<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- -----
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-14190
DREYER'S GRAND ICE CREAM, INC.
(Exact name of registrant as specified in its charter)
Delaware No. 94-2967523
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5929 College Avenue, Oakland, California 94618
(Address of principal executive offices) (Zip Code)
(510) 652-8187
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
<TABLE>
<CAPTION>
Shares Outstanding
May 9, 1997
-----------
<S> <C>
Common stock, $1.00 par value 13,401,899
</TABLE>
<PAGE> 2
DREYER'S GRAND ICE CREAM, INC.
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 29, December 28,
1997 1996
--------- ------------
($ in thousands, except per share amounts) (unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,632 $ 4,134
Trade accounts receivable, net of
allowance for doubtful accounts of
$770 in 1997 and $755 in 1996 87,629 73,053
Other accounts receivable 12,627 13,638
Inventories 47,179 40,760
Prepaid expenses and other 11,442 13,652
-------- --------
Total current assets 160,509 145,237
Property, plant and equipment, net 223,185 225,038
Goodwill and distribution rights, net 92,319 92,010
Other assets 16,829 16,622
-------- --------
Total assets $492,842 $478,907
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
2
<PAGE> 3
DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 29, December 28,
1997 1996
--------- -----------
(unaudited)
($ in thousands, except per share amounts)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 69,134 $ 48,391
Accrued payroll and employee benefits 19,716 18,198
Current portion of long-term debt 8,512 8,512
-------- --------
Total current liabilities 97,362 75,101
Long-term debt, less current portion 155,246 163,135
Deferred income taxes 37,785 37,802
-------- --------
Total liabilities 290,393 276,038
-------- --------
Commitments and contingencies
Redeemable convertible Series B preferred stock, $1 par
value - 1,008,000 shares authorized; 1,008,000
shares issued and outstanding in 1997 and 1996 98,912 98,806
-------- --------
Stockholders' Equity:
Preferred stock, $1 par value -
8,992,000 shares authorized; no shares
issued or outstanding in 1997 and 1996
Common stock, $1 par value - 30,000,000 shares
authorized; 13,401,000 shares and 13,345,000
shares issued and outstanding in 1997 and 1996,
respectively 13,401 13,345
Capital in excess of par 53,477 51,956
Retained earnings 36,659 38,762
-------- --------
Total stockholders' equity 103,537 104,063
-------- --------
Total liabilities and stockholders' equity $492,842 $478,907
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE> 4
DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
------------------------
March 29, March 30,
($ in thousands, except per share amounts) 1997 1996
--------- ---------
<S> <C> <C>
Revenues:
Net sales $ 200,438 $ 166,970
Other income 404 465
--------- ---------
200,842 167,435
--------- ---------
Costs and expenses:
Cost of goods sold 162,251 132,532
Selling, general and administrative 36,184 30,407
Interest, net of interest capitalized 2,489 1,713
--------- ---------
200,924 164,652
--------- ---------
(Loss) income before income taxes (82) 2,783
Income tax (benefit) provision (32) 1,099
--------- ---------
Net (loss) income (50) 1,684
Accretion of preferred stock to
redemption value (106) (106)
Preferred stock dividends (1,144) (1,144)
--------- ---------
Net (loss) income applicable to common stock $ (1,300) $ 434
========= =========
Net (loss) income per common share $ (.10) $ .03
========= =========
Dividends per common share $ .06 $ .06
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE> 5
DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
Common Stock
--------------------- Capital in Retained
(In thousands) Shares Amount Excess of Par Earnings Total
------ -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 30, 1995 12,929 $ 12,929 $ 39,370 $ 39,964 $ 92,263
Net income 1,684 1,684
Accretion of preferred stock
to redemption value (106) (106)
Preferred stock dividends declared (1,144) (1,144)
Common stock dividends declared (800) (800)
Common stock issued in acquisition
of M-K-D Distributors, Inc. 320 320 10,480 10,800
Repurchases and retirements
of common stock (4) (4) (110) (114)
Employee stock plans 88 88 1,841 1,929
------ -------- -------- -------- --------
Balance at March 30, 1996 13,333 $ 13,333 $ 51,581 $ 39,598 $104,512
======= ======== ======== ======== ========
Balance at December 28, 1996 13,345 $ 13,345 $ 51,956 $ 38,762 $104,063
Net loss (50) (50)
Accretion of preferred stock
to redemption value (106) (106)
Preferred stock dividends declared (1,144) (1,144)
Common stock dividends declared (803) (803)
Repurchases and retirements
of common stock (4) (4) (110) (114)
Employee stock plans 60 60 1,631 1,691
------ -------- -------- -------- --------
Balance at March 29, 1997 13,401 $ 13,401 $ 53,477 $ 36,659 $103,537
======= ======== ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
5
<PAGE> 6
DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------------
March 29, March 30,
($ in thousands) 1997 1996
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (50) $ 1,684
Adjustments to reconcile net (loss) income to cash
provided from operations:
Depreciation and amortization 7,618 6,004
Deferred income taxes (17) 504
Changes in assets and liabilities, net of amounts
acquired:
Trade accounts receivable (14,576) (12,177)
Other accounts receivable 1,011 1,811
Inventories (6,419) (6,092)
Prepaid expenses and other 2,210 3,770
Accounts payable and accrued liabilities 20,740 22,135
Accrued payroll and employee benefits 1,518 (5,866)
-------- --------
12,035 11,773
-------- --------
Cash flows from investing activities:
Acquisition of property, plant and equipment (6,059) (22,336)
Retirement of property, plant and equipment 310 111
Increase in goodwill and distribution rights (96) (378)
Increase in other assets (436) (2,055)
-------- --------
(6,281) (24,658)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt 26,000
Reductions in long-term debt (7,889) (11,300)
Issuance of common stock under employee stock plans 1,691 1,929
Repurchases of common stock (114) (114)
Cash dividends paid (1,944) (1,920)
-------- --------
(8,256) 14,595
-------- --------
(Decrease) increase in cash and cash equivalents (2,502) 1,710
Cash and cash equivalents, beginning of period 4,134 3,051
-------- --------
Cash and cash equivalents, end of period $ 1,632 $ 4,761
======== ========
Supplemental Cash Flow Information --
Cash paid (refunded) during the period for:
Interest (net of amounts capitalized) $ 1,960 $ 2,238
Income taxes (net of refunds) (2,832) (138)
Non-cash transaction:
Acquisition of M-K-D Distributors, Inc. 10,800
</TABLE>
See accompanying Notes to Consolidated Financial Statements
6
<PAGE> 7
DREYER'S GRAND ICE CREAM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - General:
Dreyer's Grand Ice Cream, Inc. and its subsidiaries (the Company) is a
single segment industry company engaged in the business of manufacturing and
distributing premium ice cream and other frozen dessert products to grocery and
convenience stores, foodservice accounts and independent distributors in the
United States.
The consolidated financial statements for the thirteen week periods ended March
29, 1997 and March 30, 1996 have not been audited by independent public
accountants, but include all adjustments, such as normal recurring accruals,
which management considers necessary for a fair presentation of the consolidated
operating results for the periods. The statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosure normally
included in financial statements prepared in conformity with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The operating results for interim periods are not necessarily
indicative of results to be expected for an entire year. The aforementioned
statements should be read in conjunction with the Consolidated Financial
Statements for the year ended December 28, 1996, appearing in the Company's 1996
Annual Report to Stockholders.
NOTE 2 - Inventories:
Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Inventories at March 29, 1997 and December 28, 1996
consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 29, December 28,
1997 1996
--------- -----------
(unaudited)
<S> <C> <C>
Raw materials $ 7,850 $ 5,361
Finished goods 39,329 35,399
------- -------
$47,179 $40,760
======= =======
</TABLE>
NOTE 3 - Net (Loss) Income Per Common Share:
Net (loss) income per common share is computed using the weighted average
number of shares of common stock outstanding during the period, which were
13,368,000 shares for the quarter ended March 29, 1997 and 12,974,000 shares for
the quarter ended March 30, 1996. The potentially dilutive effect of the
Company's redeemable convertible Series B preferred stock and other common stock
equivalents was anti-dilutive for the thirteen week periods ended March 29, 1997
and March 30, 1996. Accordingly, fully diluted net income per share is not
presented.
7
<PAGE> 8
In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings
per Share" (SFAS 128), was issued. SFAS 128 establishes new standards for
computing and disclosing earnings per share (EPS). The Company is required to
adopt SFAS 128 during the fourth quarter of 1997 effective in the Company's 1997
Annual Report to Stockholders. When adopted, SFAS 128 will require the Company
to replace its traditional EPS disclosures with a dual presentation of basic and
diluted EPS and to restate all prior EPS data presented. If SFAS 128 had been in
effect for the thirteen week period ended March 29, 1997, basic and diluted EPS
would be the same as the net (loss) income per common share for both periods
presented in the Company's Consolidated Statement of Operations.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percent which
the items in the Consolidated Statement of Operations bear to net sales and the
percentage change of such items compared to the indicated prior period:
<TABLE>
<CAPTION>
Percentage of Net Sales
----------------------- Period-to-Period
Thirteen Weeks Ended Increase (Decrease)
----------------------- -------------------
March 29, March 30, Thirteen Weeks 1997
1997 1996 Compared to 1996
---------- --------- -------------------
<S> <C> <C> <C>
Revenues:
Net sales 100.0% 100.0% 20.0%
Other income 0.2 0.3 (13.1)
----- -----
Total revenue 100.2 100.3 20.0
----- -----
Costs and expenses:
Cost of goods sold 80.9 79.4 22.4
Selling, general and administrative 18.1 18.2 19.0
Interest, net of interest capitalized 1.2 1.0 45.3
----- -----
Total costs and expenses 100.2 98.6 22.0
----- -----
(Loss) income before income taxes (0.0) 1.7 (103.0)
Income tax (benefit) provision (0.0) 0.7 (103.0)
----- -----
Net (loss) income (0.0) 1.0 (103.0)
----- -----
Accretion of preferred stock
to redemption value 0.1 0.1 0.0
Preferred stock dividends 0.6 0.6 0.0
----- -----
Net (loss) income applicable to
common stock (0.7)% 0.3% (400.0)%
===== =====
</TABLE>
9
<PAGE> 10
RESULTS OF OPERATIONS
Thirteen Weeks ended March 29, 1997 Compared with Thirteen Weeks Ended March 30,
1996
The Company embarked on a five year plan (the Strategic Plan, also referred
to as the Grand Plan) during the second quarter of 1994 to accelerate the sales
of its brand throughout the country. The key elements of this plan are: 1) to
build a high margin brand with a leading market share through effective consumer
marketing activities, 2) to expand the Company's direct-store-delivery
distribution network to national scale and enhance this capability with
sophisticated information and logistics systems and 3) to introduce innovative
new products. The potential benefits of the Strategic Plan are increased market
share and future earnings above those levels that would be attained in the
absence of the Strategic Plan. As originally announced, the Company anticipated
that the cost of implementing the Strategic Plan would materially reduce
earnings during the fiscal years of 1994 and 1995. For fiscal 1996, earnings
improved to a net income of $6,997,000, or $0.15 per common share, from a net
loss in 1995 of $(1,524,000), or $(0.26) per common share. This improvement is
partially attributable to benefits accruing from the investments made under the
Strategic Plan during the past two and a half years. During the first quarter of
1997, the Company recorded a net loss of $(50,000), or $(0.10) per common share,
compared with net income of $1,684,000, or $0.03 per common share, recorded in
the first quarter of 1996. Net profitability for the first quarter was lower
than the prior year first quarter due primarily to a decline in the Company's
gross margin which is discussed below.
The Company anticipates that the earnings benefits expected under the Strategic
Plan will be achieved in 1997 and future years. However, no assurance can be
given that these expectations relative to future market share and earnings
benefits of the strategy will be achieved. The success of the strategy will
depend upon, among other things, consumer purchase responsiveness to the
increased marketing expenditures, competitors' marketing responses, market
conditions affecting the price of the Company's products, commodity costs and
efficiencies achieved in manufacturing and distribution operations.
Consolidated net sales for the first quarter of 1997 increased by $33,468,000,
or 20%, to $200,438,000 from $166,970,000 for the same period last year. Sales
of the Company's branded products were 21%, or $22,395,000, higher than the
comparable quarter in 1996 and accounted for 67% of the overall increase. The
increase in sales of the Company's branded products related primarily to higher
unit sales in all markets due in part to the continued higher advertising and
promotion spending under the Company's Strategic Plan. The products that led
this increase were Dreyer's and Edy's Grand Ice Cream, Starbucks(TM) Ice Cream,
Dreyer's and Edy's Grand Light(R) Ice Cream, Edy's new Homemade Ice Cream and
Whole Fruit Sorbet(TM). Sales of branded products purchased from other
manufacturers (partner brands) increased 18% led by Healthy Choice(R) Low Fat
Ice Cream from Con Agra, Inc. Sales of partner brands represented 37% of
consolidated net sales compared with 38% (34%, as reported last year, prior to
the allocation of the sales of M-K-D Distributors, Inc. between the Company's
branded products and partner brands) in the same period last year. The effect of
price increases for the Company's branded products and partner brands was not
significant.
Cost of goods sold increased $29,719,000, or 22%, over the first quarter of
1996, while the overall gross margin decreased to 19.1% from 20.6%. The gross
margin decreased due to lower margins on partner brands in 1997 caused by a
shift in the mix of products and the reduction of prior year cost of goods sold
by a $2,100,000 insurance settlement recorded during the first quarter of 1996.
The decrease in gross margin was partially offset by an increase in the gross
margin of the Company's branded products and a relative increase in sales of the
Company's branded products as a percent of consolidated net sales (which carry a
higher margin than partner brands) in the first quarter of 1997.
Selling, general and administrative expenses in the first quarter of 1997 were
$5,777,000, or 19%, higher than in the same period of 1996. This increase
related primarily to higher advertising and promotion expenses in the
first quarter of 1997 compared with the same period in 1996. Selling, general
and administrative expenses remained 18% of total sales in both periods.
Interest expense increased $776,000, or 45%, over the first quarter of 1996, due
primarily to additional interest expense from the issuance of senior notes in
the second quarter of 1996, partially offset by a reduction in interest expense
due to lower borrowings on the Company's line of credit.
Income taxes decreased due to a pre-tax loss in 1997. The effective tax rate
remained relatively unchanged at 39.3% for the first quarter of 1997 compared
with 39.5% for the first quarter of 1996.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 29, 1997 decreased $6,989,000 from year-end 1996
due primarily to the seasonal increase in accounts payable and accrued
liabilities partially offset by an increase in trade accounts receivable. Cash
was provided primarily from operations and was used to reduce long-term debt by
$7,889,000 and fund a $6,059,000 increase in property, plant and equipment.
At March 29, 1997, the Company had $1,632,000 in cash and cash equivalents, and
an unused credit line of $102,200,000. The Company believes that its credit
line, along with its liquid resources, internally generated cash and financing
capacity, are adequate to meet anticipated operating and capital requirements.
11
<PAGE> 12
PART II: OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Title of Class of Security Involved: Preferred Stock Purchase Rights.
On March 4, 1997, the Board of Directors of the Registrant approved a
second amendment (the Second Amendment) to the Amended and Restated
Rights Agreement (the Rights Agreement) dated as of March 4, 1991 by
and between the Company and ChaseMellon Shareholder Services, LLC (as
second successor in interest to Bank of America, NT&SA), as Rights
Agent. The Second Amendment, which became effective March 17, 1997,
amends the Rights Agreement to delete the last sentence of Section 27
of the Rights Agreement, thereby allowing for amendment of the Rights
Agreement to change the redemption price of the Preferred Stock
Purchase Rights (the Rights) or the expiration date of the Rights.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. The following report on Form 8-K was filed during the quarter ended
March 29, 1997:
Form 8-K filed with the Commission on March 21, 1997 to report an
amendment to the Amended and Restated Rights Agreement dated as of
March 4, 1991 (the Rights Agreement) between the Company and
ChaseMellon Shareholder Services, LLC (as second successor to Bank of
America, NT&SA), as Rights Agent, in the form approved by the Board of
Directors on March 4, 1997.
b. Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
11 Computation of Net Income Per Common Share.
27 Financial Data Schedule.
</TABLE>
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DREYER'S GRAND ICE CREAM, INC.
Dated: May 13, 1997 By: /s/ Paul Woodland
-------------------
Paul Woodland
Vice President - Finance and Administration
and Chief Financial Officer
13
<PAGE> 1
EXHIBIT 11
DREYER'S GRAND ICE CREAM, INC.
COMPUTATION OF NET (LOSS) INCOME PER COMMON SHARE
(unaudited)
<TABLE>
<CAPTION>
(in thousands, except per share amounts) Thirteen Weeks Ended
---------------------------------
March 29, 1997 March 30, 1996
-------------- --------------
<S> <C> <C>
PRIMARY
Net (loss) income applicable to common stock $ (1,300) $ 434
Weighted average number of shares of common
stock outstanding 13,368 12,974
-------- -------
Net (loss) income per common share, as reported $ (.10) $ .03
======== =======
Weighted average number of shares of common
stock outstanding 13,368 12,974
Common stock equivalent--assumed exercise of
common stock options 208 322
-------- -------
Weighted average number of shares of common
stock outstanding, including common stock
equivalents 13,576 13,296
======== =======
Net (loss) income per common share $ (.10)(1) $ .03(1)
======== =======
FULLY DILUTED
Net (loss) income applicable to common stock $ (1,300) $ 434
Add preferred dividends on redeemable convertible
Series B preferred stock, due June 2001 1,144 1,144
Add accretion of preferred stock to redemption value 106 106
-------- -------
Adjusted net (loss) income $ (50) $ 1,684
======== =======
Weighted average number of shares of common
stock outstanding 13,368 12,974
Common stock equivalent--assumed exercise of
common stock options 252 463
Assumed conversion of preferred stock 2,900 2,900
-------- -------
Adjusted shares 16,520 16,337
======== =======
Net (loss) income per common share $ (.00)(2) $ .10(2)
======== =======
</TABLE>
(1) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is not required by footnote 2 to paragraph 14 of
APB Opinion No. 15 because it results in dilution of less than 3%.
(2) This calculation is submitted in accordance with Regulation S-K item 601 (b)
(11) although it is contrary to APB Opinion No. 15 because it produces an
anti-dilutive effect.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> MAR-29-1997
<EXCHANGE-RATE> 1
<CASH> 1,632
<SECURITIES> 0
<RECEIVABLES> 88,399
<ALLOWANCES> 770
<INVENTORY> 47,179
<CURRENT-ASSETS> 160,509
<PP&E> 317,018
<DEPRECIATION> (93,833)
<TOTAL-ASSETS> 492,842
<CURRENT-LIABILITIES> 97,362
<BONDS> 155,246
98,912
0
<COMMON> 13,401
<OTHER-SE> 90,136
<TOTAL-LIABILITY-AND-EQUITY> 492,842
<SALES> 200,438
<TOTAL-REVENUES> 200,842
<CGS> 162,251
<TOTAL-COSTS> 162,251
<OTHER-EXPENSES> 36,003
<LOSS-PROVISION> 181
<INTEREST-EXPENSE> 2,489
<INCOME-PRETAX> (82)
<INCOME-TAX> (32)
<INCOME-CONTINUING> (50)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (50)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
