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, 1998
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, as of April 30, 1998.
Class Outstanding at April 30, 1998
----- -----------------------------
Common Stock, $1.00 Par Value 3,458,001
ESKIMO PIE CORPORATION
Index
Page
Number
------
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income
Three Months Ended March 31, 1998 and 1997 1
Condensed Consolidated Balance Sheets
March 31, 1998; December 31, 1997 and March 31, 1997 2
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997 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 8
ESKIMO PIE CORPORATION
Condensed Consolidated Statements of Income (Unaudited)
For the three months ended March 31, 1998 1997
--------------------------------------------------------------------------------------- ------------------- -----------------
(In thousands, except Per Share Data)
Net sales $ 16,031 $ 18,078
Cost of products sold 9,501 10,589
------------------- -----------------
Gross profit 6,530 7,489
Advertising and sales promotion expenses 3,662 4,482
Selling, general and administrative expenses 2,418 2,789
------------------- -----------------
Operating income 450 218
Interest income 61 41
Interest expense and other - net 192 174
------------------- -----------------
Income before income taxes 319 85
Income tax expense 118 32
------------------- -----------------
Net income $ 201 $ 53
=================== =================
Per Share Data
Basic:
Weighted average number of common shares outstanding 3,458,002 3,450,684
Net income $ 0.06 $ 0.02
=================== =================
Assuming dilution:
Weighted average number of common shares outstanding 3,463,107 3,452,467
Net income $ 0.06 $ 0.02
=================== =================
Cash dividend $ 0.05 $ 0.05
=================== =================
1
ESKIMO PIE CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)
March 31, December 31, March 31,
As of 1998 1997 1997
- ----------------------------------------------------------------------------- ---------------- ----------------- ---------------
(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents $ 1,830 $ 3,353 $ 1,139
Receivables 8,880 5,321 9,053
Inventories 4,762 4,342 6,499
Prepaid expenses 1,293 1,617 1,639
---------------- ----------------- ---------------
Total current assets 16,765 14,633 18,330
Property, plant and equipment - net 7,901 7,892 8,696
Goodwill and other intangibles 17,433 17,588 17,837
Other assets 1,417 1,467 1,568
---------------- ----------------- ---------------
Total assets $ 43,516 $ 41,580 $ 46,431
================ ================= ===============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 4,087 $ 3,386 $ 4,759
Accrued advertising and promotion 2,784 1,389 3,446
Accrued compensation and related amounts 442 530 435
Other accrued expenses 932 698 862
Current portion of long term debt 1,317 1,317 944
---------------- ----------------- ---------------
Total current liabilities 9,562 7,320 10,446
Long term debt 4,889 5,218 6,206
Convertible subordinated notes 3,800 3,800 3,800
Postretirement benefits and other liabilities 3,146 3,161 3,504
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, 3,458,002 issued and outstanding in 1998 and
at December 31,1997 and 3,457,573 at March 31, 1997 3,458 3,458 3,458
Additional capital 4,361 4,353 4,283
Retained earnings 14,300 14,270 14,734
---------------- ----------------- ---------------
Total shareholders' equity 22,119 22,081 22,475
---------------- ----------------- ---------------
Total liabilities and shareholders' equity $ 43,516 $ 41,580 $ 46,431
================ ================= ===============
2
ESKIMO PIE CORPORATION
Condensed Consolidated Statements Of Cash Flows (Unaudited)
For the three months ended March 31, 1998 1997
- ------------------------------------------------------------------------------------------ ------------------- ------------------
(In thousands)
Operating activities
Net income $ 201 $ 53
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 626 649
Change in deferred income taxes and other assets (80) (17)
Change in postretirement benefits and other liabilities (70) 88
Change in receivables (3,559) (5,002)
Change in inventories and prepaid expenses (96) 1,758
Change in accounts payable and accrued expenses 2,244 738
------------------- ------------------
Net cash used in operating activities (734) (1,733)
Investing activities
Capital expenditures (376) (348)
Other 87 100
------------------- ------------------
Net cash used in investing activities (289) (248)
Financing activities
Borrowings - 1,150
Principal payments on long term debt (329) -
Cash dividends (171) (173)
------------------- ------------------
Net cash (used in) provided by financing activities (500) 977
------------------- ------------------
Change in cash and cash equivalents (1,523) (1,004)
Cash and cash equivalents at the beginning of the year 3,353 2,143
------------------- ------------------
Cash and cash equivalents at the end of the quarter $ 1,830 $ 1,139
=================== ==================
3
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 March 31, 1998 and its results of operations
for the three months ended March 31, 1998 and 1997. 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 1997 Annual
Report.
NOTE B - INVENTORIES Inventories are classified as follows:
- ------------------------------------------------ -------------------------- ------------------------ -----------------------
As of March 31, 1998 December 31, 1997 March 31, 1997
- ------------------------------------------------ -------------------------- ------------------------ -----------------------
(In thousands)
Finished goods $ 2,562 $ 2,943 $ 4,491
Raw materials and packaging supplies 3,131 2,330 3,059
---------- --------- ----------
Total FIFO inventories 5,693 5,273 7,550
LIFO reserves (931) ( 931) (1,051)
---------- --------- ----------
$ 4,762 $ 4,342 $ 6,499
========== ========= ==========
- ------------------------------------------------ -------------------------- ------------------------ -----------------------
NOTE C - CONVERTIBLE SUBORDINATED NOTES
The Company's convertible subordinated notes mature in February 1999 if not
previously converted to common stock. These notes remain classified with long
term debt in accordance with the Company's intention and ability to refinance
the notes on a long term basis (through April 2000) under the available $10
million committed line of credit.
4
NOTE D - EARNINGS PER SHARE
The following table sets forth the computation of earnings per share:
- ---------------------------------------------------------------------------- ------------------------ ----------------------
For the three months ended March 31, 1998 1997
- ---------------------------------------------------------------------------- ------------------------ ----------------------
Net income $ 201,000 $ 53,000
Reversal of interest expense from convertible subordinated
notes (after tax) - -
--------- ----------
Net income assuming potential dilution $ 201,000 $ 53,000
========= ==========
Weighted average number of common shares outstanding 3,458,002 3,450,684
Effect of dilutive securities:
Stock options 5,105 1,783
Convertible subordinated notes - -
Weighted average number of common shares outstanding assuming
potential dilution 3,463,107 3,452,467
========= =========
Basic earnings per share $0.06 $0.02
===== =====
Earnings per share - assuming dilution $0.06 $0.02
===== =====
- ---------------------------------------------------------------------------- ------------------------ ----------------------
Options to purchase 202,316 shares in 1998 and 170,339 in 1997 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
convertible subordinated notes was also excluded from the earnings per share
calculations as the assumed conversion would also have been anti-dilutive.
5
ESKIMO PIE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Eskimo Pie Corporation markets and manufactures through its own plants
and licensed dairies a broad range of frozen novelties, frozen yogurt, ice cream
and sorbet products under the Eskimo Pie, RealFruit, Welch's, Weight Watchers,
SnackWell's and OREO brand names. The Company also continues to manufacture
ingredients and packaging for sale to the dairy industry.
RESULTS OF OPERATIONS
Net Sales and Gross Profit
- --------------------------
First quarter 1998 sales of $16.0 million were consistent with
management's expectations although below 1997 results by approximately 11.3%.
The decline in revenues reflects the continued weakness of the Snackwell's and
RealFruit brands which accounted for approximately half of the decline.
Unusually poor weather in the Western United States resulted in a 10% decline in
consumer purchases of frozen novelty products in that region, as compared to
1997, according to Information Resources, Inc. The reduced consumption led to
lower volume sales of the Company's licensed brands.
Gross profit, as a percent of sales, decreased to 40.7% for the first
quarter of 1998 as compared with 41.4% in 1997. This decline is entirely
attributable to the change in product mix which included a lower percentage of
licensed brand sales in 1998 than in 1997.
The regional product introductions and expanded distribution included in
the Company's 1998 sales plan is not expected to be fully in place until the
retail trade completes their ice cream case resets in the late Spring. As such,
the benefits anticipated from 1998 plan initiatives are not expected until the
second and third quarters of the year when these products are made available to
consumers.
Expenses and Other Income
- -------------------------
Advertising and sales promotion expenses declined by $820,000, as
compared with 1997, in response to a change in the Company's promotional
spending pattern. The 1998 marketing plan calls for heavier "in-season"
promotional support as compared with the 1997 plan which included an emphasis on
"pre-season" spending in an attempt to renew interest in the Company's core
licensed brands business in response to the general business decline of 1996.
Although total 1998 spending is planned to approximate 1997 spending, the
spending will begin later and continue through the selling season.
Selling, general and administrative expenses were reduced by $371,000
(13.3%) from the first quarter of 1997. Savings continue to be realized from
management's initiatives to control these costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remains strong. The net cash used in
operations is consistent with historical seasonal working capital requirements
and its current ratio is consistent with prior years. 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.
6
On May 6, 1998, the Board of Directors declared a quarterly cash dividend
of $.05 per share, payable July 2, 1998, to Shareholders of Record on June 12,
1998. While the Company anticipates a regular quarterly dividend, the amount and
timing of any future dividends will depend on the general business conditions
encountered by the Company, as well as the financial condition, earnings and
capital requirements of the Company and other factors deemed relevant by the
Board of Directors.
7
PART II, OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
10.1 Eskimo Pie Corporation 1996 Incentive Stock Plan, as
amended effective March 6, 1998, filed herewith.
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: May 14, 1998 By /s/ David B. Kewer
-------------------
David B. Kewer
President and Chief Executive Officer
Date: May 14, 1998 By /s/ Thomas M. Mishoe, Jr.
--------------------------
Thomas M. Mishoe, Jr.
Chief Financial Officer, Vice President,
Treasurer and Corporate Secretary
Date: May 14, 1998 By /s/ William T. Berry, Jr.
--------------------------
William T. Berry, Jr.
Assistant Vice President, Controller
9