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Eskimo Pies 1991 IPO

It was awful, it was the pits, recalled Eskimo Pie President Mr. David Clark Stress levels were high at Eskimo Pies corporate headquarters in Richmond Virginia in early 1991. Senior managers of Eskimo Pies parent, Reynolds Metals, had just concluded an asset review in keeping with the companys strategic plan to focus primarily on its aluminum and packaging business. Eskimo Pie, an ice cream novelty company, became a subsidiary of Reynolds Metals sixty-seven years ago more by accident than by design. Reynolds had been a supplier of aluminum foil wrappers to Eskimo Pie when Eskimo Pie fell on difficult times. After some financial restructuring, Reynolds and an affiliate ended up with 88.2% of the outstanding shares of Eskimo Pie. Eskimo Pie was a minor part of Reynolds (for example, in 1991 Eskimo Pies sales represented just 1% of Reynolds Metals total sales) and the strategic fit was poor. Consequently, the review concluded that Eskimo Pie should be sold. There was little doubt that a strategic buyer would close Eskimo Pies Richmond headquarters and lay off almost all members of the senior staff and management. In the spring of 1991 Reynolds announced that it would sell its stake in Eskimo Pie and hired Goldman Sachs as an advisor. Eskimo Pies president, Mr. Clark, was directed to work with the Goldman Sachs team that arrived in April to prepare a strategy to help sell Eskimo Pie. Senior management of Eskimo Pie, led by Mr. Clark in conjunction with advisers at Wheat First Securities Inc., initially proposed a management buyout of the company so that the company could remain independent. However, Goldman Sachs estimated that the value of Eskimo Pie exceeded $50 million and concluded that the debt burden would be excessive given the relatively small equity stake that would be contributed by management.

This case was prepared from public sources by Professor Richard Leftwich with the assistance of Alexander Sekhniashvili. Copyright 2003 by Richard Leftwich.

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Goldman Sachs organized an auction for Eskimo Pie. David Clark was actively involved in the sales pitches and six bidders emerged. Nestl was the highest bidder offering approximately $57 million, 1.2 times Eskimo Pies 1990 sales of $47 million. Nestl was a multinational food and beverage corporation that had sales of $50.5 billion Swiss Francs ($U.S. 33.7 billion) in 1991. In 1990, Nestl formed Nestl USA, Inc., a subsidiary that comprised all its food and beverage businesses in the United States. The new unit had sales of more than $7 billion and consisted of Nestl Foods Group, Nestl /Hills Coffee Co., Stouffer Foods Corp., L.J. Minor Corp., Sunmark, Inc., Wine World Estates, Nestl Food Service Co., Nestl Puerto Rico, Inc., FreshNes Food Corp., and Nestl Hospitality Group. In 1991 Nestl acquired Drumstick, another frozen novelty company from Alco Standard Corp. Eskimo used to represent Nestl in frozen goods during the 1970s David Clark said. Nestl is the licensing business due to this. They studied our methods and used us a model to become our competitor. David knew he had to set aside his rancor because he could see the writing on the wall. Unless he and his fellow managers could orchestrate another transaction, Eskimo Pie was about to become another product line in the behemoths portfolio. The Richmond headquarters would be closed and he and his fellow employees would be laid off. Time was running out.

1. Reynolds Metals Reynolds Metals was a supplier and recycler of aluminum and other products, with its core business being an integrated producer of a wide variety of value-added aluminum products. Reynolds produced alumina, carbon products and primary and reclaimed aluminum, principally to supply the needs of its fabricating operations. These fabricating operations produced aluminum foil, sheet, plate, cans and extruded products (including heat exchanger tubing, drive shafts, bumpers, and windows), flexible packaging and wheels, among other items. Reynolds also produced a broad range of plastic products, including film, bags, containers and lids, for consumer products, foodservice and packaging uses. The Company marketed an extensive line of consumer products under the Reynolds brand name, including the well-known Reynolds Wrap aluminum foil. Reynolds' largest market for its products was the packaging and containers market, which included consumer products. Reynolds was also a gold producer through operations in Western Australia. Exhibit 1 contains Reynolds Metals Income Statements for the years 1989 through1991.

2. Eskimo Pie History Eskimo Pie claimed to be the developer of the original ice cream bar. A high school teacher, Christian Kent Nelson, invented the Eskimo Pie in Onawa, Iowa in 1919 and originally called it the I-Scream -Bar. According to company legend, Nelson was inspired to create the product after a young boy entered his candy shop and stood for a long time trying to decide what to buy. Nelson asked the boy what the problem was, and the child confessed he had only enough money to buy either a chocolate bar or an ice cream cone. His dilemma was that he wanted both, a dilemma well known to parents of young children.

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This inspired the budding entrepreneur to start experimenting with ways to combine ice cream and a chocolate covering. In July 1921, Christian Nelson formed a partnership with the candy maker Russell C. Stover to market and produce the ice cream novelty, renamed the Eskimo Pie. The partnership sold manufacturing rights to various other companies in exchange for royalty payments. By early 1922, Eskimo Pies were selling at the rate of a million bars a day, and supposedly caused the price of cocoa beans to rise by 50%. However, difficult financial times followed due to trademark lawsuits and high manufacturing and sales costs. The Eskimo Pie company was sold in 1924 to the supplier that made the foil wrappers for the Eskimo Pie, the United States Foil Company, headed by R.S. Reynolds. U.S. Foil later changed its name to Reynolds Metals Company. Christian Nelson remained with Eskimo Pie until his retirement in 1961.

Operations and Products By 1991 Eskimo Pie had three lines of business: (i) manufacturing, licensing and distribution of its core brand Eskimo Pie products; (ii) manufacturing and sublicensing of the Welchs and Heath brand ice cream novelty products; and (iii) manufacturing and marketing ingredients and packaging to the dairy and general food industry, particularly flavorings. Eskimo Pie manufactured the key ingredients and packaging used by licensees, including the proprietary chocolate coating, Midnite Sun, which supposedly had given Eskimo Pies products their distinctive flavor for over 50 years. The lines on business generated the following sales: Composition of Eskimo Pies Net Sales ($,000) Brand Eskimo Pie Welch's and Heath Flavors, packaging and others
1

Year ended December 31 1989 $27,215 6,435 13,059 $46,709 1990 $27,786 6,679 12,733 $47,198 19911 $34,325 14,558 12,072 $60,955

The Heath Brand was added in 1991 Year ended December 31

Brand Eskimo Pie Welch's and Heath Flavors, packaging and others Source: Eskimo Pies 1992 Prospectus

1989 58% 14% 28%

1990 59% 14% 27%

1991 56% 24% 20%

By 1991 Eskimo Pie was one of the leaders in the $1.3 billion frozen novelty category and enjoyed one of the categorys most recognized brand names. On a brand basis, Eskimo Pie with a 5.3% unit market share, ranked third in a field of over 400 brands. No brand in the industry exceeded an 8% unit market share. On an item basis, the regular Eskimo Pie and the Sugar Freedom Eskimo Pie were among the industrys top ten.

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Further, under the Welchs brand, the company marketed the nations best selling frozen juice bar and, under the Heath brand, the nations 14 th ranked ice cream bar. When combined, the Eskimo Pie, Welchs and Heath brands accounted for over 7% of the total frozen novelty industry sales. Market shares for the years 1987 through 1991 were: 1987 Unit market share of Eskimo Pies branded products Source: Eskimo Pies 1992 Prospectus 3.3% 1988 3.9% 1989 5.7% 1990 6.8% 1991 7.5%

Licensing and Sublicensing Systems Eskimo Pies primary customers were its licensees, who purchased ingredients and packaging from the company. The company licensed the manufacturing, distribution, and sale of Eskimo Pie brand products through a national network of manufacturers of dairy products. Licensees were granted the right to produce and distribute Eskimo Pie branded products within a specified territory. Licensees produced, packaged, handled, and distributed products in accordance with Eskimo Pies specific quality control standards. These standards required the licensee to use components which had been formulated, developed, and designed by the company in order to create a unique appearance and maintain consistency of product taste and quality nationwide. Licenses were selected based on reputation. Separate sublicenses were granted for Welchs and Heath brands and approximately 80% of the Eskimo Pies licensees were sublicensed for Welchs and or Heath brands. Eskimo Pie recognized revenues for sales of ingredients and packaging when the items were shipped from the companys facility. If a licensee elected to use outside parties for certain ingredients and packaging, the licensee was required to pay the company trademark license fees 1. During 1991, the companys top five licensees accounted for over 50% of net sales, and the top 10 licensees accounted for over 70%. By 1991 one or more of the companys Eskimo Pie brand products could be found in 97% of all U.S. grocery stores. Eskimo Pie also sublicensed the manufacture and distribution of frozen novelties under established national brands owned by other food companies. By 1991, Eskimo Pie licensed frozen novelties on behalf of Welchs and Leaf under Welchs and Heath brand names. Under sublicensing agreements with Welchs and Leaf, Eskimo Pie had an exclusive authority to grant sublicenses for the manufacture and sale of Welchs frozen novelties and Leafs Heath brand ice cream bar. Eskimo Pie purchased the basic ingredients from Welchs and sold them, along with packaging to sub-licensees. In the case of Leaf, Eskimo Pie distributed the chocolate coating and toffee ingredients manufactured by Leaf to sub-licensees for use in the Heath ice cream. These brands represented less than 25% of the companys annual revenues.

Licensing was common in the industry, with some curious results. For example, in 1991 over 40% of Ben & Jerrys ice cream was produced in a competitors plant in Indiana.
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Licensing allowed Eskimo Pie to minimize capital expenditure requirements since licensees manufactured and distributed Eskimo Pies line of products. The company expected capital expenditures to be less than $1 million in 1992. As a result, Eskimo Pie focused on marketing, new product development and quality control.

Product Innovation Eskimo Pie was one the leaders in industry innovation and its new product developments were driven by consumer research, resulting in a three-way segmentation of the frozen novelty category: regular, sugar-free, and the low/no fat sector. Eskimo Pie was the first company to market a sugar-free frozen novelty bar made with NutraSweet and Eskimo Pie subsequently received a patent on that products coating. The companys Sugar Freedom Eskimo Pie Products were given a seal of approval by the American Diabetes Association (ADA) and were permitted to carry the ADA logo on the package. In the highly fragmented U.S. frozen novelty market, the unit market of Eskimo Pie had grown from 2.3% in 1987 to 5.3% by the end of 1991. Management attributed this increase in market share primarily to the success of territorial licensing and market acceptance of expanded product offerings under the Sugar Freedom Eskimo Pie line of frozen novelties. Manufacturing

Eskimo Pie manufactured key ingredients, such as chocolate coating used on Eskimo Pie branded products, at its plant in New Berlin, Wisconsin, consisting of 73, 820 square feet on 4 acres, and at its plant in Los Angeles, California, consisting of 38,211 square feet on 2.68 acres. Packaging for licensed products was manufactured at the companys plant in Bloomfield, New Jersey which consisted of 71,583 square feet on 1.95 acres. Eskimo Pie also leased a two-floor 17,188 square feet facility in Richmond, Virginia for its executive and administrative offices and new for its product development/quality control offices. In December 31, 1991 the company employed approximately 130 persons. No employees were covered by collective bargaining agreements.

Marketing and Distribution Eskimo Pie provided marketing support for its products as well as for Welchs and Heath products. The company spent $11.8 million on advertising and sales promotion in 1991. The majority of these expenditures was spent on retail advertising and promotions. The company had 11 salespeople, including eight regional and three divisional sales managers, as well as a National Sales M anager and a Vice President of Sales. Additionally, the companys sales managers directed a national network of frozen food brokers. These brokers acted as the companys retail force, calling on grocery buyers to achieve increased distribution of existing products, gain acceptance of new items, and set the various promotion programs as prescribed in the marketing plan. In addition to grocery store distribution, Eskimo Pies products were sold in convenience stores, schools, and plant cafeterias . Coatings, ingredients, and packaging were sold directly by the company and were warehoused in its owned facilities adjacent to the Eskimo Pies manufacturing operations.

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Financial Performance

Exhibits 2,3 and 4 contain Eskimo Pies financial statements for the 1989 1991 period. Eskimo Pies performance was volatile during late 1980s and early 1990s. Net sales of the company increased 27% in 1989, 1% in 1990 and 29% in 1991. The company managed to increase its sales and market share despite little, if any growth in frozen novelties industry sales. This success was largely due to introduction of the new line of Sugar Freedom Eskimo Pie products in 1989 and introduction of the Heath brand in 1991. Also, in 1991, approximately one-half of the change in net sales was attributed to a price increase to licensees for branded products. The increase was instituted as the company assumed the responsibility for advertising and sales promotion costs previously shared with licensees. Those changes produced a gross margin increase and an increase in advertising and sales promotion costs in 1991.

By the end 1991, Eskimo Pie had working capital $13,322,000 including cash and cash equivalents of $12,990,000. Due to substantial available cash on hand, the company earned significant interest income in 1989-1991 years. Eskimo Pie also had a long-term debt facility of $7 million that was to expire in 1995, but the company used only a small part of this facility as of December 1991. The companys effective tax rate was 38.4%. Although Eskimo Pies tax return was consolidated with Reynolds Metals, under a 1982 Tax Sharing Agreement, Eskimo Pie reimbursed its parent company Reynolds the amount of income taxes that the company would have been required to pay if the company had filed separate income tax returns. Eskimo Pies business was somewhat seasonal and its main sales were concentrated in the second quarter as licensees usually begun to build up inventories for sale in the summer months.

Environmental issues In the third quarter of 1991, some cleanup solvents, solvent inks and oil were disposed of at Eskimo Pies Bloomfield, NJ plant. Due to this incident Eskimo Pie recorded a cost of $300,000, of which $129,000 was for environmental consulting, testing and monitoring services, and approximately $171,000 was reserved for estimated future expenses in connection with the remediation of the Bloomfield plant. Based on testing and cleanup activities completed at the plant by the end of 1991 as well as on recommendations from their consultants and appropriate regulatory authorities, Eskimo Pie management believed that the reserved amount was adequate to cover identified testing and cleanup costs at Bloomfield, plant. Eskimo Pie entered into an agreement with its parent (Reynolds) under which Reynolds agreed to reimburse Eskimo Pie for all cleanup costs relating to Bloomfield plant if the costs exceeded $300,000, the amount recorded by Eskimo Pie.

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Management David Reynolds had been Chairman and Chief Executive Officer of E skimo Pie since 1983. From 1976 until1986 Mr. Reynolds served as Chairman and Chief Executive Officer of Reynolds. Mr. Reynolds and he had been Chairman Emeritus of Reynolds Metals Co. since 1988. It was anticipated that Mr. Reynolds would resign in 1992 and David Clark, COO and President, would become CEO and Chairman of Eskimo Pie. All of the other directors were expected to resign when the company was sold. Exhibit 6 lists the officers and directors of Eskimo Pie, together with their stockholdings in the company.

Related Party Transactions Eskimo Pie purchased various products from Reynolds consisting principally of cartons, machinery, foil, and plastic film, which it used in its business. Reynolds provided legal, payroll, tax, fixed asset recordkeeping, benefits administration, risk management, and corporate recordkeeping services for Eskimo Pie. In addition Eskimo Pie participated in various employee benefit programs, insurance programs, pension asset management, and administration and valuation programs sponsored by Reynolds. Exhibit 7 contains further details of these transactions.

3. Frozen Novelty Industry In the United States, ice cream was traditionally supplied by dairies as an adjunct to their basic milk business and it was marketed like milk, as a commodity, with producers competing primarily on the basis of price. This price competition motivated ice cream producers to seek economies in their formulations. The resulting trend to lower quality ice cream created an opportunity for producers of premium ice cream whose products could be differentiated on the basis of quality and brand image rather than price. Over time, the major grocery chains share of most grocery markets increased and chains purchased or constructed their own milk and ice cream plants. The resulting reduction in the market for unbranded milk and the "regular" ice cream brands produced by the independent dairies caused many such dairies to close or be absorbed by grocery chains or food wholesalers. The frozen novelty segment was highly fragmented in the early 1990s, with $1.3 billion sales and over 400 brands of frozen novelties available to the consumers. No brand had greater than 8% unit market share at that time. Before the 1980s the only dairy products produced by large publicly traded companies were frozen products, yogurt and cheese. Children were the primary market for ice cream novelties. As branded products emerged in the frozen novelty segment and as those premium brands targeted adults, the premium ice cream market attracted attention on Wall Street. This accelerated the rate of growth of the industry, and led to new entry. Industry revenues increased from $590 million in 1980 to $1.5 billion in 1987. During the same period the number of ice cream brands increased from 100 to 500. Large food companies such as Phillip Morris (Breyers and Sealtest brands), Pillsbury (Haagen-Dazs), Mars (Dove), Unilever (Popsicle, Good Humor), and Dole entered the frozen novelties business and the industry consolidated as those firms became strategic

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buyers. These companies were large, diversified companies with expertise in brand management and distribution. Industry revenues started to decline in 1987 and by 1990 industry revenue decreased from $1.5 billion to $1.3 billion. At the end of 1991, the following brands were ranked as top five in terms of unit market share: Brand Popsicle Klondike Eskimo Pie Snickers Weight Watchers
1

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

Unit Share1 7.6% 5.4% 5.3% 4.8% 4.3%

Percentage of physical units sold in the frozen novelty category based on year end results. Eskimo Pie unit share does not include Welchs and Heath brands.

Source: Eskimo Pies 1992 Prospectus In public disclosures, Eskimo Pies management professed confidence that the company had a number of competitive advantages in the frozen novelty market. For example, the Eskimo Pie brand name was one of the most widely recognized names in the market and its management believed that consumers identified it with a consistently high quality product. The company increased its sales and market share through the successful introduction of new products, such as its Sugar Freedom Eskimo Pie and Fat Freedom Eskimo Pie, which were targeted at the supposedly more health-conscious consumers. By using licensees to manufacture and distribute its products, Eskimo Pie was able to operate with relatively low capital expenditures. Its licensing arrangements with Welchs and Leaf also required only limited additional capital investment and produced incremental profits to the company. Appendix 1 contains a brief description of each of Eskimo Pies main competitors. Selected financial data for those competitors are in Exhibit 10.

3. Eskimo Pie for Sale

Negotiations with Nestl continued through the autumn. Nevertheless, David Clark continued his discussions with the companys financial advisers at Wheat First Securities Inc. in a last ditch effort to craft a proposal that would allow Eskimo Pie to remain independent. Clark decided to save at least some of the symbolic parts of his company. He took many company artifacts, such as its first production machine and shipped them to a historical society in Iowa, home state of the companys founder. He also took the s ales and marketing group to Hawaii for a final company retreat. Meanwhile negotiations between Nestl and Reynolds had reached somewhat of an impasse due to t o w complications. First, Nestl wanted to structure the deal to take advantage of tax conditions in Switzerland and, second, was concerned about the potential environmental liability at Eskimo Pies Bloomfield, NJ plant.

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David Clark saw this as another opportunity to promote an alternative transaction and stepped up his discussions with Wheat, First Securities Inc. A spin-off of the company to Reynolds shareholders was proposed and quickly rejected because Reynolds insisted that it receive cash from the transaction. When the idea of an initial public offering surfaced, David grasped at it, ruefully conceding that a drowning person may clutch a brick if that is all that is thrown to them. The IPO proposal envisioned a publicly traded independent Eskimo Pie with little debt burden. The proposal involved making a public offering of 2,926,086 shares (the shares owned by Reynolds Metal and the Reynolds Metal Company Foundation). The remaining shares would continue to be held by the existing shareholders, but the shareholders ability to sell those shares would be restricted. All of the proceeds of the IPO, net of the cost of the IPO, would be paid to Reynolds Metal. In addition, prior to the IPO. Eskimo Pie would pay a special, one time dividend of $4.52 per share to all shareholders. The special dividend was to be funded with the $12.8 million cas h balance at Eskimo Pie together with $2.2 million borrowed under the companys $7 million long-term bank facility. Borrowing under the long term debt facility would become due and payable on January 31, 1995 with an interest at the banks prime lending rate 6.5%1. The funding associated with the proposed special dividend and the IPO are described in Exhibits 8 and 9. Details of Eskimo Pies stockholders are contained in Exhibit 5.

Two major concerns emerged immediately. Would Reynolds Metals accept the risk associated with an IPO and what price could be obtained in an IPO? Current sentiment among stock market professionals was favorable. Wheat analysts believed that the stock would appeal to both individual and institutional investors since the company had what Wheat perceived to be the critical elements for success: profits, a recognizable brand, and an experienced management team. However, a public offering could go to market when prices were falling, and Reynolds Metals might receive less than it expected. Reynolds Metals evaluated the transaction carefully and weighed the pros and cons. Reynolds management concluded that:a public offering was simpler than private sale. A private sale would involve long negotiations, compromises and probably some unseen complications. Moreover, an independent Eskimo Pie would stay in Richmond. This allowed

Reynolds Metals, which was also headquartered in Richmond, to get what it wanted from transaction while saving a local company and local jobs. However, pricing of the deal would be critical. Although it was perceived that Nestl was unlikely to raise its initial bid of $57 million for Reynolds stake in Eskimo Pie, Reynolds Metals management would be reluctant to settle for a lower price than the $57 million Nestl bid. Reynolds revealed to Eskimo Pie and its financial advisor Wheat, First Securities Inc. that it would agree to public offering if the IPO price of the Eskimo Pie was in the $14.00 - $16.00 range. As shown in Exhibit 9, those prices would yield proceeds that were comparable to the Nestl bid. Goldman Sachs advised Reynolds Metals against accepting the deal, believing the risks were too great, and the price range was not realistic. Some people within Reynolds thought similarly and favored the deal with Nestl.

Since all the proceeds from the IPO would have go to Reynolds Metals leaving Eskimo Pie with little cash for working capital, Eskimo Pie and Wheat planned to issue an additional 10% of the shares (292,609 shares) after the IPO and those proceeds would go to Eskimo Pie.

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Appendix 1 Eskimo Pies Competitors1

Ben & Jerry Homemade, Inc. was a leading manufacturer of super premium ice cream and low fat frozen yogurt in unique and regular flavors. The Company also manufactured ice cream and novelty products, including Peace Pops and Brownie Bar ice cream sandwiches. The Company used natural ingredients in its products. The Company's products were distributed in all states primarily through independent distributors. However, the Company's marketing resources were concentrated on certain target markets including New England, New York, the Mid-Atlantic region, Florida, Texas, the West Coast and selected other major markets, including the metropolitan Chicago and Denver areas. In the 1990s approximately 85% of the sales of the Company's packaged pints were attributable to these target markets. The Company marketed 23 flavors in packages pints, for sale primarily in supermarkets, grocery stores, convenience stores and other retail food outlets and generally marketed over 40 flavors of its ice cream and frozen yogurt in bulk, primarily to restaurants and Ben & Jerry's franchised "scoop shops." By 1991 the Companys product line included 15 super prem ium ice creams and 8 frozen yogurt products. Ben and Jerry's Net Sales ($,000) 1989 58,464 1990 77,024 1991 96,997

Dreyers Grand Ice Cream Inc. manufactured and distributed premium ice cream and other frozen dairy products. Dreyer's Grand Ice Cream began as a specialty item sold principally in selected San Francisco Bay Area grocery and ice cream stores. The Company's products were also sold under the Edy's brand name in various mid-western, mid-Atlantic and south-eastern markets and in the New York metropolitan area. The Company also distributed super-prem ium ice cream and selected novelty products manufactured by other companies. The Company's line of ice cream and related products was relatively expensive and was sold by the Company and its independent distributors to supermarkets, convenience stores, restaurants, ice cream parlors and certain other accounts. Dreyer's and Edy's brands enjoyed strong consumer recognition and loyalty. By the end of 1990s the Company's product line included over eighty flavors of Dreyer's and Edy's Grand Ice Cream. The Company also distributed selected branded frozen dessert products produced by others, principally Ben & Jerry's Homemade Ice Cream, Dove brand premium ice cream novelties manufactured by Dove International, a division of Mars Incorporated, JELL-O brand novelties manufactured by General Foods Corporation, Mocha Mix manufactured by Presto Food Products, Inc. and various other novelty products. Early in 1990, the Company became the primary distributor for Simple Pleasures, The NutraSweet Company's new frozen dessert using the Simplesse fat substitute. Dreyers Net Sales ($,000) 1989 227,286 1990 308,312 1991 354,918

Empire of Carolina, Inc. was engaged in the manufacture, marketing, and distribution of various consumer and food products. The Company was formed in 1979 to acquire Carolina Enterprises, Inc., which was engaged in the design, manufacture, and marketing of toys, seasonal decorative items, and buttons. During 1986, Carolina Enterprises, Inc. was merged into the Company. The Company operated its toys, seasonal decorative items and button business through its Carolina Enterprises division. Sales of toys and buttons contributed approximately 74% of the companys sales in 1989 and 58% in 1992.

All publicly traded companies with SIC code 2024 (Ice Cream and Frozen Novelties).
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In 1989, the Company acquired the remaining outstanding common stock of AmBrit and the remaining outstanding common stock and preferred stock of Clabir in the merger of AmBrit into the Company and the merger of Clabir into the Company's newly formed subsidiary, CLR Corporation. As a result of the AmBrit Merger, the Company acquired the following wholly- owned subsidiaries of AmBrit: The Isaly Klondike Company which manufactured, marketed and distributed frozen novelty products; Wilbur Chocolate Co., Inc., which manufactured a variety of chocolate and confectionery products; and Popsicle Industries Ltd., which sold proprietary flavoring systems and packaging to licensees who manufactured and distributed frozen novelty products in Canada. The Company's sales number in 1989 included the results of operations of AmBrit and Clabir for the period August 10, 1989 through December 31, 1989. Isaly Klondike products included the Klondike Bar, the Klondike Lite Bar, the Klondike Premium Ice Cream Sandwich, and Klondike Mini-Nuggets. Isaly Klondike c onstituted approximately 24% of the Company's consolidated sales for the year ended December 31, 1989. Empire of Carolinas Net Sales ($,000) 1989 1990 122,294 233,950 1991 243,141

Steves Homemade Ice Cream Inc. marketed Steve's Super Premium, Steve's Gourmet Light, Swensen's Premium ice cream, Heidi's Frozen Yogurt, American Glace' Frozen Dessert and licensed and sublicensed products in 32 states and the District of Columbia and franchised and licensed ice cream shops and family restaurants in the United States and 15 foreign countries. The revenue increase in 1991 was primarily due to the addition of licensed and sublicensed products to the company's product line as well as the addition of American Glace' products and increas ed sales of Heidi's frozen yogurt products. The company had an ownership interest in American Glace' and Heidi's products. The company had entered into license and sublicense agreements to manufacture, sell and distribute certain products, which agreements are terminable upon 30 days notice. The increase in the sales of new products offset a significant decline in the sales of Steve's prepackaged products. Steves Homemade Ice Creams Net Sales ($,000) 1989 26,361 1990 19,089 1991 29,174

Dean Foods Company and its subsidiaries were engaged in the processing, purchase and distribution of dairy and specially food products. The Company's principal products were Dairy Products (fluid milk, especially dairy products and ice cream) and Specially Food Products (canned and frozen vegetables; pickles, relishes and specially items; powdered products; and sauces, puddings and dips). A significant portion of the Company's products was sold under private labels. The Company also operated a trucking business hauling less- than-truckload freight, concentrating primarily on refrigerated and frozen cartage. The Company produced packaged and bulk ice cream products which were sold through super-markets, convenience stores, smaller retail grocery outlets, restaurants and other foodservice users. The product line included ice cream, ice milk, fruit sherbets, frozen yogurts, non-fat frozen dairy desserts and frozen dessert novelties made with ice cream, ice milk, sherbet and ices. These products were sold under a variety of regional brands and numerous private labels in the Midwest, Southwest, Florida, Georgia, South Carolina, Ohio, Tennessee, Wisconsin, the Caribbean and parts of the Rocky Mountain state sunder numerous wellestablished brands. Such brands included Dean, Country Charm Gandy's, Creamland, Cream o'Weber, Gilt Edge, Bell, Price's, Fitzgerald, Mayfield, Fieldcrest, McArthur/T. G Lee, Reiter, Verifine, Carnival and Calypso. The Company sold its Baskin-Robbins franchise territories in April 1989, but continued to supply product used in the territories to Baskin-Robbins USA. Sales of ice cream products comprised 8.4% ($182 million) of the companys total sales in 1991. Dean Foods Net Sales ($,000) 1989 1990 1991 1,683,578 1,987,517 11 2,157,997

Exhibit 1

Reynolds Metals
Income Statements (in thousands, except share data) Year ended December 31 1991 1990 1989

Net sales Cost of sales Gross Profit SG&A

Operating Income Other income

5,730,100 4,760,200 969,900 378,000 591,900 35,900 18,500 646,300 265,100 160,900 220,300 66,200 154,100

6,022,400 4,823,400 1,199,000 370,100 828,900 43,000 (10,300) 861,600 214,200 150,000 96,100

6,143,100 4,775,900 1,367,200 364,100 1,003,100 57,900 (10,100) 1,050,900 199,800 113,000

Equity in operations of affiliates Total Income Depreciation and Amortization Provisions for estimated environmental costs Interest expense Profit before Tax Income tax Net Income

125,300 296,600

225,600 532,700

Earnings per share

$ 2.60

$ 5.01

$ 9.20

Exhibit 2
Eskimo Pie Corporation
Consolidated Balance Sheets (in thousands, except share data) Pro Forma December 31* 1991

December 31 1990 ASSETS Current assets: Cash and cash equivalents Receivables: Customers, less allowance of $75 in 1991 and $98 in 1990 Other 1991

$13,191 2,091 491 2,582 3,729 633 20,135

$12,990 2,058 434 2,492 2,713 340 18,535

$190 2,058 434 2,492 2,713 340 5,735

Inventories Prepaid expenses Total current assets Property, Plant and equipment: Land Buildings Machinery and equipment Equipment rented or loaned to customers Construction in progress Less accumulated depreciation

251 3,535 7,009 2,063 924 13,782 (6,550) 7,232 2,151 $29,518

260 3,952 8,098 2,232 1,413 15,955 (7,981) 7,974 2,282 $28,791

260 3,952 8,098 2,232 1,413 15,955 (7,981) 7,974 2,282 $15,991

Other assets Total Assets LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities: Accounts payable Accrued advertising and promotion Accrued compensation Other accrued expenses Payable to parent Income taxes due parent Long-term debt maturing within one year Total current liabilities Long-term debt Pension liability Deferred income taxes Stockholders equity: Preferred stock $1 par value, 1,000,000 shares authorized, none issued and outstanding Common stock $1.00 par value, 10,000,000 shares authorized, 3,316,478 issued and outstanding Additional paid in capital Retained earnings Foreign currency translation Total stockholder's equity Total Liabilities plus Stockholder's Equity * Pro Forma represents the hypothetical effect on Eskimo Pie's Balance Sheet if the company had paid a special $4.52 per dividend at the end of 1991.

$1,664 3,467 885 343 336 1,530 175 $8,400 569 403 650

$1,442 1,395 1,389 514 298 175 $5,213 394 0 619

$1,442 1,395 1,389 514 298 175 $5,213 2,594 0 619

0 3,316 2,434 13,665 81 19,496 $29,518

0 3,316 2,434 16,751 64 22,565 $28,791

0 3,316 2,434 1,751 64 7,565 $15,991

Exhibit 3
Eskimo Pie Corporation
Consolidated Statements of Income (In thousands, except share data) Pro Forma December 31* 1991

Year ended December 31 1989 1990 1991

Net sales Cost of products sold Gross profit

46,709 31,957 14,752

47,198 31,780 15,418

$ 60,955 35,889 25,066

60,955 35,889 25,066

Advertising and sales promotion General and administrative Operating Income

5,030 6,394 3,328

5130 7063 3,225

11,809 7,660 5,597

11,809 7,660 5,597

Interest income Interest expense Other expense - net

801 (88) (108)

1004 (67) (20)

933 (48) (371)

103 (178) (371)

Profit before Tax

3,933

4,142

6,111

5,151

Income taxes: Federal State Deferred 1,046 215 250 1,511 Net Income $ 2,422 $ 1,363 311 (58) 1,616 2,526 $ 1,835 389 138 2,362 3,749 $ 1,487 367 138 1,992 3,159

Weighted average number of common shares outstanding

3,316,478

3,316,478

3,316,478

3,316,478

Net income per share Effective tax rate

$ 0.73 38.40%

$ 0.76 39.00%

$ 1.13 38.70%

$ 0.95 38.7%

* Pro Forma represents the hypothetical effect on Eskimo Pie's Income Statement if the company had paid a special $4.52 per dividend at the end of 1991.

Exhibit 4

Eskimo Pie Corporation

Consolidated Statements of Cash Flows (thousands) Year Ended December 31 1989 Operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Depreciation Amortization Deferred income taxes Pension liability and other Decrease (increase) in receivables Decrease (increase) in inventories and prepaid expenses Increase (decrease) in payable to parent Increase (decrease) in accounts payable and accrued expenses Net cash provided by operating activities Investing activities Capital expenditures Other Net cash used in investing activities 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 the 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 (663) (175) (838) (201.00) 13191 $ 12,990 $ 2,422 $ 2,526 $ 3,749 1990 1991

1,006 175 250 (154) 1,212 (524) 2,065 143 6,595

1,352 118 (58) (156) (734) (51) (621) 3,006 5,382

1,635 98 138 (429) 90 1140 (1568) (1619) 3234

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

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

(2377) (220) (2,597)

Exhibit 5

Eskimo Pie Corporation

Holders of Common Stock Holder Reynolds Metal Reynolds Metal Company Foundation Eskimo Pie Officers and Directors Reynolds family members Total # of Shares 2,788,589 137,500 44,237 346,152 3,316,478 % of Total 84.1% 4.1% 1.3% 10.4% 100.0%

Exhibit 6

Eskimo Pie Corporation

Executive Officers and Directors of the Company Name (and age) David V. Reynolds (76) David V. Clark (52) William M. Farris George F. Murphy, III (40) Daniel J. Lohss (55) Carl D. Hornbeak (52) Ricard Holder (60) R. Bern Crowl (60) Yale M. Brandt (61) Randolph Reynolds (50) William Reynolds (52) Title Chairman of the Board and CEO; Director President and COO; Director Vice President and Treasurer; Director Vice President; Marketing Vice President, Sales Vice President, Operations Director Director Director Director Director Number of shares owned

1,500 2,004

12

William Reynolds and Randolph Raynolds are co-trustees with others of a trust that holds 40,721 shares, or 1.2% of Eskimo Pie common stock.

Exhibit 7 Eskimo Pie Corporation

Related Party Transactions (thousands)
Year ended December 31 Sales Purchase of materials Purchase of machinery and equipment Employee benefit programs Insurance Administrative charges and other $ 1991 1,082 $ 1,275 552 1,220 186 158 1990 1,469 $ 1,784 357 838 185 147 1989 1,275 2,629 588 798 152 130

Exhibit 8
Proposed special dividend payout funding

Total shares issued Dividend per share Total special dividend payout From cash balance Borrowing

3,316,478 $4.52 $ 14,990,481 $ 12,800,000 $ 2,190,481

Exhibit 9

Hypothetical Proceeds to Reynolds from IPO IPO Share Price (net of issue costs) Number of shares held by Reynolds Proceeds to Reynolds Reynolds' portion of special dividend Total Proceeds to Reynolds Metals $14 2,926,089 $ 40,965,246 $ 13,225,922 $ 54,191,168 $15 2,926,089 $ 43,891,335 $ 13,225,922 $ 57,117,257 $16 2,926,089 46,817,424 13,225,922 60,043,346

$ $ $

Exhibit 10

Competitors' Selected Financial Data as of December 31, 1991 ($,000)

Company (1) (2) (3) (4) (5) (6) (7) (8)

Market Value of Equity Firm Value1 Sales EBITDA3

Book Value of Equity

Book Value of Debt

Cash and Cash Equivalents

Firm Value Excluding Cash2

EBIT (9)

Net Income (10)

Equity Beta

Asset Beta4

(11)

(12)

Ben and Jerry's 534,000 51,400 37,400 826,909 416,560 149,980 44,087 976,889 11,008 3,059 1,051 40,459 45,006 89,770 1,619 141,170 139,551 39,408 932,802 113,129 44,289 2,590 578,289 575,699

110,100

26,300

2,787

6,704

112,887

106,183

96,997 354,918 243,141 35,058 2,157,997

10,200 38,176 39,869 4,023 182,873

7,240 29,253 26,921 3,164 135,905

3,739 15,850 8,756 1,824 72,533

1.27 1.26 0.36 2.27 0.84

1.25 1.20 0.18 2.16 0.76

Dreyer's

Empire of Carolina

Steve's Homemade Ice Cream Inc.

Dean Foods

Eskimo Pie Corp. (EPC) NA 7,565 2,594 190

NA

22,565

394

12,990

NA NA

NA NA

60,955 60,955

7,330 7,330

5,597 5,597

3,749 3,159

NA
NA

NA NA

EPC pro forma after $15 M. dividend payout

(5) = (1) + (3). (6) = (5) - (4). 3 EBITDA calculation is derived by summing operating income, depreciation and amortization. 4 Assuming tax rate of 40%.

Exhibit 11

Selected Financial Market Data, December 31, 1991

Treasury Yields 13 weeks Six months One year Five year Ten year Thirty year 4.01% 4.06% 4.41% 6.13% 7.09% 8.00%

Corporate Yields AA A BBB BB B Prime rate Prime commercial paper (90 days) 8.74% 9.27% 9.56% 11.44% 14.68% 6.50% 4.33%