<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
____________
(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, 2000
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
____________
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.
Class Outstanding at August 2, 2000
-------------------------------- ----------------------------------------
Common Stock, $1.00 Par Value 3,485,757
<PAGE>
ESKIMO PIE CORPORATION
Index
<TABLE>
<CAPTION>
Page Number
----------------
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
<S> <C>
Condensed Consolidated Statements of Income
Three and Six Months Ended June 30, 2000 and 1999 1
Condensed Consolidated Balance Sheets
June 30, 2000; December 31, 1999 and June 30, 1999 2
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
<PAGE>
ESKIMO PIE CORPORATION
Condensed Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Net sales $ 20,311 $ 22,146 $ 36,697 $ 38,275
Cost of products sold 10,931 11,715 19,905 20,998
------------------------------------------------
Gross profit 9,380 10,431 16,792 17,277
Advertising and sales promotion expenses 4,902 5,827 9,267 9,708
Selling, general and administrative expenses 1,892 2,039 3,555 4,182
Expense from analysis of strategic alternatives 337 172 537 381
and related activities
Expense from restructuring activities - 86 - 191
------------------------------------------------
Operating income 2,249 2,307 3,433 2,815
Interest income 63 31 84 50
Interest expense and other - net 85 117 171 276
------------------------------------------------
Income before income taxes 2,227 2,221 3,346 2,589
Income tax expense 824 822 1,238 958
------------------------------------------------
Net income $ 1,403 $ 1,399 $ 2,108 $ 1,631
================================================
Per Share Data
Basic:
Weighted average number of
common shares outstanding 3,484,849 3,462,824 3,482,406 3,462,810
Net income $ 0.40 $ 0.40 $ 0.61 $ 0.47
================================================
Assuming dilution:
Weighted average number of common
shares outstanding 3,484,849 3,462,824 3,482,406 3,464,031
Net income $ 0.40 $ 0.40 $ 0.61 $ 0.47
================================================
Cash dividends $ 0.00 $ 0.05 $ 0.00 $ 0.10
================================================
</TABLE>
<PAGE>
ESKIMO PIE CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)
<TABLE>
June 30, December 31, June 30,
As of 2000 1999 1999
-----------------------------------------------------------------------------------------------------------
(In thousands, except share data)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,297 $ 1,751 $ 55
Receivables 9,539 6,057 12,073
Inventories 3,854 4,032 5,227
Prepaid expenses 778 557 287
----------------------------------
Total current assets 16,468 12,397 17,642
Property, plant and equipment - net 6,160 6,578 6,839
Goodwill and other intangibles 16,168 16,598 17,142
Other assets 920 913 1,048
----------------------------------
Total assets $39,716 $36,486 $42,671
==================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 3,440 $ 3,208 $ 3,496
Accrued advertising and promotion 3,851 2,217 4,562
Accrued compensation and related amounts 261 1,033 386
Other accrued expenses 815 1,038 1,064
Income taxes 725 - 250
Current portion of long term debt 857 972 1,202
----------------------------------
Total current liabilities 9,949 8,468 10,960
Long term debt 2,500 2,929 5,033
Postretirement benefits and other liabilities 2,151 2,293 3,108
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,
3,485,757 issued and outstanding in 2000, 3,464,050 at December
31, 1999 and 3,462,824 at June 30, 1999
3,487 3,464 3,463
Additional capital 4,658 4,468 4,448
Retained earnings 16,971 14,864 15,659
----------------------------------
Total shareholders' equity 25,116 22,796 23,570
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Total liabilities and shareholders' equity $39,716 $36,486 $42,671
==================================
</TABLE>
2
<PAGE>
ESKIMO PIE CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
For the six months ended June 30, 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Operating activities
Net income $ 2,108 $ 1,631
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,094 1,192
Compensation for Board members in stock 203 -
Change in deferred income taxes and other assets (12) 704
Change in postretirement benefits and other liabilities (306) (292)
Change in receivables (3,482) (5,256)
Change in inventories and prepaid expenses (44) -
Change in accounts payable and accrued expenses 1,596 4,334
-------------------------------------------
Net cash provided by operating activities 1,157 2,313
Investing activities
Capital expenditures (171) (221)
Proceeds from disposal of fixed assets - 401
Other 104 161
-------------------------------------------
Net cash (used in) provided by investing activities (67) 341
Financing activities
Borrowings - 3,800
Redemption of convertible subordinated notes - (3,800)
Principal payments on long term debt (544) (2,783)
Cash dividends - (346)
-------------------------------------------
Net cash used in financing activities (544) (3,129)
-------------------------------------------
Change in cash and cash equivalents 546 (475)
Cash and cash equivalents at the beginning of the year 1,751 530
-------------------------------------------
Cash and cash equivalents at the end of the quarter $ 2,297 $ 55
===========================================
</TABLE>
3
<PAGE>
ESKIMO PIE CORPORATION
Notes to Condensed Consolidated Financial Statements
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The Company's business is highly seasonal which
generally results in a higher level of sales and certain related advertising and
sales promotion expenses preceding and during the summer. 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, 2000 and its results of operations for the three and six months
ended June 30, 2000 and 1999. 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 1999 Annual Report.
NOTE B - INVENTORIES
Inventories are classified as follows:
<TABLE>
<CAPTION>
As of June 30, 2000 December 31, 1999 June 30, 1999
----------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Finished goods $2,684 $2,667 $ 3,488
Raw materials and packaging supplies 2,091 2,286 2,776
------ ------ -------
Total FIFO inventories 4,775 4,953 6,264
LIFO reserves (921) (921) (1,037)
------ ------ -------
$3,854 $4,032 $ 5,227
====== ====== =======
---------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE C - 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,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $1,403,000 $1,399,000 $2,108,000 $1,631,000
Weighted average number of common
shares outstanding 3,484,849 3,462,824 3,482,406 3,462,810
Dilutive effect of stock options - - - 1,221
---------- ---------- ---------- ----------
Weighted average number of common shares
outstanding assuming potential dilution 3,484,849 3,462,824 3,482,406 3,464,031
========== ========== ========== ==========
Basic earnings per share $ 0.40 $ 0.40 $ 0.61 $ 0.47
========== ========== ========== ==========
Earnings per share - assuming dilution $ 0.40 $ 0.40 $ 0.61 $ 0.47
========== ========== ========== ==========
</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.
4
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NOTE D - BUSINESS SEGMENTS
<TABLE>
<CAPTION>
National
Business Segments Brands Flavors Foodservice Other Totals
----------------------------------------------------------------------------------------------------------
Three months ended June 30, 2000
--------------------------------
<S> <C> <C> <C> <C> <C>
Sales $13,096 $3,478 $3,284 $453 $20,311
======== ======= =========== ===== =======
Segment profitability $ 2,931 $ 673 $ 869 $ 5 $ 4,478
Selling, general and administrative expenses (1,892)
Expense from analysis of strategic (337)
alternatives and related activities
Interest income and expense - net (22)
-------
Income before income taxes $ 2,227
=======
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 analysis of strategic alternatives (172)
Expense from restructuring activities (86)
Interest income and expense - net (86)
-------
Income before income taxes $ 2,221
=======
</TABLE>
<TABLE>
<CAPTION>
National
Business Segments Brands Flavors Foodservice Other Totals
------------------------------------------------------------------------------------------------------------
Six months ended June 30, 2000
------------------------------
<S> <C> <C> <C> <C> <C>
Sales $23,902 $6,460 $5,528 $ 807 $36,697
======== ======= =========== ======= =======
Segment profitability $ 5,260 $1,150 $1,100 $ 15 $ 7,525
Selling, general and administrative expenses (3,555)
Expense from analysis of strategic (537)
alternatives and related activities
Interest income and expense - net (87)
-------
Income before income taxes $ 3,346
=======
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 analysis of strategic alternatives (381)
Expense from restructuring activities (191)
Interest income and expense - net (226)
-------
Income before income taxes $ 2,589
=======
</TABLE>
NOTE E - EXPENSE FROM ANALYSIS OF STRATEGIC ALTERNATIVES, RESTRUCTURING AND
OTHER ACTIVITIES
During 2000, the Company incurred $537,000 of expenses associated with
the Company's pursuit of a sale of the Company, the execution of a merger
agreement with CoolBrands International Inc. and subsequent activities
associated with removing conditions to close the sale. These expenses primarily
included legal, investment banking and other professional service fees.
5
<PAGE>
During the first half of 1999, the Company incurred $572,000 in expenses
associated with three separate activities, discussed below.
The Company incurred approximately $381,000 in costs (primarily
associated with legal, investment banking and other professional fees)
associated with its examination of strategic alternatives to enhance shareholder
value and its 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 during 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 was paid by the end of 1999.
NOTE F - OTHER INFORMATION
In September 1999, the Company's Board of Directors approved a plan which
would provide certain lump sum payments to key employees if a change in control
of the Company occurred prior to December 31, 2000. Assuming all employees
covered remain employed through a change in control, these payments would total
approximately $1.8 million. In addition, the plan also provides for certain
severance payments as well as continued medical and healthcare benefits to
employees who are terminated subsequent to a change in control of the Company.
During the second quarter of 2000, the Company executed a merger agreement
with CoolBrands International Inc. (formerly, Yogen Fruz World-Wide
Incorporated), for the acquisition of Eskimo Pie Corporation at a purchase price
of (U.S.) $10.25 cash per share to shareholders of Eskimo Pie Corporation. The
Company has called a special meeting of shareholders to be held on September 6,
2000 to vote on the merger transaction.
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, Real Fruit, 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 Foodservice is a leading supplier of premium soft serve ice cream,
frozen yogurt, custard and smoothie products to the 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 brands it licenses.
RESULTS OF OPERATIONS
---------------------
Net income for the quarter ended June 30, 2000 was $1,403,000, or $0.40
per share as compared to $1,399,000, or $0.40 per share for the quarter ended
June 30, 1999. For the six-month period ending June 30, 2000 net income was
$2,108,000, or $.61 per share, a 29% increase from $1,631,000, or $0.47 per
share in the same period in 1999.
Net Sales and Gross Profit
--------------------------
Sales for the six-month period ending June 30, 2000 were $36.7 million,
as compared to $38.3 million in the same period in 1999. This 4% decline was
primarily due to decreases of inventory levels at the Company's licensees, due
to the pending sale of the Company to CoolBrands International Inc. (formerly
Yogen Fruz World-Wide Incorporated).
Although the Company's sales have decreased, based on Nielson data, for the
3-month period ending June 24, 2000, consumption of the Company's branded
products increased 16.2% as compared to the same period a year ago, despite an
overall category increase of only 1.2%. This gain was primarily driven by an
increase of 24.2% in Eskimo Pie brand product consumption, and increases of
14.6% and 13% respectively in Weight Watchers and Welch's product consumption.
The Company's branded products are available in 94% of the total U.S.
supermarkets.
Gross margin for the six-month period increased by 70 basis points, from
45.1% in 1999 to 45.8% in 2000 as a result of continued cost controls and
inventory management efforts.
Expenses and Other Income
-------------------------
Advertising and sales promotion expenses as a percent of sales remain
consistent with last years spending. During the first quarter of the year,
spending in absolute dollars and as a percent of sales had increased over prior
year spending. As a result of the pending sale of the company, spending against
the Company's growth plan, particularly in consumer spending and research, was
curtailed during the second quarter, and spending was brought more in line with
historical spending trends of the Company.
Selling, general and administrative expenses continue to decline,
decreasing by approximately 15% as compared to the first six months of 1999.
This is due in part to management's initiatives to control these costs and the
reduction in force that was completed in the second quarter of 1999. This
reduction is also due to a decrease in personnel as a result of voluntary
terminations as it has become increasingly difficult to hire replacements in
light of the Company's announcement to pursue a possible sale of the Company and
the subsequent announcement of a pending sale of the Company to CoolBrands.
7
<PAGE>
During 2000, the Company incurred $537,000 of expenses associated with the
Company's pursuit of a sale of the Company, the execution of a merger agreement
with CoolBrands International Inc. and subsequent activities associated with
removing conditions to close the sale. These expenses consist primarily of
legal, investment banking and other professional fees.
During 1999, the Company incurred $572,000 in expenses associated with
three separate restructuring activities.
During the first six months of 1999, the Company incurred approximately
$381,000 in costs (primarily associated with legal, investment banking and other
professional fees) associated with its 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 during 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 was paid by the end of 1999.
LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS
----------------------------------------------
The Company's financial position continues to strengthen. The Company's net
debt position (total debt less cash) has decreased by over $5.1 million, from
$6.2 million as of June 30, 1999 to $1.1 million as of June 30, 2000. In
addition, the Company's debt to equity position has significantly improved over
the same period of time.
The Company has a $10 million line of credit which is available for general
corporate purposes through April of 2001. The Company generally seeks a one
year extension of the line of credit during the second quarter of each year.
The Company chose not to renew the line during the second quarter of 2000, due
to the pending sale of the Company. There was no outstanding balance on this
line of credit as of June 30, 2000.
In September 1999, the Company's Board of Directors voted to suspend the
quarterly dividend payments indefinitely. The Board's decision to suspend the
dividend was made in light of the Company's decision to pursue all strategic
alternatives to maximize shareholder value, including a possible sale of the
Company as a whole or one or more sales of the Company's strategic assets.
Management believes that the elimination of the dividend has enhanced the
Company's financial flexibility as it pursued a possible sale of the Company.
At this time the Board of Directors has no plans to reinstate the quarterly
dividend 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.
8
<PAGE>
FUTURE PLANS AND FINANCIAL EXPECTATIONS
---------------------------------------
During the second quarter, the Company executed a merger agreement with
CoolBrands International Inc. (formerly, Yogen Fruz World-Wide Incorporated),
for the acquisition of Eskimo Pie Corporation at a cash price of (U.S.) $10.25
per share to shareholders of Eskimo Pie Corporation.
Based on the agreement with CoolBrands, the Company has called a special
meeting of shareholders to be held on September 6, 2000, to vote on a merger
transaction by which Eskimo Pie Corporation would become a wholly-owned
subsidiary of CoolBrands. If the merger is approved by a vote of at least two-
thirds of Eskimo Pie shares outstanding, exclusive of the approximate 17%
interest owned by CoolBrands, the merger will be consummated upon satisfaction
of closing conditions. If the vote necessary for the merger is not obtained,
CoolBrands will commence a tender offer to purchase, for a cash price of $10.25
per share, all shares of Eskimo Pie stock tendered, subject to a minimum of
approximately 41% of the Eskimo Pie shares not owned by CoolBrands being
tendered. The proposed transaction, whether it is consummated in the form of a
merger or a tender offer, remains subject to customary closing conditions.
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,
government regulation and closing the sale of the Company with CoolBrands
International Inc.. 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, 1999. Actual results may vary
materially from those included herein and the Company assumes no responsibility
for updating these statements.
9
<PAGE>
PART II, OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27. Financial Data Schedules, filed herewith.
(b) Reports on Form 8-K:
Current Report on Form 8-K dated May 4, 2000 - Item 5. Other Events, to
file the Company's press release announcing that the Company entered into
a Definitive Agreement with CoolBrands International Inc. for the
acquisition of Eskimo Pie Corporation.
Current Report on Form 8-K dated June 1, 2000 - Item 5. Other Events,
to file the Company's press release announcing the execution of an
amendment to the previously announced merger agreement entered into on
May 3, 2000 with CoolBrands International Inc.
Current Report on Form 8-K dated July 13, 2000 - Item 5. Other Events,
to file the Company's press release announcing the special meeting of
shareholders to be held on September 6, 2000 to vote on the proposed
merger with CoolBrands International Inc., and to disclose other
activities related to satisfying closing conditions of the sale of the
Company.
10
<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, 2000 By /s/ David B. Kewer
-------------------
David B. Kewer
President and Chief Executive Officer
Date: August 10, 2000 By /s/ Thomas M. Mishoe, Jr.
--------------------------
Thomas M. Mishoe, Jr.
Chief Financial Officer, Vice President,
Treasurer and Corporate Secretary
Date: August 10, 2000 By /s/ Kathryn L. Tyler
---------------------
Kathryn L. Tyler
Controller
11
