1
FORM 10-Q
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 25, 1994July 1, 1995
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 5, 1994
----------------11, 1995
-----------------
Common stock, $1.00 par value 15,657,63112,860,073
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DREYER'S GRAND ICE CREAM, INC.
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED BALANCE SHEET
June 25,July 1, December 25,31,
($ in thousands, except per share amounts) 1995 1994
1993
---------------- ---------------------- ----------
(unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 31,430,0003,262 $ 2,532,0006,334
Trade accounts receivable, net of
allowance for doubtful accounts of
$511,000$716 in 1995 and $635 in 1994 and $535,000 in 1993 72,510,000 46,293,00088,845 47,519
Other accounts receivable 7,689,000 5,326,00014,627 6,243
Inventories 37,191,000 27,817,00038,130 29,081
Prepaid expenses and other 5,905,000 8,256,000
------------- -------------6,353 9,657
-------- --------
Total current assets 154,725,000 90,224,000151,217 98,834
Property, plant and equipment, net 154,924,000 142,275,000174,283 160,322
Goodwill and distribution rights, net of
accumulated amortization of $8,989,000
in 1994 and $7,572,000 in 1993 86,810,000 72,988,00088,187 87,825
Other assets, 16,392,000 16,788,000
------------- -------------net 14,997 15,045
-------- --------
Total assets $ 412,851,000 $ 322,275,000
============= =============$428,684 $362,026
======== ========
See accompanying Notes to Consolidated Financial Statements
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DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED BALANCE SHEET
June 25,July 1, December 25,31,
($ in thousands, except per share amounts) 1995 1994
1993
------------- --------------------- -----------
(unaudited)
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 49,295,00064,505 $ 21,893,00030,130
Accrued payroll and employee benefits 8,564,000 9,249,00014,040 15,801
Current portion of long-term debt 4,675,000 1,685,000
------------- -------------4,500 4,500
-------- --------
Total current liabilities 62,534,000 32,827,00083,045 50,431
Long-term debt, less current portion 35,275,000 38,875,000115,500 46,100
Convertible subordinated debentures 100,752,000 100,752,000
Deferred income 127,000 174,000100,752 100,752
Deferred income taxes 26,625,000 26,613,000
------------- -------------29,746 28,822
-------- --------
Total liabilities 225,313,000 199,241,000
------------- -------------329,043 226,105
-------- --------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $1 par value -
10,000,000 shares authorized; no shares
issued or outstanding in 19941995 and 19931994
Common stock, $1 par value -
30,000,000 shares authorized; 16,114,00012,858,000
shares and 14,671,00014,064,000 shares issued and
outstanding in 1995 and 1994, and 1993, respectively 16,114,000 14,671,00012,858 14,064
Capital in excess of par 160,155,000 59,145,00037,787 75,257
Retained earnings 11,269,000 49,218,000
------------- -------------48,996 46,600
-------- --------
Total stockholders' equity 187,538,000 123,034,000
------------- -------------99,641 135,921
-------- --------
Total liabilities and stockholders' equity $ 412,851,000 $ 322,275,000
============= =============$428,684 $362,026
======== ========
See accompanying Notes to Consolidated Financial Statements
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DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED STATEMENT OF INCOME
AND RETAINED EARNINGS(unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------------ ---------------------------------------------------- ----------------------
($ in thousands, except per share amounts) July 1, 1995 June 25, 1994 June 26, 1993July 1, 1995 June 25, 1994
June 26, 1993------------ ------------- ------------ ------------- ------------- -------------
(unaudited) (unaudited)
Revenues:
Net sales $ 147,727,000 $ 123,486,000 $ 259,728,000 $ 225,803,000$188,083 $147,727 $329,338 $259,728
Other income 409,000 271,000 682,000 440,000
------------- ------------- ------------- -------------
148,136,000 123,757,000 260,410,000 226,243,000
------------- ------------- ------------- -------------673 409 913 682
-------- -------- -------- --------
188,756 148,136 330,251 260,410
Costs and expenses:
Cost of goods sold 109,659,000 90,924,000 198,411,000 172,215,000145,038 109,659 257,269 198,411
Selling, general and administrative 38,398,000 20,179,000 57,126,000 36,245,00034,687 38,398 61,177 57,126
Interest, net of interest capitalized 2,424,000 1,818,000 4,633,000 3,486,000
------------- ------------- ------------- -------------
150,481,000 112,921,000 260,170,000 211,946,000
------------- ------------- ------------- -------------2,995 2,424 5,238 4,633
-------- -------- -------- --------
182,720 150,481 323,684 260,170
-------- -------- -------- --------
Income (loss) before income taxes (2,345,000) 10,836,000 240,000 14,297,0006,036 (2,345) 6,567 240
Income tax (provision) benefit 910,000 (3,961,000) (93,000) (5,304,000)
------------- ------------- ------------- -------------(2,372) 910 (2,581) (93)
-------- -------- -------- --------
Net income (loss) $ (1,435,000)3,664 $ 6,875,000(1.435) $ 147,0003,986 $ 8,993,000
============= ============= ============= =============147
======== ======== ======== ========
Net income (loss) per share $ .27 $ (.10) $ .47.29 $ .01
$ .62
============== ============= ============= ===================== ======== ======== ========
Dividends per share $ .06 $ .06 $ .12 $ .12
============= ============= ============= =============
Retained earnings, beginning of $ 49,288,000 $ 37,828,000 $ 49,218,000 $ 36,677,000
period
Net income (loss) (1,435,000) 6,875,000 147,000 8,993,000
Cash dividends declared (976,000) (877,000) (1,860,000) (1,753,000)
Repurchase and retirement of
common stock (35,608,000) (206,000) (36,236,000) (297,000)
-------------- ------------- ------------- -------------
Retained earnings, end of period $ 11,269,000 $ 43,620,000 $ 11,269,000 $ 43,620,000
============= ============= ============= ===================== ======== ======== ========
See accompanying Notes to Consolidated Financial Statements
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DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
Common Stock
------------------- Capital in Retained
(In thousands) Shares Amount Excess of Par Earnings Total
------ ------- ------------ -------- -------
Balance at December 25, 1993 14,671 $14,671 $ 59,145 $49,218 $123,034
Net income 147 147
Cash dividends declared (1,860) (1,860)
Common stock and warrants issued
to an affiliate of Nestle USA, Inc. 3,000 3,000 99,560 102,560
Repurchases and retirements
of common stock (1,680) (1,680) (36,236) (37,916)
Employee stock plans 123 123 1,450 1,573
------ ------- -------- ------- --------
Balance at June 25, 1994 16,114 $16,114 $123,919 $47,505 $187,538
====== ======= ======== ======= ========
Balance at December 31, 1994 14,064 $14,064 $ 75,257 $46,600 $135,921
Net income 3,986 3,986
Cash dividends declared (1,590) (1,590)
Repurchases and retirements
of common stock (1,317) (1,317) (39,129) (40,446)
Employee stock plans 111 111 1,659 1,770
------ ------- -------- ------- --------
Balance at July 1, 1995 12,858 $12,858 $ 37,787 $48,996 $ 99,641
====== ======= ======== ======= ========
See accompanying Notes to Consolidated Financial Statements
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DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Twenty-Six Weeks Ended
-----------------------------------------------------------------------------
($ in thousands) July 1, 1995 June 25, 1994
June 26, 1993------------ ------------- -------------
(unaudited)
Cash flows from operating activities:
Net income $ 147,0003,986 $ 8,993,000147
Adjustments to reconcile net income to cash provided from
operations:
Depreciation and amortization 8,507,000 7,268,0009,863 8,507
Deferred income taxes 12,000 1,060,000
Deferred income (47,000) (47,000)924 12
Changes in assets and liabilities, net of amounts
acquired:
Trade accounts receivable (26,217,000) (18,499,000)(41,326) (26,217)
Other accounts receivable (2,363,000) (3,274,000)(8,384) (2,363)
Inventories (9,374,000) (5,850,000)(9,049) (9,374)
Prepaid expenses and other 2,351,000 3,419,0003,304 2,351
Accounts payable and accrued liabilities 27,307,000 7,073,00034,465 27,260
Accrued payroll and employee benefits (685,000) (246,000)
Income taxes payable 2,426,000
------------- -------------
(362,000) 2,323,000
------------- -------------(1,761) (685)
-------- --------
(7,978) (362)
-------- --------
Cash flows from investing activities:
Acquisition of property, plant and equipment (19,210,000) (17,564,000)(21,882) (19,210)
Retirement of property, plant and equipment 405,000 124,000232 405
Increase in goodwill and distribution rights (15,239,000) (4,394,000)
(Increase) decrease(1,843) (15,239)
Increase in other assets net (538,000) 1,230,000
------------- -------------
(34,582,000) (20,604,000)
------------- -------------(645) (538)
-------- --------
(24,138) (34,582)
-------- --------
Cash flows from financing activities:
Decrease in short-term bank borrowings (23,400,000) (29,000,000)(23,400)
Increase in short-term bank borrowings 23,400,00023,400
Proceeds from long-term debt 51,800,00073,000
Reductions in long-term debt (610,000) (2,498,000)
Cash dividends paid (1,765,000) (1,750,000)(3,600) (610)
Issuance of common stock under employee stock plans 1,770 1,573
Net proceeds from issuance of common stock
under Nestle Agreement 102,560,000
Repurchase102,560
Repurchases of common stock (36,995,000)
Issuance of common stock under employee stock plans 1,573,000 629,000
Repurchase of common stock issued under employee stock plans (921,000) (308,000)
------------- -------------
63,842,000 18,873,000
------------- -------------
Increase(40,446) (37,916)
Cash dividends paid (1,680) (1,765)
-------- --------
29,044 63,842
-------- --------
(Decrease) increase in cash and cash equivalents 28,898,000 592,000(3,072) 28,898
Cash and cash equivalents, beginning of period 2,532,000 606,000
------------ -------------6,334 2,532
-------- --------
Cash and cash equivalents, end of period $ 31,430,0003,262 $ 1,198,000
============= =============31,430
======== ========
Supplemental Cash Flow Information - cash paid during the yearperiod for:
Interest (net of amounts capitalized) $ 4,640,0005,340 $ 3,281,0004,640
Income taxes (net of refunds) 233,000 861,000421 233
See accompanying Notes to Consolidated Financial Statements
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DREYER'S GRAND ICE CREAM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - General:
Dreyer's Grand Ice Cream, Inc. and its subsidiaries (the "Company") is a
single segment industry company engaged in the business of manufacturing and
distributing premium ice cream and other frozen dairy products.
The consolidated financial statements for the thirteen and twenty-six week
periods ended July 1, 1995, and June 25, 1994, and June 26, 1993, have not been audited by
independent public accountants, but include all adjustments, consisting ofsuch as normal
recurring accruals, which management considers necessary for a fair
presentation of the consolidated operating results for the 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 Company's Annual Report to Stockholdersconsolidated financial statements for the year ended
December 25, 1993.31, 1994, appearing in the Company's 1994 Annual Report to
Stockholders.
NOTE 2 - Financial Statement Presentation:
Certain reclassifications have been made to the prior period financial
statements in order to conform to the current presentation.
NOTE 3 - Inventories:
Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Inventories at June 25, 1994July 1, 1995 and December 25,
199331, 1994
consisted of the following (in thousands):
June 25,July 1, December 25,31,
1995 1994
1993
-------- -----------------------
Raw materials $ 4,0095,554 $ 2,0503,153
Finished goods 33,182 25,767
-------- --------
$ 37,191 $ 27,817
======== ========32,576 25,928
------- -------
$38,130 $29,081
======= =======
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NOTE 4 - Net Income Per Share:
Net income per common share is computed using the weighted average number of
shares of common stock outstanding during the period which were 13,387,000 and
13,679,000 shares for the thirteen weeks and twenty-six weeks ended July 1,
1995 and 14,380,000 and 14,539,000 shares for the thirteen weeks and twenty-six
weeks ended June 25, 19941994. The potentially dilutive effect of the Company's
convertible subordinated debentures and 14,611,000 and 14,595,000 sharesother common stock equivalents was
anti-dilutive for the thirteen weeks and twenty-six weeksweek periods ended July 1, 1995
and June 26, 1993.25, 1994. Accordingly, fully diluted net income per share is not
presented.
NOTE 5 - Goodwill and Distribution Rights:
On January 4, 1994, the Company entered into a long-term distribution
agreement with Sunbelt Distributors, Inc. (Sunbelt), the leading independent
direct-store-delivery ice cream distributor in Texas. Under the agreement, the
Company paid Sunbelt $10,970,000 in cash to secure the long-term exclusive
right to have its products distributed by Sunbelt in Texas and certain parts of
Louisiana and Arkansas. In conjunction with this transaction, the Company
recorded $11,321,000 in distribution rights, including $351,000 in transaction
costs.
NOTE 6 - Common Stock:
On June 14, 1994, the Company completed a transaction (the "Nestle
Agreement") with an affiliate of Nestle USA, Inc. ("Nestle"), whereby Nestle
purchased three million newly issued shares ofThe Company's previously announced common stock ofrepurchase program was
completed during the Company for
$32 per share and warrants to purchase an additional two million shares at an
exercise price of $32 per share. Warrants for one million shares will expire on
June 14, 1997 and warrants for the other million shares will expire on June 14,
1999. Nestle paid an aggregate of $10,000,000 for the two million warrants.
Total proceeds from the issuance of the initial three million shares and the
two million warrants was $106,000,000. In addition, the Company recorded a
decrease to capital in excess of par of $3,440,000 for related transaction
costs.
The Company has the right to cause Nestle to exercise the warrants at $24 per
share subject to certain conditions at any time before June 14, 1997. The
Company also has the right to cause Nestle to exercise the warrants at any time
through the warrant expiration dates at $32 per share if the average trading
price of the common stock exceeds $60 during a 130 trading day period, subject
to certain conditions. Furthermore, before June 14, 1999, if the average
trading price of the common stock equals or exceeds $60 during a 130 trading
day period, Nestle will be required to pay an additional $2 for each share
purchased by it and each share issued in respect of warrants exercised by it.
In addition to the Nestle Agreement, the Company entered into a distribution
agreement with Nestle Ice Cream Company to distribute Nestle's frozen novelty
and ice cream products in certain markets beginning in 1995.
On May 6, 1994, the Company entered into a credit agreement with a bank (the
"Credit Agreement") to borrow up to $100,000,000. Under the terms of the Credit
Agreement, the Company borrowed funds to finance the repurchase and retirement
of shares of its common stock. (See below.) Interest on borrowings was payable
at a same day funding rate plus an applicable margin, or at the bank's
reference rate. The Credit Agreement was terminated on June 14, 1994 and all
funds borrowed were repaid upon receipt of the proceeds from the issuance of
the common stock and warrants under the Nestle Agreement.
7
8quarter. During the quarter ended June 25, 1994,first two quarters of 1995 the
Company repurchased and retired 1,644,0001,291,000 shares of its common stock at prices
ranging from $21.38$28.63 to $23.50
under a newly authorized plan to repurchase up to 5 million$34.25 per share. Under the program the Company
repurchased 5,000,000 shares through open
market purchases and negotiated transactions. During fiscal 1994,of its common stock at an average cost of $25.60
per share. In addition, during the first two quarters of 1995 the Company
repurchased and retired 37,00026,000 shares of its common stock at prices ranging
from $22.00$24.50 to $28.69$30.00 per share from employees who previously acquired shares
under employee stock plans.
NOTE 76 - Subsequent Event:
Subsequent to quarter end,On August 8, 1995, the Company repurchasedconverted $100,752,000 of 6.25% convertible
subordinated debentures into 1,008,000 shares of redeemable, convertible Series
B Preferred Stock, due June 30, 2001. On the conversion date, the Company had
$2,538,000 of unamortized debenture issuance costs which will be recorded as a
charge against the carrying value of this preferred stock. As was the case
with the convertible subordinated debentures, the Series B Preferred Stock is
convertible, under certain conditions, into a total of 1,008,000 shares of
redeemable, convertible Series A Preferred Stock, due June 30, 2001.
Additionally, as was the case with the debentures, both the Series A and
retired 488,000Series B Preferred Stock are convertible, under certain conditions, at an
initial conversion price of $34.74 into a total of 2,900,000 shares of common
stock at prices ranging from $21.88and can be called for early redemption after December 15, 1997, subject
to $24.00 under the newly
authorized plan. (See Note 6.)certain limitations.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percent which
the items in the Consolidated Statement of Income and Retained Earnings bear to net sales and the
percentage change of such items compared to the indicated prior period:
Period-to-Period
Percentage of Net Sales Increase (Decrease)
----------------------- -----------------------------------------------
Thirteen Twenty-Six
Thirteen Weeks Ended Twenty-Six Weeks Ended Weeks Weeks
--------------------- ----------------------- 1994 1994-------------------- ---------------------- 1995 1995
July 1, June 25, June 26,July 1, June 25, June 26, Compared Compared
1995 1994 19931995 1994 1993 to 1993 to 1993
------------------------------------------------ -------------------------with 1994 with 1994
-------------------- ---------------------- ----------------------
Revenues
Net sales 100.0% 100.0% 100.0% 100.0% 19.6% 15.0%27.3% 26.8%
Other income 0.4 0.3 0.2 0.3 0.2 50.9 55.00.3 64.6 33.9
----- ----- ----- -----
Total revenue 100.4 100.3 100.2 100.3 100.2 19.7 15.1100.3 27.4 26.8
----- ----- ----- -----
Costs and expenses:
Costs of goods sold 77.1 74.2 73.678.1 76.4 76.3 20.6 15.232.3 29.7
Selling, general and administrative 18.5 26.0 16.318.6 22.0 16.1 90.3 57.6(9.7) 7.1
Interest, net of interest capitalized 1.6 1.7 1.51.6 1.8 1.5 33.3 32.923.6 13.1
----- ----- ----- -----
Total costs and expenses 97.2 101.9 91.498.3 100.2 93.9 33.3 22.821.4 24.4
----- ----- ----- -----
Income (loss) before income taxes 3.2 (1.6) 8.82.0 0.1 6.3 (121.6) (98.3)357.4 2,636.3
Income tax (provision) benefit (1.3) 0.6 (3.2) (0.0) (2.3) (123.0) (98.2)(.8) 0.0 (360.7) 2,675.3
----- ----- ----- -----
Net income (loss) 1.9 (1.0) 5.61.2 0.1 4.0 (120.9) (98.4)(355.3) 2,611.6
===== ===== ===== =====
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RESULTS OF OPERATIONS
Thirteen Weeks Ended June 25, 1994ended July 1, 1995 Compared with Thirteen Weeks Endedended June 26,
1993
Consolidated net sales for the second quarter of25,
1994
increased 20% to
$147,727,000 compared with $123,486,000 for the same period last year. Sales
of the Company's brands increased 24% and represented 65% of consolidated net
sales as compared with 63% in the second quarter of 1993. The increase related
primarily to higher unit sales of the Company's established brands in all
markets, led by Dreyer's and Edy's Frozen Yogurt. To a lesser extent, the
increase related to higher unit sales of Dreyer's and Edy's Novelties (Dreyer's
and Edy's Ice Cream Bars, Tropical Fruit Bars, Yogurt Bars and Grand Cones),
led by the recent market introduction of Grand Cones. The effect of price
increases for the Company's brands was not significant. Sales of products
purchased from other manufacturers (partner brands) increased 12% and
represented 35% of consolidated net sales as compared with 37% in the second
quarter of 1993. The effect of price increases for partner brands was not
significant.
During the quarter, the Company embarked on a five year plan during the second quarter of 1994
to accelerate the sales of its Company brands by greatly increasing its
consumer marketing efforts and expanding its distribution system into
additional markets (the "Marketing Plan")Strategic Plan). Under this Marketingthe Strategic Plan, the Company
will increaseincreased the amount of its spending for advertising and consumer promotion
from a level of
approximately $12,000,000$11,486,000 in 1993 to approximately $40,000,000$40,287,000 in 1994, and plans to spend
approximately $50,000,000 annually on these marketing activities from 1995
through 1998. TheIn 1994, the Company will beginbegan selling its Edy's branded
products for the first
time in the Boston, CharlotteTexas and AlbanyNew England markets this year,as well as in additionseveral cities in the
southern United States, and has continued to the previously announced introduction of Dreyer's line of productsexpand into the
Houston market.additional geographic
markets in 1995. The Company anticipates that the MarketingStrategic Plan will continue
to materially reduce earnings during the next twelve to twenty-four month
period1995 and some portion of 1996 below levels
that would have been attained under the former business plan. The potential
benefits of the new strategy are increased market share and future earnings
above those levels that would be attained in the absence of the strategy. Dreyer'sThe
Company believes that these benefits are not likely to impact the
Company'sits results until
1996 at the earliest. Noearliest, and no assurance can be given that the anticipated
benefits of the strategy will be achieved. The success of the strategy will
depend upon, among other things, consumer responsiveness to the Marketing Plan,increased
marketing expenditures, competitors' activities and general economic
conditions.
Cost of goods sold increased $18,735,000 or 21% over the second quarter of
1993, while the overall gross margin decreased from 26.4% in the second quarter
of 1993 to 25.8% in the second quarter of 1994. The lower margin was primarily
the result of higher distribution expenses, offset partially by increased sales
of the Company's brands, which carry a higher margin than partner brands.
Selling, general and administrative expenses in the second quarter of 1994
increased $18,219,000 or 90% as compared to the same period of 1993. This
increase related primarily to an increase in overall marketing expenses of
$17,216,000. Included in the Company's overall marketing expenses was
$11,285,000 for advertising and consumer promotion costs associated with the
Company's previously announced Marketing Plan.
Interest expense was $606,000 or 33% higher in the second quarter of 1994 as
compared with the same period in 1993, due primarily to the higher interest
rate of the convertible subordinated debentures issued in the third quarter of
1993.
10
11
Income taxes decreased $4,871,000 reflecting a pre-tax loss and a higher
effective tax rate of 38.8% in the second quarter of 1994 as compared to an
effective rate of 36.6% in 1993. The lower effective rate in 1993 resulted
primarily from the reversal of federal taxes provided in prior periods and, to
a lesser extent, a lower effective rate for state income taxes.
Twenty-Six Weeks Ended June 25, 1994 Compared With Twenty-Six Weeks Ended June
26, 1993
Consolidated net sales for the twenty-six weeks ended June 25, 1994second quarter of 1995 increased 15%27% to
$259,728,000$188,083,000 compared with $225,803,000$147,727,000 for the same period last year. Sales
of the Company's brands increased 21% and represented 66% of
consolidated net sales as compared with 62% in the second quarter of 1993.23%. The increase related primarily to
higher unit sales of the Company's established brands in all markets led by
Dreyer's and Edy's Frozen YogurtFat Free Ice Cream and to a lesser
extent, higher unit sales of Dreyer's and Edy's Novelties.Grand Ice Cream.
Sales of products purchased from other manufacturers (partner brands) increased
32%, led by frozen novelty and ice cream products from Nestle Ice Cream
Company. Sales of partner brands represented 36% of consolidated net sales as
compared with 35% in the second quarter of 1994. The effect of price increases
for the Company's brands and partner brands was not significant.
Cost of goods sold increased $35,379,000, or 32%, over the second quarter of
1995, while the overall gross margin decreased from 25.8% in the second quarter
of 1994 to 22.9% in the second quarter of 1995. The decrease in gross margin
was largely due to a relative increase in sales of partner brands which carry
a lower margin than Company brands, combined with slightly higher distribution
expenses.
Selling, general and administrative expenses in the second quarter of 1995 were
$3,711,000, or 10%, lower than in the same period of 1994. This decrease
related primarily to a decrease in overall marketing expenses of $2,424,000
compared with the same quarter in the prior year.
Interest expense increased $571,000, or 24%, over the second quarter of 1994
due primarily to increased borrowings under the Company's line of credit.
Income taxes increased $3,282,000, reflecting a higher pre-tax income, while
the effective tax rate increased from 38.8% for the second quarter of 1994 to
39.3% for the second quarter of 1995.
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11
Twenty-six Weeks ended July 1, 1995 Compared with Twenty-six Weeks ended
June 25, 1994
Consolidated net sales for the twenty-six weeks ended July 1, 1995 increased
27% to $329,338,000 compared with $259,728,000 for the same period last year.
Sales of the Company's brands increased 23%. The increase related primarily to
higher unit sales of the Company's established brands in all markets due to
substantially higher advertising and consumer promotion spending under the
Company's Strategic Plan. The products that led this increase were Dreyer's
and Edy's Fat Free Ice Cream and Dreyer's and Edy's Grand Ice Cream. Sales of
products purchased from other manufacturers increased 31%, led by frozen
novelty and ice cream products from Nestle Ice Cream Company. Sales of partner
brands increased 6%, and represented 34%36% of consolidated net sales as compared with 38%35% in the
same period last year. The effect of price increases for the Company's brands
and partner brands was not significant.
Cost of goods sold increased $26,196,000$58,858,000, or 15%30%, as compared with 1993,1994, while
the overall gross margin decreased from 23.6% to 21.9% in 1995. The decrease in
gross margin was largely due to a relative increase in sales of partner brands
which carry a lower margin than Company brands, combined with slightly from 23.7% in 1993 to 23.6% in
1994.higher
distribution expenses.
Selling, general and administrative expenses in the first two quarters of 1994
increased $20,881,000$4,051,000 or 58%7% as compared towith the same period in 1993.1994. This
increase related primarily to an increase in overall marketing expenses of
$19,431,000. Included in the Company's overall marketing expenses was
$17,635,000 for advertising and consumer promotion costs associated with the
Company's previously announced Marketing Plan.$3,975,000.
Interest expense in the first two quarters of 19941995 was $1,147,000$605,000, or 33%13%, higher
than in the same period in the prior year due primarily to increased borrowings
under the higher interest
rateCompany's long term line of the convertible subordinated debentures issued in the third quarter of
1993.credit.
Income taxes decreased $5,211,000increased $2,488,000 reflecting substantially lower taxable
income. Thea higher pre-tax income, while the
effective tax rate increased from 38.8% for the first two quarters of 1994 was 38.8% as
compared to
37.1%39.3% for the same period in 1993. The lower effective rate in 1993
resulted primarily from the reversalfirst two quarters of federal taxes provided in prior periods
and, to a lesser extent, a lower rate for state income taxes.1995.
11
12
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 25, 1994July 1, 1995 increased $34,794,000$19,769,000 from year end 19931994 due
primarily to the increase in cash and cash equivalents and the seasonal increase in trade receivables,accounts receivable, other accounts
receivable and inventories partially offset in part by thean increase in accounts payable
and accrued liabilities. Cash was provided primarily from the net$73,000,000
proceeds from the Nestle Agreement of $102,560,000. (See Note 6 of Notes to
Consolidated Financial Statements.)long-term debt. This source was the primary source used to fund the repurchase$40,446,000
repurchases of common stock of $36,995,000,and the $19,210,000$21,882,000 increase in property, plant and
equipment, and the $15,239,000 increase in goodwill and
distribution rights resulting primarily from the Sunbelt distribution rights
agreement. (See Note 5 of Notes to Consolidated Financial Statements.)
11
12
On June 14, 1994, the Company completed a transaction with an affiliate of
Nestle USA, Inc., whereby Nestle purchased three million newly issued shares of
common stock of the Company for $32 per share and warrants to purchase an
additional two million shares at an exercise price of $32 per share. Total
proceeds from the issuance of the initial three million shares and the two
million warrants was $106,000,000. (See Note 6 of Notes to Consolidated
Financial Statements.)
The Company repurchased and retired 1,644,000 shares at prices ranging from
$21.38 to $23.50 under a newly authorized plan to repurchase up to 5 million
shares through open market purchases and negotiated transactions. Subsequent
to quarter end, the Company repurchased and retired 488,000 shares of common
stock at prices ranging from $21.88 to $24.00 under the newly authorized plan.
(See Note 6 of Notes to Consolidated Financial Statements.)equipment.
At June 25, 1994,July 1, 1995, the Company had $31,430,000$3,262,000 in cash and cash equivalents, and
an unused credit line of $50,000,000.$31,800,000. The Company believes that its cash and cash equivalents, its credit
line, along with its liquid resources, internally generated cash and financing
capacity, are adequate to meet anticipated operating and capital requirements.
12
13
PART II: OTHER INFORMATION
ITEM 4.4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 11,10, 1994, the Company held its 19941995 Annual Meeting of Stockholders. A
total of 11,235,15912,783,389 shares (76%(91.7%) of the outstanding shares)shares were represented
at the meeting either in person or by proxy. Matters submitted to a vote of
security holders at the meeting were as follows:
a. Election of two Class IIII directors to hold office until the 19971998
Annual Meeting of Stockholders or until their successors are
elected are qualified; and
qualified;
b. Approving the amendment to the Company's Incentive Stock Option
Plan (1982);
c. Approving the amendment to the Company's Stock Option Plan (1992);
d. Approving the Company's Stock Option Plan (1993); and
e. Approving the appointment of Price Waterhouse LLP as independent
public accountants for fiscal year 19941995 and thereafter until
a successor is appointed.
At the Annual Meeting, T. Gary Rogers and William F. Cronk, III were
elected as directors of Class III of the Company's Board of Directors. MerrilMerrill M. Halpern, John W. Larson and Jack O.
Peiffer continue to hold officewere elected as directors of Class I of the Company's Board of
Directors until the 1995 Annual Meeting.Directors. Jerome L. Katz, Timm F. Crull and Edmund R. Manwell continue to
hold office as directors of Class II of the Board of Directors until the 1996
Annual Meeting. The amendmentT. Gary Rogers, William F. Cronk,III and Anthony J. Martino
continue to hold office as directors of Class III of the Company's Incentive Stock Option Plan (1982) was
approved. The numberBoard of affirmative votes cast was 9,035,996. The number of
negative votes cast was 27,536.
The amendment toDirectors
until the Company's Stock Option Plan (1992) was approved.
The number of affirmative votes cast was 9,086,085. The number of negative
votes cast was 872,849.
The Company's Stock Option Plan (1993) was approved. The number of
affirmative votes cast was 8,585,823. The number of negative votes cast was
1,376,399.1997 Annual Meeting.
Price Waterhouse LLP was approved as the Company's independent public
accountants for the fiscal year 1994.1995. The number of affirmative votes cast was
11,221,681.12,775,706. The number of negative votes cast was 3,932.2007.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. (i) ANo reports on Form 8-K waswere filed by the Company on May 9, 1994 reportingduring the Company entering into a Stock and Warrant Purchase Agreement
(the "Agreement") with Nestle Holdings, Inc. ("Nestle") pursuant
to which Nestle agreed to purchase from the Company three million
shares of common stock, par value $1.00 per share, for a price of
$32 per share, and three-year warrants to purchase one million
shares for a price of $32 per share and five-year warrants to
13
14
purchase one million shares for a price of $32 per share, the
aggregate purchase price for such warrants being $10 million. The
Form 8-K included the Agreement and exhibits thereto, a copy of
the press release issued by the Company on May 6, 1994 in
connection with the transactions contemplated by the Agreement and
a copy of the press release issued by the Company on May 6, 1994
reporting the Company's earnings for the first quarter
of 1994.
(ii) A Form 8-K/A was filed by the Company on May 23, 1994 to make
technical corrections to the Form 8-K filed on May 9, 1994
reporting the Stock and Warrant Purchase Agreement with Nestle
Holdings, Inc.ended July 1, 1995.
b. Exhibits:Exhibits
Exhibit No. Description
- - ----------- -----------
2.1 First Amendment to the Stock and Warrant Purchase Agreement dated as of June 14, 1994 between the Company and Nestle
Holdings, Inc.
3.1 Certificate of Incorporation of the Company, as amended, including the Certificate of Designation of Series A
Convertible Preferred Stock setting forth the Powers, Preferences, Rights, Qualifications, Limitations and
Restrictions of such series of Preferred Stock and the Certificate of Designation of Series B Convertible Preferred
Stock, as amended, setting forth the Powers, Preferences, Rights, Qualifications, Limitations and Restrictions
of such series of Preferred Stock.
3.2 By-laws of the Company, as amended.
4.110.1 First Amendment to Amended and Restated RightsCredit Agreement dated May 11,
1995 and effective as of May 8, 1995 by and among the Company, ABN
AMRO Bank N.V., Bank of America N.T.&S.A. and Credit Suisse, amending
the Amended and Restated Credit Agreement dated December 13, 1994
among the Company, ABN AMRO Bank N.V., Bank of America N.T.&S.A.
and Credit Suisse.
10.2 Second Amendment to Securities Purchase Agreement dated July 28, 1995
and effective as of June 1, 1995 by and among the Company, Trustees of
General Electric Pension Trust, GE Investment Private Placement
Partners, I and General Electric Capital Corporation, amending the
Securities Purchase Agreement dated June 24, 1993 between the Company,
Trustees of General Electric Pension Trust, GE Investment Private
Placement Partners, I and General Electric Capital Corporation.
10.3 Third Amendment to Note Agreement dated as of June 14, 19945, 1995 between the
Company and First
Interstate Bankeach of California ("FICAL")Massachusetts Mutual Life Insurance Company, MML
Pension Insurance Company, Connecticut Mutual Life Insurance Company,
the Equitable Life Assurance Society of the United States, and
TransAmerica Occidental Life Insurance Company, amending the AmendedNote
Agreements dated as of March 15, 1991 and Restated Rights Agreementexecuted on April 12, 1991
between the Company and FICAL (as successor Rights Agent to Bankeach of America NT & SA) dated March 4, 1991.
4.2 Registration Rights Agreement dated as of June 14, 1994 between theMassachusetts Mutual Life Insurance
Company, and Nestle Holdings, Inc.
4.3 Warrant Agreement dated as of June 14, 1994 between theMML Pension Insurance Company, and Nestle Holdings, Inc.
10.1 Third Amendment to Credit Agreement dated July 15, 1994, among the Company, Bank of America NT & SA (the "Bank") as
a participant and as Agent, ABN AMRO Bank N.V. ("ABN AMRO"), and Continental Bank N.A. amending the Credit Agreement
dated April 30, 1993 among theConnecticut Mutual Life
Insurance Company, the BankEquitable Life Assurance Society of the United
States, and ABN AMRO.
10.2 Second Amendment to Standby Reimbursement Agreement, dated as of June 25, 1994 between the Company and Sanwa Bank of
California ("Sanwa") amending the Standby Reimbursement Agreement between the Company and Sanwa dated July 1, 1988.TransAmerica Occidental Life Insurance Company.
11 Computation of Net Income (Loss) Per Common Share.
27 Financial Data Schedule.
1413
1514
SIGNATURES
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 9, 1994 By: /s/ Paul R. Woodland
----------------------------
Paul R. Woodland
Vice President - Finance and
Administratio
DREYER'S GRAND ICE CREAM, INC.
Dated: August 15, 1995 By: /s/ Paul R. Woodland
-------------------------------------------
Paul R. Woodland
Vice President - Finance and Administration
and Chief Financial Officer
14
15
16EXHIBIT INDEX TO EXHIBITS
Exhibit No. Description
- - ----------- -----------
2.1 First Amendment to the Stock and Warrant Purchase Agreement dated as of June 14, 1994 between the Company and Nestle
Holdings, Inc.
3.1 Certificate of Incorporation of the Company, as amended, including the Certificate of Designation of Series A
Convertible Preferred Stock setting forth the Powers, Preferences, Rights, Qualifications, Limitations and
Restrictions of such series of Preferred Stock and the Certificate of Designation of Series B Convertible Preferred
Stock, as amended, setting forth the Powers, Preferences, Rights, Qualifications, Limitations and Restrictions
of such series of Preferred Stock.
3.2 By-laws of the Company, as amended.
4.110.1 First Amendment to Amended and Restated RightsCredit Agreement dated May 11,
1995 and effective as of May 8, 1995 by and among the Company, ABN
AMRO Bank N.V., Bank of America N.T.&S.A. and Credit Suisse, amending
the Amended and Restated Credit Agreement dated December 13, 1994
among the Company, ABN AMRO Bank N.V., Bank of America N.T.&S.A.
and Credit Suisse.
10.2 Second Amendment to Securities Purchase Agreement dated July 28, 1995
and effective as of June 1, 1995 by and among the Company, Trustees of
General Electric Pension Trust, GE Investment Private Placement
Partners, I and General Electric Capital Corporation, amending the
Securities Purchase Agreement dated June 24, 1993 between the Company,
Trustees of General Electric Pension Trust, GE Investment Private
Placement Partners, I and General Electric Capital Corporation.
10.3 Third Amendment to Note Agreement dated as of June 14, 19945, 1995 between the
Company and First
Interstate Bankeach of California ("FICAL")Massachusetts Mutual Life Insurance Company, MML
Pension Insurance Company, Connecticut Mutual Life Insurance Company,
the Equitable Life Assurance Society of the United States, and
TransAmerica Occidental Life Insurance Company, amending the AmendedNote
Agreements dated as of March 15, 1991 and Restated Rights Agreementexecuted on April 12, 1991
between the Company and FICAL (as successor Rights Agent to Bankeach of America NT & SA) dated March 4, 1991.
4.2 Registration Rights Agreement dated as of June 14, 1994 between theMassachusetts Mutual Life Insurance
Company, and Nestle Holdings, Inc.
4.3 Warrant Agreement dated as of June 14, 1994 between theMML Pension Insurance Company, and Nestle Holdings, Inc.
10.1 Third Amendment to Credit Agreement dated July 15, 1994, among the Company, Bank of America NT & SA (the "Bank") as
a participant and as Agent, ABN AMRO Bank N.V. ("ABN AMRO"), and Continental Bank N.A. amending the Credit Agreement
dated April 30, 1993 among theConnecticut Mutual Life
Insurance Company, the BankEquitable Life Assurance Society of the United
States, and ABN AMRO.
10.2 Second amendment to Standby Reimbursement Agreement, dated as of June 25, 1994 between the Company and Sanwa Bank of
California ("Sanwa") amending the Standby Reimbursement Agreement between the Company and Sanwa dated July 1, 1988.TransAmerica Occidental Life Insurance Company.
11 Computation of Net Income (Loss) Per Common Share.
27 Financial Data Schedule.