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 September 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 October 31, 1997.
Class Outstanding at October 31, 1997
----- -------------------------------
Common Stock, $1.00 Par Value 3,458,006
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ESKIMO PIE CORPORATION
Index
<CAPTION>
<S> <C>
Page
Number
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Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income
Three and Nine Months Ended September 30, 1997 and 1996 1
Condensed Consolidated Balance Sheets
September 30, 1997; December 31, 1996 and September 30, 1996 2
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 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 6
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 8
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ESKIMO PIE CORPORATION
Condensed Consolidated Statements of Income (Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share data)
Net sales $ 13,124 $ 16,898 $ 55,038 $ 61,991
Cost of products sold 7,964 11,726 32,095 38,870
------------------ ------------------ ------------------- --------------
Gross profit 5,160 5,172 22,943 23,121
Advertising and sales promotion expenses 3,445 5,741 13,927 13,357
General and administrative expenses 2,065 3,107 7,512 8,676
Income from restructuring activities 689 - 689 -
------------------ ------------------ ------------------- --------------
Operating income (loss) 339 (3,676) 2,193 1,088
Interest income 48 88 142 151
Interest expense and other - net 179 159 533 513
Gain (loss) on disposal of fixed assets 57 (777) 182 (777)
------------------ ------------------ ------------------- --------------
Income (loss) before income taxes 265 (4,524) 1,984 (51)
Income tax expense (benefit) 101 (1,725) 755 (17)
------------------ ------------------ ------------------- --------------
Net income (loss) $ 164 $ (2,799) $ 1,229 $ (34)
================== ================== =================== ==============
Per common share
Primary
Weighted average number of
common shares outstanding 3,458,006 3,446,216 3,455,565 3,464,612
Net income (loss) $ 0.05 $ (0.81) $ 0.36 $ (0.01)
================== ================== =================== ==============
Fully diluted
Weighted average number of
common shares outstanding 3,620,573 3,608,783 3,618,132 3,627,179
Net income (loss) $ 0.05 $ (0.81) $ 0.36 $ (0.01)
================== ================== =================== ==============
Cash dividend $ 0.05 $ 0.05 $ 0.15 $ 0.15
================== ================== =================== ==============
1
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ESKIMO PIE CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)
<CAPTION>
Sept. 30, December 31, Sept. 30,
As of 1997 1996 1996
- ------------------------------------------------------------------------------ ------------------ ------------------ ---------------
(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents $ 3,400 $ 2,143 $ 3,222
Receivables 6,305 4,051 5,574
Inventories 5,998 6,608 5,543
Prepaid expenses 944 3,262 2,391
------------------ ------------------ ---------------
Total current assets 16,647 16,064 16,730
Property, plant and equipment - net 7,731 8,716 7,958
Goodwill and other intangibles 17,828 17,999 18,191
Other assets 1,394 1,661 1,558
------------------ ------------------ ---------------
Total assets $ 43,600 $ 44,440 $ 44,437
================== ================== ===============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 2,981 $ 5,283 $ 2,152
Accrued advertising and promotion 1,852 2,026 2,374
Accrued compensation and related amounts 617 730 996
Other accrued expenses 737 723 924
Current portion of long term debt 1,317 500 286
------------------ ------------------ ---------------
Total current liabilities 7,504 9,262 6,732
Long term debt 5,547 5,500 5,714
Convertible subordinated notes 3,800 3,800 3,800
Postretirement benefits and other liabilities 3,444 3,408 3,589
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 3,445,073 at
September 30, 1996 3,458 3,448 3,445
Additional capital 4,283 4,168 4,121
Retained earnings 15,564 14,854 17,036
------------------ ------------------ ---------------
Total shareholders' equity 23,305 22,470 24,602
------------------ ------------------ ---------------
Total liabilities and shareholders' equity $ 43,600 $ 44,440 $ 44,437
================== ================== ===============
2
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ESKIMO PIE CORPORATION
Condensed Consolidated Statements Of Cash Flows (Unaudited)
<CAPTION>
Nine months ended September 30, 1997 1996
- ------------------------------------------------------------------------------------------ --------------------------------------
(in thousands)
Operating activities
Net income (loss) $ 1,229 $ (34)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 1,884 1,894
(Gain) loss on disposal of fixed assets (1,181) 777
Change in deferred income taxes and other assets (43) (296)
Change in postretirement benefits and other liabilities (37) 83
Change in receivables (2,255) 3,121
Change in inventories and prepaid expenses 2,924 (926)
Change in accounts payable and accrued expenses (2,578) 729
-------------------- -----------------
Net cash (used in) provided by operating activities (57) 5,348
Investing activities
Capital expenditures (907) (552)
Proceeds from disposal of fixed assets 1,992 -
Other (116) 13
-------------------- -----------------
Net cash provided by (used in) investing activities 969 (539)
Financing activities
Cash dividends (519) (521)
Borrowings 1,150 -
Repayment of short term borrowings - (1,200)
Principal payments on long term debt (286) -
Repurchase of common stock - (583)
-------------------- -----------------
Net cash provided by (used in) financing activities 345 (2,304)
-------------------- -----------------
Change in cash and cash equivalents 1,257 2,505
Cash and cash equivalents at the beginning of the year 2,143 717
-------------------- -----------------
Cash and cash equivalents at the end of the quarter $ 3,400 $ 3,222
==================== =================
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3
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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 September 30, 1997 and its results of
operations for the three and nine months ended September 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.
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NOTE B - INVENTORIES Inventories are classified as follows:
- ------------------------------------------------ -------------------------- ------------------------ -----------------------
September 30, 1997 December 31, 1996 September 30, 1996
- ------------------------------------------------ -------------------------- ------------------------ -----------------------
(In thousands)
Finished goods $ 2,705 $ 4,987 $ 3,387
Raw materials and packaging supplies 4,344 2,672 3,266
---------- --------- ----------
Total FIFO inventories 7,049 7,659 6,653
LIFO reserves (1,051) (1,051) (1,110)
---------- --------- ----------
$ 5,998 $ 6,608 $ 5,543
========== ========= ==========
- ------------------------------------------------ -------------------------- ------------------------ -----------------------
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NOTE C - INCOME FROM RESTRUCTURING ACTIVITIES
During the third quarter of 1997, the Company consolidated its flavors
production in New Berlin, Wisconsin. In connection with the consolidation, the
Company discontinued flavors operations in Los Angeles, California, terminated
the employment of the plant's 14 employees and sold the plant facility. The
Company recorded income of $689,000 as a result of these actions.
The income from restructuring activities includes a gain on the sale of plant
assets of approximately $1.0 million offset primarily by employee severance
payments. With the exception of approximately $110,000 of severance payments
which will be paid to former employees through the second quarter of 1998, all
cash receipts and payments relating to the consolidation have been settled as of
September 30, 1997.
4
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NOTE D - GAIN ON DISPOSAL OF FIXED ASSETS
During 1997, the Company identified buyers for certain components of equipment
which were written off in the third quarter of 1996 (see additional discussion
in Note E below). The gain on disposal of fixed assets equals the proceeds
received from the sale of the equipment which had no book value at the beginning
of 1997.
NOTE E - SPECIAL CHARGES
During the third quarter of 1996, the Company recorded special charges not
identifiable with preceding interim periods of approximately $2,398,000. These
special charges included accruals relating to severance commitments associated
with a change in executive management ($593,000), the disposal of certain
equipment leased to one of the Company's licensees ($725,000) and the disposal
of licensee and Company held inventories ($920,000). After related tax benefits,
the special charges reduced 1996 net income by approximately $1,482,000.
5
<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, RealFruit, Welch's, Weight Watchers, SnackWell's
and OREO 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 nine month
period ended September 30, 1997. These declines are primarily attributable to
disappointing second year sales of Nabisco branded items and a decline in the
sorbet category where the Company's RealFruit brand competes. However,
supermarket sales of Eskimo Pie and Welch's brand products outperformed their
respective categories this summer (based on consumption data collected by
Information Resources, Inc.) in response to the early season advertising and
sales promotion activity. Sales of Eskimo Pie brand products increased by
approximately 4.9% during the nine month period and offset declines in the
sublicensed brands. Component sales to licensees decreased during the quarter in
response to the planned reduction of late season advertising and sales promotion
activity.
Gross profit, as a percent of sales, improved in 1997 due to an
improved product mix resulting from increased sales of higher margin Eskimo Pie
brand products, reduced material costs resulting from recent negotiations with
the suppliers of key ingredients and packaging, and enhanced inventory
management which has reduced inventory obsolescence.
Expenses and Other Income
Advertising and sales promotion expense increased on a year to date basis
as a reflection of the investment spending undertaken to rebuild the Company's
core brands. The decline in third quarter expenses reflects the effect of the
Company's 1997 marketing plan which accelerated a larger portion of the
promotional activity to earlier in the summer selling season. The third quarter
expense also reflects an overall reduction in promotional activities made in
response to the sales declines discussed above.
Exclusive of 1996 severance accruals, general and administrative
expenses have declined by over $400,000 during both the quarter and nine month
period. These expenses continue to decline as a result of management's increased
focus in all portions of the business.
In June 1997, the Company announced the consolidation of its flavors
production in New Berlin, Wisconsin. In connection with the consolidation, the
Company has discontinued flavors operations in Los Angeles, California,
terminated the employment of the plant's 14 employees and sold the plant
facility. The income from restructuring activities of $689,000 is the result of
these actions.
The income from restructuring activities includes a gain on the sale of
plant assets of approximately $1.0 million offset primarily by employee
severance payments. With the exception of approximately $110,000 of severance
payments which will be paid to former employees through the second quarter of
1998, all cash receipts and payments relating to the consolidation have been
settled as of September 30, 1997.
6
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The Company plans to use the proceeds from the sale of the Los Angeles
facility to complete an expansion of the New Berlin facility. The New Berlin
expansion will provide the capacity to serve the Company's current and expected
business requirements at costs which are lower than operating two plants. The
Company estimates that the consolidation of its two flavors plants into an
expanded New Berlin operation will generate annual cost savings of approximately
$500,000 (before tax) beginning in 1998.
In the third quarter of 1996, the Company recorded a loss on disposal of
fixed assets of $725,000 relating to certain equipment leased to one of the
Company's licensees. The licensee had asked to have the equipment removed and no
alternate use appeared available. During 1997, the Company identified buyers for
certain components of the equipment written off in 1996. The 1997 gains on
disposal of fixed assets equals the proceeds received from the sale of the
equipment which had no book value at the beginning of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remains strong. Although the Company
generated less cash from operations than in prior years, the Company's cash and
current ratio remained consistent with the prior year due to the recovery of
$1.4 million in 1996 Federal income tax payments, $1,150,000 in borrowings
related to 1996 technology purchases and the proceeds from the sale of the Los
Angeles plant facility. 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.
On October 17, 1997, the Company's Board of Directors declared a
quarterly cash dividend of $.05 per share, payable on January 2, 1998, to
shareholders of record on December 16, 1997. While the Company anticipates that
it will have 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.
FORWARD LOOKING STATEMENTS
Statements contained in this Report on Form 10-Q regarding the Company's
future plans and expected performance are forward looking statements within the
meaning of federal securities laws and are based upon management's current
expectations and beliefs about future events and their effect upon Eskimo Pie
Corporation. There can be no assurance that future developments will mirror
those currently anticipated by management. These forward looking statements
involve risks and uncertainties including but not limited to, the level of
consumer interests in the Company's products, product costing, the weather,
performance of the Company's management team, the Company's relationships with
its licensees and licensors, the highly competitive nature of the frozen dessert
market, as well as government regulation. The risks and uncertainties are
further discussed in the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission for the year ended December 31, 1996. Actual
results may vary materially from those included herein and the Company assumes
no responsibility for updating these statements.
7
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PART II, OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits:
27. Financial Data Schedules, filed herewith.
(b) Reports on Form 8-K:
None
8
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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: November 12, 1997 By /s/ David B. Kewer
--------------------------
David B. Kewer
President and Chief Operating Officer
Date: November 12, 1997 By /s/ Thomas M. Mishoe, Jr.
-----------------------------
Thomas M. Mishoe, Jr.
Chief Financial Officer, Vice President,
Treasurer and Corporate Secretary
Date: November 12, 1997 By /s/ William T. Berry, Jr.
------------------------------
William T. Berry, Jr.
Assistant Vice President, Controller
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,400
<SECURITIES> 0
<RECEIVABLES> 6,305
<ALLOWANCES> 0
<INVENTORY> 5,998
<CURRENT-ASSETS> 16,647
<PP&E> 18,609
<DEPRECIATION> 10,878
<TOTAL-ASSETS> 43,600
<CURRENT-LIABILITIES> 7,504
<BONDS> 9,347
0
0
<COMMON> 3,458
<OTHER-SE> 19,847
<TOTAL-LIABILITY-AND-EQUITY> 43,600
<SALES> 55,038
<TOTAL-REVENUES> 55,038
<CGS> 32,095
<TOTAL-COSTS> 53,534
<OTHER-EXPENSES> (689)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 533
<INCOME-PRETAX> 1,984
<INCOME-TAX> 755
<INCOME-CONTINUING> 1,229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,229
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
