Eskimo Pie Corporation (Abridged)

Harvard Business School Case 9-293-084

Case Software 2-202-701 (Version 2, Revised 12/14/01)
Copyright 2001 by the President and Fellows of Harvard College
This case was prepared as the basis for class discussion rather than to
illustrate either effective or ineffective handling of an administrative situation.

Table B

1991 Leading Frozen Novelty Brands

Brand

Company

Popsicle
Klondike
Eskimo Pie
Snickers
Weight Watchers

Unilever
Empire of Carolina
Eskimo Pie
Mars
H.J. Heinz

Unit Share
7.6%
5.4%
5.3%
4.8%
4.3%

Exhibit 1

Historical Financial Information

1987
Income Statement Data (in thousands):
Net salesa
Cost of goods sold
Gross profita
Advertising and sales promotions
General and administrative
Operating income (loss)
Interest income
Interest expense
Other income (expense)-netb
Income taxes
Net income
Balance Sheet Data (in thousands):
Cash
Working capital
Total assets
Long-term debt
Stockholders' equity
Per Share Data:
Weighted average number
of common shares outstanding
Net income per share
Cash dividend per share
a

Year Ended December 31,

1988
1989

30,769 $
21,650
9,119
4,742
6,068
(1,691)
308
(88)
1,738
96
171 $

36,695 $
25,635
11,060
4,241
5,403
1,416
550
(107)
(77)
729
1,053 $

46,709
31,957
14,752
5,030
6,394
3,328
801
(88)
(108)
1,511
2,422

5,550
9,342
20,857
1,269
16,162

8,109
11,107
23,006
1,094
17,215

10,723
10,830
26,159
919
18,215

3,316
0.05
-

3,316
0.32
-

$
$

3,316
0.73
0.40

Beginning in 1991 the Company increased prices for products and assumed responsibility for advertising and sales promotion costs
previously shared with licensees. This change in business practice accounts for approximately one-half of the increase in net sales for
b
Includes the gain on sale of building of approximately $1,700,000 in 1987.

1990

$
$

47,198
31,780
15,418
5,130
7,063
3,225
1,004
(67)
(20)
1,616
2,526

13,191
11,735
29,518
744
19,496

3,316
0.76
0.40

ng and sales promotion costs

f of the increase in net sales for

Exhibit 2

Cash Flow Summary

Year Ended December 31,
1989
1990

Operating activities:
Net income
Depreciation
Amortization
Deferred income taxes
Pension liability and other
Decrease (increase) in receivables
Decrease (increase) in inventories and
prepaid expenses
Increase (decrease) in payables to parent
Increase (decrease) in accounts payable and
accrued expenses
Net cash provided by operating activities

2,422 $
1,006
175
250
(154)
1,212
(524)
2,054

2,526
1,352
118
(58)
(156)
(734)
(51)
(621)

143
6,595

3,006
5,382

Investing activities
Capital expendituresa
Other
Net cash used in investing activities

(2,358)
(121)
(2,479)

(1,311)
(101)
(1,412)

Financing activities
Cash dividends
Principal payments on long-term debt
Net cash used in financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

(1,327)
(175)
(1,502)
2,614
8,109
10,723 $

(1,327)
(175)
(1,502)
2,468
10,723
13,191

Capital expenditures in 1989 are principally related to equipment acquired for use by licensees and, in 1990, an expansion of an ingredients ma

ecember 31,

n 1990, an expansion of an ingredients manufacturing facility.

Exhibit 3 Distribution and Market Share of Eskimo Pie, Heath, and Welch's Frozen Novelties

Distribution of at least one Eskimo

product at U.S. Grocery Stores
Unit Market Share of Eskimo
products

1987

1988

1989

1990

1991

76.3%

78.1%

91.2%

95.6%

97.9%

3.3

3.9

5.7

6.8

7.5

Exhibit 4

Industry Information for Frozen Novelties

Year
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990

Industry
Revenues
(millions)
$590
680
770
940
1,100
1,300
1,400
1,500
1,355
1,332
1,321

Units
Sold
(millions)
N/A
N/A
457
525
577
643
681
717
637
623
590

% Change
in Sales
N.A
15.3%
13.2
22.1
17.0
18.2
7.7
7.1
-9.7
-1.7
-0.8

Average
Price
N/A
N/A
$1.69
1.79
1.90
2.02
2.06
2.09
2.13
2.19
2.24

Advertising
Spending
(millions)
$2
4
17
23
32
44
77
38
26
40
21

Exhibit 6

Projected Income Statements for Eskimo Pie by Goldman Sachsa

1991
Net Sales
Operating expenses
Operating income
Interest income
Interest expense
Pretax income
Income taxes
Tax rate
Net income
Margin
Earning per share
Average shares outstanding
a

Adjusted for 2.5 to 1.0 stock split in March 1992

Year Ended December 31,

1992
1993

$56,655
52,610
4,045
828
52.5
4,821
1,928
40.00%
$2,893
5.10%
$0.87
3,316.00

$59,228
54,755
4,473
890
38.5
5,324
2,130
40.00%
$3,195
5.40%
$0.96
3,316.00

$59,961
55,337
4,624
1,058
24.5
5,657
2,263
40.00%
$3,394
5.70%
$1.03
3,316.00

Exhibit 7

Hypothetical Proceeds from an Initial Public Offering

Total for firm:

Offer Price
Special dividend
Total per share
Shares outstandinga
Total Proceedsa
1991 Net Incomea
Implied P/E Multiple
Reynolds' proceeds:
Shares owneda
Per share proceeds:
Stock price
Special dividend
Total per share
Total for holdingsa

$
$

14.00 $
4.52
18.52 $

16.00
4.52
20.52

3,316
61,412 $

3,316
68,044

3,749 $
12.38

3,749
14.15

2,789

2,789

14.00
4.52
18.52
51, 645

16.00
4.52
20.52
57,222

Units are in thousands.

Exhibit 8b

Information about Comparable Companies

Company

Ben & Jerry's

Sales

Cash Flow

ab

Operating
Incomeb

Net Incomeb

97.0

6.7

10.2

3.7

Dreyer's Grand Ice Cream

354.9

24.1

37.0

15.9

Empire of Carolina, Inc.

243.1

16.8

37.4

8.8

35.1

2.7

3.9

1.8

2,899.2

292.3

463.0

219.5

207.9

32.5

47.2

25.5

Steve's Homemade Ice Cream

Hershey Foods Corp.
Tootsie Roll Inds.
a

Cash flow is defined as earnings before interest after tax (EBIAT) plus depreciation.

Before extraordinary items.

Book Value of Market Value of

Equity
Equity

Total Debt

26.3

110.1

2.8

113.1

534.0

44.3

45.1

51.4

89.8

11.1

37.4

3.1

1,335.3

4,002.5

282.9

152.8

728.8

0.0

Exhibit 8c

Jan-88
Feb-88
Mar-88
Apr-88
May-88
Jun-88
Jul-88
Aug-88
Sep-88
Oct-88
Nov-88
Dec-88
Jan-89
Feb-89
Mar-89
Apr-89
May-89
Jun-89
Jul-89
Aug-89
Sep-89
Oct-89
Nov-89
Dec-89
Jan-90
Feb-90
Mar-90
Apr-90
May-90
Jun-90
Jul-90
Aug-90

Monthly Stock Returns for the S&P500 Composite and for Comparable Companies

BEN &
JERRY'S
-0.0517
0.0909
0.1500
-0.0580
-0.0462
0.0484
0.0000
-0.0308
0.0318
0.1462
-0.1544
-0.0635
0.0848
-0.0781
-0.0678
0.1636
-0.0156
-0.0476
0.1167
-0.0149
0.0152
-0.1194
0.0339
0.0328
-0.1587
0.0189
0.0370
-0.0714
0.3077
0.0147
0.0870
-0.2267

DREYER'S
0.1509
-0.0492
0.0259
0.1513
0.0073
0.1304
-0.0256
-0.0658
0.0845
0.1299
0.0115
0.0682
-0.0426
-0.1000
-0.0864
0.0811
0.2125
0.0103
0.0918
0.2056
-0.0698
-0.1583
0.1584
-0.0513
-0.0811
0.1765
0.0833
0.0154
0.1591
0.0654
-0.0245
-0.1006

EMPIRE OF
CAROLINA STEVE'S ICE
INC
CREAM
0.0677
0.9000
0.1212
-0.1842
0.0541
0.0323
0.0282
-0.0625
-0.0750
0.1000
0.0541
0.1818
0.0282
0.0256
0.1750
-0.0250
-0.1277
-0.1026
-0.0707
-0.0571
0.0000
-0.0909
0.3421
0.1000
0.0220
0.3939
0.1923
0.0761
-0.0161
-0.0505
-0.1784
0.0000
0.0600
-0.1277
0.1132
0.0976
0.3241
0.0444
0.0577
0.0000
0.1273
-0.0426
0.1629
-0.1000
-0.0694
0.0741
-0.2836
-0.0460
-0.1875
-0.1566
-0.2051
0.3000
0.1613
-0.0769
0.3056
-0.2619
-0.2979
0.0645
0.1212
-0.3636
-0.1892
0.0714
-0.1500
-0.1778

HERSHEY
FOODS
0.0561
0.0301
-0.0660
-0.0303
-0.0248
0.0591
0.0000
-0.0284
0.0526
0.0950
-0.0804
0.0400
-0.0144
-0.0029
0.0443
0.0708
0.0150
0.1572
0.0566
-0.0516
0.0000
0.0379
0.0130
0.0399
-0.1115
-0.0841
0.0948
0.0158
0.0913
0.0750
0.0266
-0.0065

TOOTSIE
ROLL
0.0122
-0.0763
0.0141
0.0443
0.0509
-0.0183
0.0370
-0.0357
0.0101
0.0408
-0.0863
0.0320
-0.0750
-0.0721
0.0372
0.0628
0.0546
0.0666
0.0931
0.0444
0.0229
-0.0451
0.0727
-0.0086
-0.0719
0.0590
0.0244
0.0386
0.1689
0.0129
-0.0114
-0.2052

S&P 500
0.0404
0.0418
-0.0333
0.0094
0.0032
0.0433
-0.0054
-0.0386
0.0397
0.0260
-0.0189
0.0147
0.0711
-0.0289
0.0208
0.0501
0.0351
-0.0079
0.0884
0.0155
-0.0065
-0.0252
0.0165
0.0214
-0.0688
0.0085
0.0243
-0.0269
0.0920
-0.0089
-0.0052
-0.0943

Sep-90
Oct-90
Nov-90
Dec-90
Jan-91
Feb-91
Mar-91
Apr-91
May-91
Jun-91
Jul-91
Aug-91
Sep-91
Oct-91
Nov-91
Dec-91

-0.0948
-0.0095
0.0577
0.0727
0.0848
0.0938
0.1000
-0.0260
0.0667
-0.0375
0.2857
0.1515
0.1491
0.0458
0.0146
0.0648

-0.0140
0.0213
0.2569
-0.0422
0.1047
0.1368
0.0944
-0.1017
0.0094
0.0766
0.0000
-0.0174
-0.0425
0.0093
0.0734
0.1897

-0.0196
0.0000
0.0000
-0.1200
0.2046
-0.0566
-0.0800
0.2174
0.2143
-0.0441
-0.0154
0.1875
0.1053
0.2143
0.0392
-0.2642

-0.4324
-0.0476
0.7000
-0.2647
-0.0800
0.1304
0.1154
0.3103
-0.1974
-0.0492
-0.0345
0.9643
-0.1273
0.6250
-0.2821
0.8214

-0.0493
-0.0450
0.0210
0.0714
0.0600
0.0088
0.0251
-0.0184
0.0991
-0.0712
0.0276
0.0059
-0.0716
0.0611
-0.0729
0.1678

0.0235
-0.0036
0.1000
0.0599
0.0215
0.0991
0.0875
0.0363
0.0225
-0.0110
0.1114
0.0178
0.0208
0.0622
0.0364
0.1453

-0.0512
-0.0067
0.0599
0.0248
0.0415
0.0673
0.0222
0.0004
0.0386
-0.0479
0.0449
0.0197
-0.0191
0.0119
-0.0439
0.1116

Exhibit 9

Selected Financial Market Data, November 1991

I. Treasury Yields
90 day
Six months
One year
Five years
Ten years
Thirty years
II. Corporate Borrowing Rates
Long-term Bond Yields
AA
A
BBB
BB
B
Floating Rates
Prime rate
Prime commercial paper (6 months)

4.56%
4.61%
4.64%
6.62%
7.42%
7.92%

8.74%
9.27%
9.56%
11.44%
14.68%
7.50%
4.76%