<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
____________
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
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.
<TABLE>
<S> <C>
Class Outstanding at April 30, 1999
- -------------------------------------------------------------- -----------------------------------------------------
3,458,59
Common Stock, $1.00 Par Value
</TABLE>
<PAGE>
ESKIMO PIE CORPORATION
Index
<TABLE>
<CAPTION>
Page Number
----------------
Part I. Financial Information (as amended March 16, 2000 to reclassify
portions of long term debt outstanding)
Item 1. Financial Statements (Unaudited)
<S> <C>
Condensed Consolidated Statements of Income
Three Months Ended March 31, 1999 and 1998 1
Condensed Consolidated Balance Sheets
March 31, 1999; December 31, 1998 and March 31, 1998 2
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
</TABLE>
<PAGE>
ESKIMO PIE CORPORATION
Condensed Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31, 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
(In thousands, except Per Share Data)
Net sales $ 16,129 $ 16,031
Cost of products sold 9,283 9,501
Gross profit 6,846 6,530
Advertising and sales promotion expenses 3,881 3,662
Selling, general and administrative expenses 2,143 2,418
Expense from restructuring activities 314 -
Operating income 508 450
Interest income 19 61
Interest expense and other - net 159 192
-------------------------------------------
Income before income taxes 368 319
Income tax expense 136 118
-------------------------------------------
Net income $ 232 $ 201
===========================================
Per Share Data
Basic:
Weighted average number of common shares outstanding 3,462,796 3,458,002
Net income $ 0.07 $ 0.06
===========================================
Assuming dilution:
Weighted average number of common shares outstanding 3,469,385 3,463,107
Net income $ 0.07 $ 0.06
===========================================
Cash dividend $ 0.05 $ 0.05
===========================================
</TABLE>
1
<PAGE>
ESKIMO PIE CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
As of 1999 1998 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents $ 48 $ 530 $ 1,830
Receivables 8,888 6,817 8,880
Inventories 5,418 4,897 4,762
Prepaid expenses 611 889 712
------------------------------------
Total current assets 14,965 13,133 16,184
Property, plant and equipment - net 7,070 7,665 7,901
Goodwill and other intangibles 17,395 17,645 17,433
Other assets 1,636 1,645 1,998
------------------------------------
Total assets $41,066 $40,088 $43,516
====================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 3,876 $ 2,875 $ 4,087
Accrued advertising and promotion 2,740 1,728 2,784
Accrued compensation and related amounts 293 211 442
Other accrued expenses 889 657 932
Current portion of long term debt 1,317 1,317 1,317
------------------------------------
Total current liabilities 9,115 6,788 9,562
Long term debt 6,411 3,901 4,889
Convertible subordinated notes - 3,800 3,800
Postretirement benefits and other liabilities 3,201 3,373 3,146
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, 3,462,796 issued and outstanding in 1999,
3,458,597 at December 31,1998 and 3,458,002 at
March 31, 1998 3,463 3,459 3,458
Additional capital 4,443 4,393 4,361
Retained earnings 14,433 14,374 14,300
------------------------------------
Total shareholders' equity 22,339 22,226 22,119
------------------------------------
Total liabilities and shareholders' equity $41,066 $40,088 $43,516
====================================
</TABLE>
2
<PAGE>
ESKIMO PIE CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
(In thousands)
Operating activities
Net income $ 232 $ 201
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 614 626
Change in deferred income taxes and other assets (3) (80)
Change in postretirement benefits and other liabilities (174) (70)
Change in receivables (2,070) (3,559)
Change in inventories and prepaid expenses (242) (96)
Change in accounts payable and accrued expenses 2,351 2,244
--------------------------------------------
Net cash provided by (used in) operating activities 708 (734)
Investing activities
Capital expenditures (147) (376)
Proceeds from disposal of fixed assets 401 -
Other 18 87
--------------------------------------------
Net cash provided by (used in) investing activities 272 (289)
Financing activities
Borrowings 3,800 -
Redemption of convertible subordinated notes (3,800) -
Principal payments on long term debt (1,289) (329)
Cash dividends (173) (171)
--------------------------------------------
Net cash used in financing activities (1,462) (500)
--------------------------------------------
Change in cash and cash equivalents (482) (1,523)
Cash and cash equivalents at the beginning of the year 530 3,353
--------------------------------------------
Cash and cash equivalents at the end of the quarter $ 48 $ 1,830
============================================
</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 March 31, 1999 and its results of operations for the three months ended
March 31, 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>
As of March 31, 1999 December 31, 1998 March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
(In thousands)
Finished goods $ 3,471 $ 3,294 $3,131
Raw materials and packaging supplies 2,986 2,642 2,562
------- -------- ------
Total FIFO inventories 6,457 5,936 5,693
LIFO reserves (1,039) ( 1,039) (931)
------- -------- ------
$ 5,418 $ 4,897 $4,762
======= ======== ======
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE C - EARNINGS PER SHARE
The following table sets forth the computation of earnings per share:
<TABLE>
<CAPTION>
For the three months ended March 31, 1999 1998
------------------------
<S> <C>
Net income $ 232,000 $ 201,000
========== ==========
Weighted average number of common shares outstanding 3,462,796 3,458,002
Dilutive effect of stock options 6,589 5,105
---------- ----------
Weighted average number of common shares outstanding
assuming potential dilution 3,469,385 3,463,107
========== ----------
Basic earnings per share $ 0.07 $ 0.06
========== ==========
Earnings per share - assuming dilution $ 0.07 $ 0.06
========== ==========
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Options to purchase 193,156 shares in 1999 and 202,316 in 1998 were not
considered for their dilutive effect because the exercise price of the options
exceeded the average market price for the respective year, and as such, the
effect would be anti-dilutive. The effect of the assumed conversion of the
previously issued convertible subordinated notes was also excluded from the
earnings per share calculations as the assumed conversion would also have been
anti-dilutive.
4
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NOTE D - BUSINESS SEGMENTS
<TABLE>
<CAPTION>
National
Business Segments Brands Flavors Foodservice Other Totals
- ------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 1999
- ---------------------------------
<S> <C>
Sales $10,558 $2,916 $2,113 $ 542 $16,129
======= ====== ====== ===== =======
Segment profitability $ 1,952 $ 601 $ 447 $ (35) $ 2,965
Selling, general and administrative expenses (2,143)
Expense from restructuring activities (314)
Interest income and expense - net (140)
-------
Income before income taxes $ 368
=======
Three months ended March 31, 1998
- ---------------------------------
Sales $11,024 $2,796 $1,813 $ 398 $16,031
======= ====== ====== ===== =======
Segment profitability $ 1,955 $ 509 $ 538 $(134) $ 2,868
Selling, general and administrative expenses (2,418)
Interest income and expense - net (131)
-------
Income before income taxes $ 319
=======
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE E - RESTRUCTURING EXPENSES
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 $104,000, most of
which will be paid in the second quarter of 1999.
Also included in Expense from Restructuring Activities is $210,000 of
incremental costs (primarily third party professional service fees) specifically
associated with the Company's previously announced decision to explore a full
range of strategies to enhance shareholder value.
NOTE F - FINANCING ARRANGEMENTS
As partial consideration in connection with the 1994 acquisition of Sugar Creek
Foods, the Company issued $3,800,000 in convertible subordinated notes to the
former Sugar Creek Foods' shareholders. These notes became due in February 1999
and were refinanced under the Company's $10,000,000 committed line of credit.
Approximately $1.0 million was subsequently paid against the line of credit, and
the remaining $2.8 million outstanding at March 31, 1999 has been classified as
long-term based on management's ability and intent to refinance the amount on a
long-term basis.
5
<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 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
- ---------------------
During the first quarter of 1999, net income was $232,000 or $0.07 per
share on sales of $16.1 million. These results are a slight improvement over
first quarter 1998 net income of $201,000 ($0.06 per share) and sales of $16.0
million.
The 1999 results, however, include restructuring charges of approximately
$314,000 which, after related tax effects, reduced net income by $198,000 or
$0.06 per share. The restructuring charges consist of severance costs
associated with the discontinuance of certain non-core and unprofitable
manufacturing operations in the Company's Packaging division and expenses
incurred in connection with the Company's previously announced consideration of
strategic alternatives (additional discussions regarding both of these items are
provided below). Exclusive of the restructuring charges, net income would have
been $430,000 ($0.12 per share) or approximately double the 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
- --------------------------
On an absolute dollar basis, first quarter 1999 sales were consistent
with those in 1998. However, sales of Eskimo Pie brand products in the
licensing and Foodservice businesses increased by 9.7% and, when coupled with
the increased licensing fees discussed below, offset declines in the sales of
other licensed brands. Licensed Eskimo Pie brand sales increased 7.1% largely
as a result of the Company's initiatives to improve retail distribution in the
populous Northeast markets. Foodservice sales continued the trend noted in the
second half of 1998 and increased 16.6% as a result of successful efforts to
focus on high volume, national foodservice operators. The Eskimo Pie licensed
and Foodservice businesses provide higher gross margins than most of the
Company's other businesses and, as such, a shift in the Company's sales mix
towards these businesses improves the Company's overall gross margin. The
Company believes these trends are encouraging given the recently announced
decision to implement a growth and restructuring plan focused on the core Eskimo
Pie brand within the licensing and Foodservice businesses.
Sales and gross margin were also favorably affected by quarterly
licensing fees recognized as a result of new licensing agreements entered into
with the Company's six largest customers effective January 1, 1999. The new
licensing fees increased sales by $220,000 during the first quarter of 1999 and
account for approximately half of the increase in gross margin, as a percent of
sales.
6
<PAGE>
Expenses and Other Income
- -------------------------
As compared with the prior year, advertising and sales promotion expenses
increased in both an absolute amount and as a percent of sales. This increase
reflects the Company's intent to increase spending on the core Eskimo Pie brand
as well as the additional costs to introduce two Welch's brand novelties.
Selling, general and administrative expenses continue to decline as a result
of management's initiatives to control these costs.
During the first quarter of 1999, the Company continued its efforts
associated with the consideration of strategies available to enhance shareholder
value (the results of which are discussed below). Included in "Expense from
Restructuring Activities" is $210,000 of incremental costs (primarily third
party professional service fees) specifically associated with this process. The
Company currently anticipates approximately $500,000 of additional 1999 expenses
associated with this process and other restructuring activities although the
gains associated with the anticipated sale of certain non-core assets should
exceed these costs.
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 $104,000, most of which will
be paid in the second quarter of 1999. The Company does not anticipate any
significant on-going financial impact from the initial restructuring of the
Company's Packaging division.
LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS
- ----------------------------------------------
The Company's financial position remains strong. Increased collection of
accounts receivable and the sale of certain fixed assets previously leased to
one of its licensee customers improved the Company's cash flow. Payments on long
term debt have reduced debt by $2.3 million over the past year and significantly
improved the Company's debt to equity position.
The Company's convertible subordinated notes became due in February 1999 and
were refinanced under the Company's $10 million committed line of credit, which
is available through April 2000. Approximately $1 million was subsequently paid
against the line of credit, and the remaining $2.8 million outstanding on the
line of credit has been classified as long-term based on management's ability
and intent to refinance the amount on a long-term basis. The Company generally
seeks a one year extension of the line of credit during the second quarter of
each year and is currently in negotiation with several parties to obtain an
extension for the line of credit and/or other long term financing
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.
FUTURE PLANS AND FINANCIAL EXPECTATIONS
- ---------------------------------------
As previously announced, the Company recently concluded the formal process,
begun in the fourth quarter of 1998, to explore the full range of strategies
available to enhance long term shareholder value. During its review, the
Company, along with its financial advisor, held detailed discussions with
numerous third parties concerning potential business combinations and reviewed
various restructuring and recapitalization strategies.
7
<PAGE>
After careful analysis and consideration of the strategic alternatives
available to the Company, the Company's Board of Directors authorized management
to implement an aggressive growth and restructuring plan focused on the Eskimo
Pie brand within the licensing and foodservice businesses. The growth and
restructuring plan includes, among other actions, 1) significantly increased
investments in advertising, trade promotion and product development surrounding
the core Eskimo Pie brand, 2) the sale of certain non-core assets at prices
accretive to the long term value of the Company and 3) additional overhead and
staff reductions.
While the Company remains open to considering additional viable alternatives
which may become available, management believes that the success of the Company
and improvements in long term shareholder value are highly dependent upon the
growth of the Eskimo Pie brand. Focused Eskimo Pie brand initiatives will
require additional advertising and promotional spending in 2000 which is
expected to lead to increased sales in the second half of 2000 and beyond.
Cash provided from the sale of non-core assets and savings from a leaner
operating structure are expected to provide the necessary funding for increased
investment in the Eskimo Pie businesses.
As the Company begins to implement its growth and restructuring plan,
management currently projects that 1999 annual sales will approximate $68
million, gross margin will approach 42% and selling, general and administrative
expenses will remain consistent with 1998 levels. Based on these projections,
1999 earnings, before the effects of any non-recurring gains or losses from
restructuring activities, are expected to increase by 65 to 75% on an annual
basis over 1998 results.
IMPACT OF YEAR 2000
- -------------------
Recently, 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, among other benefits which extend well beyond Y2K
Problems, 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 by mid-1999. Project
expenditures relating to the new management information system approximate
$1,600,000 through March 31, 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 is also in the process of reviewing 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. The Company expects to complete its review of other
internal systems and equipment during the second quarter of 1999. At this time,
management does not anticipate any material costs to remedy Y2K Problems
associated with other internal systems and equipment, however, no guarantee can
be made that problems will not be identified that require material costs to
remedy. The Company will develop remedies and contingent plans to address any
problems when, and if, they are identified.
8
<PAGE>
Finally, the Company made inquiries with its external trading partners to
assess their readiness to the Y2K Problem. Such inquiries are resulting 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 expects to
develop 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.
9
<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: March 17, 2000 By /s/ David B. Kewer
-------------------
David B. Kewer
President and Chief Executive Officer
Date: March 17, 2000 By /s/ Thomas M. Mishoe, Jr.
--------------------------
Thomas M. Mishoe, Jr.
Chief Financial Officer, Vice President,
Treasurer and Corporate Secretary
Date: March 17, 2000 By /s/ Kathryn L. Tyler
----------------------
Kathryn L. Tyler
Controller
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 48
<SECURITIES> 0
<RECEIVABLES> 8,888
<ALLOWANCES> 0
<INVENTORY> 5,418
<CURRENT-ASSETS> 14,965
<PP&E> 19,313
<DEPRECIATION> 12,243
<TOTAL-ASSETS> 41,066
<CURRENT-LIABILITIES> 9,115
<BONDS> 6,411
0
0
<COMMON> 3,463
<OTHER-SE> 18,876
<TOTAL-LIABILITY-AND-EQUITY> 41,066
<SALES> 16,129
<TOTAL-REVENUES> 16,129
<CGS> 9,283
<TOTAL-COSTS> 15,307
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159
<INCOME-PRETAX> 368
<INCOME-TAX> 136
<INCOME-CONTINUING> 232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 232
<EPS-BASIC> .07
<EPS-DILUTED> .07
</TABLE>
