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<SEC-DOCUMENT>0000950134-02-003133.txt : 20020415
<SEC-HEADER>0000950134-02-003133.hdr.sgml : 20020415
ACCESSION NUMBER: 0000950134-02-003133
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 11
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020401
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: DEAN FOODS CO/
CENTRAL INDEX KEY: 0000931336
STANDARD INDUSTRIAL CLASSIFICATION: ICE CREAM & FROZEN DESSERTS [2024]
IRS NUMBER: 752559681
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-12755
FILM NUMBER: 02598646
BUSINESS ADDRESS:
STREET 1: 2515 MCKINNEY AVENUE LB 30
STREET 2: SUITE 1200
CITY: DALLAS
STATE: TX
ZIP: 75201
BUSINESS PHONE: 2143033400
MAIL ADDRESS:
STREET 1: 3811 TURTLE CREEK BLVD
STREET 2: SUITE 1300
CITY: DALLAS
STATE: TX
ZIP: 75219
FORMER COMPANY:
FORMER CONFORMED NAME: SUIZA FOODS CORP
DATE OF NAME CHANGE: 19941013
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>d95076e10-k405.txt
<DESCRIPTION>FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 2001
<TEXT>
<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
<Table>
<C> <S>
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
</Table>
COMMISSION FILE NUMBER 001-12755
DEAN FOODS COMPANY
(Exact name of Registrant as specified in its charter)
DEAN FOODS LOGO
---------------------
<Table>
<S> <C>
DELAWARE 75-2559681
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</Table>
2515 MCKINNEY AVENUE
SUITE 1200
DALLAS, TEXAS 75201
(214) 303-3400
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
---------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<Table>
<Caption>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Common Stock, $.01 par value New York Stock Exchange
</Table>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 filers pursuant to Item
405 of Regulation S-K 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 aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant at March 25, 2002, based on the $73.10 per
share closing price for the company's common stock on the New York Stock
Exchange, was approximately $3.0 billion.
The number of shares of the Registrant's common stock outstanding as of
March 25, 2002 was 44,731,854.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on or about May 30, 2002 (to be filed) are
incorporated by reference into Part III of this Form 10-K.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
<S> <C> <C>
PART I
1 Business.................................................... 1
2 Properties.................................................. 15
PART II
5 Market for Our Common Stock and Related Matters............. 19
6 Selected Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition
7 and Results of Operations................................... 21
Quantitative and Qualitative Disclosures About Market
7A Risk........................................................ 35
8 Consolidated Financial Statements........................... 37
PART III
10 Directors and Executive Officers............................ 38
11 Executive Compensation...................................... 38
Security Ownership of Certain Beneficial Owners and
12 Management.................................................. 38
13 Certain Relationships and Related Transactions.............. 38
PART IV
Exhibits, Financial Statement Schedules and Reports on Form
14.. 8-K......................................................... 38
</Table>
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
We are the leading processor and distributor of fresh milk and other dairy
products in the United States, and a leader in the specialty foods industry. We
have five operating divisions, including Dairy Group, Morningstar Foods,
Specialty Foods, Puerto Rico and International.
Our principal executive offices are located at 2515 McKinney Avenue, Suite
1200, Dallas, Texas 75201. Our telephone number is (214) 303-3400. We maintain a
worldwide web site at http://www.deanfoods.com. We were incorporated in Delaware
in 1994.
BRIEF HISTORY
We commenced operations in 1988 through a predecessor entity. Our original
operations consisted solely of a packaged ice business. As a result of our
acquisition strategy in the packaged ice industry, we became one of the largest
manufacturers and distributors of packaged ice in the United States.
We entered the dairy business in December 1993 when we acquired Suiza Dairy
Corporation, a regional dairy processor located in Puerto Rico. We have grown
our dairy business rapidly since then, primarily through a focused acquisition
strategy. Since our acquisition of Suiza Dairy in 1993, we have completed 44
dairy acquisitions, including our acquisition of Chicago-based Dean Foods
Company in December 2001. For more information about the Dean Foods acquisition,
see "-- Developments Since January 1, 2001 -- Acquisition of Dean Foods Company
and Related Events." Primarily as a result of our acquisition strategy in the
dairy industry, we are now the largest processor and distributor of dairy
products in the United States.
We completed our initial public offering in April 1996 (under the name of
"Suiza Foods Corporation"). Initially our common stock was traded in the Nasdaq
National Market. In January 1997, we completed a second public offering. Our
common stock began trading on the New York Stock Exchange in March 1997 under
the symbol "SZA." Our common stock continues to trade on the New York Stock
Exchange under our new symbol: "DF."
In August 1997, we acquired Franklin Plastics, Inc., a company engaged in
the business of manufacturing and selling plastic containers, in connection with
our acquisition of a dairy company related to Franklin Plastics. We then began
acquiring other companies in the plastic container business including
Continental Can in May 1998. By 1999, we had built one of the largest plastic
packaging companies in the United States.
In April 1998, we sold our packaged ice operations in order to focus our
resources on our dairy and packaging operations.
In July 1999, having made a decision to further focus our resources on our
core dairy business, we sold all of our U.S. plastic packaging operations to
Consolidated Container Company in exchange for cash and a 43.1% interest in the
purchaser. In March and May 2000 we sold the European packaging operations that
we acquired as part of our acquisition of Continental Can. Except for our
interest in Consolidated Container Company, we no longer have any investments in
the packaging industry.
Effective January 1, 2000, we completed the acquisition of Southern Foods
Group, L.P., the third largest dairy processor in the United States at the time
of the acquisition. As a result of that transaction, we greatly expanded the
geographic reach of our Dairy Group and became the largest dairy company in the
United States. The Southern Foods transaction was completed through a joint
venture with Dairy Farmers of America ("DFA"), the nation's largest dairy
farmers cooperative, pursuant to which DFA obtained a 33.8% interest in our
Dairy Group.
On December 21, 2001, we completed our acquisition of Dean Foods Company.
As a result, we are now one of the leading food and beverage companies in the
United States. In connection with that transaction, we purchased the 33.8%
minority interest in our Dairy Group held by DFA, in exchange for cash, the
operations of 11 plants that we were required to divest in connection with the
Dean Foods transaction and certain other consideration. Also on December 21,
2001, immediately after we completed the acquisition of Dean Foods,
1
<PAGE>
the acquired company changed its name to Dean Holding Company and we changed our
name from Suiza Foods Corporation to Dean Foods Company. For more information
about the Dean Foods acquisition and related transactions, see "-- Developments
Since January 1, 2001 -- Acquisition of Dean Foods Company and Related Events."
The following timeline graphically depicts our history:
[TIME LINE GRAPHIC]
DEVELOPMENTS SINCE JANUARY 1, 2001
ACQUISITION OF DEAN FOODS COMPANY AND RELATED EVENTS
Acquisition of Dean Foods Company and Related Name Changes -- On December
21, 2001, we completed our acquisition of Dean Foods Company ("Old Dean"). Prior
to the acquisition, Old Dean was the nation's second largest dairy processor,
with $4.6 billion in sales during the 12-month period ended November 25, 2001.
To effect this transaction, Old Dean was merged into our wholly-owned
subsidiary, Blackhawk Acquisition Corp. Blackhawk Acquisition Corp. survived the
merger and immediately changed its name to "Dean Holding Company." Immediately
thereafter, we changed our name from Suiza Foods Corporation to Dean Foods
Company and our trading symbol on the New York Stock Exchange changed from "SZA"
to "DF."
As a result of the merger, each share of common stock of Old Dean was
converted into 0.429 shares of our common stock and the right to receive $21.00
in cash. There were approximately 36.0 million shares of Old Dean common stock
outstanding at the time of the merger. Consequently, we issued approximately
15.5 million shares, and paid approximately $756.8 million in cash, to Old
Dean's shareholders as consideration for their shares.
Purchase of Minority Interest in Dairy Group and Divestiture of 11
Plants -- Also on December 21, 2001, and in connection with our acquisition of
Old Dean, we purchased Dairy Farmers of America's ("DFA's") 33.8% stake in our
Dairy Group for consideration consisting of: (1) approximately $145.4 million in
cash, (2) a contingent promissory note in the original principal amount of $40.0
million, and (3) the operations of 11 plants located in nine states where we and
Old Dean had overlapping operations. As additional consideration, we amended a
milk supply agreement with DFA to provide that if we do not, within a specified
period following the completion of our acquisition of Old Dean, offer DFA the
right to supply raw milk to certain of Old Dean's dairy plants, we could be
required to pay liquidated damages of up to $47.0 million. See Note 19 to our
Consolidated Financial Statements and "Part II -- Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Risk
Factors." As a result of this transaction, we now own 100% of our Dairy Group.
The plants divested included: (i) our Burger Dairy operations based in New
Paris, Indiana; (ii) our Coburg Dairy operations based in N. Charleston, South
Carolina (which was an operation of Old Dean); (iii) our Cream O'Weber
operations based in Salt Lake City, Utah (which was an operation of Old Dean);
(iv) our Flav-O-Rich Dairies operations based in London, Kentucky and Bristol,
Virginia; (v) our H. Meyer Dairy operations based in Cincinnati, Ohio (which was
an operation of Old Dean); (vi) our Huntsville Dairy operations based in
Huntsville, Alabama; (vii) our Oberlin Farms ("Dairymen's") operations based in
Cleveland, Ohio; (viii) our U.C. Milk ("Goldenrod") operations based in
Madisonville, Kentucky (which was an operation of Old Dean); and (ix) our Velda
Farms operations based in Miami, Florida and Winterhaven, Florida. The divested
plants were acquired by National Dairy Holdings, LP, as assignee of DFA.
2
<PAGE>
New Credit Facility, Increased Receivables Securitization Facility and
Assumed Indebtedness -- We financed the cash portion of the consideration paid
to the shareholders of Old Dean, as well as the cash portion of the purchase
price for DFA's 33.8% interest in our Dairy Group and certain related
transaction costs, primarily with borrowings under a new $2.7 billion credit
facility provided by a syndicate of lenders. This facility, which replaces our
former parent-level credit facility and the former Suiza Dairy Group credit
facility, provides us with a revolving line of credit of up to $800.0 million to
be used for general corporate and working capital purposes (including the
financing of future acquisitions and stock buybacks, if any, subject to certain
limitations contained in the credit facility documents) and two term loans in
the amounts of $900.0 million and $1.0 billion, respectively. Both term loans
were fully funded at closing. No funds were borrowed under the revolving credit
facility. The revolving credit facility will expire, and the $900.0 million term
loan will mature, in July 2007. The $1.0 billion term loan will mature in July
2008. Outstanding borrowings under the credit facility are secured by liens on
substantially all of our domestic assets (including the assets of our
subsidiaries, except for the capital stock of Old Dean's subsidiaries and the
real property owned by Old Dean and its subsidiaries). The credit agreement
contains various financial and other restrictive covenants as well as certain
mandatory prepayment provisions, all of which are more specifically described in
Note 10 to our Consolidated Financial Statements.
An additional portion of the cash consideration paid at closing was
provided by new funding under our existing receivables securitization facility.
On December 21, 2001, we sold Old Dean's receivables into the facility, thereby
increasing the amount of the facility by $150.0 million to $400.0 million. See
Note 10 to our Consolidated Financial Statements.
Certain of Old Dean's indebtedness remains outstanding after the merger,
including $700.0 million of outstanding indebtedness under certain senior notes,
and certain capital lease obligations. See Note 10 to our Consolidated Financial
Statements for more information about our indebtedness and "Part II -- Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Risk Factors."
Stock Award Plans -- In connection with the Old Dean acquisition, all
options to purchase Old Dean stock outstanding at the time of the acquisition
were automatically converted into options to purchase our stock. Upon
conversion, those options represented options to purchase a total of
approximately 2.7 million shares of our stock. Old Dean option holders had the
right, as a result of the "change in control" triggered by our acquisition of
Old Dean, to surrender their New Dean stock options to us, in lieu of exercise,
in exchange for a cash payment (which payments, in many cases, exceeded the
amount that the option holder could have received upon exercise), provided the
options were surrendered by March 21, 2002. The holders of approximately 809,000
options exercised their surrender rights. See Note 2 to our Consolidated
Financial Statements.
Upon completion of the Old Dean acquisition, we adopted Old Dean's 1989
Stock Awards Plan and reserved approximately 1.9 million shares (subject to
adjustment as permitted by the plan) of our stock for issuance under that plan
after the merger. Options surrendered by Old Dean optionees have been added back
to the pool of shares available for issuance under the plan, as permitted by the
plan. Approximately 2.6 million shares were available for issuance under that
plan as of March 25, 2002.
Finally, due to the increased size of our employee base, upon completion of
the merger, we increased the number of shares reserved for issuance under our
pre-existing stock option plan from 7.5 million to 12.5 million.
New Directors -- In connection with our acquisition of Old Dean and as
required by the related merger agreement, we increased the size of our Board of
Directors, effective December 21, 2001, from 10 members to 15 members. All five
of the new members were nominated by Old Dean, and all served on the Board of
Directors of Old Dean prior to the acquisition. All of our pre-acquisition
directors remain on the Board. Also pursuant to the merger agreement, Mr. Howard
Dean (formerly the Chairman of the Board and Chief Executive Officer of Old
Dean) was named Chairman of our Board of Directors. He will remain as Chairman
until his retirement (no later than June 2002), at which time Gregg Engles will
re-assume the role of Chairman of the Board. Mr. Engles was Chairman of our
Board and Chief Executive Officer prior to the acquisition. He is currently
Chief Executive Officer and Vice Chairman of the Board.
3
<PAGE>
INTEGRATION AND RATIONALIZATION ACTIVITIES
As a result of our acquisition of Old Dean, we expect to achieve annual
cost savings of at least $60.0 million in 2002, increasing to at least $120.0
million by the end of 2004. In early 2002, we began the process of implementing
various planned cost savings initiatives necessary to achieve these savings. As
part of these efforts, in February 2002, we announced the elimination of
approximately 200 corporate staff positions at Old Dean. We have also closed, or
announced the closure of, 4 plants since completion of the Old Dean acquisition
and reduced (or intend to reduce) our workforce accordingly. We will continue to
finalize and implement our initial integration and rationalization plans
throughout 2002.
During 2001, as part of our overall integration and cost reduction strategy
in effect prior to the Old Dean acquisition, we closed 3 plants and reduced our
workforce accordingly. See Note 16 to our Consolidated Financial Statements.
We have recently announced that part of our strategy after the Old Dean
acquisition will be to divest certain non-core assets. Since the completion of
the Old Dean acquisition, we have sold two small non-core businesses that we
acquired as part of Old Dean's Specialty Foods division, including a
transportation business and Old Dean's boiled peanut business.
ANNOUNCEMENT OF STOCK SPLIT
On February 21, 2002, we announced that our Board of Directors has declared
a two-for-one split of our common stock, which will entitle shareholders of
record on April 8, 2002 to receive one additional share of common stock for each
share held on that date. The new shares will be issued after the market closes
on April 23, 2002. As a result of the split, the total number of shares of our
common stock outstanding will increase from approximately 44.7 million to
approximately 89.5 million. All of the share numbers in this Annual Report on
Form 10-K are presented without giving effect to the upcoming stock split. See
Note 23 to our Consolidated Financial Statements.
DEVELOPMENTS RELATED TO CONSOLIDATED CONTAINER COMPANY
Since July 1999, we have owned a 43.1% interest in Consolidated Container
Company ("CCC"), one of the nation's largest manufacturers of rigid plastic
containers and our primary supplier of plastic bottles and bottle components.
During 2001, due to a variety of operational difficulties, CCC consistently
reported operating results that were significantly weaker than expected, which
resulted in significant losses in the third and fourth quarters. Consequently,
our 2001 earnings were adversely affected. CCC has implemented several changes
in an effort to return to stable profitability. However, in November 2001 CCC
announced that it does not expect to see the benefits of these changes for at
least several quarters. Also, as a result of CCC's performance in 2001, CCC
became unable to comply with the financial covenants contained in its credit
facility. Accordingly, we concluded that our investment in CCC was impaired and
that the impairment was not temporary. Therefore, we wrote off our remaining
investment in CCC in the fourth quarter of 2001.
In February 2002, CCC's lenders agreed to restructure CCC's credit
agreement to modify the financial covenants, subject to the agreement of CCC's
primary shareholders to guarantee certain of CCC's indebtedness. Because CCC is
an important and valued supplier of ours, and in order to protect our interest
in CCC, we agreed to provide a limited guarantee of up to $10.0 million of CCC's
revolving credit indebtedness. The guaranty will expire in January 2003. Please
see Note 19 to our Consolidated Financial Statements for further information
regarding our guarantee of CCC's indebtedness. See also "Part II -- Item 7.
Management's Discussion and Analysis of Financial Conditions and Results of
Operations -- Risk Factors."
PURCHASE OF MINORITY INTEREST IN SPANISH OPERATIONS
In August 2001, we purchased the 25% minority interest in Leche Celta, our
Spanish dairy processor, for approximately $12.6 million. We now own 100% of our
European dairy operations.
4
<PAGE>
RECENT DEVELOPMENTS WITH CERTAIN BUSINESS PARTNERS
Restructure of Milk Supply Arrangements -- The primary raw material used in
our operations is raw milk. We purchase a significant portion of our raw milk
requirements from DFA. We have entered into a series of supply contracts with
DFA over the past several years designed to ensure a reliable source of raw milk
for our plants. In December 2001, we amended our supply agreements with DFA in
order to provide ourselves with greater flexibility in the procurement of raw
milk. The primary modification to the supply agreements was the reduction of the
termination notice period from one year to 60 days. We paid DFA approximately
$28.5 million as consideration for this amendment. Because this payment related
to the modification of existing agreements, we recorded the $28.5 million
payment as an expense in the fourth quarter of 2001.
Certain Co-Packing Arrangements -- Prior to the completion of the Old Dean
acquisition, Old Dean had a long-term arrangement with Nestle pursuant to which
Old Dean manufactured Nestle's Coffee Mate(R) coffee creamers and Nesquik(R)
single-serve milks. Because these Nestle products compete directly with our
International Delight(R) and Hershey's(R) milk products, we have agreed with
Nestle that we will phase out manufacturing and distributing these Nestle
products by the end of 2003.
From 1987 through 2001, our Morningstar Foods division processed and sold
Lactaid(R) brand lactose-reduced milk in the western portion of the United
States. This arrangement was terminated at the end of 2001 due to a number of
factors including primarily contractual restrictions that did not permit us to
fully realize the opportunities in the lactose-reduced milk category (such as
the ability to satisfy our customers' demands for private label lactose-reduced
milk). Old Dean has historically produced lactose-reduced milk under the Dairy
Ease(R) brand, which it licensed from a third party. In November 2001, Old Dean
bought the rights to the brand. We now intend to focus our efforts in the
lactose-reduced category on Dairy Ease(R) and on private labels for our
customers.
Enron -- In June 1999, we entered into a contract with Enron Energy
Services pursuant to which we contracted to purchase electricity for certain of
our plants at a discounted rate for a ten-year period. Enron filed for
bankruptcy protection on December 1, 2001, and subsequently elected to reject
our contract in its bankruptcy. Since we do not expect to be able to replace the
arrangement we had with Enron, we do expect Enron's bankruptcy, and its
rejection of our contract, to adversely impact our results of operations. We do
not expect the impact to be material. See "Part II -- Item 7. Management's
Discussion and Analysis of Financial Conditions and Results of
Operations -- Known Trends and Uncertainties."
RECENT PRODUCT DEVELOPMENTS
During the fourth quarter of 2001, we launched single-serve Hershey's(R)
milks and milkshakes in plastic bottles. In January 2002, we introduced our new
single-serve Folgers(R) Jakada(TM) coffee beverage.
CURRENT BUSINESS STRATEGY
Over the next several years, we will be focused on consistently creating
and maximizing shareholder value primarily through the following strategies:
BE OUR CUSTOMERS' SUPPLIER OF CHOICE
We intend to maintain and extend our leadership position in the dairy case
by continuing to provide our customers with excellent quality, service and
price. We have one of the most extensive refrigerated "direct store delivery"
systems in the United States, with over 6,000 routes spanning virtually the
entire United States. Using this system, we have a unique capability to provide
unmatched service and convenience to our customers. We intend to leverage that
system to grow with our customers and increase our revenues.
DELIVER OUR SYNERGY TARGETS
We expect to achieve annual cost savings synergies in connection with the
Old Dean acquisition of at least $60.0 million in 2002, increasing to at least
$120.0 million by the end of 2004. We intend to achieve these
5
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synergies by vigorously pursuing economies of scale in purchasing, product
development and manufacturing and by eliminating duplicative costs.
INVEST IN AND BUILD UPON OUR GROWTH PLATFORMS
We believe that innovation is key to growing our sales and our
profitability. Therefore, we intend to invest in and build upon our largest
growth platforms, including single-serve dairy-based refrigerated beverages;
functional beverages, including soymilk and lactose-reduced milk; beverage
enhancers, such as coffee creamers; and food enhancers, such as refrigerated
dips and salad dressings.
RATIONALIZE OUR ASSET BASE
We intend to carefully examine the portfolio of assets and businesses that
we acquired through the Old Dean acquisition and (i) divest non-core businesses
that do not fit into our long-term business plans, and (ii) sell or close plants
with overlapping markets or excess capacity in order to increase our efficiency,
thereby lowering our cost structure.
INVEST OUR CASH
Our company generates a significant amount of free cash flow. In addition
to investing in our growth platforms, we intend to invest our capital where
returns are greatest, including on acquisitions in our core lines of business,
and on reductions of indebtedness.
INDUSTRY OVERVIEW
The dairy industry is a mature industry which has traditionally been
characterized by slow to flat growth, low profit margins, fragmentation and
excess capacity. Excess capacity has resulted from the development of more
efficient manufacturing techniques, the establishment of captive dairy
manufacturing operations by large grocery retailers and little to no growth in
the demand for fresh milk products. Over the past decade, the dairy industry has
been in the process of consolidating. As the industry has consolidated, large
regional dairy processors have emerged.
Consolidation has tended to raise efficiencies in the typically low-margin
dairy industry. However, consumption of dairy products remains flat and has even
declined in some regions of the country. We believe that the consolidation trend
will continue as dairy processors continue to seek to become more profitable.
Also, innovation has become increasingly important as processors seek to
increase consumption, sales and margins through product differentiation and
branding.
OPERATING DIVISIONS
We currently have five operating divisions, including Dairy Group,
Morningstar Foods, Specialty Foods, Puerto Rico and International.
DAIRY GROUP
We sell primarily fresh dairy products through our Dairy Group, with our
product mix weighted heavily toward fluid milk. Products that we sell through
our Dairy Group include:
- fluid milk, including flavored milks and buttermilk,
- ice cream and novelties,
- half-and-half and whipping cream,
- condensed milk,
- cottage cheese,
- sour cream,
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- yogurt,
- dips,
- coffee creamers,
- juice and juice drinks, and
- water.
Our Dairy Group operates its business in a generally decentralized manner
organized by geographic region, including the Northeast region, the Southeast
region, the Southwest region and the Midwest region. The dairy operations of Old
Dean have been operationally integrated into our Dairy Group, primarily into our
Midwest region. Our Dairy Group manufactures its products in 96 plants in 33
states. For more information about plants in the Dairy Group regions, see
"-- Item 2. Properties."
Primarily due to the highly perishable nature of its products, our Dairy
Group delivers its products directly from its plants or distribution warehouses
to its customers in trucks that we own or lease. This form of delivery is called
a "direct store delivery" or "DSD" system. We have one of the most extensive
refrigerated DSD systems in the United States, with over 6,000 routes spanning
virtually the entire United States. Using its DSD system, the Dairy Group also
acts as distributor for certain other manufacturers of refrigerated products in
certain parts of the country.
The Dairy Group sells its products primarily on a local or regional basis
through its internal sales force to a wide variety of retail and food service
customers including grocery stores, club stores, convenience stores,
institutional food service, gas stores, schools, restaurants and hotels. The
Dairy Group's customer base is large, and we are not dependent on any single
customer. The Dairy Group's sales are slightly seasonal, with sales tending to
be higher in the third and fourth quarters.
In 2001, our Dairy Group manufactured and marketed approximately two-thirds
of its dairy products under its proprietary or licensed local and regional brand
names. The remaining one-third of the Dairy Group's
7
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products were manufactured and sold on a private-label (or "customer brand")
basis for customers. Proprietary or licensed brands used in the Dairy Group
include the following:
<Table>
<Caption>
NORTHEAST REGION SOUTHEAST REGION MIDWEST REGION SOUTHWEST REGION
- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C>
fitmilk(R) Barbers(R) Barber's(R) Adohr Farms(R)
Garelick Farms(R) Broughton(R) Borden(R) (licensed brand) Alta Dena(R)
kidsmilk(TM) Country Delite(R) Country Charm(R) Barbe's(R)
LehighValley(R) Dairy Fresh(R) Country Fresh(R) Berkeley Farms(TM)
Nature's Pride(TM) Dean's(R) Dean's(R) Borden(R) (licensed
brand)
Sealtest(R) Flav-O- Rich(R) (licensed fitmilk(R)
(licensed brand) brand) Brown's(TM)
kidsmilk(TM)
Swiss(R) Frostbite(R) Creamland(TM)
Land O'Lakes(R) (licensed
Tuscan(R) Louis Trauth(R) brand) Dairy Gold(TM)
Wengert's(R) Meadowbrook(R) Liberty(R) Dean's(R)
Pet(R) (licensed brand) London's(R) Foremost(TM)
Reiter(R) Maplehurst(R) Gandy's(R)
Shenandoah's Pride(R) Mayfield(R) Hygeia(R)
McArthur(R) Meadow Gold(R)
Pet(R) (licensed brand) Model(R)
Purity(TM) Mountain High(R)
Schenkel's All*Star(R) Oak Farms(R)
TG Lee(R) Poudre Valley(R)
Verifine(R) Price's(TM)
Robinson(R)
Schepps(R)
Swiss(TM)
Viva(R)
</Table>
Sales in the Dairy Group to unaffiliated customers totaled $5.1 billion in
2001. For more financial information about our Dairy Group, see "Part II -- Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 21 to our Consolidated Financial Statements.
MORNINGSTAR FOODS
Morningstar Foods sells primarily extended shelf life (or "ESL") fluid,
aerosol and other dairy and non-dairy products. Its product offerings include:
- dairy and non-dairy coffee creamers,
- flavored ESL milks, lactose-reduced milks and milk-based beverages,
- soymilk,
- dips and dressings,
- aerosol whipped topping,
- dairy and non-dairy frozen whipped topping,
- egg substitute, and
- cultured dairy products.
Old Dean's National Refrigerated Products (or "NRP") segment has been
combined with our Morningstar division.
8
<PAGE>
Morningstar Foods markets and sells its products primarily on a national
basis to a wide variety of retail and food service outlets and in a number of
foreign countries through an internal sales force and independent brokers.
Morningstar Foods' customer base is large, and it is not dependent on any single
customer.
Morningstar Foods' products tend to have a longer shelf-life than those
produced in our Dairy Group. Therefore, its products are delivered primarily by
common carrier; although some of its products are distributed through our Dairy
Group's DSD system. Sales of some of Morningstar's products are higher in the
fourth quarter.
Morningstar Foods manufactures its products in 15 plants located across the
United States. For more information about Morningstar Foods' manufacturing
plants, see "-- Item 2. Properties."
In 2001, Morningstar Foods manufactured and marketed approximately 40% of
its products under its proprietary or licensed national brand names. The
remaining 60% of Morningstar Foods' products were manufactured and sold on a
private-label (or "customer brand") basis for customers. Morningstar Foods'
nationally branded products include, among others: International Delight(R)
coffee creamers, Marie's(R) dips and salad dressings, Mocha Mix(R) non-dairy
coffee creamer, Naturally Yours(TM) sour cream, Second Nature(R) eggs, Sun
Soy(R) soymilk, Dairy Ease(R) lactose-free milks, Dean's(R) dips and dressings
and Dairy Fresh(R) aerosol whipped toppings. Products that we produce under
licensed brands include: Hershey's(R) milks, Folgers(R) Jakada(TM) chilled
coffee beverage, Farm Rich(R) coffee creamers, Coffee Rich(R) coffee creamers
and Yoo-Hoo(R) chocolate milk drink.
Sales in Morningstar Foods to unaffiliated customers totaled approximately
$766.9 million in 2001. For more financial information about Morningstar Foods,
see "Part II -- Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 21 to our Consolidated Financial
Statements.
SPECIALTY FOODS
Our Specialty Foods group is comprised entirely of the former Specialty
Foods segment of Old Dean. Our Specialty Foods group offers a diverse product
mix that includes pickles, relishes, peppers, powdered coffee creamers and other
powdered products, sauces, puddings and nutritional beverages.
Our Specialty Foods division is one of the largest pickle processors and
marketers in the United States. Its pickle, relish and pepper products are sold
nationally, primarily under various customer brands, but are also sold under
some of our proprietary brands including Arnold's(R), Atkins(R), Cates(R),
Dailey(R), Heifetz(R), Nalley's(R), Paramount(R), Peter Piper(R), Rainbo(R),
Roddenberry(R) and Schwartz(R), and marketed and distributed to grocery store
chains, wholesalers and foodservice customers, and in bulk to other food
processors.
Specialty Foods produces a number of specialty sauces, including shrimp,
seafood, tarter, horseradish, chili and sweet and sour sauces, and sells them to
retail grocers in the Eastern, Midwestern and Southern United States. These
products are sold under the Bennett's(R) and Hoffman House(R) brand names.
Specialty Foods also sells shortening powders and other high-fat formulas used
in baking, beverage mixes, gravies and sauces, and premium and low-fat powdered
products sold primarily under private labels to vending operators, office
beverage service companies and institutional foodservice distributors with
national distribution to restaurants, schools, health care institutions, hotels
and vending and fast-food operators. Non-dairy creamers are 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 sold to international customers in Australia, Canada, the
Far East, Mexico, South America, Europe, Africa and the Middle East. We believe
that our Specialty Foods segment is the largest manufacturer of powdered
non-dairy coffee creamers in the United States.
Other products produced by Specialty Foods include various aseptic sauces,
puddings and weight loss and nutritional beverages. These products are
sterilized under a process which allows storage for prolonged periods
9
<PAGE>
without refrigeration. Aseptic products are sold nationally, primarily under
private labels, to distributors that supply restaurants, schools, hotels and
other segments of the foodservice and grocery industries.
Due to their relatively long shelf-lives, Specialty Foods' products are
delivered to our customers' stores and warehouses primarily by common carrier.
Specialty Foods produces its products in 13 plants located across the
United States, as well as one plant in England. For more information about
Specialty Foods' manufacturing plants, see "-- Item 2. Properties."
Specialty Foods' sales to unaffiliated customers totaled approximately
$18.7 million between December 21, 2001 and December 31, 2001.
PUERTO RICO
We have a strong dairy operation on the island of Puerto Rico, operated
under the name "Suiza Dairy." Suiza Dairy sells primarily fresh dairy products
with its product mix weighted heavily toward fluid milk and juice drinks.
We have 3 plants across the island. For more information about our Puerto
Rico properties, see "-- Item 2. Properties." Suiza Dairy delivers its products
through a DSD system. It sells its products through an internal sales force to a
wide variety of retail and food service customers including grocery stores, club
stores, convenience stores, institutional food service, gas stores, schools,
restaurants and hotels. In 2001, Suiza Dairy manufactured and marketed over 95%
of its products under its proprietary brand names. The remaining products were
manufactured and sold on a private-label (or "customer brand") basis for
customers.
Puerto Rico's sales to unaffiliated customers totaled approximately $221.8
million in 2001.
INTERNATIONAL
Our international dairy operations consist solely of our Spanish operations
conducted through Leche Celta. Leche Celta sells primarily ultra-high
temperature ("UHT") fluid milk. Leche Celta manufactures its products in 4
plants located in the Galicia and Cantabria regions of Spain. For more
information about Leche Celta's plants, see "-- Item 2. Properties." Leche Celta
delivers its products primarily through independent trucking companies
delivering directly to our customers' warehouses. It sells its products through
an internal sales force to a wide variety of customers, including mainly large
and mid-sized retailers. In 2001, Leche Celta manufactured and marketed
approximately 60% of its products under its proprietary brands, and the
remaining 40% under private-label brands for customers.
Leche Celta's sales to unaffiliated customers totaled approximately $171.0
million in 2001.
RAW MATERIALS AND SUPPLY
The primary raw materials used in our operations are raw milk and
butterfat. We purchase our raw milk and butterfat from independent farmers and
farmers' co-operatives, typically pursuant to contractual arrangements. Raw milk
and butterfat are generally readily available. The prices of raw milk and
butterfat in the United States are regulated by the federal government through
federal market orders and price support programs, and many state and other
governments regulate raw milk and butterfat pricing through their own programs.
For more information about raw milk and butterfat pricing in the United States,
please see "-- Government Regulation -- Milk Industry Regulation." Prices of raw
milk and butterfat can fluctuate widely.
We purchase cucumbers under seasonal grower contracts with a variety of
growers. We supply seeds and advise growers regarding planting techniques. We
also monitor and arrange for the control of insects, direct the harvest and, for
some crops, provide automated harvesting services.
Other raw materials, such as coffee, juice concentrates, sweeteners,
syrups, oils and packaging supplies are generally available from numerous
suppliers and we are not dependent on any single supplier for these materials.
10
<PAGE>
Certain of our raw materials are purchased under long-term contracts in
order to obtain lower costs. The prices of our raw materials increase and
decrease depending on supply and demand.
COMPETITION
Our businesses are highly competitive. We have many competitors in each of
our major product, service and geographic markets.
Competition in our businesses is based primarily on:
- service,
- price,
- brand recognition,
- quality, and
- breadth of product line.
GOVERNMENT REGULATION
PUBLIC HEALTH
As a manufacturer and distributor of food products, we are subject to a
number of food safety regulations, including the Federal Food, Drug and Cosmetic
Act and regulations promulgated thereunder by the U.S. Food and Drug
Administration ("FDA"). This comprehensive regulatory scheme governs the
manufacture (including composition and ingredients), labeling, packaging and
safety of food in the United States. The FDA:
- regulates manufacturing practices for foods through its current good
manufacturing practices regulations,
- specifies the standards of identity for certain foods, including many of
the products we sell, and
- prescribes the format and content of certain information required to
appear on food product labels.
In addition, the FDA enforces the Public Health Service Act and regulations
issued thereunder, which authorize regulatory activity necessary to prevent the
introduction, transmission or spread of communicable diseases. These regulations
require, for example, pasteurization of milk and milk products. We are also
subject to numerous other federal, state and local regulations involving such
matters as the licensing of dairy manufacturing facilities, enforcement by
government health agencies of standards for our products, inspection of our
facilities and regulation of our trade practices in connection with the sale of
food products.
In December 2001, the U.S. Senate and House of Representatives approved two
bioterrorism bills intended to improve our country's readiness for a chemical or
biological attack. Both bills contain food security provisions which would
significantly expand the legal authority of the FDA with respect to foods and
create additional grounds for finding violations of the Federal Food, Drug and
Cosmetic Act. If enacted, such legislation could increase administrative
requirements and increase the costs of operating our businesses.
We use quality control laboratories in our manufacturing facilities to test
raw ingredients and finished products. Product quality and freshness are
essential to the successful distribution of our products. To monitor product
quality at our facilities, we maintain quality control programs to test products
during various processing stages. We believe that our facilities and
manufacturing practices comply with all material government regulations.
EMPLOYEE SAFETY REGULATIONS
We are subject to certain health and safety regulations including
regulations issued pursuant to the U.S. Occupational Safety and Health Act.
These regulations require us to comply with certain manufacturing,
11
<PAGE>
health and safety standards to protect our employees from accidents. We believe
that we are in material compliance with all employee safety regulations.
ENVIRONMENTAL REGULATIONS
We are subject to various environmental regulations. Ammonia, a refrigerant
used extensively in our operations, is considered an "extremely" hazardous
substance pursuant to U.S. federal environmental laws due to its toxicity. Also,
certain of our facilities discharge biodegradable wastewater into municipal
waste treatment facilities in excess of levels permitted under local
regulations. Because of this, certain of our subsidiaries are required to pay
waste water surcharges or to construct waste water pretreatment facilities. To
date, such waste water surcharges have not had a material effect on our
consolidated financial statements.
We maintain above-ground or underground petroleum storage tanks at many of
our facilities. These tanks are periodically inspected to determine compliance
with applicable regulations. We may be required to make expenditures from time
to time in order to maintain compliance of these tanks.
We do not expect environmental compliance to have a material impact on our
capital expenditures, earnings or competitive position in the foreseeable
future.
MILK INDUSTRY REGULATION
The federal government and several state agencies establish minimum prices
that we must pay to producers for raw milk and butterfat. These prices, which
are calculated by economic formula based on supply and demand, vary by region
and by the type of product manufactured using the raw product. Federal minimum
prices change monthly. Class I butterfat and skim milk prices (which are the
prices we are required to pay for raw milk that is processed into fluid milk
products) and Class II skim milk prices (which are the prices we are required to
pay for raw milk that is processed into products such as cottage cheese, creams,
ice cream and sour cream) for each month are announced by the federal government
by the 23rd day of the immediately preceding month. Class II butterfat prices
for each month are announced on the 5th day after the end of that month. Some
states have opted out of the federal pricing system, and have established their
own methods of establishing minimum prices for raw milk and butterfat. A very
few states also regulate the price that we can charge our retail customers for
our products.
From 1996 until its expiration in October 2001, the Northeast Dairy Compact
Commission set a minimum price for raw milk in New England independent of the
price set by the federal milk marketing orders. Under that compact, the price we
paid for raw milk in New England exceeded the price we were paying for raw milk
in other parts of the country. The Northeast Dairy compact expired by its terms
on October 31, 2001. However, in replacement of the compact, certain members of
Congress have proposed legislation that would establish a minimum Class I floor
price, with a regional differential added to the floor price to be paid into a
national pooling system. We do not know whether this or any other legislation
raising minimum prices will be enacted by Congress or, if enacted, the extent to
which these compacts would increase the prices we pay for raw milk.
In Spain, the government has established a quota system regulating the
amount of milk that can be sold by individual farmers and farm cooperatives,
which affects the manner in which we purchase raw milk, as well as the prices we
pay for raw milk.
12
<PAGE>
EMPLOYEES
As of December 31, 2001 we employed over 31,000 people in the following
categories:
<Table>
<Caption>
NO. OF EMPLOYEES % OF TOTAL
---------------- ----------
<S> <C> <C>
Dairy Group................................................ 24,709 78.4%
Morningstar Foods.......................................... 2,350 7.5
Specialty Foods............................................ 2,869 9.1
Puerto Rico................................................ 981 3.1
International.............................................. 242 0.8
Corporate(1)............................................... 352(1) 1.1
------ -----
Total............................................ 31,503 100.0%
====== =====
</Table>
- ---------------
(1) In February 2002, we announced the elimination of approximately 200
corporate staff positions at Old Dean.
MINORITY HOLDINGS
We own a 43.1% interest in Consolidated Container Company ("CCC"), one of
the nation's largest manufacturers of rigid plastic containers and our largest
supplier of plastic bottles and bottle components. We have owned that interest
since July 1999 when we sold our U.S. plastic packaging operations to CCC.
Vestar Capital Partners controls CCC through a 50.9% ownership interest. The
remaining 6% of CCC is owned indirectly by Alan Bernon, a member of our Board of
Directors, and his brother Peter Bernon. Pursuant to our agreements with Vestar,
we control 2 of the 7 seats on CCC's Management Committee. We have also entered
into various supply agreements with CCC pursuant to which we have agreed to
purchase certain of our requirements for plastic bottles and bottle components
from CCC. In 2001, we spent approximately $95.4 million on products purchased
from CCC. Because CCC has issued certain senior notes, CCC files annual,
quarterly and other reports with the Securities and Exchange Commission. More
information about CCC can be found on its website at www.cccllc.com or in its
filings with the Securities and Exchange Commission available at www.sec.gov.
Please see Note 4 to our Consolidated Financial Statements for more information
about our investment in CCC. In February 2002, we executed a limited guaranty of
up to $10.0 million of CCC's revolving credit debt. See Note 19 to our
Consolidated Financial Statements for more information about the guaranty.
We own a 13.2% interest in Horizon Organic Holding Company, America's
largest organic food company. Horizon sells a full line of branded organic
products, including milk, half-and-half, cheese, butter, yogurt, sour cream,
cottage cheese and juices. Horizon's common stock is traded on the Nasdaq
National Market under the symbol "HCOW." Pursuant to our agreement with Horizon,
we control one seat on Horizon's Board of Directors. We have an agreement with
Horizon pursuant to which we have a right of first negotiation in the event the
Board of Directors of Horizon decides to sell the company. We also have co-
packing agreements with Horizon pursuant to which we manufacture products for
Horizon and which prohibit us from competing with Horizon in certain territories
with respect to certain types of organic dairy products. Our co-packing fees
from Horizon totaled approximately $6.3 million in 2001. More information about
Horizon can be found on its website at www.horizonorganic.com or in their
filings with the Securities and Exchange Commission available at www.sec.gov.
Please see Note 4 to our Consolidated Financial Statements for more information
about our investment in Horizon.
One of our subsidiaries, Dean Dip and Dressing, owns a 37.2% interest in
White Wave, Inc. White Wave is the maker of Silk(R) soymilks, soy coffee
creamers and soy cultured products, as well as certain tofu products. The
remaining 62.8% of White Wave is owned by individual shareholders who are not
affiliated with us, including members of the White Wave management team.
Pursuant to our agreement with White Wave and its individual shareholders, we
have the option to purchase the remaining interest in White Wave for a
discounted appraised value, beginning in September 2002. Also pursuant to our
agreement with White Wave
13
<PAGE>
and its individual shareholders, we have the right to elect 2 of the 7 members
of White Wave's Board of Directors. In June 2001, White Wave filed a lawsuit
against us in the District Court of Colorado claiming that our acquisition of
Old Dean was an impermissible transfer of the White Wave shares by Dean Dip and
Dressing. White Wave also claimed that such transfer triggered a right of first
refusal under our agreements with White Wave, entitling White Wave's other
shareholders to buy the shares of White Wave held by Dean Dip and Dressing. On
December 5, 2002, the District Court of Colorado denied White Wave's claims,
ruling in our favor and holding that White Wave had no such right of first
refusal as a result of our acquisition of Old Dean. On December 17, 2001, White
Wave appealed the decision of the District Court of Colorado to the United
States Court of Appeals for the Tenth Circuit. This appeal is currently pending.
We intend to vigorously pursue this litigation, but there can be no assurance as
to how the court will rule. Please see Note 4 to our Consolidated Financial
Statements for more information about our investment in White Wave.
We own a 50.0% interest in a joint venture known as Dairy Marketing
Alliance. The remaining 50.0% of Dairy Marketing Alliance is owned by Land
O'Lakes, Inc., a Minnesota cooperative corporation. The purpose of the joint
venture is to develop and market Land O'Lakes(R) brand value-added dairy
products, initially including creams, sour creams and milk beverages. The joint
venture has a royalty-free license from Land O'Lakes Cooperative corporation to
use certain Land O'Lakes(R) trademarks in connection with the sale of milk in
small bottles, creams, sour cream and whipping cream. The joint venture has
granted to us a royalty-bearing sublicense to utilize the Land O'Lakes(R)
trademarks in the manufacture and sale of these products in certain parts of the
United States through December 31, 2005. Our interest in this venture was owned
by Old Dean prior to our acquisition of Old Dean.
We also own a 15.6% interest in Momentx, Inc. Momentx is the owner and
operator of dairy.com, an online vertical exchange focused on bringing farmers,
farm cooperatives, processors and manufacturers together in an electronic
marketplace for the exchange of goods and services, supply chain efficiency
tools and dairy farm optimization tools. The remaining interests in Momentx are
owned by various other dairy processing companies, dairy cooperatives and
certain other individual investors who are not affiliated with us. Pursuant to
Momentx' shareholder agreements, the founding stockholders, of which we are one,
are entitled collectively to elect 4 of the 7 seats on Momentx' Board of
Directors. Gregg Engles, our Chief Executive Officer, is Chairman of the Board
of Momentx. We are also a user of dairy.com's services and in 2001 we spent
approximately $0.1 million on services purchased from Momentx. Please see Note 4
to our Consolidated Financial Statements for more information about our
investment in Momentx.
WHERE YOU CAN GET MORE INFORMATION
If you would like more information about our company, write or call us at:
Dean Foods Company
2515 McKinney Avenue, Suite 1200
Dallas, Texas 75201
(214) 303-3400
Attention: Investor Relations
Our fiscal year ends on December 31. We furnish our stockholders with
annual reports containing audited financial statements and other appropriate
reports. In addition, we file annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission.
Old Dean, which is now known as Dean Holding Company and is a wholly-owned
subsidiary of ours, also files annual, quarterly and current reports with the
Securities and Exchange Commission. You may read and copy any reports,
statements or other information that we or Dean Holding Company file at the
Securities and Exchange Commission's public reference rooms in Washington D.C.
You can request copies of these documents, upon payment of a duplicating fee, by
writing to the Securities and Exchange Commission. Please call the Securities
and Exchange Commission at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. Our Securities and Exchange Commission
filings are also available to the public on the Internet at http://www.sec.gov.
14
<PAGE>
ITEM 2. PROPERTIES
DAIRY GROUP
Our Dairy Group currently conducts its manufacturing operations from the
following plants, most of which are owned:
<Table>
<Caption>
NUMBER
REGION OF PLANTS LOCATIONS OF PLANTS
- ------ --------- -----------------------------
<S> <C> <C>
Northeast................................... 12 - Bangor, Maine
- Lynn, Massachusetts
- Franklin, Massachusetts
- Mendon, Massachusetts
- Burlington, New Jersey
- Union, New Jersey
- Rensselaer, New York
- Belleville, Pennsylvania
- Lansdale, Pennsylvania
- Lebanon, Pennsylvania
- Schuylkill Haven,
Pennsylvania
- Bennington, Vermont
Southeast................................... 18 - Birmingham, Alabama
- Louisville, Kentucky
- Newport, Kentucky
- Hickory, North Carolina
- Winston-Salem, North
Carolina
- Wilkesboro, North Carolina
- Marietta, Ohio
- Toledo, Ohio
- Akron, Ohio
- Springfield, Ohio
- Erie, Pennsylvania
- Sharpsville, Pennsylvania
- Florence, South Carolina
- Spartanburg, South Carolina
- Kingsport, Tennessee
- Nashville, Tennessee
- Portsmouth, Virginia
- Springfield, Virginia
Midwest..................................... 24 - Birmingham, Alabama
- Miami, Florida
- Orlando, Florida
- Orange City, Florida
- Braselton, Georgia
- Belvidere, Illinois
- Chemung, Illinois
- Huntley, Illinois
</Table>
15
<PAGE>
<Table>
<Caption>
NUMBER
REGION OF PLANTS LOCATIONS OF PLANTS
- ------ --------- -----------------------------
<S> <C> <C>
- O'Fallon, Illinois
- Rockford, Illinois
- Huntington, Indiana
- Rochester, Indiana
- Evart, Michigan
- Flint, Michigan
- Grand Rapids, Michigan
- Livonia, Michigan
- Thief River Falls,
Minnesota
- Woodbury, Minnesota
- Bismark, North Dakota
- Toledo, Ohio
- Sioux Falls, South Dakota
- Athens, Tennessee
- Nashville, Tennessee
- Sheboygan, Wisconsin
Southwest................................... 42 - Buena Park, California
- City of Industry,
California
- Escondido, California*
- Fullerton, California
- Hayward, California
- Riverside, California
- Tulare, California
- San Leandro, California
- South Gate, California
- Delta, Colorado
- Denver, Colorado (2)
- Englewood, Colorado
- Grand Junction, Colorado
- Greeley, Colorado
- Honolulu, Hawaii(2)
- Hilo, Hawaii
- Boise, Idaho
- Pocatello, Idaho
- New Orleans, Louisiana
- Shreveport, Louisiana
- Westwego, Louisiana
- Billings, Montana
- Great Falls, Montana
- Kalispell, Montana
- Lincoln, Nebraska
</Table>
- ---------------
<Table>
<S> <C> <C>
* We have announced the closure of the Escondido, California plant.
</Table>
16
<PAGE>
<Table>
<Caption>
NUMBER
REGION OF PLANTS LOCATIONS OF PLANTS
- ------ --------- -----------------------------
<S> <C> <C>
- Reno, Nevada
- Albuquerque, New Mexico(2)
- Tulsa, Oklahoma
- Dallas, Texas (2)
- El Paso, Texas
- Houston, Texas
- Lubbock, Texas
- McKinney, Texas
- San Antonio, Texas
- Sulphur Springs, Texas
- Waco, Texas
- Orem, Utah
- Salt Lake City, Utah
</Table>
Each of the Dairy Group's manufacturing plants also serves as a
distribution facility. In addition, our Dairy Group has numerous distribution
branches located across the country, some of which are owned but most of which
are leased. The Dairy Group's headquarters are located in Dallas, Texas in
leased premises.
MORNINGSTAR FOODS
Morningstar Foods currently conducts its manufacturing operations from
plants in the following locations, all but two of which are owned:
- Tempe, Arizona
- City of Industry, California(2)
- Gustine, California
- Greeley, Colorado
- Jacksonville, Florida
- Thornton, Illinois
- Murray, Kentucky
- Frederick, Maryland
- Delhi, New York
- Arlington, Tennessee
- Sulphur Springs, Texas
- Mt. Crawford, Virginia
- Madison, Wisconsin
- Richland Center, Wisconsin
Morningstar Foods' corporate headquarters are located in leased premises in
Dallas, Texas.
17
<PAGE>
SPECIALTY FOODS
Specialty Foods currently conducts its manufacturing operations from plants
in the following locations, all but one of which are owned:
- Atkins, Arkansas*
- Cairo, Georgia*
- LaJunta, Colorado
- New Hampton, Iowa
- Chicago, Illinois
- Dixon, Illinois
- Pecatonica, Illinois
- Plymouth, Indiana
- Benton Harbor, Michigan
- Wayland, Michigan
- Faison, North Carolina
- Portland, Oregon
- Green Bay, Wisconsin
- Oxfordshire, U.K.
- ---------------
* Specialty Foods has announced the closure of its Cairo, Georgia and Atkins,
Arkansas plants.
Specialty Foods' headquarters are located at its plant in Green Bay,
Wisconsin.
PUERTO RICO
Our Puerto Rico operation currently manufactures its products in plants in
the following locations, most of which are owned:
- Aguadilla
- Lares
- San Juan
INTERNATIONAL
Our Spanish operation currently manufactures its products from plants in
the following locations, all of which are owned:
- Pontedeume, Galicia
- Meira, Galicia
- Meruelo, Cantabria
- Escairon, Galicia
CORPORATE
Our corporate headquarters are located in leased premises at 2515 McKinney
Avenue, Suite 1200, Dallas, Texas 75201.
18
<PAGE>
PART II
ITEM 5. MARKET FOR OUR COMMON STOCK AND RELATED MATTERS
Our common stock began trading on the Nasdaq National Market on April 17,
1996, and continued trading on the Nasdaq until March 5, 1997, when it began
trading on the New York Stock Exchange under the symbol "SZA." We changed our
trading symbol to "DF" effective December 24, 2001. The following table sets
forth the high and low sales prices of our common stock as quoted on the New
York Stock Exchange for the last two fiscal years. At March 25, 2002, there were
approximately 6,100 record holders of our common stock.
<Table>
<Caption>
HIGH LOW
------ ------
<S> <C> <C>
2000:
First Quarter............................................. $44.88 $36.00
Second Quarter............................................ 49.00 37.81
Third Quarter............................................. 52.44 44.50
Fourth Quarter............................................ 51.50 40.44
2001:
First Quarter............................................. 50.57 42.00
Second Quarter............................................ 56.85 43.80
Third Quarter............................................. 64.73 52.20
Fourth Quarter............................................ 72.47 54.90
2002:
First Quarter (through March 25, 2002).................... 75.18 60.88
</Table>
We have never declared or paid a cash dividend on our common stock. We
intend to retain all earnings to cover working capital fluctuations and to fund
capital expenditures, scheduled debt repayments, stock buybacks and acquisitions
and we do not anticipate paying cash dividends on our common stock in the
foreseeable future. Moreover, we are restricted from paying cash dividends
pursuant to the terms of our senior credit facility.
For non-registered issuances of securities during the past three years,
please see the discussion of the March 1998 issuances in "-- Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Preferred Securities."
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data as of and for each of the five years
in the period ended December 31, 2001 has been derived from our audited
consolidated financial statements. The selected financial data do not purport to
indicate results of operations as of any future date or for any future period.
The selected financial data should be read in conjunction with our Consolidated
Financial Statements and related Notes.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Operating data:
Net sales................................................. $ 6,230,116 $ 5,756,303 $ 4,481,999 $ 3,320,940 $ 1,795,868
Cost of sales............................................. 4,750,100 4,330,067 3,487,075 2,557,908 1,381,084
----------- ----------- ----------- ----------- -----------
Gross profit.............................................. 1,480,016 1,426,236 994,924 763,032 414,784
Operating costs and expenses:
Selling and distribution................................ 855,192 812,274 518,962 376,928 209,271
General and administrative.............................. 184,790 182,570 148,009 112,169 58,708
Amortization of intangibles............................. 53,349 52,441 38,513 31,479 14,916
Plant closing, merger and other costs................... 9,550 3,388 12,566 37,003
Other operating (income) expense........................ (17,306) 7,500
----------- ----------- ----------- ----------- -----------
Total operating costs and expenses.................. 1,085,575 1,058,173 718,050 520,576 319,898
----------- ----------- ----------- ----------- -----------
Operating income............................................ 394,441 368,063 276,874 242,456 94,886
Other (income) expense:
Interest expense, net..................................... 101,787 112,586 49,233 52,082 36,664
Financing charges on trust issued preferred securities.... 33,581 33,595 38,584 30,213
Equity in (earnings) loss of unconsolidated affiliates.... 23,620 (11,453) (2,630) (78)
Other (income) expense, net............................... 4,690 (630) (1,416) (4,212) (24,483)
----------- ----------- ----------- ----------- -----------
Total other expense................................. 163,678 134,098 83,771 78,005 12,181
----------- ----------- ----------- ----------- -----------
Income from continuing operations before income taxes....... 230,763 233,965 193,103 164,451 82,705
Income taxes................................................ 83,739 90,303 75,463 59,823 43,375
Minority interest in earnings............................... 31,431 29,911 8,813 1,559
----------- ----------- ----------- ----------- -----------
Income from continuing operations........................... 115,593 113,751 108,827 103,069 39,330
Income (loss) from discontinued operations.................. (3,161) 717
----------- ----------- ----------- ----------- -----------
Income before extraordinary gain (loss) and cumulative
effect of accounting change............................... 115,593 113,751 108,827 99,908 40,047
Extraordinary gain (loss)................................... (4,317) 4,968 904 31,698 (11,283)
Cumulative effect of accounting change...................... (1,446)
----------- ----------- ----------- ----------- -----------
Net income.......................................... $ 109,830 $ 118,719 $ 109,731 $ 131,606 $ 28,764
=========== =========== =========== =========== ===========
Net income applicable to common stock............... $ 109,830 $ 118,719 $ 109,731 $ 131,369 $ 28,464
=========== =========== =========== =========== ===========
Basic earnings per common share:
Income from continuing operations......................... $ 4.10 $ 4.03 $ 3.31 $ 3.12 $ 1.32
Income (loss) from discontinued operations................ (0.10) 0.02
Extraordinary gain (loss)................................. (0.15) .18 .03 0.96 (0.38)
Cumulative effect of accounting change.................... (0.05)
----------- ----------- ----------- ----------- -----------
Net income................................................ $ 3.90 $ 4.21 $ 3.34 $ 3.98 $ 0.96
=========== =========== =========== =========== ===========
Diluted earnings per common share:
Income from continuing operations......................... $ 3.71 $ 3.68 $ 3.11 $ 2.90 $ 1.25
Income (loss) from discontinued operations................ (0.08) 0.02
Extraordinary gain (loss)................................. (0.11) .14 .02 0.76 (0.36)
Cumulative effect of accounting change.................... (0.04)
----------- ----------- ----------- ----------- -----------
Net income.......................................... $ 3.56 $ 3.82 $ 3.13 $ 3.58 $ 0.91
=========== =========== =========== =========== ===========
Average common shares:
Basic..................................................... 28,151,398 28,195,043 32,861,218 32,953,290 29,508,791
=========== =========== =========== =========== ===========
Diluted................................................... 36,892,074 36,671,264 42,858,492 41,965,564 31,348,591
=========== =========== =========== =========== ===========
Other data:
Ratio of earnings to combined fixed charges and preferred
stock dividends(1)...................................... 2.87x 2.58x 3.75x 3.36x 2.89x
Balance sheet data (at end of period):
Total assets.............................................. $ 6,731,897 $ 3,780,478 $ 2,658,922 $ 3,013,783 $ 1,403,462
Long-term debt(2)......................................... 3,068,497 1,353,269 712,068 932,969 828,659
Mandatorily redeemable convertible trust issued preferred
securities.............................................. 584,605 584,032 683,505 682,938
Total stockholders' equity................................ 1,475,880 598,832 583,972 655,771 359,310
</Table>
- ---------------
(1) For purposes of calculating the ratio of earnings to combined fixed charges
and preferred stock dividends, "earnings" represents income before income
taxes plus fixed charges. "Fixed charges" consist of interest on all debt,
amortization of deferred financing costs and the portion of rental expense
that we believe is representative of the interest component of rent expense.
Preferred stock dividends consist of dividends, adjusted to a pre-tax basis,
on our Series A Preferred Stock, which we redeemed in 1998.
(2) Includes amounts outstanding under subsidiary lines of credit and the
current portion of long-term debt.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We are the leading processor and distributor of fresh milk and other dairy
products in the United States and a leader in the specialty foods industry. We
have five operating divisions including Dairy Group, Morningstar Foods,
Specialty Foods, Puerto Rico and International. Please see "Part I-Item 1.
Business" for a general description of our business. In accordance with
applicable accounting rules, three of our operating divisions are separately
reportable business segments: Dairy Group, Morningstar Foods and Specialty
Foods.
DEVELOPMENTS SINCE JANUARY 1, 2001
Please see "Part I-Item 1. Business -- Developments Since January 1, 2001"
for a description of recent developments.
RESULTS OF OPERATIONS
The following table presents certain information concerning our results of
operations, including information presented as a percentage of net sales.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2001 2000 1999
-------------------- -------------------- --------------------
DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT
---------- ------- ---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales....................... $6,230,116 100.0% $5,756,303 100.0% $4,481,999 100.0%
Cost of sales................... 4,750,100 76.2 4,330,067 75.2 3,487,075 77.8
---------- ----- ---------- ----- ---------- -----
Gross profit.................... 1,480,016 23.8 1,426,236 24.8 994,924 22.2
Operating costs and expenses:
Selling and distribution...... 855,192 13.7 812,274 14.1 518,962 11.5
General and administrative.... 184,790 3.0 182,570 3.2 148,009 3.3
Amortization of intangibles... 53,349 0.9 52,441 0.9 38,513 0.9
Plant closing costs........... 9,550 0.2 3,388 0.1 12,566 0.3
Other operating (income)
expense.................... (17,306) (0.3) 7,500 0.1
---------- ----- ---------- ----- ---------- -----
Total operating
expenses............ 1,085,575 17.5 1,058,173 18.4 718,050 16.0
---------- ----- ---------- ----- ---------- -----
Total operating income.......... $ 394,441 6.3% $ 368,063 6.4% $ 276,874 6.2%
========== ===== ========== ===== ========== =====
</Table>
The sales and operating expenses of minority-owned businesses, including
Consolidated Container Company, are not included in the table presented above,
but are instead condensed onto a single line below operating income (see
discussion below under "Other (Income) Expense").
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
Note: We completed our acquisition of Old Dean on December 21, 2001.
Because Old Dean's results of operations for the last few days of 2001 are
included in our Consolidated Financial Statements, full year comparisons may be
less meaningful than they would be otherwise. Also, comparison data is not
provided for our Specialty Foods segment since we owned it for only the last 10
days of the year. Segment data for Specialty Foods for the period since the
acquisition are included in Note 21 to our Consolidated Financial Statements.
More complete segment data for Specialty Foods can be found in the transition
report on Form 10-KT of Dean Holding Company for the seven-month period ended
December 31, 2001.
Net Sales -- Net sales increased 8.2% to $6.23 billion during 2001 from
$5.76 billion in 2000. Approximately $103.1 million of this increase was due to
the acquisition of Old Dean on December 21, 2001. Net sales for the Dairy Group
increased 8.4%, or $391.3 million, in 2001, and net sales for Morningstar Foods
increased 8.9%, or $62.7 million in 2001. $74.7 million and $9.7 million of
these increases, respectively, are due to the sales of Old Dean being included
in our results since December 21, 2001 (the date of acquisition).
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<PAGE>
The remaining portions of these increases were primarily due to an increase in
prices charged for our products in response to higher raw milk and butterfat
costs, and occurred despite a small decline in volume.
Cost of Sales -- Our cost of sales ratio was 76.2% in 2001 compared to
75.2% in 2000. The cost of sales ratio for the Dairy Group increased to 77.1% in
2001 from 75.9% in 2000 and the cost of sales ratio for Morningstar Foods
increased to 67.6% in 2001 from 66.8% in 2000. These increases were due to
higher raw milk and butterfat costs in 2001.
Operating Costs and Expenses -- Our operating expense ratio was 17.5% in
2001 compared to 18.4% in 2000. Included in 2001 operating costs were the
following non-recurring items:
- A gain of $47.5 million on the divestiture of the 11 plants transferred
to National Dairy Holdings (as assignee of Dairy Farmers of America) in
connection with the acquisition of Old Dean (which gain represented the
difference between fair value and the carrying value of the plants),
- An expense of $28.5 million resulting from a payment to Dairy Farmers of
America as consideration for modifications to our milk supply
arrangements,
- Expenses of $9.6 million for plant closings, and
- An expense of $1.7 million resulting from the impairment in value of a
water plant in Grand Rapids, Michigan.
In 2000 the following non-recurring expenses were included in operating
costs:
- Litigation settlement costs of $7.5 million, and
- Expenses of $3.4 million for plant closings.
Excluding these nonrecurring items, our operating expense ratio in 2001 was
17.6% compared to 18.2% in 2000. The operating expense ratio at the Dairy Group,
excluding non-recurring items, was 17.8% in 2001 compared to 18.3% in 2000. This
decrease was primarily due to various cost savings initiatives (most of which
were temporary) implemented during 2001 in response to a difficult operating
environment. These initiatives resulted in lower selling and general and
administrative costs during 2001. The operating expense ratio at Morningstar
Foods was 18.8% in both 2001 and 2000. Although similar cost savings initiatives
were implemented at Morningstar Foods in 2001 as were implemented at the Dairy
Group, their overall operating expense ratio remained steady due to higher
distribution and selling expenses related to the introduction of new products.
Operating Income -- Operating income in 2001 was $394.4 million, an
increase of $26.3 million from 2000 operating income of $368.1 million. Our
operating margin in 2001 was 6.3% compared to 6.4% in 2000. Excluding the
nonrecurring items listed above, our operating income increased $7.7 million in
2001 to $386.7 million and our operating margin decreased to 6.2% in 2001 from
6.6% in 2000. The Dairy Group's operating margin, excluding the non-recurring
items, decreased to 5.1% in 2001 from 5.8% in 2000. This decrease was due to
higher raw milk costs during 2001, partly offset by lower operating costs.
Morningstar Foods' operating margin declined to 13.6% in 2001 from 14.3% in
2000. This decrease was due to higher butterfat costs in 2001.
Other (Income) Expense -- Total other expense increased by $29.6 million in
2001. Interest expense decreased to $101.8 million in 2001 from $112.6 million
in 2000. This decrease was the result of lower debt balances and lower interest
rates in 2001. Financing charges on preferred securities were $33.6 million in
both years.
Income from investments in unconsolidated affiliates, which relates
primarily to our 43.1% minority interest in Consolidated Container Company
("CCC"), was a loss of $23.6 million in 2001 compared to income of $11.5 million
in 2000. Included in the 2001 loss is an impairment charge of $21.1 million
related to the write-off of our investment in CCC. During 2001, due to a variety
of operational difficulties, CCC consistently reported operating results that
were significantly weaker than expected, which resulted in significant losses in
the third and fourth quarters. CCC has implemented several changes in an effort
to return
22
<PAGE>
to stable profitability. However, in November 2001 CCC announced that it did not
expect to see the benefits of these changes for at least several quarters. Also,
as a result of CCC's performance in 2001, CCC became unable to comply with the
financial covenants contained in its credit facility. Accordingly, we concluded
that our investment in CCC was impaired and that the impairment was not
temporary. In the fourth quarter of 2001, we wrote off our remaining investment
in CCC.
Other income and expense also includes $4.4 million of impairment charges
related to two other small investments.
Income Taxes -- Income tax expense was recorded at an effective rate of
36.3% in 2001 compared to 38.6% in 2000. This decrease was due primarily to the
favorable settlement of a contested state tax issue during 2001. Our tax rate
varies as the mix of earnings contributed by our various business units changes,
and as tax savings initiatives are adopted.
Minority Interest -- Minority interest in earnings, which was primarily the
33.8% ownership interest of Dairy Farmers of America in our Dairy Group,
increased to $31.4 million in 2001 compared to $29.9 million in 2000. On
December 21, 2001, in connection with our acquisition of Old Dean, we purchased
the 33.8% stake that was owned by Dairy Farmers of America. See Note 2 to our
Consolidated Financial Statements. We now own 100% of our Dairy Group. In 2001,
we also purchased the 25% minority interest of Leche Celta. We now own 100% of
our Spanish operations.
Extraordinary Gain (Loss) -- On December 21, 2001, simultaneously with the
acquisition of Old Dean, we replaced our former credit facilities with a new
credit facility. As a result, we recognized a $4.3 million extraordinary loss,
net of an income tax benefit of $3.0 million, for the write-off of deferred
financing costs related to the early retirement of our former credit facilities.
See Note 10 to our Consolidated Financial Statements.
In 2000 we recognized a $5.0 million extraordinary gain, net of income tax
expense of $2.8 million, which included the following items related to the early
extinguishment of our previous senior credit facility:
- A $6.5 million gain, net of income tax expense of $3.6 million, for
interest rate derivatives which became unhedged and were marked to fair
market value, and
- A $1.5 million loss, net of an income tax benefit of $0.8 million, for
the write-off of deferred financing costs.
Cumulative Effect of Accounting Change -- Effective January 1, 2001 we
adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting
for Derivative Instruments and Hedging Activities (as amended). Our adoption of
this accounting standard resulted in the recognition of $1.4 million, net of an
income tax benefit of $1.5 million and minority interest benefit of $0.7
million, as a charge to earnings.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Net Sales -- Net sales increased 28.4% to $5.76 billion during 2000 from
$4.48 billion in 1999. Excluding the effect of our packaging operations, sales
increased $1.72 billion or 43.1% in 2000. Net sales for our Dairy Group
increased by $1.56 billion, or 50.2%, in 2000 compared to 1999 mainly due to
acquisitions, particularly the acquisition of Southern Foods Group. Net sales
for Morningstar Foods increased by $49.1 million, or 7.5%, in 2000 due to
increased sales of higher-priced products.
Cost of Sales -- Our cost of sales ratio was 75.2% in 2000 compared to
77.8% in 1999. The cost of sales ratio for the Dairy Group decreased to 75.9% in
2000 from 79.6% in 1999. This ratio improved due to improved performance at
dairies owned more than twelve months, lower raw material costs and because
Southern Foods Group, which we acquired effective January 1, 2000, has a lower
cost of sales ratio than some of our other dairies because of its extensive use
of direct store delivery. The customer base of Southern Foods Group is somewhat
different from our other dairies, which requires Southern Foods to charge higher
prices to cover higher distribution costs. The cost of sales ratio for
Morningstar Foods improved to 66.8% from 69.0%, due to an increased emphasis on
cost savings initiatives, as well as increased sales of higher priced products.
23
<PAGE>
Operating Costs and Expenses -- Our operating expense ratio was 18.4% in
2000 compared to 16.0% in 1999. The operating expense ratio at our Dairy Group
was 17.9% in 2000 compared to 15.1% in 1999. This ratio increased due to
- higher distribution costs at Southern Foods Group as a result of its
extensive direct store delivery routes in rural areas, and
- increased distribution costs in 2000 because of higher fuel costs.
These cost increases were partly offset by a $3.6 million pre-tax gain in
the second quarter of 2000 related to the curtailment of certain defined benefit
plans.
Included in operating costs for the Dairy Group in 2000 were plant closing
costs of $2.1 million and litigation settlement costs of $7.5 million. In 1999,
plant closing costs amounted to $8.7 million.
The operating expense ratio at Morningstar Foods was 18.9% in 2000 compared
to 18.2% in 1999. This ratio increased due to higher marketing expenses in 2000
related to new products. In 1999, plant closing costs amounted to $0.5 million.
Operating Income -- Operating income in 2000 was $368.1 million, an
increase of 32.9% from 1999 operating income of $276.9 million. Excluding the
effect of our packaging operations, our operating income in 2000 increased
$141.2 million or 62.3%. Our operating income margin increased to 6.4% in 2000
compared to 6.2% in 1999 (5.7% excluding the contribution of our packaging
operations in 1999). Operating margin at the Dairy Group improved to 6.2% in
2000 from 5.3% in 1999. This increase in operating income margin was due to
improved performance at dairies owned more than twelve months. Morningstar
Foods' operating margin improved to 14.3% in 2000 from 12.8% in 1999 due to
increased sales of higher margin products.
Other (Income) Expense -- Total other expense increased in 2000 by $50.3
million. Interest expense increased to $112.6 million in 2000 from $49.2 million
in 1999. This increase was due to additional debt used to finance acquisitions,
and also as a result of higher interest rates. Financing charges on preferred
securities decreased to $33.6 million in 2000 from $38.6 million in 1999 as a
result of the redemption of $100.0 million of 5.0% preferred securities held by
Dairy Farmers of America in connection with our acquisition of Southern Foods
Group, L.P.
Income from investments in unconsolidated affiliates, which is primarily
related to our minority interest in Consolidated Container Company, amounted to
$11.5 million in 2000. These earnings included $0.8 million, representing our
proportional share of a favorable adjustment to previously recorded
restructuring charges at Consolidated Container Company. During 1999 we reported
$2.6 million in income from investments in unconsolidated subsidiaries,
primarily Consolidated Container Company.
Income Taxes -- Income tax expense was recorded at an effective rate of
38.6% in 2000 compared to 39.1% during 1999. This decrease was a result of the
sale of our U.S. packaging operations, which had a higher effective tax rate
than our dairy operations, and certain tax saving initiatives implemented during
2000.
Minority Interest -- Minority interest in earnings increased to $29.9
million in 2000 from $8.8 million in 1999. Effective January 1, 2000 we entered
into a joint venture with Dairy Farmers of America ("DFA") into which we
contributed our domestic fluid dairy operations and DFA contributed the
operations of Southern Foods Group and their interests in certain other joint
ventures with us. DFA received a 33.8% ownership interest in the joint venture,
which is shown as a minority interest on our consolidated financial statements.
During 1999, minority interest in earnings consisted primarily of DFA ownership
interests in two smaller joint ventures: Suiza GTL, LLC and Land-O-Sun, LLC. On
December 21, 2001, in connection with our acquisition of Old Dean, we purchased
the 33.8% stake that was owned by Dairy Farmers of America. See Note 2 to our
Consolidated Financial Statements. We now own 100% of our Dairy Group.
24
<PAGE>
Extraordinary Gain -- During the first quarter of 2000 we recognized a $5.0
million extraordinary gain, net of income tax expense of $2.8 million, which
included the following items related to the early extinguishment of our previous
senior credit facility:
- A $6.5 million gain, net of income tax expense of $3.6 million, for
interest rate derivatives which became unhedged and were marked to fair
market value, and
- A $1.5 million loss, net of an income tax benefit of $0.8 million, for
the write-off of deferred financing costs.
CRITICAL ACCOUNTING POLICIES
"Critical accounting policies" are defined as those that are both most
important to the portrayal of a company's financial condition and results, and
that require management's most difficult, subjective or complex judgments. In
many cases the accounting treatment of a particular transaction is specifically
dictated by generally accepted accounting principles with no need for the
application of our judgment. In certain circumstances, however, the preparation
of our consolidated financial statements in conformity with generally accepted
accounting principles requires us to use our judgment to make certain estimates
and assumptions. These estimates affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. We have identified the policies described
below as our critical accounting policies. See Note 1 to our Consolidated
Financial Statements for a detailed discussion of these and other accounting
policies.
Revenue Recognition and Accounts Receivable -- Revenue is recognized when
persuasive evidence of an arrangement exists, the price is fixed or
determinable, the product has been shipped to the customer and there is a
reasonable assurance of collection of the sales proceeds. Revenue is reduced by
sales incentives that are recorded by estimating expense based on our historical
experience. We provide credit terms to customers generally ranging up to 30
days, perform ongoing credit evaluation of our customers and maintain allowances
for potential credit losses based on historical experience.
Insurance Accruals -- We retain selected levels of property and casualty
risks, primarily related to employee health care, workers' compensation claims
and other casualty losses. Many of these potential losses are covered under
conventional insurance programs with third party carriers with high deductible
limits. In other areas, we are self-insured with stop-loss coverages. Accrued
liabilities for incurred but not reported losses related to these retained risks
are calculated based upon loss development factors provided by our external
insurance brokers and actuaries. The loss development factors are subject to
change based upon actual history and expected trends in costs, among other
factors.
Valuation of Long-Lived and Intangible Assets and Goodwill -- Historically,
we assessed the impairment of identifiable intangible, long-lived assets and
related goodwill whenever events or changes in circumstances indicated that the
carrying amount of the asset may not have been recoverable. To determine whether
impairment existed, we compared the expected future net operating cash flows,
undiscounted and without interest charges, to the carrying amount of the
underlying assets. We would have considered a potential impairment if the
recorded value of these assets exceeded the associated future net operating cash
flows. Any potential impairment loss would have been measured as the amount by
which the carrying value exceeded the fair value of the asset. Fair value of
assets would have been measured by market value, if an active market existed, or
by a forecast of expected future net operating cash flows, discounted at a rate
commensurate with the risk involved. In 2002, Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" became
effective and as a result, goodwill will no longer be amortized. We recorded
approximately $45.5 million of goodwill amortization in 2001. In lieu of
amortization, we are required to perform a transitional impairment assessment of
our goodwill in 2002 and annual impairment tests thereafter. As of December 31,
2001, we had $2.95 billion of unamortized goodwill included on our balance
sheet. Under SFAS 142, any identifiable intangibles with an indefinite life will
not be amortized, but instead tested for impairment in accordance with the
standard.
25
<PAGE>
Purchase Price Allocation -- We allocate the cost of acquisitions to the
assets acquired and liabilities assumed. All identifiable assets acquired,
including identifiable intangibles, and liabilities assumed are assigned a
portion of the cost of the acquired company, normally equal to their fair values
at the date of acquisition. The excess of the cost of the acquired company over
the sum of the amounts assigned to identifiable assets acquired less liabilities
assumed is recorded as goodwill. We record the initial purchase price allocation
based on evaluation of information and estimates available at the date of the
financial statements. As final information regarding fair value of assets
acquired and liabilities assumed is evaluated and estimates are refined,
appropriate adjustments are made to the purchase price allocation. To the extent
that such adjustments indicate that the fair value of assets and liabilities
differ from their preliminary purchase price allocations, such difference would
adjust the amounts allocated to those assets and liabilities and would change
the amounts allocated to goodwill. The final purchase price allocation includes
the consideration of a number of factors to determine the fair value of
individual assets acquired and liabilities assumed including quoted market
prices, forecast of expected cash flows, net realizable values, estimates of the
present value of required payments and determination of remaining useful lives.
For significant acquisitions, we utilize valuation specialists and appraisers to
assist in the determination of the fair value of long-lived assets, including
identifiable intangibles.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Emerging Issues Task Force (the "Task Force") of the Financial
Accounting Standards Board has reached a consensus on Issue No. 00-14,
"Accounting for Certain Sales Incentives," which becomes effective for us in the
first quarter of 2002. This issue addresses the recognition, measurement and
income statement classification of sales incentives that have the effect of
reducing the price of a product or service to a customer at the point of sale.
Our current accounting policy for recording sales incentives within the scope of
this issue is to record estimated coupon expense based on historical coupon
redemption experience which is consistent with the requirements of this issue.
Therefore, our adoption of this issue will have no impact on our consolidated
financial statements.
In April 2001, the Task Force reached a consensus on Issue No. 00-25,
"Vendor Income Statement Characterization of Consideration Paid to a Reseller of
the Vendor's Products." We will adopt this Issue in the first quarter of 2002,
as required. Under this Issue, certain consideration paid to our customers (such
as slotting fees) will be required to be classified as a reduction of revenue,
rather than recorded as an expense. Adoption of this Issue will result in the
reclassification of certain costs; however, there will be no change in reported
net income.
In June 2001, FASB issued SFAS No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses
financial accounting and reporting for business combinations. Under the new
standard, all business combinations entered into after June 30, 2001 are to be
accounted for by the purchase method. We have applied the provisions of SFAS No.
141 to all business combinations completed after June 30, 2001, including the
acquisition of Old Dean. SFAS No. 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets. We adopted SFAS No.
142 on January 1, 2002. SFAS No. 142 requires that goodwill no longer be
amortized, but instead requires a transitional goodwill impairment assessment
and annual impairment tests thereafter. Any transitional impairment loss
resulting from the adoption will be recognized as the effect of a change in
accounting principle in our income statement. We are currently in the process of
completing the transitional impairment assessment and any impact on our
financial statements. We must complete the first step of this test to determine
if we have an impairment by June 30, 2002 and, if we have an impairment, we must
complete the final step and record any impairment by December 31, 2002. SFAS No.
142 also requires that recognized intangible assets be amortized over their
respective estimated useful lives. As part of the adoption, we are currently
reassessing the useful lives and residual values of all intangible assets. Any
recognized intangible asset determined to have an indefinite useful life will
not be amortized, but instead tested for impairment in accordance with the
standard.
In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This statement requires that the fair value of a liability for an
asset retirement obligation be recognized in the
26
<PAGE>
period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. SFAS No. 143 will become effective for
us in fiscal year 2003. We are currently evaluating the impact of adopting this
pronouncement on our consolidated financial statements.
FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" in August 2001 and it became effective for us beginning
January 1, 2002. SFAS No. 144, which supercedes SFAS No. 121, provides a single,
comprehensive accounting model for impairment and disposal of long-lived assets
and discontinued operations. Our adoption of this standard will not have a
material impact on our consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
HISTORICAL CASH FLOW
During 2001, we met our working capital needs with cash flow from
operations along with borrowings under our former credit facilities. Net cash
provided by operating activities was $310.2 million for 2001 as contrasted to
$297.7 million for 2000, an increase of $12.5 million. Net cash provided by
operating activities was impacted by:
- A decrease of $3.3 million in net income plus non-cash items in 2001 as
compared to 2000; and
- Changes in working capital components which improved by $15.8 million in
2001 compared to the previous year.
Net cash used in investing activities was $1.28 billion in 2001 compared to
$380.3 million in 2000, an increase of $900.2 million. Cash paid for
acquisitions increased to $1.15 billion in 2001 from $336.0 million in 2000
primarily as a result of the acquisition of Old Dean in 2001.
CURRENT DEBT OBLIGATIONS
Effective December 21, 2001, in connection with our acquisition of Old
Dean, we replaced our former credit facilities with a new $2.7 billion credit
facility provided by a syndicate of lenders. This facility provides us with a
revolving line of credit of up to $800.0 million and two term loans in the
amounts of $900.0 million and $1.0 billion, respectively. Both term loans were
fully funded upon closing of the Old Dean acquisition and the proceeds were used
to repay debt under our former credit facilities, to repay Old Dean's credit
facility, to purchase DFA's ownership stake in our Dairy Group, and to pay
certain other obligations. The revolving line of credit, which expires on July
15, 2007 and is to be used for general corporate and working capital purposes
(including the financing of future acquisition and stock buybacks, if any,
subject to certain limitations contained in the credit facility documents) was
undrawn. The senior credit facility contains various financial and other
restrictive covenants and requirements that we maintain certain financial
ratios, including a leverage ratio (computed as the ratio of the aggregate
outstanding principal amount of defined indebtedness to EBITDA) and an interest
coverage ratio (computed as the ratio of EBITDA to interest expense). In
addition, this facility requires that we maintain a minimum level of net worth
(as defined by the agreement). The agreement contains standard default triggers,
including without limitation: failure to maintain compliance with the financial
and other covenants contained in the agreement, default on certain of our other
debt, a change in control and certain other material adverse changes in our
business. The agreement does not contain any default triggers based on our debt
rating. See Note 10 to our Consolidated Financial Statements for further
information regarding the terms of our credit agreement, including interest
rates, principal payment schedules and mandatory prepayment provisions.
At December 31, 2001 we had outstanding borrowings of $1.9 billion under
our senior credit facility. In addition, $30.4 million of letters of credit
secured by the credit facility were issued but undrawn. As of December 31, 2001
approximately $769.6 million was available for future borrowings under this
credit facility,
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<PAGE>
subject to satisfaction of certain conditions contained in the loan agreement.
We are currently in compliance with all covenants contained in our credit
agreement.
An additional portion of the cash consideration paid for the Old Dean
acquisition and related transactions was provided by new funding under our
existing receivables securitization facility. On December 21, 2001, we sold Old
Dean's receivables into the facility, thereby increasing the amount of the
facility by $150.0 million to $400.0 million. See Note 10 to our Consolidated
Financial Statements for more information about our receivables securitization
facility.
In addition, certain of Old Dean's indebtedness remains outstanding after
the acquisition, including $700.0 million of outstanding indebtedness under
certain senior notes, approximately $22.0 million of industrial development
revenue bonds, and certain capital lease obligations. See Note 10 to our
Consolidated Financial Statements.
The table below summarizes our obligations for indebtedness and lease
obligations at December 31, 2001 (dollars in thousands):
<Table>
<Caption>
PAYMENTS DUE BY PERIOD
INDEBTEDNESS & LEASE ------------------------------------------------------------------
OBLIGATIONS TOTAL 2002 2003 2004 2005 2006 THEREAFTER
- -------------------- ---------- -------- --------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Senior credit
facility............ $1,900,000 $ 72,500 $ 145,000 $145,000 $167,500 $190,000 $1,180,000
Senior notes(1)....... 700,000 100,000 600,000
Receivables-backed
loan................ 400,000 400,000
Foreign subsidiary
term loan........... 35,172 4,818 6,077 7,250 6,982 6,699 3,346
Other lines of
credit.............. 2,317 2,317
Industrial development
revenue bonds....... 28,001 455 555 555 555 555 25,326
Capital lease
obligations and
other............... 44,796 16,882 3,549 19,151 4,491 281 442
Operating leases...... 357,870 66,946 63,248 50,047 42,823 31,379 103,427
---------- -------- --------- -------- -------- -------- ----------
Totals...... $3,468,156 $163,918 $ 218,429 $622,003 $322,351 $228,914 $1,912,541
========== ======== ========= ======== ======== ======== ==========
</Table>
- ---------------
(1) Represents face value of senior notes.
In addition to the letters of credit secured by our credit facility, we had
at December 31, 2001 approximately $71.1 million of letters of credit with three
other banks that were issued but undrawn. These were required by various
utilities and government entities for performance and insurance guarantees.
We do have certain other commitments and contingent obligations. Please see
Note 19 to our Consolidated Financial Statements for a description of these
commitments and contingent obligations.
We do not have any ownership interests or relationships with any
special-purpose entities (or "bankruptcy remote" entities), other than our
ownership of the special purpose entities formed to facilitate our receivables
securitization program and our mandatorily redeemable preferred securities. The
assets and liabilities of those entities are fully reflected on our balance
sheet. We have no other significant off-balance sheet arrangements, special
purpose entities, financing partnerships or guaranties, nor any debt or equity
triggers based on our stock price or credit rating.
PREFERRED SECURITIES
On March 24, 1998, we issued $600.0 million of company-obligated 5.5%
mandatorily redeemable convertible preferred securities of a Delaware business
trust in a private placement to "qualified institutional buyers" under Rule 144A
under the Securities Act of 1933. The 5.5% preferred securities, which are
recorded net of related fees and expenses, mature 30 years from the date of
issue. Holders of these securities are entitled
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<PAGE>
to receive preferential cumulative cash distributions at an annual rate of 5.5%
of their liquidation preference of $50 each. These distributions are payable
quarterly in arrears on January 1, April 1, July 1 and October 1 of each year.
These trust issued preferred securities are convertible at the option of the
holders into an aggregate of approximately 7.7 million shares of our common
stock, subject to adjustment in certain circumstances, at a conversion price of
$78.25 (equivalent to a conversion rate of .6390 shares per security). These
preferred securities are also redeemable, at our option, at any time after April
2, 2001 at specified amounts and are mandatorily redeemable at their liquidation
preference amount of $50 per share at maturity or upon occurrence of certain
specified events.
FUTURE CAPITAL REQUIREMENTS
During 2002, we intend to invest a total of approximately $250.0 million in
capital expenditures primarily for our existing manufacturing facilities and
distribution capabilities. We intend to fund these expenditures using cash flow
from operations. Of this amount, we intend to spend it as follows:
<Table>
<Caption>
OPERATING DIVISION AMOUNT
- ------------------ ------
(DOLLARS IN MILLIONS)
<S> <C>
Dairy Group.......................................... $178.0
Morningstar Foods.................................... 50.0
Specialty Foods...................................... 12.0
Other................................................ 10.0
------
$250.0
======
</Table>
We expect that cash flow from operations will be sufficient to meet our
requirements for our existing businesses for the foreseeable future.
In the future, we may pursue additional acquisitions that are compatible
with our core business strategy. Any such acquisitions, as well as any stock
repurchases, will be funded through cash flows from operations or borrowings
under our credit facility. If necessary, we believe that we have the ability to
secure additional financing for our future capital requirements.
KNOWN TRENDS AND UNCERTAINTIES
ACQUISITIONS AND DIVESTITURES
We have recently announced that we intend to continue to make acquisitions
in our core businesses and, over the next several years, to divest non-core
businesses.
RAW MATERIAL PRICES
The primary raw materials used in our operations are raw milk and
butterfat. The prices we pay for these materials are regulated by the federal
government, and in some cases by state and other regulatory agencies. Prices of
raw milk and butterfat can be very volatile. In general, we change the prices
that we charge our customers for our products on a monthly basis, as the costs
of our raw materials fluctuate. However, there can be a lag between the time of
a raw material cost increase and the effectiveness of a corresponding price
increase to our customers, and in some cases we are contractually restrained
with respect to the means and timing of implementing price increases. Also, at
some point price increases do erode our volumes. These factors can cause
volatility in our earnings. Our operating profit margin tends to fluctuate with
the price of our raw materials.
CURRENT ECONOMIC CLIMATE
Many of our customers in the airline, food service and hospitality
industries have suffered decreases in sales volumes since the events of
September 11 and the resulting economic climate. While we have seen some
improvements in these areas, our sales to some of these customers continue to be
weaker than prior to
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<PAGE>
September 11 and may take several months to recover. Some of our customers in
the retail grocery industry have also suffered decreased sales volumes as a
result of the current economic climate, and we have seen some of those customers
file for bankruptcy protection in recent months. While we do not expect this
trend to have a material adverse effect on our business, we do expect this trend
to continue until our economy returns to more stable levels.
INTEREST RATES
We have hedged a portion of our variable interest rate exposure by entering
into interest rate swap agreements that have the effect of "converting" the
hedged debt from variable rate debt to fixed rate debt. Approximately 40% of our
variable rate debt is currently hedged. The percentage of our total debt that is
hedged will fluctuate as our debt level fluctuates. Moveover, we constantly
monitor the prevailing interest rate environment, and may increase the
percentage of our debt that is hedged if interest rates threaten to increase to
substantially higher levels, or become more volatile.
RATIONALIZATION ACTIVITIES
As part of our overall integration and cost reduction strategy, we recorded
plant closing and other non-recurring costs during 2001, 2000 and 1999 in the
amounts of $9.6 million, $3.4 million and $12.6 million, respectively. These
charges included the following costs:
- Workforce reductions as a result of plant closings, plant
rationalizations and consolidation of administrative functions. The plans
included an overall reduction of 198 people in 2001, 205 people in 2000
and 315 people in 1999, who were primarily plant employees associated
with the plant closings and rationalization. The costs were charged to
our earnings in the period that the plan was established in detail and
employee severance and benefits had been appropriately communicated;
- Shutdown costs, including those costs necessary to prepare the plant
facilities for closure;
- Costs incurred after shutdown such as lease obligations or termination
costs, utilities and property taxes; and
- Write-downs of property, plant and equipment and other assets, primarily
for asset impairments as a result of facilities no longer used in
operations. The impairments related primarily to owned building, land and
equipment at the facilities that were sold and written down to their
estimated fair value.
As part of our purchase price allocations, we accrued costs of $28.0
million in 2001 and $11.0 million in 2000 pursuant to plans to exit certain
activities and operations of acquired businesses in order to rationalize
production and reduce costs and inefficiencies. Several plants were closed in
connection with our acquisition of Southern Foods in 2000. We have implemented
certain plans to shut down plants and administrative offices in connection with
our acquisition of Old Dean, which was completed on December 21, 2001. We will
continue to finalize and implement our initial integration and rationalization
plans related to the Old Dean acquisition and we expect to refine our estimate
of costs associated with these plans.
The principal components of the plans will include the following:
- Workforce reductions, to be charged against acquisition liabilities for
these costs;
- Shutdown costs, including those costs that are necessary to prepare
facilities for closure; and
- Costs incurred after shutdown such as lease obligations or termination
costs, utilities and property taxes after shutdown.
We do not expect any of these costs to have a material adverse impact on
our results of operations. For more information on our restructuring and exit
plans see Note 16 to our Consolidated Financial Statements.
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<PAGE>
TAX RATE
Our 2001 tax rate was approximately 36.3%. However, we believe that our
effective tax rate will increase to a range of approximately 37.0% to 38.0% over
the next several years, as Old Dean's tax rate was higher than our tax rate
prior to the Old Dean acquisition. In addition, the 2001 tax rate was favorably
impacted by the settlement of a contested state tax issue.
UTILITY COSTS
In 1999, we entered into a contract with Enron Energy Services pursuant to
which we contracted to purchase electricity for certain of our plants at a
discounted rate for a ten-year period. Enron filed for bankruptcy protection on
December 1, 2001, and subsequently elected to reject our contract in its
bankruptcy. We do not expect to be able to replace the economic benefits of our
contract with Enron. Therefore, we expect our utility costs to return to market
levels in the future.
See "-- Risk Factors" for a description of various other risks and
uncertainties concerning our business.
RISK FACTORS
This report contains statements about our future that are not statements of
historical fact. Most of these statements are found in Items 1, 7 and 7a of this
report under the following subheadings: "Current Business Strategy," "Government
Regulation," "Industry Overview," "Raw Materials and Supply," "Liquidity and
Capital Resources," "Known Trends and Uncertainties" and "Quantitative and
Qualitative Disclosures About Market Risk." In some cases, you can identify
these statements by terminology such as "may," "will," "should," "could,"
"expects," "seek to," "anticipates," "plans," "believes," "estimates,"
"intends," "predicts," "potential" or "continue" or the negative of such terms
and other comparable terminology. These statements are only predictions, and in
evaluating those statements, you should carefully consider the risks outlined
below. Actual performance or results may differ materially and adversely.
WE MAY HAVE DIFFICULTIES MANAGING OUR GROWTH
We have expanded our operations rapidly in recent years, particularly with
the acquisition of Chicago-based Dean Foods Company ("Old Dean") in December
2001. This rapid growth places a significant demand on our management and our
financial and operational resources, which subjects us to various risks,
including among others:
- inability to successfully integrate or operate acquired businesses,
- inability to retain key customers of acquired or existing businesses, and
- inability to realize or delays in realizing expected benefits from our
increased size.
The integration of businesses we have acquired or may acquire in the future
may also require us to invest more capital than we expected or require more time
and effort by management than we expected. If we fail to effectively manage the
integration of the businesses we have acquired, particularly Old Dean, our
operations and financial results will be affected, both materially and
adversely.
OUR FAILURE TO SUCCESSFULLY COMPETE COULD ADVERSELY AFFECT OUR PROSPECTS AND
FINANCIAL RESULTS
Our business is subject to significant competition based on a number of
factors. See "Part I -- Item 1. Business -- Competition." If we fail to
successfully compete against our competitors, our business will be adversely
affected.
The consolidation trend is continuing in the retail grocery and foodservice
industries. As our customer base continues to consolidate, we expect competition
among us and our competitors to intensify as we compete for the business of
fewer customers. As the consolidation continues, there can be no assurance that
we will be able to keep our existing customers, or to gain new customers.
Winning new customers is particularly important to our future growth, as demand
tends to be relatively flat in our industry. Moreover, as our
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<PAGE>
customers become larger, they will have greater purchasing leverage, and could
force prices and margins, particularly for our Dairy Group, lower than current
levels.
We could also be adversely affected by any expansion of capacity by our
existing competitors or by new entrants in our markets.
OUR INNOVATION EFFORTS MAY NOT SUCCEED
We have invested, and intend to continue to invest, significant resources
in product innovation in an effort to increase our sales and profit margins as
well as the overall consumption of dairy products. We believe that sales and
profit growth through innovation is a significant source of growth for our
business. The success of our innovation initiatives will depend on customer and
consumer acceptance of our products, of which there can be no assurance. If our
innovation efforts do not succeed, or if we do not have adequate resources to
invest in innovation, we may not be able to continue to significantly increase
sales or profit margins.
CHANGES IN RAW MATERIAL AND OTHER INPUT COSTS CAN ADVERSELY AFFECT US
The most important raw materials that we use in our operations are raw
milk, butterfat and high density polyethylene resin. The prices of these
materials increase and decrease depending on supply and demand and, in some
cases, governmental regulation. For more information about the pricing of raw
milk, see "Part I -- Item 1. Business -- Raw Materials and Supply" and "Part
I -- Item 1. Business -- Government Regulation -- Milk Industry Regulation."
Prices of raw milk, butterfat and certain other raw materials used in our
Morningstar Foods and Specialty Foods segments can fluctuate widely over short
periods of time. In many cases we are able to adjust our pricing to reflect
changes in raw material costs. Volatility in the cost of our raw materials can
adversely affect our performance, however, as price changes often lag changes in
costs. These lags tend to erode our profit margins. Extremely high raw material
costs can also put downward pressure on our margins and our volumes. We were
adversely affected in 2001 by raw material costs. Although raw material costs
have returned to normal levels in 2002 to date, we cannot predict future changes
in raw material costs.
Because we deliver a majority of our products directly to our customers
through our "direct store delivery" system, we are a large consumer of gasoline.
Increases in fuel prices can adversely affect our results of operations. Also,
since we lost our energy supply agreement with Enron (see "Item 1. Business --
Developments since January 1, 2001 -- Enron"), we will pay market prices for
electricity in the foreseeable future. As we are a significant consumer of
electricity, any significant increase in energy prices could adversely affect
our financial performance.
WE HAVE SUBSTANTIAL DEBT AND OTHER FINANCIAL OBLIGATIONS AND WE MAY INCUR EVEN
MORE DEBT
We have substantial debt and other financial obligations and significant
unused borrowing capacity. See "-- Liquidity and Capital Resources."
We have pledged substantially all of our assets (including the assets of
our subsidiaries) to secure our indebtedness. Our high debt level and related
debt service obligations:
- require us to dedicate significant cash flow to the payment of principal
and interest on our debt which reduces the funds we have available for
other purposes,
- may limit our flexibility in planning for or reacting to changes in our
business and market conditions,
- impose on us additional financial and operational restrictions, and
- expose us to interest rate risk since a portion of our debt obligations
are at variable rates.
Our ability to make scheduled payments on our debt and other financial
obligations depends on our financial and operating performance. Our financial
and operating performance is subject to prevailing economic conditions and to
financial, business and other factors, some of which are beyond our control. A
significant increase in interest rates could adversely impact our financial
results. If we do not comply with the
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<PAGE>
financial and other restrictive covenants under our credit facilities (see Note
10 to our Consolidated Financial Statements), we may default under them. Upon
default, our lenders could accelerate the indebtedness under the facilities,
foreclose against their collateral or seek other remedies.
LOSS OF RIGHTS TO ANY OF OUR LICENSED BRANDS COULD ADVERSELY AFFECT US
We sell certain of our products under licensed brand names such as
Hershey's(R), Borden(R), Pet(R), Folgers(R) Jakada(TM), Land-O-Lakes(R) and
others. In some cases, we have invested, and intend to continue to invest,
significant capital in product development and marketing and advertising related
to these licensed brands. Should our rights to manufacture and sell products
under any of these names be terminated for any reason, our financial performance
and results of operations could be materially and adversely affected.
NEGATIVE PUBLICITY AND/OR SHORTAGES OF MILK SUPPLY RELATED TO MAD COW DISEASE
AND/OR FOOT AND MOUTH DISEASE COULD ADVERSELY AFFECT US
Recent incidences of bovine spongiform encephalopathy ("BSE" or "mad cow
disease") in some European countries have raised public concern about the safety
of eating beef and using or ingesting certain other animal-derived products. The
World Health Organization, the U.S. Food and Drug Administration and the United
States Department of Agriculture have all affirmed that BSE is not transmitted
to milk. However, we are still subject to risk as a result of public
misperception that milk products may be affected by mad cow disease. To date, we
have not seen any measurable impact on our milk sales in Spain or the United
States resulting from concerns about mad cow disease. However, should public
concerns about the safety of milk or milk products escalate as a result of
further occurrences of mad cow disease, we could suffer a loss of sales, which
could have a material and adverse affect our financial results.
Foot and Mouth Disease ("FMD") is a highly contagious disease of cattle,
swine, sheep, goats, deer and other cloven-hooved animals. FMD causes severe
losses in the production of meat and milk; however, FMD does not pose a health
risk to humans. While there have been several recent occurrences of FMD in
Europe, the United States has been free of FMD since 1929. To date, we have not
seen a measurable impact on our supply of raw milk in Spain as a result of FMD.
However, should FMD become widespread in Spain, a milk supply shortage could
develop, which would affect our ability to obtain raw milk for our Spanish
operations and the price that we are required to pay for raw milk in Spain. If
we are unable to obtain a sufficient amount of raw milk to satisfy our Spanish
customers' needs, and/or if we are forced to pay a significantly higher price
for raw milk in Spain, our financial results in Spain could be materially and
adversely affected. Likewise, if there is an outbreak of FMD in the United
States, a shortage of raw milk could develop in the United States, which would
affect our ability to obtain raw milk and the price that we are required to pay
for raw milk in the United States. If we are unable to obtain a sufficient
amount of raw milk to satisfy our U.S. customers' needs and/or if we are forced
to pay a significantly higher price for raw milk in the United States, our
consolidated financial results could be materially and adversely affected.
WE COULD BE REQUIRED TO PAY SUBSTANTIAL LIQUIDATED DAMAGES TO DAIRY FARMERS OF
AMERICA, IF WE FAIL TO OFFER THEM THE RIGHT TO SUPPLY RAW MILK TO CERTAIN OF
OLD DEAN'S PLANTS
In connection with our purchase of the minority interest in our Dairy
Group, we entered into an agreement with Dairy Farmers of America ("DFA"), the
nation's largest dairy farmers' cooperative and our primary supplier of raw
milk, pursuant to which we have agreed to pay to DFA liquidated damages in an
amount of up to $47.0 million if we fail to offer them the right, within a
specified period of time after completion of the Old Dean acquisition, to supply
raw milk to certain of Old Dean's plants. The amount of damages to be paid, if
any, would be determined on a plant-by-plant basis for each Old Dean plant's
milk supply that is not offered to DFA, based generally on the amount of raw
milk used by the plant. We would be required to pay the liquidated damages even
if we were prohibited from offering the business to DFA by an injunction,
restraining order or contractual obligation. See Note 19 to our Consolidated
Financial Statements for further information regarding this agreement. Old Dean
currently has milk supply agreements with several raw milk suppliers other than
DFA. If any such supplier believes that it has rights to continue to supply Old
Dean's plants beyond the deadline dates contained in our agreement with DFA, and
is successful in legally
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<PAGE>
establishing any such rights, we may be prohibited from offering DFA the right
to supply certain of the Old Dean plants and, therefore, be required to pay all
or a portion of the liquidated damages to DFA.
WE COULD BE REQUIRED TO SATISFY OUR PAYMENT OBLIGATIONS UNDER OUR GUARANTY OF
CONSOLIDATED CONTAINER COMPANY'S DEBT
In February 2002, we executed a limited guarantee of certain indebtedness
of Consolidated Container Company ("CCC"), in which we own a 43.1% interest. See
Note 19 to our Consolidated Financial Statements for information concerning the
terms of the guaranty. CCC has experienced various operational difficulties over
the past 6 to 9 months, which has adversely affected its financial performance.
CCC's ability to repay the guaranteed indebtedness will depend on a variety of
factors, including its ability to successfully implement its business plan, of
which there can be no assurance.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS
We sell food products for human consumption, which involves risks such as:
- product contamination or spoilage,
- product tampering, and
- other adulteration of food products.
Consumption of an adulterated, contaminated or spoiled product may result
in personal illness or injury. We could be subject to claims or lawsuits
relating to an actual or alleged illness or injury, and we could incur
liabilities that are not insured or that exceed our insurance coverages.
Although we maintain quality control programs designed to address food
quality and safety issues, an actual or alleged problem with the quality, safety
or integrity of our products at any of our facilities could result in:
- product withdrawals,
- product recalls,
- negative publicity,
- temporary plant closings, and
- substantial costs of compliance or remediation.
Any of these events could have a material and adverse effect on our
financial condition, results of operations or cash flows.
POOR WEATHER CAN ADVERSELY AFFECT OUR SPECIALTY FOODS SEGMENT
Our Specialty Foods segment purchases cucumbers under seasonal grower
contracts with a variety of growers located near our plants. See "Part I -- Item
1. Business -- Raw Materials and Supply." Bad weather in one of the growing
areas can damage or destroy the crop in that area. If we are not able to buy
cucumbers from one of our local growers due to bad weather, we are forced to
purchase cucumbers from non-local sources at substantially higher prices, which
can have an adverse affect on Specialty Foods' results of operations.
LOSS OF OR INABILITY TO ATTRACT KEY PERSONNEL COULD ADVERSELY AFFECT OUR
BUSINESS
Our success depends to a large extent on the skills, experience and
performance of our key personnel. The loss of one or more of these persons could
hurt our business. We do not maintain key man life insurance on any of our
executive officers, directors or other employees. If we are unable to attract
and retain key personnel, our business will be adversely affected.
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<PAGE>
CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
COULD DETER TAKEOVER ATTEMPTS
Some provisions in our certificate of incorporation and bylaws could delay,
prevent or make more difficult a merger, tender offer, proxy contest or change
of control. Our stockholders might view any such transaction as being in their
best interests since the transaction could result in a higher stock price than
the current market price for our common stock. Among other things, our
certificate of incorporation and bylaws:
- authorize our board of directors to issue preferred stock in series with
the terms of each series to be fixed by our board of directors,
- divide our board of directors into three classes so that only
approximately one-third of the total number of directors is elected each
year,
- permit directors to be removed only for cause, and
- specify advance notice requirements for stockholder proposals and
director nominations.
In addition, with certain exceptions, the Delaware General Corporation Law
restricts mergers and other business combinations between us and any stockholder
that acquires 15% or more of our voting stock.
We also have a stockholder rights plan. Under this plan, after the
occurrence of specified events, our stockholders will be able to buy stock from
us or our successor at reduced prices. These rights do not extend, however, to
persons participating in takeover attempts without the consent of our board of
directors. Accordingly, this plan could delay, defer, make more difficult or
prevent a change of control.
WE ARE SUBJECT TO ENVIRONMENTAL REGULATIONS
We, like others in similar businesses, are subject to a variety of federal,
foreign, state and local environmental laws and regulations including, but not
limited to, those regulating waste water and storm water, air emissions, storage
tanks and hazardous materials. We believe that we are in material compliance
with these laws and regulations. Future developments, including increasingly
stringent regulations, could require us to make currently unforeseen
environmental expenditures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE FLUCTUATIONS
In order to reduce the volatility of earnings that arises from changes in
interest rates, we manage interest rate risk through the use of interest rate
swap agreements.
These swaps have been designated as hedges against variable interest rate
exposure on loans under our senior credit facility. The following table
summarizes our various interest rate swap agreements:
<Table>
<Caption>
NOTIONAL AMOUNTS
----------------
FIXED INTEREST RATES EXPIRATION DATE 2001
- -------------------- --------------- ----------------
(IN MILLIONS)
<S> <C> <C>
4.90% to 4.93%....................................... December 2002 $275.0
6.07% to 6.24%....................................... December 2002 325.0
6.23%................................................ June 2003 50.0
6.69%................................................ December 2004 100.0
6.69% to 6.74%....................................... December 2005 100.0
6.78%................................................ December 2006 75.0
</Table>
These swap agreements provide hedges for loans under our credit facility by
limiting or fixing the LIBOR interest rates specified in the credit facility at
the interest rates noted above until the indicated expiration dates of these
interest rate derivative agreements.
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<PAGE>
These derivative agreements were previously designated as hedges for
borrowings under our terminated Suiza Dairy Group credit facility, but were
redesignated upon completion of the Old Dean acquisition.
We have also entered into interest rate swap agreements that provide hedges
for loans under Leche Celta's term loan. See Note 10 to our Consolidated
Financial Statements. The following table summarizes these agreements:
<Table>
<Caption>
FIXED
INTEREST
RATES EXPIRATION DATE NOTIONAL AMOUNTS
- ------------- --------------- -------------------------------------------------------
<C> <S> <C>
5.54% November 2003 1,500,000,000 pesetas (approximately $8.0 million as of
December 31, 2001)
5.6% November 2004 2,000,000,000 pesetas (approximately $10.7 million as
of December 31, 2001)
</Table>
We are exposed to market risk under these arrangements due to the
possibility of interest rates on our credit facilities falling below the rates
on our interest rate derivative agreements. We incurred $6.9 million of
additional interest expense, net of taxes and minority interest, during 2001 as
a result of interest rates on our variable rate debt falling below the
agreed-upon interest rate on our existing swap agreements. Credit risk under
these arrangements is remote since the counterparties to our interest rate
derivative agreements are major financial institutions.
A majority of our debt obligations are currently at variable rates. We have
performed a sensitivity analysis assuming a hypothetical 10% adverse movement in
interest rates. As of December 31, 2001, the analysis indicated that such
interest rate movement would not have a material effect on our financial
position, results of operations or cash flows. However, actual gains and losses
in the future may differ materially from that analysis based on changes in the
timing and amount of interest rate movement and our actual exposure and hedges.
FOREIGN CURRENCY
We are exposed to foreign currency risk due to operating cash flows and
various financial instruments that are denominated in foreign currencies. Our
most significant foreign currency exposures relate to the British pound and the
euro. At this time, we believe that potential losses due to foreign currency
fluctuations would not have a material impact on our consolidated financial
position, results of operations or operating cash flow.
36
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
Our Consolidated Financial Statements for 2001 are included in this report
on the following pages.
<Table>
<Caption>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-1
Consolidated Balance Sheets as of December 31, 2001 and
2000...................................................... F-2
Consolidated Statements of Income for the years ended
December 31, 2001, 2000 and 1999.......................... F-3
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2001, 2000 and 1999.............. F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999.......................... F-5
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies............ F-6
2. Acquisitions.......................................... F-10
3. Extraordinary Gains and Losses and Discontinued
Operations............................................. F-13
4. Investments in Unconsolidated Affiliates.............. F-13
5. Inventories........................................... F-15
6. Property, Plant and Equipment......................... F-15
7. Intangible and Other Assets........................... F-15
8. Accounts Payable and Accrued Expenses................. F-16
9. Income Taxes.......................................... F-16
10. Long-Term Debt........................................ F-18
11. Mandatorily Redeemable Trust Issued Preferred
Securities............................................. F-22
12. Stockholders' Equity.................................. F-22
13. Other Comprehensive Income............................ F-27
14. Employee Retirement and Profit Sharing Plans.......... F-27
15. Post-Retirement Benefits Other Than Pensions.......... F-30
16. Plant Closing Costs................................... F-31
17. Other Operating (Income) Expense...................... F-33
18. Supplemental Cash Flow Information.................... F-34
19. Commitments and Contingencies......................... F-34
20. Fair Value of Financial Instruments................... F-36
21. Business and Geographic Information and Major
Customers.............................................. F-37
22. Quarterly Results of Operations (unaudited)........... F-40
23. Subsequent Events..................................... F-41
24. Related Party Transactions............................ F-42
</Table>
37
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Dean Foods Company
Dallas, Texas
We have audited the accompanying consolidated balance sheets of Dean Foods
Company and subsidiaries (the "Company") (formerly known as Suiza Foods
Corporation) as of December 31, 2001 and 2000, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 2001. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Dean Foods Company and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 4, 2002
F-1
<PAGE>
DEAN FOODS COMPANY
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31,
-----------------------------
2001 2000
------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 78,260 $ 31,110
Receivables, net of allowance for doubtful accounts of
$38,784 and $24,171.................................... 775,824 519,318
Inventories............................................... 440,247 186,713
Refundable income taxes................................... 3,375 3,925
Deferred income taxes..................................... 127,579 54,634
Prepaid expenses and other current assets................. 56,899 22,231
---------- ----------
Total current assets.............................. 1,482,184 817,931
Property, plant and equipment............................... 1,668,592 1,003,769
Intangible and other assets................................. 3,581,121 1,958,778
---------- ----------
Total............................................. $6,731,897 $3,780,478
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $1,044,409 $ 567,342
Income taxes payable...................................... 33,582 4,342
Current portion of long-term debt......................... 96,972 128,224
---------- ----------
Total current liabilities......................... 1,174,963 699,908
Long-term debt.............................................. 2,971,525 1,225,045
Other long-term liabilities................................. 243,695 34,202
Deferred income taxes....................................... 281,229 123,614
Mandatorily redeemable convertible trust issued preferred
securities (redemption value of $599,920 and $599,945 plus
accrued dividends)........................................ 584,605 584,032
Minority interest in subsidiaries........................... 514,845
Commitments and contingencies (Note 19)
Stockholders' equity:
Preferred stock, none issued
Common stock, 43,936,490 and 27,285,649 shares issued and
outstanding, with a par value of $0.01 per share....... 439 273
Additional paid-in capital................................ 962,145 166,361
Retained earnings......................................... 543,139 433,309
Accumulated other comprehensive loss...................... (29,843) (1,111)
---------- ----------
Total stockholders' equity........................ 1,475,880 598,832
---------- ----------
Total............................................. $6,731,897 $3,780,478
========== ==========
</Table>
See notes to consolidated financial statements.
F-2
<PAGE>
DEAN FOODS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
------------------------------------------
2001 2000 1999
------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Net sales............................................. $ 6,230,116 $ 5,756,303 $ 4,481,999
Cost of sales......................................... 4,750,100 4,330,067 3,487,075
----------- ----------- -----------
Gross profit.......................................... 1,480,016 1,426,236 994,924
Operating costs and expenses:
Selling and distribution............................ 855,192 812,274 518,962
General and administrative.......................... 184,790 182,570 148,009
Amortization of intangibles......................... 53,349 52,441 38,513
Plant closing costs................................. 9,550 3,388 12,566
Other operating (income) expense.................... (17,306) 7,500
----------- ----------- -----------
Total operating costs and expenses.......... 1,085,575 1,058,173 718,050
----------- ----------- -----------
Operating income...................................... 394,441 368,063 276,874
Other (income) expense:
Interest expense, net............................... 101,787 112,586 49,233
Financing charges on trust issued preferred
securities....................................... 33,581 33,595 38,584
Equity in (earnings) loss of unconsolidated
affiliates....................................... 23,620 (11,453) (2,630)
Other (income) expense, net......................... 4,690 (630) (1,416)
----------- ----------- -----------
Total other expense......................... 163,678 134,098 83,771
----------- ----------- -----------
Income before income taxes............................ 230,763 233,965 193,103
Income taxes.......................................... 83,739 90,303 75,463
Minority interest in earnings......................... 31,431 29,911 8,813
----------- ----------- -----------
Income before extraordinary gain (loss) and cumulative
effect of accounting change......................... 115,593 113,751 108,827
Extraordinary gain (loss)............................. (4,317) 4,968 904
Cumulative effect of accounting change................ (1,446)
----------- ----------- -----------
Net income............................................ $ 109,830 $ 118,719 $ 109,731
=========== =========== ===========
Basic earnings per common share:
Income before extraordinary gain (loss) and
cumulative effect of accounting change........... $ 4.10 $ 4.03 $ 3.31
Extraordinary gain (loss)........................... (0.15) .18 .03
Cumulative effect of accounting change.............. (0.05)
----------- ----------- -----------
Net income.......................................... $ 3.90 $ 4.21 $ 3.34
=========== =========== ===========
Diluted earnings per common share:
Income before extraordinary gain (loss) and
cumulative effect of accounting change........... $ 3.71 $ 3.68 $ 3.11
Extraordinary gain (loss)........................... (0.11) .14 .02
Cumulative effect of accounting change.............. (0.04)
----------- ----------- -----------
Net income.......................................... $ 3.56 $ 3.82 $ 3.13
=========== =========== ===========
Average common shares -- Basic........................ 28,151,398 28,195,043 32,861,218
=========== =========== ===========
Average common shares -- Diluted...................... 36,892,074 36,671,264 42,858,492
=========== =========== ===========
</Table>
See notes to consolidated financial statements.
F-3
<PAGE>
DEAN FOODS COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<Table>
<Caption>
ACCUMULATED
COMMON STOCK OTHER TOTAL
------------------- ADDITIONAL RETAINED COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE
SHARES AMOUNT PAID-IN CAPITAL EARNINGS INCOME (LOSS) EQUITY INCOME
---------- ------ --------------- -------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999....... 33,598,074 $336 $ 446,230 $204,859 $ 4,346 $ 655,771
Issuance of common stock..... 1,106,207 11 27,382 27,393
Purchase and retirement of
treasury stock............. (5,416,723) (54) (198,085) (198,139)
Net income................... 109,731 109,731 $109,731
Other comprehensive income
(Note 13):
Cumulative translation
adjustment............... (10,784) (10,784) (10,784)
--------
Comprehensive income....... $ 98,947
---------- ---- --------- -------- -------- ---------- ========
Balance, December 31, 1999..... 29,287,558 293 275,527 314,590 (6,438) 583,972
Issuance of common stock..... 1,279,956 13 39,327 39,340
Purchase and retirement of
treasury stock............. (3,281,865) (33) (148,493) (148,526)
Net income................... 118,719 118,719 $118,719
Other comprehensive income
(Note 13):
Cumulative translation
adjustment............... 5,327 5,327 5,327
--------
Comprehensive income....... $124,046
---------- ---- --------- -------- -------- ---------- ========
Balance, December 31, 2000..... 27,285,649 273 166,361 433,309 (1,111) 598,832
Issuance of common stock..... 1,314,647 13 62,629 62,642
Purchase and retirement of
treasury stock............. (123,334) (2) (6,056) (6,058)
Net income................... 109,830 109,830 $109,830
Acquisition of Dean Foods
Company.................... 15,459,528 155 739,211 739,366
Other comprehensive income
(Note 13):
Cumulative effect of
accounting change........ (6,403) (6,403) (6,403)
Change in fair value of
derivative instruments... (9,438) (9,438) (9,438)
Reclassification of
minority interest portion
of derivative fair
values................... (10,033) (10,033) (10,033)
Cumulative translation
adjustment............... (2,232) (2,232) (2,232)
Minimum pension liability
adjustment............... (626) (626) (626)
--------
Comprehensive income......... $ 81,098
---------- ---- --------- -------- -------- ---------- ========
Balance, December 31, 2001..... 43,936,490 $439 $ 962,145 $543,139 $(29.843) $1,475,880
========== ==== ========= ======== ======== ==========
</Table>
See notes to consolidated financial statements.
F-4
<PAGE>
DEAN FOODS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
------------------------------------
2001 2000 1999
----------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 109,830 $ 118,719 $ 109,731
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 154,887 144,983 116,645
(Gain) loss on disposition of assets............... (46,366) 768 5,352
Minority interest.................................. 51,402 52,187 14,614
Equity in (earnings) loss of unconsolidated
affiliates....................................... 23,620 (11,453) (2,630)
Extraordinary (gain) loss.......................... 4,317 (4,968) (904)
Cumulative effect of accounting change............. 1,446
Write-down of impaired assets...................... 6,812 394 6,790
Deferred income taxes.............................. 41,173 50,916 22,199
Other.............................................. 2,402 1,265 3,863
Changes in operating assets and liabilities, net of
acquisitions:
Receivables...................................... (3,677) (43,104) 41,878
Inventories...................................... (2,611) (18,977) 22,709
Prepaid expenses and other assets................ (16,370) 2,321 (20,492)
Accounts payable and accrued expenses............ (24,456) 5,950 (58,954)
Income taxes..................................... 7,798 (1,323) 22,704
----------- ---------- ---------
Net cash provided by operating activities..... 310,207 297,678 283,505
----------- ---------- ---------
Cash flows from investing activities:
Net additions to property, plant, and equipment....... (137,244) (136,876) (187,642)
Cash outflows for acquisitions and investments........ (1,146,077) (335,956) (235,837)
Net proceeds from divestitures........................ 89,037 383,112
Other................................................. 2,821 3,542 2,383
----------- ---------- ---------
Net cash used in investing activities......... (1,280,500) (380,253) (37,984)
----------- ---------- ---------
Cash flows from financing activities:
Proceeds from issuance of debt........................ 2,203,725 1,284,492 538,995
Repayment of debt..................................... (1,173,335) (947,443) (631,065)
Payments of deferred financing, debt restructuring and
merger costs....................................... (47,125) (12,014)
Proceeds from issuance of minority interest........... 8,983
Distributions to minority interest holders............ (10,363) (16,438) (10,122)
Issuance of common stock, net of expenses............. 50,599 28,514 16,060
Redemption of common and preferred stock.............. (6,058) (148,526) (198,139)
Redemption of trust issued preferred securities....... (100,055)
----------- ---------- ---------
Net cash provided by (used in) financing
activities.................................. 1,017,443 88,530 (275,288)
----------- ---------- ---------
Increase (decrease) in cash and cash equivalents........ 47,150 5,955 (29,767)
Cash and cash equivalents, beginning of period.......... 31,110 25,155 54,922
----------- ---------- ---------
Cash and cash equivalents, end of period................ $ 78,260 $ 31,110 $ 25,155
=========== ========== =========
</Table>
See notes to consolidated financial statements.
F-5
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- Our consolidated financial statements include the
accounts of our wholly-owned and majority-owned subsidiaries. All significant
intercompany balances and transactions are eliminated in consolidation. We also
own equity interests of less than 50% in certain companies that we do not
control but over which we have significant influence. Those interests are
accounted for in our consolidated financial statements using the equity method
of accounting. Under the equity method of accounting, our investments in these
affiliates are presented as a single amount in our consolidated balance sheets
and our proportional share of their earnings are presented in our consolidated
statements of income as a single line item under "other income." See Note 4 for
a description of our investments in unconsolidated affiliates. Other investments
over which we do not exercise significant influence are accounted for under the
cost method of accounting.
The preparation of our consolidated financial statements in conformity with
generally accepted accounting principles requires us to use our judgment to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates under different assumptions or conditions.
Cash Equivalents -- We consider temporary cash investments with a remaining
maturity of three months or less to be cash equivalents.
Inventories -- Inventories are stated at the lower of cost or market. Dairy
and certain specialty products are valued on the first-in, first-out ("FIFO")
method while the majority of pickles and powdered products inventories are
valued using the last-in, first-out ("LIFO") method. The costs of finished goods
inventories include raw materials, direct labor and indirect production and
overhead costs.
Property, Plant and Equipment -- Property, plant and equipment are stated
at acquisition cost, plus capitalized interest on borrowings during the actual
construction period of major capital projects. Also included in property, plant
and equipment are certain direct costs related to the implementation of computer
software for internal use. Depreciation and amortization are calculated using
the straight-line method over the estimated useful lives of the assets, as
follows:
<Table>
<Caption>
ASSET USEFUL LIFE
----- -----------
<S> <C>
Buildings and improvements Seven to 40 years
Machinery and equipment Three to 20 years
</Table>
Capitalized leases are amortized over the shorter of their lease term or
their estimated useful lives. Expenditures for repairs and maintenance which do
not improve or extend the life of the assets are expensed as incurred.
Intangible and Other Assets -- Intangible and other assets include the
following intangibles, which are amortized over their related estimated useful
lives:
<Table>
<Caption>
ASSET USEFUL LIFE
----- -----------
<S> <C>
Goodwill Straight-line method over 25 to 40 years
Identifiable intangible
assets:
Customer lists Straight-line method over seven to ten years
Customer supply contracts Straight-line method over the terms of the agreements
(primarily 15 years)
Trademarks/trade names Straight-line method over ten to 40 years
Noncompetition agreements Straight-line method over the terms of the agreements
Patents Straight-line method over fifteen years
Deferred financing costs Interest method over the terms of the related debt
</Table>
F-6
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective January 1, 2002, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 142, we no longer amortize goodwill. As part
of the adoption, we are currently reassessing the useful lives and residual
values of all intangible assets. Any recognized intangible asset determined to
have an indefinite useful life will no longer be amortized.
We periodically assess the net realizable value of our long-lived assets
whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. To determine whether an impairment exists, we
compare the expected future net operating cash flows, undiscounted and without
interest charges, to the carrying amount of the underlying assets. We would
consider a potential impairment if the recorded value of these assets exceeded
the associated future net operating cash flows. Any potential impairment loss
would be measured as the amount by which the carrying value exceeds the fair
value of the asset. Fair value of assets would be measured by market value, if
an active market exists, or by a forecast of expected future net operating cash
flows, discounted at a rate commensurate with the risk involved.
Foreign Currency Translation -- The financial statements of our foreign
subsidiaries are translated to U.S. dollars in accordance with the provisions of
SFAS No. 52, "Foreign Currency Translation." The functional currency of our
foreign subsidiaries is generally the local currency of the country.
Accordingly, assets and liabilities of the foreign subsidiaries are translated
to U.S. dollars at year-end exchange rates. Income and expense items are
translated at the average rates prevailing during the year. Changes in exchange
rates, which affect cash flows and the related receivables or payables are
recognized as transaction gains and losses in the determination of net income.
The cumulative translation adjustment in stockholders' equity reflects the
unrealized adjustments resulting from translating the financial statements of
our foreign subsidiaries.
Minority Interest in Subsidiaries -- Minority interest in results of
operations of consolidated subsidiaries represents the minority shareholders'
share of the income or loss of various consolidated subsidiaries. The minority
interest in the consolidated balance sheet reflects the original investment by
these minority shareholders in these consolidated subsidiaries, along with their
proportional share of the earnings or losses of these subsidiaries less any cash
distributions made.
Employee Stock Options and Restricted Stock -- We measure compensation
expense for our stock-based employee compensation plans using the intrinsic
value method and provide the required pro forma disclosures of the effect on net
income and earnings per share as if the fair value-based method had been applied
in measuring compensation expense.
Revenue Recognition and Accounts Receivable -- Revenue is recognized when
persuasive evidence of an arrangement exists, the price is fixed or
determinable, the product has been shipped to the customer and there is a
reasonable assurance of collection of the sales proceeds. Revenue is reduced by
sales incentives that are recorded by estimating expense based on our historical
experience. We provide credit terms to customers generally ranging up to 30
days, perform ongoing credit evaluation of our customers and maintain allowances
for potential credit losses based on historical experience.
Income Taxes -- All of our wholly-owned U.S. operating subsidiaries are
included in our consolidated tax return. In addition, our proportional share of
the operations of our majority-owned subsidiaries and certain of our equity
method affiliates, which are organized as limited liability companies or limited
partnerships are also included in our consolidated tax return. Our Puerto Rico
and foreign subsidiaries are required to file separate income tax returns in
their local jurisdictions. Certain distributions from these subsidiaries are
subject to U.S. income taxes; however, available tax credits of these
subsidiaries may reduce or eliminate these U.S. income tax liabilities.
Deferred income taxes are provided for temporary differences between
amounts recorded in the consolidated financial statements and tax bases of
assets and liabilities using currently enacted current tax
F-7
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rates. Deferred tax assets, including the benefit of net operating loss
carry-forwards, are evaluated based on the guidelines for realization and may be
reduced by a valuation allowance if deemed necessary.
Advertising Expense -- Advertising expense is comprised of media, agency
and production expenses. Advertising expenses are charged to income during the
period incurred, except for expenses related to the development of a major
commercial or media campaign which are charged to income during the period in
which the advertisement or campaign is first presented by the media. Advertising
expenses charged to income totaled $42.4 million in 2001, $63.1 million in 2000
and $43.5 million in 1999. Additionally, prepaid advertising costs were $2.1
million at December 31, 2001. There were no prepaid advertising costs at
December 31, 2000.
Comprehensive Income -- We consider all changes in equity from transactions
and other events and circumstances, except those resulting from investments by
owners and distributions to owners, to be comprehensive income.
Adoption of New Accounting Pronouncements -- SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended, became effective for
us as of January 1, 2001. We hedge a portion of our exposure to variable
interest rates using interest rate swaps. These swaps, designated as cash flow
hedging instruments, are used to hedge a portion of our debt, with the objective
of minimizing our interest rate risk and stabilizing cash flows. These swaps are
required to be recorded as an asset or liability on our consolidated balance
sheet at fair value, with an offset to other comprehensive income to the extent
the hedge is effective. Derivative gains and losses included in other
comprehensive income are reclassified into earnings as the underlying
transaction occurs. Any ineffectiveness in our hedges is recorded as an
adjustment to interest expense.
Our adoption of this accounting standard as of January 1, 2001 resulted in:
- the recognition of a liability related to our cash flow hedges of $16.3
million,
- a charge, net of income taxes and minority interest, of $1.4 million to
earnings as a cumulative effect of the adoption of this new standard, and
- a charge, net of income taxes and minority interest, of $6.4 million to
other comprehensive income as a cumulative effect of the adoption of this
new standard.
As of December 31, 2001, our derivative liability totaled $44.1 million on
our consolidated balance sheet including approximately $27.8 million recorded as
a component of accounts payable and accrued expenses and $16.3 million recorded
as a component of other long-term liabilities. Hedge ineffectiveness, determined
in accordance with SFAS No. 133 and included in our income statement, totaled
approximately $93,000 for the year ended December 31, 2001. Approximately $6.9
million of losses (net of taxes and minority interest) were reclassified to
interest expense from other comprehensive income during the year ended December
31, 2001. We estimate that approximately $16.5 million of net derivative losses
(net of income taxes) included in other comprehensive income will be
reclassified into earnings within the next twelve months. These losses will
partially offset the lower interest payments recorded on our variable rate debt.
In September 2000, the Emerging Issues Task Force ("Task Force") of the
Financial Accounting Standards Board ("FASB") reached a consensus on Issue No.
00-10, "Accounting for Shipping and Handling Fees and Costs," which became
effective for us in the fourth quarter of 2000. This issue required the
disclosure of our accounting policies for shipping and handling costs and their
income statement classification. Our shipping and handling costs are included in
both costs of sales and selling and distribution expense, depending on the
nature of such costs. Shipping and handling costs reflected in costs of sales
include the cost of shipping products to customers through third party carriers,
inventory warehouse costs and product loading and handling costs. Shipping and
handling costs reflected in selling and distribution expense consist primarily
of route delivery costs for both company-owned delivery routes and independent
distributor routes, to the
F-8
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
extent that such independent distributors are paid a delivery fee. These
shipping and handling costs that were recorded as a component of selling and
distribution expense were approximately $662.2 million, $614.1 million and
$370.4 million during 2001, 2000 and 1999, respectively.
Recently Issued Accounting Pronouncements -- The Task Force also reached a
consensus on Issue No. 00-14, "Accounting for Certain Sales Incentives," which
becomes effective for us in the first quarter of 2002. This issue addresses the
recognition, measurement and income statement classification of sales incentives
that have the effect of reducing the price of a product or service to a customer
at the point of sale. Our current accounting policy for recording sales
incentives within the scope of this issue is to record estimated coupon expense
based on historical coupon redemption experience which is consistent with the
requirements of this issue. Therefore, our adoption of this issue will have no
impact on our consolidated financial statements.
In April 2001, the Task Force reached a consensus on Issue No. 00-25,
"Vendor Income Statement Characterization of Consideration Paid to a Reseller of
the Vendor's Products." We will adopt this Issue in the first quarter of 2002,
as required. Under this Issue, certain consideration paid to our customers (such
as slotting fees) will be required to be classified as a reduction of revenue,
rather than recorded as an expense. Adoption of this Issue will result in the
reclassification of certain costs; however, there will be no change in reported
net income.
In June 2001, FASB issued SFAS No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses
financial accounting and reporting for business combinations. Under the new
standard, all business combinations entered into after June 30, 2001 have been
accounted for by the purchase method. We have and will continue to apply the
provisions of SFAS No. 141 to all business combinations completed after June 30,
2001. The acquisition of Old Dean (see Note 2) was accounted for in accordance
with SFAS 141. SFAS No. 142 addresses financial accounting and reporting for
acquired goodwill and other intangible assets. We adopted SFAS No. 142 on
January 1, 2002. SFAS No. 142 requires that goodwill no longer be amortized, but
instead requires a transitional goodwill impairment assessment and annual
impairment tests thereafter. Any transitional impairment loss resulting from the
adoption will be recognized as the effect of a change in accounting principle in
our income statement. Amortization of goodwill was $45.5 million for the year
ended December 31, 2001. We are currently in the process of completing the
transitional impairment assessment and calculating any impact on our financial
statements. We must complete the first step of this test to determine if we have
an impairment by June 30, 2002 and, if we have an impairment, we must complete
the final step and record any impairment by December 31, 2002. SFAS No. 142 also
requires that recognized intangible assets be amortized over their respective
estimated useful lives. As part of the adoption, we are currently reassessing
the useful lives and residual values of all intangible assets. Any recognized
intangible asset determined to have an indefinite useful life will not be
amortized, but instead tested for impairment in accordance with the standard.
In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This statement requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS No. 143 will become effective for us in fiscal year 2003.
We are currently evaluating the impact of adopting this pronouncement on our
consolidated financial statements.
FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" in August 2001 and it became effective for us beginning
January 1, 2002. SFAS No. 144, which supercedes SFAS No. 121, provides a single,
comprehensive accounting model for impairment and disposal of long-lived assets
and discontinued operations. Our adoption of this standard will not have a
material impact on our consolidated financial statements.
F-9
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications -- Certain reclassifications have been made to conform
the prior years' consolidated financial statements to the current year
classifications.
2. ACQUISITIONS
Acquisition of Dean Foods Company -- On December 21, 2001, we completed our
acquisition of Dean Foods Company ("Old Dean"). As a result of this transaction,
Old Dean was merged with and into our wholly-owned subsidiary, Blackhawk
Acquisition Corp. Blackhawk Acquisition Corp. survived the merger and
immediately changed its name to Dean Holding Company. Immediately after
completion of the merger, we changed our name to Dean Foods Company. As a result
of the merger, each share of common stock of Old Dean was converted into 0.429
shares of our common stock and the right to receive $21.00 in cash. The
aggregate purchase price recorded was $1.7 billion, including $756.8 million of
cash paid to Old Dean stockholders, common stock valued at $739.4 million and
estimated transaction costs of $55.7 million. The value of the 15,459,528 common
shares issued was determined based on the average market price of our common
stock during the period from April 2 through April 10, 2001 (the merger was
announced on April 5, 2001). In addition, each of the 3.6 million options to
purchase Old Dean's common stock outstanding on December 21, 2001 was converted
into an option to purchase 0.752 shares of our stock. As discussed below, the
holders of these options had the right, during the ninety day period following
the acquisition, to surrender their stock options to us, in lieu of exercise, in
exchange for a cash payment.
Also on December 21, 2001, in connection with our acquisition of Old Dean,
we purchased Dairy Farmers of America's ("DFA") 33.8% stake in our Dairy Group
for consideration consisting of: (1) approximately $145.4 million in cash, (2) a
contingent promissory note in the original principal amount of $40 million, and
(3) the operations of eleven plants (including seven of our plants and four of
Old Dean's plants) located in nine states where we and Old Dean had overlapping
operations. As additional consideration, we amended a milk supply agreement with
DFA to provide that if we do not, within a specified period following the
completion of our acquisition of Old Dean, offer DFA the right to supply raw
milk to certain of the Old Dean dairy plants, we could be required to pay
liquidated damages of up to $47.0 million. See Note 19 for further discussion of
these contingent obligations. As a result of this transaction, we now own 100%
of our Dairy Group.
In connection with the merger, we entered into a new credit facility and
expanded our receivables-backed loan facility. We used the proceeds from the
credit facility and receivables-backed loan facility to fund the cash portion of
the merger consideration and the acquisition of DFA's minority interest, to
refinance certain indebtedness and to pay certain transaction costs. See Note
10.
Old Dean's operations and the acquisition of DFA's minority interest are
reflected in our consolidated financial statements after December 21, 2001.
F-10
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the currently estimated fair values of the
assets acquired and liabilities assumed at the date of acquisition of Old Dean,
and includes the effects of divesting four Old Dean plants. We have not
completed a final allocation of the purchase price to the fair values of assets
and liabilities of Old Dean and the related business integration plans. We
expect that the ultimate purchase price allocation may include additional
adjustments to the fair values of depreciable tangible assets, identifiable
intangible assets (some of which will have indefinite lives) and the carrying
values of certain liabilities. Accordingly, to the extent that such assessments
indicate that the fair value of the assets and liabilities differ from their
preliminary purchase price allocations, such difference would adjust the amounts
allocated to those assets and liabilities and would change the amounts allocated
to goodwill.
<Table>
<Caption>
AT DECEMBER 21, 2001
--------------------
(IN THOUSANDS)
<S> <C>
Current assets.............................................. $ 694,453
Property, plant, and equipment.............................. 725,258
Intangible assets........................................... 236,978
Goodwill.................................................... 1,515,267
Other assets................................................ 79,945
----------
Total assets acquired............................. 3,251,901
Current liabilities......................................... 540,458
Other liabilities........................................... 285,209
Long-term debt.............................................. 685,645
----------
Total liabilities assumed......................... 1,511,312
----------
Net assets acquired......................................... $1,740,589
==========
</Table>
Of the approximately $237.0 million of acquired intangible assets,
approximately $206.5 million was preliminarily assigned to trademarks and trade
names that are not subject to amortization and approximately $30.5 million was
assigned to customer contracts that have a weighted-average useful life of
approximately 17 years.
The approximately $1.5 billion of goodwill was assigned to Old Dean's Dairy
Group, NRP and Specialty segments in the amounts of $1.01 billion, $215.0
million and $290.0 million, respectively. None of the goodwill is expected to be
deductible for tax purposes.
The initial purchase price allocation of Old Dean includes a liability of
approximately $82.3 million for payment obligations to Old Dean employees
related to Old Dean stock options as a result of the change in control of Old
Dean. Under Old Dean's stock option agreements, upon a change in control,
employees had the right to surrender their stock options to us, in lieu of
exercise, in exchange for a cash payment during the ninety day period following
the change in control. The required cash payment will vary depending on the type
of stock option and the grant date with certain stock options requiring a cash
payment equal to the difference between the exercise price and the highest
closing price of our stock during the sixty day period beginning thirty days
before and ending 30 days after the completion of the change in control
transaction, and certain of the stock option agreements require a tax gross-up
payment upon surrender.
We have also accrued a change in control obligation of approximately $4.9
million for payments to 18 officers under Old Dean's long-term incentive plan
and for transition bonuses to 5 officers of Old Dean, both of which became
earned and payable upon consummation of the merger; and severance obligations of
approximately $17.5 million related to the termination of certain employees and
officers of Old Dean as a result of the decision to eliminate certain Old Dean
administrative functions.
F-11
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Acquisition of Minority Interest in Spanish Operations -- In August of
2001, we purchased the 25% minority interest in Leche Celta, our Spanish dairy
processor, for approximately $12.6 million. We funded this purchase with cash
flow from operations.
General -- In total, we completed the acquisitions of 15 dairy businesses
during 2001, 2000 and 1999, which included the following acquisitions that were
significant at the time of completion:
<Table>
<Caption>
DATE COMPANY PURCHASE PRICE
- ---- ------- --------------
(IN THOUSANDS)
<S> <C> <C>
December 2001.................................... Dean Foods Company $1,740,589
January 2000..................................... Southern Foods Group 435,606
</Table>
These acquisitions and the smaller dairy businesses acquired were funded
primarily with borrowings under our credit facilities, along with the issuance
in 2001 and 1999 of 15,459,528 and 77,233 shares of our common stock,
respectively, with fair market values of $739.4 million and $3.2 million,
respectively.
All acquisitions were accounted for using the purchase method of accounting
as of their respective acquisition dates, and accordingly, only the results of
operations of the acquired companies subsequent to their respective acquisition
dates are included in our consolidated financial statements. At the acquisition
date, the purchase price was allocated to assets acquired, including
identifiable intangibles, and liabilities assumed based on their fair market
values. The excess of the total purchase prices over the fair values of the net
assets acquired represented goodwill. In connection with the acquisitions
(including the Old Dean acquisition), assets were acquired and liabilities were
assumed subject to final purchase price adjustments and allocations as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
----------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Purchase prices:
Cash paid, net of cash acquired................. $ 1,146,077 $ 331,543 $230,611
Cash acquired in acquisitions................... 15,060 6,327 9,976
Common stock issued............................. 739,366 3,193
Subsidiary preferred and common securities
issued and minority partnership interests.... 340,336 18,500
Operations of 11 plants......................... 287,989
Subordinated contingent promissory note
issued....................................... 40,000
----------- --------- --------
Total purchase prices................... 2,228,492 678,206 262,280
Fair values of net assets acquired:
Assets acquired................................. 2,283,882 473,648 94,514
Liabilities assumed............................. (1,511,436) (187,907) (21,273)
----------- --------- --------
Total fair value of net assets acquired......... 772,446 285,741 73,241
----------- --------- --------
Goodwill.......................................... $ 1,456,046 $ 392,465 $189,039
=========== ========= ========
</Table>
F-12
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The unaudited results of operations on a pro forma basis for the year ended
December 31, 2001 and 2000, as if the acquisition of Old Dean, and the purchase
of DFA's minority interest (including the divestiture of the 11 plants
transferred in partial consideration of that interest) had occurred as of the
beginning of 2000 are as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------
2001 2000
--------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
Net sales................................................... $10,058,288 $9,239,049
Income from continuing operations before taxes.............. 289,058 296,079
Net income from continuing operations....................... 178,411 182,702
Earnings per share from continuing operations:
Basic..................................................... $ 4.13 $ 4.19
Diluted................................................... $ 3.85 $ 3.91
</Table>
3. EXTRAORDINARY GAINS AND LOSSES AND DISCONTINUED OPERATIONS
On December 21, 2001, simultaneously with our acquisition of Old Dean, we
replaced our former credit facilities with a new credit facility. As a result,
we recognized a $4.3 million extraordinary loss, net of an income tax benefit of
$3.0 million, for the write-off of deferred financing costs related to the early
retirement of our former credit facilities.
During the first quarter of 2000, we recognized a $5.0 million
extraordinary gain, net of income tax expense of $2.8 million, which included
the following items related to the early extinguishment of our previous senior
credit facility:
- A $6.5 million gain, net of income tax expense of $3.6 million, for
interest rate derivatives which became unhedged and were marked to fair
market value, and
- A $1.5 million loss, net of an income tax benefit of $0.8 million, for
the write-off of deferred financing costs.
In the fourth quarter of 1999 we recorded a gain of $0.9 million, net of
income taxes of $0.5 million, when contingencies related to the sale of our
packaged ice operations in 1998 were resolved favorably.
4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Investment in Consolidated Container Company -- We own a 43.1% interest in
Consolidated Container Company ("CCC"), one of the nation's largest
manufacturers of rigid plastic containers and our largest supplier of plastic
bottles and bottle components. We have owned that interest since July 1999 when
we sold our U.S. plastic packaging operations to CCC. Vestar Capital Partners
controls CCC through a 50.9% ownership interest. The remaining 6% of CCC is
owned indirectly by Alan Bernon, a member of our Board of Directors, and his
brother Peter Bernon. Pursuant to our agreements with Vestar, we control 2 of
the 7 seats on CCC's Management Committee.
For all periods prior to July 2, 1999, our former U.S. plastic packaging
operations are included in our consolidated financial statements. Included in
consolidated sales for the first six months of 1999 were sales of $245.0 million
related to those operations.
Beginning July 2, 1999, the assets and liabilities and results of
operations of our formerly consolidated U.S. plastic packaging operations are
eliminated from our consolidated financial statements. Since July 2, 1999, our
investment in CCC has been accounted for under the equity method of accounting.
During 2001,
F-13
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
due to a variety of operational difficulties, CCC consistently reported
operating results that were significantly weaker than expected, which resulted
in significant losses in the third and fourth quarters. CCC has implemented
several changes in an effort to return to stable profitability. However, in
November 2001 CCC announced that it did not expect to see the benefits of these
changes for at least several quarters. As a result, CCC became unable to comply
with the financial covenants contained in its credit facility. Accordingly, we
concluded that our investment was impaired and wrote off our remaining
investment during the fourth quarter of 2001. Our investment in CCC was recorded
at $0 and $23.7 million at December 31, 2001 and 2000, respectively. Equity in
(earnings) loss of unconsolidated affiliates in our consolidated income
statement includes the following amounts related to CCC.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------
2001 2000 1999
------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Equity in (earnings) loss of CCC....................... $ 2,779 $ (7,929) $(6,024)
Equity in CCC restructuring and other nonrecurring
charges.............................................. 1,724 (756) 4,948
Amortization of difference between investment balance
and underlying equity interest in net assets......... (1,904) (2,567) (1,363)
Write-off investment in CCC............................ 21,126 -- --
------- -------- -------
Total equity in (earnings) loss of CCC....... $23,725 $(11,252) $(2,439)
======= ======== =======
</Table>
In February 2002, CCC's lenders agreed to restructure CCC's credit
agreement to modify the financial covenants, subject to the agreement of CCC's
primary shareholders to guarantee certain of CCC's indebtedness. Because CCC is
an important and valued supplier of ours, and in order to protect our interest
in CCC, we agreed to provide a limited guarantee of up to $10.0 million of CCC's
revolving credit indebtedness. The guaranty will expire in January 2003. Please
see Note 19 to our Consolidated Financial Statements for further information
regarding our guarantee of CCC's indebtedness.
Investment in Horizon Organic -- As of December 31, 2001 and 2000 we had a
13.2% and 13.6%, respectively, interest in Horizon Organic, America's largest
organic food company. We account for this investment under the equity method of
accounting. We believe that we have the ability to influence the operating
policies of Horizon given the size of our investment and the fact that we
control one seat on their Board. Horizon's common stock is traded on the Nasdaq
under the symbol "HCOW." The quoted stock price ranged from $4.45 to $16.88
during 2001. The closing stock price on December 31, 2001 was $16.52 per share,
resulting in a market value of our investment of $22.1 million. Our investment
in Horizon Organic at December 31, 2001 and 2000 was $16.5 million and $16.4
million, respectively, and our equity in earnings included in our consolidated
statement of income for 2001 and 2000 was $0.1 million and $0.2 million,
respectively.
Investment in White Wave -- One of our subsidiaries, Dean Dip and Dressing,
owns a 37.2% interest in White Wave, Inc., maker of Silk(R) soy milks, soy
coffee creamers and soy cultured products, as well as certain tofu products. We
account for this investment under the equity method of accounting. This
investment was made by Dean Dip & Dressing prior to our acquisition of Old Dean.
Investment in Momentx -- As of December 31, 2001 and 2000 we had a 15.6%
and 12.4% interest in Momentx, Inc., respectively. Our investment in Momentx at
December 31, 2001 and 2000 was $1.2 million and $4.2 million, respectively.
Momentx is the owner and operator of dairy.com, an online vertical exchange
dedicated to the dairy industry. We account for this investment under the cost
method of accounting. During 2001, we recorded an impairment charge on this
investment of $3.6 million in "Other (income) expense, net" to reflect the
current value of our equity stake based on their latest financing.
F-14
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVENTORIES
<Table>
<Caption>
DECEMBER 31,
-------------------
2001 2000
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies.................................. $161,673 $ 99,315
Finished goods.............................................. 278,574 87,398
-------- --------
Total............................................. $440,247 $186,713
======== ========
</Table>
6. PROPERTY, PLANT AND EQUIPMENT
<Table>
<Caption>
DECEMBER 31,
-----------------------
2001 2000
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 146,831 $ 102,331
Buildings and improvements.................................. 520,914 327,477
Machinery and equipment..................................... 1,370,683 863,740
---------- ----------
2,038,428 1,293,548
Less accumulated depreciation............................... (369,836) (289,779)
---------- ----------
Total............................................. $1,668,592 $1,003,769
========== ==========
</Table>
For 2001 and 2000, we capitalized $3.4 million and $3.5 million in
interest, respectively, related to borrowings during the actual construction
period of major capital projects, which is included as part of the cost of the
related asset.
7. INTANGIBLE AND OTHER ASSETS
<Table>
<Caption>
DECEMBER 31,
-----------------------
2001 2000
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Goodwill.................................................... $3,108,326 $1,790,523
Identifiable intangibles.................................... 462,798 224,129
Deposits and other.......................................... 96,190 36,444
Investments in unconsolidated affiliates.................... 67,026 44,831
Deferred income taxes....................................... 19,704 41
---------- ----------
3,754,044 2,095,968
Less accumulated amortization............................... (172,923) (137,190)
---------- ----------
Total............................................. $3,581,121 $1,958,778
========== ==========
</Table>
F-15
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2000
---------- --------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable............................................ $ 472,206 $370,355
Payroll and benefits........................................ 236,527 71,219
Other accrued liabilities................................... 335,676 125,768
---------- --------
$1,044,409 $567,342
========== ========
</Table>
9. INCOME TAXES
The following table presents the 2001, 2000 and 1999 provisions for income
taxes.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------
2001(1) 2000(2) 1999(3)
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current taxes payable:
Federal............................................... $39,840 $47,010 $31,480
State................................................. 6,516 8,668 10,041
Foreign and other..................................... 3,944 2,151 6,433
Deferred income taxes................................... 33,439 32,474 27,509
------- ------- -------
Total......................................... $83,739 $90,303 $75,463
======= ======= =======
</Table>
- ---------------
(1) Excludes a $3.0 million income tax benefit related to an extraordinary loss
and a $1.5 million income tax benefit related to a cumulative effect of
accounting change.
(2) Excludes a $2.8 million income tax expense related to extraordinary gains.
(3) Excludes a $0.5 million income tax expense related to extraordinary gains.
The following is a reconciliation of income taxes computed at the U.S.
federal statutory tax rate to the income taxes reported in the consolidated
statements of income:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------
2001 2000 1999
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax expense at statutory rates.......................... $80,767 $81,888 $67,586
State income taxes...................................... 3,699 9,315 7,795
Tax effect of tax-exempt earnings....................... (3,253) (2,687) (2,612)
Nondeductible goodwill.................................. 5,527 4,229 1,968
Other................................................... (3,001) (2,442) 726
------- ------- -------
Total......................................... $83,739 $90,303 $75,463
======= ======= =======
</Table>
F-16
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences giving rise to deferred income tax
assets and liabilities were:
<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Net operating loss carry-forwards......................... $ 10,709 $ 20,007
Asset valuation reserves.................................. 317 5,493
Non-deductible accruals................................... 136,415 41,894
State and foreign tax credits............................. 12,854 3,381
Derivative instruments.................................... 14,624
Other..................................................... 8,134 6,469
Valuation allowances...................................... (1,537)
--------- ---------
181,516 77,244
Deferred income tax liabilities:
Depreciation and amortization............................. (300,093) (118,886)
Tax credit basis differences.............................. (7,854) (6,251)
Basis differences in unconsolidated affiliates............ (7,515) (21,046)
--------- ---------
(315,462) (146,183)
--------- ---------
Net deferred income tax liability................. $(133,946) $ (68,939)
========= =========
</Table>
These net deferred income tax assets (liabilities) are classified in our
consolidated balance sheets as follows:
<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Current assets.............................................. $ 127,579 $ 54,634
Noncurrent assets........................................... 19,704 41
Noncurrent liabilities...................................... (281,229) (123,614)
--------- ---------
Total............................................. $(133,946) $ (68,939)
========= =========
</Table>
At December 31, 2001, we had approximately $28.2 million of net operating
losses and approximately $12.9 million of tax credits available for carry-over
to future years. The losses are subject to certain limitations and will expire
beginning in 2008.
A valuation allowance of $1.5 million has been established because we
believe it is not "more likely than not" that all of the deferred tax assets
relating to state net operating losses and credit carry-overs will be realized
prior to the date they are scheduled to expire.
F-17
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. LONG-TERM DEBT
<Table>
<Caption>
DECEMBER 31,
-----------------------
2001 2000
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Senior credit facility...................................... $1,900,000 $ --
Subsidiary debt obligations:
Senior notes.............................................. 658,211
Suiza Dairy Group credit facility (now terminated)........ 1,095,000
Receivables-backed loan................................... 400,000 150,000
Foreign subsidiary term loan.............................. 35,172 39,519
Uncommitted line of credit................................ 20,000
Other lines of credit..................................... 2,317
Industrial development revenue bonds...................... 28,001 8,845
Capital lease obligations and other....................... 44,796 39,905
---------- ----------
3,068,497 1,353,269
Less current portion........................................ (96,972) (128,224)
---------- ----------
Total............................................. $2,971,525 $1,225,045
========== ==========
</Table>
Terminated Credit Facilities -- In connection with our acquisition of Old
Dean effective December 21, 2001, we replaced our then existing parent-level and
Suiza Dairy Group credit facilities with a new senior credit facility, as
described under "Senior Credit Facility" below. The old parent-level credit
facility provided us with a revolving line of credit of up to $300.0 million to
be used for general corporate and working capital purposes. The Suiza Dairy
Group credit facility provided us with an $805.0 million revolving line of
credit, a $625.0 million term loan and a $180.0 million term loan. Both
facilities would have expired in January 2005.
Senior Credit Facility -- Simultaneously with the closing of our
acquisition of Old Dean, we entered into a new $2.7 billion credit facility with
a syndicate of lenders. The senior credit facility provides an $800.0 million
revolving line of credit, a Tranche A $900.0 million term loan and a Tranche B
$1.0 billion term loan. At closing, we borrowed $1.9 billion under this
facility's term loans. Proceeds of these borrowings were used to repay debt
under the terminated credit facilities, to pay the merger consideration to Old
Dean's shareholders, to repay Old Dean's credit facility and certain other
obligations, to purchase DFA's ownership stake in our Dairy Group, and to pay
certain transaction costs. The $800.0 million revolver was not used. See "Credit
Facility Terms" below for a description of the terms of the senior credit
facility.
Credit Facility Terms -- Amounts outstanding under the senior credit
facility bear interest at a rate per annum equal to one of the following rates,
at our option:
- a base rate equal to the higher of the Federal Funds rate plus 50 basis
points or the prime rate, plus a margin that varies from 25 to 150 basis
points for the revolving credit facility and Tranche A term loan and
varies from 125 to 200 basis points for the Tranche B term loan,
depending on our leverage ratio (which is the ratio of defined
indebtedness to EBITDA), or
- the London Interbank Offering Rate ("LIBOR") computed as LIBOR divided by
the product of one minus the Eurodollar Reserve Percentage, plus a margin
that varies from 150 to 275 basis points for the revolving credit
facility and Tranche A term loan and varies from 250 to 325 basis points
for the Tranche B term loan, depending on our leverage ratio.
The interest rate in effect on the senior credit facility, including the
applicable interest rate margin, was 4.67% at December 31, 2001. We have
interest rate swap agreements in place, however, that hedge
F-18
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$925.0 million of this facility at an average rate of 5.95%, plus the applicable
interest rate margin. Interest is payable quarterly or at the end of the
applicable interest period. Scheduled principal payments on the Tranche A $900.0
million term loan are due in the following installments:
- $16.87 million quarterly from March 31, 2002 through December 31, 2002;
- $33.75 million quarterly from March 31, 2003 through December 31, 2004;
- $39.38 million quarterly from March 31, 2005 through December 31, 2005;
- $45.0 million quarterly from March 31, 2006 through December 31, 2006;
- $56.25 million quarterly from March 31, 2007 through June 30, 2007; and
- A final payment of $112.5 million on July 15, 2007.
Scheduled principal payments on the Tranche B $1.0 billion term loan are
due in the following installments:
- $1.25 million quarterly from March 31, 2002 through December 31, 2002;
- $2.5 million quarterly from March 31, 2003 through December 31, 2007;
- a payment of $472.5 million on March 31, 2008; and
- A final payment of $472.5 million on July 15, 2008.
No principal payments are due on the $800.0 million line of credit until
maturity on July 15, 2007.
The credit agreement also requires mandatory principal prepayments in
certain circumstances including without limitation: (1) upon the occurrence of
certain asset dispositions not in the ordinary course of business, (2) upon the
occurrence of certain debt and equity issuances when our leverage ratio is
greater than 3.0 to 1.0, and (3) after December 31, 2002, annually when our
leverage ratio is greater than 3.0 to 1.0. As of December 31, 2001, our leverage
ratio was 3.47.
In consideration for the revolving commitments, we pay a commitment fee on
unused amounts of the senior credit facility that ranges from 37.5 to 50 basis
points, based on our leverage ratio.
The senior credit facility contains various financial and other restrictive
covenants and requirements that we maintain certain financial ratios, including
a leverage ratio (computed as the ratio of the aggregate outstanding principal
amount of defined indebtedness to EBITDA) and an interest coverage ratio
(computed as the ratio of EBITDA to interest expense). In addition, this
facility requires that we maintain a minimum level of net worth (as defined by
the agreement).
Our leverage ratio must be less than or equal to:
<Table>
<Caption>
PERIOD RATIO
- ------------------------------------------------------------ ------------
<S> <C>
12-21-01 through 12-31-02................................... 4.25 to 1.00
01-01-03 through 12-31-03................................... 4.00 to 1.00
01-01-04 through 12-31-04................................... 3.75 to 1.00
01-01-05 and thereafter..................................... 3.25 to 1.00
</Table>
Our interest coverage ratio must be greater than or equal to 3.00 to 1.00.
Our consolidated net worth must be greater than or equal to $1.2 billion,
as increased each quarter by an amount equal to 50% of our consolidated net
income for the quarter, plus 75% of the amount by which stockholders' equity is
increased by certain equity issuances. As of December 31, 2001, the minimum net
worth requirement was $1.2 billion.
F-19
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The facility also contains limitations on liens, investments, the
incurrence of additional indebtedness and acquisitions, and prohibits certain
dispositions of property and restricts certain payments, including dividends.
The credit facility is secured by liens on substantially all of our domestic
assets (including the assets of our subsidiaries, but excluding the capital
stock of Old Dean's subsidiaries, and the real property owned by Old Dean and
its subsidiaries).
The agreement contains standard default triggers, including without
limitation: failure to maintain compliance with the financial and other
covenants contained in the agreement, default on certain of our other debt, a
change in control and certain other material adverse changes in our business.
The agreement does not contain any default triggers based on our debt rating.
We are currently in compliance with all covenants contained in the credit
agreement.
Senior Notes -- Old Dean had certain senior notes outstanding at the time
of the acquisition which remain outstanding. The notes carry the following
interest rates and maturities:
- $95.7 million ($100 million face value), at 6.75% interest, maturing in
2005;
- $250.6 million ($250 million face value), at 8.15% interest, maturing in
2007;
- $187.3 million ($200 million face value), at 6.625% interest, maturing in
2009; and
- $124.6 million ($150 million face value), at 6.9% interest, maturing in
2017.
These notes were issued by Old Dean. The related indentures do not contain
financial covenants but they do contain certain restrictions including a
prohibition against Old Dean and its subsidiaries granting liens on their
respective real estate interests and a prohibition against Old Dean granting
liens on the stock of its subsidiaries. The indentures also place certain
restrictions on Old Dean's ability to divest assets not in the ordinary course
of business.
Receivable-Backed Loan -- On June 30, 2000 we entered into a $150.0 million
receivables securitization facility pursuant to which certain of our
subsidiaries sell their accounts receivable to a wholly-owned special purpose
limited liability company intended to be bankruptcy-remote. The special purpose
limited liability company then transfers the receivables to a third party
asset-backed commercial paper conduit sponsored by a major financial
institution. The sale of the subsidiary accounts receivable included the
receivables existing on that date, as well as all receivables created by such
subsidiaries thereafter. In February 2001, we increased the facility to $175.0
million and in June 2001, we further increased it to $250.0 million. In
connection with our acquisition of Old Dean effective December 21, 2001, we
increased the facility to $400.0 million.
The receivables-backed loan bears interest at a variable rate based on the
commercial paper yield as defined in the agreement. The average interest rate on
the receivables-backed loan at December 31, 2001 was 2.29%.
Foreign Subsidiary Term Loan -- In connection with our acquisition of Leche
Celta in February 2000, our Spanish subsidiary obtained a 7 billion peseta (as
of December 31, 2001, approximately $37.5 million) non-recourse term loan from a
Spanish lender, all of which was borrowed at closing and used to finance a
portion of the purchase price. The loan, which is secured by the stock of Leche
Celta, will expire on February 21, 2007, bears interest at a variable rate based
on the ratio of Leche Celta's debt to EBITDA (as defined in the corresponding
loan agreement), and requires semi-annual principal payments. The interest rate
in effect on this loan at December 31, 2001 was 6.25%.
Uncommitted Line of Credit -- On October 4, 2000, our Dairy Group entered
into an agreement with First Union National Bank pursuant to which it could
borrow up to $20.0 million from time to time on an uncommitted basis. This line
of credit was terminated when our former credit facilities were repaid on
December 21, 2001.
F-20
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other Lines of Credit -- Leche Celta, our Spanish subsidiary, is our only
subsidiary with currently outstanding lines of credit separate from the credit
facilities described above. Leche Celta's principal line of credit, which is in
the principal amount of 2.5 billion pesetas (as of December 31, 2001
approximately $13.4 million), was obtained on July 12, 2000, bears interest at a
variable interest rate based on the ratio of Leche Celta's debt to EBITDA (as
defined in the corresponding loan agreement), is secured by our stock in Leche
Celta and will expire in June 2007. At December 31, 2001, $2.3 million was drawn
on this line of credit at an average interest rate of 4.8%.
Industrial Development Revenue Bonds -- Certain of our subsidiaries have
revenue bonds outstanding some of which require nominal annual sinking fund
redemptions. Typically, these bonds are secured by irrevocable letters of credit
issued by financial institutions, along with first mortgages on the related real
property and equipment. Interest on these bonds is due semiannually at interest
rates that vary based on market conditions which, at December 31, 2001 ranged
from 1.02% to 6.63%.
Other Subsidiary Debt -- Other subsidiary debt includes various promissory
notes for the purchase of property, plant, and equipment and capital lease
obligations. The various promissory notes payable provide for interest at
varying rates and are payable in monthly installments of principal and interest
until maturity, when the remaining principal balances are due. Capital lease
obligations represent machinery and equipment financing obligations which are
payable in monthly installments of principal and interest and are collateralized
by the related assets financed.
Scheduled Maturities -- The scheduled maturities of long-term debt, which
include capitalized lease obligations, at December 31, 2001, were as follows (in
thousands):
<Table>
<S> <C>
2002........................................................ $ 96,972
2003........................................................ 155,181
2004........................................................ 571,956
2005........................................................ 279,528
2006........................................................ 197,535
Thereafter.................................................. 1,809,114
----------
Subtotal.......................................... $3,110,286
Less discount on senior notes..................... (41,789)
----------
Total outstanding debt............................ $3,068,497
==========
</Table>
Letters of Credit -- At December 31, 2001 there were $30.4 million of
issued but undrawn letters of credit secured by our senior credit facility. In
addition to the letters of credit secured by our credit facility, we had at
December 31, 2001 approximately $71.1 million of letters of credit with three
other banks that were issued but undrawn. These were required by various
utilities and government entities for performance and insurance guarantees.
Interest Rate Agreements -- We have interest rate swap agreements in place
that have been designated as hedges against variable interest rate exposure on
loans under our senior credit facility.
These swap agreements provide hedges for loans under our senior credit
facility by limiting or fixing the LIBOR interest rates specified in the senior
credit facility at the interest rates noted below until the indicated expiration
dates of these interest rate swap agreements.
F-21
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes our various interest rate agreements:
<Table>
<Caption>
NOTIONAL AMOUNTS
-----------------
FIXED INTEREST RATES EXPIRATION DATE 2001 2000
- -------------------- --------------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
4.90% to 4.93%..................................... December 2002 $275.0
6.07% to 6.24%..................................... December 2002 325.0 $325.0
6.08% to 6.11%..................................... June 2003 50.0
6.23%.............................................. June 2003 50.0
6.69%.............................................. December 2004 100.0
6.69% to 6.74%..................................... December 2005 100.0
6.78%.............................................. December 2006 75.0
</Table>
In connection with the termination of our former credit facilities in
connection with the Old Dean acquisition, derivative agreements that were
outstanding upon such termination were redesignated as hedges under the new
senior credit facility. For a discussion of the treatment of derivative
agreements effective January 1, 2001 see Note 1 to our Consolidated Financial
Statements. See Note 20 to our Consolidated Financial Statements for a
disclosure of the fair value of our interest rate derivative agreements.
We have also entered into interest rate swap agreements that provide hedges
for loans under Leche Celta's term loan. The following table summarizes these
agreements:
<Table>
<Caption>
FIXED INTEREST RATES EXPIRATION DATE NOTIONAL AMOUNTS
- -------------------- --------------- --------------------------------------------------
<C> <C> <S>
5.54%....... November 2003 1,500,000,000 pesetas (approximately $8.0 million
as of December 31, 2001)
5.6%........ November 2004 2,000,000,000 pesetas (approximately $10.7 million
as of December 31, 2001)
</Table>
We are exposed to market risk under these arrangements due to the
possibility of interest rates on the credit facilities falling below the rates
on our interest rate swap agreements. Credit risk under these arrangements is
remote since the counterparties to our interest rate swap agreements are major
financial institutions.
11. MANDATORILY REDEEMABLE TRUST ISSUED PREFERRED SECURITIES
On March 24, 1998, we issued $600.0 million of company-obligated 5.5%
mandatorily redeemable convertible preferred securities of a Delaware business
trust subsidiary in a private placement to "qualified institutional buyers"
under Rule 144A under the Securities Act of 1933, as amended. The 5.5% preferred
securities, which are recorded net of related fees and expenses, mature 30 years
from the date of issue. Holders of these securities are entitled to receive
preferential cumulative cash distributions at an annual rate of 5.5% of their
liquidation preference of $50 each. These distributions are payable quarterly in
arrears on January 1, April 1, July 1 and October 1 of each year. These trust
issued preferred securities are convertible at the option of the holders into an
aggregate of approximately 7.7 million shares of our common stock, subject to
adjustment in certain circumstances, at a conversion price of $78.25 (equivalent
to a conversion rate of .6390 shares per security). These preferred securities
are also redeemable, at our option, at any time after April 2, 2001 at specified
amounts and are mandatorily redeemable at their liquidation preference amount of
$50 per share at maturity or upon occurrence of certain specified events.
12. STOCKHOLDERS' EQUITY
Our authorized shares of capital stock include 1,000,000 shares of
preferred stock and 500,000,000 shares of common stock with a par value of $.01
per share.
F-22
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Option and Restricted Stock Plans -- We currently have two stock
option plans with shares remaining available for issuance. These plans, our 1997
Stock Option and Restricted Stock Plan and the 1989 Dean Foods Company Stock
Option Plan (which we adopted upon completion of our acquisition of Old Dean),
provide for grants of stock options, restricted stock and other stock-based
awards to employees, officers, directors and, in some cases, consultants, up to
a maximum of approximately 12.5 million and 1.9 million shares, respectively.
Approximately 7.1 million shares remained available for issuance under the plans
as of March 25, 2002. Options and other stock-based awards vest in accordance
with provisions set forth in the applicable award agreements.
The following table summarizes the status of our stock-based compensation
programs:
<Table>
<Caption>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding at December 31, 1998........................ 4,707,871 $30.56
Granted............................................... 1,078,169 35.22
Canceled.............................................. (208,021) 42.70
Exercised............................................. (980,768) 15.13
----------
Outstanding at December 31, 1999........................ 4,597,251 $34.68
Granted............................................... 1,366,900 38.27
Canceled.............................................. (206,701) 42.21
Exercised............................................. (1,231,179) 20.79
----------
Outstanding at December 31, 2000........................ 4,526,271 $38.96
Granted............................................... 1,244,150 43.67
Options issued to Old Dean option holders............. 2,685,112 46.16
Canceled.............................................. (290,818) 46.40
Exercised............................................. (1,132,785) 38.96
----------
Outstanding at December 31, 2001...................... 7,031,930 $42.32
==========
Exercisable at December 31, 1999........................ 2,927,217 $30.17
Exercisable at December 31, 2000........................ 2,400,853 38.50
Exercisable at December 31, 2001(1)..................... 4,851,092(1) 43.14
</Table>
- ---------------
(1) In connection with our acquisition of Old Dean, all options to purchase Old
Dean stock outstanding at the time of the acquisition were automatically
converted into options to purchase our stock. Upon conversion, those options
represented options to purchase a total of approximately 2.7 million shares
of our common stock. Also, the acquisition triggered certain "change in
control" rights contained in the option agreements, which consisted of the
right to surrender the options to us, in lieu of exercise, in exchange for
cash, provided the options were surrendered prior to March 21, 2002. Options
to purchase approximately 809,000 shares were surrendered. See Note 2 to our
Consolidated Financial Statements.
F-23
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about options outstanding and
exercisable at December 31, 2001:
<Table>
<Caption>
OPTIONS OUTSTANDING
------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED-AVERAGE ------------------------------
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0 to $17.25 136,350 3.91 $12.24 136,350 $12.24
20.25 to 29.88 608,680 4.99 $28.11 608,680 $28.11
30.41 to 43.71 4,383,100 6.79 $39.44 2,243,892 $38.63
48.54 to 53.10 967,314 5.69 $49.79 935,384 $49.82
58.00 to 73.64 936,486 5.39 $61.73 926,786 $61.75
</Table>
We have elected to follow Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for our stock options. All options granted
to date have been to employees, officers or directors. Accordingly, no
compensation expense has been recognized since stock options granted were at
exercise prices which approximated or exceeded market value at the grant date.
Had compensation expense been determined for stock option grants using fair
value methods provided for in SFAS No. 123, Accounting for Stock-Based
Compensation, our pro forma net income and net income per common share would
have been the amounts indicated below:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------
2001 2000 1999
---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Compensation cost............................ $ 27,750 $ 27,278 $ 18,861
Net income:
As reported................................ 109,830 118,719 109,731
Pro forma.................................. 92,209 104,272 98,245
Net income per share:
As reported -- basic....................... 3.90 4.21 3.34
As reported -- diluted..................... 3.56 3.82 3.13
Pro forma -- basic......................... 3.28 3.70 2.99
Pro forma -- diluted....................... 3.08 3.43 2.86
Stock option share data:
Stock options granted during period........ 1,244,150 1,366,900 1,078,169
Weighted average option fair value......... $ 22.30(a) $ 20.57(b) $ 18.00(c)
</Table>
- ---------------
(a) Calculated in accordance with the Black-Scholes option pricing model, using
the following assumptions: expected volatility of 40%, expected dividend
yield of 0%, expected option term of seven years and risk-free rates of
return as of the date of grant of ranging from 4.51% to 5.19% based on the
yield of seven-year U.S. Treasury securities.
(b) Calculated in accordance with the Black-Scholes option pricing model, using
the following assumptions: expected volatility of 40%; expected dividend
yield of 0%; expected option term of four to ten years and risk-free rates
of return as of the date of grant ranging from 6.03% to 6.74% based on the
yield of seven-year U.S. Treasury securities.
(c) Calculated in accordance with the Black-Scholes option pricing model, using
the following assumptions: expected volatility of 40%; expected dividend
yield of 0%; expected option term of four to ten years and risk-free rates
of return as of the date of grant of 5.1% based on the yield of ten-year
U.S. Treasury securities.
F-24
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rights Plan -- On February 27, 1998, our Board of Directors declared a
dividend of one common share purchase right for each outstanding share of common
stock to the stockholders of record on March 18, 1998. The rights are not
exercisable until ten days subsequent to the announcement of the acquisition of
or intent to acquire a beneficial ownership of 15% or more in Dean Foods
Company. At such time, each right entitles the registered holder to purchase
from us that number of shares of common stock at an exercise price of $210.00,
with a market value of up to two times the exercise price. At any time prior to
such date, a required majority may redeem the rights in whole, but not in part,
at a price of $0.01 per right. The rights will expire on March 18, 2008, unless
our Board of Directors extends the term of, or redeems, the rights.
Earnings Per Share -- Basic earnings per share is based on the weighted
average number of common shares outstanding during each period. Diluted earnings
per share is based on the weighted average number of common shares outstanding
and the effect of all dilutive common stock equivalents during each period. The
following table reconciles the numerators and denominators used in the
computations of both basic and diluted EPS:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------
2001 2000 1999
----------- ----------- -----------
<S> <C> <C> <C>
Basic EPS computation:
Numerator:
Income from continuing operations........ $ 115,593 $ 113,751 $ 108,827
Denominator:
Average common shares.................... 28,151,398 28,195,043 32,861,218
Basic EPS from continuing operations........ $ 4.10 $ 4.03 $ 3.31
Diluted EPS computation:
Numerator:
Income from continuing operations........ $ 115,593 $ 113,751 $ 108,827
Net effect on earnings from assumed
conversion of mandatorily redeemable
convertible preferred securities....... 21,324 21,334 24,501
----------- ----------- -----------
Income applicable to common stock........ $ 136,917 $ 135,085 $ 133,328
=========== =========== ===========
Denominator:
Average common shares -- basic........... 28,151,398 28,195,043 32,861,218
Stock option conversion.................. 1,073,893 793,680 901,151
Dilutive effect of assumed conversion of
mandatorily redeemable convertible
preferred securities................... 7,666,783 7,682,541 9,096,123
----------- ----------- -----------
Average common shares -- diluted.............. 36,892,074 36,671,264 42,858,492
=========== =========== ===========
Diluted EPS from continuing operations........ $ 3.71 $ 3.68 $ 3.11
</Table>
F-25
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Share Repurchases -- On September 15, 1998, our Board of Directors
authorized an open market share repurchase program of up to $100.0 million of
our common stock. On September 28, 1999, the Board increased the program by
$100.0 million to $200.0 million and on November 17, 1999 authorized a further
increase to $300.0 million. We fulfilled the $300.0 million authorization during
the second quarter of 2000, and on May 19, 2000, the Board increased the program
by $100.0 million to $400.0 million. On November 2, 2000 the Board authorized a
further increase to $500.0 million. Set forth in the chart below is a summary of
the stock we have repurchased pursuant to this program through December 31,
2001.
<Table>
<Caption>
PERIOD NO. OF SHARES REPURCHASED PURCHASE PRICE
- ------ ------------------------- --------------
<S> <C> <C>
Third Quarter 1998.............................. 1,000,000 $ 30.4 million
Fourth Quarter 1998............................. 510,400 15.6 million
Second Quarter 1999............................. 79,700 3.0 million
Third Quarter 1999.............................. 1,850,515 66.7 million
Fourth Quarter 1999............................. 3,486,508 128.4 million
First Quarter 2000.............................. 688,800 27.2 million
Second Quarter 2000............................. 966,065 42.2 million
Third Quarter 2000.............................. 1,587,000 77.0 million
Fourth Quarter 2000............................. 40,000 2.1 million
First Quarter 2001.............................. 123,334 6.1 million
---------- --------------
Total................................. 10,332,322 $398.7 million
========== ==============
</Table>
As of March 25, 2002, $101.3 million remains available for spending under
this program.
Repurchased shares are treated as effectively retired in the consolidated
financial statements.
F-26
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. OTHER COMPREHENSIVE INCOME
Comprehensive income comprises net income plus all other changes in equity
from non-owner sources. The amount of income tax (expense) benefit allocated to
each component of other comprehensive income during the year ended December 31,
2001 and 2000 are included below.
<Table>
<Caption>
TAX BENEFIT
PRE-TAX (EXPENSE)
INCOME AND MINORITY NET
(LOSS) INTEREST AMOUNT
-------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Accumulated other comprehensive income, January 1,
2000.............................................. $(11,152) $ 4,714 $ (6,438)
Cumulative translation adjustment................... (2,381) 931 (1,450)
Reclassification adjustment for disposal............ 11,139 (4,362) 6,777
-------- -------- --------
Accumulated other comprehensive income, December 31,
2000.............................................. $ (2,394) $ 1,283 $ (1,111)
Cumulative translation adjustment................... (3,676) 1,444 (2,232)
Cumulative effect of accounting change.............. (16,278) 9,875 (6,403)
Net change in fair value of derivative
instruments....................................... (44,844) 28,474 (16,370)
Amounts reclassified to income statement related to
derivatives....................................... 17,230 (10,298) 6,932
Reclassification of minority interest portion on
derivative fair values............................ (10,033) (10,033)
Minimum pension liability adjustment................ (1,059) 433 (626)
-------- -------- --------
Accumulated other comprehensive income, December 31,
2001.............................................. $(51,021) $ 21,178 $(29,843)
======== ======== ========
</Table>
14. EMPLOYEE RETIREMENT AND PROFIT SHARING PLANS
We sponsor various defined benefit and defined contribution retirement
plans, including various employee savings and profit sharing plans, and
contribute to various multi-employer pension plans on behalf of our employees.
Substantially all full-time union and non-union employees who have completed one
or more years of service and have met other requirements pursuant to the plans
are eligible to participate in these plans. During 2001, 2000 and 1999, our
retirement and profit sharing plan expenses were as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------
2001 2000 1999
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Defined benefit plans.................................. $ 1,277 $ 2,482 $ 3,994
Defined contribution plans............................. 15,821 6,792 7,572
Multi-employer pension plans........................... 5,671 5,599 4,937
-------- ------- -------
$ 22,769 $14,873 $16,503
======== ======= =======
</Table>
Defined Benefit Plans -- The benefits under our defined benefit plans are
based on years of service and employee compensation. Our funding policy is to
contribute annually the minimum amount required under ERISA regulations. Plan
assets consist principally of investments made with insurance companies under a
group annuity contract.
F-27
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the funded status of our defined benefit
plans and the amounts recognized in our consolidated balance sheets:
<Table>
<Caption>
DECEMBER 31,
-----------------------
2001 2000
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year..................... $ 89,370 $71,673
Service cost.............................................. 1,594 2,274
Interest cost............................................. 6,671 6,573
Assumption change......................................... 620
Plan amendments........................................... 60 1,381
Actuarial (gain) loss..................................... 4,346 1,802
Acquisitions.............................................. 186,506 18,724
Divestitures.............................................. (580) (1,412)
Benefits paid............................................. (7,149) (7,994)
Plan curtailments......................................... (285) (3,727)
Plan settlements.......................................... (981)
Other..................................................... 109 76
---------- ----------
Benefit obligation at end of year........................... 280,281 89,370
---------- ----------
Change in plan assets:
Fair value of plan assets at beginning of year.............. 92,753 79,166
Actual return on plan assets.............................. (5,150) 1,221
Acquisitions.............................................. 99,012 18,644
Divestitures.............................................. (609)
Employer contribution..................................... 579 1,679
Plan settlements.......................................... (1,270)
Benefits paid............................................. (7,149) (7,994)
Other..................................................... 85 37
---------- ----------
Fair value of plan assets at end of year.................... 178,251 92,753
---------- ----------
Funded status............................................... (102,030) 3,383
Unrecognized net transition obligation.................... 573 1,317
Unrecognized prior service cost........................... 2,803 2,596
Unrecognized net (gain)loss............................... 9,976 (7,799)
Minimum liability adjustment.............................. (2,809) (1,651)
---------- ----------
Net amount recognized....................................... $ (91,487) $(2,154)
========== ==========
Amounts recognized in the consolidated balance sheets at
December 31 of each year consist of:
Prepaid benefit cost........................................ $ 2,335 $2,125
Accrued benefit liability................................... (95,650) (4,279)
</Table>
F-28
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
DECEMBER 31,
-----------------------
2001 2000
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Intangible asset............................................ 1,202
Accumulated other comprehensive income...................... 626
---------- ----------
Net amount recognized....................................... $ (91,487) $(2,154)
========== ==========
Weighted-average assumptions as of December 31:
Discount rate............................................... 7.25% 7.75%
Expected return on plan assets.............................. 6.75-9.00% 6.75-9.50%
Rate of compensation increase............................... 0-5.00% 0-5.00%
</Table>
<Table>
<Caption>
DECEMBER 31,
---------------------------
2001 2000 1999
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Components of net periodic benefit cost (income):
Service cost.......................................... $ 1,594 $ 2,274 $ 4,151
Interest cost......................................... 6,671 6,573 5,052
Expected return on plan assets........................ (7,647) (8,204) (6,157)
Amortization of unrecognized transition obligation.... 106 140 188
Amortization of prior service cost.................... 207 147 138
Amortization of unrecognized net gain................. (47) (622) (3)
Recognized net actuarial (gain) loss from
curtailment........................................ 311 (3,899)
Recognized net loss from divestitures................. 148
------- ------- -------
Net periodic benefit cost (income)...................... $ 1,343 $(3,591) $ 3,369
======= ======= =======
</Table>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $82.8 million, $81.3 million, and $67.8 million,
respectively, as of December 31, 2001, and $32.7 million, $32.7 million and
$30.4 million, respectively, as of December 31, 2000, excluding pension plans
related to our disposed U.S. packaging operations.
Defined Contribution Plans -- Certain of our non-union personnel may elect
to participate in savings and profit sharing plans sponsored by us. These plans
generally provide for salary reduction contributions to the plans on behalf of
the participants of between 1.0% and 17.0% of a participant's annual
compensation and provide for employer matching and profit sharing contributions
as determined by our Board of Directors. In addition, certain union hourly
employees are participants in company-sponsored defined contribution plans which
provide for employer contributions in various amounts ranging from $21 to $39
per pay period per participant.
Multi-Employer Pension Plans -- Certain of our subsidiaries contribute to
various multi-employer union pension plans, which are administered jointly by
management and union representatives and cover substantially all full-time and
certain part-time union employees who are not covered by our other plans. The
Multi-Employer Pension Plan Amendments Act of 1980 amended ERISA to establish
funding requirements and obligations for employers participating in
multi-employer plans, principally related to employer withdrawal from or
termination of such plans. We could, under certain circumstances, be liable for
unfunded vested benefits or other expenses of jointly administered
union/management plans. At this time, we have not established any liabilities
because withdrawal from these plans is not probable or reasonably possible.
F-29
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
Certain of our subsidiaries provide health care benefits to certain
retirees who are covered under specific group contracts. As defined by the
specific group contract, qualified covered associates may be eligible to receive
major medical insurance with deductible and co-insurance provisions subject to
certain lifetime maximums.
The following table sets forth the funded status of these plans and the
amounts recognized in our consolidated balance sheets:
<Table>
<Caption>
DECEMBER 31,
----------------------
2001 2000
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year..................... $ 6,892 $ 5,156
Service cost.............................................. 140 29
Interest cost............................................. 504 450
Actuarial loss............................................ 2,124 1,340
Plan amendments........................................... (2,111) (566)
Acquisitions.............................................. 13,793 1,110
Participant contributions................................. 157
Assumption charge......................................... (222)
Benefits paid............................................. (672) (627)
---------- ---------
Benefit obligation at end of year........................... 20,605 6,892
Fair value of plan assets at end of year.................... -- --
---------- ---------
Funded status............................................... (20,605) (6,892)
Unrecognized prior service cost........................... (2,633) (566)
Unrecognized net loss..................................... 2,106 218
---------- ---------
Net amount recognized -- accrued benefit liability.......... $ (21,132) $(7,240)
========== =========
Weighted-average assumptions as of December 31:
Discount rate............................................... 7.25% 7.75%
Health care inflation:
Initial rate................................................ 8.00-11.00% 7.12-9.50%
Ultimate rate............................................... 5.00-6.00% 5.00-6.00%
Year of ultimate rate achievement........................... 2008-2015 2005-2015
</Table>
<Table>
<Caption>
DECEMBER 31,
------------------
2001 2000 1999
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Components of net periodic benefit cost:
Service and interest cost................................... $644 $479 $278
Amortization of unrecognized net gain....................... (43) (51) (40)
Amortization of prior service cost.......................... (43)
Recognized actuarial loss................................... 217 65
---- ---- ----
Net periodic benefit cost................................... $775 $493 $238
==== ==== ====
</Table>
F-30
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one percent change in assumed
health care cost trend rates would have the following effects:
<Table>
<Caption>
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Effect on total of service and interest cost components... $109 $ (99)
Effect on post-retirement obligation...................... 987 (921)
</Table>
16. PLANT CLOSING COSTS
Plant Closing Costs -- As part of an overall integration and cost reduction
strategy, we recorded plant closing and other non-recurring costs during 2001,
2000 and 1999 in the amount of $9.6 million, $3.4 million and $12.6 million,
respectively. In addition, our share of Consolidated Container Company's
restructuring charges were expenses of $1.7 million, income of $0.8 million, and
expenses of $4.9 million during 2001, 2000 and 1999, respectively. These amounts
were reported as an adjustment to equity in earnings of unconsolidated
affiliates.
During 2001, we recorded charges related to the closing of three plants
with consolidation of production into other plants.
The charges recorded for our integration and cost reduction programs in
2000 reflect several approved efficiency and integration efforts including
restructuring of our corporate office departments, elimination of a production
shift and certain maintenance activities at our Puerto Rico operations, and
closing of our Hartford, Connecticut plant.
During 1999, we recorded charges related to the closing of four plants with
consolidation of production into other plants, the disposition of a small cheese
processing plant, consolidation of administrative offices within one of our
regions and severance costs incurred at the corporate office as well as our
European and Puerto Rico operations.
The principal components of these plans include the following:
- Workforce reductions as a result of plant closings, plant
rationalizations and consolidation of administrative functions. The plans
included an overall reduction of 198 people in 2001, 205 people in 2000
and 315 people in 1999, who were primarily plant employees associated
with the plant closings and rationalization. The costs were charged to
our earnings in the period that the plan was established in detail and
employee severance and benefits had been appropriately communicated. All
employees had been terminated as of December 31, 2001; however, certain
payment obligations remain;
- Shutdown costs, including those costs that are necessary to prepare the
plant facilities for closure;
- Costs incurred after shutdown such as lease obligations or termination
costs, utilities and property taxes; and
- Write-downs of property, plant and equipment and other assets, primarily
for asset impairments as a result of facilities that are no longer used
in operations. The impairments relate primarily to owned building, land
and equipment at the facilities which are being sold and were written
down to their estimated fair value.
F-31
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Activity with respect to plant closing and other non-recurring costs for
2001 is summarized below:
<Table>
<Caption>
BALANCE AT BALANCE AT
DECEMBER 31, DECEMBER 31,
2000 CHARGES PAYMENTS 2001
------------ ------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash charges:
Workforce reduction costs............... $1,179 $1,088 $(1,599) $ 668
Shutdown costs.......................... 363 624 (527) 460
Lease obligations after shutdown........ 118 183 (182) 119
Other................................... 843 (590) 253
------ ------ ------- ------
Subtotal.................................. $1,660 2,738 $(2,898) $1,500
====== ======= ======
Noncash charges:
Write-down of property, plant and
equipment............................ 6,812
------
Total charges............................. $9,550
======
</Table>
Activity with respect to plant closing and other non-recurring costs for
2000 is summarized below:
<Table>
<Caption>
BALANCE AT BALANCE AT
DECEMBER 31, DECEMBER 31,
1999 CHARGES PAYMENTS 2000
------------ ------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash charges:
Workforce reduction costs............... $3,073 $2,176 $(4,070) $1,179
Shutdown costs.......................... 468 564 (669) 363
Lease obligations after shutdown........ 438 95 (415) 118
Other................................... 40 159 (199)
------ ------ ------- ------
Subtotal.................................. $4,019 2,994 $(5,353) $1,660
====== ======= ======
Noncash charges:
Write-down of property, plant and
equipment............................ 394
------
Total charges............................. $3,388
======
</Table>
There have not been significant adjustments to the plans and the majority
of future cash requirements to reduce the liability at December 31, 2001 are
expected to be completed within a year.
Acquired Facility Closing Costs -- As part of our purchase price
allocations, we accrued costs in 2001 and 2000 pursuant to plans to exit certain
activities and operations of acquired businesses in order to rationalize
production and reduce costs and inefficiencies. Several plants were closed in
connection with our acquisition of Southern Foods. Production from these plants
was moved to our other facilities. We also have implemented plans to shut down
plants and administrative offices in connection with our acquisition of Old
Dean. We will continue to finalize and implement our initial integration and
rationalization plans and expect to refine our estimate of amounts in our
purchase price allocations associated with these plans.
The principal components of the plans include the following:
- Workforce reductions as a result of plant closings, plant
rationalizations and consolidation of administrative functions and
offices, resulting in an overall reduction of 557 plant and
administrative personnel. The costs incurred were charged against our
acquisition liabilities for these costs. As of December 31, 2001, 481
employees had not yet been terminated;
F-32
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- Shutdown costs, including those costs that are necessary to clean and
prepare the plant facilities for closure; and
- Costs incurred after shutdown such as lease obligations or termination
costs, utilities and property taxes after shutdown of the plant or
administrative office.
Activity with respect to these acquisition liabilities for 2001 is
summarized below:
<Table>
<Caption>
ACCRUED ACCRUED
CHARGES AT CHARGES AT
DECEMBER 31, DECEMBER 31,
2000 ACCRUALS PAYMENTS 2001
------------ -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Workforce reduction costs................ $ 997 $19,357 $ (325) $20,029
Shutdown costs........................... 7,271 8,647 (3,297) 12,621
------ ------- ------- -------
Total.................................... $8,268 $28,004 $(3,622) $32,650
====== ======= ======= =======
</Table>
Activity with respect to these acquisition liabilities for 2000 is
summarized below:
<Table>
<Caption>
ACCRUED ACCRUED
CHARGES AT CHARGES AT
DECEMBER 31, DECEMBER 31,
1999 ACCRUALS PAYMENTS 2000
------------ -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Workforce reduction costs................ $624 $ 1,268 $ (895) $ 997
Shutdown costs........................... 332 9,735 (2,796) 7,271
---- ------- ------- ------
Total.................................... $956 $11,003 $(3,691) $8,268
==== ======= ======= ======
</Table>
17. OTHER OPERATING (INCOME) EXPENSE
During the fourth quarter of 2001, we recognized a net of $17.3 million of
other operating income which includes the following:
- A gain of $47.5 million on the divestiture of the 11 plants transferred
to National Dairy Holdings (as assignee of Dairy Farmers of America) in
connection with the acquisition of Old Dean. The gain represented the
difference between fair value and the carrying value of the plants;
- An expense of $28.5 million resulting from a payment to Dairy Farmers of
America as consideration for certain modifications to our existing milk
supply arrangements; and
- An expense of $1.7 million resulting from the impairment in value of a
water plant.
During the fourth quarter of 2000, we recognized $7.5 million of other
operating expense associated with a settlement with the Department of Justice
(the "DOJ") related to certain activities of West Lynn Creamery. The activities
alleged by the DOJ occurred prior to our acquisition of West Lynn Creamery in
June 1998.
F-33
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. SUPPLEMENTAL CASH FLOW INFORMATION
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------
2001 2000 1999
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for interest and financing charges, net of
capitalized interest................................ $139,984 $142,205 $87,548
Cash paid for taxes................................... 24,983 31,883 40,003
Noncash transactions:
Issuance of common stock in connection with business
acquisitions..................................... 739,366 -- 3,193
Issuance of subsidiary preferred and common
securities in connection with two acquisitions... -- 340,336 18,500
Operations of 11 plants in connection with
acquisition of minority interest................. 287,989 -- --
Issuance of subordinated contingent promissory note
in connection with acquisition of minority
interest......................................... 40,000 -- --
</Table>
19. COMMITMENTS AND CONTINGENCIES
Leases -- We lease certain property, plant and equipment used in our
operations under both capital and operating lease agreements. Such leases, which
are primarily for machinery, equipment and vehicles, have lease terms ranging
from 1 to 20 years. Certain of the operating lease agreements require the
payment of additional rentals for maintenance, along with additional rentals
based on miles driven or units produced. Rent expense, including additional
rent, was $87.3 million, $66.9 million, and $45.1 million for the years ended
December 31, 2001, 2000 and 1999, respectively.
The composition of capital leases which are reflected as property, plant
and equipment in our consolidated balance sheets are as follows:
<Table>
<Caption>
DECEMBER 31,
-----------------
2001 2000
------- -------
(IN THOUSANDS)
<S> <C> <C>
Buildings and improvements.................................. $11,251 $ 2,102
Machinery and equipment..................................... 4,666 10,770
Less accumulated amortization............................... (1,973) (4,267)
------- -------
$13,944 $ 8,605
======= =======
</Table>
F-34
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments at December 31, 2001, under non-cancelable capital
and operating leases with terms in excess of one year are summarized below:
<Table>
<Caption>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
2002........................................................ $ 3,750 $ 66,946
2003........................................................ 2,184 63,248
2004........................................................ 1,829 50,047
2005........................................................ 3,025 42,823
2006........................................................ 100 31,379
Thereafter.................................................. 108 103,427
------- --------
Total minimum lease payments................................ 10,996 $357,870
========
Less amount representing interest........................... (1,100)
-------
Present value of capital lease obligations.................. $ 9,896
=======
</Table>
Guaranty of Certain Indebtedness of Consolidated Container Company -- We
own a 43.1% interest in Consolidated Container Company ("CCC"), the nation's
largest manufacturer of rigid plastic containers and our primary supplier of
plastic bottles and bottle components. During 2001, as a result of various
operational difficulties, CCC became unable to comply with the financial
covenants in its credit facility. In February 2002, CCC's lenders agreed to
restructure the credit agreement to modify the financial covenants, subject to
the agreement of CCC's primary shareholders to guarantee certain of CCC's debt.
Because CCC is an important and valued supplier of ours, and in order to protect
our interest in CCC, we agreed to provide a limited guaranty. The guaranty,
which expires on January 5, 2003, is limited in amount to the lesser of (1) 49%
of the principal, interest and fees of CCC's "Tranche 3" revolver, and (2) $10
million. CCC's "Tranche 3" revolver can only be drawn upon by CCC when its
Tranche 1 and Tranche 2 revolvers are fully drawn. If CCC draws on the Tranche 3
revolver, no voluntary pre-payments may be made on the Tranche 1 and 2 revolvers
until the Tranche 3 revolver is fully re-paid. Our guaranty cannot be drawn upon
until the Tranche 3 loan is due and payable (whether at its January 5, 2003
maturity or by acceleration), and no more than one demand for payment may be
made by the banks. We have entered into an agreement with Alan Bernon and Peter
Bernon, who collectively own 6% of CCC, pursuant to which, collectively, they
have agreed to reimburse us for 12% of any amounts paid by us under the
guaranty.
Contingent Obligations Related to Milk Supply Arrangements and Divested
Operations -- On December 21, 2001, in connection with our acquisition of Old
Dean, we purchased Dairy Farmers of America's ("DFA") 33.8% stake in our Dairy
Group for consideration consisting of (1) approximately $145.4 million in cash,
(2) a contingent promissory note in the original principal amount of $40.0
million, and (3) the operations of 11 plants located in nine states where we and
Old Dean had overlapping operations (which plants were actually transferred to
National Dairy Holdings, L.P., as assignee of DFA). As additional consideration,
we amended a milk supply agreement with DFA to provide that if we do not, within
a certain period of time after the completion of the Old Dean acquisition, offer
DFA the right to supply raw milk to certain of the Old Dean dairy plants, we
could be required to pay liquidated damages of up to $47.0 million.
Specifically, the liquidated damages to DFA provision provides that:
- If we have not offered DFA the right to supply all of our raw milk
requirements for certain of Old Dean's plants by either (i) the end of
the 18th full month after December 21, 2001, or (ii) with respect to
certain other plants, the end of the 6th full calendar month following
the expiration of milk supply agreements in existence at those plants on
December 21, 2001, or
F-35
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- If DFA is prohibited from supplying those plants because of an
injunction, restraining order or otherwise as a result of or arising from
a milk supply contract to which we are party,
we must pay DFA liquidated damages determined and paid on a plant-by-plant
basis, based generally on the amount of raw milk used by that plant. Liquidated
damages would be payable in arrears in equal, quarterly installments over a
5-year period, without interest. If we are required to pay any such liquidated
damages, the principal amount of the $40.0 million contingent promissory note
will be reduced by an amount equal to 25% of the liquidated damages paid.
The contingent promissory note is designed to ensure that DFA, one of our
primary suppliers of raw milk, has the opportunity to retain our milk supply
business for 20 years, or be paid for the loss of that business. The contingent
promissory note has a 20-year term and bears interest based on the consumer
price index. Interest will not be paid in cash. Instead, interest will be added
to the principal amount of the note annually, up to a maximum principal amount
of $96.0 million. We may prepay the note in whole or in part at any time,
without penalty. The note will only become payable if we ever materially breach
or terminate one of our milk supply agreements with DFA without renewal or
replacement. Otherwise, the note will expire at the end of 20 years, without any
obligation to pay any portion of the principal or interest.
We retained certain liabilities of the businesses of the 11 plants divested
to National Dairy Holdings, where those liabilities were deemed to be
"non-ordinary course" liabilities. We also have the obligation to indemnify
National Dairy Holdings for any damages incurred by it in connection with those
retained liabilities, or in connection with any breach of the divestiture
agreement. We do not expect any liability that we may have for these retained
liabilities, or any indemnification liability, to be material. We believe we
have created adequate reserves for any such potential liability.
Litigation, Investigations and Audits -- We and our subsidiaries are
parties, in the ordinary course of business, to certain other claims,
litigation, audits and investigations. We believe we have created adequate
reserves for any liability we may incur in connection with any such currently
pending or threatened matter. In our opinion, the settlement of any such
currently pending or threatened matter is not expected to have a material
adverse impact on our financial position, results of operations or cash flows.
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
Pursuant to SFAS No. 107, "Disclosure About Fair Value of Financial
Instruments," we are required to disclose an estimate of the fair value of our
financial instruments as of December 31, 2001 and 2000. SFAS No. 107 defines the
fair value of financial instruments as the amount at which the instrument could
be exchanged in a current transaction between willing parties.
Due to their near-term maturities, the carrying amounts of accounts
receivable and accounts payable are considered equivalent to fair value. In
addition, because the interest rates on our senior credit facility and most
other debt are variable, their fair values approximate their carrying values.
We have senior notes with an aggregate face value of $700.0 million with
fixed interest rates ranging from 6.625% to 8.15% at December 31, 2001. These
notes were issued by Old Dean prior to our acquisition of Old Dean, and were
marked to fair value in our purchase price allocation.
F-36
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
We have entered into various interest rate agreements to reduce our
sensitivity to changes in interest rates on our variable rate debt. The fair
values of these instruments and our senior notes were determined based on
current values for similar instruments with similar terms. The following table
presents the carrying value and fair value of our senior notes and interest rate
agreements at December 31:
<Table>
<Caption>
2001 2000
------------------------------ ------------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
OF LIABILITY LIABILITY OF ASSET LIABILITY
----------------- ---------- ----------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Senior notes.................... $(658,211) $(658,211)
Interest rate agreements........ (44,140) (44,140) $3,696 $(16,278)
</Table>
21. BUSINESS AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
We currently have three reportable segments: Dairy Group, Morningstar Foods
and Specialty Foods. Our Dairy Group segment manufactures and distributes fluid
milk, ice cream and novelties, half-and-half and whipping cream, sour cream,
cottage cheese, yogurt and dips, as well as fruit juices and other flavored
drinks and bottled water. Morningstar Foods manufactures dairy and non-dairy
coffee creamers, whipping cream and pre-whipped toppings, dips and dressings,
specialty products such as lactose-reduced milk, soy milk and extended
shelf-life milks, as well as certain other refrigerated and extended shelf-life
products. Specialty Foods processes and markets pickles, powdered products such
as non-dairy coffee creamers, and sauces and puddings. We obtained Specialty
Foods as part of our acquisition of Old Dean on December 21, 2001; therefore the
sales and operating income listed below represent only the last few days of
December 2001. Our Puerto Rico and Spanish operations do not meet the definition
of a segment and are reported in "Corporate/ Other."
Prior to the third quarter of 1999, we had a Packaging segment. As a result
of the sale of a majority interest in our U.S. plastic packaging operations
effective July 2, 1999, as discussed in Note 4, we no longer have a reportable
packaging segment under current accounting rules. However, two small packaging
businesses have been included in the packaging segment until their disposition
in March and May 2000.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. We evaluate performance based on
operating profit not including non-recurring gains and losses and foreign
exchange gains and losses.
We do not allocate income taxes, management fees or unusual items to
segments. In addition, there are no significant non-cash items reported in
segment profit or loss other than depreciation and amortization and the $47.5
million gain on the divestiture of the 11 plants transferred to National Dairy
Holdings (as assignee of Dairy Farmers of America) in connection with the
acquisition of Old Dean which is reported in our Dairy Group segment in 2001.
The amounts in the following tables are the amounts obtained from reports used
by our executive management team for the year ended December 31:
<Table>
<Caption>
2001 2000 1999
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales from external customers:
Dairy Group.................................... $5,051,672 $4,660,329 $3,101,800
Morningstar Foods.............................. 766,922 704,246 655,159
Specialty Foods................................ 18,709
Packaging...................................... 42,286 489,814
Corporate/Other................................ 392,813 349,442 235,226
---------- ---------- ----------
Total.......................................... $6,230,116 $5,756,303 $4,481,999
========== ========== ==========
</Table>
F-37
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
2001 2000 1999
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Intersegment sales:
Dairy Group.................................... $ 14,133 $ 14,680 $ 8,838
Morningstar Foods.............................. 90,476 60,213 19,370
Specialty Foods................................
Packaging...................................... 18,674
Corporate/Other................................
---------- ---------- ----------
Total.......................................... $ 104,609 $ 74,893 $ 46,882
========== ========== ==========
Operating income:
Dairy Group(1)................................. $ 323,755 $ 289,630 $ 164,575
Morningstar Foods(2)........................... 104,294 100,944 83,641
Specialty Foods................................ 2,168
Packaging(3)................................... 415 50,402
Corporate/Other(4)............................. (35,776) (22,926) (21,744)
---------- ---------- ----------
Total.......................................... 394,441 368,063 276,874
Other (income) expense:
Interest expense and financing charges......... 135,368 146,181 87,817
Equity in (loss) earnings of unconsolidated
affiliates.................................. 23,620 (11,453) (2,630)
Other (income) expense, net.................... 4,690 (630) (1,416)
---------- ---------- ----------
Consolidated earnings before tax............... $ 230,763 $ 233,965 $ 193,103
========== ========== ==========
Depreciation and amortization:
Dairy Group.................................... $ 113,780 $ 105,717 $ 64,046
Morningstar Foods.............................. 24,574 22,849 19,644
Specialty Foods................................ 353
Packaging...................................... 1,529 23,020
Corporate/Other................................ 16,180 14,888 9,935
---------- ---------- ----------
Total.......................................... $ 154,887 $ 144,983 $ 116,645
========== ========== ==========
Assets:
Dairy Group.................................... $4,922,224 $2,912,231 $1,750,389
Morningstar Foods.............................. 858,656 424,819 458,450
Specialty Foods................................ 625,382
Packaging...................................... 196,792
Corporate/Other................................ 325,635 443,428 253,291
---------- ---------- ----------
Total.......................................... $6,731,897 $3,780,478 $2,658,922
========== ========== ==========
</Table>
F-38
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
2001 2000 1999
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Capital expenditures:
Dairy Group.................................... $ 89,125 $ 90,901 $ 104,023
Morningstar Foods.............................. 37,401 28,162 20,344
Specialty Foods................................
Packaging...................................... 1,313 23,650
Corporate/Other................................ 10,718 16,500 39,625
---------- ---------- ----------
Total.......................................... $ 137,244 $ 136,876 $ 187,642
========== ========== ==========
</Table>
- ---------------
(1) Operating income includes plant closing and other non-recurring charges of
$9.6 million, $2.1 million and $8.7 million in 2001, 2000 and 1999,
respectively. Operating income in 2001 includes a gain of $47.5 million
related to the divestiture of 11 plants as part of the acquisition of Dean
Foods, an expense of $28.5 million resulting from certain changes to our
milk supply agreements, and an impairment charge of $1.7 million on a water
plant. Operating income in 2000 includes litigation settlement costs of $7.5
million.
(2) Operating income includes plant closing and other non-recurring charges of
$0.5 million in 1999.
(3) Included in operating income are plant closing and other non-recurring
charges of $0.2 million in 1999.
(4) Operating income includes plant closing and other non-recurring charges of
$1.3 million, and $3.2 million in 2000 and 1999, respectively.
<Table>
<Caption>
REVENUES LONG-LIVED ASSETS
------------------------------------ -----------------------
2001 2000 1999 2001 2000
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Geographic Information
United States.......... $5,837,302 $5,364,575 $4,002,144 $4,987,908 $2,723,408
Puerto Rico............ 221,794 226,661 235,226 124,079 127,487
Europe................. 171,020 165,067 244,629 118,022 111,611
---------- ---------- ---------- ---------- ----------
Total............... $6,230,116 $5,756,303 $4,481,999 $5,230,009 $2,962,506
========== ========== ========== ========== ==========
</Table>
We have no one customer within any segment which represents greater than
ten percent of our consolidated revenues.
F-39
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
22. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for 2001 and 2000:
<Table>
<Caption>
QUARTER
-------------------------------------------------
FIRST SECOND THIRD FOURTH
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
2001:
Net sales............................ $1,474,352 $1,527,074 $1,555,731 $1,672,959
Gross profit......................... 356,515 363,127 360,296 400,078
Income before extraordinary items and
cumulative effect of accounting
change(1).......................... 23,517 34,603 29,422 28,051
Net income(1)........................ 22,071(2) 34,603 29,422 23,734(3)
Basic earnings per common share(4):
Income before extraordinary items
and cumulative effect of
accounting change............... 0.86 1.26 1.06 0.94
Net income......................... 0.81 1.26 1.06 0.80
Diluted earnings per common share(4):
Income before extraordinary items
and cumulative effect of
accounting change............... 0.81 1.11 0.95 0.86
Net income......................... 0.77 1.11 0.95 0.75
2000:
Net sales............................ $1,394,141 $1,434,354 $1,439,947 $1,487,861
Gross profit......................... 340,158 360,218 354,320 371,540
Income before extraordinary
gain(5)............................ 20,594 33,533 31,189 28,435
Net income(5)........................ 25,562(6) 33,533 31,189 28,435
Basic earnings per common share(4):
Income before extraordinary gain... 0.71 1.16 1.13 1.05
Net income......................... 0.88 1.16 1.13 1.05
Diluted earnings per common share(4):
Income before extraordinary gain... 0.69 1.04 1.01 .95
Net income......................... 0.82 1.04 1.01 .95
</Table>
- ---------------
(1) The results for the first, third and fourth quarters include plant closing
and other non-recurring charges, net of minority interest when applicable,
of $0.3 million, $1.0 million and $4.5 million, respectively. Results in the
fourth quarter also include a gain of $29.5 million related to the
divestiture of 11 plants as part of the acquisition of Dean Foods, an
expense of $17.4 million resulting from certain changes to our milk supply
agreements, an impairment charge of $0.7 million, net of minority interest,
on a water plant, a charge of $12.9 million related to the impairment of our
investment in Consolidated Container, and a charge of $2.7 million resulting
from the impairment of two small investments. All amounts are net of income
taxes.
(2) Results for the first quarter of 2001 include a cumulative effect of
accounting change expense of $1.4 million related to our adoption of FAS
133, Accounting for Derivative Instruments and Hedging Activities.
F-40
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) Included in the results for the fourth quarter is an extraordinary loss of
$4.3 million for the write-off of deferred financing costs related to the
early retirement of our former credit facilities.
(4) Earnings per common share calculations for each of the quarters were based
on the basic and diluted weighted average number of shares outstanding for
each quarter, and the sum of the quarters may not necessarily be equal to
the full year earnings per common share amount.
(5) The results for the first, second, and third quarters of 2000 include plant
closing and other non-recurring charges of $0.7 million, $0.8 million and
$0.3 million respectively. Results in the fourth quarter include a charge of
$5.0 million for litigation settlement costs and a gain of $0.4 million
related to plant closing credits at Consolidated Container. All amounts are
net of income tax and minority interest.
(6) Results for the first quarter of 2000 include an extraordinary gain related
to interest rate derivatives which became unhedged, net of an extraordinary
loss for the write-off of deferred financing costs.
23. SUBSEQUENT EVENTS
Stock Split -- On February 21, 2001, we announced that our Board of
Directors has declared a two-for-one split of our common stock. The split will
entitle shareholders of record on April 8, 2002 to receive one additional share
of common stock for each share held on that date. The split will be effected
after the close of business on April 23, 2002. Common shares outstanding, giving
retroactive effect to the stock split, at December 31, 2001 and 2000 are 87.9
million shares and 54.6 million shares, respectively. Pro forma earnings per
common share, giving retroactive effect to the stock split, are as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------------
2001 2000 1999
---------- ---------- ----------
<S> <C> <C> <C>
Basic earnings per common share:
Income before extraordinary gain (loss) and
cumulative effect of accounting change...... $2.05 $2.02 $1.66
Extraordinary gain (loss)...................... (.08) .09 .01
Cumulative effect of accounting change......... (.02)
---------- ---------- ----------
Net income..................................... $1.95 $2.11 $1.67
========== ========== ==========
Diluted earnings per common share:
Income before extraordinary gain (loss) and
cumulative effect of accounting change...... $1.86 $1.84 $1.56
Extraordinary gain (loss)...................... (.06) .07 .01
Cumulative effect of accounting change......... (.02)
---------- ---------- ----------
Net income..................................... $1.78 $1.91 $1.57
========== ========== ==========
Shares used in per share calculations:
Average common shares -- Basic................. 56,302,796 56,390,086 65,722,436
Average common shares -- Diluted............... 73,784,148 73,342,528 85,716,984
</Table>
F-41
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Hedging Transactions -- In March 2002, we entered into forward starting
swaps that begin in December 2002 with a notional amount of $725.0 million and
fixed interest rates ranging from 4.29% to 5.315%. These swaps have been
designated as hedges against interest rate exposure on loans under our senior
credit facility and under one of our subsidiary's term loans. These derivatives
provide hedges for loans by limiting or fixing the interest rates specified in
the senior credit facility or subsidiary term loan at the interest rates noted
below until the indicated expiration dates of the interest rate derivative
agreements.
<Table>
<Caption>
FIXED INTEREST RATES EXPIRATION DATE NOTIONAL AMOUNTS
- -------------------- --------------- ----------------
<S> <C> <C>
4.29% to 4.6875%............................................ December 2003 $275.0 million
4.8525% to 4.855%........................................... December 2004 $150.0 million
5.195% to 5.315%............................................ December 2005 $300.0 million
</Table>
Guarantee of Indebtedness of Consolidated Container Company -- In February
2002, we agreed to provide a limited guaranty of certain indebtedness of
Consolidated Container Company. See Note 19, to our Consolidated Financial
Statements.
24. RELATED PARTY TRANSACTIONS
Aircraft Leases -- On August 1, 2000, we entered into a five-year aircraft
lease agreement with Neptune Colorado, LLC, a limited liability company owned by
Gregg Engles (our Chief Executive Officer and Vice Chairman of the Board of
Directors) and Pete Schenkel (President of our Dairy Group and also a member of
our Board of Directors). Pursuant to the lease agreement, we agreed to lease an
airplane from Neptune Colorado at a rate of $1,000 per hour for each hour of
flight with a minimum of 40 hours of flight per month. We also pay a
non-refundable equipment reserve charge equal to $83.10 per engine hour used
during the term of the agreement. Reserve funds are used by the lessor for
engine overhauls, removal or replacement during the term of the agreement. We
are responsible for paying all taxes related to and insurance for the airplane,
as well as all operating costs, crew salaries, benefits, landing and customs
fees, hangar and storage charges and any fines or penalties arising from its
operation or use of the airplane. We paid an aggregate of $0.6 million in 2001
and $0.2 million in 2000 to Neptune Colorado, LLC under the lease.
In June 2001, we entered into a six-year aircraft lease agreement with
Curan, LLC, a limited liability company also owned by Gregg Engles and Pete
Schenkel. Pursuant to the lease agreement, we agreed to lease an airplane from
Curan at a rate of $122,000 per month. We also must set up a non-refundable
equipment reserve account, the amount of which will be determined periodically
by a third party. Reserve funds are used by the lessor for engine overhauls,
removal or replacement during the term of the agreement. We are responsible for
paying all taxes related to and insurance for the airplane, as well as all
operating costs, crew salaries, benefits, landing and customs fees, hangar and
storage charges and any fines or penalties arising from its operation or use of
the airplane. We paid an aggregate of $0.9 million to Curan, LLC during 2001
under the lease.
Real Property Lease -- We lease the land for our Franklin, Massachusetts
plant from a partnership in which Alan Bernon, Chief Operating Officer of the
Northeast region of our Dairy Group and a member of our Board of Directors, owns
a 13.45% minority interest. (The remaining interests are owned by members of Mr.
Bernon's family.) The lease payments totaled $0.6 million in each of 2001, 2000
and 1999.
Purchases of Orange Juice Concentrate -- Some of our subsidiaries purchase
a portion of their requirements for frozen concentrated orange juice from an
entity in which Gregg Engles owns a limited partnership interest. We have no
written agreement with the supplier. All purchases are based on purchase orders.
We monitor the market price for frozen concentrated orange juice and purchase
the product from the supplier offering the lowest price, inclusive of all
charges. Our purchases from this supplier totaled approximately $0.0 in 2001,
$0.1 million in 2000, and $1.8 million in 1999.
F-42
<PAGE>
DEAN FOODS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minority Interest in Consolidated Container Holding Company -- Alan Bernon,
Chief Operating Officer of the Northeast region of our Dairy Group and a member
of our Board of Directors, together with his brother, Peter Bernon, own 12.0% of
Franklin Plastics, Inc., which owns 49.1% of Consolidated Container Company
("CCC"). We own the remaining 88.0% of Franklin Plastics. In March 2002, we
entered into an agreement with Alan Bernon and Peter Bernon pursuant to which
they have agreed to reimburse us, collectively, for 12% of any amounts paid by
us under our guaranty of a portion of CCC's indebtedness. See Note 19 for a
description of the terms of the guaranty.
Purchases of Raw Milk and Cream and Buy-Out of DFA -- We have entered into
a series of milk supply agreements with Dairy Farmers of America, Inc. ("DFA"),
which owned 33.8% of our Dairy Group through December 21, 2001, to supply
certain of our plants with all of their milk requirements. The agreements
generally specify that we pay DFA based on price announcements supplied by DFA
from time to time, subject to certain limitations. We paid DFA approximately
$1.79 billion in 2001 and $1.37 billion in 2000 for milk purchases under these
agreements. We purchased DFA's interest in our Dairy Group for cash, the
operations of 11 plants, and certain contingent obligations. See Notes 2 and 19.
Consulting Fees -- During 2000 and 1999, we paid fees to Tex Beshears, a
former officer and director, for acquisition consulting services related to
certain completed acquisitions totaling $3.9 million and $0.5 million,
respectively, which have been capitalized as part of the purchase price of the
acquisitions. In 2000, we paid consulting fees of approximately $0.5 million to
Peter Bernon, brother of Alan Bernon, for acquisition-related consulting
services.
F-43
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Incorporated herein by reference to our proxy statement (to be filed) for
our May 30, 2002 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to our proxy statement (to be filed) for
our May 30, 2002 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to our proxy statement (to be filed) for
our May 30, 2002 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to our proxy statement (to be filed) for
our May 30, 2002 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The following consolidated financial statements are filed as part of this
report or are incorporated herein as indicated:
<Table>
<Caption>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-1
Consolidated Balance Sheets as of December 31, 2001 and
2000...................................................... F-2
Consolidated Statements of Income for the years ended
December 31, 2001 and 2000 and 1999....................... F-3
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2001, 2000 and 1999.............. F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999.......................... F-5
Notes to Consolidated Financial Statements.................. F-6
</Table>
FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report
Schedule II -- Valuation and Qualifying Accounts
EXHIBITS
See Index to Exhibits.
38
<PAGE>
REPORTS ON FORM 8-K
We filed no Current Reports on Form 8-K during the last quarter of 2001.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
By: /s/ BARRY A. FROMBERG
------------------------------------
Barry A. Fromberg
Executive Vice President and
Chief Financial Officer
Dated April 1, 2002
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.
<Table>
<Caption>
NAME TITLE DATE
---- ----- ----
<S> <C> <C> <C>
/s/ BARRY A. FROMBERG Principal Accounting Officer April 1, 2002
---------------------------------------------------
Barry A. Fromberg
/s/ HOWARD M. DEAN Chairman of the Board April 1, 2002
---------------------------------------------------
Howard M. Dean
/s/ GREGG L. ENGLES Chief Executive Officer and Vice April 1, 2002
--------------------------------------------------- Chairman of the Board
Gregg L. Engles
/s/ ALAN BERNON Director April 1, 2002
---------------------------------------------------
Alan Bernon
/s/ LEWIS M. COLLENS Director April 1, 2002
---------------------------------------------------
Lewis M. Collens
/s/ TOM DAVIS Director April 1, 2002
---------------------------------------------------
Tom Davis
/s/ STEPHEN L. GREEN Director April 1, 2002
---------------------------------------------------
Stephen L. Green
/s/ JANET HILL Director April 1, 2002
---------------------------------------------------
Janet Hill
/s/ JOSEPH S. HARDIN, JR. Director April 1, 2002
---------------------------------------------------
Joseph S. Hardin, Jr.
/s/ JOHN S. LLEWELLYN, JR. Director April 1, 2002
---------------------------------------------------
John S. Llewellyn, Jr.
</Table>
39
<PAGE>
<Table>
<Caption>
NAME TITLE DATE
---- ----- ----
<S> <C> <C> <C>
/s/ JOHN MUSE Director April 1, 2002
---------------------------------------------------
John Muse
/s/ HECTOR M. NEVARES Director April 1, 2002
---------------------------------------------------
Hector M. Nevares
/s/ P. EUGENE PENDER Director April 1, 2002
---------------------------------------------------
P. Eugene Pender
/s/ J. CHRISTOPHER REYES Director April 1, 2002
---------------------------------------------------
J. Christopher Reyes
/s/ PETE SCHENKEL Director April 1, 2002
---------------------------------------------------
Pete Schenkel
/s/ JIM TURNER Director April 1, 2002
---------------------------------------------------
Jim Turner
</Table>
40
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Dean Foods Company
Dallas, Texas
We have audited the consolidated financial statements of Dean Foods Company
and subsidiaries (the "Company") (formerly known as Suiza Foods Corporation) as
of December 31, 2001 and 2000 and for each of the three years in the period
ended December 31, 2001, and have issued our report thereon dated March 4, 2002;
such report is included elsewhere in this Form 10-K. Our audits also included
the consolidated financial statement schedule of Dean Foods Company and
subsidiaries, listed in Item 14. This consolidated financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 4, 2002
<PAGE>
SCHEDULE II
DEAN FOODS COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Allowance for doubtful accounts deducted from accounts receivable:
<Table>
<Caption>
RECOVERIES
BALANCE OF WRITE-OFF OF
BEGINNING CHARGED TO ACCOUNTS UNCOLLECTIBLE BALANCE
YEAR OF YEAR INCOME ACQUISITIONS DISPOSITIONS WRITTEN OFF ACCOUNTS END OF YEAR
- ---- --------- ---------- ------------ ------------ ----------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
1999................. $19,303 $ 4,766 $ 1,646 $1,188 $158 $ 5,836 $18,849
2000................. 18,849 10,277 8,314 2,776 215 10,708 24,171
2001................. 24,171 5,326 17,871 469 170 8,285 38,784
</Table>
<PAGE>
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
2.1 -- Amended and Restated Reorganization Agreement (incorporated
by reference from our Registration Statement on Form S-1
(File No. 333-1858)).
3.1 -- Amended and Restated Certificate of Incorporation (filed
herewith).
3.2 -- Amended and Restated Bylaws (incorporated by reference from
our Quarterly Report on Form 10-Q for the quarter ended June
30, 1999 (File No. 1-12755)).
4.1 -- Specimen of Common Stock Certificate (filed herewith).
4.2 -- Registration Rights Agreement (incorporated by reference to
our Registration Statement on Form S-1 (File No. 333-1858)).
4.3 -- Rights Agreement dated March 6, 1998 among us and Harris
Trust & Savings Bank, as rights agent, which includes as
Exhibit A the Form of Rights Certificate (incorporated by
reference from the Registration Statement on Form 8-A filed
on March 10, 1998 (File No. 1-12755)).
4.4 -- Certificate of Trust related to our trust-issued preferred
securities (incorporated by reference from our Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998
(File No. 1-12755)).
4.5 -- Amended and Restated Declaration of Trust related to our
trust-issued preferred securities (incorporated by reference
from our Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 (File No. 1-12755)).
4.6 -- Indenture for the 5.5% Convertible Subordinated Debentures,
dated as of March 24, 1998, among us and Wilmington Trust
Company, as Indenture Trustee (incorporated by reference
from our Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 (File No. 1-12755)).
4.7 -- Form of 5.5% Preferred Securities (incorporated by reference
from our Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 (File No. 1-12755)).
4.8 -- Form of 5.5% Convertible Subordinated Debenture
(incorporated by reference from our Quarterly Report on Form
10-Q for the quarter ended March 31, 1998 (File No.
1-12755)).
4.9 -- Preferred Securities Guarantee Agreement, dated as of March
24, 1998, between us, as Guarantor, and Wilmington Trust
Company, as Guarantee Trustee (incorporated by reference
from our Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 (File No. 1-12755)).
4.10 -- Registration Rights Amendment, dated March 24, 1998, between
us, Suiza Capital Trust II, and Donaldson, Lufkin, Jenrette
Securities Corporation, Bear, Stearns & Co. Inc. and J.P.
Morgan & Co. (incorporated by reference from our Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998
(File No. 1-12755)).
*10.1 -- Fourth Amended and Restated 1997 Stock Option and Restricted
Stock Plan (filed herewith).
10.2 -- Form of First Amendment to the Fourth Amended and Restated
1997 Stock Option and Restricted Stock Plan (filed herewith)
10.3 -- 1989 Dean Foods Stock Awards Plan (incorporated by reference
from our definitive proxy statement/prospectus filed August,
2001,)
*10.4 -- Executive Deferred Compensation Plan (incorporated by
reference from our Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999 (File No. 1-12755)).
*10.5 -- Third Amended and Restated 1997 Employee Stock Purchase Plan
(filed herewith).
10.6 -- Stockholders Agreement dated July 31, 1997 among us,
Franklin Plastics, Peter M. Bernon and Alan J. Bernon
(incorporated by reference from our Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, as amended on
October 24, 1997 (File No. 1-12755)).
10.7 -- Contribution and Merger Agreement by and among Suiza Foods
Corporation, Franklin Plastics, Inc. and affiliates, Vestar
Packaging LLC, Reid Plastics Holdings, Inc. and affiliates,
Consolidated Container Holdings LLC, Consolidated Container
Company LLC and Reid Plastics Group LLC dated as of April
29, 1999, as amended (incorporated by reference from our
Current Report on Form 8-K dated July 19, 1999, File No.
1-12755).
</Table>
<PAGE>
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
10.8 -- Amendment No. 1 to Contribution and Merger Agreement dated
June 28, 1999 (incorporated by reference from our Current
Report on Form 8-K dated July 19, 1999, File No. 1-12755).
10.9 -- Amended and Restated Limited Liability Company Agreement of
Consolidated Container Holdings, LLC (incorporated by
reference from our Current Report on Form 8-K dated July 19,
1999, File No. 1-12755).
10.10 -- Amended and Restated Contribution Agreement, Plan of Merger
and Purchase Agreement dated September 30, 1999 between us,
Dairy Farmers of America, and certain other parties
regarding our acquisition of Southern Foods Group, L.P.
(incorporated by reference from our Quarterly Report on Form
10-Q the quarter ended September 30, 1999, File No.
1-12755).
10.11 -- Agreement and Plan of Merger dated April 4, 2001 among us,
Old Dean and Blackhawk Acquisition Corp. (incorporated by
reference from our Current Report on Form 8-K filed April 5,
2001, File No. 1-12755).
10.12 -- Amended and Restated Securities Purchase Agreement, dated
December 21, 2001 (incorporated by reference to our 8-K
dated January 7, 2002, File No. 1-12755).
10.13 -- $2.7 million Credit Agreement dated July 31, 2001 among us
and our senior lenders (incorporated by reference to our
Quarterly Report on Form 10-Q for the quarter ended June 30,
2001, File No. 1-12755).
10.14 -- First Amendment to Credit Agreement dated December 19, 2001
(incorporated by reference to our 8-K filed January 7, 2002,
File No. 1-12755).
10.15 -- Amended and Restated Receivables Purchase Agreement dated
December 21, 2001 related to our receivables-backed loan
(filed herewith).
10.16 -- Amended and Restated Receivables Sale Agreement dated
December 21, 2001 (filed herewith).
10.17 -- Amended and Restated Receivables Transfer Agreement dated
December 21, 2001 related to Morningstar Foods (filed
herewith).
*10.32 -- Form of Severance Agreement for our dairy executive officers
(incorporated by reference from our Annual Report on Form
10-K for the year ended December 31, 1999, File No.
1-12755).
*10.33 -- Form of Severance Agreement for certain senior officers
(incorporated by reference from our Annual Report on Form
10-K for the year ended December 31, 1999, File No.
1-12755).
*10.34 -- Form of Severance Agreement for certain other officers
(incorporated by reference from our Annual Report on Form
10-K for the year ended December 31, 1999, File No.
1-12755).
21 -- List of Subsidiaries (filed herewith).
23 -- Consent of Deloitte & Touche LLP (filed herewith).
</Table>
- ---------------
* Management or compensatory contract
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>3
<FILENAME>d95076ex3-1.txt
<DESCRIPTION>AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
<TEXT>
<PAGE>
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
DEAN FOODS COMPANY
Dean Foods Company, a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The date of filing of the Corporation's original Certificate
of Incorporation (the "Certificate of Incorporation") with the
Secretary of State was September 19, 1994, under the original
name of Suiza Foods Corporation.
2. On December 21, 2001, this Restated Certificate of
Incorporation was duly adopted by the directors of the
Corporation pursuant to Sections 141 and 245 of the General
Corporation Law of Delaware. This Restated Certificate of
Incorporation restates and integrates and does not further
amend the Certificate of Incorporation, as heretofore amended
and supplemented, and there is no discrepancy between the
provisions of the Certificate of Incorporation, as heretofore
amended and supplemented, and the provisions of this Amended
and Restated Certificate of Incorporation. The text of the
Certificate of Incorporation is hereby restated in its
entirety as follows:
[Remainder of page intentionally left blank]
-1-
<PAGE>
ARTICLE I
The name of the Corporation is Dean Foods Company.
ARTICLE II
The name of the Corporation's registered agent and the address of its
registered office in the State of Delaware is The Prentice-Hall Corporation
System, Inc., 2711 Centerville Road, Suite 400, New Castle County, Wilmington,
DE 19808.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
ARTICLE IV
A. The total number of shares of capital stock that the Corporation
shall have the authority to issue is 501,000,000, consisting of (a) 1,000,000
shares of Preferred Stock, $.01 par value per share, and (b) 500,000,000 shares
of Common Stock, $.01 par value per share.
B. DESIGNATIONS OF PREFERRED STOCK
1. Shares of Preferred Stock may be issued from time to time
in one or more series, each such series to have distinctive serial designations,
as shall hereafter be determined in the resolution or resolutions providing for
the issue of such series from time to time adopted by the Board of Directors
pursuant to the authority which is hereby vested in the Board of Directors.
2. Each series of Preferred Stock
(i) may have such number of shares;
(ii) may have such voting power, full or limited, or may
be without voting power;
(iii) may be subject to redemption at such time or times
and at such prices;
(iv) may be entitled to receive dividends (which may be
cumulative or noncumulative), payable in cash, securities or property, at such
rate or rates, on such conditions, and at such times, and payable in preference
to, or in such relation to, the dividends payable in any other class or classes
or series of stock;
-2-
<PAGE>
(v) may be made convertible into, or exchangeable for,
shares of any other class or classes or of any other series of the same or any
other class or classes of stock of the Corporation at such price or prices or at
such rates of exchange, and with such adjustments;
(vi) may be entitled to the benefit of a sinking fund or
purchase fund to be applied to the purchase or redemption of shares of such
series in such amount or amounts;
(vii) may be entitled to the benefit of conditions and
restrictions upon the creation of indebtedness of the Corporation or any
subsidiary, upon the issue of any additional stock (including additional shares
of such series or of any other series) and upon payment of dividends or the
making of other distributions on, and the purchase, redemption, or other
acquisition by the Corporation or any subsidiary, of any outstanding stock of
the Corporation, or of other affirmative or negative covenants;
(viii) may have certain rights in the event of voluntary or
involuntary liquidation, dissolution, or winding up of the Corporation, and
relative rights of priority of payment of shares of that series; and
(ix) may have such other relative, participating,
optional or other special rights and qualifications, limitations or restrictions
thereof; all as shall be stated in a resolution or resolutions providing for the
issue of such Preferred Stock. Except where otherwise set forth in the
resolution or resolutions adopted by the Board of Directors providing for the
issue of any series of Preferred Stock, the number of shares comprising such
series may be increased or decreased (but not below the number of shares then
outstanding) from time to time by action of the Board of Directors.
C. SERIES A PREFERRED STOCK
The Corporation, does hereby designate 11,691 shares of authorized but
unissued Preferred Stock as Series A Preferred Stock (the "Series A Preferred
Stock"), and does hereby fix the voting powers, preferences and relative
participation, optional, or other special rights and qualifications,
limitations, or restrictions thereof as follows:
1. Stated Value. The Series A Preferred Stock shall have a
stated value of $320 per share.
2. Dividends. The holders of Series A Preferred Stock, in
preference to the holders of the Common Stock, shall be entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available to distribution to stockholders, cumulative dividends of $25.60 per
share per annum, and no more. Dividends shall accumulate and (if declared) be
payable semiannually on the first day of March and September in each year (each
a "Dividend Payment Date" or collectively, "Dividend Payment Dates"), commencing
March 1, 1998, except that if any Dividend Payment Date is not a business day in
Dallas, Texas, then such semi-annual dividend shall be payable on the next
succeeding business day and such next succeeding business day shall be the
Dividend Payment Date. Dividends on the shares of Series A Preferred Stock shall
accrue and be cumulative from the date of their original issue and (if declared)
will be
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<PAGE>
payable on each Dividend Payment Date to stockholders of record on the
record date, which shall be not more than 45 days nor less than 10 days
preceding such Dividend Payment Date, fixed for such purpose by Board of
Directors in advance of such Dividend Payment Date. If no date is fixed by the
Board of Directors, the record date shall be 10 days preceding the Dividend
Payment Date. The amount of dividends payable on shares of Series A Preferred
Stock for each full semiannual dividend period shall be computed by dividing
$25.60 by two. Dividends payable on the Series A Preferred Stock for any period
less than a full semiannual period shall be computed on the basis of a 360-day
year of twelve 30-day months; provided, however, that the dividends payable on
the Series A Preferred Stock for the initial dividend period shall be $12.80.
Notwithstanding the foregoing, and except as provided below in Section 4 with
respect to certain redemptions, dividends on the Series A Preferred Stock do not
accrue until the applicable Dividend Payment Date, at which time they accrue in
full. Dividends paid on shares of Series A Preferred Stock in an amount less
than the total amount of the dividends at the time, accumulated and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. No interest shall be payable on any dividends
paid after the applicable Dividend Payment Date.
So long as any shares of Series A Preferred Stock shall be
outstanding, no dividend shall be paid or declared, no funds shall be set aside
for payment of dividends, and no distribution shall be made on the Common Stock
or other Preferred Stock of the Corporation ranking junior to the Series A
Preferred Stock until all dividends accrued on the Series A Preferred Stock have
been paid for the current and all prior dividend periods.
3. Liquidation Preference. Upon the liquidation, dissolution
or winding up of the affairs of the Corporation, whether voluntary or
involuntary, the holders of Series A Preferred Stock shall be entitled to
receive in full out of the assets of the Corporation available for distribution
to stockholders, including its capital, before any amount shall be paid to, or
distributed among, the holders of Common Stock or other Preferred Stock ranking
junior to the Series A Preferred Stock, the sum of $320 per share, plus all
accrued and unpaid dividends to the time of payment.
4. Redemption.
4.01 Option to Redeem. Outstanding shares of Series A
Preferred Stock may be redeemed, as a whole or in part, at the option of the
Corporation by vote of its Board of Directors at any time or from time to time,
upon no less than 30 or more than 120 days' notice. If less than all the
outstanding shares of the Series A Preferred Stock are to be redeemed, the
shares to be redeemed shall be determined by lot or pro rata, in the manner that
the Board of Directors prescribes. The redemption price for shares of the Series
A Preferred Stock shall be $320 per share plus accrued and unpaid dividends to
the date fixed for redemption. For purposes of redemptions made under this
Section 4.01 only, pro rata dividends on any shares of Series A Preferred Stock
to be redeemed shall be deemed to accrue as of the date fixed for redemption
upon satisfaction of the requirements set forth in Section 4.03 below.
4.02 Notice. Written notice of redemption shall be given
to each holder of record of the shares of Series A Preferred Stock to be
redeemed, by mailing a notice of
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<PAGE>
redemption to the holder by first class mail, at the holder's address as it
shall appear on the stock record books of the Corporation, at least 30 days and
not more than 120 days before the date fixed for redemption. Each notice shall
specify the shares of stock to be redeemed, the redemption price, the date fixed
for redemption, the place for payment of the redemption price and for surrender
of the certificate representing the shares to be redeemed, and if less than the
total number of shares held by the holder are to be redeemed, the number of
shares of the holder to be redeemed.
4.03 Set Aside of Redemption Funds. If notice of redemption
shall have been given as provided in Section 4.02 and if, on or before the date
fixed for redemption, the redemption price shall have been provided and set
aside by the Corporation (with a bank with trust powers or in a separate account
of the Corporation) for the pro rata benefit of the holders of the shares called
for redemption, then, from and after the date fixed for redemption, the shares
of Series A Preferred Stock called for redemption shall no longer be deemed
outstanding, the dividends on the shares shall cease to accumulate, and all
rights with respect to the shares shall cease and terminate, except only the
right of the holders of the shares to receive the redemption price of the shares
called for redemption, but without interest. The Board of Directors may
designate a bank with trust powers as a depositary of the funds to be used for
redemption of the shares and as agent of the Corporation for the giving of the
notices of redemption, the receipt of the shares called for redemption and the
payment of the redemption price, the acts of the designated agent on behalf of
the Corporation to be as effective and to have the same results as if the acts
were done by the Corporation.
Any monies deposited by the Corporation with a designated bank
and unclaimed at the end of six years from the date fixed for redemption shall
be repaid to the Corporation upon its request, after which repayment the holders
of the shares called for redemption shall look only to the Corporation for the
payment of those monies.
4.04 No Sinking Fund. The Corporation shall not be
obligated to make payments into or to maintain any sinking fund for the Series A
Preferred Stock.
5. Voting. Each share of Series A Preferred Stock shall
have one vote on all matters upon which holders of Common Stock are entitled to
vote. Shares of Series A Preferred Stock and shares of Common Stock shall be
treated as one class or series of shares for all voting purposes except to the
extent a class or series vote is provided by law.
6. Preemptive Rights. No holders of any shares of Series A
Preferred Stock, as such, shall have any preemptive or preferential right to
subscribe for or purchase any shares of any class or series of capital stock of
the Corporation, now or later authorized, or any securities convertible into, or
carrying options or warrants to purchase, shares of any class or series, now or
later authorized, whether issued for cash, property, services, by way of
dividends or otherwise.
7. Limitations. In addition to other rights as may be
provided under applicable law, without the affirmative vote of the holders of a
majority of the outstanding Series A Preferred Stock, the Corporation may not
authorize or create any class or series of stock ranking prior to the Series A
Preferred Stock with respect to dividends or the distribution of
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<PAGE>
assets in liquidation.
ARTICLE V
In furtherance and not limitation of the powers conferred by the laws
of the State of Delaware, the Board of Directors is expressly authorized to
alter, amend, or repeal the bylaws of the Corporation or to adopt new bylaws.
ARTICLE VI
Cumulative voting for the election of directors shall not be permitted.
ARTICLE VII
No stockholder of the Corporation shall by reason of his holding shares
of any class of its capital stock have any preemptive or preferential right to
purchase or subscribe for any shares of any class of the Corporation, now or
hereafter to be authorized, or any notes, debentures, bonds or other securities
convertible into or carrying warrants, rights, or options to purchase shares of
any class or any other security, now or hereafter to be authorized, whether or
not the issuance of any such shares or such notes, debentures, bonds, or other
securities would adversely affect the dividend, voting, or any other rights of
such stockholder; and the Board of Directors may issue shares of any class of
the Corporation, or any notes, debentures, bonds, or other securities
convertible into or carrying warrants, rights, or options to purchase shares of
any class, without offering any such shares of any class, either in whole or in
part, to the existing holders of any class of stock of the Corporation.
ARTICLE VIII
A. The number of directors constituting the initial Board of Directors
is three and thereafter the number of directors shall be as set forth in, or
pursuant to the Bylaws of, the Corporation. The Board of Directors shall be
divided into three classes, designated Classes I, II and III, which shall be as
nearly equal in number as possible. Initially, directors of Class I shall be
elected to hold office for a term expiring at the next succeeding annual meeting
of stockholders, directors of Class II shall be elected to hold office for a
term expiring at the second succeeding annual meeting of stockholders and
directors of Class III shall be elected to hold office for a term expiring at
the third succeeding annual meeting of stockholders. At each annual meeting of
stockholders following such initial classification and election, the respective
successors of each class shall be elected for three year terms.
B. Subject to the rights, if any, of the holders of shares of Preferred
Stock then outstanding to elect or remove directors, any or all of the directors
of the Corporation may be
-6-
<PAGE>
removed at any time, but only for cause and only by the affirmative vote of a
majority of the stockholders then entitled to vote in the election of directors.
For this purpose, "cause" means (i) the director's commission of an act of fraud
or embezzlement against the Corporation; (ii) conviction of the director of a
felony or a crime involving moral turpitude; (iii) the director's gross
negligence or willful misconduct in performing the director's duties to the
Corporation or its stockholders; or (iv) a director's breach of fiduciary duty
owed to the Corporation.
ARTICLE IX
Special meetings of the stockholders of the Corporation for any purpose
or purposes may be called at any time by the chief executive officer of the
Corporation or by a majority of the members of the Board of Directors. Special
meetings of the stockholders of the Corporation may not be called by any other
person or persons.
ARTICLE X
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware Corporation Law is amended after the filing of
this Certificate of Incorporation to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE XI
A. RIGHT TO INDEMNIFICATION. Each person who was or is made a party or
is threatened to be made a party to or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative, or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director or officer of another corporation or of a partnership, joint venture,
trust, or other enterprise, including service with respect to an employee
benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding
is alleged action in an official capacity as a director or officer or in any
other capacity while serving as a director or officer shall be indemnified and
held harmless by the corporation to the fullest extent authorized by the
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<PAGE>
Delaware General Corporation 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 permitted
prior thereto), against all expense, liability and loss (including, without
limitation, attorneys' fees, judgments, fines, ERISA excise taxes or penalties,
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith and such indemnification shall continue
as to an indemnitee who has ceased to be a director or officer and shall inure
to the benefit of the indemnitee's heirs, executors, and administrators;
PROVIDED, HOWEVER, that, except as provided in paragraph (b) hereof with respect
to proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the board of directors of the Corporation. The right to
indemnification conferred in this Article XII shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); PROVIDED, HOWEVER, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Article or otherwise.
B. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under paragraph A of
this Article is not paid in full by the Corporation within sixty days after a
written claim has been received by the Corporation (except in the case of a
claim for an advancement of expenses, in which case the applicable period shall
be twenty days), the indemnitee may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. If successful in
whole or in part in any such suit, the indemnitee shall be entitled to be paid
also the expense of prosecuting or defending such suit. In any suit brought by
the indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by the indemnitee to enforce a right to an advancement of expenses)
it shall be a defense that the indemnitee has not met the applicable standard of
conduct set forth in the Delaware General Corporation Law, and in any suit by
the Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the Corporation shall be entitled to recover such expenses upon
a final adjudication that the indemnitee has not met the applicable standard of
conduct set forth in the Delaware General Corporation Law. Neither the failure
of the Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) to have made a determination prior to the commencement of
such suit that the indemnitee has not met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder or
by the
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<PAGE>
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the indemnitee is not entitled to be
indemnified or to such advancement of expenses under this Article or otherwise
shall be on the Corporation.
C. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and to the
advancement of expenses conferred in this Article XII shall not be exclusive of
any other right that any person may have or hereafter acquire under this
Certificate of Incorporation or any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
D. INSURANCE. The Corporation may maintain insurance, at its expense,
to protect itself and any director or officer of the Corporation or another
corporation, partnership, joint venture, trust, or other enterprise against any
expense, liability, or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability, or loss under the
Delaware General Corporation Law.
E. INDEMNITY OF EMPLOYEES AND AGENTS OF THE CORPORATION. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses to
any employee or agent of the Corporation to the fullest extent of the provisions
of this Article XII with respect to the indemnification and advancement of
expenses of directors and officers of the Corporation.
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<PAGE>
IN WITNESS WHEREOF, the undersigned officer of the Corporation hereby
certifies that the facts herein stated are true, and accordingly has signed this
instrument this 21st day of December, 2001.
/s/ Michelle P. Goolsby
--------------------------------------
Michelle P. Goolsby
Executive Vice President and Secretary
-10-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.1
<SEQUENCE>4
<FILENAME>d95076ex4-1.txt
<DESCRIPTION>SPECIMEN OF COMMON STOCK CERTIFICATE
<TEXT>
<PAGE>
EXHIBIT 4.1
DELAWARE
[Cert. No.] [Number of Shares]
COMMON STOCK CUSIP 242370 10 4
$.01 PAR VALUE SEE REVERSE FOR CERTAIN DEFINITIONS
[LOGO]
This Certifies that:
is the owner of
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
DEAN FOODS COMPANY
[Number of Shares]
DATED:
- -------------------------------------
PRESIDENT AND CHIEF EXECUTIVE OFFICER COUNTERSIGNED AND REGISTERED:
- -------------------------------------
EXECUTIVE VICE PRESIDENT, CHIEF ADMINISTRATIVE OFFICER,
GENERAL COUNSEL AND SECRETARY
<PAGE>
The Corporation will furnish to any shareholder upon request and
without charge, a summary of the designations, relative rights,
preferences and limitations of the shares of each class and of each
series of each preferred or special class, so far as the same have been
fixed, and the authority of the Board to establish other series and to
fix the relative rights, preferences and limitations of the shares of
any class or series by amendment of the articles.
<PAGE>
[Cert. No.]
[Number of Shares] [Number of Shares]
Dean Foods Company
[Date]
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>5
<FILENAME>d95076ex10-1.txt
<DESCRIPTION>4TH AMENDED/RESTATED 1997 STOCK OPTION PLAN
<TEXT>
<PAGE>
EXHIBIT 10.1
[DEAN LOGO]
DEAN FOODS COMPANY
FOURTH AMENDED AND RESTATED
1997 STOCK OPTION AND RESTRICTED STOCK PLAN
1. Purpose of the Plan. This Plan shall be known as the Dean Foods
Company Fourth Amended and Restated 1997 Stock Option and Restricted Stock Plan.
The purpose of the Plan is to attract and retain the best available persons for
positions of substantial responsibility and to provide incentives to such
persons to promote the success of the business of Dean Foods Company and its
subsidiaries.
Certain options granted under this Plan are intended to qualify as
"incentive stock options" pursuant to Section 422 of the Internal Revenue Code
of 1986, as amended from time to time, while certain other options granted under
the Plan will constitute Nonqualified Options.
2. Definitions. As used herein, the following definitions shall apply:
"Board" means the Board of Directors of the Company.
"Change in Control" means (1) any "person" (as such term is
used in Section 13(d) of the Exchange Act) becomes the "beneficial owner" (as
determined pursuant to Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing thirty percent (30%) or
more of the combined voting power of the Company's then outstanding securities;
or (2) during any period of two (2) consecutive years (not including any period
prior to the execution of this Agreement), individuals who at the beginning of
such period constitute the members of the Company's Board of Directors (the
"Board") and any new director, whose election to the Board or nomination for
election to the Board by the Company's stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority of the Board; or (3) the Company or any subsidiary of the Company shall
merge with or consolidate into any other company, other than a merger or
consolidation which would result in the holders of the voting securities of the
Company outstanding immediately prior thereto holding immediately thereafter
securities representing more than sixty percent (60%) of the combined voting
power of the voting securities of the Company or such surviving entity (or its
ultimate parent, if applicable) outstanding immediately after such merger or
consolidation; or (4) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets or such a plan is
commenced.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor statute.
"Committee" means the committee described in Section 19 that
administers the Plan or, if no such committee has been appointed, the full
Board.
<PAGE>
"Common Stock" means the common stock, $.01 par value per
share, of the Company. Except as otherwise provided herein, all Common Stock
issued pursuant to this Plan shall have the same rights as all other issued and
outstanding shares of Common Stock, including but not limited to voting rights,
the right to dividends, if declared and paid, and the right to pro rata
distributions of the Company's assets in the event of liquidation.
"Company" means Dean Foods Company, a Delaware corporation,
formerly known as Suiza Foods Corporation.
"Consultant" means any consultant or advisor who renders bona
fide services to the Company or one of its Subsidiaries, which services are not
in connection with the offer or sale of securities in a capital-raising
transaction.
"Date of Grant" shall have the meaning set forth in Section 8
hereof.
"Divested Business Unit" shall have the meaning set forth in
Section 10 hereof.
"Employee" means any officer or other key employee of the
Company or one of its Subsidiaries (including any director who is also an
officer or key employee of the Company or one of its Subsidiaries).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exercise Price" shall have the meaning set forth in Section 9
hereof.
"Fair Market Value" means the closing sale price (or average
of the quoted closing bid and asked prices if there is no closing sale price
reported) of the Common Stock on the date specified as reported by the principal
national exchange or trading system on which the Common Stock is then listed or
traded. If there is no reported price information for the Common Stock, the Fair
Market Value will be determined by the Board or the Committee, in its sole
discretion. In making such determination, the Board or the Committee may, but
shall not be obligated to, commission and rely upon an independent appraisal of
the Common Stock.
"Immediate Family Members" shall have the meaning set forth in
Section 15 hereof.
"Non-Employee Director" means an individual who is a
"non-employee director" as defined in Rule 16b-3 under the Exchange Act and also
an "outside director" within the meaning of Treasury Regulation ss.
1.162-27(e)(3).
"Nonqualified Option" means any Option that is not a Qualified
Option.
"Option" means a stock option granted pursuant to Section 6 of
this Plan.
"Optionee" means any Employee, Consultant or Non-Employee
Director who receives an Option.
2
<PAGE>
"Participant" means any Employee, Consultant or Non-Employee
Director who receives an Option or Restricted Stock pursuant to this Plan.
"Qualified Option" means any Option that is intended to
qualify as an "incentive stock option" within the meaning of Section 422 of the
Code.
"Qualifying Retirement" means retirement by an Optionee from
employment or other service to the Company or any Subsidiary after such Optionee
reaches the age of 65.
"Restricted Stock" means Common Stock awarded to an Employee,
Consultant or Non-Employee Director pursuant to Section 7 of this Plan.
"Restricted Stock Cap" shall have the meaning set forth in
Section 7 hereof.
"Rule 16b-3" means Rule 16b-3 of the rules and regulations
under the Exchange Act, as Rule 16b-3 may be amended from time to time, and any
successor provisions to Rule 16b-3 under the Exchange Act.
"Subsidiary" means any now existing or hereinafter organized
or acquired company of which more than fifty percent (50%) of the issued and
outstanding voting interests are owned or controlled directly or indirectly by
the Company or through one or more Subsidiaries of the Company.
"10-Percent Stockholder" shall have the meaning set forth in
Section 9 hereof.
3. Term of Plan. The Plan has been adopted by the Board effective as of
February 24, 1997 and approved by the stockholders of the Company. The Plan
shall continue in effect until terminated pursuant to Section 19.
4. Shares Subject to the Plan. Except as otherwise provided in Section
18 hereof, the aggregate number of shares of Common Stock issuable upon the
exercise of Options or upon the grant of Restricted Stock pursuant to this Plan
shall be 12,500,000 shares. Such shares may either be authorized but unissued
shares or treasury shares. The Company shall, during the term of this Plan,
reserve and keep available a number of shares of Common Stock sufficient to
satisfy the requirements of the Plan. If an Option should expire or become
unexercisable for any reason without having been exercised in full, or
Restricted Stock should fail to vest and be forfeited in whole or in part for
any reason, then the shares that were subject thereto shall, unless the Plan has
terminated, be available for the grant of additional Options or Restricted Stock
under this Plan, subject to the limitations set forth above.
5. Eligibility. Qualified Options may be granted under Section 6 of the
Plan to such Employees of the Company or its Subsidiaries as may be determined
by the Board or the Committee. Nonqualified Options may be granted under Section
6 of the Plan to such Employees, Consultants and Non-Employee Directors of the
Company or its Subsidiaries as may be determined by the Board or the Committee.
Restricted Stock may be granted under Section 7 of the Plan to such Employees,
Consultants and Non-Employee Directors of the Company or its Subsidiaries as may
be determined by the Board or the Committee. Subject to the limitations and
3
<PAGE>
qualifications set forth in this Plan, the Board or the Committee shall also
determine the number of Options or shares of Restricted Stock to be granted, the
number of shares subject to each Option or Restricted Stock grant, the exercise
price or prices of each Option, the vesting and exercise period of each Option
and the vesting and/or forfeiture provisions relating to Restricted Stock,
whether an Option may be exercised as to less than all of the Common Stock
subject thereto, and such other terms and conditions of each Option or grant of
Restricted Stock, if any, as are consistent with the provisions of this Plan. In
connection with the granting of Qualified Options, the aggregate Fair Market
Value (determined at the Date of Grant of a Qualified Option) of the shares with
respect to which Qualified Options are exercisable for the first time by an
Optionee during any calendar year (under all such plans of the Optionee's
employer company and its parent and subsidiary corporations as defined in
Section 424(e) and (f) of the Code, or a corporation or a parent or subsidiary
corporation of such corporation issuing or assuming an Option in a transaction
to which Section 424(a) of the Code applies) shall not exceed $100,000 or such
other amount as from time to time provided in Section 422(d) of the Code or any
successor provision.
6. Grant of Options. (a) Except as limited by Sections 4 and 5 hereof,
the Board or the Committee shall determine the number of shares of Common Stock
to be offered from time to time pursuant to Options granted hereunder and shall
grant Options under the Plan. The grant of Options shall be evidenced by Option
agreements containing such terms and provisions as are approved by the Board or
the Committee and executed on behalf of the Company by an appropriate officer.
(b) Unless the Board or the Committee determines otherwise
with respect to a particular year, each Non-Employee Director will automatically
be granted a Nonqualified Option to purchase 7,500 shares of Common Stock
(subject to adjustment pursuant to Section 18 hereof), at an exercise price
equal to the Fair Market Value of the Common Stock on the Date of Grant, on June
30 of each year.
7. Restricted Stock. The Board or the Committee shall from time to time
determine the number of shares of Common Stock to be granted as Restricted
Stock; provided that no more than an aggregate amount of 75,000 shares of
Restricted Stock may be issued under the Plan (such limit being herein referred
to as the "Restricted Stock Cap"). Any shares of Restricted Stock that fail to
vest and are forfeited shall not count against the Restricted Stock Cap set
forth in the preceding sentence. The grant of Restricted Stock shall be
evidenced by Restricted Stock agreements containing such terms and provisions as
are approved by the Board or the Committee and executed on behalf of the Company
by an appropriate officer.
8. Date of Grant. The date of grant of an Option or Restricted Stock
under the Plan (the "Date of Grant") shall be the date on which the Board or the
Committee awards the Option or Restricted Stock or, if the Board or the
Committee so determines, the date specified by the Board or the Committee as the
date the award is to be effective. Notice of the grant shall be given to each
Participant to whom an Option or Restricted Stock is granted promptly after the
date of such grant.
9. Price. The exercise price for each share of Common Stock subject to
an Option (the "Exercise Price") granted pursuant to Section 6 of the Plan shall
be determined by the Board or the Committee at the Date of Grant; provided,
however, that (a) the Exercise Price for any
4
<PAGE>
Option shall not be less than 100% of the Fair Market Value of the Common Stock
at the Date of Grant, and (b) if the Optionee owns on the Date of Grant more
than 10 percent of the total combined voting power of all classes of stock of
the Company or its parent or any of its subsidiaries, as more fully described in
Section 422(b)(6) of the Code or any successor provision (such stockholder is
referred to herein as a "10-Percent Stockholder"), the Exercise Price for any
Qualified Option granted to such Optionee shall not be less than 110% of the
Fair Market Value of the Common Stock at the Date of Grant. The Board or the
Committee in its discretion may award shares of Restricted Stock under Section 7
of the Plan to Participants without requiring the payment of cash consideration
for such shares.
10. Vesting. (a) Subject to the provisions of this Plan, each Option
and Restricted Stock award under the Plan shall vest or be subject to forfeiture
in accordance with the provisions set forth in the applicable Option agreement
or Restricted Stock agreement.
(b) In addition to the vesting provisions contained in each
Option and Restricted Stock agreement, each Option and share of Restricted Stock
granted under the Plan shall also be subject to the following vesting
provisions:
(i) If the Company shall sell or otherwise divest of
all of its ownership interest in any Subsidiary or any business unit or
operation (a "Divested Business Unit") owned by the Company or any Subsidiary,
then the outstanding unvested Options and shares of Restricted Stock held by
each employee of such Divested Business Unit shall automatically vest in full as
of the date of the consummation of such sale or divestiture;
(ii) Each unvested Option and share of Restricted
Stock shall immediately vest in full upon the death of the holder of such Option
or Restricted Stock;
(iii) Each unvested Option and share of Restricted
Stock shall immediately vest in full upon any Change in Control;
(iv) Each unvested Option and share of Restricted
Stock shall immediately vest in full upon the permanent and total disability (as
defined within the meaning of Section 22(e)(3) of the Code) of the holder of
such Option or Restricted Stock; and
(iv) In the event of the Qualifying Retirement of a
Participant, all unvested Options and shares of Restricted Stock held by such
Participant shall automatically vest in full as of the effective date of such
Participant's Qualifying Retirement.
11. Exercise. (a) An Optionee may pay the exercise price of the shares
of Common Stock as to which an Option is being exercised by the delivery of
cash, check or wire transfer.
(b) If the shares to be purchased are covered by an effective
registration statement under the Securities Act of 1933, as amended, any Option
may be exercised by a broker-dealer acting on behalf of an Optionee if (i) the
broker-dealer has received from the Company confirmation of the existence and
validity of the Option to be exercised, together with instructions from the
Optionee requesting the Company to deliver the shares of Common Stock subject to
such Option to the broker-dealer on behalf of the Optionee and specifying the
account into which such shares should be deposited, (ii) adequate provision has
been made with respect
5
<PAGE>
to the payment of any withholding taxes due upon such exercise, and (iii) the
broker-dealer and the Optionee have otherwise complied with Section 220.3(e)(4)
of Regulation T, 12 CFR Part 220, or any successor provision, and any other
applicable regulations.
12. Expiration of Options. (a) No Option shall be exercisable at any
time after the expiration of ten (10) years from the Date of Grant; provided,
however, that if the Optionee with respect to a Qualified Option is a 10-Percent
Stockholder on the Date of Grant of such Qualified Option, then such Option
shall not be exercisable after the expiration of five (5) years from its Date of
Grant.
(b) In addition, if an Optionee ceases to be an employee of
the Company or any Subsidiary for any reason (including because such Optionee is
an employee of a Divested Business Unit), such Optionee's vested Options shall
expire on the earlier of the expiration date contained in the corresponding
Option Agreement or (a) 60 days following the date such Optionee ceases to be an
employee of the Company or any Subsidiary, if such cessation of service is not
due to the death, Qualifying Retirement or permanent and total disability
(within the meaning of Section 22(e)(3) of the Code) of the Optionee, or (b)
twelve months following the date such Optionee ceases to be an employee of the
Company or any Subsidiary, if such cessation of service is due to the death or
permanent and total disability (as defined above) of the Optionee. Options held
by an Optionee who has retired pursuant to a Qualifying Retirement will remain
exercisable until the earlier of (i) the tenth anniversary of the date the
Option was granted, and (ii) the first anniversary of the Optionee's death. Upon
the death of an Optionee, any vested Option exercisable on the date of death may
be exercised by the Optionee's estate or by a person who acquires the right to
exercise such Option by bequest or inheritance or by reason of the death of the
Optionee, provided that such exercise occurs within the shorter of the remaining
option term of the Option and twelve months after the date of the Optionee's
death.
(c) Notwithstanding any provision of this Plan or any Option
Agreement to the contrary, no Optionee may, under any circumstances, exercise a
vested Option following termination of employment if the Optionee is discharged
due to the Optionee's willful or intentional fraud, embezzlement or other
conduct seriously detrimental to the Company or any Subsidiary. The
determination of whether or not an Optionee has been discharged for any of the
reasons specified in the preceding sentence will be made by the Committee.
13. Option Financing. Upon the exercise of any Option granted under the
Plan, the Company may, but shall not be required to, make financing available to
the Participant for the purchase of shares of Common Stock pursuant to such
Option on such terms as the Board or the Committee may specify.
14. Withholding of Taxes. The Board or the Committee shall make such
provisions and take such steps as it may deem necessary or appropriate for the
withholding of any taxes that the Company is required by any law or regulation
of any governmental authority to withhold in connection with any Option or
Restricted Stock including, but not limited to, withholding the issuance of all
or any portion of the shares of Common Stock subject to such Option or
Restricted Stock until the Participant reimburses the Company for the amount it
is required to withhold with respect to such taxes, canceling any portion of
such issuance in an amount sufficient to reimburse the Company for the amount it
is required to withhold or taking any other action reasonably required to
satisfy the Company's withholding obligation.
6
<PAGE>
15. Conditions Upon Issuance of Shares. (a) The Company shall not be
obligated to sell or issue any shares upon the exercise of any Option granted
under the Plan or to deliver Restricted Stock unless the issuance and delivery
of shares complies with all provisions of applicable federal and state
securities laws and the requirements of any national exchange or trading system
on which the Common Stock is then listed or traded.
(b) As a condition to the exercise of an Option or the grant
of Restricted Stock, the Company may require the person exercising the Option or
receiving the grant of Restricted Stock to make such representations and
warranties as may be necessary to assure the availability of an exemption from
the registration requirements of applicable federal and state securities laws.
(c) The Company shall not be liable for refusing to sell or
issue any shares covered by any Option or for refusing to issue Restricted Stock
if the Company cannot obtain authority from the appropriate regulatory bodies
deemed by the Company to be necessary to sell or issue such shares in compliance
with all applicable federal and state securities laws and the requirements of
any national exchange or trading system on which the Common Stock is then listed
or traded. In addition, the Company shall have no obligation to any Participant,
express or implied, to list, register or otherwise qualify the shares of Common
Stock covered by any Option or Restricted Stock.
(d) No Participant will be, or will be deemed to be, a holder
of any Common Stock subject to an Option unless and until such Participant has
exercised his or her Option and paid the purchase price for the subject shares
of Common Stock. Each Option under this Plan shall be transferable only by will
or the laws of descent and distribution and shall be exercisable during the
Participant's lifetime only by such Participant; provided, however, that the
Committee may (but need not) permit transfer without consideration by such
Participant to (i) the spouse, children or grandchildren of the Participant
("Immediate Family Members"), (ii) a trust or trusts, or to a guardian under the
Uniform Gift to Minors Act, for the exclusive benefit of such Immediate Family
Members, or (iii) a partnership or other entity in which such Immediate Family
Members are the only partners, provided that subsequent transfers of transferred
Options shall be prohibited except by will or the laws of descent and
distribution. Following transfer, any such Options shall continue to be subject
to the same terms and conditions as were applicable immediately prior to
transfer, provided that, for purposes of each Option agreement and Section 11
hereof, the term "Optionee" shall be deemed to refer to the transferee (however,
the events of termination of employment, if any, set forth in the agreement and
the obligation to pay withholding taxes shall continue to apply to the
transferor). Qualified Options shall be nontransferable except by will or the
laws of descent and distribution, and may only be exercisable during the
Participant's lifetime, by the Participant.
16. Restrictions on Shares. Shares of Common Stock issued pursuant to
the Plan may be subject to restrictions on transfer under applicable federal and
state securities laws. The Board may impose such additional restrictions on the
ownership and transfer of shares of Common Stock issued pursuant to the Plan as
it deems desirable; any such restrictions shall be set forth in any Option
agreement entered into hereunder.
7
<PAGE>
17. Modification of Options. At any time and from time to time, the
Board or the Committee may execute an instrument providing for modification,
extension or renewal of any outstanding Option, provided that no such
modification, extension or renewal shall (a) impair any Option without the
consent of the holder of the Option, or (b) decrease the exercise price of any
Option without the consent of the stockholders of the Company. Notwithstanding
the foregoing, in the event of a modification, extension or renewal of a
Qualified Option, the Board or the Committee may increase the exercise price of
such Option if necessary to retain the qualified status of such Option. Any
amendment to the Plan shall apply to all Options and shares of Restricted Stock
outstanding at the time of such amendment in addition to all awards granted
thereafter, subject to the limitations of clause (a) of the first sentence of
this Section 17.
18. Effect of Change in Stock Subject to the Plan. In the event that
each of the outstanding shares of Common Stock (other than shares held by
dissenting stockholders) shall be changed into or exchanged for a different
number or kind of shares of stock of the Company or of another company (whether
by reason of merger, consolidation, recapitalization, reclassification,
split-up, combination of shares or otherwise), or in the event a stock split or
stock dividend occurs, then there shall be substituted for each share of Common
Stock then subject to Options or Restricted Stock awards or available for
Options or Restricted Stock awards the number and kind of shares of stock into
which each outstanding share of Common Stock (other than shares held by
dissenting stockholders) shall be so changed or exchanged, or the number of
shares of Common Stock as is equitably required in the event of a stock split or
stock dividend, together with an appropriate adjustment of the Exercise Price.
The Board may, but shall not be required to, provide additional anti-dilution
protection to a Participant under the terms of the Participant's Option or
Restricted Stock agreement.
19. Administration. (a) The Plan shall be administered by the Board or
by a committee of the Board comprised solely of two or more Non-Employee
Directors appointed by the Board (the "Committee"). Options and Restricted Stock
may be granted under Sections 6 and 7, respectively, only (i) by the Board as a
whole, or (ii) by majority agreement of the members of the Committee. Option
agreements and Restricted Stock agreements, in the forms as approved by the
Board or the Committee, and containing such terms and conditions consistent with
the provisions of this Plan as are determined by the Board or the Committee, may
be executed on behalf of the Company by the Chairman of the Board, the President
or any Vice President of the Company. The Board or the Committee shall have
complete authority to construe, interpret and administer the provisions of this
Plan and the provisions of the Option agreements and Restricted Stock agreements
granted hereunder; to prescribe, amend and rescind rules and regulations
pertaining to this Plan; to suspend or discontinue this Plan; and to make all
other determinations necessary or deemed advisable in the administration of the
Plan. The determinations, interpretations and constructions made by the Board or
the Committee shall be final and conclusive. No member of the Board or the
Committee shall be liable for any action taken, or failed to be taken, made in
good faith relating to the Plan or any award thereunder, and the members of the
Board or the Committee shall be entitled to indemnification and reimbursement by
the Company in respect of any claim, loss, damage or expense (including
attorneys' fees) arising therefrom to the fullest extent permitted by law.
(b) Although the Board or the Committee may suspend or
discontinue the Plan at any time, all Qualified Options must be granted before
February 24, 2007.
8
<PAGE>
(c) Subject to any applicable requirements of Rule 16b-3 or of
any national exchange or trading system on which the Common Stock is then listed
or traded, and subject to the stockholder approval requirements of Sections 422
and 162(m)(4)(C) of the Code, the Board may amend any provision of this Plan in
any respect in its discretion.
20. Continued Employment Not Presumed. Nothing in this Plan or any
document describing it nor the grant of any Option or Restricted Stock shall
give any Participant the right to continue in the employment of the Company or
affect the right of the Company to terminate the employment of any such person
with or without cause.
21. Liability of the Company. Neither the Company, its directors,
officers or employees or the Committee, nor any Subsidiary which is in existence
or hereafter comes into existence, shall be liable to any Participant or other
person if it is determined for any reason by the Internal Revenue Service or any
court having jurisdiction that any Qualified Option granted hereunder does not
qualify for tax treatment as an incentive stock option under Section 422 of the
Code.
22. GOVERNING LAW. THE PLAN SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF STATE OF DELAWARE AND THE UNITED STATES, AS
APPLICABLE, WITHOUT REFERENCE TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
23. Severability of Provisions. If any provision of this Plan is
determined to be invalid, illegal or unenforceable, such invalidity, illegality
or unenforceability shall not affect the remaining provisions of the Plan, but
such invalid, illegal or unenforceable provision shall be fully severable, and
the Plan shall be construed and enforced as if such provision had never been
inserted herein.
Last Amended and Restated January 2002
9
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>6
<FILENAME>d95076ex10-2.txt
<DESCRIPTION>1ST AMENDMENT TO 4TH AMENDED/RESTATED STOCK PLAN
<TEXT>
<PAGE>
EXHIBIT 10.2
FIRST AMENDMENT TO THE
DEAN FOODS COMPANY
FOURTH AMENDED AND RESTATED
1997 STOCK OPTION AND RESTRICTED STOCK PLAN
WHEREAS, Dean Foods Company has adopted that certain Fourth Amended and
Restated Stock Option and Restricted Stock Plan (the "Plan"); and
WHEREAS, Section 19 of the Plan grants the Stock Option Committee of
the Board of Directors of Dean Foods Company (the "Committee") complete
authority to construe, interpret and administer the provisions of the Plan and
to prescribe, amend and rescind rules and regulations pertaining to the Plan in
its discretion; and
WHEREAS, Section 17 of the Plan provides that any amendment to the Plan
shall apply to all awards outstanding at the time of such amendment in addition
to all awards granted thereafter, subject to certain limitations contained
therein; and
WHEREAS, the Plan has been previously amended to allow for transfers of
stock options by optionees to certain family members of the optionee, to a trust
for the exclusive benefit of such family members, or to a partnership or other
entity in which the family members are the only partners; and
WHEREAS, the Committee desires to amend the Plan, effective as of the
date herein stated, to provide the same rights of transfer to holders of
restricted stock issued under the Plan.
EFFECTIVE AS OF FEBRUARY 21, 2002, Section 15(d) of the Plan is hereby
amended in its entirety to read as follows:
(d) No Participant will be, or will be deemed to be, a
holder of any Common Stock subject to an Option unless
and until such Participant has exercised his or her
Option and paid the purchase price for the subject
shares of Common Stock. Each Option and each share of
Restricted Stock granted under this Plan shall be
transferable only by will or the laws of descent and
distribution and shall be exercisable during the
Participant's lifetime only by such Participant;
provided, however, that the Participant may transfer his
or her Options or Restricted Stock without consideration
to (i) the spouse, children or grandchildren of the
Participant ("Immediate Family Members"), (ii) a trust
or trusts, or to a guardian under the Uniform Gift to
Minors Act, for the exclusive benefit of such Immediate
Family Members, or (iii) a partnership or other entity
in which such Immediate Family Members are the only
partners, provided that subsequent transfers of those
Options or shares of Restricted Stock shall be
prohibited except by will or the laws of descent and
distribution. Following transfer, any such Options or
Restricted Stock shall continue to be subject to
Page 1 of 2
<PAGE>
the same terms and conditions as were applicable
immediately prior to transfer; provided that, for
purposes of each Option agreement and Restricted Stock
agreement and Section 11 hereof, the term "Optionee"
shall be deemed to refer to the transferee (however, the
events of termination of employment, if any, set forth
in the agreement and the obligation to pay withholding
taxes shall continue to apply to the transferor).
Qualified Options shall be nontransferable except by
will or the laws of descent and distribution, and may
only be exercisable during the Participant's lifetime,
by the Participant.
THIS AMENDMENT, once executed by all of the members of the Committee,
shall be effective as of February 21, 2002 and shall be applicable to all
outstanding Options and shares of Restricted Stock, and to all Options and
Restricted Stock awards granted after such date.
--------------------------------
P. Eugene Pender
--------------------------------
Stephen L. Green
--------------------------------
Joseph S. Hardin, Jr.
--------------------------------
John S. Llewellyn, Jr.
Page 2 of 2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>7
<FILENAME>d95076ex10-5.txt
<DESCRIPTION>3RD AMENDED/RESTATED 1997 EMPLOYEE STOCK PLAN
<TEXT>
<PAGE>
EXHIBIT 10.5
THIRD AMENDED AND RESTATED
1997 EMPLOYEE STOCK PURCHASE PLAN OF
DEAN FOODS COMPANY
I. INTRODUCTION
The purpose of the Third Amended and Restated 1997 Employee Stock
Purchase Plan (the "Plan") is to make available to eligible employees of Dean
Foods Company (the "Company"), and certain related companies a means of
purchasing shares of Dean Common Stock through voluntary, regular payroll
deductions. The Plan is not subject to the provisions of the Employee Retirement
Income Security Act of 1974, but is intended to qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"). The Plan shall be administered, interpreted and construed
in accordance with Section 423 of the Code.
Participation in the Plan is entirely voluntary, and the Company makes
no recommendations to employees as to whether they should or should not
participate.
II. DEFINITIONS
2.1. DEFINITIONS. The following words and phrases shall have the
following meanings:
"ADMINISTRATOR" means the entity or person designated to act as
Administrator of the Plan pursuant to Section 6.1.
"BASE COMPENSATION" means gross compensation for the relevant pay
period, including overtime pay, but excluding all bonuses, severance pay, any
extraordinary pay, expense allowances/reimbursements, moving expenses and income
from restricted stock or stock option awards. For these purposes, gross
compensation includes any amount that would be included in taxable income but
for the fact that it was contributed to a qualified plan pursuant to an elective
deferral under Section 401(k) of the Code or contributed under a salary
reduction agreement pursuant to Section 125 of the Code.
"BOARD" means the Board of Directors of the Company.
"BROKER" means a duly licensed securities dealer, broker or agent
designated to act as Broker of the Plan pursuant to Section 6.2.
"COMMITTEE" means the Compensation Committee of the Board, which, to
the extent required by Rule 16b-3, shall consist entirely of non-employee
directors (as defined in Rule 16b-3).
Page 1 of 9
<PAGE>
"COMPANY" means Dean Foods Company (formerly known as Suiza Foods
Corporation).
"COMMON STOCK" means Dean's Common Stock, par value $.01 per share.
"CODE" has the meaning set forth in Article I.
"DEAN COMPANY" means the Company or any Related Corporation.
"ELIGIBLE EMPLOYEE" means any employee of any Dean Company, excluding
any employee (a) who has been employed by a Dean Company for less than 60 days,
(b) whose customary employment with the employee's Employer is 20 hours or less
per week, (c) whose customary employment with the employee's Employer is not for
more than five months in any calendar year, or (d) who immediately after the
grant of an option under this Plan to the employee would (in accordance with the
provisions of Sections 423 and 424(d) of the Code) own stock possessing 5% or
more of the total combined voting power or value of all classes of stock of the
"employer corporation" or of its "Parent Corporations" or "Subsidiary
Corporations," as defined in Section 424 of the Code.
"EMPLOYER" means, with respect to any Participant, the Dean Company of
which the Participant is an Eligible Employee.
"FAIR MARKET VALUE" means, with respect to a share of Common Stock, the
last sales price (or average of the quoted closing bid and asked prices if there
is no closing sales price reported) of a share of Common Stock as reported by
the New York Stock Exchange (or by the principal national stock exchange on
which the Common Stock is then listed) on the date of valuation, if such date is
a business day, or the immediately preceding business day, if such date is not a
business day.
"INDEMNIFIED PERSON" has the meaning set forth in SECTION 9.2.
"INITIAL OPTION PERIOD" means the Option Period commencing on the Plan
Start Date and ending on July 31, 1997.
"1933 ACT" means the Securities Act of 1933, as amended.
"OPTION" means an option granted pursuant to this Plan at the beginning
of each Option Period to acquire Common Stock.
"OPTION EXERCISE DATE" means the last day of each Option Period.
"OPTION PERIOD" means each calendar month during the period beginning
on the Plan Start Date and ending on June 30, 2007, unless the Plan is
terminated earlier.
Page 2 of 9
<PAGE>
"PAYROLL DEDUCTION ACCOUNT" means, with respect to each Participant,
the amounts credited to the Participant's account from the payroll deductions
made by the Participant under this Plan, less any amounts withdrawn from such
account (for payment of Common Stock, payment to the Participant, payment of
withholding and other taxes or amounts or payment of other obligations or
amounts).
"PARTICIPANT" has the meaning set forth in SECTION 3.2.
"PLAN" means the Third Amended and Restated 1997 Employee Stock
Purchase Plan of Dean Foods Company as the same may be amended from time to
time.
"PLAN START DATE" means July 1, 1997.
"RELATED CORPORATION" means any present or future corporation which
would be a "subsidiary corporation" or "parent corporation" of the Company as
such terms are defined in Section 424 of the Code.
"RULE 16B-3" means Rule 16b-3 under the 1933 Act.
"STOCK ACCOUNT" means, with respect to each Participant, the number of
shares of Common Stock credited under this Plan to the Participant's account.
Dividends with respect to shares of Common Stock credited to a Participant's
Stock Account shall be paid to the Participant and shall not be held in either
the Participant's Stock Account or Payroll Deduction Account.
III. PARTICIPATION
3.1. ELIGIBLE EMPLOYEES. Subject to ARTICLE VIII, all Eligible
Employees as of the beginning of each Option Period may participate in the Plan
for such Option Period at their election.
3.2. PARTICIPATION PROCEDURES. If an Eligible Employee does not
otherwise have an election to become a Participant in effect, each Eligible
Employee choosing to participate in the Plan (herein called a "Participant")
during an Option Period shall enroll as a Participant in the Plan by filing with
the Participant's Employer a completed enrollment form (authorized by the
Administrator) no later than 15 days prior to the beginning of any Option Period
(including the Initial Option Period).
3.3. EMPLOYEE CONTRIBUTIONS. Subject to other limitations provided in
this Plan, a Participant may contribute under the Plan a minimum of one percent
(1%) and a maximum of fifteen percent (15%) of the Participant's Base
Compensation. Contributions may be made only through regular payroll deductions,
net of any tax or other withholdings.
An enrollment form and payroll deduction authorization will remain
effective for each Option Period until terminated in writing by a Participant or
until the Participant is no longer
Page 3 of 9
<PAGE>
eligible to participate in the Plan. The payroll deduction authorization may be
reduced or terminated at any time by the Participant's written request submitted
to the Participant's Employer; provided, however, that a Participant may not
recommence or increase payroll deductions until the beginning of the next Option
Period, nor may a Participant make more than one revision of the Participant's
payroll deduction authorization in any Option Period. Termination of deductions
shall constitute withdrawal from the Plan as set forth in Section 3.5 and
cancellation of any outstanding Options of the Participant. Reduction or
termination of deductions will become effective as soon as practicable after a
Participant's written request is received by the Participant's Employer.
3.4. PARTICIPANT RESTRICTION. Notwithstanding any provisions of this
Plan to the contrary, no Participant will be granted an option under this Plan
which would permit the Participant's rights to purchase shares of stock under
all employee stock purchase plans of the Company and "parent corporations" and
"subsidiary corporations" (within the meaning of Section 424 of the Code) to
accrue at a rate which exceeds $25,000 of the Fair Market Value of such stock
(determined at the time each Option is "Granted" (within the meaning of Code
Section 423(b)(8)) for each calendar year during which any Option granted to
such Participant is outstanding at any time, as provided in Sections 423 and
424(d) of the Code.
3.5. WITHDRAWAL FROM PLAN. A Participant may withdraw from the Plan
(thereby canceling all Options then in existence) at any time by giving written
notice to the Participant's Employer and to the Administrator. The Administrator
shall, as soon as practicable after receiving written notice of a Participant's
withdrawal from the Plan, cause to be delivered to the Participant a check
representing any funds held to the credit of the Participant's Payroll Deduction
Account. A Participant who has withdrawn from the Plan may thereafter reenter
the Plan by following the procedure described under Section 3.2, but not sooner
than the beginning of the next Option Period after the Participant has withdrawn
from participation.
3.6. TERMINATION OF PARTICIPANT'S EMPLOYMENT. Upon termination of a
Participant's employment from the Dean Companies for any reason, including death
or disability, the Participant's Payroll Deduction Account in the Plan shall be
closed, and all existing Options held by the Participant shall be canceled. The
Administrator shall, as soon as practicable after termination of a Participant's
employment, cause to be delivered to the Participant or the Participant's estate
or the Participant's designated beneficiary as provided below, as applicable, a
check representing any funds held to the credit of the Participant's Payroll
Deduction Account. In the event of a Participant's death, the Participant's
Payroll Deduction Account shall be delivered and paid to the estate of such
Participant or to a beneficiary designated by the Participant in writing on a
form approved by the Administrator.
IV. OPTIONS TO PURCHASE STOCK; MAXIMUM SHARES AVAILABLE
4.1. MAXIMUM SHARES. The maximum number of shares which shall be issued
under the Plan, subject to adjustment upon changes in Common Stock under Article
VII, shall be 500,000 shares.
Page 4 of 9
<PAGE>
4.2. OFFERINGS. Subject to Article XIII, the Company shall make
consecutive offerings on the beginning of each Option Period to Participants to
purchase Common Stock as long as shares authorized remain available for
issuance. Each offering as of the beginning of each Option Period shall be the
total number of shares authorized under Section 4.1, less the number of shares
issued by purchases of Common Stock under Section 5.5 in prior Option Periods.
V. PURCHASE OF STOCK PURSUANT TO OPTIONS
5.1. PAYROLL DEDUCTION ACCOUNTS. Each Dean Company will deduct from its
Participants' paychecks such amounts as have been authorized by the Participants
and, promptly after the end of each month, remit to the Administrator all
amounts so deducted during the month, together with a report showing each
Participant and the amounts allocable to the Payroll Deduction Account of each
Participant. The Administrator shall credit each Participant's Payroll Deduction
Account with the amount of such deposits, and shall reduce the Participant's
Payroll Deduction Account by the purchase price of all Common Stock purchased by
the Participant under this Plan and by any other withdrawals from the
Participant's Payroll Deduction Account. The Plan, through its Administrator,
shall purchase for the Stock Accounts of the Participants shares of Common Stock
with funds received under the Plan.
5.2. STOCK ACCOUNTS. The Broker will open and maintain a Stock Account
in the name of each Participant to which will be credited all shares of Common
Stock purchased for the Participant's benefit. All shares held under the Plan
will be registered in the name of the Plan or the Broker, and will remain so
registered until the shares are delivered to the Participant. The Participant
shall have the right to sell all or any part of the shares held in the
Participant's Stock Account, pursuant to procedures established by the Broker.
5.3. GRANT OF OPTIONS AND PURCHASE. Subject to ARTICLE VIII, each
person who is a Participant on the first day of an Option Period will as of the
first day of such Option Period be granted an Option for such period. Such
Option will be for the number of shares of Common Stock to be determined by
dividing (a) the balance in the Participant's Payroll Deduction Account on the
Option Exercise Date, by (b) the purchase price per share of Common Stock
determined under Section 5.4 below. The number of shares of Common Stock
receivable by each Participant upon exercise of an Option for an Option Period
shall be reduced, on a substantially proportionate basis, in the event that the
number of shares then available under the Plan is otherwise insufficient.
5.4. PURCHASE PRICE. On Option Exercise Dates occurring prior to
January 1, 2001, the purchase price of each share of Common Stock purchased
pursuant to the exercise of an Option shall be .90 multiplied by the Fair Market
Value of the Common Stock on the last day of the Option Period. On Option
Exercise Dates occurring after January 1, 2001, the purchase price of each share
of Common Stock purchased pursuant to the exercise of an Option shall be 0.85
multiplied by the Fair Market Value of the Common Stock on the last day of the
Option Period.
Page 5 of 9
<PAGE>
5.5. EXERCISE OF OPTIONS. Each person who is a Participant in the Plan
on each Option Exercise Date will be deemed to have exercised on that Option
Exercise Date the Option granted to the Participant for that Option Period. Upon
such exercise, the balance of the Participant's Payroll Deduction Account shall
be applied to the purchase of the number of shares of Common Stock determined
under Section 5.3, and the amount of shares of Common Stock purchased shall be
credited to the Participant's Stock Account. In the event that the balance of
the Participant's Payroll Deduction Account following an Option Period is in
excess of the total purchase price of the shares of Common Stock so purchased,
the balance of the Payroll Deduction Account shall be returned to the
Participant.
Notwithstanding anything herein to the contrary, the Company's
obligation to sell and deliver shares of Common Stock under the Plan is subject
to the approval required of any governmental authority in connection with the
authorization, issuance, sale or transfer of such shares, to any requirements of
the New York Stock Exchange or any national securities exchange applicable
thereto, and to compliance by the Company with other applicable legal
requirements in effect from time to time, including without limitation any
applicable tax withholding requirements.
5.6. NO ASSIGNMENT OF PARTICIPANT'S INTEREST IN PLAN. A Participant may
not assign, sell, transfer, pledge, hypothecate or alienate any Options or other
interests in or rights under the Plan. Options under the Plan are exercisable by
a Participant during the Participant's lifetime only by the Participant. All
employees shall have the same rights and privileges under the Plan.
5.7. VESTING. Each Participant will immediately acquire full ownership
of all shares of Common Stock at the time such shares are credited to the
Participant's Stock Account.
5.8. DIVIDENDS, SPLITS AND DISTRIBUTIONS. Any stock dividends or stock
splits in respect of shares held in the Participant's Stock Account will be
credited to the Participant's account automatically. Any distributions to
holders of Common Stock or other securities or rights to subscribe for
additional shares of Common Stock will be handled in the same manner as a cash
dividend, unless the Participant instructs the Administrator to the contrary.
5.9. VOTING RIGHTS. The Broker will deliver to each Participant as
promptly as practicable, by mail or otherwise, all notices of meetings, proxy
statements and other material distributed by the Company to its stockholders.
The full shares of Common Stock in each Participant's Stock Account will be
voted in accordance with the Participant's signed proxy instructions duly
delivered to the Broker or pursuant to any other method of voting available to
holders of Common Stock. There will be no charge to the Participant for the
Administrator's retention or delivery of stock certificates, or in connection
with notices, proxies or other such material.
5.10. NO INTEREST TO BE PAID. No interest will be paid to or credited
to the Payroll Deduction Accounts or Stock Accounts of the Participants.
Page 6 of 9
<PAGE>
VI. ADMINISTRATION OF PLAN
6.1. THE ADMINISTRATOR AND THE COMMITTEE. To carry out the purposes of
the Plan, the Committee shall appoint an Administrator. The Administrator may be
any company or individual that the Committee deems qualified, including the
Company. The Administrator shall be responsible for the implementation of the
Plan, including allocation of funds to the Payroll Deduction Accounts and
distribution of purchased Common Stock to the Stock Accounts, and keeping
adequate and accurate records of such activities for the Participants.
The Committee shall be entitled to adopt and apply guidelines and
procedures consistent with the purposes of the Plan. In order to effectuate the
purposes of the Plan, the Committee shall have the discretionary authority to
construe and interpret the Plan, to supply any omissions therein, to reconcile
and correct any errors or inconsistencies, to decide any questions in the
administration and application of the Plan, and to make equitable adjustments
for any mistakes or errors made in the administration of the Plan, and all such
actions or determinations made by the Committee, and the application of rules
and regulations to a particular case or issue by the Committee, in good faith,
shall not be subject to review by anyone, but shall be final, binding and
conclusive on all persons ever interested hereunder.
6.2. BROKER. The Administrator may, in its discretion, with the consent
and approval of the Committee, appoint a Broker. The Broker may be any company
or individual that the Committee deems qualified; provided, however, that the
Broker shall be a licensed security dealer, broker, or agent authorized to make
purchases and sales of Common Stock.
6.3. REPORTING TO PARTICIPANTS. The Broker will make available to each
Participant an accounting of the Participant's Stock Account.
VII. ADJUSTMENT UPON CHANGES IN COMMON STOCK
7.1. CHANGES IN COMMON STOCK. If any change is made in the Common Stock
(through merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or otherwise), the Administrator will make appropriate adjustments in
the number of shares and price per share of Common Stock subject to the Plan or
to any Option granted under the Plan.
7.2. DISSOLUTION; MERGER; CAPITAL REORGANIZATION; ETC. In the event of
(i) a dissolution or liquidation of the Company; (ii) a merger or consolidation
in which the Company is not the surviving corporation, or a reverse merger in
which the Company is the surviving corporation but the shares of Common Stock by
virtue of the merger are converted into other property, whether in the form of
securities, cash or otherwise; or (iii) any other capital reorganization in
which more than 50 percent of the shares of Common Stock entitled to vote are
exchanged, the Plan shall terminate, unless another corporation assumes the
responsibility of
Page 7 of 9
<PAGE>
continuing the operation of the Plan or the Committee determines in its
discretion that the Plan shall nevertheless continue in full force and effect.
If the Committee elects to terminate the Plan, the Administrator shall send to
each Participant cash in an amount equal to the funds held to the credit of such
Participant's Payroll Deduction Account.
7.3. COMPANY'S RIGHT TO RESTRUCTURE, ETC. The grant of any right to a
Participant pursuant to the Plan shall not affect in any way the right or power
of the Company to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or any part of its business or
assets.
VIII. AMENDMENT; TERMINATION OF PLAN
8.1. AMENDMENT. The Company, acting through the Committee, reserves the
right to amend or terminate the Plan at any time or times; provided, however,
any amendment that would require the consent of stockholders under applicable
law, rule or regulation (including, without limitation, the Code, the Exchange
Act or any self regulatory organization such as a national securities exchange),
will not be made unless such stockholders' consent is obtained.
8.2. TERMINATION. In addition, the Plan shall terminate automatically
on the tenth anniversary of the Plan Start Date, or on any Option Exercise Date
when Participants become entitled to purchase a number of shares greater than
the number of reserved shares remaining available for purchase, subject to the
allocation of remaining shares pursuant to the last sentence of Section 5.3.
Upon termination of the Plan, all amounts held in the Payroll Deduction Accounts
shall, to the extent not used to purchase shares of Common Stock, be refunded to
the Participants entitled thereto.
IX. MISCELLANEOUS
9.1. EXPENSES OF PLAN. No fees or commissions will be charged for the
purchase of Common Stock by Participants under the Plan. The Broker's brokerage
commissions incurred in connection with sales of Common Stock by Participants or
other transactions in Participants' Stock Accounts will be paid by the
Participants. If the Company is acting as Administrator, no expenses of
administration will be charged to the Participants.
9.2. INDEMNIFICATION. In the event and to the extent not insured
against under any contract of insurance with an insurance company, the Company
shall indemnify and hold harmless each "Indemnified Person," as defined below,
against any and all claims, demands, suits, proceedings, losses, damages,
interest, penalties, expenses (specifically including, but not limited to,
counsel fees to the extent approved by the Board or otherwise provided by law,
court costs and other reasonable expenses of litigation), and liability of every
kind, including amounts paid in settlement, with the approval of the Board,
arising from any action or cause of action related to the Indemnified Person's
act or acts or failure to act. Such indemnity shall apply regardless of whether
such claims, demands, suits, proceedings, losses, damages, interest,
Page 8 of 9
<PAGE>
penalties, expenses and liability arise in whole or in part from (a) the
negligence or other fault of the Indemnified Person, or (b) from the imposition
on such Indemnified Person of any civil penalties or excise taxes pursuant to
the Code or any other applicable laws; except when the same is judicially
determined to be due to gross negligence, fraud, recklessness, or willful or
intentional misconduct of such Indemnified Person. "Indemnified Person" shall
mean each member of the Board, the Administrator, each member of the Committee
and each other employee of any Dean Company who is allocated fiduciary
responsibility hereunder.
9.3. NO CONTRACT OF EMPLOYMENT INTENDED. The granting of any rights to
an Eligible Employee under this Plan shall not constitute an agreement or
understanding, express or implied, on the part of any Dean Company, to employ
such Eligible Employee for any specified period.
9.4. GOVERNING LAW. The construction, validity and operation of this
Plan shall be governed by the laws of the State of Delaware.
9.5. SEVERABILITY OF PROVISIONS. If any provision of this Plan is
determined to be invalid, illegal or unenforceable, such invalidity, illegality
or unenforcability shall not affect the remaining provisions of this Plan, but
such invalid, illegal or unenforceable provisions shall be fully severable, and
the Plan shall be construed and enforced as if such provision had never been
inserted herein.
9.6. NO LIABILITY OF THE COMPANY. Neither the Company, its directors,
officers or employees of the Committee, nor any Related Corporation which is in
existence or hereafter comes into existence, shall be liable to any Participant
or other person if it is determined for any reason by the Internal Revenue
Service or any court having jurisdiction that the Plan does not qualify under
Section 423 of the Code.
The Company has caused this Plan to be adopted effective as of the Plan
Start Date.
Last Amended and
Restated: February 2002
Page 9 of 9
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.15
<SEQUENCE>8
<FILENAME>d95076ex10-15.txt
<DESCRIPTION>AMENDED/RESTATED RECEIVABLES PURCHASE AGREEMENT
<TEXT>
<PAGE>
EXHIBIT 10.15
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
dated as of December 21, 2001
Among
DAIRY GROUP RECEIVABLES, L.P., as Seller,
THE SERVICERS,
THE COMPANIES,
THE FINANCIAL INSTITUTIONS
and
BANK ONE, NA (MAIN OFFICE CHICAGO),
as Agent
<PAGE>
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
TABLE OF CONTENTS
<Table>
<Caption>
Page
<S> <C>
ARTICLE I
PURCHASE ARRANGEMENTS..............................................................................Page 2
Section 1.1 Purchase Facility.......................................................Page 2
Section 1.2 Increases...............................................................Page 3
Section 1.3 Decreases...............................................................Page 4
Section 1.4 Payment Requirements....................................................Page 4
ARTICLE II
PAYMENTS AND COLLECTIONS...........................................................................Page 5
Section 2.1 Payments................................................................Page 5
Section 2.2 Collections Prior to Amortization.......................................Page 5
Section 2.3 Collections Following Amortization......................................Page 6
Section 2.4 Application of Collections..............................................Page 6
Section 2.5 Payment Recission.......................................................Page 7
Section 2.6 Maximum Purchaser Interests.............................................Page 7
ARTICLE III
COMPANY FUNDING....................................................................................Page 8
Section 3.1 CP Costs................................................................Page 8
Section 3.2 CP Costs Payments.......................................................Page 8
Section 3.3 Calculation of Bank One Company Costs...................................Page 8
Section 3.4 Selection and Calculation of CP (Tranche) Accrual Periods...............Page 8
ARTICLE IV
FINANCIAL INSTITUTION FUNDING......................................................................Page 9
Section 4.1 Financial Institution Funding...........................................Page 9
Section 4.2 Yield Payments..........................................................Page 10
Section 4.3 Selection and Continuation of Tranche Periods...........................Page 10
Section 4.4 Financial Institution Discount Rates....................................Page 11
Section 4.5 Suspension of the LIBO Rate.............................................Page 11
ARTICLE V
REPRESENTATIONS AND WARRANTIES.....................................................................Page 13
Section 5.1 Representations and Warranties of The Seller Parties....................Page 13
Section 5.2 Financial Institution Representations and Warranties....................Page 18
ARTICLE VI
CONDITIONS OF PURCHASES............................................................................Page 19
Section 6.1 Conditions Precedent to Initial Incremental Purchase....................Page 19
Section 6.2 Conditions Precedent to All Purchases and Reinvestments.................Page 19
</Table>
i
<PAGE>
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
<Table>
<S> <C>
ARTICLE VII
COVENANTS..........................................................................................Page 20
Section 7.1 Affirmative Covenants of The Seller Parties.............................Page 20
Section 7.2 Negative Covenants of The Seller Parties................................Page 30
ARTICLE VIII
ADMINISTRATION AND COLLECTION......................................................................Page 31
Section 8.1 Designation of Servicers................................................Page 31
Section 8.2 Duties of Servicer......................................................Page 32
Section 8.3 Collection Notices......................................................Page 34
Section 8.4 Responsibilities of Seller..............................................Page 35
Section 8.5 Reports.................................................................Page 35
Section 8.6 Servicing Fees..........................................................Page 35
ARTICLE IX
AMORTIZATION EVENTS................................................................................Page 35
Section 9.1 Amortization Events.....................................................Page 35
Section 9.2 Remedies................................................................Page 38
ARTICLE X
INDEMNIFICATION....................................................................................Page 39
Section 10.1 Indemnities by The Seller Parties.......................................Page 39
Section 10.2 Increased Cost and Reduced Return.......................................Page 42
Section 10.3 Other Costs and Expenses................................................Page 43
Section 10.4 Allocations.............................................................Page 43
ARTICLE XI
THE AGENT..........................................................................................Page 44
Section 11.1 Authorization and Action................................................Page 44
Section 11.2 Delegation of Duties....................................................Page 44
Section 11.3 Exculpatory Provisions..................................................Page 44
Section 11.4 Reliance by Agent.......................................................Page 45
Section 11.5 Non-Reliance on Agent and Other Purchasers..............................Page 45
Section 11.6 Reimbursement and Indemnification.......................................Page 45
Section 11.7 Agent in its Individual Capacity........................................Page 46
Section 11.8 Successor Agent.........................................................Page 46
ARTICLE XII
ASSIGNMENTS; PARTICIPATIONS........................................................................Page 46
Section 12.1 Assignments.............................................................Page 46
Section 12.2 Participations..........................................................Page 48
</Table>
ii
<PAGE>
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
<Table>
<S> <C>
ARTICLE XIII
INTENTIONALLY OMITTED..............................................................................Page 48
ARTICLE XIV
MISCELLANEOUS......................................................................................Page 48
Section 14.1 Waivers and Amendments..................................................Page 48
Section 14.2 Notices.................................................................Page 49
Section 14.3 Ratable Payments........................................................Page 50
Section 14.4 Protection of Ownership Interests of the Purchasers.....................Page 50
Section 14.5 Confidentiality.........................................................Page 51
Section 14.6 Bankruptcy Petition.....................................................Page 51
Section 14.7 Limitation of Liability.................................................Page 52
Section 14.8 CHOICE OF LAW...........................................................Page 52
Section 14.9 CONSENT TO JURISDICTION.................................................Page 52
Section 14.10 WAIVER OF JURY TRIAL....................................................Page 52
Section 14.11 Integration; Binding Effect; Survival of Terms..........................Page 53
Section 14.12 Counterparts; Severability; Section References..........................Page 53
Section 14.13 Bank One Roles..........................................................Page 53
Section 14.14 Characterization........................................................Page 54
</Table>
iii
<PAGE>
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
Exhibits and Schedules
<Table>
<S> <C>
Exhibit I Definitions
Exhibit II Form of Purchase Notice
Exhibit III Places of Business of the Seller Parties; Locations of Records; Federal
Employer Identification Number(s)
Exhibit IV Names of Collection Banks; Collection Accounts
Exhibit V Form of Compliance Certificate
Exhibit VI Form of Collection Account Agreement
Exhibit VII Form of Assignment Agreement
Exhibit VIII Credit and Collection Policies
Exhibit IX [Intentionally omitted.]
Exhibit X Form of Monthly Report
Exhibit XI Form of Performance Undertaking
Schedule A Commitments
Schedule B Closing Documents
Schedule C Dean Entities
Schedule D Originators
Schedule E Notice Addresses
Schedule F Top Twenty-Five Obligors
Schedule G Chase Lock-Boxes
</Table>
iv
<PAGE>
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
DAIRY GROUP RECEIVABLES, L.P.
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
This Amended and Restated Receivables Purchase Agreement dated as of
December 21, 2001, is among Dairy Group Receivables, L.P., a Delaware limited
partnership ("Seller"), each of the parties listed on the signature pages hereof
as a Servicer, (the Servicers, together with Seller, the "Seller Parties," and
each a "Seller Party"), the entities listed on Schedule A to this Agreement
under the heading "Financial Institution" (together with any of their respective
successors and assigns hereunder, the "Financial Institutions"), the entities
listed on Schedule A to this Agreement under the heading "Company" (together
with any of their respective successors and assigns hereunder, the "Companies")
and Bank One, NA (Main Office Chicago), as agent for the Purchasers hereunder or
any successor agent hereunder (together with its successors and assigns
hereunder, the "Agent"). Unless defined elsewhere herein, capitalized terms used
in this Agreement shall have the meanings assigned to such terms in Exhibit I.
PRELIMINARY STATEMENTS
The Seller Parties (other than the Dean Entities), Bank One, NA (Main
Office Chicago), in its capacity as a Financial Institution, Falcon Asset
Securitization Corporation (the "Bank One Company") and the Agent are parties to
that certain Receivables Purchase Agreement, dated as of June 30, 2000, as
amended by the following amendments: (i) the First Amendment thereto, dated as
of August 1, 2000, (ii) the Second Amendment thereto, dated as of February 9,
2001, (iii) the Third Amendment thereto, dated as of June 28, 2001, and (iv) the
Fourth Amendment thereto, dated as of November 1, 2001 (as so amended, the
"Original Agreement").
Atlantic Asset Securitization Corp. (the "CL Company") desires to
become a party to the Original Agreement, and each of Credit Lyonnais New York
Branch, a French banking corporation duly licensed under the laws of the State
of New York ("CLNY") and Credit Agricole Indosuez, a branch of a French banking
corporation ("Credit Ag"), desires to become a Financial Institution party to
the Original Agreement.
Each Dean Entity desires to become a Servicer party to the Original
Agreement.
Seller has transferred and assigned pursuant to the Original Agreement,
and desires to continue to transfer and assign Purchaser Interests to the
Purchasers from time to time.
Each Company may, in its absolute and sole discretion, purchase the
Purchaser Interests from Seller from time to time.
<PAGE>
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
In the event that any Company declines to make any purchase, such
Company's Related Financial Institutions shall, at the request of Seller,
purchase Purchaser Interests that such Company declined to purchase from time to
time.
Bank One, NA (Main Office Chicago) has been requested and is willing to
act as Agent on behalf of the Companies and the Financial Institutions in
accordance with the terms hereof.
The parties hereto now desire to amend and restate the Original
Agreement in its entirety to read as set forth herein.
AGREEMENT
Now Therefore , in consideration of the foregoing and for other
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree that, subject to satisfaction of
the conditions precedent set forth in Section 6.1 hereof, the Original Agreement
is hereby amended and restated in its entirety to read as follows:
ARTICLE I
PURCHASE ARRANGEMENTS
Section 1.1 Purchase Facility.
(a) Upon the terms and subject to the conditions hereof,
Seller may, at its option, sell and assign Purchaser Interests to the Agent for
the benefit of one or more of the Purchasers. In accordance with the terms and
conditions set forth herein, each Company may, at its option, instruct the Agent
to purchase on behalf of such Company, or if any Company shall decline to
purchase, the Agent shall purchase, on behalf of such declining Company's
Related Financial Institutions, Purchaser Interests from time to time in an
amount not to exceed at such time (i) in the case of each Company, its Company
Purchase Limit and (ii) in the aggregate, the lesser of (A) the Purchase Limit
and (B) the aggregate amount of the Commitments during the period from the date
hereof to but not including the Facility Termination Date.
(b) Seller may, upon at least 10 Business Days' notice to the
Agent, terminate in whole or reduce in part, ratably among the Financial
Institutions, the unused portion of the Purchase Limit; provided that (i) each
partial reduction of the Purchase Limit shall be in an amount equal to
$5,000,000 or an integral multiple thereof and (ii) the aggregate of the Company
Purchase Limits for all of the Companies shall also be terminated in whole or
reduced in part, ratably among the Companies, by an amount equal to such
termination or reduction in the Purchase Limit.
Page 2
<PAGE>
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
Section 1.2 Increases.
Seller shall provide the Agent with at least two Business
Days' prior notice in a form set forth as Exhibit II hereto of each Incremental
Purchase (a "Purchase Notice"). Each Purchase Notice shall be subject to Section
6.2 hereof and, except as set forth below, (i) shall be irrevocable and shall
specify the requested Purchase Price (which, in the case of the initial
Incremental Purchase hereunder shall not be less than $10,000,000 and in the
case of subsequent Incremental Purchases shall not be less than $1,000,000),
(ii) the date of purchase (which, in the case of Incremental Purchases after the
initial Incremental Purchase hereunder, shall not exceed four per calendar
month), (iii) in the case of an Incremental Purchase to be funded by any of the
Financial Institutions, the requested Discount Rate and Tranche Period and (iv)
in the case of an Incremental Purchase to be funded by the CL Company or by the
Bank One Company (other than substantially with Pooled Commercial Paper), the
requested CP (Tranche) Accrual Period. Following receipt of a Purchase Notice,
the Agent will promptly notify each Company of such Purchase Notice and the
Agent will identify the Companies that agree to make the purchase. If any
Company declines to make a proposed purchase, Seller may cancel the Purchase
Notice as to all Purchasers or, in the absence of such a cancellation, the
Incremental Purchase of the Purchaser Interest, which such Company has declined
to purchase, will be made by such declining Company's Related Financial
Institutions in accordance with the rest of this Section 1.2. If the proposed
Incremental Purchase or any portion thereof is to be made by any of the
Financial Institutions, the Agent shall send notice of the proposed Incremental
Purchase to the applicable Financial Institutions concurrently by telecopier,
telex or cable specifying (i) the date of such Incremental Purchase, which date
must be at least one Business Day after such notice is received by the
applicable Financial Institutions, (ii) each Financial Institution's Pro Rata
Share of the aggregate Purchase Price of the Purchaser Interests the Financial
Institutions in such Financial Institution's Purchaser Group are then purchasing
and (iii) the requested Discount Rate and Tranche Period. On the date of each
Incremental Purchase, upon satisfaction of the applicable conditions precedent
set forth in Article VI and the conditions set forth in this Section 1.2, the
Companies and/or the Financial Institutions, as applicable, shall deposit to the
Facility Account, in immediately available funds, no later than 12:00 noon
(Chicago time), an amount equal to (i) in the case of a Company that has agreed
to make such Incremental Purchase, such Company's Pro Rata Share of the
aggregate Purchase Price of the Purchaser Interests of such Incremental Purchase
or (ii) in the case of a Financial Institution, such Financial Institution's Pro
Rata Share of the aggregate Purchase Price of the Purchaser Interests the
Financial Institutions in such Financial Institution's Purchaser Group are then
purchasing. Each Financial Institution's Commitment hereunder shall be limited
to purchasing Purchaser Interests that the Company in such Financial
Institution's Purchaser Group has declined to purchase. Each Financial
Institution's obligation shall be several, such that the failure of any
Financial Institution to make available to Seller any funds in connection with
any purchase shall not relieve any other Financial Institution of its
obligation, if any, hereunder to make funds available on the date of such
purchase, but no Financial Institution shall be responsible for the failure of
any other Financial Institution to make funds available in connection with any
purchase.
Page 3
<PAGE>
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
Section 1.3 Decreases. Seller shall provide the Agent with prior
written notice in conformity with the Required Notice Period (a "Reduction
Notice") of any proposed reduction of Aggregate Capital from Collections and the
Agent will promptly notify each Purchaser of such Reduction Notice after Agent's
receipt thereof. Such Reduction Notice shall designate (i) the date (the
"Proposed Reduction Date") upon which any such reduction of Aggregate Capital
shall occur (which date shall give effect to the applicable Required Notice
Period), and (ii) the amount of Aggregate Capital to be reduced that shall be
applied ratably to the Purchaser Interests of the Companies and the Financial
Institutions in accordance with the amount of Capital (if any) owing to the
Companies (ratably, based on their respective Pro Rata Shares), on the one hand,
and the amount of Capital (if any) owing to the Financial Institutions (ratably
to each Financial Institution, based on the ratio of such Financial
Institution's Capital at such time to the aggregate Capital of all of the
Financial Institutions at such time), on the other hand (the "Aggregate
Reduction"). Only one (1) Reduction Notice shall be outstanding at any time.
Concurrently with any reduction of Aggregate Capital pursuant to this Section,
Seller shall pay to the applicable Purchaser all Broken Funding Costs arising as
a result of such reduction. No Aggregate Reduction will be made following the
occurrence of the Amortization Date without the consent of the Agent.
Section 1.4 Payment Requirements. All amounts to be paid or deposited
by any Seller Party pursuant to any provision of this Agreement or any other
Transaction Documents shall be paid or deposited in immediately available funds
in accordance with the terms hereof. Such Seller Party shall use its reasonable
best efforts to pay or deposit all such amounts no later than 12:00 noon
(Chicago time) on the day when due. Any such payment or deposit not received by
1:00 pm (Chicago time) shall be deemed to be received on the next succeeding
Business Day. If such amounts are payable to a Purchaser, they shall be paid to
such Purchaser at the "Payment Address" specified for such Purchaser on Schedule
A or such other address specified in writing to each other party hereto. If such
amounts are payable to the Agent, they shall be paid to the Agent at 1 Bank One
Plaza, Chicago, Illinois 60670 until otherwise notified by the Agent. Upon
notice to Seller, the Agent may debit the Facility Account for all amounts due
and payable hereunder. All computations of Yield, per annum fees or discount
calculated as part of any CP Costs, per annum fees hereunder and per annum fees
under any Fee Letter shall be made on the basis of a year of 360 days for the
actual number of days elapsed. If any amount hereunder or under any other
Transaction Document shall be payable on a day that is not a Business Day, such
amount shall be payable on the next succeeding Business Day.
Page 4
<PAGE>
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
ARTICLE II
PAYMENTS AND COLLECTIONS
Section 2.1 Payments. Notwithstanding any limitation on recourse
contained in this Agreement, Seller shall immediately pay to the Agent or
relevant Purchaser, as applicable, when due, for the account of the relevant
Purchaser or Purchasers on a full recourse basis, (i) such fees as set forth in
each Fee Letter (which fees collectively shall be sufficient to pay all fees
owing to the Financial Institutions and other Funding Sources), (ii) all CP
Costs, (iii) all amounts payable as Yield, (iv) all amounts payable as Deemed
Collections (which shall be immediately due and payable by Seller and applied to
reduce outstanding Aggregate Capital hereunder in accordance with Sections 2.2
and 2.3 hereof), (v) all amounts required pursuant to Section 2.6, (vi) all
amounts payable pursuant to Article X, if any, (vii) all Servicer costs and
expenses, including the Servicing Fee, in connection with servicing,
administering and collecting the Receivables, (viii) all Broken Funding Costs
(any request for reimbursement of which shall be accompanied by a certificate in
reasonable detail demonstrating the reasonable calculation of ay such amount)
and (ix) all Default Fees (collectively, the "Obligations"). If any Person fails
to pay any of the Obligations (other than the Default Fee) when due, such Person
agrees to pay, on demand, the Default Fee in respect thereof until paid.
Notwithstanding the foregoing, no provision of this Agreement or any Fee Letter
shall require the payment or permit the collection of any amounts hereunder in
excess of the maximum permitted by applicable law. If at any time Seller
receives any Collections or is deemed to receive any Collections, Seller shall
immediately pay such Collections or Deemed Collections to the applicable
Servicer for application in accordance with the terms and conditions hereof and,
at all times prior to such payment, such Collections or Deemed Collections shall
be held in trust by Seller for the exclusive benefit of the Purchasers and the
Agent.
Section 2.2 Collections Prior to Amortization. Prior to the
Amortization Date, any Collections and/or Deemed Collections received by each
Servicer shall be set aside and held in trust by such Servicer for the benefit
of the Agent and the Purchasers for the payment of any accrued and unpaid
Aggregate Unpaids or for a Reinvestment as provided in this Section 2.2. If at
any time any Collections and/or Deemed Collections are received by any Servicer
prior to the Amortization Date, (i) such Servicer shall set aside the
Termination Percentage (hereinafter defined) of Collections and/or Deemed
Collections evidenced by the Purchaser Interests of each Terminating Financial
Institution, shall set aside Collections to be used to effect any Aggregate
Reduction in accordance with Section 1.3 and shall set aside amounts necessary
to pay Obligations due on the next succeeding Settlement Date and (ii) Seller
hereby requests and the Purchasers (other than any Terminating Financial
Institutions) hereby agree to make, simultaneously with such receipt, a
reinvestment (each a "Reinvestment") with that portion of the balance of each
and every Collection and Deemed Collection received by any Servicer that is part
of any Purchaser Interest (other than any Purchaser Interests of Terminating
Financial Institutions), such that after giving effect to such Reinvestment, the
amount of Capital of such Purchaser Interest immediately after such receipt and
corresponding Reinvestment shall be equal to the amount of Capital immediately
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prior to such receipt (but giving effect to any ratable reduction thereof
pursuant to application of an Aggregate Reduction). On each Settlement Date
prior to the occurrence of the Amortization Date, the Servicers shall remit to
the Agent's or applicable Purchaser's account the amounts set aside during the
preceding Settlement Period that have not been subject to a Reinvestment and
apply such amounts (if not previously paid in accordance with Section 2.1)
first, to reduce unpaid CP Costs, Yield and other Obligations and second, to
reduce the Capital of all Purchaser Interests of Terminating Financial
Institutions, applied ratably to each Terminating Financial Institution
according to its respective Termination Percentage. If such Capital, CP Costs,
Yield and other Obligations shall be reduced to zero, any additional Collections
received by any Servicer (i) if applicable, shall be remitted to the Agent's or
applicable Purchaser's account to the extent required to fund any Aggregate
Reduction on such Settlement Date and (ii) any balance remaining thereafter
shall be remitted from such Servicer to Seller on such Settlement Date. Such
Servicer shall use its reasonable best efforts to remit all deposit amounts in
the Agent's or applicable Purchaser's account no later than 12:00 noon (Chicago
time) on such Settlement Date. Any such amounts not received by Agent or the
applicable Purchaser by 1:00 pm (Chicago time) shall be deemed to be received on
the next succeeding Business Day. Each Terminating Financial Institution shall
be allocated a ratable portion of Collections from its Termination Date until
such Terminating Financial Institution's Capital, if any, shall be paid in full.
This ratable portion shall be calculated on the Termination Date of each
Terminating Financial Institution as a percentage equal to (i) Capital of such
Terminating Financial Institution outstanding on its Termination Date, divided
by (ii) the Aggregate Capital outstanding on such Termination Date (the
"Termination Percentage"). Each Terminating Financial Institution's Termination
Percentage shall remain constant prior to the Amortization Date. On and after
the Amortization Date, each Termination Percentage shall be disregarded, and
each Terminating Financial Institution's Capital shall be reduced ratably with
all Financial Institutions in accordance with Section 2.3.
Section 2.3 Collections Following Amortization. On the Amortization
Date and on each day thereafter, the Servicers shall set aside and hold in
trust, for the holder of each Purchaser Interest, all Collections received on
such day and an additional amount for the payment of any accrued and unpaid
Aggregate Unpaids owed by Seller and not previously paid by Seller in accordance
with Section 2.1. On and after the Amortization Date, the Servicers shall, at
any time upon the request from time to time by (or pursuant to standing
instructions from) the Agent (i) remit to the Agent's or applicable Purchaser's
account the amounts set aside pursuant to the preceding sentence, and (ii) apply
such amounts to reduce the Capital associated with each such Purchaser Interest
and any other Aggregate Unpaids.
Section 2.4 Application of Collections. If there shall be insufficient
funds on deposit for the Servicers to distribute funds in payment in full of the
aforementioned amounts pursuant to Section 2.2 or 2.3 (as applicable), the
Servicers shall distribute funds:
first, to the payment of each Servicer's reasonable actual
out-of-pocket costs and expenses in connection with servicing,
administering and collecting the Receivables,
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including the Servicing Fee, if Seller or one of its Affiliates is not
then acting as a Servicer,
second, to the reimbursement of the Agent's and the
Purchasers' costs of collection and enforcement of this Agreement,
third, ratably to the payment of all accrued and unpaid fees
under the Fee Letters, CP Costs and Yield,
fourth, (to the extent applicable) to the ratable reduction of
the Aggregate Capital (without regard to any Termination Percentage),
fifth, for the ratable payment of all other unpaid
Obligations, provided that to the extent such Obligations relate to the
payment of Servicer costs and expenses, including the Servicing Fee,
when Seller or one of its Affiliates is acting as a Servicer, such
costs and expenses will not be paid until after the payment in full of
all other Obligations, and
sixth, after the Aggregate Unpaids have been indefeasibly
reduced to zero, to Seller.
Collections applied to the payment of Aggregate Unpaids shall
be distributed in accordance with the aforementioned provisions, and, giving
effect to each of the priorities set forth in Section 2.4 above, shall be shared
ratably (within each priority) among the Agent and the Purchasers in accordance
with the amount of such Aggregate Unpaids owing to each of them in respect of
each such priority.
Section 2.5 Payment Recission. No payment of any of the Aggregate
Unpaids shall be considered paid or applied hereunder to the extent that, at any
time, all or any portion of such payment or application is rescinded by
application of law or judicial authority, or must otherwise be returned or
refunded for any reason. Seller shall remain obligated for the amount of any
payment or application so rescinded, returned or refunded, and shall promptly
pay to the Agent (for application to the Person or Persons who suffered such
recission, return or refund) the full amount thereof, plus the Default Fee from
the date of any such recission, return or refunding.
Section 2.6 Maximum Purchaser Interests. Seller shall ensure that the
Purchaser Interests of the Purchasers shall at no time exceed in the aggregate
100%. If the aggregate of the Purchaser Interests of the Purchasers exceeds
100%, Seller shall pay to the Purchasers (ratably based on the ratio of each
Purchaser's Capital at such time to the Aggregate Capital at such time) within
one (1) Business Day an amount to be applied to reduce the Aggregate Capital,
such that after giving effect to such payment the aggregate of the Purchaser
Interests equals or is less than 100%.
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Section 2.7 Clean Up Call. In addition to Seller's rights pursuant to
Section 1.3, Seller shall have the right, upon two Business Days' prior written
notice to the Agent and the Purchasers, at any time following the reduction of
the Aggregate Capital to a level that is less than 20.0% of the original
Purchase Limit hereunder, to repurchase from the Purchasers all, but not less
than all, of the then outstanding Purchaser Interests. The purchase price in
respect thereof shall be an amount equal to the Aggregate Unpaids (including any
Broken Funding Costs arising as a result of such repurchase) through the date of
such repurchase, payable in immediately available funds. Such repurchase shall
be without representation, warranty or recourse of any kind by, on the part of,
or against any Purchaser or the Agent.
ARTICLE III
COMPANY FUNDING
Section 3.1 CP Costs. Seller shall pay CP Costs with respect to the
Capital associated with each Purchaser Interest of the Companies for each day
that any Capital in respect of any such Purchaser Interest is outstanding. Each
Purchaser Interest of the Bank One Company funded substantially with Pooled
Commercial Paper will accrue CP Costs each day on a pro rata basis, based upon
the percentage share the Capital in respect of such Purchaser Interest
represents in relation to all assets held by the Bank One Company and funded
substantially with Pooled Commercial Paper. Each other Purchaser Interest of the
Bank One Company and each Purchaser Interest of the CL Company shall accrue CP
Costs for each day during its CP (Tranche) Accrual Period at the rate determined
in accordance with the definition of "Company Costs" set forth in Exhibit I.
Section 3.2 CP Costs Payments. On each Settlement Date relating to a CP
(Tranche) Accrual Period, Seller shall pay to the applicable Company an
aggregate amount equal to all accrued and unpaid CP Costs in respect of the
Capital associated with all Purchaser Interests of such Company for the related
CP (Tranche) Accrual Period in accordance with Article II.
Section 3.3 Calculation of Bank One Company Costs. On the third
Business Day immediately preceding each Settlement Date relating to a CP (Pool)
Accrual Period, the Bank One Company shall calculate the aggregate amount of its
Company Costs with respect to all Purchaser Interests funded substantially with
Pooled Commercial Paper for the applicable CP (Pool) Accrual Period and shall
notify the Agent of such aggregate amount. Within two Business Days of the
Agent's receipt of notification of such Company Costs, the Agent shall notify
Seller of the amount of such Company Costs due and payable on such Settlement
Date.
Section 3.4 Selection and Calculation of CP (Tranche) Accrual Periods.
(a) In the case of Purchaser Interests of the Bank One
Company, Seller shall (and following the occurrence and during the continuance
of a Potential Amortization Event or an Amortization Event, shall with
consultation from, and approval by, the Bank
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One Company), from time to time request CP (Tranche) Accrual Periods for the
Purchaser Interests of the Bank One Company other than those funded
substantially with Pooled Commercial Paper, provided, that (i) the consent of
the Agent shall be required (such consent not to be unreasonably withheld), (ii)
Seller must elect CP (Tranche) Accrual Periods for all Purchaser Interests of
the Bank One Company, such that after giving effect to such election, no
Purchaser Interest of the Bank One Company is funded with Pooled Commercial
Paper and (iii) Seller may only make such election once hereunder. In the case
of Purchaser Interests of the CL Company, Seller shall, with consultation from,
and approval by, the CL Company (such approval not to be unreasonably withheld),
from time to time request CP (Tranche) Accrual Periods for the Purchaser
Interests of the CL Company.
(b) Seller or the applicable Company, upon notice to and
consent by the other received at least three (3) Business Days prior to the end
of a CP (Tranche) Accrual Period (the "Terminating CP Tranche") for any
Purchaser Interest, may, effective on the last day of the Terminating CP
Tranche: (i) divide any such Purchaser Interest into multiple Purchaser
Interests, (ii) combine any such Purchaser Interest with one or more other
Purchaser Interests that have a Terminating CP Tranche ending on the same day as
such Terminating CP Tranche or (iii) combine any such Purchaser Interest with a
new Purchaser Interest (other than a Purchaser Interest funded substantially
with Pooled Commercial Paper) to be purchased on the day such Terminating CP
Tranche ends, provided, that in no event may a Purchaser Interest of any
Purchasers be combined with a Purchaser Interest of any other Purchaser.
(c) Seller shall: at least three (3) Business Days prior to
the expiration of any Terminating CP Tranche, give the applicable Company (or
its agent) irrevocable notice of the new CP (Tranche) Accrual Period associated
with such Terminating CP Tranche and the amount of Capital to be allocated to
such new CP (Tranche) Accrual Period. Seller shall use its reasonable best
efforts to give such notice such that the applicable Company (or its agent)
receives it no later than 12:00 noon (Chicago time) on the day such request is
being made. Any such request not received by the applicable Company by 1:00 pm
(Chicago time) shall be deemed to be received on the next succeeding Business
Day.
ARTICLE IV
FINANCIAL INSTITUTION FUNDING
Section 4.1 Financial Institution Funding. Each Purchaser Interest of
the Financial Institutions shall accrue Yield for each day during its Tranche
Period at either the LIBO Rate or the Prime Rate in accordance with the terms
and conditions hereof. Until Seller gives notice to the Agent of another
Discount Rate in accordance with Section 4.4, the initial Discount Rate for any
Purchaser Interest transferred to the Financial Institutions pursuant to the
terms and conditions hereof shall be the Prime Rate. If any Purchaser Interest
of any Company is assigned or transferred to, or funded by, any Funding Source
of
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such Company pursuant to any Funding Agreement or to or by any other Person,
each such Purchaser Interest so assigned, transferred or funded shall each be
deemed to have a new Tranche Period commencing on the date of any such transfer
or funding and shall accrue Yield for each day during its Tranche Period at
either the LIBO Rate or the Prime Rate in accordance with the terms and
conditions hereof as if each such Purchaser Interest was held by a Financial
Institution, and with respect to each such Purchaser Interest, the transferee
thereof or lender with respect thereto shall be deemed to be a Financial
Institution in the transferring Company's Purchaser Group for purposes hereof;
provided that until Seller gives notice to the Agent of another Discount Rate in
accordance with Section 4.4, the initial Discount Rate for any Purchaser
Interest so transferred shall be the Prime Rate.
Section 4.2 Yield Payments. On the Settlement Date for each Purchaser
Interest of the Financial Institutions, Seller shall pay to the applicable
Financial Institutions an aggregate amount equal to the accrued and unpaid Yield
for the entire Tranche Period of each such Purchaser Interest in accordance with
Article II.
Section 4.3 Selection and Continuation of Tranche Periods.
(a) In the case of Purchaser Interests of any Financial
Institution in the Purchaser Group of the Bank One Company, Seller shall (and
following the occurrence and during the continuance of a Potential Amortization
Event or an Amortization Event, shall with consultation from, and approval by,
the applicable Financial Institution), from time to time request Tranche Periods
for the Purchaser Interests of such Financial Institutions. In the case of
Purchaser Interests of any Financial Institution in the Purchaser Group of the
CL Company, Seller shall, with consultation from, and approval by, the
applicable Financial Institution (such approval not to be unreasonably
withheld), from time to time request Tranche Periods for the Purchaser Interests
of such Financial Institution. Notwithstanding the foregoing provisions of this
subsection (a), if at any time the Financial Institutions shall have a Purchaser
Interest, Seller shall always request Tranche Periods such that at least one
Tranche Period shall end on the date specified in clause (A) of the definition
of Settlement Date.
(b) Seller or the applicable Financial Institution, upon
notice to and consent by the other received at least three (3) Business Days
prior to the end of a Tranche Period (the "Terminating Tranche") for any
Purchaser Interest, may, effective on the last day of the Terminating Tranche:
(i) divide any such Purchaser Interest into multiple Purchaser Interests, (ii)
combine any such Purchaser Interest with one or more other Purchaser Interests
that have a Terminating Tranche ending on the same day as such Terminating
Tranche or (iii) combine any such Purchaser Interest with a new Purchaser
Interest to be purchased on the day such Terminating Tranche ends, provided,
that in no event may a Purchaser Interest of any Purchasers be combined with a
Purchaser Interest of any other Purchaser.
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Section 4.4 Financial Institution Discount Rates. Seller may select the
LIBO Rate or the Prime Rate for each Purchaser Interest of the Financial
Institutions. Seller shall: (i) at least three (3) Business Days prior to the
expiration of any Terminating Tranche with respect to which the LIBO Rate is
being requested as a new Discount Rate and (ii) at least one (1) Business Day
prior to the expiration of any Terminating Tranche with respect to which the
Prime Rate is being requested as a new Discount Rate, give the applicable
Financial Institution irrevocable notice of the new Discount Rate for the
Purchaser Interest associated with such Terminating Tranche. Seller shall use
its reasonable best efforts to give such notice such that the applicable
Financial Institution receives it no later than 12:00 noon (Chicago time) on the
day such request is being made. Any such request not received by the applicable
Financial Institution by 1:00 pm (Chicago time) shall be deemed to be received
on the next succeeding Business Day. Until Seller gives notice to the applicable
Financial Institution of another Discount Rate, the initial Discount Rate for
any Purchaser Interest transferred to the Financial Institutions pursuant to the
terms and conditions hereof (or transferred to, or funded by, any Funding Source
pursuant to any Funding Agreement or to or by any other Person) shall be the
Prime Rate.
Section 4.5 Suspension of the LIBO Rate.
(a) If any Financial Institution notifies the Agent that it
has determined that funding its Pro Rata Share of the Purchaser Interests of the
Financial Institutions in such Financial Institution's Purchaser Group at the
LIBO Rate would violate any applicable law, rule, regulation or directive of any
governmental or regulatory authority, whether or not having the force of law, or
that (i) deposits of a type and maturity appropriate to match fund its Purchaser
Interests at the LIBO Rate are not available or (ii) the LIBO Rate does not
accurately reflect the cost of acquiring or maintaining a Purchaser Interest at
the LIBO Rate, then the Agent shall suspend the availability of the LIBO Rate
for the Financial Institutions in such Financial Institution's Purchaser Group
and require Seller to select the Prime Rate for any Purchaser Interest funded by
the Financial Institutions in such Financial Institution's Purchaser Group
accruing Yield at the LIBO Rate.
(b) If less than all of the Financial Institutions in such
Financial Institution's Purchaser Group give a notice to the Agent pursuant to
Section 4.5(a), each Financial Institution which gave such a notice shall be
obliged, at the request of Seller, the Company in such Financial Institution's
Purchaser Group or the Agent, to assign all of its rights and obligations
hereunder to (i) another Financial Institution in such Financial Institution's
Purchaser Group or (ii) another funding entity nominated by Seller or the Agent
that is acceptable to the Company in such Financial Institution's Purchaser
Group and willing to participate in this Agreement through the Liquidity
Termination Date in the place of such notifying Financial Institution; provided
that (i) the notifying Financial Institution receives payment in full, pursuant
to an Assignment Agreement, of an amount equal to such notifying Financial
Institution's Pro Rata Share of the Capital and Yield owing to all of the
Financial Institutions in such Financial Institution's Purchaser Group and all
accrued but unpaid fees and other costs and expenses payable in respect of its
Pro Rata Share of the
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Purchaser Interests of the Financial Institutions in such Financial
Institution's Purchaser Group, and (ii) the replacement Financial Institution
otherwise satisfies the requirements of Section 12.1(b).
Section 4.6 Extension of Liquidity Termination Date.
(a) Seller may request one or more 364-day extensions of the
Liquidity Termination Date then in effect by giving written notice of such
request to the Agent (each such notice an "Extension Notice") at least 60 days
prior to the Liquidity Termination Date then in effect. After the Agent's
receipt of any Extension Notice, the Agent shall promptly advise each Financial
Institution of such Extension Notice. Each Financial Institution may, in its
sole discretion, by a written irrevocable notice (a "Consent Notice") given to
the Agent on or prior to the 30th day prior to the Liquidity Termination Date
then in effect (such period from the date of the Extension Notice to such 30th
day being referred to herein as the "Consent Period"), consent to such extension
of such Liquidity Termination Date; provided, however, that such extension shall
not be effective with respect to a Financial Institution if such Financial
Institution: (i) notifies the Agent during the Consent Period that such
Financial Institution does not wish to consent to such extension or (ii) fails
to respond to the Agent within the Consent Period (each Financial Institution
that does not wish to consent to such extension or fails to respond to the Agent
within the Consent Period is herein referred to as a "Non-Renewing Financial
Institution"). If at the end of the Consent Period, there is no Non-Renewing
Financial Institution then, the Liquidity Termination Date shall be irrevocably
extended until the date that is 364 days after the Liquidity Termination Date
then in effect. If at the end of the Consent Period there is a Non-Renewing
Financial Institution, then unless such Non-Renewing Financial Institution
assigns its rights and obligations hereunder pursuant to Section 4.6(b) (each
such Non-Renewing Financial Institution whose rights and obligations under this
Agreement and the other applicable Transaction Documents are not so assigned is
herein referred to as a "Terminating Financial Institution"), the then existing
Liquidity Termination Date shall be extended for an additional 364 days with
respect to all Financial Institutions other than the Terminating Financial
Institution; provided, however, that (i) the Purchase Limit shall be reduced on
the Termination Date applicable to each Terminating Financial Institution by an
aggregate amount equal to the Terminating Commitment Availability of each
Terminating Financial Institution and shall thereafter continue to be reduced by
amounts equal to any reduction in the Capital of any Terminating Financial
Institution (after application of Collections pursuant to Sections 2.2 and 2.3),
(ii) the Company Purchase Limit of each Company shall be reduced by the
aggregate amount of the Terminating Commitment Amount of each Terminating
Financial Institution in such Company's Purchaser Group and (iii) the Commitment
of each Terminating Financial Institution shall be reduced to zero on the
Termination Date applicable to such Terminating Financial Institution. Upon
reduction to zero of the Capital of all of the Purchaser Interests of a
Terminating Financial Institution (after application of Collections thereto
pursuant to Sections 2.2 and 2.3) all rights and obligations of such Terminating
Financial Institution hereunder shall be terminated and such Terminating
Financial Institution shall no longer be a "Financial Institution"; provided,
however, that the provisions of
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Article X shall continue in effect for its benefit with respect to Purchaser
Interests held by such Terminating Financial Institution prior to its
termination as a Financial Institution.
(b) Upon receipt of notice from the Agent pursuant to Section
4.6(a) of any Non-Renewing Financial Institution, one or more of the Financial
Institutions (including any Non-Renewing Financial Institution) may proffer to
the Agent and the Company in such Non-Renewing Financial Institution's Purchaser
Group the names of one or more institutions meeting the criteria set forth in
Section 12.1(b)(i) that are willing to accept assignments of and assume the
rights and obligations under this Agreement and the other applicable Transaction
Documents of the Non-Renewing Financial Institution. Provided the proffered
name(s) are acceptable to the Agent and the Company in such Non-Renewing
Financial Institution's Purchaser Group, the Agent shall notify the remaining
Financial Institutions of such fact, and the then existing Liquidity Termination
Date shall be extended for an additional 364 days upon satisfaction of the
conditions for an assignment in accordance with Section 12.1, and the Commitment
of each Non-Renewing Financial Institution shall be reduced to zero.
(c) Any requested extension may be approved or disapproved by
a Financial Institution in its sole discretion. In the event that the
Commitments are not extended in accordance with the provisions of this Section
4.6, the Commitment of each Financial Institution shall be reduced to zero on
the Liquidity Termination Date. Upon reduction to zero of the Commitment of a
Financial Institution and upon reduction to zero of the Capital of all of the
Purchaser Interests of such Financial Institution all rights and obligations of
such Financial Institution hereunder shall be terminated and such Financial
Institution shall no longer be a "Financial Institution"; provided, however,
that the provisions of Article X shall continue in effect for its benefit with
respect to Purchaser Interests held by such Financial Institution prior to its
termination as a Financial Institution.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties of The Seller Parties. Each
Seller Party hereby represents and warrants to the Agent and the Purchasers, as
to itself, as of the date hereof and as of the date of each Incremental Purchase
and the date of each Reinvestment that:
(a) Corporate Existence and Power. Such Seller Party is a
corporation, limited liability company or limited partnership duly organized and
validly existing in good standing under the laws of its state of organization.
Each such Seller Party is duly qualified to do business and is in good standing
as a foreign corporation or entity, and has and holds all corporate or other
power and all governmental licenses, authorizations, consents and approvals
required to carry on its business in each jurisdiction in which its business is
conducted except to the extent that the failure to so qualify or hold could not
reasonably be expected to have a Material Adverse Effect.
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(b) Power and Authority; Due Authorization, Execution and
Delivery. The execution and delivery by such Seller Party of this Agreement and
each other Transaction Document to which it is a party, and the performance of
its obligations hereunder and thereunder and, in the case of Seller, Seller's
use of the proceeds of purchases made hereunder, are within its corporate or
other powers and authority and have been duly authorized by all necessary
corporate or other action on its part. This Agreement and each other Transaction
Document to which such Seller Party is a party has been duly executed and
delivered by such Seller Party.
(c) No Conflict. The execution and delivery by such Seller
Party of this Agreement and each other Transaction Document to which it is a
party, and the performance of its obligations hereunder and thereunder do not
contravene or violate (i) its certificate or articles of incorporation or
by-laws (or equivalent organizational documents) or any shareholder agreements,
voting trusts or similar arrangements applicable to its authorized shares or
other equity interests, (ii) any law, rule or regulation applicable to it, (iii)
any restrictions under any material agreement, contract or instrument to which
it is a party or by which it or any of its property is bound or (iv) any order,
writ, judgment, award, injunction or decree binding on or affecting it or its
property, and do not result in the creation or imposition of any Adverse Claim
on assets of such Seller Party or its Subsidiaries (except as created
hereunder); and no transaction contemplated hereby requires compliance with any
bulk sales act or similar law.
(d) Governmental Authorization. Other than the filing of the
financing statements required hereunder, no authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution and delivery by such Seller
Party of this Agreement and each other Transaction Document to which it is a
party and the performance of its obligations hereunder and thereunder.
(e) Actions, Suits. There are no actions, suits or proceedings
pending, or to the best of such Seller Party's knowledge, threatened, against or
affecting such Seller Party, or any of its properties, in or before any court,
arbitrator or other body, that could reasonably be expected to have a Material
Adverse Effect. Such Seller Party is not in default with respect to any order of
any court, arbitrator or governmental body.
(f) Binding Effect. This Agreement and each other Transaction
Document to which such Seller Party is a party constitute the legal, valid and
binding obligations of such Seller Party enforceable against such Seller Party
in accordance with their respective terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization or other similar
laws relating to or limiting creditors' rights generally and by general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
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(g) Accuracy of Information. All information heretofore
furnished by or on behalf of such Seller Party or any of its Affiliates to the
Agent or the Purchasers for purposes of or in connection with this Agreement,
any of the other Transaction Documents or any transaction contemplated hereby or
thereby is, and all such information hereafter furnished by or on behalf of such
Seller Party or any of its Affiliates to the Agent or the Purchasers will be,
true and accurate in every material respect on the date such information is
stated or certified and does not and will not contain any material misstatement
of fact or omit to state a material fact or any fact necessary to make the
statements contained therein not misleading in light of the circumstances made
or presented.
(h) Use of Proceeds. No proceeds of any purchase hereunder
will be used (i) for a purpose that violates, or would be inconsistent with,
Regulation T, U or X promulgated by the Board of Governors of the Federal
Reserve System from time to time or (ii) to acquire any security in any
transaction that is subject to Section 12, 13 or 14 of the Securities Exchange
Act of 1934, as amended.
(i) Good Title. Immediately prior to each purchase hereunder,
Seller shall be the legal and beneficial owner of the Receivables and Related
Security with respect thereto, free and clear of any Adverse Claim, except as
created by the Transaction Documents. There have been duly filed all financing
statements or other similar instruments or documents necessary under the UCC (or
any comparable law) of all appropriate jurisdictions to perfect Seller's
ownership interest in each Receivable, its Collections and the Related Security.
(j) Perfection. This Agreement, together with the filing of
the financing statements contemplated hereby, is effective to, and shall, upon
each purchase hereunder, transfer to the Agent for the benefit of the relevant
Purchaser or Purchasers (and the Agent for the benefit of such Purchaser or
Purchasers shall acquire from Seller) a valid and perfected first priority
undivided percentage ownership or security interest in each Receivable existing
or hereafter arising and in the Related Security and Collections with respect
thereto, free and clear of any Adverse Claim, except as created by the
Transactions Documents. There have been duly filed all financing statements or
other similar instruments or documents necessary under the UCC (or any
comparable law) of all appropriate jurisdictions to perfect the Agent's (on
behalf of the Purchasers) ownership or security interest in the Receivables, the
Related Security and the Collections.
(k) Jurisdiction of Organization; Places of Business, etc.
Exhibit III correctly sets forth such Seller Party's legal name, jurisdiction of
organization, Federal Employer's Identification Number and State Organizational
Identification Number. Such Seller Party's principal places of business and
chief executive office and the offices where such Seller Party keeps all of its
Records are located at the address(es) listed on Exhibit III, or such other
locations of which the Agent has been notified in accordance with Section 7.2(a)
in jurisdictions where all action required by Section 14.4(a) has been taken and
completed. Such Seller Party has not within the period of six months prior to
the date
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hereof, (i) changed its location (as defined in Section 9-307 of the UCC),
except as set forth on Exhibit III or (ii) changed its legal name (except as set
forth on Exhibit III), corporate structure or become a "new debtor" (as defined
in Section 9-102(a)(56) of the UCC) with respect to a currently effective
security agreement previously entered into by any other Person. Seller is a
Delaware limited partnership and is a "registered organization" (within the
meaning of Section 9-102 of the UCC in effect in the State of Delaware).
(l) Collections. The conditions and requirements set forth in
Section 7.1(j) and Section 8.2 have at all times been satisfied and duly
performed. The names and addresses of all Collection Banks, together with the
account numbers of the Collection Accounts of Seller at each Collection Bank and
the post office box number of each Lock- Box, are listed on Exhibit IV. Seller
has not granted any Person, other than the Agent as contemplated by this
Agreement, dominion and control or "control" (within the meaning of Section
9-104 of the UCC of all applicable jurisdictions) of any Lock-Box or Collection
Account, or the right to take dominion and control or "control" (within the
meaning of Section 9-104 of the UCC of all applicable jurisdictions) of any such
Lock-Box or Collection Account at a future time or upon the occurrence of a
future event.
(m) Material Adverse Effect. (i) Each of the Initial Servicers
represents and warrants that since December 31, 1999, and each of the Additional
Servicers represents and warrants that since December 31, 2000, and each of the
Dean Entities represents and warrants that since May 31, 2001, no event has
occurred that would have a material adverse effect on the financial condition or
operations of such Servicer and its Subsidiaries taken as a whole or the ability
of such Servicer to perform its obligations under this Agreement and (ii) Seller
represents and warrants that since June 30, 2000, no event has occurred that
would have a material adverse effect on (A) the financial condition or
operations of Seller, (B) the ability of Seller to perform its obligations under
the Transaction Documents or (C) the collectibility of the Receivables generally
or of any material portion of the Receivables.
(n) Names. In the past five (5) years, Seller has not used any
corporate names, trade names or assumed names other than Suiza Receivables, L.P.
and the name in which it has executed this Agreement.
(o) Ownership of Seller. Suiza Dairy Group, L.P. and Provider
own, directly or indirectly, 100% of the limited partnership interests and 99.9%
of the partnership interests of Seller, free and clear of any Adverse Claim
(except any Adverse Claim in favor of the Collateral Agent in accordance with
the Dean Credit Agreement). Dairy Group Receivables GP, LLC (f/k/a Suiza
Receivables GP, LLC) is the general partner of Seller and owns, directly or
indirectly, 100% of the general partnership interests and 0.1% of the
partnership interests of Seller, free and clear of any Adverse Claim (except any
Adverse Claim in favor of the Collateral Agent in accordance with the Dean
Credit Agreement). There are no options or other rights to acquire any
partnership interest of Seller. 100% of the membership interests of Dairy Group
Receivables GP, LLC are owned, directly or indirectly by Provider.
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(p) Not a Holding Company or an Investment Company. Such
Seller Party is not a "holding company" or a "subsidiary holding company" of a
"holding company" within the meaning of the Public Utility Holding Company Act
of 1935, as amended, or any successor statute. Such Seller Party is not an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or any successor statute.
(q) Compliance with Law. Such Seller Party has complied in all
respects with all applicable laws, rules, regulations, orders, writs, judgments,
injunctions, decrees or awards to which it may be subject, except where the
failure to so comply could not reasonably be expected to have a Material Adverse
Effect. Each Receivable, together with any Writing or Contract related thereto,
does not contravene any laws, rules or regulations applicable thereto
(including, without limitation, laws, rules and regulations relating to truth in
lending, fair credit billing, fair credit reporting, equal credit opportunity,
fair debt collection practices and privacy), and no part of such Writing or
Contract is in violation of any such law, rule or regulation.
(r) Compliance with Credit and Collection Policies. Such
Seller Party has complied in all material respects with its Credit and
Collection Policy with regard to each Receivab