UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: Commission File Number:
September 26, 1998 0-13544
BEN & JERRY'S HOMEMADE, INC.
(Exact name of registrant as specified in its charter)
VERMONT 03-0267543
(State of incorporation) (I.R.S. Employer Identification No.)
30 Community Drive
South Burlington, Vermont 05403-6828
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(802) 651-9600
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 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 classes of
common stock outstanding as of the latest practicable date. 6,266,809 shares of
Class A Common Stock and 852,794 shares of Class B Common Stock outstanding as
of November 5, 1998.
<PAGE>
INDEX
PART I: FINANCIAL INFORMATION PAGE NO.
Condensed Consolidated Balance Sheets
September 26, 1998 and December 27, 1997 1-2
Condensed Consolidated Statements of Income
Thirteen and thirty-nine weeks ended
September 26, 1998 and September 27, 1997 3
Condensed Consolidated Statements of Cash Flows Thirty-nine
weeks ended September 26, 1998 and September 27, 1997
Notes to Condensed Consolidated Financial Statements 5-6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-17
PART II: OTHER INFORMATION
Item 1 - Legal Proceedings 18
Item 6-Exhibits and Reports on Form 8-K 19
SIGNATURES 19
Exhibit 1 1
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
Form 10-Q for quarter ended September 26, 1998
BEN & JERRY'S HOMEMADE, INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All numbers in tables in thousands except per share data)
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 26, 1998 are not necessarily indicative of the results that may be
expected for the year ended December 26, 1998. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 27, 1997.
Certain prior period amounts have been reclassified for comparative purposes.
2. INVENTORIES
September 26, December 27,
1998 1997
------------- ------------
Frozen dessert products and ingredients $10,848 $10,294
Paper goods 788 536
Food, beverage and gift items 480 292
------------- ------------
Total $12,116 $11,122
============= ============
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
September 26, December 27,
1998 1997
-------------- ------------
Trade accounts payable $ 9,092 $ 3,832
Accrued expenses 14,034 10,313
Accrued payroll and related costs 2,822 2,076
Accrued promotional costs 8,078 3,581
Accrued marketing costs 4,777 2,230
Accrued insurance expense 1,450 1,234
Income taxes payable 1,438
-------------- ------------
Total $41,691 $23,266
============== ============
<PAGE>
BEN & JERRY'S HOMEMADE, INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All numbers in tables in thousands except per share data)
(Unaudited)
4. COMPREHENSIVE INCOME
As of December 28, 1997 the Company adopted Statement No. 130, Reporting
Comprehensive Income (FAS 130). FAS 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the adoption of
this statement had no impact on the Company's net income or shareholders'
equity. Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation adjustments,
which prior to adoption were reported separately in shareholders' equity, to be
included in other comprehensive income.
Total comprehensive income for the thirteen weeks ended September 26, 1998
amounted to $2,878,000 compared to $2,527,000 for the same period in 1997. Total
comprehensive income for the thirty-nine weeks ended September 26, 1998 amounted
to $5,389,000 compared to $3,208,000 for the same period in 1997.
5. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
Disclosure about Segments of an Enterprise and Related Information (FAS 131).
FAS 131 establishes standards for public companies to report information about
operating segments in financial statements, and supercedes FAS 14, Financial
Reporting for Segments of a Business Enterprise, but retains the requirements to
report information about major customers. FAS 131 is effective in fiscal 1998.
The Company does not believe the adoption of this statement will have a material
impact on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities (FAS 133). FAS 133
establishes standards for public companies regarding the recognition and
measurement of derivatives and hedging activities. The statement is effective
for years beginning after June 15, 1999. The Company does not believe the
adoption of this statement will have a material impact on the Company's
financial statements based on the nature and extent of the Company's use of
derivative instruments at the present time.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth certain items as a percentage of net sales which
are included in the Company's Consolidated Statements of Income and the
percentage increase (decrease) of such items as compared to the prior period:
<TABLE>
<CAPTION>
Percentage of Net Sales
Thirteen Weeks Thirty-nine Weeks Percentage Increase (Decrease)
Ended Ended 1998 Compared to 1997
------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sept. 26, Sept. 27, Sept. 26, Sept. 27, Thirteen Weeks Thirty-nine Weeks
1998 1997 1998 1997 Ended Ended
--------- --------- --------- --------- -------------- -----------------
Net sales 100.0% 100.0% 100.0% 100.0% 29.2% 20.5%
Cost of sales 62.5% 61.7% 64.0% 64.7% 30.8% 19.2%
--------- --------- --------- --------- -------------- ------------------
Gross profit 37.5% 38.3% 36.0% 35.3% 26.7% 22.9%
Selling, general and
administrative expenses 31.0% 30.0% 31.1% 31.1% 33.7% 20.5%
--------- --------- --------- --------- -------------- ------------------
Operating income 6.5% 8.3% 4.9% 4.2% 1.6% 41.4%
Other income (expense) 0.5% - 0.1% 0.2% -0.4% 555.9% 169.4%
--------- --------- --------- --------- -------------- ------------------
Income before income taxes 7.0% 8.2% 5.1% 3.8% 11.0% 63.2%
Income taxes 2.5% 3.1% 1.8% 1.4% 5.3% 54.8%
--------- --------- --------- --------- -------------- ------------------
Net income 4.5% 5.1% 3.3% 2.4% 14.4% 68.3%
========= ========= ========= ========= ============== ==================
</TABLE>
Thirteen Weeks Ended September 26, 1998 and September 27, 1997
Net Sales
Net sales for the thirteen weeks ended September 26, 1998 increased 29.2% to
$64.5 million compared to $50.0 million for the same period in 1997. Pint volume
increased 14.7% compared to the same period in 1997, which was primarily
attributable to the Company's original line of products. This volume increase
was combined with a domestic price increase of approximately 3.3% on pints sold
to distributors that went into effect in July 1998. Unit volume of 2 1/2-gallon
bulk container products increased 30% compared to the same period in 1997. Also
contributing to the increase in sales this quarter was the 1998 launch of the
Company's new single-serving products in Japan and the introduction of a new
line of premium plus ice cream, Newman's Own(TM) All Natural Ice Cream,
manufactured and sold under a license agreement with Paul Newman and Newman's
Own.
<PAGE>
Packaged sales (primarily pints) represented 76% of total net sales in the third
quarter of 1998 compared to 82% in 1997. Net sales of 2 1/2 gallon bulk
containers represented approximately 11% of total net sales in the third quarter
of 1998, compared to 9% in 1997. Net sales of novelty products accounted for
approximately 10% of total net sales in the third quarter of 1998, compared to
6% in 1997. Net sales from the Company's retail stores represented 3% of total
net sales in the third quarters of 1998 and 1997.
International sales were $7.0 million during the third quarter of 1998,
representing 11% of net sales, as compared to $700,000 in 1997, or 1% of net
sales. The increase in 1998 was primarily due to higher sales to Japan, Europe
and Canada. However, for the fourth quarter of 1998, management anticipates that
international sales as a percentage of total sales will be lower.
Cost of Sales and Gross profit
Cost of sales in the third quarter of 1998 increased approximately $9.5 million
or 30.8% from the same period in 1997 and overall gross profit as a percentage
of net sales was 37.5% in the third quarter of 1998 as compared to 38.3% in the
comparable period last year. The lower gross profit as a percentage of net sales
resulted from substantial increases in dairy commodity costs, which have been
partially offset by favorable manufacturing variances resulting from better
plant utilization due to higher volumes.
The Company experienced substantial increases in dairy prices in the third
quarter of 1998 compared to the same period last year. In response to higher
dairy costs the Company instituted a price increase effective July 15, 1998 of
approximately 3.3% for its packaged pint products and 4.3% for its 2 1/2 gallon
bulk containers. If dairy commodity prices begin to rise again to higher levels,
there is the possibility that these costs will not be passed on to customers,
which will negatively impact future gross profit margins. See Risk Factors in
the "Forward-Looking Statements" section.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 33.7% to $20.0 million in
the third quarter of 1998 from $15.0 million for the same period in 1997.
Selling, general and administrative expenses were 31.0% of net sales in the
third quarter of 1998 as compared to 30.0% for the comparable period last year.
The $5.0 million dollar increase primarily reflects increased promotional and
marketing costs including increased radio advertising, in-store programs to
drive product trial and brand awareness, the continued rollout of the new pint
package design and international costs.
<PAGE>
Other Income (Expense)
Interest income increased $109,000 in the third quarter of 1998 as compared to
the same period in the prior year. The increase in interest income was due to
higher average invested balances throughout the period. Other income increased
$263,000 as compared to the same period in the prior year primarily due to gains
associated with foreign currency exchange.
Income Taxes
Income taxes increased approximately $82,000 due to the increase in income in
1998 as compared to 1997. The Company anticipates an effective rate of 36.0% in
1998 compared to 38.0% in the prior year.
Net Income
As a result of the foregoing, net income for the third quarter of 1998 increased
14.4% to $2.9 million from $2.5 million for the third quarter of 1997. Net
income was 4.5% of net sales in the third quarter of 1998 compared to 5.1% in
1997. Diluted net income per share increased 14.7% to $.39 per common share for
the third quarter of 1998 compared to a diluted net income per common share of
$.34 for the third quarter of 1997.
Thirty-Nine Weeks Ended September 26, 1998 and September 27, 1997
Net Sales
Net sales for the thirty-nine weeks ended September 26, 1998 increased 20.5% to
$164.9 million compared to $136.8 million for the same period in 1997. Pint
volume increased 8.7% compared to the same period in 1997, which was primarily
attributable to the Company's original line of products. This volume increase
was combined with a price increase of approximately 3.3% of pints sold to
distributors that went into effect in July 1998. Unit volume of 2 1/2-gallon
bulk container products increased 15% compared to the same period in 1997. Also
contributing to the increase in sales for the first three quarters of 1998 was
the launch of the Company's new single serving products in Japan and the
introduction of a new line of premium plus ice cream, Newman's Own(TM) All
Natural Ice Cream, manufactured and sold under a license agreement with Paul
Newman and Newman's Own.
<PAGE>
Packaged sales (primarily pints) represented 80% of total net sales in the first
three quarters of 1998 compared to 84% for the same period in 1997. Net sales of
2 1/2 gallon bulk containers represented approximately 9% of total net sales in
the first three quarters of 1998 compared to 8% for the same period in 1997. Net
sales of novelties accounted for approximately 9% of total net sales during the
first three quarters of 1998 compared to 6% for the same period in 1997. Net
sales from the Company's retail stores represented 2% of total net sales in the
first three quarters of 1998 and 1997.
International sales were $15.0 million during the first nine months of 1998,
representing 9.1% of net sales, as compared to $6.4 million for the same period
in 1997, or 4.6% of net sales. The increase in 1998 was primarily due to higher
sales to Japan and Canada. However, the fourth quarter of 1998, management
anticipates that international sales as a percentage of total sales will be
somewhat lower.
Cost of Sales and Gross Profit
Cost of sales in the first three quarters of 1998 increased approximately $17
million from the same period in 1997 and overall gross profit as a percentage of
net sales was 36.0% in 1998 as compared to 35.3% for the comparable period in
1997. The higher gross profit as a percentage of net sales primarily resulted
from increases in selling prices effective in January 1998 and July 1998, better
plant utilization due to higher production volumes and a decrease in reserves
for potential product obsolescence, offset by substantial increases in dairy
commodity costs.
The Company experienced significant increases in dairy prices in the first nine
months of 1998 compared to a decrease in prices for the same period last year.
In response to higher dairy costs the Company instituted a 3.3% effective price
increase effective in July 1998 for its packaged pint products and a combined
10.2% increase for its 2 1/2 gallon bulk containers effective in January 1998
and July 1998 to offset these increased costs. If dairy commodity prices begin
to rise to much higher levels, there is the possibility that these costs will
not be passed on to customers, which will negatively impact future gross profit
margins. See Risk Factors in the "Forward-Looking Statements" section.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 20.5% to $51.2 million
for the first nine months of 1998 from $42.5 million for the same period in
1997. Selling, general and administrative expenses were 31.1% of net sales for
the first nine months of 1998 and 1997. The $8.7 million increase in expenses is
attributable to increased sales and marketing expenses to support the launch of
a new line of premium plus ice cream under the name of Newman's Own(TM) All
Natural Ice Cream, increased international costs, increases in radio
advertising, in-store programs to drive product trial and brand awareness, scoop
truck marketing and the continued rollout of the new pint package design.
<PAGE>
Other Income (Expense)
Interest income increased $327,000 during the first three quarters of 1998 as
compared to the same period in the prior year. The increase in interest income
was due to higher average invested balances throughout the period. Interest
expense decreased $87,000 during the first three quarters of 1998 as compared to
the same period in the prior year. Other income (expense) increased for the
first nine months of 1998 from other expense of $312,000 in the prior year to
other income of $177,000 in 1998. This is primarily due to gains associated with
foreign currency exchange in 1998 compared to losses in the prior year.
Income Taxes
Income taxes increased $1.1 million due to the increase in income. The Company
anticipates an effective rate of 36.0% in 1998 compared to 38.0% in the prior
year.
Net Income
As a result of the foregoing, net income for the first three quarters of 1998
increased 68.3% to $5.4 million for 1998 compared to $3.2 million for the same
period in 1997. Net income was 3.3% of net sales for the first three quarters of
1998 compared to 2.4% for the same period in 1997. Diluted net income per share
increased to $0.72 per common share for the first three quarters of 1998
compared to $0.43 for the same period in 1997.
Liquidity and Capital Resources
As of September 26, 1998 the Company had $60.3 million of cash and cash
equivalents, an increase of $13 million since December 27, 1997. Net cash
provided by operations in the first nine months of 1998 was $22.5 million.
Approximately $7.5 million was used for additions to property, plant and
equipment, primarily for improvements at the Company's manufacturing facilities,
for the build out of three Company owned scoop shop facilities in France and
fit-up costs for a chain of cinemas in the United Kingdom.
Since December 27, 1997 trade receivables, and the sum of accounts payable and
accrued expenses have increased $2.6 million and $18.4 million, respectively.
These increases reflect the seasonality of the Company's business and increased
sales and marketing expenses.
The Company anticipates capital expenditures in the remainder of 1998 of
approximately $1.5 million. Most of these additional projected capital
expenditures relate to equipment upgrades at the Company's manufacturing
facilities, and computer related expenditures.
<PAGE>
During the nine months ended September 26, 1998 the Company repurchased a total
of 133,000 shares of the Company's Class A common stock for approximately $2.5
million. 122,500 shares were purchased pursuant to the repurchase program as
announced May 8, 1997 for use in connection with stock option awards under the
1995 Equity Incentive Plan. These transactions, together with earlier
repurchases of 77,500 shares, complete the repurchase of the 200,000 shares
authorized under this program. An additional 10,500 shares were purchased up
through September 26, 1998 for approximately $150,000 under a repurchase program
announced in September 1998 authorizing the Company to purchase shares of the
Company's Class A common stock up to an aggregate cost of $5.0 million for use
for general corporate purposes. Subsequent to the quarter ended September 26,
1998 and through November 5, 1998 the Company had repurchased an additional
20,000 shares for approximately $320,000.
The Company has two lines of credit providing an aggregate of $20.0 million with
The First National Bank of Boston and Key Bank of Vermont. These are unsecured
agreements providing for borrowings from time to time, expiring at December 29,
1998 and December 31, 1998, respectively. The agreements specify interest at the
banks' Base Rate or at the Eurodollar rate plus a maximum of 1.25%. As of
November 6, 1998, there have been no borrowings under these line of credit
agreements.
Management believes that internally generated funds, cash currently on hand,
investments held in marketable securities (pending their use in the business),
and equipment lease financing will be adequate to meet anticipated operating and
capital requirements.
"Forward-Looking Statements"
This section, as well as other portions of this document, includes certain
forward-looking statements about the Company's business, new products, sales,
dairy prices, other expenditures and cost savings, Year 2000 program costs,
effective tax rate, operating and capital requirements and refinancing. Any such
statements are subject to risks that could cause the actual results or needs to
vary materially. These risks are discussed below.
Risk Factors
Dependence on Independent Ice Cream Distributors. Historically, the Company has
been dependent on maintaining satisfactory relationships with Dreyer's Grand Ice
Cream, Inc. and the other independent ice cream distributors that have acted as
the Company's exclusive or master distributor in their assigned territories. In
1997, Dreyer's distributed significantly more than a majority of the sales of
Ben & Jerry's products. While the Company believes its relationships with
Dreyer's and its other distributors generally have been satisfactory and have
been instrumental in the Company's growth, the Company has at times experienced
difficulty in maintaining such relationships to its satisfaction.
<PAGE>
In early 1998 Dreyer's made overtures to Ben Cohen and Jerry Greenfield, the
Company's co-founders, to obtain their support for an offer that Dreyer's would
make to acquire the Company. The co-founders rejected these overtures.
In late August 1998, Ben & Jerry's announced a redesign of its distribution
network intended to create more Company control over sales and more efficiency
in the distribution of its products. Under the planned redesign, Ben & Jerry's
will increase the direct sales calls by its own sales force (as distinguished
from calls by the distributors' sales forces) to all grocery and chain
convenience stores and will have established a network where no distributor of
Ben & Jerry's products will have a majority percentage of the Company's
distribution. Pursuant to this redesign, Ben & Jerry's entered into an agreement
in late August with The Pillsbury Company ("Pillsbury") providing for
distribution on a non-exclusive basis by Pillsbury, the parent of Haagen-Dazs, a
major competitor of the Company, of Ben & Jerry's products in various areas of
the United States, commencing at some point to be mutually agreed in 1999. On
August 31, 1998 Ben & Jerry's gave Dreyer's notice of termination of its present
distribution agreement with Dreyer's. Dreyer's then filed a complaint against
Ben & Jerry's in the United States District Court for the District of Northern
California. In this action Dreyer's seeks, among other things, to enjoin the
acceleration of the effective date of such termination from August 31, 1999 (12
months after the date of the notice) to April 15, 1999 (7 1/2 months after the
date of the notice). Ben & Jerry's believes that it has meritorious defensives
to Dreyer's claims against such acceleration and is vigorously opposing Dreyer's
motion for preliminary injunction against the shortened termination notice
period. Unless the matter is resolved between Ben & Jerry's and Dreyer's, a
hearing will be held in the United States District Court in San Francisco on
Dreyer's motion for preliminary injunction. The hearing date was recently
postponed at the request of both parties, and Ben & Jerry's and Dreyer's are
currently in discussions both with respect to resolving the pending litigation
(and the distribution arrangements that would remain in place prior to the
expiration of the presently existing distribution agreement) and with respect to
reaching agreement on a proposed new arrangement providing for distribution by
Dreyer's on a non-exclusive basis of Ben & Jerry's products, commencing at a
date in 1999 to be specified, at which point the presently existing distribution
agreement would expire. The parties presently contemplate that the new
distribution agreement between Ben & Jerry's and Dreyer's would pertain to a
smaller geographic area than covered under the distribution agreement now in
place and would be on terms and conditions different in some respects from those
applicable under the presently existing distribution agreement. However, there
can be no assurance that either the pending litigation brought by Dreyer's
against the Company will be resolved by agreement or that the parties will enter
into a new distribution agreement.
Under the distribution network redesign contemplated by Ben & Jerry's, Pillsbury
will distribute Ben & Jerry's products to specified territories; the balance of
domestic deliveries will be distributed in part by Dreyer's handling a smaller
volume of Ben & Jerry's distribution in other specified territories, and in part
by other independent distributors, most of whom are already acting as
distributors for Ben & Jerry's. In the event that the proposed new distribution
agreement cannot be concluded with
<PAGE>
Dreyer's, Ben & Jerry's intends, during the remaining portion of the termination
notice period under the presently existing Dreyer's agreement, to conclude
distribution arrangements for all the specified territories covered under the
present agreement with Dreyer's with such additional independent distributors.
In either event, no single distributor would have over 40 percent of Ben &
Jerry's distribution. However, there can be no assurance that such alternative
arrangements with other independent distributors will be concluded on terms
satisfactory to Ben & Jerry's, and in general, since available distribution
alternatives are limited, there can be no assurance that difficulties in
maintaining satisfactory relationships with distributors, some of which are also
competitors of the Company, will not have a material adverse effect on the
Company's business.
Growth in Sales and Earnings. During the first nine months of 1998, net sales of
the Company increased 20.5% to $165 million from $137 million during the same
period in 1997. Pint volume during the first nine months of 1998 increased 8.7%
compared to the same period in 1997. The super premium ice cream, frozen yogurt
and sorbet industry category sales remained flat during the first nine months of
1998 as compared to the same period in 1997. Given these overall domestic super
premium industry trends, the successful introduction of innovative flavors on a
periodic basis has become increasingly important to any sales growth by the
Company. Accordingly, the future degree of market acceptance of any of the
Company's new products, which will be accompanied by promotional expenditures,
is likely to have an important impact on the Company's future financial results.
Competitive Environment. The super premium frozen dessert market is highly
competitive with the distinctions between the super premium category, and the
"adjoining" premium and premium plus categories less marked than in the past.
And, as noted above, the ability to successfully introduce innovative flavors on
a periodic basis that are accepted by the marketplace is a significant
competitive factor. In addition, the Company's principal competitors (two of
which are or will be distributors of the Company's products) are large,
diversified companies with resources significantly greater than the Company's.
The Company expects strong competition to continue, including competition for
adequate distribution and competition for the limited shelf space for the frozen
dessert category in supermarkets and other retail food outlets.
Increased Cost of Raw Materials. Management believes that the trend of increased
dairy ingredient commodity costs may continue and it is possible that at some
future date both gross margins and earnings may not be protected by pricing
adjustments, cost control programs and productivity gains.
Reliance on a Limited Number of Key Personnel. The success of the Company is
significantly dependent on the services of Perry Odak, the Chief Executive
Officer and a limited number of executive managers working under Mr. Odak, as
well as certain continued services of Ben Cohen, the Chairperson of the Board
and co-founder of the Company; and Jerry Greenfield, Vice Chairperson and
co-founder of the Company. Loss of the services of any of these persons could
have a material adverse effect on the Company's business.
<PAGE>
The Company's Social Mission. The Company's basic business philosophy is
embodied in a three-part mission statement, which includes a social mission to
"operate the Company in a way that actively recognizes the central role that
business plays in the structure of society by initiating innovative ways to
improve the quality of life of a broad community: local, national and
international. Underlying the mission of Ben & Jerry's is the determination to
seek new and creative ways of addressing all three parts, while holding a deep
respect for individuals inside and outside the Company and for the communities
of which they are a part." The Company believes that implementation of its
social mission, which is integrated into the Company's business, has been
beneficial to the Company's overall financial performance. However, it is
possible that at some future date the amount of the Company's energies and
resources devoted to its social mission could have some material adverse
financial effect.
International. The Company's principal competitors have substantial market
shares in various countries outside the United States, principally Europe and
Japan. The Company sells product (which is manufactured in the United States) in
the United Kingdom, Ireland, France, the Netherlands and Belgium, and began
selling in Japan through a joint venture in 1998. The Company also has licensing
agreements in Israel (1987) and Canada (1998). The Company is investigating the
possibility of further international expansion. However, there can be no
assurance that the Company will be successful in entering (directly or
indirectly through licensing), on a long-term profitable basis, such
international markets as it selects.
Control of the Company. The Company has two classes of common stock - the Class
A Common Stock, entitled to one vote per share, and the Class B Common Stock
(authorized in 1987), entitled, except to the extent otherwise provided by law,
to ten votes per share. Ben Cohen, Jerry Greenfield and Jeffrey Furman
(collectively the "Principal Stockholders") hold shares representing 45% of the
aggregate voting power in elections for directors, permitting them as a
practical matter to elect all members of the Board of Directors and thereby
effectively control the business, policies and management of the Company.
Because of their significant holdings of Class B Common Stock, the Principal
Stockholders may continue to exercise this control even if they were to sell
substantial portions of their Class A Common Stock.
In addition, the Company issued all of the authorized Class A Preferred Stock to
the Ben & Jerry's Foundation in 1985. All current directors of the Foundation
are directors of the Company. The Class A Preferred Stock gives the Foundation a
class voting right to act with respect to certain Business Combinations (as
defined in the Company's charter) and significantly limits the voting rights
that holders of the Class A Common Stock and Class B Common Stock, the owners of
virtually all of the equity in the Company, would otherwise have with respect to
such Business Combinations.
While the Board of Directors believes that the Class B Common Stock and the
Class A Preferred Stock are important elements in keeping Ben & Jerry's an
independent, Vermont-based business focused on its three-part corporate mission,
the Class B Common Stock and the Class A Preferred Stock may be deemed to be
"anti-takeover" provisions in that the Board of Directors believes the
<PAGE>
existence of these securities will make it difficult for a third party to
acquire control of the Company on terms opposed by the holders of the Class B
Common Stock, including primarily the Principal Stockholders, or The Foundation,
or for incumbent management and the Board of Directors to be removed. In
addition, the 1997 amendments to the Company's Articles of Association to
classify the Board of Directors and to add certain other related provisions (see
"Anti-Takeover Effects of Class B Common Stock, Class A Common Stock, Class A
Preferred Stock and Classified Board of Directors" in Item 1 of the Company's
Report on Form 10-K for the 1997 fiscal year) may be deemed to be
"anti-takeover" provisions in that the Board of Directors believes that these
amendments will make it difficult for a third party to acquire control of the
Company on terms opposed by the holders of the Class B Common Stock, including
primarily the Principal Stockholders and the Foundation, or for incumbent
management and the Board of Directors to be removed.
In early August, 1998, following approval by its Board of Directors, the Company
put in place two Shareholder Rights Plans, one pertaining to the Class A Common
Stock and one pertaining to the Class B common Stock. These Plans are intended
to protect stockholders by compelling someone seeking to acquire the Company to
negotiate with the Company's Board of Directors in order to protect stockholders
from unfair takeover tactics and to assist in the maximization of stockholder
value. These Rights Plans, which are common for public companies in the United
States, may also be deemed to be "anti-takeover" provisions in that the Board of
Directors believes that these Plans will make it difficult for a third party to
acquire control of the Company on terms which are unfair or unfavorable to the
stockholders. Also, in April, 1998 the Legislature of the State of Vermont
amended a provision of the Vermont Business Corporation Act to provide that the
directors of a Vermont corporation may also consider, in determining whether an
acquisition offer or other matter is in the best interests of the corporation,
the interests of the corporation's employees, suppliers, creditors and
customers, the economy of the state in which the corporation is located and
including the possibility that the best interests of the corporation may be
served by the continued independence of the corporation.
"Year 2000"
The Company has formed an internal company-wide Year 2000 compliance team to
evaluate and prepare its computer systems for the year 2000. A comprehensive
evaluation of the impact of the Year 2000 issue on both the Company's
infrastructure, including manufacturing processes, and business information
systems has begun. This evaluation will also include the products and systems of
the Company's critical suppliers and other business partners.
The Company's internal team is in the process of completing the inventory of all
internal applications and infrastructure to determine Year 2000 readiness, which
it expects to complete by the end of 1998. In parallel, the team is testing
certain equipment and software systems known to have possible Year
<PAGE>
2000 issues and is in the process of assessing possible remediation options.
The assessment phase is expected to be completed during the first and second
quarters of 1999.
The Company's corporate business information systems and certain applications
are believed to be Year 2000 compliant and testing and validation of these
systems are in process. Other financial, sales and manufacturing applications
will be repaired during the fourth quarter of 1998 and the first quarter of 1999
with testing and validation of these applications will occur during the first
half of 1999. The Company's corporate network hardware and software are not
compliant and will undergo renovation during the first quarter of 1999. Other
systems, including non-information technology systems and third party vendor
systems are still in the assessment phase. The Company anticipates completing
the assessment during the first quarter of 1999 with remediation to follow.
The Company presently believes that the Year 2000 issue will not pose
significant operational problems. However, the future compliance with Year 2000
processing within the Company is dependent on key personnel, vendor equipment
and component parts, third party suppliers' internal systems, and accordingly,
unresolved failures remain a possibility. As a result, Year 2000 issues could
have a significant impact on the Company's operations and its financial results
if modifications are not completed on a timely basis, unforeseen needs or
problems arise, or if systems operated by third parties (including
municipalities or utilities) are not Year 2000 compliant. At present, the
Company has not developed a contingency plan but will determine whether such a
plan is critical early in fiscal 1999.
Based on a preliminary assessment, the Company expects that the costs of the
foregoing Year 2000 programs, which primarily include redeployment of existing
internal resources, external project management costs and upgrades to existing
applications will not be material. The Company will expense the costs of
modifying existing systems and capitalize the replacement cost of software that
is not "Year 2000" compliant. There can be no guarantee, however, that the
systems of other entities which the Company relies upon, will be converted on a
timely basis or that any failure to convert by another entity would not have an
adverse effect on the Company's systems and operations.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
On August 31, 1998 Dreyer's Grand Ice Cream, Inc. and Edy's Grand Ice Cream
filed a complaint against Ben & Jerry's Homemade, Inc. in the United States
District Court for the Northern District of California (San Francisco Division).
In this action Dreyer's seeks, among other things, to enjoin the acceleration of
the effective date of Ben & Jerry's termination of the presently existing
Distribution Agreement between Ben & Jerry's and Dreyer's from August 31, 1999
(12 months after the date of Ben & Jerry's notice of termination without cause
on August 31, 1998) to April 15, 1999 (7 1/2 months after the date of Ben &
Jerry's notice of termination). On October 14, 1998 Ben & Jerry's filed its
Answer to the Complaint and a motion in opposition to Dreyer's motion for
preliminary injunction. While at this date of the proceedings, with no discovery
having occurred and no hearing having been held, it is not possible for the
company to provide a definitive opinion on this matter. Ben & Jerry's believes
that it has meritorious defenses to Dreyer's complaint and Dreyer's motion. Ben
& Jerry's is vigorously opposing Dreyer's motion for preliminary injunction
against the shortened termination notice period. In any event, Ben & Jerry's
believes that any adverse outcome of this litigation would not have any material
adverse effect on the Company's financial results.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit (11) Statement Re: Computation of Per Share Earnings
Exhibit (27) Financial Data Schedule
(b) The following reports were filed on Form 8-K:
1. Filed July 30, 1998 to reflect amendments to the By-laws as adopted
June 26, 1998.
2. Filed August 13, 1998 to reflect adoption of Class A Common Stock
and Class B Common Stock shareholders Rights Plans.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be duly signed on its behalf by
the undersigned thereunto duly authorized, being also its principal financial
officer.
BEN & JERRY'S HOMEMADE, INC.
DATE: November 10, 1998 BY:/s/Frances Rathke
---------------------------------------
Frances Rathke, Chief Financial Officer
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
September 26, December 27,
1998 1997
------------ -----------
(Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 60,325 $ 47,318
Investments 586 481
Trade accounts receivable:
(less allowance of $1,059 in 1998
and $1,066 in 1997 for doubtful accounts) 15,348 12,710
Inventories 12,116 11,122
Deferred income taxes 9,221 6,071
Prepaid expenses and other current assets 2,611 2,378
-------- --------
Total current assets 100,207 80,080
Property, plant and equipment, net 64,292 62,724
Investments 301 1,061
Other assets 3,201 2,606
======== ========
$168,001 $146,471
======== ========
Note: The balance sheet at December 27, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
- 1 -
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES & STOCKHOLDERS' EQUITY
(In thousands except share data)
September 26, December 27,
1998 1997
------------ ------------
(Unaudited) (Note)
Current liabilities:
Accounts payable and accrued expenses $ 41,691 $ 23,266
Current portion of long-term debt and
obligations under capital leases 5,389 5,402
---------- -----------
Total current liabilities 47,080 28,668
Long-term debt and obligations under
capital leases 25,431 25,676
Deferred income taxes 5,162 5,208
Stockholders' equity:
$1.20 noncumulative Class A preferred
stock - par value $1.00 per share,
redeemable at $12.00 per share; 900 shares
authorized, issued and outstanding;
aggregated preference on liquidation - $9 1 1
Class A common stock - $.033 par value;
authorized 20,000,000 shares; issued:
6,542,394 at September 26, 1998 and 6,494,835
at December 27, 1997 216 214
Class B common stock - $.033 par value;
authorized 3,000,000 shares; issued:
854,438 at September 26, 1998 and 866,664
at December 27, 1997 28 29
Additional paid-in-capital 50,224 49,681
Retained earnings 44,488 39,086
Cumulative translation adjustment (142) (129)
Treasury stock, at cost: 257,532 Class A and
1,092 Class B shares at September 26, 1998
and 124,532 Class A and 1,092 Class B shares
at December 27, 1997 (4,487) (1,963)
-------- --------
Total stockholders' equity 90,328 86,919
-------- --------
$168,001 $146,471
======== ========
Note: The balance sheet at December 27, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
- 2 -
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
For the Thirteen weeks ended For the Thirty-nine weeks ended
<S> <C> <C> <C> <C>
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
------------- ------------- ------------- -------------
Net sales $ 64,566 $ 49,956 $164,870 $136,805
Cost of sales 40,339 30,838 105,529 88,534
------------- ------------- ------------- -------------
Gross profit 24,227 19,118 59,341 48,271
Selling, general and
administrative expenses 20,018 14,977 51,270 42,565
------------- ------------- ------------- -------------
Operating income 4,209 4,141 8,071 5,706
Interest income 596 487 1,626 1,299
Interest expense (460) (466) (1,433) (1,520)
Other income (expense), net 174 (89) 177 (312)
----------------- ------------------ -------------- -------------
310 (68) 370 (533)
------------- ------------- -------------- -------------
Income before income taxes 4,519 4,073 8,441 5,173
Income taxes 1,627 1,545 3,039 1,963
------------- ------------- -------------- -------------
Net income $ 2,892 $ 2,528 $ 5,402 $ 3,210
============= ============= =============== =============
Shares Outstanding:
Basic 7,181 7,279 7,223 7,250
Diluted 7,446 7,341 7,481 7,314
Basic income per common share $ 0.40 $ 0.35 $ 0.75 $ 0.44
Diluted income per common share $ 0.39 $ 0.34 $ 0.72 $ 0.43
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Thirty-nine weeks ended
September 26, September 27,
1998 1997
------------ ------------
Net income $ 5,402 $ 3,210
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,711 5,797
Provision for bad debts 50 408
Deferred income taxes (3,196) (1,506)
Stock Award 212
Loss on disposition of assets 90 99
Changes in operating assets and liabilities:
Accounts receivable (3,572) (6,898)
Inventories (994) 3,280
Prepaid expenses (526) (152)
Accounts payable and accrued expenses 16,981 11,883
Income taxes payable/receivable 2,615 2,460
------------ ------------
Net cash provided by operating activities 22,561 18,793
Additions to property, plant and equipment (7,481) (2,747)
Proceeds from sale of assets 48
Changes in other assets (483) (260)
Decrease (increase) in investments 655 (63)
------------ ------------
Net cash used for investing activities (7,309) (3,022)
Repayments of long-term debt and capital leases (258) (607)
Repurchase of common stock (2,524) (988)
Proceeds from issuance of common stock 544 1,116
------------ ------------
Net cash used for financing activities (2,238) (479)
Effect of exchange rate changes on cash (7) (2)
------------ ------------
Increase in cash and cash equivalents 13,007 15,290
Cash and cash equivalents at beginning of
period 47,318 36,104
------------ ------------
Cash and cash equivalents at end of period $ 60,325 $ 51,394
============ ============
See notes to condensed consolidated financial statements.
- 4 -
BEN & JERRY'S HOMEMADE, INC.
COMPUTATION OF NET EARNINGS PER SHARE
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
<S> <C> <C> <C> <C>
9/26/98 9/27/97 9/26/98 9/27/97
---------- ---------- ---------- ----------
Basic:
Weighted average shares outstanding 7,181 7,279 7,223 7,250
=========== ========== =========== ==========
Net income $2,892 $2,528 $5,402 $3,210
=========== ========== =========== ==========
Basic earnings per share amount $ 0.40 $ 0.35 $ 0.75 $ 0.44
=========== ========== =========== ==========
Diluted:
Weighted average shares outstanding 7,181 7,279 7,223 7,250
Effect of dilutive securities
Employee stock options 265 62 258 64
----------- ---------- ----------- ----------
Diluted shares outstanding 7,446 7,341 7,481 7,314
=========== ========== =========== ==========
Net income $2,892 $2,528 $5,402 $3,210
=========== ========== =========== ==========
Diluted earnings per share amount $ 0.39 $ 0.34 $ 0.72 $ 0.43
=========== ========== =========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> See accompanying notes
$ in thousands, except per share data.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-26-1998
<PERIOD-START> Jun-28-1998
<PERIOD-END> Sep-26-1998
<EXCHANGE-RATE> 1.000
<CASH> 60325
<SECURITIES> 0
<RECEIVABLES> 15348
<ALLOWANCES> 0
<INVENTORY> 12116
<CURRENT-ASSETS> 100207
<PP&E> 64292
<DEPRECIATION> 0
<TOTAL-ASSETS> 168001
<CURRENT-LIABILITIES> 47080
<BONDS> 0
0
1
<COMMON> 244
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 168001
<SALES> 64566
<TOTAL-REVENUES> 0
<CGS> 40339
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 460
<INCOME-PRETAX> 4519
<INCOME-TAX> 1627
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2892
<EPS-PRIMARY> .40
<EPS-DILUTED> .39
</TABLE>
