-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WyDs5rhbk0uWUC+sYolLV51/TMJ9YDPv9tHpRADZNi9bXQQ0b3rl//7ur6H/Rv0G tkbqVOzM0u8V62vtC62apA== 0000916641-96-000984.txt : 19961118 0000916641-96-000984.hdr.sgml : 19961118 ACCESSION NUMBER: 0000916641-96-000984 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ESKIMO PIE CORP CENTRAL INDEX KEY: 0000787520 STANDARD INDUSTRIAL CLASSIFICATION: ICE CREAM & FROZEN DESSERTS [2024] IRS NUMBER: 540571720 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19867 FILM NUMBER: 96664985 BUSINESS ADDRESS: STREET 1: 901 MOOREFIELD PARK DR CITY: RICHMOND STATE: VA ZIP: 23236 BUSINESS PHONE: 8045608400 MAIL ADDRESS: STREET 1: 901 MOOREFIELD PARK DR CITY: RICHMOND STATE: VA ZIP: 23236 10-Q 1 ESKIMO PIE 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 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 September 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 September 30, 1996. Class Outstanding at October 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 (Unaudited) Condensed Consolidated Balance Sheets September 30, 1996 and December 31, 1995 1 Condensed Consolidated Statements of Income Three and Nine Months Ended September 30, 1996 and 1995 2 Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 1996 and 1995 3 Notes to Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 Part II. Other Information Item 5. Other Information 8 Item 6. Exhibits and Reports on Form 8-K 8
ESKIMO PIE CORPORATION Condensed Consolidated Balance Sheets (Unaudited)
September 30, December 31, 1996 1995 ---------------------- ----------------------- (In thousands) Assets: Current assets: Cash and cash equivalents $ 3,222 $ 717 Receivables 5,574 8,695 Inventories 5,543 5,323 Prepaid expenses 2,391 1,375 ------------------- -------------------- Total current assets 16,730 16,110 Property, plant and equipment - net 7,791 9,055 Goodwill and other intangibles - net 18,191 18,864 Other assets 1,725 1,843 ------------------- -------------------- Total assets $ 44,437 $ 45,872 =================== ==================== Liablities and Stockholders' Equity: Current liabilities : Short term borrowings $ - $ 1,200 Accounts payable 2,152 3,592 Accrued advertising and promotion 2,374 975 Accrued compensation and related amounts 996 430 Other accrued expenses 924 542 Income taxes - 178 Current portion of long term debt 286 - -------------------- -------------------- Total current liabilities 6,732 6,917 Long term debt 5,714 6,000 Convertible subordinated notes 3,800 3,800 Postretirement benefits and other 3,589 3,468 Stockholders' equity : Common stock 3,445 3,475 Additional capital 4,121 4,620 Retained earnings 17,036 17,592 -------------------- -------------------- Total stockholders' equity 24,602 25,687 Total liabilities and stockholders' equity $ 44,437 $ 45,872 ==================== ====================
ESKIMO PIE CORPORATION Condensed Consolidated Statements of Income (Unaudited)
Three months ended Nine months ended September 30, September 30, ------------------------------------ ------------------------------------- 1996 1995 1996 1995 --------------- --------------- ------------------- --------------- (In thousands, except share data) Net sales $ 16,898 $ 19,745 $ 61,991 $ 68,498 Cost of products sold 11,726 11,805 38,798 39,206 --------------- --------------- ------------------- --------------- Gross profit 5,172 7,940 23,193 29,292 Advertising and sales promotion 5,741 3,397 13,357 13,378 General and administrative 3,107 2,317 8,748 7,466 --------------- --------------- ------------------- --------------- Operating income (loss) (3,676) 2,226 1,088 8,448 Interest income 88 37 151 136 Loss on disposal of fixed assets (777) - (777) - Interest expense and other (159) (182) (513) (607) --------------- --------------- ------------------- --------------- Income (loss) before income taxes (4,524) 2,081 (51) 7,977 Income taxes (1,725) 806 (17) 3,100 --------------- --------------- ------------------- --------------- Net income (loss) $ (2,799) $ 1,275 $ (34) $ 4,877 =============== =============== =================== =============== Per common share Primary Weighted average number of common shares outstanding 3,446,216 3,475,277 3,464,612 3,475,157 Net income (loss) $ (0.81) $ 0.37 $ (0.01) $ 1.40 =============== =============== =================== =============== Fully diluted Weighted average number of common shares outstanding 3,608,783 3,637,844 3,627,179 3,637,724 Net income (loss) $ (0.77) $ 0.36 $ 0.01 $ 1.36 =============== =============== =================== =============== Cash dividends $ 0.05 $ 0.05 $ 0.15 $ 0.15 =============== =============== =================== ===============
ESKIMO PIE CORPORATION Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, ------------------------------- 1996 1995 -------------- -------------- (In thousands) Operating activities Net income (loss) $ (34) $ 4,877 Adjustments to reconcile net income (loss) to net cash provided by operating activities : Depreciation and amortization 1,894 1,865 Loss on disposal of fixed assets 777 - Deferred income taxes and other assets (213) 248 Decrease (increase) in receivables 3,121 (744) Increase in inventories and prepaid expenses (926) (3,239) Increase (decrease) in accounts payable and accrued expenses 729 (413) -------------- -------------- Net cash provided by operating activities 5,348 2,594 Investing activities Acquisition of business and intangible assets - net of cash acquired (161) (6,364) Capital expenditures (552) (795) Sale of short term investments - 345 Other 174 (320) -------------- -------------- Net cash used in investing activities (539) (7,134) Financing activities Payment of cash dividends (521) (521) Borrowings and (repayments) - net (1,200) 1,556 Repurchase of common stock (583) - -------------- -------------- Net cash (used in) provided by financing activities (2,304) 1,035 -------------- -------------- Increase (decrease) in cash and cash equivalents 2,505 (3,505) Cash and cash equivalents at beginning of period 717 4,797 -------------- -------------- Cash and cash equivalents at end of period $ 3,222 $ 1,292 ============== ==============
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 consolidated condensed financial statements reflect all adjustments necessary for a fair presentation of the Company's financial position as of September 30, 1996 and its results of operations for the three and nine months ended September 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: September 30, December 31, 1996 1995 ------------- ------------ (In thousands) Finished goods $3,387 $3,802 Raw materials and packaging supplies 3,266 2,631 ----- ------ Total FIFO inventories 6,653 6,433 LIFO reserves (1,110) (1,110) ----- ------ $5,543 $5,323 ===== ====== NOTE C - SPECIAL THIRD QUARTER CHARGES During the third quarter of 1996, the Company recorded special charges not identifiable with preceding interim periods of approximately $2,398,000. The largest of these special charges include accruals relating to severance commitments associated with a recent change in executive management ($593,000), the disposal of certain equipment leased to one of our licensees ($725,000) and the disposal of licensee and Company held inventories which did not sell during the quarter and appear to have no future recoverability ($920,000). After related tax benefits, the special charges reduced net income by approximately $1,482,000. ESKIMO PIE CORPORATION 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. The Company's net loss for the third quarter of 1996 is primarily attributable to the continued softening of sales in its principal markets, related inventory and equipment write-offs and a severance accrual related to a recent change in executive management. During the quarter, the Company also incurred $1.0 million of additional expense associated with incremental advertising and sales promotion activities to stimulate sales of its licensed and sublicensed products. Exclusive of the third quarter write-offs and 1996 severance accruals, which total $1.5 million after related tax benefits, the Company would have reported a net loss of $1.3 million ($0.36 per share on a fully diluted basis) for the third quarter of 1996 and net income of $1.6 million ($0.44 per share on a fully diluted basis) for the nine months ended September 30, 1996. Additional details are provided below. RESULTS OF OPERATIONS Net Sales And Gross Profit The ice cream industry has had a disappointing year as a result of the increasing cost of dairy products and reduced consumer demand due partly to the mild summer experienced throughout most of the country. As a result, the frozen novelty category has shown declines for the most recent 52-week period according to Information Resources Inc. These factors continued to have a negative impact on the Company's sale of its licensed and sublicensed products. Compared to the prior year, sales of the Company's licensed and sublicensed products decreased $3.2 million (19.3%) and $7.5 million (12.7%) for the quarter and nine month period ended September 30, 1996, respectively. These decreases include the offsetting effect of the Nabisco SnackWell's and OREO brand products which were introduced beginning in December 1995. In addition to the decrease in consumer demand, comparative nine month sales were also negatively impacted by the inclusion in 1995 of $1.7 million of Weight Watchers finished goods which were acquired and sold by the Company upon the execution of the respective licensing agreement. Sales of flavors and private label packaging continue to exceed prior year results with increases of $0.3 million (9.6%) and $1.0 million (10.7%) for the quarter and nine month period ended September 30, 1996, respectively. Gross profit, as a percent of sales, decreased during both the quarter and nine month periods primarily as a result of changing product mix. Sub-licensed brand sales, which account for a growing portion of total sales, provide lower gross margins due primarily to the royalty costs associated with the rights to using these brand names. During the quarter, gross margin was also affected by $920,000 in special charges relating to the disposal of licensee and Company owned inventories (primarily cartons) which did not sell during the quarter and appear to have no future recoverability. Expenses and Other Income As anticipated, the Company continued to increase its marketing efforts during the quarter. Although there was a decrease in the variable component of advertising and sales promotion expenditures during the quarter, the fixed portion of these costs increased. As noted above, the quarter and nine month expense also includes $1 million of incremental third quarter promotions directed specifically to consumers. General and administrative costs increased during the quarter primarily as a result of an executive severance accrual of $593,000 relating to the announced resignation of David V. Clark, the Company's former President and Chief Executive Officer. In addition to the severance accrual, the nine month results reflect an increase over the prior year due largely to first quarter start up costs associated with new product introductions. The loss on disposal of fixed assets reflects, in addition to minor recurring items, an accrual relating to the disposal of certain equipment leased to one of the Company's licensees. Although the Company continues to receive nominal rent on this equipment, the licensee has asked the Company to remove the equipment and no alternate use is currently available. OPERATING OUTLOOK Although the Company should benefit from the conclusion of the 1996 advertising and sales promotion plan and the previously discussed third quarter promotions, there are no plans for incremental fourth quarter spending in what is generally the Company's slowest quarter in its seasonal business cycle. Management believes that the continued fourth quarter spending on the 1996 promotional plan will support its brand equity and position the Company for stronger 1997 sales. Although these expenditures are likely to result in a net loss for the fourth quarter of 1996, management believes they are appropriate for the long term growth of the Company and its branded products. LIQUIDITY AND CAPITAL RESOURCES The steps taken during the quarter, will have limited effect on the Company's future cash flows with the exception of the executive severance accrual which will be paid over a two year period. The Company's financial position remains strong with an 18% growth in working capital at September 30, 1996 as compared to the same period in 1995. Cash generated from operations and funds available under borrowing arrangements continue to provide sufficient funds and the financial flexibility to support the Company's ongoing business, strategic objectives and debt repayment requirements. The Company has recently committed to the purchase of approximately $1.7 million in updated computer technology which will enhance customer service and improve management of the Company's operations. Management is currently negotiating to finance this expenditure over the estimated useful life of the equipment and expects to close on an agreement by the end of November 1996. 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 approximately 10% of the outstanding stock. To date, the Company has repurchased 193,000 shares of common stock under the Board authorization including 35,000 shares purchased in 1996. On October 18, 1996, the Company's Board of Directors declared a quarterly cash dividend of $.05 per share, payable on January 3, 1997, to shareholders of record on December 16, 1996. While the Company anticipates that it will have 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. PART II, OTHER INFORMATION Item 5. Other Information On September 19, 1996, David V. Clark resigned as Chairman of the Board, President, Chief Executive Officer and a director of the Company. Effective the same date, Arnold H. Dreyfuss, a director of the Company and former Chairman of the Board and Chief Executive Officer of Hamilton Beach/Proctor-Silex, Inc., was named Chairman of the Board and Chief Executive Officer of the Company pending a search for a new President and Chief Operating Officer. Item 6. Exhibits and Reports on Form 8-K a. Exhibits: 10.15 Letter Agreement dated September 19, 1996 between the Company and David V. Clark, filed herewith. 27. Financial Data Schedules, filed herewith. b. Reports on Form 8-K: None 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: November 14, 1996 By /s/ Arnold H. Dreyfuss ------------------------ Arnold H. Dreyfuss Chairman of the Board Date: November 14, 1996 By /s/ Thomas M. Mishoe, Jr. -------------------------- Thomas M. Mishoe, Jr. Chief Financial Officer Date: November 14, 1996 By /s/ William T. Berry, Jr. -------------------------- William T. Berry, Jr. Director of Accounting Services EX-10 2 EXHIBIT 10.15 Exhibit 10.15 Board of Directors Eskimo Pie Corporation 901 Moorefield Park Drive Richmond, Virginia 23236 September 19, 1996 David V. Clark Eskimo Pie Corporation 901 Moorefield Park Drive Richmond, Virginia 23236 Dear Dave: This will confirm my telephone discussion with your counsel, John Thompson, this morning in which I advised John that in connection with your voluntary resignation from the employment of, and as a director of, Eskimo Pie Corporation effective this date as evidenced by your signature to this letter, the Board of Directors has authorized and directed me to advise you that it has agreed upon the following: 1. The Company will (a) continue your current salary after the date of your resignation through September 30, 1998, regardless whether or not you commence new employment, and less applicable withholding taxes; (b) provide medical and dental benefits on the same basis as if you were actively employed for a period of 24 months from September 30, 1996, with COBRA running concurrently with this 24-month period; (c) permit you either to purchase the leased car which you are currently using at the price stipulated in the lease agreement or return the car to the Company, in which case the Company will continue to assume the lease obligations; (d) process and pay, subject to its normal and customary review procedure, your current unpaid expense account items, in an amount not to exceed $9000; (e) pay you for any remaining unused vacation for 1996; (f) provide for accelerated vesting of the 3492 shares of restricted stock awarded to you under the 1992 Incentive Stock Plan which are still subject to restriction, such that all remaining restrictions will lapse as of September 19, 1996; and (g) contribute towards payment for outplacement services on your behalf for a period of up to two years, in an amount not to exceed $44,000; all of the foregoing being contingent, however, upon your execution of the Release in the form attached to this letter as Appendix "A". It is understood that this salary continuation, continuation of benefits and the other preceding provisions of this paragraph are additional consideration to you and are not anything to which you are otherwise entitled. This also will confirm that you will receive the benefits to which you are entitled under the Company's Executive Retirement Plan in accordance with the terms of that Plan. 2. I have advised you and am advising you that you should consult an attorney prior to executing the Release in the form attached as Appendix "A" and you will have until October 10, 1996 (21 days) to consider executing the Release. Following your execution of the Release, you will then have a period of seven (7) days during which time you may revoke the Release, and thus the Release will not become effective or enforceable until the seven (7) day revocation period has passed. 3. You agree not to disclose any proprietary or confidential information you may have acquired or received during your employment with the Company; provided, however, that this prohibition shall not apply to information that (a) is or becomes generally available to the public other than as a result of a disclosure by you, (b) becomes available to you on a non-confidential basis from a source other than the Company or its representatives which source has the right to disclose it or (c) was known to you on a non-confidential basis prior to your employment by the Company. 4. You agree to be cooperative in the transfer of your normal job responsibilities and in the return to the Company of all keys, credit cards or other items of Company property that may be in your possession. You also agree not to disparage in any way or otherwise speak adversely about the Company, its business or any of its officers or employees. 5. You agree to be available for assistance and consultation during the salary continuation period. We agree that this is to be for reasonable and infrequent periods of time, not to exceed more than 10 hours per month, unless we agree otherwise. 6. As a condition of this letter agreement, you agree not to discuss the terms or existence of this letter agreement with any other person other than members of your immediate family, and such professional advisors as you deem necessary who also agree to keep these matters confidential. The continuation of the salary and benefits, as well as the other provisions described in paragraph 1 above, shall be conditioned upon your continued compliance with the provisions of this paragraph 6 and the other provisions of this letter. 7. This letter agreement reflects the entire understanding between you and the Company regarding the terms of your resignation and no other provisions, conditions, representations or warranties have been made to you on behalf of the Company. Very truly yours, /s/ F. Claiborne Johnston, Jr. -------------------------------- F. Claiborne Johnston, Jr. On behalf of the Board of Directors Enclosure AGREED: /s/ David V. Clark ------------------- David V. Clark DATED: September 19, 1996 APPENDIX A GENERAL RELEASE OF CLAIMS In consideration of the benefits promised me in a certain letter from the Board of Directors of Eskimo Pie Corporation to me dated September 19, 1996, the sufficiency of which is hereby acknowledged, I hereby release ESKIMO PIE CORPORATION, its successors and assigns, together with it and its successors' and assigns' officers, directors and employees from any and all rights and claims, including rights and claims which may arise under the Federal Age Discrimination in Employment Act, whatsoever in law or in equity, which I ever had, now have, or which I, my heirs, executors, administrators and assigns hereafter can, shall or may have based upon my employment with the Company which terminated by my resignation on September 19, 1996, other than any rights, if any, I may otherwise have under Company-sponsored benefit plans or as set forth in the above-referenced letter dated September 19, 1996. This Release is given voluntarily by me and with knowledge of Federal, state and local laws concerning unlawful discrimination and wrongful discharge. I fully understand that the execution of this letter agreement by the Company and the payment of sums pursuant hereto is in no way an acknowledgment by the Company of any discriminatory, wrongful or improper acts whatsoever. I am aware that the continuation of my salary is subject to ordinary tax withholding, including FICA. /s/ David V. Clark ------------------- David V. Clark STATE OF VIRGINIA CITY/COUNTY OF Virginia, to-wit: I, Rose S. Borkey, a Notary Public in and for the jurisdiction aforesaid do certify that whose signature appears above, has acknowledged the same before me in my jurisdiction aforesaid. My commission expires: May 31, 1997. Given under my hand and seal this 8th day of October, 1996. /s/ Rose S. Borkey --------------------- Rose S. Borkey Notary Public ESKIMO PIE CORPORATION By /s/ Arnold H. Dreyfuss --------------------- Arnold H. Dreyfuss Its Chairman and C.E.O EX-27 3 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1996 SEP-30-1996 3,222 0 5,574 0 5,543 16,730 21,630 13,062 44,437 6,732 9,514 3,445 0 0 21,157 44,437 61,991 61,991 38,798 60,903 777 0 513 (51) (17) (34) 0 0 0 (34) (.01) .01
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