Dean Foods Announces Second Quarter 2015 Results

Financial Summary *

Three Months Ended June 30

Six Months Ended June 30

2015

2014

2015

2014

Gross Profit

GAAP

$            496

$         399

$           974

$   815

Adjusted

$            496

$         400

$           973

$   816

Operating Income (Loss)

GAAP

$              57

$            (4)

$             (3)

$       2

Adjusted

$              67

$            (6)

$           119

$       1

Interest Expense

GAAP

$              17

$           15

$             34

$     30

Adjusted

$              17

$           15

$             33

$     29

Net Income (Loss) 

GAAP

$              27

$            (1)

$           (47)

$   (10)

Adjusted

$              32

$          (13)

$             54

$   (17)

Diluted Earnings (Loss) Per Share (EPS)

GAAP

$            0.28

$       (0.01)

$        (0.50)

$(0.10)

Adjusted

$            0.33

$       (0.14)

$          0.57

$(0.18)

* Adjustments to GAAP for the impacts of specific transactions and other one-time or non-recurring items are fully described in the attached tables.

 DEAN FOODS COMPANY 

 Condensed Consolidated Statements of Operations 

 (Unaudited) 

 (In thousands, except per share data) 

 Three months ended 

 Three months ended 

June 30,

June 30,

2015

2014

2015

2014

GAAP

 Adjusted* 

 Net sales 

$  2,014,706

$  2,393,869

$  2,014,706

$  2,393,869

 Cost of sales 

1,519,065

1,994,781

1,518,925

 (d) 

1,993,488

 (a) (d) 

 Gross profit 

495,641

399,088

495,781

400,381

 Operating costs and expenses: 

 Selling and distribution  

338,092

334,932

340,288

 (d) 

334,863

 (d) 

 General and administrative  

87,243

70,777

87,237

 (d) 

70,692

 (b) 

 Amortization of intangibles 

8,206

717

784

 (a) 

717

 Facility closing and reorganization costs 

5,408

728

-

 (b)  

-

 (b)  

 Other operating income 

-

(4,535)

-

-

 (a) 

 Total operating costs and expenses 

438,949

402,619

428,309

406,272

 Operating income (loss) 

56,692

(3,531)

67,472

(5,891)

 Interest expense 

16,974

15,221

16,548

 (d) 

14,592

 (d) 

 Other (income) expense, net 

(294)

48

(294)

48

 Income (loss) from continuing operations before income taxes 

40,012

(18,800)

51,218

(20,531)

 Income tax expense (benefit) 

13,493

(17,837)

19,464

 (e) 

(7,801)

 (e) 

 Income (loss) from continuing operations 

26,519

(963)

31,754

(12,730)

 Gain on sale of discontinued operations, net of tax 

-

318

-

-

 (d) 

 Net income (loss)  

$       26,519

$           (645)

$       31,754

$      (12,730)

 Average common shares: 

 Basic 

94,386

93,561

94,386

93,561

 Diluted 

94,900

93,561

94,900

93,561

 Basic earnings (loss) per common share: 

 Income (loss) from continuing operations 

$           0.28

$          (0.01)

$           0.34

$          (0.14)

 Income from discontinued operations  

-

-

-

-

 Net income (loss)  

$           0.28

$          (0.01)

$           0.34

$          (0.14)

 Diluted earnings (loss) per common share: 

 Income (loss) from continuing operations  

$           0.28

$          (0.01)

$           0.33

$          (0.14)

 Income from discontinued operations 

-

-

-

-

 Net income (loss)  

$           0.28

$          (0.01)

$           0.33

$          (0.14)

 * See notes to Earnings Release Tables 

DEAN FOODS COMPANY

 Condensed Consolidated Statements of Operations 

 (Unaudited) 

 (In thousands, except per share data) 

 Six months ended 

 Six months ended 

June 30,

June 30,

2015

2014

2015

2014

GAAP

 Adjusted* 

 Net sales 

$   4,065,468

$   4,734,909

$   4,065,468

$   4,734,909

 Cost of sales 

3,091,518

3,919,646

3,092,659

 (d) 

3,918,760

 (a) (d) 

 Gross profit 

973,950

815,263

972,809

816,149

 Operating costs and expenses: 

 Selling and distribution  

676,276

674,311

677,482

 (d) 

674,278

 (d) 

 General and administrative  

174,719

143,076

174,731

 (d) 

139,447

 (b) (d) 

 Amortization of intangibles 

8,912

1,461

1,490

 (a) 

1,461

 Facility closing and reorganization costs 

6,653

1,705

-

 (b) 

-

 (b) 

 Litigation settlements 

-

(2,521)

-

-

 (d) 

 Impairment of intangibles 

109,910

-

-

 (a) 

-

 Other operating income 

-

(4,535)

-

-

 (a) 

 Total operating costs and expenses 

976,470

813,497

853,703

815,186

 Operating income (loss) 

(2,520)

1,766

119,106

963

 Interest expense 

33,502

30,244

32,650

 (d) 

29,169

 (d) 

 Loss on early retirement of debt 

43,609

-

-

 (c) 

-

 Other income, net 

(740)

(273)

(740)

(273)

 Income (loss) from continuing operations before income taxes 

(78,891)

(28,205)

87,196

(27,933)

 Income tax expense (benefit) 

(31,759)

(17,450)

33,136

 (e) 

(10,614)

 (e) 

 Income (loss) from continuing operations 

(47,132)

(10,755)

54,060

(17,319)

 Gain (loss) on sale of discontinued operations 

(89)

1,154

-

 (d) 

-

 (d) 

 Net income (loss) 

$       (47,221)

$         (9,601)

$        54,060

$       (17,319)

 Average common shares: 

 Basic 

94,308

93,978

94,308

93,978

 Diluted 

94,308

93,978

94,762

 (f) 

93,978

 Basic earnings (loss) per common share: 

 Income (loss) from continuing operations 

$           (0.50)

$           (0.11)

$            0.57

$           (0.18)

 Income from discontinued operations 

-

0.01

-

-

 Net income (loss)  

$           (0.50)

$           (0.10)

$            0.57

$           (0.18)

 Diluted earnings (loss) per common share: 

 Income (loss) from continuing operations  

$           (0.50)

$           (0.11)

$            0.57

$           (0.18)

 Income from discontinued operations 

-

0.01

-

-

 Net income (loss)  

$           (0.50)

$           (0.10)

$            0.57

$           (0.18)

 * See notes to Earnings Release Tables 

 DEAN FOODS COMPANY 

 Computation of Adjusted EBITDA 

 (Unaudited) 

 (In thousands) 

 Three months ended 

 Six months ended 

June 30,

June 30,

2015

2014

2015

2014

 Net income (loss)  

$   31,754

$(12,730)

$   54,060

$(17,319)

 Interest expense 

16,548

14,592

32,650

29,169

 Income tax expense (benefit) 

19,464

(7,801)

33,136

(10,614)

 Depreciation and amortization 

38,983

39,440

76,880

78,117

 Adjusted EBITDA 

$ 106,749

$  33,501

$ 196,726

$  79,353

 DEAN FOODS COMPANY 

 Condensed Consolidated Balance Sheets 

 (Unaudited) 

 (In thousands) 

 June 30, 

 December 31, 

 ASSETS 

2015

2014

 Cash and cash equivalents 

$    105,690

$           16,362

 Other current assets 

959,118

1,163,698

 Total current assets 

1,064,808

1,180,060

 Property, plant and equipment, net 

1,140,784

1,172,596

 Intangibles and other assets, net 

303,327

416,980

 Total Assets 

$ 2,508,919

$      2,769,636

 LIABILITIES AND STOCKHOLDERS' EQUITY 

 Total current liabilities, excluding debt 

$    718,508

$         793,753

 Total long-term debt, including current portion 

839,266

917,179

 Other long-term liabilities 

376,976

431,386

 Total stockholders' equity 

574,169

627,318

 Total Liabilities and Stockholders' Equity 

$ 2,508,919

$      2,769,636

 DEAN FOODS COMPANY 

 Condensed Consolidated Statements of Cash Flows 

 (Unaudited) 

 (In thousands) 

Six months ended

 June 30,

 Operating Activities 

2015

2014

     Net cash provided by operating activities

$ 271,771

$  25,268

 Investing Activities 

 Payments for property, plant and equipment 

(48,051)

(53,622)

 Proceeds from sale of fixed assets 

12,815

17,556

     Net cash used in investing activities 

(35,236)

(36,066)

 Financing Activities 

 Net proceeds from debt 

394,099

87,930

 Early retirement of long-term debt 

(476,188)

-

 Premiums paid on early retirement of debt 

(37,309)

-

 Payments of financing costs 

(15,091)

(1,107)

 Issuance of common stock, net of share repurchases 

-

(25,000)

 Cash dividend paid 

(13,212)

(13,089)

 Issuance of common stock, net of share repurchases 

939

4,953

 Other 

199

284

      Net cash provided by (used in) financing activities

(146,563)

53,971

      Effect of exchange rate changes on cash and cash equivalents

(644)

(171)

 Increase in cash and cash equivalents 

89,328

43,002

 Cash and cash equivalents, beginning of period 

16,362

16,762

 Cash and cash equivalents, end of period 

$ 105,690

$  59,764

  Computation of Free Cash Flow provided by (used in) continuing operations 

 Net cash provided by operating activities  

$ 271,771

$  25,268

 Payments for property, plant and equipment 

(48,051)

(53,622)

     Free cash flow provided by (used in) continuing operations

$ 223,720

$ (28,354)

 DEAN FOODS COMPANY 

 Reconciliation of GAAP to Adjusted Earnings 

 (Unaudited) 

 (In thousands, except per share data) 

 Three months ended 

June 30, 2015

Asset write-downs and (gain) loss on

Facility closing,reorganization and

Other

Income

sale of assets

realignment costs

adjustments

tax

GAAP

(a)

(b)

(d)

(e)

Adjusted*

 Operating income (loss): 

 Dean Foods 

$ 69,522

$                          -

$                         -

$     (2,050)

$            -

$   67,472

 Facility closing and reorganization costs 

(5,408)

-

5,408

-

-

-

 Amortization of intangibles 

(7,422)

7,422

-

-

-

-

 Total operating income 

7,422

5,408

(2,050)

-

67,472

 Interest expense 

16,974

-

-

(426)

-

16,548

 Other income, net 

(294)

-

-

-

-

(294)

 Income tax expense  

13,493

-

-

-

5,971

19,464

 Income from continuing operations 

26,519

7,422

5,408

(1,624)

(5,971)

31,754

 Net income  

$ 26,519

$                   7,422

$                 5,408

$     (1,624)

$   (5,971)

$   31,754

 Diluted earnings per share  

$     0.28

$                     0.08

$                   0.05

$       (0.02)

$     (0.06)

$       0.33

 Three months ended 

June 30, 2014

Asset write-downs and (gain) loss onsale of assets

Facility closing, reorganization and realignment costs

Other

adjustments

Income

tax

GAAP

(a)

(b)

(d)

(e)

Adjusted*

 Operating income (loss): 

 Dean Foods 

$  (7,338)

$                      852

$                      85

$          510

$            -

$   (5,891)

 Facility closing and reorganization costs 

(728)

-

728

-

-

-

 Other operating income 

4,535

(4,535)

-

-

-

-

 Total operating income (loss) 

(3,531)

(3,683)

813

510

-

(5,891)

 Interest expense 

15,221

-

-

(629)

-

14,592

 Other expense, net 

48

-

-

-

-

48

 Income tax expense (benefit) 

(17,837)

-

-

-

10,036

(7,801)

 Income (loss) from continuing operations 

(963)

(3,683)

813

1,139

(10,036)

(12,730)

 Income from discontinued operations, net of tax 

318

-

-

(318)

-

-

 Net income (loss)  

$     (645)

$                 (3,683)

$                    813

$          821

$ (10,036)

$ (12,730)

 Diluted earnings (loss) per share  

$    (0.01)

$                   (0.04)

$                   0.01

$         0.01

$     (0.11)

$     (0.14)

 * See notes to Earnings Release Tables 

 DEAN FOODS COMPANY 

 Reconciliation of GAAP to Adjusted Earnings 

 (Unaudited) 

 (In thousands, except per share data) 

 Six months ended 

June 30, 2015

Asset write-downs

Facility closing,

Loss on early

and (gain) loss on

reorganization and

retirement of

Other

Income

sale of assets

realignment costs

debt

adjustments

tax

GAAP

(a)

(b)

(c)

(d)

(e)

Adjusted*

 Operating income (loss): 

 Dean Foods 

$    121,465

$                               -

$                                -

$                     -

$          (2,359)

$                -

$   119,106

 Facility closing and reorganization costs 

(6,653)

-

6,653

-

-

-

-

 Impairment of intangibles 

(109,910)

109,910

-

-

-

-

-

 Amortization of intangibles 

(7,422)

7,422

-

-

-

-

-

 Total operating income (loss) 

(2,520)

117,332

6,653

-

(2,359)

-

119,106

 Interest expense 

33,502

-

-

-

(852)

-

32,650

 Loss on early retirement of debt 

43,609

-

-

(43,609)

-

-

-

 Other income, net 

(740)

-

-

-

-

-

(740)

 Income tax expense (benefit) 

(31,759)

-

-

-

-

64,895

33,136

 Income (loss) from continuing operations 

(47,132)

117,332

6,653

43,609

(1,507)

(64,895)

54,060

 Loss from discontinued operations, net of tax 

(89)

-

-

-

89

-

-

 Net income (loss)  

$    (47,221)

$                    117,332

$                         6,653

$            43,609

$          (1,418)

$     (64,895)

$     54,060

 Diluted earnings (loss) per share (f) 

$        (0.50)

$                          1.25

$                           0.06

$                0.46

$            (0.01)

$         (0.69)

$         0.57

 Six months ended 

June 30, 2014

Asset write-downs

Facility closing,

Loss on early

and (gain) loss on

reorganization and

retirement of

Other

Income

sale of assets

realignment costs

debt

adjustments

tax

GAAP

(a)

(b)

(c)

(d)

(e)

Adjusted*

 Operating income (loss): 

 Dean Foods 

$      (3,585)

$                        1,278

$                         3,739

$                     -

$             (469)

$                -

$          963

 Facility closing and reorganization costs 

(1,705)

-

1,705

-

-

-

-

 Litigation settlements 

2,521

-

-

-

(2,521)

-

-

 Other operating income  

4,535

(4,535)

-

-

-

-

-

 Total operating income 

1,766

(3,257)

5,444

-

(2,990)

-

963

 Interest expense 

30,244

-

-

-

(1,075)

-

29,169

 Other income, net 

(273)

-

-

-

-

-

(273)

 Income tax expense (benefit) 

(17,450)

-

-

-

-

6,836

(10,614)

 Income (loss) from continuing operations 

(10,755)

(3,257)

5,444

-

(1,915)

(6,836)

(17,319)

 Income from discontinued operations, net of tax 

1,154

-

-

-

(1,154)

-

-

 Net income (loss)  

$      (9,601)

$                      (3,257)

$                         5,444

$                     -

$          (3,069)

$       (6,836)

$   (17,319)

 Diluted earnings (loss) per share  

$        (0.10)

$                        (0.04)

$                           0.06

$                     -

$            (0.03)

$         (0.07)

$       (0.18)

 * See notes to Earnings Release Tables 

For the three and six months ended June 30, 2015 and 2014, the adjusted results and certain other non-GAAP financial measures differ from the Company's results under GAAP due to the exclusion of net gains or net losses associated with certain non-recurring items, including facility closing, reorganization and realignment costs; costs associated with the early retirement of long-term debt; (gains) losses on the mark-to-market of our derivative contracts; litigation settlements; discontinued operations; as well as asset impairment and amortization charges. These adjustments are made to facilitate meaningful comparisons of our operating performance between periods as the Company cannot predict the timing and amount of charges associated with such items.

(a)

The adjustment reflects the elimination of the following:

 a.

In conjunction with our decision to launch DairyPure in the first quarter of 2015, we changed certain indefinite lived assets to finite lived resulting in a triggering event for impairment testing purposes. As a result, we recorded a non-cash charge of $109.9 million ($68.7 million net of tax) related to the impairment of certain of our intangible assets during the six months ended June 30, 2015. In addition, we recorded amortization expense on the finite lived trademarks of $7.4 million for the three and six months ended June 30, 2015;

 b.

Accelerated depreciation related to machinery and equipment at certain of our production facilities as a result of revisions made to the estimated remaining useful lives due to our evaluation of the impact that we expect changes in our business to have on estimated future cash flows at those production facilities in 2014; and

 c.

Other operating income related to the final disposal of assets associated with the closure of one of our manufacturing facilities in 2014.

(b)

The adjustment reflects the elimination of severance charges and non-cash asset write-downs related to approved facility closings and restructuring plans, as well as other organizational realignment activities.

(c)

During the first quarter of 2015, we retired the remaining principal amount of $476.2 million of our 2016 senior notes. As a result we recorded a $38.3 million pre-tax loss on the early extinguishment of debt in the first quarter of 2015, which consisted of debt redemption premiums of $37.3 million, a write-off of unamortized debt issue costs of $0.8 million and a write-off of the remaining bond discount and interest rate swaps of $0.2 million. In addition, in conjunction with the execution of a new credit agreement and amendment our receivables-backed facility in the first quarter of 2015, we wrote off unamortized debt issue costs of $5.3 million. The adjustment reflects the elimination of these losses.

(d)

The adjustment reflects the elimination of the following:

 a.

The (gain) loss on the mark to market of our commodity derivative contracts. Effective January 1, 2014, we de-designated all open commodity derivative positions that were previously designated as hedges. As of the de-designation date, all commodities contracts are now marked to market in our income statement at each reporting period and a derivative asset or liability is recorded on our balance sheet;

 b.

Interest accretion in connection with our previously disclosed dairy farmer class action lawsuit filed in the United States District Court for the Eastern District of Tennessee. The Court granted final approval of the settlement agreement on June 15, 2012;

 c.

A reduction in a litigation settlement liability due to plaintiff class "opt-outs" of $2.5 million during the six months ended June 30, 2014; and

 d.

A taxing authority settlement of certain retained contingent obligations related to prior discontinued operations.

(e)

The adjustment reflects the income tax impact on adjustments (a) through (d) and to reflect our adjusted tax rate at 38%, which we believe represents our normalized long-term effective tax rate as a U.S. domiciled business.

(f)

The adjustment reflects an add-back of the dilutive shares, which were anti-dilutive for GAAP purposes.