Friendship Dairies, Inc. In
February 2007, our Dairy Group entered into an agreement to
acquire Friendship Dairies, Inc., a manufacturer, marketer and
distributor of cultured dairy products primarily in the
northeastern United States. This transaction will expand our
cultured dairy product capabilities and add a strong regional
brand. The purchase price will be approximately $130 million,
including the costs of the acquisition. We expect to complete
the transaction by the second quarter of 2007, subject to
regulatory approval.
F-53
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
During our two most recent fiscal years, no independent
accountant who was engaged as the principal accountant to audit
our financial statements, nor any independent accountant who was
engaged to audit a significant subsidiary and on whom our
principal accountant expressed reliance in its report, has
resigned or been dismissed.
|
|
Item 9A.
|
Controls
and Procedures
|
Controls
Evaluation and Related Certifications
We conducted an evaluation of the effectiveness of the design
and operation of our disclosure controls and
procedures (Disclosure Controls) as of
December 31, 2006. The controls evaluation was done under
the supervision and with the participation of management,
including our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO).
Attached as exhibits to this annual report are certifications of
the CEO and the CFO, which are required in accordance with
Rule 13a-14
of the Exchange Act. This Controls and Procedures section
includes the information concerning the controls evaluation
referred to in the certifications and it should be read in
conjunction with the certifications for a more complete
understanding of the topics presented.
Definition
of Disclosure Controls
Disclosure Controls are controls and procedures designed to
reasonably assure that information required to be disclosed in
our reports filed with the Securities and Exchange Commission
(the SEC) is recorded, processed, summarized and
reported within the time periods specified in the SECs
rules and forms. Disclosure Controls are also designed to
reasonably assure that such information is accumulated and
communicated to our management, including the CEO and CFO, as
appropriate to allow timely decisions regarding required
disclosure. Our Disclosure Controls include components of our
internal control over financial reporting, which consists of
control processes designed to provide reasonable assurance
regarding the reliability of our financial reporting and the
preparation of financial statements in accordance with
U.S. generally accepted accounting principles.
Limitations
on the Effectiveness of Controls
We do not expect that our Disclosure Controls or our internal
control over financial reporting will prevent all error and all
fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance
that the control systems objectives will be met. Further,
the design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and
instances of fraud, if any, within the company have been
detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Controls can also
be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of
the controls. The design of any system of controls is based in
part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions. Over time, controls may become inadequate because of
changes in conditions or deterioration in the degree of
compliance with policies or procedures. Because of the inherent
limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.
Scope of
the Controls Evaluation
Our evaluations of our Disclosure Controls include reviews of
the controls objectives and design, our implementation of
the controls and the effect of the controls on the information
generated for use in our SEC filings. In the course of our
controls evaluations, we seek to identify data errors, controls
problems or acts of fraud and confirm that appropriate
corrective actions, including process improvements, are
undertaken. Many of the components of our Disclosure Controls
are evaluated on an ongoing basis by our Audit Services
department. The overall goals of these various evaluation
activities are to monitor our Disclosure Controls, and to modify
them
44
as necessary. Our intent is to maintain the Disclosure Controls
as dynamic systems that change as conditions warrant.
Changes
in Internal Control over Financial Reporting
During the third quarter of 2006, WhiteWave Foods Company
implemented SAP as its primary financial reporting and resource
planning system. As a result, we made changes to our internal
control over financial reporting. SAP was implemented at all
locations of WhiteWave Foods Company in the United States except
for the manufacturing facilities located in City of Industry,
CA, Jacksonville, FL and Mt. Crawford, VA. WhiteWave Foods
Company will implement SAP at these facilities during 2007.
Conclusions
Based upon our most recent controls evaluation, our CEO and CFO
have concluded that as of December 31, 2006, our Disclosure
Controls were effective at the reasonable assurance level. In
the fourth quarter of 2006, other than the ongoing
implementation of SAP as discussed above, there was no change in
our internal control over financial reporting that has
materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
MANAGEMENT
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Our internal
control system was designed to provide reasonable assurance to
our management and Board of Directors regarding the preparation
and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
We have assessed the effectiveness of our internal control over
financial reporting as of December 31, 2006. In making this
assessment, we used the criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on our assessment we believe that, as of
December 31, 2006, our internal control over financial
reporting is effective based on those criteria.
Our independent registered public accounting firm has issued an
audit report on our assessment of our internal control over
financial reporting. This report appears on page 46.
February 28, 2007
45
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Dean Foods Company
Dallas, Texas
We have audited managements assessment, included in the
accompanying Management Report on Internal Control Over
Financial Reporting, that Dean Foods Company and subsidiaries
(the Company) maintained effective internal control
over financial reporting as of December 31, 2006, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on managements
assessment and an opinion on the effectiveness of the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, managements assessment that the Company
maintained effective internal control over financial reporting
as of December 31, 2006, is fairly stated, in all material
respects, based on the criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2006, based on the criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended
December 31, 2006 of the Company and our report dated
February 28, 2007 expressed an unqualified opinion on those
financial statements and included an explanatory paragraph
regarding the Companys adoption of new accounting
standards.
/s/ Deloitte
& Touche LLP
Dallas, Texas
February 28, 2007
46
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
Incorporated herein by reference to our proxy statement (to be
filed) for our May 18, 2007 Annual Meeting of Stockholders.
|
|
Item 11.
|
Executive
Compensation
|
Incorporated herein by reference to our proxy statement (to be
filed) for our May 18, 2007 Annual Meeting of Stockholders.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Incorporated herein by reference to our proxy statement (to be
filed) for our May 18, 2007 Annual Meeting of Stockholders.
|
|
Item 13.
|
Certain
Relationships and Related Transactions and Director
Independence
|
Incorporated herein by reference to our proxy statement (to be
filed) for our May 18, 2007 Annual Meeting of Stockholders.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
Incorporated herein by reference to our proxy statement (to be
filed) for our May 18, 2007 Annual Meeting of Stockholders.
47
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
Financial
Statements
The following Consolidated Financial Statements are filed as
part of this report or are incorporated herein as indicated:
|
|
|
|
|
|
|
Page
|
|
Report of Independent Registered
Public Accounting Firm
|
|
|
F-1
|
|
Consolidated Balance Sheets as of
December 31, 2006 and 2005
|
|
|
F-2
|
|
Consolidated Statements of Income
for the years ended December 31, 2006, 2005 and 2004
|
|
|
F-3
|
|
Consolidated Statements of
Stockholders Equity for the years ended December 31,
2006, 2005 and 2004
|
|
|
F-4
|
|
Consolidated Statements of Cash
Flows for the years ended December 31, 2006, 2005 and 2004
|
|
|
F-5
|
|
Notes to Consolidated Financial
Statements
|
|
|
F-6
|
|
Financial
Statement Schedules
Report of Independent Registered Public Accounting Firm
Schedule II Valuation and Qualifying Accounts
Exhibits
See Index to Exhibits.
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
|
By:
|
/s/ Ronald
L. McCrummen
|
Ronald L. McCrummen
Senior Vice President and
Chief Accounting Officer
Dated
February 28, 2007
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
/s/ Gregg
L. Engles
Gregg
L. Engles
|
|
Chief Executive Officer and
Chairman of the Board
|
|
February 28, 2007
|
|
|
|
|
|
/s/ Jack
F.
Callahan, Jr.
Jack
F. Callahan, Jr.
|
|
Executive Vice President and
Chief Financial Officer
|
|
February 28, 2007
|
|
|
|
|
|
/s/ Ronald
L.
McCrummen
Ronald
L. McCrummen
|
|
Senior Vice President and
Chief Accounting Officer
|
|
February 28, 2007
|
|
|
|
|
|
/s/ Alan
Bernon
Alan
Bernon
|
|
Director
|
|
February 28, 2007
|
|
|
|
|
|
/s/ Lewis
M. Collens
Lewis
M. Collens
|
|
Director
|
|
February 28, 2007
|
|
|
|
|
|
/s/ Tom
Davis
Tom
Davis
|
|
Director
|
|
February 28, 2007
|
|
|
|
|
|
/s/ Stephen
L. Green
Stephen
L. Green
|
|
Director
|
|
February 28, 2007
|
|
|
|
|
|
/s/ Janet
Hill
Janet
Hill
|
|
Director
|
|
February 28, 2007
|
|
|
|
|
|
/s/ Joseph
S.
Hardin, Jr.
Joseph
S. Hardin, Jr.
|
|
Director
|
|
February 28, 2007
|
|
|
|
|
|
/s/ Ron
Kirk
Ron
Kirk
|
|
Director
|
|
February 28, 2007
|
|
|
|
|
|
/s/ John
S.
Llewellyn, Jr.
John
S. Llewellyn, Jr.
|
|
Director
|
|
February 28, 2007
|
S-1
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
/s/ John
Muse
John
Muse
|
|
Director
|
|
February 28, 2007
|
|
|
|
|
|
/s/ Hector
M. Nevares
Hector
M. Nevares
|
|
Director
|
|
February 28, 2007
|
|
|
|
|
|
/s/ Pete
Schenkel
Pete
Schenkel
|
|
Director
|
|
February 28, 2007
|
|
|
|
|
|
/s/ Jim
Turner
Jim
Turner
|
|
Director
|
|
February 28, 2007
|
S-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Dean Foods Company
Dallas, Texas
We have audited the consolidated financial statements of Dean
Foods Company and subsidiaries (the Company) as of
December 31, 2006 and 2005, and for each of the three years
in the period ended December 31, 2006, managements
assessment of the effectiveness of the Companys internal
control over financial reporting as of December 31, 2006,
and the effectiveness of the Companys internal control
over financial reporting as of December 31, 2006, and have
issued our reports thereon dated February 28, 2007 (the
report on the consolidated financial statements expresses an
unqualified opinion and includes an explanatory paragraph
regarding the Companys adoption of new accounting
standards); such consolidated financial statements and reports
are included in your 2006 Annual Report to Stockholders and are
included elsewhere in this
Form 10-K.
Our audits also included the consolidated financial statement
schedule of the Company listed in Item 15. This
consolidated financial statement schedule is the responsibility
of the Companys management. Our responsibility is to
express an opinion based on our audits. In our opinion, such
consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ Deloitte
& Touche LLP
Dallas, Texas
February 28, 2007
SCHEDULE II
DEAN
FOODS COMPANY AND SUBSIDIARIES
VALUATION
AND QUALIFYING ACCOUNTS
Years Ended December 31, 2006, 2005 and 2004
Allowance for doubtful accounts deducted from accounts
receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
(Reduction in)
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
Costs and
|
|
|
|
|
|
|
|
|
Balance at
|
|
Year
|
|
Period
|
|
|
Expenses
|
|
|
Other
|
|
|
Deductions
|
|
|
End of Period
|
|
|
|
(In thousands)
|
|
|
2004
|
|
$
|
31,552
|
|
|
$
|
(1,567
|
)
|
|
$
|
2,052
|
|
|
$
|
8,112
|
|
|
$
|
23,925
|
|
2005
|
|
|
23,925
|
|
|
|
7,800
|
|
|
|
|
|
|
|
9,660
|
|
|
|
22,065
|
|
2006
|
|
|
22,065
|
|
|
|
(2,816
|
)
|
|
|
524
|
|
|
|
2,703
|
|
|
|
17,070
|
|
INDEX TO
EXHIBITS
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
3
|
.1
|
|
|
|
Amended and Restated Certificate
of Incorporation (incorporated by reference from our Annual
Report on
Form 10-K
for the year ended December 31, 2001, filed April 1,
2002 (File
No. 1-12755)).
|
|
3
|
.2
|
|
|
|
Amended and Restated Bylaws
(incorporated by reference from our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 1999 (File
No. 1-12755)).
|
|
4
|
.1
|
|
|
|
Specimen of Common Stock
Certificate (incorporated by reference from our Annual Report on
Form 10-K
for the year ended December 31, 2001, filed April 1,
2002 (File
No. 1-12755)).
|
|
4
|
.2
|
|
|
|
Registration Rights Agreement
(incorporated by reference from our Registration Statement on
Form S-1
(File
No. 333-1858)).
|
|
4
|
.3
|
|
|
|
Rights Agreement dated
March 6, 1998 among us and Harris Trust & Savings
Bank, as rights agent, which includes as Exhibit A the Form
of Rights Certificate (incorporated by reference from the
Registration Statement on
Form 8-A
filed on March 10, 1998 (File
No. 1-12755)).
|
|
4
|
.4
|
|
|
|
Amendment No. 1 to Rights
Agreement dated May 26, 2004 by and between us and The Bank
of New York, as rights agent (incorporated by reference from our
Current Report on
Form 8-K
dated May 27, 2004 (Filed
No. 1-12755)).
|
|
4
|
.5
|
|
|
|
Indenture, dated as of
May 15, 2006, between the Company the subsidiary guarantors
listed therein and The Bank of New York Trust Company, N.A., as
trustee (incorporated by reference from our Current Report on
Form 8-K
dated May 19, 2006 (File
No. 1-12755)).
|
|
4
|
.6
|
|
|
|
Supplemental Indenture No. 1,
dated as of May 17, 2006, between the Company, the
subsidiary guarantors listed therein and The Bank of New York
Trust Company, N.A., as trustee (incorporated by reference from
our Current Report on
Form 8-K
dated May 19, 2006 (File
No. 1-12755)).
|
|
*10
|
.1
|
|
|
|
Eighth Amended and Restated 1997
Stock Option and Restricted Stock Plan (filed herewith).
|
|
*10
|
.2
|
|
|
|
Third Amended and Restated 1989
Dean Foods Stock Awards Plan (incorporated by reference from our
Annual Report on
Form 10-K
for the year ended December 31, 2004, filed March 16,
2005 (File
No. 1-12755)).
|
|
*10
|
.3
|
|
|
|
Amended and Restated Executive
Deferred Compensation Plan (filed herewith).
|
|
*10
|
.4
|
|
|
|
Post-2004 Executive Deferred
Compensation Plan (filed herewith).
|
|
*10
|
.5
|
|
|
|
Fifth Amended and Restated 1997
Employee Stock Purchase Plan (incorporated by reference from our
Annual Report on
Form 10-K
for the year ended December 31, 2005 (File
No. 1-12755)).
|
|
*10
|
.6
|
|
|
|
Executive Incentive Compensation
Plan (incorporated by reference from our Annual Report on
Form 10-K
for the year ended December 31, 2005 (File
No. 1-12755)).
|
|
*10
|
.7
|
|
|
|
Revised and Restated Supplemental
Executive Retirement Plan (filed herewith).
|
|
*10
|
.8
|
|
|
|
Amendment No. 1 to the Dean
Foods Company Supplemental Executive Retirement Plan (filed
herewith).
|
|
*10
|
.9
|
|
|
|
Amendment No. 2 to the Dean
Foods Company Supplemental Executive Retirement Plan (filed
herewith).
|
|
*10
|
.10
|
|
|
|
Description of Compensation
Arrangements for Executive Officers (filed herewith).
|
|
*10
|
.11
|
|
|
|
Summary of Compensation Paid to
Non-Employee Directors (incorporated by reference from our
Annual Report on
Form 10-K
for the year ended December 31, 2005 (File
No. 1-12755)).
|
|
*10
|
.12
|
|
|
|
Form of stock option award
agreement for awards to executive officers (filed herewith).
|
|
*10
|
.13
|
|
|
|
Form of stock unit award agreement
for awards to executive officers (filed herewith).
|
|
*10
|
.14
|
|
|
|
Executive Severance Pay Plan
(filed herewith).
|
|
*10
|
.15
|
|
|
|
Employment agreement dated
September 7, 2005 between us and Alan Bernon (incorporated
by reference from our Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2005, filed
November 8, 2005 (File
No. 1-12755)).
|
|
*10
|
.16
|
|
|
|
Stock Unit Award Agreement between
us and Alan Bernon dated September 7, 2005 (incorporated by
reference from our Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2005, filed
November 8, 2005 (File
No. 1-12755)).
|
|
*10
|
.17
|
|
|
|
Change in Control Agreement
between us and Alan Bernon dated September 7, 2005
(incorporated by reference from our Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2005, filed
November 8, 2005 (Filed
No. 1-12755)).
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
*10
|
.18
|
|
|
|
Proprietary Information,
Invention, and Non-Compete Agreement dated September 7,
2005 between us and Alan Bernon (incorporated by reference from
our Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2005, filed
November 8, 2005 (File
No. 1-12755)).
|
|
*10
|
.19
|
|
|
|
Employment agreement dated
October 7, 2005 between us and Joseph Scalzo (incorporated
by reference from our Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2005, filed
November 8, 2005 (File
No. 1-12755)).
|
|
*10
|
.20
|
|
|
|
Change of Control Agreement dated
October 7, 2005 between us and Joseph Scalzo (incorporated
by reference from our Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2005, filed
November 8, 2005 (File
No. 1-12755)).
|
|
*10
|
.21
|
|
|
|
Proprietary Information,
Inventions and Non-Compete Agreement dated October 7, 2005
between us and Joseph Scalzo (incorporated by reference from our
Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2005, filed
November 8, 2005 (File
No. 1-12755)).
|
|
*10
|
.22
|
|
|
|
Non Qualified Stock Option
Agreement dated October 7, 2005 between us and Joseph
Scalzo (incorporated by reference from our Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2005, filed
November 8, 2005 (File
No. 1-12755)).
|
|
*10
|
.23
|
|
|
|
Employment agreement dated
December 2, 2005 between us and Pete Schenkel (incorporated
by reference from our Annual Report on
Form 10-K
for the year ended December 31, 2005 (File
No. 1-12755)).
|
|
*10
|
.24
|
|
|
|
Independent Contractors and
Non-Competition Agreement dated December 1, 2005 between us
and Pete Schenkel (incorporated by reference from our Annual
Report on
Form 10-K
for the year ended December 31, 2005 (File
No. 1-12755)).
|
|
*10
|
.25
|
|
|
|
Employment Agreement between the
Company and Jack F. Callahan dated April 27, 2006
(incorporated by reference from our Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2006 (File
No. 1-12755)).
|
|
*10
|
.26
|
|
|
|
Change in Control
Agreement Jack F. Callahan, Jr. (incorporated
by reference from our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2006 (File
No. 1-12755)).
|
|
*10
|
.27
|
|
|
|
Proprietary Information,
Inventions and Non-Compete Agreement Jack F.
Callahan, Jr. (incorporated by reference from our Quarterly
Report on
Form 10-Q
for the quarter ended June 30, 2006 (File
No. 1-12755)).
|
|
*10
|
.28
|
|
|
|
Form of Change in Control
Agreement for our executive officers (incorporated by reference
from our Annual Report on
Form 10-K
for the year ended December 31, 2002 (File
No. 1-12755)).
|
|
*10
|
.29
|
|
|
|
Form of Change in Control
Agreement for certain senior officers (incorporated by reference
from our Annual Report on
Form 10-K
for the year ended December 31, 2002 (File
No. 1-12755)).
|
|
*10
|
.30
|
|
|
|
Form of Change in Control
Agreement for certain other officers (incorporated by reference
from our Annual Report on
Form 10-K
for the year ended December 31, 2002 (File
No. 1-12755)).
|
|
10
|
.31
|
|
|
|
Stockholders Agreement dated
July 31, 1997 among us, Franklin Plastics, Peter M. Bernon
and Alan J. Bernon (incorporated by reference from our Quarterly
Report on
Form 10-Q
for the quarter ended June 30, 1997, as amended on
October 24, 1997 (File
No. 1-12755)).
|
|
10
|
.32
|
|
|
|
Amended and Restated Limited
Liability Company Agreement of Consolidated Container Holdings,
LLC (filed herewith).
|
|
10
|
.33
|
|
|
|
Distribution Agreement between us
and TreeHouse Foods dated June 27, 2005 (incorporated by
reference from our Current Report on
Form 8-K
dated June 27, 2005 (File
No. 1-12755)).
|
|
10
|
.34
|
|
|
|
Tax Sharing Agreement dated
June 27, 2005 between us and TreeHouse Foods (incorporated
by reference from our Current Report on
Form 8-K
dated June 27, 2005 (File
No. 1-12755)).
|
|
10
|
.35
|
|
|
|
Amended and Restated Credit
Agreement among us and our senior lenders (incorporated by
reference from our Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2004 (File
No. 1-12755)).
|
|
10
|
.36
|
|
|
|
Amendment No. 1 to Amended
and Restated Credit Agreement (incorporated by reference from
our Current Report on
Form 8-K
dated June 1, 2005 (File
No. 1-12755)).
|
|
10
|
.37
|
|
|
|
Amendment No. 2 to Amended
and Restated Credit Agreement (incorporated by reference from
our Current Report on
Form 8-K
dated November 28, 2005 (File
No. 1-12755)).
|
|
10
|
.38
|
|
|
|
Amendment No. 3 to Amended
and Restated Credit Agreement (incorporated by reference from
our Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2006 (File
No. 1-12755)).
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
10
|
.39
|
|
|
|
Fourth Amended and Restated
Receivables Purchase Agreement (incorporated by reference from
our Current Report on
Form 8-K
dated November 21, 2006 (File
No. 1-12755)).
|
|
10
|
.40
|
|
|
|
Amendment No. 11 to Fourth
Amended and Restated Receivables Purchase Agreement
(incorporated by reference from our Current Report on
Form 8-K
dated November 21, 2006 (File
No. 1-12755)).
|
|
12
|
|
|
|
|
Statement of Computation of Ratio
of Earnings to Fixed Charges (filed herewith).
|
|
14
|
|
|
|
|
Code of Ethics (filed herewith).
|
|
21
|
|
|
|
|
List of Subsidiaries (filed
herewith).
|
|
23
|
.1
|
|
|
|
Consent of Deloitte &
Touche LLP (filed herewith).
|
|
31
|
.1
|
|
|
|
Certification of Chief Executive
Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (filed herewith).
|
|
31
|
.2
|
|
|
|
Certification of Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (filed herewith).
|
|
32
|
.1
|
|
|
|
Certification of Chief Executive
Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (filed herewith).
|
|
32
|
.2
|
|
|
|
Certification of Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (filed herewith).
|
|
99
|
|
|
|
|
Supplemental Financial Information
for Dean Holding Company (filed herewith).
|
|
|
|
* |
|
Management or compensatory contract |