S-1/A 1 d388365ds1a.htm AMENDMENT #3 TO FORM S-1 Amendment #3 to Form S-1
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As filed with the Securities and Exchange Commission on October 17, 2012

Registration No. 333-183112

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 3 to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

THE WHITEWAVE FOODS COMPANY

(Exact name of registrant as specified in its charter)

 

Delaware   2026   46-0631061

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

2711 North Haskell Ave., Suite 3400

Dallas, TX 75204

(214) 303-3400

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

 

 

Gregg L. Engles

Chief Executive Officer

The WhiteWave Foods Company

2711 North Haskell Ave., Suite 3400

Dallas, TX 75204

(214) 303-3400

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Erika L. Robinson

Justin L. Ochs

Wilmer Cutler Pickering Hale and Dorr LLP

1875 Pennsylvania Avenue NW

Washington, DC 20006

(202) 663-6000

 

William V. Fogg

Cravath, Swaine & Moore LLP

Worldwide Plaza

825 Eighth Avenue

New York, NY 10019

(212) 474-1131

 

 

Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨                    

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨                    

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨                    

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.

 

Large accelerated filer   ¨   Accelerated filer   ¨
Non-accelerated filer   x   Smaller reporting company   ¨

(Do not check if a smaller reporting company)

   

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Amount

to be

Registered (1)

 

Proposed

Maximum

Offering Price

per Share (2)

 

Proposed

Maximum
Aggregate

Offering Price

 

Amount of
Registration Fee (3)

Class A common stock, $0.01 par value per share

  23,000,000  

$16.00

 

$368,000,000

 

$50,195.20

 

 

(1) Estimated pursuant to Rule 457(a). Including shares of Class A common stock which may be purchased pursuant to the underwriters’ option to purchase additional securities.
(2) Anticipated to be between $14.00 and $16.00 per share.
(3) The Registrant previously paid $34,380 of this amount in connection with the original filing of this Registration Statement on August 7, 2012.

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to Completion, dated October 17, 2012

PRELIMINARY PROSPECTUS

20,000,000 Shares

 

LOGO

THE WHITEWAVE FOODS COMPANY

Class A Common Stock

This is The WhiteWave Foods Company’s initial public offering. We are selling 20,000,000 shares of our Class A common stock.

We expect the public offering price to be between $14.00 and $16.00 per share. Currently, no public market exists for the shares. We have applied to list our Class A common stock on The New York Stock Exchange under the symbol “WWAV.”

We have two classes of authorized common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion. Our Class A common stock is entitled to one vote per share, and our Class B common stock is entitled to ten votes per share with respect to all matters submitted to a vote of our stockholders, subject, in the case of our Class B common stock, to reduction in accordance with the terms of our amended and restated certificate of incorporation. Each share of Class B common stock will be convertible into one share of Class A common stock by Dean Foods and certain other permitted holders as described in this prospectus, at any time, upon the election of such holder. In addition, the Class B common stock will automatically convert into Class A common stock in certain circumstances.

Investing in our common stock involves risks. See “Risk Factors” beginning on page 21 of this prospectus.

 

 

     Price to Public   Underwriting
Discount
  Proceeds to
The WhiteWave
Foods Company

Per Share

  $               $               $            

Total

  $               $               $            

 

 

The underwriters also have an option to purchase up to an additional 3,000,000 shares of Class A common stock from us, at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The shares will be ready for delivery on or about                 , 2012.

 

J.P. Morgan   Credit Suisse  

BofA Merrill Lynch

 

Morgan Stanley    Barclays    Wells Fargo Securities

 

Credit Agricole CIB    SunTrust Robinson Humphrey

The date of this prospectus is                     , 2012.


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LOGO

At heart, we are creators. And what we’re creating today is a new kind of food company. Our pioneering brands helped launch some of the new and exciting consumer trends in food and continue to change the way people eat. As we grow, we continue in that heritage of bright, new food and beverage ideas that people love. Each morning, people wake up and greet their day with the trusted brands of WhiteWave. They share with their families their favorite plant based beverages in natural and organic choices from Silk, and in Europe, from Alpro. They watch their coffee bloom to a golden bronze with a traditional Swirl of Lana O Lakes half & half. They love to hear their kids ask for the happy cow on their favorite milk from Horizon Organic. The WhiteWave Foods Company manufactures, markets, distributes and sells branded plant based foods and beverages, coffee creamers and beverages, and premium dairy products. We pursue growth in product categories that are innovative, great-tasting. bring nutritional benefits and are sourced and produced responsibly.


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LOGO

At The WhiteWave Foods Company, we are uniting the spirit and principles of small food with the scale and resources of big food to change the way the world eats for the better. Plant-Based Foods and Beverages We believe that great-tasting plant-based foods are better for our communities and the planet. Coffee Creamers and Beverages We believe that everyone deserves a great cup of coffee.We are committed to bringing the taste experiences of the coffee house to the comfort of home. Premium Dairy We believe in dairy as a foundation for nutrition. We are committed to finding new ways to deliver a better dairy experience for everyone.


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LOGO

A new kind of food company.

Innovation

Our growing portfolio demonstrates

our drive to innovate new categories,

transform brands, and continue

a leadership role in the future of food.

Responsibly Produced Foods

We’re continuously striving to improve how our products are sourced, produced and brought to the shelf.

Motivated Talent

We build and retain highly talented, experienced management teams. Our employees are passionate about owning our mission and contributing to a culture of innovation, responsibility and growth.

At heart, we’re creators.

And what we’re building is a portfolio of brands we know will be as welcome at your table as they are at our own.


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Table of Contents

 

     Page  

Industry and Market Data

     2   

Prospectus Summary

     3   

Risk Factors

     21   

Special Note Regarding Forward-Looking Statements

     41   

Use of Proceeds

     42   

Dividend Policy

     43   

Capitalization

     44   

Dilution

     46   

Selected Consolidated Financial Data

     48   

Unaudited Pro Forma Condensed Consolidated Financial Information

     51   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     61   

Business

     84   

Management

     99   

Executive Compensation

     108   

Certain Relationships and Related Party Transactions

     147   

Principal Stockholders

     163   

Description of Financing Transactions and Material Indebtedness

     165   

Description of Capital Stock

     167   

Shares Eligible for Future Sale

     174   

Material U.S. Tax Considerations for Non-U.S. Holders of Common Stock

     176   

Underwriting

     180   

Legal Matters

     185   

Experts

     185   

Where You Can Find More Information

     186   

Index to Financial Statements

     F-1   

 

 

We have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give to you. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our Class A common stock.

We are offering to sell shares of our Class A common stock, and seeking offers to buy shares of our Class A common stock, only in jurisdictions where offers and sales are permitted. Neither we nor any of the underwriters have taken any action to permit a public offering of the Class A common stock or the possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about, and to observe, any restrictions relating to this offering and the distribution of this prospectus applicable to that jurisdiction.

Through and including                 , 2012 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

 

 

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Industry and Market Data

Unless otherwise indicated, statements in this prospectus concerning our industry and the categories in which we operate, including our general expectations and competitive position, business opportunity, and category size, growth, and share, are based on information from independent industry organizations and other third-party sources (including industry publications, surveys, and forecasts), data from our internal research, and management estimates. Management estimates are derived from the information and data referred to above, and are based on assumptions and calculations made by us based upon our interpretation of such information and data, and our knowledge of our industry and the categories in which we operate, which we believe to be reasonable. We have not independently verified any third-party information, and our internal data have not been verified by any independent source. Furthermore, the information and data referred to above are imprecise. Projections, assumptions, expectations, and estimates regarding our industry and the categories in which we operate and our future performance are also necessarily subject to risk.

Statements in this prospectus regarding our competitive position and category size, growth, and share in the United States are based on data that do not account for certain retailers with whom we do business, as information from such retailers was not historically available. However, we believe these data are reasonable approximations, and we have no reason to believe that the inclusion of additional retailers in the data collection process would materially change the conclusions we have drawn from these data. In addition, statements in this prospectus regarding the characteristics and preferences of our consumers are based on independent surveys of consumers of our products that we have not commissioned or independently verified. A broader sampling of our consumers, different survey methodologies, and collection of data at a different time of year, among other variables, could lead to different results; however, we know of no better methodology for estimation, nor do we have any reason to believe that our consideration of additional or different survey data would materially change the conclusions we have drawn from these surveys. Statements in this prospectus regarding the rank of the product launches of Silk PureAlmond almondmilk and International Delight CoffeeHouse Inspirations are based on data that does not account for certain major retailers with whom we do business, as information from such retailers for such data regarding the rank of product launches was not historically available. However, we believe these data are reasonable approximations, and we have no reason to believe that the inclusion of additional retailers in the data collection process would materially change the conclusions we have drawn from these data. Finally, statements in this prospectus regarding the household penetration of our products and categories are based on information from a survey that we commissioned SymphonyIRI Group, Inc. (“IRI”) to perform regarding the presence of our products and competitor products in our categories in U.S. households within the prior 52-week period. Although not a direct measure of household penetration, these data are generally regarded within our industry as the best available approximation of household penetration. We have no reason to believe that any other measure of household penetration would materially change our conclusions regarding the U.S. household penetration of our products and categories.

Statements in this prospectus regarding our competitive position and category size, growth, and share in Europe refer to our competitive position and category size, growth, and share only in the nine countries in Europe in which we are primarily focused: Belgium, France, Germany, Italy, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom. For purposes of this prospectus, our “core geographies” refers to Belgium, Germany, the Netherlands, and the United Kingdom.

Silk, International Delight, Horizon Organic, Alpro, and our other registered or common law trademarks, service marks, or trade names appearing in this prospectus, are the property of The WhiteWave Foods Company. Other trademarks, service marks, or trade names appearing in this prospectus, including the LAND O LAKES, Almond Joy, Cold Stone, Cinnabon, Hershey’s, and YORK trade names which we license, are the property of their respective owners.

 

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Prospectus Summary

This summary highlights certain information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, especially the “Risk Factors” section and our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision.

As used in this prospectus, the terms “WhiteWave,” the “Company,” “we,” “us,” and “our” may, depending on the context, refer to The WhiteWave Foods Company, to one or more of its consolidated subsidiaries, including WWF Operating Company, or to The WhiteWave Foods Company and all of its subsidiaries taken as a whole. References to “WWF Operating Company” refer to WWF Operating Company, which presently is a wholly-owned subsidiary of Dean Foods. Except for the nominal assets that are currently held by The WhiteWave Foods Company, WWF Operating Company holds substantially all of the historical assets and liabilities related to the business that The WhiteWave Foods Company will acquire pursuant to the contribution described below. References to “Dean Foods” refer to Dean Foods Company, our parent company.

For purposes of this prospectus, our “core brands” refers to Silk, International Delight, LAND O LAKES, Horizon Organic, and Alpro. “Plant-based foods and beverages” refers to plant-based items that have a dairy equivalent in the consumer packaged food and beverage industry, and consists of milks, creams, desserts, and yogurts. “Coffee creamers and beverages” refers to non-dairy creamers, dairy creamers and half & half, and ready-to-drink iced coffee beverages. “Premium dairy” refers to organic and other value-added dairy products. “Organic products” refers to milk, cheese, yogurt, sour cream, and butter. “Other value-added dairy products” refers to lactose-free milk, acidophilus milk, milk with added Omega-3, grass-fed milk, and fine-filtered milk.

Our Company

We are a leading consumer packaged food and beverage company focused on high-growth product categories that are aligned with emerging consumer trends. We manufacture, market, distribute, and sell branded plant-based foods and beverages, coffee creamers and beverages, and premium dairy products throughout North America and Europe. We are pioneers in these product categories, with Silk, International Delight, and Horizon Organic having #1 or #2 brand positions based on retail sales in the United States, and Alpro having a #1 brand position based on retail sales in Europe. Our widely-recognized, leading brands distributed in North America include Silk plant-based foods and beverages, International Delight and LAND O LAKES coffee creamers and beverages, and Horizon Organic premium dairy products, while our popular European brands of plant-based foods and beverages include Alpro and Provamel.

Our mission is to create a food and beverage company that combines the entrepreneurship, spirit, principles, and practices of small food companies with the professionalism, resources, and scale of large food companies. We aspire to change the way the world eats for the better by providing consumers with innovative, great-tasting food and beverage choices that meet their increasing desires for nutritious, flavorful, convenient, and responsibly produced products.

We have two reportable business segments: our North America segment, which offers products in the plant-based foods and beverages, coffee creamers and beverages, and premium dairy categories throughout North America, and our Europe segment, which offers plant-based foods and beverages throughout Europe.

 

 

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Our Portfolio

 

LOGO

We have experienced strong sales growth over the past few years. We generated total net sales of $2.0 billion in the year ended December 31, 2011, up from $1.2 billion in the year ended December 31, 2007, representing a compound annual growth rate (“CAGR”) of 13.6% from 2007 to 2011.

We sell our products across North America and Europe to a variety of customers, including grocery stores, mass merchandisers, club stores, and convenience stores, as well as through various away-from-home channels, including restaurants and foodservice outlets. We believe our products meet a variety of consumer preferences and desires, and, as a result, our brands have historically performed well for retailers. We believe that our products receive premium shelf placement and have high adoption rates due to our product innovations, strong brand recognition, consumer loyalty, and ongoing collaboration with retailers. Our core commercial capabilities, including speed-to-market and an extensive supply chain network, enable us to achieve and sustain our leading positions and drive growth in our brand platforms. Going forward, we expect to drive further sales and category growth by strengthening our existing product categories, expanding our brands into logical, adjacent product categories, focusing on new product development, and capitalizing on emerging consumer trends.

Brand building and new product innovation are core to our growth strategy, and we believe they represent significant competitive advantages for us. We continually invest in marketing and promotional activities to build the strength of our brand equities. For example, we cultivated Silk and Alpro from niche soymilk brands into a broad range of plant-based food and beverage products. Our in-house research and development (“R&D”) group develops new, great-tasting products that are responsive to evolving consumer preferences. We have a highly successful track record of leveraging our capabilities to create and rapidly commercialize new products, and to build and develop categories and subcategories on a large scale. Examples of our highly successful product launches include Silk PureAlmond almondmilk and International Delight CoffeeHouse Inspirations, which were both launched in 2009 and ranked among the top 2% and 3%, respectively, of all consumer packaged food and beverage launches in the United States between 2007 and 2011 in terms of retail sales in each of their first twelve months. In 2012, we were the first company to commercialize almond drinks on a large scale in Europe, capitalizing on the emerging European consumer preference for variety in plant-based dairy alternatives.

We are committed to expanding our business while continuing to support our environment, communities, and employees. In our efforts to produce food responsibly, we set goals and design our sustainability initiatives to benefit the environment and the communities we serve. We believe our unique corporate culture and commitment to

 

 

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our employees fosters a highly engaged workforce focused on innovation and the development of new products that offer better choices for people and are better for our communities and the planet.

Throughout our history, we have successfully identified and acquired high-growth businesses in attractive categories, including International Delight in 1997, Silk in 2002, Horizon Organic in 2004, and Alpro in 2009. Since their respective acquisitions, each of these brands has experienced robust net sales growth, which has resulted in our leading positions across our entire portfolio. Given our scalable infrastructure, deep knowledge of key drivers in our business and product categories, track record of innovation, and core competency of successfully acquiring and integrating high-growth brands in attractive categories, we believe that our Company is well positioned for future global growth.

Industry Overview

We compete in categories that are part of larger food and beverage sectors and that provide us meaningful opportunities for continued growth. Our plant-based foods and beverages and premium dairy products are well positioned within the dairy and dairy alternatives sector, as well as the natural and organic sector, which in the United States alone were estimated to be $48 billion and $46 billion sectors, respectively, in 2011. The growth of the natural and organic sector is outpacing the growth of the overall food and beverage industry and, within the dairy and dairy alternatives sector, our share continues to grow. In addition, our coffee creamers and beverages continue to benefit from the growth and overall size of the coffee and creamers sector, which was estimated to be a $12 billion sector in the United States alone in 2011.

The growth of our product categories is supported by evolving consumer preferences for products that:

 

   

are innovative and great-tasting;

 

   

have nutritional benefits and profiles not typically found in traditional offerings; and

 

   

are sourced and produced responsibly.

We believe that these trends will continue into the future.

We believe that our products are uniquely positioned in rapidly growing, on-trend categories that stand to benefit from anticipated sustainable and strong consumer demand:

 

   

Plant-based foods and beverages represented a $1.9 billion category in the United States and Europe in 2011, and experienced a CAGR of 8% from 2009 to 2011. We believe almond-based beverages was among the fastest growing subcategories in the U.S. consumer packaged food and beverage industry, with a CAGR of 170% from 2009 to 2011 and representing a $289 million subcategory in 2011. We believe that the plant-based foods and beverages category will continue to experience favorable growth supported by a rising consumer focus on nutritional benefits, such as digestive and heart health, as well as by the positioning of these products as low-fat, low-calorie, and cholesterol-free dairy alternatives. Plant-based foods and beverages also enjoy advantaged environmental impact profiles over dairy milk, particularly in greenhouse gas production and water use.

 

   

Coffee creamers and beverages represented a $3.6 billion category in the United States in 2011, and experienced a CAGR of 9% from 2009 to 2011. The subcategories in which we compete, flavored coffee creamers and ready-to-drink coffee beverages, experienced CAGRs of 16% and 8%, respectively, from 2009 to 2011. Demand for coffee creamers is driven by rising coffee consumption, increasing preference for flavored creamers with coffee, and the growth of at-home brewing as consumers seek to enjoy the “coffeehouse” taste at a lower cost.

 

   

Premium dairy, which includes organic and other value-added dairy products, represented a $2.3 billion category in the United States in 2011, and experienced a CAGR of 8% from 2009 to 2011.

 

 

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Organic milk represented $1.2 billion in sales in the United States in 2011 and experienced a CAGR of 11% from 2009 to 2011. This robust growth is largely driven by a rising consumer preference for nutritious and organic products.

Our Competitive Strengths

Participation in Highly Attractive Categories

We are a leader in three major product categories: plant-based foods and beverages, coffee creamers and beverages, and premium dairy. These high-growth, on-trend product categories are aligned with emerging consumer preferences for products that are nutritious, flavorful, convenient, and responsibly produced. As a result, we believe these product categories will continue to offer attractive growth opportunities relative to traditional food and beverage categories. We believe that increasing household penetration will be a significant growth driver across all of our product categories. For example, according to IRI, the U.S. penetration rates of refrigerated organic milk and refrigerated coffee creamers including half & half were approximately 10% and 53%, respectively, as of mid-year 2012. Additionally, according to IRI, the U.S. penetration rate of refrigerated plant-based beverages was approximately 23% as of mid-year 2012, and we believe that in many international geographies these products are not widely available to consumers today. We believe that our coffee creamer and beverage products are well positioned to continue benefitting from the growing consumption of coffee, which is currently the most popular beverage among U.S. consumers, according to a 2012 National Coffee Drinking Trends study. We also believe there is increasing consumer demand for natural and organic products, including organic milk. Furthermore, the premium dairy category remains underpenetrated, as organic milk comprised only 7.5% of total U.S. retail milk sales in 2011.

Product Portfolio Aligned with Consumer Trends

Our product portfolio is designed to appeal to consumer preferences for nutritious, great-tasting, convenient, and responsibly produced products. Our plant-based food and beverage platform, which includes soy-, almond-, coconut-, hazelnut-, rice- and oat-based choices, features a variety of flavorful offerings with nutritional qualities that consumers desire. Our coffee creamers and beverages platform, which includes coffee creamers and iced coffee products under the International Delight and LAND O LAKES brand names, enables our consumers to enjoy a flavorful, convenient, and affordable “coffeehouse” taste. Finally, our premium dairy portfolio consists of organic milk, yogurt, cheese, and other premium dairy products that appeal to consumers seeking wholesome and nutritious choices for their families.

Large, Leading Brands with Significant Scale

We have built a portfolio of large, leading brands with significant retail scale that are well recognized by consumers, and that we believe are important to retailers. We have helped build and develop the categories in which we compete into large and growing categories whose aggregate retail sales were approximately $8 billion in 2011 in the United States and Europe. Within their respective subcategories, each of our Silk, Horizon Organic, and Alpro brands hold #1 brand positions, with meaningfully higher shares than those of their nearest respective competitors. For example, Silk and Horizon Organic held 58% and 45% shares, respectively, of their subcategories in the United States, and Alpro held a 37% share of its subcategory in Europe, each share being at least three times greater than that of its closest branded competitor in 2011.

Through our new product innovation, brand extensions and expanded distribution, we have developed sizeable brands, with Silk, International Delight, and Horizon Organic, each generating in excess of $400 million in total net sales in 2011. We expect to further capitalize on the strong consumer demand for our products and continue to grow our sales and brand share within our categories.

 

 

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Culture of Innovation

We have established a track record of launching successful new products and effectively commercializing innovation across our brands in North America and Europe by building and leveraging highly experienced R&D teams. We have consistently made investments in new product development. Throughout our history, we have leveraged our strong brand equities and our innovation capabilities to pioneer new products and subcategories. For example, the organic milk, soymilk, and flavored non-dairy creamer subcategories were either created or largely developed by our Company. All have since grown into sizable, profitable subcategories in which we maintain strong leadership positions. Recent successful introductions have targeted consumer preferences for nutrition (Silk PureAlmond almondmilk, Alpro Almond Drink, Horizon Organic Milk with DHA Omega-3, and Silk Fruit & Protein), great taste (International Delight Iced Coffee, Silk PureAlmond Dark Chocolate almondmilk, and Alpro Fruity & Creamy soy yogurt), and convenience (single serve Horizon Organic and single serve Silk PureAlmond almondmilk).

Extensive Commercial and Supply Chain Network

Our strong innovation and commercial capabilities enable us to develop, rapidly commercialize, and efficiently distribute our products. Through our sales organization, we strive to cultivate strong, collaborative relationships with our retail customers that facilitate favorable product placement, which, combined with our marketing capabilities and brand strength, drives high product-turnover rates. Our strategic distribution network allows us to achieve broad channel reach, and our extensive production capabilities, including our extended shelf life (“ESL”) manufacturing network in the United States and Europe, position us for continued cost reduction opportunities. We believe our strategic investments in our manufacturing footprint and diverse network of suppliers will allow us to continue scaling our business into the future. Going forward, we also believe that we can leverage these core capabilities to continue to pioneer and lead in our categories.

Significant Global Growth Potential

Our leading brands, on-trend, innovative products, and sales, marketing, and supply chain capabilities position us to benefit from the growing global adoption of products in our major categories. In addition, throughout our history, we have demonstrated a consistent ability to successfully acquire and integrate businesses and their brands. Through these acquisitions we have capitalized on product and category growth trends and expanded our geographic scope. We believe that we can leverage these experiences to take advantage of future global growth opportunities.

Experienced Management Team with Acquisition Expertise

We are led by a proven and experienced management team. Our Chairman of the Board and Chief Executive Officer, Gregg Engles, has 24 years of management experience in the consumer packaged food and beverage industry. Mr. Engles conceived the idea of a branded dairy alternative business within the Dean Foods portfolio, and, under his direction, our Company was built through a series of successful acquisitions, including International Delight in 1997, Silk in 2002, Horizon Organic in 2004, and Alpro in 2009. Mr. Engles, Blaine McPeak, Kelly Haecker, and Thomas Zanetich, among others, were all either founding members of the management team that built WhiteWave by acquiring and integrating its principal brands, or early employees who have led its subsequent growth. Bernard Deryckere has led Alpro for over a decade and driven its leadership in plant-based foods and beverages in Europe. Mr. Engles and the other members of our senior management team average almost two decades of industry experience at leading consumer packaged food and beverage companies. Our management team has played an integral role in our Company’s success by instilling a culture committed to innovation, responsibility, and growth. We believe that our strong leadership and experience acquiring and scaling high-growth businesses will enable our Company to continue to drive sustained growth and increased profitability.

 

 

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Our Business Strategy

Our Company competes in product categories that we believe have attractive long-term growth prospects due to strong consumer interest, favorable category dynamics, and, in many cases, low household penetration. To achieve sustainable growth and profitability, our strategy encompasses the following:

Leverage the Equity in Our Core Brands

Our core brands are leaders in categories which are experiencing strong consumer momentum. We intend to continue to leverage the equity of our core brands by introducing innovative products and expanding our offerings under those established brands to raise consumer awareness of our products’ attributes which, in turn, will allow us to expand sales to a broader set of consumers and consumption occasions. We expect to expand the role of our brands even further with our retail customers, who recognize the accelerated growth that our brands bring to their businesses. We will leverage our strong track record of building categories and brands by continuing to develop and introduce innovative, on-trend products that further solidify our position as a category leader.

Drive Growth Through Innovation

Our Company has a history of driving growth through pioneering new subcategories, capitalizing on emerging trends, and introducing product extensions under our brands. Our recent new product launches have allowed us to continue to grow in our existing categories and subcategories and deliver innovative products under trusted brands. For instance, Silk Fruit & Protein beverages combine the established Silk soymilk tradition with the added taste of fruit. With International Delight Iced Coffee, we created a new subcategory of refrigerated iced coffee for at-home consumption. Our launches of Alpro Almond Drink and Alpro Hazelnut Drink are providing European consumers with access to an increased variety of great-tasting, nutritious plant-based beverages. We believe there are attractive opportunities to extend our trusted brands into select adjacent product categories and subcategories. We are committed to leveraging our advanced R&D and commercial capabilities to further develop and expand our categories and subcategories and deliver innovation that will drive increased consumption of our brands.

Continue to Identify Cost Reduction Opportunities to Reinvest in Brands and Operational Capabilities

We are committed to pursuing operational cost reduction programs in order to maintain our competitive position and support our growth strategy. Company-wide cost reduction programs improve operational efficiency through the elimination of excess costs. By realizing savings through these cost reduction programs, we can reinvest in our business to build our brands and improve our capabilities as we strive to drive growth and deliver superior service to our retail and foodservice customers. We view the pursuit of opportunities to improve the efficiency of our operations as an essential contributor to our success.

Selectively Pursue Expansion Opportunities in Attractive New Geographies

Our leading brands, on-trend, innovative products, and sales, marketing, and supply chain capabilities provide opportunities to expand our business globally by:

 

   

broadening the distribution of successful products across our existing geographies;

 

   

driving distribution of our brands and products into geographies adjacent to our existing geographies; and

 

   

introducing our brands and products in new, high-growth regions across the globe.

Throughout our history, we have demonstrated an ability to successfully enter and grow new categories, subcategories, and geographies through acquisitions. We believe that we can leverage these experiences to capitalize on future value-enhancing acquisitions and partnerships that complement our portfolio.

 

 

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Separation from Dean Foods and Potential Spin-off

Prior to the completion of this offering, we were a wholly-owned subsidiary of Dean Foods, and we had one class of common stock outstanding. On October 15, 2012, we amended and restated our certificate of incorporation and by-laws, increased the total number of authorized shares of our capital stock, and created two classes of common stock that each have the same economic rights, including with respect to dividends and distributions. In this prospectus, we refer to these transactions collectively as the “reclassification.” Our Class A common stock is entitled to one vote per share, and our Class B common stock is entitled to ten votes per share with respect to all matters submitted to a vote of our stockholders, subject, in the case of the Class B common stock, to reduction in accordance with the terms of our amended and restated certificate of incorporation. Upon completion of this offering, Dean Foods will own none of our Class A common stock and 100% of the outstanding shares of our Class B common stock, which will give Dean Foods approximately 88.2% of the economic interest in our outstanding common stock and approximately 98.7% of the voting power with respect to all matters submitted to a vote of our stockholders, or approximately 86.7% and 98.5%, respectively, if the underwriters exercise their over-allotment option in full.

Shares of our Class B common stock will convert into shares of our Class A common stock on a one-for-one basis in the following circumstances:

 

   

for so long as Dean Foods or any of its subsidiaries (other than the Company and our subsidiaries) (each, a “Dean Foods Entity”) is the record holder of shares of Class B common stock, at any time at the option of such holder;

 

   

except with respect to shares of Class B common stock that are distributed by Dean Foods in a tax-free spin-off (as described below), automatically upon transfer, if after such transfer, such shares are not beneficially owned by any Dean Foods Entity;

 

   

automatically with respect to any shares of Class B common stock then owned by a Dean Foods Entity, if the aggregate number of shares of Class A common stock and Class B common stock beneficially owned by the Dean Food Entities, collectively, falls below 50% of the aggregate number of the then-outstanding shares of our common stock;

 

   

following a tax-free spin-off, automatically to the extent of any shares of Class B common stock retained by the Dean Foods Entities; and

 

   

following a tax-free spin-off and subject to the approval of the board of directors and satisfaction of certain other conditions, upon the affirmative vote of the holders of our common stock.

For a description of the terms of conversion, see “Description of Capital Stock.”

In connection with this offering, we and Dean Foods will enter into a separation and distribution agreement that will provide for, and contain the key terms of, the separation of our business from Dean Foods’ other businesses and the contribution by Dean Foods to us of the capital stock of WWF Operating Company, which presently is a wholly-owned subsidiary of Dean Foods. The separation of our business from Dean Foods’ other businesses and the contribution will take effect prior to the completion of this offering. At the time of the contribution, WWF Operating Company will hold substantially all of the historical assets and liabilities related to our business except for the nominal assets that we currently hold. The separation and distribution agreement will also contain key provisions related to this offering, as well as any potential spin-off or other disposition of our common stock by Dean Foods, as described below. In addition, we and Dean Foods will enter into a transition services agreement governing Dean Foods’ provision of various services to us, and our provision of various services to Dean Foods, on a transitional basis, and several ancillary agreements in connection with the contribution. In this prospectus, references to the “contribution” refer to Dean Foods’ contribution to us of the capital stock of WWF Operating Company, and the term “separation” refers to the separation of our business from Dean Foods’ other businesses, along with the effectiveness of various agreements between us and Dean Foods. See “Certain Relationships and Related Party Transactions.”

 

 

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Upon completion of this offering, we expect to incur approximately $885 million in new indebtedness under our senior secured credit facilities, contribute substantially all of the initial net proceeds of that borrowing to WWF Operating Company, and cause WWF Operating Company to use such proceeds to repay its obligations outstanding as of the completion of this offering under intercompany notes owed to Dean Foods. We refer to these transactions as the “related financing transactions.” As of October 17, 2012, there was $1.155 billion in aggregate principal amount of intercompany notes outstanding. Upon determination of the initial public offering price, but prior to the contribution of the stock of WWF Operating Company to us, Dean Foods may determine, in its sole discretion, to contribute a portion of the intercompany notes to WWF Operating Company. See “Description of Financing Transactions and Material Indebtedness.” We will also contribute up to $282 million of the initial net proceeds from this offering (but no net proceeds from the exercise of the underwriters’ over-allotment option) to WWF Operating Company and cause WWF Operating Company to use such proceeds to repay obligations under the intercompany notes owed to Dean Foods that are outstanding as of the completion of this offering. Any remaining net proceeds and any net proceeds from the exercise of the underwriters’ over-allotment option will be used to repay indebtedness under our senior secured credit facilities. See “Use of Proceeds.”

Dean Foods has informed us that, at some time in the future, but no earlier than the expiration or waiver of the 180-day lock-up period described below under “Underwriting,” it intends to effect a tax-free spin-off or other tax-free disposition of all or a portion of its ownership interest in us to its stockholders. In a spin-off, Dean Foods may be required to distribute its shares of Class B common stock to its stockholders to preserve the tax-free treatment of the spin-off or it may elect to convert its shares of Class B common stock to Class A common stock in accordance with the terms of our amended and restated certificate of incorporation and distribute shares of Class A common stock. In addition, a tax-free disposition may include one or more transfers of our Class A common stock to one or more third-party lenders in exchange for indebtedness of Dean Foods held by those lenders or another similar transaction. We refer to the transfer of our Class A common stock by Dean Foods to one or more third-party lenders in exchange for indebtedness of Dean Foods as an “equity-for-debt exchange.” Any spin-off, equity-for-debt exchange, or other disposition by Dean Foods would be subject to various conditions, including receipt of any necessary regulatory or other approvals, the existence of satisfactory market conditions, and, in the case of a spin-off, equity-for-debt exchange, or other tax-free disposition, Dean Foods’ receipt of a private letter ruling from the Internal Revenue Service (the “IRS”) and/or an opinion of counsel that the contribution and such spin-off, equity-for-debt exchange, and/or other tax-free disposition, taken together, would be tax-free to Dean Foods and its stockholders. The conditions to a spin-off, equity-for-debt exchange, or other disposition by Dean Foods may not be satisfied. Dean Foods has no obligation to pursue or consummate a tax-free spin-off, equity-for-debt exchange, or any other disposition of its ownership interest in us by any specified date or at all, whether or not these conditions are satisfied, and Dean Foods may retain all or a portion of its remaining ownership interest in us indefinitely. In this prospectus, references to a “spin-off” refer to the potential tax-free distribution, equity-for-debt exchange, or other tax-free disposition of all or a portion of Dean Foods’ ownership interest in us to Dean Foods’ stockholders.

We believe, and Dean Foods has advised us that it believes, that, in addition to allowing Dean Foods to repay certain of its outstanding indebtedness with net proceeds from this offering and the related financing transactions, as well as with the net proceeds of any future dispositions of our shares by Dean Foods in an equity-for-debt exchange or other disposition, the separation, the contribution, this offering, and a spin-off will provide a number of benefits to our business, to Dean Foods’ business, and to Dean Foods’ stockholders.

We believe that the business benefits that will occur as a result of this offering, and be more fully realized upon a future spin-off, include:

 

   

Market recognition of the value of our businesses. As we will be a stand-alone public company after this offering, potential investors will be able to invest directly in our product portfolio. In addition, after a spin-off, potential investors will also be able to invest directly in Dean Foods’ business.

 

 

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Focused management attention. Our management will be better able to focus its attention on our business. As a company dedicated to pioneering new categories and subcategories, capitalizing on emerging trends, and introducing new products and product extensions of our existing brands, we expect to be in a better position to grow our business and to serve our customers more effectively through more efficient deployment of resources, increased operational flexibility, and enhanced responsiveness to customers.

 

   

Improved access to capital. As a stand-alone public company, we will avoid conflicts in the allocation of capital between us and other Dean Foods businesses. Rather, we will have direct access to the capital markets to issue equity or debt securities, which we expect will improve our access to capital and increase our flexibility to invest in innovation, product development, marketing, and production capacity, as well as to pursue strategic acquisitions.

 

   

Incentives for employees more directly linked to our performance. We expect to enhance employee motivation and to strengthen our management’s focus on our business through incentive compensation programs specifically tied to the results of our business operations and the market performance of our common stock. We believe that these incentives will enhance our ability to attract and retain qualified personnel.

 

   

Increased ability to pursue strategic acquisitions. With the ability to issue our common stock as consideration, we expect to be better positioned to pursue strategic acquisitions to grow our business.

Recent Developments

Results of Operations

For the three and nine months ended September 30, 2012, we anticipate reporting total net sales of approximately $575 million and $1,681 million, respectively, as compared to total net sales of approximately $510 million and $1,484 million for the three and nine months ended September 30, 2011, respectively.

The increase in net sales in the three months ended September 30, 2012, as compared to the same period in 2011, was driven by strong volume growth in the North America segment, led by our product innovation and significant increases in marketing investments in our coffee creamers and beverages and plant-based foods and beverages portfolios.

Net sales in Europe declined slightly in the three months ended September 30, 2012, as compared to the same period in 2011, driven by foreign currency translation. Excluding the impact of currency changes, net sales increased by approximately mid-single digits, driven by solid volume growth, higher pricing to offset higher commodity costs, and a favorable mix of products sold.

For the three and nine months ended September 30, 2012, we anticipate reporting operating income of approximately $43 million and $134 million, respectively, as compared to operating income of approximately $48 million and $127 million for the three and nine months ended September 30, 2011, respectively.

The decline in operating income in the three months ended September 30, 2012, as compared to the same period in 2011, was driven by an approximately $12 million increase in Corporate and Other costs, including non-recurring transaction costs related to this offering of approximately $8 million and increased long-term incentive compensation. Corporate and Other costs increased approximately $18 million, including non-recurring transaction costs related to this offering of approximately $12 million and increased long-term incentive compensation, for the nine months ended September 30, 2012, as compared to the same period in 2011. Long-term incentive compensation increases were primarily due to equity awards impacted by increases in Dean Foods’ stock price during 2012.

 

 

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Dean Foods has previously disclosed, and is expected to continue to disclose, financial information about its WhiteWave-Alpro segment, which consists of our business. Dean Foods’ disclosures relating to its WhiteWave-Alpro segment includes net sales, gross profit, gross margin, net income attributable to non-controlling interest, and income taxes. This segment information does not reflect our results as a separate company and should not be relied upon as indicative of our performance. In particular, Dean Foods’ WhiteWave-Alpro segment information does not include allocations of general corporate and shared service expenses, interest expense, share-based compensation expense, and other adjustments. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information.

The data presented above is based solely upon information available to us as of the date of this prospectus, is not a comprehensive statement of our financial results or positions as of or for the three and nine months ended September 30, 2012, and has not been audited, reviewed, or compiled by our independent registered public accounting firm, Deloitte & Touche L.L.P. Accordingly, Deloitte & Touche L.L.P. does not express an opinion or any other form of assurance with respect thereto. Our actual results for the three and nine months ended September 30, 2012 will not be available until after this offering is completed.

Credit Agreement

On October 12, 2012, we entered into a credit agreement, among us, the subsidiary guarantors identified therein, Bank of America, N.A., as administrative agent, JPMorgan Chase Bank, N.A., as syndication agent, and the other lenders party thereto (the “Credit Agreement”). The Credit Agreement governs our senior secured credit facilities, which consist of a revolving credit facility in an aggregate principal amount of $850 million and term loan facilities in an aggregate principal amount of $500 million (our “senior secured credit facilities”), pursuant to which we expect to incur approximately $885 million in new indebtedness upon completion of this offering.

Risks Affecting Our Business

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks described in “Risk Factors” before making a decision to invest in our Class A common stock. If any of these risks actually occurs, our business, financial condition, and results of operations would likely be negatively affected. In such case, the trading price of our Class A common stock would likely decline, and you may lose part or all of your investment. Below is a summary of some of the principal risks we believe we face:

 

   

if we fail to anticipate and respond to changes in consumer preferences, demand for our products could decline;

 

   

we may not be able to implement successfully our growth strategy for our core brands on a timely basis or at all;

 

   

our product categories face a high level of competition, which could negatively impact our sales and results of operations;

 

   

the loss of any of our largest customers could negatively impact our sales and results of operations;

 

   

erosion of the reputation of one or more of our leading brands could negatively impact our sales and results of operations;

 

   

our continued success depends on our ability to innovate successfully and to innovate on a cost-effective basis;

 

   

reduced availability of raw materials and other inputs, and increased costs for our raw materials and other inputs, could adversely affect us;

 

   

the economic downturn could negatively affect our sales and results of operations;

 

 

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our indebtedness could adversely affect our financial condition and ability to operate our business, and we may incur additional debt;

 

   

we are controlled by Dean Foods, and its interests may conflict with yours; and

 

   

we may not realize the potential benefits from being a stand-alone public company.

Our Corporate Information

We were incorporated under the laws of the State of Delaware on July 17, 2012. Our principal executive offices are located at 2711 North Haskell Avenue, Suite 3400, Dallas, Texas 75204. Our telephone number is (214) 303-3400. We maintain a website at www.whitewave.com. The reference to our website is intended to be an inactive textual reference only. The information contained on, or that can be accessed through, our website is not a part of this prospectus.

 

 

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The Offering

Common stock offered:

 

Class A common stock

20,000,000 shares

Common stock to be outstanding immediately after this offering:

 

Class A common stock

20,000,000 shares
  23,000,000 shares if the underwriters exercise their over-allotment option in full

Class B common stock

150,000,000 shares

Common stock to be held by Dean Foods immediately after this offering:

 

Class A common stock

no shares

Class B common stock

150,000,000 shares, representing approximately 98.7% of the voting power of our outstanding common stock with respect to all matters submitted to a vote of our stockholders (or approximately 98.5% if the underwriters exercise their over-allotment option in full) and approximately 88.2% of the economic interest in our outstanding common stock (or approximately 86.7% if the underwriters exercise their over-allotment option in full)

Voting rights:

 

Class A common stock

one vote per share

Class B common stock

ten votes per share, subject to reduction in accordance with the terms of our amended and restated certificate of incorporation

 

  Holders of our Class A common stock and Class B common stock will generally vote together as a single class, except as set forth in our amended and restated certificate of incorporation or as otherwise required by law. Dean Foods, which, upon completion of this offering, will hold approximately 98.7% of the voting power of our outstanding common stock with respect to all matters submitted to a vote of our stockholders, will have the ability to control the outcome of all matters submitted to a vote of our stockholders including election and removal of directors. See “Description of Capital Stock.”

 

Over-allotment option

The underwriters have an option for a period of 30 days after the date of this prospectus to purchase up to 3,000,000 additional shares of our Class A common stock solely to cover over-allotments.

 

Use of proceeds

We estimate that the net proceeds to us from this offering, after deducting the estimated underwriting discount, will be approximately $282 million, or approximately $324 million if the underwriters exercise their over-allotment option in full, assuming that the shares of our Class A common stock to be sold in this offering are sold at $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus. There can be no assurance whether or not the underwriters will exercise their over-allotment option.

 

 

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  We will contribute up to $282 million of the initial net proceeds from this offering (but no net proceeds from the exercise of the underwriters’ over-allotment option) to WWF Operating Company and will cause WWF Operating Company to use such proceeds, together with substantially all of the net proceeds of our initial borrowing under our senior secured credit facilities, to repay obligations under intercompany notes owed to Dean Foods that are outstanding as of the completion of this offering. Dean Foods has advised us that it plans to use these funds to repay a portion of its indebtedness under its senior secured credit facility. We intend to use any remaining net proceeds (including any net proceeds from the exercise of the underwriters’ over-allotment option) to repay amounts outstanding under our senior secured credit facilities. See “Use of Proceeds” and “Description of Financing Transactions and Material Indebtedness.”

 

Dividend policy

We do not intend to declare or pay any cash dividends on our Class A common stock or Class B common stock for the foreseeable future. See “Dividend Policy.”

 

Risk factors

You should read the “Risk Factors” section of this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our Class A common stock.

 

Proposed New York Stock Exchange symbol

“WWAV”

 

 

Unless indicated otherwise, the number of shares to be outstanding after this offering:

 

   

excludes:

 

   

150,000,000 shares of our Class A common stock reserved for issuance upon any conversion of our outstanding Class B common stock; and

 

   

20,000,000 shares of our Class A common stock reserved for issuance under the 2012 Stock Incentive Plan (the “2012 SIP”) upon the exercise of future stock options, restricted stock units, or restricted stock that will be issued under our employee benefit plans, which will include:

 

   

3,028,188 shares of our Class A common stock reserved for issuance in connection with the IPO Grants to our executives and employees that will be granted following the determination of the initial public offering price per share of our Class A common stock in this offering, as described in “Executive Compensation—Our Anticipated Compensation Program Following this Offering—IPO Grants;”

 

   

shares of our Class A common stock that may be issuable in connection with compensation of our directors, as described in “Management—Director Compensation;” and

 

   

shares of our Class A common stock that may be issuable in connection with the conversion of outstanding Dean Foods equity awards upon the effectiveness of a spin-off, as described in “Executive Compensation—Our Anticipated Compensation Program Following this Offering—Treatment of Outstanding Dean Foods Equity Awards;”

 

   

assumes the underwriters will not exercise their over-allotment option; and

 

   

assumes that the shares of our Class A common stock to be sold in this offering are sold at $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus.

 

 

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Summary Consolidated Financial Data

The following financial data should be read in conjunction with our audited and unaudited consolidated financial statements and the related notes, and our unaudited pro forma condensed consolidated financial information and the related notes, included elsewhere in this prospectus.

The WhiteWave Foods Company was formed on July 17, 2012, has nominal assets and no liabilities, and will conduct no operations prior to completion of this offering. Therefore, we believe that a presentation of the historical results of The WhiteWave Foods Company would not be meaningful. Accordingly, the following presents the historical financial information for WWF Operating Company, which presently is a wholly-owned subsidiary of Dean Foods that, except for the nominal assets that are currently held by The WhiteWave Foods Company, holds substantially all of the historical assets and liabilities related to the business that The WhiteWave Foods Company will acquire pursuant to the contribution.

Unless otherwise specified, any references to “our,” “we,” and “us” in this summary consolidated financial data refer to WWF Operating Company.

The following table summarizes our consolidated financial data. We have derived the summary consolidated statement of operations data for the years ended December 31, 2011, 2010, and 2009 and the consolidated balance sheet data for the years ended December 31, 2011 and 2010 from our audited consolidated financial statements included elsewhere in this prospectus. The summary historical consolidated balance sheet data as of December 31, 2009 and June 30, 2011 has been derived from our unaudited balance sheets as of December 31, 2009 and June 30, 2011, which are not included in this prospectus. The consolidated statement of operations data for the six months ended June 30, 2012 and 2011 and the consolidated balance sheet data as of June 30, 2012 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The unaudited condensed consolidated financial statements were prepared on the same basis as our audited financial statements. In our opinion, such financial statements include all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements.

Our historical consolidated financial statements have been prepared on a stand-alone basis in accordance with U.S. generally accepted accounting principles (“GAAP”) and are derived from Dean Foods’ consolidated financial statements and accounting records using the historical results of operations and assets and liabilities attributed to our operations, and include allocations of expenses from Dean Foods. Our historical results are not necessarily indicative of our results in any future period.

Our unaudited pro forma condensed consolidated financial information has been prepared to reflect adjustments to our historical financial information, that are (1) directly attributable to the transactions described below; (2) factually supportable; and (3) with respect to the unaudited pro forma condensed consolidated statements of operations, expected to have a continuing impact on our results. The unaudited pro forma condensed consolidated financial information does not include non-recurring items, including, but not limited to, offering related legal and advisory fees. The unaudited pro forma condensed consolidated financial information reflects the impact of:

 

   

the reclassification, the separation, and the contribution;

 

   

the receipt of $282 million in net proceeds from the sale of shares of our Class A common stock in this offering at an assumed initial offering price of $15.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discount;

 

 

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the indebtedness to be incurred in the related financing transactions, as described in “Description of Financing Transactions and Material Indebtedness;”

 

   

the payment of $282 million of the initial net proceeds from this offering and substantially all of the net proceeds of our initial borrowing under our senior secured credit facilities to Dean Foods in satisfaction of $1.155 billion aggregate principal amount of outstanding intercompany notes owed by WWF Operating Company to Dean Foods plus accrued interest, as described in “Description of Financing Transactions and Material Indebtedness;”

 

   

the resulting elimination of Dean Foods’ net investment in us;

 

   

the entry into agreements that formalize ongoing commercial arrangements that we have with certain wholly-owned Dean Foods subsidiaries, all of which are described in greater detail in “Certain Relationships and Related Party Transactions;”

 

   

the termination of our intellectual property license agreement with a wholly-owned subsidiary of Dean Foods; and

 

   

other adjustments described in the notes to the “Unaudited Pro Forma Condensed Consolidated Financial Information.”

Collectively, the transactions underlying these adjustments are referred to as the “Pro Forma Transactions.” Our unaudited pro forma condensed consolidated financial information assumes the underwriters will not exercise their over-allotment option.

The unaudited pro forma condensed consolidated statements of operations give effect to the Pro Forma Transactions as though the Pro Forma Transactions had occurred as of January 1, 2011. The unaudited pro forma condensed consolidated balance sheet gives effect to the Pro Forma Transactions as though the Pro Forma Transactions had occurred as of June 30, 2012.

You should read the following summary consolidated financial data together with our audited and unaudited consolidated financial statements and the related notes included elsewhere in this prospectus and “Use of Proceeds,” “Capitalization,” “Selected Consolidated Financial Data,” “Unaudited Pro Forma Condensed Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Certain Relationships and Related Party Transactions.”

 

 

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    Historical     Pro forma(8)  
    Year ended
December 31,
    Six months
ended June 30,
    Year ended
December 31,
    Six months
ended June  30,
 
    2011     2010     2009     2012     2011     2011     2012  
   

(In thousands)

 

Statement of Operations Data:

             

Net sales(1)

  $ 1,916,830      $ 1,713,390      $ 1,446,931      $ 1,050,884      $ 921,603      $ 1,916,830      $ 1,050,884   

Net sales to related parties(2)

    108,921        107,923        88,036        55,590        53,048        135,758        66,517   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

    2,025,751        1,821,313        1,534,967        1,106,474        974,651        2,052,588        1,117,401   

Cost of sales(2)

    1,341,310        1,210,816        1,020,585        718,883        645,040        1,351,208        723,323   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit(3)

    684,441        610,497        514,382        387,591        329,611        701,380        394,078   

Related party license income(4)

    42,680        39,378        46,729        21,316        20,469                 

Operating costs and expenses:

             

Selling and distribution

    414,724        384,512        331,844        242,857        203,697        414,724        242,857   

General and administrative(5), (6)

    136,703        139,888        127,130        74,979        67,648        145,472        75,363   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs and expenses

    551,427        524,400        458,974        317,836        271,345        560,196        318,220   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    175,694        125,475        102,137        91,071        78,735        141,184        75,858   

Other expense (income):

             

Interest expense (income)(4), (7)

    9,149        10,583        (680     2,610        5,210        23,466        11,756   

Other expense (income), net

    122        377        (149     683        (770     122        683   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense (income)

    9,271        10,960        (829     3,293        4,440        23,588        12,439   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

    166,423        114,515        102,966        87,778        74,295        117,596        63,419   

Income tax expense

    52,089        33,159        42,419        30,087        24,129        35,000        21,561   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    114,334        81,356        60,547        57,691        50,166      $ 82,596      $ 41,858   
           

 

 

   

 

 

 

Gain on sale of discontinued operations, net of tax

    3,616        5,693        276                     

Loss from discontinued operations, net of tax

    (27,105     (16,686     (21,089            (7,046    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Net income

    90,845        70,363        39,734        57,691        43,120       

Net loss attributable to non-controlling interest

    16,550        8,735        12,441               4,388       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Net income attributable to WWF Operating Company

  $ 107,395      $ 79,098      $ 52,175      $ 57,691      $ 47,508       

 

    Historical     Pro forma(8)  
    Year ended
December 31,
    Six months
ended June 30,
    Year ended
December 31,
    Six months
ended June  30,
 
    2011     2010     2009     2012     2011     2011     2012  
   

(In thousands)

 

Balance Sheet Data (at period end)

             

Cash and cash equivalents

  $ 96,987      $ 73,812      $ 26,466      $ 41,374      $ 86,357        $ 41,374   

Property, plant and equipment, net

    587,259        526,525        557,534        578,763        552,149          578,763   

Total assets

    2,108,685        2,066,879        2,101,136        2,052,592        2,151,735          2,070,673   

Total debt(7)

    456,171        440,351        440,255        452,672        440,255          885,000   

Total invested equity

    1,140,686        1,124,463        1,153,901        1,076,148        1,191,128          611,986   

Other Financial Data:

             

EBITDA(9)

  $ 236,623      $ 188,605      $ 151,831      $ 126,632      $ 110,529      $ 202,113      $ 111,419   

Capital expenditures

    126,755        50,707        34,063        41,130        41,894       

 

(1) Our net sales are derived primarily from sales of our branded plant-based foods and beverages, coffee creamers and beverages, and premium dairy products to third-party customers across North America and Europe. Sales are reported net of estimated returns, trade promotions, and other discounts. Net sales do not historically include the sales of our finished goods to third-party customers made directly by other Dean Foods wholly-owned subsidiaries.

 

 

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(2) Related party sales represent the sale of our finished products to other wholly-owned subsidiaries of Dean Foods. Those transactions have historically taken place at an agreed-upon price, which may not be equivalent to the terms that would prevail in an arm’s-length transaction. In addition, effective January 1, 2010, Dean Foods implemented a standardized intercompany pricing structure on all products sold by us to other wholly-owned subsidiaries of Dean Foods, which negatively impacted our related party sales as compared to years prior to 2010.

 

   In connection with this offering, we have entered, or will enter, into agreements that formalize ongoing commercial arrangements we have with certain wholly-owned Dean Foods subsidiaries. These agreements will become effective no later than the completion of this offering and include certain transitional sales agreements, a sales and distribution agreement, and certain manufacturing and supply agreements. Following their effectiveness, these agreements will impact our net related party sales, our related party fees, our cost of sales, and our selling and distribution expenses, all of which is described in greater detail in the notes to our “Unaudited Pro Forma Condensed Consolidated Financial Information.”

It is anticipated that a transition services agreement will take effect to cover certain continued corporate services provided by Dean Foods to us following completion of this offering. See “Certain Relationships and Related Party Transactions.”

Due to these and other changes we anticipate in connection with this offering, the historical financial information included in this prospectus may not necessarily reflect our financial position, results of operations, and cash flows in the future or what our financial position, results of operations, and cash flows would have been had we been a stand-alone public company during the periods presented. See the notes to “Unaudited Pro Forma Condensed Consolidated Financial Information.”

 

(3) As disclosed in Note 2 to our audited consolidated financial statements included elsewhere in this prospectus, we include certain shipping and handling costs associated with shipping products to customers through third-party carriers and third-party inventory warehouse costs within selling and distribution expense. As a result, our gross profit may not be comparable to that of other entities that present all shipping and handling costs as a component of cost of sales.

 

(4) Historically, our intellectual property license agreement with a wholly-owned subsidiary of Dean Foods provided such subsidiary the right to use certain intellectual property in the manufacture of certain products for a fee. In conjunction with the license agreement, a loan agreement was entered into, pursuant to which we extended a line of credit to such subsidiary related to the license income under the license agreement. There have been no repayments of this loan to date and there are no future plans to settle the outstanding balance; therefore, the principal and associated accrued interest is shown in parent’s net investment. In connection with this offering, we have entered into an agreement with such subsidiary pursuant to which we will terminate this license agreement and the related loan. Upon completion of this offering, we will no longer receive license income or related interest income associated with these historical agreements. In addition, we have entered into an agreement to effect the transfer of the intellectual property subject to the license agreement to such subsidiary so that such subsidiary has the requisite intellectual property and manufacturing know-how to produce and sell its products and brands. All intellectual property related to and necessary for the production of the Company’s products and brands will be retained. See “Certain Relationships and Related Party Transactions.”

 

(5) Dean Foods currently provides certain corporate services to us, and costs associated with these functions have been allocated to us. Our historical financial statements included elsewhere in this prospectus reflect these costs primarily within general and administrative expenses. These allocations include costs related to corporate services such as executive management, supply chain, information technology, legal, finance and accounting, investor relations, human resources, risk management, tax, treasury, and other services, as well as stock-based compensation expense attributable to our employees and an allocation of stock-based compensation attributable to employees of Dean Foods. The total amount of these allocations from Dean Foods was approximately $23.8 million and $16.9 million in the six months ended June 30, 2012 and June 30, 2011, respectively, and approximately $32.7 million, $36.2 million, and $45.7 million in the years ended December 31, 2011, 2010, and 2009, respectively.

 

(6) Results for 2009 include Alpro’s results of operations subsequent to the July 2, 2009 date of acquisition. In addition, results for 2009 include acquisition-related expenses, included in general and administrative expenses, related to due diligence, investment advisors, and regulatory matters of approximately $12.2 million. See Note 3 to our audited consolidated financial statements included elsewhere in this prospectus.

 

(7) We were allocated $440.3 million from the Dean Foods senior secured credit facility on July 2, 2009 to fund our acquisition of Alpro. Interest expense has been allocated based on the historical interest rates of the Dean Foods senior secured credit facility and totals approximately $6.0 million and $6.9 million for the six months ended June 30, 2012 and 2011, respectively, and approximately $13.2 million, $13.0 million, and $2.7 million in the years ended December 31, 2011, 2010, and 2009, respectively. Debt issuance costs have been allocated in the same proportion as debt and are recorded as a non-current asset included in our consolidated balance sheets. No principal, interest, or debt issuance costs have been paid by us historically. The allocated portion of the Dean Foods senior secured credit facility will be settled prior to completion of this offering as a contribution to capital from Dean Foods to WWF Operating Company. We expect that we will incur indebtedness of approximately $885 million (including the $15 million current portion) under our senior secured credit facilities upon the completion of this offering, including approximately $12 million of deferred financing costs, resulting in interest expense of approximately $23.9 million annually, including annual amortization of deferred financing costs of approximately $2.2 million. An increase of 12.5 basis points in the weighted-average annual interest rate would increase pro forma interest expense by approximately $1.1 million annually.

 

 

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(8) There are certain items that will have a non-recurring effect on the Company that have not been considered in the pro forma results of operations. See the notes to “Unaudited Pro Forma Condensed Consolidated Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

(9) EBITDA consists of net income before interest expense, income tax expense, and depreciation and amortization. EBITDA is a non-GAAP measure commonly used in our industry, and we present EBITDA to enhance your understanding of our operating performance. We use EBITDA as one criterion for evaluating our performance relative to that of our peers. We believe that EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles, and ages of related assets among otherwise comparable companies. However, EBITDA is not a measurement of financial performance under GAAP, and our EBITDA may not be comparable to similarly-titled measures of other companies. You should not consider our EBITDA as an alternative to operating or net income determined in accordance with GAAP, an indicator of our operating performance, an alternative to cash flows from operating activities, determined in accordance with GAAP, an indicator of cash flows, or a measure of liquidity. Historical EBITDA includes related party license income related to our intellectual property license agreement with a wholly-owned subsidiary of Dean Foods as mentioned above in Note 4. The related party license income was $42.7 million, $39.4 million, and $46.7 million for the years ended December 31, 2011, 2010, and 2009 and $21.3 million and $20.5 million for the six months ended June 30, 2012 and 2011, respectively.

The following table reconciles EBITDA to net income for the periods presented:

 

    Historical     Pro forma  
    Year ended
December 31,
    Six months
ended June 30,
    Year ended
December 31,
    Six months
ended June 30,
 
    2011      2010     2009     2012     2011     2011     2012  
   

(In thousands)

 

Net income attributable to WWF Operating Company

  $ 107,395       $ 79,098      $ 52,175      $ 57,691      $ 47,508      $ 75,657      $ 41,858   

Interest expense, net

    9,149         10,583        (680     2,610        5,210        23,466        11,756   

Income tax expense

    52,089         33,159        42,419        30,087        24,129        35,000        21,561   

Depreciation and amortization

    67,990         65,765        57,917        36,244        33,682        67,990        36,244   
 

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

  $ 236,623       $ 188,605      $ 151,831      $ 126,632      $ 110,529      $ 202,113      $ 111,419   

 

 

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Risk Factors

Investing in our Class A common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including our consolidated financial statements and the related notes included elsewhere in this prospectus, before deciding whether to invest in shares of our Class A common stock. We describe below what we believe are currently the material risks and uncertainties we face, but they are not the only risks and uncertainties we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actually occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely affected. In that event, the market price of our Class A common stock could decline and you could lose part or all of your investment.

Risks Related to Our Business and Industry

If we fail to anticipate and respond to changes in consumer preferences, demand for our products could decline.

Consumer tastes and preferences are difficult to predict and evolve over time. Demand for our products depends on our ability to identify and offer products that appeal to these shifting preferences. Factors that may affect consumer tastes and preferences include:

 

   

dietary trends and increased attention to nutritional values, such as the sugar, fat, protein, or calorie content of different foods and beverages;

 

   

concerns regarding the health effects of specific ingredients and nutrients, such as sugar, other sweeteners, dairy, soybeans, nuts, oils, vitamins, and minerals;

 

   

concerns regarding the public health consequences associated with obesity, particularly among young people; and

 

   

increasing awareness of the environmental and social effects of product production.

If consumer demand for our products declines, our sales volumes and our business could be negatively affected.

We may not be able to implement successfully our growth strategy for our brands on a timely basis or at all.

We believe that our future success depends, in part, on our ability to implement our growth strategy of leveraging our existing brands and products to drive increased sales. Our ability to implement this strategy depends, among other things, on our ability to:

 

   

enter into distribution and other strategic arrangements with third-party retailers and other potential distributors of our products;

 

   

compete successfully in the product categories in which we choose to operate;

 

   

introduce new and appealing products and innovate successfully on our existing products;

 

   

develop and maintain consumer interest in our brands; and

 

   

increase our brand recognition and loyalty.

We may not be able to implement this growth strategy successfully, and our high rates of sales and income growth may not be sustainable over time. Our sales and results of operations will be negatively affected if we fail to implement our growth strategy or if we invest resources in a growth strategy that ultimately proves unsuccessful.

 

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Our product categories face a high level of competition, which could negatively impact our sales and results of operations.

We face significant competition in each of our product categories. Competition in our product categories is based on product innovation, product quality, price, brand recognition and loyalty, effectiveness of marketing, promotional activity, and our ability to identify and satisfy consumer tastes and preferences. We believe that our brands have benefited in many cases from being the first to introduce products in their categories, and their success has attracted competition from other food and beverage companies that produce branded products, as well as from private label competitors. Some of our competitors, such as Group Danone, General Mills, Inc., Kraft Foods Inc., and Nestle S.A., have substantial financial and marketing resources. They may be able to introduce innovative products more quickly or market their products more successfully than we can, which could cause our growth rate in certain categories to be slower than we have forecast and could cause us to lose sales. Furthermore, private label competitors are generally able to sell their products at lower prices because private label products typically have lower marketing costs than their branded counterparts. If our products fail to compete successfully with other branded or private label offerings in the industry, demand for our products and our sales volumes could be negatively impacted.

Additionally, due to high levels of competition in our product categories, certain of our key retailers may demand price concessions on our products. Increased price competition and resistance to price increases have had, and may continue to have, a negative effect on our results of operations.

The loss of any of our largest customers could negatively impact our sales and results of operations.

Our largest customer, Wal-Mart Stores, Inc., and its subsidiaries, including Sam’s Club, accounted for 17.0% of our total net sales in 2011 and 18.3% of our total net sales in the six months ended June 30, 2012. Our top five customers, collectively, accounted for 38.3% of our total net sales in 2011 and 40.6% of our total net sales in the six months ended June 30, 2012. We do not generally enter into written agreements with our customers, and where such agreements exist, they are generally terminable at will by the customer. The loss of any large customer for an extended period of time could negatively affect our sales and results of operations.

Erosion of the reputation of one or more of our leading brands could negatively impact our sales and results of operations.

Nearly all of our net sales derive from sales of our branded products and, in recent years, growth in our business has resulted primarily from the strength of these products. Our financial success is directly dependent on consumer perception of our brands, including Silk, International Delight, LAND O LAKES, Horizon Organic, Alpro, and Provamel. The success of our brands may suffer if our marketing plans or product initiatives do not have the desired impact on a brand’s image or its ability to attract consumers or if consumer or customer perceptions of our brands or our products change unfavorably. In addition, the reputation of our brands may suffer if any trademarks associated with our products are perceived negatively by consumers. For example, certain of our products are marketed under trademarks we have licensed from third parties, such as LAND O LAKES, Almond Joy, Cold Stone, Cinnabon, Hershey’s, and YORK, and we are unable to control the quality of other products that third parties produce and market under those trademarks and trade names. Our results of operations could be negatively affected if the reputation of one or more of our brands suffers damage due to real or perceived quality issues with our products, or if we are found to have violated any applicable laws or regulations.

Our continued success depends on our ability to innovate successfully and to innovate on a cost-effective basis.

A key element of our growth strategy is to introduce new and appealing products and to successfully innovate on our existing products. Success in product development is affected by our ability to anticipate

 

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consumer preferences, to leverage our R&D technical capabilities, and to utilize our management’s ability to launch new or improved products successfully and on a cost-effective basis. Furthermore, the development and introduction of new products requires substantial R&D and marketing expenditures, which we may not be able to finance or which we may be unable to recover if the new products do not achieve commercial success and gain widespread market acceptance. If we are unsuccessful in our product innovation efforts and demand for our existing products declines, our business could be negatively affected.

Reduced availability of raw materials and other inputs, as well as increased costs for our raw materials and other inputs, could adversely affect us.

Our business depends heavily on raw materials and other inputs, such as conventional and organic raw milk, butterfat, packaging, organic and non-genetically modified (“non-GMO”) soybeans, sweeteners, petroleum-based products, and other commodities. Our raw materials are generally sourced from third parties, and we are not assured of continued supply, pricing, or exclusive access to raw materials from any of these suppliers. In addition, a substantial portion of our raw materials are agricultural products, which are vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, frost, earthquakes, and pestilence. Adverse weather conditions and natural disasters also can lower dairy and crop yields and reduce supplies of these ingredients or increase their prices. Other events that adversely affect our suppliers and that are out of our control could also impair our ability to obtain the raw materials and other inputs that we need in the quantities and at the prices that we desire. Such events include problems with our suppliers’ businesses, finances, labor relations, costs, production, insurance, and reputation. Over the past several years, we have experienced increased costs and this may continue given recent weather conditions, which may negatively affect our business.

The organic ingredients (including milk, other dairy-related products, and soybeans) and non-GMO ingredients (including soybeans that we source exclusively from the United States) for our products are less plentiful and available from fewer suppliers, than their conventional counterparts. Competition with other manufacturers in the procurement of organic and non-GMO product ingredients may increase in the future if consumer demand for organic and non-GMO products increases. In addition, the dairy industry continues to experience periodic imbalances between supply and demand for organic raw milk. Industry regulation and the costs of organic farming compared to costs of conventional farming can impact the supply of organic raw milk in the market. Oversupply levels of organic raw milk can increase competitive pressure on our products, while supply shortages can cause product shortages and higher costs to us.

Cost increases in raw materials and other inputs could cause our profits to decrease significantly compared to prior periods, as we may be unable to increase our prices to offset the increased cost of these raw materials and other inputs.

If we are unable to obtain raw materials and other inputs for our products or offset any increased costs for such raw materials and inputs, our business could be negatively affected.

We rely on internal production resources and third-party co-packers for our manufacturing needs, and failure to maintain sufficient internal production capacity or to enter into satisfactory co-packing agreements may result in our inability to meet customer demand.

The success of our business depends, in part, on maintaining a strong production platform. Certain of our manufacturing plants are operating at high rates of utilization, and we may need to expand our production facilities or increase our reliance on Dean Foods and other third parties to provide production services for a number of our products. A failure by our co-packers to comply with food safety, environmental, or other laws and regulations may disrupt our supply of products. If we need to enter into additional co-packing agreements in the future, we can provide no assurance that we would be able to find an acceptable co-packer or to enter into co-packing agreements on satisfactory terms or at all. Our inability to maintain sufficient internal production capacity or establish satisfactory co-packing arrangements could limit our ability to operate our business or implement our strategic growth plan, and could negatively affect our sales volumes and results of operations.

 

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In addition, if we cannot maintain sufficient production capacity either internally or through co-packing agreements, we may be unable to meet customer demand and our business could be negatively affected.

Finally, we have entered into manufacturing and supply agreements, commonly referred to as “co-packing” agreements, with several subsidiaries of Dean Foods including Morningstar LLC to provide for the continuation of the services currently provided by those subsidiaries. Dean Foods has announced its intention to explore a sale of its Morningstar business, which, if successful, could adversely affect the performance of these agreements (depending on the purchaser of such business or its intentions).

The economic downturn could negatively affect our sales and results of operations.

The branded food and beverage industry is sensitive to changes in international, national, and local economic conditions. The economic downturn has had an adverse effect on consumer spending patterns. Consumers may shift purchases to lower-priced or private label products or forego certain purchases altogether. They may also reduce the number of organic and premium products that they purchase because organic and premium products generally have higher retail prices than their conventional counterparts. Lower consumer demand could decrease our sales volumes and negatively affect our results of operations.

We may incur liabilities, experience harm to our reputation, or be forced to recall products as a result of real or perceived product quality or other product-related issues.

We sell products for human consumption, which involves a number of risks. Product contamination, spoilage, other adulteration, misbranding, or product tampering could require us to recall products. We also may be subject to liability if our products or operations violate applicable laws or regulations, including environmental, health, and safety requirements, or in the event our products cause injury, illness, or death. In addition, our product advertising could make us the target of claims relating to false or deceptive advertising under U.S. federal and state laws, including the consumer protection statutes of some states, or laws of other jurisdictions in which we operate. For example, we and Dean Foods were named in a putative class action mislabeling complaint filed in the U.S. District Court for the Southern District of California in September 2011, which was followed by similar actions filed in six additional jurisdictions. All of these suits allege generally that we lack scientific substantiation for certain product claims related to our Horizon Organic products supplemented with DHA Omega-3. A significant product liability, consumer fraud, or other legal judgment against us or a widespread product recall may negatively impact our profitability. Moreover, claims or liabilities of this sort might not be covered by insurance or by any rights of indemnity or contribution that we may have against others. Even if a product liability, consumer fraud, or other claim is found to be without merit or is otherwise unsuccessful, the negative publicity surrounding such assertions regarding our products or processes could materially and adversely affect our reputation and brand image, particularly in categories that are promoted as having strong health and wellness credentials. Any loss of consumer confidence in our product ingredients or in the safety and quality of our products would be difficult and costly to overcome.

Disruption of our supply or distribution chains could adversely affect our business.

Damage or disruption to our manufacturing or distribution capabilities due to weather, natural disaster, fire, environmental incident, terrorism, pandemic, strikes, the financial or operational instability of key suppliers, distributors, warehousing, and transportation providers, or other reasons could impair our ability to manufacture or distribute our products. For example, the loss of any of Alpro’s distribution partners for local representation in Europe could negatively affect our business. If we are unable or it is not financially feasible to mitigate the likelihood or potential impact of such events, our business and results of operations could be negatively affected and additional resources could be required to restore our supply chain.

Our indebtedness could adversely affect our financial condition and ability to operate our business, and we may incur additional debt.

Upon completion of this offering, we expect to incur approximately $885 million in new indebtedness under our $1.35 billion senior secured credit facilities, substantially all of the initial net proceeds of which we will

 

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contribute to WWF Operating Company and cause WWF Operating Company to use such proceeds to repay obligations under intercompany notes owed to Dean Foods that are outstanding as of the completion of this offering. As a result of this indebtedness we expect to incur in connection with this offering, we will have substantial debt and financial obligations. In addition, we expect to have additional borrowing capacity of approximately $190 million under our senior secured credit facilities, which amount will vary over time depending on our financial covenants and operating performance. For a description of this indebtedness, see “Description of Financing Transactions and Material Indebtedness.”

Our debt level and the terms of our financing arrangements:

 

   

will require us to dedicate significant cash flow from operations to the payment of principal of, and interest on, our debt, which will reduce the funds we have available for other purposes;

 

   

may limit our ability to obtain additional financing in the future for working capital, capital expenditures and acquisitions, to fund growth or for general corporate purposes;

 

   

may limit our future ability to refinance our indebtedness on terms acceptable to us or at all;

 

   

may subject us to higher levels of indebtedness than our competitors, which may cause a competitive disadvantage for us and may reduce our flexibility in responding to increased competition;

 

   

may limit our flexibility in planning for or reacting to changes in our business and market conditions or in funding our strategic growth plan; and

 

   

will impose on us financial and operational restrictions.

Our debt level and the terms of our financing arrangements could adversely affect our financial condition and limit our ability to successfully implement our growth strategy.

Our ability to meet our debt service obligations will depend on our future performance, which will be affected by the other risk factors described in this prospectus. If we do not generate enough cash flow to pay our debt service obligations, we may be required to refinance all or part of our existing debt, sell our assets, borrow more money or raise equity. There is no guarantee that we will be able to take any of these actions on a timely basis, on terms satisfactory to us, or at all.

Our senior secured credit facilities bear interest at variable rates. If market interest rates increase, variable rate debt will create higher debt service requirements, which could adversely affect our cash flow.

The Credit Agreement governing our senior secured credit facilities contains various covenants that impose restrictions on us that may affect our ability to operate our business.

The Credit Agreement governing our senior secured credit facilities contains covenants that, among other things, limit our ability to:

 

   

borrow money or guarantee debt;

 

   

create liens;

 

   

make specified types of investments and acquisitions;

 

   

pay dividends on or redeem or repurchase stock;

 

   

enter into new lines of business;

 

   

enter into transactions with affiliates; and

 

   

sell assets or merge with other companies.

These restrictions on the operation of our business could harm us by, among other things, limiting our ability to take advantage of financing, merger and acquisition opportunities, and other corporate opportunities.

 

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Various risks, uncertainties, and events beyond our control could affect our ability to comply with these covenants. A default would permit lenders to accelerate the maturity of the debt under the Credit Agreement and to foreclose upon the collateral securing the debt.

We may not be able to successfully complete strategic acquisitions, establish joint ventures, or integrate brands that we acquire.

We intend to continue to grow our business in part through the acquisition of new brands and the establishment of joint ventures in the United States, in Europe, and globally. We cannot be certain that we will successfully be able to:

 

   

identify suitable acquisition candidates or joint venture partners and accurately assess their value, growth potential, strengths, weaknesses, contingent and other liabilities, and potential profitability;

 

   

secure regulatory clearance for our acquisitions and joint ventures;

 

   

negotiate acquisitions and joint ventures on terms acceptable to us; or

 

   

integrate any acquisitions that we complete.

Acquired companies or brands may not achieve the level of sales or profitability that justify our investment in them, or an acquired company may have unidentified liabilities for which we, as a successor owner, may be responsible. These transactions typically involve a number of risks and present financial and other challenges, including the existence of unknown disputes, liabilities, or contingencies and changes in the industry, location, or regulatory or political environment in which these investments are located, that may arise after entering into such arrangements.

The success of any acquisitions we complete will depend on our ability to effectively integrate the acquired brands or products. We may experience difficulty entering new categories or geographies, integrating new products into our product mix, integrating an acquired brand’s distribution channels and sales force, achieving anticipated cost savings, or retaining key personnel and customers of the acquired business. Integrating an acquired brand into our existing operations requires management resources and may divert management’s attention from our day-to-day operations. If we are not successful in integrating the operations of acquired brands, or in executing strategies and business plans related to our joint ventures, our business could be negatively affected.

We may have to pay cash, incur debt, or issue equity, equity-linked, or debt securities to pay for any such acquisition, any of which could adversely affect our financial results. Furthermore, we are restricted in our ability to issue equity or equity-linked securities and incur debt under our agreements with Dean Foods. Under the separation and distribution agreement, we may not issue any shares of our capital stock or any rights, warrants, or options to acquire our capital stock if the issuance would cause Dean Foods to own less than 50% of the total voting power of our outstanding capital stock entitled to vote in the election of our board of directors. This restriction may limit our ability to complete strategic acquisitions. Under the tax matters agreement, we are further restricted in our ability to issue shares of our capital stock to complete strategic acquisitions. In order to maintain the tax-free status of the contribution and any spin-off, following the offering and for a period of two years following any spin-off of us by Dean Foods, we are restricted in our ability to issue, sell, redeem, or repurchase stock or other securities (including securities convertible into our stock) and to effect a merger of the Company or one of our subsidiaries into another entity. In addition, the sale of equity or equity-linked securities to finance any such acquisitions could result in dilution to our stockholders, or, in the case of the issuance of equity, equity-linked, or debt securities, those securities may have rights, preferences, or privileges senior to those of our Class A common stock. Additional indebtedness would result in increased fixed obligations and could also result in additional operational restrictions that would impede our ability to manage our operations.

 

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We may need additional financing in the future, and we may not be able to obtain that financing.

From time to time, we may need additional financing to support our business and pursue our growth strategy, including for strategic acquisitions. Our ability to obtain additional financing, if and when required, will depend on investor demand, our operating performance, the condition of the capital markets, and other factors. We cannot assure you that additional financing will be available to us on favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equity-linked, or debt securities, those securities may have rights, preferences, or privileges senior to those of our Class A common stock, and, in the case of equity and equity-linked securities, our existing stockholders may experience dilution.

Our results of operations will fluctuate from quarter to quarter, which makes them difficult to predict.

Our quarterly financial results have fluctuated in the past and will fluctuate in the future. Additionally, we have no operating history as a stand-alone business, which makes it difficult to forecast our future results. Our financial results in any given quarter can be influenced by numerous factors, many of which we are unable to predict or are outside of our control, including:

 

   

product quality issues or negative publicity about our products or ingredients;

 

   

investments that we make to acquire new brands and to launch products;

 

   

changes in consumer preferences and discretionary spending;

 

   

availability of raw materials and fluctuations in their prices; and

 

   

variations in general economic conditions.

As a result of these factors, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year.

Our international operations subject us to business risks that could cause our revenue and profitability to decline.

Based upon current distribution, including through export partners, we estimate that our products are sold in over 50 countries worldwide. Sales to customers outside of the United States accounted for 19.3% of our total net sales for the six months ended June 30, 2012 and 20.7%, 21.0%, and 13.7% of our total net sales in the years ended December 31, 2011, 2010, and 2009, respectively. Risks associated with our operations outside of the United States include:

 

   

legal and regulatory requirements in multiple jurisdictions that differ from those in the United States and change from time to time, such as tax, labor, and trade laws, as well as laws that affect our ability to manufacture, market, or sell our products;

 

   

foreign currency translation exposures;

 

   

political and economic instability, such as the recent debt crisis in Europe;

 

   

trade protection measures and price controls; and

 

   

diminished protection of intellectual property in some countries.

If one or more of these business risks occur, our business and results of operations could be negatively affected.

Loss of our key management or other personnel, or an inability to attract such management and other personnel, could negatively impact our business. 

We depend on the skills, working relationships, and continued services of key personnel, including our experienced senior management team. We also depend on our ability to attract and retain qualified personnel to

 

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operate and expand our business. If we lose one or more members of our senior management team, or if we fail to attract talented new employees, our business and results of operations could be negatively affected.

Labor disputes could adversely affect our business.

As of September 30, 2012, approximately 41% of our employees participated in collective bargaining agreements or had works council representation. Our collective bargaining agreements are scheduled to expire at various times over the next five years. A strike, work slowdown, or other labor unrest could in some cases impair our ability to supply our products to customers, which could result in reduced revenue and customer claims, and may distract our management from focusing on our business and strategic priorities.

Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products and brands.

We consider our intellectual property rights, particularly our trademarks, but also our patents, trade secrets, copyrights, and licenses, to be a significant and valuable aspect of our business. We attempt to protect our intellectual property rights through a combination of patent, trademark, copyright, and trade secret laws, as well as licensing agreements, third-party nondisclosure and assignment agreements, and the policing of third-party misuses of our intellectual property. Our failure to obtain or maintain adequate protection of our intellectual property rights, or any change in law or other changes that serve to lessen or remove the current legal protections of our intellectual property, may diminish our competitiveness and could materially harm our business.

We also face the risk of claims that we have infringed third parties’ intellectual property rights. Any claims of intellectual property infringement, even those without merit, could be expensive and time consuming to defend, cause us to cease making, licensing, or using products that incorporate the challenged intellectual property, require us to redesign or rebrand our products or packaging, if feasible, divert management’s attention and resources, or require us to enter into royalty or licensing agreements to obtain the right to use a third party’s intellectual property. Any royalty or licensing agreements, if required, may not be available to us on acceptable terms or at all. Additionally, a successful claim of infringement against us could result in our being required to pay significant damages, enter into costly license or royalty agreements, or stop the sale of certain products, any of which could have a negative effect on our results of operations.

A failure to renew or a termination of our licenses for the use of other parties’ brand names and patents could result in the loss of significant sales.

We have entered into license agreements to use certain trademarks, service marks, and trade names, such as LAND O LAKES, Almond Joy, Cold Stone, Cinnabon, Hershey’s, and YORK, to brand and market some of our products. In addition, we have entered into a license agreement with Martek Biosciences Corporation to use products covered by a patent for supplementing certain of our premium dairy and soy products with DHA Omega-3. Generally, these agreements are scheduled to expire at various dates in the future. We cannot guarantee that we will be able to renew these licenses on acceptable terms upon expiration or at all or that we will be able to acquire new licenses to use other popular trademarks. The termination or expiration of a license agreement would cause us to lose the sales and any associated profits generated pursuant to such license and in certain cases could result in an impairment charge for related intangible assets.

Litigation or legal proceedings could expose us to significant liabilities and have a negative impact on our reputation.

We are party to various litigation claims and legal proceedings. We evaluate these litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we establish reserves or disclose the relevant litigation claims

 

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or legal proceedings, as appropriate. These assessments and estimates are based on the information available to management at the time and involve a significant amount of management judgment. Actual outcomes or losses may differ materially from our current assessments and estimates.

Our business is subject to various environmental and health and safety laws and regulations, which may increase our compliance costs or subject us to liabilities.

Our business operations are subject to numerous requirements in the United States and the European Union relating to the protection of the environment and health and safety matters, including the Clean Air Act, the Clean Water Act, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, and the National Organic Standards of the U.S. Department of Agriculture, as well as similar state and local statutes and regulations in the United States and in each of the countries in which we do business in Europe. These laws and regulations govern, among other things, air emissions and the discharge of wastewater and other pollutants, the use of refrigerants, the handling and disposal of hazardous materials, and the cleanup of contamination in the environment. We could incur significant costs, including fines, penalties and other sanctions, cleanup costs, and third-party claims for property damage or personal injury as a result of the failure to comply with, or liabilities under, environmental, health, and safety requirements. New legislation, as well as current federal and other state regulatory initiatives relating to these environmental matters, could require us to replace equipment, install additional pollution controls, purchase various emission allowances, or curtail operations. These costs could negatively affect our results of operations and financial condition.

Violations of laws or regulations related to the food industry, as well as new laws or regulations or changes to existing laws or regulations related to the food industry, could adversely affect our business.

The food production and marketing industry is subject to a variety of federal, state, local, and foreign laws and regulations, including food safety requirements related to the ingredients, manufacture, processing, storage, marketing, advertising, labeling, and distribution of our products, as well as those related to worker health and workplace safety. Our activities, both in and outside of the United States, are subject to extensive regulation. We are regulated by, among other federal and state authorities, the U.S. Food and Drug Administration (“FDA”), the U.S. Federal Trade Commission (“FTC”), and the U.S. Departments of Agriculture, Commerce, and Labor, as well as by similar authorities abroad within the regulatory framework of the European Union and its members. Governmental regulations also affect taxes and levies, healthcare costs, energy usage, immigration, and other labor issues, all of which may have a direct or indirect effect on our business or those of our customers or suppliers. In particular, throughout 2010 and 2011, the dairy industry was the subject of increased government scrutiny. In 2010, the Obama administration initiated a review of existing federal dairy policies in order to consider potential changes to those policies. In 2012, we expect re-authorization of the U.S. farm bill, the primary tool regulating federal dairy policy. The federal agency and congressional review process, and legislative activity in connection with the farm bill, may result in changes to the dairy industry that we cannot anticipate or control and that may have a negative effect on our business. In addition, the marketing and advertising of our products could make us the target of claims relating to alleged false or deceptive advertising under federal, state, and foreign laws and regulations, and we may be subject to initiatives that limit or prohibit the marketing and advertising of our products to children. Additionally, we comply with federal laws and regulations relating to our organic products and production. For example, as required by the National Organic Program (“NOP”), we rely on third parties to certify certain of our products and production locations as organic. Because the Organic Foods Production Act of 1990, which created the NOP, is so young, many regulations and informal positions taken by the NOP are subject to continued review and scrutiny. Changes in these laws or regulations or the introduction of new laws or regulations could increase our compliance costs, increase other costs of doing business for us, our customers, or our suppliers, or restrict our actions, which could adversely affect our results of operations. In some cases, increased regulatory scrutiny could interrupt distribution of our products, as could be the case in the United States as the FDA enacts the recently-passed Food Safety Modernization Act of 2011, or force changes in our production processes and our products. Further, if we are found to be in violation of applicable laws and

 

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regulations in these areas, we could be subject to civil remedies, including fines, injunctions, or recalls, as well as potential criminal sanctions, any of which could have a material adverse effect on our business.

As a public company, we will be subject to changing rules and regulations of federal and state securities regulators, as well as the stock exchange on which our common stock is listed. These entities, including the Public Company Accounting Oversight Board, the U.S. Securities and Exchange Commission (“SEC”), and The New York Stock Exchange (the “NYSE”), have issued a significant number of new and increasingly complex requirements and regulations over the course of the last several years and continue to develop additional regulations and requirements in response to laws enacted by Congress. Our efforts to comply with these requirements may result in an increase in expenses and a diversion of management’s time from other business activities.

Increases in costs of pension benefits and current and post-retirement medical and other employee health and welfare benefits may reduce our profitability.

With approximately 2,500 employees, our profitability is substantially affected by costs of pension benefits and current and post-retirement medical and other employee health and welfare benefits. These costs can vary substantially as a result of changes in health care laws and costs, volatility in investment returns on pension plan assets, and changes in discount rates used to calculate related liabilities. These factors may put pressure on the cost of providing pensions and medical benefits. We can provide no assurance that we will succeed in limiting future cost increases. If we do not succeed, our profitability could be negatively affected.

Risks Related to Our Affiliation With Dean Foods

We are controlled by Dean Foods, and its interests may conflict with yours.

Upon completion of this offering, Dean Foods will own none of our Class A common stock and 100% of the outstanding shares of our Class B common stock, which will give Dean Foods approximately 88.2% of the economic interest in our outstanding common stock and approximately 98.7% of the voting power of our outstanding common stock with respect to all matters submitted to a vote of our stockholders, or approximately 86.7% and 98.5%, respectively, if the underwriters exercise their over-allotment option in full. Accordingly, Dean Foods will continue to control our business objectives and policies, including the composition of our board of directors and any action requiring the approval of our stockholders, such as the adoption of amendments to our certificate of incorporation, and the approval of mergers or a sale of substantially all of our assets. Dean Foods will also control the timing and structure of any further separation of our Company from Dean Foods in the future. The concentration of ownership may also make some transactions, including mergers or other changes in control, more difficult or impossible without the support of Dean Foods and could discourage others from making tender offers, which could prevent stockholders from receiving a premium for their shares. Dean Foods’ interests may conflict with your interests as a stockholder. For additional information about our relationships with Dean Foods, see “Principal Stockholders” and “Certain Relationships and Related Party Transactions.”

We may not realize the potential benefits from being a stand-alone public company.

Upon completion of this offering, we will be a stand-alone public company. Dean Foods has informed us that, at some time in the future, but no earlier than the expiration or waiver of the 180-day lock-up period described below under “Underwriting,” it intends to effect a tax-free spin-off of all or a portion of its ownership interest in us to its stockholders. Dean Foods is not obligated to effect a spin-off. It may instead retain its ownership interest in us indefinitely or may dispose of all or a portion of its ownership interest in us in a sale or other transaction that is not tax-free.

 

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Both this offering and the anticipated spin-off described above may not produce the benefits that we anticipate from being a stand-alone public company. These potential benefits include the following:

 

   

enhancing our market recognition with investors;

 

   

allowing our management to focus its efforts on our business and strategic priorities;

 

   

eliminating conflicts in the allocation of capital between us and other Dean Foods businesses by providing us with direct access to the debt and equity capital markets;

 

   

increasing our ability to attract and retain employees by providing equity compensation tied to our business; and

 

   

improving our ability to pursue acquisitions through the use of shares of our common stock as consideration.

Additionally, the process of becoming a stand-alone public company may distract our management from focusing on our business and strategic priorities. Further, although we will have direct access to the debt and equity capital markets following this offering, we may not be able to issue debt or equity on terms acceptable to us or at all. The availability of shares of our common stock for use as consideration for acquisitions also will not ensure that we will be able to successfully pursue acquisitions or that the acquisitions will be successful. Moreover, even with equity compensation tied to our business, we may not be able to attract and retain employees as desired. We also may not fully realize the anticipated benefits of being a stand-alone public company if any of the risks identified in this “Risk Factors” section, or other events, were to occur. If we do not realize these anticipated benefits for any reason, our business may be negatively affected.

We may not achieve these anticipated benefits for a variety of reasons. For example, any future spin-off or other disposition by Dean Foods would be subject to various conditions that may not be satisfied, including receipt of any necessary regulatory or other approvals, the existence of satisfactory market conditions, and, in the case of a spin-off, Dean Foods’ receipt of a private letter ruling from the IRS and/or an opinion of counsel that such spin-off would be tax-free to Dean Foods and its stockholders. Unless it has effected a spin-off of our common stock to its stockholders and retained shares of our common stock following that spin-off, Dean Foods has no obligation to pursue or consummate any further dispositions of its ownership interest in us by any specified date or at all whether or not these conditions are satisfied, and if it does not consummate such a transaction, we will remain a majority-owned subsidiary of Dean Foods.

We have no operating history as a stand-alone public company, and our historical and pro forma financial information is not necessarily representative of the results we would have achieved as a stand-alone public company and may not be a reliable indicator of our future results.

We derived the historical and pro forma financial information included in this prospectus from Dean Foods’ consolidated financial statements. This information does not necessarily reflect the financial position, results of operations, and cash flows we would have achieved as a stand-alone public company during the periods presented, or those that we will achieve in the future.

This is primarily because of the following factors:

 

   

We have historically operated as part of Dean Foods’ broader corporate organization, rather than as a stand-alone company. Dean Foods historically performed various corporate services for us, including executive management, supply chain, information technology, legal, finance and accounting, investor relations, human resources, risk management, tax, treasury, and other services. Our historical and pro forma financial information reflects allocations of corporate expenses from Dean Foods for these and similar functions. These allocations may not reflect the costs we will incur for similar services in the future as a stand-alone public company.

 

 

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We have entered into agreements that formalize ongoing commercial arrangements we have with certain wholly-owned Dean Foods subsidiaries. For additional information, see “Certain Relationships and Related Party Transactions.”

 

   

Our historical and pro forma financial information has not been adjusted and does not reflect changes that we expect to experience as a result of our transition to becoming a stand-alone public company. These changes include (1) changes in our cost structure, personnel needs, tax structure, and business operations, (2) changes in our management, (3) potential increased costs associated with reduced economies of scale, and (4) increased costs associated with corporate governance, investor and public relations, and public company reporting and compliance.

Therefore, our historical and pro forma financial information may not necessarily be indicative of our future financial position, results of operations, or cash flows, and the occurrence of any of the risks discussed in this “Risk Factors” section, or any other event, could cause our future financial position, results of operations, or cash flows to materially differ from our historical and pro forma financial information. While we have been profitable as part of Dean Foods, we cannot assure you that our profits will continue at a similar level when we are a stand-alone public company.

Our ability to operate our business effectively may suffer if we do not, quickly and cost effectively, establish our own financial, administrative, and other support functions, and we cannot assure you that the transitional services Dean Foods has agreed to provide us will be sufficient for our needs.

Historically, we have relied on financial, administrative, and other resources of Dean Foods to operate our business. In conjunction with our anticipated separation from Dean Foods, we intend to create our own financial, administrative, and other support systems or contract with third parties to replace Dean Foods’ systems. Prior to completion of this offering, we will enter into a transition services agreement with Dean Foods under which we will provide marketing, R&D, and other transitional services to Dean Foods, and Dean Foods will provide certain transitional services to us, including supply chain, information technology, legal, finance and accounting, human resources, risk management, tax, treasury, and other services. See “Certain Relationships and Related Party Transactions—Transition Services Agreement” for a description of these services. These services may not be sufficient to meet our needs. After our agreement with Dean Foods expires, we may not be able to obtain these services at as favorable prices or on as favorable terms.

Any failure or significant downtime in our own financial, administrative, or other support systems or in Dean Foods’ financial, administrative, or other support systems during the transitional period could negatively impact our results of operations or prevent us from paying our suppliers and employees, executing business combinations and foreign currency transactions, or performing administrative or other services on a timely basis, which could negatively affect our results of operations. For example, our production and distribution facilities and inventory management utilize information technology to increase efficiencies and limit costs. Furthermore, a significant portion of the communications among our personnel, customers, and suppliers depends on information technology.

As a stand-alone public company, we will no longer have access to the resources of Dean Foods, and we may experience increased costs resulting from decreased purchasing power.

We have historically benefited from Dean Foods’ financial strength and numerous significant business relationships and have been able to take advantage of Dean Foods’ size and purchasing power in procuring goods, services, and technology. We have drawn on these resources in developing our own contacts and relationships. Following the separation, we will no longer be able to rely on Dean Foods’ resources and contacts. As a stand-alone public company, we may be unable to obtain goods, services, and technology at prices and on terms as favorable as those that we obtained prior to our separation from Dean Foods, which may negatively impact our results of operations.

 

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Our directors and our Chief Executive Officer are directors of Dean Foods, which may present certain conflicts of interest or the appearance of conflicts of interest. In addition, our directors and some of our officers own Dean Foods common stock and options or other instruments, the value of which is related to the value of Dean Foods common stock, which could create, or appear to create, conflicts of interests that result in our not acting on opportunities on which we would otherwise act.

Our directors, our Chief Executive Officer, and a number of our other officers own a substantial amount of Dean Foods common stock and options or other instruments, the value of which is related to the value of Dean Foods common stock. The direct and indirect interests of these directors and officers in Dean Foods and its common stock and us could create, or appear to create, conflicts of interest with respect to decisions involving both us and Dean Foods that could have different implications for Dean Foods and us. These decisions could, for example, relate to:

 

   

disagreement over corporate opportunities;

 

   

competition between us and Dean Foods;

 

   

management stock ownership;

 

   

employee retention or recruiting;

 

   

our dividend policy; and

 

   

the services and arrangements from which we benefit as a result of our relationship with Dean Foods.

Conflicts of interest could also arise if we enter into any new, or amend existing, commercial arrangements with Dean Foods in the future, or if Dean Foods decides to compete with us in any of our product categories. Our directors and officers who have interests in both Dean Foods and us may also face conflicts in allocating their time between Dean Foods and us.

As a result of any such conflicts of interest, we may be precluded from pursuing certain opportunities that we would otherwise pursue, including growth opportunities, which may negatively affect our business and results of operations.

If Dean Foods engages in the same type of business we conduct or takes advantage of business opportunities that might be attractive to us, our ability to operate successfully and expand our business may be hampered.

Our amended and restated certificate of incorporation provides that, subject to any contractual provision to the contrary, Dean Foods will have no obligation to refrain from:

 

   

engaging in the same or similar business activities or lines of business as us, or

 

   

doing business with any of our clients, customers, or vendors.

In addition, our amended and restated certificate of incorporation addresses potential conflicts of interest between our Company, on the one hand, and Dean Foods and its officers and directors who are officers or directors of our Company and our subsidiaries, on the other hand. Specifically, if Dean Foods learns of a potential corporate opportunity suitable for both Dean Foods and us, we will have no interest in that opportunity. It also provides that if any of our directors or officers who is also a director or officer of Dean Foods learns of a potential corporate opportunity suitable for both Dean Foods and us, we will have no interest in that opportunity, unless that opportunity is expressly offered to that person in writing solely in his or her capacity as our director or officer.

This policy could result in Dean Foods having rights to corporate opportunities in which both we and Dean Foods have an interest. By becoming a stockholder in our Company, you will be deemed to have notice of and

 

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have consented to these provisions of our amended and restated certificate of incorporation. See “Description of Capital Stock—Corporate Opportunity.”

Our agreements with Dean Foods and the desire to preserve the tax-free status of any spin-off from Dean Foods will limit our ability to take certain corporate actions prior to and after a spin-off, and we could owe significant tax indemnification payments to Dean Foods if the spin-off is taxable as a result of actions by us or acquisitions of our stock or assets.

Our business strategy anticipates future acquisitions and development of new products. However, the agreements we will to enter into with Dean Foods in connection with this offering will limit our ability to do so prior to any spin-off of us by Dean Foods. For example, under the separation and distribution agreement that we will enter into with Dean Foods in anticipation of this offering, subject to certain exceptions, we will be prohibited, without Dean Foods’ prior consent, through the earlier of the date on which a spin-off occurs or the termination of the separation and distribution agreement, from acquiring any other businesses or assets, disposing of any of our own assets (other than in the ordinary course of business), or acquiring any equity interests in, or loaning any funds to, third parties. In addition, in order to preserve the tax-free status of any potential spin-off from Dean Foods, we expect to be subject to certain restrictions on actions related to our common stock. For example, for any future spin-off to be tax-free to Dean Foods and its stockholders, Dean Foods, among other things, must own shares representing at least 80% of the combined voting power of our outstanding common stock (and at least 80% of the outstanding shares of any class of non-voting stock) at the time of such spin-off. Therefore, prior to any spin-off, we expect that we will be limited in our ability to issue any stock or any instrument that is convertible, exercisable or exchangeable into such stock (including convertible debt) without Dean Foods’ prior consent, and Dean Foods may be unwilling to give that consent if it intends to preserve the option to effect a future separation transaction on a tax-free basis. U.S. federal tax law and the tax matters agreement that we will enter into with Dean Foods will impose certain restrictions with which we will need to comply following any spin-off in order to preserve the favorable tax treatment of the spin-off, such as limitations on sales or redemptions of our common stock for cash or other property. These restrictions could substantially limit our strategic and operational flexibility. See “Certain Relationships and Related Party Transactions” for a description of these restrictions.

In addition, we generally will agree to indemnify Dean Foods and its affiliates against any and all taxes incurred by them relating to the contribution, the spin-off and/or an equity-for-debt exchange failing to be tax free to the extent such taxes are caused by our actions or acquisitions of our stock or assets by any person other than Dean Foods or its affiliates. If we were to become liable under such indemnity, it would result in a significant liability to us as such taxes would likely be substantial.

 

Upon completion of this offering, we will be a “controlled company” under the NYSE rules, and, as a result, will rely on exemptions from certain corporate governance requirements.

Upon completion of this offering, Dean Foods will own more than 50% of the total voting power of our outstanding common stock, and we will be a “controlled company” under the NYSE corporate governance standards. As a controlled company, we are exempt from certain NYSE corporate governance requirements, such as the requirement that we have a nominating and corporate governance committee and a compensation committee, each of which is composed entirely of independent directors, has a written charter addressing the committee’s purpose and responsibilities, and is subject to an annual performance evaluation. Following completion of this offering, we expect that a majority of the directors on our board of directors will qualify as independent directors, but we intend to utilize the exemptions regarding having a nominating and corporate governance committee and a compensation committee. As a result, our independent directors will be responsible for our nominating and corporate governance and compensation functions. See “Management” and “Executive Compensation.”

 

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Third parties may seek to hold us responsible for liabilities of Dean Foods that we will not assume in our agreements with Dean Foods.

Third parties may seek to hold us responsible for Dean Foods’ retained liabilities after we become a stand-alone public company. Pursuant to our agreements with Dean Foods, Dean Foods has agreed to indemnify us for claims and losses relating to certain of these retained liabilities. However, if those liabilities are significant and we are ultimately held liable for them, we cannot assure you that we will be able to recover the full amount of our losses. For example, certain of Dean Foods’ defined benefit retirement plans, as well as many of the multiemployer plans in which Dean Foods participates, are less than fully funded. While Dean Foods is retaining responsibility for such plans and indemnifying us for any liabilities under such plans, there can be no assurance that we will not be ultimately responsible for any liabilities under such plans.

Risks Related to Ownership of Class A Common Stock and This Offering

No trading market currently exists for our Class A common stock. We cannot assure you that an active trading market will develop for our Class A common stock.

There currently is no public market for shares of our Class A common stock. We cannot predict the extent to which investor interest in our Company will lead to the development of a trading market on the NYSE or otherwise, or how liquid that market might be. If an active market does not develop, you may have difficulty selling your shares of our Class A common stock. The initial public offering price for our Class A common stock has been determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following the completion of this offering.

If our stock price fluctuates after the completion of this offering, you could lose a significant part of your investment.

The market price of our Class A common stock may be influenced by many factors, some of which are beyond our control, including those described above in “—Risks Related to Our Business and Industry” and the following:

 

   

the failure of securities analysts to cover our Company after the completion of this offering or changes in financial estimates by analysts;

 

   

our inability to meet the financial estimates of analysts who follow our Company;

 

   

strategic actions by us or our competitors, such as acquisitions, restructurings, significant contracts, acquisitions, joint marketing relationships, joint ventures, or capital commitments;

 

   

variations in our quarterly results of operations and those of our competitors;

 

   

general economic and stock market conditions;

 

   

changes in conditions or trends in our industry, geographies, or customers;

 

   

terrorist acts;

 

   

future sales of our Class A common stock or other securities;

 

   

the potential spin-off by Dean Foods of shares of our Class B common stock;

 

   

perceptions of the investment opportunity associated with our Class A common stock relative to other investment alternatives;

 

   

the public’s reaction to our press releases, other public announcements, and filings with the SEC;

 

   

changes in accounting standards, policies, guidance, interpretations, or principles;

 

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actual or anticipated growth rates relative to our competitors; and

 

   

speculation by the investment community regarding our business.

In addition, the stock markets, including the NYSE, have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities issued by many companies, including companies in our industry. In the past, some companies that have had volatile market prices for their securities have been subject to class action or derivative lawsuits. The filing of a lawsuit against us, regardless of the outcome, could have a negative effect on our business, financial condition, and results of operations, as it could result in substantial legal costs and a diversion of management’s attention and resources.

As a result of these factors, investors in our Class A common stock may not be able to resell their shares at or above the initial public offering price or may not be able to resell them at all. These market and industry factors may materially reduce the market price of our Class A common stock, regardless of our operating performance. In addition, price volatility may be greater if the public float and trading volume of our Class A common stock are low.

Future sales, or the perception of future sales, of our common stock, or a spin-off by Dean Foods of shares of our common stock, may depress the price of our Class A common stock.

The market price of our Class A common stock could decline significantly as a result of sales of a large number of shares of our Class A common stock in the market after completion of this offering, including sales by Dean Foods of shares of our Class A common stock issued upon conversion of shares of our Class B common stock. See “Description of Capital Stock—Common Stock—Conversion of Our Common Stock.” Subject to the lock-up arrangements discussed below and our agreements with Dean Foods described in “Certain Relationships and Related Party Transactions,” we are not restricted from issuing additional common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or any substantially similar securities. In addition, the contemplated spin-off could result in the distribution of a large number of shares of Class A common stock or Class B common stock, and/or any equity-for-debt exchange could result in the distribution of a significant number of shares of Class A common stock. The perception that these sales or a spin-off might occur could depress the market price of our Class A common stock. These sales, a spin-off, or the possibility that a sale or a spin-off may occur also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. Finally, we may issue shares of common stock from time to time as consideration for future acquisitions, investments, or other corporate purposes. In the event any such acquisition, investment, or other transaction is significant, the number of shares of common stock that we issue may in turn be significant.

Upon completion of this offering, Dean Foods will own none of our Class A common stock and 100% of the outstanding shares of our Class B common stock. The shares of our Class A common stock sold in this offering will be freely tradable without restriction under the Securities Act of 1933, as amended (the “Securities Act”), except for any shares of our Class A common stock that may be held or acquired by our directors, executive officers, and other affiliates, as that term is defined in the Securities Act, which will be restricted securities under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available. We will grant Dean Foods registration rights with respect to the shares of our Class A common stock issued upon the conversion of shares of our Class B common stock, and Dean Foods may transfer these rights to any Dean Foods Entity or, in connection with an equity-for-debt exchange, a third-party lender. See “Description of Capital Stock—Common Stock—Conversion of Our Common Stock.” Subject to the 180-day lock-up period described below, any shares registered pursuant to the registration rights agreement described in “Certain Relationships and Related Party Transactions” will be freely tradable in the public market. See “Shares Eligible for Future Sale.”

In connection with this offering, we, our directors, and our executive officers and Dean Foods, its directors, and its executive officers have each agreed to enter into lock-up agreements and thereby be subject to a lock-up

 

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period, meaning that we and our permitted transferees will not be permitted to sell any of the shares of our Class A common stock and, with respect to us, shares of our Class B common stock for 180 days after the date of this prospectus, subject to certain extensions, without the prior written consent of J.P. Morgan Securities LLC and Credit Suisse Securities (USA) LLC. Although we have been advised that there is no present intention to do so, J.P. Morgan Securities LLC and Credit Suisse Securities (USA) LLC may, in their sole discretion and without notice, release all or any portion of the shares of our Class A common stock or, with respect to us, shares of our Class B common stock from the restrictions in any of the lock-up agreements described above at any time. See “Underwriting.”

Failure to maintain effective internal controls in accordance with The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) could have a material adverse effect on our business and stock price.

As a public company with SEC reporting obligations, we will be required to document and test our internal control procedures to satisfy the requirements of Section 404 of Sarbanes-Oxley (“Section 404”), which will require annual assessments by management and our independent registered public accounting firm of the effectiveness of our internal control over financial reporting. During the course of our testing, we may identify deficiencies that we are unable to remediate in a timely manner. Testing and maintaining our internal control over financial reporting may also divert management’s attention from other matters that are important to the operation of our business. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 or our independent registered public accounting firm may not be able or willing to issue an unqualified report on the effectiveness of our internal control over financial reporting. If we conclude that our internal control over financial reporting is not effective, we cannot be certain as to the timing of completion of our evaluation, testing, and remediation actions or its effect on our operations because there is presently no precedent available by which to measure compliance adequacy. Moreover, any material weakness or other deficiencies in our internal control over financial reporting may impede our ability to file timely and accurate reports with the SEC. Any of the above could cause investors to lose confidence in our reported financial information or our common stock listing on the NYSE to be suspended or terminated, which could have a negative effect on the trading price of our Class A common stock.

Our costs will increase significantly as a result of operating as a public company, and our management will be required to devote substantial time to complying with public company regulations.

We have historically operated our business as a division of a public company. As a public company with separate SEC reporting, regulatory, and stock exchange listing requirements, we will incur additional legal, accounting, compliance, and other expenses that we have not incurred historically. After completion of this offering, we will be obligated to file with the SEC annual and quarterly information and other reports that are specified in Section 13 and other sections of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and therefore will need to have the ability to prepare financial statements that are compliant with all SEC reporting requirements on a timely basis. In addition, we will be subject to other reporting and corporate governance requirements, including certain requirements of the NYSE and certain provisions of Sarbanes-Oxley and the regulations promulgated thereunder, which will impose significant compliance obligations upon us.

Sarbanes-Oxley and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as well as new rules subsequently implemented by the SEC and the NYSE, have increased regulation of, and imposed enhanced disclosure and corporate governance requirements on, public companies. We are committed to maintaining high standards of corporate governance and public disclosure, and our efforts to comply with evolving laws, regulations, and standards in this regard are likely to result in increased marketing, selling, and administrative expenses, as well as a diversion of management’s time and attention from revenue-generating activities to compliance activities. These changes will require a significant commitment of additional resources. We may not be successful in implementing these requirements, and implementing them could materially adversely affect our business, results of operations, and financial condition. We also expect these recent regulations to increase our legal and financial compliance costs, make it more difficult to attract and retain

 

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qualified officers and members of our board of directors, particularly to serve on our audit committee, and make some activities more difficult, time-consuming, and costly. In addition, if we fail to implement the required controls with respect to our internal accounting and audit functions, our ability to report our results of operations on a timely and accurate basis could be impaired. If we do not implement such required controls in a timely manner or with adequate compliance, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC or the NYSE. Any such action could harm our reputation and the confidence of investors and clients in our Company and could negatively affect our business and cause the price of our Class A common stock to decline.

We do not currently intend to pay dividends on our Class A common stock or Class B common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our Class A common stock.

Following completion of this offering, we do not expect to pay cash dividends on our common stock, including the Class A common stock issued in this offering, for the foreseeable future. Any future dividends will be within the absolute discretion of our board of directors and will depend on, among other things, our results of operations, working capital requirements, capital expenditure requirements, financial condition, contractual restrictions, business opportunities, anticipated cash needs, provisions of applicable law, and other factors that our board of directors may deem relevant. As a result, capital appreciation, if any, of our Class A common stock will be your sole source of potential gain for the foreseeable future. The market price for our Class A common stock after completion of this offering might not exceed the price that you pay for our Class A common stock. Furthermore, we may not generate sufficient cash from operations in the future to pay dividends on our Class A common stock. See “Dividend Policy.”

You will experience immediate and substantial dilution in net tangible book value per share.

Dilution per share represents the difference between the initial public offering price and the adjusted net tangible book value per share immediately after this offering. Purchasers of our Class A common stock in this offering will experience immediate dilution of $18.04 in net tangible book value per share. See “Dilution.”

Provisions of our amended and restated certificate of incorporation, amended and restated bylaws, and the General Corporation Law of the State of Delaware (“DGCL”) could prevent an acquisition or other change in control of our Company, that may be beneficial to our stockholders.

Our amended and restated certificate of incorporation, amended and restated by-laws, and provisions of the DGCL to which we are subject contain provisions that could discourage, delay, or prevent a change in control of our Company or changes in our board of directors and management that the stockholders of our Company may deem advantageous.

After this offering, for as long as Dean Foods continues to own shares of our common stock representing more than 50% of the total number of votes entitled to be cast by holders of our common stock, it will have the ability to control decisions regarding an acquisition of us by a third party that are subject to a vote of our stockholders. In addition, our amended and restated certificate of incorporation, amended and restated by-laws, and the DGCL contain provisions that could make it more difficult for a third party to acquire us without the consent of our board of directors. These provisions include a classified board of directors, restrictions on the ability of our stockholders to remove directors, the inability of our stockholders to fill vacancies on our board of directors, in certain instances supermajority voting requirements for stockholders to amend our amended and restated certificate of incorporation and amended and restated by-laws, prohibition on action by our stockholders by written consent, advance notice requirements for stockholder proposals and director nominations, and the inability of our stockholders to call special meetings of stockholders. Some of these provisions, such as the prohibition on stockholder action by written consent, only become effective once Dean Foods no longer controls us. In addition, our board of directors has the right to issue preferred stock without stockholder approval, which

 

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could be used to dilute the stock ownership of a potential hostile acquirer. Moreover, after Dean Foods and its affiliates, other than us and our subsidiaries, cease to own at least 15% of the votes entitled to be cast by the then-outstanding shares of all classes and series of our capital stock entitled generally to vote on the election of directors (or any class thereof) at any annual or special meeting of stockholders, we will be subject to the restrictions on business combinations set forth in Section 203 of the DGCL, which generally will prohibit us from engaging in a business combination with a person who owns in excess of 15% of our outstanding voting stock for a period of three years after the time of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless, among other exceptions, the transaction is approved in a prescribed manner. Although we believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics and thereby provide for an opportunity to receive a higher bid by requiring potential acquirers to negotiate with our board of directors, these provisions apply even if the offer may be considered beneficial by some stockholders. See “Description of Capital Stock.”

Further, our board of directors will initially be divided into three classes with staggered three-year terms. Our amended and restated certificate of incorporation provides that our board of directors will be declassified over a period of approximately two years, beginning with the 2015 annual meeting of our stockholders and ending upon the 2017 annual meeting of our stockholders, after which our directors will serve for one-year terms. While our board of directors is classified into three classes, the staggered board could prevent a party who acquires control of a majority of the outstanding voting power of our capital stock from obtaining control of the board until the second annual meeting of stockholders following the date the acquiror obtains the controlling share interest. The staggered board provision may discourage a potential acquiror from making a tender offer or otherwise attempting to obtain control of the Company.

The value of our Class A common stock may be adversely affected by the superior voting rights associated with our Class B common stock, and holders of our Class B common stock will have the ability to significantly influence any action requiring the approval of our stockholders even after a spin-off.

The holders of our Class A common stock and Class B common stock generally will have identical rights, except that holders of our Class A common stock, which is the class of common stock that we are offering in this offering, will be entitled to one vote per share, and holders of our Class B common stock will be entitled to ten votes per share on all matters submitted to a vote of our stockholders, subject, in the case of the Class B common stock, to reduction in accordance with the terms of our amended and restated certificate of incorporation. Because of the ten-to-one voting ratio between our Class B common stock and our Class A common stock, the holders of our Class B common stock collectively will exert significant influence over any action requiring the approval of our stockholders and, accordingly, this concentrated control will limit your ability to influence any action requiring the approval of our stockholders, such as the adoption of amendments to our certificate of incorporation, the election of directors, and the approval of mergers or a sale of substantially all of our assets. The difference between the voting rights of our Class A common stock and our Class B common stock could adversely affect the value of our Class A common stock to the extent that investors ascribe value to the superior voting rights of our Class B common stock.

In connection with any spin-off, Dean Foods may be required to distribute shares of our Class B common stock to its stockholders to preserve the tax-free treatment of the spin-off. Those shares of our Class B common stock would not automatically convert into shares of our Class A common stock. Therefore, following a spin-off in which Dean Foods distributes shares of our Class B common stock, both classes of our common stock would be publicly traded until and unless our stockholders approve the conversion of our Class B common stock into our Class A common stock. Even if, following a spin-off, we submit to our stockholders a proposal to approve the conversion of all outstanding shares of our Class B common stock into shares of our Class A common stock in accordance with the terms of our amended and restated certificate of incorporation, there can be no assurance that our stockholders would approve the proposal, particularly in light of the superior voting rights associated with our Class B common stock. In addition, Dean Foods has granted us an irrevocable proxy with respect to any Class A common stock that it retains after a spin-off as to any matter as to which a holder of Class A common

 

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stock is entitled to vote, the provisions of which have the effect of eliminating Dean Foods’ ability to influence such approval. Furthermore, in connection with the private letter ruling requested by Dean Foods in relation to the proposed spin-off, the IRS may require that holders of our Class B common stock be entitled to vote on any such proposal as a separate class, which could reduce the likelihood that such proposal would be approved. In the absence of such stockholder approval or in certain other circumstances described herein, our Class B common stock would continue to have voting rights that are superior to those of our Class A common stock and, therefore, the holders of our Class B common stock would be able to exercise significant influence over any action requiring the approval of our stockholders.

The existence of two classes of publicly-traded common stock would also result in less liquidity for both classes of our common stock than if we had only one class of common stock. See “Description of Capital Stock” for a description of our common stock and the rights associated with it.

 

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Special Note Regarding Forward-Looking Statements

This prospectus contains forward-looking statements. All statements, other than statements of historical facts, contained in this prospectus, including statements regarding our industry, position, goals, strategy, future operations, future financial position, future revenues, estimated costs, prospects, margins, profitability, capital expenditures, liquidity, capital resources, plans, and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

We have based these forward-looking statements largely on our current expectations and estimates regarding future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in the “Risk Factors” section, that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly-changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements as predictions or guarantees of future events.

You should read this prospectus and the documents that we reference in this prospectus and have filed, or will file, as exhibits to the registration statement of which this prospectus is a part completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this prospectus are made as of the date of this prospectus, and we do not assume any obligation to update any forward-looking statements except as required by applicable law.

 

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Use of Proceeds

We estimate that the net proceeds from our issuance and sale of 20,000,000 shares of our Class A common stock in this offering at an initial public offering price of $15.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discount, will be approximately $282 million. A $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share would increase (decrease) the net proceeds to us from this offering by $18.8 million, assuming the expected number of shares to be sold by us in this offering remains the same and after deducting the estimated underwriting discount. If the underwriters exercise their over-allotment option in full, we estimate that the net proceeds to us from this offering will be approximately $324 million. There can be no assurance as to whether or not the underwriters will exercise their over-allotment option.

We will contribute up to $282 million of the initial net proceeds from this offering (but no net proceeds from the exercise of the underwriters’ over-allotment option) to WWF Operating Company and cause WWF Operating Company to use such proceeds, together with substantially all of the net proceeds of our initial borrowing under our senior secured credit facilities, to repay obligations under the intercompany notes owed to Dean Foods that are outstanding as of the completion of this offering. Dean Foods has advised us that it plans to use these funds to repay a portion of its indebtedness under its senior secured credit facility. We intend to use any remaining net proceeds (including net proceeds from any exercise of the underwriters’ over-allotment option) to repay amounts outstanding under our senior secured credit facilities. Transaction costs incurred in connection with this offering (other than the underwriting discount) will be paid by Dean Foods and do not impact the amount of net proceeds from this offering. These costs primarily include costs related to legal, accounting, and consulting services. See “Description of Financing Transactions and Material Indebtedness.”

 

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Dividend Policy

We currently intend to retain any future earnings for use in the operation of our business and do not intend to declare or pay any cash dividends on our Class A common stock or Class B common stock in the foreseeable future. Any future determination to pay dividends on our capital stock will be at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, results of operations, contractual restrictions, capital requirements, general business conditions, and other factors that our board of directors considers relevant.

 

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Capitalization

The following table sets forth our capitalization as of June 30, 2012:

 

   

on an actual basis;

 

   

on an actual “as adjusted” basis to reflect the issuance of intercompany notes from WWF Operating Company to Dean Foods in an aggregate principal amount of $1.155 billion; and

 

   

on a pro forma “as adjusted” basis to reflect the Pro Forma Transactions, which are comprised of:

 

   

the reclassification, the separation, and the contribution;

 

   

the receipt of $282 million in net proceeds from the sale of shares of our Class A common stock in this offering at an assumed initial offering price of $15.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discount;

 

   

the indebtedness to be incurred in the related financing transactions;

 

   

the payment of $282 million of the initial net proceeds from this offering and substantially all of the net proceeds of our initial borrowing under our senior secured credit facilities to Dean Foods in satisfaction of $1.155 billion aggregate principal amount of outstanding intercompany notes owed by WWF Operating Company to Dean Foods plus accrued interest, as described in “Description of Financial Transactions and Material Indebtedness;”

 

   

the resulting elimination of Dean Foods’ net investment in us;

 

   

the entry into agreements that formalize ongoing commercial arrangements that we have with certain wholly-owned Dean Foods subsidiaries, all of which are described in greater detail in “Certain Relationships and Related Party Transactions;”

 

   

the termination of our intellectual property license agreement with a wholly-owned subsidiary of Dean Foods; and

 

   

other adjustments described in the notes to the unaudited pro forma condensed consolidated financial information.

The table below assumes the underwriters will not exercise their over-allotment option. You should read the information in the following table together with “Use of Proceeds,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Condensed Consolidated Financial Information,” and our audited and unaudited financial statements and the related notes included elsewhere in this prospectus.

 

     As of June 30, 2012  
     Actual     Actual as
adjusted
    Pro forma as
adjusted
 
    

(Unaudited)

(in thousands, except share and per share data)

 

Cash and cash equivalents

   $ 41,374        $41,374      $ 41,374   
  

 

 

   

 

 

   

 

 

 

Long-term debt

     452,672        1,607,672        885,000 (a) 

Parent Company Equity:

      

Dean Foods’ net investment

     1,119,005        (35,995  

Stockholders’ Equity:

      

Preferred stock, $0.01 par value; no shares authorized, issued and outstanding, actual and actual as adjusted; 170,000,000 shares authorized; no shares issued and outstanding, pro forma as adjusted

                     

Class A common stock, $0.01 par value; no shares authorized, issued and outstanding, actual and actual as adjusted; 1,700,000,000 shares authorized; 20,000,000 shares issued and outstanding, pro forma as adjusted

                   200   

Class B common stock, $0.01 par value; no shares authorized, issued and outstanding, actual and actual as adjusted; 175,000,000 shares authorized; 150,000,000 shares issued and outstanding, pro forma as adjusted

                   1,500   

Additional paid-in capital

                   653,143   

Accumulated other comprehensive income income (loss)

     (42,857)        (42,857)        (42,857
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     1,076,148        (78,852)        611,986   
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 1,528,820      $ 1,528,820      $ 1,496,986   
  

 

 

   

 

 

   

 

 

 

 

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(a) We anticipate borrowing approximately $885.0 million under our senior secured credit facilities ($385.0 million under the $850.0 million revolving credit facility, $250.0 million under the Term A-1 facility and $250.0 million under the Term A-2 facility). The $885.0 million includes the $15.0 million current portion.

Assuming no change in the number of shares offered by us as set forth on the cover page of this prospectus: (1) a $1.00 increase in the assumed initial public offering price of $15.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) will (i) have no impact to cash and cash equivalents or total capitalization, and (ii) decrease our long-term debt and increase our additional paid-in capital and total stockholders’ equity by $18.8 million after deducting the estimated underwriting discount; and (2) a $1.00 decrease in the assumed initial public offering price of $15.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) will not affect cash and cash equivalents, additional paid-in capital, total stockholders’ equity, or total capitalization (assuming Dean Foods contributes a corresponding portion of the intercompany notes to WWF Operating Company).

The number of outstanding shares in the table above excludes:

 

   

150,000,000 shares of our Class A common stock reserved for issuance upon any conversion of our outstanding Class B common stock; and

 

   

20,000,000 shares of our Class A common stock reserved for issuance under the 2012 SIP upon the exercise of future stock options, restricted stock units, or restricted stock that will be issued under our employee benefit plans, which will include:

 

   

3,028,188 shares of our Class A common stock reserved for issuance in connection with the IPO Grants to our executives and employees that will be granted following the determination of the initial public offering price per share of our Class A common stock in this offering, as described in “Executive Compensation—Our Anticipated Compensation Program Following this Offering—IPO Grants;”

 

   

shares of our Class A common stock that may be issuable in connection with compensation of our directors, as described in “Management—Director Compensation;” and

 

   

shares of our Class A common stock that may be issuable in connection with the conversion of outstanding Dean Foods equity awards upon the effectiveness of a spin-off, as described in “Executive Compensation—Our Anticipated Compensation Program Following this Offering—Treatment of Outstanding Dean Foods Equity Awards.”

 

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Dilution

Dilution is the amount by which the offering price paid by the purchasers of our Class A common stock in this offering exceeds the adjusted net tangible book value or deficiency per share of our Class A and Class B common stock after giving effect to the Pro Forma Transactions. Net tangible book value or deficiency per share of our Class A and Class B common stock is determined at any date by subtracting our total liabilities from our total assets less our intangible assets and dividing the difference by the number of shares of Class A and Class B common stock deemed to be outstanding at that date.

If you invest in our Class A common stock in this offering, your interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the adjusted net tangible book value or deficiency per share of our Class A and Class B common stock after giving effect to the Pro Forma Transactions.

As of June 30, 2012, after giving effect to the Pro Forma Transactions (other than the sale of the shares of Class A common stock in this offering and the receipt and the application of the net proceeds in connection therewith), our net tangible book deficit was approximately $(799.4) million, or $(5.33) per share of our common stock (based on 150,000,000 shares of common stock outstanding immediately prior to this offering). After giving effect to the Pro Forma Transactions, our net tangible book deficit, as adjusted, as of June 30, 2012, would have equaled approximately $(517.4) million, or $(3.04) per share of our common stock. This represents an immediate increase in the net tangible book value of $2.29 per share to Dean Foods, as our sole stockholder prior to this offering, and an immediate dilution in net tangible book value of $18.04 per share to purchasers of our Class A common stock in this offering.

The following table illustrates the per share dilution:

 

Assumed initial public offering price per share

     $ 15.00   

Net tangible book deficit per share as of June 30, 2012 after giving effect to the Pro Forma Transactions (other than the sale of the shares of Class A common stock in this offering and the receipt and the application of the net proceeds in connection therewith)

   $ (5.33  

Increase in net tangible book value per share attributable to this offering

   $ 2.29     
  

 

 

   

Adjusted net tangible book deficit per share after giving effect to the Pro Forma Transactions

     $ (3.04
    

 

 

 

Dilution per share to new investors

     $ 18.04   
    

 

 

 

The foregoing discussion and table do not give effect to shares of Class A common stock that we will issue if the underwriters exercise their over-allotment option.

The following table summarizes, on a pro forma basis, after giving effect to the Pro Forma Transactions, as of June 30, 2012, the number of shares of our common stock we issued and sold, the total consideration we received, and the average price per share paid to us by Dean Foods, our sole stockholder prior to this offering, and by new investors purchasing shares of Class A common stock in this offering. The table assumes an initial public offering price of $15.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) and does not give effect to shares of Class A common stock that we will issue if the underwriters exercise their over-allotment option.

 

     Shares purchased      Total consideration      Average price
per share
 
     Number      Percent      Amount      Percent     

Dean Foods Company

     150,000,000         88%       $         0%           

New investors in this offering

     20,000,000         12%       $ 300,000,000         100%       $ 15.00   
  

 

 

    

 

 

    

 

 

    

 

 

    

Total

     170,000,000         100%       $ 300,000,000         100%       $ 1.76   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

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As consideration for the shares of our Class B common stock issued to Dean Foods, Dean Foods will contribute the shares of WWF Operating Company to us. No cash consideration was, or will be, paid by Dean Foods to us for such shares of our Class B common stock. Dean Foods’ investment in us was at a deficit balance at the time of the issuance of such shares of our Class B common stock, primarily due to the issuance of the intercompany notes by us to Dean Foods.

Assuming no change in the number of shares offered by us as set forth on the cover page of this prospectus: (1) a $1.00 increase in the assumed initial public offering price of $15.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) would decrease our adjusted net tangible book deficit by $18.8 million to $(498.6 million), or $(2.93) per share of our common stock, after giving effect to this offering and the other Pro Forma Transactions and deducting the estimated underwriting discount, representing an increase in dilution per share to new investors by $0.89 per share; and (2) a $1.00 decrease in the assumed initial public offering price of $15.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) would not impact our adjusted net tangible book deficit after giving effect to this offering and the other Pro Forma Transactions (assuming Dean Foods contributes a corresponding portion of the intercompany notes to WWF Operating Company), but would decrease the dilution to new investors by $1.00 per share.

If the underwriters exercise their over-allotment option in full, our adjusted net tangible book deficit after giving effect to this offering and the other Pro Forma Transactions, as of June 30, 2012, would be approximately $(2.99) per share and the dilution per share to new investors would be $17.99 per share. Furthermore, the number of shares of our Class A common stock held by new investors would increase to 23,000,000, or approximately 13.3% of the total number of shares of our common stock outstanding after this offering, and the number of shares held by Dean Foods would remain at 150,000,000 shares, or approximately 86.7% of the total number of shares of our common stock outstanding after this offering.

The tables and calculations above exclude:

 

   

150,000,000 shares of our Class A common stock reserved for issuance upon any conversion of our outstanding Class B common stock; and

 

   

20,000,000 shares of our Class A common stock reserved for issuance under the 2012 SIP upon the exercise of future stock options, restricted stock units, or restricted stock that will be issued under our employee benefit plans, which will include:

 

   

3,028,188 shares of our Class A common stock reserved for issuance in connection with the IPO Grants to our executives and employees that will be granted following the determination of the initial public offering price per share of our Class A common stock in this offering, as described in “Executive Compensation—Our Anticipated Compensation Program Following this Offering—IPO Grants;”

 

   

shares of our Class A common stock that may be issuable in connection with compensation of our directors, as described in “Management—Director Compensation;” and

 

   

shares of our Class A common stock that may be issuable in connection with the conversion of outstanding Dean Foods equity awards upon the effectiveness of a spin-off, as described in “Executive Compensation—Our Anticipated Compensation Program Following this Offering—Treatment of Outstanding Dean Foods Equity Awards.”

 

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Selected Consolidated Financial Data

The following financial data should be read in conjunction with our audited and unaudited consolidated financial statements and the related notes, and our unaudited pro forma condensed consolidated financial information and the related notes, included elsewhere in this prospectus.

The WhiteWave Foods Company was formed on July 17, 2012, has nominal assets and no liabilities, and will conduct no operations prior to completion of this offering. Therefore, we believe that a presentation of the historical results of The WhiteWave Foods Company would not be meaningful. Accordingly, the following presents the historical financial information for WWF Operating Company, which presently is a wholly-owned subsidiary of Dean Foods. Except for the nominal assets that are currently held by The WhiteWave Foods Company, WWF Operating Company holds substantially all of the historical assets and liabilities related to the business that The WhiteWave Foods Company will acquire pursuant to the contribution.

Unless otherwise specified, any references to “our,” “we,” and “us” in this selected consolidated financial data refer to WWF Operating Company.

The consolidated statement of operations data for each of the years ended December 31, 2011, 2010, and 2009, and the consolidated balance sheet data as of December 31, 2011 and 2010, are derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statement of operations data for the years ended December 31, 2008 and 2007, and the consolidated balance sheet data as of December 31, 2009, 2008, and 2007, are derived from unaudited consolidated financial statements not included in this prospectus. The consolidated statement of operations data for the six months ended June 30, 2012 and 2011, and the consolidated balance sheet data as of June 30, 2012, have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The unaudited condensed consolidated financial statements were prepared on the same basis as our audited financial statements. In our opinion, such financial statements include all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of the financial information set forth in those statements.

Our historical consolidated financial statements have been prepared on a stand-alone basis in accordance with GAAP and are derived from Dean Foods’ consolidated financial statements and accounting records using the historical results of operations and assets and liabilities attributed to our operations, and include allocations of expenses from Dean Foods. Our historical results are not necessarily indicative of our results in any future period. You should read the following selected consolidated financial data together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this prospectus.

 

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    Year ended December 31,     Six months
ended June 30,
 
    2011     2010     2009     2008     2007     2012     2011  
   

(In thousands)

 

Statement of Operations Data:

             

Net sales(1)

  $ 1,916,830      $ 1,713,390      $ 1,446,931      $ 1,267,669      $ 1,167,389      $ 1,050,884      $ 921,603   

Net sales to related parties(2)

    108,921        107,923        88,036        69,466        47,678        55,590        53,048   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales

    2,025,751        1,821,313        1,534,967        1,337,135        1,215,067        1,106,474        974,651   

Cost of sales(2)

    1,341,310        1,210,816        1,020,585        917,028        819,280        718,883        645,040   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit(3)

    684,441        610,497        514,382        420,107        395,787        387,591        329,611   

Related party license income(4)

    42,680        39,378        46,729        46,868        42,667        21,316        20,469   

Operating costs and expenses:

             

Selling and distribution(2)

    414,724        384,512        331,844        290,054        269,003        242,857        203,697   

General and administrative(5),(6)

    136,703        139,888        127,130        78,968        67,412        74,979        67,648   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs and expenses

    551,427        524,400        458,974        369,022        336,415        317,836        271,345   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    175,694        125,475        102,137        97,953        102,039        91,071        78,735   

Other expense (income):

             

Interest expense (income)(4),(7)

    9,149        10,583        (680     (6,565     (5,157     2,610        5,210   

Other expense (income), net

    122        377        (149     3,252        81        683        (770
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense (income)

    9,271        10,960        (829     (3,313     (5,076     3,293        4,440   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

    166,423        114,515        102,966        101,266        107,115        87,778        74,295   

Income tax expense

    52,089        33,159        42,419        35,012        41,191        30,087        24,129   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    114,334        81,356        60,547        66,254        65,924        57,691        50,166   

Gain on sale of discontinued operations, net of tax

    3,616        5,693        276        (47     10                 

Loss from discontinued operations, net of tax

    (27,105     (16,686     (21,089     2,968        3,089               (7,046
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    90,845        70,363        39,734        69,175        69,023        57,691        43,120   

Net loss attributable to non-controlling interest

    16,550        8,735        12,441                             4,388   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to WWF Operating Company

  $ 107,395      $ 79,098      $ 52,175      $ 69,175      $ 69,023      $ 57,691      $ 47,508   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance Sheet Data:

             

Cash and cash equivalents

  $ 96,987      $ 73,812      $ 26,466      $ 3,907      $ 3,754      $ 41,374      $ 86,357   

Total assets

    2,108,685        2,066,879        2,101,136        1,489,274        1,436,768        2,052,592        2,151,735   

Long-term debt(7)

    456,171        440,351        440,255        40,313        54,142        452,672        440,255   

Other non-current liabilities

    274,578        281,509        289,440        171,564        156,424        275,786        299,437   

Total invested equity

    1,140,686        1,124,463        1,153,901        1,118,715        1,100,950        1,076,148        1,191,128   

 

(1) Our net sales are derived primarily from sales of our branded plant-based foods and beverages, coffee creamers and beverages, and premium dairy products to third-party customers across North America and Europe. Sales are reported net of estimated returns, trade promotions, and other discounts. Net sales do not historically include the sales of our finished goods to third-party customers made directly by other Dean Foods wholly-owned subsidiaries.

 

(2) Related party sales represent the sale of our finished products to other wholly-owned subsidiaries of Dean Foods. Those transactions have historically taken place at an agreed-upon price, which may not be equivalent to the terms that would prevail in an arm’s-length transaction. In addition, effective January 1, 2010, Dean Foods implemented a standardized intercompany pricing structure on all products sold by us to other wholly-owned subsidiaries of Dean Foods which negatively impacted our related party sales as compared to years prior to 2010. In connection with the separation and this offering, we have entered, or will enter, into agreements that formalize ongoing commercial arrangements we have with certain wholly-owned Dean Foods subsidiaries. These agreements will become effective no later than completion of this offering and include certain transitional sales agreements, a sales and distribution agreement, and certain manufacturing and supply agreements. Following their effectiveness, these agreements will impact our net related party sales, our cost of sales and our selling and distribution expenses, all of which is described in greater detail in the notes to “Unaudited Pro Forma Condensed Consolidated Financial Information.”

It is anticipated that a transition services agreement will take effect to cover certain continued corporate services provided by Dean Foods to us following completion of this offering. See “Certain Relationships and Related Party Transactions.”

Due to these and other changes we anticipate in connection with this offering, the historical financial information included in this prospectus may not necessarily reflect our financial position, results of operations, and cash flows in the future or what our financial position, results of operations, and cash flows would have been had we been a stand-alone public company during the periods presented. See the notes to “Unaudited Pro Forma Condensed Consolidated Financial Information.”

 

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(3) As disclosed in Note 2 to our audited consolidated financial statements included elsewhere in this prospectus, we include certain shipping and handling costs associated with shipping products to customers through third-party carriers and third-party inventory warehouse costs within selling and distribution expense. As a result, our gross profit may not be comparable to that of other entities that present all shipping and handling costs as a component of cost of sales.

 

(4) Historically, our intellectual property license agreement with a wholly-owned subsidiary of Dean Foods provided such subsidiary the right to use certain intellectual property in the manufacture of certain products for a fee. In conjunction with the license agreement, a loan agreement was entered into, pursuant to which we extended a line of credit to such subsidiary related to the license income under the license agreement. There have been no repayments of this loan to date and there are no future plans to settle the outstanding balance; therefore, the principal and associated accrued interest is shown in parent’s net investment. In connection with this offering, we have entered into an agreement with such subsidiary pursuant to which we will terminate this license agreement and the related loan. Upon completion of this offering, we will no longer receive license income or related interest income associated with these historical agreements. In addition, we have entered into an agreement to effect the transfer of the intellectual property subject to the license agreement to such subsidiary so that such subsidiary has the requisite intellectual property and manufacturing know-how to produce and sell its products and brands. All intellectual property related to and necessary for the production of the Company’s products and brands will be retained. See “Certain Relationships and Related Party Transactions.”

 

(5) Dean Foods currently provides certain corporate services to us, and costs associated with these functions have been allocated to us. Our historical financial statements included elsewhere in this prospectus reflect these costs primarily within general and administrative expenses. These allocations include costs related to corporate services such as executive management, supply chain, information technology, legal, finance and accounting, investor relations, human resources, risk management, tax, treasury, and other services, as well as stock-based compensation expense attributable to our employees and an allocation of stock-based compensation attributable to employees of Dean Foods. The total amount of these allocations from Dean Foods was approximately $23.8 million and $16.9 million in the six months ended June 30, 2012 and June 30, 2011, respectively, and approximately $32.7 million, $36.2 million, $45.7 million, $24.0 million, and $16.4 million in the years ended December 31, 2011, 2010, 2009, 2008, and 2007, respectively.

 

(6) Results for 2009 include Alpro’s results of operations subsequent to the July 2, 2009 date of acquisition. In addition, results for 2009 include acquisition-related expenses in general and administrative expenses, related to due diligence, investment advisors, and regulatory matters of approximately $12.2 million. See Note 3 to our audited consolidated financial statements included elsewhere in this prospectus.

 

(7) We were allocated $440.3 million from the Dean Foods senior secured credit facility on July 2, 2009 to fund our acquisition of Alpro. Interest expense has been allocated based on the historical interest rates of the Dean Foods senior secured credit facility and totals approximately $6.0 million and $6.9 million for the six months ended June 30, 2012 and 2011, respectively, and approximately $13.2 million, $13.0 million, and $2.7 million in the years ended December 31, 2011, 2010, and 2009, respectively. Debt issuance costs have been allocated in the same proportion as debt and are recorded as a non-current asset included in our consolidated balance sheets. No principal, interest, or debt issuance costs have been paid by us historically. The allocated portion of the Dean Foods senior secured credit facility will be settled prior to the completion of this offering as a contribution to capital from Dean Foods to WWF Operating Company.

 

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Unaudited Pro Forma Condensed Consolidated Financial Information

The following unaudited pro forma condensed consolidated financial information consists of unaudited pro forma condensed consolidated statements of operations for the six months ended June 30, 2012 and for the year ended December 31, 2011, and an unaudited pro forma condensed consolidated balance sheet as of June 30, 2012. The unaudited pro forma condensed consolidated financial information has been derived by application of pro forma adjustments to our historical financial statements included elsewhere in this prospectus.

The WhiteWave Foods Company was formed on July 17, 2012, has nominal assets and no liabilities, and will conduct no operations prior to completion of this offering. Therefore, we believe that a presentation of the pro forma financial information of The WhiteWave Foods Company would not be meaningful. Accordingly, the following presents the pro forma financial information for WWF Operating Company, which presently is a wholly-owned subsidiary of Dean Foods. Except for the nominal assets that are currently held by The WhiteWave Foods Company, WWF Operating Company holds substantially all of the historical assets and liabilities related to the business that The WhiteWave Foods Company will acquire pursuant to the contribution.

Unless otherwise specified, any references to “our,” “we,” and “us” in this “Unaudited Pro Forma Condensed Consolidated Financial Information” refer to WWF Operating Company.

The unaudited pro forma condensed consolidated statements of operations give effect to the Pro Forma Transactions as if the Pro Forma Transactions had occurred or had become effective as of January 1, 2011. The unaudited pro forma condensed consolidated balance sheet gives effect to the Pro Forma Transactions as though the Pro Forma Transactions had occurred as of June 30, 2012.

The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable. The unaudited pro forma condensed consolidated financial information is for illustrative and informational purposes only and does not purport to represent what our financial position or results of operations would have been if we had operated as a stand-alone public company during the periods presented or if the transactions described below had actually occurred as of the dates indicated, nor does it project our financial position at any future date or our results of operations or cash flows for any future period.

Our unaudited pro forma condensed consolidated financial information has been prepared to reflect adjustments to our historical financial information that are (1) directly attributable to the Pro Forma Transactions; (2) factually supportable; and (3) with respect to the unaudited pro forma condensed consolidated statements of operations, expected to have a continuing impact on our results. The unaudited pro forma condensed consolidated financial information does not include non-recurring items, including, but not limited to offering-related legal and advisory fees. The unaudited pro forma condensed consolidated financial information assumes the underwriters will not exercise their over-allotment option and reflects the impact of the Pro Forma Transactions which comprise the following:

 

   

the reclassification, the separation, and the contribution;

 

   

the receipt of $282 million in net proceeds from the sale of shares of our Class A common stock in this offering at an assumed initial offering price of $15.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discount;

 

   

the indebtedness to be incurred in the related financing transactions, as described in “Description of Financing Transactions and Material Indebtedness;”

 

   

the payment of $282 million of the initial net proceeds from this offering and substantially all of the net proceeds of our initial borrowing under our senior secured credit facilities to Dean Foods in satisfaction of $1.155 billion aggregate principal amount of outstanding intercompany notes owed by WWF

 

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Operating Company to Dean Foods plus accrued interest, as described in “Description of Financing Transactions and Material Indebtedness;”

 

   

the resulting elimination of Dean Foods’ net investment in us;

 

   

the entry into certain agreements that formalize ongoing commercial arrangements that we have with certain wholly-owned Dean Foods subsidiaries, all of which are described in greater detail in “Certain Relationships and Related Party Transactions;”

 

   

the termination of our intellectual property license agreement with a wholly-owned subsidiary of Dean Foods; and

 

   

other adjustments described in the notes to this section.

The incremental impact of the transitional sales agreements, stand-alone public company costs, and non-recurring transition costs, all of which are described below, are not reflected in the unaudited pro forma condensed consolidated financial information.

Transitional Sales Agreements

In connection with this offering, we entered into two transitional sales agreements with a certain wholly-owned subsidiary of Dean Foods. In the first agreement, such subsidiary will transfer back to us responsibility for its sales and associated costs of certain WhiteWave products over a 15-month term. During this term, this subsidiary of Dean Foods will provide certain transitional services to us, which include, but are not limited to, taking and filling orders, collecting receivables, and shipping products to our customers. This subsidiary of Dean Foods will remit to us the net profit collected from these product sales until such time as the sales are transitioned to us. The net effect of the agreement would be an estimated increase in related party fees of $12.9 million and $22.3 million, representing gross billings to customers by the subsidiary of Dean Foods of $34.9 million and $62.9 million, for the periods ended June 30, 2012 and December 31, 2011, respectively.

In the second agreement, we will transfer to such subsidiary responsibility for the sales and associated costs of our aerosol whipped topping and other non-core products over a 15-month term. During this term, we will provide certain transitional services, which include, but are not limited to, taking and filling orders and collecting receivables, to such subsidiary of Dean Foods. We will remit to this subsidiary of Dean Foods the net profit associated with these product sales until such time as the sales are transitioned to such subsidiary of Dean Foods. The net effect of the agreement would be an estimated decrease in net sales by $15.0 million and $31.1 million, a decrease in cost of sales by $9.6 million and $21.8 million, and a decrease in selling and distribution expense by $1.0 million and $1.9 million for the periods ended June 30, 2012, and December 31, 2011, respectively.

The net impact of these transitional sales agreements to our operating income would be an estimated increase of $8.5 million and $14.9 million for the periods ended June 30, 2012 and December 31, 2011, respectively.

Stand-Alone Public Company Costs

Dean Foods currently provides certain corporate services to us, and costs associated with these functions have been allocated to us. These allocations include costs related to corporate services, such as executive management, supply chain, information technology, legal, finance and accounting, investor relations, human resources, risk management, tax, treasury, and other services, as well as stock-based compensation expense attributable to our employees and an allocation of stock-based compensation attributable to employees of Dean Foods. The costs of such services have been allocated to us based on the most relevant allocation method to the service provided, primarily based on relative percentage of total net sales, relative percentage of headcount, or specific identification. The total amount of these allocations from Dean Foods was approximately $23.8 million (which includes $4.0 million of transaction costs related to this offering) in the six months ended June 30, 2012

 

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and approximately $32.7 million in the year ended December 31, 2011. These cost allocations are primarily reflected within general and administrative expenses in our consolidated statements of operations as well as classified as Corporate and Other in Note 15 to our audited consolidated financial statements. Management believes the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to or the benefit received by us during the periods presented. Following the completion of this offering, we expect Dean Foods to continue to provide many of these services related to these functions on a transitional basis for a fee. These services will be provided under the transitional services agreement described in “Certain Relationships and Related Party Transactions.”

Non-recurring Transition Costs

Upon completion of this offering, we will assume responsibility for all our stand-alone public company costs, including the costs of corporate services currently provided by Dean Foods. We estimate that our annual general and administrative expense for these costs will be an aggregate of approximately $55 million (representing approximately $22 million of annual costs incremental to the 2011 allocated costs referred to above). In addition, as we transition away from the corporate services currently provided by Dean Foods, we believe that we may incur $5 million to $10 million of non-recurring transitional costs in both 2013 and 2014 to establish our own stand-alone corporate functions.

The unaudited pro forma condensed consolidated statements of operations also exclude certain non-recurring items that we expect to incur in connection with the Pro Forma Transactions, including costs related to legal, accounting, and consulting services. We have incurred costs totaling approximately $4.0 million for transaction-related services during the six months ended June 30, 2012 and we estimate an additional $11 million to $15 million will be incurred in 2012. We expect all of these costs to be expensed.

“Unaudited Pro Forma Condensed Consolidated Financial Information” and the related notes should be read in conjunction with “Use of Proceeds,” “Capitalization,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Certain Relationships and Related Party Transactions,” and our audited and unaudited consolidated financial statements and the related notes included elsewhere in this prospectus.

 

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Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the Six Months Ended June 30, 2012

(Dollars in Thousands, Except Per Share Data)

 

     Historical      Pro forma
adjustments
    Pro forma  

Net sales

   $ 1,050,884       $        $1,050,884   

Net sales to related parties

     55,590         10,927  (a)      66,517   
  

 

 

    

 

 

   

 

 

 

Total net sales

     1,106,474         10,927        1,117,401   

Cost of sales

     718,883         4,440  (a)      723,323   
  

 

 

    

 

 

   

 

 

 

Gross profit

     387,591         6,487        394,078   

Related party license income

     21,316         (21,316 )(b)        

Operating costs and expenses:

       

Selling and distribution

     242,857                242,857   

General and administrative

     74,979         384 (e),(f)      75,363   
  

 

 

    

 

 

   

 

 

 

Total operating costs and expenses

     317,836         384        318,220   
  

 

 

    

 

 

   

 

 

 

Operating income

     91,071         (15,213     75,858   

Other expense (income):

       

Interest expense (income)

     2,610         9,146  (c),(d)      11,756   

Other expense, net

     683                683   
  

 

 

    

 

 

   

 

 

 

Total other expense (income)

     3,293         9,146         12,439   
  

 

 

    

 

 

   

 

 

 

Income from continuing operations before income taxes

     87,778         (24,359     63,419   

Income tax expense

     30,087         (8,526 )(h)      21,561   
  

 

 

    

 

 

   

 

 

 

Income from continuing operations

   $ 57,691       $ (15,833   $ 41,858   
  

 

 

    

 

 

   

 

 

 

Earnings per Share, Basic and Diluted:

       

Basic

        $ 0.25 (i) 

Diluted

        $ 0.25 (i) 

Weighted Average Shares Outstanding:

       

Basic

          170,000,000   

Diluted

          170,655,000   

See notes to unaudited pro forma condensed consolidated financial information.

 

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Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the Year Ended December 31, 2011

(Dollars in Thousands, Except Per Share Data)

 

       Historical        Pro forma
adjustments
    Pro forma  

Net sales

     $ 1,916,830         $      $ 1,916,830   

Net sales to related parties

       108,921           26,837  (a)      135,758   
    

 

 

      

 

 

   

 

 

 

Total net sales

       2,025,751           26,837        2,052,588   

Cost of sales

       1,341,310           9,898  (a)      1,351,208   
    

 

 

      

 

 

   

 

 

 

Gross profit

       684,441           16,939        701,380   

Related party license income

       42,680           (42,680 )(b)        

Operating costs and expenses:

           

Selling and distribution

       414,724                  414,724   

General and administrative

       136,703           8,769  (f)      145,472   
    

 

 

      

 

 

   

 

 

 

Total operating costs and expenses

       551,427           8,769        560,196   
    

 

 

      

 

 

   

 

 

 

Operating income

       175,694           (34,510     141,184   

Other expense (income):

           

Interest expense (income)

       9,149           14,317  (c),(d)      23,466   

Other expense, net

       122                  122   
    

 

 

      

 

 

   

 

 

 

Total other expense (income)

       9,271           14,317        23,588   
    

 

 

      

 

 

   

 

 

 

Income from continuing operations before income taxes

       166,423           (48,827     117,596   

Income tax expense

       52,089           (17,089 (h)      35,000   
    

 

 

      

 

 

   

 

 

 

Income from continuing operations

     $ 114,334         $ (31,738   $ 82,596   
    

 

 

      

 

 

   

 

 

 

Earnings per Share, Basic and Diluted:

           

Basic

            $ 0.49  (i) 

Diluted

            $ 0.48  (i) 

Weighted Average Shares Outstanding:

           

Basic

              170,000,000   

Diluted

              170,655,000   

See notes to unaudited pro forma condensed consolidated financial information.

 

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Unaudited Pro Forma Condensed Consolidated Balance Sheet

As of June 30, 2012

(Dollars in Thousands, Except Per Share Data)

 

     Historical     Pro forma
adjustments
    Pro forma  

ASSETS

      

Current Assets

      

Cash and cash equivalents

   $ 41,374      $      $ 41,374   

Receivables, net of allowance

     104,567               104,567   

Related party receivables

     10,843               10,843   

Inventories

     144,260               144,260   

Deferred income taxes

     12,608        6,081 (g)      18,689   

Prepaid expenses and other current assets

     21,370               21,370   
  

 

 

   

 

 

   

 

 

 

Total Current Assets

     335,022        6,081        341,103   

Property, Plant, and Equipment, net

     578,763               578,763   

Identifiable intangible and other assets, net

     379,889        12,000  (d)      391,889   

Goodwill

     758,918               758,918   
  

 

 

   

 

 

   

 

 

 

Total Assets

   $ 2,052,592      $ 18,081      $ 2,070,673   
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

      

Current Liabilities

      

Accounts payable and accrued expenses

   $ 247,010      $ 17,373  (g)    $ 264,383   

Current portion of long-term debt

            15,000  (d)      15,000   

Income tax payable

     976               976   
  

 

 

   

 

 

   

 

 

 

Total Current Liabilities

     247,986        32,373        280,359   

Long-term debt

     452,672        417,328  (c),(d)      870,000   

Deferred income taxes

     255,523        (17,522 )(g)      238,001   

Other long-term liabilities

     20,263        50,064 (g)      70,327   

Parent Company Equity:

      

Dean Foods’ net investment

     1,119,005        (1,119,005 )(c),(d),(g),(i)        

Stockholders’ Equity:

      

Preferred stock, $0.01 par value, no shares authorized, issued and outstanding on a historical basis; 170,000,000 shares authorized; no shares issues and outstanding on a pro forma basis

                     

Class A common stock, $0.01 par value, no shares authorized, issued and outstanding on a historical basis; 1,700,000,000 shares authorized; 20,000,000 shares issued and outstanding on a pro forma basis

            200  (i)      200   

Class B common stock, $0.01 par value, no shares authorized, issued and outstanding on a historical basis; 175,000,000 shares authorized; 150,000,000 shares issued and outstanding on a pro forma basis

            1,500  (i)      1,500   

Additional paid-in capital

            653,143 (i)      653,143   

Accumulated other comprehensive income (loss)

     (42,857            (42,857
  

 

 

   

 

 

   

 

 

 

Invested equity attributable to The WhiteWave Foods Company

     1,076,148        (464,162     611,986   

Non-controlling interest

                     
  

 

 

   

 

 

   

 

 

 

Total Invested Equity

     1,076,148        (464,162     611,986   
  

 

 

   

 

 

   

 

 

 

Total Liabilities and Invested Equity

   $ 2,052,592      $ 18,081      $ 2,070,673   
  

 

 

   

 

 

   

 

 

 

See notes to unaudited pro forma condensed consolidated financial information.

 

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Notes to Unaudited Pro Forma Condensed Consolidated Financial Information

(a) Separation Adjustments and Operating Model Changes

In connection with this offering, we have entered into agreements that formalize ongoing commercial arrangements we have with certain wholly-owned Dean Foods subsidiaries. These agreements will become effective no later than the completion of this offering.

Sales and Distribution Agreement

We have entered into an agreement with certain wholly-owned subsidiaries of Dean Foods, pursuant to which such Dean Foods subsidiaries will continue to sell and distribute certain WhiteWave products for a fixed initial term of up to 18 months, depending on the product and customer. This agreement modifies our historical intercompany arrangements and reflects new pricing. The net effect of the agreement as reflected in the unaudited pro forma condensed consolidated statement of operations was an increase in net sales to related parties of $10.9 million and $26.8 million and an increase to cost of sales of $3.5 million and $8.8 million for the periods ended June 30, 2012, and December 31, 2011, respectively.

Manufacturing and Supply Agreements

We have entered into a manufacturing agreement with a certain wholly-owned subsidiary of Dean Foods pursuant to which such subsidiary will continue manufacturing various WhiteWave products on our behalf. With the exception of the manufacture of aerosol whipped topping and other non-core products, which are subject to this agreement for a term of up to 15 months, this agreement generally has a term of three to five years with respect to the various product lines. The agreement modifies our historical intercompany arrangements and reflects new pricing. The net effect of the agreement as reflected in the unaudited pro forma condensed consolidated statement of operations was an increase in cost of sales of $1.0 million and $1.1 million for the periods ended June 30, 2012 and December 31, 2011, respectively.

Additionally, we have entered into a separate manufacturing agreement with certain wholly-owned Dean Foods subsidiaries pursuant to which such subsidiaries will continue manufacturing WhiteWave fresh organic milk products on our behalf for a term of 18 months. The agreement formalizes our historical intercompany arrangements. This agreement had no net effect on the unaudited pro forma condensed consolidated statement of operations.

We have also entered into a supply agreement with certain wholly-owned subsidiaries of Dean Foods pursuant to which we will continue to purchase cream from such subsidiaries for an initial term of up to 24 months, with an option for us to renew for up to four one-year terms. This agreement formalizes our historical intercompany arrangements. This agreement had no net effect on the unaudited pro forma condensed consolidated statement of operations.

(b) Termination of Intellectual Property License Agreement

Historically, our intellectual property license agreement with a wholly-owned subsidiary of Dean Foods provided such subsidiary the right to use certain intellectual property in the manufacture of certain products for a fee. In conjunction with the license agreement, a loan agreement was entered into, pursuant to which we extended a line of credit to such subsidiary related to the license income under the license agreement. There have been no repayments of this loan to date and there are no future plans to settle the outstanding balance; therefore, the principal and associated accrued interest is shown in parent’s net investment. In connection with this offering, we have entered into an agreement with such subsidiary pursuant to which we will terminate this license agreement and the related loan. Upon completion of this offering, we will no longer receive license income or related interest income associated with these historical agreements. In addition, we have entered into an agreement to effect the transfer of the intellectual property subject to the license agreement to such

 

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subsidiary so that such subsidiary has the requisite intellectual property and manufacturing know-how to produce and sell its products and brands. All intellectual property related to and necessary for the production of the Company’s products and brands will be retained. See “Certain Relationships and Related Party Transactions.”

(c) Existing Indebtedness

An adjustment to the unaudited pro forma condensed consolidated balance sheet as of June 30, 2012 has been made to reflect the effective settlement of $440.3 million, which is the principal balance associated with the Dean Foods senior secured credit facility that was allocated to us and used by us to fund our July 2, 2009 acquisition of Alpro, to reflect that Dean Foods has effectively contributed the receivable to capital.

An adjustment to the unaudited pro forma condensed consolidated balance sheet as of June 30, 2012, has been made to reflect the effective settlement of $12.4 million, which is the principal balance associated with our participation in the Dean Foods receivables-backed facility. Upon completion of this offering, we will no longer participate in the Dean Foods receivables-backed facility.

An adjustment to the unaudited pro forma condensed consolidated statements of operations for the periods ended June 30, 2012 and December 31, 2011, has been made to eliminate the interest expense related to our existing indebtedness, as if it had been settled on January 1, 2011.

(d) New Debt Financing

The unaudited pro forma condensed consolidated balance sheet reflects the incurrence of the following debt as if it had occurred on June 30, 2012:

 

     (in millions)  

Revolving Credit Facility

   $ 385.0   

Term Loan A-1

     250.0   

Term Loan A-2

     250.0   
  

 

 

 

Total long-term debt

     885.0   

Less current portion

     (15.0
  

 

 

 

Total long-term portion

   $ 870.0   
  

 

 

 

Our senior secured credit facilities consist of a revolving credit facility and two term loan facilities. Currently, we anticipate borrowing approximately $385.0 million of the $850.0 million revolving credit facility and $250.0 million under each of the Term A-1 and Term A-2 facilities upon the completion of this offering.

The current portion of the long-term debt represents the 5% and 1% amortization repayments for the $250.0 million term loan A-1 and $250.0 million term loan A-2 facilities, respectively, in the first year.

The adjustment also reflects the capitalization of approximately $12 million of new deferred financing costs that we will incur under the revolving credit facility and term loan facilities. These costs will be deferred and recognized over the terms of the respective debt agreements using the effective interest method.

The unaudited pro forma condensed consolidated statements of operations reflect an adjustment for the expected interest expense and the amortization of deferred financing costs on our new borrowings under the revolving credit facility and term loan facilities. Pro forma interest expense (i) reflects an estimated weighted average annual interest rate of 2.28% on indebtedness to be incurred in conjunction with this offering, and (ii) reflects amortization expense on the approximately $12 million of deferred financing costs associated with our new borrowings, utilizing a weighted average maturity of 5.6 years. A 0.125% increase or decrease in the weighted average annual interest rate on the revolving credit facility and term loan facilities would increase or decrease pro forma interest expense by $1.1 million annually.

 

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The following table reflects the adjustments in our unaudited pro forma condensed consolidated statement of operations to reflect the impact of the adjustments to interest expense.

 

     Six Months Ended June 30,
2012
    Year Ended December  31,
2011
 
     (in thousands)  

Revolving Credit Facility

   $ 5,075      $ 10,150   

Term Loan A-1

     2,697        5,395   

Term Loan A-2

     3,064        6,128   

Amortization of deferred financing fees

     1,137        2,273   
  

 

 

   

 

 

 

New indebtedness

   $ 11,973      $ 23,946   

Existing indebtedness (c)

     (6,606     (15,707

Interest revenue on royalty note (b)

     3,779        6,078   
  

 

 

   

 

 

 

Pro forma net finance expense

   $ 9,146      $ 14,317   
  

 

 

   

 

 

 

(e) Transaction Costs

Reflects an adjustment to eliminate non-recurring transaction costs we have incurred in connection with this offering. These costs primarily include costs related to legal, accounting, and consulting services, of which we incurred approximately $4.0 million during the six months ended June 30, 2012 and $nil for the year ended December 31, 2011.

(f) IPO Grants

Reflects an adjustment of $4.4 million and $8.8 million for the periods ended June 30, 2012 and December 31, 2011, respectively, to record the recurring impact on stock compensation expense for award grants directly attributable to this offering.

The Dean Foods Compensation Committee and the independent directors of the WhiteWave board of directors have approved the following awards for the Company’s Named Executive Officers and certain other executives to be issued upon completion of this offering: an aggregate of (i) 655,000 restricted stock units (“RSUs”); (ii) 227,767 phantom shares, which are similar to RSUs in that they are based on share price, but are cash-settled; (iii) 2,373,188 stock options with an exercise price equal to the initial public offering price; (iv) 2,542,500 cash awards; and (v) 211,111 stock appreciation rights (“SARs”), which are similar to stock options, except that no exercise price is required to be paid. All the awards (other than cash awards) will vest pro rata on each of the first, second, and third anniversaries of the initial date of grant, and will vest in their entirety upon a change in control of the Company or, if prior to the intended spin-off of our common stock, of Dean Foods. All the cash awards will vest on the 36 month anniversary of the initial date of grant, and will vest in their entirety upon a change in control of the Company or, if prior to the intended spin-off of our common stock, of Dean Foods.

For the purposes of preparing the unaudited pro forma condensed consolidated financial information, the exercise price is assumed to be equal to the mid-point of the range set forth on the cover page of this prospectus.

(g) Interest Rate Swap Novation

Reflects the novation of certain Dean Foods’ interest rate swap agreements to the Company. The following table summarizes the terms of the interest rate swap agreements:

 

Fixed Interest Rates

  

Expiration Date

  

Notional Amount

2.70% to 3.17%

   March 31, 2017    $650,000,000

The $17.4 million current and $50.1 million long-term liabilities recorded on the balance sheet represent the fair value of the swap agreements as of June 30, 2012. The fair value was determined based on the notional amounts of the swaps and the forward LIBOR curve relative to the fixed interest rates under the swap agreements.

 

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This adjustment also includes the estimated deferred income tax impact of $23.6 million calculated at the U.S. federal statutory rate of 35%.

A hypothetical 0.25% increase in the forward LIBOR curve would reduce the liability by $6.6 million while a 0.25% decrease in the forward LIBOR curve would increase the liability by $9.6 million.

On a prospective basis, the interest rate swap agreements will be accounted for at fair value, with changes in fair value reflected in our statement of operations.

(h) Resulting Tax Effects

Reflects an income tax expense adjustment for the items noted in (a) through (f), calculated at the U.S. federal statutory rate of 35%.

(i) Offering Adjustments

Represents the payment of approximately $1.155 billion by WWF Operating Company to Dean Foods associated with the initial incurrence of indebtedness under the new senior secured credit facilities discussed in note (d) above and the sale of 20,000,000 shares of Class A common stock in this offering at the initial public offering price of $15.00 per share (the midpoint of the price range set forth on the cover page of the prospectus). In addition, includes the reclassification of Dean Foods’ net investment in us, which was recorded in Parent’s net investment which was reclassified into Additional paid-in capital and the required balancing entry to reflect the par value of our outstanding common stock. The issuance of common stock was at a par value of $0.01 per share.

The following reflects the adjustments in our unaudited pro forma condensed consolidated balance sheet to reflect the impact of the above transactions on Cash and cash equivalents, Parent’s net investment, Common stock and Additional paid-in capital:

 

    As of June 30, 2012  
    Issuance of
intercompany notes
    Proceeds from
initial public
offering/Use of
proceeds
    Capital contribution/
Repayment of
intercompany notes
    Conversion of Parent’s
net investment to
Additional paid-
in capital
    Adjustments for
this offering and
use of proceeds
 
               

(In thousands)

             

Cash and cash equivalents

                  (873,000            (873,000

Long-term debt payable to related parties

    1,155,000        (282,000     (873,000              

Parent Company Equity:

  

       

Dean Foods’ net investment

    (1,155,000                   (372,843     (1,527,843

Stockholders’ Equity:

         

Preferred Stock

                                  

Class A common stock

           200                      200   

Class B common stock

                         1,500        1,500   

Additional paid-in capital

           281,800               371,343        653,143   

Pro Forma Earnings Per Share

The number of shares used to compute pro forma basic earnings per share for the six months ended June 30, 2012 and the year ended December 31, 2011 is 170,000,000, which is comprised of 20,000,000 shares of Class A common stock (the number of shares outstanding upon completion of this offering) and 150,000,000 shares of Class B common stock.

The number of shares used to compute pro forma diluted earnings per share for the six months ended June 30, 2012 and the year ended December 31, 2011 is 170,655,000, which includes the dilutive impact of RSUs issued as part of the IPO Grants.

 

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our audited and unaudited consolidated financial statements and the related notes, and our unaudited pro forma condensed financial information and the related notes, included elsewhere in this prospectus.

The WhiteWave Foods Company was formed on July 17, 2012, has nominal assets and no liabilities, and will conduct no operations prior to completion of this offering. Therefore, we believe that a discussion of the historical results of The WhiteWave Foods Company would not be meaningful. Accordingly, the following analyzes the historical financial information for WWF Operating Company, which presently is a wholly-owned subsidiary of Dean Foods. Except for the nominal assets that are currently held by The WhiteWave Foods Company, WWF Operating Company holds substantially all of the historical assets and liabilities related to the business that The WhiteWave Foods Company will acquire pursuant to the contribution.

Unless otherwise specified, any references that speak as of the period prior to the completion of this offering to “our,” “we,” and “us” in this discussion and analysis refer to WWF Operating Company and references to “our,” “we,” and “us” that speak as of or after completion of this offering refer to The WhiteWave Foods Company.

This discussion and analysis contains forward-looking statements that are subject to risks and uncertainties. See “Special Note Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks, and assumptions associated with those statements. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly in the section entitled “Risk Factors.”

Overview

We are a leading consumer packaged food and beverage company focused on high-growth product categories that are aligned with emerging consumer trends. We manufacture, market, distribute, and sell branded plant-based foods and beverages, coffee creamers and beverages, and premium dairy products throughout North America and Europe. Our widely-recognized, leading brands distributed in North America include Silk plant-based foods and beverages, International Delight and LAND O LAKES coffee creamers and beverages, and Horizon Organic premium dairy products, while our popular European brands of plant-based foods and beverages include Alpro and Provamel.

We sell our products across North America and Europe to a variety of customers, including grocery stores, mass merchandisers, club stores, and convenience stores, as well as through various away-from-home channels, including restaurants and foodservice outlets. We sell our products in North America and Europe primarily through our direct sales force and independent brokers.

We have an extensive production and supply chain footprint in the United States. We utilize five manufacturing plants, two distribution centers, and three strategic co-packers across the country. Additionally, we have strategically positioned four plants across Europe in the United Kingdom, Belgium, France, and the Netherlands, each supported by an integrated supply chain that enables us to meet the needs of our customers.

Factors Affecting Our Business and Results of Operations

The following trends have impacted our sales and operating income over the past three years and we believe that they will continue to be factors affecting our business and results of operations in the future:

 

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Consumer Preferences for Nutritious, Flavorful, Convenient, and Responsibly Produced Products

The plant-based foods and beverages, coffee creamers and beverages, and premium dairy categories are aligned with emerging consumer preferences for products that are nutritious, flavorful, convenient, and responsibly produced. As a result, we believe these product categories will continue to offer attractive growth opportunities relative to traditional food and beverage categories. Our plant-based foods and beverages and premium dairy products are well positioned within the dairy and dairy alternatives sector, as well as the natural and organic sector. The growth of the natural and organic sector is outpacing the growth of the overall food and beverage industry and, within dairy and dairy alternatives, our share continues to grow. In addition, our coffee creamers and beverages continue to benefit from the growth and overall size of the coffee and creamers sector.

New Product Introductions

We will continue to benefit from evolving consumer preferences by delivering innovative products in profitable categories under our trusted brands. We have a proven track record of innovation through either creating or largely developing the organic milk, soymilk, and flavored non-dairy creamer subcategories. Recent successful new product introductions under our Silk, Alpro, Horizon Organic, and International Delight brands further demonstrate our capabilities to develop and expand our categories. We will continue to focus on innovation that we believe will drive increased consumption of our brands.

Increases in Commodity Costs

Our business is heavily dependent on raw materials and other inputs, such as conventional and organic raw milk, butterfat, packaging, soybeans, sweeteners, fuel, and other commodities. Increases in the costs of inputs or commodities in the recent past have exerted pressure on margins and have led to price increases across our portfolio to mitigate the impacts of these increased costs.

Manufacturing Capacity Constraints

Our recent growth has significantly increased our plant utilization rates, particularly in the United States. In response, we have increasingly relied on our extensive co-packing network, which has resulted in higher costs for the production and distribution of our products. We will continue to utilize our co-packing network, as needed, to meet our production requirements, while at the same time continuing to invest to expand our internal production capabilities, such as our Dallas, Texas manufacturing facility which commenced operations in the fourth quarter of 2011.

Basis of Presentation

Our historical consolidated financial statements, which are discussed below, are prepared on a stand-alone basis in accordance with GAAP and are derived from Dean Foods’ consolidated financial statements and accounting records using the historical results of operations and asset and liabilities attributed to our operations, and include allocations of expenses from Dean Foods. Our consolidated and segment results are not necessarily indicative of our future performance and do not reflect what our financial performance would have been had we been a stand-alone public company during the periods presented.

Dean Foods currently provides certain corporate services to us, and costs associated with these functions have been allocated to us. These allocations include costs related to corporate services, such as executive management, supply chain, information technology, legal, finance and accounting, investor relations, human resources, risk management, tax, treasury, and other services, as well as stock-based compensation expense attributable to our employees and an allocation of stock-based compensation attributable to employees of Dean Foods. The costs of such services have been allocated to us based on the most relevant allocation method to the service provided, primarily based on relative percentage of total net sales, relative percentage of headcount, or specific identification. The total amount of these allocations from Dean Foods was approximately $23.8 million (which includes $4.0 million of transaction costs related to this offering) and $16.9 million in the six months

 

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ended June 30, 2012 and June 30, 2011, respectively, and approximately $32.7 million in the year ended December 31, 2011. These cost allocations are primarily reflected within general and administrative expenses in our consolidated statements of operations as well as classified as Corporate and Other in Note 15 to our audited consolidated financial statements. Management believes the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to or the benefit received by us during the periods presented. Following completion of this offering, we expect Dean Foods to continue to provide many of these services related to these functions on a transitional basis for a fee. These services will be provided under the transitional services agreement described in “Certain Relationships and Related Party Transactions.”

Upon completion of this offering, we will assume responsibility for all our stand-alone public company costs, including the costs of corporate services currently provided by Dean Foods. We estimate that our annual general and administrative expense for these costs will be an aggregate of approximately $55 million (representing approximately $22 million of annual costs incremental to the 2011 allocated costs referred to above). In addition, as we transition away from the corporate services currently provided by Dean Foods, we believe that we may incur $5 million to $10 million of non-recurring transitional costs in both 2013 and 2014 to establish our own stand-alone corporate functions.

Also, we expect to grant to certain of our executives and employees, upon determination of the initial offering price, one-time IPO Grants with an aggregate value of approximately $26 million in order to, among other things, provide executives and employees with an immediate equity interest in the Company and align their interests with those of our stockholders. The value of the IPO Grants will be expensed ratably over a three-year vesting term. See “Executive Compensation—Our Anticipated Compensation Program Following This Offering—Equity Grants Upon Completion of This Offering.”

Due to these and other changes we anticipate in connection with this offering, the historical financial information included in this prospectus is not necessarily indicative of our financial position, results of operations and cash flows in the future or what our financial position, results of operations and cash flows would have been had we been a stand-alone public company during the periods presented.

Reportable Segments

We currently have two chief operating decision makers, the President, WhiteWave who manages our North America-based operations, and our Alpro Chief Executive Officer who manages our Europe-based operations. Both are currently executive officers of Dean Foods and report directly to the Chairman of the Board and Chief Executive Officer of Dean Foods. Accordingly, our business is organized into two segments, North America and Europe, based on our go-to-market strategies, customer bases, and the objectives of our businesses. Our reportable segments align with how management monitors operating performance, allocates resources, and deploys capital in our Company.

Related Party Relationships with Dean Foods

Allocated Portion of Dean Foods’ Debt (Senior Secured Credit Facility)

A portion of Dean Foods’ consolidated debt has been allocated to us based on amounts directly incurred by Dean Foods in July 2009 to fund our acquisition of Alpro. Interest expense has been allocated to us in the same proportion as our allocated debt. Management believes the allocation basis for debt, interest expense, and deferred issuance costs is reasonable. However, these amounts may not be indicative of the actual amounts that we would have incurred had we been a stand-alone public company for the periods presented. See “—Liquidity and Capital Resources” for more information.

Cash Management

We use a centralized approach to cash management and financing of operations. Historically, Dean Foods has provided financing, cash management, and other treasury services to us. Our North America cash balances

 

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have been regularly swept by Dean Foods, and we have received funding from Dean Foods for our operating and investing cash needs. Cash transferred to and from Dean Foods has historically been recorded as intercompany payables and receivables that are reflected as parent’s net investment in the consolidated financial statements included elsewhere in this prospectus. Upon completion of this offering, we will maintain separate cash management and financing functions for our operations.

Related Party Arrangements

Historically, related party transactions and activities involving Dean Foods and its wholly-owned subsidiaries have not always been consummated on terms equivalent to those that would prevail in an arm’s-length transaction where conditions of competitive, free-market dealing may exist. Sales to other wholly-owned subsidiaries of Dean Foods of raw materials and finished products that we manufacture have been reflected as related party sales in our consolidated financial statements. Revenue from related party licensing agreements for use of proprietary intellectual property is reflected as related party license income in our consolidated financial statements. See “—Components of Net Sales and Costs and Expenses.”

Certain related party transactions are settled in cash and are reflected as related party receivables in our consolidated balance sheets. The remaining related party transactions are settled by either non-cash capital contributions from Dean Foods to us or non-cash capital distributions from us to Dean Foods. These related-party transactions are included as part of parent’s net investment in our consolidated balance sheets.

We utilize manufacturing facilities and resources managed by affiliates of Dean Foods to conduct our business. The expenses associated with these transactions, which primarily relate to co-packing certain of our products, are included in cost of sales in our consolidated statements of operations.

Commercial Arrangements

In connection with this offering, we have entered into agreements that formalize ongoing commercial arrangements we have with certain wholly-owned Dean Foods subsidiaries. These agreements will become effective no later than the completion of this offering.

Transitional Sales Agreements

We have entered into an agreement with a certain wholly-owned subsidiary of Dean Foods, pursuant to which such subsidiary will transfer back to us responsibility for its sales and associated costs of certain WhiteWave products over a 15-month term. During this term, this subsidiary of Dean Foods will provide certain transitional services to us, which include, but are not limited to, taking and filling orders, collecting receivables, and shipping products to our customers. This subsidiary of Dean Foods will remit to us the cash representing the net profit collected from these product sales until such time as the sales are transitioned to us. See “Unaudited Pro Forma Condensed Consolidated Financial Information.”

We have also entered into an agreement with a certain wholly-owned subsidiary of Dean Foods pursuant to which we will transfer to such subsidiary responsibility for the sales and associated costs of our aerosol whipped topping and other non-core products over a 15-month term. During this term, we will provide certain transitional services to this subsidiary of Dean Foods which include, but are not limited to, taking and filling orders and collecting receivables. We will remit to this subsidiary of Dean Foods the net profit associated with these product sales until such time as the sales are transitioned to such subsidiary of Dean Foods. See “Unaudited Pro Forma Condensed Consolidated Financial Information.”

Sales and Distribution Agreement

We have entered into an agreement with certain wholly-owned subsidiaries of Dean Foods, pursuant to which such subsidiaries of Dean Foods will continue to sell and distribute certain WhiteWave products for a

 

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fixed initial term of up to 18 months, depending on the product and customer. This agreement modifies our historical intercompany arrangements and reflects new pricing. See the notes to “Unaudited Pro Forma Condensed Consolidated Financial Information.”

Manufacturing and Supply Agreements

We have entered into a manufacturing agreement with a certain wholly-owned subsidiary of Dean Foods pursuant to which such subsidiary will continue manufacturing various WhiteWave products on our behalf. With the exception of the manufacture of aerosol whipped topping and other non-core products, which are subject to this agreement for a term of up to 15 months, this agreement generally has a term of three to five years with respect to the various product lines. We expect that approximately 10% to 11% of our products, calculated as a percentage of cost of sales, will continue to be manufactured by Dean Foods under this agreement. The agreement modifies our historical intercompany arrangements and reflects new pricing. See the notes to “Unaudited Pro Forma Condensed Consolidated Financial Information.”

Additionally, we have entered into a separate manufacturing agreement with certain wholly-owned subsidiaries of Dean Foods pursuant to which such subsidiaries will continue manufacturing WhiteWave fresh organic milk products on our behalf for a term of 18 months. The agreement formalizes our historical intercompany arrangements. See the notes to “Unaudited Pro Forma Condensed Consolidated Financial Information.”

We have also entered into a supply agreement with certain wholly-owned subsidiaries of Dean Foods pursuant to which we will continue to purchase cream from such subsidiaries for an initial term of up to 24 months, with an option for us to renew for up to four one-year terms. This agreement formalizes our historical intercompany arrangements. See the notes to “Unaudited Pro Forma Condensed Consolidated Financial Information.”

Termination of Intellectual Property License Agreement

Historically, our intellectual property license agreement with a wholly-owned subsidiary of Dean Foods provided such subsidiary the right to use certain intellectual property in the manufacture of certain products for a fee. In conjunction with the license agreement, a loan agreement was entered into, pursuant to which we extended a line of credit to such subsidiary related to the license income under the license agreement. There have been no repayments of this loan to date and there are no future plans to settle the outstanding balance; therefore, the principal and associated accrued interest is shown in parent’s net investment. In connection with this offering, we have entered into an agreement with such subsidiary pursuant to which we will terminate this license agreement and the related loan. Upon completion of this offering, we will no longer receive license income or related interest income associated with these historical agreements. In addition, we have entered into an agreement to effect the transfer of the intellectual property subject to the license agreement to such subsidiary so that such subsidiary has the requisite intellectual property and manufacturing know-how to produce and sell its products and brands. All intellectual property related to and necessary for the production of the Company’s products and brands will be retained. See “Certain Relationships and Related Party Transactions.”

In addition, it is anticipated that a transition services agreement will become effective to cover certain continued corporate services provided by us and Dean Foods to each other following completion of this offering. See “Certain Relationships and Related Party Transactions.”

Due to these and other changes we anticipate in connection with this offering, the historical financial information included in this prospectus may not necessarily reflect our financial position, results of operations, and cash flows in the future or what our financial position, results of operations, and cash flows would have been had we been a stand-alone public company during the periods presented.

 

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Guarantees

We have historically guaranteed debt issued by Dean Foods, including the Dean Foods senior secured credit facility and the Dean Foods senior notes, on a joint and several basis. Absent this offering, these guarantees would remain in place until the related debt matures, which will occur on varying dates through 2018, and if the issuer or the primary obligor, as applicable, defaults on the underlying debt, the Company would be required to satisfy the outstanding debt. As this is an intercompany guarantee, the Company has not recognized an indemnification liability or any income associated with this guarantee in its consolidated financial statements. Our guarantees of Dean Foods’ debt, including the Dean Foods senior secured credit facility and the Dean Foods senior notes, will terminate upon completion of this offering. In addition, we will no longer participate in the Dean Foods receivables-backed facility. See “—Liquidity and Capital Resources” for more information.

Components of Net Sales and Costs and Expenses

Net Sales

Our net sales are derived primarily from the sale of our plant-based foods and beverages, coffee creamers and beverages, and premium dairy products across North America and Europe. Sales are reported net of estimated returns, trade promotions, and other discounts. We routinely offer sales incentives and discounts to our customers and consumers including rebates, shelf-price reductions, in-store display incentives, and other trade promotional activities. These programs, as well as amounts paid to customers for shelf-space in retail stores, are considered reductions in the price of our products and are reflected within net sales.

Net sales do not historically include the sales of our finished goods to third-party customers made directly by other Dean Foods wholly-owned subsidiaries. See “—Related Party Relationships with Dean Foods—Commercial Arrangements” for a summary of new agreements that will govern these sales upon completion of this offering.

Net Sales to Related Parties

Our net sales to related parties represent the sale of our raw materials and finished products to other wholly-owned subsidiaries of Dean Foods. Those transactions have historically taken place at an agreed upon price, which may not be equivalent to the terms that would prevail in an arm’s-length transaction. In addition, effective January 1, 2010, Dean Foods implemented a standardized intercompany pricing structure on all products sold by us to other wholly-owned subsidiaries of Dean Foods, which negatively impacted our related party sales and operating income as compared to 2009. See “—Related Party Relationships with Dean Foods—Commercial Arrangements” for a summary of new agreements that will govern these sales upon completion of this offering.

Cost of Sales

Cost of sales consists of the costs of raw materials and ingredients in the manufacture of products, packaging costs, labor costs, and plant and equipment overhead. Ingredients account for the largest portion of the cost of sales followed by direct labor, plant overhead, and packaging costs.

Related Party License Income

Related party license income consists of fees from a license agreement with a subsidiary of Dean Foods, pursuant to which the subsidiary of Dean Foods has the right to use intellectual property in the manufacture of certain products for a fee. Upon completion of this offering, this agreement and a related loan agreement will terminate and we will no longer receive license income or related interest income. See “—Related Party Relationships with Dean Foods—Commercial Arrangements.”

 

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Operating Costs and Expenses

Operating costs and expenses consist primarily of selling and distribution expenses and general and administrative expenses. Our selling and distribution expenses consist of shipping and handling fees, including fuel charges for delivery of products through our warehouse distribution system, and outside storage, as well as marketing expense and sales commissions. The primary components of our marketing expense are media, agency, trade shows, and other promotional expenses. Our general and administrative costs consist primarily of wages, related payroll, and employee benefit expenses, including stock-based compensation, R&D costs, legal and professional fees, travel expenses, other facility related costs, such as rent and depreciation, and consulting expenses.

Operating costs and expenses include allocations from Dean Foods. These allocations are included in our consolidated results but are not included in the North America and Europe segment results.

Matters Affecting Comparability

Our results of operations for the six months ended June 30, 2012 and June 30, 2011 and the years ended December 31, 2011, 2010, and 2009 were affected by the following:

Acquisition of Alpro

On July 2, 2009, we completed the acquisition of the Alpro division of Vandermoortele, N.V. (“Alpro”), a privately held food company based in Belgium, for an aggregate purchase price of €314.6 million ($440.3 million), after working capital adjustments, excluding transaction costs which were expensed as incurred. Alpro manufactures and sells branded plant-based foods and beverages in Europe. See Note 3 to our audited consolidated financial statements.

Discontinued Operations

In the second quarter of 2011, we began evaluating strategic alternatives related to our 50%-owned joint venture with Hero Group. During the third quarter of 2011, due to continued poor performance by the venture and a desire on our part to invest in core operations, a recommendation was made to, and approved by, the joint venture partners to wind down the joint venture operations during the fourth quarter of 2011. During the first quarter of 2012, we completed the shutdown of the operations. We may incur additional charges related to the final disposition of certain equipment used in the joint venture operations, as well as our final settlement with Hero Group.

During the second quarter of 2010, we committed to a plan to sell the business operations of Rachel’s, which manufactured, marketed, and distributed branded organic dairy yogurt, milk, and related dairy products primarily in the United Kingdom. The sale was completed on August 10, 2010.

Our consolidated audited financial statements account for the joint venture with Hero Group and Rachel’s operations as discontinued operations. Unless otherwise indicated, the management discussion and analysis of financial condition and results of operations relate solely to the discussion of our continuing operations.

Foreign Exchange Movements

Due to the international aspect of our business, our net sales and expenses are influenced by foreign exchange movements. Our primary exposures to foreign exchange rates are the Euro and British Pound against the U.S. dollar. The financial statements of our Europe segment are translated to U.S. dollars. The functional currency of our foreign subsidiaries is generally the local currency of the country. Accordingly, income and expense items are translated at the average rates prevailing during the period. Changes in exchange rates that affect cash flows and the related receivables or payables are recognized as transaction gains and losses.

 

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Results of Operations

The following table presents, for the periods indicated, selected information from our consolidated financial results, including information presented as a percentage of net sales.

 

    Six months ended June 30,     Year ended December 31,  
    2012     2011     2011     2010     2009  
    Dollars     Percent     Dollars     Percent     Dollars     Percent     Dollars     Percent     Dollars     Percent  
    (Dollars in millions)  

Net sales

  $ 1,050.9        $ 921.6        $ 1,916.8        $ 1,713.4        $ 1,447.0     

Net sales to related parties

    55.6          53.0          108.9          107.9          88.0     
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

   

Total net sales

    1,106.5        100.0     974.6        100.0     2,025.7        100.0     1,821.3        100.0     1,535.0        100.0

Cost of sales

    718.9        65.0     645.0        66.2     1,341.3        66.2     1,210.8        66.5     1,020.6        66.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (1)

    387.6        35.0     329.6        33.8     684.4        33.8     610.5        33.5     514.4        33.5

Related party license income

    21.3        1.9     20.4        2.1     42.7        2.1     39.4        2.2     46.7        3.0

Operating costs and expenses

                   

Selling and distribution

    242.9        22.0     203.7        20.9     414.7        20.5     384.5        21.1     331.9        21.6

General and administrative

    74.9        6.8     67.6        6.9     136.7        6.7     139.9        7.7     127.1        8.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs and expenses

    317.8        28.8     271.3        27.8     551.4        27.2     524.4        28.8     459.0        29.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

  $ 91.1        8.1   $ 78.7        8.1   $ 175.7        8.7   $ 125.5        6.9   $ 102.1        6.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) As disclosed in Note 2 to our audited consolidated financial statements, we include certain shipping and handling costs within selling and distribution expense. As a result, our gross profit may not be comparable to other companies that present all shipping and handling costs as a component of cost of sales.

The key performance indicators for both of our two reportable segments are net sales dollars, gross profit, and operating costs and expenses, which are presented in the segment results tables and discussion below.

Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011

Consolidated Results

Total net sales—Total net sales by segment are shown in the table below.

 

     Six months ended June 30,  
     2012      2011      $
Increase/
(decrease)
    %
Increase/
(decrease)
 
     (Dollars in millions)  

North America

   $ 921.5       $ 785.5       $ 136.0        17.3

Europe

     185.0         189.1         (4.1     (2.2 )% 
  

 

 

    

 

 

    

 

 

   

Total

   $ 1,106.5       $ 974.6       $ 131.9        13.5
  

 

 

    

 

 

    

 

 

   

The changes in total net sales were due to the following:

 

     Change in net sales
Six months ended June 30, 2012 vs. June 30, 2011
 
     Volume      Pricing and product
mix changes
    Total increase
/ (decrease)
 
     (in millions)  

North America

   $ 112.4       $ 23.6      $ 136.0   

Europe

     1.9         (6.0     (4.1
  

 

 

    

 

 

   

 

 

 

Total

   $ 114.3       $ 17.6      $ 131.9   
  

 

 

    

 

 

   

 

 

 

 

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Total net sales—Consolidated total net sales increased $131.9 million, or 13.5%, for the six months ended June 30, 2012 compared to the same period in 2011. The increase was primarily driven by robust volume growth across the North America segment, but was also favorably impacted by price increases we instituted in response to higher commodity costs.

Cost of sales—Cost of sales increased $73.9 million, or 11.5%, for the six months ended June 30, 2012 compared to the same period in 2011. The increase was primarily driven by sales volume growth, and higher commodity and other input costs, as well as incremental plant start-up costs incurred at our new Dallas, Texas manufacturing facility. These increases were partially offset by cost reduction initiatives.

Gross profit—Gross profit margin increased to 35.0% for the six months ended June 30, 2012 compared to 33.8% for the same period in 2011. The increase was driven by higher pricing which more than offset the impact of higher commodity costs, coupled with a favorable mix of products sold.

Operating costs and expenses—Operating costs and expenses increased by $46.5 million, or 17.1%, for the six months ended June 30, 2012 compared to the same period in 2011. The increase was primarily due to an increase in selling and distribution expense due to higher sales volume and an increase in fuel costs. We also continued to increase investments in our brands including marketing spending behind our new product launches in both North America and Europe. Additionally, we incurred $4.0 million of transaction costs related to this offering.

Income taxes—Income tax expense was recorded at an effective tax rate of 34.3% in the first half of 2012 compared to a 32.5% effective tax rate in the first half of 2011. Generally, our effective tax rate varies primarily based on our profitability level and the relative earnings of our segments.

North America Segment Results

The following table presents certain financial information concerning our North America segment’s financial results:

 

     Six months ended June 30,  
     2012     2011               
     Dollars      Percent     Dollars      Percent     $ Change      % Change  
     (Dollars in millions)  

Net sales

   $ 865.9         $ 732.5         $ 133.4         18.2

Net sales to related parties

     55.6           53.0           2.6         4.9
  

 

 

      

 

 

      

 

 

    

Total net sales

     921.5         100.0     785.5         100.0     136.0         17.3

Cost of sales

     611.2         66.3     536.5         68.3     74.7         13.9
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Gross profit

     310.3         33.7     249.0         31.7     61.3         24.6

Operating costs and expenses

     227.5         24.7     187.9         23.9     39.6         21.1
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Operating income

   $ 82.8         9.0   $ 61.1         7.8   $ 21.7         35.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total net sales—Total net sales increased $136.0 million, or 17.3 %, for the six months ended June 30, 2012 compared to the same period in 2011, primarily driven by strong volume growth in our coffee creamers and beverages and plant-based foods and beverages portfolios. The increase in sales of our coffee creamers and beverages and plant-based foods and beverages portfolios of products was driven by category growth, product innovation, and increased marketing investments, primarily in support of International Delight Iced Coffee and Silk PureAlmond almondmilk. Sales of our premium dairy portfolio of products also increased compared to the first half of 2011, despite slightly lower volumes, as a result of higher pricing, which offset the impact of higher commodity costs.

 

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Cost of sales—Cost of sales increased $74.7 million, or 13.9%, for the six months ended June 30, 2012 compared to the same period in 2011. The increase was primarily driven by sales volume growth, higher raw material input costs, particularly raw organic milk, and start-up costs incurred at our new Dallas, Texas manufacturing facility. These increases were partially offset by cost reduction initiatives.

Gross profit—Gross profit margin increased to 33.7% for the six months ended June 30, 2012 compared to 31.7% for the same period in 2011. The increase was primarily due to higher pricing in premium dairy and coffee creamers and beverages, which more than offset the impact of higher commodity costs, and a favorable mix of products sold.

Operating costs and expenses—Operating expenses increased $39.6 million, or 21.1%, for the six months ended June 30, 2012 compared to the same period in 2011. The increase was primarily due to an increase in selling and distribution expenses due to higher sales volumes and an increase in fuel costs. We also continued to increase investments in our brands, including marketing expenses for our new product launches. General and administrative costs increased in the six months ended June 30, 2012 compared to the same period in 2011. The increase was primarily due to increases in headcount, R&D, and incentive-based compensation.

Europe Segment Results

The following table presents certain financial information concerning our Europe segment’s financial results:

 

     Six months ended June 30,  
     2012     2011              
     Dollars      Percent     Dollars      Percent     $ Change     % Change  
     (Dollars in millions)              

Net sales

   $ 185.0         100.0   $ 189.1         100.0   $ (4.1     (2.2 )% 

Cost of sales

     107.7         58.2     108.5         57.4     (0.8     (0.7 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Gross profit

     77.3         41.8     80.6         42.6     (3.3     (4.1 )% 

Operating costs and expenses

     66.6         36.0     66.6         35.2            (0.0 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Operating income

   $ 10.7         5.8   $ 14.0         7.4   $ (3.3     (23.6 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Net sales—Net sales decreased $4.1 million, or 2.2%, for the six months ended June 30, 2012 compared to the same period in 2011. The decrease was driven by foreign currency translation. Excluding the impact of currency changes, net sales increased mid-single digits, driven by slightly higher sales volumes, a favorable mix of products sold, and higher pricing implemented in response to higher commodity costs. Sales growth was particularly strong in fresh soy drinks and in yogurt, and was further augmented by the introduction of new products including almond and hazelnut drinks and yogurt innovations in the first quarter of this year. Net sales were impacted by the challenging economic environment in Southern Europe.

Cost of sales—Cost of sales decreased $0.8 million, or 0.7%, for the six months ended June 30, 2012 compared to the same period in 2011. Higher sales volumes, coupled with the impact of higher commodity costs, primarily for soybeans, sugar, and packaging, were more than offset by the impact of foreign currency translation.

Gross profit—Gross profit margin decreased to 41.8% for the six months ended June 30, 2012 compared to 42.6% for the same period in 2011. The decrease was driven by higher commodity costs, partially offset by higher pricing.

Operating costs and expenses—Operating costs and expenses remained flat at $66.6 million for the six months ended June 30, 2012 compared to the same period in 2011. Distribution expenses increased, driven by

 

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higher sales volumes and an increase in fuel costs. In addition, marketing expenses increased $3.8 million in the six months ended June 30, 2012 compared to the same period in 2011 due to increased investments in consumer marketing in support of our new product launches. These increases were offset by lower selling, general, and administrative costs, and the impact of foreign currency translation.

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

Consolidated Results

Total net sales—Total net sales by segment are shown in the table below.

 

     Year ended December 31,  
     2011      2010      $
Increase/
(decrease)
     %
Increase/
(decrease)
 
     (Dollars in millions)  

North America

   $ 1,657.2       $ 1,479.5       $ 177.7         12.0

Europe

     368.5         341.8         26.7         7.8
  

 

 

    

 

 

    

 

 

    

Total

   $ 2,025.7       $ 1,821.3       $ 204.4         11.2
  

 

 

    

 

 

    

 

 

    

The change in total net sales was due to the following:

 

     Change in net sales 2011 vs. 2010  
     Volume      Pricing and
product
mix changes
     Total increase
/ (decrease)
 
     (Dollars in millions)  

North America

   $ 97.5       $ 80.2       $ 177.7   

Europe

     6.7         20.0         26.7   
  

 

 

    

 

 

    

 

 

 

Total

   $ 104.2       $ 100.2       $ 204.4   
  

 

 

    

 

 

    

 

 

 

Total net sales—Consolidated total net sales increased $204.4 million, or 11.2%, in 2011 compared to the prior year. The increase was driven by volume growth, coupled with significant price increases in response to higher commodity costs.

Cost of sales—Cost of sales increased $130.5 million, or 10.8%, in 2011 compared to the prior year. The increase was primarily driven by sales volume growth, higher commodity costs, and a higher cost mix of products sold, partially offset by our cost reduction initiatives.

Gross profit—Gross profit margin remained relatively flat at 33.8% in 2011 compared to 33.5% in 2010, as higher commodity costs, coupled with an unfavorable mix of products sold, substantially offset the favorable impact of our cost reduction initiatives.

Operating costs and expenses—Operating costs and expenses increased $27.0 million, or 5.1%, in 2011 compared to the prior year. This was driven by an increase in selling and distribution costs as a result of higher sales volume and increasing fuel costs. In addition, we also experienced increased outside storage facility and related distribution costs at our North America segment driven by capacity constraints.

Income taxes—Income tax expense was recorded at an effective rate of 31.3% in 2011 compared to a 29.0% effective tax rate in 2010. Generally, our effective tax rate varies primarily based on our profitability level and the relative earnings of our segments.

 

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North America Segment Results

The following table presents certain financial information concerning our North America segment’s financial results:

 

     Year ended December 31,  
     2011     2010               
     Dollars      Percent     Dollars      Percent     $ Change      % Change  
     (Dollars in millions)  

Net sales

   $ 1,548.3         $ 1,371.6         $ 176.7         12.9

Net sales to related parties

     108.9           107.9           1.0         0.9
  

 

 

      

 

 

      

 

 

    

Total net sales

     1,657.2         100.0     1,479.5         100.0     177.7         12.0

Cost of sales

     1,126.6         68.0     1,017.2         68.8     109.4         10.8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Gross profit

     530.6         32.0     462.3         31.2     68.3         14.8

Operating costs and expenses

     392.8         23.7     363.0         24.5     29.8         8.2
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Operating income

   $ 137.8         8.3   $ 99.3         6.7   $ 38.5         38.8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total net sales—Total net sales increased $177.7 million, or 12.0%, in 2011 compared to the prior year, driven by volume growth and higher pricing across all of our product portfolios. Sales of coffee creamers and beverages increased due to strong category growth in flavored creamers and new product introductions, particularly in the International Delight brand. In addition, sales of coffee creamers and beverages increased $32.0 million due to the transfer to us of the responsibility for sales of certain products that were previously sold by other subsidiaries of Dean Foods. Sales of our premium dairy products also increased due to higher pricing resulting from higher commodity costs and, to a lesser extent, growth in volume. Full year sales growth in premium dairy was negatively impacted by the constraints in organic milk supply that we experienced in the fourth quarter of 2011. Sales of plant-based food and beverage products increased driven by new product introductions, primarily our Silk almondmilk and Silk coconutmilk products.

Cost of Sales—Cost of sales increased $109.4 million, or 10.8%, in 2011 compared to the prior year. The increase was primarily driven by sales volume growth and higher commodity costs, including for soybeans, sweeteners, and packaging, partially offset by our cost reduction initiatives.

Gross Profit—Gross profit increased to 32.0% in 2011 compared to 31.2% for the prior year. The increase was primarily due to higher pricing that more than offset the impact of higher commodity costs.

Operating Costs and Expenses—Operating costs and expenses increased $29.8 million, or 8.2%, in 2011 compared to the prior year primarily due to an increase in distribution expenses due to higher sales volumes and an increase in fuel costs. In addition, we experienced increased outside storage facility costs and related distribution costs driven by capacity constraints. Marketing expense increased modestly, but was substantially offset by lower general and administrative expenses.

 

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Europe Segment Results

The following table presents certain financial information concerning our Europe segment’s financial results:

 

     Year ended December 31,  
     2011     2010               
     Dollars      Percent     Dollars      Percent     $ Change      % Change  
     (Dollars in millions)  

Net sales

   $ 368.5         100.0   $ 341.8         100.0   $ 26.7         7.8

Cost of sales

     214.7         58.3     193.6         56.6     21.1         10.9
  

 

 

    

 

 

   

 

 

&