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Eskimo Pie Corporation
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(Name of Registrant as Specified in Its Charter)
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[Eskimo Pie Logo]
Eskimo Pie Corporation
June 30, 1999
Mid Year Report
Focused on the Brand
[Graphic of cartoon bear holding Eskimo Pie bar]
To Our Shareholders,
We are very pleased to report to you summarized financial results for the six
months ending June 30, 1999. We experienced improvements in virtually all
measures and believe these results reflect well on management's execution of the
recently announced Growth and Restructuring Plan.
SALES PERFORMANCE.
For the six month period ending June 30, 1999, net sales increased by 6% to
$38.3 million as compared with $36.1 million during the comparable period in
1998.
Net Sales for the six months ended June 30, 1999 1998
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Eskimo Pie Brand $12,037 $12,661
Foodservice 4,936 3,945
Other National Brands 13,166 12,686
Flavors, Packaging and Other Revenues 8,136 6,853
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$38,275 $36,145
Revenues in the National Brands Division increased slightly during 1999 due
largely to increased sales of Welch's and Weight Watchers Smart Ones brand
products. The Company has received favorable responses to the introduction of
Welch's Double Dare ice pops which capitalize on the youthful popularity of
"sour" treats. The repositioning of the Weight Watchers novelties under the
Smart One's banner also continues to attract new consumers. Also included in the
1999 revenue growth was a $440,000 increase in licensing fees earned from the
new licensing agreements entered into with the Company's six largest customers
effective January 1, 1999.
The Foodservice Division contributed to approximately half of the overall
Company increase as a result of new business secured under its innovative "Right
Choice" sales and marketing program. Under the Right Choice program, foodservice
operators can offer consumers a choice between branded premium ice cream and
frozen yogurt and, as a result, capture soft serve sales that would have been
lost without the alternative choices. The foodservice industry continues to grow
as more and more consumers chose to "eat out" and the Company expects to
capitalize on this momentum as it continues to build upon its Foodservice
division.
GROSS MARGIN IMPROVEMENTS.
The Company's gross margins also increased in 1999 and, as a percent of sales,
continued the improvement begun in recent years. The improved gross margin
reflects the increased sales, the benefits associated with the additional
licensing fees and, as discussed below, the discontinuance of certain
unprofitable packaging operations in the first quarter of 1999.
Gross Margin for the six months ended June 30, 1999 1998
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Gross Profit $17,277 $15,592
As a Percent of Sales 45.1% 43.1%
EXPENSE FROM RESTRUCTURING ACTIVITIES & THE GROWTH AND RESTRUCTURING PLAN.
The Company incurred $572,000 in expenses associated with three separate
restructuring activities during the first half of 1999. First, the Company
incurred $381,000 in costs during the previously announced examination of
strategic alternatives to enhance shareholder value and the subsequent
development of the Company's Growth and Restructuring Plan.
Under the recently announced Growth and Restructuring Plan, the Company will
focus on the rejuvenation of its core Eskimo Pie brand within the licensing and
foodservice businesses. Key components of the Plan include significantly
increased investments in advertising, promotion and product development for the
core Eskimo Pie brand, the potential sale of certain non-core manufacturing
operations, but only at prices accretive to shareholder value, and additional
overhead and staff reductions.
Actions taken under the Plan to date include: new product and promotional
planning for the 2000 novelty season, the engagement of a new advertising agency
to assist in the rejuvenation of the Eskimo Pie brand, the discontinuance of
certain unprofitable packaging operations and headquarters staff reductions.
The Company incurred $105,000 of severance costs during the first quarter of
1999 associated with the discontinuance of unprofitable operations in the
Company's Packaging Division. As a result of this action, profitability in the
Packaging Division, exclusive of the severance costs, has improved by
approximately $250,000 over 1998 results.
During the second quarter of 1999, the Company eliminated two vacant positions
and terminated the employment of six employees located at the Company's
headquarters. The severance costs associated with the terminations totaled
$75,000 and, when combined with the savings from the eliminated positions, these
actions are anticipated to provide annualized savings of approximately $300,000
per year.
OVERALL PROFITABILITY.
As a result of the increased sales, improved gross margins and reduced overall
costs, net income for the six months ended June 30, 1999 increased to $1,631,000
or $0.47 per share. These 1999 results represent a 30% improvement over first
half 1998 net income of $1,250,000 or $0.36 per share. Exclusive of the year to
date restructuring charges, net income would have increased by approximately 59%
over 1998 results.
Earnings Per Share
for the six months ended June 30, 1999 1998
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Net Income $0.47 $0.36
Without Restructuring Charges 0.57 NA
LIQUIDITY AND CAPITAL RESOURCES.
The Company's liquidity and capital resources have continued to strengthen as
improved profitability has led to an increase in cash from operations. Working
capital is being managed closely and long term debt is being reduced by over
$300,000 each quarter. As a result, the Company's working capital at June 30,
1999 exceeded the outstanding debt obligations for the first time in over five
years.
Liquidity and Capital Resources, as
of 6/30/99 12/31/98 6/30/98
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Working Capital $8,789 $6,345 $7,983
Debt Obligations 8,359 9,018 9,676
EARNINGS OUTLOOK.
The Company expects continued improvement during the second half of 1999 with
sales and operating profit exceeding that reported in the second half of 1998.
We hope you that you share our pride in the accomplishments made to date. The
Growth and Restructuring Plan involves a renewed focus on the Eskimo Pie brand
with the profitable National Brands novelties and Foodservice businesses. We
believe that building the value of the Eskimo Pie brand, the divestiture, as
appropriate, of certain non-core manufacturing assets and the continued
management of fixed overhead costs will best enhance long term shareholder
value. We are beginning to see improvements from our actions and thank you for
your continued support of our efforts on your behalf.
Sincerely,
/s/ David B. Kewer /s/ Arnold H. Dreyfuss
David B. Kewer Arnold H. Dreyfuss
President and Chief Executive Officer Chairman of the Board
<PAGE>
<TABLE>
FINANCIAL DATA
(amounts in thousands, except Share Data)
<CAPTION>
Six months ended
Condensed results of operations (unaudited) for the June 30,
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1999 1998
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<S> <C> <C>
Net sales $ 38,275 $ 36,145
Cost of products sold 20,998 20,553
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Gross profit 17,277 15,592
Advertising and sales promotion expenses 9,708 8,877
Selling, general and administrative expenses 4,182 4,490
Expense from restructuring activities 572 -
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Operating income 2,815 2,225
Interest income 50 102
Interest expense and other - net 276 344
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Income before income taxes 2,589 1,983
Income tax expense 958 733
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Net income $ 1,631 $ 1,250
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Per Share Data
Basic:
Weighted average number of
common shares outstanding 3,462,810 3,458,187
Net income $ 0.47 $ 0.36
===========================================
Assuming dilution:
Weighted average number of
common shares outstanding 3,464,031 3,629,990
Net income $ 0.47 $ 0.36
===========================================
Cash dividends $ 0.10 $ 0.10
===========================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31, June 30,
Condensed Balance Sheet Data (unaudited) as of 1999 1998 1998
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<S> <C> <C> <C>
Cash and cash equivalents $ 2,179 $ 530 $ 2,285
Receivables 12,073 6,817 11,011
Inventories 5,227 4,897 5,895
Prepaid expenses 287 889 819
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Total current assets 19,766 13,133 20,010
Property, plant and equipment - net 6,839 7,665 7,983
Goodwill and other intangibles 17,142 17,645 17,221
Other assets 1,048 1,645 1,399
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Total assets $ 44,795 $ 40,088 $ 46,613
==============================================================
Total current liabilities $ 10,960 $ 6,788 $ 12,027
Long term debt 7,157 3,901 4,559
Convertible subordinated notes - 3,800 3,800
Postretirement benefits and other liabilities 3,108 3,373 3,216
Total shareholders' equity 23,570 22,226 23,011
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Total liabilities and shareholders' equity $ 44,795 $ 40,088 $ 46,613
==============================================================
</TABLE>
<PAGE>
[Graphic of cartoon bear holding Eskimo Pie bar]
Eskimo Pie Corporation
901 Moorefield Park Drive
Richmond, Virginia 23236
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
Information in this report relating to the Company's future plans and
performance are "forward looking statements" and, as such, involve certain risks
and uncertainties that could cause actual results to vary materially. Potential
risks and uncertainties include, but are not limited to: (1) the highly
competitive nature of the frozen dessert market and the level of consumer
interest in the Company's products, (2) product costing, (3) the weather, (4)
the performance of management including management's ability to implement its
plans as contemplated, (5) the Company's relationships with its licensees and
licensors, (6) the impact of Year 2000 matters and (7) government regulation.
These risks and uncertainties are further discussed in the Company's Annual
Report on Form 10-K as filed with the Securities and Exchange Commission for the
year ended December 31, 1998. Actual results may vary materially from those
included herein and the Company assumes no responsibility for updating these
statements.
