-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UhrUsHV8myE0rBQ41/lJ29qP3x+nC1HEMQc4Wj+2vwUKVUS4Lt4Gge9udvPSHBm4 H0v9uOcalT01EfTW801zzA== 0000950149-01-500758.txt : 20010516 0000950149-01-500758.hdr.sgml : 20010516 ACCESSION NUMBER: 0000950149-01-500758 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DREYERS GRAND ICE CREAM INC CENTRAL INDEX KEY: 0000352305 STANDARD INDUSTRIAL CLASSIFICATION: ICE CREAM & FROZEN DESSERTS [2024] IRS NUMBER: 942967523 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14190 FILM NUMBER: 1639720 BUSINESS ADDRESS: STREET 1: 5929 COLLEGE AVE CITY: OAKLAND STATE: CA ZIP: 94618 BUSINESS PHONE: 5106528187 10-Q 1 f72724e10-q.txt REPORT FOR THE PERIOD ENDED MARCH 31, 2001 1 FORM 10-Q UNITED STATES 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 31, 2001 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 11, 2001 ------------------ Common stock, $1 par value 28,578,000
2 PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DREYER'S GRAND ICE CREAM, INC. CONSOLIDATED BALANCE SHEET
Mar. 31, 2001 Dec. 30, 2000 ------------- ------------- ($ in thousands, except per share amounts) (Unaudited) Assets Current Assets: Cash and cash equivalents $ 2,459 $ 2,721 Trade accounts receivable, net of allowance for doubtful accounts of $2,611 in 2001 and 2000 107,637 77,310 Other accounts receivable 24,347 18,810 Inventories 78,356 68,801 Deferred income taxes 5,058 4,584 Prepaid expenses and other 7,001 6,950 ---------- ---------- Total current assets 224,858 179,176 Property, plant and equipment, net 190,022 190,833 Goodwill, distribution rights and other intangibles, net 93,643 92,892 Other assets 4,607 5,550 ---------- ---------- Total assets $ 513,130 $ 468,451 ========== ========== Liabilities and Stockholders' Equity Current Liabilities: Accounts payable and accrued liabilities $ 103,312 $ 80,260 Accrued payroll and employee benefits 18,374 24,759 Current portion of long-term debt 11,643 15,043 ---------- ---------- Total current liabilities 133,329 120,062 Long-term debt, less current portion 155,114 121,214 Deferred income taxes 26,235 26,263 ---------- ---------- Total liabilities 314,678 267,539 ---------- ---------- Commitments and contingencies Redeemable convertible preferred stock, $1 par value - 1,008,000 shares authorized; 1,008,000 shares issued and outstanding in 2001 and 2000 100,646 100,540 ---------- ---------- Stockholders' Equity: Preferred stock, $1 par value - 8,992,000 shares authorized; no shares issued or outstanding in 2001 and 2000 Common stock, $1 par value - 60,000,000 shares authorized; 28,569,000 shares and 28,268,000 shares issued and outstanding in 2001 and 2000, respectively 28,569 28,268 Capital in excess of par 62,428 58,396 Notes receivable from stockholders (2,583) (2,284) Retained earnings 9,392 15,992 ---------- ---------- Total stockholders' equity 97,806 100,372 ---------- ---------- Total liabilities and stockholders' equity $ 513,130 $ 468,451 ========== ==========
See accompanying Notes to Consolidated Financial Statements. 2 3 DREYER'S GRAND ICE CREAM, INC. CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Thirteen Weeks Ended ----------------------------- ($ in thousands, except per share amounts) Mar. 31, 2001 Mar. 25, 2000 ------------- ------------- Revenues: Sales $ 272,029 $ 240,419 Other income 239 1,328 ---------- ---------- 272,268 241,747 ---------- ---------- Costs and expenses: Cost of goods sold 217,377 183,204 Selling, general and administrative 59,036 51,578 Interest, net of amounts capitalized 3,014 2,658 ---------- ---------- 279,427 237,440 ---------- ---------- (Loss) income before income tax (benefit) provision (7,159) 4,307 Income tax (benefit) provision (2,727) 1,641 ---------- ---------- Net (loss) income (4,432) 2,666 Accretion of preferred stock to redemption value 106 106 Preferred stock dividends 348 174 ---------- ---------- Net (loss) income available to common stockholders $ (4,886) $ 2,386 ========== ========== Net (loss) income per common share: Basic $ (.17) $ .09 ========== ========== Diluted $ (.17) $ .08 ========== ========== Dividends per common share $ .06 $ .03 ========== ==========
See accompanying Notes to Consolidated Financial Statements. 3 4 DREYER'S GRAND ICE CREAM, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Notes Retained Receivable Earnings Common Stock Capital in From (Accumulated (In thousands) Shares Amount Excess of Par Stockholders Deficit) Total ------ ------- ------------- ------------ ------------ ------- Balances at December 25, 1999 27,871 $27,871 $53,172 $(2,501) $(4,848) $73,694 Net income 2,666 2,666 Accretion of preferred stock to redemption value (106) (106) Preferred stock dividends declared (174) (174) Common stock dividends declared (844) (844) Issuance of common stock under employee stock plans, net 226 226 2,829 (1,382) 1,673 Repurchases and retirements of common stock (3) (3) ------ ------- ------- -------- -------- ------- Balances at March 25, 2000 28,097 $28,097 $55,998 $(3,883) $(3,306) $76,906 ====== ======= ======= ======== ======== ======= Balances at December 30, 2000 28,268 $28,268 $58,396 $(2,284) $ 15,992 $100,372 Net loss (4,432) (4,432) Accretion of preferred stock to redemption value (106) (106) Preferred stock dividends declared (348) (348) Common stock dividends declared (1,714) (1,714) Issuance of common stock under employee stock plans, net 347 347 4,636 (299) 4,684 Repurchases and retirements of common stock (46) (46) (604) (650) ------ ------- ------- -------- -------- -------- Balances at March 31, 2001 28,569 $28,569 $62,428 $(2,583) $ 9,392 $ 97,806 ====== ======= ======= ======== ======== ========
See accompanying Notes to Consolidated Financial Statements. 4 5 DREYER'S GRAND ICE CREAM, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Thirteen Weeks Ended ------------------------------- (In thousands) Mar. 31, 2001 Mar. 25, 2000 ------------- ------------- Cash flows from operating activities: Net (loss) income $ (4,432) $ 2,666 Adjustments to reconcile net (loss) income to cash from operations: Depreciation and amortization 9,169 8,808 Deferred income taxes (502) 549 Changes in assets and liabilities, net of amounts acquired: Trade accounts receivable (30,327) (16,244) Other accounts receivable (5,537) (7,035) Inventories (9,555) (8,515) Prepaid expenses and other (51) (1,006) Accounts payable and accrued liabilities 22,012 22,423 Accrued payroll and employee benefits (6,385) (18,409) --------- --------- (25,608) (16,763) --------- --------- Cash flows from investing activities: Acquisition of property, plant and equipment (7,178) (4,994) Retirement of property, plant and equipment 372 482 Increase in goodwill, distribution rights, and other intangibles (2,000) Purchase of common stock of Cherokee Cream Company, Inc., net of cash acquired (7,651) Decrease in other assets 640 1,075 --------- --------- (8,166) (11,088) --------- --------- Cash flows from financing activities: Proceeds from long-term debt, net 33,900 31,935 Repayments of long-term debt (3,400) (4,713) Issuance of common stock under employee stock plans, net 4,684 1,673 Repurchases and retirements of common stock (650) (3) Cash dividends paid (1,022) (1,005) --------- --------- 33,512 27,887 --------- --------- (Decrease) increase in cash and cash equivalents (262) 36 Cash and cash equivalents, beginning of period 2,721 3,158 --------- --------- Cash and cash equivalents, end of period $ 2,459 $ 3,194 ========= ========= Supplemental cash flow information: Cash paid during the period for: Interest (net of amounts capitalized) $ 1,391 $ 1,648 ========= ========= Income taxes (net of refunds) $ 2 $ 2 ========= ========= Supplemental acquisition information: Fair value of assets acquired $ 19,052 Cash paid for common stock (7,855) --------- Liabilities assumed $ 11,197 =========
See accompanying Notes to Consolidated Financial Statements. 5 6 DREYER'S GRAND ICE CREAM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - Operations and Financial Statement Presentation Dreyer's Grand Ice Cream, Inc. and its subsidiaries (the Company) are engaged primarily in manufacturing and distributing premium and superpremium ice cream and other frozen dessert products to grocery and convenience stores, foodservice accounts and independent distributors in the United States. The Company accounts for its operations geographically for management reporting purposes. These geographic segments have been aggregated for financial reporting purposes due to similarities in the economic characteristics of the geographic segments and the nature of the products, production processes, customer types and distribution methods throughout the United States. The consolidated financial statements for the thirteen-week periods ended March 31, 2001 and March 25, 2000 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 interim 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 30, 2000, appearing in the Company's 2000 Annual Report to Stockholders. Certain reclassifications have been made to prior years' financial statements to conform to the current year presentation. NOTE 2 - Inventories Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market. Inventories at March 31, 2001 and December 30, 2000 consisted of the following:
(In thousands) Mar. 31, 2001 Dec. 30, 2000 ------------- ------------- Raw materials $ 11,274 $ 8,368 Finished goods 67,082 60,433 ---------- ---------- $ 78,356 $ 68,801 ========== ==========
NOTE 3 - Goodwill, distribution rights and other intangibles, net On October 25, 2000, the Company announced that it signed a new, long-term distribution agreement with Ben & Jerry's Homemade, Inc. (Ben & Jerry's), a subsidiary of Unilever United States, Inc. Under this agreement, the Company became the distributor of Ben & Jerry's products for the grocery channel in all of its company-operated markets across the country. The Company and Ben & Jerry's are expanding the Company's role as a Ben & Jerry's distributor in other non-grocery channels, such as convenience stores. The agreement took effect on March 5, 2001, has a term of five years, and automatically renews for two additional five-year terms unless terminated by either party at the end of each five-year 6 7 term. NOTE 4 - Redeemable Convertible Preferred Stock The Company's Series A redeemable convertible preferred stock, redemption value $100,752,000, is convertible, at the option of the holder, into 5,800,000 shares of common stock on or before June 30, 2001. If the holder does not convert, the Company will redeem the shares by paying $100,752,000 on June 30, 2001. The Company anticipates that it would fund such a redemption from borrowings and/or other financing sources. NOTE 5 - Net (Loss) Income Per Common Share The denominator for basic net (loss) income per share includes the number of weighted-average common shares outstanding. The denominator for diluted net (loss) income per share includes the number of weighted-average shares outstanding plus the effect of potentially dilutive securities which include stock options and redeemable convertible preferred stock.
Thirteen Weeks Ended ----------------------------- (In thousands, except per share amounts) Mar. 31, 2001 Mar. 25, 2000 ------------- ------------- Net (loss) income available to common stockholders -- basic $ (4,886) $ 2,386 Add: preferred dividends and accretion 280 ---------- ---------- Net (loss) income available to common stockholders -- diluted $ (4,886) $ 2,666 ========== ========== Weighted-average shares-basic 28,370 27,939 Dilutive effect of options 619 Dilutive effect of preferred stock 5,800 ---------- ---------- Weighted-average shares-diluted 28,370 34,358 ========== ========== Net (loss) income per common share: Basic $ (.17) $ .09 ========== ========== Diluted $ (.17) $ .08 ========== ==========
Anti-dilutive securities Potentially dilutive securities are excluded from the calculations of diluted net (loss) income per common share when their inclusion would have an anti-dilutive effect. These securities, stated in absolute equivalent shares of common stock, consisted of 1,597,000 stock options during the period ended March 25, 2000. In addition, 5,800,000 equivalent common shares relating to the redeemable convertible preferred stock and 2,129,000 stock options that would have been dilutive in a period of income were excluded from the calculation of diluted net loss per common share due to their anti-dilutive effects resulting from the net loss during the period ended March 31, 2001. 7 8 Dividends per common share On February 14, 2001, the Board of Directors, subject to compliance with applicable law, contractual provisions, and future review of the condition of the Company, declared its intention to increase the regular quarterly dividend from $.03 per common share to $.06 per common share starting with the first quarter of 2001. NOTE 6 - New Accounting Pronouncements At its July 19-20, 2000 meeting, the Emerging Issues Task Force of the Financial Accounting Standards Board (EITF), reached a consensus on EITF 00-14, "Accounting for Certain Sales Incentives" (EITF 00-14). This new pronouncement requires that discounts and other sales incentives be recorded as a reduction of revenue at the date of sale. At the present time, the Company classifies these incentives (including variable trade promotion expenses and coupon redemption costs) as a selling, general and administrative expense. At its April 18-19, 2001 meeting, the EITF reached a consensus on EITF 00-25, "Vendor Income Statement Characterization of Consideration from a Vendor to a Retailer" (EITF 00-25). This new pronouncement requires that fees paid to retailers to obtain space for their products on the retailer's store shelves (slotting fees) and amounts paid to retailers to advertise the Company's products be recorded as a reduction of revenue. At the present time, the Company classifies these costs (including fixed trade promotion expenses and slotting fees) as a selling, general and administrative expense. The expenses defined in EITF 00-14 and EITF 00-25 totaled approximately $31,200,000 and $26,400,000, for the thirteen-weeks ended March 31, 2001 and March 25, 2000, respectively. The reclassification of these expenses will result in a decrease in total sales, company brand sales and gross profit, along with a corresponding decrease in selling, general and administrative expenses and will, therefore, have no effect on net income (loss) as previously reported. The Company plans on implementing EITF 00-14 and EITF 00-25 as required in the first quarter of 2002. Reclassification of prior period financial statements is required. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) Forward-Looking Statements The Company may from time to time make written or oral forward-looking statements. Written forward-looking statements may appear in documents filed with the Securities and Exchange Commission, in press releases, and in reports to stockholders. The Private Securities Litigation Reform Act of 1995 contains a "safe harbor" for forward-looking statements upon which the Company relies in making such disclosures. In accordance with this "safe harbor" provision, we have identified that forward-looking statements are contained in this Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. Also, in connection with this "safe harbor" provision, the Company identifies important factors that could cause the Company's actual results to differ materially from those contained in any forward-looking statement made by or on behalf of the Company. Any such statement is qualified by reference to the cautionary statements set forth in this and other filings with the Securities and Exchange Commission. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with Management's Discussion and Analysis for the year ended December 30, 2000, appearing in the Company's 2000 Annual Report to Stockholders. RESULTS OF OPERATIONS The following table sets forth for the periods indicated the percent which the items in the Consolidated Statement of Operations bear to sales and the percentage change of such items compared to the indicated prior period:
Period-to-Period Variance Percentage of Sales Favorable (Unfavorable) ------------------------------ ---------------------- Thirteen Weeks Ended ------------------------------ Thirteen Weeks Ended Mar. 31, 2001 Mar. 25, 2000 2001 Compared to 2000 ------------- ------------- ---------------------- Revenues: Sales 100.0% 100.0% 13.1 % Other income 0.1 0.5 (82.0) ---------- ---------- 100.1 100.5 12.6 ---------- ---------- Costs and expenses: Cost of goods sold 79.9 76.2 (18.7) Selling, general and administrative 21.7 21.5 (14.5) Interest, net of amounts capitalized 1.1 1.1 (13.4) ---------- ---------- 102.7 98.8 (17.7) ---------- ---------- (Loss) income before income tax (benefit) provision (2.6) 1.7 (266.2) Income tax (benefit) provision (1.0) 0.6 266.2 ---------- ---------- Net (loss) income (1.6) 1.1 (266.2) Accretion of preferred stock to redemption value 0.1 0.1 0.0 Preferred stock dividends 0.1 0.1 (100.0) ---------- ---------- Net (loss) income available to common stockholders (1.8)% 0.9% (304.8)% ========== ========== ==========
9 10 THIRTEEN WEEKS ENDED MARCH 31, 2001 COMPARED WITH THIRTEEN WEEKS ENDED MARCH 25, 2000 Consolidated sales for the first quarter of 2001 increased $31,610,000, or 13 percent, to $272,029,000 from $240,419,000 for the same quarter last year (see "New Accounting Pronouncements"). Sales of the Company's branded products, including licensed and joint venture products (company brands), increased $5,697,000 or three percent, to $178,032,000 from $172,335,000 for the same quarter last year. Company brands represented 65 percent of consolidated sales in 2000 compared with 72 percent in the same quarter last year. Gallon sales of the Company's branded products, including novelties, increased approximately 400,000 gallons, or two percent, to approximately 22,900,000 gallons. The products that led this increase were the co-branded M&M/Mars line, the Dreyer's and Edy's Grand Ice Cream, and Whole Fruit Bars. The average price of the Company's branded products increased two percent before the effect of increased trade promotion expenses, which are presently classified as selling, general and administrative expenses (see "New Accounting Pronouncements"). The increase is attributable to price increases on premium ice cream which were implemented in the fourth quarter of 2000. Sales of products distributed for other manufacturers (partner brands), including Ben & Jerry's Homemade, Inc. (Ben & Jerry's), increased $25,913,000, or 38 percent, to $93,997,000 from $68,084,000 for the same quarter last year. This increase was driven largely by the acquisition of independent distributors in 2000 and by increased sales of Ben & Jerry's superpremium products. Sales of partner brands represented 35 percent of consolidated sales compared with 28 percent in the same quarter last year. The Company began distributing Ben & Jerry's products to a larger distribution territory during the month of March and is now the distributor of Ben & Jerry's products for the grocery channel in all of the Company's company-owned markets across the country. Average wholesale prices for partner brands increased approximately nine percent. Unit sales of partner brands increased by 27 percent over the same quarter last year. Cost of goods sold increased $34,173,000, or 19 percent, over the same quarter last year. The Company's gross profit decreased by $2,563,000 to $54,652,000, representing a 20 percent gross margin for the first quarter of 2001 compared with a 24 percent gross margin for the first quarter of 2000. The cost of cream, the Company's primary ingredient, and the cost of certain other ingredients, including vanilla and other flavorings, rose sharply during the quarter. During the first quarter of 2001, the increase in dairy raw material costs unfavorably impacted gross profit by approximately $5,000,000 as compared to the first quarter of 2000. Gross margin was also unfavorably affected by integration and other costs associated with recent acquisitions, higher energy costs and increased distribution expenses incurred in the rollout of additional distribution territories for Ben & Jerry's products. Other income decreased $1,089,000 primarily due to a decrease in earnings from joint ventures accounted for under the equity method. Selling, general and administrative expenses increased $7,458,000, or 14 percent, to $59,036,000 from $51,578,000. The increase primarily reflects increased trade promotion expenses for both new and existing products (see "New Accounting Pronouncements") and increased administrative expenses. Selling, general and administrative expenses represented 22 percent of consolidated sales in the first quarters of 2001 and 2000. Interest expense increased $356,000, or 13 percent, to $3,014,000, primarily attributable to higher average borrowings required for funding acquisitions, slightly offset by lower interest rates. The income tax benefit in 2001 resulted from a pre-tax loss; the income tax provision in 2000 resulted from pre-tax income. The effective tax rate was 38.1% for the first quarters of 2001 and 2000. FINANCIAL CONDITION-LIQUIDITY AND CAPITAL RESOURCES Working capital at March 31, 2001 increased $32,415,000 from year-end 2000. The Company's cash flows used in operating activities increased to $25,608,000 from $16,763,000 for the same period last year. These increases were primarily comprised of increases in accounts receivable and inventories, partially offset by increases in accounts payable and accrued liabilities, and resulted from both seasonality and the additional Ben & Jerry's business. Cash flows used in investing activities totaled $8,166,000 and $11,088,000, in 2001 and 2000, respectively. Cash flows used in investing activities during the first quarter of 2001 consisted primarily of purchases of $7,178,000 in property, plant and equipment. Cash flows used in investing activities during the first quarter of 2000 consisted primarily of the $7,651,000 payment for the purchase of the remaining 84 percent of the outstanding common stock of Cherokee Cream Company, Inc. and purchases of $4,994,000 of property, plant and equipment. 10 11 Cash flows from financing activities totaled $33,512,000 and $27,887,000, in 2001 and 2000, respectively. Cash flows from financing activities for the first quarter of 2001 primarily consisted of a net increase of $33,900,000 in the Company's revolving line of credit, partially offset by repayments of debt totaling $3,400,000. Cash flows from financing activities for the first quarter of 2000 primarily consisted of a net increase of $31,935,000 in the revolving line of credit, partially offset by repayments of debt totaling $4,713,000. The Company's Series A redeemable convertible preferred stock, redemption value $100,752,000, is convertible, at the option of the holder, into 5,800,000 shares of common stock on or before June 30, 2001. If the holder does not convert, the Company will redeem the shares by paying $100,752,000 on June 30, 2001. The Company anticipates that it would fund such a redemption from borrowings and/or other financing sources. On February 14, 2001, the Board of Directors, subject to compliance with applicable law, contractual provisions, and future review of the condition of the Company, declared its intention to increase the regular quarterly dividend from $.03 per common share to $.06 per common share starting with the first quarter of 2001. At March 31, 2001, the Company had $2,459,000 in cash and cash equivalents, and an unused credit line of $120,600,000. The Company believes that its credit line, along with its liquid resources, internally-generated cash and financing capacity, are adequate to meet both short-term and long-term operating and capital requirements. New Accounting Pronouncements At its July 19-20, 2000 meeting, the Emerging Issues Task Force of the Financial Accounting Standards Board (EITF), reached a consensus on EITF 00-14, "Accounting for Certain Sales Incentives" (EITF 00-14). This new pronouncement requires that discounts and other sales incentives be recorded as a reduction of revenue at the date of sale. At the present time, the Company classifies these incentives (including variable trade promotion expenses and coupon redemption costs) as a selling, general and administrative expense. At its April 18-19, 2001 meeting, the EITF reached a consensus on EITF 00-25, "Vendor Income Statement Characterization of Consideration from a Vendor to a Retailer" (EITF 00-25). This new pronouncement requires that fees paid to retailers to obtain space for their products on the retailer's store shelves (slotting fees) and amounts paid to retailers to advertise the Company's products be recorded as a reduction of revenue. At the present time, the Company classifies these costs (including fixed trade promotion expenses and slotting fees) as a selling, general and administrative expense. The expenses defined in EITF 00-14 and EITF 00-25 totaled approximately $31,200,000 and $26,400,000, for the thirteen-weeks ended March 31, 2001 and March 25, 2000, respectively. The reclassification of these expenses will result in a decrease in total sales, company brand sales and gross profit, along with a corresponding decrease in selling, general and administrative expenses and will, therefore, have no effect on net income (loss) as previously reported. The Company plans on implementing EITF 00-14 and EITF 00-25 as required in the first quarter of 2002. Reclassification of prior period financial statements is required. ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK. The largest component of the Company's cost of production is raw materials, principally comprised of dairy products and sugar. Historically, and over the long-term, the Company has been able to compensate for increases in the price level of these commodities through price increases and manufacturing and distribution operating efficiencies. During the first quarter of 2001, the increase in dairy raw material costs unfavorably impacted gross profit by approximately $5,000,000 as compared to the first quarter of 2000. The Company anticipates it will continue to experience unfavorable energy costs, specifically for natural gas, and for electricity at its California facilities in 2001. These California facilities accounted for approximately 30 percent of the Company's total production in 2000. The Company may also experience an interruption in electric power in California during rolling blackouts or at other times. To date, these blackouts have been for short time periods and have had a minimal impact on the Company. 11 12 PART II: OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith:
Exhibit No. Description ----------- ----------- 10.1 First Amendment dated April 19, 2001 to Credit Agreement dated as of July 25, 2000 among Dreyer's Grand Ice Cream, Inc., the banks party to this agreement, Bank of America, N.A. as Agent for the Banks, as Swing Line Bank and as Letter of Credit Issuing Bank; Union Bank of California, N.A. as Syndication Agent and Banc of America Securities LLC as Lead Arranger and Book Manager.
(b) No reports on Form 8-K were filed by the Company during the quarter ended March 31, 2001. However, a Report on Form 8-K announcing that the Company's earnings for the first quarter of 2001 and for fiscal year 2001 would be below expectations was filed on April 2, 2001. 12 13 SIGNATURE 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 15, 2001 By: /s/ Timothy F. Kahn ------------------------------------------------- Timothy F. Kahn Vice President - Finance and Administration and Chief Financial Officer (Principal Financial Officer) 13 14 DREYER'S GRAND ICE CREAM, INC. INDEX OF EXHIBITS
Exhibit No. Description - ----------- ----------- 10.1 First Amendment dated April 19, 2001 to Credit Agreement dated as of July 25, 2000 among Dreyer's Grand Ice Cream, Inc., the banks party to this agreement, Bank of America, N.A. as Agent for the Banks, as Swing Line Bank and as Letter of Credit Issuing Bank; Union Bank of California, N.A. as Syndication Agent and Banc of America Securities LLC as Lead Arranger and Book Manager.
14 EX-10.1 2 f72724ex10-1.txt FIRST AMENDMENT DATED APRIL 19, 2001 1 EXHIBIT 10.1 FIRST AMENDMENT THIS FIRST AMENDMENT dated as of April 19, 2001 (this "Amendment") is among DREYER'S GRAND ICE CREAM, INC. (the "Company"), various financial institutions and BANK OF AMERICA, N.A., as Agent for the Banks (in such capacity, the "Agent"). WHEREAS, the Company, various financial institutions (the "Banks") and the Agent are parties to a Credit Agreement dated as of July 25, 2000 (the "Credit Agreement"; unless otherwise defined herein, terms defined in the Credit Agreement are used herein as defined in the Credit Agreement); and WHEREAS, the parties hereto desire to amend the Credit Agreement as hereinafter set forth; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto agree as follows: SECTION 1. AMENDMENTS. Effective on (and subject to the occurrence of) the Amendment Effective Date (as defined below), the Credit Agreement shall be amended as set forth below: 1.1 Amendment to Consolidated Net Worth. Section 8.13 is amended in its entirety to read as follows: 8.13 Consolidated Net Worth. The Company shall not permit its Consolidated Net Worth at any time to be less than the total of: (i) $42,000,000; plus (ii) 75% of the Company's consolidated net income for each fiscal quarter beginning with the fiscal quarter ending on June 30, 2000 (with no deduction for losses in any such quarter); plus (iii) 75% of Net Issuance Proceeds of any stock offerings issued (excluding stock issuances under Section 8.11(c)); minus (iv) the book value of the Series A Preferred Stock (other than any portion thereof which is mandatorily redeemable within one year); plus (v) the book value of any shares of Series A Preferred Stock which are converted into common stock; minus 2 (vi) the book value of any common stock referred to in clause (v) which has been redeemed or repurchased by the Company from the Person which held the Series A Preferred Stock immediately prior to the conversion thereof. 1.2 Amendment to Minimum Fixed Charge Coverage Ratio. Section 8.14 is amended in its entirety to read as follows: 8.14 Minimum Fixed Charge Coverage Ratio. (a) The Company shall not permit its Fixed Charge Coverage Ratio: ================================================================================ For the period consisting of the four consecutive To be less than: fiscal quarters ending on the last day of its: - -------------------------------------------------------------------------------- 2.00 First fiscal quarter of 2001 - -------------------------------------------------------------------------------- 1.75 Second fiscal quarter of 2001 - -------------------------------------------------------------------------------- 2.00 Third fiscal quarter of 2001 - -------------------------------------------------------------------------------- 2.00 Fourth fiscal quarter of 2001 - -------------------------------------------------------------------------------- 2.00 First fiscal quarter of 2002 - -------------------------------------------------------------------------------- 2.75 Second fiscal quarter of 2002 - -------------------------------------------------------------------------------- 3.00 Third fiscal quarter of 2002 and each fiscal quarter thereafter ================================================================================ (b) For purposes of this Section, Fixed Charge Coverage Ratio means, computed on a consolidated basis for any period of four consecutive fiscal quarters ending on the last day of any fiscal quarter, the ratio of "A" to "B" where: "A" means the sum for such period of EBITDA plus operating lease expenses plus, without duplication, all payments under Synthetic Leases; and "B" means the sum for such period of (i) cash interest expense, plus operating lease expenses, plus, without duplication, all payments under Synthetic Leases, plus all cash dividends paid by the Company plus (ii) the current portion, as of the last day of such period, of all principal of Indebtedness (excluding the Series A Preferred Stock). 1.3 Amendment to Funded Debt/EBITDA Ratio. Section 8.15 is amended in its entirety to read as follows: -2- 3 8.15 Funded Debt/EBITDA Ratio. The Company shall not permit its Funded Debt/EBITDA Ratio: ================================================================================ For the period consisting of the four consecutive To be greater than: fiscal quarters ending on the last day of its: - -------------------------------------------------------------------------------- 3.75 First fiscal quarter of 2001 - -------------------------------------------------------------------------------- 3.50 Second fiscal quarter of 2001 - -------------------------------------------------------------------------------- 3.50 Third fiscal quarter of 2001 - -------------------------------------------------------------------------------- 3.25 Fourth fiscal quarter of 2001 - -------------------------------------------------------------------------------- 3.25 First fiscal quarter of 2002 - -------------------------------------------------------------------------------- 3.00 Second fiscal quarter of 2002 and each fiscal quarter thereafter ================================================================================ 1.4 Amendment to Pricing Schedule. The existing Pricing Schedule attached to the Credit Agreement as Schedule 1.1 is replaced by Schedule 1.1 hereto. SECTION 2. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the Agent and the Banks that (a) the representations and warranties made in Article VI of the Credit Agreement are true and correct on and as of the Amendment Effective Date with the same effect as if made on and as of the Amendment Effective Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and correct as of such earlier date); (b) on and as of the Amendment Effective Date (and after giving effect hereto), no Default or Event of Default will exist; (c) no event or circumstance has occurred since the Closing Date that has resulted, or would reasonably be expected to result, in a Material Adverse Effect; (d) the execution and delivery by the Company of this Amendment and the performance by the Company of its obligations under the Credit Agreement as amended hereby (as so amended, the "Amended Credit Agreement") (i) are within the corporate powers of the Company, (ii) have been duly authorized by all necessary corporate action, (iii) have received all necessary governmental approval and (iv) do not and will not contravene or conflict with any provision of law or of any agreement or other contract, or any judgment, order or decree, which is binding upon the Company; and (e) the Amended Credit Agreement is the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. SECTION 3. EFFECTIVENESS. The amendments set forth in Section 1 shall become effective, as of the day and year first above written, on the date (the "Amendment Effective Date") on which the Agent shall have received (a) counterparts of this Amendment executed by the Company and the Majority Banks (it being understood that the Agent may rely on facsimile confirmation of the execution of a counterpart hereof by any party hereto) and (b) for the account -3- 4 of each Bank which delivers a signed counterpart hereof to the Agent on or before 5:00 p.m. on April 19, 2001, an amendment fee equal to 0.125% of such Bank's Commitment. SECTION 4. MISCELLANEOUS. (a) Continuing Effectiveness, etc. As herein amended, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. After the Amendment Effective Date, all references in the Credit Agreement, the Notes, each other Loan Document and any similar document to the "Credit Agreement" or similar terms shall refer to the Amended Credit Agreement. (b) Counterparts. This Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same Amendment. (c) Expenses. The Company agrees to pay the reasonable costs and expenses of the Agent (including Attorney Costs) in connection with the preparation, execution and delivery of this Amendment. (d) Governing Law. This Amendment shall be a contract made under and governed by the laws of the State of Illinois applicable to contracts made and to be performed entirely within such State. (e) Successors and Assigns. This Amendment shall be binding upon the Company, the Banks and the Agent and their respective successors and assigns, and shall inure to the benefit of the Company, the Banks and the Agent and the successors and assigns of the Banks and the Agent. -4- 5 Delivered at Chicago, Illinois, as of the day and year first above written. DREYER'S GRAND ICE CREAM, INC. By: /s/ William C. Collett ----------------------------------------- Name: William C. Collett ----------------------------------------- Title: Treasurer ----------------------------------------- BANK OF AMERICA, N.A., as Agent By: /s/ Lynn A. Durning ----------------------------------------- Name: Lynn A. Durning ----------------------------------------- Title: Managing Director ----------------------------------------- BANK OF AMERICA N.A., as Swing Line Bank, Letter of Credit Issuing Bank and as a Bank By: /s/ Lynn A. Durning ----------------------------------------- Name: Lynn A. Durning ----------------------------------------- Title: Managing Director ----------------------------------------- UNION BANK OF CALIFORNIA, N.A. By: /s/ Gail Fletcher ----------------------------------------- Name: Gail Fletcher ----------------------------------------- Title: Vice President ----------------------------------------- WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/ Roger Fleischman ----------------------------------------- Name: Roger Fleischman ----------------------------------------- Title: Senior Vice President By: /s/ Lauren Downum ----------------------------------------- Name: Lauren Downum ----------------------------------------- Title: Vice President HARRIS TRUST AND SAVINGS BANK By: /s/ Edwin A. Adams, Jr. ----------------------------------------- Name: Edwin A. Adams, Jr. ----------------------------------------- Title: Vice President ----------------------------------------- S-1 6 COBANK, ACB By: /s/ Brian J. Klatt ----------------------------------------- Name: Brian J. Klatt ----------------------------------------- Title: Vice President ----------------------------------------- SUNTRUST BANK By: /s/ Jess E. Jarratt ----------------------------------------- Name: Jess E. Jarratt ----------------------------------------- Title: Managing Director ----------------------------------------- COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A., "RABOBANK NEDERLAND" NEW YORK BRANCH By: /s/ John J. McHugh /s/ Edward J. Peyser ----------------------------------------- Name: John J. McHugh Edward J. Peyser ----------------------------------------- Title: Executive Director Managing Director ----------------------------------------- CREDIT AGRICOLE INDOSUEZ By: /s/ Alan I. Schmelzer ----------------------------------------- Name: Alan I. Schmelzer ----------------------------------------- Title: Vice President, Senior Relationship Manager ----------------------------------------- By: /s/ Bradley C. Peterson ----------------------------------------- Name: Bradley C. Peterson ----------------------------------------- Title: First Vice President ----------------------------------------- THE BANK OF NEW YORK By: /s/ Elizabeth T. Ying ----------------------------------------- Name: Elizabeth T. Ying ----------------------------------------- Title: Vice President ----------------------------------------- S-2 7 SCHEDULE 1.1 PRICING SCHEDULE The Base Rate Margin, the Offshore Rate Margin, the Commitment Fee Rate and the LC Fee Rate, respectively, shall be determined in accordance with the table below and the other provisions of this Schedule 1.1.
- ----------------------------------------------------------------------------------------------------------------------- LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI LEVEL VII - -------------------- ----------- ------------ -------------- -------------- ------------ ------------- ---------------- Base Rate Margin 0.000% 0.000% 0.250% 0.500% 0.875% 1.125% 1.375% - ----------------------------------------------------------------------------------------------------------------------- Offshore Rate 0.750% 1.000% 1.250% 1.500% 1.875% 2.125% 2.375% Margin - ----------------------------------------------------------------------------------------------------------------------- Commitment Fee Rate 0.250% 0.300% 0.350% 0.375% 0.450% 0.500% 0.500% - ----------------------------------------------------------------------------------------------------------------------- LC Fee Rate 0.750% 1.000% 1.250% 1.500% 1.875% 2.125% 2.375% - -----------------------------------------------------------------------------------------------------------------------
Level I applies when the Funded Debt to EBITDA Ratio is less than 1.0 to 1. Level II applies when the Funded Debt to EBITDA Ratio is equal to or greater than 1.0 to 1 but less than 1.5 to 1. Level III applies when the Funded Debt to EBITDA Ratio is equal to or greater than 1.5 to 1 but less than 2.0 to 1. Level IV applies when the Funded Debt to EBITDA Ratio is equal to or greater than 2.0 to 1 but less than 2.5 to 1. Level V applies when the Funded Debt to EBITDA Ratio is equal to or greater than 2.5 to 1 but less than 3.0 to 1. Level VI applies when the Funded Debt to EBITDA Ratio is equal to or greater than 3.0 to 1 but less than 3.5 to 1. Level VII applies when the Funded Debt to EBITDA Ratio is equal to or greater than 3.5 to 1. The applicable Level shall be adjusted, to the extent applicable, on the date of the effectiveness of the First Amendment to this Agreement and, thereafter, 60 days (or, in the case of the last fiscal quarter of any fiscal year of the Company, 100 days) after the end of each fiscal 8 quarter based on the Funded Debt to EBITDA Ratio as of the last day of such fiscal quarter; provided that if the Company fails to deliver the financial statements required by Section 7.01(a) or 7.01(b), as applicable, and the related certificate required by Section 7.02(b) by the 65th day (or, if applicable, the 105th day) after any fiscal quarter, Level VII shall apply until such financial statements are delivered. 2 -----END PRIVACY-ENHANCED MESSAGE-----