-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UyP3L/sQe8cAJH5YVZoG7e5mxa7XCzkJBiqsi01HbDdBFLedKtw3dVF4uQVFg461 vYZArnPCcw9Sh9szNhIzyA== 0000950137-96-001547.txt : 19960826 0000950137-96-001547.hdr.sgml : 19960826 ACCESSION NUMBER: 0000950137-96-001547 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960526 FILED AS OF DATE: 19960823 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEAN FOODS CO CENTRAL INDEX KEY: 0000027500 STANDARD INDUSTRIAL CLASSIFICATION: DAIRY PRODUCTS [2020] IRS NUMBER: 360984820 STATE OF INCORPORATION: DE FISCAL YEAR END: 0527 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08262 FILM NUMBER: 96619902 BUSINESS ADDRESS: STREET 1: 3600 N RIVER RD CITY: FRANKLIN PARK STATE: IL ZIP: 60131 BUSINESS PHONE: 7086781680 MAIL ADDRESS: STREET 1: 3600 N RIVER RD CITY: FRANKLIN PARK STATE: IL ZIP: 60131 10-K405 1 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES --- EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended May 26, 1996 OR --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to -------------- ------------- COMMISSION FILE NO.: 0-1118 DEAN FOODS COMPANY (Exact name of registrant as specified in its charter) DELAWARE 36-0984820 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3600 N. RIVER ROAD, FRANKLIN PARK, ILLINOIS 60131 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (847) 678-1680 SECURITIES REGISTERED PURSUANT TO SECTIONS 12(b) AND 12(g) OF THE ACT: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED Common Stock, Par Value $1 Per Share New York Stock Exchange Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark if disclosure of delinquent files pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's 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. [X] The number of shares of Common Stock, Par Value $1 Per Share, of the Registrant outstanding as of August 9, 1996 was 41,424,621. The aggregate market value of such outstanding shares on August 9, 1996 was $1.03 billion, based upon the closing price for the Common Stock on the New York Stock Exchange on such date. DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated herein by reference in the respective Parts hereof indicated: 1. Registrant's Annual Report to Shareholders for Fiscal Year Ended May 26, 1996 (referred to herein as the "Company's Fiscal 1996 Annual Report"): Part I and Part II 2. Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held on October 1, 1996 (referred to herein as the "Company's 1996 Proxy Statement"): Part III 2 PART I ITEM 1. BUSINESS. Dean Foods Company and its subsidiaries ("the Company") is engaged in the processing, distribution and sales of dairy, vegetable, pickle and specialty food products. The Company's principal products are Dairy (fluid milk and cultured products, ice cream and extended shelf life products), Vegetables (frozen and canned vegetables), Pickles (pickles, relishes and specialty items) and Specialty (powdered products and sauces, puddings and dips). A significant portion of the Company's products are sold under private labels. The Company also operates a trucking business hauling less-than-truckload freight, concentrating primarily on refrigerated and frozen cartage, the results of which are reported in the Specialty segment. The predecessor to Dean Foods Company was incorporated in Illinois in 1925. Acquisitions have been an important factor in the Company's strategy. The Company does not have specific acquisition criteria, but generally focuses on food companies having a well-established reputation for quality products and services. Fiscal 1996 was a transitional year for Dean Foods Company. The Company conducted a strategic business review of all operations, focusing on its markets, competitors and capabilities, and identified a strategic plan design to enhance long-term shareholder value. As a result, in May 1996 the Company recorded a pre-tax special charge of $150.0 million ($97.7 million after-tax, or $2.44 per share) related to the adoption of a plan to reduce costs, rationalize production capacity and provide for severance and environmental costs. Implementation of the plan will result in the elimination of more than 800 manufacturing and administrative positions and the disposition or closure of 13 manufacturing facilities. Such actions will allow the Company to focus on its core business strengths. The Company has made 12 acquisitions in the last five years. During fiscal 1996 the Company acquired the business and assets of Norcal Crossetti Foods, Inc., a frozen vegetable and fruit processor located in Watsonville, California; Paramount Foods, a pickle processor located in Louisville, Kentucky; and Rod's Food Products, a specialty foods processor of aerosol toppings and extended shelf life products located in City of Industry, California. During fiscal 1995, the Company acquired the business and assets of a dairy processor located in Clovis, New Mexico and Rio Grande Foods, Inc., a frozen vegetable processor located in McAllen, Texas. During fiscal 1994, the Company acquired Longlife Dairy Products of Jacksonville, Florida, a processor of extended shelf life products, the Birds Eye frozen vegetable business and the Bennett's premium sauce line. During fiscal 1993, the Company acquired W. B. Roddenbery Co., Inc. of Cairo, Georgia, a processor of pickles, peanut butter, boiled peanuts and syrups and acquired an East Coast replacement sour cream product line. In fiscal 1992, the Company acquired Meadow Brook Dairy Company, a dairy processor with plants in Pennsylvania and New York; and Frio Foods, Inc., a Texas frozen vegetable processor. The results of operations of these acquisitions, from their respective dates of acquisition, have been included in the Company's results of operations. With one exception, these companies, businesses and assets were acquired for cash, installment notes or a combination thereof. In fiscal 1993, the Company exchanged 535,000 shares of its common stock for all the outstanding shares of W. B. Roddenbery Co., Inc. Information regarding the Company's Dairy, Vegetables, Pickles and Specialty business segments for the last three fiscal years is set forth in the Company's Fiscal 1996 Annual Report (Exhibit 13a hereto) at page 37 in Note 14 to the consolidated financial statements. Such information, excluding the first sentence of such note, is hereby incorporated herein by reference. DAIRY BUSINESS SEGMENT Fluid Milk and Cultured Products The Company processes raw milk and other raw materials into fluid milk and cultured products. The Company believes that it is the largest fluid milk processor in the United States. Although industry data is not available, the Company estimates that it has a 8% market share in domestic fluid milk. Included in the fluid products category is 2 3 homogenized, low-fat and skim milk plus buttermilk, chocolate milk and juice products. Cultured dairy products include cottage cheese, yogurt and sour cream. Fluid milk and fresh cultured products are sold to grocery store chains, convenience stores, smaller retail grocery outlets, warehouse club stores, grocery warehouses and institutional customers in the Midwest and mid-Southern states, in parts of the Southeastern, Southwestern and Rocky Mountain states, parts of Pennsylvania and New York, and Mexico. In addition to the strong Dean's brand in the Midwest and Mid-South, fluid milk and cultured dairy products are sold in various areas under well-established labels such as Bell, Cream o'Weber, Creamland, Fairmont, Fieldcrest, Gandy's, T.G. Lee, Mayfield, McArthur, Meadow Brook, Price's, Reiter and Verifine. A substantial portion of the Company's fluid milk and cultured products volume is sold under private labels. The fluid milk and cultured products business is extremely competitive and productivity is therefore very important. The Company continues to reinvest a substantial portion of its total capital budget in its dairy plants and distribution systems to maintain and improve efficiencies. Capital expenditures during fiscal 1996 included new packaging equipment for one-pint and ten-ounce, plastic, resealable bottles at its Athens, Tennessee dairy plant, the expansion of the Erie, Pennsylvania milk cooler and additional processing capacity at the Company's Rochester, Indiana and Huntley, Illinois milk plants. Major capital projects during fiscal 1995 included additional processing equipment and costs related to plant consolidation of the Lubbock and San Angelo, Texas dairy processing plants, a cooler expansion at the Rochester, Indiana dairy plant, a waste water treatment system at the Belleville, Pennsylvania dairy plant and computer equipment at the Florida dairy operations. Capital expenditure projects for 1994 included cooler expansions at its Evart, Michigan; Chemung, Illinois; and Louisville, Kentucky dairy plants; corrugated caser and palletizer at its El Paso, Texas dairy plant; blowmold packaging equipment at its Rochester, Indiana dairy plant and construction of a dairy distribution and cooler facility in Greenville, South Carolina. Major capital projects during fiscal 1993 included completion of a cooler expansion at its Orlando, Florida dairy operations; additional processing capacity at its Sharpsville, Pennsylvania dairy plant; and additional processing equipment at the Company's Albuquerque, New Mexico dairy plant. Capital expenditure projects for fiscal 1992 included the expansion of cold room capacity at the Company's Lubbock, Texas dairy operation; blowmold packaging equipment at the Company's Huntley, Illinois location; expansion of the cooler at its Orlando, Florida dairy operation; and construction of a dairy distribution and cooler facility at Atlanta, Georgia. Sales of fluid milk and cultured products to unaffiliated customers for the fiscal years 1996, 1995 and 1994 were $1,235 million, $1,190 million and $1,156 million, respectively. Ice Cream The Company produces packaged and bulk ice cream products which are sold through supermarkets, convenience stores, smaller retail grocery outlets, restaurants and other foodservice users. The product line includes ice cream (regular, lowfat and non-fat), fruit sherbets, frozen yogurts, and novelties made with ice cream, sherbet and ices. These products are sold under a variety of regional brands and numerous private labels in the Midwest, Mid-South, Southeast, Southwest, and parts of the Rocky Mountain states under numerous well-established brands. Such brands include Dean's, Dean's Country Charm, Gandy's, Creamland, Cream o'Weber, Bell, Price's, Fitzgerald, Fieldcrest, Mayfield, McArthur/T.G. Lee, Reiter and Verifine. During 1995, the Company introduced the Guilt Free brand of non-fat and no sugar added ice cream products. Sales of ice cream products are substantially greater during the summer months than during the rest of the year. Additionally, the Company produces and supplies Baskin-Robbins ice cream products in the Midwest and Southwest. Capital expenditures during fiscal 1996 included additional processing equipment at the Company's Belvidere, Illinois and Athens, Tennessee ice cream plants. During fiscal 1995 capital expenditures included plant expansion and replacement of refrigeration equipment at the Belvidere, Illinois ice cream plant. Major projects in 1994 included a stick novelty line, freezer expansion and new distribution facilities in Athens, Tennessee and new processing equipment in Akron, Ohio. Capital expenditure projects in fiscal 1992 included expansion of ice cream production capacity at the Company's Akron, Ohio operation. 3 4 Sales to unaffiliated customers for the fiscal years 1996, 1995 and 1994 were $235 million, $219 million and $208 million, respectively. Extended Shelf Life The Company processes extended shelf life fluid, aerosol and other dairy products. Extended shelf life products include whipping creams, half and half, aerosol toppings, coffee creamers, flavored milks and lactose-reduced milks. Extended shelf life products produced and marketed by Ryan Milk Company, Ready Food Products, Inc. and Longlife Dairy Products are distributed nationwide under Dean brands such as Dairy Pure, Dean Ultra and Easy 2%, as well as well-known licensed national brands and private labels. The extended shelf life products business is extremely competitive and productivity is therefore very important. The Company continues to reinvest in its extended shelf life plants and distribution systems to maintain and improve efficiencies. During fiscal 1996, capital expenditures included the installation of new racking and inventory systems and cooler expansion at its Murray, Kentucky plant. Major capital projects during fiscal 1993 and fiscal 1992 included additional processing capacity at its Murray, Kentucky and Philadelphia, Pennsylvania operations. Sales of extended shelf life products to unaffiliated customers for fiscal 1996, fiscal 1995 and 1994 were $141 million, $104 million and $105 million, respectively. VEGETABLES BUSINESS SEGMENT Frozen and Canned Vegetables The Company processes and markets frozen and canned vegetables consisting of corn, peas, green beans, carrots, beets, spinach, peas and carrots, green lima beans and various mixed vegetable blends. Additional products in the frozen vegetable line include asparagus, broccoli, Brussels sprouts, cauliflower, fordhook lima beans, southern greens, okra, crowder and black-eyed peas, celery and vegetable blends with pasta and with rice. The processing and canning of fresh vegetables is seasonal in nature, with most of the canning activity in the Midwest occurring during harvesting periods. The Company believes the geographic diversity of its plants and growing areas provides the ability to balance production. The packaging of processed frozen vegetables occurs year-round. As a result of the seasonal nature of the vegetable business, inventory levels vary significantly during the year. Also included in the Vegetables segment are sales of canned meats processed under bid contracts with the federal government. Such sales vary greatly from year to year because of the nature of the federal government's procurement practices. Margins are small since these contracts are taken primarily to absorb overhead of the Company's canning operation during seasonally idle periods of production. Frozen vegetables account for approximately 77% of the total vegetable sales. The Company is the largest frozen vegetable processor in the United States and the third largest vegetable processor overall. Products are marketed under several brand names including Birds Eye, Veg-All, Freshlike, Larsen, Rancho Fiesta and Shaw, as well as under customer brand names or in-house brands. The Company's Birds Eye vegetable brand is marketed throughout the United States. The Company's canned mixed vegetable, Veg-All, is marketed in all major and secondary markets throughout the United States, while Veg-All frozen and canned single vegetable items are marketed in the Southeast and the South. The Freshlike canned and frozen vegetable line is marketed primarily in the Midwest, Pennsylvania, West Virginia and Texas. Other vegetable products are marketed under private labels or in-house brands throughout the United States and exported to the Far East, Mid-East, Europe, Mexico, Canada and the Caribbean. Retail or consumer sizes are distributed for ultimate sales to consumers through chain and independent retail stores and include Company brands and buyers' brands of all products. Institutional customers, including hotels, restaurants, in-plant feeding programs, and schools are serviced through foodservice distributors with products packaged in larger containers. During fiscal 1996, major capital expenditures included new electronic sorting equipment, upgraded freezing capacity, improved warehousing and implementing improved new management information systems. Fiscal 1995 major capital expenditures included the completion of the new carrot line in Uvalde, Texas and a waste water treatment plant in Celaya, Mexico. Major capital projects in 1994 included the installation of a carrot processing line at Uvalde, Texas and 4 5 an expansion of the office facilities in Green Bay, Wisconsin. Fiscal 1993 and 1992 capital expenditures included the construction of a waste water treatment facility at the Company's Bellingham, Washington location. Sales to unaffiliated customers for fiscal years 1996, 1995 and 1994 were $574 million, $543 million and $420 million, respectively. PICKLES BUSINESS SEGMENT Pickles, Relishes and Specialty Items The Company is one of the largest pickle processors and marketers in the United States with sales nationwide. Pickles, relishes, pickled peppers and other assorted specialty items are sold under several brand names, including Arnold's, Atkins, Aunt Jane's, Cates, Dailey, Heifetz, Paramount, Pesta, Peter Piper, Rainbo, Roddenbery, Tree and Warsaw Falcon. Products are also sold for branded and private label distribution to retail grocery store chains, wholesalers and the foodservice industry and in bulk to other food processors. During fiscal 1996 capital improvements were made to upgrade and modernize the Company's manufacturing facilities and reduce transportation costs. Major capital expenditure projects during fiscal 1995 included the installation of processing equipment at the Company's Cairo, Georgia plant. Fiscal 1994 capital expenditures included the construction of a new processing room at the Company's LaJunta, Colorado plant. Major capital expenditures in fiscal 1993 included installation of processing equipment at the Company's Plymouth, Indiana plant and construction of administrative office facilities at its Atkins, Arkansas location. In fiscal 1992, additional warehouse capacity was added at its Atkins, Arkansas location. The processing of pickle products is seasonal, dependent to a large extent upon the growing season of cucumbers in the summer months. Inventories are therefore higher in the fall and winter months than in the spring and early summer. The Company markets a number of specialty sauces, including shrimp, seafood, tartar, horseradish, chili and sweet and sour sauces, in the Eastern, Midwestern and Southern United States to retail grocers. Products are sold under the Bennett's and Hoffman House brand names. Sales to unaffiliated customers for the fiscal years 1996, 1995 and 1994 were $373 million, $367 million and $353 million, respectively. SPECIALTY BUSINESS SEGMENT Powdered Products Non-dairy coffee creamers are the Company's principal powdered products. Powdered premium and low-fat products are sold primarily under private labels to vending operators, office beverage service companies and institutional foodservice distributors with national distribution which supply restaurants, schools, health care institutions, hotels and vending and fast-food operations. Non-dairy creamers are also sold for private label distribution to all classes of the retail trade and sold in bulk to a number of other food companies for use as an ingredient in their food products. Powdered products are also sold to international customers in Australia, Canada, the Far East, Mexico, South America, Europe, Africa and the Middle East. The Company believes that it is the largest manufacturer of non-dairy coffee creamers in the United States. The Company's non-dairy coffee creamers are an economical and convenient substitute for milk and cream. These products require no refrigeration and have long shelf lives. The Company, through an affiliate, provides stabilizers and other dry ingredients to the United Kingdom, Continental Europe and other foreign markets. 5 6 The Company's powdered products are sold in a broad variety of product formulations and package sizes. Capital expenditures during fiscal 1996 included the construction of a new production facility in the United Kingdom. There were no major capital expenditures during fiscal years 1992 through 1995. Sales to unaffiliated customers for the fiscal years 1996, 1995 and 1994 were $129 million, $110 million and $100 million, respectively. Sauces, Puddings and Dips The Company's aseptic products primarily include ready-to-serve natural cheese sauces, puddings and other specialty sauces which are sterilized under a process which allows storage for prolonged periods without refrigeration. Aseptic products are sold nationwide, primarily under private labels to distributors which supply restaurants, schools, hotels and other segments of the foodservice industry. There were no major capital expenditures during fiscal 1996. Major capital expenditures in fiscal 1995 and 1994 include a multi-phase project to significantly upgrade the Dixon, Illinois facility with the completion of a new batch make-up room. There were no major capital expenditures during fiscal years 1992 and 1993. The Company manufactures vegetable-fat-based party dips, low-fat sour cream and sour cream replacements at its Rockford, Illinois facility. These products are sold nationally, but primarily east of the Rockies, under the Dean's, King and private label brands in supermarkets and other retail outlets through distributor or direct warehouse delivery. Dean brand vegetable-fat-based dips, available in regular, lowfat and non-fat varieties, have the leading market position nationwide and the Company's Birds Eye Veggie Dip is the second leading produce dip after its first year of distribution. During fiscal 1996 the Company acquired Rod's Food Products which brought a significant West Coast presence to several of Dean's product lines. Rod's supplies a large and growing Western United States customer base with retail snack dips and other oil-based products, as well as flavored salad dressings for the foodservice trade. Retail products are sold under the Rod's, Imo, Slender Choice, Chivo and Zesty brand names and a number of private labels. Sales to unaffiliated customers for the fiscal years 1996, 1995 and 1994 were $100 million, $74 million and $69 million, respectively. DFC Transportation DFC Transportation Company, a transportation and logistics subsidiary of the Company, operates nationwide with a fleet of approximately 110 tractors and 215 trailers, providing less-than-truckload refrigerated and frozen cartage service. Its customers include food and industrial companies. A significant portion of its revenues are derived from the brokerage of various types of freight. During the fourth quarter of 1992, the Company decided to terminate operation of the refrigerated truckload transportation portion of its trucking business and a charge to earnings was provided for the costs associated with such termination. Revenues from unaffiliated customers in fiscal years 1996, 1995 and 1994 were $27 million, $23 million and $20 million, respectively. Revenues relating to hauling products for other divisions and subsidiaries of the Company have been eliminated. RAW MATERIALS AND SUPPLIES The Company's business is dependent upon obtaining adequate supplies of raw and processed agricultural products. Historically, the Company has been able to obtain adequate supplies of agricultural products. Raw milk and other agricultural products are generally purchased directly from farmers and farm cooperatives. The Company does not have long-term purchase contracts for agricultural products. The price of raw milk is extensively regulated. In fiscal 1996, raw milk costs were slightly below fiscal 1995 levels during the first six months and then increased to higher levels than fiscal 1995 by year-end. Raw milk costs fell substantially in the first quarter of fiscal 1995 remaining stable throughout the balance of the year. In fiscal 1994, raw milk costs exceeded fiscal 1993 levels during the first quarter, fell in the second quarter and then increased significantly during the last half of the year, remaining higher than fiscal 1993 levels. Raw milk costs in fiscal 1997 are expected to exceed fiscal 1996 costs. 6 7 The Company produces most of its plastic gallon and half-gallon container requirements for its fluid milk business. Can requirements for canned vegetables are primarily furnished by three can manufacturers, and glass containers for pickles and related products are purchased from one main supplier, as required, at competitive prices. Certain commodities, such as corn syrups, vegetable oils, sugar and casein, and various packaging supplies are purchased from numerous sources on a normal purchase order basis, with vegetables and cucumbers purchased under seasonal grower contracts. The Company is not dependent upon any single supplier and is confident that any lost supplier requirements could be replaced in the ordinary course of business. In its vegetable and pickle operations, the Company supplies seed to and advises growers regarding planting techniques, monitors and arranges for the control of insects, directs the harvest, and, for some crops, provides automated harvesting service. Vegetable supplies are largely dependent on regional weather and growing conditions. Although weather-related delays and crop conditions have been encountered this year in certain growing areas, early indications are that supplies will be normal to below normal with fiscal 1997 crop costs approximating fiscal 1996 crop cost levels. Industry-wide excess inventory levels which led to reduced pricing and the poor 1995 Midwest harvest which resulted in higher costs caused Vegetables operating earnings in fiscal 1996 to decline substantially compared with fiscal 1995. Weather-related crop shortages and harvest delays in the Midwest growing region resulted in higher fiscal 1994 profit margins in the Company's vegetable business. Industry-wide inventories of certain vegetables were high during fiscal years 1993 and 1992 which resulted in decreased pricing and lower profit margins. Although Midwest crop plantings were late due to adverse planting conditions, the spring 1996 cucumber harvest was good and fiscal 1997 cucumber costs should approximate fiscal 1996 costs. Raw cucumber costs were higher in fiscal 1996 compared with fiscal 1995 due to the poor Southeast cucumber harvest and the necessity to source cucumber requirements from higher cost growing areas. The prices of raw cucumbers increased in fiscal 1995 as a result of weather-related costs after being relatively stable during the two previous fiscal years. DISTRIBUTION Dairy products are principally delivered to grocery chain stores or warehouses directly from the Company's processing plants by the Company, in trucks which it owns or leases, and by independent distributors. In certain states, products are also delivered to the Company's distribution branches from which distribution is then made to customers. The Company has continued its efforts to streamline its distribution system for Dairy products. Major economies have been effected in recent years through consolidation of distribution branches and routes, with emphasis on direct truck delivery to retail stores and warehouses of grocery chains. The Company's Vegetables, Pickles and Specialty products are delivered to warehouses and food distributors by the Company's fleet of trucks and outside freight carriers. Inventories of frozen and canned vegetables are maintained by the Company in warehouses throughout the country in order to maintain a ready supply for rapid delivery to local retailers. COMPETITION The Company's business is highly price competitive with relatively low operating margins. Quality and customer service are important factors in securing and maintaining business. An important aspect of the Company's service to customers is computer ordering, shipping and billing systems. Referred to in the food industry as "Efficient Consumer Response", the Company has over the last few years made a substantial commitment to these areas. The Company's Dairy business operates in a number of different geographical markets, competing in some against national companies and in others against regional or local companies. In certain markets, some supermarket chain stores have their own dairy products processing plants. Generally, in each major market and product class there are a number of competitors, some of which have greater sales and assets than the Company's operations in that market. The Company's Vegetables, Pickles and Specialty products are marketed nationwide and, in some cases, internationally. The degree of penetration and competitive conditions in each market varies, but the Company does not consider that it has any material competitive advantage in any of its major markets or product classes. 7 8 EMPLOYEES The Company has approximately 11,500 employees (10,500 full-time), of whom approximately 4,500 are represented by the International Brotherhood of Teamsters and other unions under thirty-nine collective bargaining agreements. Nine of these agreements expire during fiscal 1997. These include agreements with employees at the Evart, Michigan; Olean, New York; and Belleville, Pennsylvania dairy plants; La Junta, Colorado and Croswell, Michigan pickle plants; the Dixon, Illinois specialty plant and the Wisconsin Dean Foods Vegetable Company plants. Generally, the Company considers its employee relations to be good. The Company has approximately 6,600 seasonal positions at its vegetable operations and its pickle processing plants, principally during the summer months. At times, the Company has experienced difficulties in meeting seasonal employee needs. The Company estimates that two individuals are hired for each seasonal position. A number of strategies have been employed to retain seasonal employees including incentive programs and employee sharing programs. ENVIRONMENT On July 10, 1996, a subsidiary of the Company was fined approximately $4.0 million in a lawsuit filed by the United States of America in the United States District Court for the Middle District of Pennsylvania alleging violations of the Federal Water Pollution Control Act relating to the discharge of conventional, non-hazardous substances. The Company has filed various post-trial motions seeking to reduce or eliminate the fine. The Company provided for this exposure in 1996 and in light of reserves existing at May 26, 1996, the ultimate resolution of the imposed fine is not expected to have a material effect on the financial position or results of operations of the Company. The Company's compliance with Federal, State and local regulations relating to the discharge of material into the environment or otherwise relating to the protection of the environment has not had a material effect on the Company's capital expenditures, earnings or competitive position. The Company's fiscal 1996 special charge to earnings included a provision covering the estimated potential environmental cleanup costs associated with the closure of certain manufacturing facilities. The Company continues to give considerable attention to the impact or potential impact of its operations on the environment. ITEM 2. PROPERTIES. The Company owns fifty-six of its processing plants (four of which are subject to mortgage) and leases the other three under leases expiring from fiscal 1997 through fiscal 2011. The Company has various distribution branches and storage warehouses located throughout the country, some of which are owned and some leased. The Company considers its properties suitable and adequate for the conduct of its business. A number of the Vegetables facilities are operated only during the vegetable intake season. All other production facilities are principally operated at or near capacity levels, but generally on the basis of fewer than three shifts per day. Further information relating to the Company's leases is contained in the Note 10 to consolidated financial statements appearing in the Company's Fiscal 1996 Annual Report (Exhibit 13a hereto) on page 36. Such information is hereby incorporated by reference. 8 9 The locations of the Company's processing facilities, by product category within business segment, are set forth below: DAIRY Fluid Milk and Cultured Products Miami, Florida Barberton, Ohio Orange City, Florida Springfield, Ohio Orlando, Florida Belleville, Pennsylvania Chemung, Illinois Erie, Pennsylvania Huntley, Illinois Sharpsville, Pennsylvania Rockford, Illinois Athens, Tennessee Rochester, Indiana El Paso, Texas Louisville, Kentucky Lubbock, Texas Evart, Michigan Salt Lake City, Utah Albuquerque, New Mexico Sheyboygan, Wisconsin Ice Cream Ft. Lauderdale, Florida Athens, Tennessee Belvidere, Illinois Barberton, Ohio Albuquerque, New Mexico Extended Shelf Life Jacksonville, Florida Philadelphia, Pennsylvania Murray, Kentucky VEGETABLES Frozen and Canned Vegetables Oxnard, California Cambria, Wisconsin Watsonville, California Cedar Grove, Wisconsin Hartford, Michigan Darien, Wisconsin Arlington, Minnesota Fairwater, Wisconsin Waseca, Minnesota Fond du Lac, Wisconsin Fulton, New York Fort Atkinson, Wisconsin McAllen, Texas Green Bay, Wisconsin Uvalde, Texas Hortonville, Wisconsin Bellingham, Washington Celaya, Mexico Brillion, Wisconsin PICKLES Pickles, Relishes and Specialty Items Atkins, Arkansas Croswell, Michigan LaJunta, Colorado Eaton Rapids, Michigan Sanford, Florida Faison, North Carolina Cairo, Georgia Green Bay, Wisconsin Plymouth, Indiana SPECIALTY Powdered Products Pecatonica, Illinois Wayland, Michigan Rockford, Illinois Abingdon, Oxon, United Kingdom Sauces, Puddings and Dips City of Industry, California Rockford, Illinois Dixon, Illinois DFC Transportation Huntley, Illinois 9 10 Distribution branches for the Dairy segment are located in Alabama, Florida, Georgia, Idaho, Illinois, Nevada, New Mexico, New York, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, and Virginia. Distribution warehouses for the Vegetables, Pickles and Specialty segments are maintained adjacent to many processing plants with public warehouses utilized throughout the United States for further distribution of vegetable and pickle products. The Company maintains powdered product warehouses utilized throughout the United States. A Company-owned transportation terminal and maintenance facility is located in Illinois. ITEM 3. LEGAL PROCEEDINGS. Information on legal proceedings is contained in the Company's Fiscal 1996 Annual Report (Exhibit 13a hereto) on page 36 in Note 13 to the consolidated financial statements. Such information is hereby incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended May 26, 1996. EXECUTIVE OFFICERS OF THE REGISTRANT. Information regarding the Company's executive officers is set forth in Item 10 of Part III of this Report. 10 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded on the New York Stock Exchange under the ticker symbol DF. The range of Common Stock sales prices for each of the quarters during the past two fiscal years (as reported by the New York Stock Exchange) and the frequency and amount of Common Stock dividends declared the past two fiscal years are set forth under the caption "Quarterly Financial Data" at page 38 of the Company's Fiscal 1996 Annual Report (Exhibit 13a hereto) in the rows captioned "Stock Price Range" and "Dividend Rate". Such rows and the column and row captions related thereto are hereby incorporated herein by reference. The approximate number of holders of record of the Company's Common Stock on August 9, 1996, was 9,340. Restrictions on the Company's ability to pay dividends on its Common Stock are described in the fourth paragraph of Note 4 to the consolidated financial statements at page 33 of the Company's Fiscal 1996 Annual Report (Exhibit 13a hereto), which paragraph is hereby incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. Selected financial data for each of the Company's last five fiscal years is set forth at page 39 of the Company's Fiscal 1996 Annual Report (Exhibit 13a hereto) under the caption "Summary of Operations". Such selected financial data is hereby incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. A discussion of the Company's financial condition, cash flows and results of operations, including information with respect to liquidity and capital resources, is set forth at pages 20 through 25 of the Company's Fiscal 1996 Annual Report (Exhibit 13a hereto) under the caption "Financial Review", which discussion is hereby incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Company's consolidated balance sheets as of May 26, 1996 and May 28, 1995 and related consolidated statements of income, of shareholders' equity and of cash flows for each of the three fiscal years in the period ended May 26, 1996, and the notes thereto, together with the report thereon of independent accountants, are set forth on pages 26 through 38 of the Company's Fiscal 1996 Annual Report (Exhibit 13a hereto). Such financial statements, notes thereto and the report thereon of independent accountants are hereby incorporated herein by reference. Financial data for each quarter within the two most recent fiscal years is set forth under the caption "Quarterly Financial Data" at page 38 of the Company's Fiscal 1996 Annual Report (Exhibit 13a hereto) in the rows captioned "Net Sales", "Gross Profit", "Net Income (Loss)" and "Per Common Share Data: Net Income (Loss)". Such rows and row captions related thereto are hereby incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 11 12 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information regarding the Company's directors (including nominees for election at the Company's Annual Meeting of Stockholders to be held October 1, 1996) is set forth at pages 1 through 6 of the Company's 1996 Proxy Statement under the captions "ELECTION OF DIRECTORS" and "CERTAIN INFORMATION REGARDING THE BOARD OF DIRECTORS". Such information is hereby incorporated herein by reference. Information supplied by the Company's executive officers who are not also directors of the Company concerning their ages, business experiences, and periods of service as executive officers is as follows:
Served in Position with such position the Company Age since ------------------------------ --- ------------- Eric A. Blanchard ..... Vice President, 40 1993 Secretary and General Counsel Jenny L. Carpenter .... Vice President, 50 1995 Sales and Marketing - Specialty Food Products Gary A. Corbett ....... Vice President, Governmental 48 1993 and Dairy Industry Relations Gary D. Flickinger .... Vice President, Production 54 1993 Daniel E. Green ....... Group Vice President, 51 1992 Specialty Dairy Division James R. Greisinger ... Group Vice President and 55 1992 President of Dean Pickle and Specialty Products Company Dale I. Hecox ......... Treasurer 64 1985 Charles D. Kinser. .... Vice President, Engineering 64 1995 Rodney T. Liddle. ..... Vice President, 39 1996 Strategic Planning William R. McManaman .. Vice President, Finance 49 1996 and Chief Financial Officer George A. Muck ........ Vice President, 58 1970 Research & Development Douglas A. Parr ....... Vice President, 54 1993 Dairy Sales and Marketing
12 13 Dennis J. Purcell ..... Corporate Group Vice President 53 1993 Roger A. Ragland ...... Group Vice President, 62 1995 International Jeffrey P. Shaw ....... Group Vice President and 39 1992 President of Dean Foods Vegetable Company
Each of the executive officers, including executive officers who are also directors, was elected to serve as an executive officer until the next annual meeting of directors, scheduled for October 1, 1996. All of the Company's executive officers listed in Part III, Item 10 have been employees of the Company for more than five years, with the exception of Mr. McManaman and Mr. Parr. Prior to assuming their current positions, - - Mr. Blanchard was the Company's secretary and general counsel; - - Ms. Carpenter was the Company's Director of Marketing and Sales-Specialty Foods Division; - - Mr. Corbett was in the Company's sales administration management; - - Mr. Flickinger was the Director of Production - Dairy and a divisional general manager; - - Mr. Green was the Company's Vice President, Corporate Planning and Development; - - Mr. Greisinger was a Company Vice President and President of Dean Pickle and Specialty Products Company; - - Mr. Kinser was the Company's Director of Engineering; - - Mr. Liddle was the Company's Controller, Corporate and Specialty Foods Operations; - - Mr. Purcell was Senior Vice President of Sales and Marketing of Dean Pickle and Specialty Products Company; - - Mr. Ragland was a divisional sales vice president; - - Mr. Shaw was President of the Company's Richard A. Shaw, Inc. subsidiary, which was subsequently merged into Dean Foods Vegetable Company. Mr. McManaman was employed by the Company during 1996. Mr. McManaman, prior to this employment by the Company, was the Vice President - Finance of Brunswick Corporation, a diversified marine and recreational products company. Mr. Parr has been employed by the Company since 1992. Prior to assuming his present duties he was a Company regional sales manager. Mr. Parr, prior to his employment by the Company, was the Vice President - Western Zone Dairy Group of Borden, Inc., a diversified food and dairy company. ITEM 11. EXECUTIVE COMPENSATION. Information regarding the cash compensation of the Company's executive officers, compensation pursuant to plans and compensation of the Company's directors (including nominees for election at the Company's Annual Meeting of stockholders to be held October 1, 1996) is set forth in the Company's 1996 Proxy Statement at pages 5 through 6 under the caption "CERTAIN INFORMATION REGARDING THE BOARD OF DIRECTORS" and at pages 7 through 13 under the caption "EXECUTIVE COMPENSATION." Such information is hereby incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information regarding security ownership of certain beneficial owners and management is set forth in the Company's 1996 Proxy Statement at pages 18 and 19 under the caption "PRINCIPAL HOLDERS OF VOTING SECURITIES". Such information is hereby incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. 13 14 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)The following documents are filed as a part of this Report. The page number, if any, listed opposite a document indicates the page number in the sequential numbering system in the manually signed original of this Report where such document can be found. Page No. (1) Financial Statements The consolidated balance sheets at May 26, 1996 and May 28, 1995, the related consolidated statements of income, of shareholders' equity and of cash flows for each of the three fiscal years in the period ended May 26, 1996, and the notes thereto, together with the report thereon of Price Waterhouse LLP dated June 25, 1996, except as to the second sentence of Note 13, which is as of July 10, 1996, as incorporated by reference in Part II, Item 8 of this Report. (2) Financial Statement Schedules Report of independent accountants on financial statement schedule 16 Schedule VIII - Valuation and qualifying accounts 17 All other schedules have been omitted because they are not applicable, or not required, or because the required information is shown in the consolidated financial statements or notes thereto. Separate financial statements of the Registrant have been omitted since the Registrant is primarily an operating company and all subsidiaries included in the consolidated financial statements, in the aggregate, do not have minority equity interest and/or indebtedness to any person other than the Registrant or its consolidated subsidiaries in amounts which together exceed 5% of total consolidated assets at May 26, 1996, except for indebtedness incurred in the ordinary course of business which is not overdue and which matures within one year from the date of its creation. (3) Exhibits See Exhibit Index 18 - 19 (b) Reports on Form 8-K. (1) Registrant filed a Current Report on Form 8-K, dated July 15, 1996, with regards to the Registrant's Press Release, dated the same, "Dean Foods Names Thomas L. Rose Vice Chairman". 14 15 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. DEAN FOODS COMPANY By William R. McManaman ------------------------------ William R. McManaman (Vice President, Finance and Chief Financial Officer) Date: August 23, 1996 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: Signature Title Date --------- ----- ---- HOWARD M. DEAN Chairman of the Board August 23, 1996 - ---------------------- and Director Howard M. Dean EDWARD A. BRENNAN Director August 23, 1996 - ---------------------- Edward A. Brennan LEWIS M. COLLENS Director August 23, 1996 - ---------------------- Lewis M. Collens PAULA H. CROWN Director August 23, 1996 - ---------------------- Paula H. Crown JOHN P. FRAZEE, JR. Director August 23, 1996 - ---------------------- John P. Frazee, Jr. BERT A. GETZ Director August 23, 1996 - ---------------------- Bert A. Getz JOHN S. LLEWELLYN, JR. Director August 23, 1996 - ---------------------- John S. Llewellyn, Jr. RICHARD P. MAYER Director August 23, 1996 - ---------------------- Richard P. Mayer ANDREW J. MCKENNA Director August 23, 1996 - ---------------------- Andrew J. McKenna THOMAS A. RAVENCROFT Senior Vice President August 23, 1996 - ---------------------- and Director Thomas A. Ravencroft THOMAS L. ROSE President August 23, 1996 - ---------------------- and Director Thomas L. Rose ALEXANDER J. VOGL Director August 23, 1996 - ---------------------- Alexander J. Vogl 15 16 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors Dean Foods Company Our audits of the consolidated financial statements referred to in our report dated June 25, 1996, except as to the second sentence of Note 13, which is as of July 10, 1996, appearing on page 38 of the Dean Foods Company Annual Report to Shareholders for Fiscal Year Ended May 26, 1996 (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICE WATERHOUSE LLP Chicago, Illinois June 25, 1996 16 17 DEAN FOODS COMPANY AND SUBSIDIARIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Amount charged Balance at (credited) Accounts Balance beginning to costs and written at end Classification of period expenses off of period - -------------- ---------- ------------ -------- --------- (In thousands) Fiscal Year Ended May 26, 1996 - ------------------------------ Allowance for doubtful accounts and notes receivable......................... $4,257 $2,000 $3,056 $3,201 ====== ====== ====== ====== Fiscal Year Ended May 28, 1995 - ------------------------------ Allowance for doubtful accounts and notes receivable......................... $3,875 $666 $284 $4,257 ====== ==== ==== ====== Fiscal Year Ended May 29, 1994 - ------------------------------ Allowance for doubtful accounts and notes receivable......................... $4,470 $326 $921 $3,875 ====== ==== ==== ======
17 18 EXHIBIT INDEX The following documents are the exhibits to this Report. For convenient reference, each exhibit is listed according to the number assigned to it in the Exhibit Table of Item 601 of Regulation S-K. The page number, if any, listed opposite an exhibit indicates the page number in the sequential numbering system in the manually signed original of this Report where such exhibit can be found. Page No. -------- (3) Articles of Incorporation and By-Laws a. Dean Foods Company Restated Certificate of Incorporation dated February 8, 1988 (filed as Exhibit 3(a) to Registrant's Form 10-K Annual Report for Fiscal Year Ended May 29, 1988 and incorporated herein by reference) b. By-Laws of Registrant, as amended January 26, 1996 20-36 (4) Instruments defining the rights of security holders, including indentures a. Rights Agreement dated July 28, 1988 (filed as Exhibit 4(a) to the Registrant's Form 10-K Annual Report for Fiscal Year Ended May 28, 1989 and incorporated herein by reference) b. Amendment dated December 1, 1989, to Rights Agreement dated July 28, 1988 (filed as exhibit 4(b) to Registrant's Form 10-K Annual Report for Fiscal Year Ended May 27, 1990 and incorporated herein by reference) (10) Material contracts a. Amended and Restated Dean Foods Company Management Deferred Compensation Plan, dated as of June 1, 1994 (filed as Exhibit 10(a) to the Registrant's Form 10-K Annual Report for Fiscal Year Ended May 29, 1994 and incorporated herein by reference) b. Dean Foods Company Retirement Plan for Certain Directors (filed as Exhibit 10(a) to Registrant's Form 10-K Annual Report for Fiscal Year Ended December 28, 1985 and incorporated herein by reference) c. Form of Agreement dated March 17, 1986, between Registrant and each of its current executive officers (filed as Exhibit 10(b) to Registrant's Form 10-K Annual Report for Fiscal Year Ended December 28, 1985 and incorporated herein by reference) d. Form of Indemnification Agreement between Registrant and each of its directors and officers serving at any time after October 5, 1987 (filed as Exhibit 10(m) to Registrant's Form 10-K Annual Report for Fiscal Year Ended May 29, 1988, and incorporated herein by reference) 18 19 Page No. -------- e. Amended and Restated Dean Foods Company Directors Deferred Compensation Plan, dated March 25, 1988 (filed as Exhibit 10(j) to Registrant's Form 10-K Annual Report for Fiscal Year Ended May 28, 1989 and incorporated herein by reference) f. Dean Foods Company Supplemental Benefit Plan for eligible officers, as amended and restated on May 24, 1991 (filed as Exhibit 10(k) to Registrant's Form 10-K Annual Report for Fiscal Year ended May 26, 1991 and incorporated herein by reference) g. Dean Foods Company Supplemental Incentive Compensation Plan for certain officers, as amended March 31, 1989 (filed as Exhibit 10(l) to Registrant's Form 10-K Annual Report for Fiscal Year Ended May 28, 1989 and incorporated herein by reference) h. Dean Foods Company Director Stock Option Plan, dated September 30, 1992 (filed as Exhibit 10(i) to Registrant's Form 10-K Annual Report for Fiscal Year ended May 30, 1993 and incorporated herein by reference) i. $200 Million Credit Agreement dated February 16, 1995; and Amendment #1 dated February 13, 1996 (filed as Exhibit 10(1) to Registrant's Form 10-Q Quarterly Report for Quarterly Period Ended February 25, 1996 and incorporated herein by reference) (11) Statement re computation of per share earnings 37 (12) Computation of Ratio of Earnings to Fixed Charges 38 (13) Annual report to security holders, Form 10-Q or quarterly report to security holders a. Dean Foods Company Annual Report to Shareholders for Fiscal Year Ended May 26, 1996 39-80 With the exception of the financial statements, report of independent accountants thereon and certain other information expressly incorporated herein by reference, the Registrant's Annual Report to Shareholders for Fiscal Year Ended May 26, 1996 is not to be deemed filed as part of this Report. (21) Subsidiaries of the Registrant a. Subsidiaries of the Registrant as of May 26, 1996 81 (23) Consents of Experts and Counsel a. Consent of Independent Accountants dated August 23, 1996 82 (27) Financial Data Schedules 83 19 EX-3.(B) 2 BY-LAWS AS AMENDED 1/26/96 1 EXHIBIT 3(b) IN EFFECT JANUARY 26, 1996 BY-LAWS OF DEAN FOODS COMPANY ARTICLE I OFFICES Section l. Registered Office. The registered office of the corporation required by The General Corporation Law of the State of AMENDED Delaware shall be established and maintained at the office of The 10/3/86 Corporation Trust Company, 1209 Orange Street, in the City of Wilmington, State of Delaware, and the address of the registered office may be changed from time to time by the Board of Directors. Section 2. Principal Office. The principal office of the corporation shall be located at 3600 North River Road, Franklin Park, Illinois. The corporation may have such other offices, either within or without the State of Delaware, as the business of the corporation may require from time to time. ARTICLE II STOCKHOLDERS Section l. Annual Meeting. Commencing with the year l987, the annual meeting of stockholders for the election of directors and for the transaction of such other business as may be properly brought AMENDED before the meeting shall be held at such place, either within or 5/23/86 without the State of Delaware, and at such time and date as the Board of Directors, by resolution, shall determine and as set forth in the notice of the meeting. In the event the Board of Directors fails to so determine the time, date, and place of meeting prior to the first day of September in any year, or the record date for determining stockholders entitled to notice of or to vote at said meeting, whichever be the earlier date, the annual meeting of stockholders shall be held at the principal office of the corporation on the last Monday in September of each calendar year, unless such date is a legal holiday, in which event such meeting shall be held on the next succeeding business day. Section 2. Special Meeting. Special meetings of the stockholders may be called by the Chairman of the Board or the AMENDED President and shall be called by the Secretary at the written 5/31/85 request (meeting the requirements set forth in the Certificate of Incorporation) of either a majority of the Board of Directors, or the holders of at least 80% of the outstanding shares of Common Stock of the corporation. Such special meetings may be held at such time and place, within or without the State of Delaware, and for such purpose or purposes as shall be stated in the notice of the meeting. 2 2 Section 3. Notice of Meetings. Except as otherwise provided by statute, written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten days nor more than fifty days before the date of the meeting, either personally or by mail, by or at the direction of the Secretary, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail in a sealed envelope addressed to the stockholder at his last known post office address as it appears on the stock record books of the corporation, with postage thereon prepaid. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, unless the adjournment is for more than thirty days or a new record date is fixed for the adjourned meeting. Section 4. Record Dates. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders at any adjournment thereof or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, or more than sixty days prior to any other action. If no record date is fixed: (a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the day next preceding the day on which notice is given, (b) The record date for determining stockholders for any other purpose shall be the close of business on the day on which the Board of Directors adopts the resolution or resolutions relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. In no event shall the stock transfer books of the corporation be closed. Section 5. List of Voting Stockholders. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held, and the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 3 3 Section 6. Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented by proxy any business may be transacted which might have been transacted at the meeting as originally notified. Section 7. Voting. Each stockholder entitled to vote in accordance with the terms of the Certificate of Incorporation, of the resolution or resolutions of the Board of Directors setting forth the voting powers, if any, of the holders of any series of Preferred Stock, or of these By-Laws shall be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such stockholder, but no proxy shall be voted after three years from its date unless such proxy provides for a longer period. All elections or directors shall be decided by plurality vote; all other questions shall be decided by majority vote except as otherwise provided by the Certificate of Incorporation, by the resolution or resolutions of the Board of Directors setting forth the voting rights, if any, of the holders of any series of Preferred Stock, or by the laws of the State of Delaware. Section 8. Voting of Shares by Certain Holders. (a) Shares standing in the name of another corporation, domestic or foreign, may be voted by such officers, agent or proxy as the By-Laws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. (b) Shares standing in the name of a deceased person may be voted by his administrator or his executor either in person or by proxy, but no guardian, conservator or trustee shall be entitled, as such fiduciary, to vote shares held by him without a transfer of such shares into his name. (c) Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name, if authority so to do be contained in an appropriate order of the court by which such receiver was appointed, and a certified copy of such order is filed with the Secretary of the corporation before or at the time of the meeting. (d) A stockholder whose shares are pledged shall be entitled to vote such shares unless in the transfer by the pledgor on the books of the corporation he has expressly empowered the pledgee to vote thereon, in which case only the pledgee or his proxy may represent such stock and vote thereon. 4 4 (e) If shares or other securities having voting power stand in names of two or more persons, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary of the corporation is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (l) The act of the majority voting binds all; (2) In all other cases, the effect provided by the laws of the State of Delaware. (f) Shares of the corporation belonging to it shall not be voted, directly or indirectly, at any meeting, and shall not be counted in determining the total number of outstanding shares at any given time, but shares of the corporation held by it in a fiduciary capacity may be voted and shall be counted in determining the number of outstanding shares at any given time. Section 9. Proxies. At all meetings of stockholders, a stockholder may vote in person or by written proxy filed with the Secretary of the corporation before or at the time of the meeting. To revoke his proxy as to any matter before the meeting, a stockholder must deliver written notice to that effect to the Secretary before that matter is submitted to a vote of the stockholders. ARTICLE III BOARD OF DIRECTORS Section l. General Powers and Duties. The property, business and affairs of the corporation shall be managed by its Board of Directors. Section 2. Number and Qualification. The Board of Directors shall be divided into three classes. Class One shall consist of four directors whose term of office shall expire at the Annual Meeting of Stockholders to be held in l996, Class Two shall consist of four directors whose term of office shall expire at the Annual AMENDED Meeting of Stockholders to be held in l997 and Class Three shall 01/26/96 consist of four directors whose term of office shall expire at the Annual Meeting of Stockholders to be held in l998. At each Annual Meeting after the l995 Annual Meeting of Stockholders, successors to the class of directors whose term then expires shall be elected for a three-year term. Section 3. Resignations. Any director, member of a committee or other officer may resign at any time. Such resignation shall be made in writing and shall take effect at the time specified therein or, if no time be specified, at the time of its receipt by the President or Secretary of the corporation. The acceptance of a resignation shall not be necessary to make it effective. 5 5 Section 4. Vacancies. If the office of any director, member of a committee or other officer becomes vacant, the remaining directors in office, though less than a quorum, by majority vote may appoint any qualified person to fill such vacancy, which person shall hold office the unexpired term and until his successor shall be duly chosen. Section 5. Increase or Decrease of Number. The number of directors may be increased or decreased by amendment of these AMENDED By-Laws by the affirmative vote of a majority of the directors, 1/26/96 though less than a quorum, and by like vote the additional directors may be chosen to hold office until the next annual election and until their successors are elected and qualified. Section 6. Regular Meetings. The regular annual meeting of the Board of Directors shall be held without other notice than this By-Law as promptly as possible after the annual meeting of stockholders in each year. The place of such meeting shall be the same as that of the annual meeting of stockholders immediately preceding. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Delaware, for the holding of additional regular meetings without notice other than such resolution. Section 7. Special Meetings. Special meetings of the Board of Directors may be held at any time on the call of the Chairman of the Board or of the President and shall be called by the Chairman of the AMENDED the President at the request in writing of any five (5) directors. 5/13/85 Special meetings of the Board of Directors may be held at such place, either within or without the State of Delaware, as shall be specified or fixed in the call for such meeting or notice thereof. Section 8. Notice of Special Meetings. Notice of each special meeting shall be mailed by or at the direction of the Secretary to each director addressed to him at his residence or usual place of business at least three days before the day on which the meeting is to be held, or shall be sent to him by telegram, or be delivered personally, at least two days before the day on which the meeting is to be held. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail in a sealed envelope so addressed, with postage thereon prepaid. If notice be given by telegraph, such notice shall be deemed to be delivered when the same is delivered to the telegraph company. Notice may be waived in writing by any director, either before or after the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Section 9. Quorum. A majority of the total number of directors as at the time specified by the By-Laws shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. In the absence of a quorum, a majority of the directors present may adjourn the meeting from time to time until a quorum be had, and without other notice than by announcement at the meeting at which the adjournment has been taken. Section l0. Manner of Acting. Except as otherwise provided by statute, by the Certificate of Incorporation, as amended, or these By-Laws, the act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. 6 6 Section ll. Compensation. Directors shall receive such annual fee or meeting fee for their services as shall be established by resolution of the Board of Directors plus expenses of attendance at Board and Committee meetings, if any. The Board may also authorize the payment of a fee for the attendance of any director at meetings of Committees of the Board. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving his regular compensation therefor. Section l2. Executive Committee. An Executive Committee AMENDED consisting of four members of the Board of Directors may be elected 10/2/87 by the Board of Directors. A chairman of said committee shall be elected by the Board of Directors from among the members of the Executive Committee. Each director serving on the Executive Committee shall hold office until the Annual Meeting held next after his election and until his successor shall have been elected or qualified. If an Executive Committee is elected, it shall, during the intervals between the meetings of the Board of Directors, and so far as it lawfully may, possess and exercise all of the authority of the Board of Directors in the management of the business of the corporation, in all cases in which specific directions shall not AMENDED have been given by the Board of Directors, provided that 10/30/69 notwithstanding the foregoing, the Executive Committee shall not have authority: (l) To take any action to amend the Certificate of Incorporation; (2) To adopt a plan of merger or plan of consolidation with another corporation or corporations; (3) To recommend to the stockholders the sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the property and assets of the corporation if not made in the usual and regular course of its business; (4) To recommend to the stockholders a voluntary dissolution of the corporation or a revocation thereof; (5) To amend, alter or repeal the By-Laws of the corporation; (6) To elect or remove officers of the corporation or members of the Executive Committee; (7) To fix the compensation of any member of the Executive Committee; (8) To declare dividends; (9) To amend, alter or repeal any resolution of the Board of Directors which by its terms provides that it shall not be amended, altered or repealed by the Executive Committee. The Executive Committee shall keep minutes of the proceeding of their meetings which shall be submitted to the Board of Directors at the next meeting of the Board if the Board shall so request. Three members of the Committee shall constitute a quorum for the transaction of business, provided that if any member or members thereof are absent from a meeting or disqualified from membership on the Committee, the remaining member or members thereof present at any meeting and not disqualified from voting (whether or not he or they would otherwise constitute a quorum) may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. 7 7 Meetings of the Executive Committee shall be called upon the request of any member of the Executive Committee and notice of such meetings shall in each instance be given to each member of the Committee at least twenty-four hours before the meeting either orally or in writing. A fixed sum and expenses of attendance, if any, may be allowed and paid for attendance at each meeting of the Executive Committee, the amount of such sum to be designated by the Board of Directors. Section l3. Presumption of Assent. A director of the corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be conclusively presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment of the meeting. Such right to dissent shall be sent by registered mail to the Secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. Section l4. Informal Action. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. Section l5. Presence at Meetings. Members of the Board of Directors or any committee thereof may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence at such meeting. Section l6. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the corporation, which, to the extent provided in the resolution, shall have and may exercise all the powers and authority ADDED of the Board of Directors with respect to the management of the 10/2/87 business affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority of the Board in reference to amending the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending these By-Laws; and, unless the resolution, these By-Laws or the Certificate of Incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock or to adopt a Certificate of Ownership and Merger. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors and the Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified 8 8 member at any meeting of the committee. Additionally, in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required." ARTICLE IV COMPANY OFFICERS Section l. Number. The officers of the corporation shall be a AMENDED Chairman of the Board, a President, one or more Vice Presidents, a 01/26/96 Secretary and a Treasurer, all of whom shall be elected by the Board of Directors; and in addition, during such periods as an Executive Committee shall be appointed, the Board of Directors shall select one of the members thereof to fill the office of Chairman of the Executive Committee. The Board of Directors may elect or appoint one or more Assistant Secretaries, one or more Assistant Treasurers, and such other subordinate officers and agents as the Board may determine, to hold office for such period and with such authority and to perform such duties as may be prescribed by these By-Laws or as the Board may from time to time determine. Any two or more AMENDED offices (including without limitation President, Chairman of 10/1/87 the Board and Chairman of the Executive Committee) may be held by the same person, except the offices of President and Vice President, and the offices of President and Secretary. Section 2. Election, Term of Office and Qualifications. The officers of the corporation shall be elected annually by the Board of Directors at the first meeting of the Board held after the annual meeting of stockholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as the same can conveniently be held. Each officer shall hold his office until his successor shall have been duly elected and shall have qualified or until his death, resignation or removal. The Chairman of the Board and the Chairman of the Executive Committee (if any) shall be members of the Board, but none of the other officers need be a member of the Board. Election or appointment of an officer or agent shall not of itself create contract rights. Section 3. Removal. Any of the officers or agents appointed by the Board of Directors may be removed by the Board of Directors, whenever in its judgement the best interest of the corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Section 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise may be filled by the Board of Directors for the unexpired portion of the term. Section 5. Bonds. If the Board of Directors by resolution shall so require, any officer or agent of the corporation shall give bond to the corporation in such amount and with such surety as the Board of Directors may deem sufficient, conditioned upon the faithful performance of the respective duties and offices. Section 6. Chairman of the Board; Chief Executive Officer. The AMENDED Chairman of the Board (and in his absence, disability, or at his 12/2/88 discretion, the President) shall be the chief executive officer of the corporation. The Chairman of the Board shall preside at all meetings of 9 9 stockholders and of the Board of Directors; and shall be the superior officer to all other officers of the corporation. Subject to the direction and authority of the Board of Directors, the Chairman of the Board shall be responsible for the implementation and direction of corporate policy, shall have authority over all officers of the corporation in the execution of the corporate policies as reflected in the orders and resolutions of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors from time to time. Section 7. President. Subject to the general control of the Board of Directors and the Chairman of the Board, the President AMENDED shall be the chief operating officer of the corporation and as 12/2/88 such shall have the active management of, and exercise detailed supervision over, the business and affairs of the corporation and over its several officers. In the absence or disability or at the direction of the Chairman of the Board, the President shall preside at all meetings of the stockholders and at meetings of the Board of Directors. Subject to such general control, the President shall perform all duties usually incident to the office of President and such other duties as may be prescribed by the Chairman of the Board or the Board of Directors from time to time. AMENDED Section 8. The Vice Presidents. In the absence or disability 1/26/96 of the President, the Vice Presidents shall perform the duties of the President, and the Vice Presidents shall perform such other duties as from time to time may be assigned to them by the Chairman of the Board, the President or the Board of Directors. The Board of Directors from time to time may determine the number and relative seniority of the Vice Presidents. Section 9. Treasurer. The Treasurer shall have charge and custody of, and be responsible for, all funds and securities of the corporation; receive and give receipts for monies due and payable to the corporation from any source whatsoever; deposit or cause to be deposited all monies in the name and to the credit of the corporation in such banks, trust companies or other depositaries as may be designated or selected by the Board of Directors; keep or cause to be kept full and accurate records and accounts of receipts and disbursements in books of the corporation and see that said books are kept in proper form and that they correctly show the financial transactions of the corporation; disburse or supervise the disbursement of the funds of the corporation as may be directed by the Board of Directors or by his superior officers, and take or cause to be taken proper vouchers for such disbursements; furnish to the Board of Directors, to any Executive Committee thereof, to the President, and to such other officers as the Board may designate, at such times as may be required, an account of all his transactions as Treasurer; be responsible under the direction of his superior officers, the Board of Directors, and any Executive Committee thereof, for activities relating to the obtaining and disbursement of capital; and in general, perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by his superior officers, the Board of Directors, and any Executive Committee thereof. The books and papers of the Treasurer shall at all times be open to the inspection of the President and each member of the Board of Directors. Section l0. Secretary. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and keep the minutes of such meetings in one or more books provided for that purpose; see that all notices are duly given in accordance with the provisions of these By-Laws, or as required by law; be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation or a facsimile thereof is affixed to or impressed on all certificates for shares prior to the issue thereof, and all documents, 10 10 the execution of which on behalf of the corporation under its seal is duly authorized; sign with the Chairman of the Board, the President, or a Vice President certificates for shares of the corporation, the issue of which shall have been authorized by resolution of the Board of Directors; have general charge of the stock transfer books of the corporation and keep or cause to be kept the stock record and transfer books in such manner as to show at any time the total number of shares issued and outstanding, the names and addresses of the holders of record thereof as furnished to him by such record holders, the number of shares held by each and the time when each became such holder of record; see that the reports, statements, certificates and all other documents and records required by law are properly made, kept and filed; and in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by his superior officers, the Board of Directors, and any Executive Committee thereof. Section 11. Assistant Treasurers. At the request of the Treasurer, or in his absence or disability, the Assistant Treasurers shall perform all duties of the Treasurer, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Treasurer. Any such Assistant Treasurer shall perform such other duties as from time to time may be assigned to him by his superior officers, the Board of Directors, and any Executive Committee thereof. Section l2. Assistant Secretaries. At the request of the Secretary, or in his absence or disability, the Assistant Secretaries shall perform the duties of the Secretary, including without limitation the signing, with the Chairman of the Board, the President or a Vice President, of certificates for shares of the corporation, and when so acting shall have all the powers of, and be subject to all the restrictions imposed upon, the Secretary. Any such Assistant Secretary shall perform such other duties as from time to time may be assigned to him by his superior officers, the Board of Directors, and any Executive Committee thereof. Section l3. Compensation. The compensation of the officers shall be fixed from time to time by the Board of Directors; provided that no officer shall be prevented from receiving such compensation by reason of the fact that he is also a director of the corporation. Section l4. Delegation of Duties. In case of the absence of disability to act of any officer of the corporation and of any person authorized to act in his place, the Board of Directors may, for the time being, delegate the powers and duties, or any of them, to any other office or any director or other person whom it may AMENDED select, and the President (or in his absence, the Chairman of the 10/1/87 Board) shall have the 11 11 power to delegate such powers and duties subject to such action as the Board of Directors or any Executive Committee thereof, may take with respect to the same matter. ARTICLE V DIVISIONS AND DIVISIONAL OFFICERS Section l. Establishment of Divisions. The Board of Directors may cause the business and operations of this corporation to be divided into one or more divisions, based upon product manufactured, geographical territory, character and type of operations, operating units or upon such other basis as the Board of Directors may from time to time determine to be advisable. Such divisions may operate under division or tradenames approved for such purpose by the Board of Directors and in such other manner as may be authorized by the Board. Section 2. Divisional Officers. The Board of Directors of the corporation may appoint such officers of the division with such titles (such as President, Vice President, Secretary, Treasurer, Assistant Secretaries and Assistant Treasurers of such division) as may from time to time be deemed appropriate. Divisional officers shall have such authority with respect to the affairs of their respective divisions as officers with like titles generally have with respect to the affairs of any independent corporation or as may from time to time be assigned by the Chairman of the Board. With respect to the affairs of each division and in the regular course of its business, the officers of such division may sign contracts and other documents in the name of the division; provided, however, that in no case shall the officer of any one division have authority to bind another division of the corporation or to bind the corporation except as to the business and affairs of the division of which he is an officer. ARTICLE VI SHARES, CERTIFICATES FOR SHARES AND TRANSFER OF SHARES Section l. Regulation. The Board of Directors may make such rules and regulations as it may deem expedient concerning the issuance, transfer and registration of certificates for shares of the corporation, including the appointment of transfer agents and registrars. Section 2. Certificates for Shares. Certificates representing shares of the corporation shall be respectively numbered serially for each class of shares, or series thereof, as they are issued, shall be impressed with the corporate seal or a facsimile thereof, and shall be signed by the Chairman of the Board or the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary; provided that such signatures may be facsimile on any certificate countersigned by an independent transfer agent or its employee, or by an independent registrar or its employee. Each certificate shall exhibit the name of the corporation, state that the corporation is organized or incorporated under the laws of the State of Delaware, the name of the person to whom issued, the date of issue, the class (or series of any class) and number of shares represented thereby and the par value of the shares represented thereby or that such shares are without par value. If the corporation be authorized to issue stock of more than one class or of more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof, and the 12 12 qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificates which the corporation shall issue to represent such class or series of stock; provided that, except as otherwise provided by law, in lieu of the foregoing requirement, there may set forth on the face or back of the certificates a statement that the corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Each certificate shall be otherwise in such form as may be prescribed by the Board of Directors and as shall conform to the rules of any Stock Exchange on which the shares may be listed. Section 3. Cancellation of Certificates. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificates shall be issued in lieu thereof until the former certificate for a like number of shares shall have been surrendered and cancelled, except as herein provided with respect to lost, stolen or destroyed certificates. Section 4. Lost, Stolen or Destroyed Certificates. Any stockholder claiming that his certificate for shares is lost, stolen, or destroyed may make an affidavit or affirmation of that fact and lodge the same with the Secretary of the corporation, accompanied by a signed application for a new certificate. Thereupon, and upon the giving of a satisfactory bond of indemnity to the corporation not exceeding in amount double the value of the shares represented by such certificate, such value to be determined by the President and Treasurer of the corporation, a new certificate may be issued of the same tenor and representing the same number, class and series of shares as were represented by the certificate alleged to be lost, stolen or destroyed. Section 5. Transfer of Shares. Shares of the corporation shall be subject to transfer on the books of the corporation by the holder thereof in person or by his duly authorized attorney, upon the surrender and cancellation of a certificate or certificates for a like number of shares. Upon presentation and surrender of a certificate for shares properly endorsed and payment of all taxes therefore, the transferee shall be entitled to a new certificate or certificates in lieu thereof. As against the corporation, a transfer of shares can be made only on the books of the corporation and in the manner hereinabove provided, and the corporation shall be entitled to treat the holder of record of any share as the owner thereof and shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the statutes of the State of Delaware. ARTICLE VII DIVIDENDS AND RESERVES Section l. Dividends. Dividends upon the outstanding shares of the corporation (other than liquidating dividends) may be declared from its surplus or, in case there be no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding year. However, if the capital of the corporation shall have been diminished in any way to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, no dividend shall be declared and paid out of such net profits until the deficiency in the amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets shall 13 13 have been repaired. Subject to the provisions of the Certificate of Incorporation, as amended from time to time and to any other lawful commitments of the corporation, and subject to the provisions of statute, dividends may be declared and made payable at such times and in such amounts as the Board of Directors may from time to time determine. Dividends may be declared at any regular or special meeting of the Board and may be paid in cash or other property or in the form of a stock dividend. Section 2. Reserves. Before declaring any dividend or making any distribution of net profits, the Board of Directors, from time to time, may set apart out of any funds of the corporation available for dividends, a reserve or reserves for working capital, or to meet contingencies, or for any other lawful purpose, and also, from time to time, may abolish or decrease any such reserve or reserves. ARTICLE VIII CONTRACTS, LOANS, CHECKS AND DEPOSITS Section l. Contracts. Any contract or instrument authorized by the Board of Directors or duly appointed Executive Committee may be executed by the Chairman of the Board, the President or any Vice President and attested by the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer. In addition, the Board of Directors may authorize any other officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 2. Loans. No loans shall be contracted on behalf of the corporation and no evidence of indebtedness shall be issued in its name, unless authorized by resolution of the Executive Committee or the Board of Directors. Such authority may be general or confined to specific instances. Section 3. Checks, Drafts, Notes, etc. All checks, drafts or other orders for the payment of money and all notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents, of the corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. Section 4. Depositaries. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as the Board of Directors may designate. ARTICLE IX CORPORATE SEAL The corporate seal shall be circular in form and shall have inscribed thereon the name of the corporation and the words "Corporate Seal Delaware". Said seal may be used by causing it, or a facsimile or equivalent thereof, to be impressed or affixed or reproduced. ARTICLE X FISCAL YEAR 14 14 AMENDED The fiscal year of the corporation shall be a 52-53 week fiscal 5/23/86 year which ends on the last Sunday of May. ARTICLE XI STOCK IN OTHER CORPORATIONS Any shares of stock in any other corporation which may from time to time be held by this corporation may be represented and voted at any meeting (or consent in lieu thereof) of shareholders of such corporation by the Chairman of the Board, the President, a Vice President or the Secretary of this corporation, or by any other person or persons thereunto authorized by the Board of Directors, or by any proxy designated by written instrument of appointment executed in the name of this corporation by its Chairman of the Board, President, or a Vice President and attested by the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer. ARTICLE XII GENERAL WAIVER OF NOTICE Whenever any notice is required to be given under the provisions of these By-Laws, or under the provisions of the Certificate of Incorporation, as amended, or under the provisions of the General Corporation Law of the State of Delaware, waiver thereof in writing, signed by the person or persons entitled to such notice, either before or after the time stated therein, shall be deemed equivalent to the giving of such notice. The presence of a stockholder in person or by proxy at any meeting of stockholders, and the presence of a director, in person, at any meeting of the Board of Directors, shall be deemed to be the equivalent of such waiver, unless such presence is for the sole purpose of objecting to the lack of sufficient notice. ARTICLE XIII INDEMNIFICATION Section l. Each person who was or is a party or is threatened to be made a party to or is involved, including involvement as a witness, in any action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he (i) is or was or has agreed to become a director or officer of the corporation or (ii) is or was serving or has agreed to serve (at or during such time as such individual is or was a director or AMENDED officer of the corporation) as an employee, agent or fiduciary of 10/2/87 the corporation or, at the request of the corporation, as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise or entity, including service with respect to an employee benefit plan, or by reason of any action alleged to have been taken or omitted by such person in any such capacity, shall be indemnified and held harmless by the corporation to the fullest extent permitted by Delaware law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, excise taxes or penalties under the Employee Retirement Income Security Act of 1974, amounts paid or to be paid in settlement and amounts expended in seeking indemnification granted to 15 15 such person under applicable law, this Article, the corporation's Certificate of Incorporation or any agreement with the corporation) actually and reasonably incurred or suffered by such person in connection with such action, suit or proceeding and any appeal thereof, and such indemnification shall continue as to any such person who has ceased to be a director or officer of the corporation and shall inure to the benefit of any such person's heirs, executors and administrators, if in each case such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action, suit or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding or any appeal thereof by judgment, order, settlement, conviction, or plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that such person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe his conduct was unlawful. Section 2. Each person who was or is a party or is threatened to be made a party to or is involved, including involvement as a witness, in any action, suit or proceeding by or in the right of the corporation to procure a judgment in its favor, by reason of the fact that he (i) is or was or has agreed to become a director or officer of the corporation or (ii) is or was serving or has agreed to serve (at or during such time as such individual is or was a director or officer of the corporation) as an employee, agent or fiduciary of the corporation or, at the request of the corporation, as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise or entity, including service with respect to an employee benefit plan, or by reason of any action alleged to have been taken or omitted by such person in any such capacity, shall be indemnified and held harmless by the corporation to the fullest extent permitted by Delaware law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment) against all expense (including attorneys' fees and amounts expended in seeking indemnification granted to such person under applicable law, this Article, the corporation's Certificate of Incorporation or any agreement with the corporation) actually and reasonably incurred or suffered by such person in connection with such action, suit or proceeding and any appeal thereof, and such indemnification shall continue as to any such person who has ceased to be a director or officer of the corporation and shall inure to the benefit of any such person's heirs, executors and administrators, if in each case such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnification for such expenses which the Court of Chancery of Delaware or such other court shall deem proper. Section 3. To the extent that any person referred to in Section l or 2 of this Article has been successful on the merits or otherwise, including the dismissal of an action without prejudice, in defense of any action, suit or proceeding and any appeal thereof referred to therein or in defense of any claim, issue or matter therein, he shall be indemnified against all expense (including attorneys' fees and amounts expended in seeking indemnification granted to such person under 16 16 applicable law, this Article, the corporation's Certificate of Incorporation or any agreement with the corporation) actually and reasonably incurred by him in connection therewith. Section 4. Any indemnification under Section l or 2 of this Article (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of any person referred to in Section l or 2 is proper in the circumstances because he has met the applicable standard of conduct set forth therein. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum (as defined in these By-Laws) consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion. Section 5. Expenses incurred by any person referred to in Section l or 2 of this Article in defending a civil or criminal action, suit or proceeding and any appeal thereof shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding and any appeal thereof upon receipt by the corporation of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation. Section 6. If a claim for indemnification (including an advancement of expenses) under Section l or 2 is not paid in full by the corporation within thirty (30) days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit in any court of competent jurisdiction against the corporation to recover the unpaid amount of the claim and, if the claimant is successful in establishing his right to indemnification (or advancement of expenses), in whole or in part, in any such action (or settlement thereof), he shall be entitled to be paid by the corporation the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for an advancement of expenses where the required undertaking, if any, has been tendered to the corporation) that the indemnitee has not met the applicable standard of conduct described in Section l or 2. Section 7. Any person serving as a director or officer of another corporation, partnership, joint venture or other enterprise, a majority of whose equity interests are owned by the corporation (a "subsidiary"), directly or through one or more other subsidiaries, shall be conclusively presumed to be serving in such capacity at the request of the corporation. Section 8. Persons who after the date of the adoption of this provision become or remain directors or officers of the corporation or who, while a director or officer of the corporation, become or remain a director, officer, employee, agent or fiduciary of another entity at the request of the corporation, shall be conclusively presumed to have relied on the rights to indemnification (including advancement of expenses) contained in this Article XIII in entering or continuing such service. The rights contained in this Article shall apply to claims made against a person arising out of acts or omissions which occurred prior to the adoption hereof as well as those which occur after such adoption. Section 9. The rights conferred on any person in Sections l and 2 shall not be exclusive of any other right which such person may have or hereafter acquire under any law, provision of the Company's Certificate of Incorporation or these By-Laws, agreement, vote of stockholders or disinterested directors or otherwise. 17 17 Section l0. All rights to indemnification and advancement of expenses provided by this Article shall be deemed to be a contract between the corporation and each person referred to in Section l or 2 at any time while this Article is in effect. Any repeal or modification of this Article, or any repeal or modification of the relevant provisions of the Delaware General Corporation Law or any other applicable law, shall not in any way diminish any rights to indemnification or advancement of expenses to such person or the obligations of the corporation. Section 11. The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, agent or fiduciary of the corporation or, if at the request of the corporation, of any other corporation, partnership, joint venture, trust or other enterprise or entity, including employee benefit plans, against any expense, liability or loss, whether or not the corporation would have power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. Section l2. The Board of Directors is authorized to enter into a contract with any director, officer, employee, agent or fiduciary of the corporation, or any person serving at the request of the corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise or entity, including employee benefit plans, providing for indemnification rights equivalent to or, if the Board of Directors so determines, greater than those provided for in this Article XIII. Section l3. The Board of Directors may, by resolution, extend the provisions of this Article pertaining to indemnification and advancement of expenses to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he is or was or has agreed to become an employee, agent or fiduciary of the corporation, or is or was serving or has agreed to serve at the request of the corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise (notwithstanding that such individual may not be or have been or have ever agreed to become a director or officer of the corporation). Section l4. The invalidity or unenforceability of any provision of this Article shall not affect the validity or enforceability of the remaining provisions of this Article. ARTICLE XIV AMENDMENTS These By-Laws may be altered, amended or repealed and new or other By-Laws may be made and adopted by the vote of a majority of the total number of directors as at the time specified AMENDED by the By-Laws, at any regular or special meeting of the Board of 10/2/87 Directors, and without prior notice of intent so to do. EX-11 3 COMPUTATION OF PER SHARE EARNINGS 1 Exhibit 11 Dean Foods Company and Subsidiaries Computation of Earnings Per Share (In thousands, except per share data)
1996 1995 1994 ---- ---- ---- Income (loss) before cumulative effect of changes changes in accounting principles $(49,688) $80,059 $70,762 Cumulative effect of changes in accounting principles - - 1,179 ------- ----- ----- Net Income (Loss) $(49,688) $80,059 $71,941 ------- ----- ----- Weighted Average Number of common shares outstanding during the period 40,122 39,890 39,737 ------- ----- ----- Primary Earnings (Loss) per share before cumulative effect of changes in accounting principles $(1.24) $2.01 $1.78 Cumulative effect of changes in accounting principles - - .03 ------- ----- ----- Primary Earnings (Loss) Per Common Share $(1.24) $2.01 $1.81 ======= ===== =====
37 EX-12 4 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 Exhibit 12 Dean Foods Company and Subsidiaries Computation of Ratio of Earnings to Fixed Charges
Fiscal Years Ending May ------------------------------------------------------------- 1996 1995 1994 1993 1992 1991 ------------------------------------------------------------- Income (loss) before taxes $(69,395) $136,388 $118,313 $114,759 $105,527 $124,340 ------------------------------------------------------------- Fixed charges: Interest expense 28,120 22,397 15,471 14,888 15,551 16,780 Debt issue costs 229 117 123 155 118 128 Portion of rentals (33%) 10,142 8,270 6,997 7,653 9,124 8,528 ------------------------------------------------------------- Total fixed charges 38,491 30,784 22,591 22,696 24,793 25,436 ------------------------------------------------------------- Earnings (loss) before taxes and fixed charges $(30,904) $167,172 $140,904 $137,455 $130,320 $149,776 ============================================================= Ratio of earnings (loss) to fixed charges - (*) 5.4 6.2 6.1 5.3 5.9 =============================================================
(*) The Fiscal 1996 Ratio of Earnings to Fixed Charges is less than one-to-one due to the $150.0 million special charge included in "Income (Loss) before Taxes", resulting in $69,395 fixed charge coverage deficiency. 38 EX-13 5 ANNUAL REPORT 1 EXHIBIT 13 DEAN FOODS COMPANY 1996 Annual Report focus [GRAPHIC] 2 on what [GRAPHIC] 3 we do well [GRAPHIC] 4 DEAN FOODS COMPANY DEAN FOODS COMPANY HAS STEADILY GROWN TO BECOME ONE OF THE NATION'S LARGEST DIVERSIFIED PROCESSORS OF DAIRY PRODUCTS AND SPECIALTY FOODS. FOR MORE THAN 70 YEARS, WE HAVE WORKED TO BUILD OUR COMPANY THROUGH INTERNAL GROWTH - BY INTRODUCING NEW PRODUCTS AND EXPANDING OUR MARKETS - AS WELL AS THROUGH STRATEGICALLY PLANNED AND CAREFULLY SELECTED ACQUISITIONS OF SUCCESSFUL FOOD COMPANIES THAT ADD TO THE BREADTH AND DEPTH OF OUR OPERATIONS. FOUNDED IN THE HEART OF THE MIDWEST IN 1925, DEAN FOODS IS NOW A LEADING NATIONAL FOOD COMPANY, AND THE LARGEST FLUID MILK, FROZEN VEGETABLE AND PICKLE PROCESSOR IN THE U.S. OUR FAMILY OF PRODUCTS ALSO INCLUDES ICE CREAM AND FROZEN DESSERTS, EXTENDED SHELF LIFE AND OTHER SPECIALTY DAIRY ITEMS, CANNED VEGETABLES, PEPPERS, RELISHES AND SPECIALTY ITEMS, NON-DAIRY COFFEE CREAMERS AND ASSORTED POWDERED PRODUCTS, SNACK DIPS, DRESSINGS, ASEPTICALLY PACKAGED SAUCES AND DIPS, AND MORE. FROM 59 PROCESSING PLANTS, WE SELL OUR PRODUCTS UNDER OUR OWN BRAND NAMES AND MANY PRIVATE LABELS TO RETAIL, FOODSERVICE AND FOOD MANUFACTURING CUSTOMERS THROUGHOUT THE U.S. AND ABROAD. two 5 [LOGOS] three 6 FINANCIAL HIGHLIGHTS DEAN FOODS COMPANY AND SUBSIDIARIES
1996 1995 1994 In thousands, except for items marked with an* Operations Net Sales $ 2,814,268 $ 2,630,182 $ 2,431,203 Operating Earnings (Loss) $ (42,430)(a) $ 157,103 $ 133,056 Income (Loss) Before Taxes $ (69,395)(a) $ 136,388 $ 118,313 Net Income (Loss) $ (49,688)(a) $ 80,059 $ 71,941(c) Net Income (Loss) Per Common Share* $ (1.24)(a) $ 2.01 $ 1.81(c) Dividends Per Common Share* $ .72 $ .68 $ .64 Year-End Position Working Capital $ 185,942 $ 215,012 $ 92,915 Total Assets $ 1,222,240 $ 1,202,426 $ 1,109,154 Long-Term Obligations $ 221,653 $ 224,679 $ 136,150 Shareholders' Equity $ 507,692 $ 584,526 $ 524,774 Shares Outstanding 40,133 40,078 39,789 Other Data Production Plants* 59(b) 59 59 Employees* 11,500(b) 11,800 12,100 Shareholders* 9,481 9,989 8,936
a) 1996 includes a pre-tax charge of $150,000 ($97,720 after-tax or $2.44 per share) related to the adoption of a plan to reduce costs, rationalize production capacity and provide for severance and environmental costs. b) 1996 includes certain plants that will be closed or disposed and certain employees that will be affected by the adoption of a plan to reduce costs, rationalize production capacity and provide for severance and environmental costs. c) 1994 includes an after-tax gain of $1,179 ($.03 per share) related to changes in accounting principles. TABLE OF CONTENTS MANUFACTURING MAP SIX LETTER TO SHAREHOLDERS EIGHT KEY STRATEGIES TEN OPERATIONS REVIEW TWELVE FINANCIAL REVIEW TWENTY FINANCIAL STATEMENTS TWENTY SIX NOTES TO FINANCIAL STATEMENTS THIRTY ONE SUMMARY OF OPERATIONS THIRTY NINE DIRECTORS AND OFFICERS FORTY CORPORATE DATA INSIDE BACK COVER five 7 [DEAN FOODS LOGO] DEAN FOODS COMPANY Harvard, IL - 192 Employees Fluid Milk, Cultured Products, Juices/Drinks Brands: Dean's, Guilt Free, Private Labels [BIRDSEYE LOGO] [FRESHLIKE LOGO] DEAN FOODS VEGETABLE COMPANY Waseca, MN - 165 Employees Frozen Vegetables Brands: Birds Eye, Freshlike, Private Labels [DEAN FOODS LOGO] DEAN FOODS COMPANY Huntley, IL - 137 Employees Fluid Milk, Juices/Drinks Brands: Dean's, Private Labels [BIRDSEYE LOGO] DEAN FOODS VEGETABLE COMPANY Bellingham, WA - 81 Employees Frozen Vegetables Brands: Birds Eye, Private Labels DFC TRANSPORTATION COMPANY Huntley, IL - 127 Employees Transportation [DEAN FOODS LOGO] [BIRDSEYE LOGO] DEAN FOODS COMPANY Rockford, IL - 102 Employees Non-Dairy Powder Creamers, Cultured Products, Dips Brands: Dean's, Birds Eye, Guilt Free, Private Labels [DEAN FOODS LOGO] DEAN FOODS COMPANY Franklin Park, IL -148 Employees Corporate [DEAN FOODS LOGO] DEAN FOODS COMPANY Pecatonica, IL - 109 Employees Non-Dairy Powder Creamers Brands: Private Labels [DEAN FOODS LOGO] DEAN FOODS COMPANY Belvidere, IL - 138 Employees Frozen Desserts, Frozen Novelties Brands: Dean's, Guilt Free, Private Labels [DEAN FOODS LOGO] DEAN FOODS AMBOY PACKAGING DIVISION Dixon, IL - 119 Employees Aseptically Packaged, Cheese Sauce, Puddings, Specialty Sauces Brands: Dean's, Private Labels [CREAM O'WEBER LOGO] CREAM O'WEBER DAIRY, INC. Salt Lake City, UT - 178 Employees Fluid Milk, Juices/Drinks Brands: Cream o'Weber, Private Labels [BIRDSEYE LOGO] [FRESHLIKE LOGO] DEAN FOODS VEGETABLE COMPANY Watsonville, CA - 356 Employees Frozen Vegetables Brands: Birds Eye, Freshlike, Private Labels [BIRDSEYE LOGO] [FRESHLIKE LOGO] DEAN FOODS VEGETABLE COMPANY Oxnard, CA - 26 Employees Frozen Vegetables Brands: Birds Eye, Freshlike, Private Labels ROD'S FOOD PRODUCTS City of Industry, CA - 147 Employees Salad Dressings, Dips, Aerosol, Non-Dairy Creamers, Sour Cream Brands: Rod's, Rod's Imo, Pen & Quill [DEAN FOODS LOGO] [CREAMLAND LOGO] [PRICE'S LOGO] [GANDY'S LOGO] [CREAM O'WEBER LOGO] CREAMLAND DAIRIES, INC. Albuquerque, NM - 228 Employees Fluid Milk, Cultured Products, Frozen Desserts Brands: Creamland, Price's, Gandy's, Cream o'Weber, Private Labels [BIRDSEYE LOGO] DEAN FOODS VEGETABLE COMPANY Uvalde, TX - 53 Employees Frozen Vegetables Brands: Birds Eye, Private Labels [ATKINS LOGO] [AUNT JANE'S LOGO] [PETER PIPERS LOGO] [CATES LOGO] DEAN PICKLE & SPECIALTY PRODUCTS COMPANY La Junta, C - 165 Employees Pickles, Peppers, Relish Brands: Private Labels, Company Brands [PRICE'S LOGO] PRICE'S CREAMERIES El Paso, TX - 79 Employees Fluid Milk, Juices/Drinks Brands: Price's, Private Labels [BELL LOGO] [GANDY'S LOGO] BELL DAIRY PRODUCTS, INC. Lubbock, TX - 192 Employees Fluid Milk, Juices/Drinks Brands: Bell, Gandy's, Private Labels [BIRDSEYE LOGO] [FRESHLIKE LOGO] DEAN FOODS VEGETABLE COMPANY McAllen, TX - 228 Employees Frozen Vegetables Brands: Birds Eye, Freshlike, Private Labels [DEAN FOODS LOGO] DEAN FOODS COMPANY Rochester, IN - 113 Employees Fluid Milk, Cultured Products, Juices/Drinks Brands: Dean's, Guilt Free, Private Labels six 8 [DEAN FOODS LOGO] LIBERTY DAIRY COMPANY Evart, MI - 190 Employees Fluid Milk, Juices/Drinks Brands: Dean's, Private Labels [ATKINS PICKLES LOGO] [AUNT JANE'S LOGO] [PETER PIPER LOGO] [CATES LOGO] [HOFFMAN HOUSE LOGO] DEAN PICKLE & SPECIALTY PRODUCTS COMPANY Green Bay, WI - 256 Employees Pickles, Peppers, Relish, Cranberry Sauce, Sauces Brands: Bennett's, Hoffman House, Indian Trail, Peter Piper, Arnold, Atkins, Aunt Jane's, Cates, Heifetz, Ma Brown, Pilgrim Farms, Paramount, Rainbow, Private Labels [VERIFINE LOGO] [DEAN FOODS LOGO] VERIFINE DAIRY PRODUCTS CORPORATION Sheboygan, WI - 65 Employees Fluid Milk, Juices/Drinks Brands: Verifine, Dean's, Private Labels [ATKINS PICKLES LOGO] [AUNT JANE'S LOGO] [PETER PIPER LOGO] [CATES LOGO] DEAN PICKLE & SPECIALTY PRODUCTS COMPANY Croswell, MI - 182 Employees Pickles, Peppers, Relish Brands: Private Labels, Company Brands [DEAN FOODS LOGO] DEAN FOODS COMPANY Wayland, MI - 52 Employees Non-Dairy Powder Creamers, Instant Breakfast Drinks Brands: Private Labels [BIRDSEYE LOGO] DEAN FOODS VEGETABLE COMPANY Fulton, NY - 307 Employees Frozen Vegetables Brands: Birds Eye, Private Labels [BIRDSEYE LOGO] [FRESHLIKE LOGO] DEAN FOODS VEGETABLE COMPANY Hartford, MI - 58 Employees Frozen Vegetables Brands: Birds Eye, Freshlike, Private Labels [BIRDSEYE LOGO] [FRESHLIKE LOGO] [VEG-ALL LOGO] DEAN FOODS VEGETABLE COMPANY Green Bay, WI - 1,027 Employees Frozen and Canned Vegetables Brands: Birds Eye, Freshlike, Veg-All, Private Labels [DEAN FOODS LOGO] [MEADOW BROOK LOGO] MEADOW BROOK DAIRY COMPANY Erie, PA - 140 Employees Fluid Milk, Juices/Drinks Brands: Meadow Brook, Private Labels [DEAN FOODS LOGO] DEAN DAIRY PRODUCTS COMPANY Sharpsville, PA - 212 Employees Fluid Milk, Juices/Drinks Brands: Dean's, Guilt Free, Private Labels [DEAN FOODS LOGO] [MEADOW BROOK LOGO] [REITER LOGO] FAIRMONT PRODUCTS Belleville, PA - 81 Employees Cultured Products, Ice Cream Mixes Brands: Fairmont, Meadow Brook, Reiter Dean's, Private Labels [DEAN FOODS LOGO] READY FOOD PRODUCTS, INC. Philadelphia, PA - 81 Employees Extended Shelf Life Fluid Products Brands: Dean's, Dairy Pure, Dean Ultra, Private Labels [REITER LOGO] REITER DAIRY, INC. Akron, OH - 533 Employees Fluid Milk, Juices/Drinks, Frozen Desserts Brands: Reiter, Private Labels [DEAN FOODS LOGO] [REITER LOGO] REITER DAIRY, INC. Springfield, OH - 107 Employees Fluid Milk, Juices/Drinks, Water Brands: Reiter, Private Labels [ATKINS PICKLES LOGO] [AUNT JANE'S LOGO] [PETER PIPER LOGO] [CATES LOGO] DEAN PICKLE & SPECIALTY PRODUCTS COMPANY Plymouth, IN - 167 Employees Pickles, Peppers, Relish Brands: Private Labels, Company Brands [DEAN FOODS LOGO] DEAN MILK COMPANY, INC. Louisville, KY - 133 Employees Fluid Milk, Cultured Products, Juices/Drinks Brands: Dean's, Bowman, Guilt Free, Private Labels [MAYFIELD LOGO] MAYFIELD DAIRY, INC. Athens, TN - 1,233 Employees Fluid Milk, Cultured Products, Frozen Desserts, Frozen Novelties Brands: Mayfield, Guilt Free [ATKINS PICKLES LOGO] [AUNT JANE'S LOGO] [PETER PIPER LOGO] [CATES LOGO] DEAN PICKLE & SPECIALTY PRODUCTS COMPANY Faison, NC - 260 Employees Pickles, Peppers, Relish Brands: Private Labels, Company Brands [DEAN FOODS LOGO] RYAN MILK COMPANY, INC. Murray, KY - 175 Employees Extended Shelf Life Fluid and Cultured Products, Aerosol Brands: Dean's, Dean Ultra, Dairy Pure, Private Labels [LONG LIFE LOGO] LONG LIFE DAIRY PRODUCTS Jacksonville, FL - 99 Employees Extended Shelf Life Products Brands: Long Life, Private Labels [MCARTHUR DAIRY LOGO] MCARTHUR DAIRY, INC. Miami, FL - 462 Employees Fluid Milk, Juices/Drinks Brands: McArthur, Private Labels [ATKINS PICKLES LOGO] [AUNT JANE'S LOGO] [PETER PIPER LOGO] [CATES LOGO] DEAN PICKLE & SPECIALTY PRODUCTS COMPANY Sanford, FL - 13 Employees Pickles (Refrigerated Only) Brands: Private Labels [T.G. LEE LOGO] T.G. LEE FOODS, INC. Orange City, FL - 58 Employees Fluid Milk, Juices/Drinks Brands: T.G. Lee, Private Labels [ATKINS PICKLES LOGO] [AUNT JANE'S LOGO] [PETER PIPER LOGO] [CATES LOGO] DEAN PICKLE & SPECIALTY PRODUCTS COMPANY Atkins, AR - 176 Employees Pickles, Peppers, Okra, Relish Brands: Private Labels, Company Brands [T.G. LEE LOGO] T.G. LEE FOODS, INC. Orlando, FL - 306 Employees Fluid Milk, Juices/Drinks Brands: T.G. Lee, Guilt Free, Private Labels [RODDENBERY'S LOGO] DEAN PICKLE & SPECIALTY PRODUCTS COMPANY Cairo, GA - 224 Employees Pickles, Syrup, Boiled Peanuts Brands: Cane Patch, Northwoods, Peanut Patch, Roddenbery's, Private Labels seven 9 LETTER TO SHAREHOLDERS Fiscal 1996 was a transitional year for Dean Foods Company. We updated our strategy and thoroughly evaluated all our strategic business units. We announced a special charge of $150 million and a refocusing of the Company on its core business strengths, the strengths that in the past made Dean Foods one of the fastest growing companies in the food industry. The fiscal 1996 environment was a very difficult one and one that adversely affected operating results. Reported earnings, before the special charge, were $1.20 per share in fiscal 1996, down from $2.01 per share in the prior year. After the pre-tax special charge of $150 million related to the strategic business review and the decision to close or dispose of 13 plants, the Company reported a net loss of $1.24 per share. Net sales were $2.8 billion, an increase of 7% from fiscal 1995. During the year, several of the industries in which we participate were confronted with significant challenges, including low crop yields, fierce price competition, cost and availability of raw materials, excess capacity, high inventory levels, and a more demanding marketplace. Simply put, our results were disappointing. We must lead the change in our industries and are responding to the challenge aggressively with a renewed strategic direction. We believe the actions taken in that direction, although difficult, are necessary to create a focused organization, well-positioned to create and deliver superior shareholder value. STRATEGIC DIRECTION In fiscal 1996, we conducted a strategic business review of all of our operations, focusing on their markets, competitors and capabilities, and identified a strategic plan designed to enhance long-term shareholder value. We organized our businesses into four groups - Dairy, Vegetables, Pickles and Specialty Foods - and assembled a strong management team to lead the Company into the future. As actions associated with these strategies are completed over the next twenty-four months, we expect improvement in our pre-tax operating results of $40 to $50 million annually. The results of this strategic review have confirmed that our core businesses offer opportunities to create and deliver sustainable long-term shareholder value. In short, we will focus on doing what we have done well in the past, even better in the future. CREATING AND DELIVERING VALUE Five principal strategies to create and deliver long-term sustainable value are in various stages of execution throughout Dean Foods Company. These strategies are: FOCUS ON CORE BUSINESSES We intend to aggressively grow our fluid milk and other core businesses in which we enjoy leadership positions. Our core businesses create product and service opportunities of important value to our customers and consumers. We continue to develop and introduce healthy products in convenient packages. More specifically, in fiscal 1996 we successfully introduced unique fluid milk packaging in the Southeast, resulting in increased sales and the ability to serve a new segment of the market. We plan additional market introductions in the near term. PRUDENTLY MANAGE INVESTED CAPITAL As we continue to develop and grow our businesses, we will invest capital resources and working capital in a way that creates long-term value for our shareholders. We will begin to integrate value-based management tools into our future capital eight 10 spending decisions. Relatedly, we will be closely monitoring our working capital. As an example, we will reduce our vegetable inventory investment by over $30 million by the middle of fiscal 1997 through concentrating both on the levels and the turnover of inventory in our crop-related businesses. REDUCE OPERATING COSTS We operate in industries with thin margins, making ongoing cost reduction a necessity to sustain and improve profitability. As the year closed, we commenced an aggressive cost compression process in our Dairy business. This process encourages employees throughout our organization to develop and implement improvement ideas. We are pleased with the progress of this initiative and plan to share the results with our other operations and build a "best practices" model for the Company. Near year-end, we also initiated a review of the effectiveness of our trade promotions, with the goals of providing increased incentives to the retailer and influencing the consumer more directly. ACQUISITIONS Over the last twenty-five years, we have been successful in building and creating value from acquired businesses. We believe that the management experience, culture, capital and other resources we offer create an environment in which acquired companies and their management can best succeed. We are optimistic about the acquisition opportunities present in our core businesses. FINANCIAL STRATEGY We recognize the need to strike a balance between investing in the future growth of Dean Foods and providing financial returns to our shareholders. A key element of our financial flexibility is to maintain an investment grade credit rating. This enables us to lower our cost of debt and leverage our financial resources for greater growth. At year-end our debt to capitalization was 39.1%. Dividends are also a key component to total shareholder return. On July 26, 1996, we increased the dividend to an annual rate of $.76 per share. This represents the 53rd year we have paid a dividend and the 24th consecutive increase in the dividend rate since 1974. Free cash flow beyond capital expenditures and dividends will be used to finance acquisitions and future stock repurchases. MANAGEMENT AND BOARD CHANGES We have begun the implementation of a succession plan which will allow for the orderly transition of our top management over the next several years. We announced the search for a President and Chief Operating Officer. Thomas L. Rose will become Vice Chairman when that search is complete. The addition of William R. McManaman as Chief Financial Officer last October brought strong financial leadership to the Company. We are also pleased to report that Edward A. Brennan, retired Chairman and CEO of Sears, Roebuck and Co. and Richard P. Mayer, former Chairman and CEO of Kraft General Foods North America joined the Board of Directors in March of 1996. These two directors bring a wealth of experience and knowledge to the future direction of Dean Foods. We extend sincere thanks for the outstanding contributions of William D. Fischer, who retired from the Board of Directors after 17 years of service. The food industry will continue to be challenging. Yet, we believe that our people will meet these challenges and, by doing so, once again deliver to our shareholders the value that Dean Foods has successfully delivered in the past. We take this opportunity to thank our employees, customers, suppliers and shareholders for their continued support. HOWARD M. DEAN HOWARD M. DEAN Chairman of the Board and Chief Executive Officer THOMAS L. ROSE THOMAS L. ROSE President and Chief Operating Officer August 9, 1996 nine 11 KEY STRATEGIES As part of the strategic review completed in fiscal 1996, a number of key strategies designed to focus the Company on its core business strengths were identified. Dean Foods is committed to the successful pursuit of these strategies in fiscal 1997 and beyond. Grow core business through acquisitions, as well as geographic and product line expansion. Growth opportunities for Dean Foods core businesses, especially in the fluid milk and several of the specialty food businesses, remain significant. Understand the needs of customers and consumers in a rapidly changing marketplace. Information, customer relationships and a constant eye to the future are some of the keys to understanding customer and consumer needs. Dean Foods is committing the resources to assure that understanding. STRATEGIES Pursue opportunities to improve and expand upon fluid milk leadership position. Regional fluid milk companies looking for new ownership find in Dean Foods a corporate culture and commitment to the industry that offer unique opportunities to their businesses and people. Capitalize on the talents of employees through empowerment and development. Dean's decentralized management style, years of experience and eagerness to learn and improve create an environment in which employee involvement and development occur naturally. Consolidate and streamline operations to be low cost producer. Improving productivity and reducing costs are a continual way of life for a company that strives to remain a low cost producer. ten 12 Continue traditions of quality, hard work, and focus on the fundamentals. Dean Foods' reputation for quality was built over generations by the hard work and disciplined approach of thousands of employees. That reputation continues to be earned everyday. Utilize value-based management tools in all planning and decision-making processes. Capital expenditures, acquisitions and virtually all other significant investment decisions are analyzed today through the use of a variety of methods that tie these decisions directly to their effects on shareholder value. Maintain Dean's leadership position in the pickle industry while extending its growth in complementary specialty items. Dean Foods' strong position in the pickle industry has allowed it to extend its product offerings to include niche specialty items such as sauces, olives, boiled peanuts and other items. Acquisition and internal growth opportunities will continue to be pursued. Maximize the customer's profitability through continuous replenishment programs, efficient promotions and overall category management. Customers are looking to Dean to partner with them in managing the supply chain from manufacturer to consumer to maximize profitability for both partners. Leverage position of premier full-line frozen and canned vegetable supplier. The breadth and depth of products and services offered by Dean Foods Vegetable Company are unparalleled in the industry. Capturing the value of this position is a priority for the future. Support and grow successful regional dairy brands. Strong regional brands, together with complete private label programs, allow Dean to fulfill all of the customers' dairy needs. [LOGO] eleven 13 DAIRY PRODUCTS Dean Foods Company is a national leader in dairy products, including fluid milk, juices, yogurt, cottage cheese, sour cream, ice cream, frozen desserts and a variety of extended shelf life items. Beginning as a small Midwest dairy, Dean pursued an aggressive strategy of expansion and acquisition, building a nationwide network of 28 regional dairy operations in 13 states. We are a full-line dairy supplier offering our own popular brands, custom private label programs and foodservice items. DAIRY TOTAL SALES DAIRY PRODUCTS (in millions of dollars) 96 $1,611 95 $1,513 94 $1,469 93 $1,437 92 $1,430 FLUID MILK AND CULTURED PRODUCTS Fluid milk was Dean Foods' first product when the company was founded more than 70 years ago. Today, fluid milk items, including homogenized whole milk, low-fat milk, skim milk, buttermilk and chocolate milk, make up our largest product group, as Dean has grown to become the largest fluid milk processor in the nation. Our line of juice products complements our fluid milk items. Juice products continue to command an increasing share of the market for healthy beverages. We also bottle water, another growing product category. Fresh cultured items, including cottage cheese, yogurt, and sour cream products, are produced at many of our plants around the nation. During fiscal 1996, sales for the category were $1.2 billion. All of these products are sold under brand names which are market leaders in their regions. Our family of milk and cultured dairy brands includes Bell, Cream o'Weber, Creamland, Dean's, Fieldcrest, Gandy's, twelve 14 T.G. Lee, Mayfield, McArthur, Meadow Brook, Price's, Reiter, and Verifine. Additionally, as a full-line supplier, Dean is able to provide custom-tailored private label programs to retailers nationwide. We purchased the rights to serve selected customers of a Youngstown, OH dairy operation in late calendar 1995. This acquisition expanded our customer base and improved the efficiency of our production and distribution operations in Ohio and western Pennsylvania. SALES FLUID MILK AND CULTURED PRODUCTS (in millions of dollars) 96 $1,235 95 $1,190 94 $1,156 93 $1,163 92 $1,149
While we have built our leadership position through our decentralized network of regional dairies and brand names, our national roll-out of Guilt Free brand nonfat dairy products has expanded our consumer reach and brought additional distribution opportunities. Besides fortified skim milk and egg nog, the Guilt Free line also includes frozen desserts and cultured products. We are continuing our efforts to create a dynamic new market position for milk products. We believe that milk should not be thought of only as a nutritional part of a balanced diet. We are working to position milk products as delicious, refreshing beverages that people can enjoy with a meal or snack, or just as a healthy beverage. To support this message, we are developing a new generation of fluid milk products. New forms of packaging and updated package graphics are integral parts of this shift in positioning. We have recently completed testing of plastic, resealable bottles in one-pint and ten-ounce sizes at our Mayfield plant in Athens, TN and successfully increased sales and distribution of these single-serve items, especially in the rapidly growing convenience store segment. We expect to take this exciting new packaging innovation to other dairy operations during fiscal 1997. We also completely redesigned all of the packaging for our Dean label products sold throughout the Midwest. Our new design has given the brand an exciting new look, conveying a contemporary and stylish image to our consumers. Fluid milk is one of the two largest sales and profit categories in most supermarket grocery departments. Retailers are therefore turning to the most qualified dairy suppliers to partner with them in utilizing the latest methods of managing this category to meet the needs of consumers. Information on demographics and industry trends, consumer research, category definition and product mix decisions, space and merchandising schematics and inventory replenishment systems are some of the tools now being utilized by Dean Foods and its forward-thinking customers. We intend to lead the dairy industry in utilizing these tools. Among the many capital expenditure projects completed during fiscal 1996 at our fluid milk and cultured dairy processing facilities were expansions of the milk cooler at our Erie, PA plant and the processing capacity at our Rochester, IN and Huntley, IL fluid milk plants to accommodate growth in these markets. We also made investments in material handling equipment at our El Paso, TX, Evart, MI and Sheboygan, WI facilities to improve customer service and lower cost. In addition, the consolidation of two fluid milk plants in the Southwest into existing facilities improved our cost efficiencies and maintained our excellent quality and service records. thirteen 15 The strategic review of our businesses, which we completed in fiscal 1996, provided further confirmation of our belief that fluid milk and cultured products will play a pivotal role in our strategic direction for the future. We plan to continue growing internally through market expansion and externally through additional acquisitions, and to optimize the performance of our dairy operations nationwide. ICE CREAM AND FROZEN DESSERTS Sales in 1996 of $235 million reflected continued growth for Dean Foods in this category, despite a highly competitive marketplace. Dean manufactures and markets a complete line of frozen desserts and frozen novelties, and we remain one of America's premier suppliers of ice cream to the retail marketplace. Like fluid milk and cultured dairy products, our ice cream and other frozen desserts are known by many names throughout the nation, including Bell, Cream o'Weber, Creamland, Dean's, Dean's Country Charm, Fieldcrest, Fitzgerald's, Gandy's, Mayfield, McArthur/T.G. Lee, Price's and Reiter. Each brand is marketed regionally, targeting local taste preferences and brand loyalties. This year we marked the 50th anniversary of Dean's ice cream with a total relaunch of Dean's Country Charm ice cream. Bold new package graphics were followed by aggressive advertising, including our "Really Cool Flavors" campaign featuring the brand's three most exciting flavors: Double Fudge Plunge, Spumoni and Moose Tracks. Sales of our Mayfield brand continued to grow, thanks to expanding volume and new product introductions. A new low-fat ice cream introduced by Mayfield throughout its Southeast market in April is off to a successful start. SALES ICE CREAM AND FROZEN DESSERTS (in millions of dollars) 96 $235 95 $219 94 $208 93 $199 92 $202
We've furthered our successful participation in the growing healthy desserts category with our Guilt Free product line. The Guilt Free Nonfat Fudge Bar, introduced in 1995, is now the number one product of its kind in the nation. We followed that winning introduction with Guilt Free Lowfat Ice Cream Sandwiches, launched this past spring. This fall we will complete a three-year expansion of our Belvidere, IL facility, giving us one of America's largest and most efficient ice cream plants. The Belvidere plant will be able to manufacture over 30 million gallons of Dean's frozen desserts annually. The planned closure of our facility in Ft. Lauderdale, FL, announced as part of the results of our strategic review, will allow us to move this volume into the more efficient Belvidere plant. Production capacity to support our sales in the Southeast, as well as continued sales growth in the Midwest and the South, is also available from our Reiter and Mayfield facilities in Ohio and Tennessee. EXTENDED SHELF LIFE PRODUCTS Our Extended Shelf Life Division provides a broad line of extended shelf life fluid, aerosol and other dairy products to customers throughout the U.S. and in selected foreign markets. Sales in the category were $141 million for 1996. fourteen 16 We operate three plants in Murray, KY, Jacksonville, FL and Philadelphia, PA. In order to be able to accommodate our nationwide marketing programs, we also established an exclusive supply arrangement with an extended shelf life processor of like products on the West Coast. Our acquisition of Rod's Food Products, City of Industry, CA also provided needed capacity for extended shelf life fluid and aerosol products, in addition to expanding our western U.S. customer base. Dairy distributors, retail grocery warehouse groups, national chain restaurants and foodservice distributor warehouses buy our extended shelf life milk products under Dean brands such as Dairy Pure, Dean Ultra, and Easy 2%, as well as well-known licensed national brands and private labels. Our national brands business strengthened during the year. We won an exclusive license to produce, distribute and sell ultrapasteurized Nestle flavored milks in the same 25 markets where we already provide Nestle's Carnation Coffee-Mate Liquid non-dairy coffee creamer. We added a nonfat version to our Vitamite non-dairy beverage line. And for the holiday season, Guilt Free egg nog was introduced with great success and will see additional distribution in fiscal 1997. Growing popularity of lactose-free products prompted us to position our Easy 2% milk for growth by converting it from reduced-lactose to lactose-free. The Dairy Ease brand we supply was also converted. We continue to see significant opportunities for increasing both branded and private-label sales in this specialized market niche. We completed several capital expenditure projects in our Murray, KY plant during the year in order to satisfy increasing demand and improve distribution and quality control. The cooler was expanded and new racking and cooler inventory management systems were installed. SALES EXTENDED SHELF LIFE PRODUCTS (in millions of dollars) 96 $141 95 $104 94 $105 93 $75 92 $79
Over the past three years, management has sought to widen the customer, trade channel and product mix of our extended shelf life business. We have added aerosol products and several new specialty dairy beverages and non-dairy items. As a result, the division is poised for profitable growth in the coming years. fifteen 17 SPECIALTY FOOD PRODUCTS DEAN'S SPECIALTY FOOD PRODUCTS CONTINUE TO EXPAND IN NUMBER AND GROW IN POPULARITY. WE HAVE BECOME A MAJOR SUPPLIER OF FROZEN AND CANNED VEGETABLES, PICKLES, PEPPERS, RELISHES AND OTHER SPECIALTY ITEMS, ASSORTED POWDERED PRODUCTS, SNACK DIPS, DRESSINGS, SAUCES AND PUDDINGS. BOTH BRANDED AND PRIVATE LABEL PRODUCTS ARE SOLD TO RETAIL, FOODSERVICE AND FOOD MANUFACTURING CUSTOMERS THROUGHOUT THE U.S. AND IN SELECTED FOREIGN MARKETS. DEAN FOODS IS COMMITTED TO CONTINUED GROWTH OF OUR SPECIALTY FOOD BUSINESSES BY EXPANDING GEOGRAPHIC MARKETS, INTRODUCING NEW PRODUCTS AND ACQUIRING FOOD COMPANIES THAT WILL ADD TO OUR STRENGTH. SPECIALTY FROZEN AND CANNED VEGETABLES Our vegetable division, the Dean Foods Vegetable Company (DFVC), is the largest processor of frozen vegetables in the nation and the third largest processor of vegetables overall. The company is a major player in retail and foodservice markets with its branded and private label products. From 19 plants and four distribution centers strategically located around the nation, DFVC markets a full line of vegetable products, including many regional varieties and value-added items, throughout North America, Mexico, Puerto Rico, Europe and Japan. Sales for the year totaled $574 million. Our own brand names remain market leaders as their sales volumes continue to increase. Birds Eye is the second leading frozen vegetable brand in the U.S. Freshlike is the number one brand of vegetables in its Midwest marketing area. And Veg-All is the number one canned sixteen 18 mixed vegetable brand nationally. In addition, we are the country's largest supplier of frozen private label vegetables. SALES FROZEN & CANNED VEGETABLES (in millions of dollars) 96 $574 95 $543 94 $420 93 $357 92 $389 More and more consumers are looking for variety and convenience in the vegetable products they buy. Our best-selling selections include distinctive and easy-to-prepare items such as Birds Eye Easy Recipe and Pasta Secrets, and Freshlike Pasta Combos, and this year we increased distribution for all of these products. We also developed a new baby blend line, new Easy Recipe mixtures and Freshlike Family Recipe meal starters (just add meat for a complete meal) for introduction early in fiscal 1997. We anticipate that such value-added products will continue to offer important opportunities for growth, and additional new product offerings are already being planned for fiscal 1997. This year we acquired Norcal Crossetti Foods, Inc., a frozen vegetable and fruit processor located in Watsonville, CA, with annual sales of $45 million. The acquisition enhanced our ability to provide full-line service to our frozen vegetable customers. By consolidating Norcal's production into our existing Watsonville operations, we have achieved greater operating efficiency in the region. We continue to build strategic alliances with our customers. Our consolidated operations mean that we can provide them single-source ordering, shipping and invoicing for branded and private label vegetables. This year we established category management programs with two major customers, including full implementation of continuous replenishment programs for several of their divisions. Operating efficiency and quality are top priorities for DFVC. During the year, we invested in new electronic sorting equipment, upgraded freezing capacity, improved warehousing and installed a new management information system. We completed a new Technical Center in Green Bay, WI to enhance research and development, quality assurance and engineering activities. We also initiated a company-wide strategy to consolidate our operations. These steps should reduce costs, balance plant capacities, lower inventories and thereby strengthen Dean Foods Vegetable Company's position as a low cost, high quality leader. PICKLES, RELISHES AND SPECIALTY ITEMS The Dean Pickle and Specialty Products Company supplies retail and foodservice customers nation-wide with regional branded and private label pickles, peppers, relishes and assorted specialty items. With sales for the segment of $373 million, we posted our sixth straight year of record sales. SALES PICKLES, RELISHES & SPECIALTY ITEMS (in millions of dollars) 96 $373 95 $367 94 $353 93 $305 92 $282 Dean is the nation's largest supplier of private label and foodservice pickles. We also market a number of regional brands, including Arnold's, Atkins, Aunt Jane's, Cates, Dailey, Heifetz, Paramount, Pesta, Peter Piper, Rainbo, Roddenbery, Tree, and Warsaw Falcon. These brands remain hometown favorites in their regional markets. seventeen 19 Growth was achieved by increased sales of many of these brands, as well as by the acquisition in December of the branded and foodservice product lines of Paramount Foods in Louisville, KY. In addition to adding the strong Paramount name to our family of brands, the acquisition strengthened our procurement, warehousing and distribution capabilities. Sales of olives, sauces, syrups and boiled peanuts also made significant gains during the year. All of our olive sales are under private labels, while Bennett's and Hoffman House sauces, Northwoods and Roddenbery table syrups, and Peanut Patch boiled peanuts all have strong branded positions in their respective regional markets. During the year we continued to make capital improvements in order to upgrade and modernize our manufacturing facilities, control inventories and reduce transportation costs. Additional funds have been earmarked for retooling of our Faison, NC plant which supplies many of our regional brands in the Southeast. This plant will take on much of the pickle production volume slated to be transferred from our Cairo, GA facility in fiscal 1997. OTHER SPECIALTY FOOD PRODUCTS In this diverse category, Dean markets powdered products such as non-dairy coffee creamers and dry ingredient blends, plus an assortment of snack dips, dressings, sauces and puddings. This segment also includes the sales of the Company's transportation and logistics unit, DFC Transportation. Total sales of this product group last year were $256 million. For the sixth consecutive year, sales of powdered products outpaced our previous year's results. Dean is the largest producer of powdered non-dairy coffee creamer in North America. In fact, we are the leading seller in each of the trade channels through which the product is sold, including retail, foodservice, office coffee service, vending, industrial and export. We provide a wide assortment of powdered coffee creamers ranging from fat-free to premium non-dairy creamers that are so rich they can be whipped like whipping cream! As the popularity of coffee and coffee-based products such as cappuccinos continues to accelerate, the use of non-dairy creamer products is keeping pace. This year, we added a non-dairy, lactose-free beverage fortified with vitamins A and D to our product line-up. This innovative, shelf-stable powdered product was formulated to be reconstituted with water. It makes a delicious drink or can be poured over cereal or fruit. Our industrial business also continues to grow. We provide ingredients developed specifically for customers' product formulas ranging from cake mixes, soup sauces and gravies to soft serve ice cream mixes. SALES POWDERED PRODUCTS (in millions of dollars) 96 $129 95 $110 94 $100 93 $88 92 $82 Exporting activity remains strong as we continue to open new markets internationally. We expanded into the Israel market during fiscal 1996. eighteen 20 We now maintain a substantial presence in Canada, Central and South America, Eastern Europe, the Pacific Rim and Honduras. Our E.B.I. Foods affiliate in the U.K. again experienced substantial growth. Annual sales of E.B.I.'s dry ingredient blends continue to rise as their customers expand their base in foreign markets. E.B.I. exports to virtually every country in Europe plus markets in the Middle East, the Far East and Africa. During 1996, the company won the prestigious Queen's Award for Export for the second time, an extraordinary accomplishment. E.B.I. is scheduled to move into its newly-constructed production facility in August. Refrigerated snack dips and salad dressings now constitute a much larger portion of our specialty foods sales. Our Dean's brand dips are number one in the refrigerated dip category and our Birds Eye Veggie Dips are the second leading produce dip after their first year in distribution. SALES SAUCES, PUDDINGS & DIPS (in millions of dollars) 96 $100 95 $74 94 $69 93 $66 92 $61 This year's acquisition of the Rod's Food Products operation in City of Industry, CA brought a significant West Coast presence to several of Dean's product lines. In addition to aerosol toppings and extended shelf life products, Rod's supplies a large and growing Western U.S. customer base with retail snack dips and other oil-based products, as well as flavored salad dressings for the foodservice trade. Retail products are sold under the Rod's, Imo, Slender Choice, Chivo and Zesty brand names and a number of private labels. Our Amboy Specialty Division is one of the largest aseptic manufacturers of shelf-stable cheese sauce and pudding products in the United States, marketing to foodservice and food manufacturing customers nationwide. This year Amboy added to its cheese sauce and pudding line by introducing tomato sauce, marinara sauce, pouch-pack Alfredo sauce and cheddar & salsa cheese sauce. These products represent significant increased volume potential for us. Amboy's ingredient business also continued its growth with a line of innovative, custom specialty sauces supplied to frozen food manufacturers. DFC TRANSPORTATION DFC Transportation serves the transportation needs of Dean divisions as well as other well-known food and consumer product companies. It provides expertise in the consolidation and distribution of dry, refrigerated and frozen products throughout the U.S. and internationally. SALES DFC TRANSPORTATION (in millions of dollars) 96 $27 95 $23 94 $20 93 $21 92 $45 Exceeding its sales goals for the fourth straight year, despite a highly competitive and recessionary business environment, DFC Transportation has demonstrated its capability to provide the effective distribution logistics its customers demand. nineteen 21 FINANCIAL REVIEW DEAN FOODS COMPANY AND SUBSIDIARIES The financial review should be read in conjunction with the letter to shareholders, the operations review of the Company's business segments and the consolidated financial statements and the notes related thereto contained in this annual report. DIVIDENDS PER SHARE (in dollars) 96 $0.72 95 $0.68 94 $0.64 93 $0.60 92 $0.56 91 $0.49 90 $0.44 89 $0.40 88 $0.36 87 $0.32 86 $0.27 WORKING CAPITAL (in millions of dollars) 96 $186 95 $215 94 $ 93 93 $198 92 $184 91 $198 90 $183 89 $156 88 $130 87 $115 86 $108 SHAREHOLDERS' EQUITY (in millions of dollars) 96 $508 95 $585 94 $525 93 $476 92 $430 91 $417 90 $363 89 $293 88 $266 87 $236 86 $207 CAPITAL EXPENDITURES (in millions of dollars) 96 $90 95 $83 94 $81 93 $75 92 $78 91 $73 90 $68 89 $56 88 $39 87 $42 86 $37 TOTAL DEBT TO TOTAL CAPITAL (in percent) 96 39.1% 95 31.2% 94 33.6% 93 24.4% 92 27.0% 91 27.1% 90 29.5% 89 23.8% 88 17.3% 87 19.1% 86 21.5% twenty 22 FINANCIAL REVIEW DEAN FOODS COMPANY AND SUBSIDIARIES STRATEGIC DIRECTION The Company's primary objective is the maximization of shareholder value through dividend growth and long-term stock appreciation. As the Company entered fiscal year 1996, faced with the same significant factors impacting the overall packaged food industry - slow economic growth, low product growth rates and increasing competitive pressures - it was evident achieving our primary objective long-term could be difficult. Consequently, the Company undertook a comprehensive strategic review of all of its businesses, markets and products with the underlying purpose to improve profitability and enhance shareholder value. In May the Company announced a strategic direction plan resulting in a $150.0 million ($97.7 million after-tax or $2.44 per share) special charge to earnings in the fiscal 1996 fourth quarter. The expected post execution, pre-tax savings of the plan are approximately $21 million annually with about $15 million in cash. Additional strategies reducing operating costs and improving marketing/trade promotion effectiveness are expected to produce additional pre-tax savings of $20 to $30 million annually. The realization of the savings from the execution of these strategies are expected to occur over the next twelve to twenty-four months. Additional information relative to the key elements of the strategic direction plan and the related special charge is contained in the Letter to Shareholders and in Note 2 to the consolidated financial statements. FINANCIAL OBJECTIVES AND STRATEGIES Among the financial objectives and strategies employed by the Company are: SOUND WORKING CAPITAL MANAGEMENT The Company employs various procedures to monitor and control the quality and levels of current assets using short-term borrowings primarily to meet seasonal crop-related cash requirements. During the last three fiscal years the Company also utilized short-term borrowings under bank lines of credit to acquire businesses. At fiscal 1995 year-end, amounts borrowed under such lines for business acquisitions were refinanced, as further discussed in Note 4 to the consolidated financial statements. CAPITAL INVESTMENTS The Company's goal is to maintain and improve the productivity of its assets, making those capital investments which offer returns to the Company greater than its cost of capital. PRUDENT USE OF DEBT The Company maintains debt levels considered prudent based upon its cash flows and financial ratios. The long-term debt market has been used primarily to fund acquisitions and major capital expenditures. Based upon the Company's total debt to total capitalization ratio at fiscal 1996 year-end of 39.1%, the Company believes it has sufficient debt capacity to fund future growth. FINANCIAL RISK MANAGEMENT The Company's primary financial risk is interest rate exposure, which is managed through the mix of fixed and floating rate debt. Foreign currency risk is not significant. The Company's policies and controls preclude leveraged or structured derivatives and financial derivatives for trading purposes. DIVIDEND POLICY On July 26, 1996, the Company increased its quarterly dividend 6% to $.19 per share, the twenty-fourth increase since 1974. The total increase in the dividend rate since 1974 is 2,400%. STOCK REPURCHASE No shares were purchased during the last three fiscal years, as funds generated from operations were used in connection with the acquisitions of businesses. On May 26, 1996, the Company had authorization to purchase 1.7 million shares of the Company's stock. twenty one 23 FINANCIAL REVIEW DEAN FOODS COMPANY AND SUBSIDIARIES FINANCIAL CONDITION CAPITAL RESOURCES AND LIQUIDITY The Company's operating cash and capital expenditure requirements have historically been met through funds generated internally from assets employed (working capital and long-term assets). Working capital at May 26, 1996 was $185.9 million, a decrease of $29.1 million from a year ago. The Company's current ratio was 1.47 compared to 1.71 at the end of fiscal 1995. The decreased working capital was primarily the result of funds used to acquire businesses during fiscal 1996. Cash and temporary cash investments at May 26, 1996 was $10.4 million, an increase of $5.6 million from last year end. Inventories increased $5.6 million principally the result of inventories of businesses acquired during fiscal 1996. Dairy inventory turnover is at a high rate, whereas inventories of the Vegetables, Pickles and Specialty segments generally have lower turnover rates. Crop-related Vegetable and Pickle inventory levels may vary from year to year. A large part of the Vegetables, Pickles and Specialty inventories are valued on the LIFO inventory valuation method which enhances the Company's cash flow. Crop-related requirements are funded under the Company's short-term bank lines of credit or its bank revolving credit agreement. During fiscal 1996 the lines of credit and revolving credit agreement were also the source of funds for business acquisitions. The short-term borrowings outstanding at the end of fiscal 1996 were $92.0 million, whereas the borrowings outstanding at the end of fiscal 1995 were $29.0 million. Net property, plant and equipment decreased $44.5 million this year reflecting the write-off of non-performing assets and classification of assets held for resale as a result of the strategic review offset by capital expenditures and assets of businesses acquired. Major capital expenditures during fiscal 1996 were primarily for plant expansions required to process increased production volumes and new products. The Company's long-term objective is to provide a mix of debt and equity that will provide sufficient flexibility for growth. During fiscal 1996, the Company consolidated its two syndicated bank revolving credit agreements into a single $300 million credit facility extending the maturity to the year 2001. Short-term borrowings outstanding under this facility at year-end were $70.0 million. In June 1995, the Company issued $100 million ten-year senior notes. Long-term obligations at May 26, 1996 were $221.7 million, a decrease of $3.0 million from last year-end. The Company's total debt to total capital at May 26, 1996 was 39.1% compared to 31.2% a year ago. The Company is in compliance with the covenants and restrictions under its debt agreements, the most restrictive of which are discussed in Note 4 to the consolidated financial statements. Shareholders' equity at May 26, 1996 was $507.7 million, a decrease of $76.8 million from last year-end primarily as a result of the special charge to earnings of $97.7 million after-tax. The treasury stock held at May 26, 1996 is available for use in future acquisitions, for stock options or for other general business purposes. CASH FLOWS Net cash flow for fiscal 1996 increased $5.6 million whereas cash declined by $6.1 million in fiscal 1995. Particulars of the Company's cash flow activities are as follows: Operating Activities - Cash provided from operations for fiscal 1996 was $129.2 million compared to $128.1 million and $122.0 million for fiscal years 1995 and 1994, respectively. The cash provided in fiscal 1996 was comparable to that provided in fiscal 1995; despite the net loss of $49.7 million in 1996, as the $150.0 million special charge was a non-cash item. twenty two 24 FINANCIAL REVIEW DEAN FOODS COMPANY AND SUBSIDIARIES Investing Activities - Net cash used in the Company's investing activities in fiscal 1996 was $153.8 million compared to $115.4 million and $242.7 million in fiscal years 1995 and 1994, respectively. Capital expenditures and business acquisitions are the Company's principal investing activities. Capital expenditures for 1996 were $89.8 million compared with $83.3 million and $81.0 million in fiscal years 1995 and 1994, respectively. Capital expenditures for fiscal 1997 are expected to approximate fiscal 1996 capital expenditures. During fiscal 1996, the Company used $66.1 million to acquire businesses, an important aspect of the Company's growth. During the three years ended May 26, 1996, a total of $272.8 million was spent to acquire businesses which are discussed in Note 3 to the consolidated financial statements. Financing Activities - Net cash provided from financing activities during fiscal 1996 was $30.2 million compared to net cash used in 1995 of $18.8 million and net cash provided in 1994 of $90.1 million. The principal financing activity during fiscal 1996 was the use of short-term borrowings for funding cash outlays for acquisitions. Short-term borrowings outstanding at fiscal year-end 1996 and 1995 were $92.0 million and $29.0 million, respectively. Cash dividends paid were $28.5 million during fiscal 1996, compared to $26.7 million and $25.0 million during fiscal years 1995 and 1994, respectively. RESULTS OF OPERATIONS Fiscal 1996 results show a loss of $49.7 million or $1.24 per share compared to earnings last year of $80.1 million or $2.01 per share. The 1996 loss included a pre-tax charge of $150.0 million ($97.7 after-tax or $2.44 per share) related to the adoption of a strategic plan to reduce costs, rationalize production capacity and provide for severance and environmental costs. The pre-tax impact of the special charge on the Company's business segments fiscal 1996 operating earnings (loss) is summarized below:
Operating Operating Earnings (In thousands) Earnings (Loss) Special Charge before Special Charge --------------------------------------------------------------------- Dairy $ (2,644) $ 76,694 $ 74,050 --------------------------------------------------------------------- Vegetables (41,837) 47,561 5,724 --------------------------------------------------------------------- Pickles 10,299 13,704 24,003 --------------------------------------------------------------------- Specialty 25,737 999 26,736 --------------------------------------------------------------------- Corporate (33,985) 11,042 (22,943) --------------------------------------------------------------------- Consolidated $ (42,430) $ 150,000 $ 107,570 ---------------------------------------------------------------------
Further discussion of the charge appears in Note 2 to the consolidated financial statements. Fiscal 1995 earnings benefited from improved earnings of the Company's Vegetables and Pickles operations. The fiscal 1994 earnings were impacted by the Revenue Reconciliation Act of 1993 and the adoption of new accounting principles which are discussed in Notes 8 and 9 to the consolidated financial statements. Fiscal 1994 results included a charge of $1.5 million or $.04 per share as a result of the increase in the corporate tax rate to 35% retroactive to January 1, 1993. Net sales for fiscal 1996 were $2.8 billion compared to $2.6 billion last year, a 7.0% increase. All the Company's business segments recorded sales increases as unit sales volume exceeded fiscal 1995 levels. Net sales for fiscal years 1995 and 1994 were $2.6 million and $2.4 million, respectively. BUSINESS SEGMENTS The Company is a diversified food processor and distributor engaged in four business segments. The Company is the country's largest processor of fluid milk products serving various regional markets, with some products distributed nationwide and to Mexico. Dairy is the Company's largest segment, accounting for 57% of the total fiscal 1996 sales. The Vegetables segment, which includes frozen and canned vegetables, is the Company's second largest segment accounting for 20% of the total fiscal 1996 sales. The other two business segments are Pickles and Specialty products, accounting for 14% and 9% of total fiscal sales, respectively. Vegetables, Pickles and Specialty products are sold in regional markets and nationally, with certain products sold internationally. The Company is a large user of certain agricultural related commodities, the prices for which can vary greatly. The competitive conditions and relatively low profit margins in the food industry necessitate timely adjustment of the Company's pricing to reflect changes in commodity pricing as well as changes twenty three 25 FINANCIAL REVIEW DEAN FOODS COMPANY AND SUBIDIARIES in other production and distribution related costs. Segment operating earnings represent total sales less operating expenses with the following items not deducted: general corporate expenses, interest expense and federal and state income taxes. The following discussions of segment earnings exclude the impact of the fiscal 1996 special charge. Dairy - Dairy sales for fiscal 1996 increased 6%, the result of increased unit sales volumes and higher raw milk costs than those prevailing during fiscal 1995. Sales for fiscal year 1995 were 3% greater than fiscal 1994 as increased unit sales volume and inclusion of the sales of a business acquired in 1995 offset lower selling prices reflecting lower milk costs during the year. Raw milk costs rose throughout fiscal 1996. In fiscal 1995, raw milk costs fell substantially in the first quarter and then remained stable throughout the balance of the year. Early indications are that raw milk costs will increase significantly in early fiscal 1997, however, milk supplies are adequate for the Company's operations. Prices for resin used in dairy containers were lower in fiscal 1996 compared to fiscal 1995. Indications are that prices for resin in fiscal 1997 will approximate fiscal 1996 prices. Dairy fiscal 1996 operating earnings declined 4% principally the result of competitive conditions in certain markets and increased advertising costs associated with the introduction of new products and new packaging. Fiscal 1995 operating earnings declined 1% from fiscal 1994 principally as a result of competitive conditions in certain markets and costs associated with the introduction of new products and expansion into new markets. Vegetables - Sales for fiscal 1996 increased 6% principally as a result of sales of acquired companies as selling prices were depressed throughout the year. Fiscal 1995 sales increased 29% over fiscal 1994 largely the result of the full year's inclusion of the fiscal 1994 Birds Eye business acquisition. Fiscal 1996 Vegetables operating earnings declined $39.0 million from fiscal 1995 earnings principally the result of weather-related higher costs associated with the 1995 poor Midwest harvest, industrywide excess inventory levels and highly competitive market conditions that prevailed throughout the year, both on frozen and canned vegetables. Operating results for fiscal 1995 increased $17.7 million as a result of the full year's contribution of the fiscal 1994 Birds Eye acquisition, strong unit sales volume increases and favorable crop and processing costs. The competitive pressures on canned vegetables were more than offset by the sales and margins of frozen vegetables. Early indications are that the 1996 crop industrywide will be a normal or below normal harvest with fiscal 1997 crop costs approximating fiscal 1996 costs. Pickles - Fiscal 1996 sales increased 2% principally as a result of sales of a business acquired mid-year in fiscal 1996 which offset competitive pressures on selling prices. Sales for fiscal 1995 were 4% greater than fiscal 1994 sales as the result of increased unit sales volumes and improved pricing. Operating earnings declined $6.4 million from fiscal 1995 earnings principally as a result of a poor Southeast cucumber harvest with resulting higher processing costs and the necessity to source cucumber requirements from higher cost growing areas. Fiscal 1995 operating earnings increased $11.0 million over 1994 earnings as a result of a strong unit sales increase and favorable crop and processing costs. The spring 1996 cucumber harvest was good and, although Midwest crop plantings were late due to adverse planting conditions, fiscal 1997 cucumber costs should approximate fiscal 1996 costs. Specialty - Sales of a business acquired during fiscal 1996 and increased unit sales volumes resulted in fiscal 1996 sales exceeding fiscal 1995 sales by 24%. Fiscal 1995 sales were 9% greater than fiscal 1994 sales largely the result of increased unit sales volumes. Fiscal 1996 operating earnings decreased 2% as lower margins offset strong unit sales increases and the contribution of a fiscal 1995 business acquisition. Operating earnings for fiscal 1995 increased 6% over fiscal 1994 earnings as a result of increased unit sales volumes and improved margins. This segment is a large user of corn syrup, vegetable oils and casein. Prices for these commodities, after initially increasing in fiscal 1996, declined and pricing is expected to remain stable or decline in fiscal 1997. CORPORATE Excluding the impact of the special charge, fiscal 1996 Corporate expense approximated fiscal 1995 Corporate expense. Fiscal 1995 Corporate expense increased $5.3 million over fiscal 1994 expense principally the result of non-recurring items in both fiscal years. twenty four 26 FINANCIAL REVIEW DEAN FOODS COMPANY AND SUBSIDIARIES INTEREST EXPENSE Fiscal 1996 interest expense increased 27%, principally as a result of increased borrowings related to businesses acquired late in fiscal 1995 and during fiscal 1996. Interest expense for fiscal 1995 increased 45% over fiscal 1994, the result of increased borrowings associated with fiscal 1994 and fiscal 1995 business acquisitions and increased interest rates. INCOME TAXES The Company recognized an effective tax benefit rate of 28.4% for fiscal 1996 reflecting the net loss for the year and the impact of the special charge to earnings. The effective tax rates for fiscal years 1995 and 1994 were 41.3% and 40.2%, respectively. Explanations of the differences from statutory rates are explained in Note 8 to the consolidated financial statements. ENVIRONMENTAL MATTERS On July 10, 1996, a subsidiary of the Company was fined approximately $4.0 million in a lawsuit filed by the United States of America in the United States District Court for the Middle District of Pennsylvania alleging violations of the Federal Water Pollution Control Act relating to the discharge of conventional, non-hazardous substances. The Company has filed various post-trial motions seeking to reduce or eliminate the fine. If the Company's efforts in this regard are unsuccessful, the fine would be covered by reserves existing at May 26, 1996. The Company continues to give attention to the impact of its operations on the environment and compliance with current federal, state and local regulations relating to the discharge of materials into the environment or otherwise relating to the protection of the environment. The Company's fiscal 1996 special charge to earnings included a provision covering the estimated potential environmental cleanup costs associated with the closure of certain manufacturing facilities. NEW ACCOUNTING PRONOUNCEMENTS In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This new standard requires that long-lived assets be reviewed for impairment whenever the carrying amount of those assets may not be recoverable. The recoverability is based on the estimated future cash flows resulting from the use of the asset. Adoption of SFAS No. 121 is required in fiscal 1997. The Company does not expect the adoption of SFAS No. 121 to have a material impact on the Company's financial condition or results of operations. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-based Compensation." This new standard encourages, but does not require, a fair-value based method of accounting for stock-based compensation plans. Adoption of the disclosure requirements of SFAS No. 123 is required in fiscal 1997. The Company expects to adopt only the disclosure provisions of SFAS No. 123 and, therefore, there will be no impact on the Company's financial condition or results of operations. twenty five 27 CONSOLIDATED BALANCE SHEETS DEAN FOODS COMPANY AND SUBSIDIARIES
May 26, 1996 and May 28, 1995 (In thousands) - ------------------------------------------------------------------------------------------------- Assets 1996 1995 - ------------------------------------------------------------------------------------------------- Current Assets: - ------------------------------------------------------------------------------------------------- Cash and temporary cash investments $ 10,399 $ 4,826 - ------------------------------------------------------------------------------------------------- Accounts and notes receivable, less allowance for doubtful accounts of $3,201 and $4,257, respectively 188,222 184,210 - ------------------------------------------------------------------------------------------------- Inventories 278,731 273,114 - ------------------------------------------------------------------------------------------------- Deferred tax assets 58,497 22,456 - ------------------------------------------------------------------------------------------------- Income tax refund receivable 7,244 -- - ------------------------------------------------------------------------------------------------- Other 41,306 34,266 - ------------------------------------------------------------------------------------------------- Total Current Assets 584,399 518,872 - ------------------------------------------------------------------------------------------------- Property, Plant and Equipment, at cost: - ------------------------------------------------------------------------------------------------- Land 30,745 30,280 - ------------------------------------------------------------------------------------------------- Buildings and improvements 262,402 262,552 - ------------------------------------------------------------------------------------------------- Machinery and equipment 602,138 608,108 - ------------------------------------------------------------------------------------------------- Transportation equipment 54,735 54,411 - ------------------------------------------------------------------------------------------------- Construction in progress 43,806 41,312 - ------------------------------------------------------------------------------------------------- 993,826 996,663 - ------------------------------------------------------------------------------------------------- Less - Accumulated depreciation 468,159 426,518 - ------------------------------------------------------------------------------------------------- Total Properties, net 525,667 570,145 - ------------------------------------------------------------------------------------------------- Other Assets: - ------------------------------------------------------------------------------------------------- Goodwill, net of amortization of $6,798 and $7,012, respectively 69,253 69,640 - ------------------------------------------------------------------------------------------------- Other intangible assets, net of amortization of $3,153 and $3,157, respectively 26,635 28,380 - ------------------------------------------------------------------------------------------------- Other 16,286 15,389 - ------------------------------------------------------------------------------------------------- Total Other Assets 112,174 113,409 - ------------------------------------------------------------------------------------------------- Total Assets $1,222,240 $1,202,426 - -------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. twenty six 28
(In thousands) - ------------------------------------------------------------------------------------------------------- Liabilities and Shareholders' Equity 1996 1995 - ------------------------------------------------------------------------------------------------------- Current Liabilities: - ------------------------------------------------------------------------------------------------------- Notes payable to banks $ 92,000 $ 29,000 - ------------------------------------------------------------------------------------------------------- Current installments of long-term obligations 11,855 11,995 - ------------------------------------------------------------------------------------------------------- Accounts payable and accrued expenses 287,305 248,721 - ------------------------------------------------------------------------------------------------------- Dividends payable 7,297 6,877 - ------------------------------------------------------------------------------------------------------- Federal and state income taxes -- 7,267 - ------------------------------------------------------------------------------------------------------- Total Current Liabilities 398,457 303,860 - ------------------------------------------------------------------------------------------------------- Long-Term Obligations 221,653 224,679 - ------------------------------------------------------------------------------------------------------- Deferred Liabilities: - ------------------------------------------------------------------------------------------------------- Deferred income taxes 61,042 70,051 - ------------------------------------------------------------------------------------------------------- Other 33,396 19,310 - ------------------------------------------------------------------------------------------------------- Total Deferred Liabilities 94,438 89,361 - ------------------------------------------------------------------------------------------------------- Shareholders' Equity: - ------------------------------------------------------------------------------------------------------- Preferred stock, $1 par value, 10,000,000 shares authorized, none issued -- -- - ------------------------------------------------------------------------------------------------------- Common stock, $1 par value, 80,000,000 shares authorized, 41,395,009 and 41,339,495 shares issued, respectively 41,395 41,339 - ------------------------------------------------------------------------------------------------------- Capital in excess of par value 14,158 12,705 - ------------------------------------------------------------------------------------------------------- Retained earnings 482,299 560,881 - ------------------------------------------------------------------------------------------------------- Cumulative translation adjustment 11 (228) - ------------------------------------------------------------------------------------------------------- Less - Treasury stock, at cost, 1,261,990 and 1,261,990 shares, respectively 30,171 30,171 - ------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 507,692 584,526 - ------------------------------------------------------------------------------------------------------- Commitments and Contingent Liabilities -- -- - ------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $1,222,240 $1,202,426 - -------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. twenty seven 29 CONSOLIDATED STATEMENTS OF INCOME DEAN FOODS COMPANY AND SUBSIDIARIES
For the Three Fiscal Years Ended May 26, 1996 - ----------------------------------------------------------------------------------------------------------------------------------- (In thousands) 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Net sales $2,814,268 $2,630,182 $2,431,203 - ----------------------------------------------------------------------------------------------------------------------------------- Costs of products sold 2,211,645 2,005,099 1,885,012 - ----------------------------------------------------------------------------------------------------------------------------------- Delivery, selling and administrative expenses 495,053 467,980 413,135 - ----------------------------------------------------------------------------------------------------------------------------------- Special charge 150,000 -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Operating earnings (loss) (42,430) 157,103 133,056 - ----------------------------------------------------------------------------------------------------------------------------------- Interest expense (28,349) (22,397) (15,471) - ----------------------------------------------------------------------------------------------------------------------------------- Interest income 1,384 1,682 728 - ----------------------------------------------------------------------------------------------------------------------------------- Income (loss) before taxes and cumulative effect of changes in accounting principles (69,395) 136,388 118,313 - ----------------------------------------------------------------------------------------------------------------------------------- Provision (benefit) for income taxes (19,707) 56,329 47,551 - ----------------------------------------------------------------------------------------------------------------------------------- Income (loss) before cumulative effect of changes in accounting principles (49,688) 80,059 70,762 - ----------------------------------------------------------------------------------------------------------------------------------- Cumulative effect of changes in accounting principles -- -- 1,179 - ----------------------------------------------------------------------------------------------------------------------------------- Net income (loss) for the year $ (49,688) $ 80,059 $ 71,941 - ----------------------------------------------------------------------------------------------------------------------------------- Net income (loss) per share: - ----------------------------------------------------------------------------------------------------------------------------------- Earnings (loss) per share before cumulative effect of changes in accounting principles $ (1.24) $ 2.01 $ 1.78 - ----------------------------------------------------------------------------------------------------------------------------------- Cumulative effect of changes in accounting principles -- -- .03 - ----------------------------------------------------------------------------------------------------------------------------------- Net income (loss) per share $ (1.24) $ 2.01 $ 1.81 - -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. twenty eight 30 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY DEAN FOODS COMPANY AND SUBSIDIARIES
For the Three Fiscal Years Ended May 26, 1996 (In thousands) Common Common Capital in Cumulative Stock Stock Excess of Retained Translation Treasury Shares Value Par Value Earnings Adjustment Stock - --------------------------------------------------------------------------------------------------------------------- Balance May 30, 1993 39,689 $ 40,946 $ 3,955 $ 461,479 $ -- $ (30,061) Net income -- -- -- 71,941 -- -- Exercise of stock options 104 104 1,956 -- -- -- Return of treasury stock (4) -- -- -- -- (107) Cash dividends declared, $.64 per share -- -- -- (25,439) -- -- - --------------------------------------------------------------------------------------------------------------------- Balance May 29, 1994 39,789 41,050 5,911 507,981 -- (30,168) Net income -- -- -- 80,059 -- -- Issuance of common stock 145 145 3,902 -- -- -- Exercise of stock options 144 144 2,892 -- -- -- Purchase of treasury stock -- -- -- -- -- (3) Cash dividends declared, $.68 per share -- -- -- (27,159) -- -- Cumulative translation adjustment -- -- -- -- (228) -- - --------------------------------------------------------------------------------------------------------------------- Balance May 28, 1995 40,078 41,339 12,705 560,881 (228) (30,171) Net loss -- -- -- (49,688) -- -- Issuance of common stock 47 47 1,275 -- -- -- Exercise of stock options 9 9 178 -- -- -- Purchase of treasury stock -- -- -- -- -- -- Cash dividends declared, $.72 per share -- -- -- (28,894) -- -- Cumulative translation adjustment -- -- -- -- 239 -- - --------------------------------------------------------------------------------------------------------------------- Balance May 26, 1996 40,134 $ 41,395 $ 14,158 $ 482,299 $ 11 $ (30,171) =====================================================================================================================
See accompanying notes to consolidated financial statements. twenty nine 31 CONSOLIDATED STATEMENTS OF CASH FLOWS DEAN FOODS COMPANY AND SUBSIDIARIES
For the Three Fiscal Years Ended May 26, 1996 - ------------------------------------------------------------------------------------------------------------------------------ (In thousands) 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------ Cash flows from operations: - ------------------------------------------------------------------------------------------------------------------------------ Net income (loss) $ (49,688) $ 80,059 $ 71,941 - ------------------------------------------------------------------------------------------------------------------------------ Adjustments to reconcile net income (loss) to net cash provided from operations: - ------------------------------------------------------------------------------------------------------------------------------ Depreciation and amortization 77,048 70,027 61,875 - ------------------------------------------------------------------------------------------------------------------------------ Deferred income taxes (44,005) 6,641 3,307 - ------------------------------------------------------------------------------------------------------------------------------ Other long-term deferred liabilities 6,143 1,757 288 - ------------------------------------------------------------------------------------------------------------------------------ Special charge 150,000 -- -- - ------------------------------------------------------------------------------------------------------------------------------ Changes in accounting principles, net -- -- (1,179) - ------------------------------------------------------------------------------------------------------------------------------ (Increase) decrease in working capital items, net of acquisitions: - ------------------------------------------------------------------------------------------------------------------------------ Accounts and notes receivable (4,172) (11,591) (5,687) - ------------------------------------------------------------------------------------------------------------------------------ Inventories and other current assets 10,669 (35,217) (16,933) - ------------------------------------------------------------------------------------------------------------------------------ Accounts payable and accrued expenses (6,877) 20,635 12,863 - ------------------------------------------------------------------------------------------------------------------------------ Federal and state income taxes (7,478) 2,770 (1,361) - ------------------------------------------------------------------------------------------------------------------------------ Other (2,405) (7,012) (3,126) - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided from operations 129,235 128,069 121,988 - ------------------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: - ------------------------------------------------------------------------------------------------------------------------------ Capital expenditures (89,799) (83,280) (80,977) - ------------------------------------------------------------------------------------------------------------------------------ Proceeds from dispositions of property, plant and equipment 621 3,153 3,640 - ------------------------------------------------------------------------------------------------------------------------------ Acquisitions of businesses, net of cash acquired (66,053) (35,273) (171,479) - ------------------------------------------------------------------------------------------------------------------------------ Proceeds from businesses divested 1,399 -- 6,163 - ------------------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (153,832) (115,400) (242,653) - ------------------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: - ------------------------------------------------------------------------------------------------------------------------------ Issuance of long-term obligations 9,799 100,861 2,000 - ------------------------------------------------------------------------------------------------------------------------------ Repayment of long-term obligations (12,056) (7,218) (12,368) - ------------------------------------------------------------------------------------------------------------------------------ Issuance (repayment) of notes payable to banks, net 63,000 (93,000) 122,000 - ------------------------------------------------------------------------------------------------------------------------------ Unexpended industrial revenue bond proceeds (3,608) 211 1,382 - ------------------------------------------------------------------------------------------------------------------------------ Cash dividends paid (28,474) (26,744) (25,014) - ------------------------------------------------------------------------------------------------------------------------------ Issuance of common stock 1,509 7,083 2,060 - ------------------------------------------------------------------------------------------------------------------------------ Purchase of treasury stock -- (3) -- - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) financing activities 30,170 (18,810) 90,060 - ------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in cash and temporary cash investments 5,573 (6,141) (30,605) - ------------------------------------------------------------------------------------------------------------------------------ Cash and temporary cash investments - beginning of year 4,826 10,967 41,572 - ------------------------------------------------------------------------------------------------------------------------------ Cash and temporary cash investments - end of year $ 10,399 $ 4,826 $ 10,967 - ------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. thirty 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DEAN FOODS COMPANY AND SUBSIDIARIES Dollar amounts in thousands unless otherwise noted 1. NATURE OF THE BUSINESS AND SUMMARY OF ACCOUNTING POLICIES Nature of Business - Dean Foods Company and its subsidiaries ("the Company") are engaged in the processing, distribution and sales of dairy, vegetable, pickle and other specialty food products. The Company operates in four business segments. The Company's principal products in the Dairy segment are fluid milk and cultured products, ice cream and extended shelf life products. In the Vegetables segment, the Company processes and sells frozen and canned vegetables. The Pickles segment's principal products are pickles, relishes and related items. Specialty segment products include powdered products, sauces, puddings and dips as well as the operations of the Company's transportation subsidiary. Use of Estimates in the Financial Statements - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications - Certain previously reported amounts have been reclassified to conform with year-end 1996 presentations. Definition of Fiscal Year - The Company's fiscal year ends on the last Sunday in May. There were 52 weeks in each of the three fiscal years ended May 1996. Principles of Consolidation - The consolidated financial statements include the accounts of the Company and all of its wholly-owned and majority-owned subsidiaries. All significant intercompany transactions and balances are excluded from the statements. Cash and Temporary Cash Investments - The Company considers 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. The majority of Vegetables and Pickles inventories are valued on the last-in, first-out (LIFO) method. The majority of Dairy and certain Specialty inventories are valued on the first-in, first-out (FIFO) method. Property, Plant and Equipment - Major renewals and betterments are capitalized while repairs and maintenance which do not improve or extend useful life are expensed currently. Upon sale, retirement, abandonment or other disposition of property, the cost and related accumulated depreciation are eliminated from the accounts and any gain or loss is reflected in income. For financial statement purposes, depreciation is calculated by the straight-line method. For income tax purposes, depreciation is calculated using accelerated methods for certain assets. Intangible Assets - Excess of cost over fair market value of net identifiable assets of acquired companies and other intangible assets are amortized on a straight-line basis over various periods between three years and forty years. The carrying value of intangible assets is periodically reviewed by the Company based on the expected future undiscounted operating cash flows of the related business unit. Based upon its most recent analysis, the Company believes that no material impairment of intangible assets exists at May 26, 1996. Pensions - Substantially all of the Company's employees are covered by Company or union-management-administered pension plans or profit sharing plans. The policy with respect to Company-administered pension plans is to fund accrued pension costs based on determinations made by independent actuaries which include provision for service cost, interest cost, return on pension assets and amortization of prior service cost and unrecognized initial net assets. Income Taxes - Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Effective in the first quarter of fiscal year 1994 with the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Revenue Recognition - Revenues are recognized when products are shipped. Net Income per Common Share - Net income per common share is based upon the weighted average number of common and common equivalent shares outstanding during each year. thirty one 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DEAN FOODS COMPANY AND SUBSIDIARIES Dollar amounts in thousands unless otherwise noted 2. SPECIAL CHARGE In May, 1996 the Company recorded a pre-tax provision of $150.0 million ($97.7 million after-tax or $2.44 per share) related to the adoption of a plan to reduce costs, rationalize production capacity and provide for projected severance and environmental costs. The implementation of the plan will result in the elimination of more than 800 manufacturing and administrative positions and the disposition or closure of 13 manufacturing facilities. The provision includes costs associated with facility closures and consolidations and the write-down to net realizable value of assets that are for sale of $99.1 million, of which $73.6 million are non-cash asset write-offs and $25.5 million are cash costs related to asset dispositions. The write-off of intangibles is $22.8 million. The cash cost of severance and other termination benefits is expected to be approximately $10.2 million. The remaining $17.9 million of the provision primarily represents anticipated cash expenditures for environmental remediation and other costs and expenses. These actions are currently in process and should be substantially completed by the end of fiscal 1997. The following table presents the details of the 1996 activity:
Asset write-offs/ closure costs $ 99.1 $ -- $ 73.6 $25.5 Intangibles write-off 22.8 -- 22.8 -- Termination benefits 10.2 -- -- 10.2 Environmental and other 17.9 -- 4.6 13.3 - ------------------------------------------------------------------------------ $ 150.0 $ -- $ 101.0 $ 49.0 - ------------------------------------------------------------------------------
Of the remaining $49.0 million special charge reserve balance, $8.0 million is classified as Other Deferred Liabilities in the Consolidated Balance Sheet. 3. BUSINESS ACQUISITIONS During fiscal 1996, the Company acquired one operation in each of the Vegetables, Pickles and Specialty segments for cash consideration. The pro forma impact as if these acquisitions had occurred at the beginning of the 1995 fiscal year is not significant. During fiscal 1995, the Company acquired a Dairy operation and a Vegetables operation also for cash consideration. The pro forma impact as if these acquisitions had occurred at the beginning of the 1994 fiscal year is not significant. Each of these acquisitions were accounted for as purchases and their results of operations are included in the consolidated financial statements from their respective dates of acquisition. On December 27, 1993, the Company completed the acquisition of the Birds Eye Frozen Vegetable business (Birds Eye) from the All-American Gourmet Company, a wholly-owned subsidiary of Kraft General Foods, Inc., for approximately $140 million. The acquisition has been accounted for as a purchase and, accordingly, the operating results of Birds Eye have been included in the consolidated operating results since the date of acquisition. The funds used to acquire Birds Eye were provided by the Company's short-term lines of credit with its banks. The acquisition resulted in intangible assets of $47 million. The following summary, prepared on a pro forma basis, combines the consolidated results of operations as if Birds Eye had been acquired as of the beginning of the 1993 fiscal year.
Unaudited 1994 1993 Net sales $2,549,452 $2,474,784 Net income $ 73,110 $ 74,407 Net income per share $ 1.84 $ 1.88
The pro forma results are not necessarily indicative of the results which would have occurred if the acquisition had taken place on the basis assumed. In addition, the pro forma results are not intended to be a projection of future results and do not reflect any synergies that might be achieved from combined operations. During fiscal 1994, the Company also acquired a Dairy operation and a Pickles operation for cash consideration. The pro forma impact as if these acquisitions had occurred at the beginning of the 1993 fiscal year is not significant. thirty two 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DEAN FOODS COMPANY AND SUBSIDIARIES Dollar amounts in thousands unless otherwise noted 4. BORROWING ARRANGEMENTS Long-term obligations, less installments due within one year, are summarized below:
- -------------------------------------------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------------------------------------- Senior note, 6.75%, maturing in 2005 $ 99,091 $ 100,000 - -------------------------------------------------------------------------------------------------------------- Installment note, 9.64%, maturing in equal amounts of $6,500 through 2005 58,500 65,000 - ------------------------------------------------------------------------------------------------------------- Installment note, 10.1%, maturing in equal amounts of $3,500 through 2004 28,000 31,500 - ------------------------------------------------------------------------------------------------------------- Industrial revenue bonds, maturing in varying amounts through 2013: Fixed rate, (7.3% to 8.0%; average 7.58%) 4,208 4,775 - ------------------------------------------------------------------------------------------------------------- Floating rate, (3.7% to 7.26%; average 3.88%) 31,136 21,810 - ------------------------------------------------------------------------------------------------------------- Capitalized lease obligations, 4.9% to 9.75%, maturing in various installments through 2011 9,472 9,453 - ------------------------------------------------------------------------------------------------------------- Other obligations, maturing in varying amounts through 2025, (6.0% to 10.0%; average 7.06%) 3,101 4,136 - ------------------------------------------------------------------------------------------------------------- 233,508 236,674 - ------------------------------------------------------------------------------------------------------------- Less: Installments due within one year 11,855 11,995 - ------------------------------------------------------------------------------------------------------------- Total long-term obligations $ 221,653 $ 224,679 =============================================================================================================
In fiscal 1995, the Company entered into two syndicated bank Credit Agreements, a $200 million revolving credit facility maturing in year 2000 and a $100 million revolving credit facility (convertible to a term loan) maturing in 1997. These Credit Agreements were renegotiated in 1996 to a single $300 million Credit Agreement maturing in 2001. The borrowings under the Credit Agreement are unsecured and the Company pays a commitment fee of 0.09% on the unused portions of the revolving credit and term loan facilities. Borrowings under the Credit Agreement bear interest at either fixed or variable rates linked to the Company's overall public debt credit rating. During fiscal 1996, the maximum borrowings under the Credit Agreement were $140.0 million; average borrowings were $77.5 million at a weighted average interest rate of 5.8%. At May 26, 1996, there were $70.0 million of borrowings outstanding under this facility. The Company has $60.0 million committed short-term lines of credit available for borrowing needs. Lending banks are compensated on a fee basis of 1/8 of 1% of the credit line. During 1996, maximum borrowings under the Company's committed and uncommitted lines of credit were $112.0 million; average borrowings for the year were $43.9 million at a weighted average interest rate of 5.8%. At May 26, 1996, the Company had $22.0 million outstanding from uncommitted short-term lines of credit. In fiscal 1995, the Company filed a $300 million Senior note facility and a $200 million medium-term note facility pursuant to a shelf registration with the Securities and Exchange Commission. In June 1995, the Company issued $100 million of 6.75% Notes due 2005. The net proceeds were used to repay $50 million in long-term obligations and $50 million in short-term borrowings, which were outstanding under the Credit Agreements at May 28, 1995. Accordingly, at May 28, 1995, the Company classified $100 million as long-term indebtedness. At May 26, 1996, the most restrictive provisions of the Company's borrowing arrangements were as follows: tangible net worth of at least $175 million, working capital of at least $60 million, and a current ratio of at least 1.25 were required to be maintained; approximately $38 million of retained earnings was unrestricted for the payment of cash dividends and repurchase of common stock; and the Company could not incur total long-term debt in excess of 50% of total capitalization. Maturities of long-term obligations during each of the years 1998 through 2001 are $13,629, $11,337, $14,943 and $11,587, respectively. Certain land, buildings and machinery and equipment having a net carrying value of approximately $25 million were mortgaged or otherwise encumbered against long-term debt of $12 million at May 26, 1996. The fair value of the Company's long-term debt was determined using valuation techniques that considered cash flows discounted at current market rates and management's best estimate for instruments without quoted market prices. At May 26, 1996 and May 28, 1995 the fair value of long-term debt is estimated to be $235.8 million and $248.9 million, respectively. 5. SHAREHOLDERS' EQUITY The 1988 shareholders' rights plan, as amended, protects shareholders in the event the Company becomes the target of coercive and unfair takeover tactics. The rights were distributed to shareholders on the basis of one preferred stock purchase right for each share of Dean Foods Company common stock. Each right entitles shareholders to purchase one one-hundredth of a share of preferred stock and will become exercisable only if a person or group acquires 15% or more of the Company's common stock. The rights may be redeemed by the Company for $.05 per right at any time prior to a public announcement that a person or group has acquired 15% or more of the Company's common stock. The rights expire on August 10, 1998, unless previously redeemed or exercised. The Company may repurchase shares of its common stock from time to time in the open market, in privately-negotiated transactions or otherwise at a price or prices reasonably related to the then prevailing market price. thirty three 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DEAN FOODS COMPANY AND SUBSIDIARIES Dollar amount in thousands unless otherwise noted 6. STOCK PLANS A summary of stock option activity for the Company's stock option plans follows:
Number Average of Shares Option Price Under Option Per Share - ----------------------------------------------------------------------------------------------------- Options outstanding at May 30, 1993 922,529 $ 26.26 - ----------------------------------------------------------------------------------------------------- Changes during the year: - ----------------------------------------------------------------------------------------------------- Granted 250,119 26.87 - ----------------------------------------------------------------------------------------------------- Terminated (14,032) 29.17 - ----------------------------------------------------------------------------------------------------- Exercised (118,586) 21.82 - ----------------------------------------------------------------------------------------------------- Options outstanding at May 29, 1994 1,040,030 26.87 - ----------------------------------------------------------------------------------------------------- Changes during the year: - ----------------------------------------------------------------------------------------------------- Granted 251,105 29.87 - ----------------------------------------------------------------------------------------------------- Terminated (52,392) 28.74 - ----------------------------------------------------------------------------------------------------- Exercised (165,941) 22.94 - ----------------------------------------------------------------------------------------------------- Options outstanding at May 28, 1995 1,072,802 28.09 - ----------------------------------------------------------------------------------------------------- Changes during the year: - ----------------------------------------------------------------------------------------------------- Granted 313,564 28.08 - ----------------------------------------------------------------------------------------------------- Terminated (18,222) 29.04 - ----------------------------------------------------------------------------------------------------- Exercised (17,380) 24.87 - ----------------------------------------------------------------------------------------------------- Options outstanding at May 26, 1996 1,350,764 $ 28.12 ===================================================================================================== Exercisable at end of year 715,167 $ 27.96 ===================================================================================================== Available for grants: - ------------------------------------------------------------------------------- Beginning of year 1,765,427 - ------------------------------------------------------------------------------- End of year 1,381,444 - -------------------------------------------------------------------------------
Under the stock option plans, key employees and directors may be granted stock awards or options to purchase, at fair market value on the date of grant, a maximum of 3,315,000 shares of the Company's common stock. Of these shares, a maximum of 115,000 may be granted to non-employee directors. A total of 67,500 shares have been granted to non-employee directors. A total of 299,036 non-qualified options are outstanding, which obligate the Company to make a cash payment to the optionee, upon exercise, of an amount up to the aggregate increase in the market value of the common stock since the date of grant. Options terminate five to ten years after date of grant. The Company may, from time to time, offer key employees the opportunity to elect to receive, in lieu of all or a portion of the cash bonuses otherwise payable to them, stock awards of shares of the Company's common stock having a fair market value on the date of the award equal to 115% of such cash bonuses or portions thereof (Stock Bonus Awards Program.) Key employees elected to receive 47,131 and 36,023 shares under the Stock Bonus Awards Program which related to bonuses in fiscal 1996 and 1995, respectively. 7. INVENTORIES At May 26, 1996 and May 28, 1995, inventories comprised the following:
- ------------------------------------------------------------------------------------------------------- 1996 1995 - ------------------------------------------------------------------------------------------------------- Raw materials and supplies $ 56,671 $ 56,283 - ------------------------------------------------------------------------------------------------------- Materials in process 65,447 60,554 - ------------------------------------------------------------------------------------------------------- Finished goods 172,316 171,378 - ------------------------------------------------------------------------------------------------------- 294,434 288,215 Less: Excess of current cost over stated value of last-in, first-out inventories 15,703 15,101 - ------------------------------------------------------------------------------------------------------- Total inventories $ 278,731 $ 273,114 =======================================================================================================
The percentage of costs of products sold determined on the basis of last-in, first-out cost approximated 43.6% and 42.4% for 1996 and 1995, respectively. 8. INCOME TAXES The Company adopted the provisions of the Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes," as of May 31, 1993. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. As permitted under the Statement, prior years' financial statements have not been restated. The cumulative effect of the change in accounting principle on prior fiscal periods increased fiscal 1994 net income by $2.2 million, net of taxes, or $0.06 per share. The Statement also requires that deferred taxes be recorded for the tax effects of differences between the assigned values and the tax basis of assets acquired and liabilities assumed in business acquisitions. This change in method increased the values assigned to such net assets by $22.7 million with a corresponding increase in deferred income taxes. Provision (benefit) from income taxes was as follows:
- -------------------------------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------------------------- Current tax expense: - -------------------------------------------------------------------------------------------------- Federal $ 20,169 $ 45,585 $ 37,387 - -------------------------------------------------------------------------------------------------- State and foreign 4,129 9,309 8,385 - -------------------------------------------------------------------------------------------------- 24,298 54,894 45,772 - -------------------------------------------------------------------------------------------------- Deferred tax expense (benefit): - -------------------------------------------------------------------------------------------------- Federal (39,540) 1,068 708 - -------------------------------------------------------------------------------------------------- State and foreign (4,465) 367 150 - -------------------------------------------------------------------------------------------------- Effect of tax rate change -- -- 921 - -------------------------------------------------------------------------------------------------- (44,005) 1,435 1,779 - -------------------------------------------------------------------------------------------------- Provision (benefit) for income taxes $ (19,707) $ 56,329 $ 47,551 ==================================================================================================
The effective tax rates differ from the prevailing statutory federal rate as follows:
- -------------------------------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------------------------- Statutory federal tax rate 35.0% 35.0% 35.0% - -------------------------------------------------------------------------------------------------- State and foreign, net of federal benefit (1.4) 4.4 4.3 - -------------------------------------------------------------------------------------------------- Other, net (5.2) 1.9 0.9 - -------------------------------------------------------------------------------------------------- Effective tax rate 28.4% 41.3% 40.2% ==================================================================================================
thirty four 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DEAN FOODS COMPANY AND SUBSIDIARIES Dollar amounts in thousands unless otherwise noted The components of the deferred income taxes were as follows:
1996 1995 Deferred tax assets: Accounts receivable $ 3,003 $ 2,552 LIFO inventory (5,178) (3,721) Self-insurance reserves 14,655 12,652 Vacation pay 4,276 4,585 Marketing accruals 6,518 3,860 Future benefit of special charge 33,817 -- Other 1,406 2,528 - -------------------------------------------------------------------------------------------------- Total deferred tax assets $ 58,497 $ 22,456 ================================================================================================== Deferred tax liabilities: Fixed assets $ (74,429) $ (70,007) Deferred compensation 6,420 4,585 DISC deferral (2,953) (2,420) Intangibles (5,265) (4,450) Future benefit of special charge 12,531 -- Other 2,654 2,241 - -------------------------------------------------------------------------------------------------- Total deferred tax liabilities $ (61,042) $ (70,051) ==================================================================================================
9. EMPLOYEE BENEFIT PLANS The Company has various profit sharing and retirement plans covering certain salaried and hourly employees. Amounts charged to operations under all plans were $20,836, $16,969 and $15,502 in 1996, 1995 and 1994, respectively. Defined Benefit Pension Plans - Costs for noncontributory defined benefit plans were $5,762, $4,650, and $4,265 in 1996, 1995 and 1994, respectively. Plan assets are primarily invested in bonds, stocks and real estate. Significant weighted average assumptions used in determining net pension costs were:
1996 1995 Discount rate 8.0% 8.0% Expected long-term rate of return on assets 8.0% 8.0% Rate of increase in compensation levels (range) 0-5.0% 0-5.0%
The Company's defined benefit net pension costs included the following components:
1996 1995 1994 Current service costs $ 3,621 $ 3,013 $ 2,765 Interest cost on projected benefit obligation 6,189 5,654 5,679 Actual return on plan assets (16,452) (4,339) (4,189) Net amortization and deferral 12,404 322 10 - ---------------------------------------------------------------------------------------------- Net pension costs $ 5,762 $ 4,650 $ 4,265 ==============================================================================================
The following table sets forth the funded status of the Company's defined benefit plans reconciled to accrued pension costs:
1996 1995 Present value of projected benefit obligation: Vested employees $ 62,762 $ 56,781 Non-vested employees 4,522 3,806 - ------------------------------------------------------------------------------------- Accumulated benefit obligation 67,284 60,587 Additional amounts due to future salary increases 21,869 16,275 - ------------------------------------------------------------------------------------- Total projected benefit obligation 89,153 76,862 Fair value of net assets available for benefits (74,690) (55,093) - ------------------------------------------------------------------------------------- Projected benefit obligation greater than net assets available 14,463 21,769 Unrecognized prior service cost (2,297) (2,642) Unrecognized net obligation (112) (908) Unrecognized net transition asset 3,735 3,850 Unrecognized net loss (9,702) (16,628) - ------------------------------------------------------------------------------------ Net accrued pension costs $ 6,087 $ 5,441 ====================================================================================
The majority of retirement benefits are based upon the highest five year average qualifying earnings (base compensation) for service prior to January 1, 1986 and, for service since then, based upon the participant's qualifying earnings each year. The Company participates in various multi-employer union-management- administered defined contribution pension plans that principally cover production workers. Pension expense under these plans was $6,398, $5,557 and $4,810 in 1996, 1995 and 1994, respectively. Profit Sharing Plans - The Company maintains noncontributory profit sharing plans for certain employees. Company contributions under these plans are made at the discretion of the Board of Directors. Expense for these plans was $6,012, $4,965 and $5,299 in 1996, 1995 and 1994, respectively. Postretirement Benefits - The Company provides health care and life insurance benefits to certain of its retired employees and eligible dependents. Employees are eligible for such benefits subject to minimum age and service requirements. Eligible employees that retire before the normal retirement age, along with their dependents, are entitled to benefits on a shared contribution basis. Substantially all benefits terminate at age sixty-five. The Company retains the right to modify or eliminate these benefits. Effective May 31, 1993, the Company implemented Statement of Financial Accounting Standard No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," which requires recognition of the cost of postretirement benefits on the accrual basis rather than the cash basis, which was the Company's previous accounting policy. The cumulative effect of the accounting change resulted in a non-cash charge of $1,027 (net of $657 of taxes) or $.03 per share which represents the accumulated postretirement benefit obligation (APBO) existing at May 31, 1993. Additionally, in connection with the Birds Eye acquisition, the Company assumed a postretirement obligation of $4,252 which was recorded as part of the acquisition accounting. thirty five 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DEAN FOODS COMPANY AND SUBSIDIARIES Dollar amounts in thousands unless otherwise noted Net periodic postretirement benefits expense was $704, $1,140 and $508 in 1996, 1995 and 1994, respectively. The components of expense follows:
---------------------------------------------------------- 1996 1995 1994 ---------------------------------------------------------- Service cost of benefits earned $ 273 $ 589 $ 237 ---------------------------------------------------------- Interest cost on liability 431 551 271 ---------------------------------------------------------- Net periodic postretirement benefit cost $ 704 $ 1,140 $ 508 ==========================================================
As a result of changes in employee benefit plans during fiscal 1996, postretirement medical benefits for certain union plans were eliminated resulting in a curtailment gain of $3,994. The following table summarizes the postretirement benefit liability:
- ------------------------------------------------------------------------------------ 1996 1995 - ------------------------------------------------------------------------------------ Retirees $ 2,151 $ 1,699 - ------------------------------------------------------------------------------------ Fully eligible active participants 280 161 - ------------------------------------------------------------------------------------ Other active participants 764 3,668 - ------------------------------------------------------------------------------------ Total 3,195 5,528 - ------------------------------------------------------------------------------------ Unrecognized net gain 1,095 2,052 - ------------------------------------------------------------------------------------ Accrued postretirement benefits $ 4,290 $ 7,580 ====================================================================================
The accumulated postretirement benefit obligation was determined using a weighted average discount rate of 8.0% in fiscal 1996 and 1995, and an assumed compensation increase of 5.0%. The health care cost trend rates were assumed to be 8.0% in 1996, gradually declining to 5.0% over six years and remaining at that level thereafter. In 1995 the cost trend rates were assumed to be 10.5%, gradually declining to 5.5% over ten years. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, a 1% increase in the health care cost trend rate would increase the accumulated postretirement benefit obligation by $170 at May 26, 1996, and the net periodic cost by $21. 10. LEASES Net rental expense, including amounts for leases of one year or less, was $30,733, $25,062 and $21,203 in 1996, 1995 and 1994, respectively. Sublease rental income is not significant. A majority of the Company's leases provide that the Company pay taxes, maintenance, insurance and certain other operating expenses. At May 26, 1996, annual minimum rental payments under capital and operating leases that have initial noncancelable terms in excess of one year were as follows:
Capital Operating Leases Leases -------------------------------------------------- 1997 $ 1,299 $ 11,661 -------------------------------------------------- 1998 1,268 10,285 -------------------------------------------------- 1999 1,027 8,678 -------------------------------------------------- 2000 1,008 5,917 -------------------------------------------------- 2001 1,084 3,148 -------------------------------------------------- Thereafter 14,098 4,350 -------------------------------------------------- Total minimum lease payments 19,784 $ 44,039 -----------------------------------------========= Less: Imputed interest 10,144 --------------------------------------- Present value of minimum lease payments $ 9,640 =======================================
Table 11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Consolidated accounts payable and accrued expenses at May 26, 1996 and May 28, 1995 comprised the following items:
- ------------------------------------------------------------------------------ 1996 1995 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Trade payables $ 98,387 $ 102,074 - ------------------------------------------------------------------------------ Accrued expenses 62,894 61,388 - ------------------------------------------------------------------------------ Accrued insurance 41,848 37,945 - ------------------------------------------------------------------------------ Special charge reserve 41,012 -- - ------------------------------------------------------------------------------ Accrued payroll 32,965 33,939 - ------------------------------------------------------------------------------ Accrued taxes, other than income 4,578 4,656 - ------------------------------------------------------------------------------ Accrued pension and profit sharing 5,621 8,719 - ------------------------------------------------------------------------------ Total accounts payable and accrued expenses $ 287,305 $ 248,721 ==============================================================================
12. CASH FLOW DATA Interest and taxes paid included in the Company's cash flow from operations were as follows:
- ------------------------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------- Interest paid $ 25,363 $ 22,579 $ 15,591 - ------------------------------------------------------------------------------- Taxes paid 39,687 54,752 46,753 - -------------------------------------------------------------------------------
Liabilities assumed in conjunction with business acquisitions were:
- --------------------------------------------------------------------------- 1996 1995 1994 - --------------------------------------------------------------------------- Fair value of assets acquired $ 67,574 $ 35,908 $ 197,090 - --------------------------------------------------------------------------- Consideration paid (66,053) (35,273) (171,479) - --------------------------------------------------------------------------- Liabilities assumed $ 1,521 $ 635 $ 25,611 - ---------------------------------------------------------------------------
13. COMMITMENTS AND CONTINGENT LIABILITIES The Company is a defendant in various legal matters and is currently the subject of investigations by various state and federal authorities relating to the pricing of contracts to supply milk and certain environmental matters. On July 10, 1996, a federal judge imposed a fine of approximately $4.0 million on a subsidiary of the Company, alleging violations of the Federal Water Pollution Control Act relating to the discharge of conventional, non-hazardous substances. The Company has filed various post-trial motions seeking to reduce or eliminate the fine. The Company provided for this exposure in 1996 and in light of reserves existing at May 26, 1996, the ultimate resolution of these matters, including the resolution of the imposed fine, is not expected to have a material effect on the financial position or results of operations of the Company. thirty six 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DEAN FOODS COMPANY AND SUBSIDIARIES Dollar amounts in thousands unless otherwise noted 14. BUSINESS SEGMENT INFORMATION The nature of products classified in the business segments presented herein is described on pages 12 through 19. Intersegment sales are not material. Operating earnings (loss) of segments do not include interest income or expense and provisions (benefits) for income taxes. Identifiable assets are those used in the Company's operations in each segment. Corporate assets consist primarily of cash and marketable securities and deferred tax assets.
Dairy Vegetables Pickles Specialty Corporate Consolidated - ----------------------------------------------------------------------------------------------------------------------- 1996 - ----------------------------------------------------------------------------------------------------------------------- Net sales $ 1,611,266 $ 573,751 $ 373,213 $ 256,038 $ -- $ 2,814,268 - ----------------------------------------------------------------------------------------------------------------------- Operating earnings (loss) (2,644) (41,837) 10,299 25,737 (33,985) (42,430) - ----------------------------------------------------------------------------------------------------------------------- Identifiable assets 456,632 406,541 151,578 98,480 109,009 1,222,240 - ----------------------------------------------------------------------------------------------------------------------- Depreciation and amortization 37,633 25,086 7,903 4,476 1,950 77,048 - ----------------------------------------------------------------------------------------------------------------------- Capital expenditures 49,905 18,713 6,733 13,544 904 89,799 - ----------------------------------------------------------------------------------------------------------------------- 1995 - ----------------------------------------------------------------------------------------------------------------------- Net sales $ 1,513,560 $ 543,103 $ 367,182 $ 206,337 $ -- $ 2,630,182 - ----------------------------------------------------------------------------------------------------------------------- Operating earnings 77,242 44,736 30,395 27,239 (22,509) 157,103 - ----------------------------------------------------------------------------------------------------------------------- Identifiable assets 491,638 428,781 155,368 56,996 69,643 1,202,426 - ----------------------------------------------------------------------------------------------------------------------- Depreciation and amortization 36,418 21,364 7,735 3,184 1,326 70,027 - ----------------------------------------------------------------------------------------------------------------------- Capital expenditures 49,150 16,683 9,138 7,019 1,290 83,280 - ----------------------------------------------------------------------------------------------------------------------- 1994 - ----------------------------------------------------------------------------------------------------------------------- Net sales $ 1,469,198 $ 419,930 $ 352,560 $ 189,515 $ -- $ 2,431,203 - ----------------------------------------------------------------------------------------------------------------------- Operating earnings 77,987 27,021 19,419 25,815 (17,186) 133,056 - ----------------------------------------------------------------------------------------------------------------------- Identifiable assets 459,986 385,537 139,007 55,384 69,240 1,109,154 - ----------------------------------------------------------------------------------------------------------------------- Depreciation and amortization 35,424 15,918 6,554 2,515 1,464 61,875 - ----------------------------------------------------------------------------------------------------------------------- Capital expenditures 51,466 12,931 9,097 6,285 1,198 80,977 - -----------------------------------------------------------------------------------------------------------------------
Fiscal 1996 segment operating earnings (loss) include the special charge related to the adoption of a plan to reduce costs, rationalize production capacity and provide for severance and environmental costs of $76,694, $47,561, $13,704, $999 and $11,042 in the Dairy, Vegetables, Pickles, Specialty and Corporate segments, respectively. thirty seven 39 QUARTERLY FINANCIAL DATA DEAN FOODS COMPANY AND SUBSIDIARIES Unaudited (In thousands, except for per share data)
First Second Third Fourth Fiscal Year - -------------------------------------------------------------------------------------------------------------------- Fiscal 1996 - -------------------------------------------------------------------------------------------------------------------- Net sales $ 651,505 $ 705,358 $ 717,976 $ 739,429 $ 2,814,268 - -------------------------------------------------------------------------------------------------------------------- Gross profit $ 148,685 158,266 145,801 149,871 602,623 - -------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 13,661 16,012 6,727 (86,088)(a) (49,688)(a) - -------------------------------------------------------------------------------------------------------------------- Per common share data: - -------------------------------------------------------------------------------------------------------------------- Net income (loss) $ .34 .40 .17 (2.15)(a) (1.24)(a) - -------------------------------------------------------------------------------------------------------------------- Stock price range - - -------------------------------------------------------------------------------------------------------------------- High $ 29 1/4 28 3/4 29 3/4 26 5/8 29 3/4 - -------------------------------------------------------------------------------------------------------------------- Low $ 26 5/8 26 1/4 25 5/8 22 1/4 22 1/4 - -------------------------------------------------------------------------------------------------------------------- Dividend rate (cents) 18.0 18.0 18.0 18.0 72.0 - -------------------------------------------------------------------------------------------------------------------- Fiscal 1995 - -------------------------------------------------------------------------------------------------------------------- Net sales $ 614,283 $ 662,848 $ 665,895 $ 687,156 $ 2,630,182 - -------------------------------------------------------------------------------------------------------------------- Gross profit $ 141,410 157,969 154,794 170,910 625,083 - -------------------------------------------------------------------------------------------------------------------- Net income $ 16,960 20,026 17,176 25,897 80,059 - -------------------------------------------------------------------------------------------------------------------- Per common share data: - -------------------------------------------------------------------------------------------------------------------- Net income $ .43 .50 .43 .65 2.01 - -------------------------------------------------------------------------------------------------------------------- Stock price range - - -------------------------------------------------------------------------------------------------------------------- High $ 31 7/8 32 3/4 30 3/4 31 5/8 32 3/4 - -------------------------------------------------------------------------------------------------------------------- Low $ 25 1/4 27 1/4 28 1/8 27 1/4 25 1/4 - -------------------------------------------------------------------------------------------------------------------- Dividend rate (cents) 17.0 17.0 17.0 17.0 68.0 - --------------------------------------------------------------------------------------------------------------------
(a) 1996 includes an after-tax charge of $97,720 ($2.44 per share) related to the adoption of a plan to reduce costs, rationalize production capacity and provide for severance and environmental costs. The Company's common stock is traded on the New York Stock Exchange under the ticker symbol: DF. REPORT OF INDEPENDENT ACCOUNTANTS PRICE WATERHOUSE LLP [LOGO] 200 East Randolph Drive Chicago, IL 60601 TO THE BOARD OF DIRECTORS AND SHAREHOLDERS DEAN FOODS COMPANY In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Dean Foods Company and subsidiaries at May 26, 1996 and May 28, 1995, and the results of their operations and their cash flows for each of the three years in the period ended May 26, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP June 25, 1996, except as to the second sentence of Note 13, which is as of July 10, 1996 thirty eight 40 SUMMARY OF OPERATIONS DEAN FOODS COMPANY AND SUBSIDIARIES
(In thousands, except for items marked with an *) - -------------------------------------------------------------------------------------------------------------- Fiscal Year Ended May, 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------- Operating Data: - -------------------------------------------------------------------------------------------------------------- Net sales $2,814,268 2,630,182 2,431,203 2,274,340 2,289,441 - -------------------------------------------------------------------------------------------------------------- Costs of products sold and all operating expenses $2,856,698 (a) 2,473,079 2,298,147 2,145,687 2,169,886(c) - -------------------------------------------------------------------------------------------------------------- Operating earnings (loss) $ (42,430)(a) 157,103 133,056 128,653 119,555(c) - -------------------------------------------------------------------------------------------------------------- Interest expense $ 28,349 22,397 15,471 14,888 15,551 - -------------------------------------------------------------------------------------------------------------- Income (loss) before taxes $ (69,395)(a) 136,388 118,313 114,759 105,527(c) - -------------------------------------------------------------------------------------------------------------- Provision (benefit) for income taxes $ (19,707) 56,329 47,551 46,350 43,511 - -------------------------------------------------------------------------------------------------------------- Net income (loss) $ (49,688)(a) 80,059 71,941(b) 68,409 62,016(c) - -------------------------------------------------------------------------------------------------------------- Depreciation on properties $ 70,220 65,056 58,549 51,815 48,348 - -------------------------------------------------------------------------------------------------------------- Capital expenditures $ 89,799 83,280 80,977 74,803 77,867 - -------------------------------------------------------------------------------------------------------------- Number of employees* 11,500 11,800 12,100 10,500 10,100 - -------------------------------------------------------------------------------------------------------------- Balance Sheet Data: - -------------------------------------------------------------------------------------------------------------- Working capital $ 185,942 215,012 92,915 198,393 183,577 - -------------------------------------------------------------------------------------------------------------- Total assets $1,222,240 1,202,426 1,109,154 892,836 857,152 - -------------------------------------------------------------------------------------------------------------- Net plant and equipment $ 525,667 570,145 543,211 443,764 415,791 - -------------------------------------------------------------------------------------------------------------- Long-term obligations $ 221,653 224,679 136,150 151,127 155,478 - -------------------------------------------------------------------------------------------------------------- Shareholders' equity $ 507,692 584,526 524,774 476,319 430,443 - -------------------------------------------------------------------------------------------------------------- Common Stock Data: - -------------------------------------------------------------------------------------------------------------- Net income (loss) per share* $ (1.24)(a) 2.01 1.81(b) 1.73 1.53(c) - -------------------------------------------------------------------------------------------------------------- Cash dividends per share* $ .72 .68 .64 .60 .56 - -------------------------------------------------------------------------------------------------------------- Book value per share* $ 12.65 14.58 13.19 12.00 10.87 - -------------------------------------------------------------------------------------------------------------- Number of shareholders* 9,481 9,989 8,936 8,654 8,929 - -------------------------------------------------------------------------------------------------------------- (In thousands, except for items marked with an *) - -------------------------------------------------------------------------------------------------------------- Fiscal Year Ended May, 1991 1990 1989 1988 1987 - -------------------------------------------------------------------------------------------------------------- Operating Data: - -------------------------------------------------------------------------------------------------------------- Net sales 2,157,997 1,987,517 1,683,578 1,551,832 1,434,600 - -------------------------------------------------------------------------------------------------------------- Costs of products sold and all operating expenses 2,018,374 1,875,149 1,576,512 1,471,261 1,348,118 - -------------------------------------------------------------------------------------------------------------- Operating earnings (loss) 139,623 112,368 107,066 80,571 86,482 - -------------------------------------------------------------------------------------------------------------- Interest expense 16,780 12,682 7,646 6,149 5,814 - -------------------------------------------------------------------------------------------------------------- Income (loss) before taxes 124,340 102,066 101,793(d) 76,542(e) 82,794 - -------------------------------------------------------------------------------------------------------------- Provision (benefit) for income taxes 51,807 40,834 41,360 33,787 41,727 - -------------------------------------------------------------------------------------------------------------- Net income (loss) 72,533 61,232 60,433(d) 42,755(e) 41,067 - -------------------------------------------------------------------------------------------------------------- Depreciation on properties 44,465 37,338 31,046 29,028 25,559 - -------------------------------------------------------------------------------------------------------------- Capital expenditures 72,844 68,196 55,917 39,258 41,618 - -------------------------------------------------------------------------------------------------------------- Number of employees* 9,600 8,900 7,500 7,100 6,900 - -------------------------------------------------------------------------------------------------------------- Balance Sheet Data: - -------------------------------------------------------------------------------------------------------------- Working capital 198,429 182,852 156,469 130,355 114,819 - -------------------------------------------------------------------------------------------------------------- Total assets 816,999 744,759 586,702 499,150 450,116 - -------------------------------------------------------------------------------------------------------------- Net plant and equipment 375,930 337,068 253,972 211,711 194,878 - -------------------------------------------------------------------------------------------------------------- Long-term obligations 149,980 146,622 84,162 48,884 47,024 - -------------------------------------------------------------------------------------------------------------- Shareholders' equity 416,560 362,760 293,249 265,739 236,417 - -------------------------------------------------------------------------------------------------------------- Common Stock Data: - -------------------------------------------------------------------------------------------------------------- Net income (loss) per share* 1.79 1.53 1.52(d) 1.07(e) 1.03 - -------------------------------------------------------------------------------------------------------------- Cash dividends per share* .49 .44 .40 .36 .32 - -------------------------------------------------------------------------------------------------------------- Book value per share* 10.23 8.93 7.43 6.60 5.89 - -------------------------------------------------------------------------------------------------------------- Number of shareholders* 8,380 8,005 8,290 8,671 8,357 - --------------------------------------------------------------------------------------------------------------
(a) 1996 includes a pre-tax charge of $150,000 ($97,720 after-tax or $2.44 per share) related to the adoption of a plan to reduce costs, rationalize production capacity and provide for severance and environmental costs. (b) 1994 includes an after-tax net gain of $1,179 ($.03 per share) related to changes in accounting principles. (c) 1992 includes a charge against operations of $9,100 related to the termination of the Company's refrigerated truckload transportation business ($5,685 after taxes, or $.14 per share). (d) 1989 includes a net gain of $10,132 for unusual items ($5,442 after taxes, or $.14 per share). (e) 1988 includes a net charge against operations of $11,606 for unusual items ($9,686 after taxes, or $.24 per share). thirty nine 41 DIRECTORS DEAN FOODS COMPANY AND SUBSIDIARIES HOWARD M. DEAN - Chairman of the Board and Chief Executive Officer THOMAS L. ROSE - @ President and Chief Operating Officer EDWARD A. BRENNAN * Retired Chairman and Chief Executive Officer, Sears, Roebuck & Co., a merchandising company. LEWIS M. COLLENS * # President, Illinois Institute of Technology, and Chairman and Chief Executive Officer, IIT Research Institute PAULA H. CROWN * + Vice President of Henry Crown and Company, a private investment firm. JOHN P. FRAZEE, JR. * + Retired Chairman and Chief Executive Officer, Centel Corporation, a leader in local exchange telephone and cellular communications services. BERT A. GETZ # @ + Chairman, President and Director, Globe Corporation, a diversified investment firm. JOHN S. LLEWELLYN, JR. # + President and Chief Executive Officer, Ocean Spray Cranberries, Inc., a marketing cooperative of cranberry and citrus growers. RICHARD P. MAYER # Retired Chairman and Chief Executive Officer, Kraft General Foods North America, a diversified food company. ANDREW J. MCKENNA - # + Chairman and Chief Executive Officer, Schwarz Paper Company, a national distributor and converter of paper products and specialty printer. THOMAS A. RAVENCROFT @ Senior Vice President and President, Dairy Division ALEXANDER J. VOGL - * # Chairman and Chief Executive Officer, Wilton Corporation, a diversified manufacturer of industrial products. - Executive Committee * Audit Committee # Compensation Committee @ Pension Committee + Nominating Committee OFFICERS DEAN FOODS COMPANY AND SUBSIDIARIES HOWARD M. DEAN Chairman of the Board and Chief Executive Officer THOMAS L. ROSE President and Chief Operating Officer ERIC A. BLANCHARD Vice President, Secretary and General Counsel JENNY L. CARPENTER Vice President, Sales and Marketing - Specialty Food Products GARY A. CORBETT Vice President, Governmental and Dairy Industry Relations GARY D. FLICKINGER Vice President, Production DANIEL E. GREEN Group Vice President, Specialty Dairy Division JAMES R. GREISINGER Group Vice President and President of Dean Pickle and Specialty Products Company DALE I. HECOX Treasurer CHARLES D. KINSER Vice President, Engineering RODNEY T. LIDDLE Vice President, Strategic Planning WILLIAM R. MCMANAMAN Vice President, Finance and Chief Financial Officer GEORGE A. MUCK Vice President, Research and Development DOUGLAS A. PARR Vice President, Dairy Sales and Marketing DENNIS J. PURCELL Corporate Group Vice President ROGER A. RAGLAND Group Vice President - International THOMAS A. RAVENCROFT Senior Vice President and President, Dairy Division JEFFREY P. SHAW Group Vice President and President of Dean Foods Vegetable Company forty 42 Design: BAGBY and COMPANY INC. Chicago Printing: Lake County Press CORPORATE DATA DEAN FOODS COMPANY AND SUBSIDIARIES FORM 10-K Single copies of the Company's 1996 Annual Report on Securities and Exchange Commission Form 10-K without exhibits will be provided without charge to shareholders upon written request directed to the Secretary, Dean Foods Company, 3600 N. River Road, Franklin Park, Illinois 60131. DIVIDEND REINVESTMENT SERVICE A service for Dean shareholders is available through the Harris Trust and Savings Bank, whereby dividends can be automatically reinvested in Company Common Stock. The plan also provides for a voluntary cash payment option for the purchase of additional stock and safekeeping of shares. If interested in this service, please write to the bank and request a copy of Dean's dividend reinvestment brochure: Harris Trust and Savings Bank, Dividend Reinvestment Service, P. O. Box A3309, Chicago, Illinois 60690. DUPLICATE MAILINGS When shares owned by one shareholder are held in different forms of the same name Jane R. Doe, J. R. Doe and J. Rose Doe, duplicate mailing of shareholder information results. The Company mails to each name on the shareholder list unless the shareholder requests that duplicate mailings be eliminated. Shareholders that receive duplicate reports can help eliminate the added expense by requesting that only one copy be sent. Send the labels or label information to our transfer agent, Harris Trust and Savings Bank, indicating the name to keep on the list and the names to be deleted. This change will not affect dividend or proxy mailings. FINANCIAL INFORMATION & INVESTOR RELATIONS INQUIRIES The Company maintains a direct mailing list to ensure that shareholders with stock held in broker nominee accounts "street name" and other interested parties receive information on a timely basis. To be added to this list, or to request financial information, please direct requests to the Director of Corporate Communications, Dean Foods Company, 3600 N. River Road, Franklin Park, Illinois 60131. TRANSFER AGENT AND REGISTRAR For inquiries regarding change of address, stock transfer, registered shareholdings, dividends and lost certificates, please contact: Harris Trust and Savings Bank,111 West Monroe Street, Chicago, Illinois 60690 312/461-3309 STOCK EXCHANGE New York Stock Exchange Ticker Symbol: DF ANNUAL MEETING 10:00 A.M., October 1, 1996 Drury Lane Oak Brook Terrace 100 Drury Lane Oak Brook Terrace, Illinois 60181 (Location map appears in Proxy Statement.) CORPORATE OFFICE 3600 N. River Road Franklin Park, Illinois 60131 (847) 678-1680 (312) 625-6200 Dairy Ease is a registered trademark of Sterling Winthrop, Inc. Guilt Free is a registered trademark of Yarnell's Ice Cream Co., Inc. Nestle Quik and Carnation Coffeemate are registered trademarks of Nestle Food Company. 43 DEAN FOODS COMPANY, 3600 NORTH RIVER ROAD, FRANKLIN PARK, ILLINOIS 60131 EX-21.(A) 6 LIST OF SUBSIDIARIES 1 Exhibit 21(a) SUBSIDIARIES OF THE REGISTRANT AS OF MAY 26, 1996 Jurisdiction In Which Organized --------------- Bell Dairy Products, Inc. Texas Birds Eye de Mexico, S.A. de C.V. Mexico Bowman Dairy Company, Inc. Delaware Cream o'Weber Dairy, Inc. Utah Creamland Dairies, Inc. New Mexico Dean Dairy Products Company Pennsylvania Dean Foods Vegetable Company Wisconsin Dean Milk Company, Inc. Kentucky DFC Transportation Company Delaware E.B.I. Foods, Ltd. United Kingdom Elgin Blenders, Inc. Illinois Gandy's Dairies, Inc. Texas Dean Pickle and Specialty Products Company Wisconsin Liberty Dairy Company Michigan LongLife Dairy Products Company, Inc. Florida McArthur Dairy, Inc. Florida Mayfield Dairy Farms, Inc. Tennessee Meadow Brook Dairy Company Pennsylvania Ready Foods Products, Inc. Pennsylvania Reiter Dairy, Inc. Ohio Ryan Milk Company, Inc. Kentucky STDI, Inc. U.S. Virgin Islands T.G. Lee Foods, Inc. Florida Verifine Dairy Products Corporation Wisconsin W.B. Roddenbery Co., Inc. Georgia The names of all other subsidiaries have been omitted from the above list because, when considered in the aggregate as a single subsidiary, they would not constitute a material subsidiary. 81 EX-23.(A) 7 CONSENT OF PRICE WATERHOUSE L.L.P. 1 Exhibit 23(a) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Forms S-8 (Nos. 33-33775 and 33-33776 and Form S-8 filed July 25, 1996) and Form S-3 (No. 33-57353) of Dean Foods Company of our report dated June 25, 1996, except as to the second sentence of Note 13, which is as of July 10, 1996, appearing on page 38 of the Dean Foods Company Annual Report to Shareholders for Fiscal Year Ended May 26, 1996, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page 16 of this Form 10-K. Price Waterhouse LLP August 23, 1996 82 EX-27 8 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S ANNUAL REPORT ON FORM 10-K FOR THE ANNUAL PERIOD ENDED MAY 26, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS MAY-26-1996 MAY-26-1996 10,399 0 191,423 3,201 278,731 584,399 993,826 468,159 1,222,240 398,457 221,653 41,395 0 0 466,297 1,222,240 2,814,268 2,814,268 2,211,645 2,211,645 643,053 2,000 28,349 (69,395) (19,707) (49,688) 0 0 0 (49,688) (1.24) (1.24)
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