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FORM 10-Q/A
AMENDMENT N0. 1
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 March 26, 1994
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
May 9, 1994
------------
Common stock, $1.00 par value 14,007,197
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DREYER'S GRAND ICE CREAM, INC.
FORM 10-Q/A
AMENDMENT NO. 1
FOR THE QUARTERLY PERIOD ENDED MARCH 26, 1994
This amendment is being filed as a result of certain errors and omissions
relating to Note 6 of Notes to Consolidated Financial Statements in Part I,
Item I, Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations contained in Part I, Item 2 and Exhibits
and Reports on Form 8K in Part II, Item 6.
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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
March 26, December 25,
1994 1993
------------ -------------
(unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 582,000 $ 2,532,000
Trade accounts receivable, net of
allowance for doubtful accounts of
$494,000 in 1994 and $535,000 in 1993 52,604,000 46,293,000
Other accounts receivable 5,361,000 5,326,000
Inventories 31,179,000 27,817,000
Prepaid expenses and other 6,143,000 8,256,000
------------- -------------
Total current assets 95,869,000 90,224,000
Property, plant and equipment, net 150,699,000 142,275,000
Goodwill and distribution rights, net of
accumulated amortization of $8,238,000
in 1994 and $7,572,000 in 1993 87,113,000 72,988,000
Other assets 17,056,000 16,788,000
------------- -------------
Total assets $ 350,737,000 $ 322,275,000
============= =============
See accompanying Notes to Consolidated Financial Statements
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DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED BALANCE SHEET
March 26, December 25,
1994 1993
------ ------
(unaudited)
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term bank borrowings $ 23,400,000
Accounts payable and accrued liabilities 27,496,000 $ 21,893,000
Accrued payroll and employee benefits 7,828,000 9,249,000
Current portion of long-term debt 1,075,000 1,685,000
------------- -------------
Total current liabilities 59,799,000 32,827,000
Long-term debt, less current portion 38,875,000 38,875,000
Convertible subordinated debentures 100,752,000 100,752,000
Deferred income 150,000 174,000
Deferred income taxes 26,808,000 26,613,000
------------- -------------
Total liabilities 226,384,000 199,241,000
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Commitments and contingencies
Stockholders' Equity:
Preferred stock, $1 par value -
10,000,000 shares authorized; no shares
issued or outstanding in 1994 and 1993
Common stock, $1 par value -
30,000,000 shares authorized; 14,737,000
shares and 14,671,000 shares issued and
outstanding in 1994 and 1993, respectively 14,737,000 14,671,000
Capital in excess of par 60,328,000 59,145,000
Retained earnings 49,288,000 49,218,000
------------- -------------
Total stockholders' equity 124,353,000 123,034,000
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Total liabilities and stockholders' equity $ 350,737,000 $ 322,275,000
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See accompanying Notes to Consolidated Financial Statements
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DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
Thirteen Weeks Ended
----------------------------------------------------
March 26, 1994 March 27, 1993
-------------- --------------
(unaudited)
Revenues:
Net sales $112,001,000 $102,317,000
Other income 273,000 169,000
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112,274,000 102,486,000
------------- --------------
Costs and expenses:
Cost of goods sold 88,752,000 81,291,000
Selling, general and administrative 18,728,000 16,066,000
Interest, net of interest capitalized 2,209,000 1,668,000
------------- --------------
109,689,000 99,025,000
------------- --------------
Income before income taxes 2,585,000 3,461,000
Income taxes 1,003,000 1,343,000
------------- --------------
Net income $ 1,582,000 $ 2,118,000
============= ==============
Net income per share $ .11 $ .15
============== ==============
Dividends per share $ .06 $ .06
============== ===============
Retained earnings, beginning of period $ 49,218,000 $ 36,677,000
Net income 1,582,000 2,118,000
Cash dividends declared (884,000) (876,000)
Repurchase and retirement of
common stock (628,000) (91,000)
------------- --------------
Retained earnings, end of period $ 49,288,000 $ 37,828,000
============= ==============
See accompanying Notes to Consolidated Financial Statements
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DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Thirteen Weeks Ended
----------------------------------------
March 26, 1994 March 27, 1993
-----------------------------------------
(unaudited)
Cash flows from operating activities:
Net income $ 1,582,000 $ 2,118,000
Adjustments to reconcile net income to cash provided from
operations:
Depreciation and amortization 4,090,000 3,548,000
Deferred income taxes 195,000 135,000
Deferred income (24,000) (24,000)
Changes in assets and liabilities, net of amounts
acquired:
Trade accounts receivable (6,311,000) (5,684,000)
Other accounts receivable (35,000) (1,276,000)
Inventories (3,362,000) 1,135,000
Prepaid expenses and other 2,113,000 2,660,000
Accounts payable and accrued liabilities 5,600,000 5,583,000
Accrued payroll and employee benefits (1,421,000) (2,862,000)
Income taxes payable 106,000
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2,427,000 5,439,000
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Cash flows from investing activities:
Acquisition of property, plant and equipment (11,470,000) (9,460,000)
Retirement of property, plant and equipment 52,000 31,000
Increase in goodwill and distribution rights (14,790,000) (307,000)
(Increase) decrease in other assets, net (699,000) 388,000
------------ ------------
(26,907,000) (9,348,000)
------------ ------------
Cash flows from financing activities:
Increase (decrease) in short-term bank borrowings 23,400,000 (29,000,000)
Proceeds from long-term debt 36,100,000
Reductions in long-term debt (610,000) (2,498,000)
Cash dividends paid (881,000) (874,000)
Issuance of stock under employee stock plans 621,000 259,000
------------ ------------
22,530,000 3,987,000
------------ ------------
(Decrease) increase in cash and cash equivalents (1,950,000) 78,000
Cash and cash equivalents, beginning of period 2,532,000 606,000
------------ ------------
Cash and cash equivalents, end of period $ 582,000 $ 684,000
============ ============
Supplemental Cash Flow Information - cash paid during the
year for:
Interest (net of amounts capitalized) $ 2,789,000 $ 2,255,000
Income taxes (net of refunds) 166,000 146,000
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 week periods
ended March 26, 1994, and March 27, 1993, have not been audited by independent
public accountants, but include all adjustments, consisting of 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 Stockholders for the year ended December 25, 1993.
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 March 26, 1994 and
December 25, 1993 consisted of the following (in thousands):
March 26, December 25,
1994 1993
-------- ----------
Raw materials $ 3,618 $ 2,050
Finished goods 27,561 25,767
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$31,179 $27,817
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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 14,698,000 shares for
the quarter ended March 26, 1994 and 14,579,000 shares for the
quarter ended March 27, 1993.
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 - Subsequent Event:
On May 6, 1994, the Company entered into an agreement (the
"Nestle Agreement") with an affiliate of Nestle USA, Inc. ("Nestle"), whereby
Nestle will purchase 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. Warrants for one million shares
will expire in three years from the closing date and warrants for the other
million shares will expire in five years from the closing date. Nestle is
paying an aggregate of $10,000,000 for the two million warrants.
The Company will have the right to cause Nestle to exercise
the warrants at $24 per share subject to certain conditions at any time during
the three year period following the closing. The Company will also have 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, within five years from the date of closing, 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.
Closing of the Nestle Agreement is subject to certain
conditions, including the expiration or termination of applicable waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act.
In addition to the above Nestle Agreement, the Company is
entering into a distribution agreement with Nestle to distribute Nestle's
frozen novelty and ice cream products in certain markets beginning in 1995.
Also, 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 this agreement, the Company can borrow funds to finance the
purchase of its common stock. (See below.) Interest on borrowings is payable at
a same day funding rate plus an applicable margin, or at the bank's reference
rate. The Credit Agreement terminates at the earlier of the closing of the
Nestle Agreement, the date the combined purchase price of shares and warrants
of the Nestle Agreement is reduced to less than $100,000,000, the date the
Nestle Agreement is terminated, or in 60 days.
Subsequent to quarter end, the Company repurchased 763,000
shares of its common stock at prices ranging from $22.50 to $22.75 under a
newly authorized plan to repurchase up to 5 million shares through open market
purchases and negotiated transactions.
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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 Weeks Ended
-----------------------
March 26, March 27, Thirteen Weeks 1994
1994 1993 Compared to 1993
---------- ---------- -------------------
Revenues:
Net sales 100.0% 100.0% 9.5%
Other income 0.2 0.2 61.5
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Total revenue 100.2 100.2 9.6
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Costs and expenses:
Cost of goods sold 79.2 79.5 9.2
Selling, general and administrative 16.7 15.7 16.6
Interest, net of interest capitalized 2.0 1.6 32.4
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Total costs and expenses 97.9 96.8 10.8
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Income before income taxes 2.3 3.4 (25.3)
Income taxes 0.9 1.3 (25.3)
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Net income 1.4 2.1 (25.3)
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RESULTS OF OPERATIONS
Thirteen Weeks Ended March 26, 1994 Compared with Thirteen Weeks Ended March
27, 1993
Consolidated net sales for the first quarter of 1994 increased 9% to
$112,001,000 compared with $102,317,000 for the same period last year. Sales of
the Company's brands increased 17% and represented 66% of consolidated net
sales as compared with 62% in the first quarter of 1993. The increase related
primarily to higher unit sales of the Company's established brands in all
markets and, to a lesser extent, sales of two recently introduced products,
Dreyer's and Edy's Ice Cream Bars and Tropical Fruit Bars. The effect of price
increases for the Company's brands was not significant. Sales of products
purchased from other manufacturers (partner brands) decreased 2% and
represented 34% of consolidated net sales as compared with 38% in the first
quarter of 1993. The effect of price increases for partner brands was not
significant.
The Company is embarking on a five year plan 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"). Under this Marketing Plan, the Company will increase the amount of its
spending for advertising and consumer promotion from a level of approximately
$12,000,000 in 1993 to $40,000,000 in 1994, and plans to spend approximately
$50,000,000 annually on these marketing activities from 1995 through 1998. The
Company will begin selling its Edy's branded products in the Boston and
Charlotte markets this year, in addition to the previously announced
introduction of Dreyer's line of products into the Houston market. The Company
anticipates that the new business plan will materially reduce earnings during
the next twelve to twenty-four month period below levels that would have been
attained under the current 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's believes that these
benefits are not likely to impact the Company's results until 1996 at the
earliest. 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, competitors'
activities, and general economic conditions.
Cost of goods sold increased $7,461,000 or 9% over the first quarter of
1993, while the overall gross margin increased from 20.5% in the first quarter
of 1993 to 20.8% in the first quarter of 1994. The higher margin was primarily
the result of increased sales of the Company's brands, which carry a higher
margin than partner brands, offset principally by higher distribution expenses.
Selling, general and administrative expenses in the first quarter of
1994 were $2,662,000 or 17% higher than in the same period of 1993. This
increase related primarily to increased product advertising and promotion
expenses incurred in a continuing effort to enhance the Company's long-term
competitive position.
Interest expense was $541,000 or 32% higher in the first 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.
Income taxes decreased $340,000 reflecting a lower pre-tax income,
while the effective tax rate remained the same at 38.8% for the first quarter
of both 1994 and 1993.
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LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 26, 1994 decreased $21,327,000 from year end
1993 due primarily to the increase in short-term bank borrowings and accounts
payable and accrued liabilities, offset in part by the seasonal increase in
trade receivables and inventories. Cash was provided primarily from the
$23,400,000 increase in short-term bank borrowings. This source was used to
fund the $11,470,000 increase in property, plant and equipment and the
$14,790,000 increase in goodwill and distribution rights resulting primarily
from the Sunbelt distribution rights agreement (see Note 5 of Notes to
Consolidated Financial Statements).
On May 6, 1994, the Company entered into an agreement with an
affiliate of Nestle USA, Inc., whereby Nestle will purchase 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. The warrants are subject to certain limitations and requirements. Nestle
is paying an aggregate of $10,000,000 for these warrants. Total proceeds from
the issuance of the initial three million shares and the two million warrants
will be approximately $106,000,000.
Closing of the Nestle Agreement is subject to certain conditions,
including the expiration or termination of applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act.
Also, on May 6, 1994, the Company entered into a credit agreement
with a bank to borrow up to $100,000,000. Under the terms of this agreement,
the Company can borrow funds to finance the purchase of its common stock. (See
Note 6 of Notes to Consolidated Financial Statements.)
Subsequent to quarter end, the Company repurchased 763,000 shares of
its common stock at prices ranging from $22.50 to $22.75 under a newly
authorized plan to repurchase up to 5 million shares through open market
purchases and negotiated transactions. These repurchases were funded through
the Credit Agreement. (See Note 6 of Notes to Consolidated Financial
Statements.)
At March 26, 1994, the Company had $582,000 in cash and cash
equivalents, and an unused credit line of $26,600,000.
The Company believes that its credit lines, proceeds from the Nestle
Agreement, its internally generated cash and financing capacity are adequate to
meet anticipated operating and capital requirements.
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PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. No reports on Form 8-K were filed by the Company during the quarter
ending on March 26, 1994.
b. Exhibits*
EXHIBIT NO. DESCRIPTION
- - - ----------- -----------
2.1 Amendment to Securities Purchase Agreement dated May 6, 1994 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 by and among the Company, Trustees of General
Electric Pension Trust, GE Investment Private Placement Partners, I and General Electric Capital Corporation.**
4.1 Amendment to Registration Rights Agreement dated May 6, 1994 by and among the Company, Trustees of General
Electric Pension Trust, GE Investment Private Placement Partners, I and General Electric Capital Corporation,
amending the Registration Rights Agreement dated June 30, 1993 by and among the Company, Trustees of General
Electric Pension Trust, GE Investment Private Placement Partners, I and General Electric Capital Corporation.**
10.1 Second Amendment to Credit Agreement dated May 6, 1994 by and among the Company, Bank of America NT & SA, as
Agent and for itself, ABN AMRO Bank N.V. and Continental Bank N.A., amending the Credit Agreement dated
April 30, 1993 by and among the Company, Bank of America NT & SA as Agent and for itself, ABN AMRO Bank N.V.
and Continental Bank N.A.***
10.2 Credit Agreement dated May 6, 1994 by and between the Company and Bank of America NT & SA.**
10.3 Amendment to Distribution Agreement, dated April 18, 1994, and Letter Agreement modifying such Amendment to
Distribution Agreement, dated April 18, 1994 between the Company and Ben & Jerry's Homemade, Inc., amending the
Distribution Agreement between the Company and Ben & Jerry's Homemade, Inc., dated January 7, 1987, as amended.**
11 Computation of Earnings Per Common Share.**
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* An Exhibit 10.4, while not listed in either Item 6(b) or in the Index to
Exhibits, was erroneously filed with the Company's Quarterly Report on
Form 10-Q filed on May 10, 1994. The filed agreement was not consummated
as of May 10, 1994 nor has such agreement been consummated as of
May 23, 1994.
** Previously filed.
*** Refiled to include all conformed signatures.
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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: May 23, 1994 By: /s/ Paul R. Woodland
--------------------------
Paul R. Woodland
Vice President -- Finance
and Administration and
Chief Financial Officer
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Index to Exhibits*
EXHIBIT NO. DESCRIPTION
- - - ----------- -----------
2.1 Amendment to Securities Purchase Agreement dated May 6, 1994 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 by and among the Company, Trustees of General
Electric Pension Trust, GE Investment Private Placement Partners, I and General Electric Capital Corporation.**
4.1 Amendment to Registration Rights Agreement dated May 6, 1994 by and among the Company, Trustees of General
Electric Pension Trust, GE Investment Private Placement Partners, I and General Electric Capital Corporation,
amending the Registration Rights Agreement dated June 30, 1993 by and among the Company, Trustees of General
Electric Pension Trust, GE Investment Private Placement Partners, I and General Electric Capital Corporation. **
10.1 Second Amendment to Credit Agreement dated May 6, 1994 by and among the Company, Bank of America NT & SA, as
Agent and for itself, ABN AMRO Bank N.V. and Continental Bank N.A., amending the Credit Agreement dated
April 30, 1993 by and among the Company, Bank of America NT & SA as Agent and for itself, ABN AMRO Bank N.V.
and Continental Bank N.A.***
10.2 Credit Agreement dated May 6, 1994 by and between the Company and Bank of America NT & SA.**
10.3 Amendment to Distribution Agreement, dated April 18, 1994, and Letter Agreement modifying such Amendment to
Distribution Agreement, dated April 18, 1994 between the Company and Ben & Jerry's Homemade, Inc., amending the
Distribution Agreement between the Company and Ben & Jerry's Homemade, Inc., dated January 7, 1987, as amended.**
11 Computation of Earnings Per Common Share.**
_______________
* An Exhibit 10.4, while not listed in either Item 6(b) or in the Index to
Exhibits, was erroneously filed with the Company's Quarterly Report on
Form 10-Q filed on May 10, 1994. The filed agreement was not consummated
as of May 10, 1994 nor has such agreement been consummated as of
May 23, 1994.
** Previously filed.
*** Refiled to include all conformed signatures.