SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 0-19867
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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)
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Registrant's phone number, including area code:
(804) 560-8400
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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 July 31, 1997.
Class Outstanding at July 31, 1997
Common Stock, $1.00 Par Value 3,458,006
<PAGE>
ESKIMO PIE CORPORATION
Index
Page Number
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income
Three and Six Months Ended June 30, 1997 and 1996 1
Condensed Consolidated Balance Sheets
June 30, 1997; December 31, 1996 and June 30, 1996 2
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 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 4. Submission of Matters to a Vote of Security Holders 7
Item 6. Exhibits and Reports on Form 8-K 7
<PAGE>
ESKIMO PIE CORPORATION
Condensed Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
- ----------------------------------------------------------------------------------- -------------------------------------
1997 1996 1997 1996
- ---------------------------------------------------------------- ------------------ ------------------- -----------------
(In thousands, except share data)
<S> <C>
Net sales $ 23,837 $ 25,324 $ 41,915 $ 45,093
Cost of products sold 13,542 15,136 24,131 27,144
------------------ ------------------ ------------------- -----------------
Gross profit 10,295 10,188 17,784 17,949
Advertising and sales promotion expenses 6,005 4,346 10,487 7,616
General and administrative expenses 2,654 2,974 5,443 5,569
------------------ ------------------ ------------------- -----------------
Operating income 1,636 2,868 1,854 4,764
Interest income 53 34 94 63
Interest expense and other - net 180 172 354 354
Gain on disposal of fixed assets 125 - 125 -
------------------ ------------------ ------------------- -----------------
Income before income taxes 1,634 2,730 1,719 4,473
Income tax expense 621 1,036 653 1,708
------------------ ------------------ ------------------- -----------------
Net income $ 1,013 $ 1,694 $ 1,066 $ 2,765
================== ================== =================== =================
Per common share
Primary
Weighted average number of
common shares outstanding 3,457,923 3,471,601 3,454,324 3,473,911
Net income $ 0.29 $ 0.49 $ 0.31 $ 0.80
================== ================== =================== =================
Fully diluted
Weighted average number of
common shares outstanding 3,620,490 3,634,168 3,616,891 3,636,478
Net income $ 0.29 $ 0.47 $ 0.31 $ 0.77
================== ================== =================== =================
Cash dividend $ 0.05 $ 0.05 $ 0.10 $ 0.10
================== ================== =================== =================
</TABLE>
<PAGE>
ESKIMO PIE CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
As of 1997 1996 1996
- ---------------------------------------------------------- ------------------ ------------------ ----------------
(In thousands, except share data)
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,073 $ 2,143 $ 968
Receivables 11,787 4,051 12,037
Inventories 5,748 6,608 7,417
Prepaid expenses 1,078 3,262 2,060
------------------ ------------------ ----------------
Total current assets 20,686 16,064 22,482
Property, plant and equipment - net 8,635 8,716 8,994
Goodwill and other intangibles 17,629 17,999 18,390
Other assets 1,610 1,661 1,545
------------------ ------------------ ----------------
Total assets $ 48,560 $ 44,440 $ 51,411
================== ================== ================
Liabilities and Shareholders' Equity
Current liabilities:
Short term borrowings $ - $ - $ 1,500
Accounts payable 4,679 5,283 4,454
Accrued advertising and promotion 4,427 2,026 2,830
Accrued compensation and related amounts 468 730 448
Other accrued expenses 1,204 723 533
Income taxes - - 530
Current portion of long term debt 1,202 500 -
------------------ ------------------ ----------------
Total current liabilities 11,980 9,262 10,295
Long term debt 5,876 5,500 6,000
Convertible subordinated notes 3,800 3,800 3,800
Postretirement benefits and other liabilities 3,589 3,408 3,584
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, 3,458,006 issued and outstanding in 1997,
3,447,573 at December 31, 1996 and 3,455,586 at
June 30, 1996 3,458 3,448 3,455
Additional capital 4,283 4,168 4,267
Retained earnings 15,574 14,854 20,010
------------------ ------------------ ----------------
Total shareholders' equity 23,315 22,470 27,732
------------------ ------------------ ----------------
Total liabilities and shareholders' equity $ 48,560 $ 44,440 $ 51,411
================== ================== ================
</TABLE>
<PAGE>
ESKIMO PIE CORPORATION
Condensed Consolidated Statements Of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30, 1997 1996
- ------------------------------------------------------------------------------- --------------------------------------
(in thousands)
<S> <C>
Operating activities
Net income $ 1,066 $ 2,765
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 1,291 1,250
Gain on disposal of fixed assets (125) -
Change in deferred income taxes and other assets (30) (216)
Change in postretirement benefits and other liabilities 155 37
Change in receivables (7,737) (3,342)
Change in inventories and prepaid expenses 3,029 (2,469)
Change in accounts payable and accrued expenses 2,014 3,078
-------------------- -----------------
Net cash (used in) provided by operating activities (337) 1,103
Investing activities
Capital expenditures (656) (441)
Proceeds from disposal of fixed assets 125 -
Other 65 62
-------------------- -----------------
Net cash used in investing activities (466) (379)
Financing activities
Cash dividends (346) (347)
Borrowings 1,150 300
Principal payments on long term debt (71) -
Repurchase of common stock - (426)
-------------------- -----------------
Net cash provided by (used in) financing activities 733 (473)
-------------------- -----------------
Change in cash and cash equivalents (70) 251
Cash and cash equivalents at the beginning of the year 2,143 717
-------------------- -----------------
Cash and cash equivalents at the end of the quarter $ 2,073 $ 968
==================== =================
</TABLE>
<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 June 30, 1997 and its results of operations
for the three and six months ended June 30, 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.
Accounting Change: In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings Per Share. Statement No. 128, which is
effective for both interim and annual financial statements ending after December
15, 1997, establishes revised standards for computing and reporting earnings per
share. The Company will change the method currently used to compute earnings per
share and restate all prior periods in its December 31, 1997 Annual Report. The
impact on earnings per share is not expected to be material.
Reclassifications: Certain prior year amounts have been reclassified to conform
to current year presentation.
NOTE B - INVENTORIES Inventories are classified as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------ -------------------------- ------------------------ -----------------------
June 30, 1997 December 31, 1996 June 30, 1996
- ------------------------------------------------ -------------------------- ------------------------ -----------------------
(In thousands)
<S> <C>
Finished goods $ 3,818 $ 4,987 $ 4,912
Raw materials and packaging supplies 2,981 2,672 3,655
------------ ---------- ----------
Total FIFO inventories 6,799 7,659 8,567
LIFO reserves (1,051) (1,051) (1,150)
------------ ----------- -----------
$ 5,748 $ 6,608 $ 7,417
========== ========= ==========
- ------------------------------------------------ -------------------------- ------------------------ -----------------------
</TABLE>
NOTE C - GAIN ON DISPOSAL OF FIXED ASSETS
During the third quarter of 1996, the Company recorded a number of special
charges not identifiable with preceding interim periods. These charges included
a loss of $725,000 relating to the disposal of certain equipment leased to one
of the Company's licensees. During 1997, the Company identified buyers for
certain components of the equipment previously written off. The $125,000 gain on
disposal of fixed assets equals the proceeds received from the sale of the
equipment which had no book value.
<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
Total Company sales decreased during both the quarter and six month
period ended June 30, 1997 as the prior year included $8 million in sales of
Nabisco brand products introduced in the first half of 1996. Repeat sales of the
Nabisco items have not met expectations. Sales of Eskimo Pie and Welch's brand
products have increased over the prior year and helped to mitigate the decline
in Nabisco brand sales. Eskimo Pie brand sales increased by $1.2 million (15.7%)
for the quarter and $1.9 million (13.9%) for the six months ended June 30, 1997.
Welch's brand sales increased by $.5 million (10.4%) for the quarter and $.8
million (10.6%) for the six month period. According to Information Resources,
Inc., recent consumer purchases of Eskimo Pie and Welch's brand products have
increased over the prior year and are ahead of the overall frozen novelty
category trends. The Company's flavors business continues to exceed prior year
results.
Gross profit, as a percent of sales, increased during both the quarter
and six month period primarily as a result of an improved product mix which
resulted from an increase in higher margined Eskimo Pie brand sales. Additional
gross margin improvements were the result of management's recent initiatives to
obtain more favorable pricing on several key materials and ingredients.
Expenses and Other Income
As planned, advertising and sales promotion expense increased by
approximately 38% during the quarter and six month period 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 called
for both an increased amount of spending commitments as well as an acceleration
of those commitments to earlier periods in the year. As the Company completes
its 1997 marketing program, advertising and sales promotion expense is expected
to decline during the second half of the year in comparison with both the first
two quarters of 1997 and the comparable periods in 1996.
General and administrative expense decreased in comparison with the prior
year primarily due to approximately $200,000 of severance accruals recorded in
the second quarter of 1996. Interest income and expense, as well as the income
tax rate, remains consistent with the prior year.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remains strong. Although the Company
generated less cash from operations than in prior years (due primarily to lower
earnings), the Company's cash and current ratio remained constant during the
year due to improved inventory management, the recovery of $1.4 million in 1996
Federal income tax payments and $1,150,000 in borrowings related to 1996
technology purchases. 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.
In June 1997, the Company announced that it will consolidate its flavors
production in New Berlin, Wisconsin. In connection with the consolidation, the
Company has entered into a contract for the sale of its Los Angeles plant
facility. Cash flows generated from the sale are expected to more than offset
the anticipated severance and other plant closing costs as well as necessary
capital improvements required in New Berlin to support the consolidated
operations. Assuming the satisfaction of standard closing requirements, the
Company expects to close the sale of its Los Angeles plant by year end. The
financial impact of the sale transaction and related consolidation is expected
to be positive to earnings in 1997 and beyond.
<PAGE>
PART II, OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) At the Company's Annual Meeting held on May 7, 1997; 2,375,842
of the Company's 3,457,573 shares were present in person or by
proxy and entitled to vote, which constituted a quorum.
(b) At the Annual Meeting, the following nominees were elected to
serve until the 1998 Annual Meeting having received the
following vote:
FOR ABSTAIN
Terrence D. Daniels 2,375,211 360,631
Arnold H. Dreyfuss 2,375,341 360,501
William M. Fariss, Jr. 2,375,241 360,601
Wilson H. Flohr, Jr. 2,375,341 360,501
F. Claiborne Johnston, Jr. 2,375,311 360,531
Judith M. McBee 2,685,711 50,131
(c) At the Annual Meeting, designation of Ernst & Young LLP as
auditors for the Company was ratified having received the
following vote:
FOR 2,659,784
AGAINST 74,507
ABSTAIN 1,351
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits:
10.1 Eskimo Pie Corporation Savings Plan, as amended,
incorporated herein by reference to Exhibit 4(c)
(ii) to the Company's Registration Statement on
Form S-8 (Registration No. 333-24893).
10.2 Eskimo Pie Corporation Employee Stock Purchase
Plan, incorporated herein by reference to Exhibit
4(c) (iii) to the Company's Registration Statement
on Form S-8 (Registration No. 333-24893).
27. Financial Data Schedules, filed herewith.
(b) Reports on Form 8-K:
None
<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: August 12, 1997 By /s/ David B. Kewer
--------------------------
David B. Kewer
President and Chief Operating Officer
Date: August 12, 1997 By /s/ Thomas M. Mishoe, Jr.
---------------------------
Thomas M. Mishoe, Jr.
Chief Financial Officer, Vice President,
Treasurer and Corporate Secretary
Date: August 12, 1997 By /s/ William T. Berry, Jr.
------------------------------
William T. Berry, Jr.
Assistant Vice President, Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,073
<SECURITIES> 0
<RECEIVABLES> 11,787
<ALLOWANCES> 0
<INVENTORY> 5,748
<CURRENT-ASSETS> 20,686
<PP&E> 20,786
<DEPRECIATION> 12,151
<TOTAL-ASSETS> 48,560
<CURRENT-LIABILITIES> 11,980
<BONDS> 9,676
0
0
<COMMON> 3,458
<OTHER-SE> 19,857
<TOTAL-LIABILITY-AND-EQUITY> 48,560
<SALES> 41,915
<TOTAL-REVENUES> 41,915
<CGS> 24,131
<TOTAL-COSTS> 40,061
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 354
<INCOME-PRETAX> 1,719
<INCOME-TAX> 653
<INCOME-CONTINUING> 1,066
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,066
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
