10-K 1 df-20171231x10k.htm 10-K Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 
Form 10-K 
 
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 2017
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from              to             
Commission File Number 001-12755
 
Dean Foods Company
(Exact name of Registrant as specified in its charter)
a10kq12016shellv2image1a01.jpg
 
Delaware
 
75-2559681
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
2711 North Haskell Avenue Suite 3400
Dallas, Texas 75204
(214) 303-3400
(Address, including zip code, and telephone number, including
area code, of Registrant’s principal executive offices)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Stock, $.01 par value
 
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  þ    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K  þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
 
Accelerated filer ¨
  
Non-accelerated filer  ¨
 
Smaller reporting company ¨
 
Emerging growth company ¨
 
 
 
  
(Do not check if a smaller reporting company)
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
The aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates of the registrant at June 30, 2017, based on the closing price for the registrant’s common stock on the New York Stock Exchange on June 30, 2017, was approximately $1.53 billion.
The number of shares of the registrant’s common stock outstanding as of February 21, 2018 was 91,166,009.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be held on or about May 9, 2018, which will be filed within 120 days of the registrant’s fiscal year end, are incorporated by reference into Part III of this Annual Report on Form 10-K.



TABLE OF CONTENTS
 
Item
 
Page
PART I
1
 
 
 
 
 
 
1A
1B
2
3
4
PART II
5
6
7
 
 
 
 
 
 
 
 
7A
8
9
9A
PART III
10
11
12
13
14
PART IV
15
16



Forward-Looking Statements
This Annual Report on Form 10-K (this “Form 10-K”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are predictions based on expectations and projections about future events, and are not statements of historical fact. Forward-looking statements include statements concerning business strategy, among other things, including anticipated trends and developments in and management plans for our business and the markets in which we operate. In some cases, you can identify these statements by forward-looking words, such as “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “believe,” “forecast,” “foresee,” “likely,” “may,” “should,” “goal,” “target,” “might,” “will,” "would," "can," “could,” “predict,” and “continue,” the negative or plural of these words and other comparable terminology. All forward-looking statements included in this Form 10-K are based upon information available to us as of the filing date of this Form 10-K, and we undertake no obligation to update any of these forward-looking statements for any reason. You should not place undue reliance on forward-looking statements. The forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. These factors include the matters discussed in the section entitled “Part I — Item 1A — Risk Factors” in this Form 10-K, and elsewhere in this Form 10-K. You should carefully consider the risks and uncertainties described in this Form 10-K.
PART I
Item 1.
Business
We are a leading food and beverage company and the largest processor and direct-to-store distributor of fresh fluid milk and other dairy and dairy case products in the United States, with a vision to be the most admired and trusted provider of wholesome, great-tasting dairy products at every occasion.
We manufacture, market and distribute a wide variety of branded and private label dairy and dairy case products, including fluid milk, ice cream, cultured dairy products, creamers, ice cream mix and other dairy products to retailers, distributors, foodservice outlets, educational institutions and governmental entities across the United States. Our portfolio includes DairyPure®, the country's first and largest fresh, white milk national brand, and TruMoo®, the leading national flavored milk brand, along with well-known regional dairy brands such as Alta Dena ®, Berkeley Farms ®, Country Fresh ®, Dean’s ®, Friendly's ®, Garelick Farms ®, LAND O LAKES ® milk and cultured products (licensed brand), Lehigh Valley Dairy Farms ®, Mayfield ®, McArthur ®, Meadow Gold®, Oak Farms ®, PET ® (licensed brand), T.G. Lee ®, Tuscan ® and more. In all, we have more than 50 national, regional and local dairy brands, as well as private labels. With our acquisition of Uncle Matt's Organic, Inc., which was completed on June 22, 2017, we now sell and distribute organic juice, probiotic-infused juices, and fruit-infused waters under the Uncle Matt's Organic® brand. Additionally, we are party to the Organic Valley Fresh joint venture which distributes organic milk under the Organic Valley ® brand to retailers. Dean Foods also makes and distributes ice cream, cultured products, juices, teas and bottled water. Due to the perishable nature of our products, we deliver the majority of our products directly to our customers’ locations in refrigerated trucks or trailers that we own or lease. We believe that we have one of the most extensive refrigerated direct-to-store delivery ("DSD") systems in the United States. We sell our products primarily on a local or regional basis through our local and regional sales forces, and in some instances, with the assistance of national brokers. Some national customer relationships are coordinated by our centralized corporate sales department or national brokers.
Unless stated otherwise, any reference to income statement items in this Form 10-K refers to results from continuing operations. Each of the terms "we," "us," "our," "the Company," and "Dean Foods" refers collectively to Dean Foods Company and its wholly-owned subsidiaries unless the context indicates otherwise.
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 web site at www.deanfoods.com. We were incorporated in Delaware in 1994.

1


Developments Since January 1, 2017
Management Changes — Effective January 1, 2017, Ralph Scozzafava, formerly Executive Vice President and Chief Operating Officer, was promoted to Chief Executive Officer and appointed to the Company’s Board of Directors. Gregg A. Tanner stepped down as Chief Executive Officer of the Company and resigned from his position as a member of the Company’s Board of Directors, effective January 1, 2017. Mr. Tanner continued to serve in an advisory capacity as an employee of the Company through the Annual Stockholders Meeting in May 2017.
Chris Bellairs, our former Executive Vice President and Chief Financial Officer, departed the Company effective September 1, 2017. Kimberly Warmbier, our former Executive Vice President, Human Resources, departed the Company effective December 1, 2017. Jose Motta, the Company's former Vice President of Total Rewards, was promoted to Senior Vice President, Human Resources following Ms. Warmbier's departure. Effective February 27, 2018, Jody L. Macedonio will join the Company as our Executive Vice President and Chief Financial Officer.
Organic Valley Fresh Joint Venture — In the third quarter of 2017, we commenced the operations of our previously announced 50/50 strategic joint venture with Cooperative Regions of Organic Producer Pools (“CROPP”), an independent farmer cooperative that distributes organic milk and other organic dairy products under the Organic Valley ® brand. The joint venture, called Organic Valley Fresh, combines our processing plants and refrigerated DSD system with CROPP's portfolio of recognized brands and products, marketing expertise, and access to an organic milk supply from America's largest cooperative of organic dairy farmers to bring the Organic Valley ® brand to retailers. See Note 3 to our Consolidated Financial Statements for additional information regarding our Organic Valley Fresh Joint Venture.
Uncle Matt's Organic Acquisition — On June 22, 2017, we completed the acquisition of Uncle Matt's Organic, Inc. ("Uncle Matt's") for an aggregate purchase price of $22.0 million. Uncle Matt's is a leading organic juice company offering a wide range of organic juices, including probiotic-infused juices and fruit-infused waters. See Note 2 to our Consolidated Financial Statements for additional information regarding the Uncle Matt's acquisition.
Investment in Good Karma — On May 4, 2017, we acquired a non-controlling interest in, and entered into a distribution agreement with, Good Karma Foods, Inc. (“Good Karma”), the leading producer of flax-based milk and yogurt products. This investment allows us to diversify our portfolio to include plant-based dairy alternatives and provides Good Karma the ability to more rapidly expand distribution across the U.S., as well as increase investments in brand building and product innovation. See Note 3 to our Consolidated Financial Statements for additional information regarding our investment in Good Karma.
Amendment to Senior Secured Revolving Credit Facility On January 4, 2017, we amended the credit agreement (the "Credit Agreement") governing our senior secured revolving credit facility (the "Credit Facility") to, among other things, extend the maturity date of the Credit Facility to January 4, 2022, modify certain financial covenants and modify certain other terms. Please see "Part II — Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources" for additional information regarding the amendment.
Amendment to Receivables Securitization Facility — On January 4, 2017, we amended the credit agreement governing our receivables securitization facility to, among other things, extend the liquidity termination date to January 4, 2020, reduce the maximum size of the receivables securitization facility to $450 million, modify certain financial covenants to be consistent with the amended leverage ratio covenant under the Credit Agreement described above, and to modify certain other terms. Please see "Part II — Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources" for additional information regarding the amendment.

2


Overview
We manufacture, market and distribute a wide variety of branded and private label dairy and dairy case products, including fluid milk, ice cream, cultured dairy products, creamers, ice cream mix and other dairy products to retailers, distributors, foodservice outlets, educational institutions and governmental entities across the United States. Our consolidated net sales totaled $7.8 billion in 2017. The following charts depict our 2017 net sales by product and product sales mix between company branded versus private label.
a2017piechart1.jpg
(1)
Includes half-and-half and whipping cream.
(2)
Includes creamers and other extended shelf-life fluids.
(3)
Includes fruit juice, fruit flavored drinks, iced tea and water.
(4)
Includes ice cream, ice cream mix and ice cream novelties.
(5)
Includes items for resale such as cream, butter, cheese, eggs and milkshakes.
(6)
Includes all national, regional and local brands.

3


We sell our products under national, regional and local proprietary or licensed brands. Products not sold under these brands are sold under a variety of private labels. We sell our products primarily on a local or regional basis through our local and regional sales forces, although some national customer relationships are coordinated by a centralized corporate sales department. Our largest customer is Walmart Inc., including its subsidiaries such as Sam’s Club, which accounted for approximately 17.5% of our net sales for the year ended December 31, 2017.
Our brands include DairyPure®, the country's first and largest fresh, white milk national brand, and TruMoo®, the leading national flavored milk brand. As of December 31, 2017, our national, local and regional proprietary and licensed brands included the following:
Alta Dena®
Hygeia®
Over the Moon®
Arctic Splash®
Jilbert™
PET® (licensed brand)
Barbers Dairy®
Knudsen® (licensed brand)
Pog® (licensed brand)
Barbe’s®
LAND O LAKES® (licensed brand)
Price’s™
Berkeley Farms®
Land-O-Sun & design®
Purity™
Broughton
Lehigh Valley Dairy Farms®
ReadyLeaf®
Brown Cow®
Louis Trauth Dairy Inc.®
Reiter™
Brown’s Dairy®
Mayfield®
Robinson™
Caribou® (licensed brand)
McArthur®
Schepps®
Chug®
Meadow Brook®
Sonora™
Country Fresh™
Meadow Gold®
Steve's®
Country Love®
Mile High Ice Cream™
Stroh’s®
Creamland™
Model Dairy®
Swiss Dairy™
DairyPure®
Morning Glory®
Swiss Premium™
Dean’s®
Nature’s Pride®
TruMoo®

Fieldcrest®
Nurture®
T.G. Lee®
Friendly's®
Nutty Buddy®
Turtle Tracks®

Fruit Rush®
Oak Farms®
Tuscan®
Gandy’s™
Orchard Pure®
Uncle Matt's Organic®
Garelick Farms®
Organic Valley® (licensed by joint venture)
Viva®
 
We currently operate 65 manufacturing facilities in 31 states located largely based on customer needs and other market factors, with distribution capabilities across all 50 states. For more information about our facilities, see “Item 2. Properties.” Due to the perishable nature of our products, we deliver the majority of our products directly to our customers’ locations in refrigerated trucks or trailers that we own or lease. This form of delivery is called a “direct-to-store delivery” or “DSD” system. We believe that we have one of the most extensive refrigerated DSD systems in the United States.
The primary raw material used in our products is conventional raw milk (which contains both raw skim milk and butterfat) that we purchase primarily from farmers’ cooperatives, as well as from independent farmers. The federal government and certain state governments set minimum prices for raw skim milk and butterfat on a monthly basis. Another significant raw material we use is resin, which is a fossil fuel-based product used to make plastic bottles. The price of resin fluctuates based on changes in crude oil and natural gas prices. Other raw materials and commodities used by us include diesel fuel, used to operate our extensive DSD system, and juice concentrates and sweeteners used in our products. We generally increase or decrease the prices of our private label fluid dairy products on a monthly basis in correlation with fluctuations in the costs of raw materials, packaging supplies and delivery costs. We manage the pricing of our branded fluid milk products on a longer-term basis, balancing consumer demand with net price realization but, in some cases, we are subject to the terms of sales agreements with respect to the means and/or timing of price increases.
We have several competitors in each of our major product and geographic markets. Competition between dairy processors for shelf-space with retailers is based primarily on price, service, quality and the expected or historical sales performance of the product compared to its competitors’ products. In some cases we pay fees to customers for shelf-space. Competition for consumer sales is based on a variety of factors such as price, taste preference, quality and brand recognition. Dairy products also compete with many other beverages and nutritional products for consumer sales. Additionally, we face competitive pressures from vertically integrated retailers, discount supermarket chains, dairy cooperatives and other processors, and online and delivery grocery retailers.

4


The fluid milk category enjoys a number of attractive attributes. This category’s size and pervasiveness, plus the limited shelf life of the product, make it an important category for retailers and consumers, as well as a large long-term opportunity for the best positioned dairy processors. However, the dairy industry is not without some well documented challenges. It is a mature industry that has traditionally been characterized as highly competitive and subject to commodity volatility, with low profit margins. Additionally, according to the U.S. Department of Agriculture ("USDA"), consumption of fluid milk continues to decline.
For more information on factors that could impact our business, see “— Government Regulation — Milk Industry Regulation” and “Part II — Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Known Trends and Uncertainties — Conventional Raw Milk and Other Inputs.” See Note 19 to our Consolidated Financial Statements for segment, geographic and customer information.
Current Business Strategy
Dean Foods has evolved over the past 20 years through periods of rapid acquisition, consolidation, integration and the separation of our operations including the spin-off of The WhiteWave Foods Company ("WhiteWave") and sale of Morningstar Foods ("Morningstar") in 2013. Today, we are a leading food and beverage company and the largest processor and direct-to-store distributor of fresh fluid milk and other dairy and dairy case products in the United States.
Our vision is to be the most admired and trusted provider of wholesome, great-tasting dairy products at every occasion. Our strategy is to invest and grow our portfolio of brands while strengthening our operations and capabilities to achieve a more profitable core business. Our strategy is anchored by the following five pillars and is underscored by our commitments to safety, quality and service, and delivering sustainable profit growth and total shareholder return:
Build and Buy Strong Brands:
Build our existing brands with consumer-led innovation, marketing, and logistical excellence.
Evaluate and consider strategic opportunities.
Diversify our portfolio in adjacent categories.
Win in Private Label:
Enhance our profitability by lowering our internal costs, partnering with our customers and driving standard practices across our business.
Enhance our profitability by strategically targeting key customers and channels.
Deliver Operational Excellence:
Reset our cost structure through the execution of our enterprise-wide cost productivity plan, including rescaling our supply chain, optimizing spend management and integrating our operating model.
Consolidate our manufacturing and distribution network to better align with our current and projected volumes.
Transform Go To Market:
Expand our reach and ability to meet evolving consumer needs.
More profitably serve customers through new delivery and production capabilities.
Drive efficiency through standardized business principles and customer collaboration.
Enhance Future Capabilities:
Foster an engaged and aligned organization that has a consumer mindset.
Improve processes, technology and infrastructure to enable cross-functional decision-making that creates opportunities to build our business.
Corporate Responsibility
Within our business strategies, corporate responsibility remains an integral part of our efforts. As we work to strengthen our business, we are committed to do it in a way that is right for our employees, shareholders, consumers, customers, suppliers and the environment. We intend to realize savings by reducing waste and duplication while we continue to support programs that improve our local communities. We believe that our customers, consumers and suppliers value our efforts to operate in an ethical, environmentally sustainable, and socially responsible manner.

5


Seasonality
Our business is affected by seasonal changes in the demand for dairy products. Sales volumes are typically higher in the fourth quarter due to increased dairy consumption during seasonal holidays. Fluid milk volumes tend to decrease in the second and third quarters of the year primarily due to the reduction in dairy consumption associated with our school customers, partially offset by the increase in ice cream and ice cream mix consumption during the summer months. Because certain of our operating expenses are fixed, fluctuations in volumes and revenue from quarter to quarter may have a material effect on operating income for the respective quarters.
Intellectual Property
We are continually developing new technology and enhancing existing proprietary technology related to our dairy operations. Seven U.S. and eight international patents have been issued to us and five U.S. and two international patent applications are pending. Our U.S. patents are expected to expire at various dates between February 2019 and December 2035. If the pending U.S. patent applications are granted, those patents would be expected to expire at various dates between June 2035 and October 2037. Our international patents are expected to expire at various dates between February 2028 and March 2030. If the pending international patent applications are granted, those patents would be expected to expire in September 2037. 
We primarily rely on a combination of trademarks, copyrights, trade secrets, confidentiality procedures and contractual provisions to protect our technology and other intellectual property rights. Despite these protections, it may be possible for unauthorized parties to copy, obtain or use certain portions of our proprietary technology or trademarks.
Research and Development
Our total research and development ("R&D") expense was $3.5 million, $3.0 million and $2.3 million for 2017, 2016 and 2015, respectively. Our R&D activities primarily consist of generating and testing new product concepts, new flavors of products and packaging.
Employees
As of December 31, 2017, we had approximately 16,000 employees. Approximately 37% of our employees participate in a multitude of collective bargaining agreements of varying duration and terms.
Government Regulation
Food-Related Regulations
As a manufacturer and distributor of food products, we are subject to a number of food-related regulations, including the Federal Food, Drug and Cosmetic Act and regulations promulgated thereunder by the U.S. Food and Drug Administration (“FDA”). This comprehensive regulatory framework governs the manufacture (including composition and ingredients), labeling, packaging and safety of food in the United States. The FDA:
regulates manufacturing practices for foods through its current good manufacturing practices regulations;
specifies the standards of identity for certain foods, including many of the products we sell; and
prescribes the format and content of certain information required to appear on food product labels.
We are also subject to the Food Safety Modernization Act of 2011, which, among other things, mandates the FDA to adopt preventative controls to be implemented by food facilities in order to minimize or prevent hazards to food safety. In addition, the FDA enforces the Public Health Service Act and regulations issued thereunder, which authorizes regulatory activity necessary to prevent the introduction, transmission or spread of communicable diseases. These regulations require, for example, pasteurization of milk and milk products. We are subject to numerous other federal, state and local regulations involving such matters as the licensing and registration of manufacturing facilities, enforcement by government health agencies of standards for our products, inspection of our facilities and regulation of our trade practices in connection with the sale of food products.
We use quality control laboratories in our manufacturing facilities to test raw ingredients. In addition, all of our facilities have achieved Safety Quality Food ("SQF") Level 3 under the Global Food Safety Initiative. Product quality and freshness are essential to the successful distribution of our products. To monitor product quality at our facilities, we maintain quality control programs to test products during various processing stages. We believe our facilities and manufacturing practices are in material compliance with all government regulations applicable to our business.

6


Employee Safety Regulations
We are subject to certain safety regulations, including regulations issued pursuant to the U.S. Occupational Safety and Health Act. These regulations require us to comply with certain manufacturing safety standards to protect our employees from accidents. We believe that we are in material compliance with all employee safety regulations applicable to our business.
Environmental Regulations
We are subject to various state and federal environmental laws, regulations and directives, including the Food Quality Protection Act of 1996, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Federal Insecticide, Fungicide and Rodenticide Act and the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended. Our plants use a number of chemicals that are considered to be “extremely” hazardous substances pursuant to applicable environmental laws due to their toxicity, including ammonia, which is used extensively in our operations as a refrigerant. Such chemicals must be handled in accordance with such environmental laws. Also, on occasion, certain of our facilities discharge biodegradable wastewater into municipal waste treatment facilities in excess of levels allowed under local regulations. As a result, certain of our facilities are required to pay wastewater surcharges or to construct wastewater pretreatment facilities. To date, such wastewater surcharges and construction costs have not had a material effect on our financial condition or results of operations.
We maintain above-ground and under-ground petroleum storage tanks at many of our facilities. We periodically inspect these tanks to determine whether they are in compliance with applicable regulations and, as a result of such inspections, we are required to make expenditures from time to time to ensure that these tanks remain in compliance. In addition, upon removal of the tanks, we are sometimes required to make expenditures to restore the site in accordance with applicable environmental laws. To date, such expenditures have not had a material effect on our financial condition or results of operations.
We believe that we are in material compliance with the environmental regulations applicable to our business. We do not expect the cost of our continued compliance to have a material impact on our capital expenditures, earnings, cash flows or competitive position in the foreseeable future. In addition, any asset retirement obligations are not material.
Milk Industry Regulation
The federal government establishes minimum prices that we must pay to producers in federally regulated areas for raw milk. Raw milk primarily contains raw skim milk in addition to a small percentage of butterfat. Raw milk delivered to our facilities is tested to determine the percentage of butterfat and other milk components, and we pay our suppliers for the raw milk based on the results of these tests.
The federal government’s minimum prices for Class I milk vary depending on the processor’s geographic location or sales area and the type of product manufactured. Federal minimum prices change monthly. Class I butterfat and raw skim milk prices (which are the minimum prices we are required to pay for raw milk that is processed into Class I products such as fluid milk) and Class II raw skim milk prices (which are the minimum prices we are required to pay for raw milk that is processed into Class II products such as cottage cheese, creams, creamers, ice cream and sour cream) for each month are announced by the federal government the immediately preceding month. Class II butterfat prices are announced either at the end of the month or the first week of the following month in which the price is effective. Some states have established their own rules for determining minimum prices for raw milk. In addition to the federal or state minimum prices, we also may pay producer premiums, procurement costs and other related charges that vary by location and supplier.
Labeling Regulations
We are subject to various labeling requirements with respect to our products at the federal, state and local levels. At the federal level, the FDA has authority to review product labeling, and the U.S. Federal Trade Commission (“FTC”) may review labeling and advertising materials, including online and television advertisements, to determine if advertising materials are misleading. Similarly, many states review dairy product labels to determine whether they comply with applicable state laws. We believe we are in material compliance with all labeling laws and regulations applicable to our business.
We are also subject to various state and local consumer protection laws.

7


Where You Can Get More Information
Our fiscal year ends on December 31. We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information that we file with the Securities and Exchange Commission at the Securities and Exchange Commission’s Public Reference Room at 100 F Street, N.E., Washington D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the Securities and Exchange Commission. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the operation of the Public Reference Room.
We file our reports with the Securities and Exchange Commission electronically through the Securities and Exchange Commission’s Electronic Data Gathering, Analysis and Retrieval (“EDGAR”) system. The Securities and Exchange Commission maintains an Internet site that contains reports, proxy and information statements and other information regarding companies that file electronically with the Securities and Exchange Commission through EDGAR. The address of this Internet site is http://www.sec.gov.
We also make available free of charge through our website at www.deanfoods.com our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. We are not, however, including the information contained on our website, or information that may be accessed through links on our website, as part of, or incorporating such information by reference into, this Form 10-K.
Our Code of Ethics is applicable to all of our employees and directors. Our Code of Ethics is available on our corporate website at www.deanfoods.com, together with the Corporate Governance Principles of our Board of Directors and the charters of the Audit, Compensation and Nominating/Corporate Governance Committees of our Board of Directors. Any waivers that we may grant to our executive officers or directors under the Code of Ethics, and any amendments to our Code of Ethics, will be posted on our corporate website. If you would like hard copies of any of these documents, or of any of our filings with the Securities and Exchange Commission, write or call us at:
Dean Foods Company
2711 North Haskell Avenue, Suite 3400
Dallas, Texas 75204
(214) 303-3400
Attention: Investor Relations
Item 1A.    Risk Factors
Business, Competitive and Strategic Risks
The continuing shift from branded to private label products could continue to negatively impact our profit margin.
We are experiencing a continuing shift from branded to private label products. Retailers continue to aggressively price their private label milk to drive foot traffic, which has been increasing the price gap between branded and private label milk. We believe this negatively affects our branded product sales as customers trade down to private label products. This trend could be accelerated by the continued expansion of deep discount supermarket retailers, such as Aldi and Lidl, in the U.S. market. These factors have negatively impacted and could continue to impact our mix and margins, which could materially adversely affect our profitability.
Volume softness in the dairy category, combined with our volume losses, has had a negative impact on our sales and profits.
Industry-wide volume softness across dairy product categories, particularly within fluid milk, continued in 2017. Decreasing dairy category volume has increased the impact of declining margins on our business. Periods of declining volumes limit the cost and price increases that we can seek to recapture. We expect volume softness to continue in the future. In addition, in recent years, we have experienced volume losses and declines in historical volumes from some of our largest customers, which has negatively impacted our sales and profitability and which will continue to have a negative impact in the future if we are not able to reduce costs quickly enough to offset the lost volume and attract and retain a profitable customer and product mix.

8


Our results of operations and financial condition depend heavily on commodity prices and the availability of raw materials and other inputs. Our failure or inability to respond to high or fluctuating input prices could adversely affect our profitability.
Our results of operations and financial condition depend heavily on the cost and supply of raw materials and other inputs including conventional raw milk, butterfat, cream and other dairy commodities, many of which are determined by constantly changing market forces of supply and demand over which we have limited or no control. Cost increases in raw materials and other inputs could cause our profitability to decrease significantly compared to prior periods, as we may be unwilling or unable to increase our prices or unable to achieve cost savings to offset the increased cost of these raw materials and other inputs.
Although we generally pass through the cost of dairy commodities to our customers over time, we believe demand destruction can occur at certain price levels, and we may be unwilling or unable to pass through the cost of dairy commodities, which could materially and adversely affect our profitability. Dairy commodity prices can be affected by adverse weather conditions (including the impact of climate change) and natural disasters, such as floods, droughts, frost, fires, earthquakes and pestilence, which can lower crop and dairy yields and reduce supplies of these ingredients or increase their prices.
Our profitability also depends on the cost and supply of non-dairy raw materials and other inputs, such as sweeteners, petroleum-based products, diesel fuel, resin and other non-dairy food ingredients.
Our dairy and non-dairy raw materials are generally sourced from third parties, and we are not assured of continued supply, pricing or sufficient access to raw materials from any of these suppliers. Damage to our suppliers' manufacturing, transportation or distribution capabilities could impair our ability to make, transport, distribute or sell our products. 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 adverse weather conditions (including climate change) or natural disasters, government action, or problems with our suppliers’ businesses, finances, labor relations, costs, production, insurance, reputation and international demand and supply characteristics.
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. While we may enter into forward purchase contracts and other purchase arrangements with suppliers and may purchase over-the-counter contracts with our qualified banking partners or exchange-traded commodity futures contracts for raw materials, these arrangements do not eliminate the risk of negative impacts on our business, financial condition and results of operations from commodity price changes.
We may not realize anticipated benefits from our enterprise-wide cost productivity plan, and we may not complete this plan within our projected time frames, either of which could materially adversely impact our business, financial condition, results of operations and cash flows.
We are executing an aggressive enterprise-wide cost productivity plan to significantly overhaul and reset our cost structure. We believe these cost savings measures are necessary to offset our volume deleverage and position our business for future success and growth. Our future success and earnings depend upon our ability to realize the benefit of our cost reduction activities and rationalization plans, particularly in an environment of increased competitive activity, volume pressures, and reduced profitability. Inflation, declining volumes and competitive pricing pressures have negated, and may continue to negate, some of the impact of our cost saving efforts. In addition, several factors could cause our cost productivity plan to adversely affect our business, financial condition, results of operations and cash flows. These include potential disruption of our operations and other aspects of our business and significant investments required to execute the plan. Employee morale and productivity could also suffer and result in unintended employee attrition. Our cost productivity plan will require substantial management time and attention and may divert management from other important work. In addition, certain of our cost reduction activities have led to increased costs in other aspects of our business such as increased conversion or distribution costs. For example, in connection with our plant closures, our cost of distribution on a per gallon basis has increased as we have changed distribution routes and transported product into areas previously serviced by now closed plants. If we fail to properly anticipate and mitigate the ancillary cost increases related to our plant closures or other cost savings, we may not realize the benefits of our cost productivity plan.
In addition, we must execute our plans within our projected timelines in order to meet our financial projections and to remain competitive in the marketplace. We could encounter delays in executing our plans, which could cause further disruption and additional unanticipated expense. If we are unable to realize the anticipated benefits from our cost productivity plan or complete them within the targeted time frame, we may be unable to meet our financial projections, or realize the necessary cost savings to offset the anticipated impact from our volume deleverage and cost inflation. In addition, we could be cost disadvantaged in the marketplace, and our competitiveness and our profitability could decrease. Depending on the extent of the decline in our financial results and our financial and cash flow projections, we may also incur tangible or intangible asset impairment charges in future periods.

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Our volume, sales and profits have been, and may continue to be, negatively impacted by the outcome of competitive bidding.
Many of our retail customers have become increasingly price sensitive and investing in private label, which has intensified the competitive environment in which we operate. As a result, we have been subject to a number of competitive bidding situations, both formal and informal, which have materially reduced our sales volumes and profitability on sales to several customers. We expect this trend of competitive bidding to continue. In oder to win business in such a competitive environment, we may have to replace existing or lost volume with lower margin business, which could also negatively impact our profitability. Additionally, this competitive environment may result in us serving an increasing number of small format customers, which may raise the costs of production and distribution, and negatively impact the profitability of our business. If we are unable to structure our business to appropriately respond to the pricing demands of our customers, we may lose customers to other processors that are willing to sell product at a lower cost, which could negatively impact our volume, sales and profits.
Price concessions to retailers have negatively impacted, and could continue to negatively impact, our operating margins and profitability.
In the past, retailers have at times required price concessions that have negatively impacted our margins, and continued pressures to make such price concessions could negatively impact our profitability in the future. If we are not able to lower our cost structure adequately in response to customer pricing demands, and if we are not able to attract and retain a profitable customer mix and a profitable product mix, our profitability could continue to be adversely affected.
We may be adversely impacted by a changing customer and consumer landscape.
Many of our customers, such as supermarkets, warehouse clubs and food distributors, have consolidated. This consolidation may continue. These consolidations have produced large, more sophisticated customers with increased buying power and negotiating strength, who may seek lower prices or more favorable terms, and they have increased our dependence on key large-format retailers and discount supermarket retailers. In addition, some of these customers are vertically integrated and have re-dedicated key shelf-space that was formerly occupied by our branded products for their private label products. We are also facing downward pricing pressure from retailers, such as discount supermarket retailers, who sell their own private label products and proprietary brands. In addition to the competitive pressures from retail customers, we are facing increased competition from dairy cooperatives and other processors.
The highly competitive retail fluid milk and broader grocery industries are facing additional future uncertainties as a result of the rise of discount supermarket chains, online and delivery grocery offerings, meal kit services, and other mechanisms of food delivery. These developments may trigger significant changes in pricing competition, and the grocery industry, as well as consumer buying patterns, the effects and timing of which are currently unknown.
Higher levels of price competition and higher resistance to price increases have had a significant impact on our business. If we are unable to respond to these customer dynamics and potential future changes in the customer landscape, our business or financial results could be materially adversely affected.
Our ability to generate positive cash flow and profits will depend partly on our successful execution of our business strategy. 
Our ability to generate positive cash flow and profits will depend partly on our successful execution of our business strategy. Our business strategy may require significant capital investment and management attention, which may result in the diversion of these resources from other business issues and opportunities. Additionally, the successful implementation of our current business strategy is subject to our ability to manage costs and expenses and implement our enterprise-wide cost productivity plan, our ability to develop new and innovative products, the success of continuing improvement initiatives, our ability to leverage processing and logistical efficiencies, our consumers’ demand for our brands and products, the effectiveness of our advertising and targeting of consumers and channels, the availability of favorable acquisition opportunities and our ability to attract and retain qualified management and other personnel. There can be no assurance that we will be able to successfully implement our business strategy. If we cannot successfully execute our business strategy, our business, financial condition and results of operations may be adversely impacted. 

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The success of our business strategy depends upon our ability to build our brands. 
Building strong brands is a key component of our business strategy in order to expand sales and volumes and to respond to the changing customer landscape. With the launch of our national brands, DairyPure® and TruMoo®, we have expanded from a regional branding strategy to a national branding strategy. We have incurred, and may continue to incur in the future, significant expenditures for advertising and marketing campaigns in an effort to build brand awareness and preference over other private label products. We may not be successful in our efforts to expand our regional brand presence to a national brand presence, and we cannot guarantee that our advertising and marketing campaigns will result in customer or consumer acceptance of our brands. Further, the success of our national branding strategy requires us to drive operational changes in order to have a national brand footprint. If these efforts are unsuccessful or we incur substantial costs in connection with these efforts, our business, operating results and financial condition could be adversely affected.
The loss of, or a material reduction or change in the mix of sales volumes purchased by, any of our largest customers could negatively impact our sales and profits.
Walmart Inc. and its subsidiaries, including Sam’s Club, accounted for approximately 17.5% and 16.7% of our consolidated net sales in 2017 and 2016, respectively, and our top five customers, including Walmart, collectively accounted for approximately 32% and 31% of our consolidated net sales in 2017 and 2016, respectively. In connection with Walmart Inc.’s dairy processing plant in Indiana, we expect to lose approximately 60 million gallons of private label fluid milk volume beginning in the second half of 2018, which equates to approximately 100 to 110 million gallons annually. In addition, we expect marketplace volume and mix challenges to continue in 2018, including those associated with our largest customer.
We are also indirectly exposed to the financial and business risks of our largest customers because, if their business declines, they may correspondingly decrease the volumes purchased from us. The loss of, or further declines or changes in the mix of sales volumes purchased by, any of our largest customers could negatively impact our sales and profits, particularly due to our significant fixed costs and assets, which are difficult to rapidly reduce in response to significant volume declines.
The failure to successfully identify, consummate and integrate acquisitions into our existing operations could adversely affect our financial results.
We regularly evaluate acquisitions and other strategic opportunities as part of our business strategy. We face significant competition from numerous other bidders, many of which may have greater financial resources to allocate for acquisition opportunities. Accordingly, attractive acquisition opportunities may not be available to us or may be available only at higher cost or valuations. If we are unable to identify suitable acquisition candidates or successfully consummate the acquisitions and integrate the businesses we acquire, our business strategy may not succeed. 
Additionally, the acquisitions that we complete may involve potential risks, including:
diversion of management’s attention from other business concerns;
inability to achieve anticipated benefits from these acquisitions in the timeframe we anticipate, or at all;
inherent risks in entering geographic locations, markets or lines of business in which we have limited prior experience;
inability to integrate the new operations, technologies and products of the acquired companies successfully with our existing businesses;
increased leverage and higher interest expense associated with borrowings that may be required to fund these acquisitions;
potential disruption of our ongoing business;
potential loss of key employees and customers of the acquired companies;
possible assumption of unknown liabilities; and
potential disputes with the sellers. 
Moreover, merger and acquisition activities are subject to antitrust and competition laws, which have impacted, and may continue to impact, our ability to pursue strategic transactions.
Any or all of these risks could materially adversely impact our business and financial results.
If we fail to anticipate and respond to changes in consumer preferences, demand for our products could decline.
Consumer tastes, preferences and consumption habits evolve over time and are difficult to predict. 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:

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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 dairy, sugar and other sweeteners, 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 we fail to anticipate and respond to these changes and trends, we may experience reduced consumer demand for our products, which in turn could adversely affect our sales volumes and our business could be negatively affected.
Our business operations could be disrupted and the liquidity and market price of our securities could decline if our information technology systems fail to perform adequately or experience a security breach.
We maintain a large database of confidential information and sensitive data in our information technology systems, including confidential employee, supplier and customer information, and accounting, financial and other data on which we rely for internal and external financial reporting and other purposes. In addition, the efficient operation of our business depends on our information technology systems. We rely on our information technology systems, including those of third parties, to effectively manage our business data, communications, supply chain, logistics, accounting and other business processes. If we do not allocate and effectively manage the resources necessary to build and sustain an appropriate technology environment, our business or financial results could be negatively impacted. In addition, our information technology systems and those of third parties are vulnerable to damage or interruption from circumstances beyond our control, including systems failures, viruses, security breaches or cyber incidents such as ransomware, intentional cyber attacks aimed at theft of sensitive data or inadvertent cyber-security compromises. A security breach of such information or failure of our information technology systems or those of third parties that we rely on could result in damage to our reputation, negatively impact our relations with our customers or employees, and expose us to liability and litigation. Moreover, a security breach or failure of our information systems could also result in the alteration, corruption or loss of the accounting, financial or other data on which we rely for internal and external financial reporting and other purposes and, depending on the severity of the security breach or systems failure, could prevent the audit of our financial statements or our internal control over financial reporting from being completed on a timely basis or at all, or could negatively impact the resulting audit opinions. Any such damage or interruption, or alteration, corruption or loss, could have a material adverse effect on our business or could cause our securities to become less liquid and the market price of our securities to decline.
We may incur liabilities or 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, mislabeling, 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. A significant product liability, consumer fraud or other legal judgment against us or a widespread product recall may negatively impact our sales, brands, reputation and 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 consumers believe as having strong health and wellness credentials. Further, the risks to our reputation and brand image are more susceptible on a national scale as a result of our expansion from a regional branded platform to a national branded platform. In addition, consumer preferences related to genetically modified foods, animal proteins, or the use of certain sweeteners could result in negative publicity and adversely affect our reputation. 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 and could have a material adverse effect on our business.

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Disruption of our supply or distribution chains or transportation systems could adversely affect our business.
Our ability to make, move and sell our products is critical to our success. Damage or disruption to our manufacturing or distribution capabilities due to weather (including the impact of climate change), natural disaster, fire, environmental incident, terrorism (including eco-terrorism and bio-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. 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. In addition, we are subject to federal motor carrier regulations, such as the Federal Motor Carrier Safety Act, with which our extensive DSD system must comply. Failure to comply with such regulations could result in our inability to deliver product to our customers in a timely manner, which could adversely affect our reputation and our results.
Failure to maintain sufficient internal production capacity or to enter into co-packing agreements on terms that are beneficial for us may result in our inability to meet customer demand and/or increase our operating costs.
The success of our business depends, in part, on maintaining a strong production platform and we rely on internal production resources and third-party co-packers to fulfill our manufacturing needs. As part of our ongoing cost reduction efforts, we have closed or announced the closure of a number of our plants since late 2012. It is possible that we may need to increase our reliance on third parties to provide manufacturing and supply services, commonly referred to as “co-packing” agreements, for a number of our products. In particular, there is increasing consumer preference for certain sized extended shelf life (“ESL”) products in certain categories and, as a result of the Morningstar divestiture, we are contractually limited in our ability to manufacture ESL products. In such case, we must rely on our co-packers. A failure by our co-packers to comply with food safety, environmental, or other laws and regulations may disrupt our supply of products and cause damage to the reputation of our brand. 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 acceptable third-party providers or enter into agreements on satisfactory terms. Our inability to establish satisfactory co-packing arrangements could limit our ability to operate our business and could negatively affect our sales volumes and results of operations. If we cannot maintain sufficient production capacity, either internally or through third-party agreements, we may be unable to meet customer demand and/or our manufacturing costs may increase, which could negatively affect our business.
If we are unable to hire, retain and develop our leadership bench, or fail to develop and implement an adequate succession plan for current leadership positions, it could have a negative impact on our business.
Our continued and future success depends partly upon our ability to hire, retain and develop our leadership bench.  Effective succession planning is also a key factor in our long-term success. Any unplanned turnover or failure to develop or implement an adequate succession plan to backfill key leadership positions could deplete our institutional knowledge base and erode our competitive advantage. Our failure to enable the effective transfer of knowledge or to facilitate smooth transitions with regard to key leadership positions, including the upcoming onboarding of Jody Macedonio as CFO, could adversely affect our long-term strategic planning and execution and negatively affect our business, financial condition and results of operations.
Our existing debt and other financial obligations may restrict our business operations and we may incur even more debt.
We have substantial debt and other financial obligations and significant unused borrowing capacity. We may incur additional debt in the future. In addition to our other financial obligations, on December 31, 2017, we had $918.9 million of long-term debt obligations, excluding unamortized discounts and debt issuance costs of $5.7 million. On February 21, 2018, we had the ability to borrow up to a combined additional $576.6 million of combined future borrowing capacity under our Credit Facility and receivables securitization facility, subject to compliance with certain conditions.
We have pledged substantially all of our assets, other than real property, to secure our Credit Facility. Our debt and related debt service obligations could:
require us to dedicate significant cash flow to the payment of principal and interest on our debt, which reduces the funds we have available for other purposes, including for funding working capital, capital expenditures, and acquisitions and for other general corporate purposes;
limit our flexibility in planning for or reacting to changes in our business and market conditions;
impose on us additional financial and operational restrictions, including restrictions on our ability to, among other things, incur additional indebtedness, create liens, guarantee obligations, undertake acquisitions or sales of assets, declare dividends and make other specified restricted payments, and make investments; and
place us at a competitive disadvantage compared to businesses in our industry that have less debt or that are debt-free.

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To the extent that we incur additional indebtedness in the future, these limitations would likely have a greater impact on our business. Failure to make required payments on our debt or comply with the financial covenants or any other non-financial or restrictive covenants set forth in the agreements governing our debt could create a default and cause a downgrade to our credit rating. Upon a default, our lenders could accelerate the indebtedness, foreclose against their collateral or seek other remedies, which would jeopardize our ability to continue our current operations. In those circumstances, we may be required to amend the agreements governing our debt, refinance all or part of our existing debt, sell assets, incur additional indebtedness or raise equity. Our ability to make scheduled payments on our debt and other financial obligations and comply with financial covenants depends on our financial and operating performance, which in turn, is subject to various factors such as prevailing economic conditions and to financial, business and other factors, some of which are beyond our control. See “Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Current Debt Obligations” for more information.
The Tax Cuts and Jobs Act signed into law on December 22, 2017 could have a negative effect on our financial condition and results of operations.
Legislative or other actions relating to taxes could have a negative effect on the Company. The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service ("IRS") and the U.S. Treasury Department. The Tax Cuts and Jobs Act (the “Tax Act”), which was signed into law in December 2017, made comprehensive changes to the U.S. tax code affecting tax years 2017 and thereafter. Among other things, the Tax Act reduces the U.S. federal corporate income tax rate from 35% to 21%, imposes a mandatory one-time transition tax on unrepatriated foreign earnings, enhances the acceleration of depreciation deductions on qualified property, changes the U.S. taxation of foreign earnings and eliminates certain business deductions. The legislation is unclear in certain respects and will require interpretations and implementing regulations by the IRS, as well as state tax authorities, and the legislation could be subject to potential amendments and technical corrections, any of which could lessen or increase certain adverse impacts of the legislation. It is also uncertain how credit rating agencies will treat the impacts of this legislation on their credit ratings and metrics. While there are benefits, there is substantial uncertainty regarding the details of the Tax Act. The intended and unintended consequences of the Tax Act on our business and on holders of our common stock is uncertain and could be adverse. For example, the tax reform legislation enacted a new provision that in general allows farmers a 20% deduction on all payments received on sales to cooperatives. This new deduction could increase our cost of raw milk purchased directly from farmers or make it more difficult to find direct farm sources of supply and could also indirectly impact our other commodity costs.
We cannot predict with certainty how the Tax Act or any other changes in the tax laws might affect the Company or its stockholders. The new legislation and any U.S. Treasury regulations, administrative interpretations or court decisions interpreting such legislation could significantly and negatively affect U.S. federal income tax consequences to the Company and its stockholders.
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 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 are unable to obtain additional financing in the future, our business, financial condition, and operations could be materially adversely affected.
Risks Related to Our Common Stock
Our Board of Directors could change our dividend policy at any time.
In November 2013, our Board of Directors adopted a dividend policy under which we intend to pay quarterly cash dividends on our common stock. Under this policy, holders of our common stock will receive dividends when and as declared by our Board of Directors. Pursuant to this policy, we paid quarterly dividends of $0.09 per share ($0.36 per share annually) during 2017. However, we are not required to pay dividends and our stockholders do not have contractual or other legal rights to receive them. Any determination to pay cash dividends on our common stock in the future may be affected by business conditions, our views on potential future capital requirements, the terms of our debt instruments, legal risks, changes in federal income tax law and challenges to our business model. Furthermore, our Board of Directors may decide at any time, in its discretion, not to pay a dividend, to decrease the amount of dividends or to change or revoke the dividend policy entirely. If we do not pay dividends, for whatever reason, shares of our common stock could become less liquid and the market price of our common stock could decline.

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Our stock price is volatile and may decline regardless of our operating performance, and you could lose a significant part of your investment.
The market price of our common stock has historically been volatile and in the future may be influenced by many factors, some of which are beyond our control, including those described in this section and the following:
changes in financial estimates by analysts or our inability to meet those financial estimates;
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;
activism by any large stockholder or group of stockholders;
perceptions of the investment opportunity associated with our common stock relative to other investment alternatives;
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 New York Stock Exchange, 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 or shareholder activism. The filing of a lawsuit against us or shareholder activism targeted toward 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.
These market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance. This volatility may increase the risk that our stockholders will suffer a loss on their investment or be unable to sell or otherwise liquidate their holdings of our common stock.
Capital Markets and General Economic Risks
Future funding requirements, withdrawal liabilities and related charges associated with multiemployer plans in which we participate could have a material negative impact on our business.
In addition to our company-sponsored pension plans, we participate in certain multiemployer defined benefit pension plans that are administered jointly by labor unions representing certain of our employees and multiple employers like us that have employees participating in the plan. We make periodic contributions to these multiemployer pension plans in accordance with the provisions of negotiated collective bargaining agreements. Our required contributions to these plans could increase due to a number of factors, including the funded status of the plans and the level of our ongoing participation in these plans. Underfunding is not a direct obligation or liability of ours or any employer, but is likely to have important consequences. Our risk of such increased payments may be greater if any of the participating employers in these underfunded plans withdraws from the plan due to insolvency and is not able to contribute an amount sufficient to fund the unfunded liabilities associated with its participants in the plan. In the event that we decide to withdraw from participation in one of these multiemployer plans, we could be required to make additional lump-sum contributions to the relevant plan. These withdrawal liabilities may be significant and could materially adversely affect our business and our financial results.
Some of the plans in which we participate are reported to have significant underfunded liabilities, which could increase the amount of any potential withdrawal liability. This requires us to potentially make substantial withdrawal liability payments when we close a facility covered by one of these plans, which could hinder our ability to make otherwise appropriate management decisions to operate as efficiently as possible. In addition, under the Pension Protection Act of 2006 and the Multi-Employer Pension Reform Act of 2014, special funding rules apply to multiemployer pension plans that are classified as “endangered,” “seriously endangered,” “critical,” or "critical and declining" status. Some of the plans in which we participate are in critical or critical and declining status, and we have been required to make additional contributions and may be subject to additional contributions in the future. We are subject to substantial withdrawal liability with respect to a number of multiemployer pension plans in which we participate. Our greatest potential withdrawal liability is related to the Central States, Southeast and Southwest Areas Pension Fund, which is in “critical and declining” status and has been for a number of years based on that plan's annual

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Form 5500 filings, meaning it was less than 65% funded. The plan is currently projected to become insolvent in 2025. It is unclear what will happen to this plan in the future, and the effects and consequences of the plan’s insolvency are currently unknown. Future funding requirements and related charges associated with multiemployer plans in which we participate could have a material negative impact on our results of operations, financial condition and cash flows.
The costs of providing employee benefits have escalated, and liabilities under certain plans may be triggered due to our actions or the actions of others, which may adversely affect our profitability and liquidity.
We sponsor various defined benefit and defined contribution retirement plans, as well as contribute to various multiemployer pension plans on behalf of our employees. Changes in interest rates or in the market value of plan assets could affect the funded status of our pension plans. This could cause volatility in our benefits costs and increase future funding requirements of our plans. Pension and post-retirement costs also may be significantly affected by changes in key actuarial assumptions including anticipated rates of return on plan assets and the discount rates used in determining the projected benefit obligation and annual periodic pension costs. Recent changes in federal laws require plan sponsors to eliminate, over defined time periods, the underfunded status of plans that are subject to the Employee Retirement Income Security Act rules and regulations. Certain of our defined benefit retirement plans are less than fully funded. Facility closings may trigger cash payments or previously unrecognized obligations under our defined benefit retirement plans, and the costs of such liabilities may be significant or may compromise our ability to close facilities or otherwise conduct cost reduction initiatives on time and within budget. A significant increase in future funding requirements could have a negative impact on our results of operations, financial condition and cash flows. In addition to potential changes in funding requirements, the costs of maintaining our pension plans are impacted by various factors including increases in healthcare costs and legislative changes.
Changes in our credit ratings may have a negative impact on our future financing costs or the availability of capital.
Some of our debt is rated by Standard & Poor’s, Moody’s Investors Service and Fitch Ratings, and there are a number of factors beyond our control with respect to these ratings. Our credit ratings are currently considered to be below “investment grade.” Although the interest rate on our existing credit facilities is not affected by changes in our credit ratings, such ratings or any further rating downgrades may impair our ability to raise additional capital in the future on terms that are acceptable to us, if at all, may cause the value of our securities to decline and may have other negative implications with respect to our business. Ratings reflect only the views of the ratings agency issuing the rating, are not recommendations to buy, sell or hold our securities and may be subject to revision or withdrawal at any time by the ratings agency issuing the rating. Each rating should be evaluated independently of any other rating.
Unfavorable economic conditions may adversely impact our business, financial condition and results of operations.
The dairy industry is sensitive to changes in international, national and local general economic conditions. Future economic decline or increased income disparity could have an adverse effect on consumer spending patterns. Increased levels of unemployment, increased consumer debt levels and other unfavorable economic factors could further adversely affect consumer demand for products we sell or distribute, which in turn could adversely affect our results of operations. Consumers may not return to historical spending patterns following any future reduction in consumer spending.
Legal and Regulatory Risks
Litigation could expose us to significant liabilities and may have a material adverse impact on our reputation and business.
Scrutiny of the dairy industry has resulted, and may continue to result, in litigation against us. Such lawsuits are expensive to defend, divert management’s attention and may result in significant judgments or settlements. In some cases, these awards would be trebled by statute and successful plaintiffs are entitled to an award of attorneys’ fees. Depending on its size, such a judgment or settlement could materially and adversely affect our results of operations, cash flows and financial condition and impair our ability to continue operations. We may not be able to pay such judgment or to post a bond for an appeal, given our financial condition and our available cash resources. In addition, depending on its size, failure to pay such a judgment or failure to post an appeal bond could cause us to breach certain provisions of our credit facilities. In either of these or other circumstances, we may seek a waiver of or amendment to the terms of our credit facilities, but we may not be able to obtain such a waiver or amendment. Failure to obtain such a waiver or amendment would materially and adversely affect our results of operations, cash flows and financial condition and could impair our ability to continue operations. Moreover, such litigation could expose us to negative publicity, which could adversely affect our brands, reputation and/or customer preference for our products.
We were previously a party to a private antitrust lawsuit brought by two plaintiffs that was scheduled for trial beginning March 28, 2017. Prior to trial, the plaintiffs agreed with us to settle the lawsuit. We agreed to pay settlements to the plaintiffs and the parties resolved all outstanding claims in the litigation and agreed to voluntarily dismiss the litigation. The litigation was

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dismissed on March 21, 2017 with respect to one plaintiff, and on March 26, 2017 with respect to the other plaintiff. The two plaintiffs initiated the case in 2007 as a putative class action. Although the court refused to certify the case as a class action, the court’s denial of class certification did not act as an adjudication on the merits for the class of purchasers the named plaintiffs proposed to represent. Therefore, we may be subject to subsequent litigation by such purchasers.
Our results of operations could be adversely affected if actual losses from legal claims against us exceed our reserves.
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 and/or disclose the relevant litigation claims 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. If the amounts we are required to pay as a result of claims against us substantially exceed the sums anticipated by our reserves, if established, the need to pay those amounts could have a material adverse effect on our results of operations.
Labor disputes could adversely affect us.
As of December 31, 2017, approximately 37% of our employees were covered under collective bargaining agreements. Our collective bargaining agreements generally run in duration from 3 to 5 years. At any given time, we may face a number of union organizing drives. When we negotiate collective bargaining agreements or terms, we and the union may disagree on important issues which, in turn, could possibly lead to a strike, work slowdown or other job actions at one or more of our locations. In the event of a strike, work slowdown or other labor unrest, or if we are unable to negotiate labor contracts on reasonable terms, our ability to supply our products to customers could be impaired, which could result in reduced revenue and customer claims, and may distract our management from focusing on our business and strategic priorities. In addition, our ability to make short-term adjustments to control compensation and benefits costs or otherwise to adapt to changing business requirements may be limited by the terms of our collective bargaining agreements.
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 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 and the Compensation and Liability Act of 1980, as amended, as well as similar state and local statutes and regulations in the United States. 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. The costs of complying with these laws and regulations may be significant, particularly relating to wastewater and ammonia treatment which are capital intensive. Additionally, 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.
Changes in laws, regulations and accounting standards could have an adverse effect on our financial results.
We are subject to federal, state and local governmental laws and regulations, including those promulgated by the FDA, the USDA, U.S. Department of the Treasury, IRS, Environmental Protection Agency ("EPA"), FTC, Department of Transportation, Department of Labor, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and numerous related regulations promulgated by the Securities and Exchange Commission and the Financial Accounting Standards Board. Changes in federal, state or local laws, or the interpretations of such laws and regulations, may negatively impact our financial results or our ability to market our products. Any or all of these risks could adversely impact our financial results.
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 and local laws and regulations, including food safety requirements related to the ingredients, manufacture, processing, packaging, storage, marketing, advertising, labeling quality and distribution of our products, as well as those related to worker health and workplace safety. Our activities are subject to extensive regulation. We are regulated by, among other federal and state authorities, the FDA, the EPA, the FTC, and the U.S. Departments of Agriculture, Commerce, Labor and Transportation. Federal legislation passed in 2016 directs the USDA to adopt rules requiring the labeling of products containing or derived from genetically engineered organisms. New rules adopted by the

17


FDA redesigned the Nutrition Facts label and requires all packaged goods to use the new label by July 2018 (although the FDA has taken formal steps to extend that deadline, which is currently expected to be January 2020). Change and implementation of new labels on our products to comply with these rules may result in significant costs to our business. In addition, a growing number of local ordinances across the country have imposed a tax on sweetened beverages, which may have a negative impact on our sales, results of operations and our business. In addition, a number of states are considering similar laws. 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 addition, our volumes may be impacted by the level of government spending that supports grocery purchases because such amounts may impact the level of consumer spending on fluid dairy products. As a meaningful portion of Supplemental Nutrition Assistance Program (“SNAP”) benefits are spent in the dairy category, we are cautious about the impact that any change or reduction in these benefits could have on consumer spending in the dairy category. Any reduction or change in SNAP benefits or the suspension, curtailment, or expiration of other government spending programs, such as the Special Supplemental Nutrition Program for Women, Infants, and Children, could have an adverse impact upon our volumes and our results of operations.
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 and state laws and regulations, and we may be subject to initiatives that limit or prohibit the marketing and advertising of our products to children. 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 or force changes in our production processes or procedures (or force us to implement new processes or procedures). For example, the FDA has finalized new regulations pursuant to the Food Safety Modernization Act of 2011 which requires, among other things, that food facilities conduct contamination hazard analysis, implement risk-based preventive controls and develop track-and-trace capabilities, and there could be unforeseen issues, requirements and costs that arise as we come into compliance with these new rules by the various required compliance dates, with the last new rule to become effective in 2019. Further, if we are found to be in violation of applicable laws and 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.
Item 1B.
Unresolved Staff Comments
None.

18


Item 2.
Properties
Our corporate headquarters are located in leased premises at 2711 North Haskell Avenue, Suite 3400, Dallas, Texas 75204. In addition, we operate 65 manufacturing facilities. We believe that our facilities are well maintained and are generally suitable and of sufficient capacity to support our current business operations and that the loss of any single facility would not have a material adverse effect on our operations or financial results.
We currently conduct our manufacturing operations within the following facilities, most of which are owned:
Homewood, Alabama(2)
Hammond, Louisiana
Springfield, Ohio
City of Industry, California(2)
Franklin, Massachusetts
Toledo, Ohio
Hayward, California
Lynn, Massachusetts
Erie, Pennsylvania
Englewood, Colorado
Wilbraham, Massachusetts
Lansdale, Pennsylvania
Greeley, Colorado
Grand Rapids, Michigan
Lebanon, Pennsylvania
Deland, Florida
Livonia, Michigan
Schuylkill Haven, Pennsylvania
Miami, Florida
Marquette, Michigan
Sharpsville, Pennsylvania
Orlando, Florida
Thief River Falls, Minnesota
Spartanburg, South Carolina
Braselton, Georgia
Woodbury, Minnesota
Sioux Falls, South Dakota
Hilo, Hawaii
Billings, Montana
Athens, Tennessee
Honolulu, Hawaii
Great Falls, Montana
Nashville, Tennessee(2)
Boise, Idaho
North Las Vegas, Nevada
Dallas, Texas
Belvidere, Illinois
Reno, Nevada
El Paso, Texas
Harvard, Illinois
Florence, New Jersey
Houston, Texas
Huntley, Illinois
Albuquerque, New Mexico
Lubbock, Texas
O’Fallon, Illinois
Rensselaer, New York
McKinney, Texas
Rockford, Illinois
High Point, North Carolina
San Antonio, Texas
Decatur, Indiana
Winston-Salem, North Carolina
Salt Lake City, Utah
Huntington, Indiana
Bismarck, North Dakota
St. George, Utah
LeMars, Iowa
Tulsa, Oklahoma
Ashwaubenon, Wisconsin
Louisville, Kentucky
Marietta, Ohio
 
The majority of our manufacturing facilities also serve as distribution facilities. In addition, we have numerous distribution branches located across the country, some of which are owned but most of which are leased.
Item 3.    Legal Proceedings
We are party from time to time to certain pending or threatened legal proceedings in the ordinary course of our business. Potential liabilities associated with these matters are not expected to have a material adverse impact on our financial position, results of operations, or cash flows.
Item 4.
Mine Safety Disclosures
Not applicable.

19


PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock trades on the New York Stock Exchange under the symbol “DF.” The following table sets forth the high and low sales prices of our common stock as quoted on the New York Stock Exchange for the last two fiscal years.
At February 21, 2018, there were 1,999 record holders of our common stock.
 
High
 
Low
2016:
 
 
 
First Quarter
$
21.17

 
$
16.48

Second Quarter
18.97

 
16.33

Third Quarter
19.67

 
15.69

Fourth Quarter
22.14

 
16.10

2017:
 
 
 
First Quarter
22.31

 
17.78

Second Quarter
20.10

 
17.00

Third Quarter
17.33

 
10.30

Fourth Quarter
12.09

 
9.01

Dividends — In accordance with our cash dividend policy, holders of our common stock will receive dividends when and as declared by our Board of Directors. Beginning in 2015, all awards of restricted stock units, performance stock units and phantom stock awards provide for cash dividend equivalent units, which vest in cash at the same time as the underlying award. Quarterly dividends of $0.09 per share were paid in March, June, September and December of 2017 and 2016, totaling approximately $32.7 million and $32.8 million for the years ended December 31, 2017 and 2016, respectively.
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources — Current Debt Obligations” and Note 9 to our Consolidated Financial Statements for further information regarding the terms of our senior secured credit facility, including terms restricting the payment of dividends.

20


Item 6.
Selected Financial Data
The following selected financial data as of and for each of the years ended December 31, 2013 to 2017 has been derived from our audited Consolidated Financial Statements. The operating results of WhiteWave and Morningstar and certain other directly attributable expenses, including interest expense, related to the sale of Morningstar, which occurred on January 3, 2013, and the spin-off of WhiteWave, which was completed on May 23, 2013, are reflected as discontinued operations in the table below for all periods presented. The selected financial data does not purport to indicate results of operations as of any future date or for any future period. The selected financial data should be read in conjunction with our Consolidated Financial Statements and the related Notes thereto.
 
Year Ended December 31
 
2017
 
2016
 
2015
 
2014
 
2013
 
(Dollars in thousands, except share data)
Operating data:
 
 
 
 
 
 
 
 
 
Net sales
$
7,795,025

 
$
7,710,226

 
$
8,121,661

 
$
9,503,196

 
$
9,016,321

Cost of sales
5,977,348

 
5,722,710

 
6,147,252

 
7,829,733

 
7,161,734

Gross profit(1)
1,817,677


1,987,516


1,974,409


1,673,463


1,854,587

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
Selling and distribution
1,346,948

 
1,348,349

 
1,379,317

 
1,355,053

 
1,337,745

General and administrative
311,176

 
346,028

 
350,324

 
288,744

 
310,453

Amortization of intangibles(2)
20,710

 
20,752

 
21,653

 
2,889

 
3,669

Facility closing and reorganization costs, net
24,913

 
8,719

 
19,844

 
4,460

 
27,008

Litigation settlements(3)

 

 

 
(2,521
)
 
(1,019
)
Impairment of intangible and long-lived assets(4)
30,668

 

 
109,910

 
20,820

 
43,441

Other operating (income) loss(5)


 

 

 
(4,535
)
 
2,494

Total operating costs and expenses
1,734,415


1,723,848


1,881,048


1,664,910


1,723,791

Operating income
83,262


263,668


93,361


8,553


130,796

Other (income) expense:
 
 
 
 
 
 
 
 
 
Interest expense(6)
64,961

 
66,795

 
66,813

 
61,019

 
200,558

Loss on early retirement of debt(7)

 

 
43,609

 
1,437

 
63,387

Gain on disposition of WhiteWave common stock(8)

 

 

 

 
(415,783
)
Other income, net
(2,942
)
 
(5,778
)
 
(3,751
)
 
(1,620
)
 
(400
)
Total other (income) expense
62,019


61,017


106,671


60,836


(152,238
)
Income (loss) from continuing operations before income taxes
21,243


202,651


(13,310
)

(52,283
)

283,034

Income tax expense (benefit)(9)
(26,179
)
 
82,034

 
(5,229
)
 
(32,096
)
 
(42,325
)
Income (loss) from continuing operations
47,422


120,617


(8,081
)

(20,187
)

325,359

Income (loss) from discontinued operations, net of tax(10)
11,291

 
(312
)
 
(1,095
)
 
(652
)
 
2,803

Gain (loss) on sale of discontinued operations, net of tax(11)
2,875

 
(376
)
 
668

 
543

 
491,195

Net income (loss)
61,588


119,929


(8,508
)

(20,296
)

819,357

Net loss attributable to non-controlling interest in discontinued operations

 

 

 

 
(6,179
)
Net income (loss) attributable to Dean Foods Company
$
61,588


$
119,929


$
(8,508
)

$
(20,296
)

$
813,178

Basic earnings (loss) per common share:
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Dean Foods Company
0.52


1.33


(0.09
)

(0.22
)

3.47

Income (loss) from discontinued operations attributable to Dean Foods Company
0.16


(0.01
)





5.20

Net income (loss) attributable to Dean Foods Company
$
0.68


$
1.32


$
(0.09
)

$
(0.22
)

$
8.67

Diluted earnings (loss) per common share:
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Dean Foods Company
0.52


1.32


(0.09
)

(0.22
)

3.43

Income (loss) from discontinued operations attributable to Dean Foods Company
0.15


(0.01
)





5.15

Net income (loss) attributable to Dean Foods Company
$
0.67


$
1.31


$
(0.09
)

$
(0.22
)

$
8.58

Cash dividend declared per common share
$
0.36

 
$
0.36

 
$
0.28

 
$
0.28

 
$

Average common shares:
 
 
 
 
 
 
 
 
 
Basic
90,899,284

 
90,933,886

 
93,298,467

 
93,916,656

 
93,785,611

Diluted
91,273,994

 
91,510,483

 
93,298,467

 
93,916,656

 
94,796,236

Other data:
 
 
 
 
 
 
 
 
 
Ratio of earnings to fixed charges(12)
1.19x

 
2.84x

 
0.87x

 
0.48x

 
2.17x

Balance sheet data (at end of period):
 
 
 
 
 
 
 
 
 
Total assets(13)
$
2,503,829

 
$
2,606,227

 
$
2,520,163

 
$
2,768,714

 
$
2,800,134

Long-term debt(13)(14)
913,199

 
886,051

 
834,573

 
916,257

 
895,351

Other long-term liabilities
203,595

 
276,630

 
272,864

 
276,318

 
273,314

Dean Foods Company stockholders’ equity
655,947

 
610,556

 
545,504

 
627,318

 
714,315



21


(1)
As disclosed in Note 1 to our 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 entities that present all shipping and handling costs as a component of cost of sales.
(2)
Prior to 2015, certain of our trademarks were not amortized as our intent was to continue to use these intangible assets indefinitely. During the first quarter of 2015, we approved the launch of DairyPure®, our national white milk brand. In connection with the approval of the launch of DairyPure®, we re-evaluated our indefinite-lived trademarks and determined them to be finite-lived, with remaining useful lives of 5 years. In the first quarter of 2016, we further evaluated the remaining useful life of our finite-lived trademarks in conjunction with our newly approved strategy around our ice cream brands. Based on our evaluation, we extended the useful lives of certain of our finite-lived trademarks. See Note 6 to our Consolidated Financial Statements.
(3)
Results for 2014 and 2013 include reductions in a litigation settlement liability due to plaintiff class "opt outs."
(4)
Results for 2017 include non-cash impairment charges of $30.7 million related to property, plant and equipment at certain of our production facilities, and certain assets that are not expected to generate a future economic benefit. During the first quarter of 2015, we approved the launch of DairyPure®, our national white milk brand. In connection with the approval of the launch of DairyPure®, we changed our indefinite lived trademarks to finite lived, resulting in a triggering event for impairment testing purposes. Based upon our analysis, we recorded a non-cash impairment charge of $109.9 million. Results for 2014 include non-cash impairment charges of $20.8 million related to property, plant, and equipment at certain of our production facilities. Results for 2013 include non-cash impairment charges of $35.5 million related to property, plant and equipment at certain of our production facilities and $7.9 million related to certain finite and indefinite-lived intangible assets. See Notes 6 and 16 to our Consolidated Financial Statements.
(5)
Results for 2014 and 2013 include the final settlement of certain liabilities associated with the prior disposition of a manufacturing facility and the final disposal of assets associated with the closure of one of our manufacturing facilities.
(6)
Results for 2017 include a charge of $1.1 million related to the write-off of deferred financing costs in connection with the amendments to our senior secured revolving credit facility and receivables securitization facility. Results for 2013 include a charge of $6.8 million related to the write-off of deferred financing costs as a result of the termination of our prior senior secured credit facility and the repayment of all related indebtedness.
(7)
In March 2015, we redeemed the remaining $476.2 million principal amount of our outstanding senior notes due 2016 at a total redemption price of approximately $521.8 million. As a result, we recorded a $38.3 million pre-tax loss on early retirement of long-term debt in the first quarter of 2015. In December 2014, we completed the redemption of our remaining $24 million outstanding principal amount of our senior notes due 2018 at a redemption price equal to 104.875% of their principal amount, plus accrued and unpaid interest, or approximately $26.1 million in total. As a result, we recorded a $1.4 million pre-tax loss on early retirement of debt in 2014. During the fourth quarter of 2013, we successfully completed a cash tender offer for $400 million aggregate principal amount of our senior notes due 2018 and our senior notes due 2016. We purchased $376.2 million of the senior notes due 2018, for their aggregate principal amount plus a call premium of approximately $54 million and $23.8 million of the senior notes due 2016 for their aggregate principal amount plus a call premium of approximately $3 million. As a result, we recorded a $63.4 million pre-tax loss on early retirement of debt. See Note 9 to our Consolidated Financial Statements.
(8)
In July 2013, we disposed of our remaining investment in WhiteWave common stock through a debt-for-equity exchange. As a result of the disposition, we recorded a tax-free gain in continuing operations of $415.8 million in the third quarter of 2013.
(9)
Results for 2017 include a one-time net income tax benefit of $43.7 million associated with the December 22, 2017 enactment of the Tax Act. See Note 8 to our Consolidated Financial Statements. Results for 2013 include the effects of the tax-free gain on the disposition of our remaining investment in WhiteWave common stock in 2013.
(10)
Income (loss) from discontinued operations for each of the five years shown in the table above includes the operating results and certain other directly attributable expenses, including interest expense, related to the disposition of Morningstar and the spin-off of WhiteWave. See Note 2 to our Consolidated Financial Statements.
(11)
Amounts for each of the five years relate to the disposition of Morningstar and the spin-off of WhiteWave in 2013.
(12)
For purposes of calculating the ratio of earnings to fixed charges, “earnings” represents income (loss) before income taxes plus fixed charges and “fixed charges” consist of interest on all debt, amortization of deferred financing costs and the portion of rental expense that we believe is representative of the interest component of rent expense.
(13)
Beginning in the first quarter of 2016, unamortized debt issuance costs, not related to revolving credit agreements, of $6.8 million, $7.9 million, $0.9 million and $1.9 million as of December 31, 2016, 2015, 2014 and 2013, respectively, were reclassified from other assets and netted against the outstanding debt balance due to the retrospective effect of ASU No. 2015-03, Imputation of Interest - Simplifying the Presentation of Debt Issuance Costs.
(14)
Includes the current portion of long-term debt.

22


Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
We are a leading food and beverage company and the largest processor and direct-to-store distributor of fresh fluid milk and other dairy and dairy case products in the United States, with a vision to be the most admired and trusted provider of wholesome, great-tasting dairy products at every occasion. We manufacture, market and distribute a wide variety of branded and private label dairy and dairy case products, including fluid milk, ice cream, cultured dairy products, creamers, ice cream mix and other dairy products to retailers, distributors, foodservice outlets, educational institutions and governmental entities across the United States. Our consolidated net sales totaled $7.8 billion in 2017. Due to the perishable nature of our products, we deliver the majority of our products directly to our customers' locations in refrigerated trucks or trailers that we own or lease. We believe that we have one of the most extensive refrigerated DSD systems in the United States. We sell our products primarily on a local or regional basis through our local and regional sales forces, and in some instances, with the assistance of national brokers. Some national customer relationships are coordinated by our centralized corporate sales department or national brokers.
Our Reportable Segment
We have aligned our leadership team, operating strategy, and sales, logistics and supply chain initiatives into a single operating and reportable segment. Unless stated otherwise, any reference to income statement items in our financial statements refers to results from continuing operations.
Recent Developments
See “Part I — Item 1. Business — Developments Since January 1, 2017” for further information regarding recent developments that have impacted our financial condition and results of operations.
Results of Operations
Our key performance indicators are brand mix, achieving low cost and volume performance, which are reflected in gross profit, operating income and net sales, respectively. We evaluate our financial performance based on sales and operating profit or loss before gains and losses on the sale of businesses, facility closing and reorganization costs, asset impairment charges, litigation settlements and other nonrecurring gains and losses. The following table presents certain information concerning our financial results, including information presented as a percentage of net sales:
 
Year Ended December 31
 
2017
 
2016
 
2015
 
Dollars
 
Percent
 
Dollars
 
Percent
 
Dollars
 
Percent
 
(Dollars in millions)
Net sales
$
7,795.0

 
100.0
%
 
$
7,710.2

 
100.0
%
 
$
8,121.7

 
100.0
%
Cost of sales
5,977.3

 
76.7

 
5,722.7

 
74.2

 
6,147.3

 
75.7

Gross profit(1)
1,817.7

 
23.3

 
1,987.5

 
25.8

 
1,974.4

 
24.3

Operating costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Selling and distribution
1,346.9

 
17.3

 
1,348.3

 
17.5

 
1,379.3

 
17.0

General and administrative
311.2

 
4.0

 
346.0

 
4.5

 
350.3

 
4.3

Amortization of intangibles
20.7

 
0.3

 
20.8

 
0.3

 
21.7

 
0.3

Facility closing and reorganization costs, net
24.9

 
0.3

 
8.7

 
0.1

 
19.8

 
0.2

Impairment of intangible and long-lived assets
30.7

 
0.4

 

 

 
109.9

 
1.3

Total operating costs and expenses
1,734.4

 
22.3

 
1,723.8

 
22.4

 
1,881.0

 
23.1

Operating income
$
83.3

 
1.0
%
 
$
263.7

 
3.4
%
 
$
93.4

 
1.2
%
(1)
As disclosed in Note 1 to our 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 entities that present all shipping and handling costs as a component of cost of sales.

23


Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Net Sales — The change in net sales was due to the following:
 
Year Ended
December 31,
2017 vs. 2016
 
(In millions)
Volume
$
(357.9
)
Pricing and product mix changes
360.4

Acquisitions
82.3

Total increase
$
84.8

Net sales increased $84.8 million, or 1.1%, during the year ended December 31, 2017 as compared to the year ended December 31, 2016, primarily due to increased pricing, as a result of increases in dairy commodity costs from year-ago levels. On average, during the year ended December 31, 2017, the Class I price was 11.1% above prior-year levels. Additionally, volumes associated with the Friendly's and Uncle Matt's acquisitions contributed $178.3 million to net sales in 2017 as compared to $96.0 million associated with the Friendly's acquisition in 2016. The Friendly's acquisition closed on June 20, 2016 and net sales during the year ended December 31, 2016 reflect 195 days of Friendly's operations. Net sales increases were partially offset by fluid milk volume declines from year-ago levels, driven predominantly by overall category softness and private label fluid milk volume losses during 2017 due to competitive pressures, as well as reduced branded fluid milk volumes due to increased retailer investment in private label products.
We generally increase or decrease the prices of our private label fluid dairy products on a monthly basis in correlation with fluctuations in the costs of raw materials, packaging supplies and delivery costs. We manage the pricing of our branded fluid milk products on a longer-term basis, balancing consumer demand with net price realization, but in some cases, we are subject to the terms of our sales agreements with respect to the means and/or timing of price increases, which can negatively impact our profitability. The following table sets forth the average monthly Class I “mover” and its components, as well as the average monthly Class II minimum prices for raw skim milk and butterfat for 2017 compared to 2016:
 
Year Ended December 31*
 
2017
 
2016
 
% Change
Class I mover(1)
$
16.45

 
$
14.80

 
11.1
%
Class I raw skim milk mover(1)(2)
7.60

 
6.75

 
12.6
%
Class I butterfat mover(2)(3)
2.61

 
2.37

 
10.1
%
Class II raw skim milk minimum(1)(4)
7.12

 
6.47

 
10.0
%
Class II butterfat minimum(3)(4)
2.62

 
2.32

 
12.9
%
*
The prices noted in this table are not the prices that we actually pay. The federal order minimum prices applicable at any given location for Class I raw skim milk or Class I butterfat are based on the Class I mover prices plus producer premiums and a location differential. Class II prices noted in the table are federal minimum prices, applicable at all locations. Our actual cost also includes procurement costs and other related charges that vary by location and supplier. Please see “Part I — Item 1. Business — Government Regulation — Milk Industry Regulation” and “— Known Trends and Uncertainties — Conventional Raw Milk and Other Inputs” below for a more complete description of raw milk pricing.
(1)
Prices are per hundredweight.
(2)
We process Class I raw skim milk and butterfat into fluid milk products.
(3)
Prices are per pound.
(4)
We process Class II raw skim milk and butterfat into products such as cottage cheese, creams and creamers, ice cream and sour cream.
Cost of Sales — All expenses incurred to bring a product to completion are included in cost of sales, such as raw material, ingredient and packaging costs; labor costs; and plant and equipment costs. Cost of sales increased 4.4% during the year ended December 31, 2017 in comparison to the year ended December 31, 2016, primarily due to increased dairy commodity costs. The Class I price was 11.1% above prior-year levels. This increase was partly offset by the volume declines described above.

24


Gross Profit — Gross profit percentage decreased to 23.3% in 2017 compared to 25.8% in 2016. This decrease was primarily due to higher input costs and the overall volume declines discussed above, in addition to a higher mix of private label products in 2017, which carry lower margins than our branded products.
Operating Costs and Expenses — Our operating expenses increased $10.6 million, or 0.6%, during the year ended December 31, 2017 in comparison to the year ended December 31, 2016. Significant changes to operating costs and expenses in the year ended December 31, 2017 as compared to the year ended December 31, 2016 include the following:
Selling and distribution costs decreased by $1.4 million, primarily due to decreases in advertising costs of $20.6 million and incentive compensation of $8.2 million, partially offset by increases in freight costs of $23.5 million and insurance costs of $4.4 million.
General and administrative costs decreased by $34.9 million during the year ended December 31, 2017 in comparison to the prior period. General and administrative costs of $346.0 million in 2016 included severance charges of $11.6 million related to the announcement of our CEO succession plan and acquisition-related expenses of $4.6 million related to the June 2016 acquisition of Friendly's. General and administrative costs of $311.2 million in 2017 were impacted by significantly lower incentive compensation in comparison to the prior year. These decreases were partially offset by litigation settlements reached in the first quarter of 2017 and the related legal expenses, totaling $17.0 million.
Facility closing and reorganization costs increased by $16.2 million primarily due to costs associated with the implementation of our organizational structure change and asset write-downs and other charges associated with facilities closures. See Note 16 to our Consolidated Financial Statements.
We recorded impairment charges to our long-lived assets of $30.7 million during the year ended December 31, 2017. There were no impairment charges during the year ended December 31, 2016. See Note 16 to our Consolidated Financial Statements.
Other (Income) Expense — Other expense increased by $1.0 million during the year ended December 31, 2017 as compared to the year ended December 31, 2016. This increase was primarily due to lower foreign currency exchange gains in 2017 as compared to 2016, partially offset by lower interest expense in 2017 as compared to 2016, primarily due to the refinancing of our senior secured revolving credit facility and receivables securitization facility in January 2017.
Income Taxes — Income tax benefit was recorded at an effective rate of (123.2)% for 2017 compared to a 40.5% effective tax rate in 2016. Generally, our effective tax rate varies primarily based on our profitability level and the relative earnings of our business units. In 2017, our effective tax rate was significantly impacted by the enactment of the Tax Act on December 22, 2017. The Tax Act makes comprehensive changes to the U.S. tax code affecting tax years 2017 and thereafter. Among other things, the Tax Act reduces the U.S. federal corporate income tax rate from 35% to 21%, imposes a mandatory one-time transition tax on unrepatriated foreign earnings, enhances the acceleration of depreciation deductions on qualified property, changes the U.S. taxation of foreign earnings and eliminates certain business deductions. The reduction in the U.S. federal corporate income tax rate triggered an immediate revaluation of our deferred tax assets and liabilities, which resulted in a $45.8 million one-time income tax benefit. This benefit was partly offset by the recognition of a $2.1 million income tax expense associated with the mandatory deemed repatriation of our foreign earnings. See Note 8 to our Consolidated Financial Statements for further information regarding the tax impacts of the Tax Act.
In addition to the Tax Act impacts, our effective tax rate was impacted by the adoption of Accounting Standards Update ASU 2016-09, which requires excess tax benefits and tax deficiencies related to share-based payments to be recorded in the provision for income taxes, and an increase in our valuation allowance related to state net operating losses.  Excluding the one-time net tax benefit of $43.7 million related to the Tax Act, the $3.0 million tax expense related to excess tax deficiencies, and the $5.9 million tax expense related to our valuation allowance, our effective tax rate in 2017 would have been 41.0%.  In 2016, our effective tax rate was also impacted by the establishment of an uncertain tax position. Excluding the $3.0 million of tax expense related to this uncertain tax position, our effective tax rate in 2016 would have been 39.0%.

25


Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Net Sales — The change in net sales was due to the following:
 
Year Ended
December 31,
2016 vs. 2015
 
(In millions)
Volume
$
(216.0
)
Pricing and product mix changes
(291.4
)
Acquisitions
96.0

Total decrease
$
(411.4
)
Net sales decreased $411.4 million, or 5.1%, during the year ended December 31, 2016 as compared to the year ended December 31, 2015, primarily due to decreased pricing, as a result of declines in dairy commodity costs from year-ago levels. On average, during the year ended December 31, 2016, the Class I price was 9.4% below prior-year levels.
Net sales were further impacted by a 2.1% total sales volume decline across all products from year-ago levels. Volume declines across our fluid milk business, which accounted for 77% of our total sales volume in 2016, were primarily the result of large format private label volume we chose to exit, as this volume was not consistent with our more disciplined pricing architecture. Our total branded white milk volumes decreased 1.8% year-over-year, and we experienced a 2.4% increase in our flavored milk volumes. Net sales declines were partially offset by a $96.0 million increase in net sales attributable to volumes associated with the Friendly's acquisition.
The following table sets forth the average monthly Class I “mover” and its components, as well as the average monthly Class II minimum prices for raw skim milk and butterfat for 2016 compared to 2015: 
 
Year Ended December 31*
 
2016
 
2015
 
% Change
Class I mover(1)
$
14.80

 
$
16.34

 
(9.4
)%
Class I raw skim milk mover(1)(2)
6.75

 
8.91

 
(24.2
)%
Class I butterfat mover(2)(3)
2.37

 
2.21

 
7.2
 %
Class II raw skim milk minimum(1)(4)
6.47

 
7.69

 
(15.9
)%
Class II butterfat minimum(3)(4)
2.32

 
2.30

 
0.9
 %
*
The prices noted in this table are not the prices that we actually pay. The federal order minimum prices applicable at any given location for Class I raw skim milk or Class I butterfat are based on the Class I mover prices plus producer premiums and a location differential. Class II prices noted in the table are federal minimum prices, applicable at all locations. Our actual cost also includes procurement costs and other related charges that vary by location and supplier. Please see “Part I — Item 1. Business — Government Regulation — Milk Industry Regulation” and “— Known Trends and Uncertainties — Conventional Raw Milk and Other Inputs” below for a more complete description of raw milk pricing.
(1)
Prices are per hundredweight.
(2)
We process Class I raw skim milk and butterfat into fluid milk products.
(3)
Prices are per pound.
(4)
We process Class II raw skim milk and butterfat into products such as cottage cheese, creams and creamers, ice cream and sour cream.
Cost of Sales — Cost of sales decreased 6.9% during the year ended December 31, 2016 in comparison to the year ended December 31, 2015, primarily due to decreased dairy commodity costs. The Class I price was 9.4% below prior-year levels. In addition, this decrease was due to our ongoing cost and efficiency initiatives and lower sales volumes.
Gross Profit — Gross profit percentage increased to 25.8% in 2016 compared to 24.3% in 2015. This increase was primarily due to the execution of our branded pricing strategy and the associated increased margin pool for our branded products, as well as declining input costs and the impact of our ongoing productivity initiatives. Increases to gross profit were partially offset by overall volume declines discussed above.

26


Operating Costs and Expenses — Our operating expenses decreased $157.2 million, or 8.4%, during the year ended December 31, 2016 in comparison to the year ended December 31, 2015. Significant changes to operating costs and expenses in the year ended December 31, 2016 as compared to the year ended December 31, 2015 include the following:
Selling and distribution costs decreased by $31.0 million primarily due to lower fuel costs and net logistics cost reductions during the year ended December 31, 2016 in comparison to the year ended December 31, 2015, partially offset by increased advertising costs.
General and administrative costs decreased by $4.3 million primarily due to lower incentive-based compensation paid in 2016 as compared to 2015, partially offset by a separation charge of $10.1 million recorded during 2016 in connection with the announcement of our CEO succession plan. Additionally, in 2016 we recorded $4.6 million of acquisition costs paid in conjunction with the Friendly's acquisition. See Note 2 to our Consolidated Financial Statements.
Facility closing and reorganization costs decreased by $11.1 million. See Note 16 to our Consolidated Financial Statements.
We recorded no impairment charges to our intangible assets during the year ended December 31, 2016, compared to $109.9 million of impairment charges during the year ended December 31, 2015. See Note 6 to our Consolidated Financial Statements.
Other (Income) Expense — Other expense decreased by $45.7 million during the year ended December 31, 2016 as compared to the year ended December 31, 2015. This decrease in expense was primarily due to the loss on early retirement of long-term debt of $43.6 million recorded on the early retirement of our 2016 senior notes and extinguishment of our prior credit facility, which occurred during the first quarter of 2015. Net expense also decreased due to income from royalties of $3.2 million in 2016 compared to $1.7 million in 2015.
Income Taxes — Income tax expense was recorded at an effective rate of 40.5% for 2016 compared to a 39.3% effective tax benefit rate in 2015. Generally, our effective tax rate varies primarily based on our profitability level and the relative earnings of our business units. In 2016, our effective tax rate was also impacted by the establishment of an uncertain tax position. Excluding the $3.0 million of tax expense related to this uncertain tax position, our effective tax rate would have been 39.0%.
Liquidity and Capital Resources
Overview
We believe that our cash on hand coupled with future cash flows from operations and other available sources of liquidity, including our $450 million senior secured revolving credit facility and our $450 million receivables securitization facility, together will provide sufficient liquidity to allow us to meet our cash requirements for at least the next twelve months. Our anticipated uses of cash in 2018 include costs to execute our enterprise-wide cost productivity plan and other strategic initiatives; capital expenditures; working capital; financial obligations, including tax payments; dividend payments; additional investments in unconsolidated affiliates; and other costs that may be necessary to invest to grow our business. We are also authorized to repurchase shares of our common stock pursuant to a stock repurchase program authorized by our Board of Directors. Additionally, on an ongoing basis, we evaluate and consider strategic acquisitions, divestitures, joint ventures, or other transactions to create shareholder value and enhance financial performance. However, we may, from time to time, raise additional funds through borrowings or public or private sales of debt or equity securities. The amount, nature and timing of any borrowings or sales of debt or equity securities will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.
As of December 31, 2017, we had total cash on hand of $16.5 million, of which $11.8 million was attributable to our foreign operations. Historically, the cash held by our foreign subsidiary was reinvested indefinitely and was generally subject to U.S. income tax only upon repatriation to the U.S. However, the Tax Act requires us to pay a one-time transition tax on cumulative undistributed foreign earnings for which we have not previously provided U.S. taxes. We have analyzed our foreign working capital and cash requirements and the potential tax liabilities that would be attributable to a repatriation and currently expect that we will repatriate approximately $10 million of cash that was previously deemed to be permanently reinvested.
At December 31, 2017, we had $918.9 million of long-term debt obligations, excluding unamortized discounts and debt issuance costs of $5.7 million. As of December 31, 2017, we had $575.1 million ($576.6 million as of February 21, 2018) of combined available future borrowing capacity under our senior secured revolving credit facility and receivables securitization facility, subject to compliance with the covenants in our credit agreements. Based on our current expectations, we believe our liquidity and capital resources will be sufficient to operate our business.

27


Strategic Activities Impacting Liquidity
Amendment to Senior Secured Revolving Credit Facility — On January 4, 2017, we amended our credit agreement to, among other things: (i) extend the maturity date of the senior secured revolving credit facility to January 4, 2022; (ii) modify the leverage ratio covenant to add a requirement that we comply with a maximum total net leverage ratio (which, for purposes of calculating indebtedness, excludes borrowings under our receivables securitization facility) not to exceed 4.25 to 1.00 and to eliminate the maximum senior secured net leverage ratio requirement; (iii) modify the definition of “Consolidated EBITDA” to permit certain pro forma cost savings add-backs in connection with permitted acquisitions and dispositions; (iv) modify the definition of “Applicable Rate” to reduce the interest rate margins such that loans outstanding under the revolving credit facility will bear interest, at our option, at either (x) the LIBO Rate (as defined in the Credit Agreement) plus a margin of between 1.75% and 2.50% (initially 2.00%) based on our total net leverage ratio, or (y) the Alternate Base Rate (as defined in the Credit Agreement) plus a margin of between 0.75% and 1.50% (initially 1.00%) based on our total net leverage ratio; (v) modify certain negative covenants to provide additional flexibility for the incurrence of debt, the payment of dividends and the making of certain permitted acquisitions and other investments; (vi) eliminate and release all real property as collateral for loans under the revolving credit facility; and (vii) provide the Company the ability to request that increases in the aggregate commitments under the revolving credit facility be made available as either revolving loans or term loans.
Amendment to Receivables Securitization Facility — On January 4, 2017, we amended the purchase agreement governing our receivables securitization facility to, among other things: (i) extend the liquidity termination date to January 4, 2020; (ii) reduce the maximum size of the receivables securitization facility to $450 million; (iii) replace the senior secured net leverage ratio with a total net leverage ratio to be consistent with the amended leverage ratio covenant under the Credit Agreement described above; and (iv) modify certain pricing terms such that advances outstanding under the receivables securitization facility will bear interest between 0.90% and 1.05%, and the Company will pay an unused fee between 0.40% and 0.55% on undrawn amounts, in each case based on the Company's total net leverage ratio.
Cash Dividends — In accordance with our cash dividend policy, holders of our common stock will receive dividends when and as declared by our Board of Directors. Beginning in 2015, all awards of restricted stock units, performance stock units and phantom shares provide for cash dividend equivalent units, which vest in cash at the same time as the underlying award. Quarterly dividends of $0.09 per share were paid in March, June, September and December of 2017 and 2016, totaling approximately $32.7 million and $32.8 million for each of the years ended December 31, 2017 and 2016, respectively. We expect to pay quarterly dividends of $0.09 per share ($0.36 per share annually) in 2018. Our cash dividend policy is subject to modification, suspension or cancellation in any manner and at any time. Dividends are presented as a reduction to retained earnings in our Consolidated Statement of Stockholders' Equity unless we have an accumulated deficit as of the end of the period, in which case they are reflected as a reduction to additional paid-in capital. See Note 11 to our Consolidated Financial Statements.
Stock Repurchase Program — Since 1998, our Board of Directors has from time to time authorized the repurchase of our common stock up to an aggregate of $2.38 billion, excluding fees and commissions. We made no share repurchases during the year ended December 31, 2017, and we repurchased 1,371,185 shares for $25.0 million during the year ended December 31, 2016. As of December 31, 2017, $197.1 million remained available for repurchases under this program (excluding fees and commissions). Our management is authorized to purchase shares from time to time through open market transactions at prevailing prices or in privately-negotiated transactions, subject to market conditions and other factors. Shares, when repurchased, are retired.

28


Historical Cash Flow
The following table summarizes our cash flows from operating, investing and financing activities for the year ended December 31, 2017 compared to the year ended December 31, 2016:
 
Year Ended December 31
 
2017
 
2016
 
Change
 
(In thousands)
Net cash flows from continuing operations:
 
 
 
 
 
Operating activities
$
144,799

 
$
257,413

 
$
(112,614
)
Investing activities
(134,986
)
 
(288,140
)
 
153,154

Financing activities
(11,281
)
 
(9,934
)
 
(1,347
)
Effect of exchange rate changes on cash and cash equivalents

 
(2,093
)
 
2,093

Net increase (decrease) in cash and cash equivalents
$
(1,468
)
 
$
(42,754
)
 
$
41,286

Operating Activities
Net cash provided by operating activities decreased by $112.6 million in the year ended December 31, 2017 compared to the year ended December 31, 2016. The decrease was primarily attributable to lower operating income and a discretionary pension contribution of $38.5 million to our company-sponsored pension plans in 2017.
Investing Activities
Net cash used in investing activities decreased by $153.2 million in the year ended December 31, 2017 compared to the year ended December 31, 2016. The decrease was primarily attributable to the purchase price, net of cash acquired, of $158.2 million paid for the Friendly's acquisition, which closed in the second quarter of 2016, as compared to the purchase price, net of cash acquired, of $21.6 million paid for the Uncle Matt's acquisition, which closed in the second quarter of 2017. Additionally, capital expenditures decreased by $37.9 million in 2017 compared to 2016. These decreases were partially offset by other investments of $11.0 million and $10.4 million of lower proceeds from the sale of fixed assets in 2017 as compared to 2016.
Financing Activities
Net cash used in financing activities increased by $1.3 million in the year ended December 31, 2017 compared to the year ended December 31, 2016. The increase was primarily attributable to the repayment of the $142 million senior notes in 2017, partially offset by net debt proceeds from borrowings of $167.1 million in 2017 as compared to $49.1 million in 2016. Additionally, there were no share repurchases made in 2017 in comparison to $25.0 million of share repurchases made in 2016.
The following table summarizes our cash flows from operating, investing and financing activities for the year ended December 31, 2016 compared to the year ended December 31, 2015:
 
Year Ended December 31
 
2016
 
2015
 
Change
 
(In thousands)
Net cash flows from continuing operations:
 
 
 
 
 
Operating activities
$
257,413

 
$
408,153

 
$
(150,740
)
Investing activities
(288,140
)
 
(146,247
)
 
(141,893
)
Financing activities
(9,934
)
 
(215,896
)
 
205,962

Effect of exchange rate changes on cash and cash equivalents
(2,093
)
 
(1,638
)
 
(455
)
Net increase (decrease) in cash and cash equivalents
$
(42,754
)
 
$
44,372

 
$
(87,126
)
Operating Activities
Net cash provided by operating activities was $257.4 million for the year ended December 31, 2016 compared to net cash provided by operating activities of $408.2 million for the year ended December 31, 2015. Operating cash flows in 2015 benefited from a reduced working capital investment as collections of receivables in early 2015 were reflective of the higher Class I raw milk prices exiting 2014. Conversely, the value of receivables collected in 2016 was lower due to decreased Class I raw milk

29


prices exiting 2015. Further contributing to the decrease in operating cash flows in 2016 compared to 2015 was a higher incentive-based compensation payout in the first quarter of 2016 compared to 2015. Additionally, the decrease was attributable to the receipt of our 2014 federal income tax refund of $56 million during 2015.
Investing Activities
Net cash used in investing activities increased by $141.9 million in the year ended December 31, 2016 compared to the year ended December 31, 2015. This increase is primarily attributable to the $158.2 million purchase price for the Friendly's acquisition, which closed in the second quarter of 2016.
Financing Activities
Net cash used in financing activities was $9.9 million for the year ended December 31, 2016 compared to net cash used in financing activities of $215.9 million for the year ended December 31, 2015. This change was driven by net debt proceeds under our credit facilities of $49.1 million in 2016, as compared to net repayments of debt under our credit facilities of $305.3 million in 2015. Additionally, in 2015 we paid $16.8 million of financing costs in connection with our debt activities. Further contributing to the decrease in net cash used in financing activities was a decrease in share repurchases under our stock repurchase program to $25.0 million during 2016 from $53.0 million in the prior year period. Offsetting these uses of cash were net proceeds from the issuance of debt of $186.5 million in 2015, which reflects proceeds of $700.0 million from the issuance of the 2023 Notes, net of repayments on the early retirement of long-term debt of $513.5 million. Additionally, cash used for dividend payments increased to $32.8 million in 2016 in comparison to $26.2 million in 2015.
Current Debt Obligations
Our debt obligations consist of outstanding borrowings and letters of credit issued under our senior secured credit facility and receivables securitization facility and our Dean Foods Company Senior Notes Due 2023, each of which are described more fully below.
Senior Secured Revolving Credit Facility — We have a credit agreement (as amended, the "Credit Agreement") pursuant to which the lenders have provided us with a senior secured revolving credit facility in the amount of up to $450 million (the "Credit Facility") with a maturity date of January 4, 2022. Under the Credit Agreement, we have the right to request an increase of the aggregate commitments under the Credit Facility by up to $200 million, which we may request to be made available as either term loans or revolving loans, without the consent of any lenders not participating in such increase, subject to specified conditions. The Credit Facility is available for the issuance of up to $75 million of letters of credit and up to $100 million of swing line loans.
Loans outstanding under the Credit Facility bear interest, at our option, at either: (i) the LIBO Rate (as defined in the Credit Agreement) plus a margin of between 1.75% and 2.50% (2.00% as of February 21, 2018) based on our total net leverage ratio (as defined in the Credit Agreement); or (ii) the Alternate Base Rate (as defined in the Credit Agreement) plus a margin of between 0.75% and 1.50% (1.00% as of February 21, 2018) based on our total net leverage ratio.
We may make optional prepayments of the loans, in whole or in part, without premium or penalty (other than applicable breakage costs). Subject to certain exceptions and conditions described in the Credit Agreement, we will be obligated to prepay the Credit Facility, but without a corresponding commitment reduction, with the net cash proceeds of certain asset sales and with casualty insurance proceeds. The Credit Facility is guaranteed by our existing and future domestic material restricted subsidiaries (as defined in the Credit Agreement), which are substantially all of our wholly-owned U.S. subsidiaries other than the receivables securitization facility subsidiaries (the “Guarantors”).
The Credit Facility is secured by a first priority perfected security interest in substantially all of our assets and the assets of the Guarantors, whether consisting of personal, tangible or intangible property, including a pledge of, and a perfected security interest in: (i) all of the shares of capital stock of the Guarantors; and (ii) 65% of the shares of capital stock of our and the Guarantors' first-tier foreign subsidiaries that are material restricted subsidiaries, in each case subject to certain exceptions as set forth in the Credit Agreement. The collateral does not include, among other things: (a) any of our real property; (b) the capital stock and any assets of any unrestricted subsidiary; (c) any capital stock of any direct or indirect subsidiary of Dean Holding Company ("Legacy Dean"), a wholly owned subsidiary of the Company, which owns any real property; or (d) receivables sold pursuant to the receivables securitization facility.
 The Credit Agreement contains customary representations, warranties and covenants, including, but not limited to specified restrictions on indebtedness, liens, guarantee obligations, mergers, acquisitions, consolidations, liquidations and dissolutions, sales of assets, leases, payment of dividends and other restricted payments during a default or non-compliance with the financial covenants, investments, loans and advances, transactions with affiliates and sale and leaseback transactions. The Credit Agreement also contains customary events of default and related cure provisions. We are required to comply with: (i) a

30


maximum total net leverage ratio of 4.25x (which, for purposes of calculating indebtedness, excludes borrowings under our receivables securitization facility); and (ii) a minimum consolidated interest coverage ratio of 2.25x. In addition, the Credit Agreement imposes certain restrictions on our ability to pay dividends and make other restricted payments if our total net leverage ratio (including borrowings under our receivables securitization facility) is in excess of 3.50x.
At February 21, 2018, we had no outstanding borrowings under the Credit Facility. There were no letters of credit issued under the Credit Facility as of February 21, 2018. Our average daily balance under the Credit Facility during the year ended December 31, 2017 was $2.2 million.
Dean Foods Receivables Securitization Facility — We have an amended and restated receivables purchase agreement (as amended), which provides us with a $450 million receivables securitization facility pursuant to which certain of our subsidiaries sell their accounts receivable to two wholly-owned entities intended to be bankruptcy-remote. The entities then transfer the receivables to third-party asset-backed commercial paper conduits sponsored by major financial institutions. The assets and liabilities of these two entities are fully reflected in our Consolidated Balance Sheets, and the securitization is treated as a borrowing for accounting purposes.
The receivables securitization facility has a liquidity termination date of January 4, 2020 and bears interest at a variable rate based upon commercial paper and one-month LIBO rates plus an applicable margin based on our net leverage ratio. The receivables purchase agreement contains covenants consistent with those contained in the Credit Agreement. Advances outstanding under the receivables securitization facility will bear interest between 0.90% and 1.05%, and the Company will pay an unused fee between 0.40% and 0.55% on undrawn amounts, in each case based on the Company's total net leverage ratio.
Based on the monthly borrowing base formula, we had the ability to borrow up to the full $450.0 million commitment amount under the receivables securitization facility as of December 31, 2017. The total amount of receivables sold to these entities as of December 31, 2017 was $638.3 million. During the year ended December 31, 2017, we borrowed $2.5 billion and repaid $2.4 billion under the facility with a remaining balance of $205.0 million as of December 31, 2017. In addition to letters of credit in the aggregate amount of $108.7 million that were issued but undrawn, the remaining available borrowing capacity was $136.3 million at December 31, 2017. Our average daily balance under this facility during the year ended December 31, 2017 was $81.6 million.
There were outstanding borrowings of $210.0 million under the receivables securitization facility as of February 21, 2018. In addition to letters of credit in the aggregate amount of $108.7 million that were issued but undrawn, the remaining available borrowing capacity was $126.6 million at February 21, 2018.
Covenant Compliance — As of December 31, 2017, we were in compliance with all covenants under our credit agreements. The following describes our financial covenants pursuant to our current credit agreements.
The Credit Agreement and the purchase agreement governing our receivables securitization facility require us to maintain a total net leverage ratio less than 4.25x as of the end of each fiscal quarter. In addition, the Credit Agreement imposes certain restrictions on our ability to pay dividends and make other restricted payments if our total net leverage ratio (including borrowings under our receivables securitization facility) exceeds 3.50x. As described in more detail in our Credit Agreement and the purchase agreement governing our receivables securitization facility, the total net leverage ratio is calculated as the ratio of consolidated funded indebtedness, less cash up to $50 million to the extent held by us and our restricted subsidiaries, to consolidated EBITDA for the period of four consecutive fiscal quarters ended on the measurement date. Consolidated funded indebtedness excludes borrowings under our receivables securitization facility and is calculated on a pro forma basis to give effect to permitted acquisitions, divestitures or refinancing of indebtedness.
Consolidated EBITDA is comprised of net income for us and our restricted subsidiaries plus interest expense, taxes, depreciation and amortization expense and other non-cash expenses, certain pro forma cost savings add-backs in connection with permitted acquisitions and dispositions, and certain other add-backs for non-recurring charges and other adjustments permitted in calculating covenant compliance under the Credit Agreement, and is calculated on a pro forma basis.
The Credit Agreement and the purchase agreement governing our receivables securitization facility require us to maintain an interest coverage ratio of at least 2.25x as of the end of each fiscal quarter. As described in more detail in the Credit Agreement and the purchase agreement governing our receivables securitization facility, our interest coverage ratio is calculated as the ratio of consolidated EBITDA to consolidated interest expense for the period of four consecutive fiscal quarters ended on the measurement date. Consolidated EBITDA is calculated as described above in the discussion of our leverage ratio. Consolidated interest expense is comprised of consolidated interest expense paid or payable in cash by us and our restricted subsidiaries, as calculated in accordance with generally accepted accounting principles, but excluding write-offs or amortization of deferred financing fees and amounts paid on early termination of swap agreements, calculated on a pro forma basis.

31


Dean Foods Company Senior Notes due 2023 — On February 25, 2015, we issued $700 million in aggregate principal amount of 6.50% senior notes due 2023 (the "2023 Notes") at an issue price of 100% of the principal amount of the 2023 Notes in a private placement for resale to “qualified institutional buyers” as defined in Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and in offshore transactions pursuant to Regulation S under the Securities Act.
The 2023 Notes are our senior unsecured obligations. Accordingly, the 2023 Notes rank equally in right of payment with all of our existing and future senior obligations and are effectively subordinated in right of payment to all of our existing and future secured obligations, including obligations under our Credit Facility and receivables securitization facility, to the extent of the value of the collateral securing such obligations. The 2023 Notes are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally, by our subsidiaries that guarantee obligations under the Credit Facility.
The 2023 Notes will mature on March 15, 2023 and bear interest at an annual rate of 6.50%. Interest on the 2023 Notes is payable semi-annually in arrears in March and September of each year.
We may, at our option, redeem all or a portion of the 2023 Notes at any time on or after March 15, 2018 at the applicable redemption prices specified in the indenture governing the 2023 Notes (the "Indenture"), plus any accrued and unpaid interest to, but excluding, the applicable redemption date. We are also entitled to redeem up to 40% of the aggregate principal amount of the 2023 Notes before March 15, 2018 with the net cash proceeds that we receive from certain equity offerings at a redemption price equal to 106.5% of the principal amount of the 2023 Notes, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. In addition, prior to March 15, 2018, we may redeem all or a portion of the 2023 Notes, at a redemption price equal to 100% of the principal amount thereof, plus a “make-whole” premium and accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.
If we undergo certain kinds of changes of control, holders of the 2023 Notes have the right to require us to repurchase all or any portion of such holder’s 2023 Notes at 101% of the principal amount of the notes being repurchased, plus any accrued and unpaid interest to, but excluding, the date of repurchase.
The Indenture contains covenants that, among other things, limit our ability to: (i) create certain liens; (ii) enter into sale and lease-back transactions; (iii) assume, incur or guarantee indebtedness for borrowed money that is secured by a lien on certain principal properties (or on any shares of capital stock of our subsidiaries that own such principal properties) without securing the 2023 Notes on a pari passu basis; and (iv) consolidate with or merge with or into, or sell, transfer, convey or lease all or substantially all of our properties and assets, taken as a whole, to another person.
The carrying value under the 2023 Notes at December 31, 2017 was $694.3 million, net of unamortized debt issuance costs of $5.7 million.
Subsidiary Senior Notes due 2017 — Legacy Dean had $142 million aggregate principal amount of senior notes, which matured on October 15, 2017. On October 16, 2017 we repaid in full the $142 million outstanding aggregate principal amount of the senior notes, plus remaining accrued and unpaid interest of $4.9 million, with borrowings from our receivables securitization facility.

32


Contractual Obligations and Other Long-Term Liabilities
In the normal course of business, we enter into contracts and commitments that obligate us to make payments in the future. The table below summarizes our obligations for indebtedness, purchase, lease and certain other contractual obligations at December 31, 2017.
 
Payments Due by Period
 
Total
 
2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
(in millions)
Receivables securitization facility(1)
$
205.0

 
$

 
$

 
$
205.0

 
$

 
$

 
$

Credit Facility(1)
11.2

 

 

 

 

 
11.2

 

Dean Foods Company senior notes due 2023(2)
700.0

 

 

 

 

 

 
700.0

Purchase obligations(3)
815.3

 
565.9

 
105.8

 
23.9

 
24.0

 
23.9

 
71.8

Operating leases(4)
444.1

 
104.3

 
90.3

 
70.5

 
52.8

 
39.1

 
87.1

Capital leases(5)
2.8

 
1.2

 
1.2

 
0.4

 

 

 

Interest payments(6)
273.2

 
54.7

 
54.7

 
47.8

 
47.7

 
45.5

 
22.8

Benefit payments(7)
381.7

 
20.5

 
20.9

 
21.5

 
22.2

 
22.8

 
273.8

Total(8)
$
2,833.3

 
$
746.6

 
$
272.9

 
$
369.1

 
$
146.7

 
$
142.5

 
$
1,155.5

(1)
Represents amounts outstanding under our receivables securitization facility and Credit Facility at December 31, 2017.
(2)
Represents face amount.
(3)
Primarily represents commitments to purchase minimum quantities of raw materials used in our production processes, including raw milk, diesel fuel, sugar and cocoa powder. We enter into these contracts from time to time to ensure a sufficient supply of raw ingredients.
(4)
Represents future minimum lease payments under non-cancelable operating leases related to our distribution fleet, corporate offices and certain of our manufacturing and distribution facilities. See Note 18 to our Consolidated Financial Statements for more detail about our lease obligations.
(5)
Represents future payments, including interest, under capital leases related to information technology equipment. See Note 18 to our Consolidated Financial Statements for more detail about our lease obligations.
(6)
Includes fixed rate interest obligations and interest on variable rate debt based on the outstanding balances and interest rates in effect at December 31, 2017. Interest that may be due in the future on variable rate borrowings under the Credit Facility and receivables securitization facility will vary based on the interest rate in effect at the time and the borrowings outstanding at the time.
(7)
Represents expected future benefit obligations of $349.8 million and $31.9 million related to our company-sponsored pension plans and postretirement healthcare plans, respectively. In addition to our company-sponsored plans, we participate in certain multiemployer defined benefit plans. The cost of these plans is equal to the annual required contributions determined in accordance with the provisions of negotiated collective bargaining arrangements. These costs were approximately $29.2 million, $30.1 million and $29.9 million during the years ended December 31, 2017, 2016 and 2015, respectively; however, the future cost of the multiemployer plans is dependent upon a number of factors, including the funded status of the plans, the ability of other participating companies to meet ongoing funding obligations, and the level of our ongoing participation in these plans. Because the amount of future contributions we would be contractually obligated to make pursuant to these plans cannot be reasonably estimated, such amounts have been excluded from the table above. See Note 14 to our Consolidated Financial Statements.
(8)
The table above excludes our liability for uncertain tax positions of $15.1 million because the timing of any related cash payments cannot be reasonably estimated.





33


Pension and Other Postretirement Benefit Obligations
We offer pension benefits through various defined benefit pension plans and also offer certain health care and life insurance benefits to eligible employees and their eligible dependents upon the retirement of such employees. Reported costs of providing non-contributory defined pension benefits and other postretirement benefits are dependent upon numerous factors, assumptions and estimates. For example, these costs are impacted by actual employee demographics (including age, compensation levels and employment periods), the level of contributions made to the plan and earnings on plan assets. Pension and postretirement costs also may be significantly affected by changes in key actuarial assumptions, including anticipated rates of return on plan assets and the discount rates used in determining the projected benefit obligation and annual periodic pension costs. In 2017 and 2016, we made contributions of $39.4 million and $5.5 million, respectively, to our defined benefit pension plans.
Our pension plan assets are primarily comprised of equity and fixed income investments. Changes made to the provisions of the plan may impact current and future pension costs. Fluctuations in actual equity market returns, as well as changes in general interest rates may result in increased or decreased pension costs in future periods. In accordance with Accounting Standards related to “Employers’ Accounting for Pensions,” changes in obligations associated with these factors may not be immediately recognized as pension costs on the income statement, but generally are recognized in future years over the remaining average service period of plan participants. As such, significant portions of pension costs recorded in any period may not reflect the actual level of cash benefits provided to plan participants. In 2017 and 2016, we recorded non-cash pension expense of $6.7 million and $6.8 million, respectively, substantially all of which was attributable to periodic expense.
Almost 90% of our defined benefit plan obligations are frozen as to future participation or increases in projected benefit obligation. Many of these obligations were acquired in prior strategic transactions. As an alternative to defined benefit plans, we offer defined contribution plans for eligible employees.
The weighted average discount rate reflects the rate at which our defined benefit plan obligations could be effectively settled. The rate, which is updated annually with the assistance of an independent actuary, uses a model that reflects a bond yield curve. The weighted average discount rate for our pension plan obligations was decreased from 4.29% at December 31, 2016 to 3.69% at December 31, 2017. We expect that our net periodic benefit cost in 2018 will be slightly lower than in 2017. We do not currently expect to make any contributions to the pension plans in 2018.
Substantially all of our qualified pension plans are consolidated into one master trust. Our investment objectives are to minimize the volatility of the value of our pension assets relative to our pension liabilities and to ensure assets are sufficient to pay plan benefits. In 2014, we adopted a broad pension de-risking strategy intended to align the characteristics of our assets relative to our liabilities. The strategy targets investments depending on the funded status of the obligation. We anticipate this strategy will continue in future years and will be dependent upon market conditions and plan characteristics.
At December 31, 2017, our master trust was invested as follows: investments in equity securities were at 30%; investments in fixed income were at 70%; and cash equivalents were less than 1%. We believe the allocation of our master trust investments as of December 31, 2017 is generally consistent with the targets set forth by our Investment Committee.
See Notes 14 and 15 to our Consolidated Financial Statements for additional information regarding retirement plans and other postretirement benefits.
Other Commitments and Contingencies
In 2001, in connection with our acquisition of Legacy Dean, we purchased Dairy Farmers of America’s (“DFA”) 33.8% interest in our operations. In connection with that transaction, we issued a contingent, subordinated promissory note to DFA in the original principal amount of $40 million. The promissory note has a 20-year term and bears interest based on the consumer price index. Interest will not be paid in cash but will be added to the principal amount of the note annually, up to a maximum principal amount of $96 million. We may prepay the note in whole or in part at any time, without penalty. The note will only become payable if we materially breach or terminate one of our related milk supply agreements with DFA without renewal or replacement. Otherwise, the note will expire in 2021, without any obligation to pay any portion of the principal or interest. Payments made under the note, if any, would be expensed as incurred. We have not terminated, and we have not materially breached, any of our milk supply agreements with DFA related to the promissory note. We have previously terminated unrelated supply agreements with respect to several plants that were supplied by DFA. In connection with our goals of cost control and supply chain efficiency, we continue to evaluate our sources of raw milk supply.
We also have the following commitments and contingent liabilities, in addition to contingent liabilities related to ordinary course litigation, investigations and audits:
certain indemnification obligations related to businesses that we have divested;

34


certain lease obligations, which require us to guarantee the minimum value of the leased asset at the end of the lease;
selected levels of property and casualty risks, primarily related to employee health care, workers’ compensation claims and other casualty losses; and
certain litigation-related contingencies.
See Note 18 to our Consolidated Financial Statements for more information about our commitments and contingent obligations.
Future Capital Requirements
During 2018, we intend to invest a total of approximately $135 million to $160 million in capital expenditures, primarily in support of our enterprise-wide cost productivity plan and other strategic initiatives and for our existing manufacturing facilities. For 2018, we expect cash interest to be approximately $57 million based upon current debt levels and projected forward interest rates under our Credit Facility and receivables securitization facility. Cash interest excludes amortization of deferred financing fees of approximately $3 million.
On an ongoing basis, we evaluate and consider acquisitions, divestitures, joint ventures, or other transactions to create shareholder value and enhance financial performance. We have also instituted a cash divided policy and may repurchase shares of our common stock.
At December 31, 2017, $136.3 million was available under the receivables securitization facility, with $438.8 million also available under the Credit Facility, subject to compliance with the covenants in our credit agreements. Availability under the receivables securitization facility is calculated using the current receivables balance for the seller entities, less adjustments for vendor concentration limits, reserve requirements and other adjustments as described in our amended and restated receivables purchase agreement, not to exceed the total commitment amount less current borrowings and outstanding letters of credit. Availability under the Credit Facility is calculated using the total commitment amount less current borrowings and outstanding letters of credit. At February 21, 2018, approximately $576.6 million, subject to compliance with the covenants in our credit agreements, was available to finance working capital and for other general corporate purposes under our credit facilities.
Known Trends and Uncertainties
Competitive Environment, Volume Performance and Enterprise-Wide Cost Productivity Plan
The fluid milk industry remains highly competitive, and we are currently navigating a number of challenging dynamics across our cost structure, volumes, customers, and product mix. In 2017, we navigated a rapidly-changing industry landscape and a dynamic retail environment. Within private label fluid milk, competition for volume increased significantly in 2017, and we are losing volume at higher levels than anticipated. As a result, we are experiencing increased levels of volume deleverage that have negatively impacted our operating income. In addition, retailers continue to aggressively price their private label products, which we believe negatively impacts our branded product sales, resulting in compressed margins.
During the year ended December 31, 2017, we experienced fluid milk volume declines from year-ago levels, driven predominantly by overall category softness and private label fluid milk volume losses during 2017 due to competitive pressures, as well as reduced branded fluid milk volumes due to increased retailer investment in private label products.
We expect marketplace volume and mix challenges to continue in 2018, including those associated with our largest customer. These challenges make the execution of our commercial initiatives and our recently launched enterprise-wide cost productivity plan a critical path to navigating our volume and competitive pressures.
We have historically targeted annual cost productivity savings mainly to offset cost inflation and volume deleverage and in 2018 we are challenging ourselves to generate additional savings. In addition, we have recently designed, and in some cases are implementing, an aggressive enterprise-wide cost productivity plan to significantly reset our cost structure with targeted cost savings incremental to our annual productivity savings. We currently have legacy processes and systems that are fragmented and decentralized in many areas, which has created a cost structure that is disproportionately sensitive to small percentage declines in volume. We have organized our enterprise-wide cost productivity plan into three targeted work streams: rescaling our supply chain, optimizing spend management and integrating our operating model.We believe this plan is necessary to support our business strategy and deliver more consistent earnings and cash flow over the long term. The plan will be phased over several years and will require significant one-time investments in 2018, including investments in people, infrastructure, technology and systems, which will negatively impact our profitability and cash flows in 2018.
Due to the phased implementation and timing of our initiatives and investments, we will not generate enough cost savings in 2018 to offset the planned investments, cost inflation and volume pressures in 2018. In addition, inflation, declining volumes

35


and competitive pricing pressures have negated, and may continue to negate, some of the impact of our cost saving efforts. We also must execute our plans within our projected time frames in order to meet our financial projections and to remain competitive in the marketplace. For further discussion of the risks relating to our cost productivity plan, see “Part I - Item 1A. Risk Factors - Business, Competitive and Strategic Risks - We may not realize anticipated benefits from our enterprise-wide cost productivity plan, and we may not complete this plan within our projected time frames, either of which could materially adversely impact our business, financial condition, results of operations and cash flows."
Conventional Raw Milk and Other Inputs
Conventional Raw Milk and Butterfat — The primary raw materials used in the products we manufacture, distribute and sell are conventional raw milk (which contains both raw skim milk and butterfat) and bulk cream. On a monthly basis, the federal government and certain state governments set minimum prices for raw milk. The regulated minimum prices differ based on how the raw milk is utilized. Raw milk processed into fluid milk is priced at the Class I price and raw milk processed into products such as cottage cheese, creams and creamers, ice cream and sour cream is priced at the Class II price. Generally, we pay the federal minimum prices for raw milk, plus certain producer premiums (or “over-order” premiums) and location differentials. We also incur other raw milk procurement costs in some locations (such as hauling and field personnel). A change in the federal minimum price does not necessarily mean an identical change in our total raw milk costs as over-order premiums may increase or decrease. This relationship is different in every region of the country and can sometimes differ within a region based on supplier arrangements. However, in general, the overall change in our raw milk costs can be linked to the change in federal minimum prices. Because our Class II products typically have a higher fat content than that contained in raw milk, we also purchase bulk cream for use in some of our Class II products. Bulk cream is typically purchased based on a multiple of the Grade AA butter price on the Chicago Mercantile Exchange.
Prices for conventional raw milk during the year ended December 31, 2017 were approximately 11% higher than year-ago levels. In the fourth quarter of 2017, Class I raw milk costs were approximately 1% lower than the third quarter of 2017, but were approximately 3% higher than the fourth quarter of 2016. We are currently projecting Class I raw milk cost deflation in the first quarter of 2018 of approximately 15% in comparison to the first quarter of 2017 and cost deflation of approximately 5% to 10% for the year ending December 31, 2018 versus the year ended December 31, 2017. Commodity price changes primarily impact our branded business as the changes in raw milk costs are essentially a pass-through cost on our private label products. Given the multitude of factors that influence the dairy commodity environment, we acknowledge the potential for future volatility.
Fuel, Freight and Resin Costs — We purchase diesel fuel to operate our extensive DSD system, and we incur fuel surcharge expense related to the products we deliver through third-party carriers. Although we may utilize forward purchase contracts and other instruments to mitigate the risks related to commodity price fluctuations, such strategies do not fully mitigate commodity price risk. Adverse movements in commodity prices over the terms of the contracts or instruments could decrease the economic benefits we derive from these strategies. Another significant raw material we use is resin, which is a fossil fuel-based product used to make plastic bottles. The prices of diesel and resin are subject to fluctuations based on changes in crude oil and natural gas prices. We expect to experience inflation in external freight and resin costs in 2018.
Tax Rate
Income tax benefit was recorded at an effective rate of (123.2)% for 2017 compared to a 40.5% effective tax rate in 2016. Generally, our effective tax rate varies primarily based on our profitability level and the relative earnings of our business units. In 2017, our effective tax rate was significantly impacted by the enactment of the Tax Act on December 22, 2017 which resulted in a net tax benefit of $43.7 million substantially due to the revaluation of our deferred tax assets and liabilities. Our effective tax rate was also impacted by the adoption of Accounting Standards Update ASU 2016-09 and an increase in our valuation allowance related to state net operating losses. Excluding the one-time net tax benefit of $43.7 million related to the Tax Act, the $3.0 million tax expense related to excess tax deficiencies, and the $5.9 million tax expense related to our valuation allowance, our effective tax rate in 2017 would have been 41.0%.  In 2016, our effective tax rate was also impacted by the establishment of an uncertain tax position. Excluding the $3.0 million of tax expense related to this uncertain tax position, our effective tax rate would have been 39.0%.

                We currently expect our 2018 annual effective tax rate to be 26% to 28%, largely due to the reduction in the U.S. federal corporate income tax rate from 35% to 21%. Our estimated annual effective tax rate for 2018 and beyond could vary based upon our profitability level and the relative earnings of our business units and is also subject to change as interpretations of the Tax Act are issued or applied.

36


Critical Accounting Policies and Use of Estimates
In certain circumstances, the preparation of our Consolidated Financial Statements in conformity with generally accepted accounting principles requires us to use our judgment to make certain estimates and assumptions. These estimates affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of net sales and expenses during the reporting period. Our senior management has discussed the development and selection of these critical accounting policies, as well as our significant accounting policies (see Note 1 to our Consolidated Financial Statements), with the Audit Committee of our Board of Directors. The following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and the estimates they involve require our most difficult, subjective or complex judgments.
Estimate Description
Judgment and/or Uncertainty
Potential Impact if Results Differ
Goodwill and Intangible Assets
 
Our goodwill and intangible assets have resulted from acquisitions and primarily include trademarks with finite lives and indefinite lives and customer-related intangible assets.
 
Goodwill and indefinite-lived trademarks are evaluated for impairment annually and on an interim basis when circumstances arise that indicate a possible impairment to ensure that the carrying value is recoverable. An indefinite-lived trademark is impaired if its book value exceeds its estimated fair value. Goodwill is evaluated for impairment if we determine that it is more likely than not that the book value of a reporting unit exceeds its estimated fair value.
 
Finite-lived intangible assets are evaluated for impairment upon a significant change in the operating environment or whenever circumstances indicate that the carrying value may not be recoverable. If an evaluation of the undiscounted cash flows indicates impairment, the asset is written down to its estimated fair value, which is generally based on discounted future cash flows.
 
Our goodwill and intangible assets totaled $328.0 million as of December 31, 2017.
Considerable management judgment is necessary to initially value intangible assets upon acquisition and to evaluate those assets and goodwill for impairment going forward. We determine fair value using widely acceptable valuation techniques including discounted cash flows, market multiples analyses and relief from royalty analyses.
 
Assumptions used in our valuations, such as forecasted growth rates and our cost of capital, are consistent with our internal projections and operating plans.
 
We believe that a trademark has an indefinite life if it has a history of strong sales and cash flow performance that we expect to continue for the foreseeable future. If these indefinite-lived trademark criteria are not met, the trademarks are amortized over their expected useful lives. Determining the expected life of a trademark requires considerable management judgment and is based on an evaluation of a number of factors including the competitive environment, trademark history and anticipated future trademark support.
We believe that the assumptions used in valuing our intangible assets and in our impairment analysis are reasonable, but variations in any of the assumptions may result in different calculations of fair values that could result in a material impairment charge.
In 2016 and 2015, a qualitative assessment of goodwill was performed for our reporting unit. We assessed economic conditions and industry and market considerations, in addition to the overall financial performance of the reporting unit. Based on the results of our assessment, we determined that it was not necessary to perform a quantitative assessment. We performed a step one valuation of goodwill in 2017. Results of our valuation indicated the fair value of our reporting unit exceeded the carrying value by approximately $559 million or 36.1%.
Results of the annual impairment testing of our indefinite-lived trademarks completed during the fourth quarter of 2017 indicated no impairment.
During the first quarter of 2015, we approved the launch of DairyPure®, our national white milk brand. In connection with the approval of the launch of DairyPure®, we reclassified our previously identified indefinite lived trademarks to finite lived, resulting in a triggering event for impairment testing purposes. Based upon our analysis, we recorded a non-cash impairment charge of $109.9 million and related income tax benefit of $41.2 million in the first quarter of 2015. The remaining balance for these trademarks is currently being amortized on a straight-line basis over their remaining useful lives, which range from approximately 3 to 8 years.
We can provide no assurance that we will not have additional impairment charges in future periods as a result of changes in our operating results or our assumptions.



37


Estimate Description
Judgment and/or Uncertainty
Potential Impact if Results Differ
Property, Plant and Equipment
 
We perform impairment tests when circumstances indicate that the carrying value may not be recoverable. Indicators of impairment could include significant changes in business environment or planned closure of a facility.
 
The results of our 2017 impairment analysis indicated an impairment of our property, plant, and equipment at three of our production facilities, totaling $27.8 million. The impairments were the result of declines in operating cash flows at these production facilities on both a historical and forecasted basis. In addition, we recorded a write-down of certain corporate assets in connection with our enterprise-wide cost productivity plan totaling $2.9 million. These charges were recorded during the year ended December 31, 2017. Additionally, within facility closing and reorganization costs, we recognized $5.6 million of impairment charges during the year ended December 31, 2017 related to the write-down of plant, property and equipment at facilities approved for closure.
 
Our property, plant and equipment, net of accumulated depreciation, totaled $1.1 billion as of December 31, 2017.
Considerable management judgment is necessary to evaluate the impact of operating changes and to estimate future cash flows for purposes of determining whether an asset group needs to be tested for recoverability. The testing of an asset group for recoverability involves assumptions regarding the future cash flows of the asset group (which often includes consideration of a probability weighting of estimated future cash flows), the growth rate of those cash flows, and the remaining useful life over which the asset group is expected to generate cash flows. In the event we determine an asset group is not recoverable, the measurement of an estimated impairment loss involves a number of management judgments, including the selection of an appropriate discount rate, and estimates regarding the cash flows that would ultimately be realized upon liquidation of the asset group.
If actual results are not consistent with our estimates and assumptions used to calculate estimated future cash flows or the proceeds expected to be realized upon liquidation, we may be exposed to impairment losses that could be material. Additionally, we can provide no assurance that we will not have additional impairment charges in future periods as a result of changes in our operating results or our assumptions.
Insurance Accruals
 
We retain selected levels of employee health care, property and casualty risks, primarily related to employee health care, workers’ compensation claims and other casualty losses. Many of these potential losses are covered under conventional insurance programs with third-party insurers with high deductibles. In other areas, we are self-insured.
 
At December 31, 2017, we recorded accrued liabilities related to these retained risks of $152.6 million, including both current and long-term liabilities.

Accrued liabilities related to these retained risks are calculated based upon loss development factors, which contemplate a number of variables including claims history and expected trends. These loss development factors are developed in consultation with third-party actuaries.
If actual results differ from our assumptions, we could be exposed to material gains or losses.
 
A 10% change in our insurance liabilities could affect net earnings by approximately $9.5 million.

38


Estimate Description
Judgment and/or Uncertainty
Potential Impact if Results Differ
Income Taxes
 
A liability for uncertain tax positions is recorded to the extent a tax position taken or expected to be taken in a tax return does not meet certain recognition or measurement criteria. A valuation allowance is recorded against a deferred tax asset if it is not more likely than not that the asset will be realized.
 
At December 31, 2017, our liability for uncertain tax positions, including accrued interest, was $15.1 million, and our valuation allowance was $21.8 million.
Considerable management judgment is necessary to assess the inherent uncertainties related to the interpretations of complex tax laws, regulations and taxing authority rulings, as well as to the expiration of statutes of limitations in the jurisdictions in which we operate.
 
Additionally, several factors are considered in evaluating the realizability of our deferred tax assets, including the remaining years available for carry forward, the tax laws for the applicable jurisdictions, the future profitability of the specific business units, and tax planning strategies.
Our judgments and estimates concerning uncertain tax positions may change as a result of evaluation of new information, such as the outcome of tax audits or changes to or further interpretations of tax laws and regulations. Our judgments and estimates concerning realizability of deferred tax assets could change if any of the evaluation factors change.
 
If such changes take place, there is a risk that our effective tax rate could increase or decrease in any period, impacting our net earnings.
Employee Benefit Plans
 
We provide a range of benefits including pension and postretirement benefits to our eligible employees and retirees.
We record annual amounts relating to these plans, which include various actuarial assumptions, such as discount rates, assumed investment rates of return, compensation increases, employee turnover rates and health care cost trend rates. We review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when it is deemed appropriate. The effect of the modifications is generally recorded and amortized over future periods.
Different assumptions could result in the recognition of different amounts of expense over different periods of time.
 
A 0.25% reduction in the assumed rate of return on plan assets or a 0.25% reduction in the discount rate would result in an increase in our annual pension expense of $0.8 million and $0.5 million, respectively.
 
A 1% increase in assumed healthcare costs trends would increase the aggregate postretirement medical obligation by approximately $2.0 million.

39


Recent Accounting Pronouncements
See Note 1 to our Consolidated Financial Statements.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to commodity price fluctuations, including raw milk, butterfat, sweeteners and other commodity costs used in the manufacturing, packaging and distribution of our products, including utilities, natural gas, resin and diesel fuel. To secure adequate supplies of materials and bring greater stability to the cost of ingredients and their related manufacturing, packaging and distribution, we routinely enter into forward purchase contracts and other purchase arrangements with suppliers. Under the forward purchase contracts, we commit to purchasing agreed-upon quantities of ingredients and commodities at agreed-upon prices at specified future dates. The outstanding purchase commitment for these commodities at any point in time typically ranges from one month’s to one year’s anticipated requirements, depending on the ingredient or commodity. These contracts are considered normal purchases. In addition to entering into forward purchase contracts, from time to time we may purchase over-the-counter contracts with our qualified banking partners or exchange-traded commodity futures contracts for raw materials that are ingredients of our products or components of such ingredients. Our open commodity derivatives recorded at fair value on our balance sheet were at a net liability position of $0.4 million as of December 31, 2017.
Although we may utilize forward purchase contracts and other instruments to mitigate the risks related to commodity price fluctuation, such strategies do not fully mitigate commodity price risk. Adverse movements in commodity prices over the terms of the contracts or instruments could decrease the economic benefits we expect to derive from these strategies. See Note 10 to our Consolidated Financial Statements.

40


Item 8.
Financial Statements and Supplementary Data
Our Consolidated Financial Statements for 2017 are included in this report on the following pages.
 
Page


41


DEAN FOODS COMPANY
CONSOLIDATED BALANCE SHEETS
 
December 31
 
2017
 
2016
 
(Dollars in thousands,
except share data)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
16,512

 
$
17,980

Receivables, net of allowances of $5,583 and $5,118
675,826

 
669,200

Income tax receivable
2,140

 
5,578

Inventories
278,063

 
284,484

Deferred income taxes

 
37,504

Prepaid expenses and other current assets
47,338

 
43,884

Total current assets
1,019,879

 
1,058,630

Property, plant and equipment, net
1,094,064

 
1,163,851

Goodwill
167,535

 
154,112

Identifiable intangible and other assets, net
211,620

 
207,897

Deferred income taxes
10,731

 
21,737

Total
$
2,503,829

 
$
2,606,227

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
671,070

 
$
706,981

Current portion of debt
1,125

 
140,806

Total current liabilities
672,195

 
847,787

Long-term debt, net
912,074

 
745,245

Deferred income taxes
60,018

 
126,009

Other long-term liabilities
203,595

 
276,630

Commitments and contingencies (Note 18)

 

Stockholders’ equity:
 
 
 
Preferred stock, none issued

 

Common stock, 91,123,759 and 90,586,741 shares issued and outstanding, with a par value of $0.01 per share
911

 
906

Additional paid-in capital
659,227

 
653,629

Retained earnings
74,219

 
45,654

Accumulated other comprehensive loss
(78,410
)
 
(89,633
)
Total stockholders’ equity
655,947

 
610,556

Total
$
2,503,829

 
$
2,606,227

See Notes to Consolidated Financial Statements.

F-1


DEAN FOODS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
 
Year Ended December 31
 
2017
 
2016
 
2015
 
(Dollars in thousands, except share data)
Net sales
$
7,795,025

 
$
7,710,226

 
$
8,121,661

Cost of sales
5,977,348

 
5,722,710

 
6,147,252

Gross profit
1,817,677

 
1,987,516

 
1,974,409

Operating costs and expenses:
 
 
 
 
 
Selling and distribution
1,346,948

 
1,348,349

 
1,379,317

General and administrative
311,176

 
346,028

 
350,324

Amortization of intangibles
20,710

 
20,752

 
21,653

Facility closing and reorganization costs, net
24,913

 
8,719

 
19,844

Impairment of intangible and long-lived assets
30,668

 

 
109,910

Total operating costs and expenses
1,734,415

 
1,723,848

 
1,881,048

Operating income
83,262

 
263,668

 
93,361

Other (income) expense:
 
 
 
 
 
Interest expense
64,961

 
66,795

 
66,813

Loss on early retirement of long-term debt

 

 
43,609

Other income, net
(2,942
)
 
(5,778
)
 
(3,751
)
Total other expense
62,019

 
61,017

 
106,671

Income (loss) from continuing operations before income taxes
21,243

 
202,651

 
(13,310
)
Income tax expense (benefit)
(26,179
)
 
82,034

 
(5,229
)
Income (loss) from continuing operations
47,422

 
120,617

 
(8,081
)
Income (loss) from discontinued operations, net of tax
11,291

 
(312
)
 
(1,095
)
Gain (loss) on sale of discontinued operations, net of tax
2,875

 
(376
)
 
668

Net income (loss)
$
61,588

 
$
119,929

 
$
(8,508
)
Average common shares:
 
 
 
 
 
Basic
90,899,284

 
90,933,886

 
93,298,467

Diluted
91,273,994

 
91,510,483

 
93,298,467

Basic income (loss) per common share:
 
 
 
 
 
Income (loss) from continuing operations
$
0.52

 
$
1.33

 
$
(0.09
)
Income (loss) from discontinued operations
0.16

 
(0.01
)
 

Net income (loss)
$
0.68

 
$
1.32

 
$
(0.09
)
Diluted income (loss) per common share:
 
 
 
 
 
Income (loss) from continuing operations
$
0.52

 
$
1.32

 
$
(0.09
)
Income (loss) from discontinued operations
0.15

 
(0.01
)
 

Net income (loss)
$
0.67

 
$
1.31

 
$
(0.09
)
  
See Notes to Consolidated Financial Statements.

F-2


DEAN FOODS COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
Year Ended December 31
 
2017
 
2016
 
2015
 
(in thousands)
Net income (loss)
$
61,588

 
$
119,929

 
$
(8,508
)
Other comprehensive income (loss):
 
 
 
 
 
Cumulative translation adjustment

 
(2,257
)
 
(1,333
)
Unrealized loss on derivative instruments, net of tax:
 
 
 
 
 
Change in fair value of derivative instruments

 

 
(87
)
Defined benefit pension and other postretirement benefit plans, net of tax:
 
 
 
 
 
Prior service costs arising during the period
(819
)
 

 
(43
)
Net gain (loss) arising during the period
4,958

 
(8,452
)
 
(5,036
)
Less: amortization of prior service cost included in net periodic benefit cost
7,084

 
6,879

 
5,679

Other comprehensive income (loss)
11,223

 
(3,830
)
 
(820
)
Comprehensive income (loss)
$
72,811

 
$
116,099

 
$
(9,328
)
See Notes to Consolidated Financial Statements.

F-3


DEAN FOODS COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
 
Dean Foods Company Stockholders
 
Total
Stockholders’
Equity 
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
(Accumulated
Deficit)
 
Accumulated
Other
Comprehensive
Loss
 
 
Shares
 
Amount
 
 
(Dollars in thousands, except share data)
Balance, January 1, 2015
94,080,840

 
$
941

 
$
752,375

 
$
(41,015
)
 
$
(84,983
)
 
$
627,318

Issuance of common stock, net of tax impact of share-based compensation
513,016

 
5

 
(1,673
)
 

 

 
(1,668
)
Share-based compensation expense

 

 
8,488

 

 

 
8,488

Share repurchases
(3,165,582
)
 
(32
)
 
(52,978
)
 

 

 
(53,010
)
Net loss

 

 

 
(8,508
)
 

 
(8,508
)
Dividends(1)

 

 
(26,296
)
 

 

 
(26,296
)
Other comprehensive income (loss) (Note 13):
 
 
 
 
 
 
 
 
 
 
 
Change in fair value of derivative instruments, net of tax benefit of $54

 

 

 

 
(87
)
 
(87
)
Cumulative translation adjustment

 

 

 

 
(1,333
)
 
(1,333
)
Pension and other postretirement benefit liability adjustment, net of tax of $394

 

 

 

 
600

 
600

Balance, December 31, 2015
91,428,274

 
$
914

 
$
679,916

 
$
(49,523
)
 
$
(85,803
)
 
$
545,504

Issuance of common stock, net of tax impact of share-based compensation
529,652

 
6

 
(1,754
)
 

 

 
(1,748
)
Share-based compensation expense

 

 
8,843

 

 

 
8,843

Share repurchases
(1,371,185
)
 
(14
)
 
(24,986
)
 

 

 
(25,000
)
Net income

 

 

 
119,929

 

 
119,929

Dividends(1)

 

 
(8,390
)
 
(24,752
)
 

 
(33,142
)
Other comprehensive loss (Note 13):
 
 
 
 
 
 
 
 
 
 
 
Cumulative translation adjustment

 

 

 

 
(2,257
)
 
(2,257
)