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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM
------------------ TO
------------------.
COMMISSION FILE NUMBER: 0-14190
DREYER'S GRAND ICE CREAM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE NO. 94-2967523
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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5929 COLLEGE AVENUE, OAKLAND, CALIFORNIA 94618
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 652-8187
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Not applicable Not applicable
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $1.00 Par Value
Preferred Stock Purchase Rights
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value (based on the average of the high and low sales
prices on March 19, 1998, as reported by NASDAQ) of the Common Stock held by
non-affiliates was approximately $466,172,928. (Such amount excludes the
aggregate market value of shares beneficially owned by the executive officers
and members of the Board of Directors of the registrant.)
As of March 19, 1998, the latest practicable date, 27,087,949 shares of
Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Dreyer's Grand Ice Cream, Inc. Annual Report to Stockholders
for the fiscal year ended December 27, 1997, filed as Exhibit 13 to this Annual
Report on Form 10-K, are incorporated by reference into Part IV of the Annual
Report on Form 10-K. With the exception of those portions which are specifically
incorporated by reference in this Annual Report on Form 10-K, the Dreyer's Grand
Ice Cream, Inc. Annual Report to Stockholders for the fiscal year ended December
27, 1997 is not to be deemed filed as part of this Report.
Portions of the Dreyer's Grand Ice Cream, Inc. Proxy Statement for the 1998
Annual Meeting of Stockholders to be filed with the Commission on or before
April 26, 1998 are incorporated by reference into Part III of this Annual Report
on Form 10-K. With the exception of those portions which are specifically
incorporated by reference in this Annual Report on Form 10-K, the Dreyer's Grand
Ice Cream, Inc. Proxy Statement for the 1998 Annual Meeting of Stockholders is
not to be deemed filed as part of this Report.
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PART I
ITEM 1. BUSINESS
GENERAL
Dreyer's Grand Ice Cream, Inc. and its consolidated subsidiaries are,
unless the context otherwise requires, sometimes referred to herein as
"Dreyer's" or the "Company." The Company, successor to the original Dreyer's
Grand Ice Cream business, was originally incorporated in California on February
23, 1977 and reincorporated in Delaware on December 28, 1985.
Dreyer's manufactures and distributes premium ice cream and other frozen
dessert products. Since 1977, Dreyer's has developed from a specialty ice cream
sold principally in selected San Francisco Bay Area grocery and ice cream stores
to a broad line of frozen dairy and other frozen desserts sold under the
Dreyer's and Edy's brand names in retail outlets serving more than 86% of the
households in the United States. The Dreyer's line of products are available in
the thirteen western states, Texas and certain markets in the Far East. The
Company's products are sold under the Edy's brand name generally throughout the
remaining regions of the United States. The Dreyer's and Edy's line of products
are distributed through a direct-store-delivery system further described below
under the caption "Marketing, Sales and Distribution." The Company also
distributes and, in certain instances, manufactures branded ice cream and frozen
dessert products of other companies. The Dreyer's and Edy's line of ice cream
and related products is relatively expensive and is sold by the Company and its
independent distributors to grocery stores, convenience stores, club stores, ice
cream parlors, restaurants, hotels and certain other accounts. The Dreyer's and
Edy's brands enjoy strong consumer recognition and loyalty.
MARKETS
Ice cream was traditionally supplied by dairies as an adjunct to their
basic milk business. Accordingly, ice cream was marketed like milk, as a
fungible commodity, and manufacturers competed primarily on the basis of price.
This price competition motivated ice cream producers to seek economies in their
formulations. The resulting trend to lower quality ice cream created an
opportunity for the Company and other producers of premium ice creams, whose
products can be differentiated on the basis of quality, technological
sophistication and brand image, rather than price. Moreover, the market for all
packaged ice creams was influenced by the steady increase in market share of
"private label" ice cream products owned by the major grocery chains and the
purchase or construction by the chains of their own milk and ice cream plants.
The resulting reduction in the market for milk and the "regular" ice cream
brands produced by the independent dairies has caused many such dairies to
withdraw from the market. Manufacturing and formulation complexities, broader
flavor requirements, consumer preference and brand identity, however, make it
more difficult for the chains' private label brands to compete effectively in
the premium market segment. As a result, independent premium brands such as the
Company's are normally stocked by major grocery chains.
While many foodservice operators, including hotels, schools, hospitals and
other institutions, buy ice cream primarily on the basis of price, there are
also those in the foodservice industry who purchase ice cream based on its
quality. Operators of ice cream shops wanting to feature a quality brand,
restaurants that include an ice cream brand on their menu and clubs or chefs
concerned with the quality of their fare are often willing to pay for Dreyer's
quality, image and brand identity.
PRODUCTS
The Company and its predecessors have always been innovators of flavor,
package development and formulation. William A. Dreyer, the creator of Dreyer's
Grand Ice Cream, is credited with inventing many popular flavors including Rocky
Road. Dreyer's was among the first ice creams in the West packaged in round
containers with window lids that allow consumers to see the actual product they
are buying. The Company was also the first to produce an ice cream lower in
calories. The Company's Grand Light(R) formulation was a precursor to the
reduced fat, reduced sugar and low cholesterol products in the Company's current
product line.
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The Company uses only the highest quality ingredients in its products. The
Company's management philosophy is to resist changes in its formulations or
production processes that compromise quality for cost even though the industry
in general may adopt such new formulation or process compromises.
Dreyer's and Edy's Grand Ice Cream is the Company's flagship product which
utilizes traditional formulations with all natural flavorings and is
characterized by premium quality taste and texture, and diverse flavor
selection. The flagship product is complimented by the Company's successful
reduced fat, low cholesterol products such as Frozen Yogurt; Grand Light; No
Sugar Added and Fat Free ice creams; and the Company's Sherbet and Whole Fruit
Sorbet products. The Company believes these products are well positioned in the
segments of the market where products are characterized by lower levels of fat,
sugar and cholesterol than those of regular ice cream. During 1997, the Company
introduced Homemade Ice Cream on a nationwide basis. The Company produces
Portofino(R) brand Italian style ice cream which is distributed in selected
western markets, and manufactures and distributes Starbucks(R) Ice Cream
products for its joint venture with Starbucks Coffee Company. The Company also
produces a premium soft serve product, Grand Soft(R), which is available as ice
cream or frozen yogurt. The Company's novelty line features Dreyer's and Edy's
Ice Cream Bars, Fruit Bars, and Sundae Cones. The Company redesigned its 1997
packaging for the novelty products to reposition these products to target the
family segment of the market. The Company also distributes and, in some
instances, manufactures selected branded frozen dessert products of other
companies.
The Company's product lines now include over 100 flavors that are selected
both on the basis of general popularity and on the intensity of consumer
response. Some flavors are seasonal and are produced only as a featured flavor
during particular months. The Company operates a continuous flavor development
and evaluation program.
The Company holds registered trademarks on many of its products. Dreyer's
believes that consumers associate the Company's trademarks, distinctive
packaging and trade dress with its high quality products. The Company does not
own any patents that are material to its business. Research and development
expenses are not a significant expense of the Company, nor have they been a
significant expense historically.
MARKETING, SALES AND DISTRIBUTION
The Company's marketing strategy is based upon management's belief that a
significant number of people prefer a quality product and quality image in ice
cream just as they do in other product categories. A quality image is
communicated in many ways -- taste, packaging, flavor selection, price and often
through advertising and promotion. If consistency in the product's quality and
image are strictly maintained, a brand can develop a clearly defined and loyal
consumer following. It is the Company's goal to develop such a consumer
following in each major market in which it does business.
The Company embarked on a 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 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. For
additional information regarding the Strategic Plan see the discussion set forth
under the caption "Results of Operations" which appears on page 31 of the
Company's 1997 Annual Report to Stockholders.
Unlike many other ice cream manufacturers, the Company uses a
direct-store-delivery system which allows distribution of the Company's products
directly to the retail ice cream cabinet by either the Company's
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own personnel or independent distributors who primarily distribute the Company's
products. This store level distribution allows service to be tailored to the
needs of each store. Dreyer's believes this service ensures proper product
handling, quality control, flavor selection and retail display. The
implementation of this system has resulted in an ice cream distribution network
capable of providing frequent direct service to grocery stores in every market
where the Company's products are sold. Under the Strategic Plan, the Company's
distribution network has been significantly expanded to where the Company's
products are available to grocery stores serving approximately 86% of the United
States. This distribution system is considerably larger than any other
direct-store-delivery system for ice cream products currently operating in the
United States.
Each distributor, whether Company-owned or independent, is primarily
responsible for sales of all products within its respective market area.
However, the Company provides sales and marketing support to its independent
distributors, including training seminars, sales aids of many kinds, point of
purchase materials, assistance with promotions and other sales support.
The distribution network in the West now includes fourteen distribution
centers operated by the Company in large metropolitan areas such as Los Angeles,
the San Francisco Bay Area, Phoenix, San Diego, Seattle and Denver. The
remaining metropolitan areas throughout the thirteen western states, Texas and
the Far East are served through independent distributors.
Distribution in the remainder of the United States is under the Edy's brand
name with most of the distribution handled through nineteen Company-owned
distribution centers, including centers in New Jersey, Chicago, Washington,
D.C., Atlanta, Tampa and Kansas City. The Company also has independent
distributors handling the Company's products in certain market areas east of the
Rocky Mountains.
Taken together, independent distributors accounted for approximately 22% of
the Company's consolidated net sales in 1997. The Company's agreements with its
independent distributors are generally terminable upon 30 days notice by either
party.
For fiscal 1997, no customer accounted for more than 10% of consolidated
net sales of the Company. The Company's export sales were about 1% of 1997
consolidated net sales.
The Company experiences a seasonal fluctuation in sales, with more demand
for its products during the spring and summer than during the fall and winter.
MANUFACTURING
The Company manufactures its products at its plants in Union City,
California; City of Commerce, California; Fort Wayne, Indiana; Houston, Texas;
and Salt Lake City, Utah. In order to serve high altitude markets and to
occasionally meet peak periods of demand, the Company has manufacturing
agreements with three ice cream manufacturers to produce Dreyer's line of
products in accordance with specifications and quality control provided by
Dreyer's. Of the approximately 90 million gallons of the Company's products sold
in 1997, approximately three million gallons were manufactured under these
arrangements. The Company also has manufacturing agreements with five different
facilities to produce the majority of its novelty products. During 1997, these
facilities produced approximately three million cases of Dreyer's and Edy's Ice
Cream Bars and Fruit Bars. In addition, the Company has agreements to produce
products for other manufacturers. In 1997, the Company manufactured
approximately 12 million gallons of product under these agreements.
The primary factor in the Company's product costs is the price of basic
dairy ingredients (cream, milk and skim milk) and sugar. The minimum prices paid
for dairy ingredients are established by the market under the Federal Milk Price
Support Program. During 1996, the Company experienced an $8,140,000 increase in
dairy raw materials costs which negatively impacted the Company's gross profit.
During 1997, dairy prices decreased to slightly lower levels resulting in a
favorable impact of $3,842,000 on gross profit when compared to 1996 price
levels.
In order to ensure consistency of flavor, each of the Company's
manufacturing plants purchases, to the extent practicable, all of its required
dairy ingredients from one local supplier. These dairy products and most
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other ingredients or their equivalents are available from multiple sources. The
Company maintains a rigorous process for evaluating qualified alternative
suppliers of its key ingredients.
COMPETITION
The Company's manufactured products compete on the basis of brand image,
quality and breadth of flavor selection. The ice cream industry is highly
competitive and most ice cream manufacturers, including full line dairies, the
major grocery chains and the other independent ice cream processors, are capable
of manufacturing and marketing high quality ice creams. Furthermore, there are
relatively few barriers to new entrants in the ice cream business. However,
reduced fat, reduced sugar and low cholesterol ice cream products generally
require technologically sophisticated formulations in comparison to standard or
"regular" ice cream products.
Much of the Company's competition comes from the "private label" brands
produced by or for the major supermarket chains and which generally sell at
prices below those charged by the Company for its products. Because these brands
are owned by the retailer, they often receive preferential treatment when the
retailers allocate available freezer space. The Company's competition also
includes premium ice creams produced by other ice cream manufacturers, some of
whom are owned by parent companies much larger than Dreyer's.
EMPLOYEES
On December 27, 1997, the Company had approximately 3,500 employees. The
Company's Union City manufacturing and distribution employees are represented by
the Teamsters Local 853, whose contract with the Company expires between
September 1999 and December 2000 for different types of employees, and the
International Union of Operating Engineers, Stationary Local No. 39, whose
contract with the Company expires in August 2001. The Sacramento distribution
employees are represented by the Chauffeurs, Teamsters and Helpers Union, Local
150 whose contract with the Company expires in August 1999. The St. Louis
distribution employees are represented by the United Food & Commercial Workers
Union, Local 655 whose contract with the Company expires in December 2000. The
Company has never experienced a strike by any of its employees.
ITEM 2. PROPERTIES
The Company owns its headquarters located at 5929 College Avenue in
Oakland, California. The headquarters buildings include 54,000 square feet of
office space utilized by the Company and 10,000 square feet of retail space
leased to third parties.
The Company owns a manufacturing and distribution facility in Union City,
California. This facility has approximately 60,000 square feet of manufacturing
and dry storage space, 40,000 square feet of cold storage warehouse space and
15,000 square feet of office space. The plant has the current production
capacity of 28 million gallons per year. During 1997, the facility produced
approximately 22 million gallons of ice cream and related products.
The Company leases an ice cream manufacturing plant with an adjoining cold
storage warehouse located in the City of Commerce, California. This facility has
approximately 76,000 square feet of manufacturing and dry storage space, 25,000
square feet of cold storage space and 19,000 square feet of office space. The
lease on this property, including renewal options, expires in 2022. The plant
has the current production capacity of 20 million gallons per year. During 1997,
the facility produced approximately 19 million gallons of ice cream and related
products.
The Company owns a cold storage warehouse facility located in the City of
Industry, California. This facility includes 52,000 square feet of cold and dry
storage warehouse space and 13,000 square feet of office space. This facility
supplements the cold storage warehouse and office space leased in the City of
Commerce.
The Company owns a manufacturing plant with an adjoining cold storage
warehouse in Fort Wayne, Indiana. This facility has approximately 112,000 square
feet of manufacturing and storage space and 9,000 square feet of office space.
In January 1998, the Company completed construction of an additional
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warehouse on land adjacent to the Ft. Wayne manufacturing facility. The newly
constructed warehouse has cold storage space of 76,000 square feet and office
space of 13,000 square feet. Until its lease expires in March 1998, the Company
leases approximately 50,000 square feet of cold storage and 2,000 square feet of
office space near the Fort Wayne facility. The newly constructed warehouse
facility replaces the leased warehouse facility. The plant has the current
production capacity of 54 million gallons per year, with projected future
production capacity of 64 million gallons in 1999 achieved through machinery and
equipment purchases to increase efficiency. During 1997, the facility produced
approximately 46 million gallons of ice cream and related products. The
Company's original purchase and development of the Fort Wayne facility was
financed by industrial development bonds and the property is pledged as
collateral to secure payment of the Company's obligations to the issuer of the
irrevocable letter of credit established for the benefit of the bondholders.
The Company owns a manufacturing and distribution facility in Houston,
Texas. This facility was recently renovated and has approximately 69,000 square
feet of manufacturing and dry storage space, 46,000 square feet of cold storage
warehouse space and 20,000 square feet of office space. The plant has the
current production capacity of approximately 26 million gallons per year. During
1997, this facility produced approximately 15 million gallons of ice cream and
related products.
The Company owns a manufacturing and distribution facility in Salt Lake
City, Utah. This facility has approximately 12,000 square feet of manufacturing
and dry storage space, 13,000 square feet of cold storage space and 1,000 square
feet of office space. The plant has the current production capacity of 5 million
gallons per year. During 1997, the facility produced approximately 4 million
gallons of ice cream and related products.
The Company intentionally acquires, designs and constructs its
manufacturing and distribution facilities with a capacity greater than current
needs require. This is done to facilitate growth and expansion and minimize
future capital outlays. The cost of carrying this excess capacity is not
significant.
The Company also leases or rents various local distribution and office
facilities with leases expiring through the year 2022 (including options to
renew).
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The information set forth under the caption "Item 4. Submission of Matters
to a Vote of Security Holders" in the Company's Form 10-Q for the period ended
September 27, 1997 filed with the Commission on November 11, 1997, is
incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers and their ages are as follows:
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NAME POSITION AGE
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T. Gary Rogers......... Chairman of the Board and Chief Executive Officer 55
William F. Cronk, III.. President 55
Edmund R. Manwell...... Secretary 55
Thomas M. Delaplane.... Vice President -- Sales 53
J. Tyler Johnston...... Vice President -- Marketing 44
Timothy F. Kahn........ Vice President -- Finance and Administration and
Chief Financial Officer 44
William R. Oldenburg... Vice President -- Operations 51
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All officers hold office at the pleasure of the Board of Directors. There
is no family relationship among the above officers.
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Mr. Rogers has served as Dreyer's Chairman of the Board and Chief Executive
Officer since its incorporation in February 1977.
Mr. Cronk has served as a director of the Company since its incorporation
in February 1977 and has been the Company's President since April 1981.
Mr. Manwell has served as Secretary of the Company since its incorporation
and as a director of the Company since April 1981. Since March 1982, Mr. Manwell
has been a partner in the law firm of Manwell & Milton, general counsel to the
Company.
Mr. Delaplane has served as Vice President -- Sales of the Company since
May 1987.
Mr. Johnston has served as Vice President -- Marketing of the Company since
March 1996. From September 1995 to March 1996, he served as the Company's Vice
President -- New Business. From May 1988 to August 1995, he served as the
Company's Director of Marketing.
Mr. Kahn has served as Vice President -- Finance and Administration and
Chief Financial Officer since March 1998. From August 1996 until October 1997,
he served as Senior Vice President, Finance and Development for the PepsiCo
Restaurant Services division of PepsiCo, Inc., which included Taco Bell, Pizza
Hut and KFC restaurants. From January 1995 until July 1996, Mr. Kahn was Senior
Vice President and Chief Financial Officer of Pizza Hut Inc. and had
responsibility for finance, strategic planning, information technology, real
estate, construction and facility management, purchasing and refranchising. From
March 1993 until January 1995, he served as Vice President and Chief Financial
Officer of Pizza Hut International, a restaurant division with 4,000 restaurants
in 80 countries and 18 regional offices. Prior to March 1993, Mr. Kahn held the
position of Vice President, Corporate Strategic Planning with PepsiCo, Inc.
Mr. Oldenburg has served as Vice President -- Operations of the Company
since September 1986.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information set forth in Note 15 under the caption "Price Range
(NASDAQ)" which appears on page 28 of the Company's 1997 Annual Report is
incorporated herein by reference. The bid and asked quotations for the Company's
Common Stock are as reported by NASDAQ.
On March 19, 1998, the number of holders of record of the Company's common
stock was 5,199.
On November 18, 1997, the Company issued shares of common stock to holders
of record on October 30, 1997 to effect a two-for-one common stock split. All
share information appearing in this report has been restated to reflect this
stock split on a retroactive basis.
The Company paid a regular quarterly dividend of $.03 per share of common
stock for each quarter of 1997. On March 3, 1998, the Board of Directors,
subject to compliance with law, contractual restrictions and future review of
the condition of the Company, declared its intention to issue regular quarterly
dividends of $.03 per share of common stock for each quarter of 1998. Also on
March 3, 1998, the Board of Directors declared a dividend of $.03 per share of
common stock for the first quarter of 1998 for stockholders of record on March
27, 1998.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Five Year Summary of
Significant Financial Data" which appears on page 30 of the Company's 1997
Annual Report to Stockholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements contained in this report are forward-looking statements
that are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are subject to
uncertainties that could cause actual results to differ materially from those
anticipated in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, the following: 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.
The information set forth under the caption "Management's Discussion and
Analysis" which appears on pages 31-34 of the Company's 1997 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, together with the report thereon of
Price Waterhouse LLP dated February 19, 1998 appearing on pages 16-29 of the
Company's 1997 Annual Report to Stockholders, are incorporated herein by
reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "Board of
Directors -- Nominees for Director -- Continuing Directors," "Matters Submitted
to the Vote of Stockholders -- Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's Proxy Statement for
the 1998 Annual Meeting of Stockholders to be filed with the Commission on or
before April 26, 1998, and the information contained in Part I of this Annual
Report on Form 10-K under the caption "Executive Officers of the Registrant," is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in the
Company's Proxy Statement for the 1998 Annual Meeting of Stockholders to be
filed with the Commission on or before April 26, 1998 is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement for the 1998
Annual Meeting of Stockholders to be filed with the Commission on or before
April 26, 1998 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the captions "Compensation Committee
Interlocks and Insider Participation" and "Other Relationships" in the Company's
Proxy Statement for the 1998 Annual Meeting of Stockholders to be filed with the
Commission on or before April 26, 1998 is incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES:
The following documents are filed as part of this report:
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PAGE(S) IN
ANNUAL REPORT*
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1. Financial Statements:
Consolidated Statement of Income for the three years ended
December 27, 1997......................................... 16
Consolidated Balance Sheet at December 27, 1997 and December
28, 1996.................................................. 17
Consolidated Statement of Changes in Stockholders' Equity
for the three years ended December 27, 1997............... 18
Consolidated Statement of Cash Flows for the three years
ended December 27, 1997................................... 19
Notes to Consolidated Financial Statements.................. 20-28
Report of Independent Accountants........................... 29
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2. Financial Statement Schedules:
Report of Independent Accountants on Financial Statement
Schedule for the three years ended December 27, 1997........ 17
II. Valuation and Qualifying Accounts..................... 18
M-K-D Distributors, Inc. and Subsidiary Consolidated
Financial Statements:
Report of Independent Accountants......................... 19
Consolidated Balance Sheet at December 30, 1995........... 20
Consolidated Statement of Income and Retained Earnings for
the fiscal year ended December 30, 1995................. 21
Consolidated Statement of Cash Flows for the fiscal year
ended December 30, 1995................................. 22
Notes to Consolidated Financial Statements................ 23-27
</TABLE>
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* Incorporated by reference to the indicated pages of the Company's 1997 Annual
Report to Stockholders.
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
Financial statements of any other 50% or less owned company have been
omitted because the Registrant's proportionate share of income from
continuing operations before income taxes and cumulative effect of
change in accounting principle, and total assets is less than 20% of the
respective consolidated amounts, and the investment in and advances to
any such company is less than 20% of consolidated total assets.
3. List of Management Compensation Agreements
(i) Dreyer's Grand Ice Cream, Inc. Incentive Stock Option Plan (1982)
referenced in Exhibit 10.3 herein.
(ii) Indemnification Agreements by and between Dreyer's Grand Ice Cream,
Inc. and each of its directors, executive officers and certain
other officers referenced in Exhibit 10.10 herein.
(iii) Dreyer's Grand Ice Cream, Inc. Stock Option Plan (1992) referenced
in Exhibit 10.16 herein.
(iv) Dreyer's Grand Ice Cream, Inc. Incentive Bonus Plan referenced in
Exhibit 10.19 herein.
(v) Dreyer's Grand Ice Cream, Inc. Stock Option Plan (1993) referenced
in Exhibit 10.20 herein.
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(vi) Dreyer's Grand Ice Cream, Inc. Income Swap Plan referenced in
Exhibit 10.21 herein.
(b) REPORTS ON FORM 8-K
Not applicable.
(c) EXHIBITS
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EXHIBIT
NUMBER DESCRIPTION
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2.1 Securities Purchase Agreement dated June 24, 1993 by and
among Dreyer's Grand Ice Cream, Inc., Trustees of General
Electric Pension Trust, GE Investment Private Placement
Partners, I and General Electric Capital Corporation
(Exhibit 2.1(11)).
2.2 Amendment to Securities Purchase Agreement dated May 6, 1994
by and among Dreyer's Grand Ice Cream, Inc., Trustees of
General Electric Pension Trust, GE Investment Private
Placement Partners, I and General Electric Capital
Corporation, amending Exhibit 2.1 (Exhibit 2.1(14)).
2.3 Stock and Warrant Purchase Agreement dated as of May 6, 1994
by and between Dreyer's Grand Ice Cream, Inc. and Nestle
Holdings, Inc. (Exhibit 2.1(15)).
2.4 First Amendment to Stock and Warrant Purchase Agreement
dated as of June 14, 1994 by and between Dreyer's Grand Ice
Cream, Inc. and Nestle Holdings, Inc., amending Exhibit 2.3
(Exhibit 2.1(16)).
2.5 Second Amendment to Securities Purchase Agreement dated July
28, 1995 and effective as of June 1, 1995 by and among
Dreyer's Grand Ice Cream, Inc., Trustees of General Electric
Pension Trust, GE Investment Private Placement Partners, I
and General Electric Capital Corporation, amending Exhibit
2.1 (Exhibit 10.2(18)).
2.6 Third Amendment to Securities Purchase Agreement dated
October 30, 1995 and effective as of September 30, 1995 by
and among Dreyer's Grand Ice Cream, Inc., Trustees of
General Electric Pension Trust, GE Investment Private
Placement Partners, I and General Electric Capital
Corporation, amending Exhibit 2.1 (Exhibit 10.1(19)).
2.7 Amended and Restated Fourth Amendment to Securities Purchase
Agreement dated March 12, 1996 and effective as of October
1, 1995 by and among Dreyer's Grand Ice Cream, Inc.,
Trustees of General Electric Pension Trust, GE Investment
Private Placement Partners, I and General Electric Capital
Corporation, amending Exhibit 2.1 (Exhibit 2.8(20)).
3.1 Certificate of Incorporation of Dreyer's Grand Ice Cream,
Inc., as amended, including the Certificate of Designation
of Series A Convertible Preferred Stock, as amended, setting
forth the Powers, Preferences, Rights, Qualifications,
Limitations and Restrictions of such series of Preferred
Stock and the Certificate of Designation of Series B
Convertible Preferred Stock, as amended, setting forth the
Powers, Preferences, Rights, Qualifications, Limitations and
Restrictions of such series of Preferred Stock (Exhibit
3.1(16)).
3.2 Certificate of Designation, Preferences and Rights of Series
A Participating Preference Stock (Exhibit 3.2(17)).
3.3 By-laws of Dreyer's Grand Ice Cream, Inc., as last amended
May 2, 1994 (Exhibit 3.2(16)).
4.1 Amended and Restated Rights Agreement dated March 4, 1991
between Dreyer's Grand Ice Cream, Inc. and Bank of America,
NT & SA (Exhibit 10.1(6)).
4.2 Registration Rights Agreement dated as of June 30, 1993
among Dreyer's Grand Ice Cream, Inc., Trustees of General
Electric Pension Trust, and GE Investment Private Placement
Partners, I and General Electric Capital Corporation
(Exhibit 4.1(12)).
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
4.3 Amendment to Registration Rights Agreement dated May 6, 1994
by and among Dreyer's Grand Ice Cream, Inc., Trustees of
General Electric Pension Trust, GE Investment Private
Placement Partners, I and General Electric Capital
Corporation, amending Exhibit 4.2 (Exhibit 4.1(14)).
4.4 First Amendment to Amended and Restated Rights Agreement
dated as of June 14, 1994 between Dreyer's Grand Ice Cream,
Inc. and First Interstate Bank of California (as successor
Rights Agent to Bank of America NT & SA), amending Exhibit
4.1 (Exhibit 4.1(16)).
4.5 Registration Rights Agreement dated as of June 14, 1994
between Dreyer's Grand Ice Cream, Inc. and Nestle Holdings,
Inc. (Exhibit 4.2(16)).
4.6 Warrant Agreement dated as of June 14, 1994 between Dreyer's
Grand Ice Cream, Inc. and Nestle Holdings, Inc. (Exhibit
4.3(16)).
4.7 Second Amendment to Amended and Restated Rights Agreement
dated March 17, 1997 between Dreyer's Grand Ice Cream, Inc.
and ChaseMellon Shareholder Services, LLC, as Rights Agent,
amending Exhibit 4.1 (Exhibit 10.1 (24)).
4.8 Third Amendment to Amended and Restated Rights Agreement
dated May 15, 1997 between Dreyer's Grand Ice Cream, Inc.
and ChaseMellon Shareholder Services, LLC, as Rights Agent,
amending Exhibit 4.1 (Exhibit 10.1 (25)).
10.1 Agreement dated September 18, 1978 between Dreyer's Grand
Ice Cream, Inc. and Kraft, Inc. (Exhibit 10.8(1)).
10.2 Agreement and Lease dated as of January 1, 1982 and
Amendment to Agreement and Lease dated as of January 27,
1982 between Jack and Tillie Marantz and Dreyer's Grand Ice
Cream, Inc., as amended (Exhibit 10.2(17)).
10.3 Dreyer's Grand Ice Cream, Inc. Incentive Stock Option Plan
(1982), as amended. (Exhibit 10.6(13)).
10.4 Loan Agreement between Edy's and City of Fort Wayne, Indiana
dated September 1, 1985 and related Letter of Credit, Letter
of Credit Agreement, Mortgage, Security Agreement, Pledge
and Security Agreement and General Continuing Guaranty of
Dreyer's Grand Ice Cream, Inc. (Exhibit 10.33(2)).
10.5 Distribution Agreement between Dreyer's Grand Ice Cream,
Inc. and Ben & Jerry's Homemade, Inc. dated January 6, 1987
(Exhibit 10.1(3)).
10.6 Amendment and Waiver dated July 17, 1987 between Dreyer's
Grand Ice Cream, Inc. and Security Pacific National Bank,
amending the General Continuing Guaranty referenced in
Exhibit 10.4 (Exhibit 10.44(7)).
10.7 Amendment and Waiver dated December 24, 1987 between
Dreyer's Grand Ice Cream, Inc. and Security Pacific National
Bank, amending the General Continuing Guaranty referenced in
Exhibit 10.4 (Exhibit 10.45(7)).
10.8 Agreement for Amendments to Distribution Agreement dated as
of January 20, 1989 among Dreyer's Grand Ice Cream, Inc.,
Edy's Grand Ice Cream, Edy's of New York, Inc., and Ben &
Jerry's Homemade, Inc., amending Exhibit 10.5 (Exhibit 10.46
(4)).
10.9 Amendment to the Distribution Agreement dated as of April
11, 1989 by and among Dreyer's Grand Ice Cream, Inc., Edy's
Grand Ice Cream, Edy's of New York, Inc., and Ben & Jerry's
Homemade, Inc., amending Exhibit 10.5 (Exhibit 10.46(5)).
10.10 Form of Indemnification Agreement between Dreyer's Grand Ice
Cream, Inc. and each officer and director of Dreyer's Grand
Ice Cream, Inc. (Exhibit 10.47(4)).
10.11 Assignment of Lease dated as of March 31, 1989 among
Dreyer's Grand Ice Cream, Inc., Smithway Associates, Inc.
and Wilsey Foods, Inc. (Exhibit 10.52(5)).
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.12 Amendment of Lease dated as of March 31, 1989 between
Dreyer's Grand Ice Cream, Inc. and Smithway Associates,
Inc., as amended by letter dated April 17, 1989 between
Dreyer's Grand Ice Cream, Inc. and Wilsey Foods, Inc.,
amending Exhibit 10.11 (Exhibit 10.53(5)).
10.13 Third Amendment to General Continuing Guaranty and Waiver
dated January 29, 1991 between Dreyer's Grand Ice Cream,
Inc. and Security PacificNational Bank, amending the General
Continuing Guaranty referenced in Exhibit 10.4 (Exhibit
10.46(7)).
10.14 $25,000,000 9.3% Senior Notes: Form of Note Agreement dated
as of March 15, 1991, and executed on April 12, 1991 between
Dreyer's Grand Ice Cream, Inc. and each of Massachusetts
Mutual Life Insurance Company, Massachusetts Mutual Life
Pension Insurance Company, Connecticut Mutual Life Insurance
Company, the Equitable Life Assurance Society of the United
States, and Transamerica Occidental Life Insurance Company
(Exhibit 19.1(8)).
10.15 Second Amendment to Distribution Agreement dated as of
August 31, 1992 between Dreyer's Grand Ice Cream, Inc. and
Ben & Jerry's Homemade, Inc., amending Exhibit 10.5 (Exhibit
19.6(9)).
10.16 Dreyer's Grand Ice Cream, Inc., Stock Option Plan (1992)
(Exhibit 10.35(13)).
10.17 Agreement of Amendment and Waiver, dated as of September 30,
1992, 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") regarding the Note Agreements
dated as of March 15, 1991 between Dreyer's Grand Ice Cream,
Inc. and each of the Lenders, which Note Agreements are
referenced in Exhibit 10.14 (Exhibit 19.5(9)).
10.18 Second Amendment to Note Agreements dated as of September
30, 1992, 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") regarding the Note Agreements
dated as of March 15, 1991 between Dreyer's Grand Ice Cream,
Inc. and each of the Lenders, which Note Agreements are
referenced in Exhibit 10.14 (Exhibit 10.58(10)).
10.19 Description of Dreyer's Grand Ice Cream, Inc. Incentive
Bonus Plan (Exhibit 10.57(10)).
10.20 Dreyer's Grand Ice Cream, Inc. Stock Option Plan (1993), as
amended May 1, 1996.
10.21 Dreyer's Grand Ice Cream, Inc. Income Swap Plan (Exhibit
10.38(13)).
10.22 Amendment to Distribution Agreement dated April 18, 1994,
and Letter Agreement modifying such Amendment to
Distribution Agreement dated April 18, 1994 between Dreyer's
Grand Ice Cream, Inc. and Ben & Jerry's Homemade, Inc.,
amending Exhibit 10.5 (Exhibit 10.3(14)).
10.23 Amendment to Distribution Agreement dated December 12, 1994
between Dreyer's Grand Ice Cream, Inc. and Ben & Jerry's
Homemade, Inc., amending Exhibit 10.5 (Exhibit 10.27(17)).
10.24 Third Amendment to Note Agreement dated as of June 5, 1995
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"), regarding the Note Agreements
dated as of March 15, 1991 between Dreyer's Grand Ice Cream,
Inc. and each of the Lenders, which Note Agreements are
referenced in Exhibit 10.14 (Exhibit 10.3(18)).
10.25 Letter Agreement dated August 4, 1995 between Dreyer's Grand
Ice Cream, Inc. and Smithway Associates, Inc., amending
Exhibits 10.2 and 10.11 (Exhibit 10.29(20)).
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.26 Credit Agreement dated as of December 22, 1995 among
Dreyer's Grand Ice Cream, Inc., Bank of America NT & SA (as
a Bank and as Agent), ABN-AMRO Bank N.V. (as a Bank and as
Co-Agent), Credit Suisse and The Bank of California (Exhibit
10.30(20)).
10.27 Participation Agreement dated March 29, 1996 among Dreyer's
Grand Ice Cream, Inc., Edy's Grand Ice Cream, BA Leasing &
Capital Corporation (as Agent and as a Participant), ABN-
AMRO Bank, NV and Credit Suisse (Exhibit 10.2(21)).
10.28 First Amendment to Credit Agreement dated April 15, 1996
among Dreyer's Grand Ice Cream, Inc., Bank of America, NT &
SA (as Agent and as a Bank), ABN-AMRO Bank, NV (as Co-Agent
and as a Bank), Credit Suisse and Union Bank of California,
NA, amending Exhibit 10.26 (Exhibit 10.1(21)).
10.29 April 1996 Amendment to Commerce Lease dated April 23, 1996
between Dreyer's Grand Ice Cream, Inc. and Smithway
Associates, Inc., amending Exhibits 10.2 and 10.11 (Exhibit
10.29(23)).
10.30 Letter Agreement dated April 23, 1996 between Dreyer's Grand
Ice Cream, Inc. and Smithway Associates, Inc., amending
Exhibits 10.2 and 10.11 (Exhibit 10.30(23)).
10.31 $15,000,000 7.86% Series A Senior Notes Due 2002,
$15,000,000 8.06% Series B Senior Notes Due 2006 and
$20,000,000 8.34% Series C Senior Notes Due 2008: Form of
Note Agreement dated as of June 6, 1996 between Dreyer's
Grand Ice Cream, Inc. and each of The Prudential Insurance
Company of America, Pruco Life Insurance Company, and
Transamerica Life Insurance and Annuity Company (Exhibit
10.1(22)).
10.32 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"), regarding the Note Agreements
dated as of March 15, 1991 between Dreyer's Grand Ice Cream,
Inc. and each of the Lenders, which Note Agreements are
referenced in Exhibit 10.14 (Exhibit 10.1(26)).
10.33 Second Amendment to Credit Agreement dated as of December
26, 1997 among Dreyer's Grand Ice Cream, Inc., Bank of
America, NT&SA (as Agent and as a bank), ABN-AMRO Bank, NV
(as Co-Agent and as a bank), Credit Suisse First Boston and
Union Bank of California, NA, amending Exhibit 10.26.
13 Those portions of the Dreyer's Grand Ice Cream, Inc. 1997
Annual Report to Stockholders which are incorporated by
reference into this Annual Report on Form 10-K.
21 Subsidiaries of Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
</TABLE>
- ---------------
(1) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Registration Statement on Form S-1 and Amendment No. 1
thereto, filed under Commission File No. 2-71841 on April 16, 1981 and June
11, 1981, respectively.
(2) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K and Amendment No. 1 thereto for
the fiscal year ended December 28, 1985 filed under Commission File No.
0-10259 on March 28, 1986 and April 14, 1986, respectively.
(3) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Current Report on Form 8-K filed under Commission File No.
0-10259 on January 23, 1987.
13
<PAGE> 15
(4) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December
31, 1988 filed under Commission File No. 0-10259 on March 31, 1989.
(5) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December
30, 1989 filed under Commission File No. 0-10259 on March 30, 1990.
(6) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Current Report on Form 8-K filed under Commission File No.
0-10259 on March 20, 1991.
(7) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December
29, 1990 filed under Commission File No. 0-10259 on March 29, 1991.
(8) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
on June 29, 1991 filed under Commission File No. 0-10259 on August 13,
1991.
(9) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
on September 26, 1992 filed under Commission File No. 0-10259 on November
10, 1992.
(10) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December
26, 1992 filed under Commission File No. 0-10259 on March 26, 1993.
(11) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Current Report on Form 8-K filed under Commission File No.
0-10259 on June 25, 1993.
(12) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
on June 26, 1993 filed under Commission File No. 0-10259 on August 10,
1993.
(13) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December
25, 1993 filed under Commission File No. 0-14190 on March 25, 1994.
(14) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
March 26, 1994 filed under Commission File No. 0-14190 on May 10, 1994.
(15) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Current Report on Form 8-K filed under Commission File No.
0-14190 on May 9, 1994.
(16) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
June 25, 1994 filed under Commission File No. 0-14190 on August 9, 1994.
(17) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December
31, 1994 filed under Commission File No. 0-14190 on March 30, 1995.
(18) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
July 1, 1995 filed under Commission File No. 0-14190 on August 15, 1995.
(19) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1995 filed under Commission File No. 0-14190 on November 14,
1995.
(20) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December
30, 1995 filed under Commission File No. 0-14190 on March 29, 1996.
14
<PAGE> 16
(21) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
March 30, 1996 filed under Commission File No. 0-14190 on May 14, 1996.
(22) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
June 29, 1996 filed under Commission File No. 0-14190 on August 13, 1996.
(23) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December
28, 1996 filed under Commission File No. 0-14190 on March 28, 1997.
(24) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Current Report on Form 8-K filed under Commission File No.
0-14190 on March 21, 1997.
(25) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Current Report on Form 8-K filed under Commission File No.
0-14190 on May 19, 1997.
(26) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
September 27, 1997 filed under Commission File No. 0-14190 on November 11,
1997.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ T. GARY ROGERS
------------------------------------
T. Gary Rogers
Chairman of the Board and Chief
Executive Officer and Director
(Principal Executive Officer)
Date: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ T. GARY ROGERS Chairman of the Board and March 27, 1998
- -------------------------------------------------------- Chief Executive Officer and
(T. Gary Rogers) Director (Principal
Executive Officer)
/s/ WILLIAM F. CRONK, III President and Director March 27, 1998
- --------------------------------------------------------
(William F. Cronk, III)
/s/ EDMUND R. MANWELL Secretary and Director March 27, 1998
- --------------------------------------------------------
(Edmund R. Manwell)
/s/ TIMOTHY F. KAHN Vice President -- Finance March 27, 1998
- -------------------------------------------------------- and Administration and Chief
(Timothy F. Kahn) Financial Officer (Principal
Financial Officer)
/s/ JEFFREY P. PORTER Corporate Controller March 27, 1998
- -------------------------------------------------------- (Principal Accounting
(Jeffrey P. Porter) Officer)
/s/ JAN L. BOOTH Director March 27, 1998
- --------------------------------------------------------
(Jan L. Booth)
/s/ ROBERT A. HELMAN Director March 27, 1998
- --------------------------------------------------------
(Robert A. Helman)
/s/ M. STEVEN LANGMAN Director March 27, 1998
- --------------------------------------------------------
(M. Steven Langman)
/s/ JOHN W. LARSON Director March 27, 1998
- --------------------------------------------------------
(John W. Larson)
/s/ JACK O. PEIFFER Director March 27, 1998
- --------------------------------------------------------
(Jack O. Peiffer)
/s/ TIMOTHY P. SMUCKER Director March 27, 1998
- --------------------------------------------------------
(Timothy P. Smucker)
</TABLE>
Supplemental Information to be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act:
Not applicable.
16
<PAGE> 18
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Dreyer's Grand Ice Cream, Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 19, 1998 appearing in the 1997 Annual Report to
Stockholders of Dreyer's Grand Ice Cream, Inc. (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in Item
14(a)2 of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
San Francisco, California
February 19, 1998
17
<PAGE> 19
SCHEDULE II
DREYER'S GRAND ICE CREAM, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
CLASSIFICATION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
-------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fiscal year ended December 30, 1995:
Allowance for doubtful accounts............. $ 635 $1,234 $1,171(1) $ 698
Amortization of goodwill and distribution
rights................................... 10,443 2,971 -- 13,414
Amortization of other assets................ 6,222 1,184 3,209(2) 4,197
------- ------ ------ -------
$17,300 $5,389 $4,380 $18,309
======= ====== ====== =======
Fiscal year ended December 28, 1996:
Allowance for doubtful accounts............. $ 698 $ 891 $ 834(1) $ 755
Amortization of goodwill and distribution
rights................................... 13,414 3,202 -- 16,616
Amortization of other assets................ 4,197 992 191(2) 4,998
------- ------ ------ -------
$18,309 $5,085 $1,025 $22,369
======= ====== ====== =======
Fiscal year ended December 27, 1997:
Allowance for doubtful accounts............. $ 755 $1,463 $1,508(1) $ 710
Amortization of goodwill and distribution
rights................................... 16,616 3,201 -- 19,817
Amortization of other assets................ 4,998 923 -- 5,921
------- ------ ------ -------
$22,369 $5,587 $1,508 $26,448
======= ====== ====== =======
</TABLE>
- ---------------
(1) Write-off of receivables considered uncollectible.
(2) Removal of fully-amortized assets.
18
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of M-K-D Distributors, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and retained earnings and of cash flows
present fairly, in all material respects, the financial position of M-K-D
Distributors, Inc. and its subsidiary at December 30, 1995, and the results of
their operations and their cash flows for the fiscal year in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
April 9, 1996
19
<PAGE> 21
M-K-D DISTRIBUTORS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 30,
1995
------------
<S> <C>
Current Assets:
Cash...................................................... $ 46,871
Trade accounts receivable, net of allowance for doubtful
accounts of $71,303.................................... 4,784,633
Inventories............................................... 2,361,881
Prepaid expenses and other................................ 562,266
-----------
Total current assets.............................. 7,755,651
Property, plant and equipment, net.......................... 9,256,360
Notes receivable and other.................................. 432,458
-----------
Total assets...................................... $17,444,469
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities.................. $ 2,804,416
Accrued payroll and employee benefits..................... 709,343
Current portion of long-term debt......................... 446,334
-----------
Total current liabilities......................... 3,960,093
Long-term debt, less current portion........................ 1,563,263
Deferred income taxes....................................... 521,027
-----------
Total liabilities................................. $ 6,044,383
===========
Commitments
Stockholders' Equity:
Common stock, $1 par value -- 10,000 shares authorized,
issued and outstanding................................. 10,000
Capital in excess of par.................................. 40,265
Retained earnings......................................... 11,349,821
-----------
Total stockholders' equity........................ 11,400,086
-----------
Total liabilities and stockholders' equity........ $17,444,469
===========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 22
M-K-D DISTRIBUTORS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 30,
1995
-----------------
<S> <C>
Revenues:
Net sales................................................. $74,218,680
Other income.............................................. 334,884
-----------
74,553,564
-----------
Costs and Expenses:
Cost of goods sold........................................ 58,902,661
Selling, general and administrative....................... 12,806,842
Interest.................................................. 119,758
-----------
71,829,261
-----------
Income before income taxes................................ 2,724,303
Income taxes.............................................. 1,037,090
-----------
Net income................................................ 1,687,213
Retained earnings, beginning of year...................... 9,662,608
-----------
Retained earnings, end of year............................ $11,349,821
===========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 23
M-K-D DISTRIBUTORS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 30,
1995
-----------------
<S> <C>
Cash Flows from Operating Activities:
Net income................................................ $1,687,213
Adjustments to reconcile net income to cash provided from
operations:
Depreciation........................................... 1,191,747
Deferred taxes......................................... 129,330
Changes in assets and liabilities, net of amounts
acquired:
Trade accounts receivable......................... (156,585)
Inventories....................................... 964,040
Prepaid expenses and other........................ (318,147)
Notes receivable and other........................ (27,728)
Accounts payable and accrued liabilities.......... (1,179,772)
Accrued payroll and employee benefits............. 97,010
Income taxes payable.............................. (145,141)
----------
2,241,967
----------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment.............. (3,135,357)
----------
Cash Flows from Financing Activities:
Proceeds from long-term debt.............................. 2,075,547
Reductions in long-term debt.............................. (1,369,700)
----------
705,847
----------
Decrease in cash............................................ (187,543)
Cash, beginning of year..................................... 234,414
----------
Cash, end of year........................................... $ 46,871
==========
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest............................................... $ 101,749
Income taxes (net of refunds).......................... 1,038,500
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 24
M-K-D DISTRIBUTORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements of M-K-D Distributors,
Inc. and subsidiary (the Company) include the accounts of M-K-D Distributors,
Inc. (MKD) and its wholly-owned subsidiary, Snelgrove Ice Cream, Inc.
(Snelgrove). All significant intercompany balances and transactions have been
eliminated. The Company reports on a fifty-two or fifty-three week fiscal year,
ending on the last Saturday in December.
Operations
MKD, a Texas corporation, was incorporated on December 14, 1979, and is
engaged in the wholesale distribution of Dreyer's Grand Ice Cream, Ben and
Jerry's, Nestle and other premium ice cream products, primarily in Washington,
Oregon and Alaska. Dreyer's Grand Ice Cream, Inc. (Dreyer's), a Delaware
corporation, holds 49.7% of MKD's outstanding common stock (see Note 11,
Subsequent Event). In 1991, MKD acquired the assets of Snelgrove Ice Cream, Inc.
(formerly known as Snelgrove Distinctive Ice Cream, Inc.), a manufacturer and
distributor of premium ice cream products, and commenced manufacturing and
distribution operations late in 1991 for Utah and other high altitude markets in
the western United States. Sales are primarily to retail grocers.
Revenue Recognition
Sales revenues are recognized when deliveries of products are made to
customers.
Inventories
Inventories of purchased and manufactured products are stated at the lower
of cost (first-in, first-out method) or market. Costs of purchased products
manufactured by others and of raw materials include costs of acquisition and
transportation in. Manufactured product inventories are costed based on
standards which approximate actual costs of materials, labor and production
overhead.
Property, Plant and Equipment
Depreciation and amortization are provided on property, plant and equipment
on the straight-line basis over their estimated useful lives as follows:
<TABLE>
<S> <C>
Building and improvements................................... 5 to 35 years
Equipment................................................... 3 to 15 years
Delivery trucks and other vehicles.......................... 5 to 8 years
Furniture and fixtures...................................... 3 to 8 years
</TABLE>
Leasehold improvements are amortized over the life remaining in the
applicable lease (4 to 10 years).
The cost of maintenance and repairs, which neither materially add to the
value of property nor appreciably prolong its life, are expensed as incurred.
Estimates and Assumptions
Management makes estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles. These
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could differ from those estimates.
23
<PAGE> 25
M-K-D DISTRIBUTORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Federal and State Income Taxes
Effective for the fiscal year ended December 25, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109), on a prospective basis. SFAS 109 required the Company to
change its method of accounting for income taxes from the deferred method to the
liability method. Under the liability method, deferred tax liabilities and
assets are recognized for the tax consequences of temporary differences between
the financial reporting and tax basis of assets and liabilities. The adoption of
SFAS 109 did not have a material effect on the Company's Consolidated Financial
Statements.
2. INVENTORIES
Components of inventories at December 30, 1995 were as follows:
<TABLE>
<S> <C>
Purchased products.......................................... $1,639,437
Raw materials............................................... 365,745
Finished goods.............................................. 356,699
----------
$2,361,881
==========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
The cost and accumulated depreciation of property, plant and equipment at
December 30, 1995 were as follows:
<TABLE>
<S> <C>
Building and improvements................................... $2,722,371
Machinery and equipment..................................... 9,869,316
Office furniture and fixtures............................... 1,498,363
----------
14,090,050
Accumulated depreciation.................................... (5,539,341)
----------
8,550,709
Land........................................................ 705,651
----------
$9,256,360
==========
</TABLE>
Depreciation expense for property, plant and equipment was $1,191,747 in
1995.
4. LONG-TERM NOTES RECEIVABLE
At December 30, 1995, long-term notes receivable of $144,779 are due from a
customer with payments due every year beginning in 1996 in the amount of $20,000
plus accrued interest at the prime rate plus 2%. The notes are secured by
delivery and freezer equipment and are due in December 2000.
24
<PAGE> 26
M-K-D DISTRIBUTORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT
Long-term debt at December 30, 1995 consisted of the following:
<TABLE>
<S> <C>
Note payable to bank, payable in monthly installments of
$16,687 from August 1995 to June 2000, plus interest at
7.81% per annum, secured by equipment..................... $ 916,665
Note payable to bank, payable in monthly installments of
$17,335 from August 1995 to July 2000, plus interest at
7.8% per annum, secured by equipment...................... 954,475
Capital lease obligation payable in monthly minimum payments
of $1,026 from August 1995 to July 1998, including
interest at 4.9%, secured by computer equipment........... 30,457
Note payable, payable in annual installments of $27,000 from
June 1995 to June 1999, plus interest at 8.00% per annum,
secured by property and building.......................... 108,000
----------
2,009,597
Less current portion of long-term debt...................... 446,334
----------
$1,563,263
==========
</TABLE>
Principal payments due on long-term debt for each of the years subsequent
to December 30, 1995 are as follows:
<TABLE>
<S> <C>
1996........................................................ $ 446,334
1997........................................................ 446,889
1998........................................................ 443,026
1999........................................................ 435,264
2000........................................................ 238,084
----------
$2,009,597
==========
</TABLE>
At December 30, 1995, the Company had an unused secured revolving line of
credit of $2,000,000 available for working capital needs. The interest rate on
borrowings is equal to the bank's floating commercial loan reference rate or
LIBOR plus 1.5%.
6. PROFIT SHARING PLAN
The Company has a 401(k) profit sharing plan and trust covering all
employees over 21 years of age with more than one year of service. Participating
employees may make elective salary deferrals into the plan up to the maximum
qualifying amount permitted by federal income tax law. In addition, employer
matching contributions and/or profit sharing contributions are made to the plan
at the discretion of the Company's Board of Directors. Matching and profit
sharing contributions made by the Company to the plan for fiscal 1995 were
$225,440.
25
<PAGE> 27
M-K-D DISTRIBUTORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
The provision for income taxes for the fiscal year ended December 30, 1995
consisted of the following:
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Current
Federal................................................... $ 825,960
State..................................................... 81,800
----------
907,760
Deferred.................................................... 129,330
----------
$1,037,090
==========
</TABLE>
The deferred tax liability arises principally because of an accumulated
depreciation temporary difference. The effective tax rate differs from the
federal statutory income tax rate due primarily to state taxes, net of federal
benefit.
8. RELATED PARTIES
The Company purchases premium ice cream and related products from Dreyer's
under a long-term distribution agreement. In addition, the Company sells ice
cream products to Dreyer's, which are manufactured at the Snelgrove plant in
Utah. Purchases from Dreyer's were $25,174,000 in fiscal 1995. Sales of
Snelgrove manufactured products to Dreyer's were $6,021,636 in fiscal 1995. In
addition, under the distribution agreement, the Company is reimbursed by
Dreyer's for 65% of costs relating to jointly-directed consumer promotion
programs. The Company charged Dreyer's $1,874,845 in fiscal 1995, for Dreyer's
share of such costs. Amounts due from and due to Dreyer's at December 30, 1995,
were as follows:
<TABLE>
<S> <C>
Accounts receivable from Dreyer's........................... $ 505,331
==========
Accounts payable to Dreyer's................................ $1,579,544
==========
</TABLE>
9. MAJOR CUSTOMERS
The Company had four retail customers that accounted for approximately 48%
of net sales for the fiscal year ended December 30, 1995.
10. COMMITMENTS
Leases
The Company leases its office and warehouse facilities and certain vehicles
and equipment under various leases accounted for as operating leases. Future
minimum lease payments under these leases at December 30, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER,
- ---------------------
<S> <C>
1996........................................................ $ 322,421
1997........................................................ 329,963
1998........................................................ 314,243
1999........................................................ 172,512
2000........................................................ 172,587
Thereafter.................................................. 694,822
----------
$2,006,548
==========
</TABLE>
Rent expense for the fiscal year ended December 30, 1995 was $478,788.
26
<PAGE> 28
M-K-D DISTRIBUTORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SUBSEQUENT EVENT
On March 27, 1996, the stockholders, other than Dreyer's, entered into an
agreement to exchange their shares of the Company's common stock for 300,000
shares of Dreyer's common stock, distributed to such stockholders on a basis
proportionate to their ownership of the Company's common stock. One of the
stockholders received an additional 20,000 shares of Dreyer's common stock as a
finder's fee related to the transaction.
27
<PAGE> 29
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.33 Second Amendment to Credit Agreement dated as of December 26, 1997
among Dreyer's Grand Ice Cream, Inc., Bank of America, NT&SA (as
Agent and as a bank), ABN-AMRO Bank, NV (as Co-Agent and as a
bank), Credit Suisse First Boston and Union Bank of California,
NA, amending Exhibit 10.26.
13 Those portions of the Dreyer's Grand Ice Cream, Inc. 1997 Annual
Report to Stockholders which are incorporated by reference into
this Annual Report on Form 10-K.
21 Subsidiaries of Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
<PAGE> 1
EXHIBIT 10.33
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), is
entered into as of December 26, 1997 among Dreyer's Grand Ice Cream, Inc., a
Delaware corporation (the "Company"), the several financial institutions from
time to time party to this Agreement (collectively, the "Banks"; individually,
a "Bank"), ABN-AMRO Bank N.V., San Francisco International Branch as Co-Agent,
and Bank of America National Trust and Savings Association, as agent for the
Banks.
RECITALS
A. The Company, Banks, and Agent are parties to a Credit
Agreement dated as of December 22, 1995, as amended by a First Amendment to
Credit Agreement dated as of April 15, 1996 (as so amended, the "Credit
Agreement"), pursuant to which the Agent and the Banks have extended certain
credit facilities to the Company.
B. The Company has requested that the Banks agree to certain
amendments of the Credit Agreement.
C. The Banks are willing to amend the Credit Agreement subject to
the terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings, if any, assigned to them in the
Credit Agreement.
2. Amendments to Credit Agreement.
(a) Section 7.15 of the Credit Agreement is hereby
amended and restated in its entirety as follows:
7.15 FUNDED DEBT/EBITDA RATIO. (a) THE COMPANY SHALL NOT
PERMIT ITS FUNDED DEBT/EBITDA RATIO TO BE GREATER THAN:
(1) 5.25 FOR THE PERIOD FROM THE CLOSING DATE
THROUGH ITS FOURTH FISCAL QUARTER IN 1995;
(2) 4.75 FOR ITS FIRST FISCAL QUARTER IN 1996;
(3) 4.50 FOR ITS SECOND FISCAL QUARTER IN 1996;
(4) 4.00 FOR ITS THIRD FISCAL QUARTER IN 1996;
-1-
<PAGE> 2
(5) 3.50 FOR ITS FOURTH FISCAL QUARTER IN 1996;
(6) 3.00 FOR THE FIRST THREE FISCAL QUARTERS IN
1997; AND
(7) 3.50 FOR ITS FOURTH FISCAL QUARTER IN 1997 AND
EACH OF ITS FISCAL QUARTERS THEREAFTER.
(b) IN DETERMINING COMPLIANCE WITH THIS SECTION, THE
COMPANY'S FUNDED DEBT AT EACH QUARTERLY MEASUREMENT PERIOD SHALL BE REDUCED BY
THE AMOUNTS SHOWN IN THE FOLLOWING TABLE TO ACCOMMODATE INCREASES IN THE
COMPANY'S SEASONAL DEBT:
EACH YEAR AFTER
FISCAL QUARTER ENDING IN: 1996 1996
<TABLE>
<S> <C> <C>
MARCH $10,000,000 $10,000,000
JUNE $45,000,000 $50,000,000
SEPTEMBER $35,000,000 $40,000,000
DECEMBER $0 $0
</TABLE>
(b) The portion of Schedule 2 of the Compliance
Certificate relating to Section 7.15 is amended in its entirety to provide as
follows:
7.15 FUNDED DEBT/EBITDA RATIO. (a) THE COMPANY SHALL NOT
PERMIT ITS FUNDED DEBT/EBITDA RATIO TO BE GREATER THAN:
(1) 5.25 FOR THE PERIOD FROM THE CLOSING DATE
THROUGH ITS FOURTH FISCAL QUARTER IN 1995;
(2) 4.75 FOR ITS FIRST FISCAL QUARTER IN 1996;
(3) 4.50 FOR ITS SECOND FISCAL QUARTER IN 1996;
(4) 4.00 FOR ITS THIRD FISCAL QUARTER IN 1996;
(5) 3.50 FOR ITS FOURTH FISCAL QUARTER IN 1996;
(6) 3.00 FOR THE FIRST THREE FISCAL QUARTERS IN
1997; AND
(7) 3.50 FOR ITS FOURTH FISCAL QUARTER IN 1997 AND
EACH OF ITS FISCAL QUARTERS THEREAFTER.
-2-
<PAGE> 3
(b) IN DETERMINING COMPLIANCE WITH THIS SECTION, THE
COMPANY'S FUNDED DEBT AT EACH QUARTERLY MEASUREMENT PERIOD SHALL BE REDUCED BY
THE AMOUNTS SHOWN IN THE FOLLOWING TABLE TO ACCOMMODATE INCREASES IN THE
COMPANY'S SEASONAL DEBT:
EACH YEAR AFTER
FISCAL QUARTER ENDING IN: 1996 1996
<TABLE>
<S> <C> <C>
MARCH $10,000,000 $10,000,000
JUNE $45,000,000 $50,000,000
SEPTEMBER $35,000,000 $40,000,000
DECEMBER $0 $0
</TABLE>
<TABLE>
<S> <C> <C>
1. CAPITALIZED LEASE OBLIGATIONS (FOR EACH QUARTER
COMMENCING AFTER MARCH 31, 1997) $
---------------
2. OTHER FUNDED DEBT
---------------
3. TOTAL FUNDED DEBT (1 + 2)
---------------
4. MINUS AMOUNT AS DETERMINED ACCORDING TO THE
TABLE IN Section 7.15(b):
===============
5. FUNDED DEBT FOR PURPOSES OF Section 7.15
(3 MINUS 4)
---------------
6. EBITDA = __________
7. RATIO OF FUNDED DEBT TO EBITDA = _____
8. REQUIRED RATIO AS SET FORTH IN Section 7.15(A): NOT GREATER THAN _____
</TABLE>
FOR PURPOSES OF DETERMINING THE APPLICABLE MARGIN AND THE COMMITMENT FEE:
<TABLE>
<S> <C> <C>
1. CAPITALIZED LEASE OBLIGATIONS (NOT APPLICABLE IF
ADDITIONAL CAPITAL HAS BEEN RAISED) $
---------------
</TABLE>
-3-
<PAGE> 4
<TABLE>
<S> <C> <C>
2. OTHER FUNDED DEBT
---------------
3. TOTAL FUNDED DEBT (1 + 2)
---------------
4. MINUS AMOUNT AS DETERMINED ACCORDING TO THE
TABLE IN Section 7.15(b):
===============
5. FUNDED DEBT FOR PURPOSES OF DETERMINING THE
APPLICABLE MARGIN AND THE COMMITMENT FEE
(3 MINUS 4)
---------------
6. EBITDA = __________
7. RATIO OF FUNDED DEBT TO EBITDA TO BE USED IN
DETERMINING THE APPLICABLE MARGIN AND THE COMMITMENT FEE: _____
</TABLE>
3. Representations and Warranties. The Company hereby
represents and warrants to the Agent and the Banks as follows:
(a) After giving effect to this Amendment, no Default or
Event of Default has occurred and is continuing.
(b) The execution, delivery and performance by the
Company of this Amendment have been duly authorized by all necessary corporate
and other action and do not and will not require any registration with, consent
or approval of, notice to or action by, any Person (including any Governmental
Authority) in order to be effective and enforceable. The Credit Agreement as
amended by this Amendment constitutes the legal, valid and binding obligations
of the Company, enforceable against it in accordance with its respective terms,
without defense, counterclaim or offset.
(c) All representations and warranties of the Company
contained in the Credit Agreement are true and correct in all material
respects.
(d) The Company is entering into this Amendment on the
basis of its own investigation and for its own reasons, without reliance upon
the Agent and the Banks or any other Person.
4. Effective Date. This Amendment will become effective as of
December 26, 1997 (the "Effective Date"), provided that each of the following
conditions precedent is satisfied:
(a) The Agent has received from the Company and the
Majority Banks a duly executed original (or, if elected by the Agent, an
executed facsimile copy) of this Amendment.
-4-
<PAGE> 5
(b) The Agent has received from the Company a copy of a
resolution passed by the board of directors of such corporation, certified by
the Secretary or an Assistant Secretary of such corporation as being in full
force and effect on the date hereof, authorizing the execution, delivery and
performance of this Amendment.
(c) All representations and warranties contained herein
are true and correct as of the Effective Date.
5. Miscellaneous.
(a) Except as herein expressly amended, all terms,
covenants and provisions of the Credit Agreement are and shall remain in full
force and effect and all references therein to such Credit Agreement shall
henceforth refer to the Credit Agreement as amended by this Amendment. This
Amendment shall be deemed incorporated into, and a part of, the Credit
Agreement.
(b) This Amendment shall be binding upon and inure to the
benefit of the parties hereto and thereto and their respective successors and
assigns. No third party beneficiaries are intended in connection with this
Amendment.
(c) This Amendment shall be governed by and construed in
accordance with the law of the State of California.
(d) This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. Each
of the parties hereto understands and agrees that this document (and any other
document required herein) may be delivered by any party thereto either in the
form of an executed original or an executed original sent by facsimile
transmission to be followed promptly by mailing of a hard copy original, and
that receipt by the Agent of a facsimile transmitted document purportedly
bearing the signature of a Bank or the Company shall bind such Bank or the
Company, respectively, with the same force and effect as the delivery of a hard
copy original. Any failure by the Agent to receive the hard copy executed
original of such document shall not diminish the binding effect of receipt of
the facsimile transmitted executed original of such document of the party whose
hard copy page was not received by the Agent.
(e) This Amendment, together with the Credit Agreement,
contains the entire and exclusive agreement of the parties hereto with
reference to the matters discussed herein and therein. This Amendment
supersedes all prior drafts and communications with respect thereto. This
Amendment may not be amended except in accordance with the provisions of
Section 10.01 of the Credit Agreement.
(f) If any term or provision of this Amendment shall be
deemed prohibited by or invalid under any applicable law, such provision shall
be invalidated without affecting the remaining provisions of this Amendment or
the Credit Agreement, respectively.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Amendment as of the date first above written.
DREYER'S GRAND ICE CREAM, INC.
By: _____________________________________
Name: _____________________________________
Title: _____________________________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
ABN AMRO BANK N.V., as Co-Agent
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a Bank
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
-6-
<PAGE> 7
ABN AMRO BANK N.V., as a Bank
By: _____________________________________
Name: _____________________________________
Title: _____________________________________
By: _____________________________________
Name: _____________________________________
Title: _____________________________________
CREDIT SUISSE FIRST BOSTON
By: _____________________________________
Name: _____________________________________
Title: _____________________________________
By: _____________________________________
Name: _____________________________________
Title: _____________________________________
UNION BANK OF CALIFORNIA, N.A.
By: _____________________________________
Name: _____________________________________
Title: _____________________________________
By: _____________________________________
Name: _____________________________________
Title: _____________________________________
-7-
<PAGE> 1
EXHIBIT 13
DREYER'S GRAND ICE CREAM, INC.
1997 ANNUAL REPORT
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
($ in thousands, except per share amounts) Dec. 27, 1997 Dec. 28, 1996 Dec. 30, 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Net sales $ 970,097 $ 791,841 $ 678,797
Other income 2,994 4,354 2,255
- ------------------------------------------------------------------------------------------------------
973,091 796,195 681,052
- ------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of goods sold 764,551 629,285 530,561
Selling, general and administrative 183,390 146,003 143,090
Interest, net of interest capitalized 10,695 9,548 9,912
- ------------------------------------------------------------------------------------------------------
958,636 784,836 683,563
- ------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and cumulative effect
of change in accounting principle 14,455 11,359 (2,511)
Income tax provision (benefit) 5,681 4,362 (987)
- ------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of change in
accounting principle 8,774 6,997 (1,524)
Cumulative effect of change in accounting principle 746
- ------------------------------------------------------------------------------------------------------
Net income (loss) 8,028 6,997 (1,524)
Accretion of preferred stock to redemption value 424 424 168
Preferred stock dividends 3,636 4,573 1,804
- ------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stock $ 3,968 $ 2,000 $ (3,496)
======================================================================================================
Net income (loss) per common share:
Basic:
Income (loss) before cumulative effect of change in
accounting principle $ .18 $ .08 $ (.13)
Cumulative effect of change in accounting principle .03
- ------------------------------------------------------------------------------------------------------
Net income (loss) per common share $ .15 $ .08 $ (.13)
======================================================================================================
Diluted:
Income (loss) before cumulative effect of change in
accounting principle $ .17 $ .07 $ (.13)
Cumulative effect of change in accounting principle .03
- ------------------------------------------------------------------------------------------------------
Net income (loss) per common share $ .14 $ .07 $ (.13)
======================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE> 2
DREYER'S GRAND ICE CREAM, INC.
1997 ANNUAL REPORT
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
($ in thousands, except per share amounts) DEC. 27, 1997 DEC. 28, 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 3,626 $ 4,134
Trade accounts receivable, net of allowance for doubtful accounts
of $710 in 1997 and $755 in 1996 82,011 73,053
Other accounts receivable 16,527 13,638
Inventories 49,720 40,760
Prepaid expenses and other 14,416 13,652
- -----------------------------------------------------------------------------------------------
Total current assets 166,300 145,237
Property, plant and equipment, net 232,826 225,038
Goodwill and distribution rights, net of accumulated amortization
of $19,817 in 1997 and $16,616 in 1996 89,932 92,010
Other assets 13,740 16,622
- -----------------------------------------------------------------------------------------------
Total assets $502,798 $478,907
===============================================================================================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 57,037 $ 48,391
Accrued payroll and employee benefits 22,323 18,198
Current portion of long-term debt 8,364 8,512
- -----------------------------------------------------------------------------------------------
Total current liabilities 87,724 75,101
Long-term debt, less current portion 165,913 163,135
Deferred income taxes 40,591 37,802
- -----------------------------------------------------------------------------------------------
Total liabilities 294,228 276,038
- -----------------------------------------------------------------------------------------------
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 99,230 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;
27,020,000 shares and 13,345,000 shares issued and
outstanding in 1997 and 1996, respectively 27,020 13,345
Capital in excess of par 42,822 51,956
Retained earnings 39,498 38,762
- -----------------------------------------------------------------------------------------------
Total stockholders' equity 109,340 104,063
- -----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $502,798 $478,907
===============================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE> 3
DREYER'S GRAND ICE CREAM, INC.
1997 ANNUAL REPORT
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL
--------------------- IN EXCESS RETAINED
(In thousands) SHARES AMOUNT OF PAR EARNINGS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 14,064 $ 14,064 $ 75,257 $ 46,600 $135,921
Net loss for 1995 (1,524) (1,524)
Accretion of preferred stock to
redemption value (168) (168)
Preferred stock dividends declared (1,804) (1,804)
Common stock dividends declared (3,140) (3,140)
Repurchases and retirements
of common stock (1,319) (1,319) (39,202) (40,521)
Employee stock plans and other 184 184 3,315 3,499
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 30, 1995 12,929 12,929 39,370 39,964 92,263
Net income for 1996 6,997 6,997
Accretion of preferred stock to
redemption value (424) (424)
Preferred stock dividends declared (4,573) (4,573)
Common stock dividends declared (3,202) (3,202)
Repurchases and retirements
of common stock (9) (9) (253) (262)
Employee stock plans and other 105 105 2,359 2,464
Common stock issued in acquisition of
M-K-D Distributors, Inc. 320 320 10,480 10,800
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 28, 1996 13,345 13,345 51,956 38,762 104,063
Net income for 1997 8,028 8,028
Accretion of preferred stock to
redemption value (424) (424)
Preferred stock dividends declared (3,636) (3,636)
Common stock dividends declared (3,232) (3,232)
Repurchases and retirements
of common stock (7) (7) (268) (275)
Employee stock plans and other 177 177 4,639 4,816
Common stock split 13,505 13,505 (13,505)
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 27, 1997 27,020 $ 27,020 $ 42,822 $ 39,498 $109,340
==============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE> 4
DREYER'S GRAND ICE CREAM, INC.
1997 ANNUAL REPORT
CONSOLIDATED STATEMENT
OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------
($ in thousands) DEC. 27, 1997 DEC. 28, 1996 DEC. 30, 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 8,028 $ 6,997 $ (1,524)
Adjustments to reconcile net income (loss) to cash flows
from operations:
Depreciation and amortization 31,946 27,549 20,568
Deferred income taxes 1,846 2,364 2,058
Cumulative effect of change in accounting principle 746
Changes in assets and liabilities,
net of amounts acquired:
Trade accounts receivable (8,958) (7,664) (11,779)
Other accounts receivable (2,889) 809 (12,829)
Inventories (8,960) (5,389) (4,120)
Prepaid expenses and other 3,545 3,116 (1,998)
Accounts payable and accrued liabilities 9,611 6,555 5,470
Accrued payroll and employee benefits 4,125 (1,077) 2,833
- -------------------------------------------------------------------------------------------------------------------------
39,040 33,260 (1,321)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of property, plant and equipment (38,470) (58,470) (39,437)
Retirement of property, plant and equipment 677 2,152 590
Increase in goodwill and distribution rights (146) (772) (1,959)
Increase in other assets (947) (3,600) (6,104)
- ------------------------------------------------------------------------------------------------------------------------
(38,886) (60,690) (46,910)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term debt 11,700 76,000 91,500
Reductions in long-term debt (9,070) (43,858) (4,500)
Issuance of common stock under employee stock plans 4,816 2,464 3,499
Repurchases of common stock (275) (262) (40,521)
Cash dividends paid (7,833) (5,831) (5,030)
- ------------------------------------------------------------------------------------------------------------------------
(662) 28,513 44,948
- ------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (508) 1,083 (3,283)
Cash and cash equivalents, beginning of year 4,134 3,051 6,334
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 3,626 $ 4,134 $ 3,051
========================================================================================================================
Supplemental Cash Flow Information
Cash paid during the year for:
Interest (net of amounts capitalized) $ 10,634 $ 8,856 $ 9,738
Income taxes (net of refunds) 1,070 398 2,172
Non-cash transactions:
Acquisition of M-K-D Distributors, Inc. 10,800
Conversion of convertible subordinated debentures
into redeemable convertible preferred stock 100,752
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE> 5
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DREYER'S GRAND ICE CREAM, INC.
1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
Note 1 Operations
Dreyer's Grand Ice Cream, Inc. and its subsidiaries (the Company) is a single
segment industry company engaged primarily in the business of manufacturing and
selling premium ice cream and other frozen dessert products to grocery and
convenience stores, foodservice accounts and independent distributors in the
United States.
Note 2 Summary of Significant
Accounting Policies
Consolidation
The consolidated financial statements include the accounts of Dreyer's Grand Ice
Cream, Inc. and its subsidiaries. All intercompany transactions have been
eliminated.
Fiscal Year
The Company's fiscal year is a fifty-two or fifty-three week period ending on
the last Saturday in December. Fiscal years 1997, 1996 and 1995 each consisted
of fifty-two weeks.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Financial Statement Presentation
Certain reclassifications have been made to prior years' financial statements to
conform to the 1997 presentation.
Cash Equivalents
The Company classifies financial instruments as cash equivalents if the original
maturity of such investments is three months or less.
Inventories
Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Cost includes materials, labor and manufacturing
overhead.
Property, Plant and Equipment
The cost of additions and major improvements and repairs are capitalized, while
maintenance and minor repairs are charged to expense as incurred. Depreciation
of fixed assets is computed using the straight-line method over the assets'
estimated useful lives, generally ranging from three to thirty-five years.
Interest costs relating to capital assets under construction are capitalized.
Goodwill and Distribution Rights
Goodwill and distribution rights are amortized using the straight-line method
over thirty to thirty-six years.
Preoperating Costs
Preoperating costs incurred during the construction and start-up of new
manufacturing and distribution facilities are capitalized and amortized over
three years. During 1996, the Company capitalized $2,710,000 of preoperating
costs associated with the start-up of its Houston, Texas manufacturing facility.
The Company's unamortized preoperating cost balance was $1,623,000 and
$2,492,000 at December 27, 1997 and December 28, 1996, respectively.
Impairment of Long-Lived Assets
The Company reviews long-lived assets and certain identifiable intangibles,
including goodwill and distribution rights, for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The assessment of impairment is based on the estimated
undiscounted future cash flows from operating activities compared with the
carrying value of the assets. If the undiscounted future cash flows of an asset
are less than the carrying value, a write-down would be recorded measured by the
amount of the difference between the carrying value of the asset and the fair
value of the asset.
Advertising Costs
The Company defers production costs for media advertising and expenses these
costs in the period the advertisement is first run. All other advertising costs
are expensed as incurred. Advertising expense, including consumer promotion
spending, was $28,849,000, $28,770,000 and $39,971,000 in 1997, 1996 and 1995,
respectively.
Income Taxes
Income taxes are accounted for using the liability method. Under this method,
deferred tax liabilities and assets are recognized for the tax consequences of
temporary differences between the financial reporting and tax basis of assets
and liabilities.
<PAGE> 6
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DREYER'S GRAND ICE CREAM, INC.
1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
Accounting for Stock-Based Compensation
The Company measures compensation cost for employee stock options and similar
equity instruments using the intrinsic value-based method of accounting.
Cumulative Effect of Change in Accounting Principle
On November 20, 1997, the Financial Accounting Standards Board's Emerging Issues
Task Force issued a pronouncement requiring that reengineering costs be expensed
as incurred. Furthermore, the pronouncement requires that all previously
unamortized capitalized reengineering costs be written off and treated as a
cumulative effect of a change in accounting principle as of the beginning of the
quarter including November 20, 1997. In connection with this pronouncement, the
Company recorded an after-tax charge of $746,000 during the fourth quarter of
1997.
Net Income (Loss) Per Common Share
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128 "Earnings per Share" (SFAS No. 128) as of the beginning of the
fourth quarter of 1997. SFAS No. 128 required the Company to replace its
traditional earnings per share (EPS) disclosures with a dual presentation of
basic and diluted EPS and to restate all prior EPS data presented. The
reconciliations of the numerators and denominators used in the basic and diluted
computations are as follows:
<TABLE>
<CAPTION>
Income Shares Per Share
(In thousands, except per share amounts) (Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1997:
Income before cumulative effect of change in accounting principle $ 8,774
Less: Preferred stock dividends and accretion 4,060
- -------------------------------------------------------------------------------------
Basic: Income available to common stockholders 4,714 26,872 $.18
====
Effect of dilutive securities:
Stock options 1,096
Stock warrants 500
- -----------------------------------------------------------------------------------------------------
Diluted: Income available to common stockholders $ 4,714 28,468 $.17
====================================================================================================================
1996:
Income before cumulative effect of change in accounting principle $ 6,997
Less: Preferred stock dividends and accretion 4,997
- -------------------------------------------------------------------------------------
Basic: Income available to common stockholders 2,000 26,496 $.08
====
Effect of dilutive securities:
Stock options 214
- -----------------------------------------------------------------------------------------------------
Diluted: Income available to common stockholders $ 2,000 26,710 $.07
====================================================================================================================
</TABLE>
The effect of potentially dilutive securities was anti-dilutive during 1995
due to the Company's net loss. Accordingly, 1995 basic and diluted net loss per
common share use the same denominator of 26,570,000 shares. The effect of the
Company's redeemable convertible preferred stock was anti-dilutive for fiscal
years 1997 and 1996 and, accordingly, is not included in the calculations. The
effect of the Company's stock warrants was anti-dilutive for fiscal year 1996
and, accordingly, is not included in the calculation.
Note 3 Inventories
Inventories at December 27, 1997 and December 28, 1996 consisted of the
following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
(In thousands) 1997 1996
- -------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 7,411 $ 5,361
Finished goods 42,309 35,399
- -------------------------------------------------------------------
$49,720 $40,760
===================================================================
</TABLE>
<PAGE> 7
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DREYER'S GRAND ICE CREAM, INC.
1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
Note 4 Property, Plant and Equipment
- --------------------------------------------------------------------------------
Property, plant and equipment at December 27, 1997 and December 28, 1996
consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Buildings and improvements $ 84,409 $ 84,732
Machinery and equipment 181,628 168,417
Capital leased assets 18,993 17,463
Office furniture and fixtures 6,484 7,778
- -----------------------------------------------------------------
291,514 278,390
Less: Accumulated depreciation 112,839 88,342
- -----------------------------------------------------------------
178,675 190,048
Land 11,838 12,190
Construction in progress 42,313 22,800
- -----------------------------------------------------------------
$232,826 $225,038
=================================================================
</TABLE>
Accumulated amortization of the Company's capital leased assets was
$5,837,000 and $2,260,000 at December 27, 1997 and December 28, 1996,
respectively.
Interest capitalized was $2,254,000, $2,627,000 and $2,288,000 in 1997,
1996 and 1995, respectively.
Depreciation expense for property, plant and equipment, including capital
leased assets, was $27,799,000, $23,510,000 and $16,412,000 in 1997, 1996 and
1995, respectively.
Construction in progress at December 27, 1997 included $29,130,000 of costs
associated with expansion of manufacturing and distribution capacity.
NOTE 5 GOODWILL AND DISTRIBUTION RIGHTS
- --------------------------------------------------------------------------------
On March 27, 1996, the Company acquired the remaining 50.3% of the outstanding
common stock of M-K-D Distributors, Inc. (M-K-D) for 320,000 newly issued shares
of the Company's common stock(*) having a value of $10,800,000. The acquisition
was accounted for as a purchase and the amount by which the purchase price
exceeded the fair value of the net identifiable assets acquired of $8,144,000
has been recorded as goodwill and distribution rights. The Company has
consolidated the results of operations of M-K-D since the beginning of fiscal
1996. That portion of M-K-D's 1996 pre-acquisition earnings before income taxes
which was attributable to the former stockholders' interest, approximately
$148,000, was recorded as a charge to selling, general and administrative
expenses.
Prior to 1996, the Company accounted for its 49.7% ownership of M-K-D using
the equity method. The Company's equity in the earnings of M-K-D was $779,000 in
1995. The Company's sales of its branded products to M-K-D were $25,174,000 in
1995.
Summarized financial information for M-K-D was as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
(In thousands) 1995
--------
<S> <C>
Net sales $74,219
Gross profit 15,316
Net income 1,687
- -----------------------------------------------------------------
(*) The share information is presented before the effect of the 1997
common stock split. (See Note 10).
</TABLE>
NOTE 6 INCOME TAXES
- --------------------------------------------------------------------------------
The provision (benefit) for federal and state income taxes consisted of the
following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(In thousands) 1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
Current:
Federal $3,644 $1,683 $(3,045)
State 191 315
- ------------------------------------------------------------------
3,835 1,998 (3,045)
- ------------------------------------------------------------------
Deferred:
Federal 1,267 2,003 2,127
State 579 361 (69)
- ------------------------------------------------------------------
1,846 2,364 2,058
- ------------------------------------------------------------------
$5,681 $4,362 $ (987)
==================================================================
</TABLE>
The cumulative effect of change in accounting principle of $746,000 is net
of an income tax benefit of $484,000, comprised of federal and state income
taxes, which is not reflected in the above table.
The deferred income tax liability as of December 27, 1997 and December 28,
1996 consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
<S> <C> <C>
- -----------------------------------------------------------------
Depreciation $19,814 $16,897
Intangible assets and
related amortization 15,773 16,124
Deferred costs 4,063 3,401
Other 941 1,380
- -----------------------------------------------------------------
$40,591 $37,802
=================================================================
</TABLE>
<PAGE> 8
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DREYER'S GRAND ICE CREAM, INC.
1997 ANNUAL REPORT
The federal statutory income tax rate is reconciled to the Company's
effective income tax rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory
income tax rate 35.0% 35.0% (35.0)%
State income taxes,
net of federal
tax benefit 3.5 3.9 (1.7)
Reversal of income
taxes provided in
prior periods (3.7) (5.8)
Other 0.8 3.2 3.2
- ------------------------------------------------------------------
39.3% 38.4% (39.3)%
==================================================================
</TABLE>
NOTE 7 LONG-TERM DEBT
- --------------------------------------------------------------------------------
Long-term debt at December 27, 1997 and December 28, 1996 consisted of the
following:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
Revolving line of credit with
banks, due 1999 with interest
payable at three different
rate options $ 87,400 $ 75,700
Senior notes, with principal due
through 2008 and interest
payable semiannually at
three different interest rates 50,000 50,000
Capital lease obligation, with
payments due through 2000
and interest payable
quarterly at a floating rate 18,177 23,647
Senior notes, with principal due
through 2001 and interest
payable semiannually at 9.3% 14,200 17,800
Industrial revenue bonds, with
principal due through 2001
and interest payable quarterly
at a floating rate based upon
a tax-exempt note index 4,500 4,500
- ------------------------------------------------------------------
174,277 171,647
Less: Current portion 8,364 8,512
- ------------------------------------------------------------------
$165,913 $163,135
==================================================================
</TABLE>
The aggregate annual maturities of long-term debt, including capital lease
obligation, as of December 27, 1997 are as follows:
<TABLE>
<CAPTION>
(In thousands)
- -----------------------------------------------------------------
Year ending:
<S> <C>
1998 $ 8,364
1999 95,747
2000 19,409
2001 15,043
2002 7,143
Later years 28,571
- -----------------------------------------------------------------
Total $174,277
=================================================================
</TABLE>
Line of Credit
The Company has a credit agreement with certain banks for a total revolving line
of credit of $150,000,000. The total available line of credit decreases by
$25,000,000 on December 31, 1998 and expires on December 31, 1999. This line is
available at three different interest rate options which are defined as the
agent bank's offshore rate, same day funding rate, plus an applicable margin, or
the bank's reference rate. The interest rate on the line of credit was 6.39% at
December 27, 1997. At December 27, 1997, there was $87,400,000 outstanding under
the line.
Senior Notes
On June 6, 1996, the Company completed a private placement of $50,000,000 of
senior notes, due 2000 through 2008. Proceeds from the senior notes were used to
repay a portion of existing borrowings under the Company's line of credit and to
fund capital expenditures. Interest on the notes ranges from 7.68% to 8.34% and
is payable semi-annually.
Lease Transaction
On March 29, 1996, the Company entered into a capital lease transaction
involving a majority of its direct-store-delivery truck fleet. The $26,000,000
proceeds received by the Company from the lease transaction were used to repay a
portion of existing borrowings under the Company's line of credit and to fund
capital expenditures. The interest rate on the capital lease obligation was
6.25% at December 27, 1997. The four-year lease has been classified as a capital
lease and the related assets are recorded in property, plant and equipment.
<PAGE> 9
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DREYER'S GRAND ICE CREAM, INC.
1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
The excess of the lease transaction proceeds over the carrying value of the
fleet of approximately $9,095,000 was deferred and netted against the carrying
value of the capital leased assets. This deferred gain is being credited to
income in proportion to the amortization of the capital leased assets.
Fair Value of Financial Instruments
As of December 27, 1997 and December 28, 1996, the fair value of the Company's
long-term debt was determined to approximate the carrying amount. The fair value
was based on quoted market prices for the same or similar issues or on the
current rates offered to the Company for a term equal to the same remaining
maturities. It is not practicable to estimate the fair value of the redeemable
convertible preferred stock due to the unique terms and conditions of these
securities.
The Company is subject to the requirements of various financial covenants,
including dividend restrictions, under its long-term debt obligations.
NOTE 8 LEASING ARRANGEMENTS
- --------------------------------------------------------------------------------
The Company conducts certain of its operations from leased facilities, which
include land and buildings, production equipment, and certain vehicles. All of
these leases expire over a period of twenty-five years including renewal
options. Certain of these leases include non-bargain purchase options.
The minimum rental payments required under non-cancelable leases at December
27, 1997 are as follows:
<TABLE>
<CAPTION>
(In thousands) Capital Operating
- ------------------------------------------------------------------
<S> <C> <C>
Year ending:
1998 $ 5,826 $ 3,475
1999 5,491 2,650
2000 8,812 1,962
2001 1,377
2002 1,043
Later years 3,683
- ------------------------------------------------------------------
20,129 $14,190
=======
Less: Amounts representing
interest 1,952
- --------------------------------------------------
Present value of minimum
lease payments 18,177
Less: Current portion 4,764
- --------------------------------------------------
$13,413
==================================================
</TABLE>
Rental expense for operating leases was $13,994,000, $11,665,000 and
$12,824,000 in 1997, 1996 and 1995, respectively.
NOTE 9 REDEEMABLE CONVERTIBLE
PREFERRED STOCK
- --------------------------------------------------------------------------------
On August 8, 1995, the Company converted $100,752,000 of 6.25% convertible
subordinated debentures into 1,008,000 shares of redeemable convertible Series B
preferred stock (Series B), redeemable on June 30, 2001. On the conversion date,
$2,538,000 of unamortized debenture issuance costs were charged against the
carrying value of the debentures to arrive at the carrying value of $98,214,000
for this preferred stock. The Company is recording accretion to increase the
carrying value to the redemption value of $100,752,000 by June 30, 2001.
On October 3, 1997, the Series B preferred stock was converted into a total
of 1,008,000 shares of redeemable convertible Series A preferred stock (Series
A), redeemable on June 30, 2001. The Series A preferred stock is convertible,
under certain conditions, at an initial conversion price of $17.37 into a total
of 5,800,000 shares of common stock. Series A preferred stock can be called by
the Company for early redemption, subject to certain limitations.
In preference to shares of common stock, the Series A preferred stockholders
are entitled to receive cumulative cash dividends, payable quarterly in arrears.
Dividends on the Series A preferred stock are payable at a dividend rate equal
to the amount they would receive as if the shares were converted into comparable
shares of common stock. Series A preferred stockholders have common stock voting
rights equal to the number of common shares into which their preferred stock is
convertible.
NOTE 10 COMMON STOCK
- --------------------------------------------------------------------------------
The Company paid a regular quarterly dividend of $.03 per share of common
stock for each quarter of 1997, 1996 and 1995.
During 1987, the Board of Directors declared a dividend of one Preferred
Stock Purchase Right (the Rights) for each outstanding share of common stock.
Under certain conditions, the Rights become exercisable for the purchase of the
Company's preferred or common stock.
<PAGE> 10
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DREYER'S GRAND ICE CREAM, INC.
1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
Common Stock Split
On November 18, 1997, the Company issued shares of common stock to holders of
record on October 30, 1997 to effect a two-for-one common stock split. An amount
equal to the par value of the common stock issued was transferred from capital
in excess of par to common stock to reflect this split. Additionally, the number
of shares, stock price per share, 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 unless otherwise
indicated.
Nestle Equity Issuance
Pursuant to an equity transaction (the Nestle Agreement) with an affiliate of
Nestle USA, Inc. (Nestle), Nestle purchased 6,000,000 newly issued shares of
common stock and warrants to purchase an additional 4,000,000 shares at an
exercise price of $16 per share. Warrants for 2,000,000 shares expired
unexercised on June 14, 1997 and warrants for the other 2,000,000 shares will
expire on June 14, 1999.
The Company has the right to cause Nestle to exercise the remaining warrants
at any time through the warrant expiration date at $16 per share if the average
trading price of the common stock exceeds $30 during a 130 trading day period
preceding the exercise, subject to certain conditions. Furthermore, if the
average trading price of the common stock equals or exceeds $30 during a 130
trading day period before June 14, 1999, Nestle will be required to pay an
additional $1 for each share purchased and each share purchased upon exercise of
the warrants.
In connection with the Nestle Agreement, the Company entered into a
distribution agreement with Nestle Ice Cream Company to distribute Nestle's
frozen novelty and ice cream products in certain markets.
Common Stock Repurchases
During 1995, the Company repurchased and retired 1,291,000 shares of its common
stock(*) at prices ranging from $25.38 to $34.25 per share(*) under a plan
to repurchase up to 5,000,000 shares of common stock(*) through open market
purchases and negotiated transactions. This plan was completed during 1995.
Separately, during 1995 the Company repurchased and retired 28,000 shares of its
common stock(*) at prices ranging from $24.50 to $38.50 per share(*) from
employees who previously acquired shares under employee stock plans.
NOTE 11 EMPLOYEE BENEFIT PLANS
- --------------------------------------------------------------------------------
The Company maintains a defined contribution retirement plan (pension plan) for
employees not covered by collective bargaining agreements. The plan provides
retirement and other benefits based upon the assets of the plan held by the
trustee. The Company contributes 7% of the eligible participants' annual
compensation to the plan. The Company also maintains a salary deferral plan
under which it may make a matching contribution of a percentage of each
participant's deferred salary amount.
Pension expense and matching contributions under these plans were
approximately $7,500,000, $7,683,000 and $7,202,000 in 1997, 1996 and 1995,
respectively. The Company's liability for accrued pension contributions and
salary deferrals was $7,841,000 and $6,242,000 at December 27, 1997 and December
28, 1996, respectively.
Pension expense for employees covered by multi-employer retirement plans
under collective bargaining agreements was $1,056,000, $956,000 and $848,000 in
1997, 1996 and 1995, respectively.
NOTE 12 EMPLOYEE STOCK PLANS
- --------------------------------------------------------------------------------
The Company offers to certain employees various stock option plans, a Section
423 employee stock purchase plan and an employee secured stock purchase plan.
Stock Option Plans
The Company has three stock option plans under which options may be granted for
the purchase of the Company's common stock at a price not less than 100% of the
fair market value at the date of grant. The incentive stock option plan (the
1982 Plan) provides that options are not exercisable until after two years from
the date of grant and generally expire six years from the date of grant. The
non-qualified stock option plan (the 1992 Plan) provides that options are not
exercisable until after two years from the date of grant and expire upon death
or termination of employment. In 1994, the stockholders approved an additional
stock option plan (the 1993 Plan) under which granted options may be either
incentive stock options or non-qualified stock options. This plan provides that
options expire no later than ten years from the date of grant. This plan also
provides that most of the terms of the options, such as vesting, are within the
discretion of the compensation committee, composed of certain members of the
Company's Board of Directors.
(*) The share information is presented before the effect of the 1997 common
stock split. (See Note 10).
<PAGE> 11
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DREYER'S GRAND ICE CREAM, INC.
1997 ANNUAL REPORT
No compensation cost has been recognized for these stock option plans. If
compensation cost for these plans had been determined based on the fair value at
the grant dates, the Company's net income (loss) applicable to common stock and
net income (loss) per common share on a pro forma basis would be as follows:
<TABLE>
<CAPTION>
(In thousands,
except per share amounts) 1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss)
applicable to
common stock $1,757 $249 $(4,111)
Net income (loss)
per common share:
Basic .07 .01 (.15)
Diluted .06 .01 (.15)
- ------------------------------------------------------------------
</TABLE>
The Company used the Black-Scholes option pricing model to estimate the fair
value of options granted during 1997, 1996 and 1995. The weighted average
assumptions used to compute compensation cost in the above pro forma and to
estimate the weighted average fair market value of options granted are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 6.59% 5.96% 7.01%
Dividend yield .78% .75% .85%
Volatility 31.51% 33.62% 34.24%
Expected term (years) 5.7 4.5 4.9
Weighted average
fair market value $6.07 $6.17 $5.60
- -----------------------------------------------------------------
</TABLE>
Stock options exercisable were 1,719,000, 1,236,000 and 782,000 at year-end
1997, 1996 and 1995, respectively. These stock options were exercisable at a
weighted average option price of $13.15, $13.06 and $12.35 for 1997, 1996 and
1995, respectively.
The activity in the three stock option plans for each of the three years in
the period ended December 27, 1997 is summarized below:
<TABLE>
<CAPTION>
Options Weighted
Available Options Average Price
(In thousands, except per share amounts) for Grant Outstanding Per Share
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Balance, Dec. 31, 1994 1,782 2,108 $11.75
Granted (892) 892 12.98
Exercised (240) 7.14
Canceled 30 (30)
- --------------------------------------------------------------------------------------------------------
Balance, Dec. 30, 1995 920 2,730 12.55
Authorized 2,000
Granted (902) 902 15.75
Exercised (106) 8.87
Canceled 106 (106)
- --------------------------------------------------------------------------------------------------------
Balance, Dec. 28, 1996 2,124 3,420 13.49
Granted (932) 932 15.35
Exercised (243) 12.58
Canceled 143 (143)
- --------------------------------------------------------------------------------------------------------
Balance, Dec. 27, 1997 1,335 3,966 $13.97
========================================================================================================
</TABLE>
<PAGE> 12
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DREYER'S GRAND ICE CREAM, INC.
1997 ANNUAL REPORT
Significant option groups outstanding at December 27, 1997 and related
weighted average price per share and life information follows:
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
- ---------------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
-------------------------- ------------------------
Weighted Weighted Weighted
Average Average Exercise Average
Grant Options Exercise Options Exercise Price Remaining
Plan Year Outstanding Price Exercisable Price Range Life (Years)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1982 Plan 1992 86 $ 9.85 86 $ 9.85 $ 9.75-12.07 0.7
1993 145 12.96 114 12.94 12.38-15.07 1.4
1992 Plan 1992 87 11.27 87 11.27 9.75-14.63 NA
1993 477 13.83 386 13.83 12.38-14.69 NA
1993 Plan 1994 680 12.19 482 12.31 10.88-14.69 6.2
1995 782 13.05 319 13.11 12.66-16.13 7.2
1996 831 15.77 144 15.85 15.75-17.00 8.2
1997 878 15.36 101 15.55 15.19-19.75 9.2
- ---------------------------------------------------------------------------------------------------------------------------
Total 3,966 1,719
===========================================================================================================================
</TABLE>
Section 423 Employee Stock Purchase Plan
Under the section 423 employee stock purchase plan, employees may authorize
payroll deductions up to 10% of their compensation for the purpose of acquiring
shares at 85% of the market price determined at the beginning of a specified
twelve month period. Under this plan, employees purchased 30,000 shares(*) at
prices ranging from $24.65 to $25.93 per share(*) in 1997, 24,000 shares(*) at
prices ranging from $22.00 to $32.94 per share(*) in 1996, and 40,000 shares(*)
at prices ranging from $20.29 to $21.67 per share(*) in 1995. Compensation cost
based on the fair value of the employees' purchase rights was not material in
1997, 1996 and 1995.
Employee Secured Stock Purchase Plan
Under the employee secured stock purchase plan (the Secured Plan), on specified
dates, employees may purchase shares at fair market value by paying 20% of the
purchase price in cash and the remaining 80% of the purchase price in the form
of a non-recourse promissory note with a term of 30 years. Under this plan,
employees purchased 20,000 shares(*) at prices ranging from $30.25 to $48.25 per
share(*) in 1997, 28,000 shares(*) at prices ranging from $28.50 to $31.75 per
share(*) in 1996, and 23,000 shares(*) at prices ranging from $25.28 to $39.50
per share(*) in 1995.
NOTE 13 INSURANCE SETTLEMENTS AND
TRADEMARK SALE
During 1997 and 1996, the Company recorded several gains relating to claims
filed under its insurance policies. These claims were primarily caused
by the accidental releases of ammonia (refrigerant) into its manufacturing
facilities which contaminated finished goods inventories. Under the Company's
insurance policies, the Company is entitled to receive the value of the finished
goods inventories at their normal selling price, plus expenses incurred in
recovering from these accidents. These claims resulted in gains of $2,355,000
and $2,100,000 in 1997 and 1996, respectively, which were recorded as
reductions in cost of goods sold.
In December 1996, the Company sold trademark rights for the People's
Republic of China, Hong Kong and Macau to a third-party independent distributor
for $2,600,000. Also in December 1996, the Company recorded gross profit of
$1,043,000 relating to the sale of a three to five month supply of its products
to this same distributor.
The 1997 insurance claims had the effect of increasing 1997 net income by
$1,430,000, or $0.05 per diluted common share. The 1996 transactions, including
gains from insurance claims, had the effect of increasing 1996 net income by
$3,538,000, or $0.13 per diluted common share.
(*) The share information is presented before the effect of the 1997 common
stock split. (See Note 10).
<PAGE> 13
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DREYER'S GRAND ICE CREAM, INC.
1997 ANNUAL REPORT
NOTE 14 CONTINGENCIES
The Company is engaged in various legal actions as both plaintiff and defendant.
Management believes that the outcome of these actions, either individually or in
the aggregate, will not have a material adverse effect on the Company's
financial position, results of operations or cash flows.
NOTE 15 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Income
(Loss) Before
Cumulative Cumulative Net Income
Effect of Change Effect of Change (Loss) Price Range Per
(In thousands, Net Gross in Accounting in Accounting Applicable to Common Share
except per share amounts) Sales Margin Principle(1) Principle Common Stock (NASDAQ)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
1997
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $200,438 $ 38,187 $(1,300) $(1,300) $14.50-17.25
2nd Quarter 271,972 59,255 4,937 4,937 14.88-20.13
3rd Quarter 286,256 65,641 3,715 3,715 18.75-27.50
4th Quarter 211,431 42,463 (2,638) $746 (3,384) 18.50-26.50
- ------------------------------------------------------------------------------------------------------------------------------------
$970,097 $205,546 $ 4,714 $746 $ 3,968
====================================================================================================================================
1996
1st Quarter $166,970 $ 32,309 $ 434 $ 434 $13.94-18.88
2nd Quarter 211,568 46,836 3,771 3,771 15.75-18.50
3rd Quarter 234,644 51,657 2,055 2,055 12.50-16.13
4th Quarter 178,659 31,754 (4,260) (4,260) 12.00-15.13
- ------------------------------------------------------------------------------------------------------------------------------------
$791,841 $162,556 $ 2,000 $ 2,000
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Basic Net Income (Loss) Per Common Share(2) Diluted Net Income (Loss) Per Common Share(2)
----------------------------------------------------- ------------------------------------------------------
Income Income
(Loss) Before (Loss) Before
Cumulative Cumulative Cumulative Cumulative
Effect of Change Effect of Change Effect of Change Effect of Change
in Accounting in Accounting Net Income in Accounting in Accounting Net Income
Principle(3) Principle (Loss)(3) Principle(3) Principle (Loss)(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997
1st Quarter $(.05) $(.05) $(.05) $(.05)
2nd Quarter .18 .18 .18 .18
3rd Quarter .14 .14 .13 .13
4th Quarter (.10) $(.03) (.13) (.10) $(.03) (.13)
1996
1st Quarter $ .02 $ .02 $ .02 $ .02
2nd Quarter .14 .14 .14 .14
3rd Quarter .08 .08 .08 .08
4th Quarter (.16) (.16) (.16) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Income (loss) has been reduced by preferred stock dividends and accretion
of preferred stock to redemption value.
(2) Retroactively restated to reflect the effects of the common stock split in
1997.
(3) The number of weighted average shares outstanding used in the computation
of net income (loss) per common share increases and decreases as shares are
issued and repurchased during the year. For this reason, the sum of net
income (loss) per common share for the quarters may not be the same as the
net income (loss) per common share for the year.
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
DREYER'S GRAND ICE CREAM, INC.
1997 ANNUAL REPORT
To the Board of Directors and Stockholders of
Dreyer's Grand Ice Cream, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Dreyer's Grand Ice Cream, Inc. and its subsidiaries at December 27, 1997 and
December 28, 1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 27, 1997, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for reengineering costs in the fourth quarter
of 1997.
PRICE WATERHOUSE LLP
San Francisco, California
February 19, 1998
<PAGE> 15
FIVE-YEAR SUMMARY OF
SIGNIFICANT FINANCIAL DATA
DREYER'S GRAND ICE CREAM, INC.
1997 ANNUAL REPORT
<TABLE>
<CAPTION>
Fiscal Year Ended December
- ----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Operations:
Net sales and other income $ 973,091 $ 796,195 $ 681,052 $ 566,602 $ 471,790
Income (loss) before cumulative
effect of change in accounting
principle 8,774 6,997 (1,524) 1,001 16,789
Net income (loss) 8,028 6,997 (1,524) 1,001 16,789
Net income (loss) applicable to
common stock 3,968 2,000 (3,496) 1,001 16,789
Per Common Share:
Basic:
Income (loss) before cumulative
effect of change in accounting
principle(1) .18 .08 (.13) .03 .57
Net income (loss)(1) .15 .08 (.13) .03 .57
Diluted:
Income (loss) before cumulative
effect of change in accounting
principle(1) .17 .07 (.13) .03 .57
Net income (loss)(1) .14 .07 (.13) .03 .57
Dividends declared(1) .12 .12 .12 .12 .12
Balance Sheet:
Total assets 502,798 478,907 414,105 362,026 322,275
Working capital 78,576 70,136 69,361 48,403 57,397
Long-term debt, including
convertible subordinated
debentures 165,913 163,135 134,000 146,852 139,627
Redeemable convertible
preferred stock 99,230 98,806 98,382
Stockholders' equity 109,340 104,063 92,263 135,921 123,034
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Retroactively restated to reflect the effects of the common stock split in
1997.
<PAGE> 16
MANAGEMENT'S DISCUSSION
AND ANALYSIS
DREYER'S GRAND ICE CREAM, INC.
1997 ANNUAL REPORT
RESULTS OF OPERATIONS
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 upon 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 Annual
Report. 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
identifies 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.
Common Stock Split
During 1997, the Company issued shares of common stock to effect a two-for-one
common stock split. The number of shares, stock price per share, and earnings
and dividends per share information appearing in this Management's Discussion
and Analysis have been restated to reflect this stock split on a retroactive
basis unless otherwise indicated. (See Note 10 of Notes to Consolidated
Financial Statements.)
Earnings Per Share
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share"(SFAS No. 128) as of the beginning of the
fourth quarter of 1997. SFAS No. 128 required the Company to replace its
traditional earnings per share (EPS) disclosures with a dual presentation of
basic and diluted EPS and to restate all prior EPS data presented. All EPS
disclosures in this Management's Discussion and Analysis have been restated in
accordance with SFAS No. 128. All EPS amounts disclosed in this section are
diluted EPS, which reflects the impact of dilutive securities. (See Note 2 of
Notes to Consolidated Financial Statements.)
The Strategic Plan
The Company embarked on a strategic plan (the Strategic Plan) during the second
quarter of 1994 to accelerate 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 has launched a wide range of new product
initiatives. Following the national introduction of Whole Fruit Sorbet and
Starbucks(R) Ice Cream, the Company has expanded 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 $0.07 per common share, from a net loss in 1995 of
$(1,524,000), or $(0.13) per common share. In 1997, the Company recorded
<PAGE> 17
MANAGEMENT'S DISCUSSION
AND ANALYSIS
DREYER'S GRAND ICE CREAM, INC.
1997 ANNUAL REPORT
income before cumulative effect of change in accounting principle of $8,774,000,
or $0.17 per common share. Net profitability in 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.
Fiscal 1997 Compared With 1996
Consolidated net sales for fiscal 1997 increased 23%, or $178,256,000, to
$970,097,000 from $791,841,000 for fiscal 1996. Sales of the Company's branded
products were 25%, or $124,776,000, higher than fiscal 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, Dreyer's and Edy's Homemade Ice Cream, Starbucks(R) Ice Cream, and
Dreyer's and Edy's Grand Light(R) Ice Cream. These higher sales were due in part
to the effect of a significant increase in trade promotion spending. National
market share of the Company's Dreyer's and Edy's branded products increased to
15.5% at the end of 1997 from 13.8% at the end of 1996. Sales of other
companies' branded products (partner brands) increased 18%, led by Healthy
Choice(R) low fat ice cream from Con Agra, Inc., Ben and Jerry's Homemade(R)
superpremium products, and frozen novelty and ice cream products from Nestle Ice
Cream Company. Sales of partner brands represented 36% of consolidated net sales
in fiscal 1997 compared with 38% in fiscal 1996. Wholesale prices for the
Company's branded products increased approximately 3%, before the effect of
increased trade promotion expenses. The effect of price increases for partner
brands was not significant.
Other income decreased $1,360,000, or 31%, due to the 1996 sale of
trademark rights for the People's Republic of China, Hong Kong and Macau to a
third-party distributor for $2,600,000 (see Note 13 of Notes to Consolidated
Financial Statements), partially offset in 1997 by higher earnings from a joint
venture accounted for under the equity method.
Cost of goods sold increased $135,266,000, or 22%, over fiscal 1996, while
the overall gross margin increased to 21.2% from 20.5%. The gross margin
increased due to higher margins on the Company's branded products, and a
comparatively higher proportion of those sales (which carry a higher margin than
partner brands), offset slightly by a decrease in partner brand gross margin due
to changes in product mix. The improvement in the gross margin on the Company's
branded products was due to lower dairy costs in fiscal 1997 as compared to
fiscal 1996. The Company recorded a pre-tax gain of $2,355,000 resulting from
various insurance claims during 1997, which was recorded as a reduction in cost
of goods sold. (See Note 13 of Notes to Consolidated Financial Statements.) This
insurance gain is largely non-recurring and as such may not be available in
future periods.
Selling, general and administrative expenses increased from 18% of net sales
for fiscal 1996 to 19% of net sales for fiscal 1997. The increase of
$37,387,000, or 26%, related primarily to significantly higher trade promotion
expenses in fiscal 1997 compared with fiscal 1996.
Interest expense was $1,147,000, or 12%, higher in fiscal 1997 than fiscal
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 average borrowings on the Company's line of credit.
Fiscal 1996 Compared With 1995
Consolidated net sales for fiscal 1996 increased 17% to $791,841,000 from
$678,797,000 achieved in 1995. This increase includes the effect of the
acquisition of M-K-D Distributors, Inc. (M-K-D) discussed below and occurred
despite total U.S. gallon consumption decreasing in 1996. The decline in
industry gallonage growth is primarily attributable to lower sales of ice cream
products in the "better for you" segments. Dreyer's continues to be the market
share leader in this segment despite the decline. Sales of the Company's
branded products increased 11%, led by sales of Dreyer's and Edy's Grand Ice
Cream and Starbucks(R) Ice Cream. National market share of the Company's
Dreyer's and Edy's branded products increased to 13.8% at the end of 1996 from
13.4% during the fourth quarter of 1995. Sales of partner brands grew 28%
during the year, with Healthy Choice(R) low fat ice cream from ConAgra, Inc.
providing the greatest sales growth. Sales of partner brands represented 38% of
consolidated net sales in 1996 compared with 34% in 1995. Wholesale prices for
both Company and partner brands increased an average of 3% between 1995
and 1996.
<PAGE> 18
MANAGEMENT'S DISCUSSION
AND ANALYSIS
DREYER'S GRAND ICE CREAM, INC.
1997 ANNUAL REPORT
Other income increased $2,099,000, or 93%, due to the 1996 sale of trademark
rights to a third-party distributor for $2,600,000, as mentioned above. (See
Note 13 of Notes to Consolidated Financial Statements.)
Cost of goods sold for 1996 increased $98,724,000, or 19%, over the prior
year, while the Company's overall gross margin decreased from 21.8% in 1995 to
20.5% in 1996. The gross margin decreased due to an $8,140,000 increase in dairy
raw materials costs and an increase in the proportion of partner brand sales,
which yield a lower gross margin.
Selling, general and administrative costs for 1996 were $2,913,000, or 2%,
higher than 1995. Accordingly, selling general and administrative costs
decreased as a percent of sales to 18% in 1996 from 21% in 1995 due to
efficiencies resulting from investments made under the Strategic Plan. The
Company incurred $28,770,000 in advertising and consumer promotion expenses
during 1996 as compared with $39,971,000 in 1995. The $11,201,000 decrease was
largely offset by an increase in trade promotion expense. The Company regularly
adjusts its levels of advertising and promotion spending in an effort to enhance
long-term profitability.
Interest expense was $364,000, or 4%, lower than in 1995 due to conversion
of the convertible subordinated debentures into redeemable convertible Series B
preferred stock during the third quarter of 1995. This decrease was partially
offset by interest expense from the issuance of senior notes, the completion of
a lease transaction and higher average borrowings under the Company's line of
credit during 1996. (See Note 7 of Notes to Consolidated Financial Statements.)
During 1996, the Company acquired the remaining 50.3% of the outstanding
common stock of M-K-D. During 1996, M-K-D's sales, cost of sales and selling,
general and administrative expenses, after eliminating intercompany
transactions, were $45,294,000, $26,514,000 and $15,736,000, respectively. These
results have been consolidated for the year in the Company's financial
statements. (See Note 5 of Notes to Consolidated Financial Statements.)
The Company recorded certain transactions during 1996 which had the effect
of increasing net income by $3,538,000 or $0.13 per common share. (See Note 13
of Notes to Consolidated Financial Statements.) These sources of income are
largely non-recurring and as such may not be available in future periods.
Tax Provisions
The Company's income tax provisions differ from tax provisions calculated at the
federal statutory tax rate primarily due to state income taxes and the reversal
of income taxes provided in prior periods. (See Note 6 of Notes to Consolidated
Financial Statements.)
Seasonality
The Company experiences more demand for its products during the spring and
summer than during the fall and winter. (See Note 15 of Notes to Consolidated
Financial Statements.)
Effects of Inflation and Changing Prices
The largest component of the Company's cost of production is raw materials,
principally dairy products and sugar. Historically, the Company has been able to
compensate for increases in the price level of these commodities through
manufacturing and distribution operating efficiencies. During 1996, unusually
high dairy raw materials costs negatively impacted gross profit by $8,140,000.
During 1997, dairy prices decreased to slightly lower levels resulting in a
favorable impact of $3,842,000 on gross profit when compared to 1996 price
levels. Other cost increases such as labor and general administrative costs have
been offset by productivity gains and other operating efficiencies.
FINANCIAL CONDITION
Liquidity and Capital Resources
The Company's operations provided cash flow of $39,040,000 during 1997 compared
with $33,260,000 provided in 1996. Cash of $1,321,000 was used in operations
during 1995. Working capital of the Company increased to $78,576,000 in 1997
compared with $70,136,000 and $69,361,000 during 1996 and 1995, respectively.
Refer to the Consolidated Statement of Cash Flows for the components of
increases and decreases in cash and cash equivalents for the three year period
ended December 27, 1997.
The Company continued to expand its manufacturing capacity and
direct-store-delivery distribution system through investments of $38,470,000 in
property, plant and equipment during 1997 compared with $58,470,000 and
$39,437,000 during 1996 and 1995, respectively. The Company plans to spend
approximately $40,000,000
<PAGE> 19
MANAGEMENT'S DISCUSSION
AND ANALYSIS
DREYER'S GRAND ICE CREAM, INC.
1997 ANNUAL REPORT
during 1998 on property, plant and equipment primarily for further expansion of
its manufacturing capacity and construction of distribution facilities. It is
anticipated that these additions will be largely financed through internally
generated funds and borrowings.
On October 3, 1997, the Company converted its redeemable convertible Series
B preferred stock to redeemable convertible Series A preferred stock. (See Note
9 of Notes to Consolidated Financial Statements.)
On November 18, 1997, the Company issued shares of common stock to holders
of record on October 30, 1997 to effect a two-for-one common stock split. (See
Note 10 of Notes to Consolidated Financial Statements.)
During 1996, the Company acquired the remaining 50.3% of the outstanding
common stock of M-K-D for 320,000 newly issued shares of its common stock(*)
having a value of $10,800,000. (See Note 5 of Notes to Consolidated Financial
Statements.)
The Company's inventory is maintained at the same general level relative to
sales throughout the year by changing production and purchasing schedules to
meet demand. The ratio of inventory to sales typically does not vary
significantly from year to year.
The Company's financing activities used cash of $662,000 during 1997
compared with $28,513,000 and $44,948,000 cash provided during 1996 and 1995,
respectively. During 1997, borrowings on the Company's line of credit of
$11,700,000 and cash flows from operations were used to pay $9,070,000 of
scheduled payments on the Company's other debt and to pay $7,833,000 in cash
dividends to common and preferred stockholders. During 1996, proceeds from the
issuance of senior notes and the completion of a lease transaction involving a
majority of its direct-store-delivery truck fleet for $26,000,000 provided cash
used for investments in property, plant and equipment and to reduce borrowings
on the Company's long-term line of credit. (See Note 7 of Notes to Consolidated
Financial Statements.) During 1995, the Company converted $100,752,000 of
convertible subordinated debentures into 1,008,000 shares of redeemable
convertible Series B preferred stock. (See Note 9 of Notes to Consolidated
Financial Statements.)
During 1995, the Company completed its plan to repurchase up to 5,000,000
shares of common stock(*) through open market purchases and negotiated
transactions. The Company repurchased and retired 1,291,000 shares of its common
stock(*) under the Stock Repurchase Plan during 1995. (See Note 10 of Notes to
Consolidated Financial Statements.)
As of year-end 1997, the Company had $3,626,000 in cash and cash
equivalents, and an unused credit line of $62,600,000. (See Note 7 of Notes to
Consolidated Financial Statements.) 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.
Year 2000 Compliance
The Company has reviewed its computer systems to determine which systems require
enhancements and upgrades to make them Year 2000 compliant. Based on its review,
the Company estimates that its computer systems will be in compliance by
approximately the second quarter of 1999. In connection with this review, the
Company is also surveying key customers and suppliers to determine the status
of their Year 2000 compliance programs. The Company does not expect the costs
relating to Year 2000 compliance to have a material impact on the Company's
financial position, results of operations or cash flows.
(*) The share information is presented before the effect of the 1997 common
stock split. (See Note 10 of Notes to Consolidated Financial Statements.)
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF DREYER'S GRAND ICE CREAM, INC.
<TABLE>
<CAPTION>
NAME JURISDICTION
---- ------------
<S> <C>
Edy's Grand Ice Cream................................. California
*Edy's of Illinois, Inc................................ Illinois
Dreyer's International, Inc........................... U.S. Virgin
Islands
Grand Soft Capital Company............................ California
Grand Soft Equipment Company.......................... Kentucky
(formerly Polar Express Systems International, Inc.)
Portofino Company..................................... California
M-K-D Distributors, Inc............................... Texas
**Snelgrove Ice Cream, Inc.............................. Utah
</TABLE>
- ---------------
* Subsidiary of Edy's Grand Ice Cream
** Subsidiary of M-K-D Distributors, Inc.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-7350, 33-8418, 33-35561, 33-36092, 33-40275,
33-56417, 33-56411, 33-56413 and 333-16701) of Dreyer's Grand Ice Cream, Inc. of
our report dated February 19, 1998 appearing in the 1997 Annual Report to
Stockholders which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 17 of this Form 10-K. We also consent
to the incorporation by reference of our report dated April 9, 1996 relating to
the consolidated financial statements of M-K-D Distributors, Inc. appearing on
page 19 of this Form 10-K.
PRICE WATERHOUSE LLP
San Francisco, California
March 27, 1998
<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
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-28-1996
<PERIOD-END> DEC-27-1997
<CASH> 3,626
<SECURITIES> 0
<RECEIVABLES> 82,721
<ALLOWANCES> 710
<INVENTORY> 49,720
<CURRENT-ASSETS> 166,300
<PP&E> 345,665
<DEPRECIATION> (112,839)
<TOTAL-ASSETS> 502,798
<CURRENT-LIABILITIES> 87,724
<BONDS> 165,913
<COMMON> 27,020
99,230
0
<OTHER-SE> 82,320
<TOTAL-LIABILITY-AND-EQUITY> 502,798
<SALES> 970,097
<TOTAL-REVENUES> 973,091
<CGS> 764,551
<TOTAL-COSTS> 764,551
<OTHER-EXPENSES> 181,927
<LOSS-PROVISION> 1,463
<INTEREST-EXPENSE> 10,695
<INCOME-PRETAX> 14,455
<INCOME-TAX> 5,681
<INCOME-CONTINUING> 8,774
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 746
<NET-INCOME> 8,028
<EPS-PRIMARY> .15<F1>
<EPS-DILUTED> .14
<FN>
<F1>For Purposes of This Exhibit, Primary means Basic.
</FN>
</TABLE>
