-----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, MY47uL4HRrMsrwFJJ9VlWO7J5vc7P0EblSQTis4VD0mYxvvEBfEnz9mmIc3pM0BA XH6+7fZOs0f4995h4GsLYg== 0000950149-97-000665.txt : 19970329 0000950149-97-000665.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950149-97-000665 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970328 SROS: NASD 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14190 FILM NUMBER: 97567380 BUSINESS ADDRESS: STREET 1: 5929 COLLEGE AVE CITY: OAKLAND STATE: CA ZIP: 94618 BUSINESS PHONE: 5106528187 10-K 1 10-K FOR FISCAL YEAR ENDING 12-28-96 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 28, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ------------------------- to -------------------------. 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) Registrant's telephone number, including area code: (510) 652-8187 Securities registered pursuant to Section 12(b) of the Act: None
Name of Each Exchange Title of Each Class on Which Registered - -------------------------------------------------------------------------------------------- Not applicable Not applicable
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00 Par Value Preferred Stock Purchase Rights 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value (based on the average of the high and low sales prices on March 24, 1997, as reported by NASDAQ) of the Common Stock held by non-affiliates was approximately $342,683,981. (Such amount excludes the aggregate market value of shares beneficially owned by the executive officers and members of the Board of Directors of the registrant.) As of March 24, 1997, the latest practicable date, 13,400,607 shares of Common Stock were outstanding. ================================================================================ 2 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Dreyer's Grand Ice Cream, Inc. Proxy Statement for the 1997 Annual Meeting of Stockholders to be filed with the Commission on or before April 27, 1997 are incorporated by reference into Part III of this Annual Report on Form 10-K. With the exception of those portions which are specifically incorporated by reference in this Annual Report on Form 10-K, the Dreyer's Grand Ice Cream, Inc. Proxy Statement for the 1997 Annual Meeting of Stockholders is not to be deemed filed as part of this Report. 3 PART I ITEM 1. BUSINESS GENERAL Dreyer's Grand Ice Cream, Inc. and its consolidated subsidiaries are, unless the context otherwise requires, sometimes referred to herein as "Dreyer's" or the "Company." The Company, successor to the original Dreyer's Grand Ice Cream business, was originally incorporated in California on February 23, 1977 and reincorporated in Delaware on December 28, 1985. Dreyer's manufactures and distributes premium ice cream and other frozen dessert products. Since 1977, Dreyer's Grand Ice Cream has developed from a specialty ice cream sold principally in selected San Francisco Bay Area grocery and ice cream stores to a broad line of frozen dairy and other frozen desserts sold under the Dreyer's and Edy's brand names in retail outlets serving more than 85% of the households in the United States. The Dreyer's line of products are available in the thirteen western states, Texas and certain markets in the Far East. The Company's products are sold under the Edy's brand name generally throughout the remaining regions of the United States. The Dreyer's and Edy's line of products are distributed through a direct-store-delivery system further described below under the caption "Marketing, Sales and Distribution." The Company also distributes and, in certain instances, manufactures branded ice cream and frozen dessert products of other companies. The Dreyer's and Edy's line of ice cream and related products is relatively expensive and is sold by the Company and its independent distributors to grocery stores, convenience stores, club stores, ice cream parlors, restaurants, hotels and certain other accounts. The Dreyer's and Edy's brands enjoy strong consumer recognition and loyalty. MARKETS Ice cream was traditionally supplied by dairies as an adjunct to their basic milk business. Accordingly, ice cream was marketed like milk, as a fungible commodity, and manufacturers competed primarily on the basis of price. This price competition motivated ice cream producers to seek economies in their formulations. The resulting trend to lower quality ice cream created an opportunity for the Company and other producers of premium ice creams, whose products can be differentiated on the basis of quality, technological sophistication and brand image, rather than price. Moreover, the market for all packaged ice creams was influenced by the steady increase in market share of "private label" ice cream products owned by the major grocery chains and the purchase or construction by the chains of their own milk and ice cream plants. The resulting reduction in the market for milk and the "regular" ice cream brands produced by the independent dairies has caused many such dairies to withdraw from the market. Manufacturing and formulation complexities, broader flavor requirements, consumer preference and brand identity, however, make it more difficult for the chains' private label brands to compete effectively in the premium market segment. As a result, independent premium brands such as the Company's are normally stocked by major grocery chains. While many foodservice operators, including hotels, schools, hospitals and other institutions, buy ice cream primarily on the basis of price, there are also those in the foodservice industry who purchase ice cream based on its quality. Operators of ice cream shops wanting to feature a quality brand, restaurants that include an ice cream brand on their menu and clubs or chefs concerned with the quality of their fare are often willing to pay for Dreyer's quality, image and brand identity. PRODUCTS The Company and its predecessors have always been innovators of flavor, package development and formulation. William A. Dreyer, the creator of Dreyer's Grand Ice Cream, is credited with inventing many popular flavors including Rocky Road. Dreyer's was among the first ice creams in the West packaged in round containers with window lids that allow consumers to see the actual product they are buying. The Company was also the first to produce an ice cream lower in calories. The Company's Grand Light(R) formulation was a precursor to the reduced fat, reduced sugar and low cholesterol products in the Company's current product line. 1 4 The Company uses only the highest quality ingredients in its products. The Company's management philosophy is to resist changes in its formulations or production processes that compromise quality for cost even though the industry in general may adopt such new formulation or process compromises. Dreyer's and Edy's Grand Ice Cream is the Company's flagship product. This brand of ice cream utilizes traditional formulations with all natural flavorings and is characterized by premium quality taste and texture, and diverse flavor selection. The flagship product is complimented by the Company's successful reduced fat, low cholesterol products such as Frozen Yogurt; Grand Light, No Sugar Added and Fat Free ice creams; and the Company's Sherbet and Whole Fruit Sorbet products. The Company believes these products are well positioned in the segments of the market where products are characterized by lower levels of fat, sugar and cholesterol than those of regular ice cream. During 1996, the Company introduced Portofino(TM) brand Italian style ice cream in selected western markets. The Company also began manufacturing and distributing Starbucks(TM) Ice Cream products during 1996 for its joint venture with Starbucks Coffee Company. The Company also produces a premium soft serve product, Grand Soft(TM), which is available as ice cream or frozen yogurt. The Company's novelty line features Dreyer's and Edy's Ice Cream Bars, Fruit Bars, and Sundae Cones. The Company redesigned its 1997 packaging for the novelty products to reposition these products to target the family segment of the market. The Company also distributes and, in some instances, manufactures selected branded frozen dessert products of other companies. The Company's product lines now include over 100 flavors that are selected both on the basis of general popularity and on the intensity of consumer response. Some flavors are seasonal and are produced only as a featured flavor during particular months. The Company operates a continuous flavor development and evaluation program. The Company holds registered trademarks on many of its products. Dreyer's believes that consumers associate the Company's trademarks, distinctive packaging and trade dress with its high quality products. The Company does not own any patents that are material to its business. Historically, research and development expenses have not been significant. MARKETING, SALES AND DISTRIBUTION The Company's marketing strategy is based upon management's belief that a significant number of people prefer a quality product and quality image in ice cream just as they do in other product categories. A quality image is communicated in many ways - taste, packaging, flavor selection, price and often through advertising and promotion. If consistency in the product's quality and image are strictly maintained, a brand can develop a clearly defined and loyal consumer following. It is the Company's goal to develop such a consumer following in each major market in which it does business. The Company embarked on a five year plan (the Strategic Plan) during the second quarter of 1994 to accelerate the sales of its brand throughout the country. The key elements of this plan are: 1) to build a high margin brand with a leading market share through effective consumer marketing activities, 2) to expand the Company's direct-store-delivery distribution network to a national scale and enhance this capability with sophisticated information and logistics systems and 3) to introduce innovative new products. The potential benefits of the Strategic Plan are increased market share and future earnings above those levels that would be attained in the absence of the Strategic Plan. The Company anticipates that the earnings benefits expected under the Strategic Plan will be achieved in 1997 and future years. However, no assurance can be given that these expectations relative to future market share and earnings benefits of the strategy will be achieved. The success of the strategy will depend upon, among other things, consumer purchase responsiveness to the increased marketing expenditures, competitors' marketing responses, market conditions affecting the price of the Company's products, commodity costs and efficiencies achieved in manufacturing and distribution operations. For additional information regarding the Strategic Plan see the discussion set forth under the caption "Management's Discussion and Analysis" which appears on pages 30-32 of the Company's 1996 Annual Report to Stockholders. Unlike many other ice cream manufacturers, the Company uses a direct-store-delivery system which allows distribution of the Company's products directly to the retail ice cream cabinet by either the Company's 2 5 own personnel or independent distributors who primarily distribute the Company's products. This store level distribution allows service to be tailored to the needs of each store. Dreyer's believes this service ensures proper product handling, quality control, flavor selection and retail display. The implementation of this system has resulted in an ice cream distribution network capable of providing frequent direct service to grocery stores in every market where the Company's products are sold. Under the Strategic Plan, the Company's distribution network has been significantly expanded to where the Company's products are available to grocery stores serving approximately 85% of the United States. This distribution system is considerably larger than any other direct-store-delivery system for ice cream products currently operating in the United States. Each distributor, whether Company-owned or independent, is primarily responsible for sales of all products within its respective market area. However, the Company provides sales and marketing support to its independent distributors, including training seminars, sales aids of many kinds, point of purchase materials, assistance with promotions and other sales support. The distribution network in the West now includes fourteen distribution centers operated by the Company in large metropolitan areas such as Los Angeles, the San Francisco Bay Area, Phoenix, San Diego, Seattle and Denver. The remaining metropolitan areas throughout the thirteen western states, Texas and the Far East are served through independent distributors. Distribution in the remainder of the United States is under the Edy's brand name with most of the distribution handled through nineteen Company-owned distribution centers, including centers in New York, Chicago, Washington, D.C., Atlanta, Tampa and Milwaukee. The Company also has independent distributors handling the Company's products in certain market areas east of the Rocky Mountains. Taken together, independent distributors accounted for approximately 23% of consolidated net sales in 1996. The Company's agreements with its independent distributors are generally terminable upon 30 days notice by either party. For fiscal 1996, no customer accounted for more than 10% of consolidated net sales of the Company. The Company's export sales were about 2% of 1996 consolidated net sales. The Company experiences a seasonal fluctuation in sales, with more demand for its products during the spring and summer than during the fall and winter. MANUFACTURING The Company manufactures its products at its plants in Union City, California; City of Commerce, California; Fort Wayne, Indiana; Houston, Texas; and Salt Lake City, Utah. In order to serve high altitude markets, the Company has manufacturing agreements with an ice cream manufacturer to produce Dreyer's line of products in accordance with specifications and quality control provided by Dreyer's. Of the approximately 71 million gallons of the Company's products sold in 1996, approximately 2 million gallons were manufactured under these arrangements. The Company also has manufacturing agreements with two different facilities to produce a portion of its novelty products. During 1996, these facilities produced approximately 3 million cases of Dreyer's and Edy's Ice Cream Bars and Fruit Bars. In addition, the Company has agreements to produce products for other manufacturers. In 1996, the Company manufactured approximately 13 million gallons of product under these agreements. The primary factor in the Company's product costs is the price of basic dairy ingredients (cream, milk and skim milk) and sugar. The minimum prices paid for dairy ingredients are established by the market under the Federal Milk Price Support Program. During 1996, the Company experienced an $8,140,000 increase in dairy raw materials costs which negatively impacted the Company's gross profit. However, these higher costs were offset by price increases and productivity gains. In order to ensure consistency of flavor, each of the Company's manufacturing plants purchases, to the extent practicable, all of its required dairy ingredients from one local supplier. These dairy products and most other ingredients or their equivalents are available from multiple sources. The Company maintains a rigorous process for evaluating qualified alternative suppliers of its key ingredients. 3 6 COMPETITION The Company's manufactured products compete on the basis of brand image, quality and breadth of flavor selection. The ice cream industry is highly competitive and most ice cream manufacturers, including full line dairies, the major grocery chains and the other independent ice cream processors, are capable of manufacturing and marketing high quality ice creams. Furthermore, there are relatively few barriers to new entrants in the ice cream business. However, reduced fat, reduced sugar and low cholesterol ice cream products generally require technologically sophisticated formulations in comparison to standard or "regular" ice cream products. Much of the Company's competition comes from the "private label" brands produced by or for the major supermarket chains and which generally sell at prices below those charged by the Company for its products. Because these brands are owned by the retailer, they often receive preferential treatment when the retailers allocate available freezer space. The Company's competition also includes premium ice creams produced by other ice cream manufacturers, some of whom are owned by parent companies much larger than Dreyer's. EMPLOYEES On December 28, 1996, the Company had approximately 2,900 employees. The Company's Union City manufacturing and distribution employees are represented by the Teamsters Local 853, whose contract with the Company expires between March 1998 and December 2001 for different types of employees, and the International Union of Operating Engineers, Stationary Local No. 39, whose contract with the Company expired in August 1996 and is currently under negotiation. The Sacramento distribution employees are represented by the Chauffeurs, Teamsters and Helpers Union, Local 150 whose contract with the Company expires in August 1999. The St. Louis distribution employees are represented by the United Food & Commercial Workers Union, Local 655 whose contract with the Company expires in December 1997. The Company has never experienced a strike by any of its employees. ITEM 2. PROPERTIES The Company owns its headquarters located at 5929 College Avenue in Oakland, California. The headquarters buildings include 54,000 square feet of office space utilized by the Company and 10,000 square feet of retail space leased to third parties. The Company owns a manufacturing and distribution facility in Union City, California. This facility has approximately 60,000 square feet of manufacturing and dry storage space, 40,000 square feet of cold storage warehouse space and 15,000 square feet of office space. The plant has the current production capacity of 28 million gallons per year. During 1996, the facility produced approximately 19 million gallons of ice cream and related products. The Company leases an ice cream manufacturing plant with an adjoining cold storage warehouse located in the City of Commerce, California. This facility has approximately 76,000 square feet of manufacturing and dry storage space, 25,000 square feet of cold storage space and 19,000 square feet of office space. The lease on this property, including renewal options, expires in 2022. The plant has the current production capacity of 20 million gallons per year. During 1996, the facility produced approximately 18 million gallons of ice cream and related products. In 1994, the Company completed construction of a cold storage warehouse facility located on property acquired in the City of Industry, California. This facility includes 52,000 square feet of cold and dry storage warehouse space and 13,000 square feet of office space. This facility supplements the cold storage warehouse and office space leased in the City of Commerce. The Company owns a manufacturing plant with an adjoining cold storage warehouse in Fort Wayne, Indiana. This facility has approximately 116,000 square feet of manufacturing and storage space and 6,000 square feet of office space. In addition, the Company leases approximately 55,000 square feet of cold storage and 8,000 square feet of office space near the Fort Wayne facility. The plant has the current production 4 7 capacity of 50 million gallons per year. During 1996, the facility produced approximately 40 million gallons of ice cream and related products. The Company owns a manufacturing and distribution facility in Houston, Texas. This facility is being renovated and, upon completion, will have approximately 69,000 square feet of manufacturing and dry storage space, 46,000 square feet of cold storage warehouse space and 20,000 square feet of office space. At that time the plant's production capacity will be approximately 26 million gallons per year. During 1996, this facility produced approximately 7 million gallons of ice cream and related products. The Company owns a manufacturing and distribution facility in Salt Lake City, Utah. This facility has approximately 12,000 square feet of manufacturing and dry storage space, 13,000 square feet of cold storage space and 1,000 square feet of office space. The plant has the current production capacity of 5 million gallons per year. During 1996, the facility produced approximately 3 million gallons of ice cream and related products. The Company intentionally acquires, designs and constructs its manufacturing and distribution facilities with a capacity greater than current needs require. This is done to facilitate growth and expansion and minimize future capital outlays. The cost of carrying this excess capacity is not significant. The Company also leases or rents various local distribution and office facilities with leases expiring through the year 2022 (including options to renew). ITEM 3. LEGAL PROCEEDINGS Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT The Company's executive officers and their ages are as follows:
NAME POSITION AGE - --------------------------- ------------------------------------------------- --- T. Gary Rogers Chairman of the Board and Chief Executive Officer 54 William F. Cronk, III President 54 Edmund R. Manwell Secretary 54 Thomas M. Delaplane Vice President - Sales 52 J. Tyler Johnston Vice President - Marketing 43 William R. Oldenburg Vice President - Operations 50 Paul R. Woodland Vice President - Finance and Administration, Chief Financial Officer & Assistant Secretary 46
All officers hold office at the pleasure of the Board of Directors. There is no family relationship among the above officers. Mr. Rogers has served as Dreyer's Chairman of the Board and Chief Executive Officer since its incorporation in February 1977. Mr. Cronk has served as a director of the Company since its incorporation in February 1977 and has been the Company's President since April 1981. Mr. Manwell has served as Secretary of the Company since its incorporation and as a director of the Company since April 1981. Since March 1982, Mr. Manwell has been a partner in the law firm of Manwell & Milton, general counsel to the Company. Mr. Delaplane has served as Vice President - Sales of the Company since May 1987. 5 8 Mr. Johnston has served as Vice President - Marketing of the Company since March 1996. From September 1995 to March 1996, he served as the Company's Vice President - New Business. From May 1988 to August 1995, he served as the Company's Director of Marketing. Mr. Oldenburg has served as Vice President - Operations of the Company since September 1986. Mr. Woodland has served as Vice President - Finance and Administration and Chief Financial Officer of the Company since September 1981 and as Assistant Secretary since December 1985. 6 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information set forth in Note 16 under the caption "Price Range (NASDAQ)" which appears on page 28 of the Company's 1996 Annual Report is incorporated herein by reference. The bid and asked quotations for the Company's Common Stock are as reported by NASDAQ. On March 24, 1997, the number of holders of record of the Company's common stock was 4,023. The Company paid a regular quarterly dividend of $.06 per share of common stock for each quarter of 1996. On March 4, 1997, the Board of Directors, subject to compliance with law, contractual restrictions and future review of the condition of the Company, declared its intention to issue regular quarterly dividends of $.06 per share of common stock for each quarter of 1997. Also on March 4, 1997, the Board of Directors declared a dividend of $.06 per share of common stock for the first quarter of 1997 for stockholders of record on March 28, 1997. ITEM 6. SELECTED FINANCIAL DATA The information set forth under the caption "Five Year Summary of Significant Financial Data" which appears on page 29 of the Company's 1996 Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth under the caption "Management's Discussion and Analysis" which appears on pages 30-32 of the Company's 1996 Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements, together with the report thereon of Price Waterhouse LLP dated March 12, 1997, appearing on pages 16-28 of the Company's 1996 Annual Report are incorporated herein by reference. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the captions "Board of Directors -- Nominees for Director -- Continuing Directors," "Matters Submitted to the Vote of Stockholders -- Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders to be filed with the Commission on or before April 27, 1997, and the information contained in Part I of this Annual Report on Form 10-K under the caption "Executive Officers of the Registrant," is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information set forth under the caption "Executive Compensation" in the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders to be filed with the Commission on or before April 27, 1997 is incorporated herein by reference. 7 10 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders to be filed with the Commission on or before April 27, 1997 is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the captions "Compensation Committee Interlocks and Insider Participation" and "Other Relationships" in the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders to be filed with the Commission on or before April 27, 1997 is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES: The following documents are filed as part of this report:
PAGE(S) IN ANNUAL REPORT* ------------- 1. Financial Statements: Report of Independent Accountants 16 Consolidated Statement of Income for the three years ended December 28, 1996 16 Consolidated Balance Sheet at December 28, 1996 and December 30, 1995 17 Consolidated Statement of Changes in Stockholders' Equity for the three years ended December 28, 1996 18 Consolidated Statement of Cash Flows for the three years ended December 28, 1996 19 Notes to Consolidated Financial Statements 20-28
PAGE(S) ------------- 2. Financial Statement Schedules: Report of Independent Accountants on Financial Statement Schedule for the three years ended December 28, 1996 15 II. Valuation and Qualifying Accounts 16 M-K-D Distributors, Inc. and Subsidiary Consolidated Financial Statements: Report of Independent Accountants 17 Consolidated Balance Sheet at December 30, 1995 18 Consolidated Statement of Income and Retained Earnings for the fiscal years ended December 30, 1995 and December 31, 1994 (unaudited) 19 Consolidated Statement of Cash Flows for the fiscal years ended December 30, 1995 and December 31, 1994 (unaudited) 20 Notes to Consolidated Financial Statements 21-25
- --------------- * Incorporated by reference to the indicated pages of the Company's 1996 Annual Report to Stockholders. 8 11 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Financial statements of any other 50% or less owned company have been omitted because the Registrant's proportionate share of the income from continuing operations before income taxes, and total assets is less than 20% of the respective consolidated amounts, and the investment in and advances to any such company is less than 20% of consolidated total assets. 3. List of Management Compensation Agreements (i) Dreyer's Grand Ice Cream, Inc. Incentive Stock Option Plan (1982) referenced in Exhibit 10.3 herein. (ii) Indemnification Agreements by and between Dreyer's Grand Ice Cream, Inc. and each of its directors, executive officers and certain other officers referenced in Exhibit 10.10 herein. (iii) Dreyer's Grand Ice Cream, Inc. Stock Option Plan (1992) referenced in Exhibit 10.16 herein. (iv) Dreyer's Grand Ice Cream, Inc. Incentive Bonus Plan referenced in Exhibit 10.19 herein. (v) Dreyer's Grand Ice Cream, Inc. Stock Option Plan (1993) referenced in Exhibit 10.20 herein. (vi) Dreyer's Grand Ice Cream, Inc. Income Swap Plan referenced in Exhibit 10.21 herein. (B) REPORTS ON FORM 8-K Not applicable. (C) EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------ ----------------------------------------------------------------------------------- 2.1 Securities Purchase Agreement dated June 24, 1993 by and among Dreyer's Grand Ice Cream, Inc., Trustees of General Electric Pension Trust, GE Investment Private Placement Partners, I and General Electric Capital Corporation (Exhibit 2.1(11)). 2.2 Amendment to Securities Purchase Agreement dated May 6, 1994 by and among Dreyer's Grand Ice Cream, Inc., Trustees of General Electric Pension Trust, GE Investment Private Placement Partners, I and General Electric Capital Corporation, amending Exhibit 2.1 (Exhibit 2.1(14)). 2.3 Stock and Warrant Purchase Agreement dated as of May 6, 1994 by and between Dreyer's Grand Ice Cream, Inc. and Nestle Holdings, Inc. (Exhibit 2.1(15)). 2.4 First Amendment to Stock and Warrant Purchase Agreement dated as of June 14, 1994 by and between Dreyer's Grand Ice Cream, Inc. and Nestle Holdings, Inc., amending Exhibit 2.3 (Exhibit 2.1(16)). 2.5 Second Amendment to Securities Purchase Agreement dated July 28, 1995 and effective as of June 1, 1995 by and among Dreyer's Grand Ice Cream, Inc., Trustees of General Electric Pension Trust, GE Investment Private Placement Partners, I and General Electric Capital Corporation, amending Exhibit 2.1 (Exhibit 10.2(18)). 2.6 Third Amendment to Securities Purchase Agreement dated October 30, 1995 and effective as of September 30, 1995 by and among Dreyer's Grand Ice Cream, Inc., Trustees of General Electric Pension Trust, GE Investment Private Placement Partners, I and General Electric Capital Corporation, amending Exhibit 2.1 (Exhibit 10.1(19)). 2.7 Amended and Restated Fourth Amendment to Securities Purchase Agreement dated March 12, 1996 and effective as of October 1, 1995 by and among Dreyer's Grand Ice Cream, Inc., Trustees of General Electric Pension Trust, GE Investment Private Placement Partners, I and General Electric Capital Corporation, amending Exhibit 2.1 (Exhibit 2.8(20)).
9 12
EXHIBIT NUMBER DESCRIPTION - ------ ----------------------------------------------------------------------------------- 3.1 Certificate of Incorporation of Dreyer's Grand Ice Cream, Inc., as amended, including the Certificate of Designation of Series A Convertible Preferred Stock, as amended, setting forth the Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of such series of Preferred Stock and the Certificate of Designation of Series B Convertible Preferred Stock, as amended, setting forth the Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of such series of Preferred Stock (Exhibit 3.1(16)). 3.2 Certificate of Designation, Preferences and Rights of Series A Participating Preference Stock (Exhibit 3.2(17)). 3.3 By-laws of Dreyer's Grand Ice Cream, Inc., as last amended May 2, 1994 (Exhibit 3.2(16)). 4.1 Amended and Restated Rights Agreement dated March 4, 1991 between Dreyer's Grand Ice Cream, Inc. and Bank of America, NT & SA (Exhibit 10.1(6)). 4.2 Registration Rights Agreement dated as of June 30, 1993 among Dreyer's Grand Ice Cream, Inc., Trustees of General Electric Pension Trust, and GE Investment Private Placement Partners, I and General Electric Capital Corporation (Exhibit 4.1(12)). 4.3 Amendment to Registration Rights Agreement dated May 6, 1994 by and among Dreyer's Grand Ice Cream, Inc., Trustees of General Electric Pension Trust, GE Investment Private Placement Partners, I and General Electric Capital Corporation, amending Exhibit 4.2 (Exhibit 4.1(14)). 4.4 First Amendment to Amended and Restated Rights Agreement dated as of June 14, 1994 between Dreyer's Grand Ice Cream, Inc. and First Interstate Bank of California (as successor Rights Agent to Bank of America NT & SA), amending Exhibit 4.1 (Exhibit 4.1(16)). 4.5 Registration Rights Agreement dated as of June 14, 1994 between Dreyer's Grand Ice Cream, Inc. and Nestle Holdings, Inc. (Exhibit 4.2(16)). 4.6 Warrant Agreement dated as of June 14, 1994 between Dreyer's Grand Ice Cream, Inc. and Nestle Holdings, Inc. (Exhibit 4.3(16)). 10.1 Agreement dated September 18, 1978 between Dreyer's Grand Ice Cream, Inc. and Kraft, Inc. (Exhibit 10.8(1)). 10.2 Agreement and Lease dated as of January 1, 1982 and Amendment to Agreement and Lease dated as of January 27, 1982 between Jack and Tillie Marantz and Dreyer's Grand Ice Cream, Inc., as amended (Exhibit 10.2(17)). 10.3 Dreyer's Grand Ice Cream, Inc. Incentive Stock Option Plan (1982), as amended. (Exhibit 10.6(13)). 10.4 Loan Agreement between Edy's and City of Fort Wayne, Indiana dated September 1, 1985 and related Letter of Credit, Letter of Credit Agreement, Mortgage, Security Agreement, Pledge and Security Agreement and General Continuing Guaranty of Dreyer's Grand Ice Cream, Inc. (Exhibit 10.33(2)). 10.5 Distribution Agreement between Dreyer's Grand Ice Cream, Inc. and Ben & Jerry's Homemade, Inc. dated January 6, 1987 (Exhibit 10.1(3)). 10.6 Amendment and Waiver dated July 17, 1987 between Dreyer's Grand Ice Cream, Inc. and Security Pacific National Bank, amending the General Continuing Guaranty referenced in Exhibit 10.4 (Exhibit 10.44(7)). 10.7 Amendment and Waiver dated December 24, 1987 between Dreyer's Grand Ice Cream, Inc. and Security Pacific National Bank, amending the General Continuing Guaranty referenced in Exhibit 10.4 (Exhibit 10.45(7)). 10.8 Agreement for Amendments to Distribution Agreement dated as of January 20, 1989 among Dreyer's Grand Ice Cream, Inc., Edy's Grand Ice Cream, Edy's of New York, Inc., and Ben & Jerry's Homemade, Inc., amending Exhibit 10.5 (Exhibit 10.46 (4)). 10.9 Amendment to the Distribution Agreement dated as of April 11, 1989 by and among Dreyer's Grand Ice Cream, Inc., Edy's Grand Ice Cream, Edy's of New York, Inc., and Ben & Jerry's Homemade, Inc., amending Exhibit 10.5 (Exhibit 10.46(5)). 10.10 Form of Indemnification Agreement between Dreyer's Grand Ice Cream, Inc. and each officer and director of Dreyer's Grand Ice Cream, Inc. (Exhibit 10.47(4)). 10.11 Assignment of Lease dated as of March 31, 1989 among Dreyer's Grand Ice Cream, Inc., Smithway Associates, Inc. and Wilsey Foods, Inc. (Exhibit 10.52(5)).
10 13
EXHIBIT NUMBER DESCRIPTION - ------ ----------------------------------------------------------------------------------- 10.12 Amendment of Lease dated as of March 31, 1989 between Dreyer's Grand Ice Cream, Inc. and Smithway Associates, Inc., as amended by letter dated April 17, 1989 between Dreyer's Grand Ice Cream, Inc. and Wilsey Foods, Inc., amending Exhibit 10.11 (Exhibit 10.53(5)). 10.13 Third Amendment to General Continuing Guaranty and Waiver dated January 29, 1991 between Dreyer's Grand Ice Cream, Inc. and Security PacificNational Bank, amending the General Continuing Guaranty referenced in Exhibit 10.4 (Exhibit 10.46(7)). 10.14 $25,000,000 9.3% Senior Notes: Form of Note Agreement dated as of March 15, 1991, and executed on April 12, 1991 between Dreyer's Grand Ice Cream, Inc. and each of Massachusetts Mutual Life Insurance Company, Massachusetts Mutual Life Pension Insurance Company, Connecticut Mutual Life Insurance Company, the Equitable Life Assurance Society of the United States, and Transamerica Occidental Life Insurance Company (Exhibit 19.1(8)). 10.15 Second Amendment to Distribution Agreement dated as of August 31, 1992 between Dreyer's Grand Ice Cream, Inc. and Ben & Jerry's Homemade, Inc., amending Exhibit 10.5 (Exhibit 19.6(9)). 10.16 Dreyer's Grand Ice Cream, Inc., Stock Option Plan (1992) (Exhibit 10.35(13)). 10.17 Agreement of Amendment and Waiver, dated as of September 30, 1992, between Dreyer's Grand Ice Cream, Inc. and each of Massachusetts Mutual Life Insurance Company, MML Pension Insurance Company, the Connecticut Mutual Life Insurance Company, the Equitable Life Assurance Society of the United States, and Transamerica Occidental Life Insurance Company (together, the "Lenders") regarding the Note Agreements dated as of March 15, 1991 between Dreyer's Grand Ice Cream, Inc. and each of the Lenders, which Note Agreements are referenced in Exhibit 10.14 (Exhibit 19.5(9)). 10.18 Second Amendment to Note Agreements dated as of September 30, 1992, between Dreyer's Grand Ice Cream, Inc. and each of Massachusetts Mutual Life Insurance Company, MML Pension Insurance Company, the Connecticut Mutual Life Insurance Company, the Equitable Life Assurance Society of the United States, and Transamerica Occidental Life Insurance Company (together, the "Lenders") regarding the Note Agreements dated as of March 15, 1991 between Dreyer's Grand Ice Cream, Inc. and each of the Lenders, which Note Agreements are referenced in Exhibit 10.14 (Exhibit 10.58(10)). 10.19 Description of Dreyer's Grand Ice Cream, Inc. Incentive Bonus Plan (Exhibit 10.57(10)). 10.20 Dreyer's Grand Ice Cream, Inc. Stock Option Plan (1993), as amended May 1, 1996. 10.21 Dreyer's Grand Ice Cream, Inc. Income Swap Plan (Exhibit 10.38(13)). 10.22 Amendment to Distribution Agreement dated April 18, 1994, and Letter Agreement modifying such Amendment to Distribution Agreement dated April 18, 1994 between Dreyer's Grand Ice Cream, Inc. and Ben & Jerry's Homemade, Inc., amending Exhibit 10.5 (Exhibit 10.3(14)). 10.23 Amendment to Distribution Agreement dated December 12, 1994 between Dreyer's Grand Ice Cream, Inc. and Ben & Jerry's Homemade, Inc., amending Exhibit 10.5 (Exhibit 10.27(17)). 10.24 Third Amendment to Note Agreement dated as of June 5, 1995 between Dreyer's Grand Ice Cream, Inc. and each of Massachusetts Mutual Life Insurance Company, MML Pension Insurance Company, the Connecticut Mutual Life Insurance Company, the Equitable Life Assurance Society of the United States, and Transamerica Occidental Life Insurance Company (together, the "Lenders"), regarding the Note Agreements dated as of March 15, 1991 between Dreyer's Grand Ice Cream, Inc. and each of the Lenders, which Note Agreements are referenced in Exhibit 10.14 (Exhibit 10.3(18)). 10.25 Letter Agreement dated August 4, 1995 between Dreyer's Grand Ice Cream, Inc. and Smithway Associates, Inc., amending Exhibits 10.2 and 10.11 (Exhibit 10.29(20)). 10.26 Credit Agreement dated as of December 22, 1995 among Dreyer's Grand Ice Cream, Inc., Bank of America NT & SA (as a Bank and as Agent), ABN-AMRO Bank N.V. (as a Bank and as Co-Agent), Credit Suisse and The Bank of California (Exhibit 10.30(20)). 10.27 Participation Agreement dated March 29, 1996 among Dreyer's Grand Ice Cream, Inc., Edy's Grand Ice Cream, BA Leasing & Capital Corporation (as Agent and as a Participant), ABN-AMRO Bank, NV and Credit Suisse (Exhibit 10.2(21)). 10.28 First Amendment to Credit Agreement dated April 15, 1996 among Dreyer's Grand Ice Cream, Inc., Bank of America, NT & SA (as Agent and as a Bank), ABN-AMRO Bank, NV (as Co-Agent and as a Bank), Credit Suisse and Union Bank of California, NA, amending Exhibit 10.26 (Exhibit 10.1(21)).
11 14
EXHIBIT NUMBER DESCRIPTION - ------ ----------------------------------------------------------------------------------- 10.29 April 1996 Amendment to Commerce Lease dated April 23, 1996 between Dreyer's Grand Ice Cream, Inc. and Smithway Associates, Inc., amending Exhibits 10.2 and 10.11. 10.30 Letter Agreement dated April 23, 1996 between Dreyer's Grand Ice Cream, Inc. and Smithway Associates, Inc., amending Exhibits 10.2 and 10.11. 10.31 $15,000,000 7.86% Series A Senior Notes Due 2002, $15,000,000 8.06% Series B Senior Notes Due 2006 and $20,000,000 8.34% Series C Senior Notes Due 2008: Form of Note Agreement dated as of June 6, 1996 between Dreyer's Grand Ice Cream, Inc. and each of The Prudential Insurance Company of America, Pruco Life Insurance Company, and Transamerica Life Insurance and Annuity Company (Exhibit 10.1(22)). 11 Computation of Net Income Per Share. 13 Those portions of the Dreyer's Grand Ice Cream, Inc. 1996 Annual Report to Stockholders which are incorporated by reference into this Annual Report on Form 10-K. 21 Subsidiaries of Registrant. 23 Consent of Independent Accountants. 27 Financial Data Schedule.
- --------------- (1) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Registration Statement on Form S-1 and Amendment No. 1 thereto, filed under Commission File No. 2-71841 on April 16, 1981 and June 11, 1981, respectively. (2) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Annual Report on Form 10-K and Amendment No. 1 thereto for the fiscal year ended December 28, 1985 filed under Commission File No. 0-10259 on March 28, 1986 and April 14, 1986, respectively. (3) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Current Report on Form 8-K filed under Commission File No. 0-10259 on January 23, 1987. (4) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1988 filed under Commission File No. 0-10259 on March 31, 1989. (5) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 30, 1989 filed under Commission File No. 0-10259 on March 30, 1990. (6) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Current Report on Form 8-K filed under Commission File No. 0-10259 on March 20, 1991. (7) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 29, 1990 filed under Commission File No. 0-10259 on March 29, 1991. (8) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended on June 29, 1991 filed under Commission File No. 0-10259 on August 13, 1991. (9) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended on September 26, 1992 filed under Commission File No. 0-10259 on November 10, 1992. (10) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 26, 1992 filed under Commission File No. 0-10259 on March 26, 1993. (11) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Current Report on Form 8-K filed under Commission File No. 0-10259 on June 25, 1993. 12 15 (12) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended on June 26, 1993 filed under Commission File No. 0-10259 on August 10, 1993. (13) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 25, 1993 filed under Commission File No. 0-14190 on March 25, 1994. (14) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended March 26, 1994 filed under Commission File No. 0-14190 on May 10, 1994. (15) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Current Report on Form 8-K filed under Commission File No. 0-14190 on May 9, 1994. (16) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended June 25, 1994 filed under Commission File No. 0-14190 on August 9, 1994. (17) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1994 filed under Commission File No. 0-14190 on March 30, 1995. (18) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended July 1, 1995 filed under Commission File No. 0-14190 on August 15, 1995. (19) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995 filed under Commission File No. 0-14190 on November 14, 1995. (20) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 30, 1995 filed under Commission File No. 0-14190 on March 29, 1996. (21) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended March 30, 1996 filed under Commission File No. 0-14190 on May 14, 1996. (22) Incorporated by reference to the designated exhibit to Dreyer's Grand Ice Cream, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended June 29, 1996 filed under Commission File No. 0-14190 on August 13, 1996. 13 16 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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. Date: March 28, 1997 DREYER'S GRAND ICE CREAM, INC. By: /s/ PAUL R. WOODLAND ------------------------------------ (Paul R. Woodland) Vice President - Finance and Administration, Chief Financial Officer and Assistant Secretary PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE - --------------------------------------------- ---------------------------------------------- /s/ T. GARY ROGERS Chairman of the Board and Chief March 28, 1997 - --------------------------------------------- Executive Officer and Director (T. Gary Rogers) (Principal Executive Officer) /s/ WILLIAM F. CRONK, III President and Director March 28, 1997 - --------------------------------------------- (William F. Cronk, III) /s/ EDMUND R. MANWELL Secretary and Director March 28, 1997 - --------------------------------------------- (Edmund R. Manwell) /s/ PAUL R. WOODLAND Vice President - Finance March 28, 1997 - --------------------------------------------- and Administration, (Paul R. Woodland) Chief Financial Officer and Assistant Secretary (Principal Financial Officer) /s/ JEFFREY P. PORTER Corporate Controller March 28, 1997 - --------------------------------------------- (Principal Accounting Officer) (Jeffrey P. Porter) /s/ JAN L. BOOTH Director March 28, 1997 - --------------------------------------------- (Jan L. Booth) /s/ TIMM F. CRULL Director March 28, 1997 - --------------------------------------------- (Timm F. Crull) /s/ M. STEVEN LANGMAN Director March 28, 1997 - --------------------------------------------- (M. Steven Langman) /s/ JOHN W. LARSON Director March 28, 1997 - --------------------------------------------- (John W. Larson) /s/ JACK O. PEIFFER Director March 28, 1997 - --------------------------------------------- (Jack O. Peiffer) /s/ TIMOTHY P. SMUCKER Director March 28, 1997 - --------------------------------------------- (Timothy P. Smucker)
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT: Not applicable. 14 17 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Dreyer's Grand Ice Cream, Inc. Our audits of the consolidated financial statements referred to in our report dated March 12, 1997 appearing in the 1996 Annual Report to Stockholders of Dreyer's Grand Ice Cream, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a)2 of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICE WATERHOUSE LLP San Francisco, California March 12, 1997 15 18 SCHEDULE II DREYER'S GRAND ICE CREAM, INC. VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
ADDITIONS BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND END CLASSIFICATION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD - ---------------------------------------------- ---------- ---------- ---------- ---------- Fiscal year ended December 31, 1994: Allowance for doubtful accounts............. $ 535 $1,672 $1,572(1) $ 635 Amortization of goodwill and distribution rights................................... 7,572 2,871 -- 10,443 Amortization of other assets................ 3,509 2,921 208(2) 6,222 ------- ------ ------ ------- $ 11,616 $7,464 $1,780 $ 17,300 ======= ====== ====== ======= Fiscal year ended December 30, 1995: Allowance for doubtful accounts............. $ 635 $1,234 $1,171(1) $ 698 Amortization of goodwill and distribution rights................................... 10,443 2,971 -- 13,414 Amortization of other assets................ 6,222 1,184 3,209(2) 4,197 ------- ------ ------ ------- $ 17,300 $5,389 $4,380 $ 18,309 ======= ====== ====== ======= Fiscal year ended December 28, 1996: Allowance for doubtful accounts............. $ 698 $ 891 $ 834(1) $ 755 Amortization of goodwill and distribution rights................................... 13,414 3,202 -- 16,616 Amortization of other assets................ 4,197 992 191(2) 4,998 ------- ------ ------ ------- $ 18,309 $5,085 $1,025 $ 22,369 ======= ====== ====== =======
- --------------- (1) Write-off of receivables considered uncollectible. (2) Removal of fully-amortized assets. 16 19 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of M-K-D Distributors, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income and retained earnings and of cash flows present fairly, in all material respects, the financial position of M-K-D Distributors, Inc. and its subsidiary at December 30, 1995, and the results of their operations and their cash flows for the fiscal year in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP San Francisco, California April 9, 1996 17 20 M-K-D DISTRIBUTORS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET
DECEMBER 30, ASSETS 1995 ------------- Current Assets: Cash.......................................................................... $ 46,871 Trade accounts receivable, net of allowance for doubtful accounts of $71,303.................................................................... 4,784,633 Inventories................................................................... 2,361,881 Prepaid expenses and other.................................................... 562,266 ----------- Total current assets....................................................... 7,755,651 Property, plant and equipment, net............................................ 9,256,360 Notes receivable and other.................................................... 432,458 ----------- Total assets............................................................... $ 17,444,469 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities...................................... $ 2,804,416 Accrued payroll and employee benefits......................................... 709,343 Current portion of long-term debt............................................. 446,334 Income taxes payable ----------- Total current liabilities.................................................. 3,960,093 Long-term debt, less current portion............................................ 1,563,263 Deferred income taxes........................................................... 521,027 ----------- Total liabilities.......................................................... 6,044,383 ----------- Commitments Stockholders' Equity: Common stock, $1 par value -- 10,000 shares authorized, issued and outstanding................................................................ 10,000 Capital in excess of par...................................................... 40,265 Retained earnings............................................................. 11,349,821 ----------- Total stockholders' equity................................................. 11,400,086 ----------- Total liabilities and stockholders' equity...................................... $ 17,444,469 ===========
See accompanying notes to consolidated financial statements. 18 21 M-K-D DISTRIBUTORS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
FISCAL YEAR ENDED ------------------------------- UNAUDITED DECEMBER 30, DECEMBER 31, 1995 1994 ------------- ------------- REVENUES: Net sales....................................................... $ 74,218,680 $ 62,816,959 Other income.................................................... 334,884 64,709 ----------- ----------- 74,553,564 62,881,668 ----------- ----------- COSTS AND EXPENSES: Cost of goods sold.............................................. 58,902,661 48,324,932 Selling, general and administrative............................. 12,806,842 11,118,291 Interest........................................................ 119,758 86,514 ----------- ----------- 71,829,261 59,529,737 ----------- ----------- Income before income taxes...................................... 2,724,303 3,351,931 Income taxes.................................................... 1,037,090 1,205,721 ----------- ----------- Net income...................................................... 1,687,213 2,146,210 Retained earnings, beginning of year............................ 9,662,608 7,516,398 ----------- ----------- Retained earnings, end of year.................................. $ 11,349,821 $ 9,662,608 =========== ===========
See accompanying notes to consolidated financial statements. 19 22 M-K-D DISTRIBUTORS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED ----------------------------- UNAUDITED DECEMBER 30, DECEMBER 31, 1995 1994 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income........................................................ $ 1,687,213 $ 2,146,210 Adjustments to reconcile net income to cash provided from operations: Depreciation................................................... 1,191,747 904,440 Deferred taxes................................................. 129,330 40,013 Gain on sale of assets......................................... (10,854) Changes in assets and liabilities, net of amounts acquired: Trade accounts receivable...................................... (156,585) (812,342) Inventories.................................................... 964,040 (1,102,532) Prepaid expenses and other..................................... (318,147) 410,618 Notes receivable and other..................................... (27,728) (213,228) Accounts payable and accrued liabilities....................... (1,179,772) 1,529,746 Accrued payroll and employee benefits.......................... 97,010 158,305 Income taxes payable........................................... (145,141) ----------- ----------- 2,241,967 3,050,376 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment...................... (3,135,357) (3,214,223) Proceeds from sale of equipment................................... 100,000 ----------- ----------- (3,135,357) (3,114,223) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt...................................... 2,075,547 135,000 Reductions in long-term debt...................................... (1,369,700) (255,000) ----------- ----------- 705,847 (120,000) ----------- ----------- Decrease in cash.................................................... (187,543) (183,847) Cash, beginning of year............................................. 234,414 418,261 ----------- ----------- Cash, end of year................................................... $ 46,871 $ 234,414 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year for: Interest....................................................... $ 101,749 $ 107,831 Income taxes (net of refunds).................................. 1,038,500 899,000
See accompanying notes to consolidated financial statements. 20 23 M-K-D DISTRIBUTORS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements of M-K-D Distributors, Inc. and subsidiary (the Company) include the accounts of M-K-D Distributors, Inc. (MKD) and its wholly-owned subsidiary, Snelgrove Ice Cream, Inc. (Snelgrove). All significant intercompany balances and transactions have been eliminated. The Company reports on a fifty-two or fifty-three week fiscal year, ending on the last Saturday in December. Operations MKD, a Texas corporation, was incorporated on December 14, 1979, and is engaged in the wholesale distribution of Dreyer's Grand Ice Cream, Ben and Jerry's, Nestle and other premium ice cream products, primarily in Washington, Oregon and Alaska. Dreyer's Grand Ice Cream, Inc. (Dreyer's), a Delaware corporation, holds 49.7% of MKD's outstanding common stock (see Note 11, Subsequent Event). In 1991, MKD acquired the assets of Snelgrove Ice Cream, Inc. (formerly known as Snelgrove Distinctive Ice Cream, Inc.), a manufacturer and distributor of premium ice cream products, and commenced manufacturing and distribution operations late in 1991 for Utah and other high altitude markets in the western United States. Sales are primarily to retail grocers. Revenue Recognition Sales revenues are recognized when deliveries of products are made to customers. Inventories Inventories of purchased and manufactured products are stated at the lower of cost (first-in, first-out method) or market. Costs of purchased products manufactured by others and of raw materials include costs of acquisition and transportation in. Manufactured product inventories are costed based on standards which approximate actual costs of materials, labor and production overhead. Property, Plant and Equipment Depreciation and amortization are provided on property, plant and equipment on the straight-line basis over their estimated useful lives as follows: Building and improvements...................................... 5 to 35 years Equipment...................................................... 3 to 15 years Delivery trucks and other vehicles............................. 5 to 8 years Furniture and fixtures......................................... 3 to 8 years
Leasehold improvements are amortized over the life remaining in the applicable lease (4 to 10 years). The cost of maintenance and repairs, which neither materially add to the value of property nor appreciably prolong its life, are expensed as incurred. Estimates and Assumptions Management makes estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. 21 24 M-K-D DISTRIBUTORS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Federal and State Income Taxes Effective for the fiscal year ended December 25, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109), on a prospective basis. SFAS 109 required the Company to change its method of accounting for income taxes from the deferred method to the liability method. Under the liability method, deferred tax liabilities and assets are recognized for the tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. The adoption of SFAS 109 did not have a material effect on the Company's Consolidated Financial Statements. Financial Statement Presentation Certain reclassifications have been made to prior years' financial statements to conform to the 1995 presentation. 2. INVENTORIES Components of inventories at December 30, 1995 were as follows: Purchased products................................................ $1,639,437 Raw materials..................................................... 365,745 Finished goods.................................................... 356,699 ---------- $2,361,881 ==========
3. PROPERTY, PLANT AND EQUIPMENT The cost and accumulated depreciation of property, plant and equipment at December 30, 1995 were as follows: Building and improvements........................................ $ 2,722,371 Machinery and equipment.......................................... 9,869,316 Office furniture and fixtures.................................... 1,498,363 ------------ 14,090,050 Accumulated depreciation......................................... (5,539,341) ------------ 8,550,709 Land............................................................. 705,651 ------------ $ 9,256,360 ============
Depreciation expense for property, plant and equipment was $1,191,747 and $904,440 (unaudited) in 1995 and 1994, respectively. 4. LONG-TERM NOTES RECEIVABLE At December 30, 1995, long-term notes receivable of $144,779 are due from a customer with payments due every year beginning in 1996 in the amount of $20,000 plus accrued interest at the prime rate plus 2%. The notes are secured by delivery and freezer equipment and are due in December 2000. 22 25 M-K-D DISTRIBUTORS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. LONG-TERM DEBT Long-term debt at December 30, 1995 consisted of the following: Note payable to bank, payable in monthly installments of $16,687 from August 1995 to June 2000, plus interest at 7.81% per annum, secured by equipment.................................... $ 916,665 Note payable to bank, payable in monthly installments of $17,335 from August 1995 to July 2000, plus interest at 7.8% per annum, secured by equipment........................................... 954,475 Capital lease obligation payable in monthly minimum payments of $1,026 from August 1995 to July 1998, including interest at 4.9%, secured by computer equipment............................ 30,457 Note payable, payable in annual installments of $27,000 from June 1995 to June 1999, plus interest at 8.00% per annum, secured by property and building.......................................... 108,000 --------- 2,009,597 Less current portion of long-term debt........................... 446,334 --------- $1,563,263 =========
Principal payments due on long-term debt for each of the years subsequent to December 30, 1995 are as follows: 1996............................................................. $ 446,334 1997............................................................. 446,889 1998............................................................. 443,026 1999............................................................. 435,264 2000............................................................. 238,084 --------- $2,009,597 =========
At December 30, 1995, the Company had an unused secured revolving line of credit of $2,000,000 available for working capital needs. The interest rate on borrowings is equal to the bank's floating commercial loan reference rate or LIBOR plus 1.5%. 6. PROFIT SHARING PLAN The Company has a 401(k) profit sharing plan and trust covering all employees over 21 years of age with more than one year of service. Participating employees may make elective salary deferrals into the plan up to the maximum qualifying amount permitted by federal income tax law. In addition, employer matching contributions and/or profit sharing contributions are made to the plan at the discretion of the Company's Board of Directors. Matching and profit sharing contributions made by the Company to the plan for fiscal 1995 were $225,440 (fiscal 1994 -- $189,480, unaudited). 23 26 M-K-D DISTRIBUTORS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. INCOME TAXES The provision for income taxes for the fiscal years ended December 30, 1995 and December 31, 1994 consisted of the following:
1995 1994 ---------- ---------- UNAUDITED Current Federal........................................... $ 825,960 $1,060,481 State............................................. 81,800 105,227 ---------- ---------- 907,760 1,165,708 Deferred............................................ 129,330 40,013 ---------- ---------- $1,037,090 $1,205,721 ========== ==========
The deferred tax liability arises principally because of an accumulated depreciation temporary difference. The effective tax rate differs from the federal statutory income tax rate due primarily to state taxes, net of federal benefit. 8. RELATED PARTIES The Company purchases premium ice cream and related products from Dreyer's under a long-term distribution agreement. In addition, the Company sells ice cream products to Dreyer's, which are manufactured at the Snelgrove plant in Utah. Purchases from Dreyer's were $25,174,000 and $22,583,000 (unaudited) in fiscal 1995 and 1994, respectively. Sales of Snelgrove manufactured products to Dreyer's were $6,021,636 and $4,305,669 (unaudited) in fiscal 1995 and 1994, respectively. In addition, under the distribution agreement, the Company is reimbursed by Dreyer's for 65% of costs relating to jointly-directed consumer promotion programs. The Company charged Dreyer's $1,874,845 and $1,098,598 (unaudited) in fiscal 1995 and 1994, respectively, for Dreyer's share of such costs. Amounts due from and due to Dreyer's at December 30, 1995, were as follows: Accounts receivable from Dreyer's................................ $ 505,331 ========== Accounts payable to Dreyer's..................................... $1,579,544 ==========
9. MAJOR CUSTOMERS The Company had four retail customers that accounted for approximately 48% of net sales for the fiscal year ended December 30, 1995 (fiscal 1994 -- 45%, unaudited). 24 27 M-K-D DISTRIBUTORS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. COMMITMENTS Leases The Company leases its office and warehouse facilities and certain vehicles and equipment under various leases accounted for as operating leases. Future minimum lease payments under these leases at December 30, 1995 are as follows:
YEAR ENDING DECEMBER, ----------------------------------------------------------------- 1996............................................................. $ 322,421 1997............................................................. 329,963 1998............................................................. 314,243 1999............................................................. 172,512 2000............................................................. 172,587 Thereafter....................................................... 694,822 ---------- $2,006,548 ==========
Rent expense for the fiscal year ended December 30, 1995 was $478,788 (fiscal 1994 -- $491,516, unaudited). 11. SUBSEQUENT EVENT On March 27, 1996, the stockholders, other than Dreyer's, entered into an agreement to exchange their shares of the Company's common stock for 300,000 shares of Dreyer's common stock, distributed to such stockholders on a basis proportionate to their ownership of the Company's common stock. One of the stockholders received an additional 20,000 shares of Dreyer's common stock as a finder's fee related to the transaction. 25 28 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ----------------------------------------------------------------------------------- 10.20 Dreyer's Grand Ice Cream, Inc. Stock Option Plan (1993), as amended May 1, 1996. 10.29 April 1996 Amendment to Commerce Lease dated April 23, 1996 between Dreyer's Grand Ice Cream, Inc. and Smithway Associates, Inc., amending Exhibits 10.2 and 10.11. 10.30 Letter Agreement dated April 23, 1996 between Dreyer's Grand Ice Cream, Inc. and Smithway Associates, Inc., amending Exhibits 10.2 and 10.11. 11 Computation of Net Income Per Share. 13 Those portions of the Dreyer's Grand Ice Cream, Inc. 1996 Annual Report to Stockholders which are incorporated by reference into this Annual Report on Form 10-K. 21 Subsidiaries of Registrant. 23 Consent of Independent Accountants. 27 Financial Data Schedule.
- --------------- EX-10.20 2 STOCK OPTION PLAN (1993) AS AMENDED MAY 1, 1996 1 EXHIBIT 10.20 DREYER'S GRAND ICE CREAM, INC. STOCK OPTION PLAN (1993) AS AMENDED MAY 1, 1996 1. Purpose The purpose of the Plan is to provide a vehicle under which a variety of stock option awards may be granted to employees and directors of the Company and its Subsidiaries to further the profits and prosperity of the Company and its Subsidiaries. 2. Definitions A. "Award" means any form of stock option granted under the Plan. B. "Award Notice" means any written notice from the Company to a Participant or agreement between the Company and a Participant that establishes the terms applicable to an Award. C. "Board of Directors" means the Board of Directors of the Company. D. "Code" means the Internal Revenue Code of 1986, as amended. E. "Committee" means the Compensation Committee of the Board of Directors, or such other committee designated by the Board of Directors, which is authorized to administer the Plan under Section 3 hereof. The Committee, and any separate committee to which it delegates any of its authority and duties under the Plan, shall each have membership composition which enable the Plan to qualify under Rule 16b-3 with regard to Awards to persons who are subject to Section 16 of the Exchange Act. F. "Common Stock" means common stock of the Company. G. "Company" means Dreyer's Grand Ice Cream, Inc., a Delaware corporation. H. "Director" means a member of the Board of Directors. I. "Exchange Act" means the Securities Exchange Act of 1934, as amended. J. "Fair Market Value" means, as of a specified date, the mean of the high and the low sales price of one share of Common Stock on the over-the-counter market or the closing price on the principal stock exchange where the Company's stock prices are officially quoted, or if not traded on that date, then on the date last traded. If for any reason the Company's stock ceases to be traded on the over-the-counter market or listed on a stock exchange, the Committee shall establish the method for determining the Fair Market Value of the Common Stock. K. "Key Employee" means any employee of the Company or a Subsidiary responsible for the management of the business of the Company (or a Subsidiary) who is in a position to make substantial contributions to the sound performance of the Company (or a Subsidiary). The term "Key Employee" shall include officers as well as other employees devoting full time to the Company (or a Subsidiary) and shall include Directors who are also active officers or employees of the Company (or a Subsidiary). L. "Non-Employee Director" means a Director who is not an employee of the Company or a Subsidiary. M. "Participant" means any individual to whom an Award is granted under the Plan. N. "Plan" means this Plan, which shall be known as the Dreyer's Grand Ice Cream, Inc. Stock Option Plan (1993). O. "Rule 16b-3" means Rule 16b-3 issued under the Exchange Act or any successor rule. 1 2 P. "Subsidiary" means a corporation or other business entity (i) of which the Company directly or indirectly has an ownership interest of 50% or more, or (ii) of which it has a right to elect or appoint 50% or more of the board of directors or other governing body. 3. Administration A. The Plan shall be administered by the Committee. Subject to the terms and conditions of this Plan, the Committee shall have the authority to: (i) interpret and determine all questions of policy and expediency pertaining to the Plan; (ii) adopt such rules, regulations, agreements and instruments as it deems necessary for the Plan's proper administration; (iii) select Key Employees to receive Awards; (iv) determine the form and terms of Awards; (v) determine the number of shares subject to Awards; (vi) determine whether Awards will be granted singly, in combination, in tandem, in replacement of, or as alternatives to other grants under the Plan or any other incentive or compensation plan of the Company, a Subsidiary or an acquired business unit; (vii) grant waivers of Plan or Award conditions; (viii) accelerate the vesting of Awards; (ix) correct any defect, supply any omission, or reconcile any inconsistency in the Plan, any Award or any Award Notice; and (x) take any and all other actions it deems necessary or advisable for the proper administration of the Plan. B. The interpretation and construction of any provision of the Plan by the Committee shall be final, conclusive and binding on all parties, including the Company, its Subsidiaries and stockholders, and the Participants, their estates, executors, administrators, heirs and assigns. No member of the Committee shall be liable for any action or determination made by him in good faith. C. The Committee may adopt such Plan amendments, procedures, regulations, subplans and the like as it deems are necessary to enable Key Employees and Directors who are foreign nationals or employed outside the United States to receive Awards. D. The Committee may delegate its authority to grant and administer Awards to a separate committee; however, only the Committee may grant and administer Awards with respect to persons who are subject to Section 16 of the Exchange Act. 4. Eligibility A. Any Key Employee is eligible to become a Participant in the Plan. B. Non-Employee Directors shall receive Awards in accordance with Section 7. 5. Stock Subject to the Plan A. The aggregate number of shares of Common Stock which may be delivered on exercise of options under this Plan shall not exceed two million two hundred thousand (2,200,000) shares, subject to adjustment as provided hereinafter. If, at any time during the term of this Plan, an option granted under this Plan shall have expired or terminated for any reason without having been exercised in full, the unpurchased shares shall become available for option to other employees. 2 3 B. In the event that (i) the number of outstanding shares of Common Stock shall be changed by reason of split-ups, combinations or reclassifications of shares or otherwise, (ii) any share dividends are distributed to the holders of Common Stock or (iii) the Common Stock is converted into or exchanged for other shares as a result of any merger, consolidation or recapitalization then, in any such case, the number of shares for which options may thereafter be granted under this Plan, both in the aggregate and as to any individual, and the number of shares then subject to options theretofore granted under this Plan and the price per share payable upon exercise of such options shall be appropriately adjusted by the Committee so as to reflect such change. C. The shares of Common Stock available under the Plan may be authorized and unissued shares or treasury shares. 6. Term This Plan shall be effective and operative, subject to approval of the stockholders of the Company within twelve months after its adoption by the Board of Directors, from the date that the Plan is approved by the Board of Directors and shall remain in effect until terminated by the Board of Directors. 7. Awards to Non-Employee Directors Non-Employee Directors shall receive awards in accordance with the following terms: A. On the day of adoption of this Plan by the Company's stockholders (the "Approval Date"), each Non-Employee Director shall receive a non-qualified option for 5000 shares of Common Stock. B. After the Approval Date, any person who is appointed or elected a Non-Employee Director shall receive a non-qualified stock option for 5,000 shares of Common Stock on the date such person is so appointed or elected. C. On each anniversary of the Approval Date each Non-Employee Director shall receive a non-qualified stock option for 1,500 shares of Common Stock. D. Options to Non-Employee Directors shall be subject to the following terms: (i) the exercise price shall be equal to 100% of the Fair Market Value of the Common Stock on the date of the grant, payable in accordance with all the alternatives stated in Section 8.B(ii); (ii) the term of the options shall be 10 years; (iii) the options shall be exercisable beginning 6 months after the date of the grant; and (iv) the options shall be subject to Section 10. 8. Stock Options A. Awards shall be granted in the form of stock options. Stock options may be incentive stock options within the meaning of Section 422 of the Code or non-qualified stock options (i.e., stock options which are not incentive stock options). B. Subject to Section 8.C relating to incentive stock options, options shall be in such form and contain such terms as the Committee deems appropriate. While the terms of options need not be identical, each option shall be subject to the following terms: (i) The exercise price shall be the price set by the Committee but may not be less than 100% of the Fair Market Value of the Common Stock on the date of the grant. (ii) The exercise price shall be paid in cash (including check, bank draft, or money order), or all or part of the purchase price may be paid by delivery of the optionee's delivery of Common Stock, already owned by the Participant for at least six (6) months and valued at its Fair Market Value, or any combination of the foregoing methods of payment. (iii) An option shall be treated as exercised on the later of (i) the date that proper notice of exercise accompanied by the aggregate exercise price is received by the Company, or (ii) such exercise date as may be specified in such proper notice when accompanied by such aggregate exercise price. 3 4 (iv) The term of an option may not be greater than 10 years from the date of the grant. (v) Neither a person to whom an option is granted nor his legal representative, heir, legatee or distributee shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such option unless and until he has exercised his option. C. The following special terms shall apply to grants of incentive stock options: (i) No incentive stock option shall be granted after the tenth (10th) anniversary of the date the Plan is adopted by the Board of Directors. (ii) Subject to Section 8.C.(iii), the exercise price under each incentive stock option shall not be less than 100% of the Fair Market Value of the Common Stock on the date of the grant. (iii) No incentive stock option shall be granted to any employee who directly or indirectly owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, unless the exercise price is at least 110% of the Fair Market Value of the Common Stock on the date of the grant and such option is not exercisable after the expiration of 5 years from the date of the grant. (iv) No incentive stock option shall be granted to a person in his capacity as a Key Employee of a Subsidiary if the Company has less than a 50% ownership interest in such Subsidiary. (v) Incentive stock options shall contain such other terms as may be necessary to qualify the options granted therein as incentive stock options pursuant to Section 422 of the Code, or any successor statute. 9. Reload Options A. Concurrently with the award of options to any Participant, the Committee may authorize reload options ("Reload Options") to purchase for cash or shares a number of shares of the Common Stock. The number of Reload Options shall equal: (i) the number of shares of Common Stock used to exercise the underlying options; and (ii) the number of shares of Common Stock used to satisfy any tax withholding requirement incident to the exercise of the underlying option, including shares withheld from those that would otherwise be issuable to the optionee pursuant to exercise of the subject option. The grant of a Reload Option will become effective upon the exercise of the underlying options or Reload Options through the use of shares of Common Stock held by the optionee for at least six (6) months. B. Notwithstanding the fact that the underlying option may be an Incentive Stock Option, a Reload Option is not intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Code. C. Each Award Notice shall state whether the Committee has authorized Reload Options with respect to the underlying options. Upon the exercise of an underlying option or other Reload Option, the Reload Option will be evidenced by an amendment to the underlying Award Notice. D. The option price per share of Common Stock deliverable upon the exercise of a Reload Option shall be the Fair Market Value of a share of Common Stock on the date the grant of the Reload Option becomes effective. E. Each Reload Option is fully exercisable six (6) months from the effective date of grant. The term of each Reload Option shall be equal to the remaining option term of the underlying option. F. No additional Reload Options shall be granted when options or Reload Options are exercised pursuant to the terms of this Plan following cessation of the optionee's employment with the Company for any reason. 4 5 10. Exercise of Stock Option Upon Termination of Employment or Services A. Options granted under Section 7 shall be exercisable upon the Participant's termination of service within the following periods only. Subject to Section 17, stock options to other Participants may permit the exercise of options upon the Participant's termination of employment within the following periods, or such shorter periods as determined by the Committee at the time of grant: (i) if on account of death, within 24 months of such event by the person or persons to whom the Participant's rights pass by will or the laws of descent or distribution. (ii) if on account of disability (as defined in Section 22(e)(3) of the Code or any successor statute), non-qualified stock options may be exercised within 24 months of such termination and incentive stock options within 12 months. (iii) if on account of retirement (as defined from time to time by Company policy), non-qualified stock options may be exercised within 24 months of such termination and incentive stock options within 3 months. (iv) if for any reason other than death, disability or retirement (as defined from time to time by Company policy), options may be exercised within 3 months of such termination. B. An unexercised option shall be exercisable only to the extent that such option was exercisable on the date the Participant's employment or service terminated. However, terms relating to the exercisability of options may be amended by the Committee before or after such termination, except in respect to options granted under Section 7. C. In no case may an unexercised option be exercised to any extent by anyone after expiration of its term. 11. Acceleration of Vesting of Options A. In the event of a Change in Control (as defined below), death of an optionee or retirement of an optionee (as defined from time to time by Company policy), all options which have not yet vested shall vest, mature and become exercisable in whole or in part immediately prior to the event constituting the Change of Control, or immediately upon the death or retirement of such optionee. B. A Change of Control for these purposes shall be defined as, (i) the acquisition by any person of beneficial ownership of forty percent (40%) or more of the combined voting power of the Company's outstanding securities immediately after such acquisition (which forty percent (40%) shall be calculated after including the dilutive effect of the conversion or exchange of any outstanding securities of the Company convertible into or exchangeable for voting securities), or (ii) a change in the composition of majority membership of the Board of Directors over any two-year period beginning with the date of adoption of this Plan by the Board of Directors, or (iii) a change in ownership of the Company such that the Company becomes subject to the delisting of its Common Stock from the NASDAQ National Market System, or (iv) the approval by the Board of Directors of the sale of all or substantially all of the assets of the Company, or (v) the approval by the Board of Directors of any merger, consolidation, issuance of securities or purchase of assets, the result of which would be the occurrence of any event described in clause (i), (ii) or (iii) above. Notwithstanding anything to the contrary in this Section 11.B, acquisitions by any person (or any group of which such a person is a member) who is as of the date of adoption of this Plan by the Board of Directors, a member of the Board of Directors, of beneficial ownership of forty percent (40%) or more of the combined voting power of the Company's outstanding securities immediately after such acquisition (calculation of such forty percent (40%) being made as described above), shall not be deemed a Change of Control for purposes of this Plan. 5 6 12. Nonassignability The rights of a Participant under the Plan shall not be assignable by such Participant, by operation of law or otherwise, except by will or the laws of descent and distribution. During the lifetime of the person to whom a stock option is granted, he or she alone may exercise it. 13. Payment of Withholding Taxes A. As a condition to receiving or exercising an Award, as the case may be, the Participant shall pay to the Company the amount of all applicable federal, state, local and foreign taxes required by law to be paid or withheld relating to receipt or exercise of the Award. B. An optionee may satisfy such withholding requirements in whole or in part by directing the Company to withhold shares from those that would otherwise be issuable to the Participant or by otherwise tendering other shares of Common Stock owned by the Participant. The withheld shares and other tendered shares will be valued at the Fair Market Value as of the date that the tax withholding obligation arises. 14. Amendments The Board of Directors may amend the Plan at any time and from time to time, provided however that the Board shall not amend the terms of the Plan more frequently than permitted under Rule 16b-3 in regard to provisions that affect persons receiving Awards under Section 7. Rights and obligations under any Award granted before amendment of the Plan shall not be materially altered or impaired adversely by such amendment, except with consent of the person to whom the Award was granted. 15. Regulatory Approvals and Listings Notwithstanding any other provision in the Plan, the Company shall have no obligation to issue or deliver certificates of Common Stock under the Plan prior to (A) obtaining approval from any governmental agency which the Company determines is necessary or advisable, (B) admission of such shares to listing on the stock exchange on which the Common Stock may be listed and (C) completion of any registration or other qualification of such shares under any state or federal law or ruling of any governmental body which the Company determines to be necessary or advisable. 16. No Right to Continued Employment or Grants Participation in the Plan shall not give any Key Employee any right to remain in the employ of the Company or any Subsidiary. Further, the adoption of this Plan shall not be deemed to give any Key Employee or other individual the right to be selected as a Participant or to be granted an Award. 17. Special Provision Pertaining to Persons Subject to Section 16 Notwithstanding any other term of this Plan, the following shall apply to persons subject to Section 16 of the Exchange Act, except in the case of death or disability: A. No stock option granted pursuant to the Plan may be exercisable for at least 6 months after the date of grant. 18. Limitations on Awards Under the Plan No one Participant shall receive in the aggregate Awards granting him more than fifty percent (50%) of the aggregate number of shares (1,200,000) which may be delivered on exercise of options under the Plan. 6 EX-10.29 3 AMEND. TO COMMERCE LEASE DATED APRIL 23, 1996 1 EXHIBIT 10.29 APRIL 1996 AMENDMENT TO COMMERCE LEASE This Amendment is dated April 23, 1996 and effective as of March 1, 1996 by and between Dreyer's Grand Ice Cream, Inc. ("Tenant") and Smithway Associates, Inc. ("Landlord"). RECITALS A. On or about January 1, 1982, Tenant entered into a lease agreement with Jack and Tillie Marantz, predecessors of Landlord, with respect to certain improved real property located at 5743 East Smithway Street, Commerce California (the "Original Lease"). The Original Lease was subsequently amended several times. By that certain Assignment of Lease dated March 31, 1989, Wilsey, Bennett Co. ("Wilsey") assigned and transferred, and Tenant assumed, all the provisions of that certain Agreement and Lease dated August 1, 1986 between Wilsey and Tillie Marantz, as Trustee of the Tillie Marantz Revocable Trust, dba TJ Investments (the "Wilsey Lease"). Tenant and Landlord subsequently amended the Wilsey Lease to, among other things, make it coterminous with the Original Lease. Landlord and Tenant have also entered into certain other amendments, the most recent being dated December 1, 1995, prior to this Amendment. The Wilsey Lease, as amended to date, and the Original Lease, as amended to date, taken together shall be referred to herein as the "Commerce Lease". B. Tenant now desires to lease additional space from Landlord for a term of one (1) year and Landlord desires to lease such space to Tenant for such term. Now, therefore, the parties agree as follows: 1. Rental of Additional Space. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, as additional demised premises under the Commerce Lease (except with regard to the term of the lease of such additional demised premises), those areas identified below and which are more particularly described in the attached Exhibit A (the "Dock Offices"), which shall be leased subject to the following rental obligation:
MONTHLY AREA SQ. FT. RATE RENTAL - ------------- ------- ---- ------- Dock Offices 960 .25 $250
The parties agree that the monthly rental set out above is a negotiated rate and in the event of any variation in the square footage of the Dock Offices, if measured, there shall be no adjustment in the monthly rental. 2. Rental Commencement Date for Dock Offices. The obligation to pay rental on the Dock Offices shall commence on March 1, 1996, resulting in an aggregate monthly rental due under the Commerce Lease of fifty-nine thousand two hundred fifty dollars ($59,250) through February, 1997. 3. Term of Lease of Dock Offices. The term of the lease of the Dock Offices shall commence effective as of March 1, 1996 and shall continue until February 28, 1997. 4. Common Area Maintenance Expenses. Tenant shall pay common area maintenance expenses ("CAM") related to the Dock Offices in accordance with the formula provided in the amendment letter dated as of August 4, 1995 between Landlord and Tenant, which document amended the Commerce Lease. 5. Effect of Amendment. The existing terms and conditions of the Commerce Lease shall remain in full force and effect except as such terms and conditions are modified and amended as expressly set out in this Amendment. 6. Full Understanding. This Amendment contains the full understanding of the parties with respect to the subject matter hereof. 1 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized representative as of the date and year first above written. LANDLORD: TENANT: Smithway Associates, Inc. Dreyer's Grand Ice Cream, Inc. By: By: - ----------------------------------------- -------------------------------------- Title: President ------------------------------------ Title: Treasurer ------------------------------------
2 EX-10.30 4 LETTER AGREEMENT DATED APRIL 23, 1996 1 EXHIBIT 10.30 DREYER'S GRAND ICE CREAM April 23, 1996 Smithway Associates, Inc. 5743 Smithway Street #106 Commerce, CA 90040 Attn: Mr. Aaron Cohen Re: Dreyer's Grand Ice Cream, Inc./Smithway Associates, Inc. Gentlemen: Except for leasehold rights to the spaces described in the documents identified in the second paragraph of this letter, Dreyer's Grand Ice Cream, Inc. ("Dreyer's") hereby surrenders any leasehold rights it may hold to spaces described in the agreements set out on Schedule 1 attached hereto and incorporated herein by reference (all such agreements collectively referred to as the "Lease") relating to the premises at 5743 East Smithway Street, Commerce, California 90040 (the "Premises"), and Smithway Associates, Inc. ("Smithway") hereby acknowledges and agrees that Dreyer's has no obligations or liabilities under the Lease with regard to such surrendered spaces, excepting only the obligation to make the repairs described on Schedule 2 attached hereto. The following documents accurately describe the spaces currently occupied by Dreyer's at the Premises: 1. Amendment Letter between Smithway and Dreyer's dated as of August 4, 1995; 2. Sublease Agreement between Dreyer's and JAA Corporation dated as of October 4, 1995; 3. Letter of Smithway to Dreyer's dated December 1, 1995; and 4. April 1996 Amendment between Smithway and Dreyer's dated April 23, 1996. Very truly yours, Dreyer's Grand Ice Cream, Inc. By: ------------------------------ Title: Treasurer ------------------------- Enclosure Acknowledged and Agreed this 23rd day of April, 1996: Smithway Associates, Inc. By: ------------------------------- Title: President -------------------------- 2 SCHEDULE 1 TO LETTER DATED APRIL 23, 1996 The Original Lease has been amended by the following documents:
Title Date ----- ---- Amendment to Agreement and Lease between Dreyer's and Jack and Tillie Marantz January 27, 1982 *Second Amendment to Agreement and Lease between Dreyer's and Jack and Tillie Marantz July 16, 1982 Third Amendment to Agreement and Lease, including exhibits 29-35, between Dreyer's and Mrs. Tillie Marantz, dba TJ Investments January 1, 1985 Letter Agreement between Dreyer's and Mrs. Tillie Marantz, dba TJ Investments October 25, 1985 Rental Agreement between Dreyer's and Mrs. Tillie Marantz, dba TJ Investments May 1, 1987 Agreement between Dreyer's and Tillie Marantz, Trustee of the Tillie Marantz Revocable Trust, dba TJ Investments May 31, 1988 Assignment of Lease among Wilsey Foods, Inc., Dreyer's, Smithway, and Greyhound Real Estate Finance Company March 31, 1989 Amendment of (Wilsey) Lease between Dreyer's and Smithway March 31, 1989 *Amendment of Lease between Dreyer's and Smithway March 31, 1989 *Option exercise letter between Dreyer's and Smithway October 4, 1990 Amendment Letter between Smithway and Dreyer's August 4, 1995 Sublease Agreement between Dreyer's and JAA Corporation October 4, 1995 Letter of Smithway to Dreyer's December 1, 1995 April 1996 Amendment between Smithway and Dreyer's April 23, 1996
*These amendments have been superseded or are fully performed and retain no continuing obligation of either party. 3 Schedule 2 To Letter Dated April 23, 1996 Foremost Maintenance Shop * Replace doors leading into warehouse * Repair/replace sink (cost to be split between Dreyer's and Smithway) * Repair holes in warehouse wall Dry Storage * Floor repairs Truck shop * Repair rollup door * Remove phone * Repair hanging electrical conduit * Remove bell/speaker * Repair sink/water supply * Replace metal plate cover at canopy entry * Remove hanging phone lines to left of garage * Re-lag conduit on cinder block fence * Remove barrels and trash * Repair concrete Other * Meter changes our #53 and #54 EX-11 5 COMPUTATION OF NET INCOME PER SHARE 1 EXHIBIT 11 DREYER'S GRAND ICE CREAM, INC. COMPUTATION OF NET INCOME PER COMMON SHARE (UNAUDITED)
YEAR ENDED ------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) DEC. 28, 1996 DEC. 30, 1995 DEC. 31, 1994 - ------------------------------------------------ ------------- ------------- ------------- PRIMARY Net income (loss) applicable to common stock $ 2,000 $(3,496) $ 1,001 Weighted average number of shares of common stock outstanding 13,248 13,285 14,731 ------- ------- ------- Net income (loss) per common share, as reported $ .15 $ (.26) $ .07 ======= ======= ======= Weighted average number of shares of common stock outstanding 13,248 13,285 14,731 Common stock equivalent -- assumed exercise of common stock options and warrants 122 334 99 ------- ------- ------- Weighted average number of shares of common stock outstanding, including common stock equivalents 13,370 13,619 14,830 ======= ======= ======= Net income (loss) per common share $ .15(1) $ (.26)(1) $ .07(1) ======= ======= =======
Continued on following page 2 COMPUTATION OF NET INCOME PER COMMON SHARE (UNAUDITED)
YEAR ENDED ------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) DEC. 28, 1996 DEC. 30, 1995 DEC. 31, 1994 - ------------------------------------------------ ------------- ------------- ------------- FULLY DILUTED Net income (loss) applicable to common stock $ 2,000 $(3,496) $ 1,001 Add preferred dividends on redeemable convertible Series B preferred stock, due June 2001, and accretion of preferred stock to redemption value 4,997 1,972 Add interest expense on convertible subordinated debentures issued June 1993 and amortization of related issuance costs, net of tax 2,571 4,103 ------- ------- ------- Adjusted net income $ 6,997 $ 1,047 $ 5,104 ======= ======= ======= Weighted average number of shares of common stock outstanding 13,248 13,285 14,731 Common stock equivalent--assumed exercise of common stock options and warrants 122 412 105 Assumed conversion of debentures 2,900 Assumed conversion of preferred stock 2,900 2,900 ------- ------- ------- Adjusted shares 16,270 16,597 17,736 ======= ======= ======= Net income per common share $ .43(2) $ .06(2) $ .29(2) ======= ======= =======
- --------------- (1) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although it is not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. (2) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although it is contrary to APB Opinion No. 15 because it produces an anti-dilutive effect. EX-13 6 PORTIONS OF DREYERS 1996 ANNUAL REPORT 1 Exhibit 13 CONSOLIDATED STATEMENT OF INCOME Dreyer's Grand Ice Cream, Inc. 1996 Annual Report
Year Ended ----------------------------------------------- ($ in thousands, except per share amounts) Dec. 28, 1996 Dec. 30, 1995 Dec. 31, 1994 - ------------------------------------------------------------------------------------------------------- REVENUES: Net sales $791,841 $ 678,797 $564,372 Other income 4,354 2,255 2,230 - ------------------------------------------------------------------------------------------------------- 796,195 681,052 566,602 - ------------------------------------------------------------------------------------------------------- COSTS AND EXPENSES: Cost of goods sold 619,574 530,561 428,779 Selling, general and administrative 155,714 143,090 126,945 Interest, net of interest capitalized 9,548 9,912 9,243 - ------------------------------------------------------------------------------------------------------- 784,836 683,563 564,967 - ------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 11,359 (2,511) 1,635 Income tax provision (benefit) 4,362 (987) 634 - ------------------------------------------------------------------------------------------------------- Net income (loss) 6,997 (1,524) 1,001 - ------------------------------------------------------------------------------------------------------- Accretion of preferred stock to redemption value 424 168 Preferred stock dividends 4,573 1,804 - ------------------------------------------------------------------------------------------------------- Net income (loss) applicable to common stock $ 2,000 $ (3,496) $ 1,001 ======================================================================================================= Net income (loss) per common share $ .15 $ (.26) $ .07 =======================================================================================================
See accompanying Notes to Consolidated Financial Statements REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Dreyer's Grand Ice Cream, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Dreyer's Grand Ice Cream, Inc. and its subsidiaries at December 28, 1996 and December 30, 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP San Francisco, California March 12, 1997 16 2 CONSOLIDATED BALANCE SHEET Dreyer's Grand Ice Cream, Inc. 1996 Annual Report
($ in thousands, except per share amounts) Dec. 28, 1996 Dec. 30, 1995 - ------------------------------------------------------------------------------------------------------------- Assets CURRENT ASSETS: Cash and cash equivalents $ 4,134 $ 3,051 Trade accounts receivable, net of allowance for doubtful accounts of $755 in 1996 and $698 in 1995 73,053 59,298 Other accounts receivable 13,638 19,072 Inventories 40,760 33,201 Prepaid expenses and other 13,652 12,487 - --------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 145,237 127,109 Property, plant and equipment, net 225,038 182,757 Goodwill and distribution rights, net of accumulated amortization of $16,616 in 1996 and $13,414 in 1995 92,010 86,812 Other assets 16,622 17,427 - --------------------------------------------------------------------------------------------------------- TOTAL ASSETS $478,907 $414,105 ========================================================================================================= Liabilities and Stockholders' Equity CURRENT LIABILITIES: Accounts payable and accrued liabilities $ 48,391 $ 35,514 Accrued payroll and employee benefits 18,198 18,634 Current portion of long-term debt 8,512 3,600 - --------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 75,101 57,748 Long-term debt, less current portion 163,135 134,000 Deferred income taxes 37,802 31,712 - --------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 276,038 223,460 - --------------------------------------------------------------------------------------------------------- Commitments and contingencies Redeemable convertible Series B preferred stock, $1 par value - 1,008,000 shares authorized; 1,008,000 shares issued and outstanding in 1996 and 1995 98,806 98,382 - --------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY: Preferred stock, $1 par value - 8,992,000 shares authorized; no shares issued or outstanding in 1996 and 1995 Common stock, $1 par value - 30,000,000 shares authorized; 13,345,000 shares and 12,929,000 shares issued and outstanding in 1996 and 1995, respectively 13,345 12,929 Capital in excess of par 51,956 39,370 Retained earnings 38,762 39,964 - --------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 104,063 92,263 - --------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $478,907 $414,105 ========================================================================================================
See accompanying Notes to Consolidated Financial Statements 17 3 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Dreyer's Grand Ice Cream, Inc. 1996 Annual Report
Capital Common Stock in Excess Retained (In thousands) Shares Amount of Par Earnings Total - -------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 25, 1993 14,671 $ 14,671 $ 59,145 $ 49,218 $123,034 Net income for 1994 1,001 1,001 Common stock dividends declared (3,619) (3,619) Common stock and warrants issued to an affiliate of Nestle USA, Inc. 3,000 3,000 99,487 102,487 Repurchases and retirements of common stock (3,753) (3,753) (85,608) (89,361) Employee stock plans and other 146 146 2,233 2,379 - -------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1994 14,064 14,064 75,257 46,600 135,921 Net loss for 1995 (1,524) (1,524) Accretion of preferred stock to redemption value (168) (168) Preferred stock dividends declared (1,804) (1,804) Common stock dividends declared (3,140) (3,140) Repurchases and retirements of common stock (1,319) (1,319) (39,202) (40,521) Employee stock plans and other 184 184 3,315 3,499 - -------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 30, 1995 12,929 12,929 39,370 39,964 92,263 Net income for 1996 6,997 6,997 Accretion of preferred stock to redemption value (424) (424) Preferred stock dividends declared (4,573) (4,573) Common stock dividends declared (3,202) (3,202) Common stock issued in acquisition of M-K-D Distributors, Inc. 320 320 10,480 10,800 Repurchases and retirements of common stock (9) (9) (253) (262) Employee stock plans and other 105 105 2,359 2,464 - -------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 28, 1996 13,345 $ 13,345 $ 51,956 $ 38,762 $104,063 ==============================================================================================================
See accompanying Notes to Consolidated Financial Statements 18 4 CONSOLIDATED STATEMENT OF CASH FLOWS Dreyer's Grand Ice Cream, Inc. 1996 Annual Report
Year Ended ------------------------------------------- ($ in thousands) Dec. 28, 1996 Dec. 30, 1995 Dec. 31, 1994 - ------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 6,997 $ (1,524) $ 1,001 Adjustments to reconcile net income (loss) to cash flows from operations: Depreciation and amortization 27,549 20,568 18,986 Deferred income taxes 2,364 2,058 (420) Changes in assets and liabilities, net of amounts acquired: Trade accounts receivable (7,664) (11,779) (711) Other accounts receivable 809 (12,829) (917) Inventories (5,389) (4,120) (684) Prepaid expenses and other 3,116 (1,998) 1,237 Accounts payable and accrued liabilities 6,555 5,470 882 Accrued payroll and employee benefits (1,077) 2,833 6,547 - ------------------------------------------------------------------------------------------------------------------- 33,260 (1,321) 25,921 - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment (58,470) (39,437) (31,568) Retirement of property, plant and equipment 2,152 590 547 Increase in goodwill and distribution rights (772) (1,959) (556) Purchase of distribution rights of Sunbelt Distributors, Inc. (11,321) Increase in other assets (3,600) (6,104) (1,128) - ------------------------------------------------------------------------------------------------------------------- (60,690) (46,910) (44,026) - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 76,000 91,500 20,200 Reductions in long-term debt (43,858) (4,500) (10,160) Net proceeds from issuance of common stock and warrants to an affiliate of Nestle USA, Inc. 102,487 Issuance of common stock under employee stock plans 2,464 3,499 2,379 Repurchases of common stock (262) (40,521) (89,361) Cash dividends paid (5,831) (5,030) (3,638) - ------------------------------------------------------------------------------------------------------------------- 28,513 44,948 21,907 - ------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,083 (3,283) 3,802 Cash and cash equivalents, beginning of year 3,051 6,334 2,532 - ------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,134 $ 3,051 $ 6,334 =================================================================================================================== Supplemental Cash Flow Information Cash paid (refunded) during the year for: Interest (net of amounts capitalized) $ 8,856 $ 9,738 $ 10,810 Income taxes (net of refunds) 398 2,172 (2,264) Non-cash transactions: Acquisition of M-K-D Distributors, Inc. 10,800 Conversion of convertible subordinated debentures into redeemable convertible Series B preferred stock 100,752 - -------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements 19 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Dreyer's Grand Ice Cream, Inc. 1996 Annual Report NOTE 1 OPERATIONS Dreyer's Grand Ice Cream, Inc. and its subsidiaries (the Company) is a single segment industry company engaged primarily in the business of manufacturing and selling premium ice cream and other frozen dessert products to grocery and convenience stores, foodservice accounts and independent distributors in the United States. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include the accounts of Dreyer's Grand Ice Cream, Inc. and its subsidiaries. All intercompany transactions have been eliminated. FISCAL YEAR The Company's fiscal year is a fifty-two or fifty-three week period ending on the last Saturday in December. Fiscal years 1996 and 1995 each consisted of fifty-two weeks and fiscal year 1994 consisted of fifty-three weeks. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH EQUIVALENTS The Company classifies financial instruments as cash equivalents if the original maturity of such investments is three months or less. INVENTORIES Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market. Cost includes materials, labor and manufacturing overhead. PROPERTY, PLANT AND EQUIPMENT The cost of additions and major improvements and repairs are capitalized, while maintenance and minor repairs are charged to expense as incurred. Depreciation of fixed assets is computed using the straight-line method over the assets' estimated useful lives, generally ranging from three to thirty-five years. Interest costs relating to capital assets under construction are capitalized. GOODWILL AND DISTRIBUTION RIGHTS Goodwill and distribution rights are amortized using the straight-line method over thirty to thirty-six years. PREOPERATING COSTS Preoperating costs incurred during the construction and start-up of new manufacturing and distribution facilities are capitalized and amortized over three years. During 1996, the Company capitalized $2,710,000 of preoperating costs associated with the start-up of its Houston, Texas manufacturing facility. IMPAIRMENT OF LONG-LIVED ASSETS The Company reviews long-lived assets and certain identifiable intangibles, including goodwill and distribution rights, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The assessment of impairment is based on the estimated undiscounted future cash flows from operating activities compared with the carrying value of the assets. If the undiscounted future cash flows of an asset are less than the carrying value, a write-down would be recorded measured by the amount of the difference between the carrying value of the asset and the fair value of the asset. 20 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Dreyer's Grand Ice Cream, Inc. 1996 Annual Report ADVERTISING COSTS The Company defers production costs for media advertising and expenses these costs in the period the advertisement is first run. All other advertising costs are expensed in the period incurred. Advertising expense, including consumer promotion spending, was $28,770,000, $39,971,000 and $40,287,000 in 1996, 1995 and 1994, respectively. INCOME TAXES Income taxes are accounted for using the liability method. Under this method, deferred tax liabilities and assets are recognized for the tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. ACCOUNTING FOR STOCK-BASED COMPENSATION The Company measures compensation cost for employee stock options and similar equity instruments using the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25). NET INCOME (LOSS) PER COMMON SHARE Net income (loss) per common share is computed using the weighted average number of shares of common stock outstanding during the period which were 13,248,000, 13,285,000 and 14,731,000, in 1996, 1995 and 1994, respectively. The potentially dilutive effect of the Company's redeemable convertible preferred stock, convertible subordinated debentures, and other common stock equivalents was anti-dilutive for each fiscal year. Accordingly, fully diluted earnings per share for 1996, 1995 and 1994 are not presented. NOTE 3 INVENTORIES Inventories at December 28, 1996 and December 30, 1995 consisted of the following:
(In thousands) 1996 1995 - ----------------------------------------- Raw materials $ 5,361 $ 3,291 Finished goods 35,399 29,910 - ----------------------------------------- $40,760 $33,201 =========================================
NOTE 4 PROPERTY, PLANT AND EQUIPMENT The cost and accumulated depreciation of property, plant and equipment at December 28, 1996 and December 30, 1995 were as follows:
(In thousands) 1996 1995 - ---------------------------------------------------------- Buildings and improvements $ 84,732 $ 67,626 Machinery and equipment 185,880 145,023 Office furniture and fixtures 7,778 5,629 - ---------------------------------------------------------- 278,390 218,278 Accumulated depreciation (88,342) (77,453) - ---------------------------------------------------------- 190,048 140,825 Land 12,190 11,019 Construction in progress 22,800 30,913 - ---------------------------------------------------------- $225,038 $182,757 ==========================================================
At December 28, 1996, property, plant and equipment included assets under capital leases of $17,463,000. Amortization expense and accumulated amortization related to capital lease assets was $2,260,000 in 1996. Interest capitalized was $2,627,000, $2,288,000 and $1,788,000 in 1996, 1995 and 1994, respectively. Depreciation expense for property, plant and equipment was $21,250,000, $16,412,000 and $13,194,000, in 1996, 1995 and 1994, respectively. Construction in progress at December 30, 1995 included $19,046,000 of costs associated with the enhancement of management information systems. NOTE 5 GOODWILL AND DISTRIBUTION RIGHTS 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. 21 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Dreyer's Grand Ice Cream, Inc. 1996 Annual Report ACQUISITIONS On March 27, 1996, the Company acquired the remaining 50.3% of the outstanding common stock of M-K-D Distributors, Inc. (M-K-D) for 320,000 newly issued shares of the Company's common stock having a value of $10,800,000. The acquisition was accounted for as a purchase and the amount by which the purchase price exceeded the fair value of the net identifiable assets acquired of $7,892,000 has been recorded as goodwill and distribution rights. The Company has consolidated the results of operations of M-K-D since the beginning of fiscal 1996. That portion of M-K-D's 1996 pre-acquisition earnings before income taxes which was attributable to the former shareholders' interest, approximately $148,000, was recorded as a charge to selling, general and administrative expenses. Prior to 1996, the Company accounted for its 49.7% ownership of M-K-D using the equity method. The investment, included in other assets, was stated at cost, adjusted for the Company's equity in undistributed earnings, and was $5,517,000 at December 30, 1995. The Company's equity in the earnings of M-K-D was $779,000 and $1,063,000 in 1995 and 1994, respectively. The Company's sales of its branded products to M-K-D were $25,174,000 and $22,583,000, in 1995 and 1994, respectively. Summarized financial information for M-K-D follows:
(In thousands) Dec. 30, 1995 - ----------------------------------------- Current assets $ 7,756 Non-current assets 9,688 - ----------------------------------------- $17,444 ========================================= Current liabilities $ 3,960 Non-current liabilities 2,084 Stockholders' equity 11,400 - ----------------------------------------- $17,444 =========================================
(In thousands) 1995 1994 - -------------------------------------------- Net sales $74,219 $62,817 Gross profit 15,316 14,492 Net income 1,687 2,146
NOTE 6 INCOME TAXES The provision (benefit) for federal and state income taxes consisted of the following:
(In thousands) 1996 1995 1994 - ---------------------------------------- Current: Federal $1,683 $(3,045) $ 890 State 315 164 - ---------------------------------------- 1,998 (3,045) 1,054 - ---------------------------------------- Deferred: Federal 2,003 2,127 (422) State 361 (69) 2 - ---------------------------------------- 2,364 2,058 (420) - ---------------------------------------- $4,362 $ (987) $ 634 ========================================
The deferred income tax liability of December 28, 1996 and December 30, 1995 consisted of the following:
(In thousands) 1996 1995 - ------------------------------------------------------------- Intangible assets and related amortization $16,124 $12,855 Depreciation 16,897 14,671 Deferred costs 3,401 2,621 Other 1,380 1,565 - ------------------------------------------------------------- $37,802 $31,712 =============================================================
The federal statutory income tax rate is reconciled to the Company's effective income tax rate as follows:
1996 1995 1994 - --------------------------------------------------------- Federal statutory income tax rate 35.0% (35.0)% 35.0% State income taxes, net of federal tax benefit 3.9 (1.7) 6.6 Reversal of income taxes provided in prior periods (3.7) (5.8) Other 3.2 3.2 (2.8) - --------------------------------------------------------- 38.4% (39.3)% 38.8% =========================================================
22 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Dreyer's Grand Ice Cream, Inc. 1996 Annual Report NOTE 7 LONG-TERM DEBT Long-term debt at December 28, 1996 and December 30, 1995 consisted of the following:
(In thousands) 1996 1995 - ------------------------------------------------------------------ Revolving line of credit with banks due 1999 with interest payable at three different rate options $ 75,700 $111,700 Senior notes with principal due through 2008 and interest payable semiannually at three different interest rates 50,000 Capital lease obligation with payments due through 2000 and interest payable quarterly at a floating rate 23,563 Senior notes with principal due through 2001 and interest payable semiannually at 9.3% 17,800 21,400 Industrial revenue bonds with principal due through 2001 and interest payable quarterly at a floating rate based upon a tax-exempt note index 4,500 4,500 Other 84 - ------------------------------------------------------------------- 171,647 137,600 Less - current portion 8,512 3,600 - ------------------------------------------------------------------- $163,135 $134,000 ===================================================================
The aggregate annual maturities of long-term debt, including capital lease obligation, as of December 28, 1996 are as follows:
(In thousands) - ----------------------------------------- Year ending: 1997 $ 8,512 1998 8,522 1999 84,175 2000 19,680 2001 15,043 Later years 35,715 - ----------------------------------------- Total $171,647 =========================================
LINE OF CREDIT During 1995, the Company entered into a new credit agreement with certain banks for a total revolving line of credit of $175,000,000. This agreement replaced the Company's previous revolving line of credit agreement. The total available line of credit decreases by $25,000,000 on December 31, 1997 and December 31, 1998, and expires on December 31, 1999. This line is available at three different interest rate options which are defined as the agent bank's offshore rate, same day funding rate, plus an applicable margin, or the bank's reference rate. The interest rate on the line of credit was 6.13% at December 28, 1996. At December 28, 1996, there was $75,700,000 outstanding under the line. SENIOR NOTES On June 6, 1996, the Company completed a private placement of $50,000,000 of senior notes, due 2000 through 2008. Proceeds from the senior notes were used to repay a portion of existing bank borrowings and to fund capital expenditures. Interest on the notes ranges from 7.68% to 8.34% and is payable semi-annually. LEASE TRANSACTION On March 29, 1996, the Company entered into a lease transaction involving a large majority of its direct-store-delivery truck fleet. The $26,000,000 proceeds received by the Company from the lease transaction were used to repay a portion of existing bank borrowings and to fund capital expenditures. The interest rate on the capital lease obligation was 6.52% at December 28, 1996. The four-year lease has been classified as a capital lease and the related assets are recorded in property, plant and equipment. The excess of the lease transaction proceeds over the carrying value of the fleet of approximately $9,095,000 was deferred and netted against the carrying value of the capital leased assets. This deferred gain is being credited to income in proportion to the amortization of the capital leased assets. FAIR VALUE OF FINANCIAL INSTRUMENTS As of December 28, 1996 and December 30, 1995, the fair value of the Company's long-term debt was determined to 23 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Dreyer's Grand Ice Cream, Inc. 1996 Annual Report approximate the carrying amount. The fair value was based on quoted market prices for the same or similar issues or on the current rates offered to the Company for a term equal to the same remaining maturities. It is not practicable to estimate the fair value of the redeemable convertible Series B preferred stock due to the unique terms and conditions of these securities. The Company is subject to the requirements of various financial covenants, including dividend restrictions, under its long-term debt obligations and the redeemable convertible Series B preferred stock. NOTE 8 LEASING ARRANGEMENTS The Company conducts certain of its operations from leased facilities, which include land and buildings, production equipment, and certain vehicles. All of these leases expire over a period of twenty-six years including renewal options. Certain of these leases include non-bargain purchase options. The minimum rental payments required under non-cancelable leases at December 28, 1996 are as follows:
(In thousands) OPERATING CAPITAL - ----------------------------------------------------- Year ending: 1997 $ 4,078 $ 6,217 1998 2,995 5,888 1999 2,190 5,560 2000 1,520 9,068 2001 1,079 - Later years 4,465 - - ---------------------------------------------------- $16,327 26,733 ======= Less - amounts representing interest 3,170 - ----------------------------------------------------- Present value of minimum lease payments 23,563 Less - current portion 4,875 - ----------------------------------------------------- $ 18,688 =====================================================
Rental expense for operating leases was $11,665,000, $12,824,000 and $11,474,000 in 1996, 1995 and 1994, respectively. NOTE 9 REDEEMABLE CONVERTIBLE SERIES B PREFERRED STOCK 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 (Series B), redeemable on June 30, 2001. On the conversion date, $2,538,000 of unamortized debenture issuance costs were charged against the carrying value of the debentures to arrive at the carrying value of $98,214,000 for this preferred stock. The Company is recording accretion to increase the carrying value to the redemption value of $100,752,000 by June 30, 2001, the redemption date. The Series B preferred stock is convertible, under certain conditions, into a total of 1,008,000 shares of Series A Convertible Preferred Stock (Series A), redeemable on June 30, 2001. Additionally, both the Series A preferred stock 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. Series B preferred stock can be called by the Company for early redemption, subject to certain limitations. In preference to shares of common stock, shares of both the Series A preferred stock and the Series B preferred stock are entitled to receive cumulative cash dividends, payable quarterly in arrears. The Company pays dividends for the Series B preferred stock of approximately $1,143,000 per quarter. Dividends on the Series A preferred stock are payable at a dividend rate equal to the amount they would receive as if the shares were converted into comparable shares of common stock. NOTE 10 COMMON STOCK The Company paid a regular quarterly dividend of $.06 per share for each quarter of 1996, 1995 and 1994. During 1987, the Board of Directors declared a dividend of one Preferred Stock Purchase Right (the Rights) for each outstanding share of common stock. Under certain conditions, the Rights become exercisable for the purchase of the Company's preferred or common stock. 24 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Dreyer's Grand Ice Cream, Inc. 1996 Annual Report NESTLE EQUITY ISSUANCE On June 14, 1994, the Company completed a transaction (the "Nestle Agreement") with an affiliate of Nestle USA, Inc. ("Nestle"), whereby Nestle purchased 3,000,000 newly issued shares of common stock of the Company for $32 per share and warrants to purchase an additional 2,000,000 shares at an exercise price of $32 per share. Warrants for 1,000,000 shares will expire on June 14, 1997 and warrants for the other 1,000,000 shares will expire on June 14, 1999. Nestle paid an aggregate of $10,000,000 for the 2,000,000 warrants. Total proceeds from the issuance of the initial 3,000,000 shares and the 2,000,000 warrants were $106,000,000. In connection with the Nestle Agreement, the Company incurred transaction costs of $3,513,000 which were recorded as a charge against capital in excess of par. The Company has the right to cause Nestle to exercise the warrants at $24 per share subject to certain conditions at any time before June 14, 1997. The Company also has the right to cause Nestle to exercise the warrants at any time through the warrant expiration dates at $32 per share if the average trading price of the common stock exceeds $60 during a 130 trading day period preceding the exercise, subject to certain conditions. Furthermore, if the average trading price of the common stock equals or exceeds $60 during a 130 trading day period before June 14, 1999, Nestle will be required to pay an additional $2 for each share purchased and each share purchased upon exercise of the warrants. In connection with the Nestle Agreement, the Company entered into a distribution agreement with Nestle Ice Cream Company to distribute Nestle's frozen novelty and ice cream products in certain markets. COMMON STOCK REPURCHASES During 1994, the Company implemented a plan to repurchase up to 5,000,000 shares of common stock through open market purchases and negotiated transactions (the Stock Repurchase Plan). This plan was completed during 1995. During 1995, the Company repurchased and retired 1,291,000 shares of its common stock at prices ranging from $25.38 to $34.25 under the Stock Repurchase Plan. In addition, the Company repurchased and retired 28,000 shares of its common stock at prices ranging from $24.50 to $38.50 from employees who previously acquired shares under employee stock plans. During 1994, the Company repurchased and retired 3,709,000 shares of its common stock at prices ranging from $21.38 to $25.75 per share under the Stock Repurchase Plan. In addition, the Company repurchased and retired 44,000 shares of its common stock at prices ranging from $22.00 to $28.69 per share from employees who previously acquired shares under employee stock plans. NOTE 11 EMPLOYEE BENEFIT PLANS The Company maintains a defined contribution retirement plan for employees not covered by collective bargaining agreements. The plan provides retirement and other benefits based upon the assets of the plan held by the trustee. The Company contributes 7% of the eligible participants' annual compensation to the plan. The Company also maintains a salary deferral plan under which it may make a matching contribution of a percentage of each participant's deferred salary amount. Pension expense and matching contributions under these plans were approximately $7,683,000, $7,202,000 and $5,776,000, in 1996, 1995 and 1994, respectively. The Company's liability for accrued pension contributions and salary deferrals was $6,242,000 and $7,186,000 at December 28, 1996 and December 30, 1995, respectively. Pension expense for employees covered by multi-employer retirement plans under collective bargaining agreements was $956,000, $848,000 and $677,000, in 1996, 1995 and 1994, respectively. 25 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Dreyer's Grand Ice Cream, Inc. 1996 Annual Report NOTE 12 EMPLOYEE STOCK PLANS The Company offers to certain employees various stock option plans, a Section 423 employee stock purchase plan and an employee secured stock purchase plan. STOCK OPTION PLANS The Company has three stock option plans under which options may be granted for the purchase of the Company's common stock at a price not less than 100% of the fair market value at the date of grant. The incentive stock option plan (the 1982 Plan) provides that options are not exercisable until after two years from the date of grant and generally expire six years from the date of grant. The non-qualified stock option plan (the 1992 Plan) provides that options are not exercisable until after two years from the date of grant and expire upon death or termination of employment. In 1994, the stockholders approved a new stock option plan (the 1993 Plan) under which granted options may be either incentive stock options or non-qualified stock options. This plan provides that options expire no later than ten years from the date of grant. This plan also provides that most of the terms of the options, such as vesting, are within the discretion of the compensation committee, composed of certain members of the Company's Board of Directors. As prescribed by APB No. 25, no compensation cost has been recognized for these stock option plans. If compensation cost for these plans had been determined based on the fair value at the grant dates consistent with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), the Company's net income (loss) applicable to common stock and net income (loss) per common share on a pro forma basis would be as follows:
(In thousands, except per share amounts) 1996 1995 - ------------------------------------------------------------------------ Net income (loss) applicable to common stock $249 $(4,111) Net income (loss) per common share .02 (.31) - ------------------------------------------------------------------------
The activity in the three stock option plans for each of the three years in the period ended December 28, 1996 is summarized below.
Weighted Options Average Available Options Price (In thousands, except per share amounts) for Grant Outstanding Per Share - ------------------------------------------------------------------------------------------- BALANCE, DECEMBER 25, 1993 66 778 $21.39 Authorized 1,200 Granted (387) 387 24.28 Exercised (99) 9.97 Canceled 12 (12) - ------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1994 891 1,054 $23.49 Authorized Granted (446) 446 25.95 Exercised (120) 14.27 Canceled 15 (15) - ------------------------------------------------------------------------------------------- BALANCE, DECEMBER 30, 1995 460 1,365 $25.10 Authorized 1,000 Granted (451) 451 31.50 Exercised (53) 17.73 Canceled 53 (53) - ------------------------------------------------------------------------------------------- BALANCE, DECEMBER 28, 1996 1,062 1,710 $26.97 ===========================================================================================
26 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Dreyer's Grand Ice Cream, Inc. 1996 Annual Report The weighted-average fair market value of options granted in 1996 and 1995 was $12.34 and $11.20 per share, respectively. The fair market value of each option granted was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 1996 and 1995, respectively: risk-free interest rate of 5.96% and 7.01%; dividend yield of 0.75% and 0.85%; volatility of 33.62% and 34.24%; and expected term of 4.5 and 4.9 years. Stock options exercisable were 618,000, 391,000 and 305,000 at year-end 1996, 1995 and 1994, respectively. These stock options were exercisable at a weighted average option price of $26.12, $24.70 and $20.17 for 1996, 1995, and 1994, respectively. Significant option groups outstanding at December 28, 1996 and related weighted average price per share and life information follows:
(In thousands, except per share amounts) - ------------------------------------------------------------------------------------------------------------------------ Options Outstanding Options Exercisable ----------------------- ------------------------- Weighted Weighted Average Average Exercise Grant Options Exercise Options Exercise Price Remaining Plan Year Outstanding Price Exercisable Price Range Life (Years) - ------------------------------------------------------------------------------------------------------------------------ 1982 PLAN 1991 29 $27.59 29 $27.59 $27.50-29.50 0.25 1992 75 19.99 60 19.99 19.50-24.13 1.25 1993 81 26.04 49 26.04 24.75-30.13 2.25 1992 PLAN 1992 43 26.21 35 26.21 19.50-29.25 NA 1993 242 27.67 145 27.67 24.75-29.38 NA 1993 PLAN 1994 371 24.30 209 24.66 21.75-29.38 7.25 1995 426 25.95 14 25.95 25.95 8.25 1996 443 31.50 77 31.50 31.50 9.25 - ------------------------------------------------------------------------------------------------------------------------ Total 1,710 618 - ------------------------------------------------------------------------------------------------------------------------
SECTION 423 EMPLOYEE STOCK PURCHASE PLAN Under the section 423 employee stock purchase plan, employees may authorize payroll deductions up to 10% of their compensation for the purpose of acquiring shares at 85% of the market price determined at the beginning of a specified twelve month period. Under this plan, employees purchased 24,000 shares at prices ranging from $22.00 to $32.94 per share in 1996, 40,000 shares at prices ranging from $20.29 to $21.67 per share in 1995 and 20,000 shares at prices ranging from $20.61 to $23.16 per share in 1994. Compensation cost based on the fair value of the employees' purchase rights under SFAS No. 123 was not material in 1996 and 1995. EMPLOYEE SECURED STOCK PURCHASE PLAN Under the employee secured stock purchase plan (the Secured Plan), on specified dates, employees may purchase shares at fair market value by paying 20% of the purchase price in cash and the remaining 80% of the purchase price in the form of a non-recourse promissory note with a term of 30 years. Under this plan, employees purchased 28,000 shares at prices ranging from $28.50 to $31.75 per share in 1996, 23,000 shares at prices ranging from $25.28 to $39.50 per share in 1995 and 27,000 shares at prices ranging from $24.25 to $25.13 per share in 1994. The Secured Plan is not considered compensatory under SFAS No. 123. 27 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Dreyer's Grand Ice Cream, Inc. 1996 Annual Report NOTE 13 SIGNIFICANT CUSTOMERS For fiscal 1996, 1995 and 1994, no customer accounted for more than 10% of consolidated net sales. NOTE 14 INSURANCE SETTLEMENT AND TRADEMARK SALE In March 1996, the Company settled an insurance claim relating to the malfunction of a refrigeration system at one of its plants. The malfunction caused the accidental release of ammonia (refrigerant) into the plant which contaminated the finished goods inventory. In accordance with the settlement, the Company received the value of the finished goods inventory at its normal selling price, plus expenses incurred recovering from the accident. This resulted in a gain of $2,100,000, which was recorded as a reduction in cost of goods sold in 1996. In December 1996, the Company sold trademark rights for the People's Republic of China, Hong Kong and Macau to its third-party independent distributor for $2,600,000. Separately, the Company sold approximately a three to five month supply of its products to this distributor on a volume discount basis for $3,390,000. These transactions had the effect of increasing net income by $3,538,000, or $0.27 per common share. NOTE 15 CONTINGENCIES The Company is engaged in various legal actions as both plaintiff and defendant. Management believes that the outcome of these actions, either individually or in the aggregate, will not have a material adverse effect on the Company's financial position, results of operations or cash flows. NOTE 16 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Per Share ------------------------------------ Net Net Income (Loss) Income (Loss) (In thousands, except Net Gross Applicable to Applicable to Price Range per share amounts) Sales Margin Common Stock Common Stock(1) (NASDAQ) - --------------------------------------------------------------------------------------------- 1996 1st Quarter $166,970 $ 34,438 $ 434 $ .03 $27.88 - 37.75 2nd Quarter 211,568 49,282 3,771 .28 31.50 - 37.00 3rd Quarter 234,644 54,416 2,055 .15 25.00 - 32.25 4th Quarter 178,659 34,131 (4,260) (.32) 24.00 - 30.25 - ------------------------------------------------------- $791,841 $172,267 $ 2,000 .15(2) ======================================================= 1995 1st Quarter $141,255 $ 29,025 $ 322 $ .02 $24.25 - 28.25 2nd Quarter 188,083 43,045 3,664 .27 25.50 - 37.50 3rd Quarter 205,226 50,453 893 .07 36.00 - 40.00 4th Quarter 144,233 25,713 (8,375) (.65) 30.00 - 39.00 - ------------------------------------------------------- $678,797 $148,236 $(3,496) (.26)(2) =======================================================
(1) Fully diluted net income (loss) per share for each quarter of 1996 and 1995 is equivalent to primary net income (loss) per share since the potentially dilutive effect of the redeemable convertible Series B preferred stock, convertible subordinated debentures and other common stock equivalents was anti-dilutive. (2) The number of weighted average shares outstanding used in the computation of net income (loss) per common share increases and decreases as shares are issued or repurchased during the year. For this reason, the sum of net income (loss) per common share for the quarters may not be the same as the net income (loss) per common share for the year. 28 14 FIVE YEAR SUMMARY OF SIGNIFICANT FINANCIAL DATA Dreyer's Grand Ice Cream, Inc. 1996 Annual Report
Fiscal Year Ended December ------------------------------------------------------------- (In thousands, except per share amounts) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------ OPERATIONS: Net sales and other income $796,195 $ 681,052 $566,602 $471,790 $407,946 Income (loss) before cumulative effect of change in accounting principle 6,997 (1,524) 1,001 16,789 13,973 Net income (loss) 6,997 (1,524) 1,001 16,789 15,694(2) Net income (loss) applicable to common stock 2,000 (3,496) 1,001 16,789 15,694(2) PER COMMON SHARE: Income (loss) before cumulative effect of change in accounting principle .15 (.26) .07 1.15 .94 Net income (loss)(1) .15 (.26) .07 1.15 1.05(2) Dividends declared .24 .24 .24 .24 .24 BALANCE SHEET: Total assets 478,907 414,105 362,026 322,275 289,051 Working capital 70,136 69,361 48,403 57,397 25,768 Long-term debt, including convertible subordinated debentures 163,135 134,000 146,852 139,627 102,160 Redeemable convertible Series B preferred stock 98,806 98,382 Stockholders' equity 104,063 92,263 135,921 123,034 107,569 ==================================================================================================================
(1) Fully diluted net income (loss) per share is equivalent to primary net income (loss) per share. In 1996 and 1995 the potentially dilutive effect of the redeemable convertible Series B preferred stock and other common stock equivalents was anti-dilutive, in 1994 the potentially dilutive effect of the convertible subordinated debentures and other common stock equivalents was anti-dilutive, in 1993 the potentially dilutive effect of the convertible subordinated debentures was anti-dilutive and in 1992 no potentially dilutive securities were outstanding. (2) Includes the cumulative effect of change in method of accounting for income taxes of $1,721,000, or $.11 per share. 29 15 MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS FISCAL 1996 COMPARED WITH FISCAL 1995 The Company embarked on a five year plan (the Strategic Plan, also referred to as the Grand Plan) during the second quarter of 1994 to accelerate the sales of its brand throughout the country. The key elements of this plan are: 1) to build a high margin brand with a leading market share through effective consumer marketing activities, 2) to expand the Company's direct-store-delivery distribution network to a national scale and enhance this capability with sophisticated information and logistics systems and 3) to introduce innovative new products. The potential benefits of the Strategic Plan are increased market share and future earnings above those levels that would be attained in the absence of the Strategic Plan. As originally announced, the Company anticipated that the cost of implementing the Strategic Plan would materially reduce earnings during the fiscal years of 1994 and 1995. For fiscal 1996, earnings improved to a net income of $6,997,000, or $0.15 per common share, from a net loss in 1995 of $(1,524,000), or $(0.26) per common share. This improvement is partially attributable to benefits accruing from the investments made under the Strategic Plan during the past two and a half years. Consolidated net sales for fiscal 1996 increased 17% to $791,841,000 from $678,797,000 achieved in 1995. This increase includes the effect of the acquisition of M-K-D Distributors, Inc. (M-K-D) discussed below and occurred despite total U.S. gallon consumption decreasing in 1996. The decline in industry gallonage growth is primarily attributable to lower sales of ice cream products in the "better for you" segments. Dreyer's continues to be the market share leader in this segment despite the decline. Sales of the Company's branded products increased 11%, led by sales of Dreyer's and Edy's Grand Ice Cream and the recently introduced Starbucks(TM) Ice Cream, developed in a joint venture with the Starbucks Coffee Company. Market share of the Company's Dreyer's and Edy's branded products was 13.8% at the end of 1996. Sales of branded products purchased from other companies (partner brands) grew 28% during the year, with Healthy Choice(R) low fat ice cream from ConAgra, Inc. providing the greatest sales growth. Sales of partner brands represented 38% of consolidated net sales in 1996 compared with 34% in 1995. Prices for both Company and partner brands increased an average of 3% between 1995 and 1996. Cost of goods sold for 1996 increased $89,013,000, or 17%, over the prior year, while the Company's overall gross margin remained relatively unchanged at 21.8%. The benefit of distribution cost efficiencies resulting from the implementation of new information systems, and logistics and supply chain initiatives was offset by an $8,140,000 increase in dairy raw materials costs and an increase in the proportion of partner brand sales, which yield a lower gross margin. Selling, general and administrative costs for 1996 were $12,624,000, or 9%, higher than 1995. Accordingly, selling, general and administrative costs decreased as a percent of sales to 20% in 1996 from 21% in 1995 due to efficiencies resulting from investments made under the Strategic Plan. The Company incurred $28,770,000 in advertising and consumer promotion expenses during 1996 as compared with $39,971,000 in 1995. The approximate $11,000,000 decrease was largely offset by an increase in trade promotion expense. The Company regularly adjusts its levels of advertising and promotion spending in an effort to enhance long-term profitability. Interest expense was $364,000, or 4%, lower than in 1995 due to conversion of the convertible subordinated debentures into redeemable convertible Series B preferred stock during the third quarter of 1995. This decrease was partially offset by interest expenses from the issuance of senior notes, the completion of a lease transaction and higher average borrowings on the Company's line of credit during 1996. (See Note 7 of Notes to Consolidated Financial Statements.) During 1996, the Company acquired the remaining 50.3% of the outstanding common stock of M-K-D. During 1996, M-K-D's sales, cost of sales and selling, general and administrative expenses after eliminating intercompany transactions were $45,294,000, $26,514,000 and $15,736,000, respectively. These results have been consolidated for the year in the Company's financial statements. (See Note 5 of Notes to Consolidated Financial Statements.) The Company recorded certain transactions during the year which had the effect of increasing net income by $3,538,000, or $0.27 per common share. (See Note 14 of Notes to Consolidated Financial Statements.) These sources of income are largely non-recurring and as such may not be available in future periods. Furthermore, one of these transactions, the volume discount sale, will have the effect of reducing sales and operating results in the first half of 1997. 30 16 MANAGEMENT'S DISCUSSION AND ANALYSIS The Company anticipates that the earnings benefits expected under the Strategic Plan will be achieved in 1997 and future years. However, no assurance can be given that these expectations relative to future market share and earnings benefits of the strategy will be achieved. The success of the strategy will depend upon, among other things, consumer purchase responsiveness to the increased marketing expenditures, competitors' marketing responses, market conditions affecting the price of the Company's products, commodity costs and efficiencies achieved in manufacturing and distribution operations. FISCAL 1995 COMPARED WITH FISCAL 1994 In response to the Strategic Plan, dollar market share grew from 11.7% at the end of 1994 to 13.4% for the fourth quarter of 1995. Consolidated net sales for fiscal 1995 increased 20% (net sales increased 23% when adjusting for 52 weeks in fiscal 1995 and 53 weeks in 1994) to $678,797,000 from the $564,372,000 achieved in 1994. Sales of the Company's branded products increased 20%. This growth was led by Dreyer's and Edy's Fat Free Ice Cream and Grand Ice Cream as well as the new products of Low Fat Ice Cream and the revitalized Sherbet line introduced in 1995. Sales of partner brands increased 22%, led by sales of frozen novelty and ice cream products from Nestle Ice Cream Company introduced in 1995. Sales of partner brands represented 34% of consolidated net sales in both 1995 and 1994. The effect of price increases was not significant in 1995. During 1995, the Company expanded its direct-store-delivery system into 16 new markets. The expenses associated with this expansion effort were the primary cause of a decrease in gross margin from 24.0% in 1994 to 21.8% for 1995, resulting in a 24%, or $101,782,000, increase in cost of goods sold over 1994. The gross margin was affected to a lesser extent by the Company's continued development of its Grand Soft business, including significantly enhanced manufacturing, equipment service and financing capabilities. Advertising and consumer promotion spending continued at the annual rate of approximately $40,000,000 during 1995. The Company increased its level of trade promotion spending during 1995 by approximately $14,000,000 due principally to the initial introduction of the Company's products in new markets. This increase in promotion spending was the primary factor in the $16,145,000 growth in selling, general and administrative expenses between 1994 and 1995. Interest expense increased $669,000, or 7%, principally due to higher borrowings under the Company's revolving line of credit. FISCAL 1994 COMPARED WITH FISCAL 1993 In the first partial year of the implementation of the Strategic Plan, the Company's consolidated net sales for 1994 increased 20% (net sales increased 18% when adjusting for 53 weeks in fiscal 1994 and 52 weeks in 1993) to $564,372,000, compared with $470,665,000 in 1993. Driven by substantially higher advertising and consumer promotion spending under the Strategic Plan, sales of the Company's branded products increased 22%. Dreyer's and Edy's Frozen Yogurt and Grand Ice Cream led this increase followed by the contribution from the Company's novelty products. The increase in sales of Healthy Choice(R) low fat ice cream from ConAgra, Inc. was the primary factor in the partner brand sales increase of 12% over the prior year. Partner brands represented 34% of consolidated net sales as compared to 36% in 1993. The effect of price increases was not significant in 1994. Cost of goods sold increased $72,542,000, or 20%, over 1993. Gross margin, however, decreased slightly from 24.3% to 24.0% primarily due to the additional expenses associated with introducing the Company's product line and expansion of the distribution system in the Texas and New England markets as well as in several markets in the southern United States. The effect of these expenses on gross margin was partially offset by a higher proportion of Company products, which carry a higher margin than partner brands. The implementation of the Strategic Plan required an increase in overall marketing expenses of $40,501,000, leading to a 59%, or $47,166,000, increase in selling, general and administrative expenses over those incurred in 1993. Interest expense was $1,440,000, or 18%, higher than in 1993 due primarily to the issuance of the convertible subordinated debentures in the second quarter of 1993. As anticipated and announced, the implementation of the Strategic Plan described above resulted in a net income of $1,001,000 for 1994 as compared with $16,789,000 for 1993. TAX PROVISIONS The Company's income tax provisions differ from tax provisions calculated at the federal statutory tax rate primarily due to state income taxes and the reversal of income taxes provided in prior periods. (See Note 6 of Notes to Consolidated Financial Statements.) 31 17 MANAGEMENT'S DISCUSSION AND ANALYSIS SEASONALITY The Company experiences more demand for its products during the spring and summer than during the fall and winter. (See Note 16 of Notes to Consolidated Financial Statements.) EFFECTS OF INFLATION AND CHANGING PRICES The largest component of the Company's cost of production is raw materials, principally dairy products and sugar. Historically, the Company has been able to compensate for increases in the price level of these commodities through manufacturing and distribution operating efficiencies. During 1996, unusually high dairy raw materials costs negatively impacted gross profit by $8,140,000. However, these costs were offset by price increases and productivity gains. Other cost increases such as labor and general and administrative costs have also been offset by productivity gains and other operating efficiencies. LIQUIDITY AND CAPITAL RESOURCES The Company's operations provided cash flow of $33,260,000 during 1996 compared with $(1,321,000) cash used in 1995 and $25,921,000 cash provided by operations during 1994. Working capital of the Company increased to $70,136,000 compared with $69,361,000 and $48,403,000 during 1995 and 1994, respectively. Refer to the Consolidated Statement of Cash Flows for the components of increases and decreases in cash and cash equivalents for the three year period ended December 28, 1996. The Company continued to expand its manufacturing capacity and direct-store-delivery distribution system through investments of $58,470,000 in property, plant and equipment during 1996 compared with $39,437,000 and $31,568,000 during 1995 and 1994, respectively. The Company plans to spend approximately $30,000,000 during 1997 on property, plant and equipment primarily for further expansion of its manufacturing capacity and construction of distribution facilities. It is anticipated that these additions will be largely financed through internally generated funds and borrowings. During 1996, the Company acquired the remaining 50.3% of the outstanding common stock of M-K-D for 320,000 newly issued shares of the Company's common stock having a value of $10,800,000. (See Note 5 of Notes to Consolidated Financial Statements.) During 1994, the Company entered into a long-term distribution agreement with Sunbelt Distributors, Inc., the leading independent direct-store-delivery ice cream distributor in Texas. (See Note 5 of Notes to Consolidated Financial Statements.) The Company's inventory is maintained at the same general level relative to sales throughout the year by changing production and purchasing schedules to meet demand. The ratio of inventory to sales typically does not vary significantly from year to year. The Company's cash flows from financing activities were $28,513,000 during 1996 compared with $44,948,000 and $21,907,000 during 1995 and 1994, respectively. Proceeds from the issuance of senior notes and the completion of a lease transaction involving a large majority of its direct-store-delivery truck fleet for $26,000,000 provided cash used for investments in property, plant and equipment and to reduce borrowing on the Company's long-term line of credit during 1996. (See Note 7 of Notes to Consolidated Financial Statements.) During 1995, the Company converted $100,752,000 of convertible subordinated debentures into 1,008,000 shares of redeemable convertible Series B preferred stock, redeemable on June 30, 2001. (See Note 9 of Notes to Consolidated Financial Statements.) During 1994, the Company completed a transaction with an affiliate of Nestle USA, Inc. (Nestle), whereby Nestle purchased 3,000,000 newly issued shares of common stock of the Company for $32 per share and warrants to purchase an additional 2,000,000 shares at an exercise price of $32 per share. Total proceeds from the issuance of the shares and warrants was $106,000,000. (See Note 10 of Notes to Consolidated Financial Statements.) During 1994, the Company implemented a plan to repurchase up to 5,000,000 shares of common stock through open market purchases and negotiated transactions (the Stock Repurchase Plan). This plan was completed during 1995. The Company repurchased and retired 1,291,000 and 3,709,000 of its common stock under the Stock Repurchase Plan during 1995 and 1994, respectively. As of year-end 1996, the Company had $4,134,000 in cash and cash equivalents, and an unused credit line of $99,300,000. 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. 32 EX-21 7 SUBSIDIARIES OF REGISTRANT. 1 EXHIBIT 21 SUBSIDIARIES OF DREYER'S GRAND ICE CREAM, INC.
NAME JURISDICTION - ----------------------------------------------------------------------- ---------------------- Edy's Grand Ice Cream California *Edy's of Illinois, Inc. Illinois Dreyer's International, Inc. U.S. Virgin Islands Grand Soft Capital Company California Grand Soft Equipment Company Kentucky (formerly Polar Express Systems International, Inc.) Portofino Company California M-K-D Distributors, Inc. Texas **Snelgrove Ice Cream, Inc. Utah
- --------------- * Subsidiary of Edy's Grand Ice Cream ** Subsidiary of M-K-D Distributors, Inc. EX-23 8 CONSENT OF INDEPENDENT ACCOUNTANTS. 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-7350, 33-8418, 33-35561, 33-36092, 33-40275, 33-56417, 33-56411, 33-56413 and 333-16701) of Dreyer's Grand Ice Cream, Inc. of our report dated March 12, 1997 appearing in the 1996 Annual Report to Stockholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page 15 of this Form 10-K. We also consent to the incorporation by reference of our report dated April 9, 1996 relating to the consolidated financial statements of M-K-D Distributors, Inc. appearing on page 17 of this Form 10-K. PRICE WATERHOUSE LLP San Francisco, California March 28, 1997 EX-27 9 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-28-1996 DEC-31-1995 DEC-28-1996 4,134 0 73,808 (755) 40,760 145,237 313,380 (88,342) 478,907 75,101 163,135 98,806 0 13,345 90,718 478,907 791,841 796,195 619,574 619,574 154,823 891 9,548 11,359 4,362 6,997 0 0 0 6,997 0.15 0.15
-----END PRIVACY-ENHANCED MESSAGE-----