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Dean Foods Announces Second Quarter 2017 Results

Company Lowers Full-Year Adjusted EPS Guidance

DALLAS, Aug. 8, 2017 /PRNewswire/ -- Dean Foods Company (NYSE: DF) today reported second quarter 2017 results. 

Highlights

  • Q2 net income per diluted share was $0.19 and adjusted net income per diluted share was $0.21
  • Productivity initiatives across commercial and supply chain expected to continue to ramp up through balance of year
  • Retail dynamics and focus on private label impacting volume performance
  • Company announces an expansion of its cost productivity program targeting an incremental annual cost reduction of $40 to $50 million
  • Lowering full-year 2017 adjusted earnings expectation to $0.80 to $0.95 per diluted share(1)

Chief Executive Officer Ralph Scozzafava said, "In the second quarter, we faced a challenging and rapidly evolving retail environment. We experienced volume pressure from both a macro and competitive perspective that impacted our total volume performance within the quarter, and we anticipate this will carry forward for the remainder of 2017. Our financial results came in well below our expectations. We are not satisfied with our performance and are determined to improve our execution. We are accelerating and expanding an aggressive set of commercial and cost productivity initiatives to address volume and mix. We expect these actions will better position our company for the future."

Second Quarter 2017 Operating Results

Chief Financial Officer Chris Bellairs said, "For the second quarter, we continue to generate positive net cash from operating activities. We have used our internally generated cash flow to fund working capital and fixed asset investment and to improve the funded status of our pension plans. Our year-to-date cash flow has also been utilized to pay our dividends, invest in Good Karma Foods and acquire Uncle Matt's Organic. We continue to maintain a sound balance sheet with all cash netted leverage at 2.25 times as of the second quarter of 2017."

Financial Summary *


Three Months Ended June 30


Six Months Ended June 30

(In millions, except per share amounts)


2017


2016


2017


2016










Gross Profit









GAAP


$

467


$

493


$

930


$

997

Adjusted


$

460


$

490


$

925


$

995










Operating Income









GAAP


$

45


$

73


$

48


$

151

Adjusted


$

47


$

70


$

82


$

153










Interest Expense









GAAP


$

16


$

17


$

34


$

34

Adjusted


$

16


$

17


$

33


$

33










Net Income









GAAP


$

18


$

33


$

8


$

73

Adjusted


$

20


$

35


$

32


$

76










Diluted Earnings Per Share (EPS)









GAAP


$

0.19


$

0.36


$

0.09


$

0.79

Adjusted


$


0.21


$


0.38


$


0.35


$


0.83










* Adjustments to GAAP due to the exclusion of expenses, gains or losses associated with certain transactions and other non-recurring items are described and reconciled to the comparable GAAP amounts in the attached tables.


(1)

Please refer to "Forward Outlook" and "Non-GAAP Financial Measures" for additional information. We provide guidance on a non-GAAP basis and are unable to provide a full reconciliation to GAAP without unreasonable efforts as we cannot predict the amount or timing of certain elements which are included in reported GAAP results, including mark-to-market adjustments of hedging activities, asset impairment charges, and other non-recurring events or transactions that may have a significant impact to reported GAAP results.

Total volume across all products was 615 million gallons for the second quarter of 2017, a 2.7% decline compared to total volume of 632 million gallons in the second quarter of 2016.

Based on fluid milk sales data published by the USDA through May, U.S. fluid milk volume decreased 2.9% year-over-year quarter to date in the second quarter of 2017 on an unadjusted basis. On this same basis, Dean Foods' share of U.S. fluid milk volume decreased by 30 basis points year-over-year.

Raw milk costs in the second quarter of 2017 of $15.52 per hundred weight decreased roughly 9% from the first quarter of 2017 but increased 15% from the second quarter of 2016.

Cash Flow

Net cash provided by continuing operations for the six months ended June 30, 2017 totaled $79 million. Free cash flow provided by continuing operations, which is defined as net cash provided by continuing operations less capital expenditures, was $45 million for the six months ended June 30, 2017, a $35 million decrease as compared to the prior year period. Capital expenditures totaled $35 million for the six months ended June 30, 2017.

Debt

Total outstanding debt at June 30, 2017, net of $32 million cash on hand, was approximately $880 million. The Company's net debt to bank EBITDA total leverage ratio, on an all-cash netted basis, increased slightly on a sequential basis to 2.25 times at the end of the second quarter 2017.

Forward Outlook

"As we look to the third quarter and the balance of 2017, our volume and mix challenges are occurring at a higher rate than planned. While we are on track to deliver our cost productivity estimate of $80 million to $100 million for the full year, our volume shortfall will drive lower financial results than our previous expectations. We are therefore reducing our full-year adjusted earnings per share guidance to $0.80 to $0.95 and expect full-year free cash flow in the range of $50 million to $75 million. In addition, we are aggressively addressing our cost structure and are targeting an incremental annual cost reduction between $40 million to $50 million across our general and administrative functions. We expect to complete this process by the end of this year," concluded Scozzafava.

We provide guidance on a non-GAAP basis and are unable to provide a full reconciliation to GAAP without unreasonable efforts as we cannot predict the amount or timing of certain elements which are included in reported GAAP results, including mark-to-market adjustments of hedging activities, asset impairment charges, and other non-recurring events or transactions that may have a significant impact to reported GAAP results.

Non-GAAP Financial Measures

In addition to the results prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), we have presented certain non-GAAP financial measures, including adjusted gross profit, adjusted selling and distribution expenses, adjusted general and administrative expenses, adjusted total operating costs and expenses, adjusted operating income, adjusted interest expense, adjusted net income (loss), adjusted earnings (loss) per diluted share, adjusted EBITDA, Free Cash Flow and total leverage ratio, each as described below.

This non-GAAP financial information is provided as supplemental information for investors and is not in accordance with, or an alternative to, GAAP. Additionally, these non-GAAP measures may be different than similar measures used by other companies.

We believe that the presentation of these non-GAAP financial measures, when considered together with our GAAP financial measures and the reconciliations to the corresponding GAAP financial measures, provides investors with a more complete understanding of the factors and trends affecting our business than could be obtained absent these disclosures. Our management uses these non-GAAP financial measures when evaluating our performance, when making decisions regarding the allocation of resources, in determining incentive compensation for management, and in determining earnings estimates.

A full reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures for the three and six months ended June 30, 2017 and 2016, is set forth in the tables herein.

Adjusted Operating Results

We have supplemented the presentation of our reported GAAP gross profit, selling and distribution expenses, general and administrative expenses, total operating costs and expenses, operating income, interest expense, net income (loss) and earnings (loss) per diluted share, with non-GAAP measures that adjust the GAAP measures to exclude the impact of the following (as applicable):

  • asset impairment charges;
  • incremental non-cash trademark amortization triggered by the launch of a national fresh white milk brand;
  • closed deal costs;
  • facility closing, reorganization and realignment costs;
  • debt issuance costs;
  • costs associated with the early retirement of long-term debt;
  • gains (losses) on the mark-to-market of our derivative contracts;
  • separation costs;
  • gains or losses related to discontinued operations and divestitures;
  • litigation settlements;
  • income tax impacts of the foregoing adjustments; and
  • adjustments to normalize our income tax expense at a rate of 38%.

We believe these non-GAAP measures provide useful information to investors by excluding expenses, gains or losses that are not indicative of the company's core operating performance. In addition, we cannot predict the timing and amount of gains or losses associated with certain of these items. We believe these non-GAAP measures provide more accurate comparisons of our ongoing business operations and are better indicators of trends in our underlying business. In addition, these adjustments are consistent with how management views our business. Management uses these non-GAAP financial measures in making financial, operating and planning decisions and evaluating the Company's ongoing performance. Further, adjusted gross profit and adjusted operating income are used by management to evaluate key performance indicators of brand mix and low cost, respectively.

Adjusted EBITDA

Adjusted EBITDA is defined as net income before interest expense, income tax expense, depreciation and amortization, as further adjusted to exclude the impact of the adjustments discussed under "Adjusted Operating Results" above (other than the incremental trademark amortization and normalized income tax rate, as Adjusted EBITDA excludes the full amount of these expenses). This information is provided to assist investors in making meaningful comparisons of our operating performance between periods and to view our business from the same perspective as our management. We believe Adjusted EBITDA is a useful measure for analyzing the performance of our business and is a widely-accepted indicator of our ability to incur and service indebtedness and generate free cash flow. We also believe that EBITDA measures are commonly reported and widely used by investors and other interested parties as measures of a company's operating performance and debt servicing ability because such measures assist in comparing performance on a consistent basis without regard to capital structure, depreciation or amortization (which can vary significantly) and non-operating factors (such as historical cost).

Total Leverage Ratio

Our total leverage ratio is calculated as net debt divided by Bank EBITDA for the trailing four quarters. Net debt is calculated as consolidated funded indebtedness in accordance with our credit agreement, except on an all cash netted basis. Bank EBITDA is calculated as Adjusted EBITDA, as further adjusted to exclude certain non-cash and non-recurring or extraordinary expenses as permitted in calculating covenant compliance under our credit agreement. Management believes analysts and investors commonly use our total leverage ratio as an indicator of our ability to service existing debt and our liquidity.

Free Cash Flow

We define Free Cash Flow as net cash provided by operating activities from continuing operations less cash payments for capital expenditures. We believe Free Cash Flow is a meaningful non-GAAP measure that offers supplemental information and insight regarding the liquidity of our operations and our ability to generate sufficient cash flow to, among other things, repay debt, invest in our business and repurchase shares of our common stock. A limitation of Free Cash Flow is that it does not represent the total increase or decrease in the cash balance for the period.

Conference Call/Webcast

A webcast to discuss the Company's financial results and outlook will be held at 9:00 a.m. ET today and may be heard live by clicking the earnings button on the Company's website at http://www.deanfoods.com. A slide presentation will accompany the webcast.

About Dean Foods

Dean Foods is 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. Headquartered in Dallas, Texas, the Dean Foods 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, Lehigh Valley Dairy Farms®, Mayfield®, McArthur®, Meadow Gold®, Oak Farms®, PET®**, T.G. Lee®, Tuscan® and more. In all, Dean Foods has more than 50 national, regional and local dairy brands as well as private labels. Dean Foods also makes and distributes ice cream, cultured products, juices, teas, and bottled water. Almost 17,000 employees across the country work every day to make Dean Foods the most admired and trusted provider of wholesome, great-tasting dairy products at every occasion. For more information about Dean Foods and its brands, visit www.deanfoods.com.

*The LAND O LAKES brand is owned by Land O'Lakes, Inc. and is used by license.

**PET is a trademark of Eagle Family Foods Group LLC, under license.

Some of the statements made in this press release are "forward-looking" and are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995, including statements relating to: (1) our financial forecast, including projected sales (including specific product lines and the Company as a whole), total volume, price realization, profit margins, net income, earnings per share, free cash flow, our leverage ratio, and debt covenant compliance, (2) the Company's regional and national branding and marketing initiatives, (3) the Company's innovation, research and development plans and its ability to successfully launch new products or brands, (4) commodity prices and other inputs and the Company's ability to forecast or predict commodity prices, milk production and milk exports, (5) the Company's commercial and cost productivity initiatives, including plant closures and route reductions, and its ability to achieve expected savings, (6) planned capital expenditures, (7) the status of the Company's litigation matters,  (8) the Company's plans related to its capital structure, (9) the Company's dividend policy, (10) possible repurchases of shares of the Company's common stock, and (11) potential acquisitions. These statements involve risks and uncertainties that may cause results to differ materially from those set forth in this press release, including the risks disclosed by the Company in its filings with the Securities and Exchange Commission. Financial projections are based on a number of assumptions.  Actual results could be materially different than projected if those assumptions are erroneous.  The cost and supply of commodities and other raw materials are determined by market forces over which the Company has limited or no control. Sales, operating income, net income, debt covenant compliance, financial performance and earnings per share can vary based on a variety of economic, governmental and competitive factors, which are identified in the Company's filings with the Securities and Exchange Commission, including its most recent Forms 10-K and 10-Q. The Company's ability to profit from its branding and marketing initiatives depends on a number of factors including consumer acceptance of its products.  The declaration and payment of cash dividends under the Company's dividend policy remains at the sole discretion of the Board of Directors and will depend upon its financial results, cash requirements, future prospects, restrictions in its credit agreement and debt covenant compliance, applicable law and other factors that may be deemed relevant by the Board. All forward-looking statements in this press release speak only as of the date of this press release.  The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any such statements to reflect any change in its expectations with regard thereto or any changes in the events, conditions or circumstances on which any such statement is based except as required by law.

CONTACT: Corporate Communications, Jamaison Schuler, +1-214-721-7766; or Investor Relations, Sherri Baker, +1-214-303-3438

DEAN FOODS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)



Three Months Ended June 30


Six Months Ended June 30


2017


2016


2017


2016

Net sales

$

1,926,722



$

1,848,788



$

3,922,408



$

3,727,616


Cost of sales

1,459,342



1,355,535



2,992,903



2,730,295


Gross profit

467,380



493,253



929,505



997,321


Operating costs and expenses:








Selling and distribution

338,144



331,150



683,340



664,037


General and administrative

73,100



86,614



172,636



171,765


Amortization of intangibles

5,155



4,120



10,310



10,445


Facility closing and reorganization costs, net

5,817



(1,400)



15,103



(234)


Total operating costs and expenses

422,216



420,484



881,389



846,013


Operating income

45,164



72,769



48,116



151,308


Other (income) expense:








Interest expense

16,419



16,830



33,883



33,706


Other income, net

(805)



(2,210)



(1,761)



(3,207)


Total other expense

15,614



14,620



32,122



30,499


Income before income taxes

29,550



58,149



15,994



120,809


Income tax expense

11,903



24,778



8,106



48,237


Net income

$

17,647



$

33,371



$

7,888



$

72,572


Average common shares:








Basic

90,882



91,245



90,797



91,407


Diluted

91,369



91,680



91,366



91,995


Basic income per common share:








Net income

$

0.19



$

0.37



$

0.09



$

0.79


Diluted income per common share:








Net income

$

0.19



$

0.36



$

0.09



$

0.79


 

DEAN FOODS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)








June 30, 2017


December 31, 2016

ASSETS





Cash and cash equivalents


$

31,509



$

17,980


Other current assets


936,574



1,040,650


 Total current assets


968,083



1,058,630


Property, plant and equipment, net


1,124,089



1,163,851


Intangibles and other assets, net


402,076



383,746


Total


$

2,494,248



$

2,606,227


LIABILITIES AND STOCKHOLDERS' EQUITY





Total current liabilities, excluding debt


$

655,298



$

706,981


Total long-term debt, including current portion


904,298



886,051


Other long-term liabilities


326,441



402,639


Total stockholders' equity


608,211



610,556


Total


$

2,494,248



$

2,606,227


 

DEAN FOODS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)






Six Months Ended June 30



2017


2016

Operating Activities





Net cash provided by operating activities


$

79,180



$

125,319







Investing Activities





Payments for property, plant and equipment


(34,551)



(45,752)


Payments for acquisitions, net of cash acquired


(21,596)



(157,321)


Proceeds from sale of fixed assets


2,481



10,711


Other investments


(9,000)




Net cash used in investing activities


(62,666)



(192,362)







 Financing Activities





Net proceeds from debt


16,368



72,405


Payments of financing costs


(1,764)




Repurchase of common stock




(25,000)


Cash dividends paid


(16,357)



(16,514)


Issuance of common stock, net of share repurchases for withholding taxes


(1,232)



(646)


Other




699


 Net cash provided by (used in) financing activities


(2,985)



30,944


 Effect of exchange rate changes on cash and cash equivalents




(825)


Change in cash and cash equivalents


13,529



(36,924)


Cash and cash equivalents, beginning of period


17,980



60,734


Cash and cash equivalents, end of period


$

31,509



$

23,810


 

DEAN FOODS COMPANY

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES*

(Unaudited)

(In thousands, except per share data)



Three Months Ended June 30, 2017




Asset write-
downs
and (gain) loss on
sale of assets


Closed deal
costs


Facility closing
and
reorganization
costs, net


Mark-to-
market
on derivative
contracts


Other
adjustments


Income
tax




GAAP


(a)


(b)


(c)


(d)


(e)


(f)


Adjusted*

Gross profit

$

467,380



$



$



$



$

(7,717)



$



$



$

459,663


















Selling and distribution

338,144









(872)







337,272


















General and administrative

73,100





(322)







1,111





73,889


Amortization of intangibles

5,155



(3,935)













1,220


General and administrative, including Amortization of intangibles

78,255



(3,935)



(322)







1,111





75,109


















Total operating costs and expenses

422,216



(3,935)



(322)



(5,817)



(872)



1,111





412,381


















Operating income

45,164



3,935



322



5,817



(6,845)



(1,111)





47,282


















Interest expense

16,419















16,419


















Net income

17,647



3,935



322



5,817



(6,845)



(1,111)



(131)



19,634


















Diluted earnings per share

$

0.19



$

0.04



$



$

0.06



$

(0.07)



$

(0.01)



$



$

0.21



















Three Months Ended June 30, 2016




Asset write-
downs
and (gain) loss on
sale of assets


Closed deal
costs


Facility closing
and
reorganization
costs, net


Mark-to-
market
on derivative
contracts


Other
adjustments


Income
tax




GAAP


(a)


(b)


(c)


(d)


(e)


(f)


Adjusted*

Gross profit

$

493,253



$



$



$



$

(3,120)



$



$



$

490,133


















Selling and distribution

331,150









5,564







336,714


















General and administrative

86,614





(4,083)











82,531


Amortization of intangibles

4,120



(3,384)













736


General and administrative, including Amortization of intangibles

90,734



(3,384)



(4,083)











83,267


















Total operating costs and expenses

420,484



(3,384)



(4,083)



1,400



5,564







419,981


















Operating income

72,769



3,384



4,083



(1,400)



(8,684)







70,152


















Interest expense

16,830











(218)





16,612


















Net income

33,371



3,384



4,083



(1,400)



(8,684)



218



3,592



34,564


















Diluted earnings per share

$

0.36



$

0.04



$

0.05



$

(0.02)



$

(0.09)



$



$

0.04



$

0.38



* See Notes to Earnings Release Tables

 

DEAN FOODS COMPANY

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES*

(Unaudited)

(In thousands, except per share data)



Six Months Ended June 30, 2017




Asset write-
downs
and (gain) loss
on
sale of assets


Closed deal
costs


Facility closing
and reorganization
costs, net


Mark-to-
market
on derivative
contracts


Other
adjustments


Income
tax




GAAP


(a)


(b)


(c)


(d)


(e)


(f)


Adjusted*

Gross profit

$

929,505



$



$



$



$

(4,510)



$



$



$

924,995


















Selling and distribution

683,340









(2,014)







681,326


















General and administrative

172,636





(322)







(13,139)





159,175


Amortization of intangibles

10,310



(7,870)













2,440


General and administrative, including Amortization of intangibles

182,946



(7,870)



(322)







(13,139)





161,615


















Total operating costs and expenses

881,389



(7,870)



(322)



(15,103)



(2,014)



(13,139)





842,941


















Operating income

48,116



7,870



322



15,103



(2,496)



13,139





82,054


















Interest expense

33,883











(1,080)





32,803


















Net income

7,888



7,870



322



15,103



(2,496)



14,219



(11,278)



31,628


















Diluted earnings per share

$

0.09



$

0.09



$



$

0.17



$

(0.03)



$

0.15



$

(0.12)



$

0.35



















Six Months Ended June 30, 2016




Asset write-
downs
and (gain) loss
on
 
sale of assets


Closed deal
costs


Facility closing
and
reorganization
costs, net


Mark-to-
market
on derivative
contracts


Other
adjustments


Income
tax




GAAP


(a)


(b)


(c)


(d)


(e)


(f)


Adjusted*

Gross profit

$

997,321



$



$



$



$

(2,587)



$



$



$

994,734


















Selling and distribution

664,037









8,242







672,279


















General and administrative

171,765





(4,083)











167,682


Amortization of intangibles

10,445



(8,973)













1,472


General and administrative, including Amortization of intangibles

182,210



(8,973)



(4,083)











169,154


















Total operating costs and expenses

846,013



(8,973)



(4,083)



234



8,242







841,433


















Operating income

151,308



8,973



4,083



(234)



(10,829)







153,301


















Interest expense

33,706











(436)





33,270


















Net income

72,572



8,973



4,083



(234)



(10,829)



436



1,405



76,406


















Diluted earnings per share

$

0.79



$

0.10



$

0.04



$



$

(0.12)



$



$

0.02



$

0.83



* See Notes to Earnings Release Tables

 

DEAN FOODS COMPANY

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES*

(Unaudited)

(In thousands, except ratio data)




Three Months Ended June 30


Six Months Ended June 30


Trailing Twelve
Months Ended
June 30,



2017


2016


2017


2016


2017

Reconciliation of Net Income to Adjusted EBITDA and Bank EBITDA

Net income


$

17,647



$

33,371



$

7,888



$

72,572



$

55,245


Interest expense


16,419



16,830



33,883



33,706



66,972


Income tax expense


11,903



24,778



8,106



48,237



41,903


Depreciation and amortization


41,989



41,403



83,872



85,029



171,458


Closed deal costs (b)


322



4,083



322



4,083



1,165


Facility closing and reorganization costs, net (c)


5,817



(1,400)



15,103



(234)



24,056


Mark-to-market on derivative contracts (d)


(6,845)



(8,684)



(2,496)



(10,829)



(4,463)


Other adjustments (e)


(1,111)





13,139





25,388


 Adjusted EBITDA


$

86,141



$

110,381



$

159,817



$

232,564



381,724













  Non-cash share-based compensation expense










8,815


 Bank EBITDA










$

390,539























June 30, 2017

Reconciliation of net debt and total leverage ratio

Total long-term debt, including current portion

$

904,298


Unamortized discounts and debt issuance costs

7,150


Cash and cash equivalents

(31,509)


Net debt

$

879,939


Bank EBITDA

390,539


 Total leverage ratio

2.25





















Six Months Ended June 30









2017


2016

Reconciliation of Free Cash Flow provided by continuing operations

Net cash provided by operating activities

$

79,180



$

125,319


Payments for property, plant and equipment

(34,551)



(45,752)


  Free Cash Flow provided by continuing operations

$

44,629



$

79,567



* See Notes to Earnings Release Tables

 

Notes to Earnings Release Tables



For the three and six months ended June 30, 2017 and 2016, the adjusted results and certain other non-GAAP financial measures differ from the Company's results under GAAP due to the exclusion of expenses, gains or losses associated with certain transactions and other non-recurring items that we believe are not indicative of our core operating results. For additional information on our non-GAAP financial measures, see the section entitled "Non-GAAP Financial Measures" in this release.



(a)

In conjunction with our decision to launch DairyPure® in the first quarter of 2015, we reclassified certain of our indefinite-lived trademarks to finite-lived, resulting in a triggering event for impairment testing purposes. The related adjustment reflects the elimination of amortization expense recorded on these finite-lived trademarks of $3.9 million and $3.4 million for the three months ended June 30, 2017 and 2016, respectively, and $7.9 million and $9.0 million for the six months ended June 30, 2017 and 2016, respectively.



(b)    

The adjustment reflects the elimination of expenses related to completed acquisitions and other transactional activities of $0.3 million for each of the three and six months ended June 30, 2017, and $4.1 million for each of the three and six months ended June 30, 2016.



(c)    

The adjustment reflects the elimination of severance charges and non-cash asset impairments, net of (gains) losses on related asset sales, for approved facility closings and restructuring plans.



(d)    

The adjustment reflects the elimination of the (gain) loss on the mark-to-market of our commodity derivative contracts. All of our commodity derivative contracts are marked to market in our statement of operations during each reporting period with a corresponding derivative asset or liability on our balance sheet.



(e)    

The adjustment reflects the elimination of the following:


i. 

A charge related to litigation settlements reached in the six months ended June 30, 2017;


ii.

The write off of unamortized deferred financing costs of $1.1 million in connection with the January 4, 2017 amendments to our senior secured revolving credit facility and receivables securitization facility in the six months ended June 30, 2017;


iii.

A $1.1 million reduction to separation charges recorded in the three months ended June 30, 2017 in connection with the Company's previously disclosed CEO succession plan; and


iv.

Interest accretion in connection with the settlement of a previously disclosed dairy farmer class action lawsuit filed in the United States District Court for the Eastern District of Tennessee.  The Court granted final approval of the settlement agreement on June 15, 2012 and the final installment payment was made in June of 2016.

(f)    

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

 

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SOURCE Dean Foods Company