SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-19867
------------------------
ESKIMO PIE CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-0571720
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
901 Moorefield Park Drive
Richmond, VA 23236
(Address of principal executive offices, including zip code)
------------
Registrant's phone number, including area code:
(804) 560-8400
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of July 31, 1998.
Class Outstanding at July 31, 1998
----- ----------------------------
Common Stock, $1.00 Par Value 3,458,597
<PAGE>
ESKIMO PIE CORPORATION
Index
Page
Number
------
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income 1
Three and Six Months Ended June 30, 1998 and 1997
Condensed Consolidated Balance Sheets 2
June 30, 1998; December 31, 1997 and June 30, 1997
Condensed Consolidated Statements of Cash Flows 3
Six Months Ended June 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 6. Exhibits and Reports on Form 8-K 8
<PAGE>
<TABLE>
ESKIMO PIE CORPORATION
Condensed Consolidated Statements of Income (Unaudited)
<CAPTION>
<S> <C>
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
- ----------------------------------------------------- ------------------ ------------------ ------------------- -----------------
(In thousands, except share data)
Net sales $ 20,114 $ 23,837 $ 36,145 $ 41,915
Cost of products sold 11,052 13,542 20,553 24,131
------------------ ------------------ ------------------- -----------------
Gross profit 9,062 10,295 15,592 17,784
Advertising and sales promotion expenses 5,215 6,005 8,877 10,487
Selling, general and administrative expenses 2,072 2,654 4,490 5,443
------------------ ------------------ ------------------- -----------------
Operating income 1,775 1,636 2,225 1,854
Interest income 41 53 102 94
Interest expense and other - net 152 180 344 354
Gain on disposal of fixed assets - 125 - 125
------------------ ------------------ ------------------- -----------------
Income before income taxes 1,664 1,634 1,983 1,719
Income tax expense 615 621 733 653
------------------ ------------------ ------------------- -----------------
Net income $ 1,049 $ 1,013 $ 1,250 $ 1,066
================== ================== =================== =================
Per Share Data:
Basic:
Weighted average number of
common shares outstanding 3,458,370 3,457,923 3,458,187 3,454,324
Net income $ 0.30 $ 0.29 $ 0.36 $ 0.31
================== ================== =================== =================
Assuming Dilution:
Weighted average number of
common shares outstanding 3,637,836 3,626,128 3,629,990 3,622,644
Net income $ 0.30 $ 0.29 $ 0.36 $ 0.31
================== ================== =================== =================
Cash dividends $ 0.05 $ 0.05 $ 0.10 $ 0.10
================== ================== =================== =================
1
<PAGE>
ESKIMO PIE CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)
<CAPTION>
June 30, December 31, June 30,
As of 1998 1997 1997
- ------------------------------------------------------------------------- ------------------ ------------------ ----------------
(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents $ 2,285 $ 3,353 $ 2,073
Receivables 11,011 5,321 11,787
Inventories 5,895 4,342 5,748
Prepaid expenses 819 1,617 1,078
------------------ ------------------ ----------------
Total current assets 20,010 14,633 20,686
Property, plant and equipment - net 7,983 7,892 8,635
Goodwill and other intangibles 17,221 17,588 17,629
Other assets 1,399 1,467 1,610
------------------ ------------------ ----------------
Total assets $ 46,613 $ 41,580 $ 48,560
================== ================== ================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 6,144 $ 3,386 $ 4,679
Accrued advertising and promotion 3,381 1,389 4,427
Accrued compensation and related amounts 401 530 468
Other accrued expenses 784 698 1,204
Current portion of long term debt 1,317 1,317 1,202
------------------ ------------------ ----------------
Total current liabilities 12,027 7,320 11,980
Long term debt 4,559 5,218 5,876
Convertible subordinated notes 3,800 3,800 3,800
Postretirement benefits and other liabilities 3,216 3,161 3,589
Shareholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares
authorized, none issued and outstanding - - -
Common stock, $1.00 par value; 10,000,000 shares
authorized, 3,458,601 issued and outstanding in 1998,
3,458,002 at December 31, 1997 and 3,458,006 at
June 30, 1997 3,459 3,458 3,458
Additional capital 4,376 4,353 4,283
Retained earnings 15,176 14,270 15,574
------------------ ------------------ ----------------
Total shareholders' equity 23,011 22,081 23,315
------------------ ------------------ ----------------
Total liabilities and shareholders' equity $ 46,613 $ 41,580 $ 48,560
================== ================== ================
2
<PAGE>
ESKIMO PIE CORPORATION
Condensed Consolidated Statements Of Cash Flows (Unaudited)
<CAPTION>
For the six months ended June 30, 1998 1997
- ----------------------------------------------------------------------------------------- ---------------------------------------
(In thousands)
Operating activities
Net income $ 1,250 $ 1,066
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,257 1,291
Gain on disposal of fixed assets - (125)
Change in deferred income taxes and other assets (56) (30)
Change in postretirement benefits and other liabilities (9) 155
Change in receivables (5,691) (7,737)
Change in inventories and prepaid expenses (755) 3,029
Change in accounts payable and accrued expenses 4,708 2,014
-------------------- ------------------
Net cash provided by (used in) operating activities 704 (337)
Investing activities
Capital expenditures (832) (656)
Proceeds from disposal of fixed assets - 125
Other 63 65
-------------------- ------------------
Net cash used in investing activities (769) (466)
Financing activities
Borrowings - 1,150
Principal payments on long term debt (659) (71)
Cash dividends (344) (346)
-------------------- ------------------
Net cash (used in) provided by financing activities (1,003) 733
-------------------- ------------------
Change in cash and cash equivalents (1,068) (70)
Cash and cash equivalents at the beginning of the year 3,353 2,143
-------------------- ------------------
Cash and cash equivalents at the end of the quarter $ 2,285 $ 2,073
==================== ==================
</TABLE>
3
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<TABLE>
ESKIMO PIE CORPORATION
Notes to Condensed Consolidated Financial Statements
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all adjustments (consisting
of only normal recurring accruals) necessary for a fair presentation of the
Company's financial position as of June 30, 1998 and its results of operations
for the three and six months ended June 30, 1998 and 1997. The results of
operations for any interim period are not necessarily indicative of results for
the full year. These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's 1997 Annual
Report.
NOTE B - INVENTORIES Inventories are classified as follows:
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------------------
June 30, 1998 December 31, 1997 June 30, 1997
- --------------------------------------------------------------------------------------------
(In thousands)
Finished goods $ 3,783 $ 2,943 $ 3,818
Raw materials and packaging supplies 3,043 2,330 2,981
---------- ---------- -----------
Total FIFO inventories 6,826 5,273 6,799
LIFO reserves (931) ( 931) (1,051)
---------- ---------- ------------
$ 5,895 $ 4,342 $ 5,748
========== ========= ==========
- --------------------------------------------------------------------------------------------
</TABLE>
NOTE C - CONVERTIBLE SUBORDINATED NOTES
The Company's convertible subordinated notes mature in February 1999 if not
previously converted to common stock. These notes remain classified with long
term debt in accordance with the Company's intention and ability to refinance
the notes on a long term basis (through April 2000) under the available $10
million committed line of credit.
4
<PAGE>
<TABLE>
NOTE D - EARNINGS PER SHARE
The following table sets forth the computation of earnings per share:
<CAPTION>
<S> <C>
- ------------------------------------------------------ ------------------------------------ ---------------------------------------
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
- ------------------------------------------------------ ------------------- ---------------- ------------------ --------------------
Net income $ 1,049,000 $ 1,013,000 $ 1,250,000 $ 1,066,000
Reversal of interest expense from convertible
subordinated notes (after tax) 27,000 27,000 53,000 53,000
----------- ------------ ------------ ------------
Net income assuming potential dilution $ 1,076,000 $ 1,040,000 $ 1,303,000 $ 1,119,000
=========== ============ ============ ============
Weighted average number of common
shares outstanding 3,458,370 3,457,923 3,458,187 3,454,324
Effect of dilutive securities:
Stock options 16,899 5,638 9,236 5,753
Convertible subordinated notes 162,567 162,567 162,567 162,567
------------- -------------- ------------- --------------
Weighted average number of common shares
outstanding assuming potential dilution 3,637,836 3,626,128 3,629,990 3,622,644
============ ============= ============ =============
Basic earnings per share $0.30 $0.29 $0.36 $0.31
===== ===== ===== =====
Earnings per share - assuming dilution $0.30 $0.29 $0.36 $0.31
===== ===== ===== =====
- ------------------------------------------------------ ------------------- ---------------- ------------------ --------------------
</TABLE>
Certain stock options were excluded from consideration for their
dilutive effect because the exercise price of the options exceeded the average
market price for the respective periods, and as such, the effect would be
anti-dilutive.
5
<PAGE>
ESKIMO PIE CORPORATION
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Eskimo Pie Corporation markets and manufactures through its own plants
and licensed dairies a broad range of frozen novelties, frozen yogurt, ice cream
and sorbet products under the Eskimo Pie, RealFruit, Welch's, Weight Watchers,
SnackWell's and OREO brand names. The Company also continues to manufacture
ingredients and packaging for sale to the dairy industry.
RESULTS OF OPERATIONS
Net income for the quarter ended June 30, 1998 increased 3.6% to
$1,049,000 ($0.30 per share) as compared with $1,013,000 ($0.29 per share) for
the same period in 1997. For the six months ended June 30, net income increased
17.3% to $1,250,000 in 1998 as compared with $1,066,000 in 1997. Included in
1997 results are gains of $125,000 resulting from the sale of fixed assets.
Exclusive of these gains, net income increased 12.2% and 26.5% for the quarter
and six months, respectively.
Net Sales and Gross Profit
Sales of components and ingredients for the Company's licensed brands
decreased during both the quarter and six month period ended June 30, 1998 in
spite of expanded distribution of Eskimo Pie branded products in the populous
Northeast markets, the successful introduction of OREO brand novelties in the
West and Southwest markets and the initiation of the single serve impulse
program. The incremental sales resulting from these initiatives only partially
offset the continued decline of the Company's SnackWell's and RealFruit brands
(which together fell by approximately $2.5 million during the first half of
1998) and, according to Information Resources, Inc., an overall industry decline
in consumer purchases of branded frozen novelties which, management believes,
resulted from cooler weather during the first half of the year and increased
consumer purchases of less expensive private label products. Sales were also
weaker in the first half of 1998 than in 1997 due to differences in the timing
of consumer and trade promotions. The 1998 promotional calendar is not as front
loaded as that in 1997 and as such, promotional spending and the resulting sales
should be more evenly spread throughout the year.
Sales within the Company's Flavors and Foodservice divisions also
decreased during the quarter ($566,000) and six month period ($932,000) ended
June 30, 1998 as compared with 1997 results. The Flavors decrease relates
primarily to the loss of two customers following the closure of the Los Angeles
production facility as part of the 1997 Flavors consolidation. Production
efficiencies and enhanced divisional focus resulting from the consolidation is
beginning to enhance our pricing competitiveness and customer service which may
lead to increased sales going forward. The Foodservice decrease relates
primarily to the loss of one large volume, low margin customer which was lost in
late 1997 from a pricing decision. New business has recently been obtained which
should offset the lost volume beginning in the fourth quarter of 1998.
Gross profit, as a percent of sales, increased during both the quarter
and six month periods as a result of an improved product mix, the impact of the
third quarter 1997 Flavors consolidation and the benefit of 1997's initiatives
to obtain more favorable pricing on key materials and ingredients.
6
<PAGE>
Expenses and Other Income
Advertising and sales promotion expenses decreased during both the
quarter and six month period ended June 30, 1998, as compared with 1997,
primarily as a result of a change in the Company's promotional spending pattern.
As discussed above, the Company's 1998 marketing plan calls for heavier
"in-season" promotional support as compared with the 1997 plan which included an
emphasis on "pre-season" spending. Promotional spending also decreased in tandem
with the decreased sales as a large percentage of promotional spending is volume
based and as sales decline, spending against promotional commitments fall as
well.
Selling, general and administrative expenses continue to trend at
levels below prior year results as a result of management's initiatives to
control these costs throughout the Company. Interest income and expense, as well
as the effective income tax rate, remain consistent with the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remains strong. During 1998, the
Company has made approximately $832,000 of capital investments (primarily
related to computer technology and New Berlin plant improvements) and $659,000
in scheduled debt payments. The Company believes that the annual cash generated
from operations and funds available under its credit agreements will provide the
Company with sufficient funds and the financial flexibility to support its
ongoing business, strategic objectives and debt repayment requirements.
FORWARD LOOKING STATEMENTS
The information included in this Annual Report regarding the Company's
future plans and performance contains forward looking statements within the
meaning of federal securities laws. These statements are based upon management's
current expectations and beliefs about future events and their effect upon
Eskimo Pie Corporation. There can be no assurance that future developments
affecting the Company will mirror those currently anticipated by management.
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 licensors and licensees, the highly competitive
frozen dessert market as well as government regulation. Actual results may vary
materially from those included in the forward looking statements. The Company's
Annual Report on Form 10-K for the year ended December 31, 1997 contains
additional discussion of the risk factors affecting the Company's business.
7
<PAGE>
PART II, OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) At the Company's Annual Meeting held on May 6, 1998, 2,712,028
of the Company's 3,458,002 shares were present in person or by
proxy and entitled to vote, which constituted a quorum.
(b) At the Annual Meeting, the following nominees were elected to
serve until the 1999 Annual Meeting having received the
following vote:
FOR ABSTAIN
--- -------
Arnold H. Dreyfuss 2,446,444 265,584
Wilson H. Flohr, Jr. 2,536,562 175,466
F. Claiborne Johnston, Jr. 2,536,562 175,466
David B. Kewer 2,704,677 7,351
Daniel J. Ludeman 2,600,560 111,468
Judith B. McBee 2,600,560 111,468
Robert C. Sledd 2,704,862 7,166
(c) At the Annual Meeting, designation of Ernst & Young LLP as
auditors for the Company was ratified having received the
following vote:
FOR 2,605,811
AGAINST 7,996
ABSTAIN 98,222
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27. Financial Data Schedules, filed herewith.
(b) Reports on Form 8-K:
None
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ESKIMO PIE CORPORATION
Date: August 10, 1998 By /s/ David B. Kewer
--------------------------
David B. Kewer
President and Chief Executive
Officer
Date: August 10, 1998 By /s/ Thomas M. Mishoe, Jr.
---------------------------
Thomas M. Mishoe, Jr.
Chief Financial Officer,
Vice President,
Treasurer and Corporate
Secretary
Date: August 10, 1998 By /s/ William T. Berry, Jr.
------------------------------
William T. Berry, Jr.
Assistant Vice President,
Controller
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,285
<SECURITIES> 0
<RECEIVABLES> 11,011
<ALLOWANCES> 0
<INVENTORY> 5,895
<CURRENT-ASSETS> 20,010
<PP&E> 19,948
<DEPRECIATION> 11,965
<TOTAL-ASSETS> 46,613
<CURRENT-LIABILITIES> 12,027
<BONDS> 8,359
0
0
<COMMON> 3,459
<OTHER-SE> 19,552
<TOTAL-LIABILITY-AND-EQUITY> 46,613
<SALES> 36,145
<TOTAL-REVENUES> 36,145
<CGS> 20,553
<TOTAL-COSTS> 33,920
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 344
<INCOME-PRETAX> 1,983
<INCOME-TAX> 733
<INCOME-CONTINUING> 1,250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,250
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
