SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-19867
------------------------
ESKIMO PIE CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-0571720
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
901 Moorefield Park Drive
Richmond, VA 23236
(Address of principal executive offices, including zip code)
------------
Registrant's phone number, including area code:
(804) 560-8400
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of April 15, 1997.
Class Outstanding at April 15, 1997
----- -----------------------------
Common Stock, $1.00 Par Value 3,457,573
<PAGE>
ESKIMO PIE CORPORATION
Index
Page
Number
------
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income
Three Months Ended March 31, 1997 and 1996 1
Condensed Consolidated Balance Sheets
March 31, 1997; December 31, 1996 and March 31, 1996 2
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 7
<PAGE>
<TABLE>
ESKIMO PIE CORPORATION
Condensed Consolidated Statements of Income (Unaudited)
<CAPTION>
<S> <C>
For the three months ended March 31, 1997 1996
--------------------------------------------------------------------------------------- ------------------- -----------------
(In thousands, except share data)
Net sales $ 18,078 $ 19,769
Cost of products sold 10,589 12,008
------------------- -----------------
Gross profit 7,489 7,761
Advertising and sales promotion expenses 4,482 3,270
General and administrative expenses 2,789 2,595
------------------- -----------------
Operating income 218 1,896
Interest income 41 29
Interest expense and other - net 174 182
------------------- -----------------
Income before income taxes 85 1,743
Income tax expense 32 672
------------------- -----------------
Net income $ 53 $ 1,071
=================== =================
Per common share
Primary
Weighted average number of common shares outstanding 3,450,684 3,476,221
Net income $ 0.02 $ 0.31
=================== =================
Fully diluted
Weighted average number of common shares outstanding 3,613,251 3,638,788
Net income $ 0.02 $ 0.30
=================== =================
Cash dividend $ 0.05 $ 0.05
=================== =================
1
<PAGE>
ESKIMO PIE CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)
<CAPTION>
March 31, December 31, March 31,
As of 1997 1996 1996
- ---------------------------------------------------------------------------- ---------------- ------------------ ----------------
(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents $ 1,139 $ 2,143 $ 767
Receivables 9,053 4,051 13,207
Inventories 6,499 6,608 6,939
Prepaid expenses 1,639 3,262 1,342
---------------- ------------------ ----------------
Total current assets 18,330 16,064 22,255
Property, plant and equipment - net 8,696 8,716 8,881
Goodwill and other intangibles 17,837 17,999 18,601
Other assets 1,568 1,661 1,740
---------------- ------------------ ----------------
Total assets $ 46,431 $ 44,440 $ 51,477
================ ================== ================
Liabilities and Shareholders' Equity
Current liabilities:
Short term borrowings $ - $ - $ 3,900
Accounts payable 4,759 5,283 4,591
Accrued advertising and promotion 3,446 2,026 1,466
Accrued compensation and related amounts 435 730 245
Other accrued expenses 862 723 342
Income taxes - - 975
Current portion of long term debt 944 500 -
---------------- ------------------ ----------------
Total current liabilities 10,446 9,262 11,519
Long term debt 6,206 5,500 6,000
Convertible subordinated notes 3,800 3,800 3,800
Postretirement benefits and other liabilities 3,504 3,408 3,520
Shareholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares authorized,
none issued and outstanding
Common stock, $1.00 par value; 10,000,000 shares authorized,
3,457,573 issued and outstanding in 1997 and 3,447,573
in 1996 3,458 3,448 3,478
Additional capital 4,283 4,168 4,671
Retained earnings 14,734 14,854 18,489
---------------- ------------------ ----------------
Total shareholders' equity 22,475 22,470 26,638
---------------- ------------------ ----------------
Total liabilities and shareholders' equity $ 46,431 $ 44,440 $ 51,477
================ ================== ================
2
<PAGE>
ESKIMO PIE CORPORATION
Condensed Consolidated Statements Of Cash Flows (Unaudited)
<CAPTION>
For the three months ended March 31, 1997 1996
- ------------------------------------------------------------------------------------------ ------------------- ------------------
(In thousands)
Operating activities
Net income $ 53 $ 1,071
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 649 615
Change in deferred income taxes and other assets (17) (176)
Change in postretirement benefits and other liabilities 88 53
Change in receivables (5,002) (4,512)
Change in inventories and prepaid expenses 1,758 (1,333)
Change in accounts payable and accrued expenses 738 1,901
------------------- ------------------
Net cash used in operating activities (1,733) (2,381)
Investing activities
Capital expenditures (348) (167)
Other 100 72
------------------- ------------------
Net cash used in investing activities (248) (95)
Financing activities
Borrowings 1,150 2,700
Cash dividends (173) (174)
------------------- ------------------
Net cash provided by financing activities 977 2,526
------------------- ------------------
Change in cash and cash equivalents (1,004) 50
Cash and cash equivalents at the beginning of the year 2,143 717
------------------- ------------------
Cash and cash equivalents at the end of the quarter $ 1,139 $ 767
=================== ==================
</TABLE>
3
<PAGE>
ESKIMO PIE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all adjustments (consisting
of only normal recurring accruals) necessary for a fair presentation of the
Company's financial position as of March 31, 1997 and its results of operations
for the three months ended March 31, 1997 and 1996. The results of operations
for any interim period are not necessarily indicative of results for the full
year. These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's 1996 Annual
Report.
<TABLE>
NOTE B - INVENTORIES Inventories are classified as follows:
<CAPTION>
<S> <C>
- ------------------------------------------------ -------------------------- ------------------------ -----------------------
March 31, 1997 December 31, 1996 March 31, 1996
- ------------------------------------------------ -------------------------- ------------------------ -----------------------
(In thousands)
Finished goods $ 4,491 $ 4,987 $ 4,403
Raw materials and packaging supplies 3,059 2,672 3,757
----------- ---------- ---------
Total FIFO inventories 7,550 7,659 8,160
LIFO reserves (1,051) (1,051) (1,221)
----------- ---------- ---------
$ 6,499 $ 6,608 $ 6,939
========== ========= =========
- ------------------------------------------------ -------------------------- ------------------------ -----------------------
</TABLE>
4
<PAGE>
ESKIMO PIE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company markets and manufactures through its own plants and licensed
dairies a broad range of frozen novelties, frozen yogurt, ice cream and sorbet
products under the Eskimo Pie, Welch's, Weight Watchers, SnackWell's, OREO and
RealFruit brand names. The Company continues to manufacture ingredients and
packaging for sale to the dairy industry and has recently begun to license the
Eskimo Pie brand name in other product categories.
RESULTS OF OPERATIONS
Net Sales and Gross Profit
Compared to the prior year, sales decreased by $1.7 million or 8.6%. This
decrease relates primarily to an additional $2 million in 1996 sales resulting
from the initial introduction of the Nabisco brand products. Exclusive of the
impact from the Nabisco introductions, sales increased by approximately $300,000
or 1.7%. Eskimo Pie brand sales increased by approximately $700,000 and offset a
net decline in sublicensed brands. The flavors business continues to grow as
evidenced by a $200,000 increase (7.2%) as compared with the prior year.
Gross profit, as a percent of sales, increased to 41.4% for the first
quarter of 1997 as compared with 39.3% in the first quarter of 1996. Most of the
increase is the result of a favorable change in product mix due to the increase
in Eskimo Pie brand sales.
Expenses and other Income
As anticipated, advertising and sales promotion expense increased by $1.2
million or 37.1% as a direct result of the Company's increased focus on the
marketing of Eskimo Pie and sublicensed brand products. The Company's previously
announced 1997 marketing plan calls for both an increased amount of spending
commitments as well as an acceleration of those commitments to earlier periods
in the year. The Company believes that this early season spending will better
position its products against the Company's primary competition as well as
provide the best opportunity for repeat consumer purchases.
General and administrative and interest expense, as well as interest
income, were consistent with the prior year. The effective income tax rate was
also consistent with 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remains strong. The net cash used in
operations is consistent with historical seasonal working capital requirements
although the amount used decreased in 1997 largely as a result of a reduction in
inventory purchases and the recovery of $1.4 million in 1996 federal income tax
payments. The $1,150,000 in borrowings relate to the technology purchases
discussed in the 1996 Annual Report. The Company believes that the annual cash
generated from operations and funds available under its credit agreements will
provide the Company with sufficient funds and the financial flexibility to
support its ongoing business, strategic objectives and debt repayment
requirements.
5
<PAGE>
On April 10, 1997, the Company filed a Form S-8 Registration Statement
with the Securities and Exchange Commission to register 450,000 shares of the
Company's common stock to be used in connection with the previously approved
1996 Incentive Stock Plan and other employee benefit and stock purchase plans.
Pursuant to this registration, the Company will provide an option for employees
to invest their 401(k) contributions in Company stock and will offer an employee
stock purchase plan. The Company will also begin to make its 401(k) match with
shares of the Company's Common Stock. These initiatives were undertaken to
increase employee ownership of Company stock in order to more closely align
employee interests with that of shareholders. The incremental costs of these
plans are not significant and the Company intends to purchase common stock on
the open market as employee contributions are made through payroll deductions.
On May 7, 1997, the Board of Directors declared a quarterly cash dividend
of $.05 per share, payable July 3, 1997, to Shareholders of Record on June 13,
1997. While the Company anticipates a regular quarterly dividend, the amount and
timing of any future dividends will depend on the general business conditions
encountered by the Company, as well as the financial condition, earnings and
capital requirements of the Company and other factors deemed relevant by the
Board of Directors.
6
<PAGE>
PART II, OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
10.23 Letter Agreement dated February 21, 1997 between the
Company and Crestar Bank, filed herewith.
27. Financial Data Schedules, filed herewith.
b. Reports on Form 8-K: None
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ESKIMO PIE CORPORATION
Date: May 12, 1997 By /s/ David B. Kewer
-------------------
David B. Kewer
President and Chief Operating Officer
Date: May 12, 1997 By /s/ Thomas M. Mishoe, Jr.
--------------------------
Thomas M. Mishoe, Jr.
Chief Financial Officer, Vice President,
Treasurer and Corporate Secretary
Date: May 12, 1997 By /s/ William T. Berry, Jr.
--------------------------
William T. Berry, Jr.
Assistant Vice President, Controller
8
Exhibit 10.23
January 3, 1997
Mr. Thomas M. Mishoe, Jr.
Chief Financial Officer
Eskimo Pie Corporation
901 Moorefield Park Drive
Richmond, VA 23235
Dear Tom:
On behalf of Crestar Bank (the "Bank"), I am pleased to advise you that the Bank
has approved the request of Eskimo Pie Corporation (the "Company"), to waive the
covenant defaults under the existing Letter Agreement and to reinstate the line
of credit for the purposes and subject to the terms and conditions set forth
below.
1. Amount and Purpose. Upon acceptance of this letter, the Bank will provide a
revolving line of credit of $10,000,000 to the Company for general
corporate purposes. Advances under the line will be evidenced by the
Company's master note in the amount of the line.
2. Repayment. All loans shall be payable no later than the expiration date of
this line of credit.
3. Interest. Interest shall be computed on the aggregate unpaid principal
balance of the loans from time to time outstanding at a rate equal to the
Bank's overnight Money Market Rate plus .75% on the basis of a 360-day year
for the actual number of days elapsed. The interest rate will be changed on
the same day a change occurs in the rate. Accrued interest shall be billed
or debited monthly.
4. Guaranty. All advances shall be guaranteed, by all present and future
subsidiaries of the Company.
5. Commitment Fee. The Company agrees to pay the Bank a non-refundable
commitment fee of .25% per annum on the unused amount of the commitment
payable quarterly in arrears.
6. Expiration of Line. Unless extended in writing at the sole option of the
Bank, the line of credit shall expire on April 30, 1998.
<PAGE>
7. General and Special Conditions.
A) Capital Expenditures. Without the prior consent of the Bank, capital
expenditures for fixed assets as defined by generally accepted
accounting principles known as GAAP (exclusive of the current
accounting system upgrade) of the Company during the term of this
line of credit shall be limited to $1,750,000.
B) Additional Debt. The Company shall not incur or assume more than
$7,000,000 of additional debt for borrowed funds in excess of the
amounts or facilities already existing as of December 31, 1996,
without the prior written consent of the Bank.
C) Minimum Shareholders' Equity. The Company shall, at its fiscal year
ending December 31, 1996, and at all times thereafter, maintain
shareholders' equity, as defined by GAAP, of not less than
$20,500,000 plus an amount equal to 50% of the Company's positive
net income after taxes determined in accordance with GAAP.
D) Maximum Leverage Ratio. The Company shall, at all times, maintain a
ratio of Total Liabilities to Net Worth not to exceed 1.25 to 1.00.
E) Minimum Cash Coverage Ratio. Cash Coverage Ratio is defined as
Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") less CAPEX divided by the sum of interest expense plus
principal payments (principal payments refers to required repayments
of long-term debt and/or capital leases but does not include
borrowings under the line of credit contemplated by this note). For
the fiscal period ending March 31, 1997 (covering 3 months), the
Company shall maintain a minimum Cash Coverage Ratio of 1.0; for the
fiscal periods ending June 30, 1997 (covering 6 months) and
September 30, 1997 (covering 9 months), the Company shall maintain a
minimum Cash Coverage Ratio of 1.3; and for the fiscal period ending
December 31, 1997, and all fiscal periods thereafter, the Company
shall maintain a minimum Cash Coverage Ratio (on rolling 4 quarter
basis) of 1.5.
F) Loan Documents. The line will be governed by this letter agreement
and by the other loan documents required by the Bank, including the
master note, guarantees, and corporate borrowing resolution. All
loan documents must be in form and substance satisfactory to the
Bank.
G) Expenses. The Company shall pay all of the Bank's out-of-pocket
expenses, including all filing fees and all fees and expenses of the
Bank's counsel, in connection with the making of loans from
acceptance of this commitment.
H) Financial Statements. The Company must furnish to the Bank (1)
within 90 days after the end of its fiscal year, a copy of its
audited financial statements containing the unqualified report of
its independent certified public accountants; (2) within 60 days
after the end of each of its fiscal quarters, a copy if its interim
quarterly financial statements in form satisfactory to the Bank; and
(3) such other information as the Bank may from time to time
request.
<PAGE>
I) Negative Pledge. The loans will be unsecured, but the Company hereby
agrees not to pledge any of its assets to secure future indebtedness
without the prior written consent of the Bank. This condition is not
meant to apply to liens existing on the date hereof and disclosed in
writing to the Bank, liens arising through the ordinary course of
business, statutory liens or liens arising by operation of law so
long as such liens are either inchoate or being contested in good
faith.
8. Non-Assignability. The Commitment is personal to Eskimo Pie Corporation and
is not assignable by operation of law or otherwise, and any assignment
shall be null and void and of no force and effect.
9. Governing Law. This commitment shall be governed by the internal laws of
the Commonwealth of Virginia and applicable federal laws.
10. Events of Default. Those outlined in Crestar Bank's standard commercial
note form and failure of the borrower to comply with any term of any
agreement with Crestar Bank or its other existing lenders.
Should you have any questions, please do not hesitate to call me at 782-5449.
Otherwise, if the terms and conditions of this letter are satisfactory, please
signify your acceptance by signing and returning the enclosed copy of this
letter no later than February 21, 1997, when this commitment will otherwise
expire.
We appreciate this opportunity to work with you and wish you continued success.
Sincerely yours,
CRESTAR BANK
By: /s/ T. Patrick Collins
------------------------
T. Patrick Collins
Vice President
Accepted and agreed to this 21st day of February, 1997.
/s/ Thomas M. Mishoe, Jr.
-----------------------------
By: Thomas M. Mishoe, Jr.
Title: Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,139
<SECURITIES> 0
<RECEIVABLES> 9,053
<ALLOWANCES> 0
<INVENTORY> 6,499
<CURRENT-ASSETS> 18,330
<PP&E> 20,562
<DEPRECIATION> 11,866
<TOTAL-ASSETS> 46,431
<CURRENT-LIABILITIES> 10,446
<BONDS> 10,006
0
0
<COMMON> 3,458
<OTHER-SE> 19,017
<TOTAL-LIABILITY-AND-EQUITY> 46,431
<SALES> 18,078
<TOTAL-REVENUES> 18,078
<CGS> 10,589
<TOTAL-COSTS> 17,860
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 174
<INCOME-PRETAX> 85
<INCOME-TAX> 32
<INCOME-CONTINUING> 53
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
