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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 25, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER: 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 prices
on March 17, 2000, as reported by NASDAQ) of the Common Stock held by
non-affiliates was approximately $500,049,775. (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 17, 2000, the latest practicable date, 28,008,003 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 25, 1999, filed as Exhibit 13 to
this Annual Report on Form 10-K, are incorporated by reference in Part II and
Part IV 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. Annual Report to Stockholders for the
fiscal year ended December 25, 1999 is not to be deemed filed as part of this
Annual Report.
Portions of the Dreyer's Grand Ice Cream, Inc. Proxy Statement for the 2000
Annual Meeting of Stockholders to be filed with the Commission on or before
April 23, 2000 are incorporated by reference in 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 2000 Annual Meeting of Stockholders is
not to be deemed filed as part of this Annual 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 and superpremium 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 ice cream and other frozen dessert
products sold under the Dreyer's and Edy's brand names in retail outlets serving
more than 88 percent 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 and South America. The Company's products are sold under
the Edy's brand name generally throughout the remaining regions of the United
States and certain markets in the Caribbean and Europe. 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 manufactures and distributes 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 demand 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 flavors,
package development and formulation. William A. Dreyer, the founder of Dreyer's
and the creator of Dreyer's Grand Ice Cream, is credited with inventing many
popular flavors including Rocky Road. Dreyer's was the first manufacturer to
produce an ice cream lower in calories. The Company's Grand Light(R) formulation
was a precursor to the reduced fat and reduced sugar 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 philosophy is to make changes in its formulations or production
processes only to the extent that such changes do not compromise quality for
cost even when the industry in general may adopt such new formulation or process
compromises.
Dreyer's and Edy's Grand Ice Cream(R) 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 complemented by Dreyer's and Edy's Homemade
Ice Cream(R), a heavier and sweeter line of ice cream and the Company's Frozen
Yogurt; Grand Light(R); No Sugar Added and Fat Free ice creams. The Company
believes these "better for you" products are well-positioned in the market where
products are characterized by lower levels of fat, sugar and cholesterol than
those of regular ice cream. The Company distributes Starbucks(R) Ice Cream
products as part of its joint venture with Starbucks Coffee Company and M&M/Mars
ice cream products as part of its joint venture with M&M/Mars. The Company has
also launched Godiva(R) Ice Cream, a superpremium product produced by the
Company under a long-term license with Godiva(R) Chocolatier. The Company also
produces and markets Grand Soft(R) a premium soft serve product. The Company's
novelty line features Dreyer's and Edy's Ice Cream Bars, Fruit Bars, and Sundae
Cones. In 1999, the Company introduced the Dreamery(TM) line, a superpremium ice
cream product. The Company also distributes and, in some instances, manufactures
selected branded frozen dessert products of other companies.
The Company's product lines now include approximately 125 flavors. 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 and adjusts its product line based on general popularity and
on intensity of consumer response.
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 significant, nor have they been significant in the past.
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.
In 1994, the Company adopted a strategic plan to accelerate the sales of
its brand throughout the country (the Grand Plan or the Strategic Plan). The key
elements of this plan are: 1) to build high-margin brands with leading market
shares through effective consumer marketing activities, 2) to expand the
Company's direct-store-delivery distribution network to national scale and
enhance this capability with sophisticated information and logistics systems and
3) to introduce innovative new products. The potential benefits of the Strategic
Plan are increased market share and future earnings above those levels that
would be attained in the absence of the Strategic Plan.
In accordance with the Strategic Plan, the Company embarked on an
aggressive national expansion. This expansion involved the entry into 34 new
markets, which included the opening of a major manufacturing and distribution
center in Texas, a significant increase in marketing spending and the
introduction of several new products. At the same time, the Company invested in
its soft-serve equipment manufacturing business, Grand Soft. The investments
which were required to fund the brand-building actions and national expansion
and to support the Grand Soft business substantially increased the Company's
cost structure.
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Beginning in late 1997 and continuing into 1998, the cost of dairy raw
materials, the primary ingredient in ice cream, increased significantly. These
costs peaked in 1998 at a rate more than double of that experienced in 1997.
This increase reduced the Company's 1998 gross profit by approximately
$22,000,000 when compared with 1997. Aggressive discounting by the Company's
competitors made it difficult to raise prices by an amount sufficient to
compensate for these higher dairy raw material costs. During this same period,
sales volumes of the Company's "better for you" products continued the
significant decline that began in 1997, consistent with an industry-wide trend.
Since these "better for you" products enjoy higher margins than the Company's
classic ice cream, the volume decline had a significant impact on the Company's
profitability in 1998. Finally, in August 1998, Ben & Jerry's Homemade, Inc.
(Ben & Jerry's) informed the Company of its intention to terminate its
distribution contract. Subsequent negotiations with Ben & Jerry's revised the
original contract terms to allow the Company to distribute Ben & Jerry's
products in a smaller geographic area. Starting September 1, 1999, this was
estimated to reduce the Company's distribution gross profit of Ben & Jerry's
products by approximately 54 percent. The Company estimates that the
distribution gross profit in the markets where it stopped distributing Ben &
Jerry's products represented approximately six percent, or $13,000,000, of its
gross profit in 1998.
The above factors: the higher dairy raw material costs; the decline in
"better for you" volumes; and the reduction in future Ben & Jerry's sales had in
the past, and may continue to have in the future, a negative effect on the
Company's gross profit and its ability to successfully implement the Strategic
Plan. The Company, therefore, concluded that a thorough reassessment of its cost
structure and strategy was necessary. This reassessment yielded restructuring
actions designed to improve profitability and accelerate cost reductions by
increasing focus on the core elements of the Strategic Plan. On October 16,
1998, the board of directors approved the restructuring actions.
The Company continues to make progress towards the key elements of the
Strategic Plan. This progress has yielded an increased market share in a
consolidating industry. For example, the Company has had significant success in
the superpremium segment in recent years with the introductions of Whole Fruit
Sorbet, Starbucks(R) Ice Cream, and Godiva(R) Ice Cream. In order to build on
this success in the high-margin superpremium segment, the Company introduced a
new line of superpremium ice cream under the brand name Dreyer's and Edy's
Dreamery(TM) Ice Cream in September 1999. While the Company continues to
distribute Ben & Jerry's products in a smaller geographic area, it has no
further restrictions on competing in the superpremium segment with its own pint
products. In the premium segment, the Company announced during the third quarter
of 1999 the formation of a long-term partnership with M&M/Mars to market a new
line of ice cream products featuring M&M/Mars leading candy brands. These
products are being manufactured and distributed by the Company under the terms
of the joint venture agreement. This relationship is consistent with the
Company's strategy to expand its portfolio of brands and products to reach
consumers across the entire ice cream category.
The Company intends to continue to pursue the benefits of the Grand Plan
through four long-term initiatives. These initiatives are as follows: 1) growth
in share and sales in the premium ice cream business; 2) expansion of the
Company's new, higher-margin superpremium ice cream brands; 3) accelerated
development of the Company's business in a wider number of retail channels,
especially mass-merchandisers, convenience stores, and foodservice outlets; and
4) a focus on improved productivity through a reduction in Total Delivered
Costs, meaning the per-unit costs of manufacturing, selling and distribution,
and support activities.
For additional information see the discussions set forth under the captions
"Revision of Ben & Jerry's Distribution Agreement" and "Restructuring Program
and Other Actions" in "Management's Discussion and Analysis" of the Company's
1999 Annual Report to Stockholders and which are incorporated herein by
reference.
Unlike most other ice cream manufacturers, the Company uses a
direct-store-delivery system to distribute the Company's products directly to
the retail ice cream cabinet by either the Company's 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
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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 retail outlets serving approximately 88
percent of the households in 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.
The distribution network in the West now includes 12 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. On February 9, 2000,
the Company purchased the remaining 84 percent of the outstanding common stock
of Cherokee Cream Company, Inc., the parent of Sunbelt Distributors, Inc., the
Company's independent distributor in Texas. The Company also has independent
distributors handling the Company's products in various areas of the thirteen
western states, the Far East and South America.
Distribution in the remainder of the United States is under the Edy's brand
name with most of the distribution handled through 18 Company-owned distribution
centers, including centers in the New York/ New Jersey metropolitan area,
Chicago, the Washington/Baltimore metropolitan area, 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 19
percent of the Company's consolidated sales in 1999. The Company's agreements
with its independent distributors are generally terminable upon 30 days notice
by either party.
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.
Three customers, Albertson's, Inc., Kroger Co., and Safeway, Inc., each
accounted for ten percent or more of 1999 sales. The Company's export sales were
about one percent of 1999 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. The Company also has manufacturing agreements with
four different companies to produce a portion of its novelty products. During
1999, approximately 3,000,000 cases (55 percent of total novelty production) of
Dreyer's and Edy's Ice Cream Bars and Fruit Bars were produced under these
agreements. In addition, the Company has agreements to produce products for
other manufacturers. In 1999, the Company manufactured approximately 13,000,000
gallons of product under these agreements. Total production, including both
company brands and other manufacturers' brands was approximately 113,000,000
gallons during 1999.
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. However, during 1998,
unusually high dairy raw materials costs negatively impacted gross profit by
$22,000,000 as compared to 1997. During 1999, dairy raw material costs declined
which favorably impacted gross profit by approximately $15,000,000 as compared
to 1998.
Other cost increases such as labor and general administrative costs have
been offset by productivity gains and other operating efficiencies.
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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 a limited number of suppliers. These dairy products and
most 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, breadth of flavor selection and price. 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 and reduced sugar ice cream products generally require
technologically-sophisticated formulations and production 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. These brands 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 and superpremium ice creams produced by other ice cream
manufacturers, some of whom are owned by parent companies much larger than
Dreyer's.
EMPLOYEES
On December 25, 1999, the Company had approximately 3,700 employees. The
Company's Union City manufacturing and distribution employees are represented by
the Teamsters Local 853, whose contract with the Company expires between
December 2000 and September 2003 for different types of employees, and by 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 2000. 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 83,000 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 estimated capacity of
51,000,000 gallons per year. During 1999, the facility produced approximately
19,000,000 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 estimated capacity of 32,000,000 gallons per year. During 1999, the facility
produced approximately 18,000,000 gallons of ice cream and related products.
The Company owns a cold storage warehouse facility located in the City of
Industry, California. This facility has approximately 52,000 square feet of cold
and dry storage warehouse space and 13,000 square feet
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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 74,000 square
feet of manufacturing and storage space and 16,000 square feet of office space.
An additional warehouse on land adjacent to the Fort Wayne manufacturing
facility has cold storage space of 109,000 square feet. The plant has estimated
capacity of 64,000,000 gallons per year. During 1999, the facility produced
approximately 53,000,000 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 has approximately 68,000 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 estimated capacity of 36,000,000
gallons per year. During 1999, this facility produced approximately 17,000,000
gallons of ice cream and related products. As a result of the restructuring
program, the Company will realize substantially lower production volumes over
the remaining useful life of its Houston, Texas manufacturing plant than
originally contemplated. However, the Company anticipates that the production
levels at the Texas manufacturing plant may increase for the next two or three
years to 21,000,000 gallons pending the addition of more manufacturing capacity
in the eastern half of the United States. Despite these short-term increases,
the Company projects that production at the Texas manufacturing plant will
remain below the volume originally contemplated. For additional information see
the discussion set forth under the caption "Restructuring Program and Other
Actions" in "Management's Discussion and Analysis" of the Company's 1999 Annual
Report to Stockholders which is incorporated herein by reference.
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. Another 11,000 square feet of cold storage space and 4,000
square feet of office space is leased. The plant has estimated capacity of
12,000,000 gallons per year. During 1999, the facility produced approximately
6,000,000 gallons of ice cream and related products.
The estimated plant productive capacities discussed above will be heavily
influenced by seasonal demand fluctuations, internal or external inventory
storage availability and costs, and the type of product or package produced.
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 leases or rents various local distribution and office
facilities with leases expiring through the year 2022, including options to
renew, except for one that has 88 years remaining under the lease.
ITEM 3. LEGAL PROCEEDINGS.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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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 57
Officer
William F. Cronk, III..................... President 57
Edmund R. Manwell......................... Secretary 57
Thomas M. Delaplane....................... Vice President -- Sales 55
J. Tyler Johnston......................... Vice President -- Marketing 46
Timothy F. Kahn........................... Vice President -- Finance and 46
Administration and Chief Financial Officer
William R. Oldenburg...................... Vice President -- Operations 53
</TABLE>
All officers hold office at the pleasure of the Board of Directors. There
is no family relationship among the above officers.
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, 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 Vice
President -- New Business of the Company. 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 of the Company since March 1998. In 1994 through October
1997, Mr. Kahn served in the positions of Senior Vice President, Chief Financial
Officer and Vice President for several divisions of PepsiCo, Inc., which
included Pizza Hut Restaurants.
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 16 under the caption "Price Range Per
Common Share (NASDAQ)" of the Company's 1999 Annual Report to Stockholders is
incorporated herein by reference. The bid and asked quotations for the Company's
Common Stock are as reported by NASDAQ.
On March 17, 2000, the number of holders of record of the Company's common
stock was approximately 5,680.
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. Unless
otherwise indicated, 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 1999 and 1998. On February 23, 2000, 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 2000.
Also on February 23, 2000, the Board of Directors declared a dividend of $.03
per share of common stock for the first quarter of 2000 for stockholders of
record on March 24, 2000.
ITEM 6. SELECTED FINANCIAL DATA.
The information set forth under the caption "Five-Year Summary of
Significant Financial Data" of the Company's 1999 Annual Report to Stockholders
is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information set forth under the caption "Management's Discussion and
Analysis" of the Company's 1999 Annual Report to Stockholders is incorporated
herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information set forth under the caption "Market Risk" in "Management's
Discussion and Analysis" of the Company's 1999 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
PricewaterhouseCoopers LLP dated February 15, 2000 of the Company's 1999 Annual
Report to Stockholders, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 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," "Board of Directors -- Continuing
Directors," "Security Ownership of Certain Beneficial Owners and Management --
Section 16(a) Beneficial Ownership Reporting Compliance," "Executive
Compensation -- Compensation Committee Interlocks and Insider Participation" and
"Matters Submitted to a Vote of Stockholders -- Election of Directors" in the
Company's Proxy Statement for the 2000 Annual Meeting of Stockholders to be
filed with the Commission on or before April 23, 2000, 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 captions "Executive Compensation" and
"Board of Directors -- Remuneration of Directors" in the Company's Proxy
Statement for the 2000 Annual Meeting of Stockholders to be filed with the
Commission on or before April 23, 2000 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 2000
Annual Meeting of Stockholders to be filed with the Commission on or before
April 23, 2000 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the captions "Executive
Compensation -- Compensation Committee Interlocks and Insider Participation" and
"Executive Compensation -- Other Relationships" in the Company's Proxy Statement
for the 2000 Annual Meeting of Stockholders to be filed with the Commission on
or before April 23, 2000 is incorporated herein by reference.
10
<PAGE> 11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE:
The following documents are filed as part of this report:
1. Financial Statements:
<TABLE>
<CAPTION>
PAGE(S) IN
ANNUAL REPORT*
--------------
<S> <C>
Consolidated Statement of Operations for each of the three
years in the period ended December 25, 1999.............. 18
Consolidated Balance Sheet at December 25, 1999 and
December 26, 1998........................................ 19
Consolidated Statement of Changes in Stockholders' Equity
for each of the three years in the period ended December
25, 1999................................................. 20
Consolidated Statement of Cash Flows for each of the three
years in the period ended December 25, 1999.............. 21
Notes to Consolidated Financial Statements................. 22-35
Report of Independent Accountants.......................... 36
</TABLE>
2. Financial Statement Schedule:
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Report of Independent Accountants on Financial Statement
Schedule for each of the three years in the period ended
December 25, 1999........................................ 20
Schedule II. Valuation and Qualifying Accounts............. 21
</TABLE>
- ---------------
* Incorporated by reference to the indicated pages of the Company's 1999 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 percent or less owned company have
been omitted because the Company's proportionate share of income (loss) from
continuing operations before income tax provision (benefit) and cumulative
effect of change in accounting principle is less than 20 percent of the
respective consolidated amounts, and the investment in and advances to any such
company are less than 20 percent of consolidated total assets.
3. List of Management Compensation Agreements required to be filed as
an exhibit to this form pursuant to Item 14 (c):
(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.
(vi) Dreyer's Grand Ice Cream, Inc. Income Swap Plan referenced in
Exhibit 10.21 herein.
11
<PAGE> 12
(b) REPORTS ON FORM 8-K:
Not applicable.
(c) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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)).
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)).
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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)).
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)).
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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.
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)).
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 N.V. and Credit Suisse (Exhibit 10.2(21)).
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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 N.V. (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
N.V. (as Co-Agent and as a Bank), Credit Suisse First Boston
and Union Bank of California, NA, amending Exhibit 10.26.
(Exhibit 10.33(27)).
10.34 Amended and Restated Credit Agreement dated as of March 27,
1998 by and among Dreyer's Grand Ice Cream, Inc., Bank of
America National Trust and Savings Association, as one of
the Banks and as Agent, ABN AMRO Bank N.V., as one of the
Banks and as Co-Agent, Credit Suisse First Boston and Union
Bank of California, N.A. (Exhibit 10.1(28)).
10.35 First Amendment to Amended and Restated Credit Agreement
dated as of November 3, 1998 and effective as of September
25, 1998, among Dreyer's Grand Ice Cream, Inc. and Bank of
America National Trust and Savings Association, as a Bank
and as Agent, ABN AMRO Bank N.V., San Francisco
International Branch as a Bank and as Co-Agent, Credit
Suisse First Boston and Union Bank of California, N.A.
(collectively the "Banks"), amending the Amended and
Restated Credit Agreement dated as of March 27, 1998 among
Dreyer's Grand Ice Cream, Inc. and the Banks. (Exhibit
10.1(29)).
10.36 Fourth Amendment to General Continuing Guaranty and Waiver
dated November 12, 1998, between Dreyer's Grand Ice Cream,
Inc. and Bank of America National Trust and Savings
Association, amending the General Continuing Guaranty
referenced in Exhibit 10.4. (Exhibit 10.36 (30)).
10.37 First Amendment dated as of November 17, 1998 to Note
Purchase Agreements 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 amending
Exhibit 10.31. (Exhibit 10.37 (30)).
10.38 First Amendment to Participation Agreement dated December
21, 1998 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 N.V. and Credit Suisse First
Boston (formerly Credit Suisse) amending Exhibit 10.27.
(Exhibit 10.38 (30)).
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.39 Letter Amendment Agreement dated as of January 11, 1999 to
that certain Distribution Agreement between Ben & Jerry's
Homemade, Inc., and Dreyer's Grand Ice Cream, Inc. and
certain of its subsidiaries, amending Exhibit 10.5. (*)
(Exhibit 10.39 (30)).
10.40 New Distribution Agreement between Dreyer's Grand Ice Cream,
Inc. and Ben & Jerry's Homemade, Inc. dated as of January
11, 1999 and related Addendum dated as of January 11, 1999.
(*) (Exhibit 10.40 (30)).
10.41 Secured Promissory Notes dated October 5, 1998 and December
11, 1998 in the principal sums of $95,000 and $186,000,
respectively, with Thomas M. Delaplane as Maker and Dreyer's
Grand Ice Cream, Inc. as Payee, and related Pledge Agreement
dated October 5, 1998 by and between Thomas Miller
Delaplane, as Trustee of the Delaplane Family Trust UAD
6/22/95 and Dreyer's Grand Ice Cream, Inc. (Exhibit 10.41
(30)).
10.42 Fifth Amendment to Note Agreement dated as of December 25,
1998 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 (31)).
13 Those portions of the Dreyer's Grand Ice Cream, Inc. 1999
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.
27.1 Financial Data Schedule for the year ended December 25,
1999.
27.2 Restated Financial Data Schedule for the 39-week period
ended September 25, 1999.
27.3 Restated Financial Data Schedule for the 26-week period
ended June 26, 1999.
27.4 Restated Financial Data Schedule for the 13-week period
ended March 27, 1999.
27.5 Restated Financial Data Schedule for the year ended December
26, 1998.
27.6 Restated Financial Data Schedule for the 39-week period
ended September 26, 1998.
27.7 Restated Financial Data Schedule for the 26-week period
ended June 27, 1998.
27.8 Restated Financial Data Schedule for the 13-week period
ended March 28, 1998.
27.9 Restated Financial Data Schedule for the year ended December
27, 1997.
</TABLE>
(*) Confidential treatment requested and granted as to certain portions of
these exhibits. The term "confidential treatment" and the mark "*" used
throughout the indicated exhibits means that material has been omitted and
separately filed with the Commission.
- ---------------
(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 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.
16
<PAGE> 17
(4) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K for the 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 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 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 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 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 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 year ended December 30,
1995 filed under Commission File No. 0-14190 on March 29, 1996.
17
<PAGE> 18
(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 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/A 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.
(27) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K for the year ended December 27,
1997 filed under Commission File No. 0-14190 on March 26, 1998.
(28) 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 28, 1998 filed under Commission File No. 0-14190 on May 12, 1998.
(29) 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 26, 1998 filed under Commission File No. 0-14190 on November 10,
1998.
(30) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice
Cream, Inc.'s Annual Report on Form 10-K for the year ended December 26,
1998 filed under Commission File No. 0-14190 on March 26, 1999.
(31) 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 27, 1999 filed under Commission File No. 0-14190 on May 10, 1999.
18
<PAGE> 19
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 23, 2000
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 Chief Executive March 23, 2000
- ------------------------------------------ Officer and Director
(T. Gary Rogers) (Principal Executive Officer)
/s/ WILLIAM F. CRONK, III President and Director March 23, 2000
- ------------------------------------------
(William F. Cronk, III)
/s/ EDMUND R. MANWELL Secretary and Director March 23, 2000
- ------------------------------------------
(Edmund R. Manwell)
/s/ TIMOTHY F. KAHN Vice President -- Finance and March 23, 2000
- ------------------------------------------ Administration and Chief Financial
(Timothy F. Kahn) Officer
(Principal Financial Officer)
/s/ JEFFREY P. PORTER Corporate Controller March 23, 2000
- ------------------------------------------ (Principal Accounting Officer)
(Jeffrey P. Porter)
/s/ JAN L. BOOTH Director March 23, 2000
- ------------------------------------------
(Jan L. Booth)
/s/ ROBERT A. HELMAN Director March 23, 2000
- ------------------------------------------
(Robert A. Helman)
Director March 23, 2000
- ------------------------------------------
(M. Steven Langman)
/s/ JOHN W. LARSON Director March 23, 2000
- ------------------------------------------
(John W. Larson)
/s/ JACK O. PEIFFER Director March 23, 2000
- ------------------------------------------
(Jack O. Peiffer)
/s/ TIMOTHY P. SMUCKER Director March 23, 2000
- ------------------------------------------
(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.
19
<PAGE> 20
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 15, 2000 appearing in the 1999 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.
/s/ PRICEWATERHOUSECOOPERS LLP
- ---------------------------------------------------------
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
February 15, 2000
20
<PAGE> 21
SCHEDULE II
DREYER'S GRAND ICE CREAM, INC.
VALUATION AND QUALIFYING ACCOUNTS
(TABLE AND FOOTNOTES IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fiscal year ended December 27, 1997:
Allowance for doubtful accounts............... $ 755 $ 1,463 $1,508(1) $ 710
Accumulated amortization of goodwill and
distribution rights........................ 16,616 3,201 -- 19,817
Accumulated amortization of other assets...... 4,998 923 -- 5,921
------- ------- ------ -------
$22,369 $ 5,587 $1,508 $26,448
======= ======= ====== =======
Fiscal year ended December 26, 1998:
Allowance for doubtful accounts............... $ 710 $ 6,498(3) $1,498(1) $ 5,710(3)
Accumulated amortization of goodwill and
distribution rights........................ 19,817 12,603 2,208(4) 30,212
Accumulated amortization of other assets...... 5,921 1,001 1,061(2) 5,861
------- ------- ------ -------
$26,448 $20,102 $4,767 $41,783
======= ======= ====== =======
Fiscal year ended December 25, 1999:
Allowance for doubtful accounts............... $ 5,710(3) $ 857 $ 852(1) $ 5,715(3)
Accumulated amortization of goodwill and
distribution rights........................ 30,212 2,534 -- 32,746
Accumulated amortization of other assets...... 5,861 1,374 1,198(2) 6,037
------- ------- ------ -------
$41,783 $ 4,765 $2,050 $44,498
======= ======= ====== =======
</TABLE>
- ---------------
(1) Write-off of receivables considered uncollectible.
(2) Removal of fully-amortized assets.
(3) Includes a bad debt allowance of $5,000 for trade accounts receivable from
an independent distributor in Texas.
(4) Includes a $2,208 impairment of goodwill and distribution rights related to
the restructuring program and other actions.
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.20 Dreyer's Grand Ice Cream, Inc. Stock Option Plan (1993), as
amended.
13 Those portions of the Dreyer's Grand Ice Cream, Inc. 1999
Annual Report to Stockholders which are incorporated by
reference in this Annual Report on Form 10-K.
21 Subsidiaries of Registrant.
23 Consent of Independent Accountants.
27.1 Financial Data Schedule for the year ended December 25,
1999.
27.2 Restated Financial Data Schedule for the 39-week period
ended September 25, 1999.
27.3 Restated Financial Data Schedule for the 26-week period
ended June 26, 1999.
27.4 Restated Financial Data Schedule for the 13-week period
ended March 27, 1999.
27.5 Restated Financial Data Schedule for the year ended December
26, 1998.
27.6 Restated Financial Data Schedule for the 39-week period
ended September 26, 1998.
27.7 Restated Financial Data Schedule for the 26-week period
ended June 27, 1998.
27.8 Restated Financial Data Schedule for the 13-week period
ended March 28, 1998.
27.9 Restated Financial Data Schedule for the year ended December
27, 1997.
</TABLE>
22
<PAGE> 1
EXHIBIT 10.20
DREYER'S GRAND ICE CREAM, INC.
STOCK OPTION PLAN (1993)
as amended May 12, 1999*
1. Purpose
The purpose of the Plan is to provide a vehicle under which a variety
of stock option awards may be granted to employees and directors of the Company
and its Subsidiaries to further the profits and prosperity of the Company and
its Subsidiaries.
2. Definitions
A. "Award" means any form of stock option granted under the
Plan.
B. "Award Notice" means any written notice from the Company
to a Participant or agreement between the Company and a
Participant that establishes the terms applicable to an Award.
C. "Board of Directors" means the Board of Directors of the
Company.
D. "Code" means the Internal Revenue Code of 1986, as
amended.
E. "Committee" means the Compensation Committee of the Board of
Directors, or such other committee designated by the Board of
Directors, which is authorized to administer the Plan under Section 3
hereof. The Committee, and any separate committee to which it delegates
any of its authority and duties under the Plan, shall each have
membership composition which enable the Plan to qualify under Rule
16b-3 with regard to Awards to persons who are subject to Section 16 of
the Exchange Act.
F. "Common Stock" means common stock of the Company.
G. "Company" means Dreyer's Grand Ice Cream, Inc., a
Delaware corporation.
H. "Director" means a member of the Board of Directors.
- --------
*Also reflects adjustments for October 30, 1997 two-for-one stock
split.
1
<PAGE> 2
I. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
J. "Fair Market Value" means, as of a specified date, the mean of the
high and the low sales price of one share of Common Stock on the
over-the-counter market or the closing price on the principal stock
exchange where the Company's stock prices are officially quoted, or if
not traded on that date, then on the date last traded. If for any
reason the Company's stock ceases to be traded on the over-the-counter
market or listed on a stock exchange, the Committee shall establish the
method for determining the Fair Market Value of the Common Stock.
K. "Key Employee" means any employee of the Company or a Subsidiary
responsible for the management of the business of the Company (or a
Subsidiary) who is in a position to make substantial contributions to
the sound performance of the Company (or a Subsidiary). The term "Key
Employee" shall include officers as well as other employees devoting
full time to the Company (or a Subsidiary) and shall include Directors
who are also active officers or employees of the Company (or a
Subsidiary).
L. "Non-Employee Director" means a Director who is not an employee of
the Company or a Subsidiary.
M. "Participant" means any individual to whom an Award is granted
under the Plan.
N. "Plan" means this Plan, which shall be known as the Dreyer's Grand
Ice Cream, Inc. Stock Option Plan (1993).
O. "Rule 16b-3" means Rule 16b-3 issued under the Exchange Act or any
successor rule.
P. "Subsidiary" means a corporation or other business entity (i) of
which the Company directly or indirectly has an ownership interest of
50% or more, or (ii) of which it has a right to elect or appoint 50% or
more of the board of directors or other governing body.
3. Administration.
A. The Plan shall be administered by the Committee. Subject
to the terms and conditions of this Plan, the Committee shall
have the authority to:
(i) interpret and determine all questions of policy and expediency
pertaining to the Plan;
2
<PAGE> 3
(ii) adopt such rules, regulations, agreements and
instruments as it deems necessary for the Plan's proper
administration;
(iii) select Key Employees to receive Awards;
(iv) determine the form and terms of Awards;
(v) determine the number of shares subject to Awards;
(vi) determine whether Awards will be granted singly, in
combination, in tandem, in replacement of, or as alternatives
to other grants under the Plan or any other incentive or
compensation plan of the Company, a Subsidiary or an acquired
business unit;
(vii) grant waivers of Plan or Award conditions;
(viii) accelerate the vesting of Awards;
(ix) correct any defect, supply any omission, or reconcile
any inconsistency in the Plan, any Award or any Award Notice;
and
(x) take any and all other actions it deems necessary or
advisable for the proper administration of the Plan.
B. The interpretation and construction of any provision of the Plan by
the Committee shall be final, conclusive and binding on all parties,
including the Company, its Subsidiaries and stockholders, and the
Participants, their estates, executors, administrators, heirs and
assigns. No member of the Committee shall be liable for any action or
determination made by him in good faith.
C. The Committee may adopt such Plan amendments, procedures,
regulations, subplans and the like as it deems are necessary to enable
Key Employees and Directors who are foreign nationals or employed
outside the United States to receive Awards.
D. The Committee may delegate its authority to grant and administer
Awards to a separate committee; however, only the Committee may grant
and administer Awards with respect to persons who are subject to
Section 16 of the Exchange Act.
3
<PAGE> 4
4. Eligibility
A. Any Key Employee is eligible to become a Participant in the Plan.
B. Non-Employee Directors shall receive Awards in accordance with
Section 7.
5. Stock Subject to the Plan.
A. The aggregate number of shares of Common Stock which may be
delivered on exercise of options under this Plan shall not exceed six
million four hundred thousand (6,400,000) shares, subject to
adjustment as provided hereinafter. If, at any time during the term of
this Plan, an option granted under this Plan shall have expired or
terminated for any reason without having been exercised in full, the
unpurchased shares shall become available for option to other
employees.
B. In the event that (i) the number of outstanding shares of Common
Stock shall be changed by reason of split-ups, combinations or
reclassifications of shares or otherwise, (ii) any share dividends are
distributed to the holders of Common Stock or (iii) the Common Stock is
converted into or exchanged for other shares as a result of any merger,
consolidation or recapitalization then, in any such case, the number of
shares for which options may thereafter be granted under this Plan,
both in the aggregate and as to any individual, and the number of
shares then subject to options theretofore granted under this Plan and
the price per share payable upon exercise of such options shall be
appropriately adjusted by the Committee so as to reflect such change.
C. The shares of Common Stock available under the Plan may be
authorized and unissued shares or treasury shares.
6. Term
This Plan shall be effective and operative, subject to approval of the
stockholders of the Company within twelve months after its adoption by the Board
of Directors, from the date that the Plan is approved by the Board of Directors
and shall remain in effect until terminated by the Board of Directors.
7. Awards to Non-Employee Directors
Non-Employee Directors shall receive awards in accordance with the
following terms:
A. On the day of adoption of this Plan by the Company's stockholders
(the "Approval Date"), each Non-Employee Director
4
<PAGE> 5
shall receive a non-qualified option for 10,000 shares of Common
Stock.
B. After the Approval Date, any person who is appointed or elected a
Non-Employee Director shall receive a non-qualified stock option for
10,000 shares of Common Stock on the date such person is so appointed
or elected.
C. On each anniversary of the Approval Date each Non-Employee Director
shall receive a non-qualified stock option for 3,000 shares of Common
Stock.
D. Options to Non-Employee Directors shall be subject to the following
terms: (i) the exercise price shall be equal to 100% of the Fair Market
Value of the Common Stock on the date of the grant, payable in
accordance with all the alternatives stated in Section 8.B(ii); (ii)
the term of the options shall be 10 years; (iii) the options shall be
exercisable beginning 6 months after the date of the grant; and (iv)
the options shall be subject to Section 10.
8. Stock Options
A. Awards shall be granted in the form of stock options. Stock options
may be incentive stock options within the meaning of Section 422 of the
Code or non-qualified stock options (i.e., stock options which are not
incentive stock options).
B. Subject to Section 8.C relating to incentive stock options, options
shall be in such form and contain such terms as the Committee deems
appropriate. While the terms of options need not be identical, each
option shall be subject to the following terms:
(i) The exercise price shall be the price set by the
Committee but may not be less than 100% of the Fair Market
Value of the Common Stock on the date of the grant.
(ii) The exercise price shall be paid in cash (including
check, bank draft, or money order), or all or part of the
purchase price may be paid by delivery of the optionee's
delivery of Common Stock, already owned by the Participant for
at least six (6) months and valued at its Fair Market Value,
or any combination of the foregoing methods of payment.
(iii) An option shall be treated as exercised on the later of
(i) the date that proper notice of exercise accompanied by the
aggregate exercise price is received
5
<PAGE> 6
by the Company, or (ii) such exercise date as may be specified
in such proper notice when accompanied by such aggregate
exercise price.
(iv) The term of an option may not be greater than 10 years
from the date of the grant.
(v) Neither a person to whom an option is granted nor his
legal representative, heir, legatee or distributee shall be
deemed to be the holder of, or to have any of the rights of a
holder with respect to, any shares subject to such option
unless and until he has exercised his option.
C. The following special terms shall apply to grants of
incentive stock options:
(i) No incentive stock option shall be granted after the
tenth (10th) anniversary of the date the Plan is adopted by
the Board of Directors.
(ii) Subject to Section 8.C.(iii), the exercise price under
each incentive stock option shall not be less than 100% of the
Fair Market Value of the Common Stock on the date of the
grant.
(iii) No incentive stock option shall be granted to any
employee who directly or indirectly owns stock possessing more
than 10% of the total combined voting power of all classes of
stock of the Company, unless the exercise price is at least
110% of the Fair Market Value of the Common Stock on the date
of the grant and such option is not exercisable after the
expiration of 5 years from the date of the grant.
(iv) No incentive stock option shall be granted to a person
in his capacity as a Key Employee of a Subsidiary if the
Company has less than a 50% ownership interest in such
Subsidiary.
(v) Incentive stock options shall contain such other terms
as may be necessary to qualify the options granted therein as
incentive stock options pursuant to Section 422 of the Code,
or any successor statute.
9. Reload Options
A. Concurrently with the award of options to any
Participant, the Committee may authorize reload options
("Reload Options") to purchase for cash or shares a number of
6
<PAGE> 7
shares of the Common Stock. The number of Reload Options
shall equal:
(i) the number of shares of Common Stock used to exercise the
underlying options; and
(ii) the number of shares of Common Stock used to satisfy any
tax withholding requirement incident to the exercise of the
underlying option, including shares withheld from those that
would otherwise be issuable to the optionee pursuant to
exercise of the subject option. The grant of a Reload Option
will become effective upon the exercise of the underlying
options or Reload Options through the use of shares of Common
Stock held by the optionee for at least six (6) months.
B. Notwithstanding the fact that the underlying option may be an
Incentive Stock Option, a Reload Option is not intended to qualify as
an "incentive stock option" within the meaning of Section 422 of the
Code.
C. Each Award Notice shall state whether the Committee has authorized
Reload Options with respect to the underlying options. Upon the
exercise of an underlying option or other Reload Option, the Reload
Option will be evidenced by an amendment to the underlying Award
Notice.
D. The option price per share of Common Stock deliverable upon the
exercise of a Reload Option shall be the Fair Market Value of a share
of Common Stock on the date the grant of the Reload Option becomes
effective.
E. Each Reload Option is fully exercisable six (6) months from the
effective date of grant. The term of each Reload Option shall be equal
to the remaining option term of the underlying option.
F. No additional Reload Options shall be granted when options or Reload
Options are exercised pursuant to the terms of this Plan following
cessation of the optionee's employment with the Company for any reason.
10. Exercise of Stock Option Upon Termination of Employment or Services
A. Options granted under Section 7 shall be exercisable upon the
Participant's termination of service within the following periods only.
Subject to Section 17, stock options to other Participants may permit
the exercise of options upon the Participant's termination of
employment within the following
7
<PAGE> 8
periods, or such shorter periods as determined by the
Committee at the time of grant:
(i) if on account of death, within 24 months of such event
by the person or persons to whom the Participant's rights
pass by will or the laws of descent or distribution.
(ii) if on account of disability (as defined in Section
22(e)(3) of the Code or any successor statute), non-qualified
stock options may be exercised within 24 months of such
termination and incentive stock options within 12 months.
(iii) if on account of retirement (as defined from time to
time by Company policy), non-qualified stock options may be
exercised within 24 months of such termination and incentive
stock options with 3 months.
(iv) if for any reason other than death, disability or
retirement (as defined from time to time by Company policy),
options may be exercised within 3 months of such termination.
B. An unexercised option shall be exercisable only to the extent that
such option was exercisable on the date the Participant's employment or
service terminated. However, terms relating to the exercisability of
options may be amended by the Committee before or after such
termination, except in respect to options granted under Section 7.
C. In no case may an unexercised option be exercised to any extent by
anyone after expiration of its term.
11. Acceleration of Vesting of Options.
A. In the event of a Change in Control (as defined below), death of an
optionee or retirement of an optionee (as defined from time to time by
Company policy), all options which have not yet vested shall vest,
mature and become exercisable in whole or in part immediately prior to
the event constituting the Change of Control, or immediately upon the
death or retirement of such optionee.
B. A Change of Control for these purposes shall be defined as, (i) the
acquisition by any person of beneficial ownership of forty percent
(40%) or more of the combined voting power of the Company's outstanding
securities immediately after such acquisition (which forty percent
(40%) shall be calculated after including the dilutive effect of the
conversion or exchange of any outstanding securities of the Company
8
<PAGE> 9
convertible into or exchangeable for voting securities), or (ii) a
change in the composition of majority membership of the Board of
Directors over any two-year period beginning with the date of adoption
of this Plan by the Board of Directors, or (iii) a change in ownership
of the Company such that the Company becomes subject to the delisting
of its Common Stock from the NASDAQ National Market System, or (iv) the
approval by the Board of Directors of the sale of all or substantially
all of the assets of the Company, or (v) the approval by the Board of
Directors of any merger, consolidation, issuance of securities or
purchase of assets, the result of which would be the occurrence of any
event described in clause (i), (ii) or (iii) above. Notwithstanding
anything to the contrary in this Section 11.B, acquisitions by any
person (or any group of which such a person is a member) who is as of
the date of adoption of this Plan by the Board of Directors, a member
of the Board of Directors, of beneficial ownership of forty percent
(40%) or more of the combined voting power of the Company's outstanding
securities immediately after such acquisition (calculation of such
forty percent (40%) being made as described above), shall not be deemed
a Change of Control for purposes of this Plan.
12. Nonassignability
The rights of a Participant under the Plan shall not be assignable by
such Participant, by operation of law or otherwise, except by will or
the laws of descent and distribution. During the lifetime of the person
to whom a stock option is granted, he or she alone may exercise it.
13. Payment of Withholding Taxes
A. As a condition to receiving or exercising an Award, as the case may
be, the Participant shall pay to the Company the amount of all
applicable federal, state, local and foreign taxes required by law to
be paid or withheld relating to receipt or exercise of the Award.
B. An optionee may satisfy such withholding requirements in whole or in
part by directing the Company to withhold shares from those that would
otherwise be issuable to the Participant or by otherwise tendering
other shares of Common Stock owned by the Participant. The withheld
shares and other tendered shares will be valued at the Fair Market
Value as of the date that the tax withholding obligation arises.
14. Amendments
The Board of Directors may amend the Plan at any time and from time to
time, provided however that the Board shall not amend the
9
<PAGE> 10
terms of the Plan more frequently than permitted under Rule 16b-3 in
regard to provisions that affect persons receiving Awards under Section
7. Rights and obligations under any Award granted before amendment of
the Plan shall not be materially altered or impaired adversely by such
amendment, except with consent of the person to whom the Award was
granted.
15. Regulatory Approvals and Listings
Notwithstanding any other provision in the Plan, the Company shall have
no obligation to issue or deliver certificates of Common Stock under
the Plan prior to (A) obtaining approval from any governmental agency
which the Company determines is necessary or advisable, (B) admission
of such shares to listing on the stock exchange on which the Common
Stock may be listed and (C) completion of any registration or other
qualification of such shares under any state or federal law or ruling
of any governmental body which the Company determines to be necessary
or advisable.
16. No Right to Continued Employment or Grants
Participation in the Plan shall not give any Key Employee any right to
remain in the employ of the Company or any Subsidiary. Further, the
adoption of this Plan shall not be deemed to give any Key Employee or
other individual the right to be selected as a Participant or to be
granted an Award.
17. Special Provision Pertaining to Persons Subject to Section 16
Notwithstanding any other term of this Plan, the following shall apply
to persons subject to Section 16 of the Exchange Act, except in the
case of death or disability:
A. No stock option granted pursuant to the Plan may be exercisable for
at least 6 months after the date of grant.
18. Limitations on Awards Under the Plan
No one Participant shall receive in the aggregate Awards granting him
more than fifty percent (50%) of the aggregate number of shares
(6,400,000) which may be delivered on exercise of options under the
Plan.
10
<PAGE> 1
EXHIBIT 13
<TABLE>
<CAPTION>
Financial Table of Contents
<S> <C>
Consolidated Statement of Operations 18
Consolidated Balance Sheet 19
Consolidated Statement of Changes in Stockholders' Equity 20
Consolidated Statement of Cash Flows 21
Notes to Consolidated Financial Statements 22
Report of Independent Accountants 36
Five-Year Summary of Significant Financial Data 37
Management's Discussion and Analysis 38
</TABLE>
<PAGE> 2
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
($ in thousands, except per share amounts) Dec. 25, 1999 Dec. 26, 1998 Dec. 27, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Sales $1,099,817 $1,022,335 $970,097
Other income 2,090 3,653 2,994
---------- ---------- --------
1,101,907 1,025,988 973,091
---------- ---------- --------
Costs and expenses:
Cost of goods sold 837,907 827,862 764,551
Selling, general and administrative 235,146 212,151 183,390
Impairment of long-lived assets 44,564
(Reversal of) provision for restructuring
charges (1,315) 3,300
Interest, net of amounts capitalized 11,450 13,006 10,695
---------- ---------- --------
1,083,188 1,100,883 958,636
---------- ---------- --------
Income (loss) before income tax provision
(benefit) and cumulative effect of change
in accounting principle 18,719 (74,895) 14,455
Income tax provision (benefit) 7,132 (28,385) 5,681
---------- ---------- --------
Income (loss) before cumulative effect of change
in accounting principle 11,587 (46,510) 8,774
Cumulative effect of change in accounting principle 595 746
---------- ---------- --------
Net income (loss) 10,992 (46,510) 8,028
Accretion of preferred stock to redemption value 424 424 424
Preferred stock dividends 696 696 3,636
---------- ---------- --------
Net income (loss) available to common stockholders $ 9,872 $ (47,630) $ 3,968
========== ========== ========
Per common share-basic:
Income (loss) available to common stockholders
before cumulative effect of change in
accounting principle $ .38 $ (1.75) $ .18
Cumulative effect of change in accounting principle .02 .03
---------- ---------- --------
Net income (loss) available to common stockholders $ .36 $ (1.75) $ .15
========== ========== ========
Per common share-diluted:
Income (loss) available to common stockholders
before cumulative effect of change in
accounting principle $ .35 $ (1.75) $ .17
Cumulative effect of change in accounting principle .02 .03
---------- ---------- --------
Net income (loss) available to common stockholders $ .33 $ (1.75) $ .14
========== ========== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 3
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
($ in thousands, except per share amounts) Dec. 25, 1999 Dec. 26, 1998
------------- -------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 3,158 $ 1,171
Trade accounts receivable, net of allowance for doubtful
accounts of $5,715 in 1999 and $5,710 in 1998 79,251 83,053
Other accounts receivable 13,528 29,165
Inventories 54,669 49,472
Deferred income taxes 11,586 7,843
Prepaid expenses and other 6,621 5,428
-------- --------
Total current assets 168,813 176,132
Property, plant and equipment, net 197,392 207,772
Goodwill and distribution rights, net 65,692 67,226
Other assets 7,347 10,591
-------- --------
Total assets $439,244 $461,721
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 88,845 $ 87,273
Accrued payroll and employee benefits 29,913 19,545
Current portion of long-term debt 18,721 8,255
-------- --------
Total current liabilities 137,479 115,073
Long-term debt, less current portion 104,257 169,781
Deferred income taxes 23,736 16,039
-------- --------
Total liabilities 265,472 300,893
-------- --------
Commitments and contingencies
Redeemable convertible preferred stock, $1 par value -
1,008,000 shares authorized; 1,008,000 shares issued
and outstanding in 1999 and 1998 100,078 99,654
-------- --------
Stockholders' Equity:
Preferred stock, $1 par value - 8,992,000 shares
authorized; no shares issued or outstanding
in 1999 and 1998
Common stock, $1 par value - 60,000,000 shares authorized;
27,871,000 shares and 27,312,000 shares issued and
outstanding in 1999 and 1998, respectively 27,871 27,312
Capital in excess of par 53,172 46,722
Notes receivable from stockholders (2,501) (1,459)
Accumulated deficit (4,848) (11,401)
-------- --------
Total stockholders' equity 73,694 61,174
-------- --------
Total liabilities and stockholders' equity $439,244 $461,721
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 4
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Notes (Accumulated
Common Stock Capital Receivable Deficit)
------------------- in Excess from Retained
(In thousands) Shares Amount of Par Stockholders Earnings Total
------ ------- --------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 28, 1996 13,345 $13,345 $ 51,956 $(1,144) $ 38,762 $102,919
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)
Issuance of common stock under
employee stock plans, net 177 177 4,639 492 5,308
Repurchases and retirements of
common stock (7) (7) (268) (275)
Common stock split 13,505 13,505 (13,505)
------ ------- -------- ------- -------- --------
Balances at December 27, 1997 27,020 27,020 42,822 (652) 39,498 108,688
Net loss for 1998 (46,510) (46,510)
Accretion of preferred stock to
redemption value (424) (424)
Preferred stock dividends
declared (696) (696)
Common stock dividends declared (3,269) (3,269)
Issuance of common stock under
employee stock plans, net 298 298 4,038 (807) 3,529
Repurchases and retirements of
common stock (6) (6) (138) (144)
------ ------- -------- ------- -------- --------
Balances at December 26, 1998 27,312 27,312 46,722 (1,459) (11,401) 61,174
Net income for 1999 10,992 10,992
Accretion of preferred stock to
redemption value (424) (424)
Preferred stock dividends
declared (696) (696)
Common stock dividends declared (3,319) (3,319)
Issuance of common stock under
employee stock plans, net 579 579 6,671 (1,042) 6,208
Repurchases and retirements of
common stock (20) (20) (221) (241)
------ ------- -------- ------- -------- --------
Balances at December 25, 1999 27,871 $27,871 $ 53,172 $(2,501) $ (4,848) $ 73,694
====== ======= ======== ======= ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 5
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------
($ in thousands) Dec. 25, 1999 Dec. 26, 1998 Dec. 27, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 10,992 $(46,510) $ 8,028
Adjustments to reconcile net income (loss) to cash flows
from operations:
Depreciation and amortization 35,515 36,176 31,946
Deferred income taxes 4,305 (26,612) 1,846
Impairment of long-lived assets 44,564
Loss on disposal of property, plant and equipment 1,803 5,317
Provision for independent distributor receivable 5,000
(Reversal of) provision for restructuring charges (1,315) 3,147
Cumulative effect of change in accounting principle 595 746
Changes in assets and liabilities, net of amounts acquired:
Trade accounts receivable 3,802 (6,042) (8,958)
Other accounts receivable 15,637 (12,783) (2,889)
Inventories (5,197) (1,137) (8,960)
Prepaid expenses and other (2,113) 3,192 3,545
Accounts payable and accrued liabilities 2,910 27,662 9,611
Accrued payroll and employee benefits 10,368 (2,778) 4,125
-------- -------- --------
77,302 29,196 39,040
-------- -------- --------
Cash flows from investing activities:
Acquisition of property, plant and equipment (23,756) (35,078) (38,470)
Retirement of property, plant and equipment 726 284 677
Increase in goodwill and distribution rights (1,000) (311) (146)
Decrease (increase) in other assets 1,803 260 (1,439)
-------- -------- --------
(22,227) (34,845) (39,378)
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt 12,400 11,700
Repayments of long-term debt (55,058) (8,641) (9,070)
Issuance of common stock under employee stock plans, (net) 6,208 3,529 5,308
Repurchases and retirements of common stock (241) (144) (275)
Cash dividends paid (3,997) (3,950) (7,833)
-------- -------- --------
(53,088) 3,194 (170)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 1,987 (2,455) (508)
Cash and cash equivalents, beginning of year 1,171 3,626 4,134
-------- -------- --------
Cash and cash equivalents, end of year $ 3,158 $ 1,171 $ 3,626
======== ======== ========
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest (net of amounts capitalized) $ 11,566 $ 12,785 $ 10,634
======== ======== ========
Income taxes (net of refunds) $ 843 $ 881 $ 1,070
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 Operations
Dreyer's Grand Ice Cream, Inc. and its subsidiaries (the Company) are engaged
primarily in the business of manufacturing and distributing premium and
superpremium ice cream and other frozen dessert products to grocery and
convenience stores, foodservice accounts and independent distributors in the
United States.
The Company accounts for its operations geographically for management
reporting purposes. These geographic segments have been aggregated for financial
reporting purposes due to similarities in the economic characteristics of the
geographic segments and the nature of the products, production processes,
customer types and distribution methods throughout the United States.
The Company's products are also segregated between sales of company
branded products, including our licensed and joint venture products (company
brands), and sales of products distributed for other manufacturers (partner
brands) for management reporting purposes. Sales of company brands were
$729,520,000, $647,745,000 and $618,401,000, in 1999, 1998 and 1997,
respectively. Sales of partner brands were $370,297,000, $374,590,000 and
$351,696,000, in 1999, 1998 and 1997, respectively.
Three customers each accounted for ten percent or more of 1999 sales.
Sales to each of these three customers were approximately $127,573,000
$126,075,000 and $114,843,000, respectively. Sales to one customer accounted for
ten percent or more of 1998 sales and were approximately $106,703,000. In 1997,
no customer accounted for ten percent or more of sales.
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 52-week or 53-week period ending on the last
Saturday in December. Fiscal years 1999, 1998 and 1997 each consisted of 52
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 current year 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 to property, plant and
equipment are capitalized, while maintenance and minor repairs to property,
plant and equipment are charged to expense as incurred. Property, plant and
equipment is depreciated using the straight-line method over the assets'
estimated useful lives, generally ranging from two to 35 years. Interest costs
relating to capital assets under construction are capitalized.
<PAGE> 7
Goodwill and Distribution Rights
Goodwill and distribution rights are amortized using the straight-line method
over their estimated useful lives, generally ranging from 30 to 36 years.
Accumulated amortization was $32,746,000 and $30,212,000 at December 25, 1999
and December 26, 1998, 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 will be recorded, measured by the
amount of the difference between the carrying value and the fair value of the
asset. Assets to be disposed of are recorded at the lower of carrying value or
fair value less costs to sell. Such assets are not depreciated while held for
sale.
Notes Receivable from Stockholders
As discussed in Note 12, purchases of the Company's stock under the Employee
Secured Stock Purchase Plan are financed, in part, through a promissory note
over a term of 30 years. These notes receivable from stockholders are reported
as a reduction of stockholders' equity.
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 $23,955,000, $22,188,000 and $28,849,000 in 1999, 1998 and 1997,
respectively.
Trade Promotion Costs
Trade promotion costs, including sales discounts and associated retail
advertising, are expensed as incurred and are classified as selling, general and
administrative expenses.
Income Taxes
Income taxes are accounted for using the liability method. Under this method,
deferred tax assets and liabilities are recognized for the tax consequences of
temporary differences between the financial reporting basis and tax basis of
assets and liabilities.
Accounting for Stock-Based Compensation
The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations in accounting for its
employee stock options and stock purchase plans. Pro forma information regarding
net income and net income per share is disclosed as required by Statement of
Financial Accounting Standards Statement No. 123, "Accounting for Stock-Based
Compensation", which also requires that the information be determined as if the
Company accounted for its stock-based compensation subsequent to December 30,
1995 under the fair value method of that Statement (See Note 12).
Cumulative Effects of Changes in Accounting Principle
In the first quarter of 1999, the Company adopted Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 requires
that the costs of start-up activities, including preoperating costs, be expensed
as incurred and that previously unamortized preoperating costs be written off
and treated as a cumulative effect of a change in accounting principle. As a
result of adopting SOP 98-5, the Company recorded an after-tax charge of
$595,000, or $.02 per common share, in the first quarter of 1999.
On November 20, 1997, the Financial Accounting Standards Board's
Emerging Issues Task Force issued a pronouncement (EITF 97-13) requiring that
reengineering costs be expensed as incurred. Furthermore, EITF 97-13 required
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. As a result of adopting
EITF 97-13, the Company recorded an after-tax charge of $746,000, or $.03 per
common share, in the fourth quarter of 1997.
Net Income (Loss) Per Common Share
Basic net income (loss) per common share is computed using the weighted-average
number of shares of common stock outstanding during the period. Diluted net
income (loss) per common share reflects the additional dilutive effect of the
Company's potentially dilutive securities, which include stock options, stock
warrants and redeemable convertible preferred stock.
<PAGE> 8
Net income (loss) per common share is computed as follows:
<TABLE>
<CAPTION>
(In thousands, except per share amounts) Dec. 25, 1999 Dec. 26, 1998 Dec. 27, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net income (loss) available to common
stockholders - basic $ 9,872 $(47,630) $ 3,968
Add: Dilutive preferred dividends and accretion 1,120
------- -------- -------
Net income (loss) available to common
stockholders - diluted $10,992 $(47,630) $ 3,968
======= ======== =======
Weighted-average shares-basic 27,559 27,189 26,872
Dilutive effect of options 397 1,096
Dilutive effect of warrants 500
Dilutive effect of preferred stock 5,800
------- -------- -------
Weighted-average shares-diluted 33,756 27,189 28,468
======= ======== =======
Net income (loss) per common share:
Basic $ .36 $ (1.75) $ .15
======= ======== =======
Diluted $ .33 $ (1.75) $ .14
======= ======== =======
</TABLE>
Potentially dilutive securities are excluded from the calculations of
diluted net income (loss) per common share if their inclusion would have an
anti-dilutive effect. These anti-dilutive securities, stated in equivalent
shares of common stock, consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Stock options 1,507 4,361
Stock warrants 2,000 2,000
Preferred stock 5,800 5,800
</TABLE>
The Company's potentially dilutive securities were anti-dilutive during
1998 due to the Company's net loss. Accordingly, 1998 basic and diluted net loss
per common share are computed using the same denominator of 27,189,000 shares.
Pursuant to a 1994 equity transaction (See Note 10), an affiliate of
Nestle USA, Inc. purchased 6,000,000 newly issued shares of common stock, and
warrants to purchase 4,000,000 shares at an exercise price of $16.00 per share.
Warrants for 2,000,000 shares expired unexercised on June 14, 1997. Warrants for
the remaining 2,000,000 shares expired unexercised on June 14, 1999.
NOTE 3 Restructuring Program and Other Actions
Background
In 1994, the Company adopted a strategic plan to accelerate the sales of its
brand throughout the country (the Grand Plan or the Strategic Plan). The key
elements of this plan are: 1) to build high-margin brands with leading market
shares through effective consumer marketing activities, 2) to expand the
Company's direct-store-delivery distribution network to national scale and
enhance this capability with sophisticated information and logistics systems and
3) to introduce innovative new products.
In accordance with the Strategic Plan, the Company embarked on an
aggressive national expansion. This expansion involved the entry into 34 new
markets, which included the opening of a major manufacturing and distribution
center in Texas, a significant increase in marketing spending and the
introduction of several new products. At the same time, the Company invested in
its soft-serve equipment manufacturing business, Grand Soft. The investments
which were required to fund the brand-building actions and national expansion
and to support the Grand Soft business substantially increased the Company's
cost structure.
Beginning in late 1997 and continuing into 1998, the cost of dairy raw
materials, the primary ingredient in ice cream, increased significantly. These
costs peaked in 1998 at a rate more than double of that experienced in 1997.
This increase reduced the Company's 1998 gross profit by approximately
$22,000,000 when compared with 1997. Aggressive discounting by the Company's
competitors made it difficult to raise prices by an amount sufficient to
compensate for these higher dairy raw material costs. During this same period,
sales volumes of the Company's "better for you" products continued the
significant decline that began in 1997, consistent with an industry-wide trend.
Since these "better for you" products enjoy higher margins than the Company's
classic ice cream, the volume decline had a significant impact on the Company's
profitability in 1998.
<PAGE> 9
Finally, in August 1998, Ben & Jerry's Homemade, Inc. (Ben & Jerry's) informed
the Company of its intention to terminate its distribution agreement. Subsequent
negotiations with Ben & Jerry's revised the original contract terms to allow the
Company to distribute Ben & Jerry's products in a smaller geographic area.
Starting September 1, 1999, this was estimated to reduce the Company's
distribution gross profit of Ben & Jerry's products by approximately 54 percent.
The Company estimated that the distribution gross profit in the markets where it
stopped distributing Ben & Jerry's products represented approximately six
percent, or $13,000,000, of its gross profit in 1998.
The above factors: the higher dairy raw material costs; the decline in
"better for you" volumes; and the reduction in future Ben & Jerry's sales had in
the past, and may continue to have in the future, a negative effect on the
Company's gross profit and its ability to successfully implement the Strategic
Plan. The Company, therefore, concluded that a thorough reassessment of its cost
structure and strategy was necessary. This reassessment yielded restructuring
actions designed to improve profitability and accelerate cost reductions by
increasing focus on the core elements of the Strategic Plan. The reassessment
also addressed the need to review the valuation of certain assets unfavorably
impacted by Ben & Jerry's decision to change its distribution agreement with the
Company. On October 16, 1998, the board of directors approved the restructuring
actions.
Revision of Ben & Jerry's Distribution Agreement
During the third quarter of 1998, Ben & Jerry's notified the Company of its
intention to terminate the distribution agreement between the Company and Ben &
Jerry's. The Company subsequently entered into negotiations with Ben & Jerry's
to resolve issues associated with the pending termination. In the first quarter
of 1999, the companies reached a resolution regarding these termination issues
by amending the existing distribution agreement and entering into a new
distribution agreement. The Company retained the rights to distribute Ben &
Jerry's products in all existing markets, except the New York metropolitan area
(discussion follows in Restructuring Program and Other Actions of this Note 3),
and on terms and conditions different in some respects from those in place prior
to the amendment. The Company stopped distributing Ben & Jerry's products in New
York on April 1, 1999. After August 1999, the Company continued to distribute
Ben & Jerry's in these selected markets covering a smaller geographic area under
the terms of the new distribution agreement. The Company received a reduced
margin for distributing Ben & Jerry's in selected markets in 1999, but has been
allowed to compete directly with Ben & Jerry's in the superpremium ice cream
category in all markets after August 1999. In addition to notifying the Company
of its intention to terminate the distribution agreement above, Ben & Jerry's
notified the Company of its intention to terminate its separate distribution
agreement with the Company's independent distributor in Texas (discussion
follows in Restructuring Program and Other Actions of this Note 3).
The distribution gross profit on Ben & Jerry's products contributed just
over 11 percent of the Company's gross profit in 1998. The Company estimates
that the distribution margin received in the markets where the Company stopped
distributing Ben & Jerry's products in 1999 contributed approximately six
percent, or $13,000,000, of its total gross profit in 1998.
Restructuring Program and Other Actions
The implementation of the restructuring program and other actions resulted in a
pre-tax charge to earnings of $59,114,000 in 1998. This included $10,590,000
recorded in the third quarter which related primarily to Ben & Jerry's actions
that occurred in September 1998 and to a severance program, which management had
already begun in advance of board approval of the remainder of the restructuring
program. The remainder of the charges, $48,524,000, was recorded in the fourth
quarter of 1998.
The five key elements of the restructuring program and other actions
follow:
(1) In 1998, the Company decided to exit the equipment manufacturing
business associated with its Grand Soft ice cream unit. The Grand Soft business
consists of both ice cream sales and equipment manufacturing operations. The
Company has remained in the profitable ice cream portion of this business, but
has exited the unprofitable equipment manufacturing operations.
In the fourth quarter of 1998, the Company recorded $8,696,000 in asset
impairment charges and $2,258,000 in estimated closing costs associated with the
withdrawal from this business. The $8,696,000 charge is included in impairment
of long-lived assets in the 1998 Consolidated Statement of Operations and is
comprised of $5,714,000 of goodwill, $1,956,000 of property, plant and equipment
and $1,026,000 of inventory and other assets. The remaining assets of Grand Soft
totaled $1,762,000 at December 26, 1998 and consisted primarily of trade
accounts receivable, which were fully recoverable. The assets were written down
to net realizable value based on an estimate of what an independent third party
would pay for the assets of the business.
The charge of $2,258,000 for closing costs is included in the provision
for restructuring charges in the 1998 Consolidated Statement of Operations and a
$2,258,000 liability was included in accounts payable and accrued liabilities in
the 1998 Consolidated Balance Sheet, as no closing costs were paid in 1998. The
closing costs were based on estimates of legal fees, employee separation
payments and expected settlements. The closing costs estimate included $576,000
of severance-related costs for the 23 employees, from all areas of
responsibility, who were notified of their pending terminations prior to
December 26, 1998. During 1999, the Company paid $811,000 of closing costs,
which included $444,000 of severance-related costs.
During 1999, an analysis of purchase offers received on the Grand Soft
equipment manufacturing business concluded that an outright sale was not
economically feasible. As an alternative, the Company's Grand Soft unit
outsourced its equipment
<PAGE> 10
production to an independent sub-manufacturer. As a result, the Company
completed the withdrawal from the equipment manufacturing business at a cost
less than originally estimated and recorded a $1,315,000 reversal of the excess
for restructuring accrual in the 1999 Consolidated Statement of Operations. The
accrued liability of $132,000 in severance-related costs at December 25, 1999
will be paid during 2000.
The Grand Soft manufacturing operations generated revenues of $3,093,000
and $3,346,000, and incurred pre-tax operating losses of $(2,335,000) and
$(2,274,000) in 1998 and 1997, respectively.
(2) The Company implemented a program designed to reduce operating
expenses in manufacturing, sales and distribution, and administration. Core
pieces of this program included outsourcing of certain non-strategic activities,
consolidation of warehouse facilities and selected reductions in sales and
distribution staffing. These actions were completed in the fourth quarter of
1998.
As part of this program, the Company reviewed operations at all of its
manufacturing facilities in order to identify and dispose of under-utilized
assets. As a result of this review, the Company recorded a charge to cost of
goods sold of $5,317,000 in the fourth quarter of 1998, related primarily to the
write-down of manufacturing assets.
In connection with reducing operating expenses for sales and
distribution, the Company recorded $1,042,000 of severance and related charges
in the fourth quarter of 1998 that are included in the provision for
restructuring charges in the 1998 Consolidated Statement of Operations. A total
of 38 sales and distribution employees were to be terminated under this program.
Of this total, 16 were terminated in 1998 and paid $153,000 in severance
benefits. The remaining 22 employees were notified of their pending terminations
prior to December 26, 1998. An accrual for severance benefits of $889,000 was
outstanding at December 26, 1998. During 1999, the Company paid $632,000 in
severance benefits. The accrued liability of $257,000 at December 25, 1999 will
be paid in 2000.
The Company also recorded a $933,000 charge to cost of goods sold in the
third quarter of 1998 for severance actions begun in advance of board approval
of the remainder of the restructuring program. The Company paid $514,000 of
these severance benefits in 1998, leaving a liability of $419,000, which is
included in accounts payable and accrued liabilities in the 1998 Consolidated
Balance Sheet. During 1999, the Company paid the remaining severance benefits
totaling $419,000. Accordingly, there is no liability remaining for these
severance benefits at December 25, 1999.
In addition, in 1998, the Company charged to expense $4,478,000 of
previously capitalized costs classified as property, plant and equipment
associated with the expansion of its headquarters, as the expansion plan was
canceled in an effort to reduce future administration costs. The $4,478,000
charge was based on a third-party independent appraisal of the fair market value
of the related real property and is included in impairment of long-lived assets
in the 1998 Consolidated Statement of Operations.
(3) The Company, in carrying out its national expansion program, made
significant investments to support an aggressive expansion in Texas. These
investments, while building sales volume, delivered results below expectations.
The Company modified this expansion strategy in order to concentrate on more
profitable opportunities. The objective in Texas has been to preserve volumes
while seeking margin improvement. As a result of this change in strategy, the
Company is expected to realize substantially lower production volumes over the
remaining useful life of its Texas manufacturing plant than originally
contemplated. The Company therefore concluded that its investment in the Texas
plant was non-recoverable and recorded an impairment charge of $16,200,000 in
the fourth quarter of 1998 to reduce the net book value of the plant to its
estimated fair market value. The $16,200,000 impairment charge was based on a
third-party independent appraisal and is included in impairment of long-lived
assets in the 1998 Consolidated Statement of Operations.
(4) As previously mentioned, Ben & Jerry's indicated its intention to
terminate its separate distribution agreement with the Company's independent
distributor in Texas, Sunbelt Distributors, Inc. (Sunbelt), in which the Company
had a 16 percent minority equity interest. Ben & Jerry's action placed at
significant risk the recoverability of the Company's equity investment,
distribution rights, and trade receivables relating to this distributor. In the
third quarter of 1998, the Company recorded a bad debt provision of $5,000,000
relating to the trade receivables, when originally notified of the Ben & Jerry's
decision. The $5,000,000 bad debt provision is included in selling, general and
administrative expenses in the 1998 Consolidated Statement of Operations. In
light of Ben & Jerry's plans to terminate its relationship with Sunbelt and the
previously noted change in the Company's Texas strategy, the Company evaluated
the recoverability of all assets associated with Sunbelt. Accordingly, in
addition to the bad debt allowance recorded in the third quarter of 1998, the
Company recorded additional charges of $10,533,000 in the fourth quarter of 1998
related to the impairments of its minority equity investment and distribution
rights associated with the Company's contract with Sunbelt. The Company
concluded that these assets were unrecoverable due to the substantially-reduced
profits and cash flow resulting from Ben & Jerry's decision to terminate
Sunbelt's distribution agreement. The $10,533,000 charge, which is comprised of
$9,449,000 of the unamortized portion of the distribution rights and $1,084,000
representing the cost of the equity investment, is included in impairment of
long-lived assets in the 1998 Consolidated Statement of Operations.
As discussed in Note 15, the Company purchased the remaining 84 percent
of the outstanding common stock of Cherokee Cream Company, Inc. (the parent of
Sunbelt) on February 9, 2000, for $7,800,000.
(5) Due to the notice of termination from Ben & Jerry's, the Company
charged to expense $4,657,000 of the unamortized portion of distribution rights
related to the acquisition of the Ben & Jerry's New York distributor. The
Company acquired this
<PAGE> 11
business in 1989 as part of the development of its long-standing relationship
with Ben & Jerry's. The other tangible assets of this business were merged with
the Company's New York operations and are fully recoverable. This impairment
charge was recorded in the third quarter of 1998 and is included in impairment
of long-lived assets in the 1998 Consolidated Statement of Operations.
The following table summarizes the classification of the charges
(reversals) in the 1999 Consolidated Statement of Operations and the 1998
Consolidated Statement of Operations related to the restructuring program and
other actions:
<TABLE>
<CAPTION>
1998 1999
------------------------------------------------- ---------
(In thousands) Third Quarter Fourth Quarter Full Year Full Year
------------- -------------- --------- ---------
<S> <C> <C> <C> <C>
Provision for (reversal of)
restructuring charges:
Grand Soft $ $ 2,258 $ 2,258 $(1,315)
Sales and distribution severance 1,042 1,042
------- ------- ------- -------
3,300 3,300 (1,315)
------- ------- ------- -------
Impairment of long-lived assets:
Grand Soft 8,696 8,696
Texas plant 16,200 16,200
Texas independent distributor 10,533 10,533
Ben & Jerry's revision 4,657 4,657
Headquarters' expansion 4,478 4,478
------- ------- ------- -------
4,657 39,907 44,564
------- ------- ------- -------
Other charges:
Texas independent distributor 5,000 5,000
Sales and distribution severance 933 933
Asset disposals 5,317 5,317
------- ------- ------- -------
5,933 5,317 11,250
------- ------- ------- -------
$10,590 $48,524 $59,114 $(1,315)
======= ======= ======= =======
</TABLE>
<PAGE> 12
During 1999, the restructuring program and other actions were completed
with the exception of the payment of $389,000 of remaining severance and
related benefits. The following table summarizes the 1999 and 1998 activity in
the restructuring and other accruals included in accounts payable and accrued
liabilities in the Consolidated Balance Sheet:
<TABLE>
<CAPTION>
Other
Restructuring Accruals Accruals
--------------------------------------------- ------------
Sales and Sales and
Distribution Distribution
(In thousands) Grand Soft Severance Subtotal Severance Total
---------- ------------ -------- ------------ -------
<S> <C> <C> <C> <C> <C>
Balances at December 27, 1997 $ $ $ $ $
Additions 2,258 1,042 3,300 933 4,233
Payments (153) (153) (514) (667)
Reversals
------- ------- ------- ----- -------
Balances at December 26, 1998 2,258 889 3,147 419 3,566
Additions
Payments (811) (632) (1,443) (419) (1,862)
Reversals (1,315) (1,315) (1,315)
------- ------- ------- ----- -------
Balances at December 25, 1999 $ 132 $ 257 $ 389 $ $ 389
======= ======= ======= ===== =======
</TABLE>
NOTE 4 Inventories
Inventories at December 25, 1999 and December 26, 1998 consisted of the
following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
------- -------
<S> <C> <C>
Raw materials $ 6,174 $ 4,840
Finished goods 48,495 44,632
------- -------
$54,669 $49,472
======= =======
</TABLE>
NOTE 5 Property, Plant and Equipment
Property, plant and equipment at December 25, 1999 and December 26, 1998
consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
-------- --------
<S> <C> <C>
Machinery and equipment $197,635 $198,122
Buildings and improvements 90,030 92,287
Capital leased assets 12,216 16,836
Office furniture and fixtures 6,481 6,672
-------- --------
306,362 313,917
Less: Accumulated depreciation and amortization 134,778 129,782
-------- --------
171,584 184,135
Land 15,436 15,436
Construction in progress 10,372 8,201
-------- --------
$197,392 $207,772
======== ========
</TABLE>
Accumulated amortization for the capital leased assets was $7,748,000
and $8,118,000 at December 25, 1999 and December 26, 1998, respectively.
Interest capitalized was $256,000, $1,244,000, and $2,254,000 in 1999,
1998 and 1997, respectively.
Depreciation expense for property, plant and equipment, including
amortization expense for capital leased assets, was $31,607,000, $32,375,000,
and $27,799,000 in 1999, 1998 and 1997, respectively.
<PAGE> 13
Construction in progress at December 25, 1999 and December 26, 1998
included $2,185,000 and $3,513,000, respectively, of costs associated with the
upgrade of the Company's computer systems.
NOTE 6 Income Tax Provision (Benefit)
The income tax provision (benefit) consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
------ --------- ------
<S> <C> <C> <C>
Current:
Federal $2,601 $ (2,147) $3,644
State 226 374 191
------ -------- ------
2,827 (1,773) 3,835
------ -------- ------
Deferred:
Federal 3,762 (24,218) 1,267
State 543 (2,394) 579
------ -------- ------
4,305 (26,612) 1,846
------ -------- ------
$7,132 $(28,385) $5,681
====== ======== ======
</TABLE>
The 1999 and 1997 cumulative effects of changes in accounting principle
of $595,000 and $746,000, respectively, are net of income tax benefits of
$392,000 and $484,000, respectively. These income tax benefits are comprised of
federal and state income taxes and are not reflected in the above table.
The net deferred income tax liability as of December 25, 1999 and
December 26, 1998 consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 168 $ 1,770
Marketing-related expenses 1,191 1,240
Accrued employee benefits 1,662 3,349
Tax credit carryforwards 7,449 6,732
Other 5,178 6,259
-------- --------
15,648 19,350
-------- --------
Deferred tax liabilities:
Intangible assets and related amortization (10,781) (10,249)
Depreciation (10,132) (9,248)
Deferred costs (4,819) (4,657)
Other (2,066) (3,392)
-------- --------
(27,798) (27,546)
-------- --------
$(12,150) $ (8,196)
======== ========
</TABLE>
The federal statutory income tax rate is reconciled to the Company's effective
income tax rate as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ------- -----
<S> <C> <C> <C>
Federal statutory income tax rate 35.0% (35.0)% 35.0%
Tax credits (1.6) (1.9)
State income taxes, net of federal tax benefit 2.7 (1.8) 3.5
Other 2.0 0.8 0.8
---- ----- ----
38.1% (37.9)% 39.3%
==== ====== ====
</TABLE>
As of December 25, 1999, the Company had deferred tax assets relating to
alternative minimum tax and other tax credit carryforwards. The alternative
minimum tax carryforwards of $4,976,000 can be carried forward indefinitely, as
they do not expire. The other tax credit carryforwards of $2,151,000 expire
between 2012 and 2019. Utilization of these carryforwards may be limited in the
event of a change in ownership of the Company. No valuation allowance for these
assets has been recorded because the Company believes that it is more likely
than not that these carryforwards will be used in future years to offset taxable
income.
<PAGE> 14
NOTE 7 Long-Term Debt
Long-term debt at December 25, 1999 and December 26, 1998 consisted of the
following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
-------- --------
<S> <C> <C>
Revolving line of credit with banks, due 2000 with interest payable at three
different interest rate options $ 53,500 $ 99,800
Senior notes, with principal due through 2008 and interest payable semiannually
at rates ranging from 7.68 percent to 8.34 percent 50,000 50,000
Capital lease obligation, with payments due through 2000 and interest payable
quarterly at a floating rate 7,978 13,136
Senior notes, with principal due through 2001 and interest payable semiannually
at 9.30 percent 7,000 10,600
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
-------- --------
122,978 178,036
Less: Current portion 18,721 8,255
-------- --------
$104,257 $169,781
======== ========
</TABLE>
The aggregate annual maturities of long-term debt, including the capital
lease obligation, as of December 25, 1999 are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Year ending:
2000 $ 18,721
2001 68,543
2002 7,143
2003 2,143
2004 2,143
Later years 24,285
--------
$122,978
========
</TABLE>
Line of Credit
The Company has a credit agreement with certain banks for a total revolving line
of credit of $175,000,000 at December 25, 1999. The total available under the
line decreased to $149,286,000 on December 31, 1999. The Company intends to
either refinance the line, which expires on December 31, 2000, or negotiate to
extend its maturity date. 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 6.33 percent at December 25, 1999. The
unused portion of the $175,000,000 line of credit at December 25, 1999 was
$121,500,000.
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 bank borrowings under the Company's line of credit
and to fund capital expenditures.
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
of proceeds received by the Company from the lease transaction were used to both
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
6.83 percent at December 25, 1999. The four-year lease has been classified as a
capital lease and the related assets are recorded in property, plant and
equipment. The lease expires in 2000.
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.
<PAGE> 15
Fair Value of Financial Instruments
As of December 25, 1999 and December 26, 1998, 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.
Under its long-term debt obligations, the Company is subject to various
financial covenant requirements, including dividend restrictions.
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, except one that has 88 years remaining, including renewal options,
expire within a period of 23 years. Certain of these leases include non-bargain
purchase options.
Future minimum rental payments required under noncancelable leases with
terms in excess of one year at December 25, 1999 are as follows:
<TABLE>
<CAPTION>
(In thousands) Capital Operating
------- ---------
<S> <C> <C>
Year ending:
2000 $8,624 $ 8,796
2001 3,940
2002 3,148
2003 2,308
2004 2,253
Later years 3,382
------ -------
Total minimum payments required $8,624 $23,827
=======
Less: Amounts representing interest 646
------
Present value of minimum lease payments 7,978
Less: Current portion 7,978
------
$
======
</TABLE>
Rental expense for operating leases was $12,030,000, $12,447,000 and
$13,994,000, in 1999, 1998 and 1997, respectively.
NOTE 9 Redeemable Convertible Preferred Stock
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.
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. The Company is recording accretion to increase
the carrying value to the redemption value of $100,752,000 by June 30, 2001.
NOTE 10 Common Stock
The Company paid a regular quarterly dividend of $.03 per share of common stock
for each quarter of 1999, 1998 and 1997.
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> 16
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.
The number of shares, stock price per share, and earnings and dividends
per share information appearing in these consolidated financial statements and
notes have been restated to reflect this stock split on a retroactive basis
unless otherwise indicated.
Nestle Equity Issuance
Pursuant to a 1994 equity transaction (the Nestle Agreement) an affiliate of
Nestle USA, Inc. 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 remaining 2,000,000 shares expired unexercised on June 14,
1999. 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.
NOTE 11 Employee Benefit Plans
The Company maintains a defined contribution retirement plan (pension plan) for
employees not covered by collective bargaining agreements. The pension plan
provides retirement and other benefits based upon the assets of the plan held by
the trustee. The Company contributed five percent of the eligible participants'
annual compensation to the plan during 1999 and 1998, and seven percent during
1997. The Company also maintains a salary deferral plan (401(k) plan) under
which it may make a matching contribution of a percentage of each participant's
annual deferred salary amount.
Pension expense and 401(k) matching contributions under these plans were
approximately $6,045,000, $5,411,000 and $7,500,000 in 1999, 1998 and 1997,
respectively. The Company's liability for accrued pension contributions and
401(k) matching contributions was $6,323,000 and $5,648,000, at December 25,
1999 and December 26, 1998, respectively.
Pension expense for employees covered by multi-employer retirement plans
under collective bargaining agreements was $1,015,000, $981,000 and $1,056,000
in 1999, 1998 and 1997, 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 percent
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. In May 1999,
stockholders approved an amendment to the 1993 Plan to increase the number of
shares reserved for issuance thereunder from 4,400,000 to 6,400,000. 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, comprised of certain
members of the Company's Board of Directors.
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) available to common
stockholders and net income (loss) per common share on a pro forma basis would
have been as follows:
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1999 1998 1997
------ --------- ------
<S> <C> <C> <C>
Net income (loss) available to common $6,314 $(50,530) $1,757
stockholders
Net income (loss) per common share:
Basic .23 (1.86) .07
Diluted .22 (1.86) .06
</TABLE>
<PAGE> 17
The Company used the Black-Scholes option pricing model to estimate the
fair value of options granted during 1999, 1998 and 1997. The assumptions used
to compute compensation expense in the above pro forma presentation and to
estimate the weighted-average fair market value of options granted are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------- --------
<S> <C> <C> <C>
Risk-free interest rate 5.23% 5.74% 6.59%
Dividend yield .96% .53% .78%
Volatility 39.58% 32.29% 31.51%
Expected term (years) 5.90 5.90 5.70
Weighted average fair market value $ 5.32 $ 9.10 $ 6.07
</TABLE>
Stock options exercisable were 2,466,000, 2,196,000 and 1,719,000 at
year-end 1999, 1998 and 1997, respectively. These stock options were exercisable
at weighted-average prices per share of $13.98, $13.69 and $13.15 in 1999, 1998
and 1997, respectively.
The activity in the three stock option plans for each of the three years
in the period ended December 25, 1999 follows:
<TABLE>
<CAPTION>
Options Weighted-
Available Options Average Price
(In thousands, except per share amounts) for Grant Outstanding Per Share
--------- ----------- -------------
<S> <C> <C> <C>
Balance, December 28, 1996 2,124 3,420 $13.49
Granted (932) 932 15.35
Exercised (243) 12.58
Canceled 143 (143) 14.32
------ -----
Balance, December 27, 1997 1,335 3,966 13.97
Granted (714) 714 22.72
Exercised (181) 11.99
Canceled 138 (138) 16.42
------ -----
Balance, December 26, 1998 759 4,361 15.41
Authorized 2,000
Granted (1,171) 1,171 12.47
Exercised (334) 13.18
Canceled 125 (125) 14.31
------ -----
Balance, December 25, 1999 1,713 5,073 14.91
====== =====
</TABLE>
<PAGE> 18
Significant option groups outstanding at December 25, 1999 and related
weighted-average exercise price per share and life information follows:
<TABLE>
<CAPTION>
(In thousands, except years and per share amounts)
Options
Options Outstanding Exercisable
------------------------------------------------ --------------
Exercise Weighted- Average Weighted-
Range Options Weighted-Average Remaining Options Average
Price Outstanding Exercise Price Life (Years) Exercisable Exercise Price
-------- ----------- ---------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 9.75-13.75 2,593 $12.47 6.5 1,348 $12.52
14.09-19.75 1,827 15.49 6.5 1,087 15.47
22.88-25.38 653 22.96 8.2 31 24.57
----- -----
5,073 2,466
===== =====
</TABLE>
Section 423 Employee Stock Purchase Plan
Under the Section 423 employee stock purchase plan, employees may authorize
payroll deductions up to ten percent of their compensation for the purpose of
acquiring shares of the Company's common stock at 85 percent of the market price
determined at the beginning of a specified 12-month period. Under this plan,
employees purchased 67,000 shares at prices ranging from $9.30 to $19.23 per
share in 1999, 34,000 shares at prices ranging from $13.15 to $19.87 per share
in 1998, and 30,000 shares(*) at prices ranging from $24.65 to $25.93(*) per
share in 1997. Compensation cost based on the fair value of the employees'
purchase rights was not material in 1999, 1998 and 1997.
Employee Secured Stock Purchase Plan
Under the employee secured stock purchase plan, on specified dates employees may
purchase shares of the Company's common stock at fair market value by paying 20
percent of the purchase price in cash and the remaining 80 percent of the
purchase price in the form of a non-recourse promissory note with a term of 30
years. Under this plan, employees purchased 179,000 shares at prices ranging
from $11.88 to $18.38 per share in 1999, 83,000 shares at prices ranging from
$13.38 to $20.13 per share in 1998, and 20,000 shares(*) at prices ranging from
$30.25 to $48.25 per share(*) in 1997.
(*) The share information is presented before the effect of the 1997 common
stock split (See Note 10).
NOTE 13 Insurance Settlements
During 1998 and 1997, the Company recorded several gains relating to claims
filed under its insurance policies. These claims resulted from accidents that
contaminated certain finished goods inventories. Under the Company's insurance
policies, the Company is entitled to receive the value of the affected finished
goods inventories at its normal selling price, plus expenses incurred in
recovering from these accidents. The claims resulted in gains of $1,300,000 and
$2,355,000 in 1998 and 1997, respectively, which were recorded as reductions in
cost of goods sold.
During 1999, the effect of insurance claims on net income and net income
per diluted common share was not material. In 1998, insurance claims reduced net
loss by $807,000, or $.03 per diluted common share. In 1997, insurance claims
increased net income by $1,430,000, or $.05 per diluted common share.
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.
<PAGE> 19
NOTE 15 Subsequent Event
On February 9, 2000, the Company acquired the remaining 84 percent of the
outstanding common stock of Cherokee Cream Company, Inc. (Cherokee), the parent
of Sunbelt, the leading independent direct-store-delivery ice cream distributor
in Texas. The Company paid $7,800,000 in cash in this transaction which is to be
accounted for as a purchase.
As more fully discussed in Note 3, during 1998, the Company recorded
charges of $10,533,000 related to the impairments of its minority equity
investment in Cherokee and its distribution rights associated with the Company's
long-term distribution agreement with Sunbelt. In addition, during 1998, the
Company recorded a bad debt provision of $5,000,000 relating to trade accounts
receivable from Sunbelt. These charges resulted primarily from Ben & Jerry's
decision to terminate its distribution agreement with Sunbelt. Ben & Jerry's
action placed at significant risk the recoverability of the Company's equity
investment, distribution rights and trade receivables relating to Cherokee and
Sunbelt.
During the first quarter of 2000, the Company determined that the
outlook for Sunbelt's business was likely to improve, due to new distribution
agreements with other frozen food manufacturers, and due to the prospective
impact of the Company's new products. Therefore, in order to further stabilize
its business in Texas, the Company made the decision to acquire full ownership
of Cherokee and its wholly-owned subsidiary, Sunbelt. However, because the
potential business improvements in Sunbelt are prospective, and because Sunbelt
had not significantly reduced its past-due receivable balances with the Company,
the Company made the determination that it was not appropriate to reverse any of
the bad debt allowance previously established relating to Sunbelt's trade
accounts receivable.
<PAGE> 20
NOTE 16 Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Income (Loss)
Before Net
Cumulative Cumulative Income
Effect Effect (Loss) Price Range
(In thousands, of Change in of Change in Available Per Common
except per share Gross Accounting Accounting to Common Share
amounts) Sales Profit Principle(1) Principle Stockholders (NASDAQ)
---------- -------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1999
1st Quarter $ 228,386 $ 40,465 $ (3,615) $595 $ (4,210) $11.75-15.88
2nd Quarter 306,861 76,505 7,950 7,950 11.50-17.13
3rd Quarter 322,410 85,966 8,456 8,456 15.13-19.69
4th Quarter 242,160 58,974 (2,324) (2,324) 15.13-18.28
---------- -------- -------- ---- --------
$1,099,817 $261,910 $ 10,467 $595 $ 9,872
========== ======== ======== ==== ========
1998
1st Quarter $ 215,082 $ 36,114 $ (5,905) $ (5,905) $20.00-25.38
2nd Quarter 280,273 62,502 4,255 4,255 19.38-26.75
3rd Quarter 302,972 64,054 (6,261) (6,261) 9.44-21.50
4th Quarter 224,008 31,803 (39,719) (39,719) 9.00-17.38
---------- -------- -------- ---- --------
$1,022,335 $194,473 $(47,630) $(47,630)
========== ======== ======== ==== ========
</TABLE>
<TABLE>
<CAPTION>
Basic Net Income (Loss) Per Common Share Diluted Net Income (Loss) Per Common Share
---------------------------------------- ------------------------------------------
Income (Loss) Income (Loss)
Before Before
Cumulative Cumulative Cumulative Cumulative
Effect of Effect of Effect of Effect of
Change Change in Net Change in Change in
in Accounting Accounting Income Accounting Accounting Net Income
Principle(2) Principle (Loss)(2) Principle(2) Principle (Loss)(2)
------------- ---------- --------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1999
1st Quarter $ (.13) $(.02) $ (.15) $ (.13) $ (.02) $ (.15)
2nd Quarter .29 .29 .24 .24
3rd Quarter .31 .31 .26 .26
4th Quarter (.08) (.08) (.08) (.08)
1998
1st Quarter $ (.22) $ (.22) $ (.22) $ (.22)
2nd Quarter .16 .16 .13 .13
3rd Quarter (.23) (.23) (.23) (.23)
4th Quarter (1.45) (1.45) (1.45) (1.45)
</TABLE>
(1) Income (loss) has been reduced by preferred stock dividends and accretion of
preferred stock to redemption value.
(2) 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> 21
REPORT OF INDEPENDENT ACCOUNTANTS
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 operations, 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 25, 1999 and
December 26, 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 25, 1999 in conformity with
accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States 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 of Notes to the Consolidated Financial
Statements, the Company changed its method of accounting for start-up costs in
the first quarter of 1999 and its method of accounting for reengineering costs
in the fourth quarter of 1997.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Francisco, California
February 15, 2000
<PAGE> 22
FIVE-YEAR SUMMARY OF SIGNIFICANT FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December
----------------------------------------------------------------------
(In thousands, except per share amounts) 1999 1998 1997 1996 1995
---------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operations:
Sales and other income $1,101,907 $1,025,988 $ 973,091 $ 796,195 $ 681,052
Income (loss) before cumulative effect of
change in accounting principle 11,587 (46,510) 8,774 6,997 (1,524)
Net income (loss) 10,992 (46,510) 8,028 6,997 (1,524)
Net income (loss) available to common
stockholders 9,872 (47,630) 3,968 2,000 (3,496)
Per Common Share:
Basic:
Income (loss) before cumulative effect of
change in accounting principle(1) .38 (1.75) .18 .08 (.13)
Net income (loss)(1) .36 (1.75) .15 .08 (.13)
Diluted:
Income (loss) before cumulative effect of
change in accounting principle(1) .35 (1.75) .17 .07 (.13)
Net income (loss)(1) .33 (1.75) .14 .07 (.13)
Dividends declared(1) .12 .12 .12 .12 .12
Balance Sheet:
Total assets 439,244 461,721 502,146 477,763 413,505
Working capital 31,334 61,059 78,576 70,136 69,361
Long-term debt 104,257 169,781 165,913 163,135 134,000
Redeemable convertible preferred stock 100,078 99,654 99,230 98,806 98,382
Stockholders' equity 73,694 61,174 108,688 102,919 91,663
</TABLE>
(1) Retroactively restated to reflect the effects of the common stock split in
1997.
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
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. Those factors include but are not limited to those
discussed in the Risks and Uncertainties section of this Management's Discussion
and Analysis. 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.
Financial Summary
The Company recorded net income available to common stockholders of $9,872,000,
or $.33 per diluted common share, for 1999. These results represent a
substantial improvement over the net loss available to common stockholders of
$(47,630,000), or $(1.75) per diluted common share, for 1998. The results for
1998 included a $59,114,000 charge related to the Company's previously announced
restructuring program and other actions. Consolidated sales increased eight
percent over 1998 to $1,099,817,000. The results for 1999 reflect the effects of
increased sales of new, higher-margin products comparatively, lower dairy raw
material costs, higher average wholesale prices, and higher unit sales of the
Company's established brands. These improvements were partially offset by
reduced sales of products manufactured by Ben & Jerry's Homemade, Inc. (Ben &
Jerry's) as a result of changes in the distribution agreement.
The Strategic Plan and Restructuring Program
In 1994, the Company adopted a strategic plan to accelerate the sales of its
brand throughout the country (the Grand Plan or the Strategic Plan). The key
elements of this plan are: 1) to build high-margin brands with leading market
shares through effective consumer marketing activities, 2) to expand the
Company's direct-store-delivery distribution network to national scale and
enhance this capability with sophisticated information and logistics systems and
3) to introduce innovative new products. The potential benefits of the Strategic
Plan are increased market share and future earnings above those levels that
would be attained in the absence of the Strategic Plan.
In accordance with the Strategic Plan, the Company embarked on an
aggressive national expansion. This expansion involved the entry into 34 new
markets, which included the opening of a major manufacturing and distribution
center in Texas, a significant increase in marketing spending and the
introduction of several new products. At the same time, the Company invested in
its soft-serve equipment manufacturing business, Grand Soft. The investments
which were required to fund the brand-building actions and national expansion
and to support the Grand Soft business substantially increased the Company's
cost structure.
Beginning in late 1997 and continuing into 1998, the cost of dairy raw
materials, the primary ingredient in ice cream, increased significantly. These
costs peaked in 1998 at a rate more than double of that experienced in 1997.
This increase reduced the Company's 1998 gross profit by approximately
$22,000,000 when compared with 1997. Aggressive discounting by the Company's
competitors made it difficult to raise prices by an amount sufficient to raise
prices by an amount sufficient to compensate for these higher dairy raw material
costs. During this same period, sales volumes of the Company's "better for you"
products continued the significant decline that began in 1997, consistent with
an industry-wide trend. Since these "better for you" products enjoy higher
margins than the Company's classic ice cream, the volume decline had a
significant impact on the Company's profitability in 1998. Finally, in August
1998, Ben & Jerry's informed the Company of its intention to terminate its
distribution agreement. Subsequent negotiations with Ben & Jerry's revised the
original contract terms to allow the Company to distribute Ben & Jerry's
products in a smaller geographic area. Starting September 1, 1999, this was
estimated to reduce the Company's distribution gross profit of Ben & Jerry's
products by approximately 54 percent. The Company estimates that the
distribution gross profit in the markets where it stopped distributing Ben &
Jerry's products represented approximately six percent, or $13,000,000, of its
gross profit in 1998.
<PAGE> 24
The above factors: the higher dairy raw material costs; the decline in
"better for you" volumes; and the reduction in future Ben & Jerry's sales had in
the past, and may continue to have in the future, a negative effect on the
Company's gross profit and its ability to successfully implement the Strategic
Plan. The Company, therefore, concluded that a thorough reassessment of its cost
structure and strategy was necessary. This reassessment yielded restructuring
actions designed to improve profitability and accelerate cost reductions by
increasing focus on the core elements of the Strategic Plan. On October 16,
1998, the board of directors approved the restructuring actions.
The Company continues to make progress towards the key elements of the
Strategic Plan. This progress has yielded an increased market share in a
consolidating industry. For example, the Company has had significant success in
the superpremium segment in recent years with the introductions of Whole Fruit
Sorbet, Starbucks(R) Ice Cream, and Godiva(R) Ice Cream. In order to build on
this success in the high-margin superpremium segment, the Company introduced a
new line of superpremium ice cream under the brand name Dreyer's and Edy's
Dreamery(TM) Ice Cream in September 1999. While the Company continues to
distribute Ben & Jerry's products in a smaller geographic area, it has no
further restrictions on competing in the superpremium segment with its own pint
products. In the premium segment, the Company announced during the third quarter
of 1999 the formation of a long-term partnership with M&M/Mars to market a new
line of ice cream products featuring M&M/Mars leading candy brands. These
products are being manufactured and distributed by the Company under the terms
of the joint venture agreement. This relationship is consistent with the
Company's strategy to expand its portfolio of brands and products to reach
consumers across the entire ice cream category.
The Company intends to continue to pursue the benefits of the Grand Plan
through four long-term initiatives. These initiatives are as follows: 1) growth
in share and sales in the premium ice cream business; 2) expansion of the
Company's new, higher-margin superpremium ice cream brands; 3) accelerated
development of the Company's business in a wider number of retail channels,
especially mass-merchandisers, convenience stores, and foodservice outlets; and
4) a focus on improved productivity through a reduction in Total Delivered
Costs, meaning the per-unit costs of manufacturing, selling and distribution,
and support activities.
Revision of Ben & Jerry's Distribution Agreement
During the third quarter of 1998, Ben & Jerry's notified the Company of its
intention to terminate the distribution agreement between the Company and Ben &
Jerry's. The Company subsequently entered into negotiations with Ben & Jerry's
to resolve issues associated with the pending termination. In the first quarter
of 1999, the companies reached a resolution regarding these termination issues
by amending the existing distribution agreement and entering into a new
distribution agreement. The Company retained the rights to distribute Ben &
Jerry's products in all existing markets, except the New York metropolitan area
(discussion follows in Restructuring Program and Other Actions of this
Management's Discussion and Analysis), and on terms and conditions different in
some respects from those in place prior to the amendment. The Company stopped
distributing Ben & Jerry's products in New York on April 1, 1999. After August
1999, the Company continued to distribute Ben & Jerry's in selected markets
covering a smaller geographic area under the terms of the new distribution
agreement. The Company received a reduced margin for distributing Ben & Jerry's
in these selected markets in 1999, but has been allowed to compete directly with
Ben & Jerry's in the superpremium ice cream category in all markets after August
1999. In addition to notifying the Company of its intention to terminate the
distribution agreement above, Ben & Jerry's notified the Company of its
intention to terminate its separate distribution agreement with the Company's
independent distributor in Texas (discussion follows in Restructuring Program
and Other Actions of this Management's Discussion and Analysis).
The distribution gross profit on Ben & Jerry's products contributed just
over 11 percent of the Company's gross profit in 1998. The Company estimates
that the distribution margin received in the markets where the Company stopped
distributing Ben & Jerry's products in 1999 contributed approximately six
percent, or $13,000,000, of its total gross profit in 1998.
Restructuring Program and Other Actions
The implementation of the restructuring program and other actions resulted in a
pre-tax charge to earnings of $59,114,000 in 1998. This included $10,590,000
recorded in the third quarter which related primarily to Ben & Jerry's actions
that occurred in September 1998 and to a severance program, which management had
already begun in advance of board approval of the remainder of the restructuring
program. The remainder of the charges, $48,524,000, was recorded in the fourth
quarter of 1998.
The five key elements of the restructuring program and other actions follow:
(1) In 1998, the Company decided to exit the equipment manufacturing business
associated with its Grand Soft ice cream unit. The Grand Soft business consists
of both ice cream sales and equipment manufacturing operations. The Company has
remained in the profitable ice cream portion of this business, but has exited
the unprofitable equipment manufacturing operations.
In the fourth quarter of 1998, the Company recorded $8,696,000 in asset
impairment charges and $2,258,000 in estimated closing costs associated with the
withdrawal from this business. The $8,696,000 charge is included in impairment
of long-lived assets in the 1998 Consolidated Statement of Operations and is
comprised of $5,714,000 of goodwill, $1,956,000 of property,
<PAGE> 25
plant and equipment and $1,026,000 of inventory and other assets. The remaining
assets of Grand Soft totaled $1,762,000 at December 26, 1998 and consisted
primarily of trade accounts receivable, which were fully recoverable. The assets
were written down to net realizable value based on an estimate of what an
independent third party would pay for the assets of the business.
The charge of $2,258,000 for closing costs is included in the provision
for restructuring charges in the 1998 Consolidated Statement of Operations and a
$2,258,000 liability was included in accounts payable and accrued liabilities in
the 1998 Consolidated Balance Sheet, as no closing costs were paid in 1998. The
closing costs were based on estimates of legal fees, employee separation
payments and expected settlements. The closing costs estimate included $576,000
of severance-related costs for the 23 employees, from all areas of
responsibility, who were notified of their pending terminations prior to
December 26, 1998. During 1999, the Company paid $811,000 of closing costs,
which included $444,000 of severance-related costs.
During 1999, an analysis of purchase offers received on the Grand Soft
equipment manufacturing business concluded that an outright sale was not
economically feasible. As an alternative, the Company's Grand Soft unit
outsourced its equipment production to an independent sub-manufacturer. As a
result, the Company completed the withdrawal from the equipment manufacturing
business at a cost less than originally estimated and recorded a $1,315,000
reversal of the excess restructuring accrual in the 1999 Consolidated Statement
of Operations. The accrued liability of $132,000 in severance-related costs at
December 25, 1999 will be paid during 2000.
The Grand Soft manufacturing operations generated revenues of $3,093,000
and $3,346,000, and incurred pre-tax operating losses of $(2,335,000) and
$(2,274,000) in 1998 and 1997, respectively.
(2) The Company implemented a program designed to reduce operating
expenses in manufacturing, sales and distribution, and administration. Core
pieces of this program included outsourcing of certain non-strategic activities,
consolidation of warehouse facilities and selected reductions in sales and
distribution staffing. These actions were completed in the fourth quarter of
1998.
As part of this program, the Company reviewed operations at all of its
manufacturing facilities in order to identify and dispose of under-utilized
assets. As a result of this review, the Company recorded a charge to cost of
goods sold of $5,317,000 in the fourth quarter of 1998, related primarily to the
write-down of manufacturing assets.
In connection with reducing operating expenses for sales and
distribution, the Company recorded $1,042,000 of severance and related charges
in the fourth quarter of 1998 that are included in the provision for
restructuring charges in the 1998 Consolidated Statement of Operations. A total
of 38 sales and distribution employees were to be terminated under this program.
Of this total, 16 were terminated in 1998 and paid $153,000 in severance
benefits. The remaining 22 employees were notified of their pending terminations
prior to December 26, 1998. An accrual for severance benefits of $889,000 was
outstanding at December 26, 1998. During 1999, the Company paid $632,000 in
severance benefits. The accrued liability of $257,000 at December 25, 1999 will
be paid in 2000.
The Company also recorded a $933,000 charge to cost of goods sold in the
third quarter of 1998 for severance actions begun in advance of board approval
of the remainder of the restructuring program. The Company paid $514,000 of
these severance benefits in 1998, leaving a liability of $419,000, which is
included in accounts payable and accrued liabilities in the 1998 Consolidated
Balance Sheet. During 1999, the Company paid the remaining severance benefits
totaling $419,000. Accordingly, there is no liability remaining for these
severance benefits at December 25, 1999.
In addition, in 1998, the Company charged to expense $4,478,000 of
previously capitalized costs classified as property, plant and equipment
associated with the expansion of its headquarters, as the expansion plan was
canceled in an effort to reduce future administration costs. The $4,478,000
charge was based on a third-party independent appraisal of the fair market value
of the related real property and is included in impairment of long-lived assets
in the 1998 Consolidated Statement of Operations.
(3) The Company, in carrying out its national expansion program, made
significant investments to support an aggressive expansion in Texas. These
investments, while building sales volume, delivered results below expectations.
The Company modified this expansion strategy in order to concentrate on more
profitable opportunities. The objective in Texas has been to preserve volumes
while seeking margin improvement. As a result of this change in strategy, the
Company is expected to realize substantially lower production volumes over the
remaining useful life of its Texas manufacturing plant than originally
contemplated. The Company therefore concluded that its investment in the Texas
plant was non-recoverable and recorded an impairment charge of $16,200,000 in
the fourth quarter of 1998 to reduce the net book value of the plant to its
estimated fair market value. The $16,200,000 impairment charge was based on a
third-party independent appraisal and is included in impairment of long-lived
assets in the 1998 Consolidated Statement of Operations.
The Company anticipates that the production levels at the Texas
manufacturing plant may increase for the next two or three years pending the
addition of more manufacturing capacity in the eastern half of the United
States. Despite these short-term increases, the Company projects that production
at the Texas manufacturing plant will remain below the volume originally
contemplated.
(4) As previously mentioned, Ben & Jerry's indicated its intention to
terminate its separate distribution agreement with the Company's independent
distributor in Texas, Sunbelt Distributors, Inc. (Sunbelt), in which the Company
had a 16 percent minority equity interest. Ben & Jerry's action placed at
significant risk the recoverability of the Company's equity investment,
distribution rights, and trade accounts receivable relating to this distributor.
In the third quarter of 1998, the Company recorded a bad debt provision of
$5,000,000 relating to the trade accounts receivable, when originally notified
of the Ben & Jerry's decision. The $5,000,000 bad debt provision is included in
selling, general and administrative expenses in the 1998 Consolidated Statement
of Operations. In light of Ben & Jerry's plans to terminate its relationship
with Sunbelt and the previously noted change in the Company's Texas strategy,
the Company evaluated the recoverability of all assets associated with Sunbelt.
Accordingly, in
<PAGE> 26
addition to the bad debt allowance recorded in the third quarter of 1998, the
Company recorded additional charges of $10,533,000 in the fourth quarter of 1998
related to the impairment of its minority equity investment and distribution
rights associated with the Company's agreement with Sunbelt. The Company
concluded that these assets were unrecoverable due to the substantially-reduced
profits and cash flow resulting from Ben & Jerry's decision to terminate
Sunbelt's distribution agreement. The $10,533,000 charge, which is comprised of
$9,449,000 of the unamortized portion of the distribution rights and $1,084,000
representing the cost of the equity investment, is included in impairment of
long-lived assets in the 1998 Consolidated Statement of Operations.
During the first quarter of 2000, the Company determined that the
outlook for Sunbelt's business was likely to improve, due to new distribution
agreements with other frozen food manufacturers, and due to the prospective
impact of the Company's new products. Therefore, in order to further stabilize
its business in Texas, the Company made the decision to acquire full ownership
of Cherokee Cream Company, Inc. (Cherokee) and its wholly-owned subsidiary,
Sunbelt. The Company purchased the remaining 84 percent of the outstanding
common stock of Cherokee on February 9, 2000, for $7,800,000. However, because
the potential business improvements in Sunbelt are prospective, and because
Sunbelt had not significantly reduced its past-due receivable balances with the
Company, the Company made the determination that it was not appropriate to
reverse any of the bad debt allowance previously established relating to
Sunbelt's trade accounts receivable.
(5) Due to the notice of termination from Ben & Jerry's, the Company charged to
expense $4,657,000 of the unamortized portion of distribution rights related to
the acquisition of the Ben & Jerry's New York distributor. The Company acquired
this business in 1989 as part of the development of its long-standing
relationship with Ben & Jerry's. The other tangible assets of this business were
merged with the Company's New York operations and are fully recoverable. This
charge was recorded in the third quarter of 1998 and is included in impairment
of long-lived assets in the 1998 Consolidated Statement of Operations.
The following table summarizes the classification of the
charges (reversals) in the 1999 and 1998 Consolidated Statement of Operations
related to the restructuring program and other actions:
<TABLE>
<CAPTION>
1998 1999
------------------------------------------------ ---------
(In thousands) Third Quarter Fourth Quarter Full Year Full Year
------------- -------------- --------- ---------
<S> <C> <C> <C> <C>
(Reversal of) provision for
restructuring charges:
Grand Soft $ $ 2,258 $2,258 $(1,315)
Sales and distribution severance 1,042 1,042
------- ------- ------- -------
3,300 3,300 (1,315)
------- ------- ------- -------
Impairment of long-lived assets:
Grand Soft 8,696 8,696
Texas plant 16,200 16,200
Texas independent distributor 10,533 10,533
Ben & Jerry's revision 4,657 4,657
Headquarters' expansion 4,478 4,478
------- ------- ------- -------
4,657 39,907 44,564
------- ------- ------- -------
Other charges:
Texas independent distributor 5,000 5,000
Sales and distribution severance 933 933
Asset disposals 5,317 5,317
------- ------- ------- -------
5,933 5,317 11,250
------- ------- ------- -------
$10,590 $48,524 $59,114 $(1,315)
======= ======= ======= =======
</TABLE>
<PAGE> 27
During 1999, the restructuring program and other actions were completed
with the exception of the payment of $389,000 of remaining severance and related
benefits. The following table summarizes the 1999 and 1998 activity in the
restructuring and other accruals included in accounts payable and accrued
liabilities in the Consolidated Balance Sheet:
<TABLE>
<CAPTION>
Other
Restructuring Accruals Accruals
---------------------------------- ------------
Sales and Sales and
Distribution Distribution
(In thousands) Grand Soft Severance Subtotal Severance Total
---------- ------------ -------- ------------ -------
<S> <C> <C> <C> <C> <C>
Balances at December 27, 1997 $ $ $ $ $
Additions 2,258 1,042 3,300 933 4,233
Payments (153) (153) (514) (667)
Reversals
------- ------ ------- ----- -------
Balances at December 26, 1998 2,258 889 3,147 419 3,566
Additions
Payments (811) (632) (1,443) (419) (1,862)
Reversals (1,315) (1,315) (1,315)
------- ------ ------- ----- -------
Balances at December 25, 1999 $ 132 $ 257 $ 389 $ $ 389
======= ====== ======= ===== =======
</TABLE>
Risks and Uncertainties
Certain statements contained in this Annual Report are forward-looking
statements made pursuant to the Private Securities Litigation Reform Act of
1995. Such forward-looking statements involve known and unknown risks and
uncertainties, which may cause the Company's actual actions or results to differ
materially from those contained in the forward-looking statements.
The Company believes that the benefits under the Strategic Plan will be
realized in future years, although no assurance can be given that the
expectations relative to future market share and earnings benefits of the
strategy will be achieved. Specific factors that might cause such a difference
include, but are not limited to, the Company's ability to achieve the cost
reductions anticipated from its restructuring program and to achieve
efficiencies in its manufacturing and distribution operations without negatively
affecting sales, the cost of dairy raw materials and other commodities used in
the Company's products, competitors' marketing and promotion responses, market
conditions affecting the price of the Company's products, the Company's ability
to increase sales of its own branded products, and responsiveness of the trade
and consumers to the Company's new products and increased marketing and trade
promotion expenses.
1999 Compared with 1998
Consolidated sales for 1999 increased $77,482,000, or eight percent, to
$1,099,817,000 from $1,022,335,000 for 1998.
Sales of the Company's branded products, including our licensed and
joint venture products (company brands), increased $81,775,000, or 13 percent,
to $729,520,000, from $647,745,000 for 1998. Company brands represented 66
percent of consolidated sales in 1999 compared with 63 percent in 1998. The
increase in sales of the Company's branded products resulted from the
introduction of new, higher-margin products, increased average wholesale prices
and higher unit sales of the Company's established brands. The products that
led this increase in sales were Dreyer's and Edy's Grand Ice Cream, the
recently introduced Dreamery(TM) Ice Cream and Godiva(R) Ice Cream. Despite the
fact that sales of the Company's "better for you" products continued their
decline, although at a slower rate, the Company's market share increased. The
increase was due to the fact that the Company's "better for you" product sales
declined at a slower rate than the industry as a whole. Average wholesale
prices for the Company's branded products increased approximately seven
percent, before the effect of increased trade promotion expenses. Gallon sales
of the Company's branded products increased approximately 7,000,000 gallons, or
eight percent, to approximately 100,000,000 gallons. The average national
dollar market share of the Company's Dreyer's and Edy's branded premium
packaged products was 14.5 percent in 1999 compared to 14.8 percent in 1998.
The same statistic for superpremium packaged products was 19.3 percent in 1999
compared to 10.8 percent in 1998.
Sales of products distributed for other manufacturers (partner brands)
decreased $4,293,000, or one percent, to $370,297,000 from $374,590,000 for
1998. Sales of partner brands represented 34 percent of consolidated sales in
1999 compared with 37 percent in 1998. As previously disclosed, the Company
began distributing Ben & Jerry's products in a smaller geographic area during
September 1999. This change was the primary cause of the decrease in partner
brand sales for 1999. Average wholesale prices for partner brands increased
approximately three percent, while unit sales decreased five percent.
Cost of goods sold increased $10,045,000, or one percent, over 1998,
while the gross margin increased to 24 percent from 19 percent. This gross
margin improvement was primarily the result of increased sales of new,
higher-margin products, comparatively lower dairy raw material costs, higher
average wholesale prices, and higher unit sales of the Company's
<PAGE> 28
established brands. These improvements were partially offset by reduced sales of
Ben & Jerry's products. The impact of the decrease in dairy raw material costs
favorably impacted gross profit in 1999 by approximately $15,000,000 as compared
to 1998.
Other income decreased $1,563,000, or 43 percent, to $2,090,000 from
$3,653,000 for 1998 due to a decline in earnings from a joint venture accounted
for under the equity method.
Selling, general and administrative expenses increased $22,995,000, or
11 percent, to $235,146,000 from $212,151,000 for 1998. Selling, general and
administrative expenses represented 21 percent of consolidated sales in 1999 and
1998. Selling, general, and administrative expenses in 1998 included a
$5,000,000 bad debt provision for an independent distributor's trade accounts
receivable. Excluding the effect of the bad debt provision, selling, general and
administrative expenses would have increased by $27,995,000, or 14 percent, over
1998. This increase related primarily to significantly higher trade promotion
and marketing expenses associated with the launch of new products.
As discussed in The Strategic Plan and Restructuring Program of this
Management's Discussion and Analysis, the Company implemented a restructuring
program and other actions during 1998. As a part of this restructuring program,
the Company pursued various proposals relating to the withdrawal from the
equipment manufacturing business of its Grand Soft unit during 1999. An analysis
of purchase offers received on this business concluded that an outright sale was
not economically feasible. As an alternative, the Company's Grand Soft unit
outsourced its equipment production to an independent sub-manufacturer. As a
result, the Company completed the withdrawal from the equipment manufacturing
business at a cost less than originally estimated and recorded a $1,315,000
reversal of the excess restructuring accrual in the 1999 Consolidated Statement
of Operations.
Interest expense decreased $1,556,000, or 12 percent, over 1998,
primarily due to lower average borrowings.
The income tax provision increased due to a correspondingly higher
pre-tax income in 1999. The effective tax rate increased to 38.1 percent from
37.9 percent for 1998. The Company's income tax provisions differ from tax
provisions calculated at the federal statutory tax rate primarily due to tax
credits and state income taxes.
In the first quarter of 1999, the Company adopted Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5
requires that the costs of start-up activities, including preoperating costs, be
expensed as incurred and that previously unamortized preoperating costs be
written off and treated as a cumulative effect of a change in accounting
principle. As a result of adopting SOP 98-5, the Company recorded an after-tax
charge of $595,000, or $.02 per common share, in the first quarter of 1999.
1998 Compared with 1997
Consolidated sales for 1998 increased $52,238,000, or five percent, to
$1,022,335,000 from $970,097,000 for 1997.
Sales of the Company's branded products increased $29,344,000, or five
percent, to $647,745,000, from $618,401,000 for 1997. Company brands represented
63 percent of consolidated sales in 1998 compared with 64 percent in 1997. The
increase in sales of the Company's branded products was a result of increased
unit sales and increased selling prices. The products that led this increase
were Dreyer's and Edy's Homemade Ice Cream and Dreyer's and Edy's Grand Ice
Cream, offset by significant declines in the Company's "better for you" frozen
yogurt, sugar free, reduced fat, and fat free products. Average wholesale prices
for the Company's branded products increased approximately two percent, before
the effect of increased trade promotion expenses. Gallon sales of the Company's
branded products increased approximately 3,000,000 gallons, or three percent,
to approximately 93,000,000 gallons. The average national dollar market share of
the Company's Dreyer's and Edy's branded premium packaged products was 14.8
percent in 1998 compared to 14.7 percent in 1997.
Sales of products distributed for other manufacturers (partner brands)
increased $22,894,000, or seven percent, to $374,590,000 from $351,696,000 in
1997. Sales of partner brands represented 37 percent of consolidated sales in
1998 compared with 36 percent in 1997. Ben & Jerry's Homemade superpremium
products led this increase. Average wholesale prices for partner brands
increased approximately four percent.
Cost of goods sold increased $63,311,000, or eight percent, over 1997,
while the gross margin decreased to 19 percent from 21 percent. Cost of goods
sold for 1998 included approximately $5,317,000 of write-downs related primarily
to manufacturing assets, $977,000 in expenses related to the settlement of
various legal claims, and $933,000 in severance costs relating to staffing
reductions made prior to board approval of the restructuring actions. Excluding
the effects of these items, cost of goods sold increased $56,084,000, or seven
percent, over 1997, while the gross margin decreased to 20 percent from 21
percent. The impact of the increase in dairy raw material costs negatively
impacted gross profit in 1998 by approximately $22,000,000 as compared to 1997.
Other income increased $659,000, or 22 percent, to $3,653,000 from
$2,994,000 for 1997, due to an increase in earnings from a joint venture
accounted for under the equity method.
Selling, general and administrative expenses increased $28,761,000, or
16 percent, to $212,151,000 from $183,390,000 for 1997. Selling, general and
administrative expenses represented 21 percent of consolidated sales in 1998
compared with 19 percent in 1997. Selling, general, and administrative expenses
in 1998 included a $5,000,000 bad debt provision for an independent distributor
receivable. Excluding the effect of the bad debt provision, selling, general and
administrative expenses would have increased by $23,761,000, or 13 percent, over
1997. This increase related primarily to significantly higher trade promotion
and marketing expenses associated with the launch of new products.
<PAGE> 29
As discussed in the Strategic Plan and Restructuring Program of this
Management's Discussion and Analysis, the Company recorded a $44,564,000
impairment charge and a $3,300,000 restructuring charge in 1998.
Interest expense increased $2,311,000, or 22 percent, as compared to
1997, primarily due to higher average borrowings on the Company's line of
credit.
The Company recorded an income tax benefit of $(28,385,000) in 1998
compared to an income tax provision of $5,681,000 in 1997. The benefit was the
result of a $(74,895,000) pre-tax loss recorded in 1998. No valuation allowance
was recorded against the income tax benefit since the Company believes that it
is more likely than not that the carryforwards created by the pre-tax loss will
be used in future years. The effective tax rate decreased to 37.9 percent from
39.3 percent for 1997. The Company's income tax provisions differ from tax
provisions calculated at the federal statutory tax rate primarily due to tax
credits and state income taxes.
Seasonality
The Company experiences more demand for its products during the spring
and summer than during the fall and winter. The Company's inventory is
maintained at the same general level relative to sales throughout the year by
adjusting production and purchasing schedules to meet demand. The ratio of
inventory to sales typically does not vary significantly from year to year.
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. However, during 1998,
unusually high dairy raw material costs negatively impacted gross profit by
approximately $22,000,000 as compared to 1997. During 1999, dairy raw material
costs declined which favorably impacted gross profit by approximately
$15,000,000 as compared to 1998.
Other cost increases such as labor and general administrative costs have
been offset by productivity gains and other operating efficiencies.
Market Risk
The Company has long-term debt with both fixed and variable interest rates. As a
result Company is exposed to market risk caused by fluctuations in interest
rates. The following summarizes interest rates on the Company's long-term debt
at December 25, 1999:
<TABLE>
<CAPTION>
($ in thousands) Long-Term Debt Interest Rates
-------------- --------------
<S> <C> <C>
Fixed Interest Rates:
Senior notes $ 50,000 7.68 - 8.34%
Senior notes 7,000 9.30%
Variable Interest Rates:
Revolving line of credit 53,500 6.33%
Capital lease obligation 7,978 6.83%
Industrial revenue bonds 4,500 4.88%
--------
$122,978
========
</TABLE>
If interest rates increased ten percent, the Company's interest expense
would increase approximately $415,000.
The Company does not have short-term or long-term investments.
Additionally, the Company does not transact business in foreign currencies. As
such, the Company is not at risk due to fluctuations in foreign exchange rates.
Financial Condition
Liquidity and Capital Resources
The Company's cash flows from operating activities provided cash of $77,302,000;
$29,196,000; and $39,040,000, in 1999, 1998, and 1997, respectively. Cash flows
from operating activities for 1999 of $77,302,000 were primarily used to fund
acquisitions of $23,756,000 in property, plant and equipment and repayments of
$55,058,000 of long-term debt. The increase in cash flows from operating
activities during 1999 is due to improved profitability and more effective
working capital management.
The Company's cash flows used in investing activities totaled
$22,227,000; $34,845,000; and $39,378,000 in 1999, 1998 and 1997, respectively.
The decline in capital expenditure from 1998 to 1999 reflects the completion of
a phase of capital investment required to support geographical expansion. The
1998 and 1997 capital expenditure reflects the Company's
<PAGE> 30
expansion of its manufacturing capacity and direct-store-delivery distribution
system. The Company plans to invest approximately $24,000,000 during 2000 on
capital expenditures. It is anticipated that these additions will be largely
financed through internally-generated funds and borrowings.
The Company's cash flows from financing activities provided cash of
$3,194,000 during 1998 compared with cash used of $53,088,000 and $170,000
during 1999 and 1997, respectively. Cash used in financing activities during
1999 primarily reflected repayments of long-term debt. During 1998, borrowings
of $12,400,000 on the Company's line of credit and cash flows from operations
were used to make $8,641,000 of payments on the Company's other debt and to pay
$3,950,000 in cash dividends to common and preferred stockholders. During 1997,
borrowings of $11,700,000 on the Company's line of credit and cash flows from
operations were used to make $9,070,000 of payments on the Company's other debt
and $7,833,000 in cash dividends to common and preferred stockholders.
Working capital decreased by $29,725,000 from 1998 to 1999 primarily due
to a decrease in other accounts receivable and an increase in the current
portion of long-term debt. The decrease in other accounts receivable is
primarily attributable to collection of receivables related to the settlement of
insurance claims for accidents that contaminated finished goods inventories in
prior years.
The Company reviewed its restructuring program and other actions with
its various banks and private lenders, and secured any modifications to debt
agreements required as a result of the restructuring. These modifications
resulted in higher interest rates on certain debt securities during 1999, which
were more than offset by lower average borrowings. The Company anticipates that
the restructuring plan will continue to enhance its cash flow, both through
short-term tax benefits, which will more than offset any pre-tax cash outflows,
and through longer-term savings in its cost structure.
At December 25, 1999, the Company had $3,158,000 in cash and cash
equivalents, and an unused credit line of $121,500,000. The total available
under the Company's revolving line of credit decreased from $175,000,000 to
$149,286,000 on December 31, 1999. The Company presently anticipates that it
will either refinance the line, which expires December 31, 2000, or negotiate to
extend its maturity date.
On February 9, 2000, the Company acquired the remaining 84 percent of
the outstanding common stock of an independent distributor in Texas for
$7,800,000.
The Company's Series A redeemable convertible preferred stock, par value
$100,752,000, is convertible at any time at the option of the holder into
5,800,000 newly issued shares of common stock of the Company. The holder may
instead redeem the issue for cash at par value on June 30, 2001. The Company
presently anticipates that it would fund such a redemption from operating cash
flows, borrowings or other financing sources.
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.
Pursuant to a 1994 equity transaction, an affiliate of Nestle USA, Inc.
purchased 6,000,000 newly issued shares of common stock, and warrants to
purchase 4,000,000 shares at an exercise price of $16.00 per share. Warrants for
2,000,000 shares expired unexercised on June 14, 1997. Warrants for the
remaining 2,000,000 shares expired unexercised on June 14, 1999.
The Company believes that its credit line, along with its liquid
resources, internally-generated cash, and financing capacity, will be adequate
to meet both short-term and long-term operating and capital requirements.
YEAR 2000 COMPLIANCE
The Company completed all upgrades, enhancements, testing and contingency
planning for all critical centralized systems, desktop applications and embedded
chip technology by the end of 1999. The Company also completed surveying key
customers and suppliers to determine the risks associated with their Year 2000
compliance programs.
The Company did not experience any significant issues related to Year
2000 compliance. No issues were reported from vendors, customers or other
business partners. No contingency plans were invoked during the critical
rollover period around January 1, 2000. At this point, no significant expenses
have been incurred as a result of the Year 2000 issue.
The total cost for the Company's Year 2000 initiatives was $5,500,000,
of which $3,500,000 was incurred during 1998 and $2,000,000 was incurred during
1999. The majority of these costs relate to the accelerated replacement of
capitalized hardware and software systems. Of the $5,500,000 spent,
approximately $4,500,000 was capitalized and approximately $1,000,000 relating
to the costs of modifying computer software for the Year 2000, was charged to
expense.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF DREYER'S GRAND ICE CREAM, INC.
<TABLE>
<CAPTION>
Name Jurisdiction
- ---- ------------
<S> <C>
Cherokee Cream Company, Inc. California
Edy's Grand Ice Cream California
Edy's of Illinois, Inc. (1) Illinois
Dreyer's International, Inc. U.S. Virgin Islands
Grand Soft Capital Company California
Grand Soft Equipment Company Kentucky
Portofino Company California
Sunbelt Distributors, Inc. (2) Texas
</TABLE>
- ---------------------
(1) Subsidiary of Edy's Grand Ice Cream
(2) Subsidiary of Cherokee Cream Company, 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 33-16701) of Dreyer's Grand Ice Cream, Inc. of
our report dated February 15, 2000 relating to the financial statements, which
appears in the 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 dated February 15, 2000 relating to the financial statement
schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
San Francisco, California
March 23, 2000
<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
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</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-START> DEC-27-1998
<PERIOD-END> DEC-25-1999
<CASH> 3,158
<SECURITIES> 0
<RECEIVABLES> 84,966
<ALLOWANCES> 5,715
<INVENTORY> 54,669
<CURRENT-ASSETS> 168,813
<PP&E> 332,170
<DEPRECIATION> 134,778
<TOTAL-ASSETS> 439,244
<CURRENT-LIABILITIES> 137,479
<BONDS> 104,257
100,078
0
<COMMON> 27,871
<OTHER-SE> 45,823
<TOTAL-LIABILITY-AND-EQUITY> 439,244
<SALES> 1,099,817
<TOTAL-REVENUES> 1,101,907
<CGS> 837,907
<TOTAL-COSTS> 837,907
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 857
<INTEREST-EXPENSE> 11,450
<INCOME-PRETAX> 18,719
<INCOME-TAX> 7,132
<INCOME-CONTINUING> 11,587
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 595
<NET-INCOME> 10,992
<EPS-BASIC> .36
<EPS-DILUTED> .33
<FN>
<F1>EXCLUDES SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AS THESE ARE PART OF
5-03(b)(4).
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-START> DEC-27-1998
<PERIOD-END> SEP-25-1999
<CASH> 2,347
<SECURITIES> 0
<RECEIVABLES> 117,130
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<DEPRECIATION> 137,170
<TOTAL-ASSETS> 477,817<F2>
<CURRENT-LIABILITIES> 156,186
<BONDS> 125,457
99,972
0
<COMMON> 27,704
<OTHER-SE> 46,565<F2>
<TOTAL-LIABILITY-AND-EQUITY> 477,817<F2>
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<TOTAL-REVENUES> 859,532
<CGS> 654,721
<TOTAL-COSTS> 654,721
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 643
<INTEREST-EXPENSE> 8,851
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<INCOME-TAX> 8,752
<INCOME-CONTINUING> 13,631
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<EXTRAORDINARY> 0
<CHANGES> 595
<NET-INCOME> 13,036
<EPS-BASIC> .44
<EPS-DILUTED> .39
<FN>
<F1>EXCLUDES SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AS THESE ARE PART OF
5-03(b)(4).
<F2>THIS FINANCIAL DATA SCHEDULE ITEM HAS BEEN RESTATED TO REFLECT THE
RECLASSIFICATION OF NOTES RECEIVABLE FROM STOCKHOLDERS TO A CONTRA-EQUITY ITEM
IN ORDER TO CONFORM TO THE 1999 ANNUAL PRESENTATION.
</FN>
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-START> DEC-27-1998
<PERIOD-END> JUN-26-1999
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<DEPRECIATION> 143,503
<TOTAL-ASSETS> 502,645<F2>
<CURRENT-LIABILITIES> 169,583
<BONDS> 171,123
99,866
0
<COMMON> 27,529
<OTHER-SE> 37,036<F2>
<TOTAL-LIABILITY-AND-EQUITY> 502,645<F2>
<SALES> 535,247
<TOTAL-REVENUES> 536,088
<CGS> 418,277
<TOTAL-COSTS> 418,277
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 428
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<CHANGES> 595
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<EPS-BASIC> .14
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<FN>
<F1>EXCLUDES SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AS THESE ARE PART OF
5-03(b)(4).
<F2>THIS FINANCIAL DATA SCHEDULE ITEM HAS BEEN RESTATED TO REFLECT THE
RECLASSIFICATION OF NOTES RECEIVABLE FROM STOCKHOLDERS TO A CONTRA-EQUITY
ITEM IN ORDER TO CONFORM TO THE 1999 ANNUAL PRESENTATION.
</FN>
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<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
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<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-START> DEC-27-1998
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<TOTAL-ASSETS> 459,373<F2>
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99,760
0
<COMMON> 27,513
<OTHER-SE> 29,527<F2>
<TOTAL-LIABILITY-AND-EQUITY> 459,373<F2>
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<TOTAL-REVENUES> 228,538
<CGS> 187,921
<TOTAL-COSTS> 187,921
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 214
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<INCOME-PRETAX> (5,371)
<INCOME-TAX> (2,036)
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<EXTRAORDINARY> 0
<CHANGES> 595
<NET-INCOME> (3,930)
<EPS-BASIC> (.15)
<EPS-DILUTED> (.15)
<FN>
<F1>EXCLUDES SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES AS THESE ARE A PART OF
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<F2>THIS FINANCIAL DATA SCHEDULE ITEM HAS BEEN RESTATED TO REFLECT THE
RECLASSIFICATION OF NOTES RECEIVABLE FROM STOCKHOLDERS TO A CONTRA-EQUITY ITEM
IN ORDER TO CONFORM TO THE 1999 ANNUAL PRESENTATION.
</FN>
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> DEC-28-1997
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<TOTAL-ASSETS> 461,721<F1>
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99,654
0
<COMMON> 27,312
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<TOTAL-REVENUES> 1,025,988
<CGS> 827,862
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<OTHER-EXPENSES> 253,517
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<INCOME-PRETAX> (74,895)
<INCOME-TAX> (28,385)
<INCOME-CONTINUING> (46,510)
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<CHANGES> 0
<NET-INCOME> (46,510)
<EPS-BASIC> (1.75)
<EPS-DILUTED> (1.75)
<FN>
<F1>THIS FINANCIAL DATA SCHEDULE ITEM HAS BEEN RESTATED TO REFLECT THE
RECLASSIFICATION OF NOTES RECEIVABLE FROM STOCKHOLDERS TO A CONTRA-EQUITY ITEM
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</FN>
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
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99,549
0
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<NET-INCOME> (7,071)
<EPS-BASIC> (.29)
<EPS-DILUTED> (.29)
<FN>
<F1>THIS FINANCIAL DATA SCHEDULE ITEM HAS BEEN RESTATED TO REFLECT THE
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</FN>
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<RESTATED>
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<S> <C>
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99,443
0
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<FN>
<F1>THIS FINANCIAL DATA SCHEDULE ITEM HAS BEEN RESTATED TO REFLECT THE
RECLASSIFICATION OF NOTES RECEIVABLE FROM STOCKHOLDERS TO A CONTRA-EQUITY
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</FN>
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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<S> <C>
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<FISCAL-YEAR-END> DEC-26-1998
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99,337
0
<COMMON> 27,102
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<NET-INCOME> (5,625)
<EPS-BASIC> (.22)
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<FN>
<F1>THIS FINANCIAL DATA SCHEDULE ITEM HAS BEEN RESTATED TO REFLECT THE
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</FN>
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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<S> <C>
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99,230
0
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<FN>
<F1>THIS FINANCIAL DATA SCHEDULE ITEM HAS BEEN RESTATED TO REFLECT THE
RECLASSIFICATION OF NOTES RECEIVABLE FROM STOCKHOLDERS TO A CONTRA-EQUITY ITEM
IN ORDER TO CONFORM TO THE 1999 ANNUAL PRESENTATION.
</FN>
</TABLE>
