FORM 10-Q
UNITED STATES
(Mark One)
(Mark One) | ||||
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 30,September 28, 2002
OR
OR | |||
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 0-14190
DREYER’S GRAND ICE CREAM, INC.
Delaware | No. 94-2967523 | ||
(State or other jurisdiction of | (I.R.S. Employer | ||
incorporation or organization) | Identification No.) |
5929 College Avenue, Oakland, California 94618
(Address of principal executive offices) (Zip Code)
(510) 652-8187
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
Shares Outstanding | |||||
Common stock, $1 par value | 34,911,000 |
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DREYER’S GRAND ICE CREAM, INC.
CONSOLIDATED BALANCE SHEET
Mar. 30, 2002 | Dec. 29, 2001 | Sept. 28, 2002 | Dec. 29, 2001 | |||||||||||||||||
($ in thousands, except per share amounts) | ($ in thousands, except per share amounts) | (Unaudited) | ($ in thousands, except per share amounts) | (Unaudited) | ||||||||||||||||
Assets | Assets | Assets | ||||||||||||||||||
Current Assets: | Current Assets: | Current Assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 1,596 | $ | 1,650 | Cash and cash equivalents | $ | 1,859 | $ | 1,650 | |||||||||||
Trade accounts receivable, net of allowance for doubtful accounts of $1,699 in 2002 and $1,024 in 2001 | 118,438 | 89,721 | Trade accounts receivable, net of allowance for doubtful accounts of $1,584 in 2002 and $1,024 in 2001 | 116,640 | 89,721 | |||||||||||||||
Other accounts receivable | 17,515 | 16,116 | Other accounts receivable | 14,384 | 16,116 | |||||||||||||||
Inventories | 90,499 | 81,298 | Inventories | 85,533 | 81,298 | |||||||||||||||
Deferred income taxes | 3,443 | 3,547 | Deferred income taxes | 1,698 | 3,547 | |||||||||||||||
Prepaid expenses and other | 18,201 | 8,849 | Prepaid expenses and other | 17,253 | 8,849 | |||||||||||||||
Total current assets | 249,692 | 201,181 | Total current assets | 237,367 | 201,181 | |||||||||||||||
Property, plant and equipment, net | Property, plant and equipment, net | 204,144 | 198,565 | Property, plant and equipment, net | 210,665 | 198,565 | ||||||||||||||
Goodwill | Goodwill | 84,382 | 39,114 | Goodwill | 84,701 | 39,114 | ||||||||||||||
Other intangibles, net | Other intangibles, net | 2,188 | 55,354 | Other intangibles, net | 1,849 | 55,354 | ||||||||||||||
Other assets | Other assets | 5,736 | 4,475 | Other assets | 3,364 | 4,475 | ||||||||||||||
Total assets | Total assets | $ | 546,142 | $ | 498,689 | Total assets | $ | 537,946 | $ | 498,689 | ||||||||||
Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity | ||||||||||||||||||
Current Liabilities: | Current Liabilities: | Current Liabilities: | ||||||||||||||||||
Accounts payable and accrued liabilities | $ | 109,883 | $ | 91,794 | Accounts payable and accrued liabilities | $ | 109,673 | $ | 91,794 | |||||||||||
Accrued payroll and employee benefits | 21,270 | 25,369 | Accrued payroll and employee benefits | 32,194 | 25,369 | |||||||||||||||
Current portion of long-term debt | 2,143 | |||||||||||||||||||
Total current liabilities | 131,153 | 117,163 | ||||||||||||||||||
Total current liabilities | 144,010 | �� | 117,163 | |||||||||||||||||
Long-term debt | 190,871 | 148,671 | ||||||||||||||||||
Long-term debt, less current portion | Long-term debt, less current portion | 146,429 | 148,671 | |||||||||||||||||
Deferred income taxes | Deferred income taxes | 14,333 | 24,490 | Deferred income taxes | 14,468 | 24,490 | ||||||||||||||
Total liabilities | Total liabilities | 336,357 | 290,324 | Total liabilities | 304,907 | 290,324 | ||||||||||||||
Commitments and contingencies | Commitments and contingencies | Commitments and contingencies | ||||||||||||||||||
Stockholders’ Equity: | Stockholders’ Equity: | Stockholders’ Equity: | ||||||||||||||||||
Preferred stock, $1 par value — 10,000,000 shares authorized; no shares issued or outstanding in 2002 and 2001 | Preferred stock, $1 par value - 10,000,000 shares authorized; no shares issued or outstanding in 2002 and 2001 | |||||||||||||||||||
Common stock, $1 par value — 60,000,000 shares authorized; 34,625,000 shares and 34,461,000 shares issued and outstanding in 2002 and 2001, respectively | 34,625 | 34,461 | Common stock, $1 par value - 60,000,000 shares authorized; 34,883,000 shares and 34,461,000 shares issued and outstanding in 2002 and 2001, respectively | 34,883 | 34,461 | |||||||||||||||
Capital in excess of par | 162,250 | 160,103 | Capital in excess of par | 166,962 | 160,103 | |||||||||||||||
Notes receivable from stockholders | (2,670 | ) | (2,546 | ) | Notes receivable from stockholders | (2,228 | ) | (2,546 | ) | |||||||||||
Retained earnings | 15,580 | 16,347 | Retained earnings | 33,422 | 16,347 | |||||||||||||||
Total stockholders’ equity | Total stockholders’ equity | 209,785 | 208,365 | Total stockholders’ equity | 233,039 | 208,365 | ||||||||||||||
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 546,142 | $ | 498,689 | Total liabilities and stockholders’ equity | $ | 537,946 | $ | 498,689 | ||||||||||
See accompanying Notes to Consolidated Financial Statements.
2
DREYER’S GRAND ICE CREAM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
INCOME
Thirteen Weeks Ended | |||||||||
($ in thousands, except per share amounts) | Mar. 30, 2002 | Mar. 31, 2001 | |||||||
Revenues: | |||||||||
Net sales | $ | 290,414 | $ | 239,413 | |||||
Other income | 1,138 | 239 | |||||||
291,552 | 239,652 | ||||||||
Costs and expenses: | |||||||||
Cost of goods sold | 262,161 | 216,790 | |||||||
Selling, general and administrative | 25,558 | 27,007 | |||||||
Interest, net of amounts capitalized | 1,786 | 3,014 | |||||||
289,505 | 246,811 | ||||||||
Income (loss) before income tax provision (benefit) | 2,047 | (7,159 | ) | ||||||
Income tax provision (benefit) | 737 | (2,727 | ) | ||||||
Net income (loss) | 1,310 | (4,432 | ) | ||||||
Accretion of preferred stock to redemption value | 106 | ||||||||
Preferred stock dividends | 348 | ||||||||
Net income (loss) available to common stockholders | $ | 1,310 | $ | (4,886 | ) | ||||
Net income (loss) per common share: | |||||||||
Basic | $ | .04 | $ | (.17 | ) | ||||
Diluted | $ | .04 | $ | (.17 | ) | ||||
Dividends per common share | $ | .06 | $ | .06 | |||||
Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||||
($ in thousands, except per share amounts) | Sept. 28, 2002 | Sept. 29, 2001 | Sept. 28, 2002 | Sept. 29, 2001 | ||||||||||||||
Net sales | $ | 383,598 | $ | 361,636 | $ | 1,050,823 | $ | 936,473 | ||||||||||
Costs and expenses: | ||||||||||||||||||
Cost of goods sold | 327,624 | 321,020 | 912,650 | 831,136 | ||||||||||||||
Selling, general and administrative | 35,632 | 28,884 | 90,560 | 84,204 | ||||||||||||||
Interest, net of amounts capitalized | 1,947 | 2,814 | 5,835 | 9,092 | ||||||||||||||
Other income, net | (575 | ) | (1,029 | ) | (386 | ) | (2,198 | ) | ||||||||||
Merger transaction expenses | 2,823 | 5,711 | ||||||||||||||||
367,451 | 351,689 | 1,014,370 | 922,234 | |||||||||||||||
Income before income tax provision | 16,147 | 9,947 | 36,453 | 14,239 | ||||||||||||||
Income tax provision | 5,813 | 3,899 | 13,123 | 5,582 | ||||||||||||||
Net income | 10,334 | 6,048 | 23,330 | 8,657 | ||||||||||||||
Accretion of preferred stock to redemption value | 212 | |||||||||||||||||
Preferred stock dividends | 348 | |||||||||||||||||
Net income available to common stockholders | $ | 10,334 | $ | 6,048 | $ | 23,330 | $ | 8,097 | ||||||||||
Net income per common share: | ||||||||||||||||||
Basic | $ | .30 | $ | .18 | $ | .67 | $ | .26 | ||||||||||
Diluted | $ | .27 | $ | .17 | $ | .62 | $ | .24 | ||||||||||
Dividends per common share | $ | .06 | $ | .06 | $ | .18 | $ | .18 | ||||||||||
See accompanying Notes to Consolidated Financial Statements.
3
DREYER’S GRAND ICE CREAM, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Notes | Notes | |||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Receivable | Common Stock | Receivable | |||||||||||||||||||||||||||||||||||||||||||||||
Capital in | From | Retained | Capital in | From | Retained | |||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | Shares | Amount | Excess of Par | Stockholders | Earnings | Total | (In thousands) | Shares | Amount | Excess of Par | Stockholders | Earnings | Total | ||||||||||||||||||||||||||||||||||||
Balances at December 30, 2000 | Balances at December 30, 2000 | 28,268 | $ | 28,268 | $ | 58,396 | $ | (2,284 | ) | $ | 15,992 | $ | 100,372 | Balances at December 30, 2000 | 28,268 | $ | 28,268 | $ | 58,396 | $ | (2,284 | ) | $ | 15,992 | $ | 100,372 | ||||||||||||||||||||||||
Net loss | (4,432 | ) | (4,432 | ) | Net income | 8,657 | 8,657 | |||||||||||||||||||||||||||||||||||||||||||
Accretion of preferred stock to redemption value | (106 | ) | (106 | ) | Accretion of preferred stock to redemption value | (212 | ) | (212 | ) | |||||||||||||||||||||||||||||||||||||||||
Preferred stock dividends declared | (348 | ) | (348 | ) | Preferred stock dividends declared | (348 | ) | (348 | ) | |||||||||||||||||||||||||||||||||||||||||
Common stock dividends declared | (1,714 | ) | (1,714 | ) | Common stock dividends declared | (5,845 | ) | (5,845 | ) | |||||||||||||||||||||||||||||||||||||||||
Issuance of common stock under employee stock plans, net | 347 | 347 | 4,636 | (299 | ) | 4,684 | Conversion of mandatorily redeemable convertible preferred stock to common stock | 5,800 | 5,800 | 94,952 | 100,752 | |||||||||||||||||||||||||||||||||||||||
Repurchases and retirements of common stock | (46 | ) | (46 | ) | (604 | ) | (650 | ) | Issuance of common stock under employee stock plans, net | 480 | 480 | 7,739 | (819 | ) | 7,400 | |||||||||||||||||||||||||||||||||||
Repurchases and retirements of common stock | (82 | ) | (82 | ) | (2,249 | ) | (2,331 | ) | ||||||||||||||||||||||||||||||||||||||||||
Balances at March 31, 2001 | 28,569 | $ | 28,569 | $ | 62,428 | $ | (2,583 | ) | $ | 9,392 | $ | 97,806 | ||||||||||||||||||||||||||||||||||||||
Balances at September 29, 2001 | Balances at September 29, 2001 | 34,466 | $ | 34,466 | $ | 158,838 | $ | (3,103 | ) | $ | 18,244 | $ | 208,445 | |||||||||||||||||||||||||||||||||||||
Balances at December 29, 2001 | Balances at December 29, 2001 | 34,461 | $ | 34,461 | $ | 160,103 | $ | (2,546 | ) | $ | 16,347 | $ | 208,365 | Balances at December 29, 2001 | 34,461 | $ | 34,461 | $ | 160,103 | $ | (2,546 | ) | $ | 16,347 | $ | 208,365 | ||||||||||||||||||||||||
Net income | 1,310 | 1,310 | Net income | 23,330 | 23,330 | |||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends declared | (2,077 | ) | (2,077 | ) | Common stock dividends declared | (6,255 | ) | (6,255 | ) | |||||||||||||||||||||||||||||||||||||||||
Issuance of common stock under employee stock plans, net | 196 | 196 | 3,444 | (380 | ) | 3,260 | Issuance of common stock under employee stock plans, net | 477 | 477 | 8,952 | (78 | ) | 9,351 | |||||||||||||||||||||||||||||||||||||
Repurchases and retirements of common stock | (32 | ) | (32 | ) | (1,297 | ) | 256 | (1,073 | ) | Repurchases and retirements of common stock | (55 | ) | (55 | ) | (2,093 | ) | 396 | (1,752 | ) | |||||||||||||||||||||||||||||||
Balances at September 28, 2002 | Balances at September 28, 2002 | 34,883 | $ | 34,883 | $ | 166,962 | $ | (2,228 | ) | $ | 33,422 | $ | 233,039 | |||||||||||||||||||||||||||||||||||||
Balances at March 30, 2002 | 34,625 | $ | 34,625 | $ | 162,250 | $ | (2,670 | ) | $ | 15,580 | $ | 209,785 | ||||||||||||||||||||||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
4
DREYER’S GRAND ICE CREAM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Thirteen Weeks Ended | Thirty-nine Weeks Ended | |||||||||||||||||||||
(In thousands) | Mar. 30, 2002 | Mar. 31, 2001 | ||||||||||||||||||||
($ in thousands) | ($ in thousands) | Sept. 28, 2002 | Sept. 29, 2001 | |||||||||||||||||||
Cash flows from operating activities: | Cash flows from operating activities: | Cash flows from operating activities: | ||||||||||||||||||||
Net income | $ | 23,330 | $ | 8,657 | ||||||||||||||||||
Net income (loss) | $ | 1,310 | $ | (4,432 | ) | Adjustments to reconcile net income to cash flows from operations: | ||||||||||||||||
Adjustments to reconcile net income (loss) to cash from operations: | Depreciation and amortization | 26,067 | 26,940 | |||||||||||||||||||
Depreciation and amortization | 8,477 | 9,169 | Deferred income taxes | 1,993 | 1,029 | |||||||||||||||||
Deferred income taxes | 113 | (502 | ) | Impairment of investment in Momentx Corporation | 1,093 | |||||||||||||||||
Changes in assets and liabilities, net of amounts acquired: | Changes in assets and liabilities, net of amounts acquired: | |||||||||||||||||||||
Trade accounts receivable | (28,717 | ) | (30,327 | ) | Trade accounts receivable | (26,919 | ) | (52,241 | ) | |||||||||||||
Other accounts receivable | (1,399 | ) | (4,100 | ) | Other accounts receivable | 1,732 | (1,957 | ) | ||||||||||||||
Inventories | (9,201 | ) | (9,555 | ) | Inventories | (4,235 | ) | (12,688 | ) | |||||||||||||
Prepaid expenses and other | (9,352 | ) | (51 | ) | Prepaid expenses and other | (8,404 | ) | 219 | ||||||||||||||
Accounts payable and accrued liabilities | 18,080 | 22,012 | Accounts payable and accrued liabilities | 17,854 | 42,353 | |||||||||||||||||
Accrued payroll and employee benefits | (4,099 | ) | (6,385 | ) | Accrued payroll and employee benefits | 6,825 | (424 | ) | ||||||||||||||
(24,788 | ) | (24,171 | ) | 39,336 | 11,888 | |||||||||||||||||
Cash flows from investing activities: | Cash flows from investing activities: | Cash flows from investing activities: | ||||||||||||||||||||
Acquisition of property, plant and equipment | (13,985 | ) | (7,178 | ) | Acquisition of property, plant and equipment | (37,927 | ) | (29,218 | ) | |||||||||||||
Retirement of property, plant and equipment | 188 | 372 | Retirement of property, plant and equipment | 536 | 1,662 | |||||||||||||||||
Purchase of independent distributors and other intangibles | (2,438 | ) | (2,000 | ) | Purchase of independent distributors and other intangibles | (2,757 | ) | (5,646 | ) | |||||||||||||
Increase in other assets | (1,350 | ) | (797 | ) | Increase in other assets | (249 | ) | 513 | ||||||||||||||
(17,585 | ) | (9,603 | ) | (40,397 | ) | (32,689 | ) | |||||||||||||||
Cash flows from financing activities: | Cash flows from financing activities: | Cash flows from financing activities: | ||||||||||||||||||||
Proceeds from long-term debt, net | 42,200 | 33,900 | Net (repayments of) proceeds from long-term debt | (99 | ) | 42,700 | ||||||||||||||||
Repayments of long-term debt | (3,400 | ) | Repayments of long-term debt | (22,186 | ) | |||||||||||||||||
Issuance of common stock under employee stock plans, net | 3,260 | 4,684 | Issuance of common stock under employee stock plans, net | 9,351 | 7,400 | |||||||||||||||||
Repurchases and retirements of common stock | (1,073 | ) | (650 | ) | Repurchases and retirements of common stock | (1,752 | ) | (2,331 | ) | |||||||||||||
Cash dividends paid | (2,068 | ) | (1,022 | ) | Cash dividends paid | (6,230 | ) | (4,974 | ) | |||||||||||||
42,319 | 33,512 | 1,270 | 20,609 | |||||||||||||||||||
Decrease in cash and cash equivalents | (54 | ) | (262 | ) | ||||||||||||||||||
Increase (decrease) in cash and cash equivalents | Increase (decrease) in cash and cash equivalents | 209 | (192 | ) | ||||||||||||||||||
Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | 1,650 | 2,721 | Cash and cash equivalents, beginning of period | 1,650 | 2,721 | ||||||||||||||||
Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 1,596 | $ | 2,459 | Cash and cash equivalents, end of period | $ | 1,859 | $ | 2,529 | ||||||||||||
Supplemental cash flow information: | Supplemental cash flow information: | Supplemental cash flow information: | ||||||||||||||||||||
Cash paid during the period for: | Cash paid during the period for: | |||||||||||||||||||||
Interest (net of amounts capitalized) | $ | 1,320 | $ | 1,391 | Interest (net of amounts capitalized) | $ | 5,511 | $ | 8,848 | |||||||||||||
Income taxes (net of refunds) | $ | 140 | $ | 2 | Income taxes (net of refunds) | $ | 6,653 | $ | 261 | |||||||||||||
Supplemental schedule of noncash investing and financing activities: | Supplemental schedule of noncash investing and financing activities: | |||||||||||||||||||||
Conversion of redeemable convertible preferred stock to common stock | $ | 100,752 | ||||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
5
DREYER’S GRAND ICE CREAM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — Operations and Financial Statement Presentation
Dreyer’s Grand Ice Cream, Inc. and its subsidiaries (the Company) are engaged primarily in the business of manufacturing and distributing premium and superpremium ice cream and other frozen dessert products to grocery and convenience stores, foodservice accounts and independent distributors in the United States.
The Company accounts for its operations geographically for management reporting purposes. These geographic segments have been aggregated for financial reporting purposes due to similarities in the economic characteristics of the geographic segments and the nature of the products, production processes, customer types and distribution methods throughout the United States.
The consolidated financial statements for the thirteen-week periodsthirteen and thirty-nine weeks ended March 30,September 28, 2002 and March 31,September 29, 2001 have not been audited by independent public accountants, but include all adjustments, such as normal recurring accruals, which management considers necessary for a fair presentation of the consolidated operating results for the interim periods. The statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission.Commission (SEC). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The operating results for interim periods are not necessarily indicative of results to be expected for an entire year. The aforementioned statements should be read in conjunction with the Consolidated Financial Statements for the year ended December 29, 2001, appearing in the Company’s 2001 Annual Report on Form 10-K.8-K filed on November 5, 2002. Certain reclassifications have been made to prior years’ financial statements to conform to the current year presentation.
NOTE 2 — Significant Accounting Assumptions and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates include assessing the recoverability of accounts receivable,receivable; the adequacy of the valuation allowance for deferred tax assets,assets; the recoverability of goodwill,goodwill; the adequacy of the Company’s liabilities for self-insured health, workers compensation and vehicle plans,plans; and the adequacy of the Company’s liabilities for employee bonuses and profit-sharing plan contributions, among others. 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 thosethese estimates.
NOTE 3 — Merger and Contribution Agreement
On June 16, 2002, the Company entered into an Agreement and Plan of Merger and Contribution (the Merger Agreement) with New December, Inc. (New Dreyer’s), December Merger Sub, Inc., Nestlé Holdings, Inc. (Nestlé) and NICC Holdings, Inc. (NICC Holdings), a wholly-owned subsidiary of Nestlé, to combine the Company with Nestlé’s United States frozen dessert business. The combination will result in both the Company and Nestlé Ice Cream Company, LLC (NICC), which holds Nestlé’s United States frozen dessert business, becoming wholly-owned subsidiaries of New Dreyer’s, a newly formed Delaware corporation. This transaction will be recorded under the purchase method of accounting and will be treated as a reverse acquisition. Under reverse acquisition accounting, NICC will be deemed to be the acquirer for accounting purposes only, and the Company will be treated as the acquiree. As a result, the Company is expensing all merger transaction expenses as incurred. These expenses totaled $2,823,000 and $5,711,000 for the thirteen and thirty-nine weeks ended September 28, 2002, respectively.
6
If the transactions contemplated by the Merger Agreement are completed, each non-Nestlé stockholder who holds shares of the Company’s common stock at the effective time of the merger will receive one share of class A callable puttable common stock of New Dreyer’s. Under the amended and restated certificate of incorporation of New Dreyer’s, subject to the terms set forth therein, the holders of New Dreyer’s class A callable puttable stock will be permitted to sell (put) some or all of their shares to New Dreyer’s for $83.00 per share during two periods, the first beginning on December 1, 2005 and ending on January 13, 2006, and the second beginning on April 3, 2006 and ending on May 12, 2006. New Dreyer’s class A callable puttable common stock will also be subject to redemption (call) by New Dreyer’s at the request of Nestlé at $88.00 per share during a six-month period beginning on January 1, 2007. For the contribution of its ownership interest of NICC Holdings, Nestlé will receive approximately 55 million shares of class B common stock of New Dreyer’s. The class B common shares are similar to the class A common shares, except that they lack the call and put features. The shares of the Company’s common stock currently held by Nestlé will be converted into the same number of shares of class B common stock of New Dreyer’s. As of September 28, 2002, Nestlé owned approximately 23 percent of the Company’s common stock on a diluted basis. If the transactions contemplated by the Merger Agreement are completed, Nestlé will own approximately 67 percent of the diluted common stock of New Dreyer’s.
Each outstanding option to purchase the Company’s common stock under the Company’s existing stock option plans will, at the completion of the transactions, be converted into an option to acquire:
• | prior to the date New Dreyer’s class A callable puttable common stock is redeemed under the call right, that number of shares of New Dreyer’s class A callable puttable common stock equal to the number of shares of the Company’s common stock subject to options immediately prior to the completion of the transactions, at the price or prices per share in effect immediately prior to the completion of the transactions; and | |
• | at or after the date New Dreyer’s class A callable puttable common stock is redeemed under the call right or to the consummation of a short-form merger of New Dreyer’s with Nestlé or an affiliate of Nestlé S.A., pursuant to the terms of the governance agreement in the form attached as an exhibit to the Merger Agreement, the same consideration which the holder of the options would have received had he or she exercised such option prior to such redemption and received consideration pursuant to the redemption at the price or prices in effect at that time. |
The options will otherwise be subject to the same terms and conditions applicable to the original options to purchase the Company’s common stock immediately prior to the completion of the transactions.
Certain regulatory requirements must be complied with before the transactions contemplated by the Merger Agreement are completed. The Company and Nestlé are not aware of any material governmental consents or approvals that are required prior to the completion of the transactions other than those described below:
• | Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act), and the rules promulgated thereunder by the United States Federal Trade Commission (the FTC), the transactions cannot be completed until notifications have been given and information has been furnished to the FTC and the Antitrust Division of the United States Department of Justice, and the specified waiting periods have expired or have been terminated. The Company and Nestlé filed notification and report forms under the HSR Act with the FTC and the Antitrust Division on July 3, 2002. On August 2, 2002, the FTC made a request for additional information and documentary material, thereby extending the statutory waiting period until 30 days after the Company and Nestlé each substantially comply with this request, unless the waiting period is terminated earlier or extended with the consent of the Company and Nestlé. The Company and Nestlé are continuing to work closely with the FTC staff on its request. | |
• | On November 6, 2002, New Dreyer’s filed with the SEC a Registration Statement on Form S-4 which included a proxy statement/prospectus pertaining to the transactions contemplated by the Merger Agreement. The SEC may choose to review the filing, and if it does so, it will typically provide comments within 30 days. | |
• | If the registration statement is declared effective by the SEC, and if the transactions contemplated by the Merger Agreement are completed, then all shares of New Dreyer’s class A callable puttable common stock received by the Company’s stockholders in the merger will be freely transferable, except that shares of New Dreyer’s class A callable |
7
puttable common stock received by persons who are deemed to be “affiliates” of the Company under the Securities Act of 1933, as amended (the 1933 Act), at the time of the special meeting of the Company’s stockholders, may be resold by such affiliates only in transactions permitted by Rule 145 under the 1933 Act or as otherwise permitted under the 1933 Act. Persons who may be deemed to be affiliates of the Company for such purposes generally include individuals or entities that control, are controlled by or are under common control with the Company and include the members of the Company’s board of directors. |
Several of the Company’s joint venture partners and partner brand manufacturers have rights to terminate their arrangements with the Company upon consummation of the transactions contemplated by the Merger Agreement, subject to various other terms and conditions. While the Company intends to continue in these ventures and partner brand relationships, it can provide no assurance as to the potential actions of its business partners. Should any of the Company’s significant partners or suppliers choose to exit these arrangements in accordance with their rights to do so following the consummation, the Company may incur significant decreases in gross profit or be required to write-off certain assets as a result of the loss of these business partners.
NOTE 4 — Inventories
Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market. Inventories at March 30,September 28, 2002 and December 29, 2001 consisted of the following:
(In thousands) | Mar. 30, 2002 | Dec. 29, 2001 | Sept. 28, 2002 | Dec. 29, 2001 | ||||||||||||
Raw materials | $ | 9,018 | $ | 9,099 | $ | 9,173 | $ | 9,099 | ||||||||
Finished goods | 81,481 | 72,199 | 76,360 | 72,199 | ||||||||||||
$ | 90,499 | $ | 81,298 | $ | 85,533 | $ | 81,298 | |||||||||
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NOTE 45 — Butter Investments
Under current federal and state regulations and industry practice, the price of cream, a primary ingredient in ice cream, is linked to the price of butter. In an effort to mitigate the effects of butter price volatility, the Company periodically purchases butter or butter futures contracts with the intent of reselling or settling its positions in order to lower its cream cost and overall exposure to the volatility of this market. The Company has elected to not treat its investment in butter as a hedge for accounting purposes. Consequently, it “marks to market” its investment at the end of each quarter and records any resulting gain or loss in other income, net. The Company typically holds its butter investments for periods of up to four months.
Investments in butter, included in prepaid expenses and other at September 28, 2002 consisted of the following:
(In thousands) | Sept. 28, 2002 | |||
Butter | $ | 3,501 | ||
Butter futures contracts | 155 | |||
$ | 3,656 | |||
During the thirteen and thirty-nine weeks ended September 28, 2002, the Company recorded losses of $746,000 and $2,065,000, respectively. During 2001, the Company made no investments in butter.
NOTE 6 — Net Income (Loss) Per Common Share
The denominator for basic net income (loss) per share includes the number of weighted-average common shares outstanding. The denominator for diluted net income (loss) per share includes the number of weighted-average shares outstanding plus the effect
8
effects of potentially dilutive securities which include stock options and redeemable convertible preferred stock. The following table reconciles the numerators and denominators of the basic and diluted net income per common share calculations:
Thirteen Weeks Ended | |||||||||
(In thousands, except per share amounts) | Mar. 30, 2002 | Mar. 31, 2001 | |||||||
Net income (loss) available to common stockholders — basic and diluted | $ | 1,310 | $ | (4,886 | ) | ||||
Weighted-average shares — basic | 34,510 | 28,370 | |||||||
Dilutive effect of options | 2,643 | ||||||||
Weighted-average shares — diluted | 37,153 | 28,370 | |||||||
Net income (loss) per common share: | |||||||||
Basic | $ | .04 | $ | (.17 | ) | ||||
Diluted | $ | .04 | $ | (.17 | ) | ||||
Thirteen Weeks Ended | Thirty-nine Weeks Ended | ||||||||||||||||
(In thousands, except per share amounts) | Sept. 28, 2002 | Sept. 29, 2001 | Sept. 28, 2002 | Sept. 29, 2001 | |||||||||||||
Net income available to common stockholders-basic | $ | 10,334 | $ | 6,048 | $ | 23,330 | $ | 8,097 | |||||||||
Add: preferred dividends and accretion | 560 | ||||||||||||||||
Net income available to common stockholders-diluted | $ | 10,334 | $ | 6,048 | $ | 23,330 | $ | 8,657 | |||||||||
Weighted-average shares-basic | 34,814 | 34,420 | 34,670 | 30,688 | |||||||||||||
Dilutive effect of options | 3,358 | 1,801 | 3,020 | 1,897 | |||||||||||||
Dilutive effect of preferred stock | 3,633 | ||||||||||||||||
Weighted-average shares-diluted | 38,172 | 36,221 | 37,690 | 36,218 | |||||||||||||
Net income per common share: | |||||||||||||||||
Basic | $ | .30 | $ | .18 | $ | .67 | $ | .26 | |||||||||
Diluted | $ | .27 | $ | .17 | $ | .62 | $ | .24 | |||||||||
Each outstanding and unvested option to purchase the Company’s common stock under the Company’s existing stock option plans became fully vested on June 14, 2002, the date that the Company’s board of directors approved the Merger Agreement and the transactions contemplated by the Merger Agreement (Note 3). In connection with the execution of the Merger Agreement, certain executive officers waived their rights to accelerated vesting of their unvested stock options in conjunction with entering into Employment Agreements with New Dreyer’s. The employment agreements are effective if and when the transactions contemplated by the Merger Agreement are completed. Under the Merger Agreement, the Company can have no more than 41,393,348 outstanding or issuable shares of common stock if and when the transactions contemplated by the Merger Agreement are completed. This total includes shares issuable upon exercise of options, whether vested or unvested.
Anti-dilutive securities
Potentially dilutive securities are excluded from the calculations of diluted net income (loss) per common share when their inclusion would have an anti-dilutive effect. There were no potentially dilutive securities to be excluded during the first quarter ofthirteen and thirty-nine weeks ended September 28, 2002. During the first quarter of 2001, potentiallyPotentially dilutive securities, included 2,129,000stated in absolute equivalent shares of common stock, consisted of 753,000 stock options during the thirteen and 5,800,0000 equivalent common shares relating to redeemable convertible preferred stock (which was converted to common stock in the second quarter of 2001); these securities were excluded from the calculation of diluted net loss per common share in the first quarter 2001 net loss period due to their anti-dilutive effects.
NOTE 5 —7 – Adoption of New Accounting Pronouncements
Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)
In November 2001, the Emerging Issues Task Force of the Financial Accounting Standards Board (EITF) issued EITF 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)” (EITF 01-9). This pronouncement requires that discounts (off-invoice promotion and coupons), amounts paid to retailers to advertise a company’s products (fixed trade promotion) and fees paid to retailers to obtain shelf space (slotting fees) be recorded as a reduction of revenue.
The Company adopted EITF 01-9 inat the first quarterbeginning of fiscal 2002. For the thirteen and thirty-nine weeks ended September 28, 2002, the Company presented $47,670,000the expenses described above of first quarter 2002 expenses$65,881,000 and $176,589,000, respectively, as a reduction of net sales in accordance with this pronouncementpronouncement. For the thirteen and thirty-nine weeks ended September 29, 2001, the Company retroactively reclassified $32,616,000expenses of first quarter 2001 expenses on a retroactive basis.$58,274,000 and $140,300,000,
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respectively. The retroactive reclassification of these expenses resulted in a decrease in total sales and gross profit, along with a corresponding decrease in selling, general and administrative expenses, with no effect on net lossincome as previously reported.
Accounting for Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142). This pronouncement which the Company adopted at the beginning of the first quarter of 2002, requires recognition of goodwill and other unidentifiable intangible assets with indeterminate lives as long-term assets, however, amortizationassets. Amortization as previously required by Accounting Principles Board Opinion No. 17, “Intangible Assets”, is no longer permitted beginning with the first quarter of 2002.permitted. In lieu of
7
amortization, these assets are now being tested for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company adopted SFAS No. 142 at the beginning of fiscal 2002 and completed its transitional impairment test during the first quarter of 2002 and did2002; the Company has not recordrecorded any impairment charges.charges under SFAS No. 142.
A reconciliation ofThe following table reconciles reported net income (loss)available to common stockholders and the related per common share amounts to the corresponding adjusted net income and related per common share amounts. Adjusted net income and net income (loss) per common share to the amounts adjusted forreflecting the exclusion of first quarter 2001 goodwill amortization of $1,113,000,$655,000 ($1,100,000 net of tax of $445,000) and $1,942,000 ($3,193,000 net of tax of $1,251,000), respectively, for the related income tax effect of $424,000, follows:thirteen and thirty-nine weeks ended September 29, 2001, respectively, follow:
Thirteen Weeks Ended | |||||||||
(In thousands, except per share amounts) | Mar. 30, 2002 | Mar. 31, 2001 | |||||||
Reported net income (loss) | $ | 1,310 | $ | (4,886 | ) | ||||
Goodwill amortization, net of tax | 689 | ||||||||
Adjusted net income (loss) | $ | 1,310 | $ | (4,197 | ) | ||||
Net income (loss) per common share: | |||||||||
Reported basic | $ | .04 | $ | (.17 | ) | ||||
Goodwill amortization, net of tax | .02 | ||||||||
Adjusted basic | $ | .04 | $ | (.15 | ) | ||||
Reported diluted | $ | .04 | $ | (.17 | ) | ||||
Goodwill amortization, net of tax | .02 | ||||||||
Adjusted diluted | $ | .04 | $ | (.15 | ) | ||||
Thirteen Weeks Ended | Thirty-nine Weeks Ended | ||||||||||||||||
(In thousands, except per share amounts) | Sept. 28, 2002 | Sept. 29, 2001 | Sept. 28, 2002 | Sept. 29, 2001 | |||||||||||||
As reported | $ | 10,334 | $ | 6,048 | $ | 23,330 | $ | 8,097 | |||||||||
Goodwill amortization, net of tax | 655 | 1,942 | |||||||||||||||
As adjusted | $ | 10,334 | $ | 6,703 | $ | 23,330 | $ | 10,039 | |||||||||
Per common share: | |||||||||||||||||
As reported-basic | $ | .30 | $ | .18 | $ | .67 | $ | .26 | |||||||||
Goodwill amortization, net of tax | .02 | .06 | |||||||||||||||
As adjusted-basic | $ | .30 | $ | .20 | $ | .67 | $ | .32 | |||||||||
As reported-diluted | $ | .27 | $ | .17 | $ | .62 | $ | .24 | |||||||||
Goodwill amortization, net of tax | .02 | .05 | |||||||||||||||
As adjusted-diluted | $ | .27 | $ | .19 | $ | .62 | $ | .29 | |||||||||
In accordance with SFAS No. 142, the Company reclassified the long-term deferred income tax liability associated with nondeductible goodwill, resulting in a noncash reduction in goodwill and a corresponding reduction in the deferred income tax liability of $10,166,000. Also in accordance with SFAS No. 142, the Company now presents goodwill separately from other intangibles in the Consolidated Balance Sheet. In addition, the Company reclassified its$52,997,000 of acquisition-related intangibles (e.g. distribution rights)with indefinite lives to goodwill at the beginning of the first quarter of 2002. FiscalIn accordance with this pronouncement, the corresponding prior year amounts were not retroactively reclassified. The remaining change in goodwill since December 29, 2001 acquisition-related intangibles are included in Other Intangibles, net, in the Consolidated Balance Sheet.consists of acquisition goodwill.
Accounting for the Impairment or Disposal of Long-Lived Assets
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144). This pronouncement clarifies certain issues related to SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of” and develops a single accounting model for long-lived assets to be disposed of. The Company adopted SFAS No. 144 in the first quarter of 2002. The adoption of SFAS No. 144 did not impact the Company’s financial position, results of operations or cash flows.
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NOTE 6-Investment8-Investment in Momentx Corporation
TheAt December 29, 2001, the Company hashad a $1,100,000$1,093,000 investment in Momentx Corporation (Momentx), whichincluded in long-term Other Assets. Momentx is an e-market solution provider for the dairy, food and beverage industries. The Company followsfollowed the “cost method”cost method in accounting for this investment since its ownership interest iswas less than three percent. MomentxDuring the second quarter of 2002, the Company determined that Momentx’s shortfalls to its business plan, which plan called for a substantial acceleration of its sales growth which did not occur, negatively impacted the recovery of the Company’s investment and recognized a $1,093,000 loss which is currentlyincluded as a development stage enterprise and its future success is uncertain at this time. The Company continues to monitorcomponent of Other income, net, in the recoverabilityConsolidated Statement of this investment.Income.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Unaudited).
FORWARD-LOOKING STATEMENTS
The Company may from time to time make written or oral forward-looking statements. Written or oralThis report contains forward-looking statements may appear in documents filed withwithin the Securities and Exchange Commission, and in press releases, conference calls and webcasts (whether live or recorded), and in reports to stockholders. Themeaning of the Private Securities Litigation Reform Act of 1995, which contains a “safe harbor” for forward-looking statements upon which the Company relies in making such disclosures. In accordance with this “safe harbor” provision, we have determined thatThese forward-looking statements are contained in this Management’s Discussionbased on the Company’s current expectations and Analysis of Consolidated Financial Condition and Results of Operations. The Company undertakes no obligation to publicly revise theseprojections about future events. These forward-looking statements are subject to reflect subsequent events or circumstances.
Also, in connection with this “safe harbor” provision,risks, uncertainties and assumptions about the Company, identifies importantincluding, but not limited to:
• | uncertainty regarding the Company’s future operating results; | ||
• | the Company’s ability to achieve efficiencies in its manufacturing and distribution operations without negatively affecting sales; | ||
• | the cost of energy used in manufacturing and distribution; | ||
• | the cost of dairy raw materials and other commodities used in the Company’s products; | ||
• | competitors’ marketing and promotion responses; | ||
• | market conditions affecting the prices of the Company’s products; | ||
• | the Company’s ability to increase sales of its own branded products; | ||
• | responsiveness of both the trade and consumers to the Company’s new products and marketing and promotional programs; and | ||
• | uncertainty regarding the completion and effect of the proposed transactions described under “MERGER AND CONTRIBUTION AGREEMENT” below. |
Other factors that could cause the Company’s actual results to differ materially from those contained in any forward-looking statement made by or on behalf of the Company. Any such statement is qualified by reference to the cautionary statements set forthexpectations are discussed in this and other filings with the Securities and Exchange Commission.
This“Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations” and “Item 3 – Qualitative and Quantitative Disclosures About Market Risk” below. The Company’s actual results could differ substantially from those anticipated in these forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events.
The following discussion should be read together with the Company’s consolidated financial statements and related notes thereto included elsewhere in conjunction withthis document and in “Item 5 – Management’s Discussion and Analysis forof Financial Condition and Results of Operations” appearing in the year ended December 29, 2001,Company’s Report on Form 8-K filed on November 5, 2002 and in “Item 7A – Qualitative and Quantitative Disclosures About Market Risk” appearing in the Company’s 2001 Annual Report on Form 10-K.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. The Company believes that the following critical accounting policies, which the Company’s senior management has discussed with the audit committee of the board of directors, represent the most significant judgments and estimates used in the preparation of the consolidated financial statements:
• | The Company assesses the recoverability of trade accounts receivable based on estimated losses resulting from the inability of customers to make required payments. The Company’s estimates are based on the aging of accounts receivable balances and historical write-off experience, net of recoveries. The Company reviews trade accounts receivable for recoverability regularly and whenever events or circumstances, such as deterioration in the financial condition of a customer, indicate that additional allowances might be required. Changes in the financial condition of the Company’s major customers could result in significant accounts receivable write-offs. | |
• | The Company records a valuation allowance related to deferred tax assets |
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not be | ||
• | The Company has goodwill related to business acquisitions. The Company tests goodwill for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying | |
• | The Company’s liabilities for self-insured health, workers compensation and vehicle plans are developed from actuarial valuations that rely on various key assumptions. Changes in key assumptions may occur in the future, which could result in changes to related self-insurance costs. | |
• | The Company’s liabilities for employee bonuses and profit-sharing plan contributions are based primarily on estimated full-year profitability at the end of each quarter. Changes in the performance of the business and in estimated full-year profitability could result in significant interim adjustments to the cost of these programs. |
9
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 thosethese estimates.
AdoptionMERGER AND CONTRIBUTION AGREEMENT
On June 16, 2002, the Company entered into an Agreement and Plan of Merger and Contribution (the Merger Agreement) with New December, Inc. (New Dreyer’s), December Merger Sub, Inc., Nestlé Holdings, Inc. (Nestlé) and NICC Holdings, Inc. (NICC Holdings), a wholly-owned subsidiary of Nestlé, to combine the Company with Nestlé’s United States frozen dessert business. The combination will result in both the Company and Nestlé Ice Cream Company, LLC (NICC), which holds Nestlé’s United States frozen dessert business, becoming wholly-owned subsidiaries of a newly formed Delaware corporation. This transaction will be recorded under the purchase method of accounting and will be treated as a reverse acquisition. Under reverse acquisition accounting, NICC will be deemed to be the acquirer for accounting purposes only, and the Company will be treated as the acquiree. As a result, the Company is expensing all merger transaction expenses as incurred. These expenses totaled $2,823,000 and $5,711,000 for the thirteen and thirty-nine weeks ended September 28, 2002, respectively.
If the transactions contemplated by the Merger Agreement are completed, each non-Nestlé stockholder who holds shares of the Company’s common stock at the effective time of the merger will receive one share of class A callable puttable common stock of New Accounting PronouncementsDreyer’s. Under the amended and restated certificate of incorporation of New Dreyer’s, subject to the terms set forth therein, the holders of New Dreyer’s class A callable puttable stock will be permitted to sell (put) some or all of their shares to New Dreyer’s for $83.00 per share during two periods, the first beginning on December 1, 2005 and ending on January 13, 2006, and the second beginning on April 3, 2006 and ending on May 12, 2006. New Dreyer’s class A callable puttable common stock will also be subject to redemption (call) by New Dreyer’s at the request of Nestlé at $88.00 per share during a six-month period beginning on January 1, 2007. For the contribution of its ownership interest of NICC Holdings, Nestlé will receive approximately 55 million shares of class B common stock of New Dreyer’s. The class B common shares are similar to the class A common shares, except that they lack the call and put features. The shares of the Company’s common stock currently held by Nestlé will be converted into the same number of shares of class B common stock of New Dreyer’s. As of September 28, 2002, Nestlé owned approximately 23 percent of the Company’s common stock on a diluted basis. If the transactions contemplated by the Merger Agreement are completed, Nestlé will own approximately 67 percent of the diluted common stock of New Dreyer’s.
Each outstanding option to purchase the Company’s common stock under the Company’s existing stock option plans will, at the completion of the transactions, be converted into an option to acquire:
• | prior to the date New Dreyer’s class A callable puttable common stock is redeemed under the call right, that number of shares of New Dreyer’s class A callable puttable common stock equal to the number of shares of the Company’s common stock subject to options immediately prior to the completion of the transactions, at the price or prices per share in effect immediately prior to the completion of the transactions; and | |
• | at or after the date New Dreyer’s class A callable puttable common stock is redeemed under the call right or to the consummation of a short-form merger of New Dreyer’s with Nestlé or an affiliate of Nestlé S.A., pursuant to the terms of the governance agreement in the form attached as an exhibit to the Merger Agreement, the same consideration which the holder of the options would have received had he or she exercised such option prior to such redemption and received consideration pursuant to the redemption at the price or prices in effect at that time. |
The options will otherwise be subject to the same terms and conditions applicable to the original options to purchase the Company’s common stock immediately prior to the completion of the transactions.
13
Certain regulatory requirements must be complied with before the transactions contemplated by the Merger Agreement are completed. The Company and Nestlé are not aware of any material governmental consents or approvals that are required prior to the completion of the transactions other than those described below:
• | Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act), and the rules promulgated thereunder by the United States Federal Trade Commission (the FTC), the transactions cannot be completed until notifications have been given and information has been furnished to the FTC and the Antitrust Division of the United States Department of Justice, and the specified waiting periods have expired or have been terminated. The Company and Nestlé filed notification and report forms under the HSR Act with the FTC and the Antitrust Division on July 3, 2002. On August 2, 2002, the FTC made a request for additional information and documentary material, thereby extending the statutory waiting period until 30 days after the Company and Nestlé each substantially comply with this request, unless the waiting period is terminated earlier or extended with the consent of the Company and Nestlé. The Company and Nestlé are continuing to work closely with the FTC staff on its request. | |
• | On November 6, 2002, New Dreyer’s filed with the Securities and Exchange Commission (SEC) a Registration Statement on Form S-4 which included a proxy statement/prospectus pertaining to the transactions contemplated by the Merger Agreement. The SEC may choose to review the filing, and if it does so, it will typically provide comments within 30 days. | |
• | If the registration statement is declared effective by the SEC, and if the transactions contemplated by the Merger Agreement are completed, then all shares of New Dreyer’s class A callable puttable common stock received by the Company’s stockholders in the merger will be freely transferable, except that shares of New Dreyer’s class A callable puttable common stock received by persons who are deemed to be “affiliates” of the Company under the Securities Act of 1933, as amended (the 1933 Act), at the time of the special meeting of the Company’s stockholders, may be resold by such affiliates only in transactions permitted by Rule 145 under the 1933 Act or as otherwise permitted under the 1933 Act. Persons who may be deemed to be affiliates of the Company for such purposes generally include individuals or entities that control, are controlled by or are under common control with the Company and include the members of the Company’s board of directors. |
Several of the Company’s joint venture partners and partner brand manufacturers have rights to terminate their arrangements with the Company upon consummation of the transactions contemplated by the Merger Agreement, subject to various other terms and conditions. While the Company intends to continue in these ventures and partner brand relationships, it can provide no assurance as to the potential actions of its business partners. Should any of the Company’s significant partners or suppliers choose to exit these arrangements in accordance with their rights to do so following the consummation, the Company may incur significant decreases in gross profit or be required to write-off certain assets as a result of the loss of these business partners.
14
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)
In November 2001, the Emerging Issues Task Force of the Financial Accounting Standards Board (EITF) issued EITF 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)” (EITF 01-9). This pronouncement requires that discounts (off-invoice promotion and coupons), amounts paid to retailers to advertise a company’s products (fixed trade promotion) and fees paid to retailers to obtain shelf space (slotting fees) be recorded as a reduction of revenue.
The Company adopted EITF 01-9 inat the first quarterbeginning of fiscal 2002. For the thirteen and thirty-nine weeks ended September 28, 2002, the Company presented $47,670,000the expenses described above of first quarter 2002 expenses$65,881,000 and $176,589,000, respectively, as a reduction of net sales in accordance with this pronouncementpronouncement. For the thirteen and thirty-nine weeks ended September 29, 2001, the Company retroactively reclassified $32,616,000expenses of first quarter 2001 expenses on a retroactive basis.$58,274,000 and $140,300,000, respectively. The retroactive reclassification of these expenses resulted in a decrease in total sales and gross profit, along with a corresponding decrease in selling, general and administrative expenses, with no effect on net lossincome as previously reported.
Accounting for Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142). This pronouncement which the Company adopted at the beginning of the first quarter of 2002, requires recognition of goodwill and other unidentifiable intangible assets with indeterminate lives as long-term assets, however, amortizationassets. Amortization as previously required by Accounting Principles Board Opinion No. 17, “Intangible Assets”, is no longer permitted beginning with the first quarter of 2002.permitted. In lieu of amortization, these assets are now being tested for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company adopted SFAS No. 142 at the beginning of fiscal 2002 and completed its transitional impairment test during the first quarter of 2002 and did2002; the Company has not recordrecorded any impairment charges.
A reconciliation ofThe following table reconciles reported net income (loss)available to common stockholders and the related per common share amounts to the corresponding adjusted net income and related per common share amounts. Adjusted net income and net income (loss) per common share to the amounts adjusted forreflecting the exclusion of first quarter 2001 goodwill amortization of $1,113,000,$655,000 ($1,100,000 net of tax of $445,000) and $1,942,000 ($3,193,000 net of tax of $1,251,000), respectively, for the related income tax effect of $424,000, follows:thirteen and thirty-nine weeks ended September 29, 2001, respectively, follow:
Thirteen Weeks Ended | |||||||||
(In thousands, except per share amounts) | Mar. 30, 2002 | Mar. 31, 2001 | |||||||
Reported net income (loss) | $ | 1,310 | $ | (4,886 | ) | ||||
Goodwill amortization, net of tax | 689 | ||||||||
Adjusted net income (loss) | $ | 1,310 | $ | (4,197 | ) | ||||
Net income (loss) per common share: | |||||||||
Reported basic | $ | .04 | $ | (.17 | ) | ||||
Goodwill amortization, net of tax | .02 | ||||||||
Adjusted basic | $ | .04 | $ | (.15 | ) | ||||
Reported diluted | $ | .04 | $ | (.17 | ) | ||||
Goodwill amortization, net of tax | .02 | ||||||||
Adjusted diluted | $ | .04 | $ | (.15 | ) | ||||
Thirteen Weeks Ended | Thirty-nine Weeks Ended | ||||||||||||||||
(In thousands, except per share amounts) | Sept. 28, 2002 | Sept. 29, 2001 | Sept. 28, 2002 | Sept. 29, 2001 | |||||||||||||
As reported | $ | 10,334 | $ | 6,048 | $ | 23,330 | $ | 8,097 | |||||||||
Goodwill amortization, net of tax | 655 | 1,942 | |||||||||||||||
As adjusted | $ | 10,334 | $ | 6,703 | $ | 23,330 | $ | 10,039 | |||||||||
Per common share: | |||||||||||||||||
As reported-basic | $ | .30 | $ | .18 | $ | .67 | $ | .26 | |||||||||
Goodwill amortization, net of tax | .02 | .06 | |||||||||||||||
As adjusted-basic | $ | .30 | $ | .20 | $ | .67 | $ | .32 | |||||||||
As reported-diluted | $ | .27 | $ | .17 | $ | .62 | $ | .24 | |||||||||
Goodwill amortization, net of tax | .02 | .05 | |||||||||||||||
As adjusted-diluted | $ | .27 | $ | .19 | $ | .62 | $ | .29 | |||||||||
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In accordance with SFAS No. 142, the Company reclassified the long-term deferred income tax liability associated with nondeductible goodwill, resulting in a noncash reduction in goodwill and a corresponding reduction in the deferred income tax liability of $10,166,000. Also in accordance with SFAS No. 142, the Company now presents goodwill separately from other intangibles in the Consolidated Balance Sheet. In addition, the Company reclassified its$52,997,000
15
of acquisition-related intangibles (e.g. distribution rights)with indefinite lives to goodwill at the beginning of the first quarter of 2002. FiscalIn accordance with this pronouncement, the corresponding prior year amounts were not retroactively reclassified. The remaining change in goodwill since December 29, 2001 acquisition-related intangibles are included in Other Intangibles, net, in the Consolidated Balance Sheet.consists of acquisition goodwill.
Accounting for the Impairment or Disposal of Long-Lived Assets
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144). This pronouncement clarifies certain issues related to SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of” and develops a single accounting model for long-lived assets to be disposed of. The Company adopted SFAS No. 144 in the first quarter of 2002. The adoption of SFAS No. 144 did not impact the Company’s financial position, results of operations or cash flows.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percent which the items in the Consolidated Statement of OperationsIncome bear to net sales and the percentage change of such items compared to the indicated prior period:
Period-to-Period | |||||||||||||
Variance | |||||||||||||
Percentage of Net Sales | Favorable (Unfavorable) | ||||||||||||
Thirteen Weeks Ended | |||||||||||||
Thirteen Weeks Ended | |||||||||||||
Mar. 30, 2002 | Mar. 31, 2001 | 2002 Compared to 2001 | |||||||||||
Revenues: | |||||||||||||
Net sales | 100.0 | % | 100.0 | % | 21.3 | % | |||||||
Other income | 0.4 | 0.1 | 376.2 | ||||||||||
100.4 | 100.1 | 21.7 | |||||||||||
Costs and expenses: | |||||||||||||
Cost of goods sold | 90.3 | 90.6 | (20.9 | ) | |||||||||
Selling, general and administrative | 8.8 | 11.3 | 5.4 | ||||||||||
Interest, net of amounts capitalized | 0.6 | 1.2 | 40.7 | ||||||||||
99.7 | 103.1 | (17.3 | ) | ||||||||||
Income (loss) before income tax provision (benefit) | 0.7 | (3.0 | ) | 128.6 | |||||||||
Income tax provision (benefit) | 0.2 | (1.1 | ) | (127.0 | ) | ||||||||
Net income (loss) | 0.5 | (1.9 | ) | 129.6 | |||||||||
Accretion of preferred stock to redemption value | (100.0 | ) | |||||||||||
Preferred stock dividends | 0.1 | (100.0 | ) | ||||||||||
Net income (loss) available to common stockholders | 0.5 | % | (2.0 | )% | 126.8 | % | |||||||
Period-to-Period | |||||||||||||||||||||||||
Variance | |||||||||||||||||||||||||
Percentage of Sales | Favorable (Unfavorable) | ||||||||||||||||||||||||
Thirteen | Thirty-nine | ||||||||||||||||||||||||
Weeks | Weeks | ||||||||||||||||||||||||
Thirteen Weeks Ended | Thirty-nine Weeks Ended | Ended | Ended | ||||||||||||||||||||||
2002 | 2002 | ||||||||||||||||||||||||
Sept. 28, | Sept. 29, | Sept. 28, | Sept. 29, | Compared | Compared | ||||||||||||||||||||
2002 | 2001 | 2002 | 2001 | To 2001 | To 2001 | ||||||||||||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 6.1 | % | 12.2 | % | |||||||||||||
Costs and expenses: | |||||||||||||||||||||||||
Cost of goods sold | 85.4 | 88.7 | 86.9 | 88.8 | (2.1 | ) | (9.8 | ) | |||||||||||||||||
Selling, general and administrative | 9.3 | 8.0 | 8.6 | 9.0 | (23.4 | ) | (7.5 | ) | |||||||||||||||||
Interest, net of amounts capitalized | 0.5 | 0.8 | 0.5 | 1.0 | 30.8 | 35.8 | |||||||||||||||||||
Other expense (income) | (0.1 | ) | (0.3 | ) | — | (0.3 | ) | (44.1 | ) | (82.4 | ) | ||||||||||||||
Merger transaction expenses | 0.7 | 0.5 | NM | NM | |||||||||||||||||||||
95.8 | 97.2 | 96.5 | 98.5 | (4.5 | ) | (10.0 | ) | ||||||||||||||||||
Income before income tax provision | 4.2 | 2.8 | 3.5 | 1.5 | 62.3 | 156.0 | |||||||||||||||||||
Income tax provision | 1.5 | 1.1 | 1.3 | 0.6 | (49.1 | ) | (135.1 | ) | |||||||||||||||||
Net income | 2.7 | 1.7 | 2.2 | 0.9 | 70.9 | 169.5 | |||||||||||||||||||
Accretion of preferred stock to redemption value | — | NM | |||||||||||||||||||||||
Preferred stock dividends | — | NM | |||||||||||||||||||||||
Net income available to common stockholders | 2.7 | % | 1.7 | % | 2.2 | % | 0.9 | % | 70.9 | 188.1 | |||||||||||||||
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Thirteen Weeks ended March 30,September 28, 2002 Compared with Thirteen Weeks ended March 31,September 29, 2001
Consolidated net sales for the firstthird quarter of 2002 increased $51,001,000,$21,962,000, or 21six percent, to $290,414,000$383,598,000 from $239,413,000$361,636,000 for the same quarter last year.
SalesNet sales of the Company’s branded products, including licensed and joint venture products (company brands), increased $20,217,000,$4,929,000, or 14two percent, to $166,616,000$209,739,000 from $146,399,000$204,810,000 for the same quarter last year. Company brands represented 5755 percent of consolidated net sales in 2002 compared with 6157 percent in the same quarter last year. Gallon sales of the Company’s branded products, including novelties, increased approximately 3,400,000 gallons, or 15 percent, to approximately 26,300,000 gallons. The products that led this increase were Dreyer’s and Edy’s® Grand Ice Cream Grand Light and Whole Fruit™ Bars. The average price of the Company’s branded products,company brands, net of the effect of trade promotion expenses, (which are now classified as a reductionincreased by five percent. Gallon sales of sales),
16
company brands, including novelties, decreased byapproximately 600,000 gallons, or two percent.percent, to approximately 31,400,000 gallons.
SalesNet sales of products distributed for other manufacturers (partner brands), including Ben & Jerry’s Homemade, Inc. (Ben & Jerry’s), increased $30,784,000,$17,033,000, or 3311 percent, to $123,798,000$173,859,000 from $93,014,000$156,826,000 for the same quarter last year. This increase was driven largelyprimarily by increased sales of distributed novelty products (including a significant increase in sales of Silhouette Brands, Inc. (Silhouette) novelty products) and Ben & Jerry’s superpremium products and by the acquisition of independent distributors in 2000. The Company began distributing Ben & Jerry’s products to a larger distribution territory in March 2001 and distributes Ben & Jerry’s products for the grocery channel in all of the Company’s company-owned distribution markets across the country.products. Sales of partner brands represented 4345 percent of consolidated net sales compared with 3943 percent in the same quarter last year. Average wholesale prices for partner brands increased approximately 1114 percent. Unit sales of partner brands increaseddecreased by 22three percent over the same quarter last year.
Cost of goods sold increased $45,371,000,$6,604,000, or 21two percent, to $262,161,000$327,624,000 from $216,790,000$321,020,000 for the same quarter last year. The Company’s gross profit increased by $5,630,000,$15,358,000, or 2538 percent, to $28,253,000$55,974,000 from $22,623,000,$40,616,000, representing a 9.714.6 percent gross margin compared with a 9.4an 11.2 percent gross margin for the same quarter last year. The improvement in gross profit was primarily attributable to strong company brand sales growth, increased sales of Ben & Jerry’s products, and lower dairy raw material costs. These improvements werecosts and higher volume, partially offset by an increaseincreases in slotting expenses and other expenses related to the introduction of new products and a new package size for the Company’s premium brands.distribution expenses. During the firstthird quarter of 2002, the decrease in dairy raw material costs favorably impacted gross profit by approximately $1,600,000 (net ofaccounted for a $16,200,000 pre-tax benefit (excluding the results of butter trading activities)activities, which are included in other income, net and discussed below) as compared to the same quarter last year.
Other incomeSelling, general and administrative expenses increased $899,000,$6,748,000, or 37623 percent, to $1,138,000$35,632,000 from $239,000$28,884,000 for the same quarter last year. The increase in expenses from 2001 reflects higher marketing expenses and higher administrative expenses, partially offset by a $1,100,000 reduction in amortization of goodwill as a result of the adoption of SFAS No. 142. Selling, general and administrative expenses represented nine and eight percent of consolidated net sales in the third quarters of 2002 and 2001, respectively.
Interest expense decreased $867,000, or 31 percent, to $1,947,000 from $2,814,000 for the same quarter last year, primarily due to lower interest rates.
Other income, net, decreased $454,000, or 44 percent, to $575,000 from $1,029,000 for the same quarter last year. Other income, net, includes $746,000 of losses from butter trading activities. Decreases in other income, net, were partially offset by an increase in earnings from joint ventures accounted for under the equity method.
Selling, general and administrativeNestlé merger transaction expenses decreased $1,449,000,(discussed earlier) totaled $2,823,000 during the third quarter of 2002. The Company currently estimates that it will incur total merger transaction expenses, including costs to be incurred to close the transactions, in the range of $28,000,000 to $30,000,000.
The income tax provision increased $1,914,000, or five49 percent, to $25,558,000$5,813,000 from $27,007,000 for the same quarter last year. The decrease primarily reflects lower marketing expenses and a $1,113,000 reduction in amortization of goodwill. These decreases were partially offset by increased administrative expenses including the recording of a $300,000 bad debt provision as a result of a bankruptcy filing by a major customer. Selling, general and administrative expenses represented nine percent of consolidated net sales in the first quarter of 2002 and 11 percent in the same quarter last year.
Interest expense decreased $1,228,000, or 41 percent, to $1,786,000 from $3,014,000, due to lower interest rates, partially offset by higher borrowings.
Income taxes increased to a provision of $737,000 from a benefit of $(2,727,000)$3,899,000 for the same quarter last year. The effective tax rate decreased to 36.0 percent for the first quarter of 2002 from 38.139.2 percent for the firstsame quarter of 2001last year due primarily to the reversal of income taxes provided in prior periods, the elimination of certain permanent differences in connection with the adoption of SFAS No. 142 and the utilization of certain income tax credits.
Thirty-nine Weeks ended September 28, 2002 Compared with Thirty-nine Weeks ended September 29, 2001
Consolidated net sales for the first thirty-nine weeks of 2002 increased $114,350,000, or 12 percent, to $1,050,823,000 from $936,473,000 for the same period last year.
Net sales of the Company’s branded products, including licensed and joint venture products (company brands), increased $36,801,000, or seven percent, to $580,235,000 from $543,434,000 for the same period last year. Company brands represented 55 percent of consolidated net sales in 2002 compared with 58 percent in the same period last year. The Company hasproducts that led this increase were Dreyer’s and Edy’s® Grand Ice Cream, Whole Fruit™ Bars and the Company’s superpremium portfolio. The average price of company brands, net of the effect of trade promotion expenses, increased by three percent. Gallon sales of company brands, including novelties, increased approximately 3,500,000 gallons, or four percent, to approximately 88,600,000 gallons.
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Net sales of products distributed for other manufacturers (partner brands), including Ben & Jerry’s, increased $77,549,000, or 20 percent, to $470,588,000 from $393,039,000 for the same period last year. This increase was driven largely by increased sales of distributed novelty products (including a $1,100,000significant increase in sales of Silhouette novelty products), Ben & Jerry’s superpremium products and Healthy Choice ice cream. Sales of partner brands represented 45 percent of consolidated net sales compared with 42 percent in the same period last year. Average wholesale prices for partner brands increased approximately 13 percent. Unit sales of partner brands increased by six percent over the same period last year.
Cost of goods sold increased $81,514,000, or ten percent, to $912,650,000 from $831,136,000 for the same period last year. The Company’s gross profit increased by $32,836,000, or 31 percent, to $138,173,000 from $105,337,000, representing a 13.1 percent gross margin compared with an 11.2 percent gross margin for the same period last year. The improvement in gross profit was primarily attributable to lower dairy raw material costs and higher volume, partially offset by increases in distribution expenses. During the first thirty-nine weeks of 2002, the decrease in dairy raw material costs accounted for a $29,500,000 pre-tax benefit (excluding the results of butter trading activities, which are included in other income, net, and are discussed below) as compared to the same period last year.
Selling, general and administrative expenses increased $6,356,000, or eight percent, to $90,560,000 from $84,204,000 for the same period last year. The increase in expenses from 2001 reflects higher administrative expenses and higher marketing expenses, partially offset by a $3,193,000 reduction in amortization of goodwill as a result of the adoption of SFAS No. 142. Selling, general and administrative expenses represented nine percent of consolidated net sales in each of the first thirty-nine weeks of 2002 and 2001.
Interest expense decreased $3,257,000, or 36 percent, to $5,835,000 from $9,092,000 for the same period last year, primarily due to lower interest rates.
Other income, net, decreased $1,812,000, or 82 percent, to $386,000 from $2,198,000 for the same period last year. Other income, net, includes $2,065,000 of losses from butter trading activities and a $1,093,000 impairment of an investment in Momentx Corporation (Momentx), which is an e-market solution provider for the dairy, food and beverage industries. During the second quarter of 2002, the Company determined that Momentx’s shortfalls to its business plan, which plan called for a substantial acceleration of its sales growth which did not occur, negatively impacted the recovery of the Company’s investment. Decreases in other income, net, were partially offset by an increase in earnings from joint ventures accounted for under the equity method.
Nestlé merger transaction expenses (discussed earlier) totaled $5,711,000 during the first thirty-nine weeks of 2002. The Company followscurrently estimates that it will incur total merger transaction expenses, including costs to be incurred to close the “cost method”transactions, in accountingthe range of $28,000,000 to $30,000,000.
The income tax provision increased $7,541,000, or 135 percent, to $13,123,000 from $5,582,000 for this investment since its ownership interest is less than three percent. Momentx is currently a development stage enterprisethe same period last year. The effective tax rate decreased to 36.0 percent from 39.2 percent for the same period last year due primarily to the reversal of income taxes provided in prior periods, the elimination of certain permanent differences in connection with the adoption of SFAS No. 142 and its future success is uncertain at this time. The Company continues to monitor the recoverabilityutilization of this investment.
12
income tax credits.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 30,September 28, 2002 increased $34,521,000$9,339,000 from year-end 2001. The Company’s cash flows used infrom operating activities increased to $24,788,000$39,336,000 from $24,171,000$11,888,000 for the same period last year. These increases wereCash flows from operating activities for 2002 primarily comprisedconsisted of increases in accounts receivablenet income of $23,330,000, depreciation and inventories, partially offset by increasesamortization of $26,067,000, and an increase in accounts payable and accrued liabilities of $17,854,000, partially offset by an increase in trade accounts receivable of $26,919,000. Cash flows from operating activities for 2001 primarily consisted of net income of $8,657,000, depreciation and resulted from both seasonalityamortization of $26,940,000, and the additional Ben & Jerry’s business.an increase in accounts payable and accrued liabilities of $42,353,000, partially offset by an increase in trade accounts receivable of $52,241,000.
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Cash flows used in investing activities totaled $17,585,000$40,397,000 and $9,603,000,$32,689,000, in 2002 and 2001, respectively. Cash flows used in investing activities primarily consisted primarily of property, plant and equipment purchases of $13,985,000$37,927,000 and $7,178,000,$29,218,000, in 2002 and 2001, respectively.
Cash flows from financing activities totaled $42,319,000$1,270,000 and $33,512,000,$20,609,000, in 2002 and 2001, respectively. Cash flows from financing activities for the first quarter of 2002 primarily consisted of a net increaseissuance of $42,200,000 in the Company’s revolving linecommon stock of credit.$9,351,000 partially offset by cash dividends paid of $6,230,000 and repurchases and retirements of common stock of $1,752,000. Cash flows from financing activities for the first quarter of 2001 primarily consisted of a net increase of $33,900,000$42,700,000 in the revolving line of credit, partially offset by repayments of debt totaling $3,400,000.$22,186,000.
At March 30,September 28, 2002, the Company had $1,596,000$1,859,000 in cash and cash equivalents, and an unused credit line of $77,700,000.$120,000,000. As discussed earlier, the Company currently estimates that it will incur total merger transaction expenses, including costs to be incurred to close the transactions, in the range of $28,000,000 to $30,000,000. The Company believes that its credit line, along with its liquid resources, internally-generated cash and financing capacity, are adequate to meet both short-term and long-term operating and capital requirements.requirements, including the merger transaction expenses. In connection with the transactions contemplated by the Merger Agreement, the Company is currently in the process of negotiating modifications to its revolving line of credit agreement, including modifications relating to dividends permitted under such credit agreement.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
This Item 3 should be read in conjunction with Item 7A of the Company’s 2001 Annual Report on Form 10-K.10-K and in conjunction with Item 2 above.
Under current federal and state regulations and industry practice, the price of cream, a primary ingredient in ice cream, is linked to the price of butter. In an effort to mitigate the effects of butter price volatility, the Company periodically purchases butter or butter futures contracts with the intent of reselling or settling its positions in order to lower its cream cost and overall exposure to the volatility of this market. The Company has elected to not treat its investment in butter as a hedge for accounting purposes. Consequently, it “marks to market” its investment at the end of each quarter and records any resulting gain or loss in Other income, net. During the thirteen and thirty-nine weeks ended September 28, 2002, the Company marked its butter investments to market and recorded losses of $746,000 and $2,065,000, respectively.
During the first quarter ofthirteen and thirty-nine weeks ended September 28, 2002, the decrease in dairy raw material costs favorably impacted gross profit by approximately $1,600,000 (net ofaccounted for a $16,200,000 pre-tax benefit and a $29,500,000 pre-tax benefit (excluding the results of butter trading activities), respectively, as compared to the first quarter of 2001.thirteen and thirty-nine weeks ended September 29, 2001, respectively.
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ITEM 4. CONTROLS AND PROCEDURES.
(a) | Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), within 90 days prior to the filing date of this report. Based on their evaluation, our principal executive officer and principal accounting officer concluded that our disclosure controls and procedures are effective. | |
(b) | There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in paragraph (a) above. |
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PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K8-K.
(a) | The following exhibits are filed herewith: | |
Exhibit No. | Description | |
10.1 | Second Amendment dated October 18, 2002 to Credit Agreement dated as of July 25, 2000 among Dreyer’s Grand Ice Cream, Inc., the banks party to this agreement, Bank of America, N.A. as Agent for the Banks, as Swing Line Bank and as Letter of Credit Issuing Bank; Union Bank of California, N.A. as Syndication Agent and Banc of America Securities LLC as Lead Arranger and Book Manager. | |
99.1 | Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
99.2 | Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(b) | A Report on Form 8-K was filed on | |
A Report on Form 8-K was filed on October 25, 2002, reporting an amendment to the Merger and Contribution Agreement dated June 16, 2002, to change the name of | ||
A Report on Form 8-K was filed on November 5, 2002 which includes the information in Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8-Financial Statements and Supplementary Data appearing in the Company’s |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DREYER’S GRAND ICE CREAM, INC. |
Dated: | By: | /s/ Timothy F. Kahn | ||
Timothy F. Kahn | ||||
Vice President — Finance and Administration and Chief Financial Officer (Principal Financial Officer) |
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CERTIFICATIONS
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, T. Gary Rogers, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dreyer’s Grand Ice Cream, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Corporation as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls;
6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
/s/ T. Gary Rogers
T. Gary Rogers
Chairman of the Board of Directors and
Chief Executive Officer
Dated: November 12, 2002
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CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Timothy F. Kahn, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dreyer’s Grand Ice Cream, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Corporation as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls;
6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
/s/ Timothy F. Kahn
Timothy F. Kahn
Vice President — Finance and Administration and
Chief Financial Officer
Dated: November 12, 2002
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DREYER’S GRAND ICE CREAM, INC.
INDEX OF EXHIBITS
Exhibit No. | Description | |
10.1 | Second Amendment dated October 18, 2002 to Credit Agreement dated as of July 25, 2000 among Dreyer’s Grand Ice Cream, Inc., the banks party to this agreement, Bank of America, N.A. as Agent for the Banks, as Swing Line Bank and as Letter of Credit Issuing Bank; Union Bank of California, N.A. as Syndication Agent and Banc of America Securities LLC as Lead Arranger and Book Manager. | |
99.1 | Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
99.2 | Chief Financial Officer |
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