<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 March 31, 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 April 20, 2000
----- -----------------------------
Common Stock, $1.00 Par Value 3,483,253
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ESKIMO PIE CORPORATION
Index
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<CAPTION>
Page Number
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<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income
Three Months Ended March 31, 2000 and 1999 1
Condensed Consolidated Balance Sheets
March 31, 2000; December 31, 1999 and March 31, 1999 2
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 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 6
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 9
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<TABLE>
<CAPTION>
ESKIMO PIE CORPORATION
Condensed Consolidated Statements of Income (Unaudited)
For the three months ended March 31, 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
(In thousands, except Per Share Data)
Net sales $ 16,386 $ 16,129
Cost of products sold 8,974 9,283
-------------------------------------------
Gross profit 7,412 6,846
Advertising and sales promotion expenses 4,365 3,881
Selling, general and administrative expenses 1,663 2,143
Expense from analysis of strategic alternatives 200 -
Expense from restructuring activities - 314
-------------------------------------------
Operating income 1,184 508
Interest income 21 19
Interest expense and other - net 86 159
-------------------------------------------
Income before income taxes 1,119 368
Income tax expense 414 136
-------------------------------------------
Net income $ 705 $ 232
===========================================
Per Share Data
Basic:
Weighted average number of common shares outstanding 3,479,964 3,462,796
Net income $ 0.20 $ 0.07
===========================================
Assuming dilution:
Weighted average number of common shares outstanding 3,479,964 3,469,385
Net income $ 0.20 $ 0.07
===========================================
Cash dividend $ 0.00 $ 0.05
===========================================
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1
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<TABLE>
<CAPTION>
ESKIMO PIE CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)
March 31, December 31, March 31,
As of 2000 1999 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents $ 1,142 $ 1,751 $ 48
Receivables 10,093 6,057 8,888
Inventories 3,718 4,032 5,418
Prepaid expenses 748 557 611
------------------------------------
Total current assets 15,701 12,397 14,965
Property, plant and equipment - net 6,374 6,578 7,070
Goodwill and other intangibles 16,390 16,598 17,395
Other assets 734 913 1,636
------------------------------------
Total assets $39,199 $36,486 $41,066
====================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 3,586 $ 3,208 $ 3,876
Accrued advertising and promotion 4,359 2,217 2,740
Accrued compensation and related amounts 239 1,033 293
Other accrued expenses 1,033 1,038 889
Income Taxes 399 - -
Current portion of long term debt 857 972 1,317
------------------------------------
Total current liabilities 10,473 8,468 9,115
Long term debt 2,714 2,929 6,411
Postretirement benefits and other liabilities 2,350 2,293 3,201
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, 3,479,964 issued and outstanding at
March 31, 2000, 3,464,050 at December 31,1999
and 3,462,796 at March 31, 1999 3,480 3,464 3,463
Additional capital 4,614 4,468 4,443
Retained earnings 15,568 14,864 14,433
------------------------------------
Total shareholders' equity 23,662 22,796 22,339
------------------------------------
Total liabilities and shareholders' equity $39,199 $36,486 $41,066
====================================
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2
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<TABLE>
<CAPTION>
ESKIMO PIE CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the three months ended March 31, 2000 1999
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<S> <C>
(In thousands)
Operating activities
Net income $ 705 $ 232
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 577 614
Change in deferred income taxes and other assets - (3)
Change in postretirement benefits and other liabilities 62 (174)
Change in receivables (4,036) (2,070)
Change in inventories and prepaid expenses 122 (242)
Change in accounts payable and accrued expenses 2,280 2,351
--------------------------------------------
Net cash (used in) provided by operating activities (290) 708
Investing activities
Capital expenditures (94) (147)
Proceeds from disposal of fixed assets - 401
Other 104 18
--------------------------------------------
Net cash provided by investing activities 10 272
Financing activities
Borrowings - 3,800
Redemption of convertible subordinated notes - (3,800)
Principal payments on long term debt (329) (1,289)
Cash dividends - (173)
--------------------------------------------
Net cash used in financing activities (329) (1,462)
--------------------------------------------
Change in cash and cash equivalents (609) (482)
Cash and cash equivalents at the beginning of the year 1,751 530
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Cash and cash equivalents at the end of the quarter $ 1,142 $ 48
============================================
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3
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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, 2000 and its results of operations for the three months ended
March 31, 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 March 31, 2000 December 31, 1999 March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Finished goods $2,599 $2,667 $ 3,471
Raw materials and packaging supplies 2,040 2,286 2,986
------ ------ -------
Total FIFO inventories 4,639 4,953 6,457
LIFO reserves (921) (921) (1,039)
------ ------ -------
$3,718 $4,032 $ 5,418
====== ====== =======
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NOTE C - EARNINGS PER SHARE
The following table sets forth the computation of earnings per share:
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<S> <C> <C>
For the three months ended March 31, 2000 1999
------------------------
Net income $ 705,000 $ 232,000
========== ==========
Weighted average number of common shares outstanding 3,479,964 3,462,796
Dilutive effect of stock options - 6,589
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Weighted average number of common shares outstanding
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assuming potential dilution 3,479,964 3,469,385
========== ==========
Basic earnings per share $ 0.20 $ 0.07
========== ==========
Earnings per share - assuming dilution $ 0.20 $ 0.07
========== ==========
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Options to purchase 294,294 shares in 2000 and 193,156 in 1999 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 calculation in 1999 as the assumed conversion would also have
been anti-dilutive.
4
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NOTE D - BUSINESS SEGMENTS
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<CAPTION>
National Food-
Business Segments Brands Flavors service Other Totals
- -------------------------------------------------------------------------------------------------------
Three months ended March 31, 2000
- ---------------------------------
<S> <C>
Sales $10,806 $2,982 $2,244 $354 $16,386
======== ======= ======= ===== =======
Segment profitability $ 2,329 $ 477 $ 231 $ 10 $ 3,047
Selling, general and administrative (1,663)
expenses
Expense from analysis of strategic (200)
alternatives
Interest income and expense - net (65)
-------
Income before income taxes $ 1,119
=======
Three months ended March 31, 1999
- ---------------------------------
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
=======
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NOTE E - RESTRUCTURING EXPENSES
During the first quarter of 2000, the Company incurred approximately $200,000 of
expenses associated with the Company's pursuit of a possible sale of the Company
in whole or in parts. These costs consist primarily of legal, investment
banking and other professional services.
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, all of which
was paid in 1999.
Also included in Expense from Restructuring Activities in 1999 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 - 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
lump sum payments as well as continued medical and healthcare benefits to
employees who are terminated subsequent to a change in control of the Company.
5
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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 March 31, 2000 improved by over 200% as
compared to the same period in 1999. During the first quarter of 2000, net
income was $705,000 or $0.20 per share as compared with $232,000 or $.07 per
share in 1999. Exclusive of special charges, net income in the first quarter of
2000 would have been $831,000 or $.24 per share as compared to $430,000 or $.12
per share during the comparable period in 1999.
The 2000 results include expenses of approximately $200,000 related to the
Company's continuing pursuit of a possible sale of the Company in whole or in
parts. 1999 results include restructuring charges of $314,000 consisting of
severance costs of $104,000 associated with the discontinuance of certain non-
core and unprofitable manufacturing operations in the Company's Packaging
division and expenses of $210,000 incurred in connection with the Company's
consideration of strategic alternatives.
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 special charges as they assess the
results of the Company's on-going operations.
Net Sales and Gross Profit
- --------------------------
Sales in the first quarter 2000 increased by 2% over 1999, to $16.4
million. Sales of Eskimo Pie brand products increased by 5% and Weight
Watcher's and Nabisco sales each increased by over 50%. All divisions showed
sales improvement over the previous year, with the exception of the Packaging
Division, whose sales decrease was due to the discontinuance of non-profitable
business during the first quarter of 1999.
Gross margin for the quarter increased by 280 basis points, from 42.4% in
1999 to 45.2% in 2000. This improvement was due primarily to improved product
mix, with increased sales in the National Brands division as well as savings
from the discontinuance of the non-profitable business in the Packaging
division.
Expenses and Other Income
- -------------------------
Consistent with the Company's plans to focus on the rejuvenation and growth
of the Company's core assets, and particularly the Eskimo Pie brand, advertising
and sales promotion expenses increased in both an absolute amount ($484,000) and
as a percent of sales (from 24.1% to 26.6%) as compared with the prior year.
6
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Selling, general and administrative expenses declined by over 20% as compared
to the first quarter 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 in part to a decrease in
personnel as a result of voluntary terminations and it has become increasingly
difficult to hire replacements in light of the Company's announcement to pursue
a possible sale of the Company.
During the first quarter of 2000, the Company continued its efforts
associated with the consideration of the possible sale of the Company or the
sale of one or more of the Company's strategic assets. As a result the Company
incurred approximately $200,000 of special charges, consisting primarily of
legal, investment banking and other professional fees.
In the first quarter of 1999, the Company also incurred special charges of
$314,000, $104,000 of which was related to the discontinuance of certain non-
core manufacturing operations at its Bloomfield, New Jersey packaging plant, and
$210,000 of expenses (primarily third party professional service fees)
associated with the Company's review of strategic alternatives and the
development of a growth and restructuring plan.
LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS
- ----------------------------------------------
The Company's financial position continues to show marked improvement.
Payments on long term debt have reduced debt by more than $4.0 million over the
past 12 months and significantly improved the Company's debt to equity position.
The Company also 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.
As of March 31, 2000 there were no borrowings outstanding under this line.
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 will enhance the
Company's financial flexibility as it pursues 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.
FUTURE PLANS AND FINANCIAL EXPECTATIONS
- ---------------------------------------
The Management and employees of the Company remain focused on the growth
strategies of the organization and expect continued improvement in financial
performance in 2000, with increases in sales, gross margin and product
contribution, as compared to 1999.
In September 1999, the Company announced that its Board of Directors had
authorized management to actively pursue all strategic alternatives to maximize
shareholder value, including a sale of the Company as a whole or one or more
sales of the Company's strategic assets. As of the date of this report, this
process is continuing.
7
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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
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, 1999. Actual results may
vary materially from those included herein and the Company assumes no
responsibility for updating these statements.
8
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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: None
9
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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: May 3, 2000 By /s/ David B. Kewer
-------------------
David B. Kewer
President and Chief Executive Officer
Date: May 3, 2000 By /s/ Thomas M. Mishoe, Jr.
--------------------------
Thomas M. Mishoe, Jr.
Chief Financial Officer, Vice President,
Treasurer and Corporate Secretary
Date: May 3, 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-31-2000
<CASH> 1,142
<SECURITIES> 0
<RECEIVABLES> 10,093
<ALLOWANCES> 0
<INVENTORY> 3,718
<CURRENT-ASSETS> 15,701
<PP&E> 19,634
<DEPRECIATION> 13,260
<TOTAL-ASSETS> 39,199
<CURRENT-LIABILITIES> 10,473
<BONDS> 2,714
0
0
<COMMON> 3,480
<OTHER-SE> 20,182
<TOTAL-LIABILITY-AND-EQUITY> 39,199
<SALES> 16,386
<TOTAL-REVENUES> 16,386
<CGS> 8,974
<TOTAL-COSTS> 15,202
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86
<INCOME-PRETAX> 1,119
<INCOME-TAX> 414
<INCOME-CONTINUING> 705
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 705
<EPS-BASIC> .20
<EPS-DILUTED> .20
</TABLE>
