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:
March 27, 1999 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) 846-1500
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 6,661,128 shares of Class A Common
Stock and 817,048 shares of Class B Common Stock outstanding as of April 30,
1999.
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
INDEX
PART I: FINANCIAL INFORMATION PAGE NO.
Consolidated Balance Sheets as of
March 27, 1999 and December 26, 1998.....................................1 - 2
Consolidated Statements of Income for the
Thirteen weeks ended March 27, 1999
and March 28, 1998.........................................................3
Consolidated Statements of Cash Flows for the
Thirteen weeks ended March 27, 1999
and March 28, 1998.........................................................4
Notes to Consolidated Financial Statements...............................5 - 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................7 - 16
PART II: OTHER INFORMATION
Item 6-Exhibits and Reports on Form 8-K....................................17
SIGNATURES.................................................................18
Exhibit 11.................................................................19
<PAGE>
<TABLE>
<CAPTION>
BEN & JERRY'S HOMEMADE, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
March 27, December 26,
1999 1998
--------- ------------
(Unaudited) (Note)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 13,363 $ 25,111
Short term investments 25,693 22,118
Trade accounts receivable:
(less allowance of $1,058 in 1999
and $979 in 1998 for doubtful accounts) 22,549 11,338
Inventories 17,347 13,090
Deferred income taxes 8,299 7,547
Prepaid expenses and other current assets 1,530 3,105
--------- ---------
Total current assets 88,781 82,309
Property, plant and equipment, net 64,012 63,451
Investments 303 303
Other assets 5,045 3,438
--------- ---------
$ 158,141 $ 149,501
========= =========
Note: The balance sheet at December 26, 1998 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 consolidated financial statements.
</TABLE>
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES & STOCKHOLDERS' EQUITY
(In thousands except share data)
<TABLE>
<CAPTION>
March 27, December 26,
1999 1998
---------- ------------
(Unaudited) (Note)
Current liabilities:
<S> <C> <C>
Accounts payable and accrued expenses $ 35,281 $ 28,662
Current portion of long-term debt and
obligations under capital leases 6,470 5,266
--------- --------
Total current liabilities 41,751 33,928
Long-term debt and obligations under capital leases 21,072 20,491
Deferred income taxes 4,180 4,174
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: 6,615,758 at March 27, 1999
and 6,592,392 at December 26, 1998 218 218
Class B common stock - $.033 par value; authorized
3,000,000 shares; issued: 819,515 at March 27, 1999
and 824,480 at December 26, 1998 27 27
Additional paid-in-capital 50,920 50,556
Retained earnings 46,525 45,328
Accumulated other comprehensive loss (142) (151)
Treasury stock, at cost: 348,506 Class A and 1,092 Class B
shares at March 27, 1999 and 291,032 Class A
and 1,092 Class B shares at December 26, 1998 (6,411) (5,071)
--------- --------
Total stockholders' equity 91,138 90,908
--------- --------
$ 158,141 $ 149,501
========= =========
Note: The balance sheet at December 26, 1998 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 consolidated financial statements.
</TABLE>
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands except share amounts)
<TABLE>
<CAPTION>
For the Thirteen weeks ended
----------------------------
March 27, 1999 March 28, 1998
-------------- --------------
<S> <C> <C>
Net sales $ 50,066 $ 41,556
Cost of sales 31,977 27,592
-------- --------
Gross profit 18,089 13,964
Selling, general and
administrative expenses 16,646 13,423
Other income (expense):
Interest income 498 553
Interest expense (390) (515)
Other income (expense), net 290 14
-------- --------
398 52
-------- --------
Income before income taxes 1,841 593
Income taxes 644 213
-------- --------
Net income $ 1,197 $ 380
======== ========
Shares used to compute net income per common share
Basic 7,110 7,243
Diluted 7,552 7,451
Net income per common share
Basic $ 0.17 $ 0.05
Diluted $ 0.16 $ 0.05
See notes to consolidated financial statements.
</TABLE>
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------
March 27, March 28,
1999 1998
-------- --------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 1,197 $ 380
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,177 1,927
Provision for bad debts 50
Deferred income taxes (746) (1,000)
Loss on disposition of assets 3 80
Changes in operating assets and liabilities:
Accounts receivable (10,686) (1,312)
Inventories (3,834) (4,401)
Prepaid expenses 357 (328)
Accounts payable and accrued expenses 5,124 7,529
Income taxes payable/receivable 1,166 1,628
-------- --------
Net cash (used for) provided by operating activities (5,192) 4,503
Cash flows from investing activities:
Additions to property, plant and equipment (1,606) (3,606)
Proceeds from sale of assets 5
Changes in other assets 2 (79)
Increase in investments (3,575) (12)
Acquisitions, net of cash acquired (142)
-------- --------
Net cash used for investing activities (5,316) (3,697)
Cash flows from financing activities:
Repayments of long-term debt and capital leases (82) (132)
Repurchase of common stock (1,524)
Proceeds from issuance of common stock 364 81
-------- --------
Net cash used for financing activities (1,242) (51)
Effect of exchange rate changes on cash 2 3
-------- --------
(Decrease) increase in cash and cash equivalents (11,748) 758
Cash and cash equivalents at beginning of year 25,111 47,318
-------- --------
Cash and cash equivalents at end of year $ 13,363 $ 48,076
======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
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 thirteen weeks ended March 27, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 25, 1999. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 26, 1998.
2. INVENTORIES
March 27, December 26,
1999 1998
------- ----------
Frozen dessert products and ingredients $15,899 $12,025
Paper goods 821 524
Food, beverage and gift items 627 541
------- --------
Total $17,347 $13,090
======= ========
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
March 27, December 26,
1999 1998
------- ----------
Trade accounts payable $8,142 $ 4,623
Accrued expenses 13,452 12,552
Accrued payroll and related costs 3,303 3,272
Accrued promotional costs 6,414 4,297
Accrued marketing costs 3,048 2,837
Accrued insurance expense 922 1,089
------- -------
Total $35,281 $28,662
======= =======
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 stockholders'
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 stockholders' equity, to be
included in other comprehensive income.
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
Total comprehensive income for the thirteen weeks ended March 27, 1999 amounted
to $1,206,000 compared to $382,000 for the same period in 1998. Other
comprehensive income consisted of adjustments for net foreign currency
translation gains in the amounts of $9,000 and $2,000 for the periods ended
March 27, 1999 and March 28, 1998, respectively.
5. SEGMENT INFORMATION
As of December 28, 1997, the Company adopted the Financial Accounting Standards
Boards' Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information (Statement 131). Statement 131
superseded FASB Statement No. 14, Financial Reporting for Segments of a Business
Enterprise. Statement 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. Statement 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The adoption of Statement 131 did not affect results of
operations or financial position, but did affect the disclosure of segment
information.
Ben & Jerry's Homemade, Inc. has one reportable segment: ice cream manufacturing
and distribution. The Company manufactures super premium ice cream, frozen
yogurt, sorbet and various ice cream novelty products. These products are
distributed throughout the United States primarily through independent
distributors and in certain countries outside the United States.
6. BUSINESS ACQUISITION
Effective February 26, 1999, the Company acquired a 60% ownership interest in
its Israeli licensee, The American Company for Ice Cream Manufacturing E.I. Ltd,
for $1 million. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the costs of the acquisition have been allocated to
assets acquired. The excess of the acquisition costs over the fair values of the
net assets acquired was $1.7 million and has been recorded as goodwill, which
will be amortized on a straight-line basis over 15 years.
7. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. The SOP provides guidance for
the capitalization of certain costs incurred to develop or obtain internal-use
software. The Company adopted this SOP effective December 27, 1998. The adoption
of the Statement did not have a material effect on the Company's financial
position or operating results.
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>
BEN & JERRY'S HOMEMADE, INC.
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 of such items as compared to the indicated prior period.
<TABLE>
<CAPTION>
Percentage of Net Sales Period-to-Period
Thirteen Weeks Ended Increase
-------------------- -----------------
March 27, March 28 Thirteen Weeks 1999
1999 1998 Compared to 1998
-------- -------- ----------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 20.5%
Cost of sales 63.9% 66.4% 15.9%
------- ------- ------
Gross profit 36.1% 33.6% 29.5%
Selling, general and
administrative expenses 33.2% 32.3% 24.0%
------- ------ ------
Operating income 2.9% 1.3% 166.7%
------- ------ ------
Other income 0.8% 0.1% 665.4%
------- ------ ------
Income before income taxes 3.7% 1.4% 210.5%
Income taxes 1.3% 0.5% 202.3%
------- ------ ------
Net income 2.4% 0.9% 215.0%
======= ======= ======
</TABLE>
Thirteen Weeks Ended March 27, 1999 and March 28, 1998
- ------------------------------------------------------
Net Sales
- ---------
Net sales for the thirteen weeks ended March 27, 1999 increased 20.5% to $50.1
million compared to $41.6 million for the same period in 1998. Pint volume
increased 11.1% compared to the same period in 1998, which was primarily
attributable to the Company's original line of products. This volume increase
was combined with a price increase of 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 20.6% compared to the same period in 1998.
Packaged sales (primarily pints) represented approximately 88% of total net
sales in the first quarter of 1999 and 87% of total net sales in the first
quarter of 1998. Net sales of 2 1/2-gallon bulk containers represented
approximately 7% of total net sales in the first quarter of 1999, compared to 6%
in 1998. Net sales of novelty products (including single servings) accounted for
approximately 4% of total net sales in the first quarter of 1999, compared to 6%
in 1998. Net sales from the Company's retail stores represented 1% of total net
sales in the first quarters of 1999 and 1998.
International sales were $3.5 million for the first quarter of 1999,
representing 6.9% of net sales, as compared to $899,000 in 1998, or 2.2% of net
sales. The increase in 1999 was primarily due to higher sales in the United
Kingdom.
Cost of Sales and Gross Profit
- ------------------------------
Cost of sales in the first quarter of 1999 increased approximately $4.4 million
or 15.9% over the same period in 1998 and overall gross profit as a percentage
of net sales was 36.1% in the first quarter of 1999 as compared to 33.6% in the
comparable period last year. The higher gross profit as a percentage of net
sales primarily resulted from increases in selling prices effective in July 1998
and better plant utilization due to higher production volumes.
The Company spent approximately $1 million more on dairy purchases in the first
quarter of 1999 in comparison to the first quarter of 1998. However, beginning
in April 1999 dairy costs have decreased substantially.
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses increased 24% to $16.6 million in
the first quarter of 1999 from $13.4 million in 1998. Selling, general and
administrative expenses as a percentage of net sales increased from 32.3% in
1998 to 33.2% in 1999. This increase primarily reflects increased sales and
marketing expenses. Sales expenses have increased as a result of the new
distribution arrangement with both Dreyer's and Pillsbury under which the
Company has incurred more promotional and trade related expenses as well as
salaries for more field sales staff. The increase in marketing expenses is due
to increased advertising in the first quarter of 1999 as compared to the same
period in 1998.
Other Income
- ------------
Other income increased in the first quarter of 1999 to $290,000 from $14,000 in
1998. This increase is primarily related to realized gains on foreign currency
exchange contracts. Interest income decreased to $498,000 for the first quarter
of 1999 compared to $553,000 for the same period in the prior year. This
decrease in interest income was due to a lower average invested balance
throughout the period. Interest expense decreased $125,000 during the first
quarter of 1999 as compared to the same period in the prior year due to the $5
million Senior Notes principal payment made in October, 1998.
Income Taxes
- ------------
The Company's recorded income tax expense during the first quarter of 1999 was
$644,000 compared to $213,000 in the first quarter of 1998. Management
anticipates an effective income tax rate of 35% in 1999 compared to 36% in 1998
based upon the expected geographic mix of earnings.
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
Net Income
- ----------
Net income for the first quarter of 1999 was $1.2 million compared to $380,000
in 1998. Net income as a percentage of net sales was 2.4% in the first quarter
of 1999 compared to net income of 0.9% of net sales in the first quarter of
1998. Diluted net income per share was $.16 per common share for the first
quarter of 1999 compared to a diluted net income per common share of $.05 for
the first quarter of 1998.
Liquidity and Capital Resources
- -------------------------------
As of March 27, 1999 the Company had $39.1 million of cash, cash equivalents,
and short term investments ($13.4 million of cash and cash equivalents and $25.7
million of short term investments), an $8.2 million decrease since December 26,
1998. Net cash used for operations in the first quarter of 1999 was
approximately $5.4 million. Uses of cash included increases in accounts
receivable and inventories of $10.7 million and $3.8 million respectively,
repurchase of Company stock of $1.5 million, and additions to property, plant
and equipment, primarily for equipment upgrades at the Company's manufacturing
facilities, of $1.6 million. Partially offsetting these uses of cash was an
increase in accounts payable and accrued expenses of $5.1 million. The Company
also acquired a 60% interest in its Israeli licensee for $1 million in February,
1999. Cash acquired in the transaction was $858,000.
Since December 26, 1998, trade accounts receivable and the sum of accounts
payable and accrued expenses have increased $10.7 million and $5.1 million,
respectively. The increase in accounts receivable is due to substantially higher
domestic net sales in March 1999 as compared to March 1998, a contractual change
in the Company's distribution agreement with Dreyers Grand Ice Cream effective
in January 1999 which altered the payment terms from 14 days to 28 days, and
increased sales in the United Kingdom combined with slower collections on
European accounts receivable. The increase in accounts payable and accrued
expenses reflect the seasonality of the Company's business and increased sales
and marketing expenses. Inventories have increased since December 1998 from
$13.1 million to $17.3 million. This increase reflects seasonally higher raw
material inventories and increased finished goods inventories.
The Company anticipates capital expenditures in the remainder of 1999 of
approximately $7.4 million. Most of these projected capital expenditures relate
to equipment upgrades and enhancements at the Company's manufacturing
facilities, research and development equipment, computer related expenditures
and corporate space expansion.
The Company's short and long-term debt includes $25 million aggregate principal
amount of Senior Notes issued in 1993 and 1994. The first principal payment of
$5 million was paid in September 1998 and the remaining principal is payable in
annual installments through 2003.
During the thirteen weeks ended March 27, 1999 the Company repurchased a total
of 68,000 shares of the Company's Class A common stock for approximately $1.5
million. The repurchase program announced in September, 1998 authorized the
Company to purchase shares of the Company's Class A Common Stock up to an
aggregate cost of $5 million for use for general corporate purposes.
The Company has available two $10 million unsecured working capital line of
credit agreements with two banks. Interest on borrowings under the agreements is
set at the banks' base rate or at LIBOR plus a margin based on a pre-determined
formula. No amounts were borrowed under these or any bank agreements during
1999. The working capital line of credit agreements expire December 23,
2001. Management believes that internally generated funds, cash currently on
hand, investments held in marketable securities and equipment lease financing
and/or borrowings under the Company's two unsecured bank lines of credit will be
adequate to meet anticipated operating and capital requirements.
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
Year 2000 Readiness Disclosure
- ------------------------------
Background of Year 2000 Issues. The "Year 2000" issue is the result of computer
systems and software programs using two rather than four digits to define a
year. As a result, computer systems that have date sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. Unless
remedied, the Year 2000 issue could result in system failures, miscalculations,
and the inability to process necessary transactions or engage in similar normal
business activities. In addition to computer systems and software, equipment
using embedded chips, such as manufacturing and telephone equipment, could also
be at risk.
State of Readiness. The Company has developed, and is implementing a Year 2000
plan to address Year 2000 issues. The plan focuses on the following three broad
categories: (a) information technology systems; (b) manufacturing facilities
including embedded technology; and (c) external noncompliance by customers,
distributors, suppliers and other business partners.
The Company has completed the inventory and assessment of the core software
applications and hardware infrastructure. The Company has identified and is in
various stages of remediating software and hardware deficiencies caused by the
Year 2000 issue. The financial, human resources, manufacturing and distribution
systems are currently being repaired; testing and validation of these systems
are scheduled during the second and third quarters of 1999. The Company's
communications and networking equipment is being upgraded and is scheduled to
undergo testing during the second quarter of 1999.
The Company has substantially completed a detailed assessment of its
manufacturing facilities and embedded chip technology. The Company is in the
process of testing and remediating certain equipment and software systems known
to have possible Year 2000 issues and is expected to complete the majority of
this work during the second quarter of 1999.
A critical step in this project is the coordination of Year 2000 readiness with
third parties. The Company is communicating with its significant suppliers,
distributors and customers to determine the extent to which the Company is
vulnerable if the third parties fail to resolve their Year 2000 issues. The
Company will continue to assess and work with all of its major partners to
understand the associated risks and plan for contingencies.
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
Risks Related to Year 2000 Issues. The Company presently believes that the Year
2000 issue will not pose significant operational problems and that the internal
Year 2000 issues will be resolved in a timely manner. However, the future
compliance of Year 2000 processing within the Company is dependent upon key
personnel, vendor software, vendor equipment and components. In the unlikely
event that no further progress is made on the Company's Year 2000 project, the
Company may be unable to manufacture or ship product, invoice customers or
collect payments. As a result, Year 2000 issues could have a material adverse
impact on the Company's operations and its financial results. In addition, if
systems operated by third parties (including municipalities or utilities) are
not Year 2000 compliant, this could also have a material adverse affect on the
Company.
Costs to Address Year 2000 Issues. The Company does not separately track the
internal costs incurred for the Year 2000 project, which are primarily the
related payroll costs for its information systems ("IS") group. There have been
no incremental payroll costs related to the Year 2000 project, however
non-critical IS projects have been deferred due to concentration on Year 2000
efforts. The delay of these projects is not expected to have a material impact
on the operations of the Company.
The external costs for software; hardware, equipment and services related to the
Year 2000 project are expected to be approximately $1.2 million for 1999. The
Company will expense the costs of modifying existing systems and capitalize the
replacement cost of software or equipment 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.
Contingency Plans. Due to the general uncertainty inherent in the Year 2000
problem, including uncertainty regarding the Year 2000 readiness of suppliers,
distributors and other manufacturers, the Company is developing contingency
plans. This process includes, among others, developing backup procedures in case
of systems failures, identifying alternative production plans and developing
alternative plans to engage in business activities with customers, distributors
and suppliers that are not experiencing Year 2000 problems.
The above forward looking statements with regard to the timing and overall cost
estimates of the Company's efforts to address the Year 2000 problem are based
upon the Company's experience thus far in this effort. Should the Company
encounter unforeseen difficulties either in the continuing review of its
internal systems, the ultimate remediation, or the responses of its business
partners, the actual results could vary significantly from the estimates in
these forward-looking statements.
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 in "Risk Factors" below.
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
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. ("Dreyer's") and the other independent ice cream distributors that
have acted as the Company's exclusive or master distributor in their assigned
territories. In 1998, 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. In addition, 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 August 1998 - January 1999, the Company redesigned its distribution network,
entering into a distribution agreement with The Pillsbury Company ("Pillsbury")
and a new agreement with Dreyer's. These arrangements take effect September 1,
1999, except for certain territories, which are effective, in April - May 1999.
The Company believes the terms of the new arrangements will, on balance, be more
favorable to the Company and expects that, under the distribution network
redesign, no one distributor will account for more than 40% of the Company's net
sales. However, both Pillsbury, through its Haagen-Daz unit, and Dreyer's are
competitors of the Company.
Since available distribution alternatives are limited, there can be no assurance
that difficulties in maintaining satisfactory relationships with Pillsbury,
Dreyer's and its other 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. In the first quarter of 1999, net sales of the
Company increased 20.5% to $50.1 million from $41.5 million for the first
quarter of 1998. Pint volume for the first quarter of 1999 increased 11.1%
compared to the same period in 1998. The super premium ice cream, frozen yogurt
and sorbet industry category sales increased 4% in the first quarter of 1999
compared to the first quarter of 1998. Given these overall domestic super
premium industry trends, the successful introduction of innovative flavors on a
periodic basis has become increasingly important to 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 significant promotional expenditures, is
likely to have an important impact on the Company's 1999 and 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. 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
distributors for the Company 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.
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
Increased Cost of Raw Materials. Management believes that the general trend of
volatility in dairy ingredient commodity costs may continue and it is possible
that at some future date both gross margins and earnings may not be adequately
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 Jerry Greenfield the Chairperson of the
Board and co-founder of the Company; and Ben Cohen, 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.
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 being more 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. Total international net sales represented approximately 7% of
total consolidated net sales in the first quarter of 1999. The Company's
principal competitors have substantial market shares in various countries
outside the United States, principally Europe and Japan. The Company sells
product in Japan, Canada, the United Kingdom, Ireland, France, the Netherlands,
Belgium and has started selling in Peru and Lebanon in 1999. In 1987, the
Company granted an exclusive license to manufacture and sell Ben & Jerry's
products in Israel. In February 1999, the Company made an investment commitment
in the Israeli licensee, which gave the Company a 60% ownership interest. In May
1998, the Company signed a Licensing Agreement with Delicious Alternative
Desserts, LTD. to manufacture, sell and distribute Ben & Jerry's products
through the wholesale distribution channels in Canada. 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.
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
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 46% 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 sell substantial
portions of their Class A Common Stock.
In addition, the Company issued all of the authorized Class A Preferred Stock to
the 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.
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. Also in 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.
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 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; the April 1998 Vermont
Legislative Amendment of the Vermont Business Corporation Act and the
Shareholder Rights Plans put in place in August, 1998 may be deemed to be
"anti-takeover" provisions in that the Board of Directors believes that these
amendments and legislation 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.
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
Market Risk
- -----------
The Company is exposed to a variety of market risks, including changes in
interest rates affecting the return on its investments and foreign currency
fluctuations. The Company's exposure to market risk for a change in interest
rates relates primarily to the Company's investment portfolio. The Company has
classified all of its short-term and long-term investments as "available for
sale" except for certificates of deposits which are held to maturity. The
majority of these investments are municipal bonds and fixed income preferred
stock in which the market value approximates its cost at March 27, 1999. The
Company does not intend to hold such investments to maturity if there is an
underlying change in interest rates or the Company's cash flow requirements.
Certificates of deposits do not expose the consolidated statement of operations
or balance sheets to fluctuations in interest rates. The Company's exposure to
market risk for fluctuations in foreign currency relate primarily to the amounts
due from subsidiaries. Exchange gains and losses related to amounts due from
subsidiaries have not been material for the periods presented.
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
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) No reports on Form 8-K were filed during the quarter ended March 27, 1999,
for which this report is filed.
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
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.
BY: /s/ Frances Rathke
Frances Rathke, Chief Financial Officer
and Secretary
DATE: May 11, 1999
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
EXHIBIT 11- COMPUTATION OF NET EARNINGS PER SHARE
(In thousands except per share amounts)
Thirteen weeks ended
March 27, March 28,
1999 1998
-------- -------
Numerator:
Net income $1,197 $ 380
------ ------
Denominator:
Denominator for basic earnings per share-
weighted-average shares 7,110 7,243
Dilutive employee stock options 442 208
------ ------
Denominator for diluted earnings per share-
adjusted weighted-average shares and
assumed conversions 7,552 7,451
====== ======
Net income per common share
Basic $0.17 $0.05
====== ======
Diluted $0.16 $0.05
====== ======
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See Accompanying notes
$ in thousands, except per share data
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