SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
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 (I.R.S. Employer
incorporation or organization) Identification Number)
901 Moorefield Park Drive, Richmond, VA 23236
(Address of Principal Executive Offices)
Registrant's telephone 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, as of July 31, 1996.
Class Outstanding at July 31, 1996
----- ----------------------------
Common Stock, $1.00 Par Value 3,444,586
ESKIMO PIE CORPORATION
Index
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balanced Sheets
June 30, 1996 and December 31, 1995 1
Consolidated Condensed Statements of Income
Three and Six Months Ended June 30, 1996 and 1995 2
Consolidated Condensed Statements of Cash Flows
Three and Six Months Ended June 30, 1996 and 1995 3
Notes to Consolidated Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 7
Item 6. Exhibits and Reports on Form 8-K 8
Eskimo Pie Corporation
Consolidated Condensed Balance Sheets ( Unaudited )
June 30, December 31,
1996 1995
(In thousands)
ASSETS
Current assets :
Cash and cash equivalents $ 968 $ 717
Receivables 12,037 8,695
Inventories 7,417 5,323
Prepaid expenses 2,060 1,375
------ -----
Total current assets 22,482 16,110
Property, plant and equipment - net 8,819 9,055
Goodwill and other intangibles - net 18,390 18,864
Other assets 1,720 1,843
------- -------
$51,411 $45,872
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 1,500 $ 1,200
Accounts payable 4,454 3,592
Accrued advertising and promotion 2,830 975
Accrued compensation and related amounts 448 430
Other accrued expenses 533 542
Income taxes 530 178
------ -----
Total current liabilities 10,295 6,917
Long term debt 6,000 6,000
Convertible subordinated notes 3,800 3,800
Postretirement benefits and other 3,584 3,468
Stockholders' equity:
Common stock 3,455 3,475
Additional capital 4,267 4,620
Retained earnings 20,010 17,592
------- -------
Total stockholders' equity 27,732 25,687
------- -------
$51,411 $45,872
======= =======
1
Eskimo Pie Corporation
Consolidated Condensed Statements of Income (Unaudited)
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
(In thousands, except share data)
Net sales $25,324 $29,800 $45,093 $48,753
Cost of products sold 15,064 16,249 27,072 27,401
------- ------- ------- -------
Gross profit 10,260 13,551 18,021 21,352
Advertising and sales promotion 4,346 6,400 7,616 9,981
General and administrative 3,046 2,793 5,641 5,149
------ ------ ------ ------
Operating income 2,868 4,358 4,764 6,222
Interest income 34 38 63 99
Interest expense and other (172) (209) (354) (425)
----- ----- ------ ------
Income before income taxes 2,730 4,187 4,473 5,896
Income taxes 1,036 1,620 1,708 2,294
----- ----- ----- ------
Net income $ 1,694 $ 2,567 $ 2,765 $ 3,602
====== ====== ====== ======
Per common share
Primary
Weighted average number of
common shares outstanding 3,471,601 3,475,603 3,473,911 3,475,097
Net income $0.49 $0.74 $0.80 $1.04
===== ===== ===== =====
Fully diluted
Weighted average number of
common shares outstanding 3,634,168 3,638,170 3,636,478 3,637,664
Net income $0.47 $0.71 $0.77 $1.00
===== ===== ===== =====
Cash dividends $0.05 $0.05 $0.10 $0.10
===== ===== ===== =====
2
Eskimo Pie Corporation
Consolidated Condensed Statements of Cash Flows (Unaudited)
Six months ended
June 30,
1996 1995
(In thousands)
Operating activities
Net income $2,765 $3,602
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,250 1,274
Deferred income taxes and other assets (179) (55)
Increase in receivables (3,342) (6,561)
Increase in inventories and prepaid expenses (2,469) (2,549)
Increase in accounts payable
and accrued expenses 3,078 3,748
------ -----
Net cash provided by (used in) operating activities 1,103 (541)
Investing activities
Acquisition of business and
intangible assets - net of cash acquired (110) (6,330)
Capital expenditures (441) (534)
Sale of short term investments - 345
Other 172 (91)
---- ------
Net cash used in investing activities (379) (6,610)
Financing activities
Payment of cash dividends (347) (347)
Borrowings - net 300 3,975
Repurchase of common stock (426)
------ ------
Net cash (used in) provided by financing activities (473) 3,584
------ ------
Decrease (increase) in cash and cash equivalents 251 (3,567)
Cash and cash equivalents at beginning of period 717 4,797
----- ------
Cash and cash equivalents at end of period $968 $1,230
----- ------
3
ESKIMO PIE CORPORATION
Notes to Consolidated Condensed financial statements
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
condensed 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, 1996 and its results of operations for the
three and six months ended June 30, 1996 and 1995. 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 1995 Annual
Report.
NOTE B-INVENTORIES
Classifications of inventories are as follows:
June 30, December 31,
1996 1995
(In thousands)
Finished goods $4,912 $3,802
Raw materials and packaging supplies 3,655 2,631
----- -------
Total FIFO inventories 8,567 6,433
LIFO reserves (1,150) (1,110)
----- -------
$7,417 $5,323
======= ======
4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company markets, primarily through a national network of licensed
manufacturers, a broad range of frozen novelty, frozen yogurt, ice cream and
sorbet products under the ESKIMO PIE, Welch's, Weight Watchers, SnackWell's,
OREO and RealFruit brand names. The Company also manufactures and markets
ingredients and packaging to the dairy industry.
RESULTS OF OPERATIONS
Net Sales And Gross Profit
Mild weather and higher costs for licensee ingredients continue to
impact the frozen dessert market which posted, in some categories, double
digit sales declines during the first six months of the year. Additionally,
fewer licensees resulted in lower licensee inventories and thus, reduced
sales. These sales declines, in combination with the slow start of the
reformulated line of NutraSweet products, resulted in the overall sales
decrease noted for the quarter and six months ended June 30, 1996.
There has been strong trade acceptance of the SnackWell's and OREO
products, introduced beginning in December 1995, and the incremental sales
resulting from these products helped to mitigate the sales decline discussed
above. Six month results were also favorably impacted by the inclusion of
RealFruit sales for the entire period in 1996 (only three months were included
in the comparable 1995 period) which offset the impact resulting from the sale
of Weight Watchers finished goods which were acquired and sold by the Company
upon execution of the respective licensing agreement in the first half of
1995.
Flavors, packaging and other sales increased 22.3% for the quarter and
13.3% for the six months ending June 30, 1996 as a result of increased private
label flavors and packaging activity.
Gross profit, as a percent of sales, decreased during both the quarter
and six month periods primarily as a result of changing product mix.
Sublicensed brand sales, which have increased as a percentage of sales,
historically provide lower gross margins due to the royalty costs associated
with the rights to use these brand names.
Expenses and Other Income
Advertising and sales promotion expense decreased during the second
quarter and six months of 1996 due largely to the decline in sales volume
discussed above. The Company reimburses the retail trade for certain variable
promotional costs and as fewer products are sold through at retail, the
Company has reduced expense.
5
General and administrative costs increased during the second quarter
due primarily to charges associated with a reduction in force. These steps
were taken in late June consistent with the Company's intent to reduce
expenses in response to market conditions. General and administrative costs
for the six months ended June 30, 1996 also increased as a result of first
quarter start-up costs associated with the Nabisco and Reduced Fat Eskimo Pie
products.
OPERATING OUTLOOK
During the second half of the year, the Company plans to increase its
marketing efforts relative to its reformulated Reduced Fat Eskimo Pie lines.
Additional advertising and sales promotion expenditures are also planned for
the sublicensed products which should stimulate consumer activity surrounding
these nationally recognized brands. Management believes that this high level
of expenditures is necessary to support the long term growth of these brands
and the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintained its strong financial position with an
approximate 80% increase in working capital at June 30, 1996 as compared to
the same period in 1995. This increase relates primarily to the repayment of
approximately $2.5 million of short term borrowings in the past twelve months.
The existing cash generated from operations and funds available under
borrowing arrangements continue to provide sufficient funds and financial
flexibility to support the Company's ongoing business, strategic objectives
and debt repayment requirements.
On May 31, 1996, the Company's Board of Directors increased its
authorization to repurchase the common stock of the Company by 112,000 shares
which, when combined with previously approved repurchase authorizations, would
allow the Company to repurchase up to 348,000 shares or 10% of the outstanding
stock. During June 1996, the Company acquired 25,000 shares of common stock
under the Board authorization.
6
PART II, OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) At the Annual Meetings of Shareholders of the Company held on May 1,
1996, 2,858,349 of the Company's 3,477,919 shares were present in person or by
proxy and entitled to vote, which constituted a quorum.
(b) At the Annual Meeting, the following nominees were elected to serve
until the 1997 Annual Meeting:
David V. Clark
Terrence D. Daniels
Arnold H. Dreyfuss
William M. Fariss, Jr.
Wilson H. Flohr, Jr.
F. Claiborne Johnston, Jr.
(c) At the Annual Meeting, the following matters were voted upon and
received the vote set forth below:
(1) Election of Directors. Provided that a quorum is present,
the nominees receiving the greatest number of votes cast are elected as
directors and, as a result in tabulating the vote, votes withheld have no
effect upon the election of directors. Each nominee for director was elected,
having received the following vote:
Nominee FOR WITHHELD
-------
David V. Clark 2,737,240 121,109
Terrence D. Daniels 2,736,940 121,409
Arnold H. Dreyfuss 2,736,540 121,809
William M. Fariss, Jr. 2,737,140 121,209
Wilson H. Flohr, Jr. 2,737,240 121,109
F. Claiborne Johnston, Jr. 2,737,020 121,329
(2) Approval of the 1996 Incentive Stock Plan. Provided that a
quorum is present, approval of the 1996 Incentive Stock Plan requires the
affirmative vote of a majority of shares present and entitled to vote, and as
a result, in tabulating the vote, abstentions have the effect of a vote
against the proposal, while broker non-votes have no effect on the vote. The
Plan, including the options previously granted thereunder, was approved,
having received the following vote:
FOR: 1,804,943
---------
AGAINST: 181,440
-------
ABSTAIN: 23,531
------
NON-VOTES: 848,435
-------
7
(3) Proposal to Approve Change in the Company's State of Incorporation.
Provided that a quorum is present, approval of the reincorporation proposal
requires the affirmative vote of a majority of all outstanding shares, and as
a result, in tabulating the vote, abstentions and broker non-votes have the
effect of votes against the proposal. The proposal was approved, having
received the following vote:
FOR: 1,928,357
---------
AGAINST: 42,605
------
ABSTAIN: 38,952
------
NON-VOTES: 848,435
-------
(4) Ratification of Designation of Ernst & Young LLP as Auditors for
the Current Year. Provided that a quorum is present, ratification of auditors
requires the affirmative vote of a majority of the shares present and entitled
to vote and, as a result, in tabulating the vote, abstentions have the effect
of a vote against ratification. Designation of the auditors was approved,
having received the following vote:
FOR: 2,849,835
---------
AGAINST: 5,534
-----
ABSTAIN: 2,980
-----
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2. Agreement and Plan of Merger dated as of March 15, 1996 by
and between Eskimo Pie Corporation and EPC of Virginia Inc., incorporated
herein by reference to Exhibit B to the Company's Proxy Statement for its 1996
Annual Meeting of Shareholders.
3. (i) Amended and Restated Articles of Incorporation of
Eskimo Pie Corporation, incorporated herein by reference to Exhibit C to the
Company's Proxy Statement for its 1996 Annual Meeting of Shareholders.
(ii) Amended and Restated Bylaws of Eskimo Pie
Corporation, filed herewith.
10.6 Executive Severance Agreement between the Company and
V. Stephen Kangisser dated May 15, 1996 filed herewith.
10.7 1996 Incentive Stock Plan, incorporated herein by
reference to Exhibit A to the Company's Proxy Statement for its 1996 Annual
Meeting of Shareholders.
27. Financial Data Schedules, filed herewith
(b) Reports on Form 8-K: None
8
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: July 15, 1996 By /s/ David V. Clark
--------------------------- ---------------------------
David V. Clark
Chairman of the Board,
President and
Chief Executive Officer
Date: July 15, 1996 By /s/ Thomas M. Mishoe, Jr.
--------------------------- ---------------------------
Thomas M. Mishoe, Jr.
Chief Financial Officer
Date: July 15, 1996 By /s/ William T. Berry, Jr.
--------------------------- ---------------------------
William T. Berry, Jr.
Director Accounting Services
8