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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-19867
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ESKIMO PIE CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-0571720
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
901 Moorefield Park Drive
Richmond, VA 23236
(Address of principal executive offices, including zip code)
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Registrant's phone number, including area code:
(804) 560-8400
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of July 31, 1999.
Class Outstanding at July 31, 1999
----- ----------------------------
Common Stock, $1.00 Par Value 3,462,850
<PAGE>
ESKIMO PIE CORPORATION
Index
Page
Number
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Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income 1
Three and Six Months Ended June 30, 1999 and 1998
Condensed Consolidated Balance Sheets 2
June 30, 1999; December 31, 1998 and June 30, 1998
Condensed Consolidated Statements of Cash Flows 3
Six Months Ended June 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
<PAGE>
<TABLE>
ESKIMO PIE CORPORATION
Condensed Consolidated Statements of Income (Unaudited)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Net sales $ 22,146 $ 20,114 $ 38,275 $ 36,145
Cost of products sold 11,715 11,052 20,998 20,553
-----------------------------------------------------------------------
Gross profit 10,431 9,062 17,277 15,592
Advertising and sales promotion expenses 5,827 5,215 9,708 8,877
Selling, general and administrative expenses 2,039 2,072 4,182 4,490
Expense from restructuring activities 258 - 572 -
-----------------------------------------------------------------------
Operating income 2,307 1,775 2,815 2,225
Interest income 31 41 50 102
Interest expense and other - net 117 152 276 344
-----------------------------------------------------------------------
Income before income taxes 2,221 1,664 2,589 1,983
Income tax expense 822 615 958 733
-----------------------------------------------------------------------
Net income $ 1,399 $ 1,049 $ 1,631 $ 1,250
=======================================================================
Per Share Data
Basic:
Weighted average number of
common shares outstanding 3,462,824 3,458,370 3,462,810 3,458,187
Net income $ 0.40 $ 0.30 $ 0.47 $ 0.36
=======================================================================
Assuming dilution:
Weighted average number of
common shares outstanding 3,462,824 3,637,836 3,464,031 3,629,990
Net income $ 0.40 $ 0.30 $ 0.47 $ 0.36
=======================================================================
Cash dividends $ 0.05 $ 0.05 $ 0.10 $ 0.10
=======================================================================
</TABLE>
1
<PAGE>
<TABLE>
ESKIMO PIE CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)
<CAPTION>
June 30, December 31, June 30,
As of 1999 1998 1998
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share data)
Assets
<S> <C> <C> <C>
Current assets:
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
------------------------------------------------------
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
------------------------------------------------------
Total assets $ 44,795 $ 40,088 $ 46,613
======================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 3,496 $ 2,875 $ 6,144
Accrued advertising and promotion 4,562 1,728 3,381
Accrued compensation and related amounts 386 211 401
Other accrued expenses 1,064 657 784
Income taxes 250 - -
Current portion of long term debt 1,202 1,317 1,317
------------------------------------------------------
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
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, 3,462,824 issued and outstanding in 1999,
3,458,597 at December 31, 1998 and 3,458,601 at June 30,
1998 3,463 3,459 3,459
Additional capital 4,448 4,393 4,376
Retained earnings 15,659 14,374 15,176
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Total shareholders' equity 23,570 22,226 23,011
------------------------------------------------------
Total liabilities and shareholders' equity $ 44,795 $ 40,088 $ 46,613
======================================================
</TABLE>
2
<PAGE>
<TABLE>
ESKIMO PIE CORPORATION
Condensed Consolidated Statements Of Cash Flows (Unaudited)
<CAPTION>
For the six months ended June 30, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Operating activities
Net income $ 1,631 $ 1,250
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,192 1,257
Change in deferred income taxes and other assets 704 (56)
Change in postretirement benefits and other liabilities (292) (9)
Change in receivables (5,256) (5,691)
Change in inventories and prepaid expenses - (755)
Change in accounts payable and accrued expenses 4,334 4,708
--------------------------------------
Net cash provided by operating activities 2,313 704
Investing activities
Capital expenditures (221) (832)
Proceeds from disposal of fixed assets 401 -
Other 161 63
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Net cash provided by (used in) investing activities 341 (769)
Financing activities
Borrowings 3,800 -
Redemption of convertible subordinate notes (3,800) -
Principal payments on long term debt (659) (659)
Cash dividends (346) (344)
--------------------------------------
Net cash used in financing activities (1,005) (1,003)
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Change in cash and cash equivalents 1,649 (1,068)
Cash and cash equivalents at the beginning of the year 530 3,353
--------------------------------------
Cash and cash equivalents at the end of the quarter $ 2,179 $ 2,285
======================================
</TABLE>
3
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ESKIMO PIE CORPORATION
Notes to Condensed Consolidated Financial Statements
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all adjustments (consisting
of only normal recurring accruals) necessary for a fair presentation of the
Company's financial position as of June 30, 1999 and its results of operations
for the three and six months ended June 30, 1999 and 1998. 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 1998 Annual
Report.
NOTE B - INVENTORIES Inventories are classified as follows:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998 June 30, 1998
- -------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Finished goods $ 3,488 $ 3,294 $ 3,783
Raw materials and packaging supplies 2,776 2,642 3,043
---------- --------- ----------
Total FIFO inventories 6,264 5,936 6,826
LIFO reserves (1,037) ( 1,039) (931)
---------- --------- ----------
$ 5,227 $ 4,897 $ 5,895
========== ========= ==========
</TABLE>
NOTE C - FINANCING ARRANGEMENTS
On May 20, 1999, the Company renewed its $10 million committed line of
credit which is now available for general corporate purposes through April 2001.
Borrowings under the line bear interest at the lender's overnight money market
rate plus 100 basis points.
The Company used the line to refinance, on a long term basis, the
February 1999 redemption of the previously issued $3.8 million in convertible
subordinated notes.
4
<PAGE>
NOTE D - EARNINGS PER SHARE
The following table sets forth the computation of earnings per share:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 1,399,000 $ 1,049,000 $ 1,631,000 $ 1,250,000
Reversal of interest expense from convertible
subordinated notes (after tax) - 27,000 - 53,000
----------- ----------- ------------ ------------
Net income assuming potential dilution $ 1,399,000 $ 1,076,000 $ 1,631,000 $ 1,303,000
=========== ============ ============
Weighted average number of common
shares outstanding 3,462,824 3,458,370 3,462,810 3,458,187
Effect of dilutive securities:
Stock options - 16,899 1,221 9,236
Convertible subordinated notes - 162,567 - 162,567
----------- ----------- ------------ ------------
Weighted average number of common shares
outstanding assuming potential dilution 3,462,824 3,637,836 3,464,031 3,629,990
=========== =========== ============ ============
Basic earnings per share $0.40 $0.30 $0.47 $0.36
===== ===== ===== =====
Earnings per share - assuming dilution $0.40 $0.30 $0.47 $0.36
===== ===== ===== =====
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.
NOTE E - BUSINESS SEGMENTS
<CAPTION>
National
Business Segments Brands Flavors Foodservice Other Totals
- ------------------------------------------------------------------------------------------------------------------------------------
Three months ended June 30, 1999
Sales $15,210 $ 3,531 $ 2,823 $ 582 $ 22,146
======= ======= ======= ======== ========
Segment profitability $ 3,110 $ 639 $ 720 $ 135 $ 4,604
Selling, general and administrative expenses (2,039)
Expense from restructuring activities (258)
Interest income and expense - net (86)
--------
Income before income taxes $ 2,221
========
- ------------------------------------------------------------------------------------------------------------------------------------
Three months ended June 30, 1998
Sales $14,472 $ 3,109 $ 2,132 $ 401 $ 20,114
======= ======= ======== ======== ========
Segment profitability $ 2,941 $ 454 $ 434 $ 18 $ 3,847
Selling, general and administrative expenses (2,072)
Interest income and expense - net (111)
--------
Income before income taxes $ 1,664
========
- ------------------------------------------------------------------------------------------------------------------------------------
5
<PAGE>
National
Business Segments Brands Flavors Foodservice Other Totals
- ------------------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 1999
Sales $25,768 $ 6,447 $ 4,936 $ 1,124 $ 38,275
======= ======= ======= ======= ========
Segment profitability $ 5,062 $ 1,240 $ 1,167 $ 100 $ 7,569
Selling, general and administrative expenses (4,182)
Expense from restructuring activities (572)
Interest income and expense - net (226)
Income before income taxes $ 2,589
========
- ------------------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 1998
Sales $25,496 $ 5,905 $ 3,945 $ 799 $ 36,145
======= ======= ======= ======= ========
Segment profitability $ 4,896 $ 963 $ 972 $ (116) $ 6,715
Selling, general and administrative expenses (4,490)
Interest income and expense - net (242)
----------
Income before income taxes $ 1,983
=========
</TABLE>
NOTE F- RESTRUCTURING EXPENSES
The Company incurred $572,000 in expenses associated with three
separate restructuring activities during the first half of 1999.
The Company incurred approximately $381,000 in costs (primarily
associated with legal, investment banking and other professional fees) during
the previously announced examination of strategic alternatives to enhance
shareholder value and the subsequent development of the Company's Growth and
Restructuring Plan.
In March 1999, the Company discontinued certain non-core manufacturing
operations and as a result, terminated the employment of seven production
employees at its Bloomfield, New Jersey packaging plant. As a result, the
Company incurred related severance costs of approximately $105,000 all of which
was paid as of June 30, 1999.
During the second quarter of 1999, the Company eliminated two vacant
positions and terminated the employment of six employees located at the
Company's corporate headquarters. The severance costs associated with the
terminations totaled $86,000, the majority of which will be paid by the end of
1999.
6
<PAGE>
ESKIMO PIE CORPORATION
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Eskimo Pie Corporation markets a broad range of frozen novelties, ice
cream and sorbet products under the Eskimo Pie, RealFruit, Welch's, Weight
Watchers Smart Ones, SnackWell's and OREO brand names. These nationally branded
products are generally manufactured by a select group of licensed dairies who
purchase the necessary flavors, ingredients and packaging directly from the
Company. Eskimo Pie Corporation also manufactures soft serve yogurt and premium
ice cream products for sale to the commercial foodservice industry. The Company
also sells a full line of quality flavors and ingredients for use in private
label dairy products in addition to the national brands it licenses.
RESULTS OF OPERATIONS
Net income for the quarter ended June 30, 1999 was $1,399,000 or $0.40
per share, a 33% improvement over second quarter 1998 net income of $1,049,000
or $0.30 per share. The 1999 results includes expense from restructuring
activities of approximately $258,000 which, after related tax effects, reduced
net income by $163,000 or $0.05 per share. Exclusive of the second quarter
restructuring charges, 1999 net income would have increased by approximately 50%
over 1998 second quarter results.
The six months ending June 30, 1999 reflect a 30% increase in net
income as compared to the comparable period in 1998. Net income was $1,631,000
or $0.47 per share in 1999 as compared to $1,250,000 or $0.36 per share in 1998.
Restructuring charges totaling approximately $572,000 are included in the six
month results and, after related tax effects, reduced net income by $360,000 or
$0.10 per share. Exclusive of the year to date restructuring charges, 1999 net
income would have increased by approximately 59% over 1998 results.
It is not the Company's intent to imply that alternate measures of
performance are more meaningful than net income as determined in accordance with
generally accepted accounting principles. Management believes, however, that
investors should consider the effects of the restructuring activities as they
assess the results of the Company's on-going operations.
Net Sales and Gross Profit
Sales for the second quarter of 1999 increased by 10% to $22.1 million
as compared to $20.1 million in 1998. For the six month period ending June 30,
1999, sales increased by 6% to $38.3 million as compared with $36.1 million
during the comparable period in 1998.
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
two new 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 consumer attention. Also
contributing to the year to date 1999 revenue growth was a $440,000 increase
($220,000 increase during the quarter ended June 30, 1999) in licensing fees
earned from the new licensing agreements entered into with the Company's six
largest customers effective January 1, 1999.
7
<PAGE>
The Foodservice Division contributed to approximately half of the
overall Company increase in net sales 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 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.
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 results of 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.
Expenses And Other Income
Advertising and sales promotion for the quarter and six month period
ending June 30, 1999 increased in both an absolute amount and as a percent of
sales as compared to the comparable periods in 1998. This increase reflects the
Company's intent to increase spending in support of the core Eskimo Pie brand in
both the licensing and foodservice businesses, as well as the additional costs
incurred to introduce the new Welch's brand novelties.
Selling, general and administrative expenses continue to decline as a
result of management's initiatives to control these costs.
The Company incurred $572,000 in expenses associated with three
separate restructuring activities completed during the first half of 1999.
First, the Company incurred approximately $381,000 in costs relating to 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.
In March 1999, the Company discontinued certain non-core manufacturing
operations and terminated the employment of seven production employees at its
Bloomfield, New Jersey packaging plant who were not involved in the production
of products for the Company's licensing businesses. As a result, the Company
incurred related severance costs of approximately $105,000, all of which was
paid as of June 30, 1999. As a result of this action, year to date 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 corporate headquarters. The severance costs associated with these
terminations totaled approximately $86,000, however, when combined with the
savings from the eliminated positions, these actions are anticipated to provide
annualized savings of approximately $300,000 per year.
8
<PAGE>
LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS
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.
On May 20, 1999, the Company renewed its $10 million committed line of
credit which is now available for general corporate purposes through April 2001.
Borrowings under the line bear interest at the lender's overnight money market
rate plus 100 basis points. The Company has used the line to refinance, on a
long term basis, the February 1999 redemption of the previously issued $3.8
million in convertible subordinated notes.
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.
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.
IMPACT OF YEAR 2000
Considerable attention has been given to the Year 2000 (Y2K) Problem
which stems from the inability of certain computerized applications and devices
(hardware, software and equipment) to process dates after December 31, 1999. The
Company's efforts to address the Y2K Problem consist of three main components;
the implementation of a new management information system, review of other
internal systems and equipment, and inquiries of external trading partners (key
licensees, customers, suppliers, service providers).
The Company continues with the implementation of a new management
information system that will address the Company's Y2K Problems relating to
financial and operational management information. The new information system is
installed and implementation is complete in over half of the Company's
operations. The remaining operations are expected to be implemented prior to the
end of the year. Project expenditures relating to the new management information
system approximate $1,700,000 through June 30, 1999 and the Company expects to
incur an additional $250,000 to complete the project. The costs of the new
management information system have been capitalized under the provisions of the
AICPA's Statement of Position 98-1 and are being amortized to expense over the
expected useful life.
The Company has also reviewed other internal systems and equipment to
assess their exposure to the Y2K Problem. Most of the Company's plant and office
equipment is mechanical in nature and therefore, is not be subject to the Y2K
Problem. At this time, all unidentified issues have been resolved without
material cost, however, no guarantee can be made that subsequent problems will
not be identified which will require material costs to remedy. The Company will
develop remedies and contingent plans to address any future problems when, and
if, they are identified.
Finally, the Company made inquiries with its external trading partners
to assess their readiness to the Y2K Problem. Such inquiries have resulted in
the collection and appraisal of voluntary statements made by external parties
with limited opportunity for independent factual verification. Although the
Company has undertaken reasonable efforts to determine the readiness of its
trading partners, no assurance can be given to the validity or reliability of
information obtained. During the remainder of the year, the Company will develop
9
<PAGE>
initial contingency plans to address the potential failure of its key trading
partners to be Y2K compliant. Management believes, based on past experience,
that it could locate suitable replacements if any partners were lost due to Y2K
Problems. However, the Company can not reliably predict the readiness of all of
its partners (as well as the readiness of their respective external trading
partners) and as such, the Company could be affected by the disruption of other
business interests outside of the Company's control.
The Company believes its approach to the Y2K Problem is adequate to
maintain the continuation of its business operations with limited financial or
operational impact. However, the Y2K Problem has many aspects and potential
consequences, some of which may not be reasonably anticipated, and there can be
no assurance that unforeseen consequences will not arise.
FORWARD LOOKING STATEMENTS
Statements contained in this Report on Form 10-Q regarding the
Company's future plans and projected performance are forward looking statements
within the meaning of federal securities laws and are based upon management's
current expectations and beliefs about future events and their effect upon
Eskimo Pie Corporation. There can be no assurance that future developments will
mirror those currently anticipated by management. These forward looking
statements involve risks and uncertainties including but not limited to the
highly competitive nature of the frozen dessert market and the level of consumer
interest in the Company's products, product costing, the weather, the
performance of management including management's ability to implement its plans
as contemplated, the Company's relationships with its licensees and licensors,
the impact of Year 2000 matters and government regulation. The risks and
uncertainties are further discussed in the Company's Annual Report on Form 10-K
as filed with the Securities and Exchange Commission for the year ended December
31, 1998. Actual results may vary materially from those included herein and the
Company assumes no responsibility for updating these statements.
10
<PAGE>
PART II, OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Letter Agreement dated May 20, 1999 between the Company and
Crestar Bank, filed herewith.
10.2 Severance Agreement dated April 15, 1999 between the Company
and William J. Weiskopf, filed herewith.
27. Financial Data Schedules, filed herewith.
(b) Reports on Form 8-K:
Current report on Form 8-K dated June 30, 1999 - Item 5. Other
Events, to file the Company's press release announcing the receipt
of notice from Yogen Fruz World-Wide Incorporated indicating their
intent to present certain shareholder proposals at the Company's
Annual Meeting of Shareholders.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ESKIMO PIE CORPORATION
Date: August 12, 1999 By /s/ David B. Kewer
------------------------------------
David B. Kewer
President and Chief Executive
Officer
Date: August 12, 1999 By /s/ Thomas M. Mishoe, Jr.
------------------------------------
Thomas M. Mishoe, Jr.
Chief Financial Officer, Vice
President, Treasurer and
Corporate Secretary
Date: August 12, 1999 By /s/ William T. Berry, Jr.
------------------------------------
William T. Berry, Jr.
Assistant Vice President,
Controller
12
Exhibit 10.1
[Crestar Bank Letterhead]
Crestar Bank
P.O. Box 26665
Richmond, VA 23261-6665
(804) 782-5000
May 20, 1999
Mr. Thomas M. Mishoe, Jr.
Chief Financial Officer
Eskimo Pie Corporation
901 Moorefield Park Drive
Richmond, VA 23235
Dear Tom:
I am writing in reference to the Letter Agreement dated March 20, 1998, and the
$10,000,000 Commercial Note of the same date (the Letter Agreement and
Commercial Note collectively referred to as the "Loan Documents") between Eskimo
Pie Corporation (the "Company") and Crestar Bank (the "Bank").
The Bank hereby agrees to modify and amend the $10,000,000 Line of Credit and
supporting Loan Documents as follows:
Paragraph 3 of the Letter Agreement dated March 20, 1998, is hereby amended such
that the Interest rate will be equal to the Bank's overnight Money Market Rate
plus 1.00%;
Paragraph 6 of the Letter Agreement dated March 20, 1998, is hereby amended to
read that the expiration date is April 30, 2001.
All other terms and conditions set forth in the Loan Documents shall remain the
same. If the modifications and amendments specified above are satisfactory,
please signify your acceptance by signing and returning the enclosed copy of
this letter no later than May 28, 1999.
Sincerely,
CRESTAR BANK
By: /s/ T. Patrick Collins
T. Patrick Collins
Vice President
Accepted and agreed to this 21st day of May , 1999.
/s/ Thomas M. Mishoe, Jr
By: Thomas M. Mishoe, Jr.
Title: Chief Financial Officer
Exhibit 10.2
SEVERANCE AGREEMENT
This Agreement ("Agreement") is entered into as of April 15, 1999
between ESKIMO PIE CORPORATION, a Virginia corporation ("Eskimo Pie"), and
William J. Weiskopf ("Executive").
1. Definitions of Certain Terms. For purposes of this Agreement,
(a) a "Termination" shall occur if Executive's employment by
Purchaser is terminated by Purchaser at any time within two years following Sale
of the Flavors Division 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");
(b) a "Termination" shall also occur if Executive's employment by
Purchaser is terminated by Executive for Good Reason (as defined in Section 4)
within two years following Sale of the Flavors Division; and
(c) "Sale of the Flavors Division" shall mean the consummation of
the sale or disposition by Eskimo Pie of substantially all the assets or
business of its Flavors Division to a third party ("Purchaser").
2. Benefit upon Termination. Except as provided in Section 3, upon
Termination, Eskimo Pie agrees to provide or cause Purchaser to provide 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 (i) within five
business days of Termination a lump sum payment in cash in an amount equal to
one times Executive's annual base salary as in effect on the date hereof or as
the same may be increased from time to time and (ii) no later than the end of
the month following the month of Termination a lump sum payment in cash in an
amount equal to Executive's actual bonus incentive (including any proration), if
any, payable for 1999.
(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 Purchaser.
(c) No Duty to Mitigate. Executive's entitlement to benefits
hereunder shall not be governed by any duty to mitigate his damages by seeking
further employment nor offset by any compensation which he may receive from
future employment.
(d) Interest on Delayed Payments. If payment of any benefit due to
Executive under this Section 2 is not timely made, Executive shall be entitled
to interest on the amount not timely paid at 120% of the applicable federal
rate, compounded semi-annually, under Section 1274(d) of the Code determined at
the time Sale of the Flavors Division occurs, such interest to accrue from the
date such payment is due through the date of payment thereof.
3. Conditions to the Obligations of Eskimo Pie and Purchaser. Eskimo
Pie shall have no obligation to provide or cause Purchaser to provide to
Executive the benefit described in Section 2 hereof if the following event shall
occur:
(a) Termination for Cause. Purchaser 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
Purchaser.
4. Termination for Good Reason. Executive may terminate his employment
with Purchaser following Sale of the Flavors Division 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) a reduction by Purchaser in Executive's annual base salary as in
effect on the date hereof or as the same may be increased from time to time;
(b) Purchaser's requiring Executive to be based anywhere other than
(i) Richmond, Virginia, (ii) Milwaukee, Wisconsin or (iii) any location which
Executive agrees in writing is not objectionable, except for required travel on
Purchaser's business to an extent substantially consistent with Executive's
present business travel obligations;
(c) except in the event of reasonable administrative delay, the
failure by the Purchaser to pay to Executive any portion of Executive's current
compensation within seven (7) days of the date such compensation is due;
(d) the failure of Eskimo Pie or Purchaser to obtain a satisfactory
agreement from any successor to assume and agree to perform this Agreement, as
contemplated in Section 9 hereof;
(e) the failure by Purchaser to provide Executive with participation
in any compensation plan in which Executive participates immediately prior to
Sale of the Flavors Division that is material to Executive's total compensation,
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the failure by
Purchaser to provide Executive with 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 Sale of the Flavors
Division; or
(f) the failure by Purchaser to provide Executive with benefits
substantially similar in the aggregate to those enjoyed by Executive under any
of Eskimo 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 Sale of the Flavors Division,
the taking of any action by Purchaser 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 Sale of the Flavors Division,
or the failure by Purchaser 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 Sale of the Flavors Division.
5. Other Covenants. Upon Termination, if Executive is entitled to
receive the benefit described in Section 2, then:
(a) At Executive's request, Purchaser shall arrange outplacement
services for Executive, at Purchaser's expense, for a period of one year
following Termination.
(b) 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 and Purchaser,
disclose to any person, firm or corporation any confidential information of
Eskimo Pie or its subsidiaries or affiliates or Purchaser 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 or Purchaser 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, 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 or of Purchaser 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) or of Purchaser. In
connection with such cooperation, Eskimo Pie or Purchaser 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 and Purchaser, 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 or Purchaser from pursuing any other
rights and remedies at law or in equity which Eskimo Pie or Purchaser may have.
7. Term of Agreement. This Agreement shall commence on the date hereof
and shall remain in force until the earlier of December 31, 1999 or a "Change in
Control" as that term is defined in the Executive Severance Agreement dated as
of September 1, 1997 between Eskimo Pie and Executive; provided, however, that
if Sale of the Flavors Division occurs during the term of this Agreement, this
Agreement shall continue in effect for a period of 24 months beyond the month in
which the Sale of the Flavors Division occurred. This Agreement shall terminate
automatically in the event of a Change in Control, it being the express intent
of the parties that no benefit shall be payable under this Agreement in the
Event of a Change in Control.
Notwithstanding the foregoing, this Agreement shall terminate if either
Eskimo Pie or Executive terminates the employment of Executive before Sale of
the Flavors Division occurs. Except as otherwise provided in Section 9(b), this
Agreement shall also terminate upon the Executive's death or permanent
disability.
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 Virginia, 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) If any contest or dispute shall arise under this Agreement
involving the failure or refusal of Eskimo Pie to perform fully in accordance
with the terms hereof, Eskimo Pie shall reimburse Executive, on a current basis,
for all legal fees and expenses, if any, incurred by Executive in connection
with such contest or dispute (regardless of the result thereof), together with
interest in an amount equal to the prime rate of BankAmerica from time to time
in effect, but in no event higher than the maximum legal rate permissible under
applicable law, such interest to accrue from the date Eskimo Pie receives
Executive's statement for such fees and expenses through the date of payment
thereof. Such reimbursement shall include the cost of attorney's fees in
reviewing this Agreement in connection with such contest or dispute and in
negotiating or attempting to negotiate a settlement of such contest or dispute
prior to Executive's making such claim or commencing any action or proceeding
and in settling any matter relating to this Agreement.
(c) If any claim, action or proceeding (including without limitation
a claim, action or proceeding by Executive against Eskimo Pie) occurs with
respect to this Agreement other than one described in Section 8(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
thereof, provided that if the claim, action or proceeding is by Executive
against Eskimo Pie, Executive is successful in whole or in part on the merits or
otherwise in such claim, action or proceeding. Such reimbursement shall include
interest in an amount equal to the prime rate of BankAmerica from time to time
in effect, but in no event higher than the maximum legal rate permissible under
applicable law, such interest to accrue from the date Eskimo Pie receives
Executive's statement for such fees and expenses through the date of payment
thereof.
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 (i) 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 and (ii) the Purchaser and its successors 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.
(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
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 hereunder 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.
(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 Commonwealth of Virginia.
(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
By /s/ David B. Kewer
-----------------------------------
EXECUTIVE
/s/ William J. Weiskopf
-----------------------------------
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<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,179
<SECURITIES> 0
<RECEIVABLES> 12,073
<ALLOWANCES> 0
<INVENTORY> 5,227
<CURRENT-ASSETS> 19,766
<PP&E> 19,252
<DEPRECIATION> 12,413
<TOTAL-ASSETS> 44,795
<CURRENT-LIABILITIES> 10,960
<BONDS> 7,157
0
0
<COMMON> 3,463
<OTHER-SE> 20,107
<TOTAL-LIABILITY-AND-EQUITY> 44,795
<SALES> 38,275
<TOTAL-REVENUES> 38,275
<CGS> 20,998
<TOTAL-COSTS> 35,460
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 276
<INCOME-PRETAX> 2,589
<INCOME-TAX> 958
<INCOME-CONTINUING> 1,631
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,631
<EPS-BASIC> .47
<EPS-DILUTED> .47
</TABLE>
