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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 July 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 11, 1995
-----------------
Common stock, $1.00 par value 12,860,073
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DREYER'S GRAND ICE CREAM, INC.
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED BALANCE SHEET
July 1, December 31,
($ in thousands, except per share amounts) 1995 1994
-------- ----------
(unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 3,262 $ 6,334
Trade accounts receivable, net of
allowance for doubtful accounts of
$716 in 1995 and $635 in 1994 88,845 47,519
Other accounts receivable 14,627 6,243
Inventories 38,130 29,081
Prepaid expenses and other 6,353 9,657
-------- --------
Total current assets 151,217 98,834
Property, plant and equipment, net 174,283 160,322
Goodwill and distribution rights, net 88,187 87,825
Other assets, net 14,997 15,045
-------- --------
Total assets $428,684 $362,026
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See accompanying Notes to Consolidated Financial Statements
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DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED BALANCE SHEET
July 1, December 31,
($ in thousands, except per share amounts) 1995 1994
-------- -----------
(unaudited)
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 64,505 $ 30,130
Accrued payroll and employee benefits 14,040 15,801
Current portion of long-term debt 4,500 4,500
-------- --------
Total current liabilities 83,045 50,431
Long-term debt, less current portion 115,500 46,100
Convertible subordinated debentures 100,752 100,752
Deferred income taxes 29,746 28,822
-------- --------
Total liabilities 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 1995 and 1994
Common stock, $1 par value -
30,000,000 shares authorized; 12,858,000
shares and 14,064,000 shares issued and
outstanding in 1995 and 1994, respectively 12,858 14,064
Capital in excess of par 37,787 75,257
Retained earnings 48,996 46,600
-------- --------
Total stockholders' equity 99,641 135,921
-------- --------
Total liabilities and stockholders' equity $428,684 $362,026
======== ========
See accompanying Notes to Consolidated Financial Statements
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DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
---------------------- ----------------------
($ in thousands, except per share amounts) July 1, 1995 June 25, 1994 July 1, 1995 June 25, 1994
------------ ------------- ------------ -------------
Revenues:
Net sales $188,083 $147,727 $329,338 $259,728
Other income 673 409 913 682
-------- -------- -------- --------
188,756 148,136 330,251 260,410
Costs and expenses:
Cost of goods sold 145,038 109,659 257,269 198,411
Selling, general and administrative 34,687 38,398 61,177 57,126
Interest, net of interest capitalized 2,995 2,424 5,238 4,633
-------- -------- -------- --------
182,720 150,481 323,684 260,170
-------- -------- -------- --------
Income (loss) before income taxes 6,036 (2,345) 6,567 240
Income tax (provision) benefit (2,372) 910 (2,581) (93)
-------- -------- -------- --------
Net income (loss) $ 3,664 $ (1.435) $ 3,986 $ 147
======== ======== ======== ========
Net income (loss) per share $ .27 $ (.10) $ .29 $ .01
======== ======== ======== ========
Dividends per share $ .06 $ .06 $ .12 $ .12
======== ======== ======== ========
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
------------ -------------
Cash flows from operating activities:
Net income $ 3,986 $ 147
Adjustments to reconcile net income to cash provided from
operations:
Depreciation and amortization 9,863 8,507
Deferred income taxes 924 12
Changes in assets and liabilities, net of amounts
acquired:
Trade accounts receivable (41,326) (26,217)
Other accounts receivable (8,384) (2,363)
Inventories (9,049) (9,374)
Prepaid expenses and other 3,304 2,351
Accounts payable and accrued liabilities 34,465 27,260
Accrued payroll and employee benefits (1,761) (685)
-------- --------
(7,978) (362)
-------- --------
Cash flows from investing activities:
Acquisition of property, plant and equipment (21,882) (19,210)
Retirement of property, plant and equipment 232 405
Increase in goodwill and distribution rights (1,843) (15,239)
Increase in other assets (645) (538)
-------- --------
(24,138) (34,582)
-------- --------
Cash flows from financing activities:
Decrease in short-term bank borrowings (23,400)
Increase in short-term bank borrowings 23,400
Proceeds from long-term debt 73,000
Reductions in long-term debt (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
Repurchases of common stock (40,446) (37,916)
Cash dividends paid (1,680) (1,765)
-------- --------
29,044 63,842
-------- --------
(Decrease) increase in cash and cash equivalents (3,072) 28,898
Cash and cash equivalents, beginning of period 6,334 2,532
-------- --------
Cash and cash equivalents, end of period $ 3,262 $ 31,430
======== ========
Supplemental Cash Flow Information - cash paid during the period for:
Interest (net of amounts capitalized) $ 5,340 $ 4,640
Income taxes (net of refunds) 421 233
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, have not been audited by
independent public accountants, but include all adjustments, such as normal
recurring accruals, which management considers necessary for a fair
presentation of the consolidated operating results for the periods. The
statements have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosure normally included in financial statements
prepared in conformity with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The operating
results for interim periods are not necessarily indicative of results to be
expected for an entire year. The aforementioned statements should be read in
conjunction with the consolidated financial statements for the year ended
December 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 July 1, 1995 and December 31, 1994
consisted of the following (in thousands):
July 1, December 31,
1995 1994
-------- -----------
Raw materials $ 5,554 $ 3,153
Finished goods 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, 1994. The potentially dilutive effect of the Company's
convertible subordinated debentures and other common stock equivalents was
anti-dilutive for the thirteen and twenty-six week periods ended July 1, 1995
and June 25, 1994. Accordingly, fully diluted net income per share is not
presented.
NOTE 5 - Common Stock:
The Company's previously announced common stock repurchase program was
completed during the quarter. During the first two quarters of 1995 the
Company repurchased and retired 1,291,000 shares of its common stock at prices
ranging from $28.63 to $34.25 per share. Under the program the Company
repurchased 5,000,000 shares 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 26,000 shares of its common stock at prices ranging
from $24.50 to $30.00 per share from employees who previously acquired shares
under employee stock plans.
NOTE 6 - Subsequent Event:
On August 8, 1995, the Company converted $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
Series 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 and can be called for early redemption after December 15, 1997, subject
to certain limitations.
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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 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
-------------------- ---------------------- 1995 1995
July 1, June 25, July 1, June 25, Compared Compared
1995 1994 1995 1994 with 1994 with 1994
-------------------- ---------------------- ----------------------
Revenues
Net sales 100.0% 100.0% 100.0% 100.0% 27.3% 26.8%
Other income 0.4 0.3 0.3 0.3 64.6 33.9
----- ----- ----- -----
Total revenue 100.4 100.3 100.3 100.3 27.4 26.8
----- ----- ----- -----
Costs and expenses:
Costs of goods sold 77.1 74.2 78.1 76.4 32.3 29.7
Selling, general and administrative 18.5 26.0 18.6 22.0 (9.7) 7.1
Interest, net of interest capitalized 1.6 1.7 1.6 1.8 23.6 13.1
----- ----- ----- -----
Total costs and expenses 97.2 101.9 98.3 100.2 21.4 24.4
----- ----- ----- -----
Income (loss) before income taxes 3.2 (1.6) 2.0 0.1 357.4 2,636.3
Income tax (provision) benefit (1.3) 0.6 (.8) 0.0 (360.7) 2,675.3
----- ----- ----- -----
Net income (loss) 1.9 (1.0) 1.2 0.1 (355.3) 2,611.6
===== ===== ===== =====
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RESULTS OF OPERATIONS
Thirteen Weeks ended July 1, 1995 Compared with Thirteen Weeks ended June 25,
1994
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 Strategic Plan). Under the Strategic Plan, the Company
increased the amount of its spending for advertising and consumer promotion
from $11,486,000 in 1993 to $40,287,000 in 1994, and plans to spend
approximately $50,000,000 annually on these marketing activities from 1995
through 1998. In 1994, the Company began selling its products for the first
time in the Texas and New England markets as well as in several cities in the
southern United States, and has continued to expand into additional geographic
markets in 1995. The Company anticipates that the Strategic Plan will continue
to materially reduce earnings during 1995 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. The
Company believes that these benefits are not likely to impact its results until
1996 at the earliest, 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 increased
marketing expenditures, competitors' activities and general economic
conditions.
Consolidated net sales for the second quarter of 1995 increased 27% to
$188,083,000 compared with $147,727,000 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 led by
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 (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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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 represented 36% of consolidated net sales as compared with 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 $58,858,000, or 30%, as compared with 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 higher
distribution expenses.
Selling, general and administrative expenses in the first two quarters of 1994
increased $4,051,000 or 7% as compared with the same period in 1994. This
increase related primarily to an increase in overall marketing expenses of
$3,975,000.
Interest expense in the first two quarters of 1995 was $605,000, or 13%, higher
than in the same period in the prior year due primarily to increased borrowings
under the Company's long term line of credit.
Income taxes increased $2,488,000 reflecting a higher pre-tax income, while the
effective tax rate increased from 38.8% for the first two quarters of 1994 to
39.3% for the first two quarters of 1995.
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LIQUIDITY AND CAPITAL RESOURCES
Working capital at July 1, 1995 increased $19,769,000 from year end 1994 due
primarily to the seasonal increase in trade accounts receivable, other accounts
receivable and inventories partially offset by an increase in accounts payable
and accrued liabilities. Cash was provided primarily from the $73,000,000
proceeds from long-term debt. This source was used to fund the $40,446,000
repurchases of common stock and the $21,882,000 increase in property, plant and
equipment.
At July 1, 1995, the Company had $3,262,000 in cash and cash equivalents, and
an unused credit line of $31,800,000. The Company believes that its credit
line, along with its liquid resources, internally generated cash and financing
capacity, are adequate to meet anticipated operating and capital requirements.
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PART II: OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 10, 1994, the Company held its 1995 Annual Meeting of Stockholders. A
total of 12,783,389 shares (91.7%) of the outstanding 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 I directors to hold office until the 1998
Annual Meeting of Stockholders or until their successors are
elected are qualified; and
b. Approving the appointment of Price Waterhouse LLP as independent
public accountants for fiscal year 1995 and thereafter until
a successor is appointed.
At the Annual Meeting, Merrill M. Halpern, John W. Larson and Jack O.
Peiffer were elected as directors of Class I of the Company's Board of
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. T. Gary Rogers, William F. Cronk,III and Anthony J. Martino
continue to hold office as directors of Class III of the Board of Directors
until the 1997 Annual Meeting.
Price Waterhouse LLP was approved as the Company's independent public
accountants for fiscal year 1995. The number of affirmative votes cast was
12,775,706. The number of negative votes was 2007.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. No reports on Form 8-K were filed by the Company during the quarter
ended July 1, 1995.
b. Exhibits
Exhibit No. Description
----------- -----------
10.1 First Amendment to Amended and Restated Credit 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 5, 1995 between the
Company and each of 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 Note
Agreements dated as of March 15, 1991 and executed on April 12, 1991
between the Company and each of 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.
11 Computation of Net Income Per Common Share.
27 Financial Data Schedule.
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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: August 15, 1995 By: /s/ Paul R. Woodland
-------------------------------------------
Paul R. Woodland
Vice President - Finance and Administration
and Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.1 First Amendment to Amended and Restated Credit 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 5, 1995 between the
Company and each of 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 Note
Agreements dated as of March 15, 1991 and executed on April 12, 1991
between the Company and each of 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.
11 Computation of Net Income Per Common Share.
27 Financial Data Schedule.