SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File Number
March 31, 1995 No. 0-13943
STOKELY USA, INC.
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(Exact name of registrant as specified in its charter)
WISCONSIN 39-0513230
- - ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1055 Corporate Center Drive, Oconomowoc, WI 53066
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(Address of principal executive office)
Registrant's telephone number, including area code: (414) 569-1800
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.05 par value
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(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K X
-----<PAGE>
State the aggregate market value of the voting stock held by non-affiliates
of the registrant as of June 15, 1995: $65,127,036
Common Stock, $.05 par value
Number of shares of Common Stock, $.05 par value, outstanding as of
June 15, 1995 - 11,326,441
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement to be dated June 26, 1995 (Part
III).
Page No. 2 of 68 pages
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IN ACCORDANCE WITH RULE 201 OF REGULATION S-T, THE EXHIBITS ARE BEING FILED
IN PAPER PURSUANT TO A TEMPORARY HARDSHIP EXEMPTION AND IN ACCORDANCE WITH
RULE 201 WILL BE ELECTRONICALLY FILED SUPPLEMENTALLY.
<PAGE>
PART I
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ITEM 1. BUSINESS
- - -----------------
(a) General Development of Business
-------------------------------
Stokely USA, Inc. is a domestic producer of canned and frozen vegetables.
The Company processes, markets and sells a broad range of vegetables under
customer private labels and under the Stokely's Finest Label, Stokely's
Gold label and other brand labels through the retail, foodservice and
industrial channels of distribution. The Company is a large processor of
private label canned vegetables in the United States, selling to many major
supermarket chains, and to many food wholesalers. The Company is also an
exporter of canned vegetables to Europe and Asia.
Industry Conditions and Price and Volume Fluctuations
- - -----------------------------------------------------
The Company's financial performance and growth are related to conditions in
the vegetable processing industry. The United States vegetable processing
industry is a mature industry, with a relatively modest .7% compounded
annual growth rate from 1988 to 1994. The Company's net sales are a
function of product availability and market pricing. In the vegetable
processing industry, product availability and market prices tend to have an
inverse relationship: market prices tend to decrease as more product is
available, whereas if less product is available, market prices tend to
increase. Product availability is a direct result of plantings, growing
conditions, crop yields and inventories, all of which vary from year to
year. In addition, price can be affected by the planting, inventory level
and individual pricing decisions of the three or four largest processors in
the industry. Generally, the market prices in the vegetable processing
industry tend to adjust more quickly to variations in product availability
than an individual processor can adjust its cost structure; thus, in an
over-supply situation, a processor's margins likely will weaken, as
suppliers generally are not able to adjust their cost structure as rapidly
as market prices adjust for the over-supply. The Company typically has
experienced lower margins during times of industry over-supply. There can
be no assurance the Company's margins will improve in response to favorable
market conditions or that the Company will be able to operate profitably
during depressed market conditions.
Seasonality and Quarterly Fluctuations
- - --------------------------------------
The Company's operations are affected by the growing cycle of the
vegetables it processes. Most of the Company's production occurs during
the second quarter of each fiscal year (due to the timing of crop
production and climate conditions) and a majority of sales occurs during
the third and fourth quarters of each fiscal year (due to seasonal
consumption patterns for its products). Accordingly, inventory levels are
highest during the second and third quarters, and accounts receivable<PAGE>
levels are highest during the fourth quarter. Net sales generated during
the third and fourth quarter of each fiscal year have a significant impact
on the Company's results of operations. Because of seasonal fluctuations,
there can be no assurance that the results of any particular quarter will
be indicative of results for the full year or for future years.
The Vegetable Processing Industry
- - ---------------------------------
The processed canned and frozen vegetable industry in the United States
currently accounts for an estimated $7.5 billion in sales per year and is
estimated to be growing at a rate of .7% per year. In addition, an
estimated 98% of households in the United States purchased canned
vegetables in 1989. The canned vegetable market, the Company's primary
market, represented an estimated $3.0 billion in annual sales in 1993. Of
the canned vegetable market, the private label channel of distribution
accounts for approximately 35% of the canned vegetable industry's total
retail sales.
The vegetable processing industry is characterized by several large
producers, but also includes a number of smaller independently owned
producers. In general, the canned and frozen processed vegetable industry
is mature and capital intensive, and, as such, there have been few entrants
into the market in recent years. Over the past ten years, the Company
believes the industry has been characterized by plant reduction and
consolidation.
The pricing structure in the canned and frozen vegetable processing
industry is dependent upon the supply of agricultural products and is
subject to the variable nature of agricultural production. Selling prices
of canned and frozen products are a direct result of industry product
supply, which correlate to plantings, growing conditions and inventories.
A year of high supply generally results from two critical factors. First,
inventory carryover levels provide processors with an indication of which
markets might be short on product and, therefore, might hold the best
promise for favorable price trends. Declining carryovers typically
encourage processors to expand acreage devoted to a particular crop in
anticipation of higher prices. Second, weather impacts total production
through its influence on yield per acre. Favorable growing conditions
typically boost yield per acre and, therefore, total production.
Unfavorable growing conditions have the opposite effect. Weather impacts
not only crop size, but also crop quality.
Increased plantings and improved growing conditions caused over-supply in
the vegetable market during fiscal 1992 and 1993, forcing industry prices
and margins downward. During the latter part of fiscal 1993 and continuing
into fiscal 1994, market prices improved due to reduced plantings,
unfavorable growing conditions and the consequential effects on supply and
pricing. These favorable market price conditions continued during the
first quarter of fiscal 1995, but industry prices declined the balance of
fiscal 1995 in response to record production in the summer of 1994 and
competitive market situations, including unanticipated individual pricing
decisions by a few of the large processors in the industry.
<PAGE>
Restructuring Program
- - ---------------------
Prior to fiscal 1993, the Company's principal business strategy had been
to increase revenues by expanding sales of its brand products and by
developing, through acquisitions, a significant frozen vegetable
business. At the time, the Company believed that the brand vegetable
market and frozen vegetable market tended to have higher margins than the
Company's private label business and would help smooth out the price
fluctuations inherent in the vegetable processing industry. This
strategy, however, significantly increased the Company's operating
expenses and as a result its operating margins began to deteriorate in
fiscal 1991. Furthermore, the Company's acquisitions and capital
expenditures were funded primarily by debt, which increased the Company's
leverage and interest expense. In the early 1990s, average selling
prices in the processed vegetable industry declined dramatically. The
Company experienced a 7.8% selling price decline in fiscal 1991, an 8.5%
decline in fiscal 1992 and a 5.9% decline in fiscal 1993. Stokely's
strategy at that time, together with unfavorable market conditions,
resulted in net losses (after-tax) for fiscal 1992 and 1993 of $9.9
million and $31.1 million (including a restructuring charge of $14.7
million), respectively. Commencing in June of 1992, the Board of
Directors of the Company made significant management changes and adopted
a new strategy. The new management team determined that in order to
implement the new strategy, restructuring was necessary.
Under the direction of the new management team, the Company undertook a
number of restructuring measures, including consolidating production at
larger, more efficient facilities, eliminating certain low margin or
unprofitable product lines, reducing operating overhead and lowering
interest expense through debt reduction. As part of such restructuring,
the Company recorded in fiscal 1993 a non-recurring restructuring charge
of $14.7 million ($21.1 million pre-tax) relating to the write-down of
the eight processing plants to be sold, closed or downsized and the costs
associated therewith, including provisions for severance, consolidation
costs and plant closing costs, and the write-down of inventory of
discontinued product lines. In particular, the Company redefined its
core products as corn, green beans, peas and root crops produced in the
Midwest and Northwest, and exited the canned tomato and fruit product
lines and southern frozen vegetable lines, including frozen broccoli,
okra and cauliflower. Stokely also eliminated certain marginally
contributing channels of distribution and facilities in its frozen
vegetable business. Finally, the Company's general and administrative
workforce was reduced by 25% between the end of fiscal 1992 and the end
of fiscal 1994. During fiscal 1994, the Company completed the major
portion of its restructuring plan by (i) selling two canning plants and
two freezing plants; (ii) closing and consolidating the operations of an
additional canning plant with an existing plant; (iii) closing a freezing
plant that focused on retail products; and (iv) downsizing two other
plants. The Company intends to sell its two remaining closed plants.
<PAGE>
Primarily as a result of the restructuring program, the Company's fixed
manufacturing expense component of costs of products sold and fixed
selling, general and administrative expenses have declined from levels
experienced in fiscal 1992. In addition, from the beginning of fiscal
1992 to March 1995 the Company's full-time employee seasonal workforce
has been reduced due to the closing or downsizing of processing plants
affected by the restructuring initiatives. The Company's total debt was
also reduced as the net proceeds from the sale of processing plants and
liquidation of discontinued inventories were used to pay down outstanding
debt.
Business Strategy
- - -----------------
In fiscal 1993, the Company began to implement a new business strategy
designed to enhance its position in certain markets and products and to
facilitate the Company's ability to achieve a consistency of earnings
over time. The key elements of the strategy are as follows:
- FOCUS ON CORE PRODUCT LINES. The Company has narrowed its product
focus to product lines in which it has significant market share - corn,
green beans, peas and root crops - and eliminated several unprofitable
non-core lines, including the canned tomato and fruit product lines and
southern frozen vegetables. This focus has allowed the Company to reduce
its fixed manufacturing and administrative expenses and its variable
costs per unit in an industry generally characterized by a high ratio of
variable to fixed costs.
- EMPHASIZE THE PRIVATE LABEL CHANNEL OF DISTRIBUTION. Since fiscal
1992, the Company has placed significant emphasis on its presence in the
private label channel of distribution. Private label has been the
Company's primary distribution channel since it was established in 1920,
and the Company currently holds a leading market share in this channel.
In addition, the Company does not believe the three largest industry
suppliers currently are emphasizing the private label channel of
distribution. The Company's operating margins in private label are
generally higher than the margins realized in its brand products business
because of lower selling and support expenses. Other advantages of
increasing its share position in the private label market in addition to
sales growth include greater operating efficiency, supplier leverage,
channel influence and cross-selling opportunities. The Company believes
that opportunities exist to achieve share growth in this channel on an
internal basis and through selective mergers or acquisitions.
- MAINTAIN THE COMPANY'S BRAND MARKET SHARE WHILE PURSUING CHANGES IN
PRODUCT MIX. The Stokely's Finest brand is one of the major brands in
its primary brand geographic area of distribution, the southeastern
United States. The Company has maintained its brand position while
rationalizing its product line, including a 25% reduction in the number
of stock keeping units (SKUs) over the last three years. The Company
believes that opportunities exist to enhance consumer recognition of its
brand names and to selectively expand its brand product lines by
developing new brand specialty products.<PAGE>
- PURSUE GROWTH OPPORTUNITIES IN FOREIGN MARKETS. Exports of
processed vegetables represent a growing channel of distribution in the
processed vegetable industry. The Company believes that its strengths as
a leading U.S. canned corn producer and a major exporter create
opportunities for the Company to expand its export sales. The Company
has achieved a significant market share in exports to Germany and
Scandinavia and intends to increase its emphasis on expanding export
sales to Eastern Europe, Asia, Canada and Mexico.
- IMPROVE EFFECTIVENESS AND EFFICIENCY OF FROZEN VEGETABLE BUSINESS.
In order to increase its profit margins in the frozen vegetable business,
the Company has downsized its frozen vegetable operations following a
period of rapid expansion and redirected its sales to industrial
customers. The Company generally has been able to generate higher
margins on its industrial sales due to decreased packaging and
promotional expenses associated with sales of frozen products in bulk.
The Company plans to continue to increase its presence in this channel
through the addition of new customers, and to increase its leading
position in certain higher margin specialty products, while remaining one
of the major players in frozen corn production, the leading category item
in the frozen vegetable market.
<PAGE>
(b) Financial Information about Products Groups
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The Company cans, freezes and sells a variety of vegetables. Its
principal products are corn, green beans, peas and root crops, including
carrots, beets, mixed vegetables and potatoes. Other products processed
and marketed by the Company include sauerkraut, processed dry beans and
pumpkin, supplemented by purchased items such as asparagus, which is
packed for Stokely by others under contractual co-pack arrangements. The
following table shows, for each of the last three fiscal years, the
amount and percentage of net sales for each of the Company's principal
raw product groups.
<TABLE>
Fiscal Year Ended March 31,
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1995 1994 1993
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<CAPTION>
Net Net Net
Sales Percent Sales Percent Sales Percent
----- ------- ----- ------- ----- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Canned Vegetables:
Corn.................. $ 67,500 29.2% $ 67,400 26.3% $ 78,400 27.8%
Green beans........... 40,000 17.3 41,500 16.2 35,800 12.7
Peas.................. 20,500 8.9 20,100 7.9 23,100 8.2
Root crops............ 13,800 6.0 14,700 5.7 13,900 5.0
Other................. 33,300 14.3 32,000 12.5 47,200 16.8
-------- ----- -------- ---- -------- ----
Total canned vegetables 175,100 75.7 175,700 68.6 198,400 70.5
Frozen Vegetables:
Corn.................. 22,200 9.6 24,700 9.7 19,600 7.0
Peas.................. 11,100 4.8 13,400 5.2 8,100 2.9
Other................. 23,000 9.9 42,300 16.5 55,300 19.6
-------- ----- -------- ----- -------- -----
Total frozen vegetables 56,300 24.3 80,400 31.4 83,000 29.5
-------- ----- -------- ----- -------- -----
Total canned and frozen
vegetables $231,400 100.0% $256,100 100.0% $281,400 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
<PAGE>
(c) Narrative Description of Business
---------------------------------
Canned Vegetables
- - -----------------
The Company produces ten different canned vegetable products, each in
numerous varieties, styles and quality grades, and utilizes seven
different can sizes and three different glass jar sizes. Each vegetable
product is produced and sold in three to seven quality grades, which are
mainly defined by maturity of the raw product. The highest grades
typically are used for premium private label products and Stokely's Gold
brand label products. The lower grades typically are used by customers
who emphasize price value. The Company uses a white-lined can for most of
its brand products.
By supplying all major can sizes in all major Midwest-type vegetables in a
variety of styles, mixtures and features, as well as supplying certain
other vegetables purchased for resale as accommodation items, the Company
is a "full-line" or "turn" supplier to its customers. "Turn" business
refers to supplying a broad line of products to a retailer on a regular
basis principally in single shipments, to support that retailer's everyday
needs. "Turn" business typically is sold at higher prices than "promotion"
business, which usually consists of a large quantity of various items.
The Company's product development efforts are designed to respond to
customer needs and emerging markets and to create more demand for its
vegetable products by focusing on new varieties, styles and mixtures. The
Company produces to order for certain customers based on their product
specification demands. In addition, in recent years, the Company has
developed and now offers no-salt versions of many of its vegetable
products. The Company also has introduced new mixtures and varieties.
CORN. Corn is the Company's leading product, as measured by both sales
dollars and volume. Based on industry data, in 1993, the Company was one
of the largest producers of canned corn products in the United States,
producing approximately 13% of all canned corn sold by United States
processors. The Company's canned corn consists of various varieties
(super sweet, Gold'n White, Shoepeg White Corn and traditional) and styles
(whole kernel, cream style, mixtures and no-salt versions). During fiscal
1995, approximately 55% of the Company's canned corn was sold to the
private label industry, 23% was sold under the Company's brand label, with
an 99emphasis on special varieties for the Stokely's Gold label, and 22%
was sold to the foodservice industry. The Company's corn for canned
products is grown primarily in Wisconsin, Minnesota, Illinois and Iowa.
GREEN BEANS. Green beans are the Company's second highest volume product.
Based on industry data, in 1993, the Company was one of the larger
producers of canned green bean products in the United States, producing
approximately 10% of all canned green beans sold by United States
processors. The Company's canned green beans consist of various varieties
(Italian flat pod beans and European slender whole green beans) and styles
(cut, french style and whole). During fiscal 1995, approximately 36% of
the Company's canned green beans were sold under the Company's brand
label, 35% were sold to the private label industry and 29% were sold to
the foodservice industry. The Company's green beans are grown primarily
in Wisconsin and Michigan.
PEAS. Based on industry data, in 1993, the Company was one of the larger
producers of canned peas in the United States, producing approximately 15%
of all canned peas sold by United States processors. The Company's canned
peas consist of various varieties (early maturing, small berry, large
berry and various mixtures) and styles, including no-salt versions.
During fiscal 1995, approximately 53% of the Company's canned peas were
sold to the private label industry, 29% were sold under the Company's
brand labels and 18% were sold to the foodservice industry. The Company's
peas are grown primarily in Wisconsin and Minnesota.
ROOT CROP VEGETABLES. The Company's root crop vegetables consist of
carrots, beets, mixed vegetables and potatoes, all of which are grown
primarily in Wisconsin. The Company occasionally will source root crop
vegetables from various Southern states, to assure the Company has a
continuous supply. Based on industry data, in 1993, the Company sold
approximately 10% of all canned root crop vegetables sold by United States
processors. The Company's root crop vegetable products consist of various
varieties (based on count and mix) and styles (whole, sliced, crinkled
slices and waffle slices). During fiscal 1995, approximately 40% of the
Company's canned root crop vegetables were sold to the private label
industry, 39% were sold to the foodservice industry and 21% were sold
under the Company's brand labels.
OTHER VEGETABLES. The Company also cans and sells various other
vegetables, including pumpkin, processed dry beans (pinto, kidney, pork'n
beans and garbanzo beans) and sauerkraut. During fiscal 1995,
approximately 57% of the Company's other vegetables were sold to the
foodservice industry, 30% were sold to the private label industry and 13%
were sold under the Company's brand labels. The Company has a major share
of private label pumpkin sales in both retail and foodservice markets.
Processed dry beans, such as canned kidney beans, pork'n beans, pinto
beans and garbanzo beans, are processed year-round, and have a consumption
pattern counter-seasonal to traditional Midwest items.
Frozen Vegetables
- - -----------------
Most of the Company's frozen vegetable products are sold through the
industrial channel of distribution in bulk quantities. The Company also
sells a small amount of its frozen vegetable products to the private label
industry, the foodservice industry and as exports.
Each frozen vegetable is produced, frozen and sold in three to eight
quality grades, which are mainly defined by maturity of the raw product.
The frozen vegetable products sold through the industrial channel of
distribution are sold primarily in bulk size quantities, while sales to
the private label, foodservice and export markets are packaged in bulk and
in individual boxes and polybags. The Company's vegetables for its frozen
products are grown primarily in Washington.<PAGE>
CORN. The Company's frozen corn consists of various varieties (super
sweet, jubilee and white) and styles (cob corn, cut corn and blends).
During fiscal 1995, approximately 75% of the Company's frozen corn was
sold through the industrial channel of distribution, 13% was sold to the
foodservice industry and 12% was sold to the private label industry.
PEAS. The Company's frozen peas consist of various varieties (regular
size and petite) and styles. During fiscal 1995, approximately 71% of the
Company's frozen peas were sold through the industrial channel of
distribution, 23% were sold to the private label industry and 6% were sold
to the foodservice industry.
OTHER VEGETABLES. The Company also freezes and sells various other
vegetables, including sugar snap peas, carrots, pearl onions and lima
beans. The Company is a leading United States producer of frozen sugar
snap peas. These other vegetables are sold in different varieties and
styles. During fiscal 1995, approximately 80% of the Company's sales of
other frozen vegetables were sold through the industrial channel of
distribution, 11% were sold to the foodservice industry and 9% were sold
to the private label industry.
Customers, Marketing and Sales
- - ------------------------------
General
- - -------
The Company markets and sells its canned and frozen vegetable products
under private labels and its brand labels for home use, and also to the
foodservice industry, including restaurants, fast food chains, hospitals,
schools and the military, and to industrial accounts. The Company is a
leading processor of private label canned vegetables in the United States,
and sells to many major supermarket chains and other food distributors who
market the products under their own label. The Company also processes and
markets its vegetable products under the Stokely's Finest, Stokely's Gold
and other brand labels to grocery wholesalers and grocery chain stores.
The Company's foodservice sales involve sales, generally in large
containers, directly to or through foodservice distributors, to purchasers
of food products such as the United States government, fast food chains,
restaurants and hospitals. The Company also sells its vegetable products
to industrial customers who either blend, repack or use the Company's
vegetable products as an ingredient.
<PAGE>
The following table shows the net sales and percentage of total net sales
contributed by the Company's brand label, private label, foodservice and
frozen sales accounts for each of the last three fiscal years.
<TABLE>
Fiscal Year Ended March 31,
<CAPTION>
--------------------------------------------------------------
1995 1994 1993
------------------ ---------------- -----------------
Net Net Net
Sales Percent Sales Percent Sales Percent
----- ------- ----- ------- ----- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Private label.<F1>....... $ 77,600 33.6% $ 82,700 32.3% $ 89,400 31.8%
Brand label.<F2>......... 53,300 23.0 49,100 19.2 61,100 21.7
Foodservice.<F3>......... 44,200 19.1 43,900 17.1 47,900 17.0
Frozen (industrial and
other).<F4>............. 56,300 24.3 80,400 31.4 83,000 29.5
-------- ----- -------- ----- -------- -----
Total................... $231,400 100.0% $256,100 100.0% $281,400 100.0%
======== ===== ======== ===== ======== =====
<FN>
<F1> Of the Company's total private label sales shown above, export sales totalled $16.5
million, $13.6 million and $10.9 million for fiscal 1993, 1994 and 1995,
respectively.
<F2> Of the Company's total brand label sales shown above, export sales totalled $2.2
million, $1.0 million and $.6 million and U.S. government sales (including sales
through military commissaries) totalled $6.9 million, $6.1 million and $1.8 million
for fiscal 1993, 1994 and 1995, respectively.
<F3> Of the Company's total foodservice sales shown above, U.S. government sales totalled
$12.8 million, 9.7 million and $8.2 million for fiscal 1993, 1994 and 1995,
respectively.
<F4> Sales to industrial accounts accounted for $58.0 million, $57.0 million and $41.0
million of total frozen sales shown for fiscal 1993, 1994 and 1995, respectively.
</FN>
</TABLE>
For the fiscal year ended March 31, 1995, no single customer accounted for
more than 7% of the Company's total sales.
Private Label Sales
- - -------------------
The Company's private label sales involve sales to major supermarket
chains and other food distributors who market the products under their own
labels. Most of the Company's private label sales are canned vegetable
products, although the Company sells a limited amount of frozen private
label products. The Company is the leading supplier of Midwest-type
canned vegetables (such as corn, green beans, peas and root crops) to the
grocery private label industry, with significant private label canned corn
sales.
Private label sales are made through the Company's wholly-owned
subsidiary, Oconomowoc Canning Company, Inc. Approximately 80% of private
label sales are made through commissioned brokerage representatives, while
the remaining 20% are made direct to the customer. The Company's private
label division's primary responsibilities include selling private label
products, ensuring customer satisfaction, managing inventories and gaining
new customers and distribution. The division includes three sales
managers and a national sales manager who is the Vice President of
Oconomowoc Canning Company, Inc.
Customers include most major grocery wholesalers and chains. Customer and
market development efforts focus primarily on helping customers lower
costs of buying, receiving and merchandising canned vegetables through a
combined "partnering" approach which involves the Company's sales force
meeting with key customer representatives from various divisions within
the customer's organization to develop a joint logistics plan.
Development efforts also include increasing profitability by targeting
higher price/quality-seeking customers in an attempt to benefit from the
emerging upscale private label market.
Brand Label Sales
- - -----------------
The Company's brand label division sells brand canned vegetables to
grocery wholesalers and chains. The products primarily include a complete
line of Midwest-type vegetables sold under the Stokely's Finest brand
name, and also include products sold under the premium Stokely's Gold
brand and other regional labels. Products sold under Stokely's brand
labels are marketed through independent food brokers who sell on a
commission basis and provide local marketing and service support to their
distributors. The Company's sales of brand label products have declined
from $61.1 million, or 21.7%, of total sales during fiscal 1993 to $49.1
million, or 19.2%, of total sales during fiscal 1994. The decline was due
primarily to the discontinuance of certain low margin or unprofitable
product lines as part of the Company's restructuring program. The
increase to $53.3 million, or 23.0% of total sales, in fiscal 1995 was due
to increased inventory availability.
The Stokely's Finest brand label sales accounted for approximately 10% of
total industry brand canned sales in the Midwest and Southeast United
States in 1993, the Company's primary brand geographic area of
distribution. Sales volume under the Stokely's Gold program, a premium
line of unique vegetable varieties has nearly doubled from fiscal 1991 to
fiscal 1995.
The Company sells its brand label products through a broker network under
the direction of Stokely's regional sales manager. Approximately 40
independent food brokers operate in Stokely's major metropolitan markets.
This broker network focuses upon gaining display, advertising and other
retailer support, in addition to ensuring customer satisfaction and
developing the customer base. Marketing efforts include television
advertising and print media-delivered promotions in major markets.
Initiatives that help customers increase their category profitability
include the Stokely's Gold program (with the principal advantage of higher<PAGE>
margins for both the Company and its customers) and joint brand-private
label shipping options (with the competitive selling point of higher
inventory turns and lower average inventories for the customer). These
initiatives are instrumental in maintaining shelf presence and customer
support.
Foodservice Sales
- - -----------------
Foodservice sales are made, generally in larger containers, directly to or
through foodservice distributors, to purchasers of food products such as
the United States government, fast food chains, restaurants and hospitals.
Most foodservice sales are made through commissioned brokerage
organizations. Sales efforts are managed by a Director of Foodservice
Sales who is supported by three sales managers for the commercial market.
The Company's largest single customer in foodservice sales is the U.S.
government.
Approximately 75% of the Company's canned foodservice sales are private
label, primarily to large corporate distributors and large buying groups.
Foodservice distributors then sell to restaurants, schools and hospitals.
Contact with foodservice distributors also cultivates relationships with
national chain restaurant accounts, a growing part of the Company's
foodservice business. The Company has a strong position in corn
(accounting for foodservice sales of $13.5 million in fiscal 1995, which
would have been approximately 16% of estimated total industry foodservice
sales in 1993), a growing position in canned pumpkin, and a growing
position as a supplier to national chain restaurant accounts.
Frozen Sales
- - ------------
The Company's frozen sales principally involve sales to industrial
customers that either blend, repack or use the vegetable products as an
ingredient. National restaurant chains are another large customer in
frozen sales. The frozen sales division of the Company has been
restructured and downsized to emphasize profitable products and channels.
Frozen product sales are managed by the Vice President of Frozen Sales.
The frozen product sales team focuses on industrial and national chain
foodservice business, with a smaller presence in export sales and retail
sales that can be efficiently serviced from the Company's Northwest
operations. The sales group emphasizes direct sales, without broker
commissions, to large corporate bulk customers.
<PAGE>
Advertising, Promotion and Customer Service
- - -------------------------------------------
The Company's marketing effort is led by a marketing group that also is
responsible for new product development, new label and package initiatives
and other customer focused innovation projects in all sales divisions.
The customer service and inventory management team also support sales by
ensuring customer orders are filled smoothly and inventory at various
distribution centers remain at adequate levels.
The Company emphasizes responsiveness to customer needs, and the Company
has invested in technology to support its Efficient Customer Response
initiatives. In addition, the Company has developed modular pallets that
allow customers to avoid storage costs by "cross-docking" the pallet
directly to the retail outlet, allowing customers to avoid set-up labor
costs when the product arrives at the retail location. The marketing team
supports all marketing requirements for brand label products, and also
assists other sales groups in supporting customer driven innovation in
services.
The Company supports its brand marketing efforts with regional media
advertising programs, including radio and television commercials, coupon
circulation and newspaper advertisements, in addition to strong emphasis
on in-store point-of-sale promotions. Media advertising is employed to
support the Company's brand sales and is focused in the Midwest and
Southeast United States geographic markets. Private label, foodservice
and industrial sales are not supported by Company media advertising
because the Company produces and labels the product for direct end-user
marketing by the customer.
Sources of Supply
- - -----------------
The Company acquires its raw agricultural products for processing from
independent growers who operate under annual contracts with the Company.
Most raw agricultural production is contracted before the growing season
with farmers who agree to plant and cultivate the crops. This method of
securing raw product has been satisfactory to the Company and its growers,
and the Company has not experienced difficulty in contracting for raw
agricultural products. Contracts are negotiated in late winter for the
upcoming processing season. Contracts specify, among other things, the
type and quantity of raw product to be supplied as well as the price. The
Company has an established base of experienced growers and has experienced
only modest turnover from year to year.
The Company attempts to reduce the agricultural risk of unfavorable
growing conditions by utilizing greater geographic diversity and a higher
proportion of irrigated acreage than its competitors. The Company
currently contracts approximately 110,000 acres in Wisconsin, Minnesota,
Iowa, Illinois, Michigan and Washington, with irrigated acres accounting
for approximately 40% of the total. Contracted acreage is in close
proximity to producing plants due to the perishable nature of the raw
product. Processing generally is performed within several hours of
harvest to assure the best possible product quality.<PAGE>
Stokely field personnel are involved in all phases of crop production.
The Company works closely with major seed companies in the testing of
improved varieties. Desirable traits include superior flavor and color
retention, pest and disease resistance, yield improvement and drought
resistance. Field personnel provide the proper seed variety to the grower
and instruct them on the precise time to plant. This is important to
assure harvest schedules that result in sufficient supplies of raw product
to capture operating efficiencies associated with maximum plant output.
The Company conducts periodic inspections of crops during the growing
cycle and generally performs the actual harvesting for the growers.
The Company utilizes integrated pest management techniques to assure
maximum control of damaging insects while minimizing the use of chemical
control methods. Such techniques include field location selection for
specific crops, rotation patterns, census activity during the growing
season and chemical control only when necessary based on census data.
This results in minimizing insect related damage problems while keeping
chemical control usage well below allowable levels.
Stokely agricultural personnel monitor crop maturation rates utilizing
sophisticated harvest management practices. Maturity is a primary
determinant of product quality and the maturity "window" to meet a
required specification is very narrow. To assure that product is
harvested within this window, the Company directs all harvesting
operations utilizing its own equipment and personnel. In this manner, the
Company maintains proper supplies of raw product entering the processing
facilities at the desired maturity level while minimizing unharvested
acreage.
Cans are a major component in the final product cost for the Company's
canned business, representing approximately one-third of total direct
manufacturing cost. Cans are sourced principally from Ball Corporation,
American National Can and Crown Cork & Seal under contract supply
agreements. The Company has excellent working relationships with its can
vendors and has not experienced difficulty in obtaining adequate supplies
of cans for production. The Company's size allows it to source cans at a
competitive price, which is a significant factor given the importance of
the container cost component to the overall cost structure.
Production and Distribution
- - ---------------------------
The Company operates twelve processing plants, nine of which are dedicated
to canned vegetables and three of which are dedicated to frozen
vegetables. Most of the Company's raw products must be processed within
hours of harvesting to maintain desired product quality, so plants are
located in close proximity to the Company's principal growing areas.
Following harvesting, raw products are transported to the processing
facility where they are sorted, sized, cut or trimmed, washed, inspected
and then canned and cooked or individually quick frozen. In addition to
visual inspection, the Company increasingly relies on electronic
inspection machinery that recognizes and rejects any off-color or
blemished product. The Company's high emphasis on quality assurance
during the production process also includes the grading and inspection of
raw products, inspection of incoming cans, sampling and laboratory testing
of products during production and inspection of finished goods on a sample
basis prior to shipment. Monitoring systems continuously record cooking
times and temperatures as well as freezing temperatures so that each
product is processed according to the precise method proven to yield
consistent quality results and ensure maximum retention of flavor and
texture. The Company employs quality control inspectors at each facility
and four food technologists supervised by the Director of Quality
Management, whose primary responsibilities include quality assurance and
compliance. Technologists also run tests to ensure that all standards for
food safety are met or exceeded.
The Company recognizes that consistent product quality is crucial to the
success of its business and has a formal program in place utilizing Total
Quality Management ("TQM") techniques. These techniques employ
statistical analysis that enable employees to identify problems, gather
and prioritize data, evaluate solutions and implement them. An essential
part of the TQM process relating to production is attribute grading, which
is a statistical product evaluation technique utilized at all of the
Company's plants. From thousands of non-destructive samples taken,
quality assurance personnel are able to observe potentially troublesome
trends developing. Supervisors are alerted who then trace problems to
sources such as seed varieties, growing conditions, bird or insect damage,
harvesting or handling.
Finished products are carefully monitored throughout the handling and
storage process. Frozen vegetables are stored in 1,500 pound bulk
containers and held in temperature controlled warehouses. Packaging of
frozen product into other size containers takes place as orders are
received. Finished canned goods for the Stokely brand are labeled prior
to storage. Private label retail and foodservice finished goods are
stored unlabeled until orders are received. The appropriate customer
label is affixed at that time and the order shipped. The Company
maintains a large inventory of customer-owned can labels to assure rapid
order fulfillment.
In addition to producing quality products, careful storage and efficient
distribution are vital to success. The Company distributes its products
through its two state-of-the-art distribution centers in Wisconsin and
through a network of rented forward warehouses, the largest of which are
in Chattanooga, Tennessee; Indianapolis, Indiana; Orange County,
California; and Tampa, Florida. The Company also ships full loads
directly from its processing facilities. The Company's transportation
personnel are responsible for routing goods from production plants to
regional and consolidating warehouses and finally to customers. Depending
on quantities and distance, finished goods are shipped by rail or truck,
whichever is most cost-effective. The Company's transportation personnel
have negotiated special rail rates for shipments of canned products to
forward distribution centers. As a result, the Company is able to compete
effectively in the large Southern California markets with processors based
in the Northwest region of the United States.
<PAGE>
Management Information Systems
- - ------------------------------
The Company depends upon the accuracy, quality and proper utilization of
its management information systems to effectively manage its business.
The Company has installed both customized and purchased management
information systems operating on an IBM AS/400 computer that allow for
centralized data collection and management of key functions such as
inventory control, accounts receivable, order processing, production
control, sales and distribution, and general accounting. These systems
provide concise and timely information critical to business operations and
are adequate to support current operations. Currently approximately 80%
of the Company's sales are ordered through electronic means.
The Company is seeking to use service innovation as a point of competitive
differentiation. As it develops increasingly sophisticated programs to
bring value to its customers, new demands will be placed on its
information systems. In order to prepare for this, the Company recently
completed an extensive evaluation of its current systems and business
processes and has targeted phased implementation of new core processing
systems beginning in fiscal 1996. The new systems will be more flexible
and are intended to yield greater fact based analysis and decision making
throughout all levels of the Company. This added analytical capability
and flexibility will assist the Company in meeting the increasingly
complex and rapidly evolving needs of its customers. These needs include
vendor managed inventory programs, Executive Information Systems, improved
customer and market region sales management, and additional Electronic
Data Interchange services. Customer service, order entry and distribution
system improvements are the priority for the initial implementation phase
of the new systems.
Competition
- - -----------
All of the Company's products compete with those of other national, major
and smaller regional food processing companies under highly competitive
conditions. The principal factors of competition in the brand and private
label canned vegetable business are price and product quality,
availability of a broad line of products, timely delivery, and customer
service and satisfaction. An additional competitive factor for the
Company's brand canned products is consumer demand as developed through
expenditures on advertising, sales promotion and maintenance of retail
shelf space. The principal factors of competition in the Company's frozen
vegetable business, which primarily involves sales to industrial
customers, are price, product quality differentiation and customer
service.
Three of the Company's major competitors in the brand market, Del Monte,
Green Giant and Dean Foods, have greater financial and marketing resources
than the Company. The Company believes it can compete effectively in the
canned vegetable business by focusing on private label retail sales and
core brand products, delivering consistent product quality, meeting
customer service expectations, continuing to improve the Company's cost
structure and focusing on capital expenditures on quality and service
innovations.<PAGE>
The Company's principal competitors in the private label canned business
are major and smaller regional companies, including Friday Canning Co.,
owned by Chiquita Brands. The Company's major competitors in the
international export market are Friday Canning Co., Green Giant and Dean
Foods, most of whom are larger and have greater resources than the
Company. To date, the Company believes its major competitors have not
placed significant emphasis on the private label channel of distribution.
However, should such competitors in the future increase their emphasis on
the private label channel of distribution, the Company's results of
operations may be adversely affected.
Trademarks
- - ----------
In the course of its business, the Company uses various trademarks, trade
names and service marks in the packaging and advertising of its products.
"Stokely's Finest" is a registered United States trademark and is
significant to the Company. Stokely's ability to compete in the brand
product vegetable market depends in part upon having a nationally
recognized trademark. Some of the Company's other registered United
States trademarks include "School Days," "Chef's Best," "Hart," "Our
Favorite," "Shellie," "Sweet & Sour Kraut" and "Meeter's Sauerkraut,"
"Stokely's Crisp'n Sweet Corn" and "Stokely's Gold" are registered United
States trademarks on an intent-to-use basis, and Stokely has a common law
rights to "Bavarian Style." While important, none of these other
trademarks are as significant to the Company's business as "Stokely's
Finest."
Regulations
- - -----------
The Company is subject to regulation by the Food and Drug Administration,
the United States Department of Agriculture, the Federal Trade Commission,
the Environmental Protection Agency and various state agencies with
respect to the production, packaging, labeling and distribution of its
food products, and believes it is in material compliance with all
applicable rules and regulations of such federal and state agencies. The
principal federal laws that regulate the Company with respect to the
production, packaging, labeling and distribution of its food products
include: (i) the Food, Drug and Cosmetic Act of 1938, which ensures that
foods are produced under sanitary conditions and are properly labeled;
(ii) the Federal Insecticide, Fungicide and Rodenticide Act, which ensures
that pesticides used on food are registered with and approved by the
Environmental Protection Agency; (iii) the Fair Packaging and Labeling
Act, which regulates trade practices and requires that consumers receive
accurate information regarding the quality and value of products; (iv) the
National Label Education Act, which regulates information which must be
included in food labels; and (v) the Federal Trade Commission Act, which
regulates methods of competition, advertising and trade practices.
<PAGE>
The disposal of solid and liquid vegetable waste material resulting from
the preparation and processing of foods is subject to various federal,
state and local laws and regulations relating to the protection of the
environment. While the Company cannot predict with certainty the effect
of any proposed or future environmental legislation or regulations on its
processing operations, Stokely believes the waste disposal systems which
are now in operation or which are being constructed and designed for
Stokely are sufficient to comply with all currently applicable
environmental laws and regulations. Expenditures for facilities related
to protection of the environment are made pursuant to the Company's
capital budget and have not had, nor are they expected to have, a material
effect on the earnings of the Company. The application or modification of
existing, or the adoption of new laws, regulations or policies could have
an adverse effect on the Company's business and results of operations.
Employees
- - ---------
At peak employment periods during the processing season, the Company
employs approximately 4,060 employees, of which approximately 3,100 are
seasonal and part-time production personnel, 850 are full-time, year-round
production personnel, and 110 are management, sales and administration
personnel. Approximately 1,670 regular hourly and seasonal employees
belong to labor unions. Stokely's eight union contracts are generally
three years in length and provide for average wage increases of 4.0%
during fiscal 1996. During fiscal 1996, four union contracts will expire:
a labor union contract covering some of the employees at Stokely's
Hoopeston, Illinois and Scottville, Michigan facilities will expire on
December 31, 1995, and two labor union contracts covering some of the
employees at Stokely's Grandview, Washington facility will expire February
29, 1996. Stokely anticipates entering into new union contracts covering
these employees on or before the expiration date of the existing union
contracts. Stokely recruits migrant workers for seasonal employment at
its seasonal plants and maintains migrant housing facilities in Sun
Prairie, Wisconsin, Pickett, Wisconsin and Hoopeston, Illinois to
accommodate those employees. The Company believes that relationships with
its employees are good.
(d) Foreign Operations
------------------
Exports of processed vegetables represent a growing channel of
distribution. From 1988 to 1993, total canned corn exports, the major
component of exported processed vegetables, have grown at a compound
annual rate of 15%. The Company's export sales principally involve sales
of private label canned vegetables. The Company believes it is the
leading exporter of canned corn to Germany and Scandinavia. The Company's
export sales accounted for 8.6%, 7.4% and 6.6% of total canned sales for
fiscal 1993, 1994 and 1995, respectively. The decline in fiscal 1994 was
primarily due to the low yield of the corn crop that year and thus the
reduced availability of corn products to export. The Company intends to
continue to emphasize export sales in future years. International sales
are subject to various risks, including exposure to currency fluctuations,<PAGE>
political and economic instability, the greater difficulty of
administering business abroad and the need to comply with a wide variety
of international and domestic export laws and regulatory requirements.
There can be no assurance the Company will be able to successfully expand
its export sales, or that the Company's export sales will be profitable.
The Company's international sales organization is based in Oconomowoc,
Wisconsin and sells through agents, commissioned brokers and direct sales.
In fiscal 1995, export sales accounted for 14% of the Company's total
canned corn sales.
<PAGE>
ITEM 2. PROPERTIES
- - -------------------
Stokely's principal facilities are described below:
Plant and
Location Warehouse Size Principal Products
- - -------- -------------- ------------------
Canned Vegetable Production (Sq. ft.)
and Distribution:
- - ---------------------------
Ackley, Iowa............ 199,000 Whole kernel corn; canned dry pack
beans
Cobb, Wisconsin......... 65,000 Warehouse
DeForest, Wisconsin..... 538,000 Warehouse and distribution center;
center; field department office
Hoopeston, Illinois..... 240,000 Golden whole kernel corn; pumpkin
Merrill, Wisconsin...... 56,000 Green, wax and romano beans
Pickett, Wisconsin...... 145,000 Peas; whole kernel corn
Poynette, Wisconsin..... 345,000 Green and wax beans; sauerkraut;
warehouse and distribution center
Scottville, Michigan.... 238,000 Green, shellie and romano beans
Sun Prairie, Wisconsin.. 108,000 Peas; peas and carrots; golden and
white whole kernel corn; mixed
vegetables; beets; carrots
Waunakee, Wisconsin..... 181,000 Peas; peas and carrots; whole
kernel corn; beets; carrots;
potatoes; mixed vegetables
Wells, Minnesota........ 103,000 Peas and cream style corn
Frozen Vegetable Production:
- - ----------------------------
Grandview, Washington... 86,000 Sugar snap peas; corn
Green Bay, Wisconsin.... 76,000 Peas; whole kernel corn; green
beans; carrots
Walla Walla, Washington. 199,000 Peas; green zucchini; carrots;
lima beans; onions; squash
Corporate Headquarters
- - ----------------------
Oconomowoc, Wisconsin... 52,000 General offices
Closed Facilities<F1>
- - ---------------------
Appleton, Wisconsin..... 121,000 Peas; canned and glass-packed
beets; potatoes; carrots
Jefferson, Wisconsin.... 28,000 Frozen vegetable repacking
---------
Total................ 2,780,000
=========
<F1> These facilities were closed during fiscal 1994 as part of the
Company's restructuring plan and are being held for sale.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- - --------------------------
A class action lawsuit was filed on January 3, 1995, in the United States
District Court for the Eastern District of Wisconsin, against the Company,
all of the individual members of the Board of Directors of the Company,
William Blair & Company and Dain Bosworth, Inc. The plaintiff alleges that
he sustained losses in connection with his purchase of shares of Common
Stock of the Company during the period from October 17,1994, to December
19, 1994, as a result of defendants' alleged misleading statements and
omissions to state material facts. The Company believes that the
allegations are without merit or substance, and will defend the action
vigorously.
A second class action lawsuit seeking to represent class members who
purchased shares of Common Stock of the Company during the period from
October 17, 1994, to December 19, 1994, was filed on May 10, 1995, in the
United States District Court for the Eastern District of Wisconsin. This
second lawsuit makes similar claims against the Company arising from the
same facts and events. As with the first class action lawsuit, the Company
believes the allegations in the second case are without merit or substance
and will defend the action vigorously.
In addition to the above cases, the Company also is involved in various
other legal actions and claims primarily arising in the normal course of
its business. In the opinion of management of the Company, the liability,
if any, would not have a material effect on the Company's financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - ------------------------------------------------------------
No matters were submitted to shareholders during the fourth quarter of the
fiscal year.
<PAGE>
Executive Officers of the Company
---------------------------------
The following is a list of Stokely's officers, their ages and their
positions and office at June 15, 1995.
Name Age Office and Business Experience
- - ---- --- ------------------------------
Frank J. Pelisek 65 Chairman of the Board since 1992; Chief
Executive Officer June 1992-93; Director
since 1983; Partner, Michael Best and
Friedrich, legal counsel to Stokely, since
1965.
Stephen W. Theobald 49 Vice Chairman and Treasurer since June 1992;
director since 1980; Vice President
Administration since 1985 when he joined
Stokely.
Vernon L. Wiersma 45 Chief Executive Officer since August 1993;
President since June 1992; Executive Vice
President from 1985-92; Director since 1982;
Vice President Stokely Operations 1983-85;
Controller 1975-83; joined Stokely in 1973.
Robert M. Brill 47 Vice President, General Counsel and
Secretary since 1990; Vice President and
General Counsel since 1989; Senior Partner,
Brill and Eustice, 1986-89; joined Stokely
in 1989.
Robert Cook 44 Vice President, Operations since 1990;
Director of Operations since 1989; joined
Stokely in 1985.
Eddie W. Foster 57 Vice President, National Sales Manager since
1991; President, Merchandise Warehouse, Inc.
1990-91; President LVS Food Distributors
1989-90; Vice President of Marketing and
Sales Stokely USA, Inc. 1983-89.
Michael A. Wilkes 40 Vice President Human Resource and
Development since August 1993; Director
Total Quality Management 1991-93; Manager,
Management and Organization Development
Northrop Corporation 1983-91; joined
Stokely in 1991.
Kenneth C. Murray 37 Vice President, Canned Sales and Marketing
since 1992. Director of Marketing and
Business Development since 1990 when he
joined Stokely.
<PAGE>
Russell J. Trunk 54 Senior Vice President, Operations since 1992;
General Manager Texas/Mexico Operations from
1991-92; joined Stokely in 1991.
Leslie J. Wilson 51 Vice President, Finance and Chief Financial
and Accounting Officer since June 1992; Vice
President and General Manager, Packaging
Specialties, Inc. 1990-92; Vice President
Finance and Administration, Duetz-Allis
Credit 1976-90; joined Stokely in 1992.
Family Relationships
- - --------------------
There are no family relationships among the officers listed and there are
no arrangements or understandings pursuant to which any of them were
elected as officers. However, Messrs. Wiersma, Theobald, Murray, Trunk and
Wilson each are parties to certain change of control contingent employment
agreements, and Mr. Wilson is a party to an employment agreement with the
Company, each of which is more fully described, and hereby incorporated by
reference from the Company's definitive Proxy Statement, dated June 26,
1995. All officers hold office for one year and until their successors
shall have been duly elected and qualified.
<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY
HOLDER MATTERS
--------------
(a) Market Information
------------------
Stokely common stock is traded on the NASDAQ National Market System. The
market symbol is STKY. Bank One, Indianapolis, NA, Bank One Center, 111
Monument Circle - Suite 1611, Indianapolis, Indiana 46277 serves as
transfer agent. The following table sets forth the range of high and low
sales price for the common stock for the periods indicated as reported on
the NASDAQ National Market System for the periods indicated. Quotations
represent the price between dealers and do not reflect retail markups,
markdowns or commissions.
Common Stock Price Range
------------------------
(dollars per share)
Market Price
High Low
1995 ---- ---
- - ----
First Quarter 10 1/2 7 7/8
Second Quarter 12 1/4 9 1/4
Third Quarter 10 1/4 5
Fourth Quarter 6 1/8 5 1/8
1994
- - ----
First Quarter 10 1/8 5 3/4
Second Quarter 9 3/4 7 3/4
Third Quarter 9 5/8 7 3/4
Fourth Quarter 8 3/4 6 7/8
<PAGE>
(b) Holders
-------
At June 15, 1995, there were 1,082 holders of record of the shares of
common stock.
(c) Dividends
---------
The Company discontinued the payment of quarterly dividends during the
first quarter of the fiscal year ended March 31, 1993. Since that time,
the Company has not declared or paid any cash dividends on its shares of
Common Stock, and does not anticipate paying such dividends in the
foreseeable future. The Company's long-term debt agreements contain
certain conditions and provisions which restrict the Company's payment of
dividends. At March 31, 1995, all of the retained earnings were restricted
as to the payment of cash dividends.
For information regarding restriction of the payment of cash dividends, see
Note D to Notes to Consolidated Financial Statements for the year ended
March 31, 1995, in Item 8 of this annual report.
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
- - --------------------------------
(Dollars in thousands except per share data)
<CAPTION>
Years ended March 31,
1995 1994 1993 1992 1991
- - ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $231,422 $256,145 $281,382 $280,368 $257,520
Other revenues 517 4,691 2,145 676 1,090
- - ----------------------------------------------------------------------------------------
Total net revenues 231,939 260,836 283,527 281,044 258,610
Cost of product sold 186,814 216,392 249,982 238,804 204,922
Selling, general and
administrative expenses 33,617 36,476 42,139 48,481 40,902
Nonrecurring charge 21,145<F2>
- - ----------------------------------------------------------------------------------------
Operating earnings(loss) 11,508 7,968 (29,739) (6,241) 12,786
Interest expense 10,796 12,710 12,721 8,592 7,082
- - ----------------------------------------------------------------------------------------
Earnings (loss) before
income taxes (credits)and
cumulative effect of
change in accounting
principle 712 (4,742) (42,460) (14,833) 5,704
Income taxes (credits) 142 (2,527) (12,983) (4,931) 1,888
- - ----------------------------------------------------------------------------------------
Earnings (loss) before
cumulative effect of
change in accounting
principle 570 (2,215) (29,477) (9,902) 3,816
Cumulative effect of change
in method of accounting for
postretirement benefits (net
of income taxes of $850) (1,650)
- - ----------------------------------------------------------------------------------------
Net earnings (loss) $ 570 $ (2,215) $(31,127) $(9,902) $ 3,816
- - ------------------------================================================================
COMMON STOCK DATA
Net earnings (loss)
per share $ .06 $ (.27) $(3.75)<F1> $(1.19) $ .46
Dividends per share $ .20 $ .20
Stockholders' equity
per share $ 5.15 $ 3.92 $ 4.18 7.93 9.33
Average shares out-
standing (thousands) 9,336 8,320 8,302 8,288 8,287
Shares outstanding at
year-end (thousands) 11,325 8,325 8,316 8,291 8,282
<FN>
<F1> Includes $.20 per share loss due to post-retirement benefits accounting method change.
See Note G to Notes to Consolidated Financial Statements.
<F2> See Note K to Notes to Consolidated Financial Statements.
</FN>
/TABLE
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
- - --------------------------------------------
(Dollars in thousands except per share data)
<CAPTION>
Years ended March 31,
1995 1994 1993 1992 1991
- - ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET AND FINANCIAL DATA
- - ----------------------------------------------------------------------------------------
Working capital $ 68,052 $ 42,071 $ 40,626 $ 80,064 $ 84,584
Current ratio 2.69 2.03 1.38 2.39 2.60
Property, plant and
equipment - net 68,597 67,356 68,419 90,794 72,078
Depreciation 7,508 7,230 9,286 8,461 6,835
Capital expenditures - net 6,405 4,736 10,367 21,666 18,033
Total assets 181,294 158,535 232,843 233,737 213,067
Long-term debt 78,497 80,438 82,854 96,466 70,604
Stockholders' equity 58,378 32,640 34,777 65,761 77,266
Cash dividends declared 1,658 1,658
- - ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------
The Company's financial performance and growth are directly related to
certain characteristics and trends in the vegetable processing industry.
The United States vegetable processing industry is a mature industry, with
a relatively modest .7% compounded annual growth rate from 1989 to 1994.
Therefore, any significant sales growth that may be experienced by the
Company likely would come at the expense of the loss of market share by
another processor, but also may occur through efforts designed to promote
increased consumption, such as through the introduction of new or improved
products or through increased sales internationally, where the processed
vegetable market is currently growing.
The Company's net sales are affected by product availability and market
pricing. In the vegetable processing industry, product availability and
market prices tend to have an inverse relationship: market prices tend to
decrease as more product is available, whereas if less product is
available, market prices tend to increase. Product availability is a
direct result of plantings, growing conditions, crop yields and
inventories, all of which may vary from year to year. In addition, price
can be affected by the planting, inventory level and individual pricing
decisions of the three or four largest processors in the industry.
Generally, the market prices in the vegetable processing industry tend to
adjust more quickly to variations in product availability than an
individual processor can adjust its cost structure; thus, in an oversupply
situation, a processor's margins likely will weaken, as suppliers generally
are not able to adjust their cost structure as rapidly as market prices
adjust for the oversupply. The Company typically has experienced lower
margins during times of industry oversupply. There can be no assurance the
Company's margins will improve in response to favorable market conditions
or that the Company will be able to operate profitably during depressed
market conditions.
Restructure Program
- - -------------------
In addition to the effects of vegetable processing industry conditions and
trends, the Company's restructuring initiatives, commenced in fiscal 1993,
have impacted its financial performance in fiscal 1993, 1994 and 1995. The
restructuring initiatives included consolidating production at larger, more
efficient facilities, eliminating marginally profitable and unprofitable
product lines, reducing operating overhead and lowering interest expense
through debt reduction. As part of such restructuring, the Company
recorded in fiscal 1993 a nonrecurring restructuring charge of $14.7
million ($21.1 million pretax) relating to the write-down of the eight
processing plants to be sold, closed or downsized and the costs associated
therewith, including provisions for severance, consolidation costs and
plant closing costs, and the write-down of inventory of discontinued
product lines.
<PAGE>
The table below sets forth the balances, on a pretax basis, of the major
categories of the restructure reserves provided in fiscal 1993 to March 31,
1995. The reserve amounts for property, plant and equipment and inventory
are noncash write-offs of recorded assets. The amounts for other reserves
are for future cash outflows for costs and expenses related to
consolidation of facilities and plant carrying costs.
Restructure Reserves
- - -----------------------------------------------------------------
Property,
plant &
(In thousands) equipment Inventory Other Total
- - -----------------------------------------------------------------
Originally provided $12,675 $2,642 $5,828 $21,145
Balance at March 31, 1993 12,675 2,642 5,376 20,693
Balance at March 31, 1994 3,926 3,000 283 7,209
Balance at March 31, 1995 2,094 667 125 2,886
- - -----------------------------------------------------------------
During fiscal 1994, the Company completed the sale of four of the eight
processing plants identified in the restructuring initiatives. In
addition, the capacity consolidation scheduled for one of the eight
processing plants was completed in 1994. Generally, the net proceeds from
the plant sales exceeded original estimates; however, the proceeds from the
sale of related discontinued products inventory were overestimated, due
primarily to the sale of certain frozen Southern vegetable products at less
than anticipated prices. Accordingly, a portion of the property, plant and
equipment and other restructure reserves were reclassified for use in the
liquidation of inventory.
During the fourth quarter of fiscal 1995, the Company re-evaluated some of
the capacity consolidation elements of its restructure program. As a
result, corn production capacity at its Hoopeston, Illinois, facility will
continue in service on a limited basis to assure greater geographic growing
and harvesting risk distribution. The related property, plant and
equipment restructure reserves were reclassified to other restructure
reserves and used primarily in the completion of other capacity
consolidation projects in the restructuring plan.
With the exception of the sale of two idled processing facilities and a
limited amount of discontinued inventory, the restructure program is
substantially complete and the intended benefits have been achieved. The
properties held for sale and discontinued inventories are expected to be
sold in fiscal 1996. Based on the Company's current review and evaluation,
the remaining reserves at March 31, 1995, are considered adequate for the
sale of the idled plants and discontinued inventory.
<PAGE>
Primarily as a result of the restructuring program, the Company's fixed
manufacturing expense component of cost of products sold and fixed selling,
general and administrative expenses have declined from levels experienced
in fiscal 1992. In addition, from the beginning of fiscal 1992 to March
1995, the Company's full-time employee workforce has been reduced by
approximately 250 employees, primarily due to the restructuring
initiatives, and the Company's seasonal workforce has been reduced by
approximately 1,000 employees due to the closing or downsizing of
processing plants affected by the restructuring initiatives. The cost
savings associated with these restructuring initiatives were largely
realized by the end of fiscal 1994.
The Company's interest expense decreased during fiscal 1995, despite a
general increase in interest rates, primarily due to a lower level of
borrowings caused by lower inventories and the reduction of debt with the
proceeds of the November 1994 stock offering.
Income Taxes
- - ------------
In fiscal 1995, the effective tax rate used for calculating the tax
provision for the Company was 20%, which differed from statutory rates due
primarily to allowable tax benefits from net operating losses. At March
31, 1995, the Company had net operating loss carryforwards of $23.3 million
and tax credit carryforwards of $2.9 million, which are expected to
continue to reduce and/or offset tax liabilities in future years.
<PAGE>
RESULTS OF OPERATIONS
- - ---------------------
Fiscal Year Ended March 31, 1995, Compared to Fiscal Year Ended March 31,
1994
Net Sales
- - ---------
Net sales in fiscal 1995 decreased $24.7 million, or 9.6%, to $231.4
million from $256.1 million in fiscal 1994. The reduction in sales was
primarily the result of the elimination of certain low margin or
unprofitable products and distribution channels as part of the Company's
restructure program implemented during fiscal 1994. Lower sales volume due
to lower available inventories at the beginning of fiscal 1995, caused by a
poor growing season during fiscal 1994, also contributed to the decline in
sales in fiscal 1995. These volume shortfalls were only partially offset
by slightly higher average pricing.
Total canned vegetable sales decreased $622,000, or .4%, to $175.1 million
in fiscal 1995 from $175.7 million in fiscal 1994. The decline in total
canned vegetable sales was the result of an $8.5 million reduction in sales
volume offset by a $7.9 million increase in sales due to higher pricing.
Of the net decrease in sales of $622,000, $7.5 million was due to a
reduction in sales of discontinued products, partially offset by a $6.9
million increase in sales of continued products. Average unit pricing was
4.7% higher for fiscal 1995 due primarily to low industry inventories
during the first half of fiscal 1995. Average unit prices declined 6.5% in
the last six months of fiscal 1995 compared to the first six months of
fiscal 1995.
As expected, selling prices declined from the levels experienced early in
fiscal 1995, in response to last summer's record production, to levels the
Company considered sustainable. Given apparent industry inventory
positions, the Company did not anticipate the round of price cutting that
began late in the third quarter. Nevertheless, in order to maintain market
share, it was necessary for the Company to respond to this new competitive
environment which resulted in a substantial decline in pricing late in the
third quarter. These depressed market conditions persisted during the
fourth quarter of fiscal 1995 causing sharply lower profit margins for the
Company.
Pricing conditions in the processed vegetable markets remain extremely
depressed currently, with pricing for corn below levels experienced in
recent memory. The Company believes this situation is temporary, having
been caused by an unlikely and unpredictable sequence of events that
eventually led to apparent industry inventory excesses and distribution
imbalances. The initial event was the Midwest flooding that occurred
during the summer of 1993 and resulted in sharply curtailed yields and
production. The industry responded to the shortfall with a substantial
increase in planted acreage in the summer of 1994. Due to excellent
growing conditions in the Midwest, the crop yields on that acreage
surpassed previous records. As a result, industry production exceeded the
planned increases leading to excess inventories which had a negative impact
on selling prices. However, pricing declined dramatically late in the
third quarter, and based on industry and market information first available
in late 1994 and 1995 to date, inventory distribution imbalances may have
played a part. Government mandated label changes required by the Nutrition
Labeling Education Act (NLEA) may have resulted in a disproportionate share
of the late summer/early fall feature business going to the brand market
at the expense of the private label market participants. While the
Company's volume of canned brand and private label sales increased during
the third quarter compared to the third quarter a year ago, syndicated
market share data made available in December indicated that, for the
category in total, private label did lose market share to the brand market
during the fall. Further, the pricing strategies of some industry
participants were particularly aggressive during the same period. These
factors would tend to create an increasingly uneven distribution of
inventories as the third quarter progressed and a corresponding increase in
pressure to liquidate excesses.
This pricing environment persisted during the fourth quarter of fiscal
1995. The Company does anticipate improvement during the course of fiscal
1996 due to reduced industry planting and production. Assuming those
reductions and the absence of the events that negatively impacted the
market in late fiscal 1995, the Company believes selling prices and margins
should improve in the second half of fiscal 1996.
Sales of private label canned products declined $4.7 million, or 3.7%, to
$121.8 million in fiscal 1995, compared to $126.5 million in fiscal 1994.
The decline in private label canned sales was the result of an $11.3
million reduction in sales volume due primarily to lower available
inventories, partially offset by a $6.6 million increase in sales due to
improved pricing. Sales of brand label canned products increased $4.1
million or 8.3%, to $53.3 million in fiscal 1995 compared to $49.2 million
in fiscal 1994. The increase in brand sales was due to a $4.8 million
increase in sales volume, offset by a $700,000 decrease in sales due to
lower pricing.
Total frozen sales declined $24.1 million, or 30.0%, to $56.3 million in
fiscal 1995 compared to $80.4 million in fiscal 1994. The decline in sales
was the result of a $18.3 million reduction in sales volume due primarily
to the elimination of certain low margin or unprofitable frozen products
and exiting certain channels of distribution as part of the Company's
restructure program. Sales of discontinued frozen products decreased $14.0
million, or 78.7%, to $3.8 million in fiscal 1995 compared to $17.8 million
in fiscal 1994. Also contributing to the decline in sales was a $5.8
million decrease in sales due to lower pricing caused primarily by exiting
certain higher priced but lower margin product lines and distribution
channels as part of the Company's restructure program.
Cost of Products Sold
- - ---------------------
Cost of products sold decreased $29.6 million, or 13.7%, to $186.8 million
in fiscal 1995 from $216.4 million in fiscal 1994. The decrease in cost of
products sold was due primarily to the lower sales volume in both the
canned and frozen divisions. Cost of products sold as a percentage of net
sales decreased 3.8% to 80.7% in fiscal 1995 compared to 84.5% in fiscal
1994. Of the 3.8% decrease, 2.0% was due to higher selling prices. The
decrease in cost of products sold as a percent of sales is also due to
lower unit manufacturing costs caused by higher production volume in fiscal
1995, partially offset by unfavorable, nonrecurring cost variances related
to agricultural and processing operations caused by the unusual nature of
last summer's processing season. The improvement in cost of sales ratio
also reflects the elimination of higher cost but marginally unprofitable
product lines as part of the Company's restructure program.
Selling, General and Administrative Expense
- - -------------------------------------------
Selling, general and administrative expenses declined by $759,000, or 2.2%,
to $33.6 million in fiscal 1995 from $34.4 million (excluding a charge of
$2.1 million relating to the settlement of a product liability claim) in
fiscal 1994. This reduction was primarily the result of lower variable
selling expenses related to lower sales volume. Selling, general and
administrative expenses as a percentage of net sales was 14.5% in fiscal
1995 compared to 13.4% (excluding the product liability settlement) in
fiscal 1994.
Interest Expense
- - ----------------
Interest expense decreased $1.9 million, or 15.0%, to $10.8 million in
fiscal 1995 compared to $12.7 million in fiscal 1994. This reduction was
primarily the result of lower short-term borrowings resulting from lower
working capital requirements. In addition, long-term debt levels were
reduced by the proceeds of sales of closed plants, and short-term
borrowings were further reduced by proceeds from the November 1994 stock
offering. The savings from lower borrowing levels were partially offset by
increases in short-term interest rates and higher financing expenses
associated with the June 1993 amendment of the Company's revolving credit
facility during fiscal 1994.
Income Taxes
- - ------------
The effective income tax rate in fiscal 1995 was 20% compared to the 53.3%
used for calculating tax credits in fiscal 1994. The 1995 effective tax
rate differs from the statutory rates due primarily to allowable tax
benefits from net operating loss carryforwards.
Net Earnings (Loss)
- - -------------------
Net earnings in fiscal 1995 were $570,000 compared to a net loss of $2.2
million in fiscal 1994.
<PAGE>
FISCAL YEAR ENDED MARCH 31, 1994, COMPARED TO FISCAL YEAR ENDED MARCH 31,
1993
Net Sales
- - ---------
Net sales in fiscal 1994 decreased $25.3 million, or 9.0%, to $256.1
million from $281.4 million in fiscal 1993. Limited supplies of available
canned finished goods inventory caused by a poor growing season was the
primary reason for the decline. This volume shortfall was only partially
offset by a modest improvement in pricing.
Total canned vegetable sales decreased $22.7 million, or 11.4%, to $175.7
million in fiscal 1994 from $198.4 million in fiscal 1993. The decline in
sales in fiscal 1994 was substantially due to lower available inventory of
canned vegetables caused by a poor growing season in fiscal 1994, partially
offset by a 3.3% improvement in canned division pricing. In fiscal 1994,
sales of discontinued canned vegetables totaled $8.8 million. Sales of
private label canned products declined $10.6 million, or 7.7%, to $126.5
million in fiscal 1994 compared to $137.1 million in fiscal 1993. The
decline in private label sales was a result of an $18.8 million, or 13.7%,
reduction in sales due to lower sales volume, partially offset by an $8.2
million, or 6.0%, increase in sales due to improved pricing experienced in
the second half of fiscal 1994. Sales of brand label canned products
declined by $12.1 million, or 19.7%, to $49.2 million in fiscal 1994
compared to $61.3 million in fiscal 1993. The decline in brand label sales
was a result of an $11.0 million, or 17.9%, reduction in sales due to lower
sales volume, and a $1.1 million, or 1.8%, decrease in sales due to lower
prices.
Total frozen sales declined $2.6 million, or 3.1%, to $80.4 million in
fiscal 1994 compared to $83.0 million in fiscal 1993. This reduction in
frozen sales was primarily the result of a 3.7% decrease in pricing related
to elimination of higher priced but marginally unprofitable products and
the sale of related inventories. In fiscal 1994, sales of discontinued
frozen vegetables totaled $17.8 million.
Other Revenue
- - -------------
Other revenue of $4.7 million in fiscal 1994 included revenues of $4.1
million resulting from insurance claim proceeds related to reconstruction
costs at the Company's fire damaged Hoopeston, Illinois, facility. See
Note J of Notes to Consolidated Financial Statements.
Cost of Products Sold
- - ---------------------
Cost of products sold decreased $33.6 million, or 13.4%, to $216.4 million
in fiscal 1994 from $250.0 million in fiscal 1993. The decrease in cost of
products sold was due primarily to lower sales volume. Cost of products
sold as a percentage of net sales declined to 84.5% in fiscal 1994 compared
to 88.8% in fiscal 1993. This decline resulted primarily from the
elimination of low margin product lines. Average variable manufacturing<PAGE>
costs remained relatively flat in fiscal 1994 compared to fiscal 1993
despite adverse weather-related production conditions.
Selling, General and Administrative Expenses
- - --------------------------------------------
Total selling, general and administrative expenses decreased $7.7 million,
or 18.3%, to $34.4 million, excluding a charge of $2.1 million relating to
the settlement of a product liability claim in fiscal 1994, from $42.1
million in fiscal 1993. This decrease was in part due to a $4.1 million
decrease in sales promotions, related primarily to lower canned brand label
sales in fiscal 1994, and a decrease of $3.6 million in other
administrative expenses, due to cost reduction and other expense control
programs instituted by the Company. Selling, general and administrative
expenses as a percentage of net sales declined to 14.2% in fiscal 1994
compared to 15.0% in fiscal 1993 primarily due to restructuring initiatives
which lowered fixed general and administrative expenses. The product
liability claim in fiscal 1994 relates to an acquired business and predates
the Company's acquisition of such business. Had the $2.1 million product
liability charge not occurred, selling, general and administrative expenses
as a percentage of net sales in fiscal 1994 would have been 13.4% rather
than 14.2%.
Interest Expense
- - ----------------
Interest expense totaled $12.7 million in fiscal 1994 and $12.7 million in
fiscal 1993. Interest expense remained flat in fiscal 1994 despite a
reduction in average short-term debt because of an increase in short-term
interest rates and higher financing expenses resulting from a June 1993
amendment to the revolving credit facility.
Income Taxes
- - ------------
The effective income tax rates for calculating tax credits were 53.3% for
fiscal 1994 and 30.6% for fiscal 1993. The effective tax rate differs from
the statutory rates due to recognition of allowable tax benefits from net
operating loss carrybacks and adjustment to prior year accruals relating
primarily to tax refunds received in excess of amounts accrued in the prior
fiscal year. See Note E of Notes to Consolidated Financial Statements.
Net Earnings (Loss)
- - -------------------
The net loss for fiscal 1994 was $2.2 million compared to a net loss of
$31.1 million in fiscal 1993. The fiscal 1993 loss included a nonrecurring
restructuring charge of $14.7 million ($21.1 million pretax) and the
cumulative effect of adoption of SFAS No. 106 on postretirement benefits of
$1.7 million ($2.5 million pretax).
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY AND CAPITAL RESOURCES
General
- - -------
Due to the seasonal production nature of the canned and frozen vegetable
processing business, the Company must maintain substantial inventories of
processed vegetables throughout the year. The working capital requirements
associated with producing and maintaining such inventories are financed
primarily through short-term borrowings and deferred payment terms with
major raw product and container suppliers. The Company's current revolving
credit facility, which matures on May 31, 1995, provides for borrowings up
to $100.0 million as revolving credit loans. The maximum amount borrowed
under the revolving credit facility in fiscal 1995 was $59.7 million
compared to $68.9 million in fiscal 1994 and $97.5 million in fiscal 1993.
The decrease of $28.6 million in maximum borrowings from fiscal 1993 to
fiscal 1994 was due primarily to the Company's restructuring initiatives
resulting in lower inventory levels and operating costs.
On May 22, 1995, the Company entered into a new revolving credit agreement
with various lenders. The new credit facility provides for borrowings up
to $65 million effective upon expiration of the current agreement at
May 31, 1995. Due to anticipated decreases in working capital
requirements, the Company believes that the new revolving credit facility
will be adequate to meet the Company's seasonal borrowing needs. The new
revolving credit agreement provides for a lower interest rate and less
restrictive financial and operating covenants than the existing agreement.
Maximum revolving credit borrowings projected under the facility for fiscal
1996 are approximately $50 million. For a more detailed description, see
Note D of Notes to Consolidated Financial Statements.
In addition to the revolving credit facility, the Company has various long-
term debt obligations, which aggregated $78.5 million at March 31, 1995,
excluding current maturities of $2.5 million. Included in the long-term
debt obligations are two senior notes totaling $35.9 million, various
Industrial Development Revenue Bonds totaling $27.1 million, and $18.0
million of revolving credit notes which are not expected to be repaid
currently and are classified as long-term. See Note D of Notes to
Consolidated Financial Statements.
On November 25, 1994, the Company issued 3,000,000 shares of common stock
to the public with net proceeds to the Company of $25.2 million being used
to repay a portion of the borrowings under the revolving credit facility.
Cash Flows from Operating Activities
- - ------------------------------------
Cash used in operations during fiscal 1995 totaled $19.8 million. Of the
total cash used, changes in operating assets and liabilities used cash of
$29.1 million, primarily due to an increase in inventory of $24.1 million
and an increase in accounts receivable of $4.7 million, partially offset by
cash generated from operations totaling $9.3 million. The increase of
$24.1 million in inventory levels primarily reflects the contrast of the
fiscal 1994 and 1995 summer processing seasons. Inventory levels during <PAGE>
fiscal 1994 were unusually low due to the poor growing and harvesting
conditions of the summer of 1993 in contrast to inventory levels during
fiscal 1995 which were higher due to favorable growing conditions during
the summer of 1994. The increase in accounts receivable of $4.7 million is
due to an increase in sales in the quarter ended March 31, 1995, compared
to a year ago.
During fiscal 1994, the Company realized significant improvements in cash
flow from operating activities and applied such cash flow primarily to
reduce short-term debt and accounts payable. Net cash provided by
operations improved $36.7 million to $38.1 million in fiscal 1994 from $1.4
million in fiscal 1993. The increase in cash provided by operations is
partially attributable to reduced net losses (net of a nonrecurring
restructuring charge in fiscal 1993) in fiscal 1994 compared to fiscal
1993. Additionally, cash provided by changes in operating assets and
liabilities increased $23.3 million primarily from the benefits of
inventory and accounts receivable reductions of $45.3 million and $21.0
million, respectively, offset in part by a reduction in accounts payable of
$25.3 million. The Company's aggressive inventory reduction programs in
the first quarter of fiscal 1994, combined with the elimination of certain
product lines and the adverse growing and harvesting conditions during
fiscal 1994, were the primary reasons for the Company's reduced
inventories.
Cash Flows from Investing Activities
- - ------------------------------------
Net cash provided by (used in) investing activities during fiscal 1995,
1994 and 1993 was $(4.9) million, $4.6 million and $(7.3) million,
respectively. Purchase of property, plant and equipment was $6.4 million,
$5.2 million and $12.9 million during fiscal 1995, 1994 and 1993,
respectively.
Capital expenditures during fiscal 1995 were primarily related to the
capacity consolidation at the Waunakee, Wisconsin, facility, investment in
product quality control equipment at several processing plants, and the
initial phase of a new management information system. Capital expenditures
in fiscal 1994 were focused on improved plant efficiency and ongoing
compliance with environmental regulations. Expenditures in fiscal 1994
included capacity consolidation and operation efficiency projects at the
Pickett, Wisconsin, and Waunakee, Wisconsin, facilities, and improvements
to a wastewater disposal system in Walla Walla, Washington. These capital
expenditures were financed through cash flow from operations. There were
also capital expenditures in fiscal 1994 to complete the reconstruction of
the Company's Hoopeston, Illinois, facility damaged by fire in fiscal 1993,
which were financed with insurance proceeds.
In fiscal 1994, the Company generated $9.1 million in additional cash flow
from the sale of four processing facilities and other miscellaneous assets
as part of the Company's restructuring program. Proceeds from the plant
sales were used primarily to pay down long-term debt.
Capital expenditures for fiscal 1995 and 1994 were below the amount of
depreciation. In these years, the Company intentionally limited its level
of capital expenditures to short-term pay back and necessary quality and<PAGE>
environmental projects. The Company plans to increase capital expenditures
to the level of annual depreciation in future years. Capital expenditures
budgeted for fiscal 1996 total $7.5 million, primarily for product quality
improvements and the completion of the initial phase of a new management
information system.
Capital expenditures in fiscal 1993 included expansion of corn capacity at
the Wells, Minnesota, facility, installation of wastewater disposal systems
at the Paulding, Ohio, and Scottville, Michigan, facilities and completion
of the corporate offices in Oconomowoc, Wisconsin. The capital
expenditures were financed through short-term debt. Capital expenditures
also were made to begin rebuilding the Company's Hoopeston, Illinois,
facility that was damaged by fire. These expenditures were financed by
insurance proceeds.
Cash Flows from Financing Activities
- - ------------------------------------
During fiscal 1995, the Company increased its borrowings under the
revolving credit facility by $2.3 million to $37.3 million. The net
increase in short-term debt was due primarily to funding increases of
$28.8 million in inventory and accounts receivable levels. These
increases in short-term debt were substantially offset by the $25.2
million pay down of short-term debt from the proceeds of the November
1994 common stock offering.
At March 31, 1995, the Company had $37.3 million of borrowings under the
revolving credit facility, of which $18.0 million was classified as long-
term and $19.3 million was classified as short-term. At March 31, 1994,
the Company had $35.0 million of borrowings under the revolving credit
facility, of which $17.0 million was classified as long-term and $18.0
million was classified as short-term. At March 31, 1993, the Company had
$66.3 million of borrowings under the revolving credit facility, of which
$35.0 million was classified as long-term and $31.3 million was classified
as short-term. During fiscal 1994, the Company decreased its borrowings
under the revolving credit facility by $31.3 million through planned cash
flow improvements from the reduction in accounts receivable and
inventories.
Litigation
- - ----------
The Company is involved from time to time in various legal actions and
claims. For discussion of current matters see Note I of Notes to
Consolidated Financial Statements.
<PAGE>
Impact of Inflation
- - -------------------
Current financial statements are prepared in accordance with generally
accepted accounting principles and report operating results in terms of
historical costs. They provide a reasonable, objective, quantifiable
statement of financial results but do not evaluate the impact of inflation.
Competitive conditions permitting, the Company modifies its selling prices
to recognize cost changes as incurred. Management believes the impact of
inflation does not distort the Company's financial statements since prices
are determined by supply and demand.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- - ----------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- - ----------------------------
To the Stockholders and Board of Directors of Stokely USA, Inc.:
We have audited the accompanying consolidated balance sheets of Stokely
USA, Inc. and subsidiaries as of March 31, 1995 and 1994 and the related
consolidated statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended March 31, 1995. Our audits
also included the consolidated financial statement schedule listed in the
Index at Item 14. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the companies as of
March 31, 1995 and 1994 and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 1995, in
conformity with generally accepted accounting principles. Also, in our
opinion such consolidated financial schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
As discussed in Notes E and G to the consolidated financial statements, the
Company changed its methods of accounting for postretirement benefits other
than pensions effective April 1, 1992 and accounting for income taxes
effective April 1, 1993 to conform with Statement of Financial Accounting
Standards No. 106 and No. 109, respectively.
Deloitte & Touche, LLP
Milwaukee, Wisconsin
May 22, 1995
<PAGE>
STOKELY USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS - Note D
March 31
(Dollars in thousands) 1995 1994
- - -----------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents - Note A $ 1,177 $ 2,898
Accounts receivable, less allowance for
losses ($452 and $385, respectively) 25,459 20,817
Refundable income taxes - Note E 380 1,979
Inventories - Notes A and B 79,389 55,256
Prepaid expenses 1,825 1,983
- - -----------------------------------------------------------------------
TOTAL CURRENT ASSETS 108,230 82,933
OTHER ASSETS - Notes A and C 4,467 8,246
PROPERTY, PLANT AND EQUIPMENT, at cost - Note A
Land and land improvements 3,453 3,184
Buildings 29,650 27,386
Machinery and equipment 74,278 66,858
- - -----------------------------------------------------------------------
107,381 97,428
Less accumulated depreciation 38,784 30,072
- - -----------------------------------------------------------------------
68,597 67,356
- - -----------------------------------------------------------------------
TOTAL ASSETS $181,294 $158,535
- - -----------------------------------------------========================
See notes to consolidated financial statements.
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31
(Dollars in thousands) 1995 1994
- - -----------------------------------------------------------------------
CURRENT LIABILITIES:
Notes payable - Note D $ 19,291 $ 17,992
Accounts payable 13,454 13,867
Accrued compensation and withholdings 3,015 3,065
Other accrued liabilities 1,635 1,840
Income taxes - Note E 247 230
Current maturities on long-term debt 2,536 3,868
- - -----------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 40,178 40,862
LONG-TERM DEBT, less current maturities
- Note D 78,497 80,438
OTHER LIABILITIES - Notes F and G 4,241 4,595
STOCKHOLDERS' EQUITY - Notes D and H:
Preferred stock - no par value, authorized
1,000,000 shares, none issued
Common stock - $.05 par value, authorized
20,000,000 shares, issued 11,435,195 and
8,435,195 shares, respectively 572 422
Additional paid-in capital 43,683 18,665
Retained earnings 14,751 14,181
- - ----------------------------------------------------------------------
59,006 33,268
Less treasury stock at cost (110,550 shares) (628) (628)
- - ----------------------------------------------------------------------
58,378 32,640
COMMITMENTS AND CONTINGENCIES - Note I
- - ----------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $181,294 $158,535
- - ------------------------------------------------======================
See notes to consolidated financial statements.
<PAGE>
Stokely USA, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
Years ended March 31,
1995 1994 1993
- - -------------------------------------------------------------------------
REVENUES:
Net sales $231,422 $256,145 $281,382
Other - Note J 517 4,691 2,145
- - -------------------------------------------------------------------------
TOTAL REVENUES 231,939 260,836 283,527
COSTS AND EXPENSES:
Cost of products sold 186,814 216,392 249,982
Selling, general and
administrative expenses 33,617 36,476 42,139
Nonrecurring charge - Note K 21,145
Interest 10,796 12,710 12,721
- - -------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 231,227 265,578 325,987
- - -------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES
(CREDIT) AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 712 (4,742) (42,460)
INCOME TAXES (CREDIT) - Note E 142 (2,527) (12,983)
- - -------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE 570 (2,215) (29,477)
CUMULATIVE EFFECT OF CHANGE IN
METHOD OF ACCOUNTING FOR POST-
RETIREMENT BENEFITS - Note G
(net of income tax benefit
of $850) (1,650)
- - -------------------------------------------------------------------------
NET EARNINGS (LOSS) $ 570 $ (2,215) $(31,127)
- - --------------------------------------===================================
PER SHARE AMOUNTS:
Earnings (loss) per common share
before cumulative effect of a
change in accounting method $ .06 $ (.27) $ (3.55)
Cumulative effect of a change
in method of accounting for
postretirement benefits - Note G (.20)
- - -------------------------------------------------------------------------
NET EARNINGS (LOSS) PER SHARE OF
COMMON STOCK $ .06 $ (.27) $ (3.75)
- - ---------------------------------------==================================
WEIGHTED AVERAGE SHARES
OUTSTANDING 9,335,604 8,319,649 8,301,591
-------------------------------------====================================
See notes to consolidated financial statements.<PAGE>
<TABLE>
Stokely USA, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<CAPTION>
Additional
Common Stock paid-in Retained Treasury Stock
Shares Amount capital earnings Shares Amount
- - -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances,
March 31, 1992 8,435,195 $422 $18,634 $47,523 144,200 $(818)
Net loss (31,127)
Exercise of
stock options 2 (24,700) 141
- - -----------------------------------------------------------------------------
Balances,
March 31, 1993 8,435,195 422 18,636 16,396 119,500 (677)
Net loss (2,215)
Stock warrants
issued 23
Exercise of
stock options 6 (8,950) 49
- - -----------------------------------------------------------------------------
Balances,
March 31, 1994 8,435,195 422 18,665 14,181 110,550 (628)
Net earnings 570
Common stock
offering, net
- Note H 3,000,000 150 25,018
- - -----------------------------------------------------------------------------
Balances,
March 31, 1995 11,435,195 $572 $43,683 $14,751 110,550 $(628)
- - ----------------=============================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Stokely USA, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31,
(Dollars in thousands) 1995 1994 1993
- - ----------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 570 $ (2,215) $(31,127)
Adjustments to net earnings (loss):
Depreciation 7,508 7,230 9,286
Nonrecurring charge 21,145
Deferred compensation and
postretirement benefits (496) (36) 2,713
Deferred income taxes 142 (9,833)
Amortization of trademarks 79 80 82
Amortization of deferred debt
issuance costs 1,649 1,637 887
Provision for bad debts 67 (285) 270
Gains on disposal of property,
plant and equipment (256) (361) (693)
- - ----------------------------------------------------------------------
9,263 6,050 (7,270)
Changes in operating assets and
liabilities:
Accounts receivable (4,709) 20,983 (14,824)
Refundable income taxes 1,599 1,890 1,831
Inventories (24,133) 45,335 (2,526)
Prepaid expenses 158 (428) 769
Accounts payable (413) (25,292) 23,739
Accrued compensation and
withholdings (50) (397) 307
Income taxes 17 (301) (135)
Other net (1,532) (9,773) (448)
- - ----------------------------------------------------------------------
(29,063) 32,017 8,713
- - ----------------------------------------------------------------------
Net cash (used in) provided by
operating activities (19,800) 38,067 1,443
- - ----------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant
and equipment (6,421) (5,174) (12,871)
Proceeds from sales of property,
plant and equipment 863 9,143 3,197
Other - net 672 628 1,034
Decrease in construction funds
held by trustee 1,362
- - ----------------------------------------------------------------------
Net cash (used in) provided by
investing activities (4,886) 4,597 (7,278)
- - ----------------------------------------------------------------------
<PAGE>
Stokely USA, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years ended March 31,
(Dollars in thousands) 1995 1994 1993
- - ----------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in short-term debt (net) 1,299 (31,266) 13,036
Payments of long-term debt (3,273) (9,002) (2,296)
Payments of deferred debt
issuance costs (229) (804) (3,436)
Issuance of common stock 25,168
Exercise of stock options 55 143
Payments of cash dividends (415)
- - ----------------------------------------------------------------------
Net cash provided by (used in)
financing activities 22,965 (41,017) 7,032
- - ----------------------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents (1,721) 1,647 1,197
Cash and cash equivalents at
beginning of year 2,898 1,251 54
- - ----------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 1,177 $ 2,898 $ 1,251
- - -------------------------------------=================================
See notes to consolidated financial statements.
<PAGE>
STOKELY USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
A. DESCRIPTION OF COMPANY BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES:
Stokely USA, Inc. and its subsidiaries (the "Company") are
engaged primarily in the processing, marketing and distribution
of both branded and private label canned and frozen vegetables,
which management considers to be a single segment.
Consolidation
- - -------------
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Cash Equivalents
- - ----------------
The Company considers all highly liquid investments with original
purchased maturities of three months or less to be cash
equivalents.
Inventories
- - -----------
Inventories are stated at the lower of cost or market. Cost has
been determined using the average cost method.
Deferred Debt Issuance Costs
- - ----------------------------
The debt issuance costs are being amortized using the straight-
line or interest method over the life of the related debt issue.
Depreciation
- - ------------
Depreciation of plant and equipment is provided over the
estimated useful lives (land improvements - 10 years; buildings -
20-40 years; and machinery and equipment - 3-12 years) of the
respective assets using the straight-line method.
Trademarks
- - ----------
Trademarks are being amortized on a straight-line basis primarily
over 20 years.
Reclassification
- - ----------------
Certain amounts have been reclassified to conform to the current
year presentation.
<PAGE>
B. INVENTORIES:
Inventories (in thousands) consisted of the following:
Finished Manufacturing
goods supplies Total
- - -------------------------------------------------------------
March 31, 1995 $73,053 $6,336 $79,389
March 31, 1994 50,256 5,000 55,256
C. OTHER ASSETS:
Other assets (in thousands) consisted of the following:
1995 1994
- - -----------------------------------------------------------------
Property held for disposition (net) - Note K $1,933 $3,541
Trademarks - Note A 759 838
Other 1,775 3,867
- - -----------------------------------------------------------------
$4,467 $8,246
- - ----------------------------------------------===================
Trademark accumulated amortization was $850,000 and $771,000,
respectively, at March 31, 1995 and 1994. Included in other
assets are unamortized deferred debt issuance costs of $1,015,000
and $2,435,000 at March 31, 1995 and 1994, respectively. The
accumulated amortization was $4,576,000 and $2,927,000,
respectively, at March 31, 1995 and 1994.
<PAGE>
D. NOTES PAYABLE AND LONG-TERM DEBT:
Long-term debt (in thousands) consisted of the following:
March 31
1995 1994
- - ----------------------------------------------------------------
9.37% senior notes due January 2000 $20,957 $21,186
9.74% senior notes due December 2001 14,895 16,071
Revolving credit notes 18,000 17,000
Industrial Development Revenue Bonds:
7.00% to 8.88% 24,281 26,569
7.92% (floating at 88% of prime) 350 600
6.48% (floating at 72% of prime) 180
5.00% Variable 2,550 2,700
- - ----------------------------------------------------------------
81,033 84,306
Less:
Current maturities on long-term debt (2,536) (3,868)
- - ----------------------------------------------------------------
$78,497 $80,438
- - -------------------------------------------=====================
On May 22, 1995, the Company entered into a new loan and security
agreement with a commercial lender and three banks which provides
for borrowings up to $65,000,000 as revolving credit loans and
matures on July 31, 1998. This new facility replaces an existing
revolving credit agreement with different lenders which matures
on May 31, 1995. Revolving credit loans under the new facility
may, at the Company's election, be either Domestic rate loans or
Eurodollar loans as declared at the time of borrowing.
Borrowings under the new revolving credit agreement bear interest
at rates which vary quarterly depending upon the Company's
leverage ratio. Interest rates on Domestic rate loans are at the
specified bank's reference rate ("prime rate") or the reference
rate plus .50%. Interest on Eurodollar loans vary from the
London Interbank Offered rate (LIBOR) plus 1.25% to LIBOR plus
2.00%. The new credit agreement requires a commitment fee which
may vary from .20% to .375% per annum on the unused portion of
the commitment. During the initial year of the new agreement,
borrowings will bear interest at the bank's reference rate plus
.50% for Domestic rate loans and LIBOR plus 2.00% for Eurodollar
loans and a commitment fee of .375% will be paid. The new credit
agreement generally restricts borrowings to an amount equal to
85% of eligible accounts receivable plus 65% of eligible
inventory, as defined in the agreement. The Company paid
customary arrangement and closing fees upon the execution of the
new credit agreement.
<PAGE>
Covenants contained in the new credit agreement, like that of the
existing revolver, require the Company to maintain minimum levels
of net working capital and tangible net worth and place
limitations on liens, capital expenditures, leases, disposition
of assets and the ability to incur additional debt. Retained
earnings are restricted as to the payment of future cash
dividends until the fiscal year ending March 31, 1997. In
addition to the covenants under these loan and security
agreements, the Company also has similar covenants under its
various other agreements.
The existing and new revolving credit agreements and the senior
note agreements contain cross-default provisions. Such cross-
default provisions specify that a default on any other debt
agreement is also an event of default under the agreement
containing the cross-default provision. In addition, the
existing and new revolving credit agreements and the senior note
agreements contain acceleration clauses which give the holders
the right to accelerate the maturity date of the obligation if
any other debt obligation owed by the Company is accelerated or
payment is demanded other than in accordance with the stated
maturity dates.
Substantially all of the assets of the Company are pledged as
collateral under the various loan agreements.
At March 31, 1995, $19,291,000 of revolving credit loans payable
were classified as short-term, reflecting the Company's intent to
repay this amount of revolving credit borrowings during fiscal
1996. The interest rate on the outstanding revolving credit
loans under the existing credit agreement (including the amounts
classified as long-term) at March 31, 1995, was 11.25%.
The stated aggregate amounts of scheduled maturities on long-term
debt each year for the five years subsequent to March 31, 1995,
are as follows: 1996 - $2,536,000; 1997 - $2,150,000; 1998 -
$2,650,000; 1999 - $25,215,000; and 2000 - $24,107,000.
Revolving credit loans payable at March 31, 1995, and 1994, under
the Company's existing credit agreement approximate estimated
fair value because the interest rate is based on a bank's
specified reference rate. The senior notes are estimated to have
an approximate aggregate fair value of $34,427,000 and
$38,992,000 at March 31, 1995, and 1994, respectively, based on
quoted prices for similar issues for debt of the same maturities.
Management of the Company has estimated the fair value of the
Industrial Development Revenue Bond issues to be approximately
$26,472,000, and $29,148,000 at March 31, 1995 and 1994,
respectively.
<PAGE>
E. INCOME TAXES:
Effective April 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting
for Income Taxes." This statement requires that deferred income
taxes be calculated using an asset and liability method, which
generally requires the recognition of the tax consequences on
future years of events which have been recognized in financial
statements. In addition, a valuation allowance is to be
recognized if it is more likely than not that some or all of a
deferred tax asset will not be realized. The Company has
recorded a valuation allowance to reflect the estimated amount of
deferred tax assets which may not be realized due to the
uncertainty of fully utilizing operating losses and tax credit
carryforwards. There was no material cumulative effect of
adoption of SFAS 109 on the financial position or results of
operations of the Company for the year ended March 31, 1994.
Income taxes (in thousands) consisted of the following:
Years ended March 31,
1995 1994 1993
- - -----------------------------------------------------------------
Currently payable (refundable):
Federal $(2,577) $( 4,050)
State 50 50
Deferred - Federal $142 (8,983)
- - -----------------------------------------------------------------
$142 $(2,527) $(12,983)
- - -------------------------------------============================
Deferred income taxes for 1995 and 1993 resulted principally from
depreciation, provision for nonrecurring charges and inventory
valuations. Total income taxes (credits) differ from the amounts
computed by applying the Federal income tax rate to income (loss)
before income taxes. The following table provides a
reconciliation between the United States statutory rate to the
effective tax rate reported:
<PAGE>
Years ended March 31,
1995 1994 1993
- - -----------------------------------------------------------------
U.S. statutory rate 34.0% 34.0% 34.0%
State income taxes net of federal
income tax benefits (1.1) (.1)
Effect of net operating
loss carryback 3.6 (4.0)
Tax rate differential on carryback
of product liability claim 5.2
Adjustment of prior years accrual 11.6
Benefit of net operating loss
carryforwards (14.0)
Other items - net .7
- - -----------------------------------------------------------------
Effective tax rate 20.0% 53.3% 30.6%
- - ------------------------------------------=======================
Deferred income taxes reflect the net tax effects of (a)
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes, and (b) net operating loss and tax
credit carryforwards. Significant components of the Company's
net deferred tax liability are as follows (in thousands):
Years ended March 31,
1995 1994
- - -----------------------------------------------------------------
Deferred tax assets:
Reserves not currently deductible $ 1,362 $ 1,517
Provision for nonrecurring charge 981 2,451
Postretirement benefits 877 942
Tax credit carryforwards 2,937 2,921
Net operating loss carryforwards 7,926 6,231
Valuation allowance (2,937) (3,037)
- - -----------------------------------------------------------------
Total deferred tax assets 11,146 11,025
- - ---------------------------------------------====================
<PAGE>
Deferred tax liabilities:
Change in method of inventory valuation $ 1,224 $ 1,530
Deferred casualty gain 1,627 1,618
Tax over book depreciation 8,178 7,590
Other 259 287
- - ----------------------------------------------------------------
Total deferred tax liabilities 11,288 11,025
- - ----------------------------------------------------------------
Net deferred tax (liability) $ (142) $ 0
- - -------------------------------------------=====================
At March 31, 1995, the Company had an alternative minimum tax
credit carryforward of approximately $1,916,000 which may be
carried forward indefinitely, and the Company also had a general
business credit carryforward of approximately $1,021,000 which
expires in various years through 2003 to 2010. At March 31,
1995, the Company had net operating loss carryforwards of
approximately $23,310,000 which expire in the years 2009 and
2010.
F. OTHER LIABILITIES:
Other liabilities (in thousands) consisted of the following:
March 31
1995 1994
- - -------------------------------------------------------------
Postretirement benefits - Note G $2,580 $2,769
Deferred compensation 1,519 1,826
Deferred income taxes 142
- - -------------------------------------------------------------
$4,241 $4,595
- - ----------------------------------------=====================
G. EMPLOYEES' RETIREMENT PLANT AND OTHER BENEFIT PLANS:
The Company provides certain postretirement health care benefits
and life insurance benefits to retired employees. The benefits
and eligibility requirements vary by location and various union
agreements.
Generally, eligibility is attained at age 55 or 62 with minimum
service requirements. Employees hired currently by the Company
are not entitled to postretirement health care benefits. The
medical benefits are generally subject to lifetime maximum
benefits of $750,000 and after age 65 are coordinated with
Medicare.
<PAGE>
During the year ended March 31, 1993, the Company adopted,
effective April 1, 1992, Statement of Financial Accounting
Standard No. 106 ("SFAS No. 106"), "Employers' Accounting for
Postretirement Benefits Other than Pensions." The Company had
previously provided for postretirement health care benefits on a
pay-as-you-go basis. In connection with the adoption of SFAS No.
106, the Company elected to recognize as expense during 1993 the
entire accumulated postretirement benefit obligation (transition
obligation) aggregating $2,500,000 as of April 1, 1992, rather
than amortizing such amount to expense over a 20-year period.
The Company continues to fund benefit expenses on a pay-as-you-go
basis.
The following table sets forth the plan's status reconciled with
amounts recognized in the balance sheet:
March 31
(Dollars in thousands) 1995 1994
- - -----------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $1,120 $1,377
Fully eligible active plan participants 108 234
Other active plan participants 826 1,174
- - -----------------------------------------------------------------
2,054 2,785
Unrecognized net gain (loss) 526 (16)
- - -----------------------------------------------------------------
Accrued postretirement benefits $2,580 $2,769
- - ------------------------------------------------=================
Years ended March 31
1995 1994
- - -----------------------------------------------------------------
Net periodic postretirement benefit (income)
expense included the following components:
Service cost - benefits attributed to
service during the period $ 154 $131
Interest cost on accumulated post-
retirement benefit obligation 203 206
Curtailment gain (379) (71)
- - ----------------------------------------------------------------
Net periodic postretirement benefit
(income) expense $ (22) $266
- - ----------------------------------------------==================
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation was 13% in 1995 and
14% in 1994, gradually declining to 6% in 2002.
The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 8.0% in 1995
and 7.5% in 1994.
<PAGE>
If the health care cost trend assumptions were increased by
1%,the accumulated postretirement benefit obligation as of March
31, 1995, would increase by $202,000. The effect of this change
on the aggregate of the service cost and interest cost would be
an additional charge to expense of approximately $33,000 for the
year ended March 31, 1995.
During 1995, the Company converted its self-insured retiree
medical program to a fully insured program and eliminated medical
benefits for employees who retire before age 65. Under the
revised program, retirees and beneficiaries are obligated to pay
the premium for their benefit coverage starting in 1996. These
plan changes represent the curtailment gain recognized in 1995.
In 1994, the curtailment gain represented the accumulated
postretirement obligation of employees at operations which were
divested during the year.
The Company has a profit sharing plan which covers substantially
all full-time, non-union employees who have completed one year
(minimum of 1,000 hours) of service and provides for Company
contributions to a separate trust based upon 8% of the profit
sharing income base as defined in the plan. No profit sharing
contributions were required during the two years ended March 31,
1994. Profit sharing contributions under this plan were
approximately $62,000 for the year ended March 31,1995.
In addition to the profit sharing plan, the Company has other
salary deferral profit sharing plans (401(k)plans) and defined
contribution plans. It also has a supplemental employee
retirement plan for career executive officers. Matching
contributions under these plans were $436,000, $337,000 and
$670,000 in 1995, 1994 and 1993, respectively.
Effective April 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits." This statement requires the
accrual of postemployment benefits during the years an employee
provides services. The impact of adopting this Statement was not
material.
H. CAPITAL STOCK:
In November 1994, the Company issued 3,000,000 shares of its
common stock at $9.00 per share in a public stock offering.
Proceeds from the offering, net of commissions and other related
expenses totaling $1,832,000, were $25,168,000. The proceeds
were used to repay a portion of the borrowings under its
revolving credit agreement. If this transaction had occurred on
April 1, 1994, the net earnings per share for the year ended
March 31, 1995, would have been $.15 per share. This
supplemental earnings per share amount assumes a reduction of
interest expense, net of applicable taxes and profit sharing
amounts, assuming the $25,168,000 of proceeds from the stock
offering were used to reduce borrowings under the Company's
existing revolving credit facility.<PAGE>
In June 1989, the Company amended its Articles of Incorporation
to grant, in the event any person ("Acquiring Person") becomes
the beneficial owner, as defined, of 50% or more of the Company's
common stock, any of which was acquired pursuant to a tender
offer, such holder of common stock other than the Acquiring
Person the right to have their shares repurchased for cash by the
Company. The repurchase price will be the highest of (i) the
highest price paid by Acquiring Person for those shares acquired
within the prior 18 months, (ii) the highest price on any trading
day in the prior 18 months or (iii) the per common share amount
of stockholders' equity as reflected in the previously completed
quarter.
In 1985 the stockholders approved a 1985 Incentive Stock Option
Plan pursuant to which 320,000 shares of the Company's common
stock were reserved for the grant of options to executive
officers and other key employees. Under the Plan, stock grants
may be made over a 10-year period at not less than 100% of fair
market value at the date of grant. One year after date of grant,
50% of the options become exercisable with the remaining options
exercisable after the second year. No option granted under the
Plan may be exercised more than 10 years after the date of grant.
In 1994, the stockholders approved a 1994 Executive Stock Option
Plan pursuant to which 400,000 shares of the Company's common
stock were reserved for the grant of options and stock
appreciation rights (SARs) to executive officers and other key
employees. Under the Plan, stock awards may be made over a 10-
year period at not less than 100% of fair market value at the
date of grant for incentive stock options and 90% of the fair
market value at the date of grant for non-qualified stock options
and SARs. SARs, which may only be granted in tandem with a non-
qualified stock option, shall be exercisable only to the extent
the underlying option is exercisable and the grant price shall be
equal to the exercise price of the underlying option. One year
after date of grant, 50% of the options and SARs become
exercisable with the remaining options and SARs exercisable after
the second year. No option granted under the Plan may be
exercised more than 10 years after the date of grant. There is a
$100,000 fair market value limit on incentive stock options that
may be exercised by any single holder in any calendar year. As
of March 31, 1995, no awards had been granted under this Plan.
<PAGE>
Changes in shares, as to options, are as follows:
Shares
- - -----------------------------------------------------------------
Outstanding
Reserved options Available
- - -----------------------------------------------------------------
Balances at March 31, 1992
($5.125 to $15.875) 258,200 200,500 57,700
Granted ($6.25 to $10.625) 19,600 (19,600)
Expired ($5.125 to $16.25) (36,200) 36,200
Exercised ($5.125 to $10.50) (24,700) (24,700)
- - -----------------------------------------------------------------
Balances at March 31, 1993
($5.125 to $15.875) 233,500 159,200 74,300
Granted ($6.125 to $8.625) 6,500 (6,500)
Expired ($6.25 to $15.125) (14,750) 14,750
Exercised ($5.125 to $6.875) (8,950) (8,950)
- - -----------------------------------------------------------------
Balances at March 31, 1994
($5.125 to $15.875) 224,550 142,000 82,550
Granted ($7.75 to $8.50) 35,000 (35,000)
1994 Plan 400,000 400,000
Expired ($6.875 to $12.750) (3,400) 3,400
- - -----------------------------------------------------------------
Balances at March 31,1995 624,550 173,600 450,950
- - -------------------------------==================================
At March 31, 1995, a total of 143,850 options were exercisable at
$5.125 to $15.875.
In 1995, the Company granted options to purchase 45,000 shares of
common stock at $8.50 per share to certain executive employees.
These options have substantially the same terms as the 1985
Incentive Stock Option Plan.
In addition, during 1990 the Company granted options to purchase
17,500 shares of common stock at $10 per share to certain
employees. These options have substantially the same terms as
the 1985 Incentive Stock Option Plan. During 1993, options for
15,000 of these shares expired.
In 1993, the Company issued warrants to the holders of the senior
notes in consideration for amending the applicable loan
agreements. The warrants entitle the holders to purchase an
aggregate of 90,000 shares of common stock at a price of $7.88
per share through January 15, 2000.
<PAGE>
I. COMMITMENTS AND CONTINGENCIES:
The Company has operating leases covering primarily equipment and
land. The majority of the equipment leases are for terms of one
year or less. The Company does, however, in the normal course of
business continue to lease the equipment after the minimum lease
period. Certain leases require payment of insurance and
maintenance costs.
Aggregate minimum rental commitments at March 31, 1995, under
noncancellable leases with terms of more than one year are
immaterial.
Total rent expense aggregated approximately $2,216,000,
$1,900,000 and $2,850,000, respectively, during fiscal 1995, 1994
and 1993.
A class action lawsuit was filed on January 3, 1995, in the
United States District Court for the Eastern District of
Wisconsin, against the Company, all of the individual members of
the Board of Directors of the Company, William Blair & Company
and Dain Bosworth, Inc. The plaintiff alleges that he sustained
losses in connection with his purchase of shares of Common Stock
of the Company during the period from October 17, 1994, to
December 19, 1994, as a result of defendants' alleged misleading
statements and omissions to state material facts. The Company
believes that the allegations are without merit or substance, and
will defend the action vigorously.
A second class action lawsuit seeking to represent class members
who purchased shares of Common Stock of the Company during the
period from October 17, 1994, to December 19, 1994, was filed on
May 10, 1995, in the United States District Court for the Eastern
District of Wisconsin. This second lawsuit makes similar claims
against the Company arising from the same facts and events. As
with the first class action lawsuit, the Company believes the
allegations in the second case are without merit or substance and
will defend the action vigorously.
In addition to the above cases, the Company is also involved in
various other legal actions and claims primarily arising in the
normal course of its business. In the opinion of management of
the Company, the liability, if any, would not have a material
effect on the Company's financial condition or results of
operations.
During fiscal 1994, the Company settled a product liability claim
resulting in a charge of $2,050,000. The product liability claim
relates to an acquired business and predates the acquisition of
such business.
<PAGE>
J. INSURANCE CLAIM:
During fiscal 1993 the Company had a boiler explosion and ensuing
fire at its Hoopeston, Illinois, processing facility. An initial
claim was filed with the insurance carrier relating to the
property and equipment destroyed and the estimated business
interruption losses incurred. At March 31, 1993, advances
aggregating $5,000,000 were recorded related to the write off of
$2,500,000 of property and equipment destroyed in the fire and to
record a gain, included in other revenues, of $2,500,000 relating
to recovery of expenses incurred and lost margin resulting from
the fire.
During fiscal 1994, the Company received additional insurance
proceeds from the final settlement of this claim, resulting in a
gain included in other revenues of $4,118,000.
K. NONRECURRING CHARGE:
During the fourth quarter of fiscal 1993, the Company recorded a
nonrecurring charge aggregating $21,145,000 related to its
decision to sell, close or downsize certain processing
facilities. The nonrecurring charge included the write down of
such processing facilities and related equipment to their
estimated net realizable or salvage value. Also included in the
nonrecurring charge are provisions for severance, consolidation
costs, plant carrying costs and write down of certain
discontinued inventories to their estimated net realizable value.
An analysis of the 1993 restructuring charge is as follows (in
thousands):
Balance
Original Changes in Reserves at
reserves estimates utilized 3/31/95
- - -----------------------------------------------------------------
Property, Plant &
Equipment $12,675 $(3,812) $ 6,769 $2,094
Inventory 2,642 3,860 5,835 667
Other 5,828 (48) 5,655 125
- - -----------------------------------------------------------------
Total $21,145 $ 0 $18,259 $2,886
- - ---------------------============================================
At March 31, 1995, the property held for disposition consists of
two processing facilities and related equipment.
<PAGE>
L. SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash payments for (refunds of) interest and income taxes were as
follows (in thousands):
Years ended March 31,
1995 1994 1993
- - -----------------------------------------------------------------
Interest $ 9,209 $11,854 $11,607
Income taxes - net (1,664) (4,118) (5,695)
- - -----------------------------------------------------------------
<PAGE>
QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands except per share)
Quarter Ended
- - -------------------------------------------------------------------------
1995 June September December March Year
- - -------------------------------------------------------------------------
Net sales $38,818 $58,313 $66,688 $67,603 $231,422
Gross profit 8,575 14,408 12,476 9,149 44,608
Net earnings (loss) 407 3,351 951 (4,139) 570
Net earnings (loss)
per share .05 .40 .10 (.37) .06
1994
- - -------------------------------------------------------------------------
Net sales $56,357 $71,148 $71,983 $56,657 $256,145
Gross profit 5,205 8,708 12,166 13,674 39,753
Net earnings (loss) (5,385) 118 226 2,826 (2,215)
Net earnings (loss)
per share (.65) .01 .03 .34 (.27)
No dividends were paid during fiscal 1995 and 1994, and the Company does
not anticipate paying dividends in the foreseeable future.
The sum of the quarterly earnings per share does not equal the total
earnings per share for fiscal 1995 due to the issuance of additional
shares during the year.
The Company's operations are largely seasonal. The majority of its
production occurs during the second and third quarters of each fiscal
year due to the timing of crop production and climate conditions. Net
sales for the third and fourth quarters of fiscal 1995 and 1994 were 58%
and 50% of total sales, respectively, and thus have a significant impact
on the Company's results of operations. Sales for processed vegetables
are greater during the third and fourth quarters of each fiscal year due
to general consumption patterns for its products.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
------------------------
Not applicable.<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- - ------------------------------------------------------------
Information required by this item with respect to directors is included
under the heading "Matter (1) - Election of Directors" and with respect
to compliance with Section 16(a) of the Securities Exchange Act of 1934
is included under the heading "Section 16 Compliance," in the Company's
definitive Proxy Statement, dated June 26, 1995, related to the 1995
Annual Meeting of Shareholders scheduled for July 28, 1995, filed with
the Securities and Exchange Commission separately pursuant to Rule 14a-6
under the Securities Exchange Act of 1934, and which section is hereby
incorporated herein by reference.
Information concerning executive officers who are not directors is
contained in Part I of this Form 10-K pursuant to paragraph (b) of Item
401 of Regulation S-K in reliance on Instruction G(3).
ITEM 11. EXECUTIVE COMPENSATION
- - --------------------------------
Information required by this item is included under the heading
"Compensation of Executive Officers and Directors" in the Company's
definitive Proxy Statement, dated June 26, 1995, relating to the 1995
Annual Meeting of Shareholder scheduled for July 28, 1995, filed with the
Securities and Exchange Commission separately pursuant to Rule 14a-6
under the Securities Exchange Act of 1934, and which section is hereby
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- - ------------------------------------------------------------------------
Information required by this item is included under the heading "Security
Ownership of Certain Beneficial Owners" in the Company's definitive Proxy
Statement, dated June 26, 1995, relating to the 1995 Annual Meeting of
Shareholders scheduled for July 28, 1995, filed with the Securities and
Exchange Commission separately pursuant to Rule 14a-6 under the
Securities Exchange Act of 1934, and which section is hereby incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - --------------------------------------------------------
Information required by this item is included under the heading "Certain
Transactions" in the Company's definitive Proxy Statement, dated June 26,
1995, relating to the 1995 Annual Meeting of Shareholders scheduled for
July 28, 1995, filed with the Securities and Exchange Commission
separately pursuant to Rule 14a-6 under the Securities Exchange Act of
1934, and which section is hereby incorporated herein by reference.<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
--------
(a) Financial Statements and Financial Statement Schedules
------------------------------------------------------
Form 10-K
Page Number
-----------
The following consolidated financial statements
of Stokely USA, Inc. and its subsidiaries are
included in Item 8 of this Annual Report:
Independent Auditors' Report 43
Consolidated Balance Sheets, March 31, 1995 and 1994 44-45
For the years ended March 31, 1995, 1994 and 1993:
Consolidated Statements of Operations 46
Consolidated Statements of Stockholders' Equity 47
Consolidated Statements of Cash Flows 48-49
Notes to Consolidated Financial Statements 50-63
The following consolidated financial statement
schedule of Stokely USA, Inc. and its subsidiaries
is included in Item 14 of this Annual Report:
Schedule VIII Valuation and Qualifying Accounts
and Reserves 66
All other schedules are omitted because they are inapplicable, not required
under the instructions, or the information is included in the Consolidated
Financial Statements or notes thereto.
(b) Reports on Form 8-K:
--------------------
No reports on Form 8-K were filed by the Company during the three months
ended March 31, 1995.
<PAGE>
c) Exhibits
--------
In accordance with Rule 201 of Regulation S-T, the exhibits are being filed
in paper pursuant to a temporary hardship exemption and in accordance with
Rule 201 will be electronically filed supplementally.
(d) Financial Statement Schedules
-----------------------------
<TABLE>
SCHEDULE VIII
STOKELY USA, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended March 31, 1995, 1994 and 1993
<CAPTION>
Description
------------------------------------------------------------------------------
Valuation Assets Valuation Assets Valuation Assets
Deducted from Assets- Deducted from Assets- Deducted from Assets-
Allowance for Losses Restructuring Reserves: Restructuring Reserves
on Receivables Discontinued Inventory Property Held for Disposition
------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance
March 31, 1992..... $ 400,000 $ 0 $ 0
Additions charged to
costs and expenses. 747,000 2,642,000 12,675,000
Deductions.......... (477,000)<F1> 0 0
---------- ---------- -----------
Balance
March 31, 1993..... 670,000 2,642,000 12,675,000
Additions charged to
other accounts..... 0 3,860,000<F3> 0
Deductions.......... (285,000)<F2> (3,502,000) (8,749,000)
---------- ----------- -----------
Balance
March 31, 1994..... 385,000 3,000,000 3,926,000
Additions charged to
costs and expenses. 139,000 0 0
Deductions.......... (72,000)<F1> (2,333,000) (1,832,000)
--------- ---------- -----------
Balance
March 31, 1995..... $ 452,000 $ 667,000 $ 2,094,000
========= ========== ===========
<FN>
<F1> Write off of bad debts.
<F2> Uncollectible accounts written off, net of recoveries and reduction in bad debt reserve.
<F3> Reclassification from other restructure reserves.
</FN>
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on behalf of the undersigned, thereunto duly authorized.
STOKELY USA, INC.
Date: June 29, 1995
BY:
------------------------
Vernon L. Wiersma
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- - --------- ----- ----
Director 6-29-95
- - -------------------- ---------
Thomas W. Mount
Chairman of the Board 6-29-95
- - -------------------- ---------
Frank J. Pelisek
President, Chief Execu- 6-29-95
- - -------------------- tive Officer and Director ---------
Vernon L. Wiersma
Vice Chairman, Treasurer 6-29-95
- - -------------------- and Director ---------
Stephen W. Theobald
Vice President and Chief 6-29-95
- - -------------------- Financial and Accounting ---------
Leslie J. Wilson Officer
Director 6-29-95
- - -------------------- ---------
Joseph B. Weix
Director 6-29-95
- - -------------------- ---------
Orren J. Bradley
Director 6-29-95
- - -------------------- ---------
Russell W. Britt
<PAGE>
Director 6-29-95
- - -------------------- ---------
Ody J. Fish
Director 6-29-95
- - --------------------- ---------
James H. DeWees
Director 6-29-95
- - --------------------- ---------
Charles J. Carey
Director 6-29-95
- - --------------------- ---------
Carol Ward Knox
<PAGE>
