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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q 
(Mark One)
ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2014
or
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period from              to             
Commission File Number 001-12755 
 
Dean Foods Company
(Exact name of the registrant as specified in its charter)
 
Delaware
 
75-2559681
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer
identification no.)
2711 North Haskell Avenue, Suite 3400
Dallas, Texas 75204
(214) 303-3400
(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices) 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer)”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer
ý
 
 
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
 
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes  ¨    No  ý
As of August 4, 2014, the number of shares of the registrant's common stock outstanding was: 93,773,362.
Common Stock, par value $.01



Table of Contents
 


2


Part I — Financial Information
Item 1. Condensed Consolidated Financial Statements
DEAN FOODS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
 
June 30, 2014
 
December 31, 2013
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
59,764

 
$
16,762

Receivables, net allowances of $12,842 and $12,083
718,921

 
752,234

Income tax receivable
79,881

 
15,915

Inventories
269,803

 
262,858

Deferred income taxes
43,483

 
60,143

Prepaid expenses and other current assets
40,150

 
42,786

Total current assets
1,212,002

 
1,150,698

Property, plant and equipment, net
1,183,854

 
1,216,047

Goodwill
86,841

 
86,841

Identifiable intangible and other assets, net
295,965

 
312,836

Deferred income taxes
24,660

 
35,623

Total
$
2,803,322

 
$
2,802,045

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
738,173

 
$
761,288

Current portion of debt
698

 
698

Current portion of litigation settlements
18,605

 
19,101

Total current liabilities
757,476

 
781,087

Long-term debt
985,641

 
896,564

Deferred income taxes
126,615

 
100,691

Other long-term liabilities
242,069

 
273,314

Long-term litigation settlements
16,519

 
36,074

Commitments and contingencies (Note 12)

 

Stockholders’ equity:
 
 
 
Preferred stock, none issued

 

Common stock, 93,756,901 and 94,831,377 shares issued and outstanding, with a par value of $0.01 per share
938

 
948

Additional paid-in capital
759,621

 
791,276

Accumulated deficit
(30,320
)
 
(20,719
)
Accumulated other comprehensive loss
(55,237
)
 
(57,190
)
Total stockholders’ equity
675,002

 
714,315

Total
$
2,803,322

 
$
2,802,045


See Notes to Condensed Consolidated Financial Statements.


3


DEAN FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share data)
 
Three Months Ended 
 June 30
 
Six Months Ended 
 June 30
 
2014
 
2013
 
2014
 
2013
Net sales
$
2,393,869

 
$
2,227,542

 
$
4,734,909

 
$
4,519,972

Cost of sales
1,994,781

 
1,755,242

 
3,919,646

 
3,552,440

Gross profit
399,088

 
472,300

 
815,263

 
967,532

Operating costs and expenses:
 
 
 
 
 
 
 
Selling and distribution
334,932

 
331,678

 
674,311

 
671,675

General and administrative
70,777

 
86,388

 
143,076

 
171,352

Amortization of intangibles
717

 
925

 
1,461

 
1,875

Facility closing and reorganization costs
728

 
4,939

 
1,705

 
10,549

Litigation settlements

 
(1,019
)
 
(2,521
)
 
(1,019
)
Impairment of long-lived assets

 
3,604

 

 
37,519

Other operating (income) loss
(4,535
)
 
2,209

 
(4,535
)
 
2,209

Total operating costs and expenses
402,619

 
428,724

 
813,497

 
894,160

Operating income (loss)
(3,531
)
 
43,576

 
1,766

 
73,372

Other (income) expense:
 
 
 
 
 
 
 
Interest expense
15,221

 
90,122

 
30,244

 
149,771

Other (income) expense, net
48

 
(528
)
 
(273
)
 
(363
)
Total other expense
15,269

 
89,594

 
29,971

 
149,408

Loss from continuing operations before income taxes
(18,800
)
 
(46,018
)
 
(28,205
)
 
(76,036
)
Income tax benefit
(17,837
)
 
(13,961
)
 
(17,450
)
 
(23,239
)
Loss from continuing operations
(963
)
 
(32,057
)
 
(10,755
)
 
(52,797
)
Income (loss) from discontinued operations, net of tax

 
(21,761
)
 

 
2,891

Gain (loss) on sale of discontinued operations, net of tax
318

 
(65
)
 
1,154

 
491,820

Net income (loss)
(645
)
 
(53,883
)
 
(9,601
)
 
441,914

Net loss attributable to non-controlling interest in discontinued operations

 
(2,987
)
 

 
(6,179
)
Net income (loss) attributable to Dean Foods Company
$
(645
)
 
$
(56,870
)
 
$
(9,601
)
 
$
435,735

Average common shares (1):
 
 
 
 
 
 
 
Basic
93,561,305

 
93,417,417

 
93,977,672

 
93,215,130

Diluted
93,561,305

 
93,417,417

 
93,977,672

 
93,215,130

Basic earnings (loss) per common share (1):
 
 
 
 
 
 
 
Loss from continuing operations
$
(0.01
)
 
$
(0.34
)
 
$
(0.11
)
 
$
(0.57
)
Income (loss) from discontinued operations attributable to Dean Foods Company

 
(0.27
)
 
0.01

 
5.24

Net income (loss) attributable to Dean Foods Company
$
(0.01
)
 
$
(0.61
)
 
$
(0.10
)
 
$
4.67

Diluted earnings (loss) per common share (1):
 
 
 
 
 
 
 
Loss from continuing operations
$
(0.01
)
 
$
(0.34
)
 
$
(0.11
)
 
$
(0.57
)
Income (loss) from discontinued operations attributable to Dean Foods Company

 
(0.27
)
 
0.01

 
5.24

Net income (loss) attributable to Dean Foods Company
$
(0.01
)
 
$
(0.61
)
 
$
(0.10
)
 
$
4.67

Cash dividends declared per common share
$
0.07

 
$

 
$
0.14

 
$


(1)
For the periods ended June 30, 2013, basic and diluted earnings (loss) per common share and average basic and diluted shares outstanding have been adjusted retroactively to reflect a 1-for-2 reverse stock split effected August 26, 2013.
See Notes to Condensed Consolidated Financial Statements.

4


DEAN FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
 
Three Months Ended 
 June 30
 
Six Months Ended 
 June 30
 
2014
 
2013
 
2014
 
2013
Net income (loss)
$
(645
)
 
$
(53,883
)
 
$
(9,601
)
 
$
441,914

Other comprehensive income (loss):
 
 
 
 
 
 
 
Cumulative translation adjustments
166

 
4,533

 
721

 
(10,517
)
Net change in fair value of derivative instruments, net of tax
(69
)
 
37,697

 
(85
)
 
58,156

Net pension and other postretirement liability adjustment, net of tax
832

 
2,088

 
1,537

 
4,939

Unrealized gain on available-for-sale securities

 
385,552

 

 
385,552

Reclassification to income statement related to de-designation of cash flow hedges

 

 
(220
)
 

Other comprehensive income
929

 
429,870

 
1,953

 
438,130

Comprehensive income (loss)
284

 
375,987

 
(7,648
)
 
880,044

Comprehensive income attributable to non-controlling interest

 
3,649

 

 
4,795

Comprehensive income (loss) attributable to Dean Foods Company
$
284

 
$
372,338

 
$
(7,648
)
 
$
875,249


See Notes to Condensed Consolidated Financial Statements.

5


DEAN FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands, except share data)
 
Common Stock
 
 
 
Retained Earnings
(Accumulated
Deficit)
 
Accumulated Other
Comprehensive
Income (Loss)
 
Total
Stockholders’
Equity 
 
Shares
 
Amount
 
Additional
Paid-In Capital
 
 
 
Balance, December 31, 2013
94,831,377

 
$
948

 
$
791,276

 
$
(20,719
)
 
$
(57,190
)
 
$
714,315

Issuance of common stock, net of tax impact of share-based compensation
652,799

 
7

 
4,170

 

 

 
4,177

Share-based compensation expense

 

 
2,247

 

 

 
2,247

Repurchase of common stock
(1,727,275
)
 
(17
)
 
(24,983
)
 

 

 
(25,000
)
Cash dividends paid
 
 
 
 
(13,089
)
 

 

 
(13,089
)
Net loss

 

 

 
(9,601
)
 

 
(9,601
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Change in fair value of derivative instruments, net of tax benefit of $21

 

 

 

 
(85
)
 
(85
)
Amounts reclassified to income statement related to de-designation of cash flow hedges, net of tax benefit of $139

 

 

 

 
(220
)
 
(220
)
Cumulative translation adjustment

 

 

 

 
721

 
721

Pension and other postretirement benefit liability adjustment, net of tax of $1,531

 

 

 

 
1,537

 
1,537

Balance, June 30, 2014
93,756,901

 
$
938

 
$
759,621

 
$
(30,320
)
 
$
(55,237
)
 
$
675,002

 

See Notes to Condensed Consolidated Financial Statements.

6


DEAN FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands, except share data)
 
Dean Foods Company Stockholders
 
 
 
 
 
Common Stock(1)
 
 
 
Retained
 
Accumulated
 
Non-
controlling
Interest
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
Additional
Paid-In Capital(1)
 
Earnings
(Accumulated
Deficit)
 
Other
Comprehensive
Income (Loss)
 
Balance, December 31, 2012
92,781,767

 
$
928

 
$
1,376,740

 
$
(833,897
)
 
$
(186,584
)
 
$
102,441

 
$
459,628

Issuance of common stock, net of tax impact of share-based compensation
992,542

 
10

 
4,587

 

 

 

 
4,597

Share-based compensation expense

 

 
8,541

 

 

 

 
8,541

Share-based compensation expense for subsidiary shares

 

 

 

 

 
7,733

 
7,733

Net income attributable to non-controlling interest

 

 

 

 

 
6,179

 
6,179

Net income attributable to Dean Foods Company

 

 

 
435,735

 

 

 
435,735

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in fair value of derivative instruments, net of tax benefit of $41

 

 

 

 
(154
)
 
10

 
(144
)
Amounts reclassified to income statement related to hedging activities, net of tax of $36,710

 

 

 

 
58,300

 

 
58,300

Cumulative translation adjustment

 

 

 

 
(9,119
)
 
(1,398
)
 
(10,517
)
Pension and other postretirement benefit liability adjustment, net of tax of $2,807

 

 

 

 
4,935

 
4

 
4,939

Unrealized gain on available-for-sale securities

 

 

 

 
385,552

 

 
385,552

Spin-Off of The WhiteWave Foods Company

 

 
(617,082
)
 

 
33,025

 
(114,969
)
 
(699,026
)
Balance, June 30, 2013
93,774,309

 
$
938

 
$
772,786

 
$
(398,162
)
 
$
285,955

 
$

 
$
661,517

 
(1)
Common Stock and Additional Paid-In Capital at December 31, 2012 and June 30, 2013 have been adjusted retroactively to reflect a 1-for-2 reverse stock split effected August 26, 2013.
See Notes to Condensed Consolidated Financial Statements.


7


DEAN FOODS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
Six Months Ended 
 June 30
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(9,601
)
 
$
441,914

Income from discontinued operations, net of tax

 
(2,891
)
Gain on sale of discontinued operations, net of tax
(1,154
)
 
(491,820
)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
 
 
 
Depreciation and amortization
81,694

 
89,387

Share-based compensation expense
5,250

 
13,594

Gain on divestitures and other, net
(6,420
)
 
(1,021
)
Impairment of long-lived assets

 
37,519

Write-off of financing costs

 
1,426

Recognition of accumulated losses from de-designated cash flow hedges

 
63,454

Deferred income taxes
51,197

 
(17,001
)
Litigation settlement adjustment
(2,521
)
 

Other, net
1,834

 
285

Changes in operating assets and liabilities:
 
 
 
Receivables, net
32,633

 
41,829

Inventories
(6,778
)
 
(11,427
)
Prepaid expenses and other assets
13,402

 
(1,950
)
Accounts payable and accrued expenses
(51,259
)
 
(152,193
)
Termination of interest rate swap liability

 
(28,147
)
Income tax receivable/payable
(64,404
)
 
(208,964
)
Long-term litigation settlements
(18,605
)
 
(19,082
)
Net cash provided by (used in) operating activities-continuing operations
25,268

 
(245,088
)
Net cash provided by operating activities-discontinued operations

 
14,174

Net cash provided by (used in) operating activities
25,268

 
(230,914
)
Cash flows from investing activities:
 
 
 
Payments for property, plant and equipment
(53,622
)
 
(48,992
)
Proceeds from sale of fixed assets
17,556

 
4,271

Net cash used in investing activities-continuing operations
(36,066
)
 
(44,721
)
Net cash provided by investing activities-discontinued operations

 
1,403,494

Net cash provided by (used in) investing activities
(36,066
)
 
1,358,773

Cash flows from financing activities:
 
 
 
Repayments of debt
(329
)
 
(1,027,196
)
Proceeds from senior secured revolver
1,317,194

 
510,750

Payments for senior secured revolver
(1,315,935
)
 
(658,750
)
Proceeds from receivables-backed facility
1,281,000

 
388,000

Payments for receivables-backed facility
(1,194,000
)
 
(296,000
)
Common stock repurchase
(25,000
)
 

Cash dividends paid
(13,089
)
 

Payments of financing costs
(1,107
)
 
(575
)
Issuance of common stock, net of share repurchases for withholding taxes
4,953

 
8,785

Tax savings on share-based compensation
284

 
172

Net cash provided by (used in) financing activities-continuing operations
53,971

 
(1,074,814
)
Net cash used in financing activities-discontinued operations

 
(51,584
)
Net cash provided by (used in) financing activities
53,971

 
(1,126,398
)
Effect of exchange rate changes on cash and cash equivalents
(171
)
 
(155
)
Increase in cash and cash equivalents
43,002

 
1,306

Cash and cash equivalents, beginning of period
16,762

 
24,657

Cash and cash equivalents, end of period
$
59,764

 
$
25,963

See Notes to Condensed Consolidated Financial Statements.

8


DEAN FOODS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Six Months Ended June 30, 2014 and 2013
(Unaudited)
1. General
Nature of Our Business — We are a leading food and beverage company and the largest processor and direct-to-store distributor of milk and other dairy and dairy case products in the United States. We have aligned our leadership teams, operating strategies and supply chain initiatives under a single operating and reportable segment. We process and distribute fluid milk and other dairy products, including ice cream, ice cream mix and cultured products, which are marketed under more than 50 local and regional dairy brands and a wide array of private labels. We also produce and distribute TruMoo®, which is our nationally branded, reformulated flavored milk, as well as juices, teas, bottled water and other products.
Basis of Presentation — The unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q have been prepared on the same basis as the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Annual Report on Form 10-K”), which we filed with the Securities and Exchange Commission on February 24, 2014. In our opinion, we have made all necessary adjustments (which include only normal recurring adjustments) to present fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted. Our results of operations for the three and six month period ended June 30, 2014 may not be indicative of our operating results for the full year. The unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements contained in our 2013 Annual Report on Form 10-K.
In August 2013, we effected a 1-for-2 reverse stock split of our issued common stock. Each stockholder’s percentage ownership and proportional voting power remained unchanged as a result of the reverse stock split. All applicable share data, per share amounts and related information in the unaudited Condensed Consolidated Financial Statements and notes thereto have been adjusted retroactively to give effect to the 1-for-2 reverse stock split.
Unless otherwise indicated, references in this report to “we,” “us” or “our” refer to Dean Foods Company and its subsidiaries, taken as a whole.
Recently Issued Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board ("FASB") issued FASB Accounting Standards Update ("ASU") No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. We are required to adopt the standard prospectively for new disposals and new classifications of disposal groups as held for sale beginning the first quarter of 2015. We do not expect the adoption of this standard to have a material impact on our financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. We are currently evaluating the effect that the adoption of this standard will have on our financial statements.
In June 2014, the FASB issued ASU No. 2014-12, Compensation — Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The amendments in this update require that a performance target that affects vesting and that could be achieved after the requisite service period should be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. ASU 2014-12 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. We are currently evaluating the effect that the adoption of this standard will have on our financial statements.

9


2. Discontinued Operations
WhiteWave and Morningstar
We separated The WhiteWave Foods Company ("WhiteWave") from the Company in a series of three transactions: an initial public offering for 13.3% of the WhiteWave common stock in the fourth quarter of 2012; a tax-free spin-off of 66.8% of the WhiteWave common stock in the second quarter of 2013; and a tax-free debt-for-equity exchange of 19.9% of the WhiteWave common stock in the third quarter of 2013. Refer to our 2013 Annual Report on Form 10-K for more information about the WhiteWave separation. While we are a party to a separation and distribution agreement and various other agreements relating to the separation, including a transitional services agreement, an amended and restated tax matters agreement, an employee matters agreement and certain other commercial agreements, we have determined that the continuing cash flows generated by these agreements (which are not expected to extend beyond December 2014) did not constitute significant continuing involvement in the operations of WhiteWave. Accordingly, the net assets, operating results and cash flows of WhiteWave have been separately reflected as discontinued operations for the three and six months ended June 30, 2013. WhiteWave is a stand-alone public company which separately reports its financial results.
In January 2013, we completed the sale of Morningstar Foods ("Morningstar") to a third party for net proceeds of approximately $1.45 billion. During the six months ended June 30, 2013, we recorded a gain of $871.3 million ($492.1 million, net of tax) on the sale of Morningstar in January of 2013. The operating results of Morningstar have been included in discontinued operations for the three and six months ended June 30, 2013.
The following is a summary of operating results and certain other directly attributable expenses, including interest expense, which are included in discontinued operations:
 
Three Months Ended June 30, 2013
 
Six Months Ended June 30, 2013
 
WhiteWave
 
Morningstar
 
Total
 
WhiteWave
 
Morningstar
 
Total
 
(In thousands)
Operations:
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
354,085

 
$

 
$
354,085

 
$
940,431

 
$
5,919

 
$
946,350

Income before income taxes
19,976

 
(500
)
 
19,476

 
57,126

 
109

 
57,235

Income tax
(41,431
)
 
194

 
(41,237
)
 
(54,306
)
 
(38
)
 
(54,344
)
Net income (loss)
$
(21,455
)
 
$
(306
)
 
$
(21,761
)
 
$
2,820

 
$
71

 
$
2,891

 
The following is a summary of directly attributable transaction expenses which are included in discontinued operations:
 
Three Months Ended June 30, 2013
 
Six Months Ended June 30, 2013
 
(In thousands)
WhiteWave
$
9,010

 
$
12,464

Morningstar
300

 
300

Total
$
9,310

 
$
12,764


There were no transaction expenses directly attributable to discontinued operations during the three and six months ended June 30, 2014.

Other
During the three and six months ended June 30, 2014, we recognized net gains of $0.3 million and $1.2 million, respectively, from various taxing authority settlements related to prior discontinued operations.

10


3. Inventories
Inventories, net of obsolescence reserves of $0.4 million and $0.8 million at June 30, 2014 and December 31, 2013, respectively, consisted of the following:
 
June 30, 2014
 
December 31, 2013
 
(In thousands)
Raw materials and supplies
$
104,843

 
$
103,023

Finished goods
164,960

 
159,835

Total
$
269,803

 
$
262,858

4. Goodwill and Intangible Assets
Upon completion of the WhiteWave separation, our remaining goodwill of $86.8 million is attributable to our ongoing dairy operations. There were no changes in our goodwill balance during the six months ended June 30, 2014.
The gross carrying amount and accumulated amortization of our intangible assets other than goodwill as of June 30, 2014 and December 31, 2013 are as follows:
 
June 30, 2014
 
December 31, 2013
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
(In thousands)
Intangible assets with indefinite lives:
 
 
 
 
 
 
 
 
 
 
 
Trademarks
$
221,681

 
$

 
$
221,681

 
$
221,681

 
$

 
$
221,681

Intangible assets with finite lives:
 
 
 
 
 
 
 
 
 
 
 
Customer-related and other
49,225

 
(29,864
)
 
19,361

 
49,225

 
(28,575
)
 
20,650

Trademarks
8,096

 
(5,175
)
 
2,921

 
8,096

 
(5,002
)
 
3,094

Total
$
279,002

 
$
(35,039
)
 
$
243,963

 
$
279,002

 
$
(33,577
)
 
$
245,425


Amortization expense on intangible assets for the three months ended June 30, 2014 and 2013 was $0.7 million and $0.9 million, respectively. Amortization expense on intangible assets for the six months ended June 30, 2014 and 2013 was $1.5 million and $1.9 million, respectively. Estimated aggregate intangible asset amortization expense for the next five years is as follows (in millions):
2014
$
2.9

2015
2.9

2016
2.8

2017
2.2

2018
2.0


11


5. Debt
Our outstanding debt as of June 30, 2014 and December 31, 2013 consisted of the following:
 
June 30, 2014
 
 
December 31, 2013
 
 
Amount
Outstanding
 
Interest
Rate
 
 
Amount
Outstanding
 
Interest
Rate
 
 
(In thousands, except percentages)
 
Dean Foods Company debt obligations:
 
 
 
 
 
 
 
 
 
Senior secured credit facility
$
51,510

 
1.66
%*
 
$
50,250

 
1.67
%*
Senior notes due 2016
475,697

 
7.00
 
 
475,579

 
7.00
 
Senior notes due 2018
23,812

 
9.75
 
 
23,812

 
9.75
 
 
551,019

 
 
 
 
549,641

 
 
 
Subsidiary debt obligations:
 
 
 
 
 
 
 
 
 
Senior notes due 2017
133,837

 
6.90
 
 
132,808

 
6.90
 
Receivables-backed facility
300,000

 
0.99
 
 
213,000

 
1.19
 
Capital lease and other
1,483

 
 
 
1,813

 
 
 
435,320

 
 
 
 
347,621

 
 
 
 
986,339

 
 
 
 
897,262

 
 
 
Less current portion
(698
)
 
 
 
 
(698
)
 
 
 
Total long-term portion
$
985,641

 
 
 
 
$
896,564

 
 
 

*    Represents a weighted average rate, including applicable interest rate margins, for the credit facility.

The scheduled maturities of long-term debt at June 30, 2014 were as follows (in thousands):
2014
$
329

2015
656

2016
476,686

2017
442,000

2018
75,322

Thereafter

Subtotal
994,993

Less discounts
(8,654
)
Total outstanding debt
$
986,339


Senior Secured Credit Facility — In July 2013, we executed a credit agreement pursuant to which the lenders provided us with a five-year senior secured revolving credit facility in the amount of up to $750 million. Under the agreement, we have the right to request an increase of the aggregate commitment under the credit facility by, and to request incremental term loans or increased revolver commitments of, up to $500 million without the consent of any lenders not participating in such increase, subject to specified conditions. The senior secured credit facility is available for the issuance of up to $200 million of letters of credit and up to $150 million of swing line loans. The facility will terminate in July 2018.
On June 12, 2014, we executed an amendment to the senior secured credit facility which modified the consolidated net leverage ratio covenant to permit a maximum consolidated net leverage ratio of 4.00x for each fiscal quarter ending on or prior to September 30, 2014, and 3.50x for each fiscal quarter ending thereafter; and increasing the amount of permitted restricted payments that may be made during any fiscal year, if any such restricted payment would cause our consolidated net leverage ratio to exceed 3.25x, to $30 million from $20 million. For 2014, our previously completed repurchases of common stock of approximately $25 million are excluded from the $30 million limitation.
In connection with the amendment, the Company paid certain fees of approximately $0.4 million to consenting lenders and other fees which were capitalized and will be amortized to interest expense over the remaining term of the facility.
Loans outstanding under the senior secured credit facility bear interest, at our election, at either the Adjusted LIBO Rate (as defined in the credit agreement) plus a margin of between 1.25% and 2.25% (2.00% as of June 30, 2014 ) based on the leverage ratio (as defined in the credit agreement), or the Alternate Base Rate (as defined in the credit agreement) plus a

12


margin of between 0.25% and 1.25% (1.00% as of June 30, 2014 ) based on the leverage ratio. We are permitted to make optional prepayments of the loans, in whole or in part, without premium or penalty (other than applicable LIBOR breakage costs). Subject to certain exceptions and conditions described in the credit agreement, we are obligated to prepay the credit facility, but without a corresponding commitment reduction, with the net cash proceeds of certain asset sales and with casualty insurance proceeds.
The senior secured credit facility is guaranteed by our existing and future domestic material restricted subsidiaries (as defined in the credit agreement), which are substantially all of our wholly-owned U.S. subsidiaries other than our receivables securitization subsidiaries. The facility is secured by a first priority perfected security interest in substantially all of our and our guarantors' personal property, whether consisting of tangible or intangible property, including a pledge of, and a perfected security interest in, (i) all of the shares of capital stock of the guarantors and (ii) 65% of the shares of our or any guarantor’s first-tier foreign subsidiaries which are material restricted subsidiaries, in each case subject to certain exceptions as set forth in the credit agreement. The collateral does not include any real property, the capital stock and any assets of any unrestricted subsidiary, or any capital stock of any direct or indirect subsidiary of our wholly-owned subsidiary Dean Holding Company ("Legacy Dean") which owns any real property.
The credit agreement governing the senior secured credit facility contains customary representations, warranties and covenants, including but not limited to specified restrictions on indebtedness, liens, guarantee obligations, mergers, acquisitions, consolidations, liquidations and dissolutions, sales of assets, leases, payment of dividends and other restricted payments, investments, loans and advances, transactions with affiliates and sale and leaseback transactions. The credit agreement also contains customary events of default and related cure provisions.
At June 30, 2014, there were outstanding borrowings of $51.5 million under the senior secured revolving credit facility. Our average daily balance under the senior secured revolving credit facility during the six months ended June 30, 2014 was $56.3 million. There were no letters of credit issued under the senior secured revolving credit facility as of June 30, 2014.
Dean Foods Receivables-Backed Facility — We have a $550 million receivables securitization facility pursuant to which certain of our subsidiaries sell their accounts receivable to two wholly-owned entities intended to be bankruptcy-remote. The entities then transfer the receivables to third-party asset-backed commercial paper conduits sponsored by major financial institutions. The assets and liabilities of these two entities are fully reflected in our unaudited Condensed Consolidated Balance Sheets, and the securitization is treated as a borrowing for accounting purposes. In June 2014, the receivables-backed facility was modified to, among other things, increase the amount available for the issuance of letters of credit from $300 million to $350 million and to extend the liquidity termination date from March 2015 to June 2017.
In connection with the modification, the Company paid certain fees of approximately $0.7 million to consenting lenders and other fees which were capitalized and will be amortized to interest expense over the remaining term of the facility.
Based on the monthly borrowing base formula, we had the ability to borrow up to $550 million of the total commitment amount under the receivables-backed facility as of June 30, 2014. The total amount of receivables sold to these entities as of June 30, 2014 was $660.8 million. During the first six months of 2014 we borrowed $1,281.0 million and repaid $1,194.0 million under the facility with a drawn balance of $300.0 million as of June 30, 2014. Excluding letters of credit in the aggregate amount of $212.3 million, the remaining available borrowing capacity was $37.7 million at June 30, 2014. Our average daily balance under this facility during the six months ended June 30, 2014 was $240.1 million. The receivables-backed facility bears interest at a variable rate based upon commercial paper and one-month LIBO rates plus an applicable margin.
Under the senior secured credit facility and the receivables-backed facility, we are required to comply with (a) a maximum consolidated net leverage ratio of 4.00 to 1.00 for each fiscal quarter ending on or prior to September 30, 2014; and 3.50 to 1.00 for each fiscal quarter ending thereafter; and (b) a minimum consolidated interest coverage ratio of 3.00 to 1.00, in each case, as defined under and calculated in accordance with the terms of the agreements governing our senior secured credit facility and our receivables-backed facility.
We are currently in compliance with all covenants under our credit agreements. On August 11, 2014, we announced our intention to further amend our senior secured credit facility and receivables-backed facility to, among other things, modify the consolidated net leverage ratio covenant to increase our maximum permitted consolidated net leverage ratio as follows: 5.25x for each fiscal quarter ending on or prior to December 31, 2014; 5.00x for each fiscal quarter ending on or prior to March 31, 2015; 4.50x for each fiscal quarter ending on or prior to June 30, 2015; and 4.00x for each fiscal quarter ending thereafter. Pursuant to the proposed amendments, we will also be required to maintain a senior secured net leverage ratio not to exceed 2.50x. Loans outstanding under the senior secured credit facility will bear interest, at our election, at either the Adjusted LIBO Rate (as defined in the credit agreement) plus a margin of between 1.25% and 2.75%, or the Alternate Base Rate (as defined in the credit agreement) plus a margin of between 0.25% and 1.75%, in each case based on our leverage ratio.

13


Based on our current leverage ratio, interest rate margins for borrowings under the senior secured credit facility would increase from 2.25% to 2.50% in the case of Adjusted LIBO Rate loans, and from 1.25% to 1.50% in the case of Alternate Base Rate loans. In addition, advances outstanding under our receivables-backed facility will bear interest between 0.35% and 0.50% based on our leverage ratio, and we will pay a facility fee between 0.45% and 0.60% based on our leverage ratio. Based on our current leverage ratio, interest rates for borrowings under the receivables-backed facility would increase from 0.35% to 0.45%, and the facility fee would increase from 0.45% to 0.55%. We expect these amendments to be entered into later this month, and we would pay customary consent fees and arrangement fees in connection with the amendments. Effectiveness of the amendments is conditioned on board approval, as well as other customary closing conditions.

Standby Letter of Credit — In February 2012, in connection with a litigation settlement agreement we entered into with the plaintiffs in the Tennessee dairy farmer actions, we issued a standby letter of credit in the amount of $80 million, representing the approximate subsequent payments due under the terms of the settlement agreement. The total amount of the letter of credit will decrease proportionately as we make each of the four installment payments. We made installment payments in June of 2014 and 2013. As of June 30, 2014, the letter of credit has been reduced to $37.7 million.
Dean Foods Company Senior Notes due 2018 — In December 2010, we issued $400 million aggregate principal amount of 9.75% senior unsecured notes in a private placement to qualified institutional buyers and in offshore transactions, and in August 2011, we exchanged $400 million of the senior notes for new notes that are registered under the Securities Act of 1933, as amended, and do not have restrictions on transfer, rights to special interest or registration rights. These notes are our senior unsecured obligations and mature in December 2018 with interest payable on June 15 and December 15 of each year. The indenture under which we issued the senior notes due 2018 does not contain financial covenants but does contain covenants that, among other things, limit our ability to incur certain indebtedness, enter into sale-leaseback transactions and engage in mergers, consolidations and sales of all or substantially all of our assets. During the fourth quarter of 2013, we retired $376.2 million principal amount of these notes pursuant to a cash tender offer. The carrying value of these notes on June 30, 2014 was $23.8 million.
Dean Foods Company Senior Notes due 2016 — In 2006, we issued $500 million aggregate principal amount of 7.0% senior unsecured notes. The senior unsecured notes mature in June 2016 and interest is payable on June 1 and December 1 of each year. The indenture under which we issued the senior notes due 2016 does not contain financial covenants but does contain covenants that, among other things, limit our ability to incur certain indebtedness, enter into sale-leaseback transactions and engage in mergers, consolidations and sales of all or substantially all of our assets. During the fourth quarter of 2013, we retired $23.8 million principal amount of these notes pursuant to a cash tender offer. The carrying value of these notes on June 30, 2014 was $475.7 million.
Subsidiary Senior Notes due 2017 — Legacy Dean had certain senior notes outstanding at the time of its acquisition, of which one series ($142 million aggregate principal amount) remains outstanding and matures in October 2017. The carrying value of these notes on June 30, 2014 was $133.8 million at 6.90% interest. The indenture governing the Legacy Dean senior notes does not contain financial covenants but does contain certain restrictions, including a prohibition against Legacy Dean and its subsidiaries granting liens on certain of their real property interests and a prohibition against Legacy Dean granting liens on the stock of its subsidiaries. The Legacy Dean senior notes are not guaranteed by Dean Foods Company or Legacy Dean’s wholly-owned subsidiaries.
See Note 6 for information regarding the fair value of the 2016 and 2018 senior notes and the subsidiary senior notes due 2017 as of June 30, 2014.
Capital Lease Obligations and Other — Capital lease obligations as of June 30, 2014 and December 31, 2013 were comprised of a lease for land and building related to one of our production facilities. See Note 12.
Guarantor Information — The 2016 and 2018 senior notes described above are our unsecured obligations and, except as described below, are fully and unconditionally, jointly and severally guaranteed by substantially all of our 100%-owned U.S. subsidiaries other than our receivables securitization subsidiaries. The following condensed consolidating financial statements present the financial position, results of operations and cash flows of Dean Foods Company (for purposes of this Note 5, “Parent”), the 100%-owned subsidiary guarantors of the senior notes and, separately, the combined results of the 100%-owned subsidiaries that are not a party to the guarantees. The 100%-owned non-guarantor subsidiaries reflect certain foreign and other operations, in addition to our receivables securitization subsidiaries.

14


Upon completion of the WhiteWave IPO, WhiteWave and its wholly-owned domestic subsidiaries were released from their obligations as guarantors for the 2016 and 2018 senior notes. Therefore, the activity and balances allocated to discontinued operations related to WhiteWave have been recast in the tables below for all periods presented to include WhiteWave and its subsidiaries in the non-guarantor column as these parties are no longer guarantors of the 2016 or 2018 senior notes.
 
Unaudited Condensed Consolidating Balance Sheet as of June 30, 2014
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Totals
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
40,695

 
$
7,675

 
$
11,394

 
$

 
$
59,764

Receivables, net
2,053

 
69,643

 
647,225

 

 
718,921

Income tax receivable
71,922

 
7,959

 

 

 
79,881

Inventories

 
269,803

 

 

 
269,803

Intercompany receivables

 
5,776,395

 

 
(5,776,395
)
 

Other current assets
(2,430
)
 
85,809

 
254

 

 
83,633

Total current assets
112,240

 
6,217,284

 
658,873

 
(5,776,395
)
 
1,212,002

Property, plant and equipment, net

 
1,183,812

 
42

 

 
1,183,854

Goodwill

 
86,841

 

 

 
86,841

Identifiable intangible and other assets, net
69,861

 
250,771

 
(7
)
 

 
320,625

Investment in subsidiaries
6,642,069

 
52,258

 

 
(6,694,327
)
 

Total
$
6,824,170

 
$
7,790,966

 
$
658,908

 
$
(12,470,722
)
 
$
2,803,322

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable and accrued expenses
$
38,853

 
$
699,095

 
$
122

 
$
103

 
$
738,173

Intercompany payables
5,470,194

 

 
306,304

 
(5,776,498
)
 

Current portion of debt

 
698

 

 

 
698

Current portion of litigation settlements
18,605

 

 

 

 
18,605

Total current liabilities
5,527,652

 
699,793

 
306,426

 
(5,776,395
)
 
757,476

Long-term debt
551,018

 
134,623

 
300,000

 

 
985,641

Other long-term liabilities
53,979

 
314,481

 
224

 

 
368,684

Long-term litigation settlements
16,519

 

 

 

 
16,519

Total stockholders’ equity
675,002

 
6,642,069

 
52,258

 
(6,694,327
)
 
675,002

Total
$
6,824,170

 
$
7,790,966

 
$
658,908

 
$
(12,470,722
)
 
$
2,803,322


15


 
Unaudited Condensed Consolidating Balance Sheet as of December 31, 2013
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Totals
 
(In thousands)
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
(12,289
)
 
$
17,433

 
$
11,618

 
$

 
$
16,762

Receivables, net
1,932

 
72,660

 
677,642

 

 
752,234

Income tax receivable
10,374

 
5,541

 

 

 
15,915

Inventories

 
262,858

 

 

 
262,858

Intercompany receivables

 
5,728,284

 
(1
)
 
(5,728,283
)
 

Other current assets
6,944

 
95,927

 
58

 

 
102,929

Total current assets
6,961

 
6,182,703

 
689,317

 
(5,728,283
)
 
1,150,698

Property, plant and equipment, net

 
1,215,888

 
159

 

 
1,216,047

Goodwill

 
86,841

 

 

 
86,841

Identifiable intangible and other assets, net
90,269

 
258,109

 
81

 

 
348,459

Investment in subsidiaries
6,633,000

 
72,345

 

 
(6,705,345
)
 

Total
$
6,730,230

 
$
7,815,886

 
$
689,557

 
$
(12,433,628
)
 
$
2,802,045

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable and accrued expenses
$
47,284

 
$
713,625

 
$
554

 
$
(175
)
 
$
761,288

Intercompany payables
5,304,051

 

 
424,057

 
(5,728,108
)
 

Current portion of debt

 
698

 

 

 
698

Current portion of litigation settlements
19,101

 

 

 

 
19,101

Total current liabilities
5,370,436

 
714,323

 
424,611

 
(5,728,283
)
 
781,087

Long-term debt
549,641

 
133,923

 
213,000

 

 
896,564

Other long-term liabilities
59,764

 
314,149

 
92

 

 
374,005

Long-term litigation settlements
36,074

 

 

 

 
36,074

Total stockholders’ equity
714,315

 
6,653,491

 
51,854

 
(6,705,345
)
 
714,315

Total
$
6,730,230

 
$
7,815,886

 
$
689,557

 
$
(12,433,628
)
 
$
2,802,045


16


 
Unaudited Condensed Consolidating Statement of Comprehensive Income for the Three Months Ended June 30, 2014
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Totals
 
(In thousands)
Net sales
$

 
$
2,389,910

 
$
3,959

 
$

 
$
2,393,869

Cost of sales

 
1,991,705

 
3,076

 

 
1,994,781

Gross profit

 
398,205

 
883

 

 
399,088

Selling and distribution

 
334,540

 
392

 

 
334,932

General and administrative
785

 
69,567

 
425

 

 
70,777

Amortization of intangibles

 
717

 

 

 
717

Facility closing and reorganization costs

 
728

 

 

 
728

Other operating income

 
(4,535
)
 

 

 
(4,535
)
Interest expense
11,206

 
3,058

 
957

 

 
15,221

Other (income) expense, net
(900
)
 
988

 
(40
)
 

 
48

Loss from continuing operations before income taxes and equity in earnings (loss) of subsidiaries
(11,091
)
 
(6,858
)
 
(851
)
 

 
(18,800
)
Income tax benefit
(4,404
)
 
(13,084
)
 
(349
)
 

 
(17,837
)
Income (loss) before equity in earnings (loss) of subsidiaries
(6,687
)
 
6,226

 
(502
)
 

 
(963
)
Equity in earnings (loss) of consolidated subsidiaries
6,039

 
(594
)
 

 
(5,445
)
 

Income (loss) from continuing operations
(648
)
 
5,632

 
(502
)
 
(5,445
)
 
(963
)
Gain (loss) on sale of discontinued operations, net of tax
2

 
(61
)
 
377

 

 
318

Net income (loss)
(646
)
 
5,571

 
(125
)
 
(5,445
)
 
(645
)
Other comprehensive income, net of tax
724

 
40

 
165

 

 
929

Comprehensive income
$
78

 
$
5,611

 
$
40

 
$
(5,445
)
 
$
284




17


 
Unaudited Condensed Consolidating Statement of Comprehensive Income for the Three Months Ended June 30, 2013
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Totals
 
(In thousands)
Net sales
$

 
$
2,223,253

 
$
4,289

 
$

 
$
2,227,542

Cost of sales

 
1,752,214

 
3,028

 

 
1,755,242

Gross profit

 
471,039

 
1,261

 

 
472,300

Selling and distribution

 
331,159

 
519

 

 
331,678

General and administrative
(362
)
 
86,357

 
393

 

 
86,388

Amortization of intangibles

 
925

 

 

 
925

Facility closing and reorganization costs

 
4,939

 

 

 
4,939

Litigation settlements
(1,019
)
 

 

 

 
(1,019
)
Impairment of long-lived assets

 
3,604

 

 

 
3,604

Other Operating Income

 
2,209

 

 

 
2,209

Interest expense
86,124

 
3,016

 
982

 

 
90,122

Other (income) expense, net
400

 
(536
)
 
(392
)
 

 
(528
)
Income (loss) from continuing operations before income taxes and equity in earnings (loss) of subsidiaries
(85,143
)
 
39,366

 
(241
)
 

 
(46,018
)
Income tax expense (benefit)
(29,975
)
 
16,123

 
(109
)
 

 
(13,961
)
Income (loss) before equity in earnings (loss) of subsidiaries
(55,168
)
 
23,243

 
(132
)
 

 
(32,057
)
Equity in earnings (loss) of consolidated subsidiaries
(1,702
)
 
297

 

 
1,405

 

Income (loss) from continuing operations
(56,870
)
 
23,540

 
(132
)
 
1,405

 
(32,057
)
Loss from discontinued operations, net of tax

 

 
(21,761
)
 

 
(21,761
)
Loss on sale of discontinued operations, net of tax

 
(63
)
 
(2
)
 

 
(65
)
Net income (loss)
(56,870
)
 
23,477

 
(21,895
)
 
1,405

 
(53,883
)
Net loss attributable to non-controlling interest

 

 
(2,987
)
 

 
(2,987
)
Net income (loss) attributable to Dean Foods Company
(56,870
)
 
23,477

 
(24,882
)
 
1,405

 
(56,870
)
Other comprehensive income, net of tax, attributable to Dean Foods Company
425,212

 
152

 
3,844

 

 
429,208

Comprehensive income (loss) attributable to Dean Foods Company
$
368,342

 
$
23,629

 
$
(21,038
)
 
$
1,405

 
$
372,338


18


 
Unaudited Condensed Consolidating Statement of Comprehensive Income for the Six Months Ended June 30, 2014
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Totals
 
(In thousands)
Net sales
$

 
$
4,727,964

 
$
6,945

 
$

 
$
4,734,909

Cost of sales

 
3,914,178

 
5,468

 

 
3,919,646

Gross profit

 
813,786

 
1,477

 

 
815,263

Selling and distribution

 
673,619

 
692

 

 
674,311

General and administrative
618

 
141,434

 
1,024

 

 
143,076

Amortization of intangibles

 
1,461

 

 

 
1,461

Facility closing and reorganization costs

 
1,705

 

 

 
1,705

Litigation settlements
(2,521
)
 

 

 

 
(2,521
)
Other operating income

 
(4,535
)
 

 

 
(4,535
)
Interest expense
21,811

 
6,040

 
2,393

 

 
30,244

Other (income) expense, net
(600
)
 
1,157

 
(830
)
 

 
(273
)
Loss from continuing operations before income taxes and equity in earnings (loss) of subsidiaries
(19,308
)
 
(7,095
)
 
(1,802
)
 

 
(28,205
)
Income tax benefit
(5,325
)
 
(11,641
)
 
(484
)
 

 
(17,450
)
Income (loss) before equity in earnings (loss) of subsidiaries
(13,983
)
 
4,546

 
(1,318
)
 

 
(10,755
)
Equity in earnings (loss) of consolidated subsidiaries
3,543