Document/Exhibit Description Pages Size
1: 10-K 10-K Text 65 293K
2: EX-3.(I) Articles of Amendment 3 13K
5: EX-10 Angelo M. Pezzani 12± 60K
3: EX-10 Bennett Cohen 13 64K
4: EX-10 Jerry Greenfield 13 64K
6: EX-10 Lawrence E. Benders 10 55K
7: EX-10 Seven-Eleven Japan Co., Ltd. 12 49K
8: EX-21 Subsidiaries 1 5K
9: EX-23 Consent of Ernst & Young LLP 1 6K
10: EX-27.1 Financial Data Schedule 1 8K
11: EX-27.2 1996 Amended FDS 1 8K
12: EX-27.3 1995 Amended FDS 1 7K
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 27, 1997
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _________________
Commission File Number 0-13544
BEN & JERRY'S HOMEMADE, INC.
(Exact name of registrant as specified in its charter)
Vermont 03-0267543
(State of incorporation) (I.R.S. Employer Identification No.)
30 Community Drive
South Burlington, Vermont 05403-6828
------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 802-651-9600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.033 par value per share Class B Common
Stock, $.033 par value per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No__
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (225.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
Yes x No
The aggregate market value of the Company's Class A and Class B Common
Stock held by non-affiliates was approximately $99,666,648 and $4,436,040
respectively, at March 6, 1998.
At March 6, 1998, 6,381,217 shares of the Company's Class A Common Stock
and 862,274 shares of the Company's Class B Common Stock were outstanding.
Page 1 of 130 pages. Exhibit Index appears on page 37.
BEN & JERRY'S HOMEMADE, INC.
1997 FORM 10-K ANNUAL REPORT
Table of Contents
Page
Item 1. Business...........................................................1
Item 2. Properties........................................................15
Item 3. Legal Proceedings.................................................15
Item 4. Submission of Matters to Vote of Security Holders.................16
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters...............................................17
Item 6. Selected Financial Data...........................................18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................19
Item 8. Financial Statements and Supplementary Data.......................26
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............................26
Item 10. Directors and Executive Officers of the Company...................27
Item 11. Executive Compensation............................................30
Item 12. Security Ownership of Certain Beneficial Owners
and Management....................................................32
Item 13. Certain Relationships and Related Transactions....................34
Item 14. Exhibits, Financial Statements, and Financial
Statement Schedules, and Reports on Form 8-K......................37
Item 1. Business
Introduction
Ben & Jerry's Homemade, Inc. ("Ben & Jerry's" or the "Company") is a leading
manufacturer of super premium ice cream, frozen yogurt and sorbet in unique and
regular flavors. The Company also manufactures ice cream novelty products. The
Company uses natural ingredients in its products. The Company embraces a
philosophy that manifests itself in these attributes: being real and "down to
earth", being humorous and having fun, being non-traditional and alternative
and, at times, activists around our progressive values.
The Company's products are currently distributed throughout the United States
primarily through independent distributors. However, the Company's marketing
resources are concentrated on certain "target markets" including New England,
New York, the Mid-Atlantic region, Florida, Texas, the West Coast and selected
other major markets, including the Midwest ( defined for this purpose as
Chicago, Illinois, Minnesota, Wisconsin and Michigan) and Denver areas. In 1997,
approximately 80% of the sales of the Company's packaged pints were attributable
to these target markets. The Company's products are also available in certain
"non-target" markets in the United States and in the United Kingdom, France,
Israel, Canada, the Netherlands and Belgium and commencing in 1998, Japan. The
Company currently markets flavors of its ice cream, frozen yogurt and sorbet in
packaged pints, for sale primarily in supermarkets, other grocery stores,
convenience stores and other retail food outlets and in bulk, primarily to
restaurants and Ben & Jerry's franchised "scoop shops."
The Company began active operations in May 1978, when Ben Cohen, now the
Company's Chairperson, and Jerry Greenfield, now the Company's Vice Chairperson,
opened a retail store in a renovated gas station in Burlington, Vermont. The
Company believes that it has maintained a reputation for producing
gourmet-quality, natural ice cream and for sponsoring or creating light-hearted
promotions that foster an image as an independent socially conscious Vermont
company.
The Board of Directors of the Company has since 1988 formalized its basic
business philosophy by adopting a three part "mission statement" for Ben &
Jerry's. The statement includes a "product mission," to "make, distribute and
sell the finest quality all-natural ice cream"; an "economic mission," to
"operate the Company on a sound financial basis...increasing value for our
shareholders and creating career opportunities and financial rewards for our
employees"; and a "social mission," to "operate the Company in a way that
actively recognizes the central role that business plays in the structure of
society by initiating
innovative ways to improve the quality of life of a broad community: local,
national and international. Underlying the mission of Ben & Jerry's is the
determination to seek new and creative ways of addressing all three parts, while
holding a deep respect for individuals inside and outside the Company and for
the communities of which they are a part." Since 1988 the Company's Annual
Report to Stockholders has contained a "social report" on the Company's
performance during the year. The Company's social mission has always been about
more than philanthropy, product donations and community relations. Ben & Jerry's
has strived to integrate into its day to day business decisions a concern for
the community and to seek ways to lead with progressive values.
The Company makes cash contributions equal to 7 1/2% of its pretax profits to
philanthropy through The Ben & Jerry's Foundation (the "Foundation"), Community
Action Teams, which are employee led groups from each of its five Vermont sites,
and through corporate grants. Excluded from the 7 1/2% are contributions out of
a portion of the proceeds of incidental operations, not directly relating to Ben
& Jerry's core business of the manufacturing and selling of Ben & Jerry's frozen
desserts, such as a portion of the admission fees for plant tours, and excluding
corporate sponsorships that have as one of their purposes the furtherance of Ben
& Jerry's marketing goals. For 1997, the 7 1/2% amounted to approximately
$510,000. The amount of the Company's cash contribution is subject to review by
the Board of Directors from time to time in light of the Company's cash needs,
its operating results, existing conditions in the industry and other factors
deemed relevant by the Board. See "The Ben & Jerry's Foundation."
In some instances where the Company pays royalties for the licensed use of a
flavor name, the licensor donates all or a portion of these royalties to
charitable organizations. For example, in 1997, the Company launched Phish Food
(TM) ice cream and paid the Vermont-based band Phish $159,000 in royalties. The
band has established a Foundation to donate all of its royalties to
environmental causes in the Lake Champlain Region of Vermont.
Ben & Jerry's maintains a special tie to the Vermont community in which it had
its origins. The Company donates product to public events and community
celebrations in the Vermont area. Each county in Vermont is covered by a Ben &
Jerry's Community Action Team. Also, the Company, acting as an agent, transfers
funds to charitable organizations throughout Vermont derived from the sale of
product to participating Vermont retail grocers.
Ben & Jerry's has, through the years, taken actions intended to strengthen the
Company's ability to remain an independent, Vermont-based company focused on
carrying out its three part corporate mission. Ben & Jerry's believes these
actions are in the best interests of the Company, its stockholders,employees,
suppliers, customers and the Vermont community. See "Anti-Takeover Effects of
Class B Common Stock, Class A Preferred Stock and Classified Board of
Directors".
In 1991 the Company decided to pay not less than a certain minimum price for its
dairy ingredients, other than yogurt cultures, to bring the price up to an
amount based upon the average price for dairy products in certain prior periods.
This commitment is part of an effort to foster the supply of Vermont dairy
products and thereby also seek to maintain the long-term viability of the
Company's source of supply of its principal dairy ingredients, against the
marketplace background of a
continuing trend of decreasing family dairy farms in Vermont. In early 1994 the
Company's agreement with the St. Albans Cooperative Creamery was amended to
include, as a condition for payment of the premium, an assurance from the St.
Albans Cooperative Creamery that the milk and cream purchased by the Company
will not come from cows that have been treated with Recombinant Bovine Growth
Hormone ("rBGH"), a synthetic growth hormone approved by the FDA.
In December 1997, the St. Albans' Cooperative Creamery's board of directors
approved a motion to allow for controlled use of rBGH by a limited amount of
member farms beginning July 1, 1998. The Co-op has assured us that it will
continue to provide Ben & Jerry's with an rBGH-free dairy supply. The Company
will continue to offer a premium to Co-op member farms that do not use rBGH.
In 1997 the Company settled its litigation against the State of Illinois, which
cleared the way for the Company and other dairy processors who so desire to
label their product as being from cows not treated with rBGH, an artificial
growth hormone.
In 1992, the Company became a signatory to the CERES Principals adopted by the
Community for Environmentally Responsible Economies. The CERES Principles
establish an environmental ethic with criteria by which investors and others can
assess the environmental performance of companies. Ben & Jerry's is also a
member of Businesses for Social Responsibility, Inc. ("BSR"), an organization in
San Francisco, California which promotes a concept of business profitability
that includes environmental responsibility and social equity. Ben & Jerry's is
also a member of the Social Venture Network and Vermont Businesses for Social
Responsibility.
The Super Premium Ice Cream, Frozen Yogurt and Sorbet Market
The packaged ice cream industry includes economy, regular, premium, premium plus
and super premium products. Super premium ice cream is generally characterized
by a greater richness and density than other kinds of ice cream.
This higher quality ice cream generally costs more than other kinds and is
usually marketed by emphasizing quality, flavor selection, texture and brand
image. Other types of ice cream are largely marketed on the basis of price.
Super premium ice cream, super premium frozen yogurt and, more recently, super
premium sorbet have become an important part of the frozen dessert industry. In
response to the demand for lower fat, lower cholesterol products, the Company
introduced its own super premium low fat frozen yogurt in 1992, and non-fat
frozen yogurt in 1995. In February 1996, the Company introduced
lactose-free and cholesterol-free sorbet. In 1997, Ben & Jerry's introduced a
new line of low fat ice cream.
The Company believes, based on information provided by Information Resources,
Inc., a software and marketing information services company ("IRI"), that total
annual U.S. sales in supermarkets at retail prices (defined as grocery stores
with annual revenues of at least $2 million) of super premium ice cream, frozen
yogurt, and sorbet were approximately $428 million in 1997 compared with about
$438 million in 1996. All of the information in this paragraph is taken from IRI
data.
Ben & Jerry's Super Premium Ice Cream, Frozen Yogurt and Sorbet
Ben & Jerry's ice cream has a high level of butterfat and low level of air
incorporation during the freezing process. The approximate fat content is 15%
(excluding add-ins). The approximate overrun (a measurement of the volume of
air) is 20%. These physical attributes give the ice cream the rich taste and
dense, creamy texture that characterizes super premium ice creams. The fat
content of the ice cream is derived primarily from the butterfat in the cream,
and secondarily from egg yolks. The ice cream mix consists of cream, cane or
beet sugar, non-fat milk solids, egg yolks, and natural stabilizers.
Ben & Jerry's low fat frozen yogurt is a high quality frozen yogurt with
approximately 2% fat (excluding add-ins) and approximately 20% overrun. The fat
content of frozen yogurt comes from the cream used in the base mix. The
Company's non-fat frozen yogurt has approximately 0% fat and approximately 40%
overrun. All our frozen yogurt products are sweetened with pure cane or beet
sugar and corn syrup. The Company purchases cultured yogurt from yogurt
manufacturers who use Vermont dairy ingredients. Cultured yogurt is used in the
manufacturing of our frozen yogurt dessert products.
Ben & Jerry's fruit sorbets are a fat free frozen dessert with an overrun of
approximately 20%. The chocolate sorbet is a low fat product with approximately
2% fat (from the cocoa and chocolate liquor). All sorbets are sweetened with
pure cane or beet sugar and corn syrup. The water used to manufacture sorbet is
Vermont Pure(TM) Spring Water.
In 1997, Ben & Jerry's introduced a line of low fat ice cream flavors. These low
fat ice creams offer high quality, all natural ingredients with less than 3
grams of fat. The product line offers exciting flavor combinations, chunks of
candy, and swirls of variegates with extraordinary flavor.
All Ben & Jerry's frozen desserts are made of the finest quality ingredients.
Its ingredients contain no preservatives or artificial components (except the
flavoring component in one of the candies that we purchase). To date, the
Company has not
experienced any difficulty in obtaining the dairy products used to make its
frozen desserts. The various flavorings, add-ins, and variegates are readily
available from multiple suppliers throughout the country.
All the Company's plants include mix batching facilities which allow Ben &
Jerry's to manufacture its own dessert mixes. Ben & Jerry's designed and
modified special machinery to mix large chunks of cookies, candies, fruits and
nuts into our frozen desserts. The Company has also designed proprietary
processes for swirling variegates (dessert sauces) into its finished products.
The Company also makes ice cream novelty products, including a variety of ice
cream bars such as Cherry Garcia(R), Cookie Dough, Phish Stick(TM) , Dilbert's
World(TM)-Totally Nuts(TM) and Peanut Butter & Jelly(TM).
In 1997, the Company entered into a license agreement with Paul Newman and
Newman's Own to manufacture and market a line of Premium Plus ice cream products
under the brand name "Newman's Own". These products will be manufactured at the
Company's manufacturing facilities in Vermont.
Ben & Jerry's other license agreements include licenses from the estate of Jerry
Garcia formerly of the Grateful Dead rock group with respect to the Company's
Cherry Garcia(R) flavor; political cartoonist Garry Trudeau and Universal Press
Syndicate with respect to the Company's Doonesberry(TM) flavor of the sorbet
line of products; Wavy Gravy for the flavor Wavy Gravy; with Phish
Merchandising, Inc. with respect to Phish Food(TM), a flavor launched in
February of 1997; and from United Feature Syndicate, Inc. for use of the
trademark Dilbert for the flavor Dilbert's World(TM)-Totally Nuts(TM) introduced
in 1998.
Manufacturing
The Company manufactures Ben & Jerry's super premium ice cream and frozen yogurt
pints at its Waterbury, Vermont plant. The Company generally operates its
Waterbury plant 2 shifts a day, five or six days per week depending on demand
requirements. In the fourth quarter of 1997, the Company temporarily stopped
production at this site to begin an upgrade of the production lines. This
project was completed in early 1998. In 1997, the Company manufactured
approximately 3.9 million gallons at this facility.
The Company's Springfield, Vermont plant is used for the production of ice cream
novelties, ice cream, frozen yogurt, low fat ice cream and sorbet packaged in
bulk, pints, quarts and half gallons. In 1997 the plant produced approximately
1.1 million
dozen novelties, 2.2 million gallons of bulk ice cream, frozen yogurt and
sorbet, packaged pints and quarts. In 1997, the Company generally operated the
Springfield plant five to six days per week, with one or two production shifts
depending on the season.
The Company manufactures Ben & Jerry's super premium ice cream, frozen yogurt
and sorbet in packaged pints at its St. Albans, Vermont plant which in March
1995, started manufacturing ice cream on one line using a temporary nitrogen
tunnel hardening system. A second line began operation in December 1995. The
Company added a third manufacturing line to the plant and began using this line
for production in 1996. This line was also used in 1997 to meet peak pint
production requirements and is currently being outfitted to produce ice cream in
single serve packaging starting in 1998. In 1997, the plant produced 7.6 million
gallons of packaged pints. The Company generally operated St. Albans plant two
shifts a day for five to six days per week depending on demand requirements.
Markets and Customers
The Company markets packaged pints, quarts and novelty products primarily
through supermarkets, other grocery stores, convenience stores and other retail
food outlets. The Company markets ice cream, frozen yogurt and sorbet in 2
1/2-gallon bulk containers primarily through franchised (and 2 Company-owned)
Ben & Jerry's "scoop shops" and through restaurants.
Ben & Jerry's products are distributed primarily through Dreyer's Grand Ice
Cream, Inc. ("Dreyer's") and through other independent regional ice cream
distributors. With some exceptions, only one distributor is appointed for each
territory for supermarkets. In most areas, sub-distributors are used to
distribute to the smaller classes of trade. Company trucks and other
distributors distribute products that are sold in Vermont and upstate New York.
Ben & Jerry's has a distribution agreement with Dreyer's under which Dreyer's
acts as the master distributor (with exclusivity, in general, for sales to
supermarkets and similar accounts) of Ben & Jerry's products in most of the
Company's markets outside of New England, upstate New York and Pennsylvania.
Dreyer's markets its own premium ice cream under both the Dreyer's and Edy's
brand names, as well as, premium plus ice cream under the brand names of
Starbucks (a product produced under a joint venture between Starbucks and
Dreyer's Grand Ice Cream) and Portofino, and certain frozen dessert products of
other companies. Dreyer's does not produce or market any other super premium ice
cream or frozen yogurt (other than novelties), and in the event that Dreyer's
were to distribute another super premium ice cream, or frozen yogurt in any part
of its territory, Dreyer's would lose the contractual exclusivity granted to it
as
a Ben & Jerry's distributor under the agreement. The agreement also contains
certain additional provisions specific to the greater metropolitan New York
market, including special limitations on the ability of either party to
terminate the agreement with respect to the New York market prior to December
31, 1998. Net sales to Dreyer's accounted for approximately 57% and 55% of the
Company's net sales for 1997 and 1996, respectively.
In the event that Dreyer's were to terminate the agreement without cause, the
agreement provides for a twelve month notice period (subject to reduction by the
Company) and specified minimum purchase requirements by Dreyer's during the
notice period. In addition, the agreement provides for termination by Ben &
Jerry's without cause for a twelve month notice period (subject to reduction by
the Company and Dreyer's under certain conditions) and specified minimum selling
obligations to Dreyer's during the notice period. The agreement provides for
termination by Ben & Jerry's or Dreyer's on short notice for cause. The
agreement also contains certain provisions for termination by one party (at its
election) upon a change in control (as defined) of the other, in which event the
terminated party experiencing the change in control has a minimum purchase or
sale obligation, as the case may be, for a specified additional period and also
must make a $20 million termination payment (adjusted by the CPI index) to the
other party. In addition, the agreement states that in the event that Dreyer's,
directly or indirectly introduces, acquires, or distributes in the United States
another super premium product (as defined), the Company may terminate the
agreement and Dreyer's must make a $20 million termination payment to the
Company. The common stock of Dreyer's is publicly traded. In April 1994, Nestle
USA, Inc. (a U.S. subsidiary of a large international conglomerate) acquired a
significant minority equity position in Dreyer's. Dreyer's reported net sales of
$970 Million in 1997. (See also "Competition")
The relationship between the Company and Dreyer's commenced in 1987, and the
distribution agreement has been amended several times since then. The Company
and Dreyer's regularly engage in discussions regarding ways to improve their
long-term relationship to their mutual benefit. Any changes which are made in
the arrangement may have certain beneficial or adverse consequences, the effects
of which cannot be foreseen by the Company.
While the Company believes that its relationships with Dreyer's and its other
distributors generally have been satisfactory and that these relationships have
been instrumental in the Company's growth, the Company has at times experienced
difficulties in maintaining these relationships to its satisfaction. Available
distribution alternatives are limited. Accordingly, there can be no assurance
that such difficulties, which may be related to actions by the Company's
competitors or by one or more of the
distributors themselves (or their controlling persons), will not have a material
adverse effect on the Company's business. Loss of one or more of the Company's
principal distributors or termination of one or more of the related distribution
agreements could have a material adverse effect on the Company's business.
In early 1998 Dreyer's made overtures to Ben Cohen and Jerry Greenfield, the
Company's co-founders, to obtain their support for an offer that Dreyer's would
make to acquire the Company. These overtures were rejected by the co-founders
who stated: "As stockholders, each of us has always been firmly committed to the
view that Ben & Jerry's Homemade, Inc. should remain an independent company
headquartered in Vermont, in a position to carry out its three-part corporate
mission. Accordingly, neither of us will agree to support or vote for the
transaction with Dreyer's."
Marketing
Ben & Jerry's marketing strategy is characterized by its focus on innovative,
non-traditional methods of promotion. The Company emphasizes the high quality,
natural ingredients in its products, and the "down to earth and real", humorous
and non-traditional image of its products in its packaging, sales materials and
promotional campaigns. In 1997, the Company utilized additional marketing
tactics such as radio advertising in four large markets.
The founders of the Company, are "two real guys" still actively involved in the
Company. The founders continue to make personal appearances on TV, radio and at
select marketing events.
As the Company has become a significant force in the super premium frozen
dessert category, its marketing emphasis has shifted from portraying itself as
the small "underdog" firm to a Company-wide focus on community involvement, its
status as a socially responsible business, and continuing to introduce
innovative, high quality products. In the past, the Company has created
innovative products and business approaches that tend to generate unpaid
newspaper, magazine, radio and TV news coverage.
During 1997, the Company created and produced Ben & Jerry's "One World, One
Heart" Festival in Vermont. The Company also sponsored the Ben & Jerry's Folk
Festival in Newport, Rhode Island. These events, attended by over 50,000 people
in outdoor public areas and accompanied by ice cream sampling and social
activism, built customer loyalty and support for the Company's products in the
future.
Ben & Jerry's continues to conduct guided tours of its facility in Waterbury,
Vermont. In 1997, approximately 300,000 people visited the plant, making it (the
Company believes) the single most popular tourist attraction in the State.
In 1997, the Company introduced a new flavor, Phish Food(TM), under a license
arrangement with the Vermont-based band Phish. The Phish Food(TM) launch
included a video news release and a benefit concert held in Burlington, Vermont.
The launch successfully garnered public relations exposure and generated
significant consumer interest in the flavor. The band Phish donates all of its
royalties to a Foundation whose mission is to promote environmental causes in
the Lake Champlain region.
The Company also introduced low fat ice cream in 1997 responding to consumers'
interest in high quality, low fat products. The low fat ice cream flavors
continue to incorporate chunks and swirls in the ice cream consistent with many
of the flavors for which Ben & Jerry's is known.
Franchise Program
As of December 27, 1997, there were 135 North American franchise scoop shops
compared to 137 scoop shops and satellites for the year ended December 28, 1996.
At December 27, 1997, there were 3 Company owned scoop shops in Vermont. The
franchise scoop shops are located throughout the United States. There are also 9
Ben & Jerry's franchise scoop shops in Israel, 2 in Canada, and 3 in the
Netherlands. In 1998, the Company plans to open 3 Company owned scoop shops in
Paris, France.
New scoop shops are opened under existing Development Agreements, and under new
Single Store Agreements. Development Agreements require a franchisee to develop
a particular number of units annually according to the terms of their Agreement.
Partnershops(R) are arrangements that permit non-profit organizations to own
scoop shops that serve as an employment resource and potentially a source of
revenue for the non-profit groups. The Company waives the normal franchise fee
of $30,000. In addition the Company provides expertise in the start-up and
operation of the Partnershops(R).
The Company has assorted franchise concepts that include traditional shops in a
variety of settings as well as five Partnershops(R) - shops operated by
non-profit organizations. Franchise Agreements generally have initial terms of
five to ten years. Ben & Jerry's Franchise scoop shops sell Ben & Jerry's
proprietary and non-proprietary approved items for resale to the public and
include Ben & Jerry's ice cream, frozen yogurt, sorbet, private label hot fudge,
baked goods and toppings. The menu items also include coffee beverages, fruit
smoothies, ice cream cakes, novelties and gift items.
International
The Company regularly investigates the possibilities of entering new markets.
Ben & Jerry's ice cream products are now distributed nationally in the United
Kingdom and Israel and are available in parts of Ireland, France, Canada, the
Netherlands and Belgium.
In 1992, the Company repurchased the Canadian rights to Ben & Jerry's products
that it had previously licensed in 1987. In 1987, the Company granted an
exclusive license to manufacture and sell Ben & Jerry's ice cream in Israel.
In 1997, the Company signed an Importation and Marketing Agreement with one of
the largest food retailers in Japan for sale through Japanese retail stores of
Ben & Jerry's products manufactured in Vermont in a special size. The Company
plans a test market and product launch in 1998. In 1997, the Company signed a
letter of intent with Royal Sporting House PTE, Ltd., a significant distributor
and retailer headquartered in Singapore, for a license to distribute and sell in
all channels of distribution, including licensed Ben & Jerry's scoop shops and
products purchased from Ben & Jerry's for resale to retail outlets. The
agreement covers Singapore, Malaysia, Indonesia and the United Arab Emirates.
The parties intend that the arrangement will be finalized with respect to one or
more of these countries in 1998.
Competition
The super premium ice cream, frozen yogurt and sorbet business is highly
competitive, and with the distinction between the super premium category and the
"adjoining" premium and premium plus categories less marked than in the past.
The Company's principal competitor is The Haagen-Dazs Company, Inc. Other
significant frozen dessert competitors are Dannon, Columbo, Healthy Choice and
Starbucks. Haagen-Dazs, an industry leader in the super premium ice cream
market, is owned by The Pillsbury Company, which in turn is owned by Diageo
(previously known as Grand Metropolitan PLC), a British food and liquor
conglomerate. Diageo is a large, diversified company with resources
significantly greater than the Company's, and Haagen-Dazs has a significant
share of the markets that the Company has entered in recent years. Haagen-Dazs
has also entered substantially more foreign markets than the Company (including
certain markets in Europe and the Pacific Rim). Haagen-Dazs and certain other
competitors also market flavors using pieces of cookies and candies as
ingredients.
In the ice cream novelty segment, the Company competes with several well-known
brands, including Haagen-Dazs and Dove Bars, manufactured by a division of Mars,
Inc. Both of these other brands have achieved far larger shares of the novelty
market than the Company.
During 1997, the premium category again experienced increased promotional
activity driven by the national competition between Dreyer's Grand Ice Cream,
Inc., the Company's principal distributor, and Breyer's Ice Cream (owned by
Unilever, a large international food company). In accordance with Dreyer's
strategic five year plan to accelerate the sales of their branded premium
products Dreyer's has increased its consumer marketing efforts and continued
expansion of its distribution system into additional U.S. markets. In addition,
Dreyer's has two premium plus products sold under the Starbuck's and Portofino
brands. In April 1998, Ben & Jerry's will be entering the premium plus category
for the first time with the introduction of "Newman's Own" line of ice cream
products.
As a result of the various developments noted in this section on "Competition",
Dreyer's and the Company are viewed as competitors.
There are a number of other super premium brands, including some regional ice
cream companies and some new entries. Increased competition and the increased
consumer demand for new lower fat, lower cholesterol products like low fat or
non-fat frozen yogurt, low fat ice cream and sorbet, combined with limited shelf
space within supermarkets, may have, in general, made market entry harder and
has already forced some brands out of some markets. The ability to introduce
innovative new flavors and low fat offerings on a periodic basis is also a
significant competitive factor. The Company expects strong competition to
continue, including price/promotional competition and competition for adequate
distribution and limited shelf space within the frozen dessert category in
supermarkets and other food retail outlets.
Seasonality
The ice cream, frozen yogurt and frozen dessert industry generally experiences
the highest volume during the spring and summer months and the lowest volume in
the winter months.
Regulation
The Company is subject to regulation by various governmental agencies, including
the United States Food and Drug Administration and the Vermont Department of
Agriculture. It must also obtain licenses from the states where Ben & Jerry's
products are sold. The criteria for labeling low-fat/low-cholesterol and other
health-oriented foods was revised in 1994, and in some respects made more
stringent, by the FDA. The Company, like other companies in the food industry,
made changes in its labeling in response to these regulations and is in
compliance. The Company cannot predict the impact of possible further changes
that it may be required to make in response to legislation, rules or inquiries
made from time to time by governmental agencies. FDA
regulations may, in certain instances, affect the ability of the Company, as
well as others in the frozen desserts industry, to develop and market new
products. Nevertheless, the Company does not believe these legislative and
administrative rules and regulations will have a significant impact on its
operations.
In connection with the operation of all its plants, the Company must comply with
the Federal and Vermont environmental laws and regulations relating to air
quality, waste management, and other related land use matters. The Company
maintains wastewater discharge permits for all of its manufacturing locations.
The Waterbury plant pre-treats production effluent prior to discharge to the
municipal treatment facility. The Company believes that it is in compliance with
all of the required operational permits relating to environmental regulations.
Trademarks
The name Ben & Jerry's(R), Vermont's Finest(TM), Partnershops(R), Chunky
Monkey(R), Chubby Hubby(R), Dastardly Mash(R), New York Super Fudge Chunk(R),
Peace Pops(R), Hunka Hunka Burning Fudge(TM), Cool Britannia(TM), Totally
Nuts(TM), Coffee, Coffee BuzzBuzzBuzz!(TM) and World's Best(TM) are all
trademarks of the Company. Cherry Garcia(R), Phish Food(TM), Wavy Gravy,
Doonesberry(TM) and Holy Cannoli(R), which are also Ben & Jerry's proprietary
flavor names, and are licensed to the Company.
Employees
At December 28, 1997, Ben & Jerry's employed 736 people including full time,
part time and temporary employees. This represents a 4% increase from the 708
people employed by the Company at December 28, 1996.
The Ben & Jerry's Foundation
In 1985, Ben Cohen, Co-founder of the Company, contributed a portion of the
equity of the Company which he then owned to The Ben & Jerry's Foundation, Inc.,
a charitable organization under Section 501(c)(3) of the Internal Revenue Code,
in order to enable the Foundation to sell such equity in 1985 and invest the net
proceeds (approximately $598,000) in income-producing securities to generate
funds for future charitable grants. The Foundation, with its employee-led grant
making committee, under supervision of the Foundation's directors, provides the
principal means for carrying out the Company's charitable cash giving policy
across the nation. The Foundation continues to target its grants to small grass
roots social change organizations.
In October 1985, pursuant to stockholder authorization, the Company issued to
the Foundation all of the 900 authorized shares
of Class A Preferred Stock. The Class A Preferred Stock gives the Foundation a
special class voting right to act with respect to certain mergers and other
Business Combinations (as defined in the Company's charter). The issuance of
Preferred Stock was designed to perpetuate the relationship between the
Foundation and the Company and to assist the Company in its determination to
remain an independent business headquartered in Vermont.
Anti-Takeover Effects of Class B Common Stock, Class A Preferred Stock and
Classified Board of Directors.
The holders of Class A Common Stock are entitled to one vote for each share held
on all matters voted on by stockholders, including the election of directors.
The holders of Class B Common Stock are entitled to ten votes for each share
held in the election of directors and on all other matters. The Class B Common
Stock is generally nontransferable, and there is no trading market for the Class
B Common Stock. The Class B Common Stock is freely convertible into Class A
Common Stock on a share-for-share basis and transferable thereafter. A
stockholder who does not wish to complete the prior conversion process may
effect a sale by simply delivering the certificate for such shares of Class B
Common Stock to a broker, properly endorsed. The broker may then present the
certificate to the Company's Transfer Agent which, if the transfer is otherwise
in good order, will issue to the purchaser a certificate for the number of
shares of Class A Common Stock thereby sold.
The Company has been advised that Mr. Ben Cohen (Chairperson and a director of
the Company), Mr. Jerry Greenfield (Vice Chairperson and a director of the
Company) and Mr. Jeff Furman (a director and formerly a consultant to the
Company) (collectively, the "Principal Stockholders") presently intend to retain
substantial numbers of shares of Class B Common Stock. As a result of
conversions by "public" stockholders of Class B Common Stock, in order to enable
their sales of such securities, the Class B Common Stock is now held
disproportionately by Company insiders, including the above-named three
directors who are Principal Stockholders. See "Security Ownership of Certain
Beneficial Owners and Management." As of March 6, 1998, these three principal
individual stockholders held shares representing 45% of the aggregate voting
power in elections of directors and various other matters and 17% of the
aggregate common equity outstanding, permitting them, as a practical matter,
generally to decide elections of directors and various other questions submitted
to a vote of the Company's stockholders even though they might sell substantial
portions of their Class A Common Stock.
The Board of Directors, without further stockholder approval, may authorize the
issuance of additional authorized but unissued shares of Class B Common Stock in
the future and sell shares of Class B Common Stock held in the Company's
treasury;
In 1985, Ben Cohen, one of the Company's co-founders, contributed a portion of
the equity in the Company which he then owned to The Ben & Jerry's Foundation,
Inc. The current directors of the Foundation, Messrs. Greenfield and Furman and
Ms. Bankowski are also directors of the Company. The Class A Preferred Stock
gives the Foundation a class voting right to act with respect to certain
Business Combinations (as defined in the Company's charter). The 1985 issuance
of the Class A Preferred Stock to the Foundation effectively limits the voting
rights that holders of the Class A Common Stock and Class B Common Stock, the
owners of virtually all of the equity in the Company, would otherwise have with
respect to Business Combinations (as defined). This may have the effect of
limiting such common stockholders' participation in certain transactions such as
mergers, other Business Combinations (as defined) and tender offers, whether or
not such transactions might be favored by such common stockholders.
At the 1997 Annual Meeting the shareholders approved amendments to the Company's
Articles of Association to (a) classify the Board into three classes, as nearly
as equal as possible, so that each director (after a transitional period) will
serve for three years, with one class of directors being elected each year; (b)
provide that directors may be removed only for cause and with the approval of at
least two-thirds of the votes cast on the matter by all of the outstanding
shares of capital stock of the Company entitled to vote generally in the
election of directors; (c) provide that any vacancy resulting from such a
removal may be filled by two-thirds of the directors then in office; and (d)
increase the stockholder vote required to alter, amend, repeal or adopt any
provision inconsistent with these amendments approved by stockholders in 1997 to
at least two-thirds of the votes cast on the matter by all of the outstanding
shares of capital stock of the Company entitled to vote generally in the
elections of directors, voting together.
The Company believes the amendments reduce the possibility that a third party
could effect a change, including a tender offer or a sudden or surprise change
in the composition of the Company's Board of Directors, without the support of
the incumbent Board and accordingly that adoption of the amendments strengthened
Ben & Jerry's ability to remain an independent, Vermont-based company focused on
carrying out its three part corporate mission, which Ben & Jerry's believes is
in the best interest of the Company, its stockholders, employees, suppliers,
customers and the Vermont community.
The Class B Common Stock, the Class A Preferred Stock and the Classified Board
of Directors may be deemed to be "anti-takeover" provisions in that the Board of
Directors believes the existence of these securities and the 1997 amendments to
the Articles of Association will make it difficult for a third party to acquire
control of the Company on terms opposed by the holders of the
Class B Common Stock, including primarily the Principal Stockholders, and the
Foundation or for incumbent management and the Board of Directors to be removed.
See also "Risk Factors" in Item 7 of this Report.
Item 2. Properties
The Company owns three production facilities. Ben & Jerry's owns a 42.5 acre
site in Waterbury, Vermont on which it operates a 46,000 square-foot plant
producing ice cream and frozen yogurt in packaged pints. The Company owns a 12
acre site in Springfield, Vermont on which it operates a 48,000 square-foot
production facility. The Springfield plant is used for the production of ice
cream novelties, bulk ice cream and frozen yogurt and at times packaged pints
and quarts.
The Company's property, plant and equipment at its production facilities in
Waterbury and Springfield are subject to various liens securing a portion of the
Company's long-term debt.
In 1991, the Company entered into a twenty-five year lease with an option to
purchase 17.1 acres of land in Rockingham, Vermont on which the Company
constructed and operates a 45,000 square-foot central distribution facility.
The Company owns a 42 acres site in St. Albans, Vermont on which it operates a
92,000 square foot manufacturing facility. In February 1996, the Company entered
into a ten year lease agreement for approximately 69,000 square-feet of office
and warehousing space in South Burlington, Vermont where the Company's executive
offices and administrative departments are located.
The Company also leases space for its retail ice cream parlors in Burlington and
Montpelier, Vermont. The Company owns three single-family houses, which are
situated on land adjacent to its manufacturing facility it Waterbury, used for a
day-care center, employee training and other purposes.
The Company believes that all of its facilities are well maintained and in good
repair.
Item 3. Legal Proceedings
On December 14, 1995, the Company was served with a class action complaint filed
in federal court in Burlington, Vermont. The complaint, captioned Henry G.
Jakobe, Jr. v. Ben & Jerry's Inc., et al., United States District Court (D.
Vermont) Case No. 1-95-CV-373, was filed by a Ben & Jerry's shareholder on
behalf of himself and purportedly on behalf of all other Ben & Jerry's
shareholders who purchased the common stock of the Company during the period
from March 25, 1994 through December 19, 1994. Plaintiff alleges that the
Company violated the federal securities laws by making, in 1994, untrue
statements of material facts and omitting to state material facts primarily
concerning the Company's construction and start-up of its new manufacturing
facility in St. Albans, Vermont. Also named as defendants in the Complaint were
certain present and former officers and directors of the Company. On October 31,
1996 the Court dismissed all but one of Plaintiff's claims.
On July 1, 1997, the Company entered into a Stipulation and Agreement of
Settlement with the Plaintiff Class. On September 4, 1997, the Court entered an
Order approving the Stipulation and Agreement of Settlement. Despite
Management's continued belief that the remaining claim in Plaintiffs' suit was
without merit, it was determined that the costs associated with defending this
lawsuit through its conclusion at trial would be greater than the negotiated
settlement amount (a portion of which was reimbursed by the Company's insurance
carrier). Therefore, management concluded that settling this matter was in the
best interest of the Company and its shareholders.
The Company is subject to certain litigation and claims in the ordinary course
of business which management believes are not material to the Company's
business.
Item 4. Submission of Matters to Vote of Security Holders
No matters were submitted to a vote of security holders of the Company during
the fourth quarter of 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company's Class A Common Stock is traded on the NASDAQ National Market
System under the symbol BJICA. The following table sets forth for the period
December 31, 1995 through March 6, 1998 the high and low closing sales prices of
the Company's Class A Common Stock for the periods indicated.
High Low
---- ---
1996
----
First Quarter...................... $ 17 1/4 $ 13
Second Quarter..................... 19 1/2 14
Third Quarter...................... 17 3/4 12 1/4
Fourth Quarter..................... 14 3/4 10 7/8
1997
----
First Quarter...................... $ 14 3/8 $ 10 7/8
Second Quarter..................... 14 1/2 11
Third Quarter...................... 14 1/2 12
Fourth Quarter..................... 17 12 1/4
1998
----
First Quarter (through March 6,1998) $ 18 7/16 $ 14
The Class B Common Stock is generally non-transferable, and there is no trading
market for the Class B Common Stock. However, the Class B Common Stock is freely
convertible into Class A Common Stock on a share-for-share basis, and
transferable thereafter. A stockholder who does not wish to complete the prior
conversion process may effect a sale by simply delivering the certificate for
such shares of Class B Stock to a broker, properly endorsed. The broker may then
present the certificate to the Company's Transfer Agent which, if the transfer
is otherwise in good order, will issue to the purchaser a certificate for the
number of shares of Class A Stock thereby sold.
As of March 6, 1998 there were 10,612 holders of record of the Company's Class A
Common Stock and 2,135 holders of record of the Company's Class B Common Stock.
Item 6. Selected Financial Data
The following table contains selected financial information for the Company's
fiscal years 1993 through 1997.
(In thousands except per share data)
Summary of Operations:
[Download Table]
Fiscal Year
-----------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Net sales $ 174,206 $ 167,155 $ 155,333 $ 148,802 $140,328
Cost of sales 114,284 115,212 109,125 109,760 100,210
Gross profit 59,922 51,943 46,208 39,042 40,118
Selling, general
and administrative
expenses 53,520 45,531 36,362 36,253 28,270
Asset write-down 6,779
Other income
(expense)--net (118) (77) (441) 228 197
Income(loss) before
Income taxes 6,284 6,335 9,405 (3,762) 12,045
Income taxes
(benefit) 2,388 2,409 3,457 (1,893) 4,844
Net income(loss) 3,896 3,926 5,948 (1,869) 7,201
Net income(loss) per
Share - diluted(1) $ 0.53 $ 0.54 $ 0.82 $ (0.26) $ 1.01
Shares outstanding
- diluted(1) 7,334 7,230 7,222 7,148 7,138
Balance Sheet Data:
Fiscal Year
-----------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Working capital $ 51,412 $ 50,055 $ 51,023 $ 37,456 $ 29,292
Total assets 146,471 136,665 131,074 120,296 106,361
Long-term debt 25,676 31,087 31,977 32,419 18,002
Stockholders'equity(2) 86,919 82,685 78,531 72,502 74,262
(1) All earnings per share amounts have been restated to comply with Statement
of Financial Accounting Standards No. 128, Earnings per Share.
(2) No cash dividends have been declared or paid by the Company on its capital
stock since the Company's organization. The Company intends to reinvest earnings
for use in its business and to finance future growth. Accordingly, the Board of
Directors does not anticipate declaring any cash dividends in the foreseeable
future.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The following table shows certain items as a percentage of net sales which are
included in the Company's Statement of Operations.
[Download Table]
Annual Increase(Decrease)
Percentage of Net Sales 1997 1996 1995
Fiscal Year Compared Compared Compared
1997 1996 1995 to 1996 to 1995 to 1994
---- ---- ---- ------- ------- -------
Net sales............ 100.0% 100.0% 100.0% 4.2% 7.6% 4.4%
Cost of sales........ 65.6 68.9 70.2 (0.8) 5.6 (0.6)
---- ---- ---- --- --- ---
Gross profit......... 34.4 31.1 29.8 15.4 12.4 18.4
Selling, general
and administrative
expense........... 30.7 27.2 23.4 17.5 25.2 0.3
Other income
(expenses)........ (0.1) 0.1 (0.4) 53.2 (82.5) (293.4)
--- --- --- ---- ---- -----
Income(loss)before
income taxes...... 3.6 3.8 6.0 (0.8) (32.6) 350.0
Income taxes(benefit) 1.4 1.5 2.2 (0.9) (30.3) 282.6
--- --- --- --- ---- -----
Net income(loss)..... 2.2% 2.3% 3.8% (0.8)% (34.0)% 418.2%
=== === === ===== ====== =====
Net Sales
Net sales in 1997 increased 4.2% to $174 million from $167 million in 1996
primarily due to price increases of approximately 3% for pints that went into
effect in August 1996 and April 1997. Pint volume increased 0.7% compared to
1996.Net sales of 2 1/2 gallon bulk containers had a modest increase in 1997.
Pint sales represented approximately 84% of total net sales in 1997 and 85% of
total net sales in 1996, and 1995. Net sales of 2 1/2 gallon bulk containers
represented approximately 8% of total net sales in 1997 and 7% of total net
sales in 1996 and 1995. Net sales of novelties accounted for approximately 6% of
total net sales in 1997, 1996, and 1995. Net sales from the Company's retail
stores represented 2% of total net sales in 1997 and 1996, and 1995.
Net sales in 1996 increased 7.6% to $167 million from $155 million in 1995. Pint
volume increased 2.6% compared to 1995. This volume increase was combined with a
3.6% price increase of pints that went into effect in August 1996. This volume
increase in pints was primarily due to the Company's introduction of its new
line of sorbets in February 1996. Net sales of both novelties and 21/2 gallon
bulk containers had increases of 10.9% and 8.3% respectively in 1996.
Cost of Sales
Cost of sales in 1997 decreased approximately $900,000 or 0.8% over the same
period in 1996 and overall gross profit as a percentage of net sales increased
from 31.1% in 1996 to 34.4% in 1997. The higher gross profit as a percentage of
net sales in 1997 is a result of higher selling prices instituted in August 1996
and April 1997, improved operating efficiencies and decreases in certain raw
material commodity prices.
The Company experienced a modest decrease in dairy commodity prices during 1997
compared to 1996. Dairy costs started to increase in the summer and fall of 1996
and continued into the first half of 1997. In response to higher dairy commodity
costs, the Company instituted a price increase of approximately 3% for its
packaged pint products effective in April 1997. Though dairy commodity prices
were lower in the third quarter of 1997 as compared to the comparable quarter in
the prior year, they began to escalate in the latter half of the fourth quarter.
If dairy commodity prices remain at higher levels, there is the possibility that
these costs will not be passed on to consumers which will negatively impact
future gross profit margins. See the Risk Factors below.
Cost of sales in 1996 increased approximately $6.1 million or 5.6% over the same
period in 1995 and overall gross profit as a percentage of net sales increased
from 29.8% in 1995 to 31.1% in 1996. The higher gross profit as a percentage of
net sales in 1996 is due to the price increase effective in August 1996 combined
with improved inventory management and production efficiencies, as compared with
1995. The impact of increased dairy raw material costs was offset by improved
manufacturing expenses. In addition, the improved gross margin reflects the
impact of the termination of the manufacturing agreement between the Company and
Edy's Grand Ice Cream, a subsidiary of Dreyer's Grand Ice Cream. This production
was transferred to the Company's manufacturing facility in St. Albans, Vermont
in the third quarter of 1995. Approximately 16% of the packaged pints
manufactured by the Company in 1995 were produced by Edy's.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 17.5% to $53.5 million in
1997 from $45.5 million in 1996 and increased as a percentage of net sales to
30.7% in 1997 from 27.2% in 1996. This increase primarily reflects increased
marketing and sales expenses and includes national radio advertising and
increased trade promotions to support the Company's brand both domestically and
in Europe. This increase also reflects royalty expense of approximately $500,000
which was previously reflected in other income (expense) in the prior year.
Selling, general and administrative expenses increased 25.2% to $45.5 million in
1996 from $36.4 million in 1995 and increased as a percentage of net sales to
27.2% in 1996 from 23.4% in 1995. This increase primarily reflects increased
marketing and sales spending for the launch of the new "Sorbet" line which was
introduced in February 1996, international market penetration costs and expenses
primarily in the production planning and inventory management areas.
Other Income (Expense)
Interest income increased from $1.7 million in 1996 to $1.9 million in 1997. The
increase in interest income was due to a higher average invested balance
throughout 1997. Interest expense in 1997 remained level with 1996. Other income
(expense) decreased in 1997 from other income of $243,000 in the prior year to
other expense of $64,000 in 1997. This is primarily due to the receipt of
insurance settlement proceeds of approximately $884,000 in 1996, offset by
reclassification of royalty expense to selling, general and administrative
expenses in 1997. This reclassification resulted in a decrease in other expense
of approximately $500,000
Interest income in 1996 remained level with 1995. Interest expense increased
$0.5 million in 1996 compared to 1995. This increase was due primarily to the
capitalization of a portion of interest in the prior year as part of the cost of
the plant in St. Albans, Vermont before the plant became operational. This
increase in interest expense was more than offset by net proceeds of $884,000
from an insurance claim settlement related to inventory damaged in 1995.
Income Taxes
The Company's effective income tax rate in 1997 remained level with 1996 at
38.0%. The Company's rate had increased from 36.8% in 1995, reflecting higher
state income taxes and lower income tax credits partially offset by increased
tax-exempt interest. Management expects 1998's effective income tax rate to
decrease to approximately 36.0% due to higher income tax credits and lower state
taxes.
Net Income
As a result of the foregoing, net income for the full year of 1997 remained
level with 1996 at $3.9 million, compared to $5.9 million in 1995. However, 1997
quarterly results for the third and fourth quarters were above the comparable
quarters in 1996. Net income as a percentage of net sales was 2.2% in 1997
compared to 2.3% in 1996 and 3.8% in 1995.
Seasonality
The Company typically experiences more demand for its products during the summer
than during the winter.
Inflation
Inflation has not had a material effect on the Company's business to date, with
the exception of dairy raw material commodity costs. See the Risk Factors below.
Management believes that the effects of inflation and changing prices were
successfully managed in 1997, with both margins and earnings being protected
through a combination of pricing adjustments, cost control programs and
productivity gains.
Liquidity and Capital Resources
As of December 27, 1997 the Company had $47.3 million of cash and cash
equivalents, an increase of $11.2 million since December 28, 1996. Net cash
provided by operations in 1997 was approximately $17.6 million. Approximately
$5.2 million was used for net additions to property, plant and equipment,
primarily for equipment upgrades at all manufacturing facilities and computer
related expenditures.
Inventories decreased from $15.4 million at December 1996, to $11.1 million at
December 27, 1997. The decrease in inventories resulted from planned inventory
reductions in 1997. Accounts receivable increased $4.0 million since December
28, 1996 to $12.7 million from $8.7 million at December 28, 1996. This increase
in accounts receivable is due to the timing of sales in December of 1996
compared to December 1997.
The Company anticipates capital expenditures in 1998 of approximately $9.0
million. These projected capital expenditures relate to equipment upgrades and
enhancements at the Company's manufacturing facilities, research & development
equipment, computer related expenditures and acquisition and leasehold
improvement costs related to three scoop shop locations in Paris, France in
1998.
During 1997 the Company repurchased 77,500 shares of its Class A Common Stock
for approximately $988,000 pursuant to the repurchase program announced May 8,
1997 primarily for use in connection with stock option awards under the 1995
Equity Incentive Plan.
The Company's short and long-term debt includes $30 million aggregate principal
amount of Senior Notes issued in 1993 and 1994, which are held in cash
equivalents pending their use in the business. The first principal payment of $5
million is due in September 1998.
The Company has two line of credit agreements, for an aggregate of $20 million,
with The First National Bank of Boston and Key
Bank of Vermont. These unsecured agreements provide for borrowings from time to
time, and unless further extended, expire September 29, 1998 and December 29,
1998, respectively. The agreements specify interest at either the banks' Base
Rate or the Eurodollar rate plus a maximum of 1.25%. As of March 27, 1998 there
have been no borrowings under these lines of credit. Management intends to renew
these line of credit agreements.
Management believes that internally generated funds,cash and cash equivalents,
and equipment lease financing and/or borrowings under the Company's two
unsecured bank lines of credit will be adequate to meet anticipated operating
and capital requirements.
Year 2000
The Company has instituted a Company-wide program to prepare its computer
systems for the year 2000. A comprehensive evaluation of the impact of the Year
2000 issue on both the Company's infrastructure and its interface with suppliers
and customers is expected to be completed in the latter part of fiscal year
1998. The Company expects the remediation program to be completed by the middle
of 1999. Based on a preliminary assessment, the Company expects that these
costs, which primarily include redeployment of existing internal resources, will
not be material. The Company will expense the costs of modifying existing
systems and capitalize the replacement of software that is not "Year 2000"
compliant. There can be no guarantee, however, that the systems of other
entities with which the Company's systems interface also will be converted on a
timely basis or that any failure to convert by another entity would not have an
adverse effect on the Company's systems.
Forward-Looking Statements
This section, as well as other portions of this document, includes certain
forward-looking statements about the Company's business and new products, sales
and expenses, effective tax rate and operating and capital requirements. In
addition, forward-looking statements may be included in various other Company
documents to be issued in the future and in various oral statements by Company
representatives to security analysts and investors from time to time. Any such
statements are subject to risks that could cause the actual results or needs to
vary materially. These risks are discussed below in "Risk Factors" in this
document.
Risk Factors
Dependence on Independent Ice Cream Distributors. The Company is dependent on
maintaining satisfactory relationships with independent ice cream distributors
that now generally act as the Company's exclusive or master distributor in their
assigned territories. While the Company believes its relationships with
Dreyer's and its other distributors generally have been satisfactory and have
been instrumental in the Company's growth, the Company has at times experienced
difficulty in maintaining such relationships to its satisfaction. Available
distribution alternatives are limited. Accordingly, there can be no assurance
that difficulties in maintaining relationships with distributors, which may be
related to actions by the Company's competitors or by one or more of the
Company's distributors themselves (or their controlling persons), will not have
a material adverse effect on the Company's business. The loss of one or more of
the Company's principal distributors or termination of one or more of the
related distribution agreements could have a material adverse effect on the
Company's business. In early 1998 Dreyer's made overtures to Ben Cohen and Jerry
Greenfield, the Company's co-founders, to obtain their support for an offer that
Dreyer's would make to acquire the Company. These overtures were rejected by the
co-founders. See "Business - Markets and Customers."
Growth in sales and earnings. In 1997, net sales of the Company increased 4.2%
to $174 million from $167 million in 1996. Pint volume increased 0.7% compared
to 1996. The super premium ice cream, frozen yogurt and sorbet industry category
sales decreased 2.3% in 1997 as compared to 1996. Given these overall domestic
super premium industry trends, the successful introduction of innovative flavors
on a periodic basis has become increasingly important to any sales growth by the
Company. Accordingly, the future degree of market acceptance of any of the
Company's new products, which will be accompanied by promotional expenditures,
is likely to have an important impact on the Company's 1998 and future financial
results. See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations."
Competitive Environment. The super premium frozen dessert market is highly
competitive with the distinctions between the super premium category, and the
"adjoining" premium and premium plus categories less marked than in the past.
And, as noted above, the ability to successfully introduce innovative flavors on
a periodic basis that are accepted by the marketplace is a significant
competitive factor. In addition, the Company's principal competitors are large,
diversified companies with resources significantly greater than the Company's.
The Company expects strong competition to continue, including competition for
adequate distribution and competition for the limited shelf space for the frozen
dessert category in supermarkets and other retail food outlets. See
"Business-Competition" and "Business-The Super Premium Frozen Dessert Market."
Increased Cost of Raw Materials: Management believes that the trend of increased
dairy ingredient commodity costs may continue and it is possible that at some
future date both gross margins and earnings may not be protected by pricing
adjustments, cost control programs and productivity gains.
Reliance on a limited number of Key Personnel. The success of the Company is
significantly dependent on the services of Perry Odak, the Chief Executive
Officer and a limited number of executive managers working under Mr. Odak, as
well as certain continued services of Ben Cohen, the Chairperson of the Board
and co-founder of the Company; and Jerry Greenfield, Vice Chairperson and
co-founder of the Company. Loss of the services of any of these persons could
have a material adverse effect on the Company's business. See "Directors and
Executive Officers of the Company."
The Company's Social Mission. The Company's basic business philosophy is
embodied in a three-part "mission statement," which includes a "social mission"
to "operate the Company in a way that actively recognizes the central role that
business plays in the structure of society by initiating innovative ways to
improve the quality of life of a broad community: local, national and
international. Underlying the mission of Ben & Jerry's is the determination to
seek new and creative ways of addressing all three parts, while holding a deep
respect for individuals inside and outside the Company and for the communities
of which they are a part." The Company believes that implementation of its
social mission, which is integrated into the Company's business, has been
beneficial to the Company's overall financial performance. However, it is
possible that at some future date the amount of the Company's energies and
resources devoted to its social mission could have some material adverse
financial effect. See "Introduction" and "Business-Marketing."
International. The Company's principal competitors have substantial market
shares in various countries outside the United States, principally Europe and
Japan. The Company sells product in Canada, the United Kingdom, Ireland, France,
the Netherlands and Belgium and will start selling in Japan in 1998. The Company
also has licensing agreements in Israel, signed in 1987, and a licensing letter
of intent relating to Singapore, Malaysia, Indonesia and the United Arab
Emirates, signed in 1997. The Company is investigating the possibility of
further international expansion. However, there can be no assurance that the
Company will be successful in entering (directly or indirectly through
licensing), on a long-term profitable basis, such international markets as it
selects.
Control of the Company. The Company has two classes of common stock - the Class
A Common Stock, entitled to one vote per share, and the Class B Common Stock
(authorized in 1987), entitled, except to the extent otherwise provided by law,
to ten votes per share. Ben Cohen, Jerry Greenfield, and Jeffrey Furman
(collectively, the "Principal Stockholders") hold shares representing 45% of the
aggregate voting power in elections for directors, permitting them as a
practical matter to elect all members of the Board of Directors and thereby
effectively control the business, policies and management of the Company.
Because of their significant holdings of Class B Common Stock, the Principal
Stockholders may continue to exercise this control even if they were to sell
substantial portions of their Class A Common Stock.
See "Security Ownership of Certain Beneficial Owners and Management."
In addition, the Company issued all of the authorized Class A Preferred Stock to
the Foundation in 1985. All current directors of the Foundation are directors of
the Company. The Class A Preferred Stock gives the Foundation a class voting
right to act with respect to certain Business Combinations (as defined in the
Company's charter) and significantly limits the voting rights that holders of
the Class A Common Stock and Class B Common Stock, the owners of virtually all
of the equity in the Company, would otherwise have with respect to such Business
Combinations. See "Business- The Ben & Jerry's Foundation."
While the Board of Directors believes that the Class B Common Stock and the
Class A Preferred Stock are important elements in keeping Ben & Jerry's an
independent, Vermont-based business focused on its three-part corporate mission,
the Class B Common Stock and the Class A Preferred Stock may be deemed to be
"anti-takeover" provisions in that the Board of Directors believes the existence
of these securities will make it difficult for a third party to acquire control
of the Company on terms opposed by the holders of the Class B Common Stock,
including primarily the Principal Stockholders, or The Foundation, or for
incumbent management and the Board of Directors to be removed. In addition, the
1997 amendments to the Company's Articles of Association to classify the Board
of Directors and to add certain other related provisions (see "Anti-Takeover
Effects of Class B Common Stock, Class A Common Stock, Class A Preferred Stock
and Classified Board of Directors" in Item 1) may be deemed to be
"anti-takeover" provisions in that the Board of Directors believes that these
amendments will make it difficult for a third party to acquire control of the
Company on terms opposed by the holders of the Class B Common Stock, including
primarily the Principal Stockholders and the Foundation, or for incumbent
management and the Board of Directors to be removed.
Item 8. Financial Statements and Supplementary Data
The response to this Item is in Item 14(a)of this Report.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Company
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Office
---- --- ------
Ben Cohen............ 46 Chairperson and Director
Perry Odak........... 52 Chief Executive Officer, President
and Director
Jerry Greenfield..... 46 Vice Chairperson and Director
Elizabeth Bankowski.. 50 Director and Director of Social
Mission
Pierre Ferrari....... 47 Director
Jeffrey Furman....... 54 Director
Jennifer Henderson... 44 Director
Frederick A. Miller.. 51 Director
Henry Morgan......... 72 Director
Andrew S. Patti...... 57 Director
Lawrence Benders..... 41 Chief Marketing Officer
Bruce Bowman.......... 45 Senior Director of Operations
Angelo Pezzani....... 56 Senior Director of Business Development
Frances Rathke....... 37 Chief Financial Officer
and Secretary
The Board of Directors has an Audit Committee on which Directors Ferrari, Morgan
and Patti (Chairperson) serve; a Compensation Committee on which Directors
Henderson, Miller, and Morgan (Chairperson) serve; a Social Mission/Worklife
Committee on which Directors Bankowski, Cohen, Ferrari, Furman, Greenfield,
Henderson and Miller (Chairperson) serve; an Executive Committee on which
Directors Cohen, Greenfield, Miller, Morgan, Odak and Patti (Chairperson) serve;
and a Nominating Committee on which Directors Bankowski, Cohen (Chairperson),
Ferrari, Greenfield and Odak serve.
Elizabeth Bankowski has served as Director of Social Mission Development since
December 1991. Ms. Bankowski has been a director of the Company since 1990.
Additionally, Ms. Bankowski is Secretary and director of The Ben & Jerry's
Foundation, Inc.
Ben Cohen, a founder of the Company, has served as Chairperson of the Board of
Directors since February 1989. From January 1, 1991 through January 29, 1995 he
was the Chief Executive Officer of the Company. Mr. Cohen has been a director of
the Company since 1977. Mr. Cohen is a director of Blue Fish Clothing, Inc.,
Community Products, Inc., Social Venture Network and GreenPeace International.
In 1997, Community Products Inc. filed for protection under Chapter 11 of the
United State Bankruptcy Code.
Pierre Ferrari has served as a director of the Company since June 1997. In 1997
Mr. Ferrari became President of Lang International, a marketing consulting firm.
From 1994 to 1997 Mr. Ferrari was the Special Assistant to the President and CEO
of Care, the World's largest private relief and development agency. Prior to
1994, Mr. Ferrari held various senior level marketing positions at The Coca-Cola
Company.
Jeffrey Furman has served as a director of the Company since 1982. Mr. Furman is
Treasurer and director of The Ben & Jerry's Foundation, Inc. From March 1991
through December 1996, Mr. Furman was a consultant to the Company.
Jerry Greenfield, a founder of the Company, has served as director and Vice
Chairperson of the Board of Directors since 1990. Mr. Greenfield is also
President and director of The Ben & Jerry's Foundation, Inc.
Jennifer Henderson has served as a director of the Company since June 1996. Ms.
Henderson is director of Training at the Center for Community Change in
Washington DC and President of Strategic Interventions, Inc., a leadership and
management consulting firm.
Frederick A. Miller has served as a director of the Company since 1992. Since
1985 Mr. Miller has served as President of The Kaleel Jamison Consulting Group,
Inc., a strategic culture change and management consulting firm.
Henry Morgan has served as a director of the Company since 1987. Mr. Morgan is
retired Dean Emeritus of Boston University School of Management. Mr. Morgan
serves on the Board of Directors of Cambridge Bancorporation, Southern
Development Bancorporation and Cleveland Development Bancorporation.
Perry D. Odak has served as Chief Executive Officer of the Company since
December 31, 1996, as director of the Company since January 1997, and as Chief
Executive Officer and President since June 1997. From 1990 to 1996, Mr. Odak was
a principal in Odak, Pezzani & Company, a private management consulting firm.
From 1994 to 1995, Mr. Odak was Chief Executive Officer of Graham Packaging.
Andrew S. Patti has served as a director of the Company since June 1997. Mr.
Patti is the Senior Executive and Founder of Rianco, LLC, a venture capital
firm. Mr. Patti was Executive Vice-President of Ameritech, a telecommunications
Company from September 1996 to February 1997. From 1978 until 1995 Mr. Patti was
an executive with The Dial Corporation, including holding the position of
President.
Other Key Executives
Lawrence E. Benders joined the Company in October 1997 as Chief Marketing
Officer. Prior to joining the Company, Mr. Benders was Vice President of
International Marketing at Coors Brewing Company. From 1994 until 1996 Mr.
Benders was a marketing executive with Nabisco Foods Group. From 1993 until
1994, Mr. Benders was a Division Manager for American Telephone and Telegraph.
Prior to 1993, Mr. Benders was a marketing executive with Johnson & Johnson.
Bruce Bowman has served as Senior Director of Operations since August 1995.
Prior to joining the Company, Mr. Bowman was Senior Vice President of Operations
at Tom's Foods, Inc., a food manufacturing company from April 1991 until August
1995.
Richard Doran joined the Company in 1997 as Senior Director of Human Resources.
From 1987 until joining the Company Mr. Doran was a management consultant and
Vice President for the Kaleel Jamison Consulting Group, a strategic culture
change and management consulting firm.
Charles Green joined the Company in October of 1996 as Senior Director of Sales
and Distribution. From 1993 to 1996 Mr. Green was General Manager of Dari-Farms,
the distributor of Ben & Jerry's products in the Massachusetts and Connecticut
areas. From 1991 to 1993, Mr. Green was Vice President of Sales for HP Hood.
Angelo Pezzani joined the Company in January 1998 as Senior Director of Business
Development. From 1995 to 1996, Mr. Pezzani was Executive Vice President of Sony
Interactive Entertainment. From 1989 to 1995, Mr. Pezzani was a principal of
Odak, Pezzani & Company, a private management consulting company.
Frances Rathke has served as Chief Financial Officer, Chief Accounting Officer
and Secretary of the Company since April 1990.
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth the cash compensation paid by the Company in
Fiscal Years 1995 - 1997 as well as certain other compensation paid, awarded or
accrued for those years to the Company's Chief Executive Officer and the
Company's other executive officers during the 1997 fiscal year whose total
salary and bonuses exceeded $100,000. Perry Odak became the Chief Executive
Officer on January 1, 1997.
[Enlarge/Download Table]
Long-Term Compensation
-------------------------------------------
Annual Compensation Awards Payouts
--------------------------------------------------------------------------------------------
Other Securities All
Name and Annual Restricted Underlying LTIP Other
Principal Compen- Stock Options/ Payouts Compen-
Position Year Salary Bonus(2) sation Awards SARS sation(3)
-------------------------------------------------------------------------------------------------------------------------------
Ben Cohen(1) 1997 $183,333 -- $ 3,000
Chairperson 1996 $149,664 -- $ 3,017
and CEO 1995 $132,500 -- $ 2,195
Jerry Greenfield 1997 $183,333 -- $ 3,000
Vice Chairperson 1996 $149,664 -- $ 3,017
1995 $132,500 -- $ 2,195
Perry D. Odak 1997 $300,000 $100,000 360,000 $ 25,000
CEO, President and 1996 $ -- -- --
Director 1995 $ -- -- --
Bruce Bowman 1997 $200,000 $ 50,000 27,000 $ 4,131
Senior Director of 1996 $169,231 $ 20,000 10,000 $ 1,099
Operations 1995 $ 55,385 $ 40,000 25,000 $ 2,195
Frances Rathke 1997 $162,603 $ 45,000 30,000 $ 3,229
CFO and 1996 $145,385 -- -- $ 2,928
Secretary 1995 $125,000 $ 1,281 30,000 $ 2,260
Charles Green 1997 $162,596 $ 40,000 45,000 --
Senior Director of 1996 $ 24,231 -- 5,000 --
Sales & Distribution 1995 $ -- -- -- --
(1) Ben Cohen was CEO prior to January 31, 1995
(2) "Bonus" includes 1997 discretionary distributions under the Company's
Management Incentive Program. Bruce Bowman was awarded a bonus in accordance
with his employment contract of $40,000 in 1995 and $20,000 in 1996. Ms. Rathke
received $1,281 in 1995 under the Company's informal and discretionary profit
sharing plan, under which executive officers and senior executives are no longer
eligible.
(3) "All Other Compensation" includes Company contributions to 401(K) plans and relocation fees.
Option/SAR Grants in Fiscal 1997
[Enlarge/Download Table]
Potential
Realizable
Value at
Percentage Assumed Annual
of Total Rates of
Options/ Stock Price
SARS Exercise Appreciation
Options/ Granted to or for Option Term
SARS Employees Base Price Expiration
Granted in 1997 (per share) Date 5% 10%
------- ------- ----------- ---- -- ---
Ben Cohen 0 0 0 0 0 0
Jerry Greenfield 0 0 0 0 0 0
Perry D. Odak 200,000 28.8% $10.88 12/31/06 $1,368,475 $3,467,984
160,000 23.1% $10.88 1/1/07 $1,094,780 $2,774,387
Bruce Bowman 27,000 3.9% $13.89 6/28/07 $235,854 $597,701
Charles Green 45,000 6.5% $13.89 6/28/07 $393,091 $996,169
Frances Rathke 30,000 4.3% $13.89 6/28/07 $262,060 $664,112
Aggregated Option/SAR Exercises in 1997 and 1997 Year-End
Option/SAR Values
[Enlarge/Download Table]
Shares
Acquired Value of Unexercised
on Number of Unexercised In-The-Money Options/
Exercise Value Options/SARS at 12/27/97 SARS at 12/27/97
(#) Realized Exercisable Unexercisable Exercisable Unexercisable
--- -------- ----------- ------------- ----------- -------------
Ben Cohen 0 0 0 0 0 ---
Jerry Greenfield 0 0 0 0 0 ---
Perry Odak 0 0 90,000 270,000 $472,500 $1,417,500
Bruce Bowman 0 0 15,375 46,625 $15,060 $82,920
Charles Green 0 0 1,000 49,000 $3,750 $115,800
Frances Rathke 0 0 14,343 46,842 $46,550 $101,400
Effective January 1, 1998 Directors who are not employees or full-time
consultants of the Company receive an annual retainer fee of $18,000, in
addition to a $1,000 per board meeting attendance fee, and reimbursement of
reasonable out-of-pocket expenses.
The Company adopted the 1995 Non-Employee Directors Plan for Stock in lieu of
Directors Cash Retainer under which directors may elect to be paid, in lieu of
the annual cash retainer, shares of common stock having a fair market value (as
of the date of payment) equal to the amount of such annual retainer. Four
non-employee directors, Henry Morgan, Frederick A. Miller, Andrew Patti and
Pierre Ferrari each received 936 shares of stock for the period July 1, 1997
through June of 1998 under the Plan.
Item 12. Security Ownership of Certain Beneficial Owners and management
The following table sets forth certain information as of March 6, 1998 with
respect to the beneficial ownership of the outstanding shares of Class A Common
Stock, Class B Common Stock and Class A Preferred Stock by (i) all persons
owning of record, or beneficially to the knowledge of the Company, more than
five percent of the outstanding shares of any class(ii) each director and
executive officer of the Company individually, (iii) all directors and officers
of the Company as a group and (iv) The Ben & Jerry's Foundation, Inc. The
mailing address of each of the persons shown and of the Foundation is c/o the
Company, 30 Community Drive, South Burlington, Vermont 05403-6828.
[Enlarge/Download Table]
Amount of Amount of
Beneficial Beneficial Amount of
Ownership of Ownership of Beneficial
Class A Class B Ownership of
Common Stock Common Stock Preferred Stock
Percentage Percentage Percentage
Number of Number of Number of
of Outstanding of Outstanding of outstanding
Shares Shares (1) Shares Shares(2) Shares Shares
------ ---------- ------ --------- ------ ------
Ben Cohen (3) 508,173 8.0% 488,486 56.7% -- --
Jeffrey Furman (4) (5) 17,000 * 30,300 3.5% -- --
Jerry Greenfield (4) 130,000 2.0% 90,000 10.4% -- --
Perry Odak (6) 152,000 2.4% -- -- -- --
Elizabeth Bankowski (4) 16,732 * -- -- -- --
Pierre Ferrari 2,936 * -- -- -- --
Jennifer Henderson 524 * -- -- -- --
Frederick A. Miller 2,160 * -- -- -- --
Henry Morgan 4,160 * -- -- -- --
Andrew Patti 936 * -- -- -- --
Lawrence E. Benders 0 -- -- -- -- --
Bruce Bowman 18,764 * -- -- -- --
Charles Green 1,000 * -- -- -- --
Angelo Pezzani 13,000 * -- -- -- --
Frances Rathke 25,750 * -- -- -- --
The Capital Group 797,500 12.5% -- -- -- --
Companies, Inc. (7)
333 South Hope St.
Los Angeles, CA 90071
All Officers and directors
as a group (15 persons) 893,135 14.0% 608,786 70.6% -- --
The Ben & Jerry's
Foundation, Inc. (4) -- -- -- -- 900 100%
* Less than 1%
(1) Based on the number of shares of Class A Common Stock outstanding as of
March 6, 1998. Each share of Class A Common Stock entitles the holder to one
vote per share.
(2) Based on the number of shares of Class B Common Stock outstanding as of
March 6, 1998. Each share of Class B Common Stock entitles the holder to ten
votes.
(3) Under the regulations and interpretations of the Securities and Exchange
Commission, Mr. Cohen may be deemed to be a parent of the Company.
(4)By virtue of their positions as directors of The Foundation, which has the
power to vote or dispose of the Class A Preferred Stock, each of Messrs.
Greenfield, a co-founder, Director and Vice Chairperson of the Company, and
Furman, a Director of and formerly a consultant to the Company, and Ms.
Bankowski, an officer and Director of the Company, may be deemed, under the
regulations and interpretations of the Securities and Exchange Commission, to
own beneficially the Class A Preferred Stock.
(5) Does not include 210 shares of Class A Common Stock and 105 shares of Class
B Common Stock owned by Mr. Furman's wife, as to which he disclaims beneficial
ownership under the securities laws. Includes 7,000 shares held by Mr. Furman as
trustee for others, which are deemed beneficially owned by Mr. Furman under
rules and regulations of the Securities and Exchange Commission.
(6) Does not include 15,080 shares of Class A Common Stock beneficially owned by
Mr. Odak's wife under the rules and regulations of the Securities and Exchange
Commission, as to which he disclaims beneficial ownership.
(7) The Capital Group Companies, Inc. is the parent company of Capital Research
and Management Company, SMALLCAP World Fund, Inc. and Capital Guardian Trust
Company. As a result of the investment power and in some cases the voting power
held by the subsidiary companies, The Capital Group Companies, Inc., is deemed
to "beneficially own" such securities by virtue of Rule 13d-3 under the
Securities Exchange Act of 1934.
Item 13. Certain Relationships and Related Transactions
Under the terms of a Severance and Non-Competition Agreement between the Company
and Mr. Furman, dated December 31, 1990, the Company continues to provide, at no
cost to Mr. Furman, family health insurance coverage under the Company's regular
employee health insurance plan. This obligation will continue until March 2,
1999.
Mr. Cohen, a Co-founder of the Company, Chairperson and director of the Company,
has entered into an Employment Agreement with the Company for an employment term
expiring on December 31, 1998 (renewable automatically thereafter in successive
one year periods unless either Mr. Cohen or the Company gives notice to the
other of non-renewal). The Agreement provides for a base salary of $200,000 per
annum, subject to increases and bonuses at the discretion of the Board. The
Agreement provides for a covenant not to compete during the employment term of
the Agreement and for a three year period thereafter, in consideration of
payment by the Company (except as otherwise provided in the Agreement) of
severance equal to the then-current base salary during the three-year period.
The Agreement then provides for annual payments of $75,000 for life, commencing
with the end of the three year severance period, and for specified insurance
benefits and contains a provision for contemplated services to be provided to
the Company after the end of the term of employment and severance period.
Mr. Greenfield, a Co-founder of the Company, Vice Chairperson, and director of
the Company,, has entered into an Employment Agreement with the Company for a
term expiring on December 31, 1998 (renewable automatically thereafter in
successive one year periods unless either Mr. Greenfield or the Company gives
notice to the other of non-renewal). The Agreement provides for a base salary of
$200,000 per annum, subject to increases and bonuses at the discretion of the
Board. The Agreement also provides for a covenant not to compete during the
employment term of the Agreement and for a three year period thereafter, in
consideration of payment by the Company (except as otherwise provided in the
Agreement) of severance equal to the then-current base salary during the
three-year period . The Agreement then provides for annual payments of $75,000
for life, commencing with the end of the three year severance period, for
specified insurance benefits and contains a provisions for certain services
contemplated to be provided to the Company after the end of the term of
employment and severance period.
Mr. Bowman, Senior Director of Operations has an Employment Agreement dated
August 21, 1995, expiring August 20, 1998. The Agreement provides for an annual
base salary, which may be increased by the Board (the Board has currently fixed
such base
salary at $200,000), and he is entitled to an incentive bonus, not exceeding 35%
of his base salary (payable in cash and shares of Class A Common Stock), as
determined by the Chief Executive Officer, subject to approval of the
Compensation Committee. The amount of the bonus award for 1997 was $50,000. The
Agreement provided for stock options of 25,000 shares of Class A Common Stock
which were granted in August, 1995. The Agreement also provides for medical,
life insurance, 401(k)plan and other employee benefits, a covenant not to
compete during the term of the Agreement and for a two-year period thereafter,
and for one year's continuation of then-current base salary and annual incentive
award at the rates in effect on the date of termination of his employment by the
Company without cause.
Mr. Odak, Chief Executive Officer, has a three year Employment Agreement with
the Company dated December 31, 1996. Under the terms of the Agreement, Mr. Odak
is entitled to a base salary of $300,000 per annum, subject to increases from
time to time by the Board of Directors, in its sole discretion. Mr. Odak
received, non-incentive stock options to purchase an aggregate of 360,000 shares
of Class A Common Stock of the Company exercisable at $10.88 per share, the fair
market value on the dates of grant by the Compensation Committee of the Board of
Directors under the 1995 Equity Incentive Plan. These options become exercisable
at various dates specified in the Employment Agreement, subject to acceleration
of vesting as to specified amounts in the event that certain financial goals are
achieved and the Compensation Committee makes certain findings with respect to
Mr. Odak's performance in the applicable prior year, all as specified in detail
in the Employment Agreement.
The Employment Agreement may be terminated at any time by the Company for cause,
as defined. If terminated for cause, the Company shall have no further
obligation to Mr. Odak, other than for base salary through the date of
termination, and any options that are vested shall continue to be exercisable
for thirty days (unless terminated by the vote of the Compensation Committee).
All other options terminate.
The Company may also terminate the Employment Agreement Other Than For Cause, in
which event the Company has a continuing obligation to pay Mr. Odak his base
amount at the rate in effect on the date of termination for the monthly periods
specified in the Agreement, which are dependent upon the date of such
termination. Additionally, the Company will continue to contribute, for the
period during which the base amount is continued, the cost of Mr. Odak's
participation (including his family) in the Company's group medical and
hospitalization insurance plans and group life insurance plan. Upon such
termination, unvested options shall become exercisable to the extent so provided
by the Agreement.
Mr. Odak may terminate his employment with the Company for good reason, as
defined (in the absence of cause). In the event of such termination, base
amount, benefits and options (including acceleration, period of exercisablilty
and termination of options) shall be paid or provided in the same manner and
extent as for a termination by the Company Other Than For Cause.
Mr. Odak agrees not to compete with the Company during his period of employment
and, after termination, for the greater of one year or the period during which
severance payments are made.
Copies of the above described Agreements have been filed as exhibits to this
Report on Form 10-K and the above descriptions are qualified by the definitive
terms of the Agreements so filed as exhibits.
During the year ended December 27, 1997, the Company purchased Rain Forest
Crunch cashew-brazilnut buttercrunch candy to be included in Ben & Jerry's Rain
Forest Crunch flavor ice cream for an aggregate purchase price of approximately
$800,000 from Community Products, Inc., a company of which Messrs. Cohen and
Furman were the principal stockholders and directors. The candy was purchased
from Community Products, Inc. at competitive prices and on standard terms and
conditions. Community Products, Inc. filed for protection under Chapter 11 of
the US Bankruptcy Code in early 1997, its business was sold and the matter (and
related litigation) is pending in US Bankruptcy Court. Ben & Jerry's located an
alternative supplier for cashew-brazilnut buttercrunch. The termination of Ben &
Jerry's relationship with Community Products, Inc. had no material effect on the
Company's business.
In 1997, the Company paid a $60,000 fee to The Kaleel Jamison Consulting Group,
Inc. for its role in the Company's hiring of Mr. Richard Doran, Senior Director
of Human Resources. Mr. Frederick A. Miller, a director of the Company, is
President of Kaleel Jamison Consulting Group, Inc. Prior to joining the Company
Mr. Doran was an employee of Kaleel Jamison Consulting Group, Inc.
In December 1997, the Company advanced $140,000 to Mr. Lawrence E. Benders,
Chief Marketing Officer, under a non-interest bearing bridge loan for the
purchase of his home in Vermont. In January 1998 this bridge loan was paid in
full by Mr. Benders.
During 1997, the Company paid $20,000 to Mr. Andrew Patti for services as
Chairman of the Executive Committee.
[Enlarge/Download Table]
Item 14. Exhibits, Financial Statements, and Financial Statement Schedule, and
Reports on Form 8-K
(a) List of financial statements and financial statement
schedule: Form 10-K
Page No.
(1) The following consolidated financial statements are included in
Item 8:
Consolidated Balance Sheets as of December
27, 1997 and December 28, 1996 F-2
Consolidated Statements of
Operations for the years ended December 27, 1997, December 28,
1996, and December 30,1995 F-3
Consolidated Statements of Stockholders'
Equity for the years ended December 27, 1997,
December 28, 1996 and December 30, 1995 F-4
Consolidated Statements of Cash Flows for
the years ended December 27, 1997, December 28,
1996 and December 30, 1995 F-5
Notes to Consolidated Financial Statements F-6 to
F-15
(2) The following financial statement schedule
is included in Item 14 (d) F-16
SCHEDULE II - Valuation and Qualifying
Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable, and therefore have been omitted.
(3) The following designated exhibits are, as indicated below, either
filed herewith or have heretofore been filed with the Securities
and Exchange Commission under the Securities Act of 1933
or the Securities Exchange Act of 1934 and are referred to
and incorporated herein by reference to
such filings.
Exhibit No.
3.1 Articles of Association, as amended, of the
Company (filed with the Securities and Commission
as Exhibit 3.1 and 3.1.1 to the Company's Registration
Statement on Form-1 (File No. 33-284) and incorporated
herein by reference).
3.1.1 Amendment to Articles of Association on June 27, 1987 (filed as
Exhibit 1 to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1987 and incorporated herein by
reference).
3.1.2 Amendment to Articles of Association on September 7, 1993 (filed
as Exhibit 1 to the Company's Quarterly Report on Form 10-Q for
the period ended June 26, 1993 and incorporated herein by
reference).
3.1.3 Amendment to Articles of Association on August 4, 1995 (filed as
Exhibit 3.1.3 to the Company's Quarterly Report on Form 10-Q for
the period ended July 1, 1995 and incorporated herein by
reference).
3.1.4 Amendment to Articles of Association approved June 28,
1997(filed herewith).
3.2 By-laws as amended through November 10, 1995 (filed as Exhibit
3.2.2 to the Company's Report on Form 10-Q for the period ended
September 30, 1995 and incorporated herein by reference).
3.2.1 Section 2 of Article 5 of the By-laws as amended on January 18,
1996 (filed as Exhibit 3.2.1 to the Company's Form 10-K for the
year ended December 30, 1995 and incorporated herein by
reference).
4.1 See Exhibit 3.1.
4.2 See Exhibit 3.2
4.3 Mortgage and Security Agreement among the State of Vermont, the
Company and the Howard Bank, N.A. (filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-1 (file no. 33-284)
and incorporated herein by reference).
4.4 Guaranty by the Company accepted by the Howard Bank, N.A.,
Trustee, and Marine Midland Bank, N.A., as amended (filed as
Exhibits 4.2 and 4.2.1 to the Company's Registration Statement
on Form S-1 (file no. 33-284) and incorporated herein by
reference), as amended November 20, 1987 (filed as Exhibit 4.4
to the
Company's Registration Statement on Form S-1 (file no. 33-17516)
and incorporated by reference), as amended January 31 and March
10, 1989 (filed as Exhibit 4.4 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1988 and incorporated
herein by reference).
4.4.1 Amendment to item 4.4 dated July 28, 1992 (filed an Exhibit to
the Company's Registration Statement on Form S-3 (file no.
33-51550) and incorporated herein
by reference).
4.5 Loan Agreement and Amendment between the Village of
Waterbury, Vermont and the Company (filed as Exhibit
4.4 to the Company's Registration Statement on Form
S-1(file no. 33-284) and incorporated herein by
reference).
4.6 Second Mortgage and Security Agreement dated December
11, 1984 between the Company and the Village of
Waterbury, Vermont (filed as Exhibit 4.5 to the
Company's Registration Statement on Form S-1 (file no.
33-284)and incorporated herein by reference).
4.7 Grant Agreement between the Secretary of Housing and
Urban Development and the Village of Waterbury,
Vermont dated September 15, 1984 (filed as Exhibit 4.6 to the
Company's Registration Statement on Form S-1 (file no.33-284)
and incorporated herein by reference).
4.8 Form of Class A Common Stock Certificate (filed as
Exhibit 4.8 to the Company's Registration Statement on
Form S-1 (file no. 33-17516) and incorporated herein
by reference).
4.9 Form of Class B Common Stock Certificate (filed as
Exhibit 4.9 to the Company's Registration Statement on
Form S-1 (file no. 33-17516) and incorporated herein
by reference).
4.11 Senior Note Agreement dated as of October 13, 1993
between Ben & Jerry's Homemade, Inc. and The Travelers
Insurance Company and Principal Mutual Life Insurance
Company (filed as Exhibit 1 to the Company's Quarterly
Report on Form 10-Q for the period ended September 25,
1993 and incorporated herein by reference).
The registrant agrees to furnish a copy to the Commission upon
request of any other instrument with respect to long-term debt
(not filed as an exhibit), none of which relates to securities
exceeding 10% of the total assets of the registrants.
10.1 Employment Agreement dated as of January 29, 1998 between
Bennett R. Cohen and the Company (filed herewith).
10.4 Employment Agreement dated as of January 29, 1998 between Jerry
Greenfield and the Company (filed herewith).
10.5 Settlement Agreement dated March 20, 1985 between the
Company and Haagen-Dazs, Inc. (filed as Exhibit 10.8
to the Company's Registration Statement on Form S-1
(file no. 33-284) and incorporated herein by
reference).
10.8 Distribution Agreement between the Company and
Dreyer's Grand Ice Cream, Inc. dated January 6, 1987
(filed as Exhibit 10.13 to the Company's Annual
Report on Form 10-K For the year ended December 31,
1986 and incorporated herein by reference), as amended as of
January 20, 1989 (filed as Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1988 and
incorporated herein by reference).
10.8.1 Amendment to Item 10.8 dated August 31, 1992 (filed as Exhibit
28.1 to the Company's Registration Statement on Form S-3 (file
no. 33-51550) and incorporated here-in by reference).
10.8.2 Amendment to Item 10.8 dated April 18, 1994 filed as Exhibit 2
to the Company's Quarterly Report on Form 10-Q dated March 26,
1994 and incorporated here-in by reference).
10.9 License Agreement between the Company and Jerry Garcia and
Grateful Dead Productions, Inc. dated July 26, 1987(filed as
Exhibit 10.15 to the Company's Registration Statement on Form
S-1 (file no. 33-17516) and incorporated herein by reference).
10.15 Franchise Agreement between the Company and BJ O/R, a
California limited partnership, dated June 9, 1993
(filed as Exhibit 2 to the Company's Quarterly Report
on Form 10-Q for the period ended June 26, 1993 and
incorporated herein by reference).
10.19 1986 Restricted Stock Plan (filed as Exhibit 10.19 to
the Company's Annual Report on Form 10-K for the year
ended December 30, 1989 and incorporated herein by
reference).
10.20 1986 Employee Stock Purchase Plan (filed as Exhibit 4
to the Company's Registration Statements on Form S-8
(file nos. 33-9420 and 33-17594) and incorporated
herein by reference).
10.20.1 Amendment to Employee Stock Purchase Plan dated on August 4,
1995 (filed as Exhibit 10.20.1 on Form 10-Q for the period ended
July 1, 1995 and incorporated herein by reference).
10.21 1985 Stock Option Plan (filed as Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the year
ended December 30, 1989 and incorporated herein by
reference).
10.21.1 1994 Amendment to 1985 Stock Option Plan (filed as Exhibit
10.21.1 to the Company's Annual Report on Form 10-K for the year
ended December 30, 1994 and incorporated herein by reference).
10.22 Ben & Jerry's Homemade, Inc. Employees' Retirement
Plan as amended (filed as Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year
ended December 30, 1989 and incorporated herein by
reference).
10.22.1 Amendment to Item 10.22 dated January 1, 1990 (filed as Exhibit
10.22.1 to the Company's Report on Form 10-K for the year ended
December 29, 1991 and incorporated herein by reference).
10.22.2 Amendment to Item 10.22 dated June 28, 1990 (filed as Exhibit
10.22.2 to the Company's Report on Form 10-K for the year ended
December 25, 1993 and incorporated herein by reference).
10.22.3 Amendment to Item 10.22 dated January 1, 1991 (filed as Exhibit
10.22.3 to the Company's Report on Form 10-K for the year ended
December 25, 1993 and incorporated herein by reference).
10.23 1991 Restricted Stock Plan (filed as Exhibit 10.23 to
the Company's Report on Form 10-K for the year ended
December 25, 1993 and incorporated herein by
reference).
10.24 Severance/Non-Competition Agreement dated as of
December 31,1990 between Jeffrey Furman and the
Company (filed as Exhibit 10.24 to the Company's
Report on Form 10-K for the year ended December 25,
1993 and incorporated herein by reference).
10.27 1992 Non-employee Directors' Restricted Stock Plan
(filed as Exhibit 10.27 to the Company's Annual Report
on Form 10-K for the year ended December 25, 1993 and
incorporated herein by reference).
10.29 1995 Equity Incentive Plan (filed as Exhibit 10.29 to the
Company's Quarterly Report on Form 10-Q for the period ended
July 1, 1995 and incorporated herein by reference).
10.30 Non-Employee Director's Plan For Stock In Lieu of
Directors' Cash Retainer Dated August 4, 1995 (filed
as Exhibit 10.30 to Form 10-Q quarter ended July 1,
1995 and incorporated herein by reference).
10.31 Employment Agreement dated August 21, 1995 between the
Company and Bruce Bowman (filed as Exhibit 10.31 to
the Company's Form 10-K for the year ended December
30, 1995 and incorporated herein by reference).
10.32 Lease dated February 1, 1996 between the Company and
Technology Park Associates, Inc. (filed as Exhibit
10.31 to the Company's Form 10-K for the year ended
December 30, 1995 and incorporated herein by
reference).
10.33 Employment Agreement dated December 31, 1996 between
the Company and Perry D. Odak (filed as
Exhibit 10.33 to the Company's Form 10-K for the year
ended December 28, 1996 and incorporated herein by
Reference).
10.34 Employment Agreement dated January 1, 1998 between the Company
and Angelo M. Pezzani (filed herewith).
10.35 Employment Agreement dated October 20, 1997 between the Company
and Lawrence Benders (filed herewith).
10.36 Importation and Marketing Agreement between the Company,
Seven-Eleven Japan Co., Ltd.,Tower Enterprise Corporation and
ATF Co., Ltd. dated December 19, 1997 (filed herewith)
11.0 The Computation of Per Share Earnings is incorporated by
reference from Note 10 of the Company's consolidated financial
statements(filed herewith).
21.1 Subsidiaries of the registrant as of December 27,1997
(filed herewith).
23.0 Consent of Ernst & Young LLP (filed herewith).
27.0 Financial Data Schedule (filed herewith).
(b) No Current Reports on Form 8-K were filed during the fourth
quarter of 1997
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BEN & JERRY'S HOMEMADE, INC.
Dated: March 25, 1998 By: /s/ Frances Rathke
------------------
Frances Rathke
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the date indicated.
March 25, 1998 /s/ Elizabeth Bankowski
Elizabeth Bankowski
Director, Director of Social Mission
Development
March 25, 1998 /s/ Bennett R. Cohen
Bennett R. Cohen
Director and Chairperson
March 25, 1998 /s/Pierre Ferrari
Pierre Ferrari
Director
March 25, 1998 /s/ Jeffrey Furman
Jeffrey Furman
Director
March 25, 1998 /s/ Jerry Greenfield
Jerry Greenfield
Director and Vice Chairperson
March 25, 1998 /s/ Jennifer Henderson
Jennifer Henderson
Director
March 25, 1998 /s/ Frederick A. Miller
Frederick A. Miller
Director
March 25, 1998 /s/ Henry Morgan
Henry Morgan
Director
March 25, 1998 /s/Perry D. Odak
Director, Principal Executive Officer
And President
March 25, 1998 /s/Andrew S. Patti
Andrew S. Patti
Director
March 25, 1998 /s/ Frances Rathke
Frances Rathke
Principal Financial Officer and
Principal Accounting Officer
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) and (2), (c) and(d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 27, 1997
BEN & JERRY'S HOMEMADE INC.
SOUTH BURLINGTON, VERMONT
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
[Enlarge/Download Table]
Report of Independent Auditors............................................................................F-1
Consolidated Balance Sheets as of December 27, 1997 and December 28, 1996.................................F-2
Consolidated Statements of Operations for the years ended December 27, 1997,
December 28, 1996, and December 30, 1995................................................................F-3
Consolidated Statements of Stockholders' Equity for the years ended December 27, 1997,
December 28, 1996, and December 30, 1995................................................................F-4
Consolidated Statements of Cash Flows for the years ended December 27, 1997,
December 28, 1996, and December 30, 1995................................................................F-5
Notes to Consolidated Financial Statements................................................................F-6 to
F-15
Financial Schedule:
SCHEDULE II - Valuation and Qualifying Accounts...........................................................F-16
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Ben & Jerry's Homemade, Inc.
We have audited the accompanying consolidated balance sheets of Ben & Jerry's
Homemade, Inc. as of December 27, 1997 and December 28, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 27, 1997. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Ben &
Jerry's Homemade, Inc. at December 27, 1997 and December 28, 1996 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 27, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Boston, Massachusetts
January 23, 1998
F-1
Ben & Jerry's Homemade, Inc.
Consolidated Balance Sheets
(In thousands except share data)
[Enlarge/Download Table]
December 27, December 28,
1997 1996
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 47,318 $ 36,104
Marketable securities 481 466
Trade accounts receivable
(less allowance of $1,066 in 1997
and $695 in 1996 for doubtful accounts) 12,710 8,684
Inventories, net 11,122 15,365
Deferred income taxes 6,071 4,099
Prepaid expenses and other current assets 2,378 3,395
----------- -----------
Total current assets 80,080 68,113
----------- -----------
Property, plant and equipment, net 62,724 65,104
Investments 1,061 1,000
Other assets 2,606 2,448
----------- -----------
$ 146,471 $ 136,665
=========== ===========
Liabilities & Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 23,266 $ 17,398
Current portion of long-term debt and
capital lease obligations 5,402 660
----------- -----------
Total current liabilities 28,668 18,058
Long-term debt and capital lease obligations 25,676 31,087
Deferred income taxes 5,208 4,835
Commitments and contingencies
Stockholders' equity:
$1.20 noncumulative Class A preferred stock -
$1.00 par value, redeemable at the Company's option
at $12.00 per share; 900 shares authorized,
issued and outstanding, aggregate preference
on voluntary or involuntary liquidation - $9,000 1 1
Class A common stock - $.033 par value; authorized
20,000,000 shares; issued: 6,494,835 shares at
December 27, 1997 and 6,364,733 shares at
December 28, 1996 214 210
Class B common stock - $.033 par value; authorized
3,000,000 shares; issued: 866,235 shares at
December 27, 1997, and 897,664 shares at
December 28, 1996 29 29
Additional paid-in capital 49,681 48,753
Retained earnings 39,086 35,190
Cumulative translation adjustment (129) ( 118)
Treasury stock, at cost: 124,532 Class A and 1,092 Class B
shares at December 27, 1997 and 67,032 Class A and 1,092
Class B shares at December 28, 1996 (1,963) ( 1,380)
---------- ----------
Total stockholders' equity 86,919 82,685
----------- -----------
$ 146,471 $ 136,665
=========== ===========
See accompanying notes.
F-2
Ben & Jerry's Homemade, Inc.
Consolidated Statements of Operations
(In thousands except per share data)
[Enlarge/Download Table]
Years Ended
Dec. 27, 1997 Dec. 28, 1996 Dec.30, 1995
------------- ------------- ------------
Net sales $ 174,206 $ 167,155 $ 155,333
Cost of sales 114,284 115,212 109,125
------------- ------------- -------------
Gross profit 59,922 51,943 46,208
Selling, general and administrative expenses 53,520 45,531 36,362
Other income (expense):
Interest income 1,938 1,676 1,681
Interest expense (1,992) (1,996) (1,525)
Other (64) 243 (597)
-------------- -------------- -------------
(118) (77) (441)
-------------- -------------- -------------
Income before income taxes 6,284 6,335 9,405
Income taxes 2,388 2,409 3,457
------------- -------------- -------------
Net income $ 3,896 $ 3,926 $ 5,948
============= ============= =============
Basic earnings per share $ 0.54 $ 0.55 $ 0.83
Diluted earnings per share $ 0.53 $ 0.54 $ 0.82
See accompanying notes.
F-3
Ben & Jerry's Homemade, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands except share data)
[Enlarge/Download Table]
Preferred
Stock Common Stock
----- ------------
Class A Class B Additional Cumulative
Par Par Par Paid-in Retained Translation
Value Value Value Capital Earnings Adjustment
----- ----- ----- ------- -------- ----------
Balance at December 31, 1994 $ 1 $ 208 $ 31 $48,366 $25,316 $ 0
Net income (loss) 5,948
Common stock issued under stock
purchase plan (21,599 Class A shares) 174
Conversion of Class B shares to Class A
shares (18,123 shares) 1 (1)
Common stock issued under restricted
stock plan (2,000 Class A shares) (19)
Foreign currency translation adjustment (114)
--- --- -- ------ ------ ----
Balance at December 30, 1995 1 209 30 48,521 31,264 (114)
Net income 3,926
Common stock issued under stock
purchase plan (15,674 Class A shares) 205
Conversion of Class B shares to Class A
shares (16,661 shares) 1 (1)
Common stock issued under restricted
stock plan (2,096 Class A shares) 27
Foreign currency translation adjustment (4)
- --- -- ------ ------ ----
Balance at December 28, 1996 1 210 29 48,753 35,190 (118)
Net income 3,896
Common stock issued under stock
purchase plan (15,406 Class A shares) 1 148
Conversion of Class B shares to Class A
shares (31,451 shares) 1
Common stock issued under stock and
option plans (83,267 Class A shares) 2 907
Repurchase of common stock
(77,500 Class A shares)
Issuance of treasury stock for compensation
(20,000 Class A shares) (127)
Foreign currency translation adjustment (11)
------- ------- ---- ------- ------- -----
Balance at December 27, 1997 $ 1 $ 214 $ 29 $49,681 $39,086 $(129)
======= ======= ==== ======= ======= =====
Treasury Stock
-------------- Total
Class A Class B Stock-
holders'
Cost Cost Equity
---- ---- ------
Balance at December 31, 1994 $(1,415) $ (5) $ 72,502
Net income (loss) 5,948
Common stock issued under stock
purchase plan (21,599 Class A shares) 174
Conversion of Class B shares to Class A
shares (18,123 shares)
Common stock issued under restricted
stock plan (2,000 Class A shares) 40 21
Foreign currency translation adjustment (114)
-- -- ---
Balance at December 30, 1995 (1,375) (5) 78,531
Net income 3,926
Common stock issued under stock
purchase plan (15,674 Class A shares) 205
Conversion of Class B shares to Class A
shares (16,661 shares)
Common stock issued under restricted
stock plan (2,096 Class A shares) 27
Foreign currency translation adjustment (4)
------ -- ------
Balance at December 28, 1996 (1,375) (5) 82,685
Net income 3,896
Common stock issued under stock
purchase plan (15,406 Class A shares) 149
Conversion of Class B shares to Class A
shares (31,451 shares) 1
Common stock issued under stock and
option plans (83,267 Class A shares) 909
Repurchase of common stock
(77,500 Class A shares) (988) (988)
Issuance of treasury stock for compensation
(20,000 Class A shares) 405 278
Foreign currency translation adjustment (11)
------- ------- --------
Balance at December 27, 1997 $(1,958) $ (5) $ 86,919
======= ======= ========
See accompanying notes.
F-4
Ben & Jerry's Homemade, Inc.
Consolidated Statements of Cash Flows
(In thousands)
[Enlarge/Download Table]
Years Ended
December 27, December 28, December 30,
1997 1996 1995
------------ ------------ ------------
Cash flows from operating activities:
Net income $ 3,896 $ 3,926 $ 5,948
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization 7,711 7,091 5,928
Deferred income taxes (1,599) 809 2,166
Provision for doubtful accounts 630 408 400
Loss on disposition of assets 124 10 171
Stock compensation 405 21
Changes in assets and liabilities:
Accounts receivable (5,318) 3,146 ( 1,009)
Income taxes receivable/payable 1,743 ( 89) ( 733)
Inventories 4,243 ( 2,749) 847
Prepaid expenses (64) 897 ( 563)
Accounts payable and accrued expenses 5,868 806 2,677
----------- ------------ -----------
Net cash provided by operating activities 17,639 14,255 15,853
Cash flows from investing activities:
Additions to property, plant and equipment (5,236) ( 12,333) ( 7,532)
Proceeds from sale of property, plant
and equipment 48 168 96
(Increase) decrease in investments (76) ( 466) 7,000
Changes in other assets (425) ( 320) (303)
----------- ------------ ------------
Net cash used for investing activities (5,689) ( 12,951) (739)
Cash flows from financing activities:
Repayments of long-term debt and
capital leases (669) (678) (547)
Repurchase of common stock (988)
Net proceeds from issuance of common stock 932 232 174
----------- ------------ -----------
Net cash used for financing activities (725) ( 446) ( 373)
Effect of exchange rate changes on cash (11) (160) ( 113)
----------- ------------ ------------
Increase in cash and cash equivalents 11,214 698 14,628
Cash and cash equivalents at beginning of year 36,104 35,406 20,778
----------- ------------ ----------
Cash and cash equivalents at end of year $ 47,318 $ 36,104 $ 35,406
=========== ============ ===========
See accompanying notes.
F-5
Ben & Jerry's Homemade, Inc.
Notes to Consolidated Financial Statements
Dollars in tables in thousands except share data
1. SIGNIFICANT ACCOUNTING POLICIES
Business
Ben & Jerry's Homemade, Inc. (the Company) makes and sells super premium ice
cream and other frozen dessert products through distributors and directly to
retail outlets primarily located in the United States and selected foreign
countries, including Company-owned and franchised ice cream parlors.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
all its wholly-owned subsidiaries. Intercompany accounts and transactions have
been eliminated.
Use of Estimates
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out method.
Cash Equivalents
Cash equivalents represent highly liquid investments with maturities of three
months or less at date of purchase.
Investments
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Marketable equity securities and debt securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with the unrealized gains and losses, net
of tax, reported in a separate component of shareholders' equity. The amortized
cost of debt securities in this category is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in interest income. Held-to-maturity securities are stated at amortized cost,
adjusted for amortization of premium and accretion of discounts to maturity.
Such amortization is included in interest income. Realized gains and losses and
declines in value judged to be other-than-temporary on available-for-sale
securities are included in income. The cost of securities sold is based on the
specific identification method. Interest and dividends on securities classified
as available-for-sale are included in interest income.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to significant
concentration of credit risk, consist of cash and cash equivalents, investments
and trade accounts receivable. The Company places its investments in highly
rated financial institutions, obligations of the United States Government and
investment grade short-term instruments. No more than 20% of the total
investment portfolio is invested in any one issuer or guarantor other than
United States Government instruments which limits the amount of credit exposure.
The Company sells its products primarily to well established frozen dessert
distribution or retailing companies throughout the United States and Europe. The
Company's most significant customer, Dreyer's Grand Ice Cream, Inc., accounted
for 57%, 55%, and 47% of net sales in 1997, 1996 and 1995 respectively. The
Company performs ongoing credit evaluations of its customers and maintains
reserves for potential credit losses. Historically, the Company has not
experienced significant losses related to investments or trade receivables.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation, including
amortization of leasehold improvements, is computed using the straight-line
method over the estimated useful lives of the related assets. Amortization of
assets under capital leases is computed on the straight-line method over the
lease term and is included in depreciation expense.
Other Assets
Other assets include intangible and other noncurrent assets. Intangible assets
are reviewed for impairment based on an assessment of future operations to
ensure that they are appropriately valued. Intangible assets are amortized on a
straight-line basis over their estimated economic lives.
F-6
Ben & Jerry's Homemade, Inc.
Notes to Consolidated Financial Statements
Dollars in tables in thousands except share data
Translation of Foreign Currencies
Assets and liabilities of the Company's foreign operations are translated into
United States dollars at exchange rates in effect on the balance sheet date.
Income and expense items are translated at average exchange rates prevailing
during the year. Translation adjustments are accumulated as a separate component
of stockholders' equity. Transaction gains or losses are recognized as other
income or expense in the period incurred. Translation and transaction gains or
losses have been immaterial for all periods presented.
Foreign Currency Hedging
The Company hedges foreign currency risks by entering into forward contracts at
the beginning of each month to hedge foreign currency denominated sales for that
month. Realized and unrealized gains or losses on contracts that hedge
anticipated cash flows are determined by comparison of contract values upon
execution (realized) and at each balance sheet for open contracts (unrealized).
Resulting gains and losses are recognized at the balance sheet date as other
income or expense for the period. Transaction gain or losses have been
immaterial for all periods presented.
Revenue Recognition
The Company recognizes revenue and the related costs when product is shipped.
The Company recognizes franchise fees as income for individual stores when
services required by the franchise agreement have been substantially performed
and the store opens for business. Franchise fees relating to area franchise
agreements are recognized in proportion to the number of stores for which the
required services have been substantially performed. Franchise fees recognized
as income and included in net sales were approximately $553,000, $301,000, and
$166,000 in 1997, 1996 and 1995, respectively.
Advertising
Advertising costs are expensed as incurred. Advertising expense (excluding
cooperative advertising with distribution companies) amounted to approximately
$6.7 million, $3.4 million, and $1.1 million for the years ended December 27,
1997, December 28, 1996, and December 30, 1995, respectively.
Income Taxes
The Company accounts for income taxes under the liability method in accordance
with Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Under the liability method, deferred tax liabilities and assets are
recognized for the tax consequences of temporary differences between the
financial reporting and tax bases of assets and liabilities.
Stock Based Compensation
The Company grants stock options for a fixed number of shares with an exercise
price equal to the fair value of the shares at the date of the grant. The
Company accounts for employee stock option grants in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees". Accordingly, no compensation
expense for stock option grants to employees is recognized.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share (FAS 128). FAS 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants or convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the FAS 128
requirements.
Impact of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income (FAS 130) and Statement No. 131, Disclosure About
Segments of an Enterprise and Related Information (FAS 131). FAS 130 establishes
standards for reporting and displaying comprehensive income and its components.
FAS 131 establishes standards for public companies to report information about
operating segments in financial statements, and supercedes FAS 14, Financial
Reporting for Segments of a Business Enterprise, but retains the requirements to
report information about major customers. FAS 130 and FAS 131 are effective for
the Company in fiscal 1998. The Company does not believe the adoption of these
Statements will have a material effect on the Company's financial statements.
F-7
2. CASH, MARKETABLE SECURITIES AND INVESTMENTS
The Company's cash and investments in debt securities are carried at fair value
which approximates cost, or amortized cost, as summarized below:
1997 1996
---- ----
Municipal bonds $ 45,568 $ 14,900
U.S. corporate securities 12,980
------- ------
Total debt securities available-for-sale 45,568 27,880
Cash, cash equivalents and other investments 3,292 9,690
--------- ---------
Total cash, cash equivalents and investments $ 48,860 $ 37,570
========= =========
All debt securities at December 27, 1997 and December 28, 1996 have maturities
of less than twelve months. At December 27, 1997 investments totaling $1,542,000
were classified as held-to-maturity and classified as investments.
Investments in debt securities mature at par in thirty to forty-five day
intervals, at which time the stated interest rates are reset at the then market
rate. Gross purchases and maturities aggregated $43,088,000 and $25,400,000 in
1997, $61,100,000 and $63,922,000 in 1996, and $94,500,000 and $83,525,000 in
1995, respectively.
3. INVENTORIES
1997 1996
---- ----
Ice cream and ingredients $ 10,294 $ 14,221
Paper goods 536 492
Food, beverages, and gift items 292 652
-------------- -------------
$ 11,122 $ 15,365
============== =============
The Company purchased certain ingredients from a company owned by the Company's
Chairperson and a member of the Board of Directors which amounted to
approximately $800,000 for 1997, $1,000,000 for 1996 and $1,500,000 for 1995.
4. PROPERTY, PLANT AND EQUIPMENT
[Download Table]
Estimated
Useful Lives/
1997 1996 Lease Term
---- ---- ----------
Land and improvements $ 4,520 $ 4,481 15-25 years
Buildings 37,650 37,533 25 years
Equipment and furniture 44,609 47,978 3-20 years
Leasehold improvements 3,221 3,153 3-10 years
Construction in progress 2,676 758
-------------- --------------
92,676 93,903
Less accumulated depreciation 29,952 28,799
-------------- --------------
$ 62,724 $ 65,104
============== ==============
Depreciation expense for the years ended December 27, 1997, December 28, 1996
and December 30, 1995 was $7,444,000, $6,650,000, and $5,578,000, respectively.
F-8
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
[Download Table]
1997 1996
---- ----
Trade accounts payable $ 3,832 $ 4,337
Accrued expenses 10,313 7,350
Accrued payroll and related costs 2,076 2,152
Accrued promotional costs 3,581 2,076
Accrued marketing costs 2,230 732
Accrued insurance expense 1,234 751
--------- ---------
$ 23,266 $ 17,398
========= =========
6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
[Enlarge/Download Table]
1997 1996
---- ----
Senior Notes - Series A payable in annual installments beginning
in 1998 through 2003 with interest payable semiannually at 5.9% $ 20,000 $ 20,000
Senior Notes - Series B payable in annual installments beginning
in 1998 through 2003 with interest payable semiannually at 5.73% 10,000 10,000
Other long-term obligations 1,078 1,747
--------- ---------
31,078 31,747
Less current portion 5,402 660
--------- ---------
$ 25,676 $ 31,087
========= =========
Property, plant and equipment having a net book value of approximately
$17,275,000 at December 27, 1997 are pledged as collateral under certain
long-term debt arrangements.
Long-term debt and capital lease obligations at December 27, 1997 maturing in
each of the next five years and thereafter are as follows:
[Download Table]
Capital lease Long-term
obligations debt
1998 $ 15 $ 5,398
1999 15 5,281
2000 15 5,064
2001 248 5,040
2002 5,033
Thereafter 5,098
--------- ---------
Total minimum payments 293 30,914
Less amounts representing interest 129
--------- ---------
Present value of minimum payments $ 164 $ 30,914
========= =========
The Company capitalized no interest in 1997 or 1996. Interest of approximately
$497,000 was capitalized in 1995 as part of the acquisition cost of property,
plant and equipment. Interest paid, including interest capitalized, amounted to
$1,975,000, $1,973,000, and $2,023,000 for 1997, 1996, and 1995, respectively.
The Company has available two $10,000,000 unsecured working capital line of
credit agreements with two banks. Interest on borrowings under the agreements is
set at the banks' Base Rate or at the Eurodollar Rate plus a maximum of up to
1.25%. The agreements expire September 29, 1998 and December 29, 1998,
respectively, and any outstanding borrowings are due at that time. No amounts
were borrowed under these or any bank agreements during 1997, 1996, and 1995.
F-9
Certain of the debt agreements contain certain restrictive covenants requiring
maintenance of minimum levels of working capital, net worth and debt to
capitalization ratios. As of December 27, 1997 the Company was in compliance
with the provisions of these agreements. Under the most restrictive of these
covenants, distributions are limited to an amount of $5,000,000 plus 75% of
earnings and 100% of net losses since June 30, 1993; approximately $15,964,000
of retained earnings at December 27, 1997 was available for payment of
dividends.
The carrying amounts and fair values of the Company's financial instruments are
as follows:
1997 1996
---------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Long-term debt 31,078 29,734 31,747 29,862
7. STOCKHOLDERS' EQUITY
The Class A Preferred Stock has one vote per share on all matters on which it is
entitled to vote and is entitled to vote as a separate class in certain business
combinations, such that approval of two-thirds of the class is required for such
business combinations. The Class A Preferred Stock is redeemable by the Company,
by vote of the Continuing Directors (as defined in the Articles of Association).
The Class A Common Stock has one vote per share on all matters on which it is
entitled to vote. In June 1987, the Company's shareholders adopted an amendment
to the Company's Articles of Association that authorized 3,000,000 shares of a
new Class B Common Stock and redesignated the Company's existing Common Stock as
Class A Common Stock. The Class B Common Stock has ten votes per share on all
matters on which it is entitled to vote, except as may be otherwise provided by
law, is generally non-transferable and is convertible into Class A Common Stock
on a one-for-one basis. A stockholder who does not wish to complete the prior
conversion process may effect a sale by simply delivering the certificate for
such shares of Class B Stock to a broker, properly endorsed. The broker may then
present the certificate to the Company's Transfer Agent which, if the transfer
is otherwise in good order, will issue to the purchaser a certificate for the
number of shares of Class A Stock thereby sold.
8. STOCK BASED COMPENSATION PLANS The Company maintains two Stock Option Plans:
The 1985 Option Plan provides for the grant of incentive and non-incentive stock
options to employees or consultants. The 1985 Option Plan provides that options
granted are exercisable at the market value on the date of grant. The 1985
option plan expired in August 1995. While the Company grants options which may
become exercisable at different times or within different periods, the Company
has generally granted options to employees which vest over a period of four,
five, or eight years, and in some cases subject to acceleration of vesting. The
exercise period cannot exceed ten years from the date of grant. At December 27,
1997, no shares of Class A Common Stock were available for grant under the 1985
Option Plan for additional grants.
[Enlarge/Download Table]
Weighted Average
Number of Exercise Price Option Price
A summary of the 1985 Option Plan activity is as follows : Options Per Share Per Share
------- --------- ---------
Outstanding at December 31, 1994 162,308 $ 16.75 $ 16.75 - $ 16.75
Granted 215,000 11.17 10.63 - 14.00
Exercised - 0.00 0.00 - 0.00
Forfeited (19,871) 16.75 16.75 - 16.75
--------- --------- ----------------------
Outstanding at December 30, 1995 357,437 $ 13.40 $ 10.63 - $ 16.75
Granted - 0.00 0.00 - 0.00
Exercised - 0.00 0.00 - 0.00
Forfeited (109,819) 11.34 10.81 - 16.75
--------- --------- ----------------------
Outstanding at December 28, 1996 247,618 $ 14.31 10.63 - 16.75
Granted - 0.00 0.00 - 0.00
Exercised (80,000) 10.81 10.81 - 10.81
Forfeited (10,807) 16.75 16.75 - 16.75
--------- --------- ----------------------
Outstanding at December 27, 1997 156,811 $ 15.92 $ 10.63 - $ 16.75
========= ========= ========= ========
Options vested at December 27, 1997 76,510 $ 15.05 $ 10.63 - $ 16.75
========= ========= ========= ========
F-10
The 1995 Equity Incentive Plan provides for the grant to employees, and other
key persons or entities, including non-employee directors who are in the
position, in the opinion of the Compensation Committee, to make a significant
contribution to the success of the Company, of incentive and non-incentive stock
options, stock appreciation rights, restricted stock, unrestricted stock awards,
deferred stock awards, cash or stock performance awards, loans or supplemental
grants, or combinations thereof. While the Company grants options which may
become exercisable at different times or within different periods, the Company
has generally granted options to employees which vest over a period of four,
five, or six years, and in some cases subject to acceleration of vesting upon
specified terms. The exercise period cannot exceed ten years from the date of
grant. At December 27, 1997, 146,000 shares of Class A Common Stock were
available for grant under the 1995 Equity Incentive Plan for additional grants.
[Enlarge/Download Table]
A summary of the 1995 Equity Incentive Plan activity is as follows: Weighted Average
Number of Exercise Price Option Price
Options Per Share Per Share
Outstanding at December 31, 1994 0 $ 0.00 $ 0.00 - 0.00
Granted 25,000 19.00 19.00 - 19.00
Exercised 0 0.00 0.00 - 0.00
Forfeited 0 0.00 0.00 - 0.00
-------- --------- ----------------------
Outstanding at December 30, 1995 25,000 $ 19.00 19.00 - 19.00
Granted 62,500 13.97 12.38 - 16.00
Exercised 0 0.00 0.00 - 0.00
Forfeited 0 0.00 0.00 - 0.00
-------- --------- ----------------------
Outstanding at December 28, 1996 87,500 $ 15.41 12.38 - 19.00
Granted 694,000 12.04 10.88 - 13.89
Exercised 0 0.00 0.00 - 0.00
Forfeited (27,500) 16.00 16.00 - 16.00
-------- --------- ----------------------
Outstanding at December 27, 1997 754,000 $ 12.28 $ 10.88 - $ 19.00
======= ========= ========= ========
Options vested at December 27, 1997 127,042 $ 11.78 $ 10.88 - $ 19.00
======= ========= ========= ========
The Company maintains an Employee Stock Purchase Plan which authorizes the
issuance of up to 300,000 shares of common stock. All employees with six months
of continuous service are eligible to participate in this plan. Participants in
the plan are entitled to purchase Class A Common Stock during specified
semi-annual periods through the accumulation of payroll, at the lower of 85% of
market value of the stock at the beginning or end of the offering period. At
December 27, 1997, 127,744 shares had been issued under the plan and 172,256
shares were available for future issuance.
The Company has a Restricted Stock Plan (the 1992 Plan) which provides that
non-employee directors, on becoming eligible, may be awarded shares of Class A
Common Stock by the Compensation Committee of the Board of Directors. Shares
issued under the plan become vested over periods of up to five years. The
Company has also adopted the 1995 Plan, which provides that non-employee
directors can elect to receive stock in lieu of a Director's annual cash
retainer. In 1997, 2,612 shares were issued to non-employee directors. These
shares vest immediately. At December 27, 1997, a total of 7,363 shares had been
awarded under these plans, all of which were fully vested, and 27,637 shares
were available for future awards. Unearned compensation on unvested shares is
recorded as of the award date and is amortized over the vesting period.
As of December 27, 1997 a total of 345,893 shares are reserved for future grant
or issue under all of the Company's stock plans.
The Company has stock option plans that provide for the grant of options to
purchase shares of the Company's common stock to employees or consultants. The
Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," (FAS 123), requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
The Company has followed FAS 123 for its stock options granted to non-employees
as required.
Pro forma information regarding net income and earnings per share is required by
FAS 123, which also requires that the information be
F-11
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions:
1997 1996 1995
---- ---- ----
Risk-free interest rates 5.53% 6.15% 6.01%
Dividend yield 0.00% 0.00% 0.00%
Expected volatility factor 0.34 0.39 0.35
Weighted average expected lives (in years) 3.6 3.3 3.3
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):
1997 1996 1995
---- ---- ----
Pro forma net income $ 3,600 $ 3,796 $ 5,849
Pro forma earnings per share - diluted $ 0.49 $ 0.53 $ 0.81
Weighted average fair value of
options at the date of grant $ 4.16 $ 4.26 $ 4.33
Exercise prices for options outstanding ranged from $10.63 - $19.00. The
weighted-average remaining contractual life of those options is 8.75 years.
Because FAS 123 is applicable only to options granted subsequent to December 31,
1994, its pro forma effect will not be fully reflected until 1998.
9. INCOME TAXES
The provision for income taxes consists of the following:
Federal: 1997 1996 1995
---- ---- ----
Current $ 3,300 $ 1,348 $ 873
Deferred (1,388) 681 1,695
-------- -------- -------
1,912 2,029 2,568
State:
Current 686 252 418
Deferred (210) 128 471
-------- -------- -------
476 380 889
-------- -------- -------
$ 2,388 $ 2,409 $ 3,457
======== ======== =======
Income taxes computed at the federal statutory rate differ from amounts provided
as follows:
1997 1996 1995
---- ---- ----
Tax at statutory rate 34.0 % 34.0 % 34.0 %
State tax, less federal tax effect 5.0 6.0 4.5
Income tax credits (1.0 ) ( 1.0 ) ( 2.9 )
Tax exempt interest (2.9 ) ( 2.4 ) ( 1.1 )
Other, net 2.9 1.4 2.3
------- ------ -----
Provision for income taxes 38.0 % 38.0 % 36.8 %
======= ====== ====
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for
F-12
financial reporting purposes and the amounts used for income tax purposes and
are attributable to the following:
1997 1996
---- ----
Deferred tax assets:
Accrued liabilities $ 3,872 $ 2,297
Inventories 1,503 944
Accounts receivable 475 526
Other 221 429
--- ---
Total deferred tax assets 6,071 4,196
-------- --------
Deferred tax liabilities:
Depreciation 5,193 4,923
Other 15 9
-------- --------
Total deferred tax liabilities 5,208 4,932
-------- --------
Net deferred tax asset (liabilities) $ 863 $ (736)
========= ========
Income taxes paid amounted to $2,244,000, $1,716,000 and $1,918,000 during 1997,
1996 and 1995, respectively.
10. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
[Enlarge/Download Table]
1997 1996 1995
---- ---- ----
Numerator:
Numerator for basic and diluted earnings
per share - income available to common stockholders $3,896 $ 3,926 $ 5,948
------ ------- -------
Denominator:
Denominator for basic earnings per share -
weighted-average shares 7,247 7,189 7,171
Effect of dilutive securities:
Dilutive potential common shares - Employee stock options 87 41 51
------ ------- -------
Denominator for diluted earnings per share-adjusted weighted-average
shares and assumed conversions 7,334 7,230 7,222
====== ======= =======
Basic earnings per share $0.54 $0.55 $0.83
====== ======= =======
Diluted earnings per share $0.53 $0.54 $0.82
====== ======= =======
Options to purchase 146,811 shares of common stock at prices ranging from $16.75
to $19.00 were outstanding during 1997 but were not included in the computation
of diluted earnings per share because the options' exercise price was greater
than the average market price of the common shares and, therefore, the effect
would be antidilutive.
Under an agreement with an outside consultant, if the average of the closing
market value of the stock is in excess of $22.00 per share over a ninety day
period, the consultant would be entitled to purchase 125,000 shares of common
stock at $14.00 per share. These 125,000 additional warrants, which expire on
July 1, 2004, are not included in the computation of diluted earnings per share
because the stock has not exceeded $22.00.
F-13
11. THE BEN & JERRY'S FOUNDATION, INC.
In October 1985, the Company issued 900 shares Class A Preferred Stock to The
Ben & Jerry's Foundation, Inc. (the Foundation), a non-profit corporation
qualified under section 501(c)(3) of the Internal Revenue Code. The primary
purpose of the Foundation is to be the principal recipient of cash contributions
from the Company which are then donated to various community organizations and
other charitable institutions. Contributions to the Foundation and directly to
other charitable organizations, at the rate of approximately 7.5% of income
before income taxes, amounted to approximately $510,000, $514,000 and $768,000
for 1997, 1996 and 1995, respectively.
The Class A Preferred Stock is entitled to vote as a separate class in certain
business combinations, such that approval of two-thirds of the class is required
for such business combinations. The three directors of the Foundation, including
one of the founders of the Company, are members of the Board of Directors of the
Company.
12. EMPLOYEE BENEFIT PLANS
The Company maintains profit sharing and savings plans for all eligible
employees. The Company has also implemented a management incentive program which
provides for discretionary bonuses for management. Contributions to the profit
sharing plan are allocated among all current full-time and regular part-time
employees (other than the co-founders, Chief Executive Officer and Officers that
are Senior Directors of functions) and are allocated fifty percent based upon
length of service and fifty percent split evenly among all employees. The profit
sharing plan and the management incentive plan are informal and discretionary.
Recipients who participate in the management incentive program are not eligible
to participate in the profit sharing plan. The savings plan is maintained in
accordance with the provisions of Section 401(k) of the Internal Revenue Code
and allows all employees with at least twelve months of service to make annual
tax-deferred voluntary contributions up to fifteen percent of their salary. The
Company may match the contribution up to two percent of the employee's gross
annual salary. Total contributions by the Company to the profit sharing,
management incentive program and savings plans were approximately $1,150,000,
$670,000 and $769,000 for 1997, 1996 and 1995, respectively.
13. LEGAL MATTERS
On December 14, 1995, the Company was served with a class action complaint filed
in federal court in Burlington, Vermont. The complaint, captioned Henry G.
Jakobe, Jr. v. Ben & Jerry's Inc., et al., was filed by a Ben & Jerry's
shareholder on behalf of himself and purportedly on behalf of all other Ben &
Jerry's shareholders who purchased the common stock of the Company during the
period from March 25, 1994 through December 19, 1994. Plaintiff alleges that the
Company violated the federal securities laws by making untrue statements of
material facts and omitting to state material facts in 1994, primarily
concerning the Company's construction and start-up of its new manufacturing
facility in St. Albans, Vermont.
On July 1, 1997, the Company entered into a Stipulation and Agreement of
Settlement with the Plaintiff Class. Despite Management's continued belief that
the remaining claim in Plaintiffs' suit is without merit, it was determined that
the costs associated with defending this lawsuit through its conclusion at trial
would be greater than the negotiated settlement amount paid by the Company (of
which a portion was reimbursed by the Company's insurance carrier). Therefore,
it was concluded that settling this matter, was in the best interest of the
Company and its shareholders. The net settlement was immaterial to the financial
statements.
14. COMMITMENTS
The Company leases certain property and equipment under operating leases.
Minimum payments for operating leases having initial or remaining noncancellable
terms in excess of one year are as follows:
1998 $ 1,210
1999 900
2000 654
2001 550
2002 396
Thereafter 1,124
F-14
Rent expense for operating leases amounted to approximately $1,234,000,
$1,051,000 and $1,059,000 in 1997, 1996 and 1995,
respectively.
15. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
[Download Table]
First Second Third Fourth
Quarter Quarter Quarter Quarter
1997
Net sales $ 36,148 $ 50,701 $ 49,956 $ 37,401
Gross profit $ 10,003 $ 19,150 $ 19,118 $ 11,651
Net income (loss) $ (1,059) $ 1,741 $ 2,528 $ 686
Net income (loss) per
common share - basic1 $ (.15) $ .24 $ .35 $ .09
Net income (loss) per
common share - diluted1 $ (.15) $ .24 $ .34 $ .09
1996
Net sales $ 37,889 $ 48,043 $ 46,143 $ 35,080
Gross profit $ 11,965 $ 16,540 $ 14,354 $ 9,084
Net income (loss) $ 1,364 $ 1,943 $ 1,820 $ ( 1,201)
Net income (loss) per
common share - basic1 $ .19 $ .27 $ .25 $ (.17)
Net income (loss) per
common share - diluted1 $ .19 $ .27 $ .25 $ (.17)
1 Earnings per share amounts have been restated to comply with Statement of
Financial Accounting Standards No. 128, Earnings per Share.
F-15
BEN & JERRY'S HOMEMADE, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Years ended December 27, 1997, December 28, 1996, and December 30, 1995
[Enlarge/Download Table]
Balance at Charged Charged to Balance
beginning to costs other at end
of year and expenses accounts Deductions (1) of year
------- ------------ -------- -------------- -------
Year ended December 27, 1997 $695 $630 $--- $259 $1,066
Allowance for doubtful accounts
(deducted from accounts receivable)
Year ended December 28, 1996 $802 $408 $--- $515 $ 695
Allowance for doubtful accounts
(deducted from accounts receivable)
Year ended December 30, 1995 $504 $400 $--- $102 $ 802
Allowance for doubtful accounts
(deducted from accounts receivable)
(1) Accounts deemed to be uncollectible.
F-16
Dates Referenced Herein and Documents Incorporated by Reference
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