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 25, 1999
[ ]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: 802/846-1500
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.
[X]
The aggregate market value of the Company's Class A and Class B Common Stock
held by non-affiliates was approximately $150,370,950 and $5,061,769
respectively, at February 25, 2000.
At February 25, 2000, 6,121,493 shares of the Company's Class A Common Stock and
794,539 shares of the Company's Class B Common Stock were outstanding.
Page 1 of 70 pages. Exhibit Index appears on page 33.
BEN & JERRY'S HOMEMADE, INC.
1999 FORM 10-K ANNUAL REPORT
Table of Contents
Page
Item 1. Business.........................................................................1
Item 2. Properties......................................................................13
Item 3. Legal Proceedings...............................................................13
Item 4. Submission of Matters to Vote of Security Holders...............................13
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...........14
Item 6. Selected Financial Data.........................................................15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................16
Item 7A. Market Risk.....................................................................24
Item 8. Financial Statements and Supplementary Data.....................................24
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure......................................................................25
Item 10. Directors and Executive Officers of the Company.................................25
Item 11. Executive Compensation..........................................................27
Item 12. Security Ownership of Certain Beneficial Owners and Management..................28
Item 13. Certain Relationships and Related Transactions..................................30
Item 14. Exhibits, Financial Statements, Financial Statement Schedules, and
Reports on Form 8-K.............................................................33
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 is committed to using milk and cream that have not been treated with the
synthetic hormone, rBGH. 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, being activists around
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 1999,
approximately 77% 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, the United Kingdom, France, Israel,
Canada, The Netherlands, Belgium, Japan, Singapore, Peru and Lebanon. 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 company-owned franchised "scoop shops."
The Company began active operations in May 1978, when Jerry Greenfield, now the
Company's Chairperson, and Ben Cohen, 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 frozen desserts, 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." This statement has been further
simplified by the Company's statement of "Leading with Progressive Values Across
our Business." "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 its progressive values.
The Company makes cash contributions equal to 7.5% 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 7.5% 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. Also excluded
from the 7.5% are corporate sponsorships that have as one of their purposes the
furtherance of Ben & Jerry's marketing goals. For 1999, the 7.5% amounted to
approximately $1,120,000. 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 during 1999 paid the Vermont-based band Phish $244,918 in
royalties. The band established the Water Wheel Foundation to support the
protection and preservation of Lake Champlain.
Ben & Jerry's maintains a special tie to the Vermont community in which it has
its origins. The Company donates product to public events and community
celebrations in the Vermont area. As already noted, Community Action Teams at
each site make grants in Vermont. 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 have been 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, Classified Board of
Directors, Vermont Legislation and Shareholders' Rights Plans."
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 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 number of
member farms beginning July 1, 1998. The Co-op assures that it will continue to
provide Ben & Jerry's with rBGH-free dairy supply. The Company pays a premium to
the Co-op for member farms that do not use rBGH.
In 1992, the Company became a signatory to the CERES Principles adopted by the
Community for Environmentally Responsible Economies. The CERES Principles
established 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 Business 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. 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. In 1999 the Company
introduced 14 new flavors and 3 new novelty products.
Based on information provided by Information Resources, Inc., a software and
marketing information services company ("IRI"), the Company believes 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 and premium plus
ice cream, frozen yogurt and sorbet were approximately $572 million in 1999
compared with about $518 million in 1998. 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 ("overrun") during the freezing process. The approximate fat
content is 15% (excluding add-ins). The approximate overrun 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, beet sugar, non-fat milk solids, egg
yolks and natural stabilizers.
Ben & Jerry's frozen yogurt is a high quality frozen yogurt with approximately
2% fat (excluding add-ins) and approximately 30% overrun. The fat content of
frozen yogurt comes from the cream used in the base mix. All our frozen yogurt
products are sweetened with beet sugar and corn syrup. The Company uses cultured
yogurt in the manufacturing of our frozen yogurt dessert products, purchased
from yogurt manufacturers who use Vermont dairy ingredients.
Ben & Jerry's fruit sorbets are fat free frozen desserts with an overrun of
approximately 20%. The chocolate sorbet is a low fat product with approximately
2% fat (from cocoa and chocolate liquor). All sorbets are sweetened with beet
sugar and corn syrup. The water used to manufacture sorbet is Vermont Pure(TM)
Spring Water.
In 1997 and 1998, 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 three grams of fat and 40% overrun. 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 the Company purchases). 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 allows 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 S'mores(TM) Bars.
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 Andrews McMeel
Universal with respect to the Company's Doonesberry(R) flavor of the sorbet line
of products; Wavy Gravy for the flavor Wavy Gravy; with Phish Merchandising,
Inc. with respect to Phish Food(TM) and Phish Stick(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'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. The Company manufactures Ben & Jerry's super premium ice cream, frozen
yogurt, frozen smoothies and sorbet in packaged pints, 12 oz. and single serve
containers at its St. Albans, Vermont plant. The Company generally operates its
plants two shifts a day, five to seven days per week, depending upon demand
requirements.
On October 19, 1999, the Company announced a plan to shift manufacturing of its
frozen novelty line of business from a company-owned plant in Springfield,
Vermont, to third party co-packers to improve the Company's competitive
position, gross margins and profitability. This action resulted in the write-off
of assets associated with the ice cream novelty business, asset impairment
charges of other manufacturing assets and costs associated with severance for
those employees who do not accept the Company's offer of relocation. The
implementation of this manufacturing restructuring program resulted in a pre-tax
special charge to earnings of approximately $8.6 million in the fourth quarter
of 1999 that was primarily non-cash. This plan will be executed during 2000 and
is expected to result in improving the Company's profitability during the year
2000. Outsourcing its novelty business will enable the Company to introduce a
wider range of novelty products in future periods.
Markets and Customers
The Company markets packaged pints, quarts, 1/2 gallons, single-serve containers
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 Company-owned) Ben & Jerry's scoop shops, through restaurants
and food service accounts (i.e. stadiums, airports, cafeterias, hotels, etc.).
Ben & Jerry's products are distributed through independent 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.
In late August 1998 - January 1999, Ben & Jerry's redesigned its distribution
network to create more Company control over sales and more efficiency in the
distribution of its products. Under the redesign, Ben & Jerry's increased direct
sales calls by its own sales force (as distinguished from calls by the
distributors' sales forces) to all grocery and chain convenience stores and has
a network where no distributor of Ben & Jerry's products has a majority
percentage of the Company's distribution. Under the distribution network
redesign which commenced in April-May 1999 and was fully effective September 1,
1999, Ice Cream Partners, a joint venture of the U.S. ice cream operations of
Nestle and The Pillsbury Company ("Pillsbury") distributes Ben & Jerry's
products in specified territories; the balance of domestic deliveries are
distributed primarily by Dreyer's Grand Ice Cream, Inc. ("Dreyer's"), with
Dreyer's handling a smaller volume (than before) of Ben & Jerry's distribution
in other specified territories, and in part by other independent regional
distributors, most of whom are already acting as distributors for Ben & Jerry's.
Under the redesign, no single distributor is expected to handle over 40% of Ben
& Jerry's distribution, as compared with Dreyer's distribution activities
accounting for approximately 57% of the Company's net sales in 1998 and 1997.
Pursuant to the distribution network redesign, Ben & Jerry's entered into an
agreement with Pillsbury which, as amended in January 1999, provides for
distribution of Ben & Jerry's products on a non-exclusive basis in various areas
of the United States beginning September 1, 1999, and in certain areas
commencing April - May 1999. This agreement was assigned to Ice Cream Partners
(a joint venture between Pillsbury and Nestle formed in October 1999), by the
Company and was amended in December 1999. The agreement with Ice Cream Partners
may not be terminated (except for cause) by Ice Cream Partners or Ben & Jerry's
until an effective date in the year 2003. The agreement further provides that
Ben & Jerry's may earlier terminate without cause by making certain specified
payments (except that such payments are not required under specified
circumstances) and it contains additional provisions relating to any termination
upon a change in control of either party. The use of sub-distributors by Ice
Cream Partners is limited under the Agreement.
In January 1999, the Company concluded a new distribution agreement, also on a
non-exclusive basis, with Dreyer's, effective for distribution which commenced
September 1, 1999. This agreement pertains to a smaller geographic
area than that which was covered under the prior distribution agreement and is
on terms and conditions different in some respects from those applicable under
the prior distribution agreement. The terms as to the prices received by the
Company from Dreyer's purchases of the Company's ice cream products are in line
with the new Agreement the Company entered into with Pillsbury and assigned to
Ice Cream Partners, and are more favorable to the Company than in the past.
The new agreement with Dreyer's may be terminated by either party on not less
than six months' notice except that no such notice may be given during the
months of October - March in any year. The prior agreement had given Dreyer's
certain territorial exclusivity, limited the sale by Dreyer's of competitive
products (Dreyer's brands and certain brands of other ice cream competitors),
and had contained provisions for payment by the terminated party in the event of
a change in control of the terminated party.
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.
The Company believes that the distribution network redesign in August 1998 -
1999 gave it more control over the Company's distribution. However, due to the
consolidations in the distribution arena, including the combination of the
Nestle and Pillsbury domestic ice cream operations into Ice Cream Partners,
available distribution alternatives are limited. Accordingly, there can be no
assurance that such difficulties with distributors, which may be related to
actions by the Company's distributors (which include, as the Company's two
principal distributors, its two principal competitors in the marketplace, 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 or certain action by the
production/marketing units of these two principal distributors could have a
material adverse effect on the Company's business.
Marketing
Ben & Jerry's marketing is characterized by a strategic discipline that
continues to build brand equity, a solid reputation for the Company and, most
importantly, profitable customer relationships.
Ben & Jerry's marketing strategies remain consistent with the Company's
three-part mission. Building on Ben & Jerry's significant brand name
recognition, the Company continues to emphasize the high quality, natural
ingredients in its products while highlighting its commitment to social change
through innovative promotional and advertising campaigns. Ben & Jerry's
continues to facilitate brand awareness by focusing its marketing efforts on
communicating the Company's unique business approaches via Public Relations
campaigns designed to generate unpaid newspaper, magazine, radio and TV news
coverage. Company founders Ben Cohen and Jerry Greenfield continue to make
personal appearances on TV and radio.
A 1999 Harris Interactive Poll regarding public perceptions of corporate
reputability ranked Ben & Jerry's fifth overall, and first in the "social
responsibility" category. The survey, the results of which were published in the
Wall Street Journal, used an assessment tool developed at New York University's
Stern School of Business to measure a company's reputation, based upon several
key areas - social responsibility, emotional appeal, products and services.
In 1999, Ben & Jerry's became the first U.S. ice cream company to convert a
significant portion of its pint containers to a more environmentally-friendly
unbleached paperboard. The debut of the Company's "Eco-Pint" made headlines in
consumer and financial press nationwide.
Additional media opportunities in 1999 included placement of the Company's
products in popular sitcoms and movies. Scenes from an upcoming feature film
starring Jim Carrey were filmed at the Company's Waterbury factory. Ben &
Jerry's conducts guided tours of its facility in Waterbury, Vermont to
approximately 300,000 visitors annually, making it the single most popular
tourist attraction in the state.
Ben & Jerry's increased internet presence was driven by several web-based
promotions, including a Halloween promotion in which consumers were invited to
trick or treat online, and a Yahoo!(R) Careers promotion in which consumers
could win a day as a Ben & Jerry's flavor developer.
Ben & Jerry's scoop shops, substantially all of which are franchised, also
contributed significantly to the growth of the brand. In April, Ben & Jerry's
marked its 21st Anniversary with a record-breaking Free Cone Day covered by
local and national media. Almost 200 Ben & Jerry's scoop shops served up more
than a half million free cones as a "thank you" to their customers in this
coast-to-coast event.
Franchise Program
As of December 25, 1999, there were 164 North American Franchise and Satellite
scoop shops compared to 147 as of December 26, 1998. In addition to our
traditional Franchise and Satellite locations, the Company has 8 PartnerShop(R)
Franchises, 19 Featuring Franchises and 12 Scoop Station Franchises.
Ben & Jerry's Franchise Scoop Shops sell 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.
A PartnerShop(R) Franchise is a scoop shop that is awarded to a not-for-profit
organization. PartnerShop(R) franchises are arrangements that permit
not-for-profit organizations to own franchised scoop shops that serve as an
employment resource and potentially a source of revenue for the not-for-profit
groups. The Company waives the normal franchisee fee of $30,000. In addition the
Company provides expertise in the start-up and operation of the PartnerShop(R).
A Featuring Franchise is a business that has a scoop shop within its location,
much like a store within a store. Featuring Franchises are often located in
airports, stadiums, college campuses and similar venues.
In the beginning of 1999, the Company began offering another franchise concept,
a Scoop Station franchise. As of December 25, 1999, there were 12 Scoop Station
franchises. These franchises are located within businesses; generally a smaller
product line is served from a pre-fabricated unit.
At year-end, there were nine company-owned scoop shops: four in Vermont, two in
Las Vegas, Nevada and three locations in Paris, France. Internationally, there
are nine Ben & Jerry's franchised scoop shops in Israel; four in Canada, three
in the Netherlands, one in Lebanon and one in Peru.
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.
The Company has assorted franchise concepts that include traditional shops in a
variety of settings, five PartnerShop(R) Featuring Franchises and Scoop Station
Franchises. Franchise Agreements generally have initial terms of five to ten
years and renewal terms. The Scoop Station is a limited concept with a smaller
menu offering; the initial term is generally two years.
International
The Company regularly investigates the possibilities of entering new markets.
Ben & Jerry's ice cream products are now distributed internationally in the
United Kingdom and Israel and are available in parts of Japan, Ireland, France,
Canada, the Netherlands, Belgium, Singapore, Peru and Lebanon.
In May 1998, the Company signed a non-exclusive licensing agreement with
Delicious Alternative Desserts, LTD, to manufacture, sell and distribute Ben &
Jerry's products through the wholesale distribution channels in Canada for
royalty payments based upon a percentage of the licensee's sales. This agreement
is for a five-year period with a renewal option. In connection with this
agreement, the Company received 4,000,000 Common Shares of Delicious Alternative
Desserts, LTD which represents less than 5% of total issued outstanding common
shares on a fully diluted basis, and the right to designate one director.
In 1987, the Company granted an exclusive license to manufacture and sell Ben &
Jerry's ice cream in Israel. Effective February 26, 1999, the Company acquired a
60% ownership interest in its Israeli licensee, The American Company for Ice
Cream Manufacturing E.I. Ltd, for $1 million. The acquisition was accounted for
using the purchase method of accounting and, accordingly, the costs of the
acquisition have been allocated to assets acquired. The excess of the
acquisition costs over the fair values of the net assets and liabilities
acquired was $1.7 million and has been recorded as goodwill, which is being
amortized on a straight-line basis over 15 years.
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. Following a
test market, the product was launched in 1998. In March 1999, the Company
established a wholly-owned subsidiary in Japan for purposes of importing,
marketing and selling its products in Japan. Beginning in January 2000, the
Company imports all products into the Japan market through an agreement with a
Japanese trading company.
Competition
The super premium ice cream, frozen yogurt and sorbet business is highly
competitive, 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 two principal competitors are The Haagen-Dazs operation of Ice
Cream Partners and Dreyer's/Edys, which introduced its Dreamery(TM) super
premium line in the fall of 1999. Other significant frozen dessert competitors
are Columbo, Healthy Choice and Starbucks (distributed by Dreyer's). 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. As part of Ben & Jerry's distribution network redesign,
the Pillsbury U.S. ice cream operations (now part of the Ice Cream Partners
Joint Venture) became a principal distributor for the Company's products.
In January and September 1999, Dreyer's launched two lines of super-premium ice
cream, Godiva and Dreamery(TM), with significant marketing programs including
radio, outdoor and television advertising as well as heavy price discounting to
gain trial. The Godiva and Dreamery(TM) products are marketed primarily in
pints. Additional super premium products may be introduced by other ice cream
competition.
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., Good Humor (owned by Unilever), Nestle products and many private label
brands. All of these other brands have achieved far larger shares of the novelty
market than the Company.
During 1999, the premium category again experienced increased promotional
activity driven by the national competition between Dreyer's Grand Ice Cream,
Inc., a principal distributor for the Company, and Breyer's Ice Cream (owned by
Unilever, a large international food company). In accordance with Dreyer's
strategic 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. 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 a
variety of frozen dessert products, combined with limited shelf space within
supermarkets, may have made market entry harder and has already forced some
brands out of some markets. The ability to introduce innovative new flavors on a
periodic basis is also a significant competitive factor. The Company expects
strong competition to increase, 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 certain 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 was 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.
All the plants pre-treat 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 marks Ben & Jerry's, Ben & Jerry's Portrait, Ben & Jerry's Ice Cream on A
First Name Basis, Chubby Hubby, Chunky Monkey, Coffee, Coffee BuzzBuzzBuzz!,
Cool Britannia, Dastardly Mash, Hunka Hunka Burnin' Fudge, Lids for Kids, More
Chunks Less Bunk, New York Super Fudge Chunk, One World One Heart, PartnerShop,
Peace Pop, Rainforest Chunk, Today's Euphoric Flavors, Totally Nuts, Vanilla
Like It Oughta' Be, Vermont's Finest and World's Best are registered trademarks
of the Company.
Cherry Garcia(R), Phish Food(R), Phish Stick(R), Wavy Gravy(TM), Doonesberry(R),
Heath(R) and Dilbert's World(R) are Ben & Jerry's proprietary flavor names and
are licensed to the Company.
Employees
At December 25, 1999, Ben & Jerry's employed 841 people including full-time,
part-time and temporary employees. This represents a 12% increase from the 751
people employed by the Company at December 26, 1998.
During 1998, a union organizing effort took place at the Company's St. Albans,
Vermont, plant within the Maintenance Department. By a majority vote all
full-time and regular part-time maintenance team members employed by the Company
agreed to be represented by the International Brotherhood of Electrical Workers
(IBEW). The Company signed an agreement in November 1999, with the Union. As of
December 25, 1999, 16 employees were members of IBEW.
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
grassroots 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,
Classified Board of Directors, Vermont Legislation and Shareholder Rights Plans.
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 as such, 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. Jerry Greenfield (Chairperson and a
director of the Company), Mr. Ben Cohen (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 February 25, 2000, these three
principal individual stockholders held shares representing 47% 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 issue
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. Two
of the three current directors of the Foundation, Messrs. Greenfield and Furman,
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
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.
Also, in April 1998, the Legislature of the State of Vermont amended a provision
of the Vermont Business Corporation Act to provide that the directors of a
Vermont corporation may also consider, in determining whether an acquisition
offer or other matter is in the best interests of the corporation, the interests
of the corporation's employees, suppliers, creditors and customers, the economy
of the state in which the corporation is located and including the possibility
that the best interests of the corporation may be served by the continued
independence of the corporation. Also, in August 1998, following approval by its
Board of Directors, the Company put in place two Shareholder Rights Plans, one
pertaining to the Class A Common Stock and one pertaining to the Class B Common
Stock. These Plans are intended to protect stockholders by compelling someone
seeking to acquire the Company to negotiate with the Company's Board of
Directors in order to protect stockholders from unfair takeover tactics and to
assist in the maximization of stockholder value. These Rights Plans, which are
common for public companies in the United States, may also be deemed to be
"anti-takeover" provisions in that the Board of Directors believes that these
Plans will make it difficult for a third party to acquire control of the Company
on terms which are unfair or unfavorable to the stockholders.
The Class B Common Stock, which may be converted into shares of Class A Common
Stock by a specified vote of the Board, the Class A Preferred Stock, which may
be redeemed by a specified vote of the Board, the Classified Board of Directors
and the Shareholder Rights Plans 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.
The Company believes that these provisions of the Articles of Association, the
amendment to the Vermont Business Corporation Act and the Shareholder Rights
Plans, 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 these items 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.
Indications of Interest to Acquire the Company; Alternative Transactions
The Company announced on December 2, 1999 that it had received Indications of
Interest to acquire the Company at prices significantly above the closing price
on NASDAQ on the day before the December 2, 1999 press release ($21.00). These
Indications of Interest are subject to conditions and, together with Alternative
Transactions under which the Company would remain an independent company, are
being considered by the Board of Directors.
The Company's policy, as regularly disclosed in its filings with the Securities
and Exchange Commission, has been to remain an independent Vermont-based company
focused on its three-part corporate mission, emphasizing product quality,
economic reward and a commitment to the community, contributing 7 1/2% of its
profit before tax to charities, including donations to The Ben & Jerry's
Foundation, Inc.
No decision has been made by the Board with respect to any of these indications
of interest or as to any sale of the Company or Alternative Transactions under
which the Company would remain independent ("Alternative Transactions") (See
"Risk Factors Indications of Interest: to Acquire the Company; Alternative
Transactions"), and no implications should be drawn from this Report as to what
definitive decision will be reached by the Board after it has concluded its
deliberations or as to the timing of any decision.
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. Novelty production will be phased out and moved to a third party
co-packer in 2000.
The Company's property, plant and equipment at its production facilities in
Waterbury are subject to various liens securing a portion of the Company's
long-term debt.
The Company owns a 42-acre site in St. Albans, Vermont, on which it operates a
92,000 square-foot manufacturing facility.
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.
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. In 1999 the Company expanded the office space to 97,780
square feet.
The Company also leases space for its retail ice cream parlors in Burlington,
Montpelier and Middlebury, Vermont, Las Vegas, Nevada and Paris, France, and its
corporate offices in the United Kingdom, France and Japan. The Company owns
three single-family houses, which are situated on land adjacent to its
manufacturing facility in Waterbury.
The Company believes that all of its facilities are well maintained and in good
repair.
ITEM 3. LEGAL PROCEEDINGS
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 1999.
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 28, 1997 through February 25, 2000, the high and low closing sales
prices of the Company's Class A Common Stock for the periods indicated.
High Low
---- ---
1998
----
First Quarter $ 19 $ 14
Second Quarter 21 1/8 17
Third Quarter 19 7/8 13 1/16
Fourth Quarter 23 7/8 14 7/8
1999
----
First Quarter $ 27 $ 21 3/8
Second Quarter 30 24 3/8
Third Quarter 29 17 7/8
Fourth Quarter 28 1/4 15 13/16
2000
----
First Quarter through February 25, 2000 $ 29 1/4 $ 21 1/4
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 Common Stock thereby sold.
As of February 25, 2000 there were 9,979 holders of record of the Company's
Class A Common Stock and 1,922 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 1995 through 1999.
Summary of Operations (In thousands except per share data)
Fiscal Year
-----------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Net sales $237,043 $209,203 $174,206 $167,155 $155,333
Cost of sales 145,291 136,225 114,284 115,212 109,125
-------- -------- -------- -------- --------
Gross profit 91,752 72,978 59,922 51,943 46,208
Selling, general & administrative expenses
78,623 63,895 53,520 45,531 36,362
Special charge1 8,602 -- -- -- --
Other income (expense) - net 681 693 (118) (77) (441)
-------- --------- -------- -------- --------
Income before income taxes 5,208 9,776 6,284 6,335 9,405
Income taxes 1,823 3,534 2,388 2,409 3,457
-------- -------- -------- -------- --------
Net income $ 3,385 $ 6,242 $ 3,896 $ 3,926 $ 5,948
======== ======== ======== ======== ========
Net income per share - diluted $0.46 $0.84 $0.53 $0.54 $0.82
Shares outstanding - diluted 7,405 7,463 7,334 7,230 7,222
Balance Sheet Data:
Fiscal Year
-----------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Working capital $ 42,805 $ 48,381 $ 51,412 $ 50,055 $ 51,023
Total assets 150,602 149,501 146,471 136,665 131,074
Long-term debt and capital lease obligations
16,669 20,491 25,676 31,087 31,977
Stockholders' equity2 89,391 90,908 86,919 82,685 78,531
1. In 1999 the Company finalized a plan to shift manufacturing of its
frozen novelty line of business from a Company-owned plant in Springfield,
Vermont to third party co-packers to improve the Company's competitive position,
gross margin and profitability. This action resulted in fourth quarter 1999
write-off of assets associated with the ice cream novelty and other
manufacturing assets and costs associated with severance for those employees who
do not accept the Company's offer of relocation.
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 Income.
Annual Increase (Decrease)
Percentage of Net Sales 1999 1998 1997
Fiscal Year Compared Compared Compared
1999 1998 1997 To 1998 To 1997 To 1996
---- ---- ---- ------- ------- -------
Net sales 100.0% 100.0% 100.0% 13.3% 20.1% 4.2%
Cost of sales 61.3 65.1 65.6 6.7 19.2 (0.8)
----- ----- ----- ----- ----- -----
Gross profit 38.7 34.9 34.4 25.7 21.8 15.4
Selling, general and
administrative expense 33.2 30.5 30.7 23.0 19.4 17.5
Special charge 3.6 -- -- -- -- --
Other income (expense) 0.3 0.3 (0.1) 0.2 687.3 53.2
----- ----- ----- ----- ----- -----
Income before income taxes
2.2 4.7 3.6 (46.7) 55.6 (0.8)
Income taxes 0.8 1.7 1.4 (48.4) 8.0 (0.9)
----- ----- ----- ----- ----- -----
Net income 1.4% 3.0% 2.2% (45.8)% 60.2% (0.8)%
===== ===== ===== ===== ===== =====
Net Sales
Net sales in 1999 increased 13.3% to $237 million from $209 million in 1998
primarily due to growth in the U.S. marketplace as well as the United Kingdom.
Total worldwide pint volume increased 8.9% compared to 1998, which was primarily
attributable to the Company's original line of products. This volume increase
was combined with a price increase of 3.3% on pints sold to U.S. distributors
that went into effect in July 1998. Total worldwide unit volume of 2 1/2 gallon
bulk container products increased 16.7% compared to the same period in 1998.
Packaged sales (primarily pints) represented 83% of total net sales in 1999, 81%
of total net sales in 1998 and 84% of total net sales in 1997. Net sales of 2
1/2 gallon bulk containers represented approximately 9% of total net sales in
1999 and 8% of total net sales in 1998 and 1997. Net sales of novelty products
(including single servings) accounted for approximately 6% of total net sales in
1999, 9% of total net sales in 1998 and 6% of total net sales in 1997. This
decrease is due to a decline in sales of single serve containers to the Japanese
market in comparison to the prior year. Net sales from the Company's retail
stores represented 2% of total net sales in 1999, 1998 and 1997.
International sales were $25.3, $17.4, and $7.6 million in 1999, 1998 and 1997,
respectively, which represents 11% of total net sales in 1999, 8% in 1998 and 4%
in 1997. The increase in 1999 was primarily due to increased sales in the United
Kingdom partially offset by a decrease in net sales to the Japanese market.
Net sales in 1998 increased 20.1% to $209 million from $174 million in 1997.
Total worldwide pint volume increased 10% compared to 1997 which was primarily
attributable to the Company's original line of products. This volume increase
was combined with a price increase of 3% on pints sold to distributors that went
into effect in July 1998. Total worldwide unit volume of 2 1/2 gallon bulk
container products increased 17% compared to the same period in 1997.
Cost of Sales
Cost of sales in 1999 increased approximately $9 million or 6.7% over the same
period in 1998 and overall gross profit as a percentage of net sales increased
from 34.9% in 1998 to 38.7% in 1999. The higher gross profit as a percentage of
net sales resulted from decreased dairy commodity costs, a 3.3% distributor
price increase effective in July 1998 and a price increase in connection with
the Company's distribution redesign in 1999, better plant utilization due to
higher production volumes and improved efficiencies in the plants.
Cost of sales in 1998 increased approximately $22 million or 19% over the same
period in 1997 and overall gross profit as a percentage of net sales increased
from 34.4% in 1997 to 34.9% in 1998. The slightly higher gross profit as a
percentage of net sales resulted from increases in selling prices effective in
January 1998 and July 1998, better plant utilization due to higher production
volumes and a decrease in reserves for potential product obsolescence, partially
offset by substantial increases in dairy commodity costs. In response to higher
dairy costs the Company instituted a 3% price increase effective in July 1998
for its packaged pint products and a combined 10% price increase for its 2 1/2
gallon bulk containers effective in January 1998 and July 1998 to offset these
increased costs. See Risk Factors, "Volatile Cost of Raw Materials."
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 23.0% to $78.6 million in
1999 from $63.9 million in 1998 and increased as a percentage of net sales to
33.2% in 1999 from 30.5% in 1998. The $14.7 million dollar increase primarily
reflects increased selling expenses related to the Company's earlier
restructuring of its distribution system and increased advertising and
promotions expenses. In addition the Company is investing more heavily in its
international operations, most notably in the United Kingdom, Japan and Israel
in order to capitalize on further opportunities to grow its ice cream sales
outside the United States. Selling, general and administrative expenses also
reflect increased salaries, recruiting and training expenses related to building
more infrastructure to manage its business, and in the fourth quarter of 1999
higher expenses for professional advisors, including its investment bankers,
consultants and legal counsel, related to the Company's review and consideration
of the Indications of Interest to Acquire the Company and Alternative
Transactions.
Selling, general and administrative expenses increased 19% to $64 million in
1998 from $54 million in 1997 and decreased slightly as a percentage of net
sales to 30.5% in 1998 from 30.7% in 1997. The $10 million increase in expenses
is attributable to increased sales and marketing expenses to support the launch
of a new line of premium plus ice cream under the name of Newman's Own(TM) All
Natural Ice Cream, increased international costs, increases in radio
advertising, in-store programs to drive product trial and brand awareness, scoop
truck marketing and the rollout of the new pint package design.
Special Charge
Following a comprehensive review of its manufacturing operations, the Company
finalized a plan to shift manufacturing of its frozen novelty line of business
from a company-owned plant in Springfield, Vermont to third party co-packers to
improve the Company's competitive position, gross margin and profitability. This
action resulted in a fourth quarter 1999 non-recurring pre-tax charge of $8.6
million ($.78 per common share, after tax)consisting of the write-off of assets
associated with the ice cream novelty and other manufacturing assets and costs
associated with severance for those employees who do not accept the Company's
offer of relocation. This plan to shift novelty manufacturing will be executed
during
2000. The outsourcing of its ice cream novelty business will enable the Company
to introduce a wider range of novelty products in the future and increase its
flexibility.
Other Income (Expense)
Interest income decreased to $1.9 million in 1999 compared to $2.2 million in
1998. This decrease in interest income was due to a lower average invested
balance throughout the period. Interest expense decreased $254,000 compared to
1998. This decrease is due to the $5 million Senior Notes principal payment made
in September 1999 partially offset by increased interest expense for debt
acquired through the Company's 60% ownership interest in its Israeli licensee.
Interest income increased from $1.9 million in 1997 to $2.2 million in 1998. The
increase in interest income was due to higher average invested balance
throughout 1998. Interest expense in 1998 decreased $104,000 in 1998 as compared
to 1997 due to the $5 million Senior Notes principal installment payment. Other
income (expense) increased in 1998 from other expense of $118,000 in 1997 to
other income of $693,000 in 1998. This is primarily due to increased losses
associated with foreign currency exchange in comparison to 1997, combined with
income received from the Company's cost basis investment.
Income Taxes
The Company's effective income tax rate in 1999 decreased to 35% from 36% in
1998 and 38% in 1997. The decrease was a result of lower state income taxes,
more tax-exempt interest income, and the overall geographic mix of earnings.
Management expects 2000's effective income tax rate to remain at approximately
35% based upon the expected geographic mix of earnings.
Net Income
Net income for 1999, excluding the non-recurring special charge discussed above,
increased to $9.0 million from $6.2 million in 1998. Diluted net income per
share excluding the non-recurring special charge was $1.21 in 1999 compared to
$0.84 in 1998. Net income after reflecting the special charge was $3.4 million
in 1999. Net income as a percentage of net sales was 3.8% (excluding the
non-recurring special charge) and 1.4% (after reflecting the special charge) in
1999 as compared to 3.0% in 1998 and 2.2% in 1997.
During the fourth quarter of 1999 and continuing into the first quarter of 2000,
the Company incurred significant expenditures (classified within S,G&A) for
services of its investment banker, consultants and legal counsel, including
separate legal counsel for various directors, in connection with the
investigations and deliberations of the Board with respect to the various
Indications of Interest to acquire the Company and Alternative Transactions
under consideration by the Board. These expenditures are expected to continue
until the Board makes a definitive decision on this subject.
The Company expects to face increased domestic competition in the Year 2000,
which will require increased selling and marketing expenditures, and may result
in a slower rate of growth in net sales and may well have an adverse effect on
future results, as compared with results for the Year 1999. See "Risk Factors"
generally.
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 1999, 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 25, 1999 the Company had $46.6 million of cash, cash equivalents
and short term investments ($25.3 million of cash and cash equivalents and $21.3
million of marketable securities), a $638,000 decrease since December 26, 1998.
Net cash provided by operations in 1999 was $20.3 million. Uses of cash included
increases in accounts receivable and inventories of $7.5 million and $405,000
respectively, $5.3 million to pay down debt and capital lease obligations,
repurchase of company stock of $7.2 million, and additions to property, plant
and equipment, primarily for equipment upgrades at the Company's manufacturing
facilities, of $8.8 million. The increase in accounts receivable is due to a
contractual change in the Company's distribution agreement with Dreyer's Grand
Ice Cream effective in January 1999, which altered the payment terms from 14 to
28 days. Partially offsetting these uses of cash was an increase in accounts
payable and accrued expenses of $7 million. The increase in accounts payable and
accrued expenses reflects additional liabilities related to both the Japanese
and Israeli operations.
In addition the Company acquired a 60% interest in its Israeli licensee for $1
million in February, 1999. Cash acquired in the transaction was $858,000. In
June 1999, the Company acquired the assets of one of its franchisees, which
included Las Vegas, Nevada territory rights and two scoop shops, for
approximately $870,000 net of cash acquired.
In September 1999, the Company completed its previously announced repurchase
program commenced in September 1998, which authorized the Company to purchase
shares of the Company's Class A Common Stock up to an aggregate cost of $5
million for use for general corporate purposes. In September 1999 the Board of
Directors approved an additional $3 million for stock repurchases of its Class A
common shares. During the year ended December 25, 1999 the Company repurchased a
total of 364,100 shares of the Company's Class A Common Stock for approximately
$7.2 million.
The Company's short and long-term debt at December 25, 1999 includes $20 million
aggregate principal amount of Senior Notes issued in 1993 and 1994. The second
principal payment of $5 million was paid in October 1999 and the remainder of
principal is payable in annual installments through 2003.
The Company anticipates capital expenditures in 2000 of approximately $9.0
million. Most of these projected capital expenditures relate to equipment
upgrades and enhancements at the Company's manufacturing facilities,
computer-related expenditures and build out of Company-owned scoop shops.
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 LIBOR plus a margin based on a pre-determined
formula. No amounts were borrowed under these or any bank agreements during
1999. The working capital line of credit agreements expire December 23, 2001.
Management believes that internally generated funds, cash, cash equivalents and
marketable securities 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.
Impact of Year 2000
The Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed approximately $620,000 during 1999 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
Euro Conversion
On January 1, 1999 certain member countries of the European union established
fixed conversion rates between their existing currencies and the European
Union's common currency ("the euro"). The former currencies of the participating
countries are scheduled to remain legal tender as denominations of the euro
until January 1, 2002 when the euro will be adopted as the sole legal currency.
The Company has evaluated the potential impact on its business, including the
ability of its information systems to handle euro-denominated transactions and
the impact on exchange costs and currency exchange rate risks. The conversion to
the euro is not expected to have a material impact on the Company's operations
or financial position.
Forward-Looking Statements
This section, as well as other portions of this document, includes certain
forward-looking statements about the Company's business, new products, sales,
dairy ingredient commodity costs, other expenditures and cost savings, effective
tax rate, operating and capital requirements and financing. Any such statements
are subject to risks that could cause the actual results or needs to vary
materially and are also subject to changes in connection with any potential
Indications of Interest to acquire the Company or Alternative Transactions.
These risks are discussed below.
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.
Risk Factors
Dependence on Independent Ice Cream Distributors. Historically, the Company has
been dependent on maintaining satisfactory relationships with Dreyer's Grand Ice
Cream, Inc. ("Dreyer's") and the other independent ice cream distributors that
have acted as the Company's exclusive or master distributor in their assigned
territories. In 1998, Dreyer's distributed significantly more than a majority of
the sales of Ben & Jerry's products. 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. In August 1998 - January 1999, the Company redesigned its
distribution network, entering into a distribution agreement with The Pillsbury
Company ("Pillsbury") and a new agreement with Dreyer's. These arrangements took
effect in September 1999, except for certain territories which were effective in
April - May 1999. The Company believes the terms of the new arrangements will be
more favorable to the Company and expects that, under the distribution network
redesign, no one distributor will account for more than 40% of the Company's net
sales. The October 1999 transfer of the Haagen-Dazs unit to the recently formed
Pillsbury/Nestle ice cream joint venture has presented certain
opportunities/difficulties for the Company, which entered into an amendment with
the Ice Cream Partners joint venture in December 1999, in connection with the
assignment of that agreement from Pillsbury to the joint venture.
However, both the recently formed Pillsbury/Nestle ice cream joint venture
(through its Haagen-Dazs super premium ice cream unit), and Dreyer's with its
fall 1999 super premium ice cream market entry are direct competitors of the
Company.
Since available distribution alternatives are limited and continue to be
adversely impacted by consolidation in the industry, there can be no assurance
that difficulties in maintaining satisfactory relationships with its two
principal distributors (who are competitors) and its other distributors, some of
which are also competitors of the Company, will not have a material adverse
effect on the Company's business (See "Business - Markets and Customers").
Growth in Sales and Earnings. In 1999, net sales of the Company increased 13.3%
to $237 million from $209 million in 1998. Total worldwide pint volume increased
8.9% compared to 1998. Based on information provided by Information Resources,
Inc., a software and marketing information services company ("IRI"), the Company
believes that the U.S. super premium and premium plus ice cream, frozen yogurt
and sorbet industry category sales increased 10% in 1999 compared to 1998. Given
these overall domestic super premium industry trends, the successful
introduction of innovative flavors on a periodic basis has become increasingly
important to 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 significant promotional expenditures, is likely to have an
important impact on the Company's 2000 and future financial results. However,
the Company expects that, due to increased domestic competition, it will need to
increase its selling and marketing expenses and that its rate of growth in net
sales may be slower in the current Year 2000, which may be expected to adversely
affect earnings (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. 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, two of which are
distributors for the Company, are large companies with resources significantly
greater than the Company's. In January and September 1999 Dreyer's launched two
lines of super premium ice cream, Godiva and Dreamery(TM), with significant
marketing programs including radio, outdoor and television advertising as well
as heavy price discounting to gain trial. The Godiva and Dreamery(TM) products
are marketed primarily in pints. Additional super premium products may be
introduced by other ice cream competitors. In October 1999, the U.S. ice cream
operations of Pillsbury (Haagen-Dazs) and Nestle were consolidated into a joint
venture, Ice Cream Partners. See "Business Competition" and "Business: The Super
Premium Frozen Dessert Market." The Company expects strong competition to
continue and increase, including competition for the limited shelf space for the
frozen dessert category in supermarkets and other retail food outlets, the
impact of consolidation in the retail food outlets and increased competition
from the Company's two principal distributors.
Volatile Cost of Raw Materials. Management believes that the general trend of
volatility in dairy ingredient commodity costs may continue. While dairy
commodity costs for 1999, and especially for the second half of 1999, were lower
than in 1998, it is possible that at some future date both gross margins and
earnings may not be adequately 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 Jerry Greenfield, the Chairperson of the
Board and co-founder of the Company, and Ben Cohen, 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 "Business-Introduction" and "Business-Marketing."
International. Total international net sales represented approximately 11% of
total consolidated net sales in 1999. 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 the United Kingdom
and France, through license arrangements in the Netherlands and Belgium. Sales
were also made in Japan andSingapore and the Company started selling in Peru and
Lebanon in 1999 under license arrangements. In 1987, the Company granted an
exclusive license to manufacture and sell Ben & Jerry's products in Israel. In
1999, the Company made an investment of $1 million in its Israeli licensee,
which gave the Company a 60% ownership interest. In May 1998, the Company signed
a Licensing Agreement with Delicious Alternative Desserts, LTD to manufacture,
sell and distribute Ben & Jerry's products through the wholesale distribution
channels in Canada. The Company is investigating the possibility of further
international expansion. However, there can be no assurance that the Company
will be successful in all of its present international markets or in entering
(directly, or indirectly through licensing) on a long-term profitable basis,
such additional 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 47% 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 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. 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."
Also, in April 1998, the Legislature of the State of Vermont amended a provision
of the Vermont Business Corporation Act to provide that the directors of a
Vermont corporation may also consider, in determining whether an acquisition
offer or other matter is in the best interests of the corporation, the interests
of the corporation's employees, suppliers, creditors and customers, the economy
of the state in which the corporation is located and including the possibility
that the best interests of the corporation may be served by the continued
independence of the corporation. Also, in August 1998, following approval by its
Board of Directors, the Company put in place two Shareholder Rights Plans, one
pertaining to the Class A Common Stock and one pertaining to the Class B Common
Stock. These Plans are intended to protect stockholders by compelling someone
seeking to acquire the Company to negotiate with the Company's Board of
Directors in order to protect stockholders from unfair takeover tactics and to
assist in the maximization of stockholder value. These Rights Plans, which are
common for public companies in the United States, may also be deemed to be
"anti-takeover" provisions in that the Board of Directors believes that these
Plans will make it difficult for a third party to acquire control of the Company
on terms which are unfair or unfavorable to the stockholders.
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 (which may be converted
into Class A Common Stock or redeemed in the case of the Class A Preferred
Stock, as the case may be, by the specified votes of the Board of Directors) 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 and
the April 1998 Vermont Legislative Amendment of the Vermont Business Corporation
Act and the Shareholder Rights Plans put in place in August, 1998 (see
"Anti-Takeover Effects of Class B Common Stock, Class A Common Stock, Class A
Preferred Stock, Classified Board of Directors, Vermont Legislation and
Shareholder Rights Plans" in Item 1) may be deemed to be "anti-takeover"
provisions in that the Board of Directors believes that these amendments and
legislation 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.
Indications of Interest to Acquire the Company; Alternative Transactions. The
Company announced on December 2, 1999 that it had received indications of
interest to acquire the Company and Alternative Transactions to acquire the
Company at prices significantly above the closing price on NASDAQ on the day
before the December 2, 1999 press release ($21.00). These Indications of
Interest are subject to conditions and, together with Alternative Transactions
under which the Company would remain an independent company, are being
considered by the Board of Directors.
The Company's policy, as regularly disclosed in its filings with the Securities
and Exchange Commission, has been to be an independent Vermont-based company
focused on its three-part corporate mission, emphasizing product quality,
economic reward and a commitment to the community, contributing 7 1/2% of its
profit before tax to charities, including donations to The Ben & Jerry's
Foundation, Inc.
No decision has been made by the Board with respect to any of these Indications
of Interest or as to any sale of the Company or as to any Alternative
Transaction under which the Company would remain an independent company, and no
implications should be drawn from this Report as to what definitive decision
will be reached by the Board after it has concluded its deliberations or as to
the timing of any decision. As noted under "Management's Discussion and Analysis
of Financial Condition and Results of Operations," the Board has been receiving
advice from its investment banker, consultants hired in connection with this
matter and counsel, including separate counsel hired by various individual
directors. The matters relating to the Indications of Interest or Alternative
Transactions present a different set of risks and opportunities for the Company
and its continued independence, which could materially affect the future
operations and results of the Company.
ITEM 7A. MARKET RISK
The Company is exposed to a variety of market risks, including changes in
interest rates affecting the return on its investments and foreign currency
fluctuations. The Company's exposure to market risk for a change in interest
rates relates primarily to the Company's investment portfolio. The Company has
classified all of its short-term and long-term investments as "available for
sale" except for certificates of deposits which are held to maturity. Unrealized
gains and losses for available for sale securities are excluded from earnings
and are reported as a separate component of stockholder's equity until realized.
The majority of these investments are municipal bonds and fixed income preferred
stock. At December 25, 1999, unrealized losses amounted to $324,000. The Company
does not intend to hold such investments to maturity if there is an underlying
change in interest rates or the Company's cash flow requirements. Certificates
of deposits do not expose the consolidated statement of operations or balance
sheets to fluctuations in interest rates. The Company's exposure to market risk
for fluctuations in foreign currency relate primarily to the amounts due from
subsidiaries. Exchange gains and losses related to amounts due from subsidiaries
have not been material for each of the years presented.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this is in Item 14(a) of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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
----------------- ----- -----------------------------------------------
Jerry Greenfield 48 Chairperson and Director
Ben Cohen 48 Vice Chairperson and Director
Perry Odak 54 Chief Executive Officer, President and Director
Pierre Ferrari 49 Director
Jeffrey Furman 56 Director
Jennifer Henderson 46 Director
Frederick A. Miller 53 Director
Henry Morgan 74 Director
Bruce Bowman 47 Senior Director of Operations
Charles Green 45 Senior Director Sales and Distribution
Frances Rathke 39 Chief Financial Officer and Secretary
Michael Sands 35 Chief Marketing Officer
The Board of Directors has an Audit Committee on which Directors Ferrari, Furman
and Morgan (Chairperson) serve; a Compensation Committee on which Directors
Miller, Morgan and Henderson, (Chairperson) serve; a Social Mission/Workculture
Committee on which Directors Furman, Henderson and Miller (Chairperson) serve;
an Executive Committee on which Directors Cohen, Miller, Morgan, Odak and
Ferrari serve; and a Nominating Committee on which Directors Ferrari
(Chairperson), Greenfield, Henderson, Odak and Cohen serve. In December 1999 the
Board appointed a Special Committee consisting of two directors, Messrs. Ferrari
and Furman, to explore certain specific matters related to alternatives for the
Company's future, in light of the Indications of Interest to acquire the Company
and Alternative Transactions. This Committee concluded its work on January 27,
2000. In December 1999 the Board also appointed a Special Committee of four
directors -- namely Messrs. Furman, Greenfield, Morgan and Odak, to coordinate
generally for the Board its review of the Indications of Interest to acquire the
Company and Alternative Transactions and variations of the foregoing, subject to
the final determination by the Board of Directors.
Ben Cohen, a founder of the Company, served as Chairperson of the Board of
Directors from February 1989 through November 1998. Mr. Cohen currently serves
as Vice Chairperson of the Board of Directors. 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 has been President of
Business Leaders for Sensible Priorities, a nonprofit organization, since 1998.
Mr. Cohen is a director of Blue Fish Clothing, Inc. and Social Venture Network.
In 1997, Community Products Inc., of which Mr. Cohen was a director, filed for
protection under Chapter 11 and then Chapter 7 of the United States Bankruptcy
Code, and was liquidated in 1999.
Pierre Ferrari has served as a director of the Company since June 1997.
Currently, Mr. Ferrari is a self-employed consultant. From 1997 through 1999,
Mr. Ferrari was President of Lang International, a marketing consulting firm.
From 1995 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. Currently, Mr.
Furman is a self-employed consultant. From March 1991 through December 1996, Mr.
Furman was a consultant to the Company.
Jerry Greenfield, a founder of the Company, served as director and Vice
Chairperson of the Board of Directors from 1990 to November 1998, at which time
he was elected Chairperson of the Board of Directors. Mr. Greenfield is also
President and a director of The Ben & Jerry's Foundation, Inc.
Jennifer Henderson has served as a director of the Company since June 1996. Ms.
Henderson is 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.
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 (April 1991 to August 1995).
Mr. Bowman serves on the Board of Governors of Bryce Corporation, a privately
held packaging company and was a director of Delicious Alternative Desserts,
LTD. (March 1999 to July 1999).
Charles Green has served as Senior Director of Sales and Distribution since
October 1996. 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.
Frances Rathke has served as Chief Financial Officer, Chief Accounting Officer
and Secretary of the Company since April 1990.
Michael Sands joined the Company in July 1999 as Chief Marketing Officer. From
1997 to July 1999, Mr. Sands was Vice President of Marketing for Triarc Company,
Inc., the company that acquired Snapple Natural Beverage Company. From November
1992 to June 1997, Mr. Sands was Director of Marketing for Mexican Specialty
Brands and managed five Mexican Brands positioned throughout the imported beer
category with Labatt USA.
Other Key Executives
Elizabeth Bankowski has served as the Director of Social Mission Development
since December 1991. Ms. Bankowski is also Secretary and a director of The Ben &
Jerry's Foundation, Inc. Ms. Bankowski served as a director of the Company from
1990 to June 1999.
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.
Douglas Fisher joined the Company in September 1998 as Director of Retail
Operations. From 1994 until joining the Company, Mr. Fisher was Director of
Franchising for Allied Domecq Retailing USA, owner of Dunkin Donuts,
Baskin-Robbins and Togos.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the cash compensation paid by the Company in
Fiscal Years 1997 - 1999 as well as certain other compensation paid, awarded or
accrued for those years to the Company's Chief Executive Officer and the other
four highest-paid executive officers during the 1999 fiscal year. Perry Odak
became the Chief Executive Officer on January 1, 1996.
Annual Compensation Awards Long-Term Compensation Pay-outs
Other Securities
Annual Restricted Underlying All Other
Name and Bonus Compen- Stock Options/ LTIP Compensation
Principal Position Year Salary (1) sation Awards SARS Pay-outs (2)
------------------ ---- --------- -------- ------ ---------- ---------- -------- -------------
Perry D. Odak 1999 $314,711 $176,800 67,000 $12,588
CEO, President and 1998 $305,769 $150,000 -- $ 7,750
Director 1997 $300,000 $100,000 360,000 $25,000
Bruce Bowman 1999 $219,923 $ 90,000 25,000 $ 8,797
Senior Director of 1998 $211,692 $ 75,000 -- $ 6,964
Operations 1997 $200,000 $ 50,000 27,000 $ 4,131
Charles Green 1999 $204,231 $ 90,000 25,000 $ 8,169
Senior Director of 1998 $182,885 $ 75,000 -- $ 5,755
Sales & Distribution 1997 $162,596 $ 40,000 45,000 $ --
Frances Rathke 1999 $183,339 $ 70,000 15,000 $ 7,334
Chief Financial Officer 1998 $178,406 $ 50,000 -- $ 5,461
1997 $162,603 $ 45,000 30,000 $ 3,229
Jerry Greenfield 1999 $230,000 -- -- $ 9,200
Chairperson and Director 1998 $237,179 -- -- $ 5,853
1997 $183,333 -- -- $ 3,000
(1) "Bonus" includes discretionary distributions under the Company's Management Incentive Program.
(2) "All Other Compensation" includes Company contributions to 401(k) plans and relocation fees.
Option/SAR Grants in Fiscal 1999
Percentage Potential Realizable Value
of Total at Assumed Annual Rates
Options/SARS Exercise or of Stock Price Appreciation
Options/SARS Granted to Base Price Expiration for Option Term
Name Granted Employees in 1999 (per share) Date 5% 10%
------------- ------------ ----------------- ----------- ---------- ---------- ----------
Perry D. Odak 67,000 10.87% $24.625 3/24/09 $1,037,598 $2,629,476
Bruce Bowman 25,000 4.06% $21.000 7/29/09 $ 330,055 $ 836,359
Charles Green 25,000 4.06% $21.000 7/29/09 $ 330,055 $ 836,359
Frances Rathke 15,000 2.43% $21.000 7/29/09 $ 198,033 $ 501,816
Jerry Greenfield 0 0 0 0 0 0
Aggregated Option/SAR Exercises in 1999 and 1999 Year-End Option/SAR Values
Value of Unexercised Value of Unexercised
Number of Unexercised In-the-money Options/SARS
Options/SARS at 12/25/99 at 12/25/99
Shares
Acquired on
Name Exercise (#) Value Realized Exercisable Unexercisable Exercisable Unexercisable
Perry D. Odak 0 0 343,875 83,125 $4,812,531 $ 242,419
Bruce Bowman 0 0 37,871 49,129 $ 348,423 $ 316,872
Charles Green 0 0 15,935 44,065 $ 180,708 $ 308,192
Frances Rathke 0 0 39,934 36,251 $ 449,936 $ 290,467
Jerry Greenfield 0 0 0 0 0 0
Effective January 1, 1998, Directors who are not employees or full-time
consultants of the Company receive an annual retainer fee of $20,000, 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 each made an election under the Plan; three received 744
shares of stock and one received 614 shares of stock for the period July 1, 1999
through June of 2000 under the Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of February 25, 2000 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 Ben &
Jerry's Homemade, Inc., 30 Community Drive, South Burlington, Vermont
05403-6828.
Amount of Beneficial Ownership
Class A Common Stock Class B Common Stock Preferred Stock
-------------------- -------------------- ---------------
% Outstanding % Outstanding % Outstanding
Name # Shares shares (1) # Shares Shares # Shares Shares
---------------------------- -------- ------------- -------- ------------- -------- ------------
Ben Cohen (3) 413,173 6.7% 488,486 61.5% - -
Jeffrey Furman (4)(5) 17,000 * 30,300 3.8% - -
Jerry Greenfield (4) 130,000 2.1% 90,000 11.3% - -
Perry Odak (6) 368,521 6.0% - - - -
Pierre Ferrari 8,121 * - - - -
Jennifer Henderson 1,138 * - - - -
Frederick A. Miller 4,345 * - - - -
Henry Morgan 5,845 * - - - -
Bruce Bowman 46,064 * - - - -
Charles Green 17,809 * - - - -
Frances Rathke 51,459 * - - - -
Credit Suisse Asset
Management, LLC
153 East 53rd St
New York, NY 10022 860,500 14.06%
Dimensional Fund
Advisors, Inc.
1299 Ocean Ave, 11th floor
Santa Monica, CA 09401 359,000 5.9%
All Officers and Directors 1,115,554 18.2%
as a group of 15 608,786 76.6% - -
persons
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
February 25, 2000. 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
February 25, 2000. 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 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Cohen, a co-founder of the Company, Vice-Chairperson and Director of the
Company, has entered into an Employment Agreement with the Company for an
employment term expiring on December 31, 1999 (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
(adjusted for changes in the Consumer Price Index) 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, Chairperson, and Director of the
Company, has entered into an Employment Agreement with the Company for a term
expiring on December 31, 1999 (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 (adjusted for changes
in the Consumer Price Index) for life, commencing with the end of the three-year
severance period, for specified insurance benefits and contains a provision for
certain services contemplated to be provided to the Company after the end of the
term of employment and severance period.
Mr. Odak, Chief Executive Officer, signed a new restated Employment Agreement
for a term of 27 months with the Company effective March 31, 1999. In
conjunction with this agreement, Mr. Odak was granted non-incentive stock
options to purchase an aggregate of 67,000 shares of Class A Common Stock of the
Company exercisable at $24.625 per share, the fair market value on the date of
grant. Under the terms of the Agreement, Mr. Odak is entitled to a base salary
of $315,000 per annum, subject to increases from time to time by the Board of
Directors, in its sole discretion ($315,000 has been set by the Board as the
2000 base salary). In December 1996, 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 period, 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 30 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 exercisability
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.
Michael Sands, Chief Marketing Officer, has an employment agreement dated June
25, 1999, expiring June 30, 2002. The agreement provides for an annual base
salary of $205,000 per annum, subject to increases from time to time by the CEO
with approval by the Board of Directors. He is eligible for an annual bonus as
determined by the CEO and approved by the Board of Directors. Mr. Sands received
non-incentive stock options to purchase an aggregate of 35,000 shares of Class A
common stock of the Company exercisable at $24.25 per share, the fair market
value on the date of grant by the Compensation Committee of the Board of
Directors. These options become exercisable over a four year period with
one-fourth being exercisable on June 25, 2000 and up to an additional 1/48 of
the shares covered by this option on the last day of each month in the next
three years commencing with the month of July 2000. 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 one-year period
thereafter.
The Agreement may be terminated at any time by the Company for cause, as
defined. The Company may also terminate the Agreement other than for cause, in
which event the Company has a continuing obligation to pay Mr. Sands his base
salary for six months. Additionally, the Company's group medical and life
insurance plans during the same period as his base salary is continued.
Severance Agreements
The Company entered into Severance Agreements dated July 30, 1999 with the
following members of the Office of the CEO (OCEO), Elizabeth Bankowski, Bruce
Bowman, Richard Doran, Charles Green and Frances Rathke. In addition, in January
2000 the Company entered into similar Severance Agreements with its other
members of the OCEO, Douglas Fisher and Michael Sands. Under the terms of these
Severance Agreements, the above-mentioned Officers are entitled to severance
payments on termination by the Company other than for cause, death or
disability; or after a change in control of the Company (as defined). The
severance payments include an obligation to pay the Officer his/her then current
base salary payable for six months, plus a second period of up to an additional
six months in the event that the employee has not found other comparable
employment; continuation of health, life and other welfare insurance benefits;
outplacement services; and payment of the appropriate pro rata percentage of the
next annual cash bonus. For officers with three or more years of service at the
date of termination, unvested options that would have vested in the first six
month period after date of termination shall accelerate and become vested, and
then all vested options may continue to be exercised for six months thereafter.
For all other officers, all vested options at the date of termination may
continue to be exercised for six months thereafter.
In the event of a termination by the Company other than for cause, death or
disability within the first two years after a change of control (as defined) or
termination by the officer within the first two years after a change of control
for good reason (as defined), severance shall be payable or provided to the
officer as follows: (i) a single lump sum equal to the sum of (a) one and a half
times annual base salary for the officer in effect immediately prior to the date
of the change of control or immediately prior to the date of termination
(whichever is greater) and (b) an amount equal to one and a half times the last
year's annual cash bonus paid to the officer; (ii) health, life and other
welfare benefits shall continue for one year on the same terms available to
employees generally; and (iii) the Company's contribution to the 401(k) account
of the officer shall continue for one year at the same rate as applicable to
employees generally. All unvested options held by the officer shall accelerate
and become vested immediately prior to the change of control and shall be
exercisable for six months. The officer(s) agree not to compete with the Company
during his/her employment and, after termination, for the greater of one year or
the period during which severance payments are made.
Mr. Furman, a director of the Company since 1982 and Treasurer and Director of
the Ben & Jerry's Foundation entered into a Severance and Non-competition
Agreement with the Company dated December 31, 1990. As part of this agreement
the Company provided, at no cost to Mr. Furman, family health insurance coverage
under the Company's regular employee health insurance plan. This obligation
terminated March 2, 1999.
Related Party Transactions
During the year ended December 27, 1997, the Company purchased Rainforest Crunch
cashew-brazilnut butter crunch candy to be included in Ben & Jerry's Rainforest
Crunch(R) 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 U.S. Bankruptcy Code in early 1997, its business was sold and the matter
(and related litigation) has been settled in U.S. Bankruptcy Court. Ben &
Jerry's located an alternative supplier for cashew-brazilnut butter crunch and
no purchases were made in 1998 from Community Products, Inc. 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 1999, the Company paid $92,000 to Ms. Jennifer Henderson for services as a
consultant in connection with service as a member of the Board of Directors.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND
REPORTS ON FORM 8-K
A. List of financial statements and financial statement schedule:
Form 10-K
Page Number
Consolidated Balance Sheets as of December 25, 1999 and December 26, 1998 F-2
Consolidated Statements of Income for the years ended
December 25, 1999, December 26, 1998 and December 27, 1997 F-3
Consolidated Statements of Stockholders' Equity for the years ended
December 25, 1999, December 26, 1998 and December 27, 1997 F-4
Consolidated Statements of Cash Flows for the years ended
December 25, 1999, December 26, 1998 and December 27, 1997 F-5
Notes to Consolidated Financial Statements F-6 - F-21
2. The following financial statement schedule is included in Item 14(d)
Schedule II - Valuation and Qualifying Accounts F-22
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