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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-14190
DREYER'S GRAND ICE CREAM, INC.
(Exact name of registrant as specified in its charter)
Delaware No. 94-2967523
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5929 College Avenue, Oakland, California 94618
(Address of principal executive offices) (Zip Code)
(510) 652-8187
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Shares Outstanding
May 7, 1999
-----------
Common stock, $1.00 par value 27,511,186
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED BALANCE SHEET
Mar. 27, 1999 Dec. 26, 1998
------------- -------------
($ in thousands, except per share amounts) (Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 2,165 $ 1,171
Trade accounts receivable, net of allowance for doubtful
accounts of $5,891 in 1999 and $5,710 in 1998 92,320 83,053
Other accounts receivable 19,046 29,165
Inventories 52,315 49,472
Prepaid expenses and other 12,211 13,271
--------- ---------
Total current assets 178,057 176,132
Property, plant and equipment, net 205,105 207,772
Goodwill and distribution rights, net 66,595 67,226
Other assets 12,563 12,050
--------- ---------
Total assets $ 462,320 $ 463,180
========= =========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 100,931 $ 87,273
Accrued payroll and employee benefits 19,344 19,545
Current portion of long-term debt 8,255 8,255
--------- ---------
Total current liabilities 128,530 115,073
Long-term debt, less current portion 160,439 169,781
Deferred income taxes 13,604 16,039
--------- ---------
Total liabilities 302,573 300,893
--------- ---------
Commitments and contingencies
Redeemable convertible preferred stock, $1.00 par
value - 1,008,000 shares authorized; 1,008,000
shares issued and outstanding in 1999 and 1998 99,760 99,654
--------- ---------
Stockholders' Equity:
Preferred stock, $1.00 par value - 8,992,000 shares authorized; no shares
issued or outstanding in 1999 and 1998
Common stock, $1.00 par value - 60,000,000 shares authorized; 27,513,000
shares and 27,312,000 shares issued and outstanding in
1999 and 1998, respectively 27,513 27,312
Capital in excess of par 48,911 46,722
Accumulated deficit (16,437) (11,401)
--------- ---------
Total stockholders' equity 59,987 62,633
--------- ---------
Total liabilities and stockholders' equity $ 462,320 $ 463,180
========= =========
See accompanying Notes to Consolidated Financial Statements.
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DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Thirteen Weeks Ended
---------------------------------
($ in thousands, except per share amounts) Mar. 27, 1999 Mar. 28, 1998
--------- ---------
Revenues:
Sales $ 228,386 $ 215,082
Other income 152 677
--------- ---------
228,538 215,759
--------- ---------
Costs and expenses:
Cost of goods sold 187,921 178,968
Selling, general and administrative 42,868 43,452
Interest, net of amounts capitalized 3,120 2,667
--------- ---------
233,909 225,087
--------- ---------
Loss before income tax benefit and cumulative effect of
change in accounting principle (5,371) (9,328)
Income tax benefit (2,036) (3,703)
--------- ---------
Loss before cumulative effect of change in accounting principle (3,335) (5,625)
Cumulative effect of change in accounting principle 595 --
--------- ---------
Net loss (3,930) (5,625)
Accretion of preferred stock to redemption value 106 106
Preferred stock dividends 174 174
--------- ---------
Net loss applicable to common stockholders $ (4,210) $ (5,905)
========= =========
Per common share-basic and diluted:
Loss applicable to common stockholders before
cumulative effect of change in accounting principle $ (.13) $ (.22)
Cumulative effect of change in accounting principle .02 --
--------- ---------
Net loss applicable to common stockholders $ (.15) $ (.22)
========= =========
Dividends per common share $ .03 $ .03
========= =========
See accompanying Notes to Consolidated Financial Statements.
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DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Retained
Earnings
Common Stock Capital in (Accumulated
(In thousands) Shares Amount Excess of Par Deficit) Total
-------- -------- -------- -------- --------
Balances at December 27, 1997 27,020 $ 27,020 $ 42,822 $ 39,498 $109,340
Net loss (5,625) (5,625)
Accretion of preferred stock to redemption value (106) (106)
Preferred stock dividends declared (174) (174)
Common stock dividends declared (813) (813)
Issuance of common stock under employee stock plans 82 82 1,198 1,280
-------- -------- -------- -------- --------
Balances at March 28, 1998 27,102 $ 27,102 $ 44,020 $ 32,780 $103,902
======== ======== ======== ======== ========
Balances at December 26, 1998 27,312 $ 27,312 $ 46,722 $(11,401) $ 62,633
Net loss (3,930) (3,930)
Accretion of preferred stock to redemption value (106) (106)
Preferred stock dividends declared (174) (174)
Common stock dividends declared (826) (826)
Repurchases and retirements of common stock (9) (9) (127) (136)
Issuance of common stock under employee stock plans 210 210 2,316 2,526
-------- -------- -------- -------- --------
Balances at March 27, 1999 27,513 $ 27,513 $ 48,911 $(16,437) $ 59,987
======== ======== ======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
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DREYER'S GRAND ICE CREAM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Thirteen Weeks Ended
-------------------------------
(In thousands) Mar. 27, 1999 Mar. 28, 1998
-------- --------
Cash flows from operating activities:
Net loss $ (3,930) $ (5,625)
Adjustments to reconcile net loss to cash
from operations:
Depreciation and amortization 8,846 8,406
Deferred income taxes (2,435) (1,686)
Cumulative effect of change in accounting principle 595 --
Changes in assets and liabilities:
Trade accounts receivable (9,267) (12,670)
Other accounts receivable 10,119 (3,777)
Inventories (2,843) (4,695)
Prepaid expenses and other 505 602
Accounts payable and accrued liabilities 13,650 19,252
Accrued payroll and employee benefits (201) (1,385)
-------- --------
15,039 (1,578)
-------- --------
Cash flows from investing activities:
Acquisition of property, plant and equipment (5,384) (10,884)
Retirement of property, plant and equipment 225 135
Increase in goodwill and distribution rights -- (299)
Increase in other assets (942) (81)
-------- --------
(6,101) (11,129)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt -- 17,600
Repayments of long-term debt (9,342) (4,782)
Issuance of common stock under employee stock plans 2,526 1,280
Repurchases and retirements of common stock (136) --
Cash dividends paid (992) (979)
-------- --------
(7,944) 13,119
-------- --------
Increase in cash and cash equivalents 994 412
Cash and cash equivalents, beginning of period 1,171 3,626
-------- --------
Cash and cash equivalents, end of period $ 2,165 $ 4,038
======== ========
Supplemental Cash Flow Information
Cash paid (refunded) during the period for:
Interest (net of amounts capitalized) $ 2,375 $ 1,883
======== ========
Income taxes (net of refunds) $ (331) $ 85
======== ========
See accompanying Notes to Consolidated Financial Statements.
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DREYER'S GRAND ICE CREAM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - General
Dreyer's Grand Ice Cream, Inc. and its subsidiaries (the Company) is a
single segment industry company engaged in manufacturing and distributing
premium ice cream and other frozen dessert products to grocery and convenience
stores, foodservice accounts and independent distributors in the United States.
The Company accounts for its operations geographically for management
reporting purposes. These geographic segments have been aggregated for financial
reporting purposes due to similarities in the economic characteristics of the
geographic segments and the nature of the products, production processes,
customer types and distribution methods throughout the United States.
The consolidated financial statements for the thirteen-week periods ended
March 27, 1999 and March 28, 1998 have not been audited by independent public
accountants, but include all adjustments, such as normal recurring accruals,
which management considers necessary for a fair presentation of the consolidated
operating results for the interim periods. The statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosure normally
included in financial statements prepared in conformity with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The operating results for interim periods are not necessarily
indicative of results to be expected for an entire year. The aforementioned
statements should be read in conjunction with the Consolidated Financial
Statements for the year ended December 26, 1998, appearing in the Company's 1998
Annual Report to Stockholders.
NOTE 2 - Preoperating Costs
In the first quarter of 1999, the Company adopted Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5
requires that the costs of start-up activities, including preoperating costs, be
expensed as incurred and that previously unamortized preoperating costs be
written off and treated as a cumulative effect of a change in accounting
principle. As a result of adopting SOP 98-5, the Company recorded an after-tax
charge of $595,000, or $.02 per common share.
NOTE 3 - Net Loss Per Common Share
Under Statement of Financial Accounting Standards No. 128, "Earnings per
Share", the denominator for basic earnings (loss) per share includes the number
of weighted average common shares outstanding and the denominator for diluted
earnings (loss) per share includes the number of weighted average shares
outstanding plus the dilutive effect of assumed conversions. For the quarters
ended March 27, 1999 and March 28, 1998, basic loss per common share was
computed using a denominator of 27,377,000 and 27,041,000 shares, respectively.
Potentially dilutive securities are excluded from the calculations of
diluted loss per common share as their inclusion would have an anti-dilutive
effect. These securities, stated in equivalent shares of common stock, consisted
of the following:
(In thousands) Mar. 27, 1999 Mar. 28, 1998
-------------- ------------- -------------
Stock options 4,731 4,615
Stock warrants 2,000 2,000
Preferred stock 5,800 5,800
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NOTE 4 - Status of Restructuring Program and Other Actions
As a result of higher dairy raw material costs, a decline in "better for you"
volumes and a reduction in future sales of Ben & Jerry's products, the Company
implemented a restructuring program in 1998 designed to improve profitability
and accelerate cost reductions by increasing focus on the core elements of the
Company's Strategic Plan. All restructuring program items are complete except
for exiting the Grand Soft equipment manufacturing business and paying the
remaining severance benefits.
The Company is pursuing various options relative to exiting its Grand Soft
equipment manufacturing business and expects to exit the manufacturing business
by the fourth quarter of 1999. The Company paid $55,000 of exit costs that were
primarily comprised of legal and related transaction costs. The Grand Soft
closing costs accrual includes $576,000 of severance-related costs for 23
employees. None of the 23 employees were terminated in the first quarter and, as
a result, no severance payments were made.
In addition, in 1998, the Company recorded $1,042,000 of severance and
related charges for 38 sales and distribution employees. Eleven employees were
terminated in 1999 and 16 employees were terminated in 1998. The Company paid
$300,000 and $153,000 in severance benefits in 1999 and 1998, respectively.
Remaining severance benefits will be paid by the end of 1999.
The Company also recorded a charge of $933,000 in 1998 to cost of goods sold
for severance actions begun in advance of board approval of the remainder of the
restructuring program. The Company paid $170,000 and $514,000 in 1999 and 1998,
respectively, related to these actions.
The following table summarizes the first quarter 1999 activity in the
restructuring and other actions accrual balances included in Accounts payable
and accrued liabilities in the Consolidated Balance Sheet:
(In thousands) Dec. 26, 1998 Additions Payments Mar. 27, 1999
------------- --------- -------- -------------
Restructuring accruals:
Grand Soft $ 2,258 $ -- $ (55) $ 2,203
Sales and distribution severance 889 -- (300) 589
------- ------- ------- -------
3,147 -- (355) 2,792
------- ------- ------- -------
Other accruals:
Sales and distribution severance 419 -- (170) 249
------- ------- ------- -------
$ 3,566 $ -- $ (525) $ 3,041
======= ======= ======= =======
NOTE 5 - Inventories
Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Inventories at March 27, 1999 and December 26, 1998
consisted of the following:
(In thousands) Mar. 27, 1999 Dec. 26, 1998
------------- -------------
Raw materials $ 5,858 $ 4,840
Finished goods 46,457 44,632
------- -------
$52,315 $49,472
======= =======
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Unaudited)
The following table sets forth for the periods indicated the percent which the
items in the Consolidated Statement of Operations bear to sales and the
percentage change of such items compared to the indicated prior period:
Period-to-Period
Variance
Percentage of Sales Favorable (Unfavorable)
Thirteen Weeks Ended -----------------------
----------------------------------- Thirteen Weeks 1999
Mar. 27, 1999 Mar. 28, 1998 Compared to 1998
------------- ------------- ----------------
Revenues:
Sales 100.0% 100.0% 6.2%
Other income 0.0 0.3 (77.6)
----- -----
100.0 100.3 5.9
----- -----
Costs and expenses:
Cost of goods sold 82.3 83.2 (5.0)
Selling, general and administrative 18.8 20.2 1.3
Interest, net of amounts capitalized 1.3 1.2 (17.0)
----- -----
102.4 104.6 (3.9)
----- -----
Loss before income tax benefit and cumulative
effect of change in accounting principle (2.4) (4.3) 42.4
Income tax benefit (0.9) (1.7) (45.0)
----- -----
Loss before cumulative effect of change in
accounting principle (1.5) (2.6) 40.7
Cumulative effect of change in accounting
principle 0.2 0.0 NM
----- -----
Net loss (1.7) (2.6) 30.1
----- -----
Accretion of preferred stock
to redemption value 0.1 0.1 0.0
Preferred stock dividends 0.1 0.1 0.0
----- -----
Net loss applicable to common stockholders (1.9)% (2.8)% 28.7%
===== =====
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RESULTS OF OPERATIONS
Forward-Looking Statements
The Company may from time to time make written or oral forward-looking
statements. Written forward-looking statements may appear in documents filed
with the Securities and Exchange Commission, in press releases, and in reports
to stockholders. The Private Securities Litigation Reform Act of 1995 contains a
"safe harbor" for forward-looking statements upon which the Company relies in
making such disclosures. In accordance with this "safe harbor" provision, we
have identified that forward-looking statements are contained in this
Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations. The Company undertakes no obligation to publicly revise
these forward-looking statements to reflect subsequent events or circumstances.
Also, in connection with this "safe harbor" provision, the Company
identifies important factors that could cause the Company's actual results to
differ materially from those contained in any forward-looking statement made by
or on behalf of the Company. Any such statement is qualified by reference to the
cautionary statements set forth below and in the Company's other filings with
the Securities and Exchange Commission.
Background
In 1994, the Company adopted a strategic plan to accelerate the sales of its
brand throughout the country (the Strategic Plan). The key elements of this plan
are: 1) to build high margin brands with leading market shares through effective
consumer marketing activities, 2) to expand the Company's direct-store-delivery
distribution network to 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.
In accordance with the Strategic Plan, the Company embarked on an aggressive
national expansion. This expansion involved the entry into 34 new markets, which
included the opening of a major manufacturing and distribution center in Texas,
a significant increase in marketing spending and the introduction of several new
products. At the same time, the Company invested in its soft-serve equipment
manufacturing business (Grand Soft). The investments required to fund the brand-
building actions and national expansion and to support the Grand Soft business
substantially increased the Company's cost structure.
In 1998, the cost of dairy raw materials peaked at a rate more than double
of that experienced in 1997. This increase reduced the Company's 1998 gross
margin by approximately $22,000,000 when compared to 1997. During this same
period, sales volumes of the Company's "better for you" products continued the
significant decline that began in 1997, consistent with an industry-wide trend.
Finally, in August 1998, Ben & Jerry's Homemade, Inc. (Ben & Jerry's) informed
the Company of its intention to terminate its distribution contract. Subsequent
negotiations with Ben & Jerry's yielded revisions to the original contract terms
which will reduce the Company's distribution gross margin of Ben & Jerry's
products by approximately 54 percent starting September 1, 1999. The Company
estimates that the distribution gross margin in the markets where it will stop
distributing Ben & Jerry's products later in 1999 represented approximately six
percent, or $13,000,000, of its total gross margin in 1998.
The above factors: the higher dairy raw material costs; the decline in
"better for you" volumes; and the reduction in future Ben & Jerry's sales had
and will have a negative effect on the Company's gross margin and its ability to
successfully implement the Strategic Plan. The Company, therefore, concluded
that a thorough reassessment of its cost structure and strategy was necessary.
This reassessment yielded a restructuring program designed to improve
profitability and accelerate cost reductions by increasing focus on the core
elements of the Strategic Plan. On October 16, 1998, the board of directors
approved the restructuring program.
The Company continues to make progress towards the key elements of the
Strategic Plan. This progress has yielded an increased market share in a
consolidating industry. The Company believes that the benefits under the
Strategic Plan will be realized in future years, although no assurance can be
given that the expectations relative to future market share and earnings
benefits of the strategy will be achieved. Specific factors that might cause
actual results to differ from expectations include, but are not limited to, the
Company's ability to achieve the cost reductions anticipated from its
restructuring program and efficiencies in its manufacturing and distribution
operations without negatively affecting sales, the cost of dairy raw materials
and other commodities used in the Company's products, competitors' marketing and
promotion responses, market conditions
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affecting the price of the Company's products, the Company's ability to increase
sales of its own branded products, and responsiveness of the trade and consumers
to the Company's new products and increased marketing and promotional expenses.
Status of Restructuring Program and Other Actions
As a result of higher dairy raw material costs, a decline in "better for you"
volumes and a reduction in future sales of Ben & Jerry's products, the Company
implemented a restructuring program in 1998 designed to improve profitability
and accelerate cost reductions by increasing focus on the core elements of the
Company's Strategic Plan. All restructuring program items are complete except
for exiting the Grand Soft equipment manufacturing business and paying the
remaining severance benefits.
The Company is pursuing various options relative to exiting its Grand Soft
equipment manufacturing business and expects to exit the manufacturing business
by the fourth quarter of 1999. The Company has reviewed the current accrual
balances and believes that they are adequate. However, no assurance can be given
that the Company has anticipated and provided for all future events. The Company
paid $55,000 of exit costs that were primarily comprised of legal and related
transaction costs. The Grand Soft closing costs accrual includes $576,000 of
severance-related costs for 23 employees. None of the 23 employees were
terminated in the first quarter and, as a result, no severance payments were
made.
In addition, in 1998, the Company recorded $1,042,000 of severance and
related charges for 38 sales and distribution employees. Eleven employees were
terminated in 1999 and 16 employees were terminated in 1998. The Company paid
$300,000 and $153,000 in severance benefits in 1999 and 1998, respectively.
Remaining severance benefits will be paid by the end of 1999.
The Company also recorded a charge of $933,000 in 1998 to cost of goods sold
for severance actions begun in advance of board approval of the remainder of the
restructuring program. The Company paid $170,000 and $514,000 in 1999 and 1998,
respectively, related to these actions.
The following table summarizes the first quarter 1999 activity in the
restructuring and other actions accrual balances included in Accounts payable
and accrued liabilities in the Consolidated Balance Sheet:
(In thousands) Dec. 26, 1998 Additions Payments Mar. 27, 1999
------------- --------- -------- -------------
Restructuring accruals:
Grand Soft $ 2,258 $ -- $ (55) $ 2,203
Sales and distribution severance 889 -- (300) 589
------- ------- ------- -------
3,147 -- (355) 2,792
------- ------- ------- -------
Other accruals:
Sales and distribution severance 419 -- (170) 249
------- ------- ------- -------
$ 3,566 $ -- $ (525) $ 3,041
======= ======= ======= =======
Thirteen Weeks ended March 27, 1999 Compared with Thirteen Weeks ended March 28,
1998
Consolidated sales for the first quarter of 1999 increased by $13,304,000, or
six percent, to $228,386,000 from $215,082,000 for the same period last year.
Sales of the Company's branded products were three percent, or $3,953,000,
higher than the comparable quarter in 1998 and accounted for 30 percent of the
overall increase.
The increase in sales of the Company's branded products related primarily to
higher wholesale prices in all markets. The products that led this increase were
Dreyer's and Edy's Ice Cream, more than offsetting declines in sales of the
Company's "better for you" frozen yogurt, sugar free and fat free products.
Sales of other companies' branded products (partner brands) increased 12 percent
led by the introduction of new Ben & Jerry's products and increased sales of
Healthy Choice(R) Lowfat Ice Cream. Sales of partner brands represented 38
percent of consolidated sales compared with 36 percent in the same period last
year. Wholesale prices for the Company's branded products increased
approximately four percent, before the effect of decreased trade promotion
expenses. Price increases for partner brands were not
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significant. Gallon sales of the Company's branded products decreased one
percent to 20,003,000, while unit sales of partner brands increased 12 percent.
Cost of goods sold increased $8,953,000, or five percent, over the first
quarter of 1998, while the overall gross margin increased to 17.7 percent from
16.8 percent. The gross margin improvement was primarily the result of higher
wholesale prices and lower distribution expenses, partially offset by an
increase of $3,400,000 in dairy raw material costs over the same period in 1998.
Although the market price of dairy raw materials declined in the first quarter
of 1999, a large portion of the benefit to the Company was delayed by statutory
pricing mechanisms in California.
Selling, general and administrative expenses in the first quarter of 1999
were $584,000, or one percent, lower than in the same period of 1998. This
decrease related primarily to lower trade promotion expenses in the first
quarter of 1999 compared with the same period in 1998. Selling, general and
administrative expenses decreased to 19 percent of total sales in 1999 compared
with 20 percent of total sales in 1998.
Interest expense increased $453,000, or 17 percent, over the first quarter
of 1998, due primarily to additional interest expense resulting from higher
interest rates.
The income tax benefit decreased due to a correspondingly lower pre-tax loss
in 1999. The effective tax rate decreased to 37.9 percent for the first quarter
of 1999 from 39.7 percent for the first quarter of 1998.
In the first quarter of 1999, the Company adopted Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5
requires that the costs of start-up activities, including preoperating costs, be
expensed as incurred and that previously unamortized preoperating costs be
written off and treated as a cumulative effect of a change in accounting
principle. As a result of adopting SOP 98-5, the Company recorded an after-tax
charge of $595,000, or $.02 per common share.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 27, 1999 decreased $11,532,000 from year-end 1998 due
primarily to the seasonal increase in Accounts payable and accrued liabilities,
partially offset by an increase in Trade accounts receivable. The Company's
operations provided cash of $15,039,000 which was primarily used to fund a
$5,384,000 increase in property, plant and equipment and a $9,342,000 repayment
of long-term debt.
At March 27, 1999, the Company had $2,165,000 in cash and cash equivalents,
and an unused credit line of $79,600,000. The total available under the
Company's revolving line of credit decreases to $149,286,000 on December 31,
1999 and the line expires on December 31, 2000. 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.
YEAR 2000 COMPLIANCE
The Company is in the process of addressing its Year 2000 compliance. Critical
centralized information systems (software and hardware) are either being
upgraded, enhanced, or replaced for Year 2000 compliance. The Company expects to
complete the upgrades or enhancements to its centralized information systems by
June 1999. Embedded chip technology used in the Company's manufacturing systems
is also being reviewed to determine if upgrades or enhancements are necessary.
The Company expects to complete the embedded chip review process in May 1999.
The Company is also surveying key customers and suppliers to determine the
status of their Year 2000 compliance programs. The survey process is scheduled
for completion by June 1999.
The Company believes the Year 2000 issue does not pose significant
operational or financial risks. The Company has a broad base of customers and
had only one customer comprising ten percent of total sales in 1998. The Company
also has a broad base of suppliers with multiple sourcing possibilities for all
purchases. Nevertheless, the Company is in the process of developing appropriate
contingency plans in an attempt to minimize the effect of any issues that may
arise from the failure of the Company, its suppliers or its customers to
complete Year 2000 compliance work. The Company believes that it will complete
the contingency plan development by September 1999.
The Company's assessment of the Year 2000 issue is based upon certain
assumptions that may later prove to be inaccurate. The greatest potential risks
relate to those situations beyond the Company's control, particularly the
inability of suppliers and customers to be Year 2000 compliant, which may cause
disruptions in the manufacturing and
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distribution operations. Additionally, a customer's inability to pay in a
timely manner and the disruption of electronic invoicing and payment systems
could cause financial risk and losses to the Company. The Company expects to be
able to more fully enumerate the operational and financial risks from the Year
2000 issue upon completion of the reviews discussed above.
The total cost for the Company's Year 2000 initiatives is estimated to be
$6,000,000, of which $3,500,000 was incurred during 1998 and $2,500,000 will be
incurred during 1999. The majority of these costs relate to the accelerated
replacement of capitalized hardware and software systems. The Company's cost
estimates do not include costs that may result from the failure of third parties
to be Year 2000 compliant or the costs to implement contingency plans. The
Company does not expect the cost of Year 2000 compliance to have a material
impact on the Company's financial position, results of operations or cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since December 26, 1998, there have been no material changes in the Company's
market risk exposure.
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PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
Exhibit No. Description
- ----------- -----------
10.1 Fifth Amendment to Note Agreement effective as of
December 25, 1998, among the Company,
Massachusetts Mutual Life Insurance Company,
Transamerica Life Insurance and Annuity Company
and Transamerica Occidental Life Insurance
Company, amending Note Agreement dated as of
March 15, 1991.
27.1 Financial Data Schedule.
(b) No reports on Form 8-K were filed by the Company during the quarter ended
March 27, 1999.
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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: May 10, 1999 By:/s/ Timothy F. Kahn
-----------------------------------
Timothy F. Kahn
Vice President - Finance and
Administration and Chief Financial
Officer(Principal Financial Officer)
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DREYER'S GRAND ICE CREAM, INC.
INDEX OF EXHIBITS
Exhibit No. Description
- ----------- -----------
10.1 Fifth Amendment to Note Agreement effective as of
December 25, 1998, among the Company,
Massachusetts Mutual Life Insurance Company,
Transamerica Life Insurance and Annuity Company
and Transamerica Occidental Life Insurance
Company, amending Note Agreement dated as of
March 15, 1991.
27.1 Financial Data Schedule.
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