<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 September 27, 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.
Shares Outstanding
November 7, 1997
----------------
Common stock, $1.00 par value 27,010,598
<PAGE> 2
DREYER'S GRAND ICE CREAM, INC.
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 27, December 28,
1997 1996
------------ ------------
($ in thousands, except per share amounts) (unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 4,941 $ 4,134
Trade accounts receivable, net of
allowance for doubtful accounts of
$720 in 1997 and $755 in 1996 101,510 73,053
Other accounts receivable 19,029 13,638
Inventories 53,201 40,760
Prepaid expenses and other 10,625 13,652
-------- --------
Total current assets 189,306 145,237
Property, plant and equipment, net 227,910 225,038
Goodwill and distribution rights, net 90,694 92,010
Other assets 16,640 16,622
-------- --------
Total assets $524,550 $478,907
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
2
<PAGE> 3
DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 27, December 28,
1997 1996
------------ ------------
(unaudited)
($ in thousands, except per share amounts)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 56,578 $ 48,391
Accrued payroll and employee benefits 18,961 18,198
Current portion of long-term debt 8,512 8,512
----------- -----------
Total current liabilities 84,051 75,101
Long-term debt, less current portion 188,091 163,135
Deferred income taxes 40,382 37,802
----------- -----------
Total liabilities 312,524 276,038
----------- -----------
Commitments and contingencies
Redeemable convertible preferred stock, $1 par
value - 1,008,000 shares authorized;
1,008,000 shares issued and outstanding
in 1997 and 1996 99,124 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 -
60,000,000 shares authorized;
26,988,000 shares and 13,345,000 shares
issued and outstanding in 1997 and 1996,
respectively 26,988 13,345
Capital in excess of par 42,220 51,956
Retained earnings 43,694 38,762
----------- -----------
Total stockholders' equity 112,902 104,063
----------- -----------
Total liabilities and stockholders' equity $ 524,550 $ 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 Thirty-Nine Weeks Ended
---------------------------- ----------------------------
September 27, September 28, September 27, September 28,
($ in thousands, except per 1997 1996 1997 1996
share amounts) ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Net sales $286,256 $234,644 $758,666 $613,182
Other income 1,088 63 2,085 1,203
-------- -------- -------- --------
287,344 234,707 760,751 614,385
Costs and expenses:
Cost of goods sold 220,615 182,987 595,583 482,380
Selling, general and
administrative 55,638 43,419 138,738 108,840
Interest, net of interest
capitalized 2,911 2,936 8,142 6,917
-------- -------- -------- --------
279,164 229,342 742,463 598,137
-------- -------- -------- --------
Income before income taxes 8,180 5,365 18,288 16,248
Income taxes 3,215 2,060 7,187 6,239
-------- -------- -------- --------
Net income 4,965 3,305 11,101 10,009
Accretion of preferred stock to
redemption value 106 106 318 318
Preferred stock dividends 1,144 1,144 3,431 3,431
-------- -------- -------- --------
Net income applicable to
common stock $ 3,715 $ 2,055 $ 7,352 $ 6,260
======== ======== ======== ========
Net income per common share $ .13 $ .08 $ .26 $ .24
======== ======== ======== ========
Dividends per common share $ .03 $ .03 $ .09 $ .09
======== ======== ======== ========
</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 10,009 10,009
Accretion of preferred stock to
redemption value (318) (318)
Preferred stock dividends
declared (3,431) (3,431)
Common stock dividends declared (2,400) (2,400)
Common stock issued in
acquisition of M-K-D
Distributors, Inc. 320 320 10,480 10,800
Repurchases and retirements of
common stock (6) (6) (157) (163)
Employee stock plans 98 98 2,090 2,188
-------- ------- -------- -------- --------
Balance at September 28, 1996 13,341 $13,341 $ 51,783 $43,824 $108,948
======== ======= ======== ======== ========
Balance at December 28, 1996 13,345 $13,345 $ 51,956 $38,762 $104,063
Net income 11,101 11,101
Accretion of preferred stock to
redemption value (318) (318)
Preferred stock dividends
declared (3,431) (3,431)
Common stock dividends declared (2,420) (2,420)
Repurchases and retirements of
common stock (6) (6) (224) (230)
Employee stock plans 155 155 3,982 4,137
Common stock split 13,494 13,494 (13,494)
-------- ------- -------- -------- --------
Balance at September 27, 1997 26,988 $26,988 $ 42,220 $43,694 $112,902
======== ======= ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
5
<PAGE> 6
DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
--------------------------------------
($ in thousands) September 27, September 28,
1997 1996
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 11,101 $ 10,009
Adjustments to reconcile net income to cash
from operations:
Depreciation and amortization 23,753 20,314
Deferred income taxes 2,580 2,842
Changes in assets and liabilities, net of
amounts acquired:
Trade accounts receivable (28,457) (26,594)
Other accounts receivable (5,391) (1,278)
Inventories (12,441) (10,380)
Prepaid expenses and other 3,027 5,039
Accounts payable and accrued liabilities 8,178 18,842
Accrued payroll and employee benefits 763 (5,294)
---------- ---------
3,113 (13,500)
---------- ---------
Cash flows from investing activities:
Acquisition of property, plant and equipment (25,159) (50,289)
Retirement of property, plant and equipment 661 1,856
Increase in goodwill and distribution rights (96) (968)
Increase in other assets (733) (3,599)
---------- ---------
(25,327) (53,000)
---------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 32,000 76,000
Reductions in long-term debt (7,044) (35,194)
Issuance of common stock under employee stock 4,137 2,188
plans
Repurchases of common stock (230) (163)
Cash dividends paid (5,842) (3,887)
---------- ---------
23,021 38,944
---------- ---------
Increase (decrease) in cash and cash equivalents 807 (556)
Cash and cash equivalents, beginning of period 4,134 3,051
---------- ---------
Cash and cash equivalents, end of period $ 4,941 $ 2,495
========== ========
Supplemental Cash Flow Information -
Cash paid during the period for:
Interest (net of amounts capitalized) $ 8,174 $ 5,901
Income taxes (net of refunds) 345 102
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 and thirty-nine week
periods ended September 27, 1997 and September 28, 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 - Financial Statement Presentation:
Certain reclassifications have been made to the prior period financial
statements in order to conform to the current presentation.
NOTE 3 - Inventories:
Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Inventories at September 27, 1997 and December 28,
1996 consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 27, December 28,
1997 1996
------------ ------------
(unaudited)
<S> <C> <C>
Raw materials $ 8,369 $ 5,361
Finished goods 44,832 35,399
------------ -----------
$ 53,201 $ 40,760
============ ===========
</TABLE>
NOTE 4 - Common Stock Split:
On October 23, 1997, the stockholders of the Company approved a two-for-one
common stock split for holders of record on October 30, 1997. An amount equal to
the par value of the common stock to be issued was transferred from capital in
excess of par to common stock to retroactively reflect this split.
7
<PAGE> 8
Additionally, the number of shares and earnings and dividends per share
information appearing in these consolidated financial statements have been
restated to reflect this stock split on a retroactive basis.
NOTE 5 - Net Income Per Common Share:
Net income per common share is computed using the weighted average number of
shares of common stock outstanding during the period and dilutive common stock
equivalents if the dilution exceeds 3% of net income per common share. The
number of shares have been retroactively restated to reflect a common stock
split as discussed in Note 4.
For the thirteen and thirty-nine weeks ended September 27, 1997, the number of
common shares used in the calculation were 28,937,000 and 28,142,000,
respectively. For the thirteen and thirty-nine weeks ended September 28, 1996
the number of common shares used were 26,680,000 and 26,432,000, respectively.
The potentially dilutive effect of the Company's redeemable convertible
preferred stock and other common stock equivalents used in the calculation of
fully diluted net income per common share was anti-dilutive for the thirteen and
thirty-nine week periods ended September 27, 1997 and September 28, 1996.
Accordingly, fully diluted net income per common share is not presented.
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 and thirty-nine weeks ended September 27, 1997 and
September 28, 1996, basic and diluted EPS would have been as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
------------------------------------ -------------------------------------
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Basic $ .14 $ .08 $ .27 $ .24
Diluted .13 .08 .26 .23
</TABLE>
NOTE 6 - Redeemable, Convertible Preferred Stock:
On October 3, 1997, the Company converted its Series B redeemable,
convertible preferred stock (Series B) to Series A redeemable, convertible
preferred stock (Series A). Series B holders received quarterly preferred
dividends of approximately $1,143,000. Series A holders receive preferred
dividends at a per share rate equivalent to the common stock dividend rate
assuming the Series A had been converted into 5,800,000 shares of common stock.
NOTE 7 - Insurance Claim:
In September 1997, the Company recorded a gain relating to an insurance claim
filed as a result of the accidental release of ammonia (refrigerant) into one of
its manufacturing facilities which contaminated the finished goods inventory.
The Company's insurance covers the value of the finished goods inventory at its
normal selling price, plus expenses incurred in recovering from the accident.
This insurance claim resulted in a gain of $1,200,000, which was recorded as a
reduction in cost of goods sold in the third quarter of 1997.
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 with the indicated prior period:
<TABLE>
<CAPTION>
Period-to-Period
Percentage of Net Sales Increase (Decrease)
------------------------------------------- ---------------------
Thirteen Weeks Thirty-Nine Weeks Thirteen Thirty-Nine
Ended Ended Weeks Weeks
-------------------- -------------------- 1997 1997
Sept. 27, Sept. 28, Sept. 27, Sept. 28, Compared Compared
1997 1996 1997 1996 to 1996 to 1996
--------- --------- --------- --------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales 100.0% 100.0% 100.0% 100.0% 22.0% 23.7%
Other income 0.4 0.0 0.3 0.2 NM 73.3
------- ------- -------- -------
Total revenues 100.4 100.0 100.3 100.2 22.4 23.8
------- ------- -------- -------
Costs and expenses:
Cost of goods sold 77.1 78.0 78.5 78.7 20.6 23.5
Selling, general and
administrative 19.4 18.5 18.3 17.8 28.1 27.5
Interest, net of interest
capitalized 1.0 1.2 1.1 1.1 (0.9) 17.7
------- ------- -------- -------
Total costs and expenses 97.5 97.7 97.9 97.6 21.7 24.1
------- ------- -------- -------
Income before income taxes 2.9 2.3 2.4 2.6 52.5 12.6
------- ------- -------- -------
Income taxes 1.2 0.9 0.9 1.0 56.1 15.2
------- ------- -------- -------
Net income 1.7 1.4 1.5 1.6 50.2 10.9
Accretion of preferred stock to
redemption value 0.0 0.0 0.0 0.0 0.0 0.0
Preferred stock dividends 0.4 0.5 0.5 0.5 0.0 0.0
------- ------- -------- -------
Net income applicable to
common stock 1.3% 0.9% 1.0% 1.1% 80.8% 17.4%
======= ======= ======== =======
</TABLE>
9
<PAGE> 10
FORWARD LOOKING STATEMENTS
The Company may from time to time make written or oral forward-looking
statements. Written forward-looking statements may appear in documents filed
with the Securities and Exchange Commission, in press releases, and in reports
to stockholders. The Private Securities Litigation Reform Act of 1995 contains a
safe harbor for forward-looking statements on which the Company relies in making
such disclosures. In accordance with this "safe harbor" provision, we have
identified that forward-looking statements are contained in this Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect subsequent events or circumstances.
Also, in connection with this "safe harbor" provision, the Company is hereby
identifying important factors that could cause the Company's actual results to
differ materially from those contained in any forward-looking statement made by
or on behalf of the Company. Any such statement is qualified by reference to the
cautionary statements set forth below and in the Company's other filings with
the Securities and Exchange Commission.
RESULTS OF OPERATIONS
The Strategic Plan
The Company embarked on a new strategic plan (the Strategic 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 leverage this capability with sophisticated information 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.
The Company continues to make significant progress against the key elements of
the Strategic Plan. This progress has yielded a leading market share in a
consolidating industry. The Company's direct-store-delivery system has now
reached national scope and includes emerging category management and demand
management capabilities. The Company is launching a wide range of new product
initiatives. Following the national introduction of Whole Fruit Sorbet and
Starbucks(TM) Ice Cream, the Company has just begun an expansion of its Dreyer's
and Edy's Homemade brand from its test markets in the Southeast to a national
roll-out. In light of these successes, the Company believes that the benefits
under the Strategic Plan will be realized in future years. However, no assurance
can be given that the expectations relative to future market share and earnings
benefits of the strategy will be achieved. The realization of the benefits will
depend upon, among other things, consumer purchase responsiveness to the
Company's new products and increased marketing and promotion expenditures,
competitors' marketing and promotion responses, market conditions affecting the
price of the Company's products, commodity costs and efficiencies achieved in
manufacturing and distribution operations.
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 $0.08 per common share from a net loss in 1995 of $(1,524,000), or $(0.13)
per common share. Through the third quarter of 1997, the Company recorded net
income of $11,101,000 or $0.26 per common share compared with net income of
$10,009,000, or $0.24 per common share for the same period of 1996. Net
profitability for the first three quarters of 1997 was higher than the prior
year primarily due to an improvement in the Company's gross margin offset by
significantly higher trade promotion expenses. The Company believes that the
cost of the Strategic Plan's key elements will continue to negatively affect its
short-term earnings.
Thirteen Weeks ended September 27, 1997 Compared with Thirteen Weeks Ended
September 28, 1996
Consolidated net sales for the third quarter of 1997 increased 22%, or
$51,612,000, to $286,256,000 from $234,644,000 for the same period last year.
Sales of the Company's branded products were 24%, or $35,357,000, higher than
the comparable quarter in 1996 and accounted for the majority of the overall
sales increase. The increase in sales of the Company's branded products related
primarily to higher unit sales in all markets. The products that led this
increase were Dreyer's and Edy's Grand Ice Cream, Starbucks(TM) Ice Cream,
Dreyer's and
10
<PAGE> 11
Edy's Homemade Ice Cream, and Dreyer's and Edy's Grand Light(R) Ice Cream. These
higher sales are due in part to the effect of a significant increase in trade
promotion spending and comparatively higher advertising spending under the
Company's Strategic Plan. Sales of other companies' branded products (partner
brands) increased 18%, led by Ben and Jerry's Homemade(R) superpremium products,
frozen novelty and ice cream products from Nestle Ice Cream Company, and Healthy
Choice(R) Low Fat Ice Cream from Con Agra, Inc. Sales of partner brands
represented 37% of consolidated net sales compared with 38% in the same period
last year. Wholesale prices for the Company's branded products increased
approximately 4%, before the effect of trade promotion spending. The effect of
price increases for partner brands was not significant.
Other income increased $1,025,000 primarily due to higher earnings from a joint
venture accounted for under the equity method.
Cost of goods sold increased $37,628,000, or 21%, over the third quarter of
1996, while the overall gross margin increased to 22.9% from 22.0%. The gross
margin increased due to higher margins on Company products, a comparatively
higher proportion of sales represented by those products (which carry a higher
margin than partner brands), the benefit of a $1,200,000 non-recurring insurance
gain (See Note 7 of Notes to Consolidated Financial Statements) offset by
slightly higher distribution costs. The improvement in the gross margin on
Company products was due to lower dairy costs in the third quarter of 1997 as
compared to the same quarter in 1996.
Selling, general and administrative expenses increased from 18.5% of net sales
for the third quarter of 1996 to 19.4% of net sales for the same period in 1997.
The increase of $12,219,000, or 28%, related primarily to significantly higher
trade promotion expenses in the third quarter of 1997 compared with the same
period in 1996.
Income taxes increased primarily due to higher pre-tax income in 1997. The
effective tax rate increased to 39.3% for the third quarter of 1997 compared
with 38.4% for the third quarter of 1996.
Thirty-Nine Weeks ended September 27, 1997 Compared with Thirty-Nine Weeks ended
September 28, 1996
Consolidated net sales for the thirty-nine weeks ended September 27, 1997
increased 24%, to $758,666,000 compared with $613,182,000 for the same period
last year. Sales of the Company's branded products were 26%, or $99,132,000,
higher than in the same period last year and accounted for the majority of the
increase in total sales. The increase in sales of the Company's branded products
related primarily to higher unit sales in all markets. 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 and Dreyer's and Edy's Homemade Ice
Cream. These higher sales are due in part to the effect of a significant
increase in trade promotion spending and comparatively higher advertising
spending under the Company's Strategic Plan. Sales of partner brands increased
20%, led by Healthy Choice(R) Low Fat Ice Cream from Con Agra, Inc., frozen
novelty and ice cream products from Nestle Ice Cream Company and Ben and Jerry's
Homemade(R) superpremium products. Sales of partner brands represented 37% of
consolidated net sales as compared with 38% in the same period last year.
Wholesale prices for the Company's branded products increased approximately 4%,
before the effect of trade promotion spending. The effect of price increases for
partner brands was not significant.
Other income increased $882,000 primarily due to higher earnings from a joint
venture accounted for under the equity method.
Cost of goods sold increased $113,203,000, or 23%, as compared with 1996, while
the overall gross margin increased slightly from 21.3% to 21.5% in 1997. The
gross margin increased due to higher sales of the Company's branded products as
a percent of total consolidated net sales (which carry a higher margin than
partner brands) and an increase in the gross margin for Company products due to
lower dairy costs. These improvements were offset by lower margins on partner
brand sales due to a shift in the mix of partner brand products sold.
Selling, general and administrative expenses increased as a percentage of net
sales from 17.8% for the first three quarters of 1996 compared with 18.3% for
the same period in 1997. The increase of $29,898,000, or 27%, related primarily
to significantly higher trade promotion expenses in the first three quarters of
1997 compared with the same period in 1996.
11
<PAGE> 12
Interest expense in the first three quarters of 1997 was $1,225,000, or 18%,
higher than in the same period in the prior year 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 average
borrowings on the Company's line of credit.
Income taxes increased reflecting a higher pre-tax income, while the effective
tax rate increased from 38.4% for the first three quarters of 1996 to 39.3% for
the first three quarters of 1997.
12
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 27, 1997 increased $35,119,000 from year-end
1996 due primarily to the seasonal increase in accounts receivable and
inventories partially offset by an increase in accounts payable and accrued
liabilities. Cash was provided primarily from borrowings on the Company's long
term line of credit and was used to fund a $25,159,000 increase in property,
plant and equipment.
At September 27, 1997, the Company had $4,941,000 in cash and cash equivalents,
and an unused credit line of $67,300,000. 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.
On October 3, 1997, the Company converted its Series B redeemable, convertible
preferred stock to Series A redeemable, convertible preferred stock. (See Note 6
of Notes to Consolidated Financial Statements).
On October 23, 1997, the stockholders of the Company approved a two-for-one
common stock split for holders of record on October 30, 1997. Earnings per share
information appearing in this Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations has been restated to
reflect this stock split on a retroactive basis. (See Note 4 of Notes to
Consolidated Financial Statements.)
13
<PAGE> 14
PART II: OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 23, 1997, the Company held a Special Meeting of
Stockholders. A total of 15,495,621 shares (94.64%) of the
outstanding shares were represented at the meeting whether by person
or by proxy, including the shares of common stock into which the
outstanding shares of Series B Redeemable, Convertible Preferred
Stock were convertible on the record date for the meeting. The sole
matter submitted to a vote of the security holders at the meeting was
the approval of the Amendment of the Certificate of Incorporation of
the Company to increase the authorized number of shares of common
stock, $1.00 par value, from 30,000,000 to 60,000,000 and to effect a
two-for-one split of the Company's common stock.
The amendment and split was approved with 12,427,331 affirmative
votes cast. The number of negative votes cast was 3,058,896. The
number of votes abstaining was 9,394.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
a. No reports on Form 8-K were filed by the Company during the quarter
ended September 27, 1997.
b. Exhibits
Exhibit No. Description
10.1 Fourth Amendment to Note Agreement dated as of June 10, 1997
between Dreyer's Grand Ice Cream, Inc. and each of Massachusetts
Mutual Life Insurance Company, MML Pension Insurance Company, the
Connecticut Mutual Life Insurance Company, the Equitable Life
Assurance Society of the United States, and Transamerica Occidental
Life Insurance Company (together, the "Lenders"), amending the Note
Agreements dated as of March 15, 1991 between Dreyer's Grand Ice
Cream, Inc. and each of the Lenders.
11 Computation of Net Income Per Common Share.
27 Financial Data Schedule.
14
<PAGE> 15
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: November 11, 1997 By: /s/ T. GARY ROGERS
---------------------------------
T. Gary Rogers
Chairman of the Board and
Chief Executive Officer and
Acting Chief Financial
Officer
<PAGE> 1
EXHIBIT 10.1
FOURTH AMENDMENT TO NOTE AGREEMENT
Reference is made to the Note Agreement dated as of March 15, 1991, as amended
(the "Note Agreement") between Dreyer's Grand Ice Cream, Inc. (the "Company"),
and Massachusetts Mutual Life Insurance Company, Connecticut Mutual Life
Insurance Company (now Massachusetts Mutual Life Insurance Company), the
Equitable Life Assurance Society of the United States, Transamerica Occidental
Life Insurance Company, and MML Pension Insurance Company (now UniCare Life and
Health Insurance Company, whose interest in the Notes has been sold to
Massachusetts Mutual Life Insurance Company) (together, the "Holders").
WHEREAS, the Company has requested relief from the provisions of Sections 5.8
and 5.8A of the Note Agreement;
WHEREAS, the Company represents and warrants to the Holders that, after giving
effect to this Amendment, no Default or Event of Default shall be outstanding
under the Note Agreement; and
WHEREAS, the Company and the Holders are desirous of amending the Note Agreement
on the terms and conditions set forth below.
NOW THEREFORE, the Company and the Holders agree that the Note Agreement is
hereby amended as follows:
1. Sections 5.8 and 5.8A of the Note Agreement are hereby deleted and replaced
in their entirety with the following:
"Section 5.8. Minimum Consolidated Net Worth. The Company will not,
at any time, permit Consolidated Net Worth to be less than the sum of (a)
$170,000,000 plus (b) an aggregate amount equal to 25% of Consolidated Net
Income (but, in each case, only if a positive number) for each completed fiscal
year beginning with the fiscal year ending December 31, 1996."
2. The definition of "Restricted Investments" contained in Section 8 of the Note
Agreement is hereby deleted and replaced with the following:
""Restricted Investments" means all Investments except (i)
Investments in property to be used in the ordinary course of business; (ii)
Investments in Restricted Subsidiaries; (iii) Investments in obligations,
maturing within three years, issued by or guaranteed by the United States of
America or an agency thereof; (iv) Investments in municipal securities, maturing
within three years, which are rated in one of the top two rating classifications
by at least one National Rating Agency; (v) Investments in certificates of
deposit or banker's acceptances issued by Bank of America N.T. & S.A. or other
commercial banks, which are rated in one of the top two rating classifications
by at least one National Rating Agency; (vi) Investments consisting of
repurchase arrangements with banks meeting the requirements of clause (v) of
this definition; (vii) Investments in commercial paper, maturing
<PAGE> 2
within 270 days, rated in one of the top two rating classifications by at least
one National Rating Agency; (viii) Investments in money market instrument
programs which have a policy of maintaining net asset value of at least $1.00
and are classified as current assets in accordance with generally accepted
accounting principles in effect at the time; (ix) loans or advances in the
ordinary course of business to officers, directors and employees for expenses
incidental to carrying on the business of the Company or any Restricted
Subsidiary; and (x) any other Investments listed on Exhibit X attached hereto."
3. The following new definitions are hereby added to Section 8 of the Note
Agreement, in the appropriate alphabetical order:
"Consolidated Net Worth" means, at any time, without duplication, the
consolidated stockholders' equity of the Company and its Restricted
Subsidiaries, as determined in accordance with generally accepted accounting
principles in effect at the time, plus the Stated Value of the Company's Series
B Preferred Stock in existence on June 6, 1996, and any Series A Preferred Stock
into which such existing Series B Preferred Stock may be converted, less the
amount of Restricted Investments of the Company and its Restricted Subsidiaries
in excess of 15% of consolidated stockholders' equity of the Company and its
Restricted Subsidiaries.
"National Rating Agency" means each of Moody's Investor Service,
Inc., Standard and Poor's Ratings Group, a division of McGraw Hill, Inc., and
Duff & Phelps Credit Rating Co."
"Preferred Stock" means any class of capital stock of a corporation
that is preferred over any other class of capital stock of such corporation as
to the payment of dividends or the payment of any amount upon liquidation or
dissolution of such corporation."
"Series A Preferred Stock" means the Company's Series A Convertible
Preferred Stock.
"Series B Preferred Stock" means the Company's Series B Convertible
Preferred Stock.
"Stated Value" means, at any time with respect to any Preferred
Stock, the stated or liquidation value of such Preferred Stock without giving
effect to accrued dividends."
4. The capitalized terms used herein shall have the respective meanings
specified in the Note Agreement unless otherwise defined herein or if the
context shall otherwise require.
5. Except as amended herein, the terms and provisions of the Note Agreement are
hereby ratified, confirmed and approved in all respects.
<PAGE> 3
6. The effectiveness of this Amendment is expressly conditioned on the accuracy
of the Company's representations and warranties set forth above.
7. This document shall be dated as of June 10, 1997.
ACCEPTED AND AGREED TO:
DREYER'S GRAND ICE CREAM, INC. MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
/s/ William C. Collett /s/ John B. Joyce
- ----------------------------- -----------------------------
By: William C. Collett By: John B. Joyce
Its: Treasurer Its: Managing Director
THE EQUITABLE LIFE ASSURANCE TRANSAMERICA OCCIDENTAL
SOCIETY OF THE UNITED STATES LIFE INSURANCE COMPANY
/s/ John M. Casparian
- ----------------------------- -----------------------------
By: By: John M. Casparian
Its: Its: Investment Officer
<PAGE> 1
EXHIBIT 11
DREYER'S GRAND ICE CREAM, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
---------------------------- ----------------------------
(In thousands, except per share amount) September 27, September 28, September 27, September 28,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
PRIMARY
Net income applicable to common stock $ 3,715 $ 2,055 $ 7,352 $ 6,260
Weighted average number of shares of
common stock outstanding 26,920 26,680 26,828 26,432
---------- ---------- ---------- ----------
Net income per common share, simple $ .14 $ .08 $ .27 $ .24
========== ========== ========== ==========
Weighted average number of shares of
common stock outstanding 26,920 26,680 26,828 26,432
Common stock equivalent--assumed
exercise of common stock
options and warrants 2,017 296 1,314 502
---------- ---------- ---------- ----------
Weighted average number of shares of
common stock outstanding, including
common stock equivalents 28,937 26,976 28,142 26,934
========== ========== ========== ==========
Net income per common share, primary $ .13 $ .08(1) $ .26(2) $ .23(1)
========== ========== ========= ==========
FULLY DILUTED
Net income applicable to common stock $ 3,715 $ 2,055 $ 7,352 $ 6,260
Add preferred dividends on redeemable
convertible preferred stock and
accretion of preferred stock to
redemption value 1,250 1,250 3,749 3,749
---------- ---------- ---------- ----------
Adjusted net income $ 4,965 $ 3,305 $ 11,101 $ 10,009
========== ========== ========= ==========
Weighted average number of shares of
common stock outstanding 26,920 26,680 26,828 26,432
Common stock equivalent--assumed
exercise of common stock
options and warrants 2,594 296 3,050 502
Assumed conversion of preferred stock 5,800 5,800 5,800 5,800
---------- ---------- ---------- ----------
Adjusted shares 35,314 32,776 35,678 32,734
========== ========== ========= ==========
Net income per common share,
fully diluted $ .14 $ .10(3) $ .31(3) $ .31(3)
========== ========== ========= ==========
</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) The number of shares of the Company's common stock obtainable upon exercise
of outstanding options and warrants exceeded 20% of the number of common
shares outstanding at the end of the period. However, the calculation of
net income per common share using the modified treasury stock method as
required by paragraph 38 of APB Opinion No. 15 is not submitted because it
results in the same dilution of net income per common share as calculated
under the treasury stock method.
(3) 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 (A) THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> SEP-27-1997
<EXCHANGE-RATE> 1.
<CASH> 4,941
<SECURITIES> 0
<RECEIVABLES> 102,230
<ALLOWANCES> (720)
<INVENTORY> 53,201
<CURRENT-ASSETS> 189,306
<PP&E> 335,033
<DEPRECIATION> (107,123)
<TOTAL-ASSETS> 524,550
<CURRENT-LIABILITIES> 84,051
<BONDS> 188,091
99,124
0
<COMMON> 26,988
<OTHER-SE> 85,914
<TOTAL-LIABILITY-AND-EQUITY> 524,550
<SALES> 758,666
<TOTAL-REVENUES> 760,751
<CGS> 595,583
<TOTAL-COSTS> 595,583
<OTHER-EXPENSES> 138,196
<LOSS-PROVISION> 542
<INTEREST-EXPENSE> 8,142
<INCOME-PRETAX> 18,288
<INCOME-TAX> 7,187
<INCOME-CONTINUING> 11,101
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,101
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
