CopyrightEskimo Pie Corp.Harvard Business School Case #293-084Case Software #XLS079Copyright 2010 President and Fellows of Harvard College. No part of this product may be reproduced, stored in a retrieval system or transmitted in any form or by any meanselectronic, mechanical, photocopying, recording or otherwisewithout the permission of Harvard Business School.

Table ATable A Sales by Business LineYear Ended December 31,Business198919901991Licensing58%59%56%Welchs and Heatha141424Flavors, packaging and other282720aHeath products included only in 1991.

Table BTable B 1991 Leading Frozen Novelty BrandsBrandCompanyUnit SharePopsicleUnilever7.6%KlondikeEmpire of Carolina5.4Eskimo PieEskimo Pie5.3SnickersMars4.8Weight WatchersH.J. Heinz4.3

Exhibit 1Exhibit 1 Historical Financial InformationYear Ended December 31,1987198819891990Income Statement Data (in thousands):Net salesa$30,769$36,695$46,709$47,198Cost of goods sold21,65025,63531,95731,780Gross profita9,11911,06014,75215,418Advertising and sales promotions4,7424,2415,0305,130General and administrative6,0685,4036,3947,063Operating income (loss)(1,691)1,4163,3283,225Interest income3085508011,004Interest expense(88)(107)(88)(67)Other income (expense)-netb1,738(77)(108)(20)Income taxes967291,5111,616Net income$171$1,053$2,422$2,526Balance Sheet Data (in thousands):Cash$5,550$8,109$10,723$13,191Working capital9,34211,10710,830$11,735Total assets20,85723,00626,15929,518Long-term debt1,2691,094919744Stockholders equity16,16217,21518,21519,496Per Share Data:Weighted average number of common shares outstanding3,3163,3163,3163,316Net income per share$0.05$0.32$0.73$0.76Cash dividend per share--$0.40$0.40Source: Eskimo Pie Prospectus, p. 10.aBeginning 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 1991 with a similar impact on 1991 gross profit.bIncludes the gain on sale of building of approximately $1,700,000 in 1987.

Exhibit 2Exhibit 2 Cash Flow SummaryYear Ended December 31,19891990Operating activities:Net income$2,422$2,526Depreciation1,0061,352Amortization175118Deferred income taxes250(58)Pension liability and other(154)(156)Decrease (increase) in receivables1,212(734)Decrease (increase) in inventories and prepaid expenses(524)(51)Increase (decrease) in payables to parent2,054(621)Increase (decrease) in accounts payable and accrued expenses1433,006Net cash provided by operating activities6,5955,382Investing activitiesCapital expendituresa(2,358)(1,311)Other(121)(101Net cash used in investing activities(2,479)(1,412)Financing activitiesCash dividends(1,327)(1,327)Principal payments on long-term debt(175)(175)Net cash used in financing activities(1,502)(1,502)Increase (decrease) in cash and cash equivalents2,6142,468Cash and cash equivalents at beginning of year8,10910,723Cash and cash equivalents at end of year$10,723$13,191Source: Eskimo Pie Prospectus, p. F-4.aCapital expenditures in 1989 are principally related to equipment acquired for use by licensees and, in 1990, an expansion of an ingredients manufacturing facility.

Exhibit 3Exhibit 3 Distribution and Market Share of Eskimo Pie, Heath, and Welchs Frozen Novelties19871988198919901991Distribution of at least one Eskimo product at U.S. Grocery Stores76.3%78.1%91.2%95.6%97.9%Unit Market Share of Eskimo products3.33.95.76.87.5Source: Eskimo Pie Prospectus

Exhibit 4Exhibit 4 Industry Information for Frozen NoveltiesYearIndustry Revenues (millions)Units Sold (millions)% Change in SalesAverage PriceAdvertising Spending (millions)1980$590N/AN/AN/A$21981680N/A15.3%N/A4198277045713.2$1.6917198394052522.11.792319841,10057717.01.903219851,30064318.22.024419861,4006817.72.067719871,5007177.12.093819881,355637-9.72.132619891,332623-1.72.194019901,321590-0.82.2421Source: 1980-87 Nieldsen; 1988-90 IRI

Exhibit 6Exhibit 6 Goldman Sachs Projected Income StatementsaYear Ended December 31,199119921993Net Sales$56,655$59,228$59,961Operating expenses52,61054,75555,33792.5%PE=22.80Operating income4,0454,4734,624Market Value$0Interest income8288901,058Interest expense52.538.524.5Pretax income4,8215,3245,657Income taxes1,9282,1302,263Tax rate40.00%40.00%40.00%Net income$2,893$3,195$3,394Margin5.10%5.40%5.70%Earning per share$0.87$0.96$1.02Average shares outstanding331633163316Source: Goldman SachsaAdjusted for 2.5 to 1.0 stock split in March 1992.

Exhibit 7Exhibit 7 Hypothetical Proceeds from an Initial Public OfferingTotal for firm:Offer Price14.0016.00Special dividend4.524.52Total per share18.5220.52Shares outstanding3,3163,316Total61,42168,0541991 Net Income3,7493,749Implied P/E Multiple12.3814.15Reynolds Proceeds:Shares owned2,7892,789Per share proceeds:Stock price14.0016.00Special dividend4.524.52Total per share18.5220.52Total for holdings51,64557,222Source: Casewriter estimates

Exhibit 8Exhibit 8 Information about Comparable CompaniesCompanySalesCash FlowOperating IncomeaNet IncomeBook Value of EquityMarket Value of EquityTotal DebtBetaPEBen & Jerry's97.06.710.23.726.3110.12.81.229.8Dreyer's Grand Ice Cream354.924.137.015.9113.1534.044.31.433.6Empire of Carolina, Inc.243.116.837.48.845.151.489.80.35.8Steve's Homemade Ice Cream35.12.73.91.811.137.43.12.520.8Hershey Foods Corp.2899.2292.3463.0219.51335.34002.5282.91.018.2Tootsie Roll Inds.207.932.547.225.5152.8728.80.01.028.6AVG PE22.8Source: Standard & Poor's, Compustat, and casewriter estimates.aBefore extraordinary items.

Exhibit 9Exhibit 9 Selected Financial Market Data, November 1991I. Treasury Yields90 day4.56%Six months4.61One year4.64Five years6.62Ten years7.42Thirty years7.92II. Corporate Borrowing RatesLong-term Bond YieldsAA8.74%A9.27BBB9.56BB11.44B14.68Floating RatesPrime rate7.50%Prime commercial paper (6 months)4.76Source: Federal Reserve Bulletin, S&P Bond Guide.

eskimoExhibit 8Information about Comparable CompaniesShareholders'OperatingCompanyEquityTotal DebtSalesCash FlowIncomeaNet IncomeBook ValueBetaBen & Jerry's110.12.897.06.710.23.726.31.2Dreyer's Grand Ice Cream534.044.3354.924.137.015.9113.11.4Empire of Carolina, Inc.51.489.8243.116.837.48.845.10.3Steve's Homemade Ice Cream37.43.135.12.73.91.811.12.5Hershey Foods Corp.4002.5282.92899.2292.3463.0219.51335.31.0Tootsie Roll Inds.728.80.0207.932.547.225.5152.81.0Source: Standard & Poor's, Compustat, and casewriter estimates.a Before extraordinary items.CompanyMV/BVPEMV/STV/CFCompanyEquityTotal DebtE/TMVEquity BetaAsset BetaBen & Jerry's4.1929.761.1616.85Ben & Jerry's110.12.80.981.21.17Dreyer's Grand Ice Cream4.7233.581.6324.00Dreyer's Grand Ice Cream534.044.30.921.41.29Empire of Carolina, Inc.1.145.840.588.40Empire of Carolina, Inc.51.489.80.360.30.11Steve's Homemade Ice Cream3.3720.781.1515.00Steve's Homemade Ice Cream37.43.10.922.52.31Hershey Foods Corp.3.0018.231.4814.66Hershey Foods Corp.4002.5282.90.931.00.93Tootsie Roll Inds.4.7728.583.5122.42Tootsie Roll Inds.728.80.01.001.01.00Average3.5322.801.5916.89Average0.851.231.14Estimate for Eskimo Pie 199123.504613.6Valuation Using Comparables$83.0$91.2$96.7$60.8Eskimo Pie 1991 Cash$13.0$13.0$13.0$13.0Total Estimated Value$96.0$104.2$109.7$73.8Exhibit 1Historical Financial InformationExhibit 6Goldman Sachs Projected Income StatementsYear Ended December 31,Year Ended December 31,1987198819891990199119921993Income Statement Data (in thousands):Net salesa$30,769$36,695$46,709$47,198Net Sales$56,655$59,228$59,961Cost of goods sold21,65025,63531,95731,780Operating expenses52,61054,75555,337Gross profita9,11911,06014,75215,418JKD Est Op Exp using ave.38,978Advertising and sales promotions4,7424,2415,0305,13014636General and administrative6,0685,4036,3947,063JKD Operating Income$3,041Operating income (loss)(1,691)1,4163,3283,225Operating income4,0454,4734,624MarginInterest income3085508011,004Interest income8288901058Interest expense(88)(107)(88)(67)Interest expense533925Other income (expense) - netb1,738(77)(108)(20)Eskimo Pie Profit/Cashflow '919293Pretax income4,8215,3255,658Sales$61.0$63.8$64.6Income taxes967291,5112,362Income taxes1,9282,1302,263Operating Expenses41.443.944.4Net income$171$1,053$2,422$1,780Net income$2,892$3,195$3,395SG&A15.816.516.7Earning per share$2.18$2.41$2.58Op. Profit$3.8$3.4$3.5Balance Sheet Data (in thousands):Free Cash Flow$2.7$2.5$2.5Net Income$2.3$2.1$2.1Cash$5,550$8,109$10,723$13,191Tax rate40.00%40.00%40.00%Growth '90-9129.2%4.5%1.2%Working capital9,34211,10710,83011,735Margin5.1%5.4%5.7%FCF + TV$2.7$2.5$49.87Total assets20,85723,00626,15929,518PV @ 15.5%$36.5Total debt1,2691,094919744Cash$13.0Stockholders' equity16,16217,21518,21519,496Average shares outstanding1326.61326.61326.6Total Value$49.5Per Share Data:Source: Goldman SachsWeighted average numberof common shares outstanding3,3163,3163,3163,316DCF Value Using Perpetuity FormulaInitial Cash Free Cash Flow$2.7Net income per share$0.05$0.32$0.73$0.76Growth Rate29.2%WACC15.5%Cash dividend per share0.00.0$0.40$0.40Valuation$(25.4)Source: Eskimo Pie Prospectus, p. 10.a Beginning in 1991 the Company increased prices for products and assumed responsability foradvertising and sales promotion costs previously shared with licensees. This change inbusiness practice accounts for approximately one-half of the increase in net sales for 1991with a similar impact on 1991 gross profit.Valuation Matrixb Includes the gain on sale of building of approximately $1,700,000 in 1987.Growth =10%12%14%Discount Rate14%$101.8$207.2--15%$81.4$138.1421.816%$67.8$103.6210.917%$58.1$82.9140.6

Comparable multiplesExhibit 8 Information about Comparable CompaniesCompanySalesCash FlowOperating IncomeaNet IncomeBook Value of EquityMarket Value of EquityTotal DebtBetaBen & Jerry's97.06.710.23.726.3110.12.81.2Dreyer's Grand Ice Cream354.924.137.015.9113.1534.044.31.4Empire of Carolina, Inc.243.116.837.48.845.151.489.80.3Steve's Homemade Ice Cream35.12.73.91.811.137.43.12.5Hershey Foods Corp.2899.2292.3463.0219.51335.34002.5282.91.0Tootsie Roll Inds.207.932.547.225.5152.8728.80.01.0Source: Standard & Poor's, Compustat, and casewriter estimates.aBefore extraordinary items.CompanyP/BP/EP/SCompanyEquityTotal DebtE/TMVEquity BetaAsset BetaBen & Jerry's4.1929.761.16Ben & Jerry's110.12.80.981.21.17Dreyer's Grand Ice Cream4.7233.581.63Dreyer's Grand Ice Cream534.044.30.921.41.29Empire of Carolina, Inc.1.145.840.58Empire of Carolina, Inc.51.489.80.360.30.11Steve's Homemade Ice Cream3.3720.781.15Steve's Homemade Ice Cream37.43.10.922.52.31Hershey Foods Corp.3.0018.231.48Hershey Foods Corp.4002.5282.90.931.00.93Tootsie Roll Inds.4.7728.583.51Tootsie Roll Inds.728.80.01.001.01.00Average3.5322.801.59Average1.14Median3.7824.681.32Estimate for Eskimo Pie 199121.802.3061Valuation Using Comparables$77.0$52.5$96.7Eskimo Pie 1991 Cash$13.0$13.0$13.0Total Estimated Value$90.0$65.5$109.7$76.97$52.51$96.70$13.00$13.00$13.00Applying average$89.97$65.51$109.70Applying Median$95.40$69.85$93.52

CAPMMarket Return13.76%Beta1.14Risk free rate7.42%Required rate of return14.62%198618.50%Growth rate29.24%19875.20%198816.80%Market Value198931.50%1990-3.20%13.76%Year Ended December 31,Estimate19871988198919901991E1992E1993E1994E1995E1996E1997E1998E1999E2000EIncome Statement Data (in thousands):Net salesa$30,769$36,695$46,709$47,198$61,000$63,770$64,560$65,359$66,167$66,986$67,815$68,655$69,504$70,364Cost of goods sold21,65025,63531,95731,780$42,086$43,779$44,126$44,661$45,378$45,871$46,409$46,998$47,602$48,174Gross profita9,11911,06014,75215,418$18,914$19,991$20,434$20,698$20,789$21,115$21,406$21,656$21,902$22,190Advertising and sales promotions4,7424,2415,0305,1307,4137,2297,2837,4577,6397,6327,7367,8537,9568,037General and administrative6,0685,4036,3947,0639,6239,4309,5579,85810,00010,01210,16310,32010,43910,552Operating income (loss)(1,691)1,4163,3283,225$1,879$3,332$3,593$3,383$3,151$3,471$3,507$3,483$3,508$3,601Interest income3085508011,004Interest expense(88)(107)(88)(67)Other income (expense)-netb1,738(77)(108)(20)Income taxes967291,5111,616Net income$171$1,053$2,422$2,526$1,127$1,999$2,156$2,030$1,890$2,083$2,104$2,090$2,105$51,417-55.37%77.31%7.85%-5.85%-6.87%10.17%1.03%-0.69%0.72%2343.08%Balance Sheet Data (in thousands):NPV$22,249.68$35,249.68Cash$5,550$8,109$10,723$13,191Working capital9,34211,10710,830$11,735Total assets20,85723,00626,15929,518Long-term debt1,2691,094919744Stockholders equity16,16217,21518,21519,496Per Share Data:Weighted average number of common shares outstanding3,3163,3163,3163,316Net income per share$0.05$0.32$0.73$0.76Cash dividend per share--$0.40$0.40Year Ended December 31,199119921993Net Sales$56,655$59,228$59,961Operating expenses52,61054,75555,337Operating income4,0454,4734,624Interest income8288901,058Interest expense52.538.524.5Pretax income4,8215,3245,657Income taxes1,9282,1302,263Tax rate40.00%40.00%40.00%Net income$2,893$3,195$3,394Margin5.10%5.40%5.70%Earning per share$0.87$0.96$1.02Average shares outstanding331633163316

Sheet4Exhibit 8Information about Comparable CompaniesShareholders'OperatingCompanyEquityTotal DebtSalesCash FlowIncomeaNet IncomeBook ValueBetaBen & Jerry's110.12.897.06.710.23.726.31.2Dreyer's Grand Ice Cream534.044.3354.924.137.015.9113.11.4Empire of Carolina, Inc.51.489.8243.116.837.48.845.10.3Steve's Homemade Ice Cream37.43.135.12.73.91.811.12.5Hershey Foods Corp.4002.5282.92899.2292.3463.0219.51335.31.0Tootsie Roll Inds.728.80.0207.932.547.225.5152.81.0Source: Standard & Poor's, Compustat, and casewriter estimates.a Before extraordinary items.CompanyMV/BVPEMV/STV/CFCompanyEquityTotal DebtE/TMVEquity BetaAsset BetaBen & Jerry's4.1929.761.1616.85Ben & Jerry's110.12.80.981.21.17Dreyer's Grand Ice Cream4.7233.581.6324.00Dreyer's Grand Ice Cream534.044.30.921.41.29Empire of Carolina, Inc.1.145.840.588.40Empire of Carolina, Inc.51.489.80.360.30.11Steve's Homemade Ice Cream3.3720.781.1515.00Steve's Homemade Ice Cream37.43.10.922.52.31Hershey Foods Corp.3.0018.231.4814.66Hershey Foods Corp.4002.5282.90.931.00.93Tootsie Roll Inds.4.7728.583.5122.42Tootsie Roll Inds.728.80.01.001.01.00Average3.5322.801.5916.89Average0.851.231.14Estimate for Eskimo Pie 199123.504613.6Valuation Using Comparables$83.0$91.2$96.7$60.8Eskimo Pie 1991 Cash$13.0$13.0$13.0$13.0Total Estimated Value$96.0$104.2$109.7$73.8Exhibit 1Historical Financial InformationExhibit 6Goldman Sachs Projected Income StatementsYear Ended December 31,Year Ended December 31,1987198819891990199119921993Income Statement Data (in thousands):Net salesa$30,769$36,695$46,709$47,198Net Sales$55,655$59,228$59,961Cost of goods sold21,65025,63531,95731,780Operating expenses52,61054,75555,337Gross profita9,11911,06014,75215,418JKD Est Op Exp using ave.38,290Advertising and sales promotions4,7424,2415,0305,13014378General and administrative6,0685,4036,3947,063JKD Operating Income$2,987Operating income (loss)(1,691)1,4163,3283,225Operating income3,0454,4734,624MarginInterest income3085508011,004Interest income8288901058Interest expense(88)(107)(88)(67)Interest expense533925Other income (expense) - netb1,738(77)(108)(20)Eskimo Pie Profit/Cashflow '919293Pretax income3,8215,3255,658Sales$61.0$64.9$65.7Income taxes967291,5112,362Income taxes1,5282,1302,263Operating Expenses41.444.745.2Net income$171$1,053$2,422$1,780Net income$2,292$3,195$3,395SG&A15.816.817.0Earning per share$2.18$2.41$2.58Op. Profit$3.8$3.5$3.5Balance Sheet Data (in thousands):Free Cash Flow$2.7$2.5$2.5Net Income$2.3$2.1$2.1Cash$5,550$8,109$10,723$13,191Tax rate40.00%40.00%40.00%Growth '90-9129.2%6.4%1.2%Working capital9,34211,10710,83011,735Margin5.1%5.4%5.7%FCF + TV$2.7$2.5$50.76Total assets20,85723,00626,15929,518PV @ 15.5%$37.2Total debt1,2691,094919744Cash$13.0Stockholders' equity16,16217,21518,21519,496Average shares outstanding1326.61326.61326.6Total Value$50.2Per Share Data:Source: Goldman SachsEskimo Pie Profit/Cashflow '919293Sales$61.0$64.9$65.7Weighted average numberOperating Expenses34.336.436.9of common shares outstanding3,3163,3163,3163,316DCF Value Using Perpetuity FormulaSG&A19.020.220.5Initial Cash Free Cash Flow$2.7Op. Profit$7.8$8.2$8.3Net income per share$0.05$0.32$0.73$0.76Growth Rate29.2%Free Cash Flow$5.1$5.3$5.4WACC15.5%Net Income$4.7$4.9$5.0Cash dividend per share0.00.0$0.40$0.40Valuation$(25.4)Growth '90-9129.2%6.4%1.2%FCF + TV$5.1$5.3$119.61Source: Eskimo Pie Prospectus, p. 10.PV @ 15.5%$86.0a Beginning in 1991 the Company increased prices for products and assumed responsability forCash$13.0advertising and sales promotion costs previously shared with licensees. This change inTotal Value$99.0business practice accounts for approximately one-half of the increase in net sales for 1991with a similar impact on 1991 gross profit.Valuation Matrixb Includes the gain on sale of building of approximately $1,700,000 in 1987.Growth =10%12%14%Discount Rate14%$101.8$207.2--15%$81.4$138.1421.816%$67.8$103.6210.917%$58.1$82.9140.6