DF-06.30.2014-10Q
Table of Contents

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


Table of Contents

Table of Contents
 
 
 
 
Page
 
 
 
 
Item 1

Item 2

Item 3

Item 4

 
 
 
 
 
 
 
 
Item 1

Item 1A

Item 2

Item 6

 
 
 
 
 
 


2

Table of Contents

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

 
$
16,762

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

 
752,234

Income tax receivable
79,881

 
15,915

Inventories
269,803

 
262,858

Deferred income taxes
43,483

 
60,143

Prepaid expenses and other current assets
40,150

 
42,786

Total current assets
1,212,002

 
1,150,698

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

 
1,216,047

Goodwill
86,841

 
86,841

Identifiable intangible and other assets, net
295,965

 
312,836

Deferred income taxes
24,660

 
35,623

Total
$
2,803,322

 
$
2,802,045

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

 
$
761,288

Current portion of debt
698

 
698

Current portion of litigation settlements
18,605

 
19,101

Total current liabilities
757,476

 
781,087

Long-term debt
985,641

 
896,564

Deferred income taxes
126,615

 
100,691

Other long-term liabilities
242,069

 
273,314

Long-term litigation settlements
16,519

 
36,074

Commitments and contingencies (Note 12)

 

Stockholders’ equity:
 
 
 
Preferred stock, none issued

 

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

 
948

Additional paid-in capital
759,621

 
791,276

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

 
714,315

Total
$
2,803,322

 
$
2,802,045


See Notes to Condensed Consolidated Financial Statements.


3

Table of Contents

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

 
$
2,227,542

 
$
4,734,909

 
$
4,519,972

Cost of sales
1,994,781

 
1,755,242

 
3,919,646

 
3,552,440

Gross profit
399,088

 
472,300

 
815,263

 
967,532

Operating costs and expenses:
 
 
 
 
 
 
 
Selling and distribution
334,932

 
331,678

 
674,311

 
671,675

General and administrative
70,777

 
86,388

 
143,076

 
171,352

Amortization of intangibles
717

 
925

 
1,461

 
1,875

Facility closing and reorganization costs
728

 
4,939

 
1,705

 
10,549

Litigation settlements

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

 
3,604

 

 
37,519

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

 
(4,535
)
 
2,209

Total operating costs and expenses
402,619

 
428,724

 
813,497

 
894,160

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

 
1,766

 
73,372

Other (income) expense:
 
 
 
 
 
 
 
Interest expense
15,221

 
90,122

 
30,244

 
149,771

Other (income) expense, net
48

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

 
89,594

 
29,971

 
149,408

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

 
(21,761
)
 

 
2,891

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

 
(65
)
 
1,154

 
491,820

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

Net loss attributable to non-controlling interest in discontinued operations

 
(2,987
)
 

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

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

 
93,417,417

 
93,977,672

 
93,215,130

Diluted
93,561,305

 
93,417,417

 
93,977,672

 
93,215,130

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

 
(0.27
)
 
0.01

 
5.24

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

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

 
(0.27
)
 
0.01

 
5.24

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

Cash dividends declared per common share
$
0.07

 
$

 
$
0.14

 
$


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

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Table of Contents

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

Other comprehensive income (loss):
 
 
 
 
 
 
 
Cumulative translation adjustments
166

 
4,533

 
721

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

 
(85
)
 
58,156

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

 
2,088

 
1,537

 
4,939

Unrealized gain on available-for-sale securities

 
385,552

 

 
385,552

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

 

 
(220
)
 

Other comprehensive income
929

 
429,870

 
1,953

 
438,130

Comprehensive income (loss)
284

 
375,987

 
(7,648
)
 
880,044

Comprehensive income attributable to non-controlling interest

 
3,649

 

 
4,795

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

 
$
372,338

 
$
(7,648
)
 
$
875,249


See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

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

 
$
948

 
$
791,276

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

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

 
7

 
4,170

 

 

 
4,177

Share-based compensation expense

 

 
2,247

 

 

 
2,247

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

 

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

 

 
(13,089
)
Net loss

 

 

 
(9,601
)
 

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

 

 

 

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

 

 

 

 
(220
)
 
(220
)
Cumulative translation adjustment

 

 

 

 
721

 
721

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

 

 

 

 
1,537

 
1,537

Balance, June 30, 2014
93,756,901

 
$
938

 
$
759,621

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

 

See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

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

 
$
928

 
$
1,376,740

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

 
$
459,628

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

 
10

 
4,587

 

 

 

 
4,597

Share-based compensation expense

 

 
8,541

 

 

 

 
8,541

Share-based compensation expense for subsidiary shares

 

 

 

 

 
7,733

 
7,733

Net income attributable to non-controlling interest

 

 

 

 

 
6,179

 
6,179

Net income attributable to Dean Foods Company

 

 

 
435,735

 

 

 
435,735

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

 

 

 

 
(154
)
 
10

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

 

 

 

 
58,300

 

 
58,300

Cumulative translation adjustment

 

 

 

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

 

 

 

 
4,935

 
4

 
4,939

Unrealized gain on available-for-sale securities

 

 

 

 
385,552

 

 
385,552

Spin-Off of The WhiteWave Foods Company

 

 
(617,082
)
 

 
33,025

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

 
$
938

 
$
772,786

 
$
(398,162
)
 
$
285,955

 
$

 
$
661,517

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


7

Table of Contents

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

Income from discontinued operations, net of tax

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

 
89,387

Share-based compensation expense
5,250

 
13,594

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

 
37,519

Write-off of financing costs

 
1,426

Recognition of accumulated losses from de-designated cash flow hedges

 
63,454

Deferred income taxes
51,197

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

Other, net
1,834

 
285

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

 
41,829

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

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

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

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

 
14,174

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

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

 
4,271

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

 
1,403,494

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

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

 
510,750

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

 
388,000

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

Cash dividends paid
(13,089
)
 

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

 
8,785

Tax savings on share-based compensation
284

 
172

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

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

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

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

 
1,306

Cash and cash equivalents, beginning of period
16,762

 
24,657

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

 
$
25,963

See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

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

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

 
$

 
$
354,085

 
$
940,431

 
$
5,919

 
$
946,350

Income before income taxes
19,976

 
(500
)
 
19,476

 
57,126

 
109

 
57,235

Income tax
(41,431
)
 
194

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

 
$
71

 
$
2,891

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

 
$
12,464

Morningstar
300

 
300

Total
$
9,310

 
$
12,764


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

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

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

 
$
103,023

Finished goods
164,960

 
159,835

Total
$
269,803

 
$
262,858

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

 
$

 
$
221,681

 
$
221,681

 
$

 
$
221,681

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

 
(29,864
)
 
19,361

 
49,225

 
(28,575
)
 
20,650

Trademarks
8,096

 
(5,175
)
 
2,921

 
8,096

 
(5,002
)
 
3,094

Total
$
279,002

 
$
(35,039
)
 
$
243,963

 
$
279,002

 
$
(33,577
)
 
$
245,425


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

2015
2.9

2016
2.8

2017
2.2

2018
2.0


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

 
1.66
%*
 
$
50,250

 
1.67
%*
Senior notes due 2016
475,697

 
7.00
 
 
475,579

 
7.00
 
Senior notes due 2018
23,812

 
9.75
 
 
23,812

 
9.75
 
 
551,019

 
 
 
 
549,641

 
 
 
Subsidiary debt obligations:
 
 
 
 
 
 
 
 
 
Senior notes due 2017
133,837

 
6.90
 
 
132,808

 
6.90
 
Receivables-backed facility
300,000

 
0.99
 
 
213,000

 
1.19
 
Capital lease and other
1,483

 
 
 
1,813

 
 
 
435,320

 
 
 
 
347,621

 
 
 
 
986,339

 
 
 
 
897,262

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

 
 
 
 
$
896,564

 
 
 

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

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

2015
656

2016
476,686

2017
442,000

2018
75,322

Thereafter

Subtotal
994,993

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


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

12

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

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

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

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Table of Contents

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

 
$
7,675

 
$
11,394

 
$

 
$
59,764

Receivables, net
2,053

 
69,643

 
647,225

 

 
718,921

Income tax receivable
71,922

 
7,959

 

 

 
79,881

Inventories

 
269,803

 

 

 
269,803

Intercompany receivables

 
5,776,395

 

 
(5,776,395
)
 

Other current assets
(2,430
)
 
85,809

 
254

 

 
83,633

Total current assets
112,240

 
6,217,284

 
658,873

 
(5,776,395
)
 
1,212,002

Property, plant and equipment, net

 
1,183,812

 
42

 

 
1,183,854

Goodwill

 
86,841

 

 

 
86,841

Identifiable intangible and other assets, net
69,861

 
250,771

 
(7
)
 

 
320,625

Investment in subsidiaries
6,642,069

 
52,258

 

 
(6,694,327
)
 

Total
$
6,824,170

 
$
7,790,966

 
$
658,908

 
$
(12,470,722
)
 
$
2,803,322

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

 
$
699,095

 
$
122

 
$
103

 
$
738,173

Intercompany payables
5,470,194

 

 
306,304

 
(5,776,498
)
 

Current portion of debt

 
698

 

 

 
698

Current portion of litigation settlements
18,605

 

 

 

 
18,605

Total current liabilities
5,527,652

 
699,793

 
306,426

 
(5,776,395
)
 
757,476

Long-term debt
551,018

 
134,623

 
300,000

 

 
985,641

Other long-term liabilities
53,979

 
314,481

 
224

 

 
368,684

Long-term litigation settlements
16,519

 

 

 

 
16,519

Total stockholders’ equity
675,002

 
6,642,069

 
52,258

 
(6,694,327
)
 
675,002

Total
$
6,824,170

 
$
7,790,966

 
$
658,908

 
$
(12,470,722
)
 
$
2,803,322


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Table of Contents

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

 
$
11,618

 
$

 
$
16,762

Receivables, net
1,932

 
72,660

 
677,642

 

 
752,234

Income tax receivable
10,374

 
5,541

 

 

 
15,915

Inventories

 
262,858

 

 

 
262,858

Intercompany receivables

 
5,728,284

 
(1
)
 
(5,728,283
)
 

Other current assets
6,944

 
95,927

 
58

 

 
102,929

Total current assets
6,961

 
6,182,703

 
689,317

 
(5,728,283
)
 
1,150,698

Property, plant and equipment, net

 
1,215,888

 
159

 

 
1,216,047

Goodwill

 
86,841

 

 

 
86,841

Identifiable intangible and other assets, net
90,269

 
258,109

 
81

 

 
348,459

Investment in subsidiaries
6,633,000

 
72,345

 

 
(6,705,345
)
 

Total
$
6,730,230

 
$
7,815,886

 
$
689,557

 
$
(12,433,628
)
 
$
2,802,045

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

 
$
713,625

 
$
554

 
$
(175
)
 
$
761,288

Intercompany payables
5,304,051

 

 
424,057

 
(5,728,108
)
 

Current portion of debt

 
698

 

 

 
698

Current portion of litigation settlements
19,101

 

 

 

 
19,101

Total current liabilities
5,370,436

 
714,323

 
424,611

 
(5,728,283
)
 
781,087

Long-term debt
549,641

 
133,923

 
213,000

 

 
896,564

Other long-term liabilities
59,764

 
314,149

 
92

 

 
374,005

Long-term litigation settlements
36,074

 

 

 

 
36,074

Total stockholders’ equity
714,315

 
6,653,491

 
51,854

 
(6,705,345
)
 
714,315

Total
$
6,730,230

 
$
7,815,886

 
$
689,557

 
$
(12,433,628
)
 
$
2,802,045


16

Table of Contents

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

 
$
2,389,910

 
$
3,959

 
$

 
$
2,393,869

Cost of sales

 
1,991,705

 
3,076

 

 
1,994,781

Gross profit

 
398,205

 
883

 

 
399,088

Selling and distribution

 
334,540

 
392

 

 
334,932

General and administrative
785

 
69,567

 
425

 

 
70,777

Amortization of intangibles

 
717

 

 

 
717

Facility closing and reorganization costs

 
728

 

 

 
728

Other operating income

 
(4,535
)
 

 

 
(4,535
)
Interest expense
11,206

 
3,058

 
957

 

 
15,221

Other (income) expense, net
(900
)
 
988

 
(40
)
 

 
48

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

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

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

 
(502
)
 

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

 
(594
)
 

 
(5,445
)
 

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

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

 
(61
)
 
377

 

 
318

Net income (loss)
(646
)
 
5,571

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

 
40

 
165

 

 
929

Comprehensive income
$
78

 
$
5,611

 
$
40

 
$
(5,445
)
 
$
284




17

Table of Contents

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

 
$
2,223,253

 
$
4,289

 
$

 
$
2,227,542

Cost of sales

 
1,752,214

 
3,028

 

 
1,755,242

Gross profit

 
471,039

 
1,261

 

 
472,300

Selling and distribution

 
331,159

 
519

 

 
331,678

General and administrative
(362
)
 
86,357

 
393

 

 
86,388

Amortization of intangibles

 
925

 

 

 
925

Facility closing and reorganization costs

 
4,939

 

 

 
4,939

Litigation settlements
(1,019
)
 

 

 

 
(1,019
)
Impairment of long-lived assets

 
3,604

 

 

 
3,604

Other Operating Income

 
2,209

 

 

 
2,209

Interest expense
86,124

 
3,016

 
982

 

 
90,122

Other (income) expense, net
400

 
(536
)
 
(392
)
 

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

 
(241
)
 

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

 
(109
)
 

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

 
(132
)
 

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

 

 
1,405

 

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

 
(132
)
 
1,405

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

 

 
(21,761
)
 

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

 
(63
)
 
(2
)
 

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

 
(21,895
)
 
1,405

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

 

 
(2,987
)
 

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

 
(24,882
)
 
1,405

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

 
152

 
3,844

 

 
429,208

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

 
$
23,629

 
$
(21,038
)
 
$
1,405

 
$
372,338


18

Table of Contents

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

 
$
4,727,964

 
$
6,945

 
$

 
$
4,734,909

Cost of sales

 
3,914,178

 
5,468

 

 
3,919,646

Gross profit

 
813,786

 
1,477

 

 
815,263

Selling and distribution

 
673,619

 
692

 

 
674,311

General and administrative
618

 
141,434

 
1,024

 

 
143,076

Amortization of intangibles

 
1,461

 

 

 
1,461

Facility closing and reorganization costs

 
1,705

 

 

 
1,705

Litigation settlements
(2,521
)
 

 

 

 
(2,521
)
Other operating income

 
(4,535
)
 

 

 
(4,535
)
Interest expense
21,811

 
6,040

 
2,393

 

 
30,244

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

 
(830
)
 

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

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

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

 
(1,318
)
 

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

 
(1,410
)
 

 
(2,133
)
 

Income (loss) from continuing operations
(10,440
)
 
3,136

 
(1,318
)
 
(2,133
)
 
(10,755
)
Gain (loss) on sale of discontinued operations, net of tax
838

 
(61
)
 
377

 

 
1,154

Net income (loss)
(9,602
)
 
3,075

 
(941
)
 
(2,133
)
 
(9,601
)
Other comprehensive income, net of tax
1,146

 
87

 
720

 

 
1,953

Comprehensive income (loss)
$
(8,456
)
 
$
3,162

 
$
(221
)
 
$
(2,133
)
 
$
(7,648
)


19

Table of Contents

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

 
$
4,512,425

 
$
7,547

 
$

 
$
4,519,972

Cost of sales

 
3,547,108

 
5,332

 

 
3,552,440

Gross profit

 
965,317

 
2,215

 

 
967,532

Selling and distribution

 
670,893

 
782

 

 
671,675

General and administrative
(365
)
 
170,837

 
880

 

 
171,352

Amortization of intangibles

 
1,875

 

 

 
1,875

Facility closing and reorganization costs

 
10,549

 

 

 
10,549

Litigation settlements
(1,019
)
 

 

 

 
(1,019
)
Impairment of long-lived assets

 
34,105

 
3,414

 

 
37,519

Other operating income

 
2,209

 

 

 
2,209

Interest expense
141,816

 
5,901

 
2,054

 

 
149,771

Other (income) expense, net
400

 
(174
)
 
(589
)
 

 
(363
)
Income (loss) from continuing operations before income taxes and equity in earnings (loss) of subsidiaries
(140,832
)
 
69,122

 
(4,326
)
 

 
(76,036
)
Income tax expense (benefit)
(50,284
)
 
28,818

 
(1,773
)
 

 
(23,239
)
Income (loss) before equity in earnings (loss) of subsidiaries
(90,548
)
 
40,304

 
(2,553
)
 

 
(52,797
)
Equity in earnings (loss) of consolidated subsidiaries
526,283

 
(2,249
)
 

 
(524,034
)
 

Income (loss) from continuing operations
435,735

 
38,055

 
(2,553
)
 
(524,034
)
 
(52,797
)
Income from discontinued operations, net of tax

 

 
2,891

 

 
2,891

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

 
491,825

 
(5
)
 

 
491,820

Net income
435,735

 
529,880

 
333

 
(524,034
)
 
441,914

Net loss attributable to non-controlling interest in discontinued operations

 

 
(6,179
)
 

 
(6,179
)
Net income (loss) attributable to Dean Foods Company
435,735

 
529,880

 
(5,846
)
 
(524,034
)
 
435,735

Other comprehensive income (loss), net of tax, attributable to Dean Foods Company
447,267

 
293

 
(8,046
)
 

 
439,514

Comprehensive income (loss) attributable to Dean Foods Company
$
883,002

 
$
530,173

 
$
(13,892
)
 
$
(524,034
)
 
$
875,249



20

Table of Contents

 
Unaudited Condensed Consolidating Statement of Cash Flows for the Six Months Ended June 30, 2014
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Consolidated
Totals
 
(In thousands)
Cash flows from operating activities:
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
(74,851
)
 
$
70,368

 
$
29,751

 
$
25,268

Cash flows from investing activities:
 
 
 
 
 
 
 
Payments for property, plant and equipment

 
(53,622
)
 

 
(53,622
)
Proceeds from sale of fixed assets

 
17,556

 

 
17,556

Net cash used in investing activities

 
(36,066
)
 

 
(36,066
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Repayments of debt

 
(329
)
 

 
(329
)
Proceeds from senior secured revolver
1,317,194

 

 

 
1,317,194

Payments for senior secured revolver
(1,315,935
)
 

 

 
(1,315,935
)
Proceeds from receivables-backed facility

 

 
1,281,000

 
1,281,000

Payments for receivables-backed facility

 

 
(1,194,000
)
 
(1,194,000
)
Common stock repurchase
(25,000
)
 

 

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

 

 
(13,089
)
Payments of deferred financing costs
(414
)
 

 
(693
)
 
(1,107
)
Issuance of common stock, net of share repurchases
4,953

 

 

 
4,953

Tax savings on share-based compensation
284

 

 

 
284

Intercompany
159,842

 
(43,731
)
 
(116,111
)
 

Net cash provided by (used in) financing activities
127,835

 
(44,060
)
 
(29,804
)
 
53,971

Effect of exchange rate changes on cash and cash equivalents

 

 
(171
)
 
(171
)
Increase (decrease) in cash and cash equivalents
52,984

 
(9,758
)
 
(224
)
 
43,002

Cash and cash equivalents, beginning of period
(12,289
)
 
17,433

 
11,618

 
16,762

Cash and cash equivalents, end of period
$
40,695

 
$
7,675

 
$
11,394

 
$
59,764


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Table of Contents


 
Unaudited Condensed Consolidating Statement of Cash Flows for the Six Months Ended June 30, 2013
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidated
Totals
 
(In thousands)
Cash flows from operating activities:
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities— continuing operations
$
(283,865
)
 
$
(58,127
)
 
$
96,904

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

 

 
14,174

 
14,174

Net cash provided by (used in) operating activities
(283,865
)
 
(58,127
)
 
111,078

 
(230,914
)
Cash flows from investing activities:
 
 
 
 
 
 
 
Payments for property, plant and equipment
(40
)
 
(48,952
)
 

 
(48,992
)
Proceeds from sale of fixed assets

 
4,271

 

 
4,271

Net cash used in investing activities— continuing operations
(40
)
 
(44,681
)
 

 
(44,721
)
Net cash provided by (used in) investing activities — discontinued operations
1,441,322

 

 
(37,828
)
 
1,403,494

Net cash provided by (used in) investing activities
1,441,282

 
(44,681
)
 
(37,828
)
 
1,358,773

Cash flows from financing activities:


 
 
 
 
 
 
Repayments of debt
(1,027,196
)
 

 

 
(1,027,196
)
Proceeds from senior secured revolver
510,750

 

 

 
510,750

Payments for senior secured revolver
(658,750
)
 

 

 
(658,750
)
Proceeds from receivables-backed facility

 

 
388,000

 
388,000

Payments for receivables-backed facility

 

 
(296,000
)
 
(296,000
)
Payment of financing costs
(575
)
 

 

 
(575
)
Issuance of common stock, net of share repurchases for withholding taxes
8,785

 

 

 
8,785

Tax savings on share-based compensation
172

 

 

 
172

Net change in intercompany balances
2,276

 
110,964

 
(113,240
)
 

Net cash provided by (used in) financing activities— continuing operations
(1,164,538
)
 
110,964

 
(21,240
)
 
(1,074,814
)
Net cash used in financing activities — discontinued operations

 

 
(51,584
)
 
(51,584
)
Net cash provided by (used in) financing activities
(1,164,538
)
 
110,964

 
(72,824
)
 
(1,126,398
)
Effect of exchange rate changes on cash and cash equivalents

 

 
(155
)
 
(155
)
Increase (decrease) in cash and cash equivalents
(7,121
)
 
8,156

 
271

 
1,306

Cash and cash equivalents, beginning of period
15,242

 

 
9,415

 
24,657

Cash and cash equivalents, end of period
$
8,121

 
$
8,156

 
$
9,686

 
$
25,963




22

Table of Contents

6. Derivative Financial Instruments and Fair Value Measurements
Derivative Financial Instruments
Commodities — We are exposed to commodity price fluctuations, including milk, butterfat, sweeteners and other commodity costs used in the manufacturing, packaging and distribution of our products, such as natural gas, resin and diesel fuel. To secure adequate supplies of materials and bring greater stability to the cost of ingredients and their related manufacturing, packaging and distribution, we routinely enter into forward purchase contracts and other purchase arrangements with suppliers. Under the forward purchase contracts, we commit to purchasing agreed-upon quantities of ingredients and commodities at agreed-upon prices at specified future dates. The outstanding purchase commitment for these commodities at any point in time typically ranges from one month’s to one year’s anticipated requirements, depending on the ingredient or commodity. These contracts are considered normal purchases.
In addition to entering into forward purchase contracts, from time to time we may purchase over-the-counter contracts from our qualified banking partners or enter into exchange-traded commodity futures contracts for raw materials that are ingredients of our products or components of such ingredients. Effective January 1, 2014, we have de-designated all open commodity derivative positions that were previously designated as cash flow hedges. During the first quarter of 2014, we reclassified $0.2 million, net of tax, of hedging activity related to these commodities contracts from accumulated other comprehensive income into operating income. As of the de-designation date, all commodities contracts are now marked to market in our income statement at each reporting period and a derivative asset or liability is recorded on our balance sheet.
Although we may utilize forward purchase contracts and other instruments to mitigate the risks related to commodity price fluctuation, such strategies do not fully mitigate commodity price risk. Adverse movements in commodity prices over the terms of the contracts or instruments could decrease the economic benefits we derive from these strategies.
At June 30, 2014 and December 31, 2013, our derivatives recorded at fair value in our unaudited Condensed Consolidated Balance Sheets consisted of the following:
 
Derivative Assets
 
Derivative Liabilities
 
June 30, 2014
 
December 31, 2013
 
June 30, 2014
 
December 31, 2013
 
(In thousands)
Derivatives Designated as Hedging Instruments
 
 
 
 
 
 
 
Commodities contracts — current(1)
$

 
$
714

 
$

 
$
204

Derivatives not Designated as Hedging Instruments
 
 
 
 
 
 
 
Commodities contracts — current(1)
600

 
255

 
132

 
114

Total derivatives
$
600

 
$
969

 
$
132

 
$
318

(1)
Derivative assets and liabilities that have settlement dates equal to or less than 12 months from the respective balance sheet date are included in other current assets and accounts payable and accrued expenses, respectively, in our unaudited Condensed Consolidated Balance Sheets.

Gains and losses on derivatives designated as cash flow hedges were reclassified from accumulated other comprehensive income to operating income for the three and six months ended June 30, 2013 as follows (in thousands):
 
Three Months Ended June 30, 2013
 
Six Months Ended June 30, 2013
Losses on interest rate swap contracts(1)
$
63,424

 
$
94,832

(Gains) losses on commodities contracts(2)
(66
)
 
255

Gains on foreign currency contracts(3)

 
(78
)
(1)
Recorded in interest expense in our unaudited Condensed Consolidated Statements of Operations.
(2)
Recorded in distribution expense or cost of sales, depending on commodity type, in our unaudited Condensed Consolidated Statements of Operations.
(3)
Recorded in cost of sales in our unaudited Condensed Consolidated Statements of Operations.
There was no material hedge ineffectiveness related to our commodities contracts designated as hedging instruments in the three and six months ended June 30, 2013.

23

Table of Contents

Interest Rates - We have historically entered into interest rate swap agreements that were designated as cash flow hedges against variable interest rate exposure on a portion of our debt, with the objective of minimizing the impact of interest rate fluctuations and stabilizing cash flows. These swap agreements provided hedges for interest on our senior secured credit facility by fixing the LIBOR component of interest rates specified in our prior credit facility at the interest rates specified in the interest rate swap agreements until the indicated expiration dates of these interest rate swap agreements. For the reasons described below, as of June 30, 2013, we no longer have any interest rate swaps outstanding.
As disclosed in Note 2, in January 2013, we completed the sale of Morningstar and used a portion of the proceeds to repay debt. As a result of these repayments, we determined that we no longer had sufficient levels of variable rate debt to support the $1 billion aggregate notional amount of interest rate hedges. Accordingly, in the first quarter of 2013, we terminated these interest rate swaps, and upon termination, we paid the counterparties $28.0 million based on the fair value of the swaps on that date. As we have determined that the forecasted transactions hedged by these swaps were no longer probable, we reclassified total losses of $28.1 million ($17.3 million, net of tax) previously recorded in accumulated other comprehensive income to interest expense during the six months ended June 30, 2013.
In connection with the WhiteWave IPO discussed in Note 2, in the fourth quarter of 2012, we novated certain of our then-outstanding interest rate swaps to WhiteWave. WhiteWave became the sole counterparty to the financial institutions under these swap agreements, and is directly responsible for any required future settlements, and the sole beneficiary of any future receipts of funds, pursuant to the terms of these swaps.
As of the novation date, these swaps were de-designated and subsequent changes in fair value were reflected in our unaudited Condensed Consolidated Statements of Operations, with a non-controlling interest adjustment for the 13.3% economic interest in WhiteWave that we did not own. Upon completion of the WhiteWave spin-off on May 23, 2013, we determined that the underlying hedged forecasted transactions related to these swaps were no longer probable; therefore, during the three months ended June 30, 2013, we reclassified total losses of $63.4 million ($38.9 million, net of tax) previously recorded in accumulated other comprehensive income associated with the swaps to earnings. This non-cash charge was recorded as a component of interest expense in our unaudited Condensed Consolidated Statements of Operations. See Note 9.

Fair Value Measurements
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering assumptions, we follow a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 — Quoted prices for identical instruments in active markets.
Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets.
Level 3 — Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

24

Table of Contents

A summary of our derivative assets and liabilities measured at fair value on a recurring basis as of June 30, 2014 is as follows (in thousands):
 
Fair Value as of June 30, 2014
 
Level 1
 
Level 2
 
Level 3
Asset — Commodities contracts
$
600

 
$

 
$
600

 
$

Liability — Commodities contracts
132

 

 
132

 

A summary of our derivative assets and liabilities measured at fair value on a recurring basis as of December 31, 2013 is as follows (in thousands):
 
Fair Value as of December 31, 2013
 
Level 1
 
Level 2
 
Level 3
Asset — Commodities contracts
$
969

 
$

 
$
969

 
$

Liability — Commodities contracts
318

 

 
318

 


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 secured credit facility, receivables-backed facility, and certain other debt are variable, their fair values approximate their carrying values.
The fair values of our Dean Foods Company senior notes and subsidiary senior notes were determined based on quoted market prices obtained through an external pricing source which derives its price valuations from daily marketplace transactions, with adjustments to reflect the spreads of benchmark bonds, credit risk and certain other variables. We have determined these fair values to be Level 2 measurements as all significant inputs into the quotes provided by our pricing source are observable in active markets. The following table presents the carrying values and fair values of our senior and subsidiary senior notes at June 30, 2014 and December 31, 2013:
 
June 30, 2014
 
December 31, 2013
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
(In thousands)
Subsidiary senior notes due 2017
$
133,837

 
$
155,845

 
$
132,808

 
$
153,005

Dean Foods Company senior notes due 2016
475,697

 
522,616

 
475,579

 
527,378

Dean Foods Company senior notes due 2018
23,812

 
26,253

 
23,812

 
26,908

Additionally, we maintain a Supplemental Executive Retirement Plan (“SERP”), which is a nonqualified deferred compensation arrangement for our executive officers and other employees earning compensation in excess of the maximum compensation that can be taken into account with respect to our 401(k) plan. The SERP is designed to provide these employees with retirement benefits from us that are equivalent, as a percentage of total compensation, to the benefits provided to other employees. The assets related to this plan are primarily invested in money market and mutual funds and are held at fair value. We classify these assets as Level 2 as fair value can be corroborated based on quoted market prices for identical or similar instruments in markets that are not active. The following table presents a summary of the SERP assets measured at fair value on a recurring basis as of June 30, 2014 (in thousands):
 
Total
 
Level 1
 
Level 2
 
Level 3
Money market
$
3

 
$

 
$
3

 
$

Mutual funds
2,187

 

 
2,187

 


The following table presents a summary of the SERP assets measured at fair value on a recurring basis as of December 31, 2013 (in thousands):
 
Total
 
Level 1
 
Level 2
 
Level 3
Money market
$
5

 
$

 
$
5

 
$

Mutual funds
2,103

 

 
2,103

 


25

Table of Contents

7. Common Stock and Share-Based Compensation
Adoption of Cash Dividend Policy — In November 2013, we announced that our Board of Directors had adopted a cash dividend policy. Under the policy, holders of our common stock will receive dividends when and as declared by our Board of Directors. Pursuant to the policy, we expect to pay quarterly dividends with an initial quarterly dividend rate of $0.07 per share ($0.28 per share annually). Quarterly dividends of $0.07 per share were paid in March and June of 2014. Our cash dividend policy is subject to modification, suspension or cancellation at any time.
Stock Repurchase Program — Since 1998, our Board of Directors has from time to time authorized the repurchase of our common stock up to an aggregate of $2.38 billion, excluding fees and commissions. We made no share repurchases during the three months ended June 30, 2014 and we repurchased 1,727,275 shares during the six months ended June 30, 2014. We made no share repurchases during the three months or six months ended June 30, 2013. As of June 30, 2014, $275.0 million was available for repurchases under this program (excluding fees and commissions). Our management is authorized to purchase shares from time to time through open market transactions at prevailing prices or in privately negotiated transactions, subject to market conditions and other factors. Shares, when repurchased, are retired.
Stock Options — The following table summarizes stock option activity during the first six months of 2014:
 
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value
Options outstanding at January 1, 2014
5,055,035

 
$
19.35

 
 
 
 
Granted

 

 
 
 
 
Forfeited and canceled
(401,734
)
 
21.34

 
 
 
 
Exercised
(449,363
)
 
14.73

 
 
 
 
Options outstanding at June 30, 2014
4,203,938

 
$
19.65

 
3.48
 
$
5,809,572

Options exercisable at June 30, 2014
4,072,329

 
$
19.94

 
3.35
 
$
4,915,061

 
We recognize share-based compensation expense for stock options ratably over the vesting period. The fair value of each option award is estimated on the date of grant using a Black-Scholes valuation model. During each of the six months ended June 30, 2014 and 2013, there were no stock options granted.

Restricted Stock Units — The following table summarizes RSU activity during the first six months of 2014:
 
Employees
 
Directors (2)
 
Total
Stock units outstanding at January 1, 2014
680,017

 
96,273

 
776,290

Stock units issued
315,168

 
59,367

 
374,535

Shares issued upon vesting of stock units
(181,570
)
 
(42,281
)
 
(223,851
)
Stock units canceled or forfeited(1)
(76,286
)
 
(780
)
 
(77,066
)
Stock units outstanding at June 30, 2014
737,329

 
112,579

 
849,908

Weighted average grant date fair value
$
14.55

 
$
13.75

 
$
14.45


(1)
Pursuant to the terms of our stock unit plans, employees have the option of forfeiting stock units to cover their minimum statutory tax withholding when shares are issued. Any stock units surrendered or canceled in satisfaction of participants’ tax withholding obligations are not available for future grants under the plans.
(2)
Directors' stock units are RSU(s), which participate in declared dividends.
Phantom Shares — We grant phantom shares as part of our long-term incentive compensation program, which are similar to RSUs in that they are based on the price of our stock and vest ratably over a three-year period, but are cash-settled based upon the value of our stock at each vesting period. The fair value of the awards is remeasured at each reporting period. Compensation expense is recognized over the vesting period with a corresponding liability, which is recorded in accounts payable and accrued expenses in our unaudited Condensed Consolidated Balance Sheets. The following table summarizes the phantom share activity during the first six months of 2014:

26

Table of Contents

 
Shares
 
Weighted Average Grant Date Fair Value
Outstanding at January 1, 2014
1,111,059

 
$
17.72

Granted
573,325

 
14.23

Converted/paid
(536,575
)
 
17.69

Forfeited
(70,540
)
 
17.09

Outstanding at June 30, 2014
1,077,269

 
$
15.92



Share-Based Compensation Expense — The following table summarizes the share-based compensation expense recognized during the three and six months ended June 30, 2014 and 2013:
 
Three Months Ended June 30
 
Six Months Ended June 30
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Stock Options
$
118

 
$
5,523

 
$
263

 
$
5,930

Stock Units
1,179

 
1,254

 
2,387

 
2,543

Phantom Shares
2,258

 
3,506

 
2,600

 
5,121

Total
$
3,555

(1)
$
10,283

 
$
5,250

(1)
$
13,594


(1)
Share-based compensation expense for the three and six months ended June 30, 2013 included an adjustment of $5.7 million related to the equity modification of share-based compensation pursuant to the WhiteWave spin-off.

Stock options, phantom shares and stock units held by employees do not currently participate in any dividends and accordingly, no expense attributed to dividends has been recorded.

8. Earnings (Loss) Per Share
Basic earnings (loss) per share (“EPS”) is based on the weighted average number of common shares outstanding during each period. Diluted EPS is based on the weighted average number of common shares outstanding and the effect of all dilutive common stock equivalents outstanding during each period. Stock option conversions and stock units were not included in the computation of diluted loss per share for each of the six months ended June 30, 2014 and 2013, as we incurred a loss from continuing operations for these periods and any effect on loss per share would have been anti-dilutive. The following table reconciles the numerators and denominators used in the computations of both basic and diluted EPS:

27

Table of Contents

 
Three Months Ended June 30
 
Six Months Ended June 30
 
2014
 
2013(1)
 
2014
 
2013(1)
 
(In thousands, except share data)
Basic loss per share computation:
 
 
 
Numerator:
 
 
 
Loss from continuing operations
$
(963
)
 
$
(32,057
)
 
$
(10,755
)
 
$
(52,797
)
Denominator:
 
 
 
 
 
 
 
Average common shares
93,561,305

 
93,417,417

 
93,977,672

 
93,215,130

Basic loss per share from continuing operations
$
(0.01
)
 
$
(0.34
)
 
$
(0.11
)
 
$
(0.57
)
Diluted loss per share computation:
 
 
 
Numerator:
 
 
 
Loss from continuing operations
$
(963
)
 
$
(32,057
)
 
$
(10,755
)
 
$
(52,797
)
Denominator:
 
 
 
 
 
 
 
Average common shares — basic
93,561,305

 
93,417,417

 
93,977,672

 
93,215,130

Stock option conversion(2)

 

 

 

Stock units(3)

 

 

 

Average common shares — diluted
93,561,305

 
93,417,417

 
93,977,672

 
93,215,130

Diluted loss per share from continuing operations
$
(0.01
)
 
$
(0.34
)
 
$
(0.11
)
 
$
(0.57
)
(1) All applicable share data and per share amounts have been adjusted retroactively for the 1-for-2 reverse stock split effected on August 26, 2013.
(2) Anti-dilutive common shares excluded
3,649,711

 
6,981,822

 
3,752,341

 
7,283,324

(3) Anti-dilutive stock units excluded
201,976

 
756,537

 
298,959

 
777,579


9. Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) by component, net of tax, during the three months ended June 30, 2014 were as follows (in thousands):
 
Changes in
Cash Flow 
Hedges
 
Pension and 
Other
Postretirement
Benefits Items
 
Foreign 
Currency
Items
 
Total
Balance, March 31, 2014
$
187

 
$
(56,519
)
 
$
166

 
$
(56,166
)
Other comprehensive income (loss) before reclassifications
(69
)
 
1,760

 
166

 
1,857

Amounts reclassified from accumulated other comprehensive income

 
(928
)
(1)

 
(928
)
Net current-period other comprehensive income (loss)
(69
)
 
832

 
166

 
929

Balance, June 30, 2014
$
118

 
$
(55,687
)
 
$
332

 
$
(55,237
)
 
(1)
The accumulated other comprehensive loss reclassification components are related to amortization of unrecognized actuarial losses and prior service costs, both of which are included in the computation of net periodic pension cost. See Note 10.


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The changes in accumulated other comprehensive income (loss) by component, net of tax, during the three months ended June 30, 2013 were as follows (in thousands):
 
Changes in
Cash Flow 
Hedges
 
Pension and 
Other
Postretirement
Benefits Items
 
Unrealized
Gains/Losses  on
Available-For-Sale
Securities
 
Foreign 
Currency
Items
 
Total
 
Non-
controlling
Interest
Balance, March 31, 2013
$
(38,003
)
 
$
(103,001
)
 
$

 
$
(35,273
)
 
$
(176,277
)
 
$
(5,732
)
Other comprehensive income (loss) before reclassifications
(1,126
)
 
4,161

 
385,552

 
3,867

 
392,454

 
668

Amounts reclassified from accumulated other comprehensive income
38,823

(1)
(2,070
)
(2)

 

 
36,753

 
(3
)
Net current-period other comprehensive income
37,697

 
2,091

 
385,552

 
3,867

 
429,207

 
665

Spin-off of WhiteWave Foods
182

 
1,552

 

 
31,291

 
33,025

 
5,067

Balance, June 30, 2013
$
(124
)
 
$
(99,358
)
 
$
385,552

 
$
(115
)
 
$
285,955

 
$


(1)
Upon completion of the WhiteWave spin-off in May 2013, we determined that the underlying hedged forecasted transactions related to the novated swaps were no longer probable; therefore, during the three months ended June 30, 2013, we reclassified total losses of $63.4 million ($38.9 million, net of tax) recorded in accumulated other comprehensive income associated with these swaps to earnings, as a component of interest expense. See Note 6 for further information regarding our interest rate swaps.
(2)
The accumulated other comprehensive loss reclassification components are related to amortization of unrecognized actuarial losses and prior service costs, both of which are included in the computation of net periodic pension cost. See Note 10.

The changes in accumulated other comprehensive income (loss) by component, net of tax, during the six months ended June 30, 2014 were as follows (in thousands):
 
Changes in
Cash Flow 
Hedges
 
Pension and 
Other
Postretirement
Benefits Items
 
Foreign 
Currency
Items
 
Total
Balance, December 31, 2013
$
423

 
$
(57,224
)
 
$
(389
)
 
$
(57,190
)
Other comprehensive income (loss) before reclassifications
(85
)
 
3,392

 
721

 
4,028

Amounts reclassified from accumulated other comprehensive income
(220
)
(1)
(1,855
)
(2)

 
(2,075
)
Net current-period other comprehensive income (loss)
(305
)
 
1,537

 
721

 
1,953

Balance, June 30, 2014
$
118

 
$
(55,687
)
 
$
332

 
$
(55,237
)
 
(1)
The accumulated other comprehensive loss component is related to the hedging activity amount at December 31, 2013 that was reclassified to operating income as we de-designated our cash flow hedges. See Note 6.
(2)
The accumulated other comprehensive loss reclassification components are related to amortization of unrecognized actuarial losses and prior service costs, both of which are included in the computation of net periodic pension cost. See Note 10.

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The changes in accumulated other comprehensive income (loss) by component, net of tax, during the six months ended June 30, 2013 were as follows (in thousands):
 
Changes in
Cash Flow 
Hedges
 
Pension and 
Other
Postretirement
Benefits Items
 
Unrealized Gains/Losses on Available-For-Sale Securities
 
Foreign 
Currency
Items
 
Total
 
Non-
controlling
Interest
Balance, December 31, 2012
$
(58,452
)
 
$
(105,845
)
 
$

 
$
(22,287
)
 
$
(186,584
)
 
$
(3,683
)
Other comprehensive income (loss) before reclassifications
(154
)
 
9,074

 
385,552

 
(9,119
)
 
385,353

 
(1,378
)
Amounts reclassified from accumulated other comprehensive income
58,300

(1)
(4,139
)
(2)

 

 
54,161

 
(6
)
Net current-period other comprehensive income (loss)
58,146

 
4,935

 
385,552

 
(9,119
)
 
439,514

 
(1,384
)
Spin-off of WhiteWave Foods
182

 
1,552

 

 
31,291

 
33,025

 
5,067

Balance, June 30, 2013
$
(124
)
 
$
(99,358
)
 
$
385,552

 
$
(115
)
 
$
285,955

 
$


(1)
In January 2013, we terminated $1 billion aggregate notional amount of interest rate swaps with maturity dates in 2013 and 2016. As a result of these terminations, we reclassified total losses of $28.1 million ($17.3 million net of tax) previously recorded in accumulated other comprehensive income to earnings, as a component of interest expense. Additionally, upon completion of the WhiteWave spin-off in May 2013, we determined that the underlying hedged forecasted transactions related to the novated swaps were no longer probable; therefore, during the three months ended June 30, 2013, we reclassified total losses of $63.4 million ($38.9 million, net of tax) recorded in accumulated other comprehensive income associated with these swaps to earnings, as a component of interest expense. See Note 6 for further information regarding our interest rate swaps.
(2)
The accumulated other comprehensive loss reclassification components are related to amortization of unrecognized actuarial losses and prior service costs, both of which are included in the computation of net periodic pension cost. See Note 10.
10. Employee Retirement and Postretirement Benefits
We sponsor various defined benefit and defined contribution retirement plans, including various employee savings and profit sharing plans, and contribute to various multiemployer pension plans on behalf of our employees. Substantially all full-time union and non-union employees who have completed one or more years of service and have met other requirements pursuant to the plans are eligible to participate in one or more of these plans.
Defined Benefit Plans — The benefits under our defined benefit plans are based on years of service and employee compensation. The following table sets forth the components of net periodic benefit cost for our defined benefit plans during the three and six months ended June 30, 2014 and 2013:
 
Three Months Ended June 30
 
Six Months Ended June 30
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
 
 
 
 
Service cost
$
770

 
$
923

 
$
1,540

 
$
1,846

Interest cost
3,495

 
3,128

 
6,990

 
6,256

Expected return on plan assets
(4,690
)
 
(4,633
)
 
(9,380
)
 
(9,266
)
Amortizations:
 
 
 
 
 
 
 
Unrecognized transition obligation

 

 

 

Prior service cost
197

 
198

 
394

 
396

Unrecognized net loss
1,276

 
3,098

 
2,552

 
6,196

Net periodic benefit cost
$
1,048

 
$
2,714

 
$
2,096

 
$
5,428



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Postretirement Benefits — Certain of our subsidiaries provide health care benefits to certain retirees who are covered under specific group contracts. The following table sets forth the components of net periodic benefit cost for our postretirement benefit plans during the three and six months ended June 30, 2014 and 2013: 
 
Three Months Ended 
 June 30
 
Six Months Ended 
 June 30
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Components of net periodic benefit cost:
 
 
 
 
 
 
 
Service cost
$
206

 
$
204

 
$
412

 
$
408

Interest cost
416

 
306

 
832

 
612

Amortizations:
 
 
 
 
 
 
 
Prior service cost
16

 
6

 
32

 
12

Unrecognized net loss
19

 
75

 
38

 
150

Net periodic benefit cost
$
657

 
$
591

 
$
1,314

 
$
1,182


11. Asset Impairment Charges and Facility Closing and Reorganization Costs
Asset Impairment Charges
We evaluate our long-lived assets for impairment when circumstances indicate that the carrying value may not be recoverable. Indicators of impairment could include, among other factors, significant changes in the business environment or the planned closure of a facility. Considerable management judgment is necessary to evaluate the impact of operating changes and to estimate future cash flows. As a result of certain changes to our business and plans for consolidating our production network, we evaluated the impact that we expect these changes to have on our projected future cash flows as of June 30, 2014.
Testing the assets for recoverability involved developing estimates of future cash flows directly associated with, and that are expected to arise as a direct result of, the use and eventual disposition of the assets. The inputs for the fair value calculations were based on assessment of an individual asset’s alternative use within other production facilities, evaluation of recent market data and historical liquidation sales values for similar assets. As the inputs into these calculations are largely based on management’s judgments and are not generally observable in active markets, we consider such measurements to be Level 3 measurements in the fair value hierarchy. See Note 6.
There was no impairment of our long-lived assets identified for the six months ended June 30, 2014. As of June 30, 2013, the results of our analysis indicated an impairment of our plant, property and equipment of $31.1 million and impairment related to certain intangible assets of approximately $6.4 million. All of these charges were recorded in the impairment of long-lived assets line item in our unaudited Condensed Consolidated Statements of Operations. We can provide no assurance that we will not have impairment charges in future periods as a result of changes in our business environment, operating results or the assumptions and estimates utilized in our impairment tests.
Facility Closing and Reorganization Costs
Approved plans within our multi-year initiatives and related charges are summarized as follows:
 
Three Months Ended June 30
 
Six Months Ended June 30
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Closure of Facilities(1)
$
728

 
$
4,173

 
$
1,705

 
$
5,175

Functional Realignment(2)

 
415

 

 
518

Field and Functional Reorganization (3)

 
351

 

 
4,851

Other

 

 

 
5

Total
$
728

 
$
4,939

 
$
1,705

 
$
10,549


(1)
These charges in 2014 and 2013 primarily relate to facility closures in Riverside, California; Denver, Colorado; Dallas, Texas; Waco, Texas; Springfield, Virginia; Buena Park, California; Evart, Michigan; Bangor, Maine; and Mendon, Massachusetts; as well as other approved closures. We have incurred $39.9 million of charges related to these initiatives to date. We expect to incur additional charges related to these facility closures of approximately $2.8 million, related to contract termination, shutdown and other costs. As we continue the evaluation of our

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supply chain and distribution network, as well as our accelerated cost reduction efforts, it is likely that we will close additional facilities in the future.
(2)
The Functional Realignment initiative was focused on aligning key functions within our legacy Fresh Dairy Direct operations under a single leadership team and permanently removing costs from the organization. We have incurred total charges of approximately $33.1 million under this initiative to date and we do not expect to incur any material future charges related to this plan.
(3)
The Field and Functional Reorganization initiative streamlined the leadership structure and has enabled faster decision-making and created enhanced opportunities to strategically build our business. We have incurred total charges of $11.3 million under this plan to date, all of which are associated with headcount reductions. We do not currently anticipate incurring any material charges under this plan going forward.
Activity with respect to facility closing and reorganization costs during the six months ended June 30, 2014 is summarized below and includes items expensed as incurred:
 
Accrued Charges at December 31, 2013
 
Charges and Adjustments
 
Payments
 
Accrued Charges at June 30, 2014
 
(In thousands)
Cash charges:
 
 
 
 
 
 
 
Workforce reduction costs
$
9,028

 
$
(44
)
 
$
(1,729
)
 
$
7,255

Shutdown costs

 
1,355

 
(1,355
)
 

Lease obligations after shutdown
8,361

 
246

 
(1,032
)
 
7,575

Other

 
207

 
(207
)
 

Subtotal
$
17,389

 
1,764

 
$
(4,323
)
 
$
14,830

Noncash charges:
 
 
 
 
 
 
 
Other, net
 
 
(59
)
 
 
 
 
Total charges
 
 
$
1,705

 
 
 
 
 
12. Commitments and Contingencies
Contingent Obligations Related to Divested Operations — We have divested certain businesses in recent years. In each case, we have retained certain known contingent obligations related to those businesses and/or assumed an obligation to indemnify the purchasers of the businesses for certain unknown contingent liabilities, including environmental liabilities. We believe that we have established adequate reserves, which are immaterial to the unaudited Condensed Consolidated Financial Statements, for potential liabilities and indemnifications related to our divested businesses. Moreover, we do not expect any liability that we may have for these retained liabilities, or any indemnification liability, to materially exceed amounts accrued.
Contingent Obligations Related to Milk Supply Arrangements — In connection with our acquisition of Legacy Dean, we purchased Dairy Farmers of America’s (“DFA”) 33.8% interest in our operations in 2001. In connection with that transaction, we issued a contingent, subordinated promissory note to DFA in the original principal amount of $40 million. The promissory note has a 20-year term and bears interest based on the consumer price index. Interest will not be paid in cash but will be added to the principal amount of the note annually, up to a maximum principal amount of $96 million. We may prepay the note in whole or in part at any time, without penalty. The note will only become payable if we materially breach or terminate one of our related milk supply agreements with DFA without renewal or replacement. Otherwise, the note will expire in 2021, without any obligation to pay any portion of the principal or interest. Payments made under the note, if any, would be expensed as incurred. We have not terminated, and we have not materially breached, any of our milk supply agreements with DFA related to the promissory note. We have previously terminated unrelated supply agreements with respect to several plants that were supplied by DFA. In connection with our goals of accelerated cost control and increased supply chain efficiency, we continue to evaluate our sources of raw milk supply.
Insurance — We use a combination of insurance and self-insurance for a number of risks, including property, workers’ compensation, general liability, automobile liability, product liability and employee health care utilizing high deductibles. Deductibles vary due to insurance market conditions and risk. Liabilities associated with these risks are estimated considering historical claims experience and other actuarial assumptions. Based on current information, we believe that we have established adequate reserves to cover these claims.
Lease and Purchase Obligations — We lease certain property, plant and equipment used in our operations under both capital and operating lease agreements. Such leases, which are primarily for machinery, equipment and vehicles, have lease terms ranging from one to 20 years. We had an immaterial amount of capital lease obligations as of June 30, 2014 and

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December 31, 2013. Certain of the operating lease agreements require the payment of additional rentals for maintenance, along with additional rentals based on miles driven or units produced. Certain leases require us to guarantee a minimum value of the leased asset at the end of the lease. Our maximum exposure under those guarantees is not a material amount.
We have entered into various contracts, in the normal course of business, obligating us to purchase minimum quantities of raw materials used in our production and distribution processes, including conventional raw milk, diesel fuel, sugar and other ingredients that are inputs into our finished products. We enter into these contracts from time to time to ensure a sufficient supply of raw ingredients. In addition, we have contractual obligations to purchase various services that are part of our production process.
Litigation, Investigations and Audits
Tennessee Retailer and Indirect Purchaser Actions
A putative class action antitrust complaint (the “retailer action”) was filed on August 9, 2007 in the United States District Court for the Eastern District of Tennessee. Plaintiffs allege generally that we, either acting alone or in conjunction with others in the milk industry who are also defendants in the retailer action, lessened competition in the Southeastern United States for the sale of processed fluid Grade A milk to retail outlets and other customers, and that the defendants’ conduct also artificially inflated wholesale prices for direct milk purchasers. Defendants’ motion for summary judgment in the retailer action was granted in part and denied in part in August 2010. Defendants filed a motion for reconsideration, renewed their request for summary judgment in September 2010. In March 2012, the Court granted summary judgment in favor of defendants as to all remaining counts and entered judgment in favor of all defendants, including the Company. Plaintiffs appealed the court’s decision in April 2012. Briefing on the appeal was completed in April 2013, and oral argument occurred in July 2013. In January 2014, the appeals court reversed the judgment for the defendants, including the Company, on one of the original five counts in the Tennessee retailer action. In February 2014, the Company requested that the Sixth Circuit Court of Appeals consider its decision en banc; the Sixth Circuit declined to do so. The Company filed a petition to the U.S. Supreme Court for review of the case on August 1, 2014. The Sixth Circuit returned the case to the trial court for further proceedings. The parties have agreed to submit a proposed schedule for further proceedings in the trial court on or before August 29, 2014. The parties have also agreed to defer further proceedings in the trial court until there is a determination by the Supreme Court whether to review the decision of the Court of Appeals.
On June 29, 2009, another putative class action lawsuit was filed in the Eastern District of Tennessee, Greeneville Division, on behalf of indirect purchasers of processed fluid Grade A milk (the “indirect purchaser action”). The allegations in this complaint are similar to those in the retailer action, but primarily involve state law claims. Because the allegations in the indirect purchaser action substantially overlap with the allegations in the retailer action, the Court granted the parties’ joint motion to stay all proceedings in the indirect purchaser action pending the outcome of the summary judgment motions in the retailer action. On August 16, 2012, the indirect purchaser plaintiffs voluntarily dismissed their lawsuit. On January 17, 2013, these same plaintiffs filed a new lawsuit in the Eastern District of Tennessee, Greeneville Division, on behalf of a putative class of indirect purchasers of processed fluid Grade A milk (the “2013 indirect purchaser action”). The allegations are similar to those in the voluntarily dismissed indirect purchaser action, but involve only claims arising under Tennessee law. The Company filed a motion to dismiss on April 30, 2013. On June 14, 2013, the indirect purchaser plaintiffs responded to the Company’s motion to dismiss and filed an amended complaint. On July 1, 2013, the Company filed a motion to dismiss the amended complaint. Briefing on the motion to dismiss was completed on August 15, 2013.
At this time, it is not possible for us to predict the ultimate outcome of these matters.
In addition to the pending legal proceedings set forth above, we are party from time to time to certain claims, litigations, audits and investigations. Potential liabilities associated with these other matters are not expected to have a material adverse impact on our financial position, results of operations or cash flows.
Other
In late 2013, we either settled or entered into settlement negotiations with the vast majority of states in regards to our obligations under state unclaimed property laws, the results of which did not have a material adverse impact on our financial position, results of operations or cash flows.

13. Segment, Geographic and Customers Information
We operate as a single reportable segment in manufacturing, marketing, selling and distributing a wide variety of branded and private label dairy case products. We operate 71 manufacturing facilities geographically located largely based on

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local and regional customer needs and other market factors. We manufacture, market and distribute a wide variety of branded and private label dairy case products, including milk, ice cream, cultured dairy products, creamers, ice cream mix and other dairy products to retailers, distributors, foodservice outlets, educational institutions and governmental entities across the United States. Our products are primarily delivered through what we believe to be one of the most extensive refrigerated direct store delivery (“DSD”) systems in the United States. Our Chief Executive Officer evaluates the performance of our business based on sales and operating income or loss before gains and losses on the sale of businesses, facility closing and reorganization costs, litigation settlements, impairments of long-lived assets and other non-recurring gains and losses.
In connection with the WhiteWave separation in 2013, all segment results herein have been recast and present results on a comparable basis under a single reportable segment.
Geographic Information — Net sales related to our foreign operations comprised less than 1% of our consolidated net sales during the three and six months ended June 30, 2014 and 2013. None of our long-lived assets are associated with our foreign operations.
Significant Customers — Our largest customer accounted for approximately 16% and 18% of our consolidated net sales in the three months ended June 30, 2014 and 2013, respectively, and approximately 17% and 21% of our consolidated net sales in the six months ended June 30, 2014 and 2013, respectively.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are predictions based on our current expectations and our projections about future events, and are not statements of historical fact. Forward-looking statements include statements concerning our business strategy, among other things, including anticipated trends and developments in, and management plans for, our business and the markets in which we operate. In some cases, you can identify these statements by forward-looking words, such as “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “believe,” “forecast,” “foresee,” “likely,” “may,” “should,” “goal,” “target,” “might,” “will,” “could,” “predict,” and “continue,” the negative or plural of these words and other comparable terminology. All forward-looking statements included in this Form 10-Q are based upon information available to us as of the filing date of this Form 10-Q, and we undertake no obligation to update any of these forward-looking statements for any reason. You should not place undue reliance on these forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these statements. These factors include the matters discussed in “Part I — Item 1A — Risk Factors” in our 2013 Annual Report on Form 10-K, in “Part II — Other Information — Item 1A — Risk Factors” below, and elsewhere in this Form 10-Q. You should carefully consider the risks and uncertainties described under these sections.
Business Overview
We are a leading food and beverage company and the largest processor and direct-to-store distributor of fluid milk and other dairy and dairy case products in the United States, with a vision to be the most admired and trusted provider of wholesome, great-tasting dairy products at every occasion. As we continue to evaluate and seek to maximize the value of our national operational network and our leading brands and product offerings, we have aligned our leadership team, operating strategy, and sales, logistics and supply chain initiatives into a single operating and reportable segment.
We manufacture, market and distribute a wide variety of branded and private label dairy case products, including fluid milk, ice cream, cultured dairy products, creamers, ice cream mix and other dairy products to retailers, distributors, foodservice outlets, educational institutions and governmental entities across the United States. Our portfolio includes TruMoo®, a leading national flavored milk brand, along with well-known regional dairy brands such as Alta Dena ®, Berkeley Farms ®, Country Fresh ®, Dean’s ®, Garelick Farms ®, LAND O LAKES ® milk and cultured products (licensed brand), Lehigh Valley Dairy Farms ®, Mayfield ®, McArthur ®, Meadow Gold ®, Oak Farms ®, PET ® (licensed brand), T.G. Lee ®, Tuscan ® and more. In all, we have more than 50 local and regional dairy brands and private labels. Due to the perishable nature of our products, we deliver the majority of our products directly to our customers’ locations in refrigerated trucks or trailers that we own or lease. We believe that we have one of the most extensive refrigerated direct store delivery (“DSD”) systems in the United States. Our products are sold primarily on a local or regional basis through local and regional sales forces, although some national customer relationships are coordinated by a centralized corporate sales department.
Return of Capital Strategies
In connection with our ongoing efforts to maximize shareholder value, strategies designed to return capital to our shareholders have been implemented as described below.
Adoption of Cash Dividend Policy — In November 2013, we announced that our Board of Directors had adopted a cash dividend policy. Under the policy, holders of our common stock will receive dividends when and as declared by our Board of Directors. Pursuant to the policy, we expect to pay quarterly dividends with an initial quarterly dividend rate of $0.07 per share ($0.28 per share annually). Quarterly dividends of $0.07 per share were paid in March and June of 2014. Our cash dividend policy is subject to modification, suspension or cancellation at any time.
Stock Repurchase Program — Since 1998, our Board of Directors has from time to time authorized the repurchase of our common stock up to an aggregate of $2.38 billion, excluding fees and commissions. We made no share repurchases during the three months ended June 30, 2014 and we repurchased 1,727,275 shares during the six months ended June 30, 2014. We made no share repurchases during the three months or six months ended June 30, 2013. As of June 30, 2014, $275.0 million was available for repurchases under this program (excluding fees and commissions). Our management is authorized to purchase shares from time to time through open market transactions at prevailing prices or in privately negotiated transactions, subject to market conditions and other factors. Shares, when repurchased, are retired. We will continue to evaluate opportunities for share repurchases in a strategic manner as a mechanism for generating additional shareholder value.

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Strategic Activities
1-for-2 Reverse Stock Split — In August 2013, we effected a 1-for-2 reverse stock split of our issued common stock. The reverse stock split effected a proportionate adjustment to the per share exercise price and the number of shares of common stock issuable upon the exercise of outstanding stock options, the number of shares of common stock issuable upon the vesting of restricted stock awards, and the number of shares of common stock eligible for issuance under our 2007 Stock Incentive Plan (the “2007 Plan”). No fractional shares were issued in connection with the reverse stock split. Each stockholder’s percentage ownership and proportional voting power remained unchanged as a result of the reverse stock split. During the second quarter of 2014, we amended our certificate of incorporation to reduce the number of authorized shares of common stock by the same 1-to-2 ratio as effected in the reverse stock split.
All applicable share data, per share amounts and related information has been adjusted retroactively in our unaudited Condensed Consolidated Financial Statements to give effect to the 1-for-2 reverse stock split.
WhiteWave Separation — We separated The WhiteWave Foods Company ("WhiteWave") from the Company in a series of three transactions: an initial public offering for 13.3% of the WhiteWave common stock in the fourth quarter of 2012; a tax-free spin-off of 66.8% of the WhiteWave common stock in the second quarter of 2013; and a tax-free debt-for-equity exchange of 19.9% of the WhiteWave common stock in the third quarter of 2013 (the "WhiteWave Separation") See Note 2 to our unaudited Condensed Consolidated Financial Statements for further information regarding the WhiteWave Separation.
Divestiture of Morningstar Foods — In January 2013, we completed the sale of Morningstar Foods ("Morningstar") to a third party for net proceeds of approximately $1.45 billion. We recorded a gain of $871.3 million ($492.1 million, net of tax) on the sale of Morningstar in the first quarter of 2013.
Recent Developments
Retail, Customer and Commodity Environment — Increasing and record-high dairy commodity costs continue to create one of the most difficult operating environments in the history of our company. Record-high raw milk costs and resulting increases in retail prices have created volume softness throughout the industry. In addition, we have experienced increased pressure on our margins as pricing at retail was pressured by both price gap and price threshold considerations. At these unprecedented commodity price levels, our pricing pass-through mechanisms are not entirely efficient and, particularly for our branded products, we have been unwilling or unable to increase our prices commensurate with the higher cost of raw milk, which in turn has negatively impacted our net sales and gross profit.
Class I milk prices have continued their rapid and unprecedented rise through the second quarter of 2014. Class I raw milk prices were approximately 6% higher during the second quarter of 2014 versus the first quarter of 2014 and were 31% above year-ago levels. As Class I raw milk prices continued to move higher, the "margin over milk", or the spread between the Class I mover and the retail price of private label gallons, compressed to $1.39 per gallon in the second quarter of 2014, compared to $1.43 per gallon in the previous quarter, and $1.58 per gallon in the second quarter of 2013.
In addition to record-high Class I raw milk costs, we have been challenged by the increase of butterfat prices, pressuring our margins across our Class II product offerings, such as ice cream, in its heavy selling season. Average CME butter prices increased 32% during the second quarter of 2014 versus prior year to $2.12 with the month of June averaging $2.26 per pound. Sustained month over month Class II commodity price increases, as we experienced in the quarter, have created a pricing lag effect that makes it difficult to effectively pass through rising costs fast enough to mitigate sustained inflation across our Class II product set.
The fluid milk industry remains highly competitive. Fluid milk category volumes remained soft and volume declines have accelerated beyond the historical trajectory of the category. As Class I raw milk costs continued to rise through July, the category continued to weaken. Our volumes also were impacted by the loss of a portion of our private-label business with a significant customer in 2013. The impact of this loss began to be reflected in the second quarter of 2013, and the transition of volumes was completed in the fourth quarter of 2013. The lost volumes were primarily related to low-margin, private label fluid milk business and were the result of the renegotiation of certain regional supply arrangements that, going forward, will be subject to renewal over various time frames. Our total volumes declined 4% in the second quarter of 2014 compared to the same period in the prior year as we began to overlap the RFP-driven volume losses. Our share of the fluid milk category, for the three months ended May, 31 2014, was relatively flat versus the prior quarter at approximately 36%. Since bottoming out in the third quarter of 2013, we have increased our share of the fluid milk category by approximately 1%. In terms of our branded versus private-label mix, we ended the second quarter of 2014 at approximately 36% in branded volumes. Since the third quarter of 2013, when raw milk costs began their steady climb, our brand mix has declined approximately 1%. This trade down to private label fluid milk from branded products represents a continuing headwind for our business.

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We remain committed to sustaining strong positive cash flow and generating shareholder value. Throughout the remainder of 2014, we will continue to emphasize price realization, cost productivity and volume at margins that deliver an appropriate return, in an effort to improve our operating results. We believe the market continues to be difficult with several factors beyond our control continuing to impact our earnings progression. The fluid milk category continues to show weakness with declining industry volumes. Soft volumes, coupled with ongoing historically high raw milk cost inflation and compressed margins over milk, negate some of the impact of our cost reduction efforts, and make it harder to deliver those cost savings to the bottom line. This year has been one of the most difficult periods in our history. We are cautiously optimistic that there will be some commodity stabilization in the back half of 2014 and declining prices in 2015. We expect to continue to drive improved efficiency and capability across the organization with a view toward positioning ourselves for long-term success.
Facility Closing and Reorganization Activities — As a result of certain changes to our business, including the loss of a portion of a significant customer's private label volume in 2013, we accelerated our plans for consolidating our production network, and we have closed twelve of our production facilities through July of 2014. Having completed our accelerated plant closures over the past 18 to 24 months, we expect to return to our normal optimization activities. See Note 11 to our unaudited Condensed Consolidated Financial Statements for more information regarding our facility closing and reorganization activities.
Matters Affecting Comparability
Our discussion of the results of operations for the three and six months ended June 30, 2014 and 2013 is affected by the 1-for-2 reverse stock split effected in August 2013. Common stock, additional paid-in capital and all applicable share data as of and for the period ended June 30, 2013 have been adjusted retroactively to reflect the 1-for-2 reverse stock split.


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Results of Operations
Our key performance indicators are volume performance, brand mix and achieving low cost, which are realized within net sales, gross profit and operating income, respectively. We evaluate our financial performance based on sales and operating profit or loss before gains and losses on the sale of businesses, facility closing and reorganization costs, asset impairment charges, litigation settlements and other nonrecurring gains and losses. The following table presents certain information concerning our financial results, including information presented as a percentage of net sales.
 
Three Months Ended June 30
 
Six Months Ended June 30
 
2014
 
2013
 
2014
 
2013
 
Dollars
 
Percent
 
Dollars
 
Percent
 
Dollars
 
Percent
 
Dollars
 
Percent
 
(Dollars in millions)
Net sales
$
2,393.9

 
100.0
 %
 
$
2,227.5

 
100.0
 %
 
$
4,734.9

 
100.0
 %
 
$
4,520.0

 
100.0
%
Cost of sales
1,994.8

 
83.3

 
1,755.2

 
78.8

 
3,919.6

 
82.8

 
3,552.5

 
78.6

Gross profit(1)
399.1

 
16.7

 
472.3

 
21.2

 
815.3

 
17.2

 
967.5

 
21.4

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling and distribution
334.9

 
14.0

 
331.7

 
14.9

 
674.3

 
14.2

 
671.7

 
14.9

General and administrative
70.8

 
3.0

 
86.4

 
3.9

 
143.0

 
3.0

 
171.3

 
3.8

Amortization of intangibles
0.7

 

 
0.9

 

 
1.5

 

 
1.9

 

Facility closing and reorganization costs
0.7

 

 
4.9

 
0.2

 
1.7

 

 
10.5

 
0.2

Litigation settlements

 

 
(1.0
)
 

 
(2.5
)
 
(0.1
)
 
(1.0
)
 

Impairment of long-lived assets

 

 
3.6

 
0.2

 

 

 
37.5

 
0.8

Other operating (income) loss
(4.5
)
 
(0.2
)
 
2.2

 
0.1

 
(4.5
)
 
(0.1
)
 
2.2

 

Total operating costs and expenses
402.6

 
16.8

 
428.7

 
19.2

 
813.5

 
17.2

 
894.1

 
19.7

Operating income (loss)
$
(3.5
)
 
(0.1
)%
 
$
43.6

 
2.0
 %
 
$
1.8

 
 %
 
$
73.4

 
1.7
%
 
(1)
As disclosed in Note 1 to the Consolidated Financial Statements in our 2013 Annual Report on Form 10-K, we include certain shipping and handling costs within selling and distribution expense. As a result, our gross profit may not be comparable to other entities that present all shipping and handling costs as a component of cost of sales.
Quarter Ended June 30, 2014 Compared to Quarter Ended June 30, 2013
Net Sales — The change in net sales was due to the following:
 
 
Three Months Ended  June 30, 2014 vs. 2013
 
(In millions)
Volume
$
(92.4
)
Pricing and product mix changes
258.8

Total increase
$
166.4


Net sales increased $166.4 million, or 7.5%, during the second quarter of 2014 as compared to the second quarter of 2013, primarily due to increased pricing as a result of the pass-through of higher dairy commodity costs. On average, during the second quarter of 2014, the Class I raw milk price was approximately 31% above prior-year levels. At these unprecedented commodity levels, our pricing pass-through mechanisms are not entirely efficient and, particularly for our branded products, we have been unwilling or unable to increase our prices commensurate with the higher cost of raw milk, which in turn has negatively impacted our net sales. Commodity-driven sales increases were partially offset by a decrease in fluid milk volumes, which accounted for approximately 75% of our total sales volume, as well as volume declines in our cultured dairy and other products. Our fluid milk volume declines were driven by increasing fluid milk category weakness and the partial loss of private label business with a significant customer.

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We generally increase or decrease the prices of our fluid dairy products on a monthly basis in correlation with fluctuations in the costs of raw materials, packaging supplies and delivery costs. However, in some cases, we are competitively or contractually constrained with respect to the means and/or timing of price increases. This can have a negative impact on our profitability. The following table sets forth the average monthly Class I “mover” and its components, as well as the average monthly Class II minimum prices for raw skim milk and butterfat for the second quarter of 2014 in comparison to the second quarter of 2013:
 
Three Months Ended June 30*
 
2014
 
2013
 
% Change
Class I mover(1)
$
23.66

 
$
18.12

 
30.6
%
Class I raw skim milk mover(1)(2)
16.75

 
12.35

 
35.6

Class I butterfat mover(2)(3)
2.14

 
1.77

 
20.9

Class II raw skim milk minimum(1)(4)
16.97

 
13.05

 
30.0

Class II butterfat minimum(3)(4)
2.29

 
1.76

 
30.1


*
The prices noted in this table are not the prices that we actually pay. The federal order minimum prices applicable at any given location for Class I raw skim milk or Class I butterfat are based on the Class I mover prices plus a location differential. Class II prices noted in the table are federal minimum prices, applicable at all locations. Our actual cost also includes producer premiums, procurement costs and other related charges that vary by location and supplier. Please see “Part I — Item 1. Business — Government Regulation — Milk Industry Regulation” in our 2013 Annual Report on Form 10-K and “— Known Trends and Uncertainties — Prices of Conventional Raw Milk and Other Inputs” below for a more complete description of raw milk pricing.
(1)
Prices are per hundredweight.
(2)
We process Class I raw skim milk and butterfat into fluid milk products.
(3)
Prices are per pound.
(4)
We process Class II raw skim milk and butterfat into products such as cottage cheese, creams and creamers, ice cream and sour cream.
Cost of Sales — All expenses incurred to bring a product to completion are included in cost of sales, such as raw material, ingredient and packaging costs; labor costs; and plant and equipment costs. Cost of sales increased by 13.7% in the second quarter of 2014 compared to the second quarter of 2013, primarily due to increased dairy commodity costs. The Class I raw milk price was approximately 31% above prior year levels. This increase was partially offset by lower sales volumes and our cost and efficiency initiatives.
Gross Profit — Our gross profit percentage decreased to 16.7% in the second quarter of 2014 as compared to 21.2% in the second quarter of 2013. This decline was significantly impacted by the record-high dairy commodity costs environment. We believe at these unprecedented commodity levels, our pricing pass-through mechanisms are not entirely efficient, and particularly for our branded products, we have been unwilling or unable to increase our prices commensurate with the higher cost of raw milk, which in turn has negatively impacted our gross profit. In addition, despite the full impact of the lost volumes discussed above and the associated accelerated facility closure activity during 2014 and 2013, production cost declines lagged the decline in sales volumes, resulting in higher per unit costs and lower overall gross profit. We believe these increased per-unit production costs are temporary and will stabilize as we move past this period of accelerated plant closure activity.
Operating Costs and Expenses — Operating costs and expenses decreased by 6.1% in the second quarter of 2014 as compared to the second quarter of 2013. Significant changes to operating costs and expenses in the second quarter of 2014 include the following:
General and administrative costs decreased $15.6 million primarily due to lower personnel-related costs, including share-based and incentive compensation, as a result of headcount reductions and operational performance below our targets.
Selling and distribution costs increased $3.2 million primarily due to increased personnel-related costs related to employee benefits, partially offset by the impact of lower sales volumes.
Facility closing and reorganization costs decreased by $4.2 million. See Note 11 to our unaudited Condensed Consolidated Financial Statements.
Impairment of long-lived assets decreased by $3.6 million. See Note 11 to our unaudited Condensed Consolidated Financial Statements.


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Our costs on a per-gallon basis continued to be negatively impacted by transitory costs associated with plant closings and loss of volumes. As our sales volumes have declined faster than benefits from our cost initiatives have been realized, our production and distribution assets have experienced increased deleverage offsetting some of our cost improvements and making it harder to deliver those cost savings to the bottom line.

Other (Income) Expense — Other (income) expense decreased by $74.3 million during the second quarter of 2014 as compared to the second quarter of 2013 driven by a decline in interest expense. Interest expense for the second quarter of 2013 included $63.4 million of non-cash interest expense related to the novation of interest rate swaps, as described more fully in Note 6 to our unaudited Condensed Consolidated Financial Statements. Excluding these transactions in the prior year, interest expense decreased by $11.5 million to $15.2 million in the second quarter of 2014. This decrease was primarily due to significantly lower average debt balances from debt repayments with cash proceeds from transactions undertaken in 2013.

Income Taxes – Income tax benefit was recorded at an effective rate of 94.9% for the second quarter of 2014 compared to a 30.3% effective tax benefit rate for the second quarter of 2013. Generally, our effective tax rate varies primarily based on our profitability level and the relative earnings of our business units. In the second quarter of 2014, our effective tax rate was also impacted by settlements of various taxing authority examinations. Excluding the benefits related to these settlements, our effective tax benefit rate was 37.1%.
Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013
Net Sales — The change in net sales was due to the following:
 
 
Six Months Ended June 30, 2014 vs. 2013
 
(In millions)
Volume
$
(227.6
)
Pricing and product mix changes
442.5

Total increase
$
214.9


Net sales increased $214.9 million, or 4.8%, during the first six months of 2014 as compared to the first six months of 2013, primarily due to increased pricing as a result of the pass-through of higher dairy commodity costs. On average, during the first six months of 2014, the Class I raw milk price was approximately 26% above prior-year levels. At these unprecedented commodity levels, our pricing pass-through mechanisms are not entirely efficient and, particularly for our branded products, we have been unwilling or unable to increase our prices commensurate with the higher cost of raw milk, which in turn has negatively impacted our net sales. Commodity-driven sales increases were partially offset by a decrease in fluid milk volumes, which accounted for approximately 77% of our total sales volume, as well as volume declines in our cultured dairy and other products. Our fluid milk volume declines were driven by increasing fluid milk category weakness and the partial loss of private label business with a significant customer.
We generally increase or decrease the prices of our fluid dairy products on a monthly basis in correlation with fluctuations in the costs of raw materials, packaging supplies and delivery costs. However, in some cases, we are competitively or contractually constrained with respect to the means and/or timing of price increases. This can have a negative impact on our profitability. The following table sets forth the average monthly Class I “mover” and its components, as well as the average monthly Class II minimum prices for raw skim milk and butterfat for the first six months of 2014 in comparison to the first six months of 2013:
 
Six Months Ended June 30*
 
2014
 
2013
 
% Change
Class I mover(1)
$
23.02

 
$
18.22

 
26.3
%
Class I raw skim milk mover(1)(2)
16.63

 
12.62

 
31.8

Class I butterfat mover(2)(3)
1.99

 
1.73

 
15.0

Class II raw skim milk minimum(1)(4)
17.06

 
13.06

 
30.6

Class II butterfat minimum(3)(4)
2.12

 
1.72

 
23.3


*
The prices noted in this table are not the prices that we actually pay. The federal order minimum prices applicable at any given location for Class I raw skim milk or Class I butterfat are based on the Class I mover prices plus a location differential. Class II prices noted in the table are federal minimum prices, applicable at all locations. Our

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actual cost also includes producer premiums, procurement costs and other related charges that vary by location and supplier. Please see “Part I — Item 1. Business — Government Regulation — Milk Industry Regulation” in our 2013 Annual Report on Form 10-K and “— Known Trends and Uncertainties — Prices of Conventional Raw Milk and Other Inputs” below for a more complete description of raw milk pricing.
(1)
Prices are per hundredweight.
(2)
We process Class I raw skim milk and butterfat into fluid milk products.
(3)
Prices are per pound.
(4)
We process Class II raw skim milk and butterfat into products such as cottage cheese, creams and creamers, ice cream and sour cream.
Cost of Sales — All expenses incurred to bring a product to completion are included in cost of sales, such as raw material, ingredient and packaging costs; labor costs; and plant and equipment costs. Cost of sales increased by 10.3% in the first six months of 2014 compared to the first six months of 2013, primarily due to increased dairy commodity costs. This increase was partially offset by lower fluid milk volumes, lower personnel-related costs due to headcount reductions last year as well as other cost and efficiency initiatives.
Gross Profit — Our gross profit percentage decreased to 17.2% for the first six months of 2014 as compared to 21.4% for the first six months of 2013. This decline was significantly impacted by the record-high dairy commodity costs environment. We believe at these unprecedented commodity levels, our pricing pass-through mechanisms are not entirely efficient, and particularly for our branded products, we have been unwilling or unable to increase our prices commensurate with the higher cost of raw milk, which in turn has negatively impacted our gross profit. In addition, despite the full impact of the lost volumes discussed above and the associated accelerated facility closure activity during 2014 and 2013, production cost declines lagged the decline in volumes, resulting in higher per unit costs and lower overall gross profit. We believe these increased per-unit production costs are temporary and will stabilize as we move past this period of accelerated plant closure activity.
Operating Costs and Expenses — Operating costs and expenses decreased by 9.0% in the first six months of 2014 as compared to the first six months of 2013. Significant changes to operating costs and expenses in the first six months of 2014 include the following:
General and administrative costs decreased $28.3 million primarily due to lower personnel-related costs, including share-based and incentive compensation, as a result of headcount reductions and operational performance below our targets.
Selling and distribution costs increased $2.6 million primarily due to increased logistics costs related to plant closure activity and increased personnel-related costs related to employee benefits, partially offset by lower sales volumes.
Facility closing and reorganization costs decreased by $8.8 million. See Note 11 to our unaudited Condensed Consolidated Financial Statements.
Impairment of long-lived assets decreased by $37.5 million. See Note 11 to our unaudited Condensed Consolidated Financial Statements.

Our costs on a per gallon basis continued to be negatively impacted by transitory costs associated with plant closings and loss of volumes. As our sales volumes have declined faster than benefits from our cost initiatives have been realized, our production and distribution assets have experienced increased deleverage offsetting some of our cost improvements and making it harder to deliver those cost savings to the bottom line.

Other (Income) Expense — Other (income) expense during decreased $119.4 million during the first six months of 2014 as compared to the first six months of 2013 due to lower interest expense. Interest expense for the first six months of 2013 included $63.4 million of non-cash interest expense and $28.1 million of expense related to termination and novation of interest rate swaps, both of which are described more fully in Note 6 to our unaudited Condensed Consolidated Financial Statements. Excluding these prior year transactions, interest expense decreased by $28.1 million to $30.2 million in the first six months of 2014. This decrease is primarily due to significantly lower average debt balances from debt repayments with cash proceeds from transactions undertaken in 2013.

Income Taxes – Income tax benefit was recorded at an effective tax rate of 61.9% for the first half of 2014 compared to a 30.6% effective tax benefit rate for the first half of 2013. Generally, our effective tax rate varies primarily based on our profitability level and the relative earnings of our business units. In the first half of 2014, our effective tax rate was also

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impacted by settlements of various taxing authority examinations and several state tax law changes. Excluding the net benefit related to these items, our effective tax benefit rate was 36.6%.
Liquidity and Capital Resources
We believe that our cash on hand coupled with future cash flows from operations and other available sources of liquidity, including our $750 million senior secured revolving credit facility and our amended $550 million receivables-backed facility, together will provide sufficient liquidity to allow us to meet our cash requirements in the next twelve months. Our anticipated uses of cash include capital expenditures; working capital; pension contributions; financial obligations, including tax payments; and certain other costs that may be necessary to execute our cost reduction initiatives. On an ongoing basis, we will evaluate and consider strategic acquisitions, divestitures, joint ventures, or other transactions to create shareholder value and enhance financial performance. As discussed below, we have also instituted a regular quarterly cash dividend policy and began repurchasing shares of our common stock opportunistically. Additionally, from time to time, we may repurchase our outstanding debt obligations in the open market or in privately negotiated transactions. Such transactions may require cash expenditures or generate proceeds.
Under our cash dividend policy, holders of our common stock will receive dividends when and as declared by our Board of Directors. Pursuant to the policy, we expect to pay quarterly dividends with an initial quarterly dividend rate of $0.07 per share ($0.28 per share annually). Quarterly dividends were paid in March and June of 2014 and were funded using borrowings under both the receivables back securities and the senior secured credit facility. Our cash dividend policy is subject to modification, suspension or cancellation in any manner and at any time. Please see “—Return of Capital Strategies” above for additional details regarding the dividend policy.
Additionally, since 1998, our Board of Directors has from time to time authorized the repurchase of our common stock up to an aggregate of $2.38 billion, excluding fees and commissions. We made no share repurchases during the three months ended June 30, 2014 and we repurchased 1,727,275 shares during the six months ended June 30, 2014 for $25.0 million. The repurchase was funded using borrowings under both the receivables-backed facility and the senior secured credit facility. We made no share repurchases during the three months or six months ended June 30, 2013. As of June 30, 2014, $275.0 million was available for repurchases under this program (excluding fees and commissions). Management is authorized to purchase shares from time to time through open market transactions at prevailing prices or in privately negotiated transactions, subject to market conditions and other factors. Shares, when repurchased, are retired.
As of June 30, 2014, $11.4 million of our total cash on hand of $59.8 million was attributable to our foreign operations. We are evaluating strategies and alternatives with respect to the cash attributable to our foreign operations. However, we believe that our existing sources of liquidity, as described more fully above, will enable us to meet our cash requirements in the next twelve months.
At June 30, 2014, we had $1.0 billion of outstanding debt obligations. We had total cash on hand of $59.8 million and an additional $0.7 billion of combined available future borrowing capacity under our senior secured credit facility and receivables-backed facility, subject to compliance with the covenants in our credit agreements. Based on our current expectations, we believe our liquidity and capital resources will be sufficient to operate our business. However, we may, from time to time, raise additional funds through borrowings or public or private sales of debt or equity securities. The amount, nature and timing of any borrowings or sales of debt or equity securities will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.
Senior Secured Credit Facility — In July 2013, we entered into a credit agreement pursuant to which the lenders have provided us with a five-year revolving credit facility in the amount of up to $750 million. Under the agreement, we also have the right to request an increase of the aggregate commitment under the credit facility by, and to request incremental term loans or increased revolver commitments of, up to $500 million without the consent of any lenders not participating in such increase, subject to specified conditions. The proceeds of the credit facility will be used to finance our working capital needs and for general corporate purposes of us and our subsidiaries. The senior secured credit facility is available for the issuance of up to $200 million of letters of credit and up to $150 million of swing line loans. The facility will terminate in July 2018.
On June 12, 2014, we executed an amendment to the senior secured credit facility which modified the consolidated net leverage ratio covenant to permit a maximum consolidated net leverage ratio of 4.00x for each fiscal quarter ending on or prior to September 30, 2014, and 3.50x for each fiscal quarter ending thereafter; and increasing the amount of permitted restricted payments that may be made during any fiscal year, if any such restricted payment would cause our consolidated net leverage ratio to exceed 3.25x, to $30 million from $20 million. For 2014, our previously completed repurchases of common stock of approximately $25 million are excluded from the $30 million limitation.

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Loans outstanding under the senior secured credit facility bear interest, at our election, at either the Adjusted LIBO Rate (as defined in the credit agreement) plus a margin of between 1.25% and 2.25% (2.00% as of June 30, 2014) based on the leverage ratio (as defined in the credit agreement), or the Alternate Base Rate (as defined in the credit agreement) plus a margin of between 0.25% and 1.25% (1.00% as of June 30, 2014) based on the leverage ratio. We are permitted to make optional prepayments of the loans, in whole or in part, without premium or penalty (other than applicable LIBOR breakage costs). Subject to certain exceptions and conditions described in the credit agreement, we are obligated to prepay the credit facility, but without a corresponding commitment reduction, with the net cash proceeds of certain asset sales and with casualty and insurance proceeds.
The senior secured credit facility is guaranteed by our existing and future domestic material restricted subsidiaries (as defined in the credit agreement), which are substantially all of our wholly-owned U.S. subsidiaries other than our receivables securitization subsidiaries. The facility is secured by a first priority perfected security interest in substantially all of our and our guarantors personal property, whether consisting of tangible or intangible property, including a pledge of, and a perfected security interest in, (i) all of the shares of capital stock of the guarantors and (ii) 65% of the shares of our or any guarantor’s first-tier foreign subsidiaries which are material restricted subsidiaries, in each case subject to certain exceptions as set forth in the credit agreement. The collateral does not include any real property, the capital stock and any assets of any unrestricted subsidiary, any shares of Class A common stock of WhiteWave which we owned as of the date the credit agreement was executed, or any capital stock of any direct or indirect subsidiary of Dean Holding Company which owns any real property.
The credit agreement governing the senior secured credit facility contains customary representations, warranties and covenants, including, but not limited to specified restrictions on indebtedness, liens, guarantee obligations, mergers, acquisitions, consolidations, liquidations and dissolutions, sales of assets, leases, payment of dividends and other restricted payments, investments, loans and advances, transactions with affiliates and sale and leaseback transactions. The credit agreement also contains customary events of default and related cure provisions.
At June 30, 2014, there were outstanding borrowings of $52 million under the senior secured revolving credit facility. There were no letters of credit issued under the senior secured revolving credit facility as of June 30, 2014. $698.5 million was available under the senior secured credit facility, subject to compliance with the covenants in our credit agreements. Availability under the senior secured credit facility is calculated using the total commitment amount less current borrowings and issued and outstanding letters of credit.
Dean Foods Receivables-Backed Facility — We have a $550 million receivables securitization facility pursuant to which certain of our subsidiaries sell their accounts receivable to two wholly-owned entities intended to be bankruptcy-remote. The entities then transfer the receivables to third-party asset-backed commercial paper conduits sponsored by major financial institutions. The assets and liabilities of these two entities are fully reflected in our unaudited Condensed Consolidated Balance Sheets, and the securitization is treated as a borrowing for accounting purposes. The receivables-backed facility is available for the issuance of letters of credit of up to $350 million and has a liquidity termination date in June 2017.
Outstanding borrowings under the receivables-backed facility as of June 30, 2014 were $300 million, excluding letters of credit in the aggregate amount of $212 million that were issued but undrawn, resulting in remaining available borrowing capacity of $38 million. Availability under the receivables-backed facility is calculated using the current receivables balance for the seller entities, less adjustments for customer concentration limits, reserve requirements, and other adjustments as described in the amended and restated receivables repurchase agreement, not to exceed the total commitment amount less current borrowings and outstanding letters of credit.
At August 4, 2014, we had $317 million in outstanding borrowings under the senior secured revolving credit facility and the receivables-backed facility, excluding letters of credit in the aggregate amount of $212 million that were issued but undrawn.
Our leverage ratio at June 30, 2014 was 3.61 times consolidated funded indebtedness to consolidated EBITDA for the prior four consecutive quarters, as defined in our credit agreement. As described in more detail in our credit agreement and the purchase agreement governing our receivables-backed facility, the leverage ratio is calculated as the ratio of consolidated funded indebtedness, less cash up to $100 million to the extent held by us and our restricted subsidiaries, to consolidated EBITDA for the period of four consecutive fiscal quarters ended on the measurement date. Consolidated funded indebtedness is comprised of our outstanding indebtedness and the outstanding indebtedness of certain of our subsidiaries, excluding our unrestricted subsidiaries. Consolidated EBITDA is comprised of net income for us and our restricted subsidiaries plus interest expense, taxes, depreciation and amortization expense and other non-cash expenses, and certain other add-backs for non-recurring charges and other adjustments permitted in calculating covenant compliance under the credit agreement, and is calculated on a pro-forma basis to give effect to any acquisitions, divestitures or relevant changes in our composition or the

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composition of certain of our subsidiaries. In addition, the calculation of consolidated EBITDA may include adjustments related to other charges reasonably acceptable to the administrative agent.
Our interest coverage ratio at June 30, 2014 was 3.63 times consolidated EBITDA to consolidated interest expense for the prior four consecutive quarters, as defined in our credit agreement. As described in more detail in our credit agreement and the purchase agreement governing our receivables-backed facility, our interest coverage ratio is calculated as the ratio of consolidated EBITDA to consolidated interest expense for the period of four consecutive fiscal quarters ended on the measurement date. Consolidated EBITDA is calculated as described above in the discussion of our leverage ratio. Consolidated interest expense is comprised of consolidated interest expense paid or payable in cash by us and our restricted subsidiaries, as calculated in accordance with generally accepted accounting principles, but excluding write-offs or amortization of deferred financing fees and amounts paid on early termination of swap agreements.
We are currently in compliance with all covenants under our credit agreements. On August 11, 2014, we announced our intention to further amend our senior secured credit facility and receivables-backed facility to, among other things, modify the consolidated net leverage ratio covenant to increase our maximum permitted consolidated net leverage ratio as follows: 5.25x for each fiscal quarter ending on or prior to December 31, 2014; 5.00x for each fiscal quarter ending on or prior to March 31, 2015; 4.50x for each fiscal quarter ending on or prior to June 30, 2015; and 4.00x for each fiscal quarter ending thereafter. Pursuant to the proposed amendments, we will also be required to maintain a senior secured net leverage ratio not to exceed 2.50x. Loans outstanding under the senior secured credit facility will bear interest, at our election, at either the Adjusted LIBO Rate (as defined in the credit agreement) plus a margin of between 1.25% and 2.75%, or the Alternate Base Rate (as defined in the credit agreement) plus a margin of between 0.25% and 1.75%, in each case based on our leverage ratio. Based on our current leverage ratio, interest rate margins for borrowings under the senior secured credit facility would increase from 2.25% to 2.50% in the case of Adjusted LIBO Rate loans, and from 1.25% to 1.50% in the case of Alternate Base Rate loans. In addition, advances outstanding under our receivables-backed facility will bear interest between 0.35% and 0.50% based on our leverage ratio, and we will pay a facility fee between 0.45% and 0.60% based on our leverage ratio. Based on our current leverage ratio, interest rates for borrowings under the receivables securitization facility would increase from 0.35% to 0.45%, and the facility fee would increase from 0.45% to 0.55%. We expect these amendments to be entered into later this month, and we would pay customary consent fees and arrangement fees in connection with the amendments. Effectiveness of the amendments is conditioned on board approval, as well as other customary closing conditions.
 

Historical Cash Flow
The unaudited Condensed Consolidated Statements of Cash Flows include amounts related to discontinued operations, which are primarily related to net proceeds of approximately $1.4 billion received from the sale of Morningstar, completed January 2013, and the WhiteWave Separation, completed in July 2013, both of which have been included as discontinued operations for the for the six months ended June 30, 2013. See Note 2 to our unaudited Condensed Consolidated Financial Statements for additional information regarding our discontinued operations.
The following table summarizes our cash flows from operating, investing and financing activities:
 
Six Months Ended June 30
 
2014
 
2013
 
Change
 
(In thousands)
Net cash flows from continuing operations:
 
 
 
 
 
Operating activities
$
25,268

 
$
(245,088
)
 
$
270,356

Investing activities
(36,066
)
 
(44,721
)
 
8,655

Financing activities
53,971

 
(1,074,814
)
 
1,128,785

Discontinued operations

 
1,366,084

 
(1,366,084
)
Effect of exchange rate changes on cash and cash equivalents
(171
)
 
(155
)
 
(16
)
Net increase in cash and cash equivalents
$
43,002

 
$
1,306

 
$
41,696


Operating Activities
The cash flow from continuing operations for the six months ended June 30, 2013 was impacted by a payment of $212.5 million related to our tax obligation on the sale of Morningstar. Additionally, the prior period operating cash flows was impacted by a $28.1 million termination payment of our remaining interest rate hedges in January 2013, which is described more fully in Note 6 to our unaudited Condensed Consolidated Financial Statements.

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Net cash provided by operating activities was $25.3 million for the six months ended June 30, 2014 compared to net cash used in operating activities of $4.4 million for the six months ended June 30, 2013, excluding the 2013 transactions noted above. This change was primarily due to decreased interest payments on significantly lower average debt balances as a result of the transactions undertaken in 2013 to reduce debt and other working capital changes.
Investing Activities
Net cash used in investing activities decreased by $8.7 million in the six months ended June 30, 2014 in comparison to the six months ended June 30, 2013 and is primarily attributable to increase in proceeds from sale of fixed assets to $17.6 million for the six months ended June 30, 2014 from $4.3 million in the same period in 2013.
Financing Activities
Net cash provided by financing activities of $54.0 million in the six months ended June 30, 2014 improved from net cash used in financing activities of $1.07 billion in the year-ago period, driven by net debt repayments of $1.08 billion in the second quarter of 2013 as compared to proceeds from borrowings of $87.9 million for the six months ended June 30, 2014. Additionally, during the six months ended June 30, 2014, we repurchased shares of common stock for $25.0 million and paid cash dividends in the amount of $13.1 million.
Contractual Obligations
There have been no material changes outside the ordinary course of business to the information provided with respect to our contractual obligations, including indebtedness and purchase and lease obligations, as disclosed in our 2013 Annual Report on Form 10-K.
Other Long-Term Liabilities
We offer pension benefits through various defined benefit pension plans and also offer certain health care and life insurance benefits to eligible employees and their eligible dependents upon the retirement of such employees. Reported costs of providing non-contributory defined pension benefits and other postretirement benefits are dependent upon numerous factors, assumptions and estimates. For example, these costs are impacted by actual employee demographics (including age, compensation levels and employment periods), the level of contributions made to the plan and earnings on plan assets. Pension and postretirement costs also may be significantly affected by changes in key actuarial assumptions, including anticipated rates of return on plan assets and the discount rates used in determining the projected benefit obligation and annual periodic pension costs.
We expect to contribute approximately $11.6 million to the pension plans and approximately $3 million to the postretirement health plans in 2014.
Other Commitments and Contingencies
In connection with our acquisition of Legacy Dean, we purchased Dairy Farmers of America’s (“DFA”) 33.8% interest in our operations in 2001. In connection with that transaction, we issued a contingent, subordinated promissory note to DFA in the original principal amount of $40 million. The promissory note has a 20-year term and bears interest based on the consumer price index. Interest will not be paid in cash but will be added to the principal amount of the note annually, up to a maximum principal amount of $96 million. We may prepay the note in whole or in part at any time, without penalty. The note will only become payable if we materially breach or terminate one of our related milk supply agreements with DFA without renewal or replacement. Otherwise, the note will expire in 2021, without any obligation to pay any portion of the principal or interest. Payments made under the note, if any, would be expensed as incurred. We have not terminated, and we have not materially breached, any of our related milk supply agreements with DFA related to the promissory note. We have previously terminated unrelated supply agreements with respect to several plants that were supplied by DFA. In connection with our goals of accelerated cost control and increased supply chain efficiency, we continue to evaluate our sources of raw milk supply.
We also have the following commitments and contingent liabilities, in addition to contingent liabilities related to ordinary course litigation, investigations and audits:
certain indemnification obligations related to businesses that we have divested;
certain lease obligations, which require us to guarantee the minimum value of the leased asset at the end of the lease;

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selected levels of property and casualty risks, primarily related to employee health care, workers’ compensation claims and other casualty losses; and
certain litigation-related contingencies.
See Note 12 to our unaudited Condensed Consolidated Financial Statements for more information about our commitments and contingent obligations, including our litigation contingencies.
Future Capital Requirements
During 2014, we intend to invest a total of approximately $150 million to $160 million in capital expenditures primarily for our existing manufacturing facilities and distribution capabilities. We expect cash interest in 2014 to be approximately $53 million to $56 million based upon current debt levels and projected forward interest rates under our senior secured credit facility. Cash interest excludes amortization of deferred financing fees and bond discounts of approximately $5 million and imputed interest of approximately $1 million related to the Tennessee dairy farmer action litigation settlement reached in 2012.
As described more fully in the sections above, from time to time, we may repurchase our outstanding common stock or debt obligations in the open market or in privately negotiated transactions, subject to meeting certain terms and conditions as outlined in our credit agreements. We expect that our future cash flows from operations and borrowings under our senior secured credit facility and receivables-backed facility will be sufficient to meet our future capital requirements for the foreseeable future.
Known Trends and Uncertainties
Prices of Conventional Raw Milk and Other Inputs
Conventional Raw Milk and Butterfat — The primary raw materials used in the products we manufacture, distribute and sell are conventional milk (which contains both raw milk and butterfat) and bulk cream. On a monthly basis, the federal government and certain state governments set minimum prices for raw milk. The regulated minimum prices differ based on how the raw milk is utilized. Raw milk processed into fluid milk is priced at the Class I price and raw milk processed into products such as cottage cheese, creams and creamers, ice cream and sour cream is priced at the Class II price. Generally, we pay the federal minimum prices for raw milk, plus certain producer premiums (or “over-order” premiums) and location differentials. We also incur other raw milk procurement costs in some locations (such as hauling, field personnel, etc.). A change in the federal minimum price does not necessarily mean an identical change in our total raw milk costs as over-order premiums may increase or decrease. This relationship is different in every region of the country and can sometimes differ within a region based on supplier arrangements. However, in general, the overall change in our raw milk costs can be linked to the change in federal minimum prices. Because our Class II products typically have a higher fat content than that contained in raw milk, we also purchase bulk cream for use in some of our Class II products. Bulk cream is typically purchased based on a multiple of the Grade AA butter price on the Chicago Mercantile Exchange (“CME”).
In general, we change the prices charged for Class I dairy products on a monthly basis, as the costs of raw materials, packaging, fuel and other materials fluctuate. Our sales and operating profit margin fluctuate with the price of our raw materials and other inputs. Additionally, in some cases, primarily with respect to diesel fuel and other non-dairy inputs, we are subject to the terms of sales agreements with respect to the implementation of price changes. This can have a negative impact on our profitability and can cause volatility in our earnings. Class I milk prices have continued their rapid and unprecedented rise through July of 2014. Class I raw milk prices were approximately 6% higher during the second quarter of 2014 versus the first quarter of 2014 and were 31% above year-ago levels.
Increasing and record-high dairy commodity costs continue to create one of the most difficult operating environments in the history of our company. Record-high raw milk costs and resulting increases in retail prices have created volume softness throughout the industry. In addition, we have experienced increased pressure on our margins as pricing at retail was pressured by both price gap and price threshold considerations. As Class I raw milk prices continued to move higher, the "margin over milk", or the spread between the Class I mover and the retail price of private label gallons, compressed to $1.39 per gallon in the second quarter of 2014, compared to $1.43 per gallon in the previous quarter, and $1.58 per gallon in the second quarter of 2013. At these unprecedented commodity price levels, our pricing pass-through mechanisms are not entirely efficient and, particularly for our branded products, we have been unwilling or unable to increase our prices commensurate with the higher cost of raw milk, which in turn has negatively impacted our net sales and gross profit.
In addition to record-high Class I raw milk costs, we have been challenged by the increase of butter-fat prices, pressuring our margins across our Class II product offerings, such as ice cream, in its heavy selling season. Prices for certain

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Class II products are also changed monthly, while others are changed from time to time as circumstances warrant. However, there can be a lag between the timing of a raw material cost change and a corresponding price change to our customers, especially in the case of Class II butterfat because Class II butterfat prices for each month are not announced by the government until after the end of that month. Average CME butter prices increased 32% during the second quarter of 2014 versus prior year to $2.12 with the month of June averaging $2.26 per pound. Sustained month over month Class II commodity price increases, as we experienced in the quarter, have created a pricing lag effect that makes it difficult to effectively pass through rising costs fast enough to mitigate sustained inflation across our Class II product set.
Fuel and Resin Costs — We purchase diesel fuel to operate our extensive DSD system, and we incur fuel surcharge expense related to the products we deliver through third-party carriers. Although we may utilize forward purchase contracts and other instruments to mitigate the risks related to commodity price fluctuations, such strategies do not fully mitigate commodity price risk. Adverse movements in commodity prices over the terms of the contracts or instruments could decrease the economic benefits we derive from these strategies.
Another significant raw material we use is resin, which is a fossil fuel based product used to make plastic bottles. We purchase approximately 26 million pounds of resin and bottles per month. The prices of diesel and resin are subject to fluctuations based on changes in crude oil and natural gas prices. For 2014, we expect our fuel costs to be consistent with prior-year levels and our resin costs to be slightly higher than the prior year.
Retail and Customer Environment and Fluid Milk Volumes
The fluid milk industry remains highly competitive. Fluid milk category volumes remained soft and volume declines have accelerated beyond the historical trajectory of the category. As Class I raw milk costs continued to rise through July, the category continued to weaken. Our volumes also were impacted by the loss of a portion of our private-label business with a significant customer in 2013. The impact of this loss began to be reflected in the second quarter of 2013, and the transition of volumes was completed in the fourth quarter of 2013. The lost volumes were primarily related to low-margin, private label fluid milk business and were the result of the renegotiation of certain regional supply arrangements that, going forward, will be subject to renewal over various time frames. Our total volumes declined 4% in the second quarter of 2014 compared to the same period in the prior year as we began to overlap the RFP-driven volume losses. Our share of the fluid milk category, for the three months ended May, 31 2014, was relatively flat versus the prior quarter at approximately 36%. Since bottoming out in the third quarter of 2013, we have increased our share of the fluid milk category by approximately 1%.In terms of our branded versus private-label mix, we ended the second quarter of 2014 at approximately 36% in branded volumes. Since the third quarter of 2013, when raw milk costs began their steady climb, our brand mix has declined approximately 1%. This trade down to private label fluid milk from branded products represents a continuing headwind for our business.
We remain committed to sustaining strong positive cash flow and generating shareholder value. Throughout the remainder of 2014, we will continue to emphasize price realization, cost productivity and volume at margins that deliver an appropriate return, in an effort to improve our operating results. We believe the market continues to be difficult with several factors beyond our control continuing to impact our earnings progression. The fluid milk category continues to show weakness with declining industry volumes. Soft volumes, coupled with ongoing historically high raw milk cost inflation and compressed margins over milk, negate some of the impact of our cost reduction efforts, and make it harder to deliver those cost savings to the bottom line. This year has been one of the most difficult periods in our history. We are cautiously optimistic that there will be some commodity stabilization in the back half of 2014 and declining prices in 2015. We expect to continue to drive improved efficiency and capability across the organization with a view toward positioning ourselves for long-term success.
Tax Rate
Income tax benefit was recorded at an effective rate of 61.9% in the first six months of 2014 compared to a 30.6% effective tax benefit rate in the first six months of 2013. Changes in our profitability levels and the relative earnings of our business units, as well as changes to federal, state, and foreign tax laws, may cause the rate to change from historical rates.

See “Part I — Item 1A — Risk Factors” in our 2013 Annual Report on Form 10-K and "Part II — Item 1A — Risk Factors" in our Quarterly Report on Form 10-Q herein for a description of various other risks and uncertainties concerning our business.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our quantitative and qualitative disclosures about market risk as set forth in our 2013 Annual Report on Form 10-K.

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Item 4. Controls and Procedures
Controls Evaluation and Related Certifications
We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), referred to herein as “Disclosure Controls”) as of the end of the period covered by this quarterly report. The controls evaluation was performed under the supervision and with the participation of management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Based upon our most recent controls evaluation, our CEO and CFO have concluded that our Disclosure Controls were effective as of June 30, 2014.
Changes in Internal Control over Financial Reporting
During the period covered by this quarterly report, there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II — Other Information
Item 1. Legal Proceedings
Tennessee Retailer and Indirect Purchaser Actions
A putative class action antitrust complaint (the “retailer action”) was filed on August 9, 2007 in the United States District Court for the Eastern District of Tennessee. Plaintiffs allege generally that we, either acting alone or in conjunction with others in the milk industry who are also defendants in the retailer action, lessened competition in the Southeastern United States for the sale of processed fluid Grade A milk to retail outlets and other customers, and that the defendants’ conduct also artificially inflated wholesale prices for direct milk purchasers. Defendants’ motion for summary judgment in the retailer action was granted in part and denied in part in August 2010. Defendants filed a motion for reconsideration, renewed their request for summary judgment in September 2010. In March 2012, the Court granted summary judgment in favor of defendants as to all remaining counts and entered judgment in favor of all defendants, including the Company. Plaintiffs appealed the court’s decision in April 2012. Briefing on the appeal was completed in April 2013, and oral argument occurred in July 2013. In January 2014, the appeals court reversed the judgment for the defendants, including the Company, on one of the original five counts in the Tennessee retailer action. In February 2014, the Company requested that the Sixth Circuit Court of Appeals consider its decision en banc; the Sixth Circuit declined to do so. The Company filed a petition to the U.S. Supreme Court for review of the case on August 1, 2014. The Sixth Circuit returned the case to the trial court for further proceedings. The parties have agreed to submit a proposed schedule for further proceedings in the trial court on or before August 29, 2014. The parties have also agreed to defer further proceedings in the trial court until there is a determination by the Supreme Court whether to review the decision of the Court of Appeals.
On June 29, 2009, another putative class action lawsuit was filed in the Eastern District of Tennessee, Greeneville Division, on behalf of indirect purchasers of processed fluid Grade A milk (the “indirect purchaser action”). The allegations in this complaint are similar to those in the retailer action, but primarily involve state law claims. Because the allegations in the indirect purchaser action substantially overlap with the allegations in the retailer action, the Court granted the parties’ joint motion to stay all proceedings in the indirect purchaser action pending the outcome of the summary judgment motions in the retailer action. On August 16, 2012, the indirect purchaser plaintiffs voluntarily dismissed their lawsuit. On January 17, 2013, these same plaintiffs filed a new lawsuit in the Eastern District of Tennessee, Greeneville Division, on behalf of a putative class of indirect purchasers of processed fluid Grade A milk (the “2013 indirect purchaser action”). The allegations are similar to those in the voluntarily dismissed indirect purchaser action, but involve only claims arising under Tennessee law. The Company filed a motion to dismiss on April 30, 2013. On June 14, 2013, the indirect purchaser plaintiffs responded to the Company’s motion to dismiss and filed an amended complaint. On July 1, 2013, the Company filed a motion to dismiss the amended complaint. Briefing on the motion to dismiss was completed on August 15, 2013.
At this time, it is not possible for us to predict the ultimate outcome of these matters.
In addition to the pending legal proceedings set forth above, we are party from time to time to certain claims, litigations, audits and investigations. Potential liabilities associated with these other matters are not expected to have a material adverse impact on our financial position, results of operations or cash flows.
Other
In late 2013, we either settled or entered into settlement negotiations with the vast majority of states in regards to our obligations under state unclaimed property laws, the results of which did not have a material adverse impact on our financial position, results of operations or cash flows.
Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, the reader should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s 2013 Annual Report on Form 10-K. There have been no material changes in the Company's risk factors from those disclosed in Part I, Item 1A, of the Company's 2013 Annual Report on Form 10-K with the exception of the items listed below.

It is difficult to predict the long-term effects of the recent extended period of record-high commodity prices on the dairy industry and our business.
Class I milk prices are near all-time highs and such prices have remained high for an extended period of time. We cannot predict if or when prices will moderate and, if they moderate, how long such lower pricing will be in effect. It is difficult to predict the impact that such a long period of sustained high prices will have on consumer demand and preferences for milk and

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other dairy products. The fluid milk category has experienced higher than average volume declines over the past few months. If and when the Class I milk prices moderate, there can be no assurance that fluid milk volumes will return to previous levels or that there will not have been a fundamental change in the purchasing habits of consumers. If we are not able to respond to such changes, our profitability could be adversely affected.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not Applicable.

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Item 6. Exhibits
  3.1
Certificate of Amendment of Restated Certificate of Incorporation, as amended, of Dean Foods Company (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed May 20, 2014).
  3.2
Amended and Restated Bylaws of Dean Foods Company, effective as of May15, 2014 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed May 20, 2014).
10.1
Dean Foods Company 2014 Amended Short-Term Incentive Compensation Plan (filed herewith).

10.2
Amendment No. 1 to Credit Agreement, dated as of June 12, 2014, by and among Dean Foods Company; the lenders listed on the signature pages thereof; and JPMorgan Chase Bank, N.A., in its capacity as Administrative Agent (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed June 16, 2014).

10.3
The Sixth Amended and Restated Receivables Purchase Agreement, dated as of June 12, 2014, among Dairy Group Receivables L.P. and Dairy Group Receivables II, L.P., as Sellers; the Servicers, Companies and Financial Institutions listed therein; and Cooperatieve Centrale Raiffeisen - Boerenleenbank B.A. “Rabobank International”, New York Branch, as Agent (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed June 16, 2014).

31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
99
Supplemental Financial Information for Dean Holding Company (filed herewith).
 
 
101.INS XBRL Instance Document(1).
101.SCH XBRL Taxonomy Extension Schema Document(1).
101.CAL XBRL Taxonomy Calculation Linkbase Document(1).
101.DEF XBRL Taxonomy Extension Definition Linkbase Document(1).
101.LAB XBRL Taxonomy Label Linkbase Document(1).
101.PRE XBRL Taxonomy Presentation Linkbase Document(1).
(1)
Submitted electronically herewith.

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SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
DEAN FOODS COMPANY
 
 
 
/S/ SCOTT K. VOPNI
 
Scott K. Vopni
 
Senior Vice President and Chief Accounting Officer
August 11, 2014





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Exhibit Index

  3.1
Certificate of Amendment of Restated Certificate of Incorporation, as amended, of Dean Foods Company (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed May 20, 2014).
  3.2
Amended and Restated Bylaws of Dean Foods Company, effective as of May15, 2014 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed May 20, 2014).
10.1
Dean Foods Company 2014 Amended Short-Term Incentive Compensation Plan (filed herewith).
10.2
Amendment No. 1 to Credit Agreement, dated as of June 12, 2014, by and among Dean Foods Company; the lenders listed on the signature pages thereof; and JPMorgan Chase Bank, N.A., in its capacity as Administrative Agent (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed June 16, 2014).
10.3
The Sixth Amended and Restated Receivables Purchase Agreement, dated as of June 12, 2014, among Dairy Group Receivables L.P. and Dairy Group Receivables II, L.P., as Sellers; the Servicers, Companies and Financial Institutions listed therein; and Cooperatieve Centrale Raiffeisen - Boerenleenbank B.A. “Rabobank International”, New York Branch, as Agent (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed June 16, 2014).
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
99
Supplemental Financial Information for Dean Holding Company (filed herewith).
 
 
101.INS XBRL Instance Document(1).
101.SCH XBRL Taxonomy Extension Schema Document(1).
101.CAL XBRL Taxonomy Calculation Linkbase Document(1).
101.DEF XBRL Taxonomy Extension Definition Linkbase Document(1).
101.LAB XBRL Taxonomy Label Linkbase Document(1).
101.PRE XBRL Taxonomy Presentation Linkbase Document(1).

(1)
Submitted electronically herewith.


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