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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 12 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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 of 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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Securities registered pursuant to section 12(g) of the Act:
ESKIMO PIE CORPORATION COMMON STOCK, $1.00 par value
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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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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. [ ]
There were 3,457,573 shares of the Registrant's Common Stock outstanding
on March 24, 1997. The aggregate market value held by non-affiliates on March
24, 1997 was approximately $42 million.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in the Registrant's Proxy Statement for the Annual
Meeting to be held on May 7, 1997 is incorporated by reference into Part III
herein.
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<PAGE>
INDEX
Part I
Page
Item 1. Business..........................................................1
Item 2. Properties........................................................5
Item 3. Legal Proceedings.................................................6
Item 4. Submission of Matters to a Vote of Security Holders ..............6
Executive Officers of the Registrant..............................7
Part II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters...............................................8
Item 6. Selected Financial Data...........................................9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.............................. 10
Item 8. Financial Statements and Supplementary Data .....................14
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...........................26
Part III
Item 10 Directors and Executive Officers of the Registrant ..............26
Item 11. Executive Compensation...........................................26
Item 12. Security Ownership of Certain Beneficial Owners
and Management...................................................26
Item 13. Certain Relationships and Related Transactions ..................26
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K..............................................27
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Trademarks and service marks of the Company are italicized where they
appear herein. NutraSweet(R) is the registered trademark of the NutraSweet
Company, Deerfield, Illinois. Welch's(R) is the registered trademark of Welch
Foods Inc., a Cooperative ("Welch's"), Concord, Massachusetts. Nabisco(R),
OREO(R) and SnackWell's(R) are the registered trademarks of Nabisco Brands
Company ("Nabisco"), Chicago, Illinois. Weight Watchers(R) is the registered
trademark of Weight Watchers International, Inc. ("Weight Watchers"), Jericho,
New York. RealFruit(R) is the registered trademark of Boston Brands, Inc,
Woburn, Massachusetts. All Rights Reserved.
Market share and product distribution data were obtained from Information
Resources, Inc. ("IRI"), a nationally recognized market research firm based in
Chicago, Illinois, which provides the Company with scanner-based product
movement data from U.S. grocery stores with annual all-commodity-volume of at
least $2 million.
Forward Looking Statements: Statements contained in this Report on Form 10-K
regarding the Company's future plans and performance are forward looking
statements within the meaning of the federal securities laws. These statements
are based upon management's current expectations and beliefs about future events
and their effect upon the Company. There can be no assurance that future
developments affecting the Company will mirror those currently anticipated by
management. Actual results may vary materially from those included in the
forward looking statements. These forward looking statements involve risks and
uncertainties, including but not limited to, the level of consumer interest in
the Company's products, product costing, the weather, the performance of the new
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. For a more complete discussion of these risks and
uncertainties, see "Other Factors Affecting the Business of the Company" on
pages 3-5 hereof.
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PART I
ITEM 1. BUSINESS
Introduction
Eskimo Pie Corporation created the frozen novelty industry in 1921 with
the invention of the Eskimo Pie ice cream bar. Over 75 years later, the Company
markets a broad range of frozen novelties, ice cream and sorbet products under
the Eskimo Pie, Welch's, Weight Watchers, SnackWell's, OREO and RealFruit brand
names using a national territorial licensing strategy. Effective March 1, 1994,
the Company also manufactures and markets soft-serve yogurt mix through its
wholly owned subsidiary, Sugar Creek Foods, Inc. Over 80% of the Company's
revenues are derived from the sale of these nationally branded products.
The Company also manufactures ingredients and packaging for sale to the
dairy industry. The Company has also recently begun to license the Eskimo Pie
brand name in other product categories which include several varieties of cookie
products that will be delivered to retail grocers beginning in March 1997.
The Company's strengths include national brand recognition, the quality
of its products and successful new product introductions. The Company's growth
has come primarily as a result of the development and introduction of Eskimo Pie
brand frozen dessert products, the sublicensing of frozen dessert products under
other well-known national brands and the use of a select group of
quality-oriented licensee manufacturers who provide a cost effective means of
manufacture and distribution for the Company's products.
The Company is a Virginia corporation with executive offices at 901
Moorefield Park Drive, Richmond, Virginia 23236.
Licensing Strategy
The Company has granted licenses to approximately 20 dairies who purchase
packaging and ingredients from the Company for use in the manufacture and
distribution of Eskimo Pie and sub-licensed branded products. Licensees are
selected based upon their reputation for product quality and manufacturing and
distribution capabilities. The licensees produce, store and distribute products
in accordance with specific quality control standards which ensure uniform
formulations, taste and appearance across all licensee territories. The Company
regularly inspects the licensee's production and storage facilities and monitors
finished products for adherence to the Company's quality standards. Licensing
agreements generally provide for a six month transition period in the event of
termination of any such agreement.
As a result of its licensing strategy, the top four and ten licensees
respectively account for approximately 50% and 70% of the Company's net sales.
The licensing strategy allows the Company to select a strong customer base which
it actively monitors to minimize the impact of an unforeseen loss of customers.
The loss of one or more licensees could cause some disruption in the Company's
operations, although, based upon prior experience with replacing licensees,
management believes it could find a suitable replacement within a short period
of time and, as a result, such customer loss would not have a significant impact
on the Company's operations, liquidity or capital resources.
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The licensing strategy allows the Company to operate with relatively low
capital requirements. The Company's working capital requirements are limited to
that necessary to support advertising, sales promotion and administrative
activities rather than the much larger amounts that would be required to support
the self-manufacture of finished consumer goods.
The Company provides significant marketing support for the Eskimo Pie
branded products as well as the sublicensed brands manufactured and distributed
by its licensees. The Company's advertising and sales promotion expense
generally includes trade promotion and introductory costs, price-off and feature
price promotions, regional consumer promotion, couponing and other trial
purchase generating programs and broker commissions.
The Company has 23 sales personnel including three national sales
managers and engages food brokers in almost every major U.S. market.
Distribution of the Company's finished consumer products is handled by the
licensees in their respective territories.
Products
Certain key ingredients (such as chocolate coatings and powders) and
wrappers used by the Company's licensees in the manufacture of Eskimo Pie and
sub-licensed frozen novelty and ice cream products are produced at Company owned
facilities located in Wisconsin, California and New Jersey. Other products sold
within the licensing system are purchased from approved vendors and "drop
shipped" directly to licensee production facilities. Products sold under "drop
shipped" arrangements generally include cartons, ice cream sandwich wafers and
proprietary ingredients used in the manufacture of sub-licensed brand products.
The Company manufactures over 50 flavors of soft serve yogurt and ice
milk mix in a leased facility in Arkansas. Soft serve products are sold under
the Eskimo Pie, Sugar Creek and SnackWell's brand names to retail and
institutional food service establishments who, in turn, sell finished soft serve
products to consumers. The sale of soft serve yogurt and ice milk mix, which
accounts for approximately 12% of the Company's sales, is generally managed by a
separate sales force working within the Company's wholly owned subsidiary, Sugar
Creek Foods, Inc.
The Company has contracted, under a co-packing arrangement, for the
manufacture of consumer ready sorbet products under the RealFruit brand name.
RealFruit products are generally sold by the Company to regional frozen food
distributors and directly to retail groceries.
The Company manufactures and markets various ingredients to the dairy
industry. This process involves blending, cooking and processing basic flavors
and fruits to yield products which are used to flavor ice cream, milk and
cultured dairy products. This business has steadily grown in recent years and
provides positive gross margin contribution although at much lower levels than
the Company's licensing business.
The Company also manufactures packaging, such as bags and wraps, at its
New Jersey plant. These products are sold to the dairy industry, including many
of the Company's licensees, and to the food service industry.
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Sublicensing Efforts
The Company leverages its licensee relationships and marketing presence
through the acquisition of limited rights for nationally recognized brand names
(Welch's, Weight Watchers, SnackWell's, OREO, RealFruit). These rights allow the
Company to manage the manufacture, distribution and marketing of branded frozen
novelties, frozen yogurt, ice cream and sorbet products in exchange for royalty
payments to the owners of the brand names.
The Company has, since 1980, managed the manufacture and marketing of
Welch's brand frozen fruit juice bars under an exclusive agreement with Welch
Foods Inc. The Company currently manages four different varieties of Welch's
frozen juice bars under this arrangement.
The Company expanded its line of national brands in December 1994 and
January 1995 with the signing of long-term agreements with Nabisco, Inc. and
Weight Watchers Food Company, respectively.
Under the Nabisco agreement, the Company has developed and commenced to
market frozen novelties and ice cream under the SnackWell's and OREO brand
names. Since signing the licensing agreement, the Company has developed and
introduced six different varieties of SnackWell's frozen novelties, four flavors
of SnackWell's packaged ice cream and two flavors of OREO packaged ice cream.
Under the Weight Watchers agreement, the Company assumed the management
of the manufacture, distribution and marketing of an existing line of frozen
novelty products. There are five Weight Watchers frozen novelties currently
distributed to retail groceries.
In March 1995, the Company entered into a long-term agreement with the
RealFruit Company to manage the manufacture, distribution and sale of RealFruit
frozen sorbet, an existing product line with limited distribution. Three new
flavors will be added to the RealFruit line in 1997 as part of the Company's
continued efforts to expand the distribution and sale of RealFruit products.
Other Factors Affecting the Business of the Company
Forward Looking Statements. This section, as well as other sections of
this document and other information or statements the Company may release from
time to time, includes forward looking statements, within the meaning of federal
securities laws, about the Company's future plans and performance. These
statements are based upon management's current expectations and beliefs about
future events and their effect on Eskimo Pie Corporation. There can be no
assurance that future developments will mirror those currently anticipated by
management. Numerous factors, including but not limited to those discussed
below, produce risks and uncertainties that may cause actual results to vary
materially from those included in the forward looking statements. The Company
assumes no duty to update any of its forward looking statements.
Competition. The principal outlet for the Company's licensed products is
retail grocery stores which sell approximately $3.8 billion of frozen novelties
and ice cream annually according to the International Dairy Foods Association.
The Company's branded frozen novelties compete with over 400 brands available to
consumers, including the brands of two of the world's largest food
conglomerates. The Company also competes with national, regional and local
brands of soft serve frozen yogurt, packaged ice cream and sorbet products.
3
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Management believes that the Company has a number of competitive
advantages in the frozen dessert market. The Eskimo Pie brand name is one of the
most widely recognized names in this market and it is management's belief that
consumers identify the Eskimo Pie name with a consistently high quality product.
The Company has been a leader in new product introductions, as evidenced by
Eskimo Pie Sweetened with NutraSweet and the numerous sub-licensed products
developed in recent years. In addition, the Company's licensing strategy enables
it to operate with relatively low capital requirements.
Product Costing. The Company purchases raw materials such as sugar and
coconut oil from a number of suppliers. Other materials used by the Company
include foil, paperboard and chocolate liquor. With the exception of aspartame
and polydextrose, which have been, until recently, under patents by The
NutraSweet Company, and Pfizer, Inc., respectively, and the proprietary items
required to be purchased from the owners of the sublicensed brands, the Company
believes that its raw materials are readily available from a number of sources.
Raw material costs may be influenced by fluctuations in the commodity markets.
Seasonality. The frozen dessert market is seasonal with sales
concentrated in the summer months. Because the Company supplies packaging and
ingredients to manufacturers of its licensed and sublicensed products, the
Company has a higher level of shipments preceding and during the summer months
and a lower level of shipments in the first and fourth quarters. Annual sales
can be adversely affected by unseasonably cool weather during the summer months
of the year.
Trademarks. The licensing of trademarks owned and licensed by the
Company, especially for the Eskimo Pie brand, is central to the business of the
Company. The Company has exclusive rights with respect to these trademarks in
the U.S. and Canada. The Company has made federal and various international
filings with respect to its material trademarks, and intends to keep these
filings current. The Company is not aware of any challenge to the validity of
any trademark material to its business in areas where the Company and its
licensees are currently conducting operations.
Environmental. The Company's operations are subject to rules and
regulations governing air quality, waste disposal and other environmental
related matters, as well as other general employee health and safety laws and
regulations. Other than as set forth below with respect to the Bloomfield plant,
the Company believes that it is in substantial compliance with all such
applicable laws and rules.
In the third quarter of 1991, the Company learned that small quantities
of cleanup solvents, solvent inks and oil were disposed of at its Bloomfield,
New Jersey plant. The Company promptly notified regulatory authorities and
undertook testing to determine the extent of any contamination. In connection
with consummation of the Company's public offering in March, 1992, the Company's
former parent, Reynolds Metals Company ("Reynolds"), entered into an agreement
with the Company under which Reynolds will continue to manage testing and
cleanup activities at the Bloomfield plant. Under the agreement, Reynolds will
reimburse the Company for all cleanup costs (as defined in the agreement)
relating to the Bloomfield plant that may be incurred by the Company in excess
of $300,000. The Company recorded a $300,000 liability for these costs in 1991
of which approximately $100,000 remains unused at December 31, 1996. Except as
provided in the agreement, Reynolds has not otherwise undertaken any
responsibility or assumed liability for environmental obligations of the
Company.
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Government Regulation. Like other companies in the food industry, the
Company and its licensees are subject to extensive regulation by various local,
state and federal governmental agencies. Pursuant to a wide range of statutes,
rules and regulations, such agencies prescribe requirements governing product
quality, purity, manufacturing, advertising and labeling. Food products are
often subject to "standard of identity" requirements which are promulgated at
both the federal and state level to control the permissible qualitative and
quantitative ingredient content of foods, and information that must be provided
on food product labels. The Federal Food and Drug Administration ("FDA"), the
Federal Trade Commission ("FTC") and many states review product labels and
advertising to assure compliance with applicable statutes and regulations.
The Company cannot predict the impact of the changes that it may be
required to make in the future as a result of other legislation, rules or
governmental review. FDA regulations may, in certain instances, affect the
ability of the Company, as well as others in the industry, to develop and market
new products and to utilize technological innovations in the manufacturing of
existing products. Nevertheless, the Company does not believe these rules and
regulations will have a significant impact on its operations.
New Management Team. The Company is reliant on the abilities of several
recently hired financial and marketing personnel as well as those of David B.
Kewer, the Company's new President and Chief Operating Officer. These personnel
have significant experience in their respective functional areas and the loss of
these individuals or others could have an adverse effect on the Company's
ability to implement its future plans.
Licensor Relationships. The Company derives approximately 40% of its
revenues from sub-licensed products which, in general, are governed by
contractual agreements between the licensor and the Company. The loss of any of
these sub-licensed brands could have an adverse effect on the Company's
business.
Licensee Relationships. The risks related to the Company's relationships
with its licensees are discussed under "Licensing Strategy" above.
Employees. At December 31, 1996, the Company employed approximately 185
persons. No employees are currently covered by collective bargaining agreements.
The Company believes that its employee relations are good.
ITEM 2. PROPERTIES
In 1992, the Company acquired an office building in the Moorefield Office
Park in Richmond, Virginia. The building consists of 32,496 square feet on 3.419
acres which serves as the Company's executive and administrative offices and new
product development/quality control facility.
The Company owns its ingredients manufacturing plant in New Berlin,
Wisconsin which consists of 73,820 square feet on 4 acres. The Company expanded
its New Berlin plant in 1990 by 18,000 square feet and purchased certain new
equipment at that time. The Company also owns its ingredients manufacturing
plant in Los Angeles, California which consists of 38,211 square feet on 2.68
acres, having relocated the plant operations to its present site in 1986.
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The Company also owns its printing and packaging plant in Bloomfield, New
Jersey, which consists of 71,583 square feet on 1.95 acres. The Bloomfield plant
was expanded and modernized in 1985 with a 35,000 square foot addition.
In connection with the March 1, 1994 acquisition of Sugar Creek Foods of
Russellville, Inc., the Company's subsidiary, Sugar Creek Foods, Inc., is
leasing from the former owner of the business a soft serve yogurt and ice milk
mix production facility, consisting of approximately 23,805 square feet, and a
packaging facility, consisting of approximately 16,000 square feet, both located
in Russellville, Arkansas. Sugar Creek Foods, Inc. also purchased a freezer
facility, consisting of 5,013 square feet, adjacent to the production facility
in Russellville.
The Company owns virtually all of its equipment and replacement parts for
all manufacturing equipment are readily available.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to ordinary routine litigation incidental to its
business, the disposition of which is not expected to have a significant effect
on the Company's financial condition and operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
6
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EXECUTIVE OFFICERS OF THE REGISTRANT
Present Position and Length of
Name (Age) Service Other Business Experience During Past Five Years
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Arnold H. Dreyfuss (68) Chairman of the Board and Director since 1992; a 50% owner of Jupiter Ocean and
Chief Executive Officer since Racquet Club of Jupiter, Florida; formerly (1982 until
September 19, 1996. 1991) Chairman of the Board and Chief Executive Officer
of Hamilton Beach/Proctor-Silex, Inc.
Kimberly F. Ferryman (40) Vice President, Quality Corporate Director, Quality Assurance and Product
Assurance and Product Development from March 1994 to February 1995; Senior
Development since February Product Development Technologist from November 1988 to
1995. February 1994. (All were positions with the Company)
Neal D. Glaeser (36) Vice President, Sales since General Manager, Sales from April 1994 to October 1995;
October 1995. General Manager, Flavors from October 1992 to April
1994; Divisional Sales Manager from April 1989 to
October 1992. (All were positions with the Company)
Carl D. Hornbeak (57) Vice President, Operations General Manager, Operations of the Company from January
since October 1988. to October 1988.
V. Stephen Kangisser (45) Vice President, Marketing Vice President, Sales and Marketing for H.P. Hood,
since May 1996. Inc., Boston, Massachusetts from 1993 to 1996;
Director of Sales and Marketing and various other
positions with Kraft, Inc. from 1974 through 1993.
David B. Kewer (42) President and Chief Operating President, Willy Wonka Candy Factory, a division of
Officer since March 1, 1997. Nestle' USA, Inc., from August 1993 to February 1996;
Senior Vice President Marketing and Strategic Planning
and various other marketing and sales positions with
Nestle' Ice Cream Company from 1988 to 1993.
Thomas M. Mishoe, Jr. (44) Chief Financial Officer, Independent Consultant, from August 1995 to February
Vice President, Treasurer and 1996; Chief Financial and Administrative Officer,
Corporate Secretary since Goldome Credit Corporation from May 1993 to May 1995;
February 1996. Senior Manager with Ernst & Young LLP, Capital Markets
Group, from 1987 to May 1993.
</TABLE>
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock trades on the Nasdaq National Market tier of
The Nasdaq Stock Market under the symbol "EPIE". As of February 28, 1997, there
were approximately 700 Shareholders of Record of the Company's Common Stock
(including brokers, dealers, banks and other nominees participating in The
Depository Trust Company).
The high and low sales prices for shares of the Company's Common Stock as
reported on The Nasdaq Stock Market and dividends declared per share during the
periods indicated are set forth below:
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High Low Dividends
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1996
First Quarter $ 19 $ 16 3/4 $ 0.05
Second Quarter 22 17 1/4 0.05
Third Quarter 17 3/4 14 1/4 0.05
Fourth Quarter 16 1/2 7 1/2 0.05
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1995
First Quarter $ 21 1/4 $ 18 1/2 $ 0.05
Second Quarter 20 1/2 14 3/4 0.05
Third Quarter 19 3/4 15 1/2 0.05
Fourth Quarter 19 3/4 18 0.05
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On March 4, 1997, the Board of Directors declared a quarterly cash
dividend of $.05 per share, payable April 3, 1997, to Shareholders of Record on
March 14, 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.
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ITEM 6. SELECTED FINANCIAL DATA
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For the year ended and as of December 31, 1996(1) 1995 1994(2) 1993(3) 1992
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(In thousands, except per share data)
Income Statement Data:
Net sales $ 74,084 $ 83,975 $ 70,893 $ 66,082 $ 62,878
Operating income (loss) (2,009) 8,804 8,289 7,809 7,183
Net income (loss) $ (2,046) $ 5,076 $ 4,850 $ 3,479 $ 4,549
Per Share Data:
Primary
Weighted average number of
common shares outstanding 3,460,729 3,475,119 3,541,419 3,603,901 3,537,933
Income (loss) before cumulative
effect of accounting changes $ (0.59) $ 1.46 $ 1.37 $ 1.34 $ 1.29
Net income (loss) $ (0.59) $ 1.46 $ 1.37 $ 0.97 $ 1.29
Fully diluted
Weighed average number of
common shares outstanding 3,623,296 3,637,686 3,677,708 - -
Net income (loss) $ (0.54) $ 1.42 $ 1.34 - -
Cash dividends $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 4.52(4)
Balance Sheet Data:
Cash and short term investments $ 2,143 $ 717 $ 5,142 $ 8,305 $ 4,972
Working capital 6,802 9,193 9,175 9,210 5,253
Total assets 44,440 45,872 41,913 27,612 23,486
Total debt 9,800 9,800 9,844 219 394
Shareholders' equity 22,470 25,687 21,284 18,622 16,719
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1 Net income includes special charges ($1,482) incurred during the third
quarter of the year. Additional discussion is provided in Management's
Discussion and Analysis of Financial Condition and Results of Operations.
2 Includes the results of the Sugar Creek Foods acquisition beginning March
1, 1994.
3 Net income includes the cumulative effect of the change in accounting
principle ($1,350) resulting from the adoption of SFAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions". 4 Special
one-time dividend paid on March 17, 1992 to Shareholders of Record on
February 28, 1992.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
For the year ended December 31, 1996, the Company recorded net sales of
$74.1 million and a net loss of $2.0 million or $0.54 per share on a fully
diluted basis. The net loss is attributable to a softening of sales in its
principal markets, related third quarter inventory and equipment write-offs and
a severance accrual related to a recent change in executive management.
Exclusive of the third quarter write-offs and severance accrual, which total
$1.5 million after related tax benefits, the Company would have reported a net
loss of $564,000 or $0.13 per share on a fully diluted basis for the year.
Additional details are provided below.
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Net Sales and Gross Profit
Net sales consist of the following:
----------------------- ------------------- --------------------
For the year ended December 31, 1996 1995 1994
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(In thousands)
Brand or item
Company owned brands $ 30,382 $ 44,921 $ 42,840
Sublicensed brands 29,686 26,458 16,354
Flavors, packaging and other 14,016 12,596 11,699
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$ 74,084 $ 83,975 $ 70,893
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The entire ice cream industry experienced a difficult year in 1996 as
a result of the increased cost of dairy products and reduced consumer demand due
in part to the mild summer experienced throughout most of the country. As a
result, the frozen novelty category has shown declines from 1995 results
according to IRI. These factors, along with a decrease in the rate of
promotional spending by the Company, as discussed in Expenses and Other Income
below, combined to negatively impact the Company's sale of licensed and
sublicensed products.
The sale of products under Company owned brands decreased 32.4% in
1996 as a result of the factors cited above and differences in the timing of
customer shipments associated with Eskimo Pie brand products. The 4.9% increase
in 1995 is attributable to the 1995 introduction of several new Eskimo Pie
products and the inclusion of soft serve yogurt operations, acquired in March
1994, for the entire year in 1995 as opposed to ten months in 1994.
The sale of sublicensed brand products (Welch's, Weight Watchers,
Snackwell's, OREO and RealFruit brands) increased by 12.2% in 1996 as a result
of the Snackwell's and OREO brand product introductions in December 1995. The
Snackwell's and OREO introductions offset 1996 sales declines in the remaining
sublicensed brands which, in general, were caused by the same factors impacting
Eskimo Pie brand sales. The comparison between 1996 and 1995 is also impacted by
the inclusion in 1995 of $1.7 million of Weight Watchers finished goods which
were acquired and sold by the Company upon the execution of the licensing
agreement. The sale of sublicensed brand products increased in 1995 due to the
inclusion of the Weight Watchers, RealFruit and Nabisco lines of products
beginning in January, April and December 1995, respectively.
10
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Flavors, packaging and other sales continue to grow with increases of
11.3% and 7.7% in 1996 and 1995, respectively. Substantially all of this
increase is the result of the successful sales efforts being undertaken to
expand the flavors business beyond its traditional licensee base.
Gross profit, as a percent of sales, declined to 35.6% in 1996 and 42.2%
in 1995 primarily as a result of the change in product mix referred to above.
Sublicensed brands, which accounted for 40.1% of sales in 1996 as compared with
31.5% in 1995, return lower gross profit due primarily to the royalty costs
associated with these brands. The continued improvement in the highly
competitive flavors business, although incremental to earnings, also lowered the
Company's consolidated gross profit percentage in 1996. During 1996, gross
profit was also affected by $920,000 in special charges relating to the disposal
of licensee and Company owned inventories (primarily cartons) which the Company
concluded in the third quarter did not have future use.
Expenses and Other Income
While advertising and sales promotion expense increased 8.0% in 1996 and
23.8% in 1995 due primarily to additional brand management costs and new product
introductions, the actual amount allocated to each licensed brand and individual
products within the brands has declined in recent years. For example, excluding
expenditures for the Snackwell's and OREO products introduced in December 1995,
1996 advertising and sales promotion expense would have approximated 1994
levels. Given the addition of four new Eskimo Pie brand items, two additional
national sublicensed brands comprising 15 different products among several
product categories and the additional flavors business, the actual rate of
spending has decreased.
General and administrative expenses increased during 1996 primarily due to
severance charges of $593,000 relating to the resignation of the Company's
former President and Chief Executive Officer. General and administrative
expenses increased in 1995 to support the demands of the additional sublicensed
brands acquired in 1995. As a percent of sales, general and administrative
expenses decreased from 13.3% in 1994 to 12.4% in 1995 as a result of additional
sales provided by the newly acquired sublicensed brands.
The loss on disposal of fixed assets reflects, in addition to minor
recurring items, the disposal of certain equipment leased to one of the
Company's licensees. The equipment has been dismantled and no alternative use is
available.
Seasonality
The frozen dessert industry is seasonal with sales concentrated in the
summer months. Because the Company supplies packaging and ingredients to
manufacturers of its licensed and sublicensed products, the Company has a higher
level of shipments preceding and during the summer months and a lower level of
shipments in the first and fourth quarters.
The following table provides two years of unaudited quarterly financial
data:
<TABLE>
<CAPTION>
<S> <C>
For the 1996 quarter ended March 31 June 30 Sept 30 Dec 31
- ---------------------------------------- -------------------- -------------------- ------------------- ----------------
(In thousands, except per share data)
Net sales $19,769 $25,324 $16,898 $12,093
Gross profit 7,761 10,260 5,172 3,217
Net income (loss) 1,071 1,694 (2,799) (2,012)
Per share
Primary 0.31 0.49 (0.81) (0.58)
Fully diluted 0.30 0.47 (0.77) (0.55)
11
<PAGE>
<CAPTION>
For the 1995 quarter ended March 31 June 30 Sept 30 Dec 31
- ---------------------------------------- -------------------- -------------------- ------------------- ----------------
(In thousands, except per share data)
Net sales $18,953 $29,800 $19,745 $15,477
Gross profit 7,801 13,551 7,940 6,175
Net income 1,035 2,567 1,275 199
Per share
Primary 0.30 0.74 0.37 0.06
Fully diluted 0.29 0.71 0.36 0.06
- ---------------------------------------- -------------------- -------------------- ------------------- ----------------
</TABLE>
During the third quarter of 1996, the Company recorded special charges not
identifiable with preceding interim periods of approximately $2.4 million. These
special charges include accruals relating to the previously mentioned executive
severance ($593,000), the loss on disposal of fixed assets ($725,000) and the
disposal of licensee and Company held inventories ($920,000). After related tax
benefits, the special charges reduced net income by approximately $1.5 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's utilization of licensees allows it to operate with
relatively low capital requirements. This reduces the Company's working capital
requirements to that necessary to support its licensing strategy rather than the
amounts required to support the manufacture of finished consumer goods. Working
capital requirements generally precede the seasonal pattern of the Company's
sales. The Company believes that the cash generated from operations and funds
available under its credit agreements provide the Company with sufficient funds
and the financial flexibility to support its ongoing business, strategic
objectives and debt repayment requirements.
The Company's principal customers are approximately 20 licensees, each
having specific geographic territories. As a result of its national territorial
licensing system, the top four and ten customers, respectively, account for
approximately 50% and 70% of the Company's net sales. The Company's licensing
strategy allows it to select a stronger customer base which it can actively
monitor to minimize the impact of an unforeseen loss of any such customer. In
addition, its licensing agreements generally provide for a six month transition
period in the event of termination of any such agreement. The loss of one or
more of these major licensees could cause some disruption in the Company's
operations, although, based upon prior experience with replacing major
licensees, management believes it could find a suitable replacement within a
short period of time and, as a result, such customer loss would not have a
significant impact on the Company's operations, liquidity or capital resources.
The Company's financial position remains strong as evidenced by its
ability to generate cash flow from operations of approximately $5.7 million in
1996. The Company had working capital of approximately $6.8 million at December
31, 1996 and committed credit facilities in 1997 which provide for up to $11.7
million in additional borrowings. The Company has used approximately $1 million
of these facilities to finance recent computer hardware, software and network
installations, and expects to expend an additional $700,000 in 1997. The total
$1.7 million investment will provide for improved management information and
analysis to support enhanced decision making processes. The credit facilities
impose, among other things, certain requirements on the ratio of total debt to
net worth, the maintenance of minimum shareholders' equity and minimum interest
coverage. No Company assets are pledged as security under these agreements.
During the first half of 1996, the Company made approximately $1.7 million
in estimated federal and state tax payments in connection with earnings
recognized through June 30, 1996. In January 1997, the Company received a $1.4
million cash refund of estimated federal tax payments. Approximately $800,000 of
12
<PAGE>
additional tax benefits relating to 1996 estimated state tax payments and net
operating losses can be recovered in 1997 as cash refunds of prior year tax
payments.
During 1996, the Company's Board of Directors increased management's
authorization to repurchase the Company's Common Stock. The additional 112,000
shares, when combined with previously approved authorizations, will allow the
Company to repurchase up to 348,000 shares or approximately 10% of the then
outstanding Common Stock. Pursuant to this renewed authorization, management
repurchased 35,000 shares in 1996 at a cost of approximately $611,000.
On March 4, 1997, the Board of Directors declared a quarterly cash
dividend of $.05 per share, payable April 3, 1997, to Shareholders of Record on
March 14, 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.
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME
For the year ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------ ------------------- --------------- -------------
(In thousands, except share data)
Net sales $ 74,084 $ 83,975 $ 70,893
Cost of products sold 47,674 48,508 40,092
------------------- --------------- -------------
Gross profit 26,410 35,467 30,801
Advertising and sales promotion expenses 17,518 16,217 13,101
General and administrative expenses 10,901 10,446 9,411
------------------- --------------- -------------
Operating income (loss) (2,009) 8,804 8,289
Interest income 217 185 285
Interest expense and other - net (714) (810) (530)
Loss on disposal of fixed assets (777) - -
------------------- --------------- -------------
Income (loss) before income taxes (3,283) 8,179 8,044
Income tax expense (benefit) (1,237) 3,103 3,194
------------------- --------------- -------------
Net income (loss) $ (2,046) $ 5,076 $ 4,850
=================== =============== =============
Per common share
Primary
Weighted average number of common shares outstanding 3,460,729 3,475,119 3,541,419
Net income (loss) $ (0.59) $ 1.46 $ 1.37
=================== =============== =============
Fully diluted
Weighted average number of common shares outstanding 3,623,296 3,637,686 3,677,708
Net income (loss) $ (0.54) $ 1.42 $ 1.34
=================== =============== =============
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<CAPTION>
Common Stock Additional Retained
(In thousands, except share data) Shares Amount Capital Earnings Total
- ----------------------------------------------------- ---------------- ------------ ----------- ------------ ------------
Balance at January 1, 1994 3,557,487 $ 3,557 $ 5,932 $ 9,133 $ 18,622
Net income 4,850 4,850
Cash dividends ($0.20 per share) (708) (708)
Issuance of common stock 8,450 9 139 148
Purchase of common stock (92,000) (92) (1,471) (1,563)
Foreign currency translation (65) (65)
---------------- ------------ ----------- ------------ ------------
Balance at December 31, 1994 3,473,937 3,474 4,600 13,210 21,284
Net income 5,076 5,076
Cash dividends ($0.20 per share) (694) (694)
Issuance of common stock 1,066 1 20 21
---------------- ------------ ----------- ------------ ------------
Balance at December 31, 1995 3,475,003 3,475 4,620 17,592 25,687
Net (loss) (2,046) (2,046)
Cash dividends ($0.20 per share)
(692) (692)
Issuance of common stock 7,570 8 124 132
Purchase of common stock (35,000) (35) (576)
(611)
---------------- ------------ ----------- ------------ ------------
Balance at December 31, 1996 3,447,573 $ 3,448 $ 4,168 $ 14,854 $ 22,470
================ ============ =========== ============ ============
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
CONSOLIDATED BALANCE SHEETS
As of December 31, 1995
1996
- ----------------------------------------------------------------------------------------------- -------------- -------------
(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents $ 2,143 $ 717
Receivables 4,051 8,695
Inventories 6,608 5,323
Prepaid expenses 3,262 1,375
-------------- -------------
Total current assets 16,064 16,110
Property, plant and equipment - net 8,716 9,055
Goodwill and other intangibles 17,999 18,864
Other assets 1,661 1,843
-------------- -------------
Total assets $ 44,440 $ 45,872
============== =============
Liabilities and Shareholders' Equity
Current liabilities:
Short term borrowings $ - $ 1,200
Accounts payable 5,283 3,592
Accrued advertising and promotion 2,026 975
Accrued compensation and related amounts 730 430
Other accrued expenses 723 542
Income taxes - 178
Current portion of long term debt 500 -
-------------- -------------
Total current liabilities 9,262 6,917
Long term debt 5,500 6,000
Convertible subordinated notes 3,800 3,800
Postretirement benefits and other liabilities 3,408 3,468
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,
3,447,573 issued and outstanding in 1996 and 3,475,003 in 1995 3,448 3,475
Additional capital 4,168 4,620
Retained earnings 14,854 17,592
-------------- -------------
Total shareholders' equity 22,470 25,687
-------------- -------------
Total liabilities and shareholders' equity $ 44,440 $ 45,872
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------- -------------- -------------- --------------
(In thousands)
Operating activities
Net income (loss) $ (2,046) $ 5,076 $ 4,850
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 2,530 2,360 2,136
Loss on disposal of fixed assets 777 - -
Change in deferred income taxes and other assets (290) 183 72
Change in postretirement benefits and other liabilities (177) 73 641
Change in receivables 4,644 (1,275) (2,213)
Change in inventories and prepaid expenses (2,807) (1,873) (969)
Change in accounts payable and accrued expenses 3,047 (1,790) 410
-------------- -------------- --------------
Net cash provided by operating activities 5,678 2,754 4,927
Investing activities
Acquisition of business and other intangibles, net of cash acquired (269) (6,799) (11,152)
Capital expenditures (1,674) (849) (694)
Sale of short term investments - net - 345 2,695
Other 165 7 84
-------------- -------------- --------------
Net cash used in investing activities (1,778) (7,296) (9,067)
Financing activities
Short term borrowings and (repayments) - net (1,200) 1,200 -
Borrowings under long term credit facility - - 6,000
Principal payments on long term debt - (44) (175)
Issuance of common stock 29 - 118
Purchase of common stock (611) - (1,563)
Cash dividends (692) (694) (708)
-------------- -------------- --------------
Net cash (used in) provided by financing activities (2,474) 462 3,672
-------------- -------------- --------------
Change in cash and cash equivalents 1,426 (4,080) (468)
Cash and cash equivalents at beginning of year 717 4,797 5,265
-------------- -------------- --------------
Cash and cash equivalents at end of year $ 2,143 $ 717 $ 4,797
============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
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.
Principles of Consolidation: The accounts of the Company, and its wholly-owned
subsidiaries are included in the consolidated financial statements after
elimination of all material intercompany balances and transactions.
Cash and Cash Equivalents: The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
The carrying amount of cash equivalents approximates fair value because of the
short maturity of those investments.
Inventories: Inventories are stated at the lower of cost or market. The cost of
inventories is determined by the last-in, first-out (LIFO) method except for
approximately $650,000 of inventories at December 31, 1996 and 1995 which was
determined by the first-in, first-out (FIFO) method. If the FIFO method was
applied to LIFO inventories, they would increase by approximately $1,050,000 at
December 31, 1996 and $1,100,000 in 1995.
Property, Plant, Equipment and Depreciation: Property, plant and equipment are
stated at cost. Depreciation is provided by the straight line method over the
estimated useful lives which are generally 30 years for buildings and six to ten
years for machinery and equipment.
Goodwill and Other Intangibles: Goodwill, which represents the excess of the
purchase price of acquired companies over the fair value of the net assets
acquired, is amortized on a straight line basis over 40 years. Other intangibles
include costs associated primarily with trademarks, sub-licensed brand names and
carton development and are amortized on a straight line basis over periods which
generally range from four to twenty years.
The Company periodically evaluates the recoverability of material
components of goodwill and other intangibles based on expected undiscounted cash
flows. Any impairment in value would be charged to earnings in the year
recognized. The Company believes that no impairment of value exists as of
December 31, 1996.
Accumulated amortization at December 31, 1996 and 1995 was
approximately $3,165,000 and $2,085,000, respectively.
Advertising and Sales Promotion Expenses: The Company generally expenses
advertising and sales promotion costs in the period incurred. There were no
capitalized advertising and sales promotion costs as of December 31, 1996 and
1995.
Product Development and Quality Control Costs: Costs for product development and
quality control, which are performed by the same personnel, are expensed as
incurred and were approximately $1,050,000 in 1996, $1,150,000 in 1995 and
$900,000 in 1994.
17
<PAGE>
Earnings Per Share: Primary earnings per share is calculated by dividing the
Company's net income or loss by the weighted average number of common shares
outstanding for the respective year. Fully diluted earnings per share is
calculated by dividing the Company's net income or loss, adjusted to reflect the
after tax benefits from interest savings on the assumed conversion of the
Company's convertible subordinated notes, by the weighted average number of
common shares increased by the number of shares issued (162,567) in the assumed
conversion of the convertible subordinated notes. Shares to be issued under the
exercise of stock options are not included in earnings per share calculations as
the result would not be materially dilutive.
Stock Options: The Company accounts for stock option grants made under Incentive
Stock Plans in accordance with APB Opinion No. 25, "Accounting for Stock Issued
to Employees" and accordingly recognizes no compensation expense for its stock
options granted at fair market value.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
<TABLE>
<CAPTION>
<S> <C>
NOTE B - INVENTORIES Inventories are classified as follows:
- -------------------------------------------------------------------- ------------------------- ------------------------
As of December 31, 1996 1995
- -------------------------------------------------------------------- ------------------------- ------------------------
(In thousands)
Finished goods $ 4,987 $ 3,802
Raw materials and packaging supplies 2,672 2,631
----------- ----------
Total FIFO inventories 7,659 6,433
Reserve to adjust inventories to LIFO (1,051) (1,110)
------------ -----------
$ 6,608 $ 5,323
========== =========
- -------------------------------------------------------------------- ------------------------- ------------------------
NOTE C - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is
classified as follows:
- -------------------------------------------------------------------- ------------------------- ------------------------
As of December 31, 1996 1995
- -------------------------------------------------------------------- ------------------------- ------------------------
(In thousands)
Land $ 774 $ 747
Buildings 5,814 5,746
Machinery and equipment 9,153 8,749
Equipment leased or loaned to customers 3,546 5,884
Projects in progress 978 29
------------ -------------
20,265 21,155
Less accumulated depreciation (11,549) (12,100)
---------- -----------
$ 8,716 $ 9,055
========== ===========
- -------------------------------------------------------------------- ------------------------- ------------------------
</TABLE>
18
<PAGE>
NOTE D - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. At December 31,
1996, the Company had $462,000 ($102,000 in 1995) of current deferred tax assets
included in prepaid expenses and $154,000 ($87,000 in 1995) of long term
deferred tax assets included in other assets which have been netted by tax
jurisdiction for presentation purposes.
The significant components of these amounts are as follows:
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------- ------------------------- ------------------------
As of December 31, 1996 1995
- -------------------------------------------------------------------- ------------------------- ------------------------
(In thousands)
Current:
Accrued severance benefits $ 174 $ -
Advertising, promotion and other liabilities 288 102
---------- ----------
462 102
Non-Current:
Accrued postretirement benefits 1,065 1,155
Depreciation & amortization (1,006) (1,122)
Other 95 54
----------- -----------
154 87
---------- -----------
Total deferred tax assets $ 616 $ 189
========= =========
- -------------------------------------------------------------------- ------------------------- ------------------------
</TABLE>
Also included in prepaid assets at December 31, 1996 are $1,400,000 in
1996 estimated federal tax payments recovered by the Company in January 1997 and
approximately $800,000 in tax benefits that can be realized as cash refunds of
prior year payments.
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------- ------------------------- ------------------------ -----------------------
For the year ended December 31, 1996 1995 1994
- -------------------------------------------- ------------------------- ------------------------ -----------------------
(In thousands)
Current:
Federal $ (678) $ 2,488 $ 2,455
State (143) 392 505
Foreign 11 37 37
---------- ---------- ----------
(810) 2,917 2,997
Deferred:
Federal (353) 159 165
State (74) 27 32
------------- ---------- ----------
(427) 186 197
------------ --------- ---------
Total income tax provision $ (1,237) $ 3,103 $ 3,194
=========== ========= ========
- -------------------------------------------- ------------------------- ------------------------ -----------------------
</TABLE>
Amounts paid for income taxes totaled $1,878,000 in 1996, $2,850,000 in
1995, and $3,160,000 in 1994.
A reconciliation of federal statutory and effective income tax rates is as
follows:
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------- ------------------------- ------------------------ -----------------------
For the year ended December 31, 1996 1995 1994
- -------------------------------------------- ------------------------- ------------------------ -----------------------
Federal statutory rate (34.0)% 34.0% 34.0%
Effect of
State taxes (4.3) 3.4 4.5
Permanent differences and other .6 .5 1.2
---------- ------- ------
Effective income tax rate (37.7)% 37.9% 39.7%
====== ===== =====
- -------------------------------------------- ------------------------- ------------------------ -----------------------
</TABLE>
19
<PAGE>
NOTE E - FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------------------- ------------------------------------------------------
Long Term Debt Carrying Amount
As of December 31, 1996 1995
- ---------------------------------------------------------------- --------------------------- --------------------------
(In thousands)
Revolving credit facility $ 6,000 $ 6,000
(variable interest rate, currently 6.1%)
Convertible subordinated notes 3,800 3,800
---------- ----------
(4.5% interest rate)
9,800 9,800
Less current maturities (500) -
------------ -------------
$ 9,300 $ 9,800
========= =========
- ---------------------------------------------------------------- --------------------------- --------------------------
</TABLE>
Based upon prevailing interest rates and after consideration of credit
risk, the carrying value of the Company's long term debt is a fair approximation
of market value.
In May 1994, the Company entered into a $6,000,000, ten year revolving
credit facility with a commercial bank which provides for renewable loans
without required principal reduction until 1997. Beginning in June 1997, the
Company will be required to reduce the then existing debt evenly over a seven
year period. Except for the amounts due in 1997, the Company has classified all
of this loan as long term debt based upon its ability and intention to defer
payment past 1997.
In December 1995, the Company entered into an interest rate swap
agreement which effectively fixes the interest rate on the revolving credit
facility at 6.1% through December 1998. The amount to be paid or received as a
result of this agreement is accrued as interest rates change and is recognized
as an adjustment to interest expense. The fair value of the swap agreement was
not material at December 31, 1996 and 1995. The Company believes that material
loss from non-performance is remote due to the strength of the counterparty.
As partial consideration made in connection with the 1994 acquisition
of Sugar Creek Foods, the Company issued $3,800,000 in convertible subordinated
notes to the former Sugar Creek Foods shareholders. These notes become due in
February 1999 if not previously converted to common stock. The Company has
reserved 162,567 shares of its common stock for conversion of the notes (at $23
3/8 per share).
At December 31, 1996, the Company had a $1,700,000 line of credit with
a commercial bank to finance the acquisition of a related amount of computer
hardware and software. Borrowings under the line, which are expected to take
place beginning in the first quarter of 1997, bear interest at the 30 day LIBOR
rate plus 100 basis points and must be repaid in equal monthly installments over
a 30 month period beginning in October 1997.
During February 1997, the Company renewed its $10,000,000 committed
line of credit with another commercial bank. The committed line of credit is
available for general Corporate purposes through April 1998. Borrowings under
the line bear interest at the bank's overnight money market rate plus 75 basis
points.
The revolving and committed credit agreements impose, among other
things, certain requirements on the ratio of total debt to net worth, the
maintenance of minimum shareholders' equity and minimum interest coverage. No
assets are pledged as security under these agreements.
Interest paid totaled approximately $715,000 in 1996, $799,000 in 1995,
and $413,000 in 1994. The interest rate on short term borrowings at December 31,
1995 was 6.4%.
20
<PAGE>
NOTE F - SHAREHOLDERS' EQUITY
Stock Options
Under the Company's Incentive Stock Plans (the Plans), key employees
and non-employee directors of the Company may receive grants and awards of up to
a total of 425,000 shares of stock options, stock appreciation rights and
restricted stock.
Stock options are granted at a price not less than the fair market
value on the date the options are granted, become exercisable at various
intervals from six months to four years after the date of the grant and expire
after ten years.
The details of stock option activity are as follows:
<TABLE>
<CAPTION>
<S> <C>
--------------------------- -------------------------- ----------------------
Range of Weighted Average
Number of shares Exercise Prices Exercise Price
- ----------------------------------------- --------------------------- -------------------------- ----------------------
1994
Outstanding, beginning of year 143,414 $17.00-19.75
Exercised 7,000 17.00
Cancelled 20,957 17.25-19.75
Outstanding, end of year 115,457 17.00-19.75
Exercisable, end of year 38,800 17.00-19.75
1995
Granted 65,000 20.50
Cancelled 22,000 17.25-20.50
Outstanding, end of year 158,457 17.00-20.50 $ 18.48
Exercisable, end of year 59,025 17.00-19.75
1996
Granted 142,711 18.75-21.25 18.80
Exercised 1,667 17.25 17.25
Cancelled 161,274 17.00-20.50 18.67
Outstanding, end of year 138,227 17.00-21.25 18.60
Exercisable, end of year 60,609 17.00-21.25 17.87
- ----------------------------------------- --------------------------- -------------------------- ----------------------
</TABLE>
In 1996, the Company adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock Based Compensation". As permitted by the provisions of SFAS 123, the
Company continues to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for its stock based awards. As stock options are generally issued at
the fair market value on the date of grant, the Company does not recognize
compensation cost related to its stock option plans.
The following information is provided solely in connection with the
disclosure requirements of SFAS 123. If the Company had elected to recognize
compensation cost related to its stock options granted in 1996 and 1995 in
accordance with the provisions of SFAS 123, there would have been a pro forma
net loss of $2,343,000 in 1996 ($0.62 per share on a fully diluted basis) and
pro forma net income of $4,972,000 in 1995 ($1.40 per share on a fully diluted
basis).
These pro forma amounts are not indicative of the future effects of
applying the provisions of SFAS 123 since the respective vesting periods are
used to measure pro forma compensation expense and 1996 and 1995 amounts reflect
expense for two years and one year of vesting, respectively. The fair value for
these options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for 1996 and 1995,
respectively; volatility factors of .292 and .315; risk-free interest rates of
21
<PAGE>
6.53% and 7.53%; dividend yields of .98%; and an expected life of 8.5 years.
Under these assumptions, the weighted average fair value of options granted in
1996 was $9.64 per share.
As of December 31, 1996, the weighted average remaining contractual
life of all outstanding stock options was 8.4 years.
The Company has also granted restricted stock awards in accordance with
the Plans. In 1996, 6,416 shares of restricted stock were issued with a weighted
average fair value of $17.58. At December 31, 1996, approximately 255,000 shares
were available for future grants under the Plans.
Shareholder Rights Plan
In January 1993, the Board of Directors approved the adoption of the
Shareholder Rights Agreement wherein, effective February 5, 1993, one Right
attaches to and trades with each share of Common Stock. Each Right entitles the
registered holder to purchase from the Company one one-hundredth of a share
(Unit) of Series A Junior Participating Preferred Stock, par value $1.00 per
share. The Company has designated 100,000 shares of its Preferred Stock as
Series A Junior Participating Preferred Stock. The exercise price per Right is
$75.00, subject to adjustment. Each Unit of Preferred Stock is structured to be
the equivalent of one share of Common Stock.
The Rights are initially exercisable to purchase one Unit of Preferred
Stock at the exercise price only if a person or group (Acquiring Person)
acquires 20% or more of the Company's Common Stock or announces a tender offer
for 20% or more of the outstanding Common Stock at which time the Rights detach
and trade separately from the Common Stock. At any time thereafter, the Company
may issue 1.5 shares of Common Stock in exchange for each Right other than those
held by the Acquiring Person. Generally, if an Acquiring Person acquires 30% or
more of the Company's Common Stock or an Acquiring Person merges into or
combines with the Company, or if the Company is acquired in a merger or other
business combination in which it does not survive, or if 50% of its earnings
power or assets is sold, each Rights holder other than the Acquiring Person may
be entitled, upon payment of the exercise price, to purchase securities of the
Company or the surviving company having a market value equal to twice the
exercise price. The Rights, which do not have voting privileges, expire in 2003,
but may be redeemed under certain circumstances by the Board prior to that time
for $.01 per Right.
NOTE G - RETIREMENT PLANS
The Company currently maintains two defined benefit pension plans
covering substantially all salaried employees. These plans provide retirement
benefits based primarily on employee compensation and years of service. The
Company funds pension costs as accrued.
The following table sets forth information on the net periodic pension costs:
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------- ------------------------ --------------------- -------------------------
For the year ended December 31, 1996 1995 1994
- ---------------------------------------------- ------------------------ --------------------- -------------------------
(In thousands)
Service cost $ 311 $ 239 $ 237
Interest cost 76 52 36
Actual return on plan assets (79) (168) (7)
Net amortization and deferrals 18 124 (24)
------- ------- -------
$ 326 $ 247 $ 242
====== ====== =====
- ---------------------------------------------- ------------------------ --------------------- -------------------------
</TABLE>
22
<PAGE>
The following table sets forth information on the net pension liability:
<TABLE>
<CAPTION>
<S> <C>
- ----------------------------------------------------------------------- --------------------- -------------------------
As of December 31, 1996 1995
- ----------------------------------------------------------------------- --------------------- -------------------------
(In thousands)
Actuarial present value of accumulated benefit obligation:
Vested $ 877 $ 641
Nonvested 127 72
---------- ---------
Accumulated benefit obligation $ 1,004 $ 713
======== =======
Projected benefit obligation 1,428 $1,028
Plan assets at fair value 1,163 717
--------- --------
Plan assets less than projected benefit obligation 265 311
Unrecognized net loss 31 49
---------- ---------
Net pension liability $ 234 $ 262
======== =======
- ----------------------------------------------------------------------- --------------------- -------------------------
</TABLE>
The assumptions used in determining the projected benefit obligation and net
periodic pension costs are as follows:
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------- ------------------------ --------------------- -------------------------
1996 1995 1994
- ---------------------------------------------- ------------------------ --------------------- -------------------------
Weighted average discount rate 7% 7%
Weighted average rate
of increase in compensation levels 5% 5%
Expected long term rate of return on assets 8% 8% 8%
- ---------------------------------------------- ------------------------ --------------------- -------------------------
</TABLE>
At December 31, 1996, plan assets were 49% invested in common stocks,
44% in U.S. Treasury instruments and the balance in cash and money market funds.
The Company also sponsors a defined contribution plan which covers
substantially all salaried and hourly employees. Contributions are generally
determined as a percentage of the covered employees' annual salary. Amounts
expensed under this plan were approximately $140,000 in 1996 and 1995.
The Company entered into an agreement to indemnify the cost of retiree
health care and life insurance benefits for salaried employees of the Company
who had retired prior to April 1992. Under the agreement, the Company may elect
to prepay the Company's remaining obligation. The Company does not provide
postretirement health and life insurance benefits for employees who retire
subsequent to April 1992.
The Company's liability for postretirement benefits is comprised
primarily of accumulated benefit obligations of approximately $2,800,000 at
December 31, 1996 and 1995. There was no significant net postretirement benefit
cost in 1996 due to the amortization of deferred gains which largely offset
interest cost. The Company annually recognizes 20% of deferred gains or losses.
The net postretirement benefit cost for 1995 and 1994 was approximately $180,000
representing interest cost.
The weighted average annual assumed rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) is 10% for 1997 and
is assumed to decrease gradually to 5% in 2006 and remain at that level
thereafter. Each one percentage point change in the assumed health care cost
trend rate would change the accumulated postretirement benefit obligation by
approximately $140,000 and the net periodic postretirement benefit cost by
approximately $10,000. The weighted-average discount rate used in determining
the accumulated postretirement benefit obligation was 7% for all periods
presented.
23
<PAGE>
NOTE H - OTHER INFORMATION
The Company is subject to litigation incidental to the conduct of its
business, the disposition of which is not expected to have a significant effect
on the Company's financial condition. The Company is also subject to government
agency regulations relating to food products, environmental matters and other
aspects of its business. The Company is involved in environmental improvement
activities resulting from past operations. The Company has recorded amounts
which, in management's best estimate, will be sufficient to satisfy the
anticipated cost of such activities.
During 1996, four customers accounted for 16%, 14%, 13% and 10% of net
sales, respectively. During 1995, four customers accounted for 16%, 15%, 11% and
10% of net sales, respectively. During 1994, three customers accounted for 17%,
16% and 11% of net sales, respectively. Based upon prior experience, management
believes it could find a suitable replacement for the loss of any of its
licensees and, as a result, such customer loss would not have a significant
impact on the Company's operations, liquidity or capital resources.
In 1991, the Company sold, at its cost, approximately $1,000,000 of
machinery and equipment purchased for resale. As a result of the sale, the
Company received a ten year note, payable annually, from its customer. The long
term portion of the note receivable amounts to approximately $512,000 at
December 31, 1996 ($612,000 in 1995), which is included in other assets, and is
net of unamortized discount of approximately $160,000 ($228,000 in 1995). The
note bears interest at approximately 10% and is collateralized by the machinery
and equipment. Based upon prevailing interest rates, after consideration of
credit risk, the carrying value is a fair approximation of market value.
24
<PAGE>
<TABLE>
<S> <C>
REPORT OF INDEPENDENT AUDITORS, REPORT OF MANAGEMENT
ERNST & YOUNG LLP
Shareholders and Board of Directors Eskimo Pie Corporation
Eskimo Pie Corporation
The consolidated financial statements and other financial
We have audited the accompanying consolidated balance information of Eskimo Pie Corporation have been prepared by
sheets of Eskimo Pie Corporation as of December 31, management, which is responsible for their integrity and
1996 and 1995, and the related consolidated statements objectivity. These statements have been prepared in accordance
of income, changes in shareholders' equity and cash with generally accepted accounting principles and, where
flows for each of the three years in the period ended appropriate, reflect estimates based on judgements of management.
December 31, 1996. These financial statements are the
responsibility of the Company's management. Our The Company maintains a system of internal financial
responsibility is to express an opinion on these controls which considers the expected costs and benefits of
financial statements based on our audits. specific control procedures and provides reasonable assurance
that Company assets are protected against loss or misuse, that
We conducted our audits in accordance with transactions are executed in accordance with management's
generally accepted auditing standards. Those authorization and that the financial records can be relied upon
standards require that we plan and perform the audit to produce financial statements in accordance with generally
to obtain reasonable assurance about whether the accepted accounting principles. The internal financial controls
financial statements are free of material system is supported by the management of the Company through the
misstatement. An audit includes examining, on a test establishment and communication of business and accounting
basis, evidence supporting the amounts and disclosures policies, the division of responsibility in organizational
in the financial statements. An audit also includes matters, and the careful selection and training of management
assessing the accounting principles used and personnel.
significant estimates made by management, as well as
evaluating the overall financial statement The consolidated financial statements have been audited
presentation. We believe that our audits provide a by the Company's independent auditors, Ernst & Young LLP. Their
reasonable basis for our opinion. audit was conducted in accordance with generally accepted
auditing standards and their report is included elsewhere
In our opinion, the consolidated financial herein. As a part of their audit, Ernst & Young LLP develops
statements referred to above present fairly, in all and maintains an understanding of the Company's internal
material respects, the consolidated financial position accounting controls and conducts such tests and employs such
of Eskimo Pie Corporation at December 31, 1996 and procedures as they consider necessary to render their opinion on
1995, and the consolidated results of its operations the financial statements.
and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with The Board of Directors exercises its oversight role with
generally accepted accounting principles. respect to the Company's system of internal financial controls
primarily through its Audit Committee which consists of outside
directors. The Board of Directors, upon the recommendation of
the Audit Committee, selects the independent auditors subject to
ratification by the shareholders. The Audit Committee meets
/s/ Ernst & Young LLP periodically with representatives of management. Ernst & Young
LLP has full and free access to meet with the Audit Committee,
with or without the presence of management representatives.
Richmond, Virginia
February 21, 1997
/s/ Arnold H. Dreyfuss /s/ Thomas M. Mishoe, Jr.
Arnold H. Dreyfuss Thomas M. Mishoe, Jr.
Chairman of the Board Chief Financial Officer,
and Chief Executive Officer Vice President, Treasurer and
Corporate Secretary
</TABLE>
25
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information on the Company's Board of Directors is included under the
caption "Election of Directors" in the Registrant's Proxy Statement for the
Annual Meeting to be held on May 7, 1997 (Proxy Statement) and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information on executive compensation is included under the caption
"Executive Compensation" in the Proxy Statement and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Information on security ownership of certain beneficial owners and
management is included under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information on certain relationships and related transactions is included
under the caption "Certain Relationships" in the Proxy Statement and is
incorporated herein by reference.
26
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) (1) The following financial statements of Eskimo Pie Corporation are
included in Item 8:
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1996, 1995 and 1994
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Auditors, Ernst & Young LLP
(2) Financial Statements Schedules
No financial statement schedules are required because the required
information is not present in amounts sufficient to warrant
submission of the schedules or the required information is included
in the consolidated financial statements or notes to consolidated
financial statements.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the last
quarter of the period covered by this report.
(c) Exhibits
The exhibits listed in the accompanying "Index of Exhibits" are
filed as part of this Annual Report.
Management Contracts or Compensatory Plans
Set forth below are the management contracts or compensatory plans
and arrangements required to be filed as Exhibits to this Annual Report pursuant
to Item 14 (c) hereof, including their location:
Executive Severance Agreement between the Company and Thomas M.
Mishoe, Jr. dated February 19, 1996 - Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
Executive Severance Agreement between the Company and C. D.
Hornbeak dated February 24, 1994 - Exhibit 10.3 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994.
27
<PAGE>
Executive Severance Agreement between the Company and K. P.
Ferryman dated August 21, 1995 - Exhibit 10.4 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
Executive Severance Agreement between the Company and N. D. Glaeser
dated October 21, 1995 - Exhibit 10.5 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
Executive Severance Agreement between the Company and V. Stephen
Kangisser dated May 15, 1996 - Exhibit 10.6 to the Company's Report on Form 10-Q
for the quarter ended, June 30, 1996.
Executive Severance Agreement between the Company and David B.
Kewer dated March 1, 1997 - Exhibit 10.6 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
Incentive Stock Plan dated February 17, 1992 - Exhibit 10.8 to the
Company's Registration Statement on Form S-1 (Registration No. 33-45852).
1996 Incentive Stock Plan - Exhibit A to the Company's Proxy
Statement for its 1996 Annual Meeting of Shareholders.
Senior Management Annual Incentive Plan, dated as of January 1,
1993 - Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992.
Salaried Retirement Plan dated as of April 6, 1992 - Exhibit 10.9
to the Company's Annual Report on Form 10-K for the year ended December 31,
1992.
Executive Retirement Plan and Trust dated as of April 6, 1992 -
Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992.
Letter Agreement dated January 31, 1997 between the Company and
Thomas M. Mishoe, Jr. - Exhibit 10.12 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
Letter Agreement dated January 31, 1997 between the Company and
Neal D. Glaeser - Exhibit 10.13 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
Letter Agreement dated January 31, 1997 between the Company and
Carl D. Hornbeak - Exhibit 10.14 to the Company's Annual Report on Form 10-K for
year ended December 31, 1996.
Letter Agreement dated January 31, 1996 between the Company and V.
Stephen Kangisser - Exhibit 10.15 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
Letter Agreement dated January 31, 1996 between the Company and
Kimberly P. Ferryman - Exhibit 10.16 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
Letter Agreement dated September 19, 1996 between the Company and
David V. Clark - Exhibit 10.15 to the Company's Report on Form 10-Q for the
quarter ended September 30, 1996.
28
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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, as of the 28th day of
March, 1997.
ESKIMO PIE CORPORATION
/s/ Arnold H. Dreyfuss
-------------------------------
Arnold H. Dreyfuss
Chairman of the Board,
Interim Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities as of the 28th day of March 1997.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Arnold H. Dreyfuss Chairman of the Board,
- --------------------------------- Interim Chief Executive Officer
Arnold H. Dreyfuss (Principal Executive Officer)
/s/ Thomas M. Mishoe, Jr. Chief Financial Officer,
- --------------------------------- Vice President, Treasurer
Thomas M. Mishoe, Jr. and Corporate Secretary
(Principal Financial and Accounting Officer)
/s/ William T. Berry, Jr. Assistant Vice President, Controller
- ---------------------------------
William T. Berry, Jr.
*/s/ Terrence D. Daniels Director
- ---------------------------------
Terrence D. Daniels
*/s/ W. M. Fariss, Jr. Director
- ---------------------------------
W. M. Fariss, Jr.
*/s/ Wilson H. Flohr, Jr. Director
- ---------------------------------
Wilson H. Flohr, Jr.
*/s/ F. Claiborne Johnston, Jr. Director
- ---------------------------------
F. Claiborne Johnston, Jr.
*/s/ Judith B. McBee Director
- ---------------------------------
Judith B. McBee
*By /s/ Arnold H. Dreyfuss
- ---------------------------------
Arnold H. Dreyfuss
Attorney-in-fact
</TABLE>
29
<PAGE>
INDEX OF EXHIBITS
Exhibit No. Description
<TABLE>
<S> <C>
3.1 Amended and Restated Articles of Incorporation incorporated herein by
reference to Exhibit C to the Company's Proxy Statement for its 1996 Annual
Meeting of Shareholders.
3.2 Amended and Restated Bylaws incorporated herein by reference to Exhibit 3.2
to the Company's Report on Form 10-Q for the quarter ended June 30, 1996.
4.1 Rights agreement dated as of January 21, 1993, between the Company and
Mellon Securities Trust Company, incorporated herein by reference to
Exhibit 28.1 to the Company's Current Report on Form 8-K dated January 21,
1993.
4.2 The Company agrees to furnish to the Commission upon request any instrument
with respect to long-term debt as to which the total amount of securities
authorized thereunder does not exceed 10% of the Company's total
consolidated assets.
10.1 Executive Severance Agreement between the Company and Thomas M. Mishoe, Jr.
dated February 19, 1996, incorporated herein by reference to Exhibit 10.2
to the Company's Annual Report on Form 10-K for the year ended December 31,
1995.
10.2 Executive Severance Agreement between the Company and C. D. Hornbeak, dated
February 25, 1994, incorporated herein by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
10.3 Executive Severance Agreement between the Company and K. P. Ferryman dated
August 21, 1995 incorporated herein by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
10.4 Executive Severance Agreement between the Company and N. D. Glaeser dated
October 21, 1995 incorporated herein by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
10.5 Executive Severance Agreement between the Company and V. Stephen Kangisser
dated May 15, 1996, incorporated herein by reference to Exhibit 10.6 to the
Company's Report on Form 10-Q for the quarter ended June 30, 1996.
10.6 Executive Severance Agreement between the Company and David B. Kewer dated
March 1, 1997, filed herewith.
10.7 Incentive Stock Plan dated February 17, 1992, incorporated herein by
reference to Exhibit 10.8 to the Company's Registration Statement on Form
S-1 (Registration No.33-45852).
10.8 1996 Incentive Stock Plan, incorporated herein by reference to Exhibit A to
the Company's Proxy Statement for its 1996 Annual Meeting of Shareholders.
10.9 Senior Management Annual Incentive Plan, dated as of January 1, 1993,
incorporated herein by reference to Exhibit 10.7 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
30
<PAGE>
10.10 Salaried Retirement Plan dated as of April 6, 1992, incorporated herein by
reference to Exhibit 10.9 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1992.
10.11 Executive Retirement Plan and Trust dated as of April 6, 1992,
incorporated herein by reference to Exhibit 10.10 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
10.12 Letter Agreement dated January 31, 1997 between the Company and Thomas M.
Mishoe, Jr., filed herewith.
10.13 Letter Agreement dated January 31, 1997 between the Company and Neal D.
Glaeser, filed herewith.
10.14 Letter Agreement dated January 31, 1997 between the Company and Carl D.
Hornbeak, filed herewith.
10.15 Letter Agreement dated January 31, 1997 between the Company and V. Stephen
Kangisser, filed herewith.
10.16 Letter Agreement dated January 31, 1997 between the Company and Kimberly
P. Ferryman, filed herewith.
10.17 Letter Agreement dated September 19, 1996 between the Company and David V.
Clark, incorporated herein by reference to Exhibit 10.15 to the Company's
Report on Form 10-Q for the Quarter ended September 30, 1996.
10.18 Master License Agreement between the Company and Welch Foods Inc. dated as
of August 31, 1992, incorporated herein by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1992.
10.19 Revolving Credit Agreement for $10,000,000 between the Company and Crestar
Bank dated January 31, 1994 as amended, incorporated herein by reference to
Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
10.20 Credit Agreement dated as of May 5, 1992 between the Company and First
Union National Bank of Virginia as amended, incorporated herein by
reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
10.21 Agreement dated February 17, 1992 between the Company and Reynolds,
incorporated herein by reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-1 (Registration No. 33-45852).
10.22 Form of Reimbursement Agreement dated as of February 17, 1992 between the
Company and Reynolds, incorporated herein by reference to Exhibit 10.18 to
the Company's Registration Statement on Form S-1 (Registration No.
33-45852).
21. Subsidiaries of the Registrant.
23. Consent of Independent Auditors, Ernst & Young LLP.
</TABLE>
31
<PAGE>
24. Powers of Attorney.
27. Financial Data Schedules.
- ----------------------------------------
In accordance with the Securities and Exchange Commission's requirements, we
will furnish copies of the exhibits listed for a copying fee of 10 cents per
page. Please direct your request to:
Corporate Secretary
Eskimo Pie Corporation
P.O. Box 26906
Richmond, Virginia 23261-6906
Phone No. (804) 560-8400
32
Exhibit 10.6
EXECUTIVE SEVERANCE AGREEMENT
This Agreement ("Agreement") is entered into as of 1st Day of March,
1997 between ESKIMO PIE CORPORATION, a Virginia corporation ("Eskimo Pie"), and
David B. Kewer ("Executive").
WHEREAS, the maintenance of a strong and experienced management is
essential in protecting and enhancing the best interests of Eskimo Pie and its
stockholders, and in this connection Eskimo Pie recognizes that the possibility
of a change in control may result in the departure or distraction of management
personnel to the detriment of Eskimo Pie and its stockholders; and
WHEREAS, the Compensation Committee and the Board of Directors of
Eskimo Pie have each determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of key members of
management to their regular duties without distraction arising from a possible
change in control of Eskimo Pie; and
WHEREAS, the Compensation Committee and the Board have each carefully
reviewed the information presented to them and have determined that the
anticipated benefits to Eskimo Pie from entering into this Agreement with
Executive, thereby encouraging his continued attention and dedication to his
duties, exceed the anticipated costs to Eskimo Pie of entering into such
Agreement; and
WHEREAS, the Compensation Committee and the Board have each concluded
this Agreement is in the best interests of Eskimo Pie and its stockholders; and
WHEREAS, Executive is a key executive of Eskimo Pie and has been
selected by the Compensation Committee to enter into such an agreement with
Eskimo Pie;
NOW, THEREFORE, to assure Eskimo Pie that it will have the continued
dedication of Executive and the availability of his advice and counsel
notwithstanding the possibility or occurrence of a change in control of Eskimo
Pie, and to induce Executive to remain in the employ of Eskimo Pie, and for
other good and valuable consideration, Eskimo Pie and Executive agree as
follows:
1. Definitions of Certain Terms. For purposes of this Agreement,
(a) a "Termination" shall occur if Executive's employment by Eskimo Pie
is terminated by Eskimo Pie at any time within three years following a Change in
Control for reasons other than:
(i) for Cause (as defined in Section 3(a);
(ii) as a result of Executive's death, permanent disability, or
retirement at or after the first day of the month following the
month in which Executive attains age 65 ("Normal Retirement
Date");
33
<PAGE>
(b) a "Termination" shall also occur if Executive's employment by
Eskimo Pie is terminated by Executive for Good Reason (as defined in Section 4)
within three years following a Change in Control; and
(c) "Change in Control" shall mean:
(i) the acquisition by any individual, entity or group (within the
meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of
either (A) the then outstanding shares of common stock of Eskimo
Pie (the "Outstanding Common Stock") or (B) the combined voting
power of the then outstanding voting securities of Eskimo Pie
entitled to vote generally in the selection of directors (the
"Outstanding Voting Securities"). Notwithstanding the foregoing,
the following acquisitions shall not constitute a Change in
control: (A) any acquisition directly from Eskimo Pie, (B) any
acquisition by Eskimo Pie, (C) any acquisition by, or benefit
distribution from, any employee benefit plan (or related trust)
sponsored or maintained by Eskimo Pie or any Corporation
controlled by Eskimo Pie, (D) any acquisition pursuant to any
compensatory stock option or stock purchase plan for employees,
or (E) any acquisition pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (A), (B), and
(C) of Subsection (iii) of this Section 1(c) are satisfied; or
(ii) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election
or nomination for election was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of
the Incumbent Board (with his predecessor thereafter ceasing to
be a member); or
(iii) Approval by the shareholders of Eskimo Pie of the reorganization,
merger, or consolidation of Eskimo Pie unless, following such
reorganization, merger, or consolidation, (A) more than 60% of
the then outstanding shares of common stock and the then
outstanding voting securities of the resulting corporation is
then beneficially owned by all or substantially all of the
beneficial owners, respectively, of the Outstanding Common Stock
and Outstanding Securities immediately prior to such
reorganization, merger, or consolidation, (B) no Person
(excluding (I) Eskimo Pie, (II) any employee benefit plan (or
related trust) of Eskimo Pie or such corporation resulting from
such reorganization, merger, or consolidation, and (III) any
Person beneficially owning, immediately prior to such
reorganization, merger, or consolidation, 20% or more of the
Outstanding Common Stock or Outstanding Voting Securities, (as
the case may be) beneficially owns 20% or more of the then
outstanding shares of common stock or the combined voting power
of the then outstanding voting securities of the resulting
corporation, and (C) at least a majority of the members of the
board of directors of the resulting corporation were members of
the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger, or
consolidation; or
(iv) Approval by the shareholders of Eskimo Pie of (A) a complete
liquidation or dissolution of Eskimo Pie, or (B) the sale or
other disposition of all or substantially all of the assets of
34
<PAGE>
Eskimo Pie other than to a corporation with respect to which,
following such sale or other disposition, (I) more than 60% of
the outstanding shares of common stock and the then outstanding
voting securities of such corporation is beneficially owned by
all or substantially all of the beneficial owners, respectively,
of the Outstanding Common Stock and Outstanding Voting Securities
immediately prior to such sale or disposition; (II) no Person
(excluding (x) Eskimo Pie, (y) any employee benefit plan (or
related trust) of Eskimo Pie or such corporation, and (z) any
Person beneficially owning, immediately prior to such sale or
other disposition, 20% or more of the Outstanding Common Stock or
Outstanding Voting Securities, as the case maybe, beneficially
owns 20% or more of the then outstanding shares of common stock
or the combined voting power of the then outstanding voting
securities of such corporation, and (III) at least a majority of
the members of the board of directors of such corporation were
members of the Incumbent Board at the time of the execution of
the initial agreement providing for such sale or other
disposition of the assets of the corporation.
2. Benefit upon Termination. Except as provided in Section 3, upon
Termination, Eskimo Pie agrees to provide or cause to be provided to Executive
the benefits described in Section 2(a) below, subject to the limitations set
forth in Sections 2(b) and (c) below:
(a) Benefit Payment. Executive shall receive within five business days
of Termination a lump sum payment in cash in an amount equal to 2.99 times
Executive's Earnings (as defined in this Section 2(a)); provided, however, that
if there are fewer than 36 months remaining from the date of Termination to
Executive's Normal Retirement Date, the amount calculated pursuant to this
Section 2(a) shall be reduced by multiplying such amount by a fraction, the
numerator of which is the number of months (including any fraction of a month)
remaining to Executive's Normal Retirement Date and the denominator of which is
36.
For purposes of this Section 2(a), "Earnings" shall mean the average
annual compensation payable by Eskimo Pie and includible in the gross income of
Executive for the taxable years during the period consisting of the most recent
three taxable years ending before the date on which the Change in Control occurs
(or such portion of such period during which Executive performed personal
services for Eskimo Pie).
(b) Other Benefit Plans and Perquisites. The benefit payable upon
Termination in accordance with this Section 2 is not intended to exclude
Executive's participation in any benefit plans or enjoyment of other perquisites
which are available to executive personnel generally in the class or category of
Executive or to preclude such other compensation or benefits as may be
authorized from time to time by the Board of Directors of Eskimo Pie or by its
Compensation Committee; provided, however, that any amount otherwise payable in
accordance with Section 2(a) above shall be reduced by any amounts payable to
Executive upon termination of employment pursuant to any termination allowance
policy or other severance pay plan covering Eskimo Pie employees.
(c) Excise Taxes. If Executive becomes entitled to a payment under this
Section 2 ("Severance Payment"), and if any part or all of the Severance Payment
will be subject to the tax ("Excise Tax") imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), then the amount
otherwise payable to Executive in accordance with Section 2(a) above shall be
reduced as necessary so that no part of such payment shall be subject to the
Excise Tax.
(d) No Duty to Mitigate. Executive's entitlement to benefits hereunder
shall not be governed by any duty to mitigate his damages by seeking further
35
<PAGE>
employment nor offset by any compensation which he may receive from future
employment.
3. Conditions to the Obligations of Eskimo Pie. Eskimo Pie shall have
no obligation to provide or cause to be provided to Executive the benefit
described in Section 2 hereof if either of the following events shall occur:
(a) Termination for Cause. Eskimo Pie shall terminate Executive's
employment for Cause. For purposes of this Agreement, termination of employment
for "Cause" shall mean termination solely for dishonesty, conviction of a
felony, or willful unauthorized disclosure of confidential information of Eskimo
Pie.
(b) Resignation as Director and/or Officer. Executive shall not,
promptly after Termination and upon receiving a written request to do so, resign
as a director and/or officer of Eskimo Pie and of each subsidiary and affiliate
of Eskimo Pie for which he is then serving as a director and/or officer.
4. Termination for Good Reason. Executive may terminate his employment
with Eskimo Pie following a Change in Control for Good Reason and shall be
entitled to receive the benefit described in Section 2 hereof. For purposes of
this Agreement, "Good Reason" shall mean:
(a) the assignment to Executive of any duties inconsistent with the
position (including status, offices, titles, and reporting
requirements) or authority in Eskimo Pie that Executive held
immediately prior to the Change in Control, or a significant
adverse alteration in the nature or status of Executive's
responsibilities or the conditions of Executive's employment from
those in effect immediately prior to such Change in Control;
(b) reduction by Eskimo Pie in Executive's annual base salary as in
effect on the date hereof or as the same may be increased from time to time;
(c) the relocation of Eskimo Pie's principal executive offices to a
location outside the Richmond Metropolitan Area or Eskimo Pie's requiring
Executive to be based anywhere other than Eskimo Pie's principal executive
offices except for required travel on Eskimo Pie's business to an extent
substantially consistent with Executive's present business travel obligations;
(d) except in the event of reasonable administrative delay, the failure
by Eskimo Pie to pay to Executive any portion of Executive's current
compensation or to pay to Executive any portion of an installment of deferred
compensation under any deferred compensation program of Eskimo Pie within seven
(7) days of the date such compensation is due;
(e) the failure by Eskimo Pie to continue in effect any compensation
plan in which Executive participates immediately prior to the Change in Control
that is material to Executive's total compensation or any substitute plans
adopted prior to the Change in Control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by Eskimo Pie to continue Executive's
participation therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits provided and
the level of Executive's participation relative to other participants, as it
existed at the time of the Change in Control;
(f) the failure by Eskimo Pie to continue to provide Executive with
benefits substantially similar to those enjoyed by Executive under any of Eskimo
36
<PAGE>
Pie's life insurance, medical, health and accident, disability plans, or other
welfare and defined benefit plans (qualified and non-qualified) in which
Executive was participating at the time of the Change in Control, the taking of
any action by Eskimo Pie which would directly or indirectly materially reduce
any of such benefits or deprive Executive of any material fringe benefit enjoyed
by Executive at the time of the Change in Control, or the failure by Eskimo Pie
to provide Executive with the number of paid vacation days to which Executive is
entitled on the basis of years of service with Eskimo Pie in accordance with
Eskimo Pie's normal vacation policy in effect at the time of the Change in
Control; or
(g) the failure of Eskimo Pie to obtain a satisfactory agreement from
any successor to assume and agree to perform this Agreement, as contemplated in
Section 10 hereof.
5. Other Covenants. Upon Termination, if Executive is entitled to
receive the benefit described in Section 2, then:
(a) If a leased automobile is assigned to Executive at the time of his
Termination, Executive shall have the right to purchase such automobile, free
and clear of any liens and encumbrances, at its fair market value (as determined
by the leasing company). If Executive wishes to exercise this right, he shall
(i) give Eskimo Pie notice to such effect within 10 days following the date of
Termination, (ii) tender the purchase price within 10 days after he is given
notice of the fair market value, and (iii) be solely responsible for maintaining
and insuring the automobile effective from the date of Termination.
(b)At Executive's request, Eskimo Pie shall arrange outplacement
services for Executive, at Eskimo Pie's expense, for a period of
one year following Termination.
(c) Executive and/or his qualified dependents shall be provided
coverage, at his/their expense, under any medical benefit plans
covering him and/or them at the time of Termination in accordance with
the provisions of the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended from time to time.
6. Confidentiality: Non-Solicitation: Cooperation.
(a) Confidentiality. At all times following Termination, Executive
will not, without the prior written consent of Eskimo Pie, disclose to any
person, firm or corporation any confidential information of Eskimo Pie or its
subsidiaries or affiliates which is now known to him or which hereafter may
become known to him as a result of his employment or association with Eskimo Pie
and which could be helpful to a competitor; provided, however, that the
foregoing shall not apply to confidential information which becomes publicly
disseminated by means other than a breach of this Agreement.
(b) Non-Solicitation. For a period of three years following the date
of Termination (or until Executive's Normal retirement Date, whichever is
sooner), Executive will not induce or attempt to induce, either directly or
indirectly, any management or executive employee of Eskimo Pie or of any of its
subsidiaries or affiliates to terminate his or her employment.
(c) Cooperation. At all times following Termination, Executive will
furnish such information and render such assistance and cooperation as may
reasonably be requested in connection with any litigation or legal proceedings
concerning Eskimo Pie or any of its subsidiaries or affiliates (other than any
legal proceedings concerning Executive's employment). In connection with such
37
<PAGE>
cooperation, Eskimo Pie will pay or reimburse Executive for reasonable expenses
actually incurred.
(d) Remedies for Breach. It is recognized that damages in the event of
breach of Sections 6(a) and (b) above by Executive would be difficult, if not
impossible, to ascertain, and it is therefore specifically agreed that Eskimo
Pie, in addition to and without limiting any other remedy or right it may have,
shall have the right to an injunction or other equitable relief in any court of
competent jurisdiction, enjoining any such breach. The existence of this right
shall not preclude Eskimo Pie from pursuing any other rights and remedies at law
or in equity which Eskimo Pie may have.
7. Term of Agreement. This Agreement shall commence on the date hereof
and shall remain in force until December 31, 1997; provided, however, that on
each anniversary of such date, the term of this Agreement shall be automatically
renewed for successive one year terms, unless at least 60 days prior to the
expiration of the then current term, Eskimo Pie shall give notice to Executive
that the Agreement shall not be renewed; and further provided, however, that if
a Change in Control occurs during the term of this Agreement, this Agreement
shall continue in effect for a period of 36 months beyond the month in which the
Change in Control occurred. Notwithstanding the foregoing, this Agreement shall
terminate if either Eskimo Pie or Executive terminates the employment of
Executive before a Change in Control occurs. Except as otherwise provided in
Section 9(b), this Agreement shall also terminate upon the Executive's death or
permanent disability or his Normal Retirement Date.
8. Adjudication and Expenses.
(a) If a dispute or controversy arises under or in connection with this
Agreement, Executive shall be entitled to an adjudication in an appropriate
court of the State of Delaware, or in any other court of competent jurisdiction.
Alternatively, Executive, at Executive's option, may seek an award in
arbitration to be conducted by a single arbitrator under the Commercial
Arbitration Rules of the American Arbitration Association.
(b) Eskimo Pie shall pay or reimburse Executive for all costs and
expenses, including without limitation court costs and attorneys' fees, incurred
by Executive as a result of any claim, action or proceeding (including without
limitation a claim, action or proceeding by Executive against Eskimo Pie)
arising out of, or challenging the validity or enforceability of, this Agreement
or any provision hereof, if Executive is successful on the merits or otherwise
in such claim, action or proceeding.
9. Successors; Binding Agreement.
(a) This Agreement shall inure to the benefit of and be binding upon
Eskimo Pie and its successors and assigns. Eskimo Pie will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of Eskimo Pie to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that Eskimo Pie would be required to perform it if no such succession had
taken place. As used in this Agreement, "Eskimo Pie" shall mean Eskimo Pie as
herein before defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should die
38
<PAGE>
while any amount would still be payable hereunder if Executive had continued to
live, any such amount, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's devisee, legatee or
other designee or, if there is no such designee, Executive's estate.
10. Miscellaneous.
(a) Assignment. No right, benefit or interest here-under shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, except by will or the laws of descent and
distribution, and any attempt thereat shall be void; and no right, benefit or
interest hereunder shall, prior to receipt of payment, be in any manner liable
for or subject to the recipient's debts, contracts, liabilities, engagements or
torts.
(b) Construction of Agreement. Nothing in this Agreement shall be
construed to amend any provision of any plan or policy of Eskimo Pie. This
Agreement is not, and nothing herein shall be deemed to create, a commitment of
continued employment of Executive by Eskimo Pie or by any of its subsidiaries
and affiliates.
(c) Statutory References. Any reference in this Agreement to a specific
statutory provision shall include that provision and any comparable provision or
provisions of future legislation amending, modifying, supplementing or
superseding the referenced provision.
(d) Amendment. This Agreement may not be amended, modified or
terminated except by written agreement of both parties.
(e) Waiver. No provision of this Agreement may be waived except by a
writing signed by the party to be bound thereby.
Executive may at any time or from time to time waive any or all of the benefits
provided for herein which have not been received by Executive at the time of
such waiver. In addition, prior to the last day of the calendar year in which
Executive's Termination occurs, Executive may waive any or all rights and
benefits provided for herein which have been received by Executive; provided
that Executive repays to Eskimo Pie the amount of the benefits received
(together with interest at the rate provided in Section l274(b)(2)(B) of the
Code). Any waiver of benefits pursuant to this section shall be irrevocable.
(f) Severability. If any provision or portion of this Agreement shall
be determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall remain in full force and effect to the
fullest extent permitted by law.
(g) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be considered an original and all of which
together shall constitute one agreement.
(h) Taxes. Any payment required under this Agreement shall be subject
to all requirements of the law with regard to withholding of taxes, filing,
making of reports and the like, and Eskimo Pie shall use its best efforts to
satisfy promptly all such requirements.
(i) Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Virginia.
39
<PAGE>
(j) Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties hereto with respect to the matters covered
hereby.
Each of the parties has therefore caused this Agreement to be executed
on its or his behalf as of the date first written above.
ESKIMO PIE CORPORATION EXECUTIVE
By /s/ Arnold H. Dreyfuss By /s/ David B. Kewer
Arnold H. Dreyfuss David B. Kewer
40
Exhibit 10.12
January 31, 1997
Thomas M. Mishoe, Jr.
Richmond, Virginia
Dear Mr. Mishoe,
This letter is to advise you of certain actions taken by the Board of Directors
of Eskimo Pie Corporation (the Company") in connection with your continued
employment by the Company.
In consideration of your decision to remain with the Company and your commitment
to use your best efforts to promote the success of the Company's business, the
Company will make the provisions set forth in this letter for your benefit in
the event your employment is terminated or altered under the following
circumstances. The Company will pay you a severance payment in the amount set
forth in the next paragraph if, within a period of (12) months of the date of
this letter, the Board of Directors employs an individual to serve as President
and/or Chief Executive Officer not previously in the employ of the Company and
such individual determines either, (1) at the time of his or her employment or
(b) within (6) months thereafter, to terminate your employment or to materially
alter the terms and conditions of our employment in a manner adverse to you.
Such severance payment will be an amount equal to not less than (12) months base
salary (based upon the amount of your annual base compensation in effect at the
time of the termination), plus the amount of any bonus paid for the year
immediately preceding the year in which such termination takes place. The
severance payment will be payable at the option of the Company either in a lump
sum or in (12) equal monthly installments, subject to applicable withholding.
You understand that this severance payment is a benefit to which you would not
otherwise be entitled and that this letter does not confer upon you any right to
continue in the employ of the Company. Please confirm your understanding by
signing below.
ESKIMO PIE CORPORATION
By /s/ Arnold H. Dreyfuss
Arnold H. Dreyfuss
Interim Chief Executive Officer
ACKNOWLEDGED:
/s/ Thomas M. Mishoe, Jr.
Employee Signature
January 31, 1997
Date
41
Exhibit 10.13
January 31, 1997
Neal D. Glaeser
Richmond, Virginia
Dear Mr. Glaeser,
This letter is to advise you of certain actions taken by the Board of Directors
of Eskimo Pie Corporation (the Company") in connection with your continued
employment by the Company.
In consideration of your decision to remain with the Company and your commitment
to use your best efforts to promote the success of the Company's business, the
Company will make the provisions set forth in this letter for your benefit in
the event your employment is terminated or altered under the following
circumstances. The Company will pay you a severance payment in the amount set
forth in the next paragraph if, within a period of (12) months of the date of
this letter, the Board of Directors employs an individual to serve as President
and/or Chief Executive Officer not previously in the employ of the Company and
such individual determines either, (1) at the time of his or her employment or
(b) within (6) months thereafter, to terminate your employment or to materially
alter the terms and conditions of our employment in a manner adverse to you.
Such severance payment will be an amount equal to not less than (12) months base
salary (based upon the amount of your annual base compensation in effect at the
time of the termination), plus the amount of any bonus paid for the year
immediately preceding the year in which such termination takes place. The
severance payment will be payable at the option of the Company either in a lump
sum or in (12) equal monthly installments, subject to applicable withholding.
You understand that this severance payment is a benefit to which you would not
otherwise be entitled and that this letter does not confer upon you any right to
continue in the employ of the Company. Please confirm your understanding by
signing below.
ESKIMO PIE CORPORATION
By /s/ Arnold H. Dreyfuss
Arnold H. Dreyfuss
Interim Chief Executive Officer
ACKNOWLEDGED:
/s/ Neal D. Glaeser
Employee Signature
January 31, 1997
Date
42
Exhibit 10.14
January 31, 1997
Carl D. Hornbeak
Richmond, Virginia
Dear Mr. Hornbeak,
This letter is to advise you of certain actions taken by the Board of Directors
of Eskimo Pie Corporation (the Company") in connection with your continued
employment by the Company.
In consideration of your decision to remain with the Company and your commitment
to use your best efforts to promote the success of the Company's business, the
Company will make the provisions set forth in this letter for your benefit in
the event your employment is terminated or altered under the following
circumstances. The Company will pay you a severance payment in the amount set
forth in the next paragraph if, within a period of (12) months of the date of
this letter, the Board of Directors employs an individual to serve as President
and/or Chief Executive Officer not previously in the employ of the Company and
such individual determines either, (1) at the time of his or her employment or
(b) within (6) months thereafter, to terminate your employment or to materially
alter the terms and conditions of our employment in a manner adverse to you.
Such severance payment will be an amount equal to not less than (12) months base
salary (based upon the amount of your annual base compensation in effect at the
time of the termination), plus the amount of any bonus paid for the year
immediately preceding the year in which such termination takes place. The
severance payment will be payable at the option of the Company either in a lump
sum or in (12) equal monthly installments, subject to applicable withholding.
You understand that this severance payment is a benefit to which you would not
otherwise be entitled and that this letter does not confer upon you any right to
continue in the employ of the Company. Please confirm your understanding by
signing below.
ESKIMO PIE CORPORATION
By /s/ Arnold H. Dreyfuss
Arnold H. Dreyfuss
Interim Chief Executive Officer
ACKNOWLEDGED:
/s/ Carl D. Hornbeak
Employee Signature
January 31, 1997
Date
43
Exhibit 10.15
January 31, 1997
V. Stephen Kangisser
Richmond, Virginia
Dear Mr. Kangisser,
This letter is to advise you of certain actions taken by the Board of Directors
of Eskimo Pie Corporation (the Company") in connection with your continued
employment by the Company.
In consideration of your decision to remain with the Company and your commitment
to use your best efforts to promote the success of the Company's business, the
Company will make the provisions set forth in this letter for your benefit in
the event your employment is terminated or altered under the following
circumstances. The Company will pay you a severance payment in the amount set
forth in the next paragraph if, within a period of (12) months of the date of
this letter, the Board of Directors employs an individual to serve as President
and/or Chief Executive Officer not previously in the employ of the Company and
such individual determines either, (1) at the time of his or her employment or
(b) within (6) months thereafter, to terminate your employment or to materially
alter the terms and conditions of our employment in a manner adverse to you.
Such severance payment will be an amount equal to not less than (12) months base
salary (based upon the amount of your annual base compensation in effect at the
time of the termination), plus the amount of any bonus paid for the year
immediately preceding the year in which such termination takes place. The
severance payment will be payable at the option of the Company either in a lump
sum or in (12) equal monthly installments, subject to applicable withholding.
You understand that this severance payment is a benefit to which you would not
otherwise be entitled and that this letter does not confer upon you any right to
continue in the employ of the Company. Please confirm your understanding by
signing below.
ESKIMO PIE CORPORATION
By /s/ Arnold H. Dreyfuss
Arnold H. Dreyfuss
Interim Chief Executive Officer
ACKNOWLEDGED:
/s/ V. Stephen Kangisser
Employee Signature
January 31, 1997
Date
44
Exhibit 10.16
January 31, 1997
Kimberly P. Ferryman
Richmond, Virginia
Dear Mrs. Ferryman,
This letter is to advise you of certain actions taken by the Board of Directors
of Eskimo Pie Corporation (the Company") in connection with your continued
employment by the Company.
In consideration of your decision to remain with the Company and your commitment
to use your best efforts to promote the success of the Company's business, the
Company will make the provisions set forth in this letter for your benefit in
the event your employment is terminated or altered under the following
circumstances. The Company will pay you a severance payment in the amount set
forth in the next paragraph if, within a period of (12) months of the date of
this letter, the Board of Directors employs an individual to serve as President
and/or Chief Executive Officer not previously in the employ of the Company and
such individual determines either, (1) at the time of his or her employment or
(b) within (6) months thereafter, to terminate your employment or to materially
alter the terms and conditions of our employment in a manner adverse to you.
Such severance payment will be an amount equal to not less than (12) months base
salary (based upon the amount of your annual base compensation in effect at the
time of the termination), plus the amount of any bonus paid for the year
immediately preceding the year in which such termination takes place. The
severance payment will be payable at the option of the Company either in a lump
sum or in (12) equal monthly installments, subject to applicable withholding.
You understand that this severance payment is a benefit to which you would not
otherwise be entitled and that this letter does not confer upon you any right to
continue in the employ of the Company. Please confirm your understanding by
signing below.
ESKIMO PIE CORPORATION
By /s/ Arnold H. Dreyfuss
Arnold H. Dreyfuss
Interim Chief Executive Officer
ACKNOWLEDGED:
/s/ Kimberly P. Ferryman
Employee Signature
January 31, 1997
Date
45
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
<S> <C>
Subsidiaries of the Registrant Organized Under the Laws of
- ------------------------------ ---------------------------
Sugar Creek Foods, Inc.; Consolidated subsidiary Virginia
Eskimo Inc.; Consolidated subsidiary Virginia
</TABLE>
All other subsidiaries individually and in the aggregate do not constitute a
"significant subsidiary" within the meaning of Rule 1-02(v) of Regulation S-X.
46
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS, ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-58576) pertaining to the 1992 Incentive Stock Plan of Eskimo Pie
Corporation of our report dated February 21, 1997, with respect to the
consolidated financial statements of Eskimo Pie Corporation included in this
Annual Report (Form 10-K) for the year ended December 31, 1996.
/s/ ERNST & YOUNG LLP
Richmond, Virginia
March 28, 1997
47
Exhibit 24
POWER OF ATTORNEY
I, Terrence D. Daniels, do hereby constitute and appoint Arnold H.
Dreyfuss and Thomas M. Mishoe, Jr., my true and lawful attorneys-in-fact, any of
whom acting singly is hereby authorized for me and in my name and on my behalf
as a director and/or officer of Eskimo Pie Corporation (the "Company"), to act
and to execute any and all instruments as such attorneys or attorney deems
necessary or advisable to enable the Company to comply with the Securities
Exchange Act of 1934, and any rules, regulations, policies or requirements of
the Securities and Exchange Commission (the "Commission") in respect thereof, in
connection with the preparation and filing with the Commission of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any
and all amendments to such Report, together with such other supplements,
statements, instruments and documents as such attorneys or attorney deem
necessary or appropriate.
I do hereby ratify and confirm all my said attorneys or attorney
shall do or cause to be done by the virtue hereof.
WITNESS the execution hereof this 7th day of February, 1997.
/s/ Terrence D. Daniels (SEAL)
48
<PAGE>
POWER OF ATTORNEY
I, William M. Fariss, Jr., hereby constitute and appoint Arnold H.
Dreyfuss and Thomas M. Mishoe, Jr., my true and lawful attorneys-in-fact, any of
whom acting singly is hereby authorized for me and in my name and on my behalf
as a director and/or officer of Eskimo Pie Corporation (the "Company"), to act
and to execute any and all instruments as such attorneys or attorney deems
necessary or advisable to enable the Company to comply with the Securities
Exchange Act of 1934, and any rules, regulations, policies or requirements of
the Securities and Exchange Commission (the "Commission") in respect thereof, in
connection with the preparation and filing with the Commission of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any
and all amendments to such Report, together with such other supplements,
statements, instruments and documents as such attorneys or attorney deem
necessary or appropriate.
I do hereby ratify and confirm all my said attorneys or attorney
shall do or cause to be done by the virtue hereof.
WITNESS the execution hereof this 4th day of February, 1997.
/s/ William M. Fariss, Jr. (SEAL)
49
<PAGE>
POWER OF ATTORNEY
I, Judith B. McBee, do hereby constitute and appoint Arnold H.
Dreyfuss and Thomas M. Mishoe, Jr., my true and lawful attorneys-in-fact, any of
whom acting singly is hereby authorized for me and in my name and on my behalf
as a director and/or officer of Eskimo Pie Corporation (the "Company"), to act
and to execute any and all instruments as such attorneys or attorney deems
necessary or advisable to enable the Company to comply with the Securities
Exchange Act of 1934, and any rules, regulations, policies or requirements of
the Securities and Exchange Commission (the "Commission") in respect thereof, in
connection with the preparation and filing with the Commission of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any
and all amendments to such Report, together with such other supplements,
statements, instruments and documents as such attorneys or attorney deem
necessary or appropriate.
I do hereby ratify and confirm all my said attorneys or attorney
shall do or cause to be done by the virtue hereof.
WITNESS the execution hereof this 6th day of February, 1997.
/s/ Judith B. McBee (SEAL)
50
<PAGE>
POWER OF ATTORNEY
I, F. Claiborne Johnston, Jr., do hereby constitute and appoint
Arnold H. Dreyfuss and Thomas M. Mishoe, Jr., my true and lawful
attorneys-in-fact, any of whom acting singly is hereby authorized for me and in
my name and on my behalf as a director and/or officer of Eskimo Pie Corporation
(the "Company"), to act and to execute any and all instruments as such attorneys
or attorney deems necessary or advisable to enable the Company to comply with
the Securities Exchange Act of 1934, and any rules, regulations, policies or
requirements of the Securities and Exchange Commission (the "Commission") in
respect thereof, in connection with the preparation and filing with the
Commission of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, and any and all amendments to such Report, together with such
other supplements, statements, instruments and documents as such attorneys or
attorney deem necessary or appropriate.
I do hereby ratify and confirm all my said attorneys or attorney
shall do or cause to be done by the virtue hereof.
WITNESS the execution hereof this 27th day of January, 1997.
/s/ F. Claiborne Johnston, Jr. (SEAL)
51
<PAGE>
POWER OF ATTORNEY
I, Wilson H. Flohr, Jr., do hereby constitute and appoint Arnold H.
Dreyfuss and Thomas M. Mishoe, Jr., my true and lawful attorneys-in-fact, any of
whom acting singly is hereby authorized for me and in my name and on my behalf
as a director and/or officer of Eskimo Pie Corporation (the "Company"), to act
and to execute any and all instruments as such attorneys or attorney deems
necessary or advisable to enable the Company to comply with the Securities
Exchange Act of 1934, and any rules, regulations, policies or requirements of
the Securities and Exchange Commission (the "Commission") in respect thereof, in
connection with the preparation and filing with the Commission of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any
and all amendments to such Report, together with such other supplements,
statements, instruments and documents as such attorneys or attorney deem
necessary or appropriate.
I do hereby ratify and confirm all my said attorneys or attorney
shall do or cause to be done by the virtue hereof.
WITNESS the execution hereof this 6th day of February, 1997.
/s/ Wilson H. Flohr, Jr. (SEAL)
52
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,143
<SECURITIES> 0
<RECEIVABLES> 4,051
<ALLOWANCES> 0
<INVENTORY> 6,608
<CURRENT-ASSETS> 16,064
<PP&E> 20,265
<DEPRECIATION> 11,549
<TOTAL-ASSETS> 44,440
<CURRENT-LIABILITIES> 9,262
<BONDS> 9,300
0
0
<COMMON> 3,448
<OTHER-SE> 19,022
<TOTAL-LIABILITY-AND-EQUITY> 44,440
<SALES> 74,084
<TOTAL-REVENUES> 74,084
<CGS> 47,674
<TOTAL-COSTS> 76,093
<OTHER-EXPENSES> 777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 777
<INCOME-PRETAX> (3,283)
<INCOME-TAX> (1,237)
<INCOME-CONTINUING> (2,046)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,046)
<EPS-PRIMARY> (.59)
<EPS-DILUTED> (.54)
</TABLE>
