<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 24, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-14190
DREYER'S GRAND ICE CREAM, INC.
(Exact name of registrant as specified in its charter)
Delaware No. 94-2967523
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5929 College Avenue, Oakland, California 94618
(Address of principal executive offices) (Zip Code)
(510) 652-8187
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Shares Outstanding
August 6, 2000
Common stock, $1 par value -----------------
28,151,000
<PAGE> 2
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 24, 2000 Dec. 25, 1999
------------- -------------
($ in thousands, except per share amounts) (Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 5,305 $ 3,158
Trade accounts receivable, net of allowance for doubtful
accounts of $1,097 in 2000 and $5,715 in 1999 140,672 79,251
Other accounts receivable 28,992 13,528
Inventories 81,704 54,669
Deferred income taxes 11,204 11,586
Prepaid expenses and other 7,475 6,621
--------- ---------
Total current assets 275,352 168,813
Property, plant and equipment, net 196,841 197,392
Goodwill, distribution rights and other intangibles, net 78,078 67,575
Other assets 1,566 5,464
--------- ---------
Total assets $ 551,837 $ 439,244
========= =========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 157,763 $ 88,845
Accrued payroll and employee benefits 19,371 29,913
Current portion of long-term debt 10,543 18,721
--------- ---------
Total current liabilities 187,677 137,479
Long-term debt, less current portion 147,571 104,257
Deferred income taxes 26,445 23,736
--------- ---------
Total liabilities 361,693 265,472
--------- ---------
Commitments and contingencies
Redeemable convertible preferred stock, $1 par
value - 1,008,000 shares authorized; 1,008,000
shares issued and outstanding in 2000 and 1999 100,290 100,078
--------- ---------
Stockholders' Equity:
Preferred stock, $1 par value - 8,992,000 shares authorized; no shares
issued or outstanding in 2000 and 1999
Common stock, $1 par value - 60,000,000 shares authorized; 28,137,000
shares and 27,871,000 shares issued and outstanding in
2000 and 1999, respectively 28,137 27,871
Capital in excess of par 56,729 53,172
Notes receivable from stockholders (3,098) (2,501)
Retained earnings (Accumulated deficit) 8,086 (4,848)
--------- ---------
Total stockholders' equity 89,854 73,694
--------- ---------
Total liabilities and stockholders' equity $ 551,837 $ 439,244
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 3
DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
------------------------------ ----------------------------
June 24, 2000 June 26, 1999 June 24, 2000 June 26, 1999
------------- ------------- ------------- -------------
($ in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Sales $ 323,820 $ 306,861 $ 564,239 $ 535,247
Other income 1,801 689 3,129 841
--------- --------- --------- ---------
325,621 307,550 567,368 536,088
--------- --------- --------- ---------
Costs and expenses:
Cost of goods sold 234,799 230,356 418,003 418,277
Selling, general and administrative 67,627 60,658 119,205 103,526
Interest, net of amounts capitalized 2,975 3,127 5,633 6,247
--------- --------- --------- ---------
305,401 294,141 542,841 528,050
--------- --------- --------- ---------
Income before income tax provision and cumulative effect
of change in accounting principle 20,220 13,409 24,527 8,038
Income tax provision 7,704 5,179 9,345 3,143
--------- --------- --------- ---------
Income before cumulative effect of change in accounting
principle 12,516 8,230 15,182 4,895
Cumulative effect of change in accounting principle 595
--------- --------- --------- ---------
Net income 12,516 8,230 15,182 4,300
Accretion of preferred stock to redemption value 106 106 212 212
Preferred stock dividends 174 174 348 348
--------- --------- --------- ---------
Net income available to common stockholders $ 12,236 $ 7,950 $ 14,622 $ 3,740
========= ========= ========= =========
Per common share-basic:
Income available to common stockholders before
cumulative effect of change in accounting principle $ .44 $ .29 $ .52 $ .16
Cumulative effect of change in accounting principle (.02)
--------- --------- --------- ---------
Net income available to common stockholders $ .44 $ .29 $ .52 $ .14
========= ========= ========= =========
Per common share-diluted:
Income available to common stockholders before
cumulative effect of change in accounting principle $ .35 $ .24 $ .44 $ .15
Cumulative effect of change in accounting principle (.02)
--------- --------- --------- ---------
Net income available to common stockholders $ .35 $ .24 $ .44 $ .13
========= ========= ========= =========
Dividends per common share $ .03 $ .03 $ .06 $ .06
========= ========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 4
DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Notes Retained
Common Stock Receivable Earnings
----------------------- Capital in From (Accumulated
(In thousands) Shares Amount Excess of Par Stockholders Deficit) Total
-------- -------- ------------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 26, 1998 27,312 $ 27,312 $ 46,722 $ (1,459) $(11,401) $ 61,174
Net income 4,300 4,300
Accretion of preferred stock to
redemption value (212) (212)
Preferred stock dividends declared (348) (348)
Common stock dividends declared (1,651) (1,651)
Repurchases and retirements of
common stock (19) (19) (216) (235)
Issuance of common stock under
employee stock plans, net 236 236 2,604 (1,303) 1,537
-------- -------- -------- -------- -------- --------
Balances at June 26, 1999 27,529 $ 27,529 $ 49,110 $ (2,762) $ (9,312) $ 64,565
======== ======== ======== ======== ======== ========
Balances at December 25, 1999 27,871 $ 27,871 $ 53,172 $ (2,501) $ (4,848) $ 73,694
Net income 15,182 15,182
Accretion of preferred stock to
redemption value (212) (212)
Preferred stock dividends declared (348) (348)
Common stock dividends declared (1,688) (1,688)
Repurchases and retirements of
common stock (3) (3)
Issuance of common stock under
employee stock plans, net 266 266 3,560 (597) 3,229
-------- -------- -------- -------- -------- --------
Balances at June 24, 2000 28,137 $ 28,137 $ 56,729 $ (3,098) $ 8,086 $ 89,854
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 5
DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
----------------------------
(In thousands) June 24, 2000 June 26, 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 15,182 $ 4,300
Adjustments to reconcile net income to cash from operations:
Depreciation and amortization 18,437 17,417
Deferred income taxes 3,091 2,685
Cumulative effect of change in accounting principle 595
Changes in assets and liabilities, net of amounts acquired:
Trade accounts receivable (60,908) (44,614)
Other accounts receivable (15,253) 7,508
Inventories (26,695) (7,453)
Prepaid expenses and other (777) (1,316)
Accounts payable and accrued liabilities 67,745 40,824
Accrued payroll and employee benefits (10,567) 643
-------- --------
(9,745) 20,589
-------- --------
Cash flows from investing activities:
Acquisition of property, plant and equipment (14,280) (11,456)
Retirement of property, plant and equipment 1,386 354
Purchase of common stock of Cherokee Cream Company, Inc., net of cash acquired (7,651)
Increase in goodwill, distribution rights and other intangibles, net 468 (891)
(Increase) decrease in other assets (1,766) 1,909
-------- --------
(21,843) (10,084)
-------- --------
Cash flows from financing activities:
Proceeds from (repayments of) long-term debt, net 32,531 (7,088)
Issuance of common stock under employee stock plans, net 3,229 1,537
Repurchases and retirements of common stock (3) (235)
Cash dividends paid (2,022) (1,992)
-------- --------
33,735 (7,778)
-------- --------
Increase in cash and cash equivalents 2,147 2,727
Cash and cash equivalents, beginning of period 3,158 1,171
-------- --------
Cash and cash equivalents, end of period $ 5,305 $ 3,898
======== ========
Supplemental cash flow information:
Cash paid (refunded) during the period for:
Interest (net of amounts capitalized) $ 6,417 $ 6,673
======== ========
Income taxes (net of refunds) $ 1,021 $ (555)
======== ========
Supplemental acquisition information:
Fair value of assets acquired $ 19,052
Cash paid for common stock (7,855)
--------
Liabilities assumed $ 11,197
========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE> 6
DREYER'S GRAND ICE CREAM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - Operations and Financial Statement Presentation
Dreyer's Grand Ice Cream, Inc. and its subsidiaries (the Company) are engaged
primarily in 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 consolidated financial statements for the thirteen- and twenty-six-week
periods ended June 24, 2000 and June 26, 1999 have not been audited by
independent public accountants, but include all adjustments, such as normal
recurring accruals, which management considers necessary for a fair
presentation of the consolidated operating results for the interim periods. The
statements have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosure normally included in financial statements
prepared in conformity with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The operating
results for interim periods are not necessarily indicative of results to be
expected for an entire year. The aforementioned statements should be read in
conjunction with the Consolidated Financial Statements for the year ended
December 25, 1999, appearing in the Company's 1999 Annual Report to
Stockholders. Certain reclassifications have been made to prior years'financial
statements to conform to the current year presentation.
NOTE 2 - Inventories
Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Inventories at June 24, 2000 and December 25, 1999
consisted of the following:
<TABLE>
<CAPTION>
(In thousands) June 24, 2000 Dec. 25, 1999
------------- -------------
<S> <C> <C>
Raw materials $ 9,644 $ 6,174
Finished goods 72,060 48,495
------- -------
$81,704 $54,669
======= =======
</TABLE>
NOTE 3 - Acquisition of Cherokee Cream Company, Inc.
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 Distributors, Inc. (Sunbelt), the leading independent
direct-store-delivery ice cream distributor in Texas. The Company paid
$7,855,000 in cash in this transaction which has been accounted for as a
purchase. This purchase price includes $55,000 of direct transaction-related
fees and expenses. The results of Cherokee are included in the Company's
Consolidated Statement of Income from the date of acquisition. In connection
with this transaction, the Company recorded $12,853,000 of goodwill and
distribution rights.
NOTE 4 - The 1998 Restructuring and Other Actions
During 1999, the 1998 restructuring 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 year-to-date activity in the
restructuring and other accruals included in accounts payable and accrued
liabilities in the Consolidated Balance Sheet:
6
<PAGE> 7
<TABLE>
<CAPTION>
Restructuring Accruals
----------------------------------
Sales and
distribution
(In thousands) Grand Soft severance Total
---------- ------------ ----------
<S> <C> <C> <C>
Balances at December 25, 1999 $ 132 $ 257 $ 389
Additions
Payments (132) (19) (151)
----- ----- -----
Balances at June 24, 2000 $ $ 238 $ 238
===== ===== =====
</TABLE>
NOTE 5 - Long-term Debt
At June 24, 2000, the Company had a credit agreement with various banks for a
revolving line of credit of $149,286,000 with an expiration date of December
31, 2000. On July 25, 2000, the Company entered into a replacement revolving
line of credit for $240,000,000 with an expiration date of July 25, 2005.
Accordingly, the Company has classified the $108,000,000 balance outstanding
under the previous credit agreement as long-term debt. The new line bears
interest at LIBOR plus a margin ranging from 0.75 to 1.875 percent.
NOTE 6 - Redeemable Convertible Preferred Stock
The Company's Series A redeemable convertible preferred stock, redemption
value $100,752,000, is convertible, at the option of the holder, into 5,800,000
shares of common stock on or before June 30, 2001. If the holder does not
convert, the Company will redeem the issue by paying $100,752,000 on June 30,
2001. The Company anticipates that it would fund such a redemption from
operating cash flows, borrowings and/or other financing sources.
NOTE 7 - Net Income Per Common Share
The denominator for basic net income per share includes the number of
weighted-average common shares outstanding. The denominator for diluted net
income per share includes the number of weighted-average shares outstanding
plus the effect of potentially dilutive securities which include stock options,
stock warrants and redeemable convertible preferred stock.
Net income per common share is computed as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
---------------------------- ----------------------------
(In thousands, except per share amounts) June 24, 2000 June 26, 1999 June 24, 2000 June 26, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income available to common
stockholders - basic $12,236 $ 7,950 $14,622 $ 3,740
Add: preferred dividends and accretion 280 280 560 560
------- ------- ------- -------
Net income available to common
stockholders - diluted $12,516 $ 8,230 $15,182 $ 4,300
======= ======= ======= =======
Weighted-average shares-basic 28,119 27,516 27,949 27,446
Dilutive effect of options 1,535 289 1,106 194
Dilutive effect of preferred stock 5,800 5,800 5,800 5,800
------- ------- ------- -------
Weighted-average shares-diluted 35,454 33,605 34,855 33,440
======= ======= ======= =======
Net income per common share:
Basic $ .44 $ .29 $ .52 $ .14
======= ======= ======= =======
Diluted $ .35 $ .24 $ .44 $ .13
======= ======= ======= =======
</TABLE>
7
<PAGE> 8
Anti-dilutive securities
Potentially dilutive securities are excluded from the calculations of diluted
net income per common share when their inclusion would have an anti-dilutive
effect. These securities, stated in equivalent shares of common stock, consisted
of the following:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
------------------------------ ------------------------------
(In thousands) June 24, 2000 June 26, 1999 June 24, 2000 June 26, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Stock options 71 2,505 689 2,543
Stock warrants 2,000 2,000
</TABLE>
NOTE 8 - New Accounting Pronouncement
At the July 19-20, 2000 meeting of the Emerging Issues Task Force of the
Financial Accounting Standards Board (EITF), the EITF reached a consensus on
EITF 00-14, "Accounting for Certain Sales Incentives" which requires vendors to
record sales incentives as a reduction of revenue at the date of sale. The
Company will implement this standard when required, which currently is the
fourth quarter of 2000. Reclassification of prior period financial statements
is required.
The Company presently classifies trade promotion costs (including sales
discounts and coupon redemption costs) as selling, general and administrative
expenses. This new accounting standard would result in the classification of
some or all of these costs as a reduction of sales rather than as a selling,
general and administrative expense, but would have no effect on net income
(loss) as previously reported. The Company is in the process of determining the
impact that adopting EITF 00-14 will have on the 2000 financial statements.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Unaudited)
The following table sets forth for the periods indicated the percent which the
items in the Consolidated Statement of Income bear to sales and the percentage
change of such items compared to the indicated prior period:
<TABLE>
<CAPTION>
Period-to-Period
Variance
Percentage of Sales Favorable (Unfavorable)
----------------------------------------------- -----------------------
Thirteen Twenty-six
Weeks Weeks
Thirteen Weeks Ended Twenty-six Weeks Ended Ended Ended
-------------------- ---------------------- 2000 2000
June 24, June 26, June 24, June 26, Compared Compared
2000 1999 2000 1999 To 1999 To 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Sales 100.0% 100.0% 100.0% 100.0% 5.5% 5.4%
Other income 0.6 0.2 0.6 0.2 161.1 272.1
----- ----- ----- -----
100.6 100.2 100.6 100.2 5.9 5.8
----- ----- ----- -----
Costs and expenses:
Cost of goods sold 72.6 75.0 74.1 78.2 (1.9) 0.1
Selling, general and administrative 20.9 19.8 21.1 19.3 (11.5) (15.1)
Interest, net of amounts capitalized 0.9 1.0 1.0 1.2 4.9 9.8
----- ----- ----- -----
94.4 95.8 96.2 98.7 (3.8) (2.8)
----- ----- ----- -----
Income before income tax provision and cumulative
effect of change in accounting principle 6.2 4.4 4.4 1.5 50.8 205.1
Income tax provision 2.4 1.7 1.7 0.6 (48.8) (197.3)
----- ----- ----- -----
Income before cumulative effect of change in
accounting principle 3.8 2.7 2.7 0.9 52.1 210.1
Cumulative effect of change in accounting
principle -- -- -- 0.1 -- NM
----- ----- ----- -----
Net income 3.8 2.7 2.7 0.8 52.1 253.1
Accretion of preferred stock to redemption value -- -- -- -- -- --
Preferred stock dividends 0.1 0.1 0.1 0.1 -- --
----- ----- ----- -----
Net income available to common stockholders 3.7% 2.6% 2.6% 0.7% 53.9 291.0
===== ===== ===== =====
</TABLE>
9
<PAGE> 10
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
Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations. The Company undertakes no obligation to publicly revise
these forward-looking statements to reflect subsequent events or circumstances.
Also, in connection with this "safe harbor" provision, the Company
identifies important factors that could cause the Company's actual results to
differ materially from those contained in any forward-looking statement made by
or on behalf of the Company. Any such statement is qualified by reference to the
cautionary statements set forth below and in the Company's other filings with
the Securities and Exchange Commission.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Management's
Discussion and Analysis for the year ended December 25, 1999, appearing in the
Company's 1999 Annual Report to Stockholders.
Thirteen Weeks ended June 24, 2000 Compared with Thirteen Weeks ended
June 26, 1999
Consolidated sales for the second quarter of 2000 increased $16,959,000 or six
percent, to $323,820,000 from $306,861,000 for the same quarter last year.
Sales of the Company's branded products, including licensed and joint
venture products (company brands), increased $33,979,000, or 17 percent, to
$230,271,000 from $196,292,000 for the same quarter last year. Company brands
represented 71 percent of consolidated sales in 2000 compared with 64 percent in
the same quarter last year. The increase in sales of the Company's branded
products related primarily to an increase in unit sales and generally higher
average wholesale prices. The products that led this increase were the
superpremium Dreamery(TM) line, the premium M&M/Mars line, premium Classic
Dreyer's and Edy's Grand Ice Cream, and Whole Fruit Bars. As a result of changes
in mix and wholesale price increases, the average price of the Company's branded
products increased approximately nine percent, before the effect of increased
trade promotion expenses, which are presently classified as selling, general and
administrative expenses (see "New Accounting Pronouncements" section following).
Gallon sales of the Company's branded products increased approximately 2,400,000
gallons, or nine percent, to approximately 29,600,000 gallons.
Sales of products distributed for other manufacturers (partner brands),
including Ben & Jerry's Homemade, Inc., decreased $17,020,000, or 15 percent, to
$93,549,000 from $110,569,000 for the same quarter last year. Sales of partner
brands represented 29 percent of consolidated sales compared with 36 percent in
the same quarter last year. 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 lower partner brand
sales for the quarter. Unit sales of partner brands decreased by 18 percent over
the same quarter last year. The effect of price changes for partner brands was
not significant.
Cost of goods sold increased $4,443,000, or two percent, over the same
quarter last year, while the overall gross margin increased to 27 percent from
25 percent. The improvement was primarily the result of increased sales of
higher-margin premium and superpremium products, comparatively lower dairy raw
material costs and higher wholesale prices. The effect of these positive factors
more than offset the lost distribution gross profit from lower Ben & Jerry's
sales. The impact of the change in dairy raw material costs for the quarter was
a $600,000 benefit as compared to the same quarter last year.
Other income increased $1,112,000 primarily due to an increase in earnings
from joint ventures accounted for under the equity method.
Selling, general and administrative expenses increased $6,969,000, or 11
percent, to $67,627,000 from $60,658,000. Selling, general and administrative
expenses represented 21 percent of consolidated sales in 2000 compared with 20
percent in the same quarter last year. This increase primarily reflects
marketing spending, including trade promotion
10
<PAGE> 11
expenses, related to the ongoing support of the Dreamery(TM) line, Godiva(R)
Ice Cream and the Dreyer's and Edy's premium portfolio and, to a lesser extent,
increases in administrative expenses.
Interest expense decreased $152,000 to $2,975,000, primarily attributable to
lower average borrowings.
The income tax provision increased due to a correspondingly higher pre-tax
income in 2000. This increase was offset in part by a decrease in the effective
tax rate from 38.6 percent for the second quarter of 1999 to 38.1 percent for
the second quarter of 2000.
Twenty-six Weeks ended June 24, 2000 Compared with Twenty-six Weeks ended
June 26, 1999
Consolidated sales for the first twenty-six weeks of 2000 increased
$28,992,000, or five percent, to $564,239,000 from $535,247,000 for the same
period last year.
Sales of the Company's branded products, including licensed and joint venture
products (company brands), increased $64,270,000, or 19 percent, to
$402,606,000 from $338,336,000 for the same period last year. Company brands
represented 71 percent of consolidated sales in 2000 compared with 63 percent
in the same period last year. The increase in sales of the Company's branded
products related primarily to an increase in unit sales and generally higher
average wholesale prices. The products that led this increase were the
superpremium Dreamery(TM) line, the premium M&M/Mars line, premium Classic
Dreyer's and Edy's Grand Ice Cream, and Whole Fruit Bars. As a result of
changes in mix and wholesale price increases, the average price of the
Company's branded products increased approximately nine percent, before the
effect of increased trade promotion expenses, which are presently classified as
selling, general and administrative expenses (see "New Accounting
Pronouncement" section following). Gallon sales of the Company's branded
products increased approximately 4,700,000 gallons, or 10 percent, to
approximately 52,200,000 gallons.
Sales of products distributed for other manufacturers (partner brands),
including Ben & Jerry's Homemade, Inc., decreased $35,278,000, or 18 percent,
to $161,633,000 from $196,911,000 for the same period last year. Sales of
partner brands represented 29 percent of consolidated sales compared with 37
percent in the same period last year. 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 lower partner brand
sales for the first twenty-six weeks of 2000. Unit sales of partner brands
decreased by 19 percent over the same period last year. The effect of price
changes for partner brands was not significant.
Cost of goods sold was relatively flat compared to the same period last year,
while the overall gross margin increased to 26 percent from 22 percent. The
improvement was primarily the result of increased sales of higher-margin
premium and superpremium products, comparatively lower dairy raw material costs
and higher wholesale prices. The effect of these positive factors more than
offset the lost distribution gross profit from lower Ben & Jerry's sales. The
impact of the change in dairy raw material costs for the period was an
$8,500,000 benefit as compared to the same period last year.
Other income increased $2,288,000 primarily due to an increase in earnings
from joint ventures accounted for under the equity method.
Selling, general and administrative expenses increased $15,679,000, or 15
percent, to $119,205,000 from $103,526,000. Selling, general and administrative
expenses represented 21 percent of consolidated sales in 2000 compared with 19
percent in the same period last year. This increase primarily reflects
marketing spending, including trade promotion expenses, related to the ongoing
support of the Dreamery(TM) line, Godiva(R) Ice Cream and the Dreyer's and
Edy's premium portfolio and, to a lesser extent, increases in administrative
expenses.
Interest expense decreased $614,000, or 10 percent, to $5,633,000, primarily
attributable to lower average borrowings.
The income tax provision increased due to a correspondingly higher pre-tax
income in 2000. This increase was offset in part by a decrease in the effective
tax rate from 39.1 percent for the first twenty-six weeks of 1999 to 38.1
percent for the first twenty-six weeks of 2000.
11
<PAGE> 12
FINANCIAL CONDITION-LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 24, 2000 increased $56,341,000 from year-end 1999 due
primarily to seasonal increases in accounts receivable and inventories, offset
in part by seasonal increases in accounts payable and accrued liabilities. In
addition, the capital truck lease obligation of $7,978,000 outstanding at
year-end 1999 was repaid in the first month of the second quarter of 2000. The
Company's cash used in operating activities of $9,745,000 reflects the timing
of payments for employee benefits and the seasonal increase in receivables and
inventories, offset in part by a seasonal increase in accounts payable and
accrued liabilities.
Cash used in investing activities of $21,843,000 consists primarily of
acquisitions of $14,280,000 in property, plant and equipment and the February 9,
2000 acquisition of the remaining 84 percent of the outstanding common stock of
Cherokee Cream Company, Inc. for $7,651,000.
Cash flows from financing activities totaling $33,735,000 primarily
consisted of a net increase of $32,531,000 in outstanding debt.
The Company's Series A redeemable convertible preferred stock, redemption
value $100,752,000, is convertible, at the option of the holder, into 5,800,000
shares of common stock on or before June 30, 2001. If the holder does not
convert, the Company will redeem the issue by paying $100,752,000 on June 30,
2001. The Company anticipates that it would fund such a redemption from
operating cash flows, borrowings and/or other financing sources.
At June 24, 2000, the Company had a credit agreement with various banks for a
revolving line of credit of $149,286,000 with an expiration date of December 31,
2000. On July 25, 2000, the Company entered into a replacement revolving line of
credit for $240,000,000 with an expiration date of July 25, 2005. Accordingly,
the Company has classified the $108,000,000 balance outstanding under the
previous credit agreement as long-term debt. The new line bears interest at
LIBOR plus a margin ranging from 0.75 to 1.875 percent.
At June 24, 2000, the Company had $5,305,000 in cash and cash equivalents,
and an unused credit line of $41,286,000. The Company believes that its credit
line, along with its liquid resources, internally-generated cash and financing
capacity, are adequate to meet both short-term and long-term operating and
capital requirements.
NEW ACCOUNTING PRONOUNCEMENT
At the July 19-20, 2000 meeting of the Emerging Issues Task Force of the
Financial Accounting Standards Board (EITF), the EITF reached a consensus on
EITF 00-14, "Accounting for Certain Sales Incentives" which requires vendors to
record sales incentives as a reduction of revenue at the date of sale. The
Company will implement this standard when required, which currently is the
fourth quarter of 2000. Reclassification of prior period financial statements
is required.
The Company presently classifies trade promotion costs (including sales
discounts and coupon redemption costs) as selling, general and administrative
expenses. This new accounting standard would result in the classification of
some or all of these costs as a reduction of sales rather than as a selling,
general and administrative expense, but would have no effect on net income
(loss) as previously reported. The Company is in the process of determining the
impact that adopting EITF 00-14 will have on the 2000 financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since December 25, 1999, there have been no material changes in the Company's
market risk exposure.
12
<PAGE> 13
PART II: OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Annual Meeting of Stockholders was held in Oakland, California on May 10,
2000. A total of 25,781,395 shares (93.2 percent) of the outstanding common
shares and 1,007,522 shares (100.0 percent) of the outstanding Series A
convertible preferred shares (convertible into 5,800,000 common shares) were
represented at the meeting whether in person or by proxy. The following matters
were voted upon by the stockholders:
(a) Election of three directors to Class III of the Board of Directors
The following persons, who were the only nominees, were re-elected as
directors of Class III of the Board of Directors until the 2003 Annual Meeting
of Stockholders or until their respective successors are elected and qualified,
and received the following number of votes:
<TABLE>
<CAPTION>
Nominee For Withheld
------------------------------- ---------------- -----------------
<S> <C> <C>
T. Gary Rogers 31,050,356 531,039
William F. Cronk 31,050,523 530,872
M. Steven Langman 29,635,941 1,945,454
</TABLE>
and
(b) Approving the appointment of PricewaterhouseCoopers LLP as independent
public accountants for the fiscal year 2000 and thereafter until its
successor is appointed
<TABLE>
<CAPTION>
Votes
----------
<S> <C>
For 31,562,304
Against 10,109
Abstain 8,982
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed herewith:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27.1 Financial Data Schedule.
</TABLE>
(b) No reports on Form 8-K were filed by the Company during the quarter
ended June 24, 2000.
13
<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DREYER'S GRAND ICE CREAM, INC.
Dated: August 8, 2000 By: /s/ Timothy F. Kahn
--------------------------------------
Timothy F. Kahn
Vice President - Finance and Administration
and Chief Financial Officer
(Principal Financial Officer)
14
<PAGE> 15
DREYER'S GRAND ICE CREAM, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27.1 Financial Data Schedule.
</TABLE>
15
