-----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, PGLI3JJB/AS94Wvn0G2Hc+CMliOfM+6szFlzfSRdRC0gYKJt9wzuN1q/M8oUx3gx EPm5elolG4OB57FmwqkqrQ== 0000916641-00-000269.txt : 20000320 0000916641-00-000269.hdr.sgml : 20000320 ACCESSION NUMBER: 0000916641-00-000269 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 20000317 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: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-19867 FILM NUMBER: 572904 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/A 1 ESKIMO PIE 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. Class Outstanding at April 30, 1999 - -------------------------------------------------------------- ----------------------------------------------------- 3,458,59 Common Stock, $1.00 Par Value
ESKIMO PIE CORPORATION Index
Page Number ---------------- Part I. Financial Information (as amended March 16, 2000 to reclassify portions of long term debt outstanding) Item 1. Financial Statements (Unaudited) 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
ESKIMO PIE CORPORATION Condensed Consolidated Statements of Income (Unaudited)
For the three months ended March 31, 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- (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 ===========================================
1 ESKIMO PIE CORPORATION Condensed Consolidated Balance Sheets (Unaudited)
March 31, December 31, March 31, As of 1999 1998 1998 - ---------------------------------------------------------------------------------------------------------------- (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 ====================================
2 ESKIMO PIE CORPORATION Condensed Consolidated Statements of Cash Flows (Unaudited)
For the three months ended March 31, 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- (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 ============================================
3 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:
As of March 31, 1999 December 31, 1998 March 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------ (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 ======= ======== ====== - ------------------------------------------------------------------------------------------------------------------------------
NOTE C - EARNINGS PER SHARE The following table sets forth the computation of earnings per share:
For the three months ended March 31, 1999 1998 ------------------------ 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 ========== ========== - ----------------------------------------------------------------------------------------------------------
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 NOTE D - BUSINESS SEGMENTS
National Business Segments Brands Flavors Foodservice Other Totals - ------------------------------------------------------------------------------------------------------------------ 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 ======= 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 ======= - ----------------------------------------------------------------------------------------------------------------------
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 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 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 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 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 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 EX-27 2 EXHIBIT 27 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1999 MAR-31-1999 48 0 8,888 0 5,418 14,965 19,313 12,243 41,066 9,115 6,411 0 0 3,463 18,876 41,066 16,129 16,129 9,283 15,307 0 0 159 368 136 232 0 0 0 232 .07 .07
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