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, 1996 No. 0-13943
STOKELY USA, INC.
(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
(Address of principal executive office)
(414) 569-1800
(Registrant's telephone number, including area code)
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
(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 No X
----- -----
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
-----<PAGE>
State the aggregate market value of the voting stock held by non-affiliates
of the registrant as of July 15, 1996: $35,492,100
Common Stock, $.05 par value
Number of shares of Common Stock, $.05 par value, outstanding as of
July 15, 1996 - 11,357,472
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement to be dated August 9, 1996 (Part
III).
Page No. 2 of 101 pages
Exhibit Index located on pages 61-66.
<PAGE>
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of the factors
discussed in this report and/or as a result of general economic conditions;
vegetable processing industry conditions and price and volume fluctuations;
competitive pressures and pricing pressures; inventory risks; supply-
related risks; demand-related risks; third party lender actions; and
results of Company-specific cost containment and profit enhancement
initiatives.
PART I
ITEM 1. BUSINESS
General Development of Business
Stokely USA, Inc. ("Stokely" or the "Company") is a domestic producer of
canned 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.
Prior to February 1996, the Company also processed, marketed and sold
frozen vegetables, primarily in bulk size quantities for the industrial
market. In February 1996, the Company announced it was exiting the frozen
vegetable processing industry.
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 annual growth rate.
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. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a further
discussion of industry 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. 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 United States vegetable processing industry is a mature industry, with
a relatively modest annual growth rate. 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
processing 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 in part upon the supply of agricultural products and
is subject to the variable nature of agricultural production. Selling
prices of canned and frozen products usually 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. Reduced
planted acreage and unfavorable growing conditions in the summer of 1995
reduced industry production and improved market prices in the latter part
of fiscal 1996, continuing into fiscal 1997. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations"
for a further discussion of the industry.
Restructuring Programs and Business Strategy
In response to the depressed market conditions that have persisted in the
vegetable processing industry for most of the past five years, the Company
has pursued a strategy that focuses on its core product lines and major
channels of distribution. Since fiscal 1993, the Company has narrowed its
product focus to product lines in which it has significant market share -
corn, green beans, peas and root crops. 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. The Company implemented two
significant restructure programs which involved the closing of certain
plants and the consolidation of other production at larger, more efficient
facilities, eliminating certain low margin or unprofitable product lines,
reducing operating overhead and lowering interest expense through debt
reduction.
In 1993, the Company redefined its core products as corn, green beans, peas
and root crops produced in the Midwest (canned processing) and Northwest
(frozen processing), 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.
In addition, the Company's general and administrative workforce was reduced
by 25% from fiscal 1992 levels.
As part of the 1993 restructuring, the Company recorded a non-recurring
restructuring charge of $14.7 million ($21.1 million pre-tax) relating to
the write-down of eight processing plants which were 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. The fiscal 1993 restructure
program was substantially completed in fiscal 1995 and benefits fully
realized.
While these restructure measures resulted in substantial cost and expense
reductions which contributed to the Company's improved fiscal 1994 and 1995
operating results, the vegetable processing industry continued to
experience depressed market conditions in fiscal 1995 and 1996,
particularly in the frozen vegetable business.
Declines in the Company's frozen sales and margins in fiscal 1995 and 1996
reflected the general decline in the frozen vegetable markets due to excess
industry inventories and excess production capacity. These conditions
caused an extremely competitive market climate and decreased margins. As a
result, the Company decided to exit the frozen vegetable business entirely
and recorded a nonrecurring charge of $12.5 million in the fourth quarter
of fiscal 1996 relating to the write-down of three closed processing plants
and associated costs and the liquidation of related inventories.
Subsequently, the Company has entered into an agreement with three third
parties for the sale of two processing plants and substantially all of the
Company's frozen inventory. The sale closed in the second quarter of
fiscal 1997 and the proceeds were used to pay down long-term debt and
revolving credit obligations. The third processing plant representing less
than 10% of total frozen production capacity remains for sale.
In the past several years, the Stokely's Finest brand market has under-
performed private label on many occasions due to competitive market
conditions. The Company's historical response has been to maintain brand
market share by meeting competitive prices. In the fourth quarter of
fiscal 1996, the Company changed that strategy and increased prices in
certain markets and elected to exit others to improve operating results.
In response to the continued depressed canned vegetable market conditions,
the Company has continued to explore and implement a variety of cost
reduction and margin improvement initiatives. Fixed general and
administrative budgets for fiscal 1997 have been reduced by 20%. A review
of the Company's distribution system and practices has resulted in a change
in fiscal 1997 in the Company's forward distribution network that will
reduce cost and improve service. The new Information System installed in
fiscal 1996 provides an improved capability for analysis of customer
profitability to identify additional opportunities to improve margins. An
agreement was reached in July 1996 to sell the Company's headquarter
building during the fourth quarter of fiscal 1997. The sale is expected to
reduce operating expenses and related debt and interest expense. Finally,
a new study has been recently initiated that will examine every element of
the canned business to explore additional ways to change the Company's
production capacity and sales and distribution systems to further improve
margins through a combination of better pricing decisions and lower costs.
The study is expected to be completed during the second quarter of fiscal
1997.
Financial Information about Product Groups
The Company cans 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. Prior to February 1996, the
Company processed and sold frozen vegetables. In February 1996, the
Company announced that it was exiting the frozen vegetable business and
will sell the remaining inventory through the third quarter of fiscal 1997.
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.
<PAGE>
<TABLE>
Fiscal Year Ended March 31,
1996 1995 1994
<CAPTION>
Net Net Net
Sales Percent Sales Percent Sales Percent
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Canned Vegetables:
Corn $ 64,200 31.1% $ 67,500 29.2% $ 67,400 26.3%
Green beans 36,000 17.5 40,000 17.3 41,500 16.2
Peas 22,600 11.0 20,500 8.9 20,100 7.9
Root crops 17,000 8.2 13,800 6.0 14,700 5.7
Other 28,400 13.8 33,300 14.3 32,000 12.5
Total canned vegetables 168,200 81.6 175,100 75.7 175,700 68.6
Frozen Vegetables:
Corn 13,900 6.7 22,200 9.6 24,700 9.7
Peas 5,800 2.8 11,100 4.8 13,400 5.2
Other 18,400 8.9 23,000 9.9 42,300 16.5
Total frozen vegetables38,100 18.4 56,300 24.3 80,400 31.4
Total canned and frozen
vegetables $206,300 100.0% $231,400 100.0% $256,100 100.0%
</TABLE>
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. 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 1996, approximately 59% of the Company's canned corn was sold
to the private label industry, 24% was sold under the Company's brand
label, with an emphasis on special varieties for the Stokely's Gold label,
and 17% 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.
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 1996, approximately 45% of the Company's
canned green beans were sold under the Company's brand label, 39% were sold
to the private label industry and 16% were sold to the foodservice
industry. The Company's green beans are grown primarily in Wisconsin and
Michigan.
PEAS. 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 1996, approximately 49% of the
Company's canned peas were sold to the private label industry, 27% were
sold under the Company's brand labels and 24% 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. 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 1996, approximately 43%
of the Company's canned root crop vegetables were sold to the private label
industry, 30% were sold to the foodservice industry and 27% 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 1996,
approximately 41% of the Company's other vegetables were sold to the
foodservice industry, 35% were sold to the private label industry and 24%
were sold under the Company's brand labels. 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 were sold through the
industrial channel of distribution in bulk quantities. The Company also
sold a small amount of its frozen vegetable products to the private label
industry, the foodservice industry and as exports and were packaged in bulk
and in individual boxes and polybags. The Company's vegetables for its
frozen products, primarily corn and peas, were grown primarily in the state
of Washington.
Customers, Marketing and Sales
General
The Company markets and sells its canned 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 frozen vegetable products to primarily
industrial customers who either blend, repack or use the products as an
ingredient.
The following table shows the net sales and percentage of total net sales
contributed by the Company's canned brand label, private label, and
foodservice markets and frozen sales markets for each of the last three
fiscal years.
<TABLE>
Fiscal Year Ended March 31,
1996 1995 1994
<CAPTION>
Net Net Net
Sales Percent Sales Percent Sales Percent
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Private label <F1> $ 80,300 38.9% $ 77,600 33.6% $ 82,700 32.3%
Brand label <F2> 49,300 23.9 53,300 23.0 49,100 19.2
Foodservice <F3> 38,600 18.7 44,200 19.1 43,900 17.1
Frozen (industrial and
other) <F4> 38,100 18.5 56,300 24.3 80,400 31.4
Total $206,300 100.0% $231,400 100.0% $256,100 100.0%
<FN>
<F1> Of the Company's total private label sales shown above, export sales totalled $13.6
million, $10.9 million and $16.3 million for fiscal 1994, 1995 and 1996,
respectively.
<F2> Of the Company's total brand label sales shown above, export sales totalled $1.0 million,
$.6 million, and $1.0 million and U.S. government sales (including sales through military
commissaries) totalled $6.1 million, $1.8 million and $2.0 million for fiscal 1994, 1995
and 1996, respectively.
<PAGE>
<F3> Of the Company's total foodservice sales shown above, U.S. government sales totalled
$9.7 million, $8.2 million and $9.5 million for fiscal 1994, 1995 and 1996,
respectively.
<F4> Sales to industrial accounts accounted for $57.0 million, $41.0 million and $23.8
million of total frozen sales shown for fiscal 1994, 1995 and 1996, respectively.
</FN>
</TABLE>
For the fiscal year ended March 31, 1996, 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.
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 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
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 two 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, a growing
position in canned pumpkin, and a growing position as a supplier to
national chain restaurant accounts.
Frozen Sales
Historically, the Company's frozen sales principally involved 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. In February 1996, the Company announced that it
was exiting the frozen vegetable business and would cease processing of
frozen vegetables and would liquidate the remaining frozen vegetable
inventory.
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 distribution
channels. The customer service and inventory management team also support
sales by ensuring customer orders are filled smoothly and inventories
remain at various distribution centers 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 80,000 acres in Wisconsin, Minnesota,
Iowa, Illinois, and Michigan, with irrigated acres accounting for
approximately 20% 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.
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,
Silgan Containers Corporation and Crown Cork & Seal under 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
At June 30, 1996, the Company operated nine canned vegetable processing
plants. The Company closed its three frozen processing plants in fiscal
1996. 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. 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 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.
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 completed the
implementation of new core processing systems in fiscal 1996. The new
systems are more flexible and 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 were the major areas of
implementation.
Competition
All of the Company's products compete with those of other major national
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.
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 capital expenditures on quality and service
innovations.
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 Green Giant, Dean Foods, and Friday Canning
Company, most of whom are larger and have greater resources than the
Company.
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 right 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.
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 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 canned vegetable processing season,
the Company employs approximately 2,700 employees, of which approximately
2,140 are seasonal and part-time production personnel, 470 are full-time,
year-round production personnel, and 90 are management, sales and
administration personnel. Approximately 850 regular hourly and seasonal
employees belong to labor unions. Stokely's four union contracts are
generally three years in length and provide for average wage increases of
3.0% during fiscal 1997. There are no union contracts expiring in fiscal
1997. 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.
Foreign Operations
Exports of processed vegetables represent a growing channel of
distribution. The Company's export sales principally involve sales of
private label canned vegetables. The Company believes it is a leading
exporter of canned corn to Germany and Scandinavia. The Company's export
sales accounted for 8.3%, 6.6% and 10.3% of total canned sales for fiscal
1994, 1995 and 1996, respectively. International sales are subject to
various risks, including exposure to currency fluctuations, 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.
ITEM 2. PROPERTIES
Stokely's principal facilities, all of which are owned, 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;
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
Corporate Headquarters:
Oconomowoc, Wisconsin <F2> 52,000 General offices
Closed Facilities <F1>
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; carrots; lima beans; onions;
squash
Total 2,631,000
<F1> These facilities were closed during fiscal 1996 as part of the
Company's restructuring plan. The Company sold Grandview and
Walla Walla, Washington plants during the second quarter of
fiscal 1997. The Green Bay facility remains available for sale.
<F2> An agreement was reached in July 1996 to sell the Company's
headquarter building during the fourth quarter of fiscal 1997.
<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 alleged 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. A second 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 made similar claims against the Company
and certain officers arising from the same facts and events. These
lawsuits were consolidated on September 22, 1995 and the complaint filed in
the first lawsuit was deemed the operative complaint superseding the
complaint filed in the second lawsuit. The plaintiff in the second lawsuit
has since elected to withdraw as a plaintiff in the consolidated lawsuit.
On March 21, 1996, the United States District Court issued a decision
dismissing the consolidated lawsuit. The plaintiff has filed a motion to
alter or amend the judgement of dismissal which is pending a decision. The
Company has opposed this motion and believes that the dismissal was proper.
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 30, 1996.
Name Age Office and Business Experience
Frank J. Pelisek 66 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 50 President and Chief Executive Officer
since April 1996; Vice Chairman and
Treasurer 1992-1996; director since 1980;
Vice President Administration since 1985
when he joined Stokely.
Robert M. Brill 48 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 45 Vice President, Operations since 1990;
Director of Operations since 1989; joined
Stokely in 1985.
Eddie W. Foster 58 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.
Kenneth C. Murray 38 Senior Vice President, Sales and Marketing
since 1996, Vice President, Canned Sales
and Marketing from 1992-96. Director of
Marketing and Business Development since
1990 when he joined Stokely.
Russell J. Trunk 55 Senior Vice President, Operations since
1992; General Manager Texas/Mexico
Operations from 1991-92; joined Stokely in
1991.
Leslie J. Wilson 52 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, Deutz-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. 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 August 9,
1996. 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
Market Information
Stokely common stock is traded on the NASDAQ National Market System. The
market symbol is STKY. American Stock Transfer and Trust Company, 40 Wall
Street, New York, New York 10005 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
1996
First Quarter 6 5/8 5 1/8
Second Quarter 7 7/16 5 1/8
Third Quarter 6 15/16 4 7/8
Fourth Quarter 5 1/4 2 3/8
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
Holders
At July 15, 1996, there were 996 holders of record of the shares of common
stock.
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, 1996, 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, 1996, in Item 8 of this Form 10-K.
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
<CAPTION>
Years ended March 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $206,251 $231,422 $256,145 $281,382 $280,368
Other revenues 147 517 4,691 2,145 676
Total net revenues 206,398 231,939 260,836 283,527 281,044
Cost of products sold 175,865 186,814 216,392 249,982 238,804
Selling, general and
administrative expenses 36,672 33,617 36,476 42,139 48,481
Nonrecurring charge 12,500<F2> - - 21,145<F3> -
Operating earnings(loss) (18,639) 11,508 7,968 (29,739) (6,241)
Interest expense 10,182 10,796 12,710 12,721 8,592
Earnings (loss) before
income taxes (credits)and
cumulative effect of
change in accounting
principle (28,821) 712 (4,742) (42,460) (14,833)
Income taxes (credits) - 142 (2,527) (12,983) (4,931)
Earnings (loss) before
cumulative effect of
change in accounting
principle (28,821) 570 (2,215) (29,477) (9,902)
Cumulative effect of change
in method of accounting for
postretirement benefits (net
of income taxes of $850) - - - (1,650) -
Net earnings (loss) $(28,821) $ 570 $(2,215) $(31,127) $(9,902)
COMMON STOCK DATA
Net earnings (loss)
per share $ (2.54) $ .06 $ (.27) $(3.75)<F1> $(1.19)
Dividends per share - - - - .20
Stockholders' equity
per share $ 2.61 $ 5.15 $ 3.92 4.18 7.93
Average shares out-
standing (thousands) 11,326 9,336 8,320 8,302 8,288
Shares outstanding at
year-end (thousands) 11,326 11,325 8,325 8,316 8,291
<FN>
<F1> Fiscal 1993 includes a $.20 per share loss due to post-retirement benefits
accounting method change.
<F2> For the nonrecurring charge in fiscal 1996 see Note K to Notes to Consolidated
Financial Statements.
<F3> In connection with a Company restructuring plan, the Company sold, closed or down-
sized certain processing facilities, resulting in a nonrecurring charge during
fiscal 1993 from the write-down of such processing facilities, equipment and
inventories to their estimated net realizable value and from provisions for
severance, consolidation costs and plant closing costs.
</FN>
</TABLE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
(Dollars in thousands except per share data)
<CAPTION>
Years ended March 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
BALANCE SHEET AND FINANCIAL DATA
Working capital $ 48,418 $ 68,052 $ 42,071 $ 40,626 $ 80,064
Current ratio 1.74 2.69 2.03 1.38 2.39
Property, plant and
equipment - net 57,501 68,597 67,356 68,419 90,794
Depreciation 8,190 7,508 7,230 9,286 8,461
Capital expenditures 7,521 6,421 5,174 12,871 21,713
Total assets 175,721 181,294 158,535 232,843 233,737
Long-term debt 77,230 78,497 80,438 82,854 96,466
Stockholders' equity 29,567 58,378 32,640 34,777 65,761
Cash dividends declared - - - - 1,658
/TABLE
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
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
relatively modest growth. 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.
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.
Nonrecurring Charge
In the fourth quarter of fiscal 1996, the Company recorded a nonrecurring
charge of $12.5 million related to the Company's decision to exit the
frozen vegetable business. Sharply declining frozen operating margins in
fiscal 1996 caused primarily by excess frozen industry inventory coupled
with excess capacity in the frozen vegetable industry were major factors in
the decision to cease processing operations of the Company's frozen
business unit.
In conjunction with that decision, the Company has reached an agreement
with three third parties for the sale of two frozen processing plants,
located in the state of Washington, and substantially all its frozen
business inventory. The sale of the two plants was completed in the second
fiscal quarter of 1997. A third plant representing less than 10% of the
Company's total frozen capacity remains for sale. The nonrecurring charge
of $12.5 million, a major portion of which is non-cash, will cover costs
associated with the sale of its three frozen processing plants and related
inventories.
The frozen business sales approximated 20% of the Company's 1996 fiscal
year sales. The sale proceeds of the frozen plant facilities and related
inventory were used to pay down long-term debt and reduce working capital
requirements. The frozen plants formerly employed approximately 400 full-
time and seasonal employees. The exit from the frozen business will allow
the Company to concentrate on its core business of canned vegetables. See
also Note K of Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
Fiscal Year Ended March 31, 1996 Compared to Fiscal Year Ended March 31,
1995
Net Earnings (Loss)
The net loss for the fiscal year ended March 31, 1996 was $28.8 million
compared to net income of $0.6 million for the previous year. The decline
in earnings in fiscal 1996, excluding the nonrecurring charge of $12.5
million as a result of the Company's decision to exit the frozen vegetable
business, was primarily due to decreased margins, particularly in the
frozen vegetable business, and increases in canned selling and promotional
expenses due to the depressed market conditions that prevailed for most of
fiscal 1996.
Net Sales
Net sales in fiscal 1996 decreased $25.1 million, or 10.8%, to $206.3
million from $231.4 million in fiscal 1995. The reduction in sales was due
primarily to a decline in frozen vegetable sales volume, a decline in
frozen vegetable prices and lower canned sales volume in the last half of
fiscal 1996 caused primarily by lower available inventories due to lower
planted acreage and a poor growing season during fiscal 1996. These volume
and pricing shortfalls were only partially offset by slightly higher
average pricing for canned vegetables.
Total canned vegetable sales decreased $6.9 million, or 3.9%, to $168.2
million in fiscal 1996 from $175.1 million in fiscal 1995. The decline in
total canned vegetable sales was the result of an $8.8 million reduction in
sales volume partially offset by a $1.9 million increase in sales due to
higher pricing.
Selling prices increased moderately in fiscal 1996 compared to fiscal 1995
primarily in response to last summer's lower production volume due to
reduced planted acreage and poor growing and harvesting conditions. The
Company believes that reduced industry production in the summer of 1995
resulted in more normal industry inventory levels. However, market
conditions did not substantially rebound as anticipated, indicating other
market forces were at work which continued to depress selling prices and
caused the Company to increase selling and promotion expenses in order to
respond to competitive pricing pressure. The Company believes these market
conditions may be the result of inventory distribution imbalances within
the industry, extremely competitive market conditions, including aggressive
pricing strategies of some industry participants, and the emergence of
large volume customers and the effects of their buying power.
<PAGE>
Total frozen sales declined $18.2 million, or 32.3%, to $38.1 million in
fiscal 1996 compared to $56.3 million in fiscal 1995. The decline in sales
was the result of a $14.9 million reduction in sales volume, and a $3.3
million decrease in sales due to lower pricing. The decrease in sales
volume and pricing in fiscal 1996 reflects the general decline in the
frozen vegetable markets due to excess industry inventories and excess
industry production capacity causing an extremely competitive market
climate and sharply lower margins. These factors led to the Company's
decision announced in February 1996 to exit the frozen business.
Cost of Products Sold
Cost of products sold decreased $10.9 million, or 5.8%, to $175.9 million
in fiscal 1996 from $186.8 million in fiscal 1995. 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 increased by 4.6% to 85.3% in fiscal 1996 compared to 80.7% in fiscal
1995. The increase in cost of products sold as a percent of sales is due
to increases in certain cost components, including containers and packaging
costs, and proportionate increases in the fixed cost component of product
costs due primarily to lower canned production volume caused by reduced
planted acreage and weather extremes during the summer of 1995.
Selling, General and Administrative Expense
Selling, general and administrative expenses increased by $3.1 million, or
9.2%, to $36.7 million in fiscal 1996 from $33.6 million in fiscal 1995.
Selling, general and administrative expenses as a percentage of net sales,
increased by 3.3% to 17.8% in fiscal 1996 compared to 14.5% in fiscal 1995.
These increases resulted primarily from a $2.0 million increase in variable
selling and promotion expense incurred in response to competitive pricing
pressures prevailing for most of fiscal 1996. General and administrative
expenses also increased $0.5 million as a result of legal costs incurred in
defense of two shareholder suits stemming from the November 1994 common
stock offering. See also Note I of Notes to Consolidated Financial
Statements.
Interest Expense
Interest expense decreased $0.6 million or 5.6%, to $10.2 million in fiscal
1996 compared to $10.8 million in fiscal 1995. This reduction was
primarily the result of lower revolving credit borrowing rates from a new
revolving credit facility entered into in early fiscal 1996 offset in part
by higher average borrowing levels.
Income Taxes
In fiscal 1996, no income tax expense or benefit was recorded. The tax
benefit of the pre-tax operating loss of fiscal 1996 was offset by a
corresponding increase in the valuation allowance of allowable tax
benefits. At March 31, 1996, the Company had net operating loss
carryforwards of $41.9 million and tax credit carryforwards of $2.9
million, which are available to reduce and/or offset future tax
liabilities.
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 $0.6 million or 0.4%, 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 partially offset by a $7.9 million increase in sales due to
higher pricing. Of the net decrease in sales of $0.6 million, $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.
As expected, selling prices declined from the levels experienced early in
fiscal 1995, in response to the prior 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 of fiscal 1995. 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 remained extremely
depressed at March 31, 1995. The Company believes this situation was
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 of
fiscal 1995 compared to the third quarter in the prior year, syndicated
market share data made available in December of 1994 indicated that, for
the category in total, private label did lose market share to the brand
market during the fall of 1994. 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.
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 1993
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 the 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 $0.8 million 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 were 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 $0.6 million compared to a net loss of
$2.2 million in fiscal 1994.
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 maximum amount of short-
term borrowings in fiscal 1996 was $65.4 million compared to $59.7 million
in fiscal 1995 and $68.9 million in fiscal 1994.
On May 21, 1996, the Company entered into a new revolving credit agreement
with a commercial lender which provides for borrowings up to $70 million.
The new revolving credit agreement provides for an expanded collateral
borrowing base, lower interest rates and less restrictive financial and
operating covenants than the former agreement. The Company believes the
new revolving credit agreement will be adequate to meet the Company's
seasonal borrowing needs. Maximum revolving credit borrowings projected
for fiscal 1997 are approximately $60 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 $77.2 million at March 31, 1996,
excluding current maturities of $15.2 million. Current maturities include
scheduled maturities and expected payments upon sale of the property, plant
and equipment relating to the Company's frozen business. Included in the
long-term debt obligations are two senior notes totaling $22.7 million,
various Industrial Development Revenue Bonds totaling $21.5 million and
$33.0 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.
At March 31, 1996, the Company was not in compliance with certain financial
ratio covenants of its senior note agreements. However, the note
agreements were amended and prior covenant violations waived on July 25,
1996. The amended senior note agreements provide that the note holders
receive interest at 11%, payable quarterly, plus 3% capitalized interest
payable at maturity of the amended agreements on January 15, 2000. The
amended agreements also provide for adjustments to the interest rates based
upon the Company attaining certain reductions in the principal balance of
the senior notes. In addition, the Company issued warrants to the senior
note holders in consideration for amending the applicable note agreements.
The warrants entitle the holders to purchase an aggregate of 2,200,000
shares of common stock through July 25, 2006 at a price per share equal to
the lower of $2.25 or the average trading price of the Company's stock over
a subsequent 10 day period as defined in the agreements. The number of
shares covered by the warrants are subject to reduction upon the Company
attaining certain reductions in the principal balance of the senior notes.
The note holders' expenses related to the amended agreements also were
paid. The amended agreements require the Company to maintain certain
revised financial covenants including net worth and current ratio
covenants.
In conjunction with the refinancing of the revolving credit facility
entered into on May 21, 1996 and the amendment of the senior note
agreements entered into on July 25, 1996, the Company will incur a loss of
$829,000 in the first half of fiscal 1997 for the charge-off of deferred
debt expense associated with the early extinguishment of the respective
former financing agreements.
Cash Flows from Operating Activities
Cash used in operations during fiscal 1996 totaled $5.9 million. Of the
total cash used, changes in operating assets and liabilities provided cash
of $2.2 million, primarily due to a decrease in accounts receivable of $8.5
million and an increase in accounts payable of $7.9 million, partially
offset by an increase in inventory of $12.8 million less cash used in
operations totaling $8.1 million. The decrease in accounts receivable of
$8.5 million is due to a decrease in sales in the quarter ended March 31,
1996 compared to a year ago. The increase in accounts payable of $7.9
million is due to deferral of certain vendor payments to the first quarter
of fiscal 1997 while the new revolving credit agreement was being
finalized. The increase in inventory of $12.8 million is due primarily to
higher frozen vegetable finished goods at March 31, 1996 caused by lower
sales volume in fiscal 1996.
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
$29.5 million, primarily due to an increase in inventory of $24.1 million
and an increase in accounts receivable of $4.6 million, partially offset by
cash generated from operations totaling $9.7 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
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 $4.6 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 $20.7
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 1996,
1995 and 1994 was $(5.5) million, $(4.9) million and $4.6 million,
respectively. Purchase of property, plant and equipment was $7.5 million,
$6.4 million and $5.2 million during fiscal 1996, 1995 and 1994,
respectively.
Major capital expenditures during fiscal 1996 related to the completion of
the new management information system installed August 1, 1995, additional
investments in product quality control equipment at various processing
plants, and the completion of the capacity consolidation at the Waunakee,
Wisconsin facility.
In fiscal 1996, the Company received $2.3 million in additional cash flow
from the sale of two previously idled processing plants and a warehouse.
Proceeds from these facility sales were used to pay down long-term debt.
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 1993 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
environmental projects. Capital expenditures budgeted for fiscal 1997,
which are not expected to exceed $1.5 million, will be primarily for
product quality and productivity improvements.
Cash Flows from Financing Activities
At March 31, 1996, the Company increased its revolving credit borrowings by
$15.6 million to $52.9 million. The net increase in revolving credit
borrowings was used primarily to fund capital expenditures of $7.5 million
and fiscal 1996 operating losses. At March 31, 1996, the Company had $52.9
million of revolving credit borrowings, of which $33.0 million was
classified as long-term and $19.9 million was classified as short-term.
At March 31, 1995, the Company increased its borrowings under the revolving
credit facility by $2.3 million to $37.3 million. The net increase in
revolving credit borrowings was due primarily to funding increases of $28.8
million in inventory and accounts receivable levels. These increases in
revolving credit borrowings were substantially offset by the $25.2 million
pay down of revolving credit borrowings from the proceeds of the November
1994 common stock offering. At March 31, 1995, the Company had $37.3
million of revolving credit borrowings, 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 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. At March 31,
1994, the Company had $35.0 million of revolving credit borrowings, of
which $17.0 million was classified as long-term and $18.0 million was
classified as short-term.
Litigation
The Company is involved from time to time in various legal actions and
claims. For a discussion of current matters, see Note I of Notes to
Consolidated Financial Statements.
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.
Subsequent Event
In July 1996, the Company entered into an agreement to sell its corporate
headquarters building for $4.4 million, resulting in a loss of
approximately $1.0 million which will be recognized in fiscal 1997. The
sale is expected to reduce operating expenses and related debt and interest
expense. The Company anticipates relocating its corporate headquarters to
a new leased facility during the fourth quarter of fiscal 1997 when the
sale of its existing building is expected to close.
<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, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended March 31, 1996. Our audits
also included the consolidated financial statement schedule listed in the
Index at Item 14(a). 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, 1996 and 1995 and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 1996 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 Note E to the consolidated financial statements, the
Company changed its method of accounting for income taxes effective
April 1, 1993 to conform with Statement of Financial Accounting Standards
No. 109.
Deloitte & Touche, LLP
Milwaukee, Wisconsin
July 25, 1996
<PAGE>
Stokely USA, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS - Note D
March 31,
(Dollars in thousands) 1996 1995
CURRENT ASSETS:
Cash and cash equivalents - Note A $ 777 $ 1,177
Accounts receivable, less allowance for
losses ($570 and $452, respectively) 16,975 25,459
Refundable income taxes - Note E 11 380
Inventories - Notes A, B and K 85,404 79,389
Prepaid expenses 1,406 1,825
Property held for disposition - Note K 9,500 -
TOTAL CURRENT ASSETS 114,073 108,230
OTHER ASSETS - Notes A and C 4,147 4,467
PROPERTY, PLANT AND EQUIPMENT, at cost - Notes A and M
Land and land improvements 2,973 3,453
Buildings 27,217 29,650
Machinery and equipment 60,952 74,278
91,142 107,381
Less accumulated depreciation 33,641 38,784
57,501 68,597
TOTAL ASSETS $175,721 $181,294
See Notes to Consolidated Financial Statements.
<PAGE>
Stokely USA, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31,
(Dollars in thousands) 1996 1995
CURRENT LIABILITIES:
Notes payable - Note D $ 19,887 $ 19,291
Accounts payable 21,365 13,454
Accrued compensation and withholdings 2,546 3,015
Other accrued liabilities - Note K 6,447 1,635
Income taxes - Note E 260 247
Current maturities on long-term debt - Note D 15,150 2,536
TOTAL CURRENT LIABILITIES 65,655 40,178
LONG-TERM DEBT, less current maturities
- Note D 77,230 78,497
OTHER LIABILITIES - Notes F and G 3,269 4,241
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 11,435,195 572 572
Additional paid-in capital 43,683 43,683
Retained earnings (14,070) 14,751
30,185 59,006
Less treasury stock at cost
(108,754 and 110,550 shares, respectively) (618) (628)
29,567 58,378
COMMITMENTS AND CONTINGENCIES - Note I
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $175,721 $181,294
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,
1996 1995 1994
REVENUES:
Net sales $206,251 $231,422 $256,145
Other - Note J 147 517 4,691
TOTAL REVENUES 206,398 231,939 260,836
COSTS AND EXPENSES:
Cost of products sold 175,865 186,814 216,392
Selling, general and
administrative expenses 36,672 33,617 36,476
Nonrecurring charge - Note K 12,500 - -
Interest 10,182 10,796 12,710
TOTAL COSTS AND EXPENSES 235,219 231,227 265,578
EARNINGS (LOSS) BEFORE INCOME
TAXES (CREDIT) (28,821) 712 (4,742)
INCOME TAXES (CREDIT) - Note E - 142 (2,527)
NET EARNINGS (LOSS) $ (28,821) $ 570 $ (2,215)
PER SHARE AMOUNTS:
NET EARNINGS (LOSS) PER SHARE OF
COMMON STOCK $ (2.54) $ .06 $ (.27)
WEIGHTED AVERAGE SHARES
OUTSTANDING 11,326,245 9,335,604 8,319,649
See Notes to Consolidated Financial Statements.<PAGE>
Stokely USA, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Additional
Common Stock Paid-In Retained Treasury Stock
Shares Amount Capital Earnings Shares Amount
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)
Net loss (28,821)
Stock issued (1,796) 10
Balances,
March 31, 1996 11,435,195 $572 $43,683 $(14,070) 108,754 $(618)
See Notes to Consolidated Financial Statements.
<PAGE>
Stokely USA, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31,
(Dollars in thousands) 1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $(28,821) $ 570 $ (2,215)
Adjustments to net earnings (loss):
Depreciation 8,190 7,508 7,230
Deferred income taxes (142) 142
Amortization of trademarks 79 79 80
Amortization of deferred debt
issuance costs 536 1,649 1,637
Nonrecurring charge 12,500 - -
Gains on disposal of property,
plant and equipment (461) (256) (361)
(8,119) 9,692 6,371
Changes in operating assets and
liabilities:
Accounts receivable 8,484 (4,642) 20,698
Refundable income taxes 369 1,599 1,890
Inventories (12,765) (24,133) 45,335
Prepaid expenses 419 158 (428)
Accounts payable 7,911 (413) (25,292)
Accrued compensation and
withholdings (469) (50) (397)
Income taxes 13 17 (301)
Other liabilities (1,768) (2,028) (9,809)
2,194 (29,492) 31,696
Net cash (used in) provided by
operating activities (5,925) (19,800) 38,067
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant
and equipment (7,521) (6,421) (5,174)
Proceeds from sales of property,
plant and equipment 2,328 863 9,143
Other - net (332) 672 628
Net cash (used in) provided by
investing activities (5,525) (4,886) 4,597
See Notes to Consolidated Financial Statements.<PAGE>
Stokely USA, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended March 31,
(Dollars in thousands) 1996 1995 1994
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in short-term debt (net) $ 596 $ 1,299 $(31,266)
Borrowings (payments) of long-term debt 11,347 (3,273) (9,002)
Payments of deferred debt
issuance costs (903) (229) (804)
Issuance of common stock 10 25,168
Exercise of stock options - - 55
Net cash provided by (used in)
financing activities 11,050 22,965 (41,017)
Net (decrease) increase in cash
and cash equivalents (400) (1,721) 1,647
Cash and cash equivalents at
beginning of year 1,177 2,898 1,251
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 777 $ 1,177 $ 2,898
See Notes to Consolidated Financial Statements.
<PAGE>
Stokely USA, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended March 31, 1996, 1995 and 1994
Note A
Description of Company Business and Summary of 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 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 - 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.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Approved Accounting Standard Not Yet Adopted - In October 1995, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." This statement must be adopted by the Company by the fiscal
year ending March 31, 1997. SFAS No. 123 establishes financial accounting
and reporting standards for stock-based employee compensation plans. The
Company will be analyzing the impact of adopting this new standard during
fiscal 1997.
Reclassification - Certain amounts have been reclassified to conform to the
current year presentation.
Note B
Inventories:
Inventories (in thousands) consisted of the following:
Finished Manufacturing
Goods Supplies Total
March 31, 1996 $78,922 $6,482 $85,404
March 31, 1995 73,053 6,336 79,389
Note C
Other Assets:
Other assets (in thousands) consisted of the following:
March 31,
1996 1995
Property held for disposition - Note K $ 993 $1,933
Trademarks - Note A 680 759
Other 2,474 1,775
$4,147 $4,467
Trademark accumulated amortization was $929,000 and $850,000, respectively,
at March 31, 1996 and 1995. Included in other assets are unamortized
deferred debt issuance costs of $1,382,000 and $1,015,000 at March 31, 1996
and 1995, respectively. The accumulated amortization was $746,000 and
$4,576,000, respectively, at March 31, 1996 and 1995.
Note D
Notes Payable and Long-Term Debt:
Long-term debt (in thousands) consisted of the following:
March 31,
1996 1995
Senior notes due January 2000 $33,735 $35,852
Revolving credit notes 33,000 18,000
Industrial Development Revenue Bonds:
7.00% to 8.88% 23,245 24,281
7.92% (floating at 88% of prime) - 350
5.00% Variable 2,400 2,550
92,380 81,033
Less current maturities on long-term debt (15,150) (2,536)
$77,230 $78,497
On May 21, 1996, the Company entered into a new loan and security agreement
with a commercial lender which provides for borrowings up to $70,000,000 as
revolving credit loans and matures on May 20, 1998. The new facility
replaced an existing agreement with a different lender for borrowings up to
$65,000,000 which bore interest at the specified banks' reference rate
("prime rate") plus 1.00%. 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. Interest rates on Domestic
rate loans are at prime rate plus .75%. Interest on Eurodollar loans will
vary depending on the adjusted Eurodollar rate plus 3.25% at the time of
borrowing. The new agreement requires a commitment fee at a rate of .25%
per annum on the unused portion of the commitments. The new credit
agreement generally restricts borrowings to an amount equal to 85% of
eligible accounts receivable plus 70% of eligible inventory, as defined in
the agreement. The Company paid customary arrangement and closing fees
upon the execution of the new credit agreement.
Covenants contained in the new credit agreement place limitations on liens,
disposition of assets, payment of dividends and the ability to incur
additional debt. In addition to the covenants under this loan and security
agreement, the Company also has similar covenants under various other debt
agreements.
At March 31, 1996, the Company was not in compliance with certain financial
ratio covenants of its senior note agreements. However, the note
agreements were amended and prior covenant violations waived on July 25,
1996. The amended senior note agreements provide that the note holders
receive interest at 11% (weighted average interest of 9.52% in 1996 and
1995), payable quarterly, plus 3% capitalized interest payable at maturity
of the amended agreements on January 15, 2000. The amended agreements also
provide for scheduled principal payments of $1,000,000 on September 30,
1996, December 31, 1996, September 30, 1997 and December 31, 1997. The
amended agreements provide for adjustments to the interest rates based upon
the Company attaining certain additional reductions in the principal
balance of the senior notes. The Company is also required to use proceeds
received upon the sale of property, plant and equipment relating to the
Company's frozen business to pay down the senior notes. In addition, the
Company issued warrants to the senior note holders in consideration for
amending the applicable loan agreements. The warrants entitle the holders
to purchase an aggregate of 2,200,000 shares of common stock through
July 25, 2006 at a price per share equal to the lower of $2.25 or the
average trading price of the Company's stock over a subsequent 10 day
period as defined in the agreements. The number of shares covered by the
warrants are subject to reduction upon the Company attaining certain
reductions in the principal balance of the senior notes. The note holders'
expenses related to the amended agreements also were paid. The amended
agreements require the Company to maintain certain revised financial
covenants including net worth and current ratio covenants.
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 new revolving credit agreements and the senior
note agreements contain 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 debt agreements.
At March 31, 1996, $19,887,000 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 1997. The interest
rate on the outstanding revolving credit loans under the existing credit
agreement (including the amounts classified as long-term) at March 31,
1996, was 9.25%.
The stated aggregate amounts of scheduled maturities and expected payments
upon sale of the property, plant and equipment relating to the Company's
frozen business on long-term debt each year for the five years subsequent
to March 31, 1996, are as follows: 1997 - $15,150,000; 1998 - $2,150,000;
1999 - $41,362,000; 2000 - $16,738,000; and 2001 - $150,000.
Revolving credit loans payable at March 31, 1996, and 1995, under the
Company's then existing credit agreement approximated estimated fair value
because the interest rate is based on a banks' specified reference rate.
The senior notes, after considering the terms of the amended agreement,
approximated estimated fair value at March 31, 1996. The senior notes were
estimated to have an approximate aggregate fair value of $34,427,000 at
March 31, 1995, 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
$25,159,000 and $26,472,000 at March 31, 1996 and 1995, respectively.
Note 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,
1996 1995 1994
Currently payable (refundable):
Federal - - $(2,577)
State $142 - 50
Deferred - Federal (142) $142 -
$ 0 $142 $(2,527)
<PAGE>
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:
Years ended March 31,
1996 1995 1994
U.S. statutory rate 34.0% 34.0% 34.0%
State income taxes net of federal
income tax benefits .5 - (1.1)
Increase in valuation allowance (35.1) - -
Effect of net operating
loss carryback - - 3.6
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 .6 - -
Effective tax rate 0.0% 20.0% 53.3%
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,
1996 1995
Deferred tax assets:
Reserves not currently deductible $ 1,276 $ 1,362
Provision for nonrecurring charge 3,663 981
Postretirement benefits 931 877
Tax credit carryforwards 2,937 2,937
Net operating loss carryforwards 14,255 7,926
Valuation allowance (13,063) (2,937)
Total deferred tax assets $ 9,999 $11,146
Deferred tax liabilities:
Change in method of inventory valuation $ 918 $ 1,224
Deferred casualty gain - 1,627
Tax over book depreciation 8,850 8,178
Other 231 259
Total deferred tax liabilities 9,999 11,288
Net deferred tax (liability) $ 0 $ (142)
At March 31, 1996, 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
from 2003 to 2010. At March 31, 1996, the Company had net operating loss
carryforwards of approximately $41,929,000 which expire in the years 2009
through 2011.
Note F
Other Liabilities:
Other liabilities (in thousands) consisted of the following:
March 31,
1996 1995
Postretirement benefits - Note G $1,613 $2,580
Deferred compensation 1,656 1,519
Deferred income taxes - 142
$3,269 $4,241
Note G
Employees' Retirement Plan 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. The Company
funds benefit expenses on a pay-as-you-go basis.
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>
The following table sets forth the plan's status reconciled with amounts
recognized in the balance sheet:
March 31,
(Dollars in thousands) 1996 1995
Accumulated postretirement benefit obligation:
Retirees $1,438 $1,120
Fully eligible active plan participants - 108
Other active plan participants - 826
1,438 2,054
Unrecognized net gain 175 526
Accrued postretirement benefits $1,613 $2,580
Years ended March 31,
1996 1995
Net periodic postretirement benefit (income)
expense included the following components:
Service cost - benefits attributed to
service during the period $ 89 $ 154
Interest cost on accumulated post-
retirement benefit obligation 160 203
Amortization of unrecognized net (gain)
or loss (23) -
Curtailment gain (1,088) (379)
Net periodic postretirement benefit (income) $ (862) $ (22)
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 13% in 1996 and 1995, gradually
declining to 6% in 2002.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% in 1996 and 8.0% in 1995.
If the health care cost trend assumptions were increased by 1%,the
accumulated postretirement benefit obligation as of March 31, 1996, would
increase by $148,000. The effect of this change on the aggregate of the
service cost and interest cost would be an additional charge to expense of
approximately $21,000 for the year ended March 31, 1996.
Included in the Company's 1996 nonrecurring charge was the elimination of
the postretirement medical accrual for participants other than retirees of
$1,088,000 which is reflected as a curtailment gain in 1996. (See Note K.)
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.
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 years ended
March 31, 1996 and 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. The Company's obligation and matching contributions under these
plans were $581,000, $436,000 and $337,000 in 1996, 1995 and 1994,
respectively.
Note 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.
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 fiscal 1996, stock option grants in which the strike price was more than
25% greater than the fair market price of the common shares of the Company
on May 31, 1995, were reduced to a strike price which was 25% greater than
the fair market price of the common shares of the Company on that date.
Stock option grants which expired on August 30, 1995 were cancelled and
replacement stock options were granted with an expiration date of June 17,
1998. There were no awards granted under this plan in fiscal 1996.
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.
Changes in shares, as to options, are as follows:
Shares
Outstanding
Reserved options Available
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
($5.125 to $15.875) 624,550 173,600 450,950
Granted ($5.50 to $6.875) 3,796 (3,796)
Expired ($5.125 to $6.875) (9,600) 9,600
Balances at March 31,1996 624,550 167,796 456,754
At March 31, 1996, a total of 151,750 options were exercisable at $5.125 to
$6.875.
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.
The strike price was reduced to $6.875 during 1996.
In addition, during 1990, the Company granted options to purchase 2,500
shares of common stock at $10 per share to a senior management employee.
These options have substantially the same terms as the 1985 Incentive Stock
Option Plan. The strike price was reduced to $6.875 during 1996.
In fiscal 1996, non-employee members of the Board of Directors were awarded
a restricted stock grant of 5,000 shares of common stock vesting 25% per
year commencing in fiscal 1997. A former executive officer also was
awarded a restricted stock grant of 25,000 shares issued in fiscal 1997.
Note 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, 1996, under noncancelable
leases with terms of more than one year are immaterial.
Total rent expense aggregated approximately $2,505,000, $2,216,000 and
$1,900,000, respectively, during fiscal 1996, 1995 and 1994.
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 alleged 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. A second 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. The second lawsuit made similar claims against the Company
and certain officers arising from the same facts and events. These
lawsuits were consolidated on September 22, 1995 and the complaint filed in
the first lawsuit was deemed the operative complaint superseding the
complaint filed in the second lawsuit. The plaintiff in the second lawsuit
has since elected to withdraw as a plaintiff in the consolidated lawsuit.
On March 21, 1996, the United States District Court issued a decision
dismissing the consolidated lawsuit. The plaintiff has filed a motion to
alter or amend the judgment of dismissal which is pending a decision. The
Company has opposed this motion and believes that the dismissal was proper.
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.
During fiscal 1994, the Company settled a product liability claim resulting
in a charge of $2,050,000. The product liability claim related to an
acquired business and predated the acquisition of such business.
<PAGE>
Note J
Insurance Claim:
During fiscal 1994, the Company received additional insurance proceeds from
the final settlement of an insurance claim related to the boiler explosion
and fire at the Hoopeston, Illinois, processing facility, resulting in a
gain included in other revenues of $4,118,000.
Note K
Nonrecurring Charge:
During the fourth quarter of fiscal 1996, the Company recorded a
nonrecurring charge aggregating $12,500,000 related to its decision to exit
its frozen vegetable business. The nonrecurring charge included a write-
down of inventories to their estimated net realizable values, and
provisions for severance costs and other costs associated with selling
inventories and exiting the frozen business. Subsequently, the Company
entered into an agreement with three third parties for the sale of
substantially all of the Company's frozen business assets. Two processing
plants were included as part of this sales agreement, while a third plant
accounting for less than 10% of the Company's frozen processing capacity
remains for sale. The sale of the two plants was completed during the
Company's second quarter of fiscal 1997. Sales proceeds after
consideration of selling expenses will approximate $24,000,000.
An analysis of the 1996 nonrecurring charge is as follows (in thousands):
Balance
Original Reserves at
Reserves Utilized March 31, 1996
Inventory write-downs $6,750 $ - $ 6,750
Inventory selling and
packaging costs 4,700 2,188 2,512
Severance costs 1,500 281 1,219
Other costs 1,135 60 1,075
Gain on sale of warehouse (497) (497) -
Gain on curtailment of post-
retirement benefits (1,088) (1,088) -
Total $12,500 $ 944 $11,556
The inventory write-down and gain on settlement of post-retirement benefits
are non-cash charges. The other charges will require future cash outlays,
principally over the next fiscal year. Severance costs pertain to
approximately 300 personnel directly and indirectly associated with the
frozen business.
Revenues of the frozen business approximated $38.1 million, $56.3 million
and $80.4 million in fiscal years 1996, 1995 and 1994, respectively.
At March 31, 1995, a restructure reserve of $2,886,000 was outstanding
relating to the 1993 restructure program. That restructure program was
completed during fiscal 1996 with the sale of two previously idled
processing facilities and the sale of the related remaining discontinued
inventory.
Note L
Supplemental Cash Flow Disclosures:
Cash payments for (refunds of) interest and income taxes were as follows
(in thousands):
Years ended March 31,
1996 1995 1994
Interest $ 9,578 $ 9,209 $11,854
Income taxes - net (283) (1,664) (4,118)
Note M
Subsequent Event
In July 1996, the Company entered into an agreement to sell its corporte
headquarters building for $4,350,000, resulting in a loss of approximately
$1,000,000 which will be recognized in fiscal 1997. The Company
anticipates relocating its corporate headquarters to a new leased facility
during the fourth quarter of fiscal 1997 when the sale of its existing
building is expected to close.
QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands except per share)
Quarter Ended
1996 June September December March Year
Net sales $40,700 $51,294 $65,463 $48,794 $206,251
Gross profit 5,206 7,879 10,572 6,729 30,386
Net earnings (loss) (3,776) (3,640) (3,574) (17,831) (28,821)
Net earnings (loss)
per share (.33) (.32) (.32) (1.57) (2.54)
1995
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
No dividends were paid during fiscal 1996 and 1995, 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 1996 and 1995 were 56% and 58% 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.
During the fourth quarter ended March 31, 1996, the Company recorded a
nonrecurring charge of $12.5 million ($1.10 per share) relating to the
Company's February 1996 decision to exit the frozen business and to
concentrate on its core strength of canned vegetables. See Note K to the
Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
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 August 9, 1996, related to the 1996 Annual
Meeting of Shareholders scheduled for September 12, 1996, filed separately
with the Securities and Exchange Commission 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 August 9, 1996, relating to the 1996 Annual Meeting of
Shareholders scheduled for September 12, 1996, 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 August 9, 1996, relating to the 1996 Annual Meeting of
Shareholders scheduled for September 12, 1996, 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 August 9,
1996, relating to the 1996 Annual Meeting of Shareholders scheduled for
September 12, 1996, 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 34
Consolidated Balance Sheets, March 31, 1996 and 1995 35-36
For the years ended March 31, 1996, 1995 and 1994:
Consolidated Statements of Operations 37
Consolidated Statements of Stockholders' Equity 38
Consolidated Statements of Cash Flows 39-40
Notes to Consolidated Financial Statements 41-52
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 56
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:
The Company filed a report on Form 8-K dated February 16, 1996 announcing its
decision to sell the assets of its frozen vegetable business operations and
exit the frozen vegetable business.
c) Exhibits
A complete listing of exhibits will be furnished upon request.
<PAGE>
(d) Financial Statement Schedules
<TABLE>
SCHEDULE VIII
STOKELY USA, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended March 31, 1996, 1995 and 1994
<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, 1993..... $ 670,000 $2,642,000 $12,675,000
Additions charged to
other accounts..... - 3,860,000<F2> -
Deductions.......... (285,000)<F1> (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 - -
Deductions.......... (72,000)<F1> (2,333,000) (1,832,000)
Balance
March 31, 1995..... 452,000 667,000 2,094,000
Additions charged to
costs and expenses. 124,000 6,750,000 -
Deductions.......... (6)<F1> (562,000) (2,094,000)
Balance
March 31, 1996..... $ 570,000 $6,855,000 $ 0
<FN>
<F1> Uncollectible accounts written off, net of recoveries and reduction in bad debt reserve.
<F2> Reclassification from other restructure reserves.
</FN>
</TABLE>
<PAGE>
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: July 25, 1996
BY:
Stephen W. Theobald
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 July 25, 1996
Thomas W. Mount
Chairman of the Board July 25, 1996
Frank J. Pelisek
President and Chief July 25, 1996
Stephen W. Theobald Executive Officer
Vice President and Chief July 25, 1996
Leslie J. Wilson Financial and Accounting
Officer
Director July 25, 1996
Joseph B. Weix
Director July 25, 1996
Orren J. Bradley
Director July 25, 1996
Russell W. Britt
Director July 25, 1996
Ody J. Fish
Director July 25, 1996
James H. DeWees
Director July 25, 1996
Charles J. Carey
Director July 25, 1996
Carol Ward Knox
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File
March 31, 1996 0-13943
STOKELY USA, INC.
(Exact name of Issuer as specified in its Articles of Incorporation)
STOKELY USA, INC.
File No. 0-13943
Exhibits to Form 10-K for
fiscal year ended March 31, 1996
<PAGE>
EXHIBIT INDEX
A. Exhibits
3.1 Restated and Amended Articles of Incorporation of
Registrant(2).
3.2 By-laws of Registrant, as amended(2)(12).
10(a) Loan Agreement between the City of Green Bay, Wisconsin and
Stokely USA, Inc. dated December 1, 1988 with respect to
$3,000,000 in principal amount of City of Green Bay, Wisconsin
Industrial Revenue Bonds (Stokely USA, Inc. Project), relating
to Stokely's Green Bay, Wisconsin facility(4).
10(b) Loan and Mortgage Agreement with respect to $6,000,000 in
principal amount of Industrial Development Bonds relating to
Stokely's Poynette, Wisconsin sauerkraut facility(4).
10(c) Note Agreement between Stokely USA, Inc. and Nationwide Life
Insurance Company, Employers Life Insurance Company of Wausau
and West Coast Life Insurance Company dated January 5, 1990
with respect to $25,000,000 in principal amount of 9.12%
Senior Notes due January 15, 2000(9).
10(d) Loan Agreement between the Village of Poynette, Wisconsin and
Stokely USA, Inc. dated December 1, 1989, with respect to
$1,600,000 in principal amount of Refunding Revenue Bonds
(Stokely USA, Inc. Project) relating to Stokely's Poynette,
Wisconsin facility(5).
10(e) Loan Agreement between the Village of Waunakee, Wisconsin and
Stokely USA, Inc. dated June 1, 1989 with respect to
$4,000,000 in principal amount of Industrial Revenue Bonds
(Stokely USA, Inc. Project) relating to Stokely's Waunakee,
Wisconsin facility(5).
10(f) Loan Agreement between the City of Ackley, Iowa and Stokely
USA, Inc. dated July 1, 1989 with respect to $3,000,000 in
principal amount of Industrial Development Revenue Bonds
(Stokely USA, Inc. Project) Series 1989 relating to Stokely's
Ackley, Iowa facility(5).
10(g) Executive Deferred Compensation Agreements between Stokely
USA, Inc. and each of Thomas W. Mount, Joseph B. Weix and
Robert J. Whelan, Sr.(5).
10(h) 1985 Incentive Stock Option Plan(5).
10(i) Loan Agreement between the Town of Utica, Wisconsin and
Stokely USA, Inc. dated June 1, 1990 with respect to
$3,000,000 in principal amount of Industrial Revenue Bonds
(Stokely USA, Inc. Project) relating to Stokely's Pickett,
Wisconsin facility(6).
10(j) Loan Agreement between Port of Walla Walla Public Corporation
and Stokely USA, Inc. dated September 1, 1990 with respect to
$4,000,000 in principal amount of Industrial Revenue Bonds,
Series 1990 relating to Stokely's Walla Walla, Washington
facility(6).
10(k) Loan Agreement between the City of Wells, Minnesota and
Stokely USA, Inc. dated December 1, 1991 with respect to
$3,000,000 in principal amount of Industrial Revenue Bonds
(Stokely USA, Inc. Project) Series 1991 relating to Stokely's
Wells, Minnesota facility(7).
10(l) Note Agreement between the State of Wisconsin Investment Board
and Stokely USA, Inc. dated December 1, 1991 with respect to
$20,000,000 in principal amount of 9.49% Senior Notes due
December 15, 2001(7).
10(m) Loan and Security Agreement by and among Barclays Business
Credit, Inc. as agent and lender, various other lenders and
Stokely USA, Inc. dated August 18, 1992 with respect to a
$120,000,000 Credit Facility(10).
10(n) Restated Agreement for Purchase and Sale of Containers between
Stokely USA, Inc. and Heekin Can, Inc. dated January 1, 1992,
and as amended on July 24, 1992(10).
10(o) Supply Agreement between Stokely USA, Inc. and American
National Can Company dated July 24, 1992 and as amended on
June 11, 1993(10).
10(p) Amendment to Note Agreement dated August 18, 1992 regarding
$25,000,000 Original Principal Amount of 9.12% Senior Notes
due January 15, 2000 (see Exhibit 10(c))(10).
10(q) Amendment to Note Agreement dated August 18, 1992 regarding
$20,000,000 in principal amount of 9.49% Senior Notes due
December 15, 2000 (see Exhibit 10(l))(10).
10(r) Amendment to Revenue Agreement between Stokely USA, Inc. and
the City of Appleton, Wisconsin, dated December 1, 1988(8).
10(s) Second Amendment to Note Agreement dated June 11, 1993
regarding $20,000,000 Promissory Note (see Exhibit 10(l))(8).
10(t) First Amendment to Security Agreement dated June 1993 relating
to the Credit Facility (see Exhibit 10(m))(8).
10(u) Second Amendment to Security Agreement dated June 11, 1993
regarding $25,000,000 Original Principal Amount of 9.37%
Senior Notes Due January 15, 2000 (see Exhibit 10(c))(8).
10(v) Warrant to Purchase Shares of Common Stock of Stokely USA,
Inc. issued to Nationwide Life Insurance Company dated June
1993(8).
10(w) Warrant to Purchase Shares of Common Stock of Stokely USA,
Inc. issued to EMPL and Co. dated June 1993(8).
10(x) Warrant to Purchase Shares of Common Stock of Stokely USA,
Inc. issued to West Coast Life Insurance Company dated June
1993(8).
10(y) First Amendment to Loan Agreement with the City of Ackley,
Iowa (see Exhibit 10(f)), dated as of March 31, 1994, between
Stokely USA, Inc. and Norwest Bank Minnesota, N.A., as
trustee(11).
10(z) First Amendment to Loan Agreement with the Village of
Poynette, Wisconsin (see Exhibit 10(b)), dated as of March 31,
1994, between Stokely USA, Inc. and Norwest Bank Minnesota,
N.A., as trustee(11).
10(aa) First Amendment to Loan Agreement with the Village of
Poynette, Wisconsin (see Exhibit 10(d)), dated as of March 31,
1994, between Stokely USA, Inc. and NationsBank of Virginia,
N.A., as trustee(11).
10(bb) First Amendment to Loan Agreement with the Village of
Waunakee, Wisconsin (see Exhibit 10(e)), dated as of March 31,
1994, between Stokely USA, Inc. and NationsBank of Virginia,
N.A., as trustee(11).
10(cc) First Amendment to Loan Agreement with the City of Jefferson,
Wiscosnin, dated as of June 17, 1994, between Stokely USA,
Inc. and NationsBank of Virginia, N.A., as trustee(11).
10(dd) First Amendment to Loan Agreement with the Port of Walla
Walla, Washington Public Corporation (see Exhibit 10(j)),
dated as of June 17, 1994, between Stokely USA, Inc. and
NationsBank of Virginia, N.A., as trustee(11).
10(ee) First Amendment to Loan Agreement with the Town of Utica,
Wisconsin (see Exhibit 10(i)), dated as of June 17, 1994,
between Stokely USA, Inc. and NationsBank of Virginia, N.A.,
as trustee(11).
10(ff) First Amendment to Loan Agreement with the City of Green Bay,
Wisconsin (see Exhibit 10(a)), dated as of June 17, 1994,
between Stokely USA, Inc. and NationsBank of Virginia, N.A.,
as trustee(11).
10(gg) Change of Control Contingent Employment Agreement between
Stokely USA, Inc. and Vernon L. Wiersma dated October 16,
1992(12).
10(hh) Change of Control Contingent Employment Agreement between
Stokely USA, Inc. and Stephen W. Theobald dated October 16,
1992(12).
10(ii) Change of Control Contingent Employment Agreement between
Stokely USA, Inc. and Kenneth L. Murray dated January 27,
1993(12).
10(jj) Change of Control Contingent Employment Agreement between
Stokely USA, Inc. and Russell J. Trunk dated October 16,
1992(12).
10(kk) Change of Control Contingent Employment Agreement between
Stokely USA, Inc. and Leslie J. Wilson dated October 16,
1992(12).
10(ll) Change of Control Contingent Employment Agreement between
Stokely USA, Inc. and Robert M. Brill dated October 16,
1992(12).
10(mm) Change of Control Contingent Employment Agreement between
Stokely USA, Inc. and Michael A. Wilkes dated October 16,
1992(12).
10(nn) Change of Control Contingent Employment Agreement between
Stokely USA, Inc. and Robert L. Cook dated October 16,
1992(12).
10(oo) Change of Control Contingent Employment Agreement between
Stokely USA, Inc. and Eddie Foster dated October 16, 1992(12).
10(pp) Stokely USA, Inc. 1994 Executive Stock Option Plan(12).
10(qq) Stock Option Agreement between Stokely USA, Inc. and Kenneth
C. Murray dated March 13, 1990(12).
10(rr) Stock Option Agreement between Stokely USA, Inc. and Vernon L.
Wiersma dated April 8, 1994(12).
10(ss) Stock Option Agreement between Stokely USA, Inc. and Stephen
W. Theobald dated April 8, 1994(12).
10(tt) Warrant to Purchase Shares of Common Stock of Stokely USA,
Inc. issued to the State of Wisconsin Investment Board dated
June 1993(12).
10(uu) Employment Agreement by and between Stokely USA, Inc. and
Leslie J. Wilson dated June 17, 1992(12).
10(vv) Loan Agreement between the City of Jefferson, Wisconsin and
Stokely USA, Inc. with respect to $6,500,000 in principal
amount of Industrial Development Revenue Bonds (Stokely USA,
Inc. Project) relating to Stokely's Jefferson, Wisconsin
facility(3).
10(ww) Loan Agreement between the City of Appleton, Wisconsin and
Stokely USA, Inc. with respect to $1,000,000 to principal
amount of Industrial Development Revenue Bonds (Stokely USA,
Inc. Project)(3).
10(xx) Second Amendment to Loan Documents dated October 13, 1992
regarding the Credit Facility (see Exhibit 10(m))(12).
10(yy) Third Amendment to Loan Documents dated December 16, 1992
regarding the Credit Facility (see Exhibit 10(m))(12).
10(zz) Fourth Amendment to Loan Documents dated June 11, 1993
regarding the Credit Facility (see Exhibit 10(m))(12).
10(aaa) Fifth Amendment to Loan Document dated March 24, 1994
regarding the Credit Facility (see Exhibit 10(m))(12).
10(bbb) Summary Plan Description of Split Dollar Life Insurance
Plan(12).
10(ccc) Supplemental Employee Retirement Plan(13).
10(ddd) Loan and Security Agreement by and among Harris Trust and
Savings Bank, as agent and lender, various other lenders and
Stokely USA, Inc. dated May 22, 1995 with respect to a
$65,000,000 Credit Facility(13).
10(eee) Third Amendment to Note Agreement dated May 31, 1995 regarding
$25,000,000 Original Principal Amount of 9.37% Senior Notes
due January 15, 2000 (see Exhibit 10(c))(13).
10(fff) Third Amendment to Note Agreement dated May 31, 1991 regarding
$20,000,000 in principal amount of 9.49% Senior Notes due
December 15, 2001 (see Exhibit 10(l))(13).
10(ggg) Deferred Compensation Agreement for Highly Compensated
Employees(1).
21.1 Subsidiaries of the Registrant(1).
23.1 Consent of Deloitte & Touche LLP(1).
24.1 Powers of Attorney for certain officers and directors(12).
27.1 Financial Data Schedule(1).
99.1 Proxy Statement for 1996 Annual Meeting of Shareholders.(1)
(1) Filed herewith.
(2) Incorporated by reference to exhibits filed with Registrant's
Form S-1 Registration Statement declared effective on October
29, 1985 (Registration Number 33-339).
(3) Incorporated by reference to exhibits filed with Registrant's
Form 10-K for the year ended March 31, 1986.
(4) Incorporated by reference to exhibits filed with Registrant's
Form 10-K for the year ended March 31, 1989.
(5) Incorporated by reference to exhibits filed with Registrant's
Form 10-K for the year ended March 31, 1990.
(6) Incorporated by reference to exhibits filed with Registrant's
Form 10-K for the year ended March 31, 1991.
(7) Incorporated by reference to exhibits filed with Registrant's
Form 10-K for the year ended March 31, 1992.
(8) Incorporated by reference to exhibits filed with Registrant's
Form 10-K for the year ended March 31, 1993.
(9) Incorporated by reference to exhibits filed with Registrant's
Form 10-Q for the three months ended December 31, 1989.
(10) Incorporated by reference to exhibits filed with Registrant's
Form 10-Q for the three months ended September 30, 1992.
(11) Incorporated by reference to exhibits filed with Registrant's
Form 10-K for the year ended March 31, 1994.
(12) Incorporated by reference to exhibits filed with Registrant's
Form S-1 Registration Statement declared effective on
November 17, 1994 (Registration Number 33-55447).
(13) Incorporated by reference to exhibits filed with Registrant's
Form 10-K for the year ended March 31, 1995.
<PAGE>
Exhibit 10(ggg)
DEFERRED COMPENSATION AGREEMENT
FOR HIGHLY COMPENSATED EMPLOYEES
This Agreement is entered into, by and between Stokely USA, Inc.,
a Wisconsin corporation (hereinafter the "Company") and
_________________________ (hereinafter the "Employee") to be effective
January 1, 1996.
W I T N E S S E T H :
WHEREAS, Employee is designated as a highly compensated employee
for purposes of discrimination testing for the Stokely USA, Inc. Profit
Sharing 401(k) Plan and has performed his or her duties with the
Company in an exemplary manner, contributing significantly to the
Company's continued growth and profitability; and
WHEREAS, the Company is willing to permit Employee to elect
irrevocably to defer a portion of Employee's anticipated future
compensation to encourage Employee's continuation in his or her present
capacity, to assist Employee in planning for future retirement, to
enable Employee to defer the same percentage of annual compensation
from Company as does an Employee who is not designated as highly
compensated, and to insure Employee's continued availability to provide
advice and consultation to the Company following any such retirement;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
Section 1. Definitions - For purposes of this Agreement, the following
words and phrases shall have the meanings set forth below unless a
different meaning is plainly required by the context.
A. Company - means Stokely USA, Inc. and any successor thereto
which assumes the rights and obligations of the Company under this
Agreement.
B. Board - means the Board of Directors of the Company.
C. Employee - means the Employee whose name is set forth above
as having entered into this Agreement with the Company.
D. Agreement - means this Deferred Compensation Agreement as
entered into between the Employee and the Company on the date set forth
above.
E. Committee - means the persons from time to time designated by
the Board, pursuant to Section 11 hereof, to have general charge of the
administration and interpretation of this Agreement.
F. Deferral Form - means the Employee's then current Deferral
Election Form, to be executed by the Employee prior to the start of
each calendar year specifying the percentage of compensation elected to
be deferred during the upcoming year. The Deferral Form shall remain
in effect until the end of the calendar year for which it is executed
unless earlier revoked.
G. Deferral Account (or Account) - means the unfunded
bookkeeping account established by the Company showing the total of all
bookkeeping credits made for Employee under this Agreement, including
interest credits, and minus all debits made to reflect the payment of
deferred compensation.
H. Beneficiary - means the person or persons designated by
Employee in Employee's most recent Beneficiary Designation Form to
receive payments under this Agreement in the event of Employee's death;
provided that if the Employee has failed to designate a Beneficiary, or
if all designated Beneficiaries predecease Employee, any remaining
distribution due under this Agreement shall be payable to the
Employee's surviving spouse or, if none, to his surviving issue per
stirpes or, if none, then to his estate.
I. Disability - means such total and permanent physical or
mental disability as, in the Committee's sole discretion, would prevent
the Employee from engaging in substantially gainful employment.
J. Plan - means Stokely USA, Inc. Employees' Profit Sharing
401(k) Retirement Plan as adopted by the Company and as from time to
time amended.
K. Plan Year - means the twelve (12) month period adopted by the
Plan for reporting purposes, which is the period commencing on April 1
and ending on March 31.
Section 2. Limits On and Conditions For Amounts Deferred - The maximum
amount that an Employee may defer hereunder in any calendar year is
twenty (20%) percent of such Employee's compensation from Company for
such year less the maximum percent of such Employee's compensation from
Company for such year that such Employee is entitled to contribute to
the Stokely USA, Inc. Profit Sharing 401 (k) Plan.
Section 3. Availability of Deferral Election - The Company agrees to
make available, in December of each calendar year, a Deferral Form for
use by the Employee in designating for deferral a portion of the
compensation he or she anticipates earning from the Company in the
upcoming Calendar year. All amounts elected to be deferred by Employee
shall be subject to the terms and conditions of this Agreement. No
requested deferral shall be effective for any calendar year unless
completed and filed with the Committee prior to January 1 of the
calendar year for which such deferral is elected.
Section 4. Treatment of Amounts Deferred - Upon execution and return
by the Employee of an effective Deferral Form, the Company agrees to
establish a Deferral Account in Employee's name, showing bookkeeping
credits and debits as follows:
A. Account Credits - At the close of each calendar month, the
Company will show a credit to Employee's Deferral Account in an amount
equal to the percentage of the Employee's compensation for such month
which has been designated for deferral on Employee's current Deferral
Form, if any. In addition to such credits, a bookkeeping credit shall
be made at the end of each calendar year in an amount equal to the
amount of interest that would have been earned if the average Deferral
Account credit balance for such calendar year had earned interest at a
rate equal to the average of the rates published in the Wall Street
Journal for the 30 year Treasury Bond on the last day of the calendar
year (12/31) and the previous three quarters of the calendar year (3/31
- - 6/30 - 9/30). Interest credits shall be made to the Deferral Account
only after the close of a calendar year, except that for the calendar
year in which the amount credited to Employee's Account is reduced to
zero (0), interest shall be credited for the portion of the year prior
to such reduction based on (i) the interest rate earned by the funds
for the previous calendar year, and (ii) the average balance of credits
in the Deferred Account for the portion of the Calendar year prior to
such reduction.
B. Account Debits - The Company will reduce the amount shown as
credits to the Employee's Deferral Account by debits equal to any and
all payments of deferred compensation made to the Employee and/or a
Beneficiary under this Agreement.
Section 5. Eligibility for Deferred Compensation - Employee, or in the
event of Employee's death his or her Beneficiary, may become eligible
for receipt of deferred compensation under this Agreement as follows:
A. Retirement or Termination - Upon retirement or other
termination of regular employment with Company, the Employee shall
become eligible for deferred compensation payments under this
Agreement.
B. Disability - Upon cessation of active employment with the
Company as a result of Disability, Employee shall become eligible for
deferred compensation payments under this Agreement.
C. Death - In the event of Employee's death prior to retirement,
termination, occurrence of Disability, or receipt of deferred
compensation payments reducing Employee's Account credits to zero (0),
the Employee's Beneficiary shall be eligible for deferred compensation
payments under this Agreement.
Section 6. Amount and Method of Payment of Deferred Compensation - The
total deferred compensation to be paid to Employee, including any
Beneficiary, shall be an amount equal to the total of credits made to
the Employee's Deferral Account.
Payments of deferred compensation under this Agreement shall begin
as of the first day of the month following the month in which the
Employee or Beneficiary first becomes eligible for receipt of payments
under Section 5. The amount of such payments shall be based on the
total of credits shown to the Employee's Deferral Account, with
payments being set at a monthly amount intended to result in level
distribution over a ten (10) year period of an amount equal to all
credits made to the Employee's Deferral Account up to the end of such
period. The Committee may adjust such payments (in number and/or
amount) to reflect any difference between anticipated and actual
interest credits made to the Employee's Deferral Account during the
distribution period; provided that the final interest credit shown to
Employee's Deferral Account in the year the Deferral Account balance is
reduced to zero (0) may be eliminated by payment of an amount equal to
such credit together with the payment which results in reduction of the
Employee's Deferral Account credit balance to zero (0).
Notwithstanding the foregoing, an eligible Employee or Beneficiary
may request and receive payment of deferred compensation under this
Agreement in a form other than in level monthly payments over a ten
(10) year period provided the said Employee assumes all tax related
penalties and consequences thereof.
Section 7. Irrevocability and Nonassignability of Deferral - Employee
understands and agrees that all amounts shown as credits to Employee's
Deferral Account shall be treated as having been irrevocably deferred,
that no payment based on such amounts may be received except in
accordance with the eligibility requirements, terms and conditions of
this Agreement and that neither Employee nor any Beneficiary shall have
any right or ability to alienate, sell, transfer, assign, pledge,
encumber or submit to garnishment, execution or levy, either
voluntarily or involuntarily, any amount due or expected to become due
under this Agreement. Amounts due under this Agreement shall be paid,
transferred, delivered or otherwise conveyed only to the Employee or
his Beneficiary.
Notwithstanding the foregoing, a Deferral Form election may be
canceled during a calendar year for amounts not yet earned during such
year, provided that once the Deferral Form election is canceled no
further amounts may be deferred under this Agreement for such year.
Section 8. Provision of Benefits - The Company shall have no
obligation to set aside, earmark, or entrust any fund or money with
which to pay its obligations to Employee under this Agreement.
Employee, and any Beneficiary, shall be and remain simply as creditors
of the Company in the same manner as any other creditor having a
general claim for unpaid compensation, as, if and when, any right to
receive such payments shall mature.
The Company reserves the absolute right at its sole and exclusive
discretion either to fund the obligations undertaken by this Agreement
or refrain from funding the same, and to determine the extent, nature
and method of such funding in the event the Company elects to fund this
Agreement either in whole or in part. At no time shall the Employee or
any Beneficiary be deemed to have any right, title or interest in or to
any specified asset or assets of the Company as a result of this
Agreement.
Section 9. Claims Procedure - The Committee shall consider all claims
by the Employee or any Beneficiary for payments under this Agreement
and shall promptly notify the claimant of its action on any such claim.
In the event of any question regarding handling of the claim, the
Committee shall meet with the claimant to discuss such question and to
attempt to resolve any areas of possible disagreement.
Section 10. Employment Rights - Any payment under this Agreement shall
be independent of, and in addition to, payments made under any other
agreement or under any qualified retirement plan which may be in force
between the parties hereto, or any other compensation payable to
Employee or his Beneficiary by the Company. Neither this Agreement not
any Deferral Form execution in connection herewith shall be construed
as (i) constituting or creating a contract of employment, (ii)
restricting either the Company's right to discharge Employee with or
without cause or Employee's right to terminate his employment, or (iii)
creating any guarantee or representation as to the amount of
compensation to be paid to Employee by the Company during any period of
regular employment.
Section 11. Committee to Administer Agreement - The Compensation
Committee of the Board shall provide for administration of this
Agreement. The Committee shall have full authority to take any and all
actions reasonable or necessary to effectuate this Agreement, including
the authority to prescribe the use of such forms as it may deem
necessary and to interpret the Agreement and to resolve ambiguities,
inconsistencies and omissions in its interpretation.
Section 12. Change in the Law - It is intended by the parties hereto
that this Agreement is to constitute a non-qualified an unfunded plan
of deferred compensation which is, within the meaning of the Employee
Retirement Income Security Act of 1974, "maintained by an employer
primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees". In the
event applicable federal or state law is developed, established or
otherwise created subsequent to the date of this Agreement that
precludes or substantially prevents the Company from treating payments
of benefits hereunder in the same manner as payments of compensation to
current employees at the time such benefits are actually paid to
Employee or his Beneficiary, the Company reserves the express and
unconditional right to declare this Agreement void. Such declaration
shall be effective upon written communication thereof being mailed to
the Employee or his or her Beneficiary and no further benefits
hereunder shall then be payable, paid or otherwise owed to Employee or
his or her Beneficiary, except that the Deferral Account of each
Employee or his or her Beneficiary shall be paid out in full on or
before the calendar quarter end following the mailing of the said
written communication.
Section 13. Absence of Liability - Any and all liability created to
administer this Agreement or to provide Employee or his Beneficiary
with benefits under this Agreement shall be exclusively and solely that
of the Company. No member of the Committee, officer, director or
employee, past, present, or future, of the Company shall have any
liability to Employee, or to any other person or entity, to provide or
pay such benefits, such liability hereby being expressly and
unconditionally denied.
Section 14. Withdrawal - Employee may withdraw some, or any part of,
his or her account at any time and for any reason by giving written
notice to Company. Company will process the withdrawal notice within
thirty (30) days of its receipt. Upon giving a withdrawal notice,
Employee shall become ineligible to defer future compensation under
this Agreement for twelve (12) months but his or her Deferral Account
shall remain active for purposes of receiving Company distributions
hereunder. Any adverse tax consequences that attach to or result from
the withdrawal shall be the sole responsibility of Employee.
Section 15. Amendment and Termination - This Agreement may be altered,
amended, or revoked by a written agreement signed by the Company and
Employee. The laws of the State of Wisconsin shall govern this
Agreement.
Section 16. Company Not An Advisor - The Company offers this Agreement
to Employee without assuming any responsibility or liability as an
advisor or consultant relative to tax or other aspects of this
Agreement or the payment of benefits hereunder.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed and its corporate seal to be hereunto affixed, by its officers
duly authorized to do so, and Employee has likewise executed this
Agreement by hereunto setting my hand, all as of the day and year first
above written.
EMPLOYEE STOKELY USA, INC.
By:
Title:
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF STOKELY USA, INC.
OCONOMOWOC CANNING COMPANY, INC., incorporated in Wisconsin January 16,
1985.
President Stephen W. Theobald
Vice President John R. McCormick
Secretary Robert M. Brill
Treasurer Stephen W. Theobald
Directors Frank J. Pelisek
Stephen W. Theobald
D & K FROZEN FOODS, INC., incorporated in Washington, August 22, 1977.
President Stephen W. Theobald
Treasurer Stephen W. Theobald
Secretary Robert M. Brill
Director Stephen W. Theobald
STOKELY U.K. LIMITED, incorporated in England on May 17, 1991.
President Stephen W. Theobald
Treasurer Stephen W. Theobald
Secretary Leslie J. Wilson
Directors Stephen W. Theobald
Kenneth C. Murray
Leslie J. Wilson
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-18801 and Registration Statement No. 33-60911 of Stokely USA,
Inc. and subsidiaries, on Form S-8 of our report dated July 25, 1996
appearing in the Annual Report on Form 10-K of Stokely USA, Inc. and
subsidiaries for the year ended March 31, 1996.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
July 25, 1996
<PAGE>
EXHIBIT 27.1
Period Type 12 Mos
Period Year end 3/31/96
Period End 3/31/96
Cash 777
Securities 0
Receivables 17,545
Allowances 570
Inventory 85,404
Current Assets 114,073
PP&E 91,142
Depreciation 33,641
Total Assets 175,721
Current Liabilities 65,655
Bonds 77,230
Common 572
Preferred Mandatory 0
Preferred 0
Other Stockholders Equity 43,683
Total Liability and Equity 175,721
Sales 206,251
Total Revenues 206,398
Cost of Good Sold 175,865
Total Costs 175,865
Other Expenses 12,500
Loss Provision 0
Interest Expense 10,182
Income Pretax (28,821)
Income Tax Expense 0
Income Continuing Operations (28,821)
Discontinued Operations 0
Extraordinary Items 0
Changes 0
Net Income (28,821)
EPS - Primary (2.54)
EPS - Diluted (2.54)
<PAGE>
Exhibit 99.1
STOKELY USA, INC.
1055 Corporate Center Drive
Oconomowoc, Wisconsin 53066
--------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On September 12, 1996
--------------
To the Holders of Common Stock of Stokely USA, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Annual Meeting") of Stokely USA, Inc. (the "Company") will be held on
Thursday, September 12, 1996, at 2:00 p.m., Milwaukee time, at the Holiday
Inn SunSpree Resort, 1350 Royal Mile Road, Oconomowoc, Wisconsin.
The Annual Meeting is for the purpose of considering and voting upon
the following matters, all of which are set forth more completely in the
accompanying Proxy Statement:
1. The election of two directors, each for a three-year term; and
2. Such other matters as may properly come before the Annual Meeting
or any adjournments or postponements thereof. The Board of
Directors is not aware of any such other business.
The Board of Directors has established July 5, 1996 as the record date
for the determination of shareholders entitled to notice of and to vote at
the Annual Meeting and any adjournments or postponements thereof. Only
shareholders of record as of the close of business on that date will be
entitled to vote at the Annual Meeting or any adjournments or postponements
thereof. In the event there are not sufficient votes for a quorum or to
approve or ratify any of the foregoing proposals at the time of the Annual
Meeting, the Annual Meeting may be adjourned or postponed in order to
permit further solicitation of proxies by the Company.
By Order of the Board of Directors
Robert M. Brill
Secretary
Oconomowoc, Wisconsin
August 9, 1996
<PAGE>
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. YOUR VOTE IS
IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENVELOPE
PROVIDED. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE EITHER IN PERSON
OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING OR IN PERSON
AT ANY TIME PRIOR TO THE EXERCISE THEREOF.<PAGE>
STOKELY USA, INC.
1055 Corporate Center Drive
Oconomowoc, Wisconsin 53066
-------------
ANNUAL MEETING OF SHAREHOLDERS
To Be Held On September 12, 1996
-------------
SOLICITATION AND VOTING OF PROXIES
This Proxy Statement is being furnished to holders of common stock,
$.05 par value per share (the "Common Stock"), of Stokely USA, Inc. (the
"Company") in connection with the solicitation on behalf of the Board of
Directors of the Company of proxies to be used at the Annual Meeting of
Shareholders (the "Annual Meeting") to be held on Thursday, September 12,
1996, at 2:00 p.m., Milwaukee time, at the Holiday Inn SunSpree Resort,
1350 Royal Mile Road, Oconomowoc, Wisconsin and at any adjournments or
postponements thereof.
The Company's 1996 Summary Annual Report to Shareholders and Annual
Report on Form 10-K for the fiscal year ended March 31, 1996, accompanies
this Proxy Statement and appointment form of proxy, which are being mailed
to shareholders on or about August 9, 1996.
Regardless of the number of shares of Common Stock owned, it is
important that holders of record of a majority of the shares be represented
by proxy or present in person at the Annual Meeting. Shareholders are
requested to vote by completing the enclosed proxy and returning it signed
and dated in the enclosed postage-paid envelope. Shareholders are urged to
indicate their vote in the spaces provided on the proxy. Proxies solicited
by the Board of Directors of the Company, if properly executed and
returned, will be voted in accordance with the directions given therein.
Where no instructions are indicated, signed proxies will be voted FOR the
election of each of the nominees for director named in this Proxy
Statement. Returning your completed proxy form will not prevent you from
voting in person at the Annual Meeting should you be present and wish to do
so.
The Board of Directors of the Company knows of no additional matters
that will be presented for consideration at the Annual Meeting. Execution
of a proxy, however, confers on the designated proxy holders discretionary
authority to vote the shares in accordance with their best judgment on such
other business, if any, that may properly come before the Annual Meeting or
any adjournments or postponements thereof.
Any shareholder giving a proxy has the power to revoke it any time
before it is exercised by (i) filing with the Secretary of the Company
written notice thereof (Robert M. Brill, Secretary, Stokely USA, Inc., 1055
Corporate Center Drive, Oconomowoc, Wisconsin 53066); (ii) submitting a
duly-executed proxy bearing a later date; or (iii) appearing at the Annual
Meeting and giving the Secretary notice of his or her intention to vote in
person. If you are a shareholder whose shares are not registered in your
own name, you will need additional documentation from your record holder to
vote personally at the Annual Meeting. Proxies solicited hereby may be
exercised only at the Annual Meeting and any adjournment or postponement
thereof and will not be used for any other meeting.
The cost of solicitation of proxies by mail on behalf of the Board of
Directors will be borne by the Company. Proxies may be solicited by
personal interview or by telephone, in addition to the use of the mail, by
directors, officers and regular employees of the Company without additional
compensation therefor. The Company also has made arrangements with
brokerage firms, banks, nominees and other fiduciaries to forward proxy
solicitation materials for shares of Common Stock held of record by the
beneficial owners of such shares. The Company will reimburse such holders
for their reasonable out-of-pocket expenses.
VOTING SECURITIES
Only shareholders of record at the close of business on July 5, 1996
(the "Record Date") will be entitled to notice of and to vote at the Annual
Meeting or any adjournments or postponements thereof. The total number of
shares of Common Stock outstanding on the Record Date was 11,357,472. For
each matter which may come before the Annual Meeting, each share of Common
Stock, the only class of voting securities of the Company, is entitled to
one vote.
The presence, in person or by proxy, of the holders of at least a
majority of the total number of shares of Common Stock entitled to vote is
necessary to constitute a quorum at the Annual Meeting. Abstentions are
included in the determination of shares present and voting for purposes of
whether a quorum exists, while broker non-votes are not. Neither
abstentions nor broker non-votes are counted in determining whether a
matter has been approved. In the event there are not sufficient votes for
a quorum or to approve or ratify any proposal at the time of the Annual
Meeting, the Annual Meeting may be adjourned or postponed in order to
permit the further solicitation of proxies.
As to the election of directors, the proxy being provided by the Board
of Directors enables a shareholder to vote for the election of the nominees
proposed by the Board, or to withhold authority to vote for the nominees
being proposed. Under the Wisconsin Business Corporation Law, directors
are elected by a plurality of the votes cast with a quorum present and
cumulative voting is not permitted unless a corporation's articles of
incorporation provide otherwise. The Company's Articles of Incorporation
do not provide cumulative voting rights for the election of directors.
Proxies solicited hereby will be returned to the Board of Directors,
and will be tabulated by inspectors of election designated by the Board of
Directors, who will not be employed by, or a director of, the Company or
any of its affiliates.
MATTER 1.
ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of ten
directors (the "Board") divided into three classes. Upon Mr. Joseph B.
Weix's retirement at the Annual Meeting, the number of directors shall be
reduced to nine. Directors hold office for staggered terms of three years
(or until their successors are elected and qualified). At each annual
meeting of shareholders of the Company, one class of directors will be
elected for a term of three years to succeed the directors whose terms are
expiring. The following nominees, who are directors serving terms which
expire at the Annual Meeting, have been nominated by the Board for
submission to the shareholders to serve a three-year term expiring at the
1999 Annual Meeting of Shareholders. Unless otherwise directed, each proxy
executed and returned by a shareholder will be voted FOR the election of
the nominees for director listed below. If any person named as nominee
should be unable or unwilling to stand for election at the time of the
Annual Meeting, the proxies will nominate and vote for any replacement
nominee or nominees recommended by the Board. At this time, the Board
knows of no reason why any of the nominees listed below may not be able to
serve as a director if elected.
With the exception of Messrs. Mount and Weix who are cousins, there
are no family relationships among the executive officers and directors, and
there are no arrangements or understandings pursuant to which any of them
were elected as executive officers and/or directors or are being nominated
to serve as directors. The following tables present information concerning
the nominees for director and each director serving an unexpired term.
<TABLE>
Position with the Company Director of the
Name Age and Principal Occupation Company Since
---- --- ------------------------- -------------
<S> <C> <C> <C>
Nominees for Election to Terms Expiring in 1999
Charles J. Carey 71 Consultant since 1989; President and 1989
Chief Executive Officer, National Food
Processors Association, a trade
association, 1972-89.
Frank J. Pelisek 66 Chairman of the Board of Directors and 1983
Executive Committee of the Board of
Directors of the Company, since August
1993; Acting Chief Executive Officer and
Chairman of the Executive Committee of the
Board of Directors, June 1992-August 1993;
Partner, Michael Best & Friedrich, legal
counsel to the Company, since 1965; Director,
various privately held companies.
<PAGE>
Position with the Company Director of the
Name Age and Principal Occupation Company Since
---- --- ------------------------- -------------
Directors Whose Term Expires at the Annual Meeting
Joseph B. Weix 68 Retired, Chairman of the Board and Chief 1963
Executive Officer of the Company, 1975-92;
joined the Company in 1954.
Directors Whose Terms Expire in 1997
Orren J. Bradley 71 Senior Vice President, Laub Groups, Inc., an1985
insurance operations company, since 1985;
Chairman, Boston Store Division of Federated
Department Stores, Inc., 1967-85; Director,
Hanger-Tight Company, Great Lakes Credit
Corporation and Oshkosh B'Gosh, Inc., an
apparel manufacturer.
James H. DeWees 62 Retired; Chairman, President and Chief 1994
Executive Officer; Godfrey Company, a
division of Fleming Companies, Inc., a
wholesale food distributor, 1984-94; Vice
President, Fleming Companies, Inc. 1987-94;
Chairman, Village of Manor Park Foundation;
Director, Village of Manor Park, Inc. and
Green Bay Packer Hall of Fame; Member, First
Bank Milwaukee Business Advisory Board and
Marquette University Business Advisory Council.
Carol Ward Knox 45 Principal, Morgan & Myers, Inc., a public 1993
relations consulting company, since 1982;
Former Chairperson, Wisconsin Department of
Agriculture, Trade and Consumer Protection
Board; Former Member, Board of Visitors,
University of Wisconsin College of Agriculture
and Life Science, and Wisconsin Rural Leadership
Program Board.
Thomas W. Mount 65 Retired; Chairman of the Company, 1992-93; 1966
President and Chief Operating Officer of the
Company, 1975-92; joined the Company in 1957;
Director, Fiduciary Capital Growth Fund, Inc.
and Fiduciary Total Return Fund, Inc.; Former
Chairman, National Food Processors Association.
Directors Whose Terms Expire in 1998
Russell W. Britt 70 Retired; President, Chief Operating Officer 1985
and a Director of Wisconsin Energy Corp., a
utility service company, 1987-91 and Vice
President, 1981-87; Executive Officer and
Director of Wisconsin Electric Power Co. and
Wisconsin Natural Gas Co., subsidiaries of
Wisconsin Energy Corp., 1982-91.
<PAGE>
Position with the Company Director of the
Name Age and Principal Occupation Company Since
---- --- ------------------------- -------------
Directors Whose Terms Expire in 1998 (continued)
Ody J. Fish 71 Private Investor; President, Pal-O-Pak 1985
Insulation Co., Inc. an insulation
manufacturing company, 1951-86; Director,
Quest Technologies, Inc., f/k/a La Belle
Industries, Inc.; Director of all of the funds
included in the Marshall Family of Mutual
Funds; Former Member, University of Wisconsin
Board of Regents; Chairman, Wisconsin Education
Commission.
Stephen W. Theobald 50 President and Chief Executive Officer of the 1980
Company since April 1996; Vice Chairman and
Treasurer of the Company, 1992-96; Vice
President-Administration and Treasurer of the
Company, 1990-92; Vice President-Administration
of the Company 1985-90; joined the company in
1985.
</TABLE>
The affirmative vote of a plurality of the votes cast is required for
the election of the nominees. Unless otherwise specified, the shares of
Common Stock represented by the proxies solicited hereby will be voted in
favor of election of the above-described nominees.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE ELECTION OF THE NOMINEES FOR DIRECTOR.
<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the fiscal year ended March 31, 1996, the Board of Directors of
the Company held four regular meetings and no special meetings. No incumbent
director attended fewer than 75% of the aggregate total number of meetings of
the Board held and the total number of committee meetings on which such
director served during the fiscal year ended March 31, 1996. The Board has
standing Executive, Audit, Compensation, Retirement Plan Advisory and
Nominating Committees.
The Executive Committee has the authority during the intervals between
Board meetings to exercise the powers of the Board, except for certain powers
reserved exclusively for the Board. The Executive Committee consists of
Messrs. Pelisek (Chairman), Britt, Fish, Mount and Theobald. The Executive
Committee held one meeting during the fiscal year ended March 31, 1996.
The Audit Committee reviews the scope and timing of the audit of the
Company's financial statements by the Company's independent public
accountants and reviews with the independent public accountants the Company's
management policies and procedures with respect to auditing and accounting
controls. The Audit Committee also reviews and evaluates the independence of
the Company's accountants, approves services rendered by such accountants and
recommends to the Board the engagement, continuation or discharge of the
Company's accountants. The Audit Committee consists of Messrs. Britt
(Chairman), Bradley and DeWees. The Audit Committee held two meetings during
the fiscal year ended March 31, 1996.
The Compensation Committee is responsible for overseeing the management
of human resources activities of the Company, including compensation for
directors and executive officers, and the establishment of employee pension
plans and benefits. The Compensation Committee also is responsible for
determining the recipients and terms of stock options granted under the 1985
Incentive Stock Option Plan and the Stokely USA, Inc. 1994 Executive Stock
Option Plan. The Compensation Committee consists of Messrs. Fish (Chairman),
Carey, Pelisek and Ms. Knox, and met one time during the fiscal year ended
March 31, 1996.
The Retirement Plan Advisory Committee is responsible for overseeing the
management of the Company's various 401(k), profit sharing and retirement
plans. The Retirement Plan Advisory Committee consists of Messrs. DeWees
(Chairman), Fish, Mount and Ms. Knox, and met two times during the fiscal
year ended March 31, 1996.
The Nominating Committee selects nominees for directors to stand for
election at the Company's annual meetings, and consists of Messrs. Pelisek
(Chairman), Britt, Fish and Theobald. The Nominating Committee did not meet
during the fiscal year ended March 31, 1996. In June 1996, the entire Board
of Directors of the Company acted as a Nominating Committee for the selection
of the nominees for director to stand for election at the Annual Meeting.
The Company's By-Laws allow for shareholder nominations of directors and
require such nomination to be made pursuant to timely notice to the Chief
Executive Officer or President of the Company.
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Executive Compensation
The following table summarizes the total compensation earned by the
Company's President and Chief Executive Officer and the next four highest
compensated executive officers whose compensation (salary and bonus) exceeded
$100,000 during the Company's fiscal years ended March 31, 1994, 1995 and
1996. On April 16, 1996, Mr. Vernon L. Wiersma resigned as President and
Chief Executive Officer of the Company and the Board of Directors of the
Company appointed Mr. Stephen W. Theobald as President and Chief Executive
Officer.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Compensation Awards
Value of
Annual Restricted Number of
Compensation<F1> Stock Option All Other
Name and Principal Position Year Salary Bonus Awards<F2> Awards<F3> Compensation<F4>
<S> <C> <C> <C> <C> <C> <C>
Stephen W. Theobald......... 1996 $170,500 -- -- 19,000 $12,636
Current President and Chief 1995 160,400 -- -- 15,000 25,375
Executive Officer; Vice 1994 128,333<F5>$56,000 -- 0 9,891
Chairman and Treasurer
during fiscal 1996
Vernon L. Wiersma........... 1996 $220,000 -- $61,750 0 $13,160
Former President and Chief 1995 205,000 -- -- 30,000 26,399
Executive Officer 1994 162,167<F5>$70,000 -- 0 7,496
Kenneth C. Murray........... 1996 $124,000 -- -- 11,000 $ 5,587
Senior Vice President, 1995 118,000 -- -- 0 15,652
Sales and Marketing 1994 100,000 $20,000 -- 0 926
Russell J. Trunk............ 1996 $124,000 -- -- 10,000 $15,282
Senior Vice President, 1995 118,000 -- -- 6,000 31,666
Operations 1994 100,000 $20,000 -- 0 16,963
Leslie J. Wilson............ 1996 $118,000 -- -- 0 $14,296
Vice President, Finance and 1995 114,500 -- -- 0 28,523
Chief Financial and 1994 100,000 $20,000 -- 0 9,864
Accounting Officer
<FN>
<F1> Perquisites provided to the named executive officers by the Company did not exceed the
lesser of $50,000 or 10% of each named executive officer's total annual salary during
fiscal 1994, 1995 or 1996, and accordingly, are not included.
<F2> Amount shown in this column represents the value of 25,000 shares of Common Stock issued
to Mr. Wiersma on April 16, 1996, based on the value of Common Stock at March 31, 1996
($2.47 per share). See "Severance Agreement with Mr. Wiersma."
<PAGE>
<F3> Amounts shown represent the total number of options awarded under the 1985 Incentive
Stock Option Plan, the 1994 Executive Stock Option Plan and outside such option plans
during the fiscal years indicated. All of the options to purchase shares of Common
Stock indicated as granted during the fiscal year ended March 31, 1996, represent
options which had been previously granted to such individuals but which were repriced in
fiscal 1996. Options to purchase 30,000 shares of Common Stock previously granted to
Mr. Wiersma also were repriced in fiscal 1996; however, such options expired on July 15,
1996 and were not exercised. See "Ten Year Option/SAR Repricings."
<F4> Amounts shown represent contributions by the Company for the benefit of the named
individuals pursuant to the Stokely USA, Inc. Retirement Savings Profit Sharing Plan
("Retirement Savings Plan") and the Split Dollar Life Insurance Plan in the form of
premium payments on behalf of the named executive officers during the fiscal years
indicated. The amounts shown for each individual for the fiscal year ended March 31,
1996 are derived from the following figures: (i) Mr. Theobald - $1,000 Retirement
Savings Plan contribution and $11,636 split dollar premium; (ii) Mr. Wiersma - $1,000
Retirement Savings Plan contribution and $12,160 split dollar premium; (iii) Mr. Murray
- $1,000 Retirement Savings Plan contribution and $4,587 split dollar premium; (iv) Mr.
Trunk - $15,282 split dollar plan premium; and (v) Mr. Wilson - $1,000 Retirement
Savings Plan contribution and $13,296 split dollar plan premium.
<F5> The salaries of Messrs. Wiersma and Theobald were increased in August of fiscal 1995
reflecting the assumption of significant new responsibilities related to their
promotions in June of fiscal 1993, for which no salary increases had been previously
granted. On an annualized basis, the increased salaries were $175,000 for Mr. Wiersma
and $140,000 for Mr. Theobald.
</FN>
</TABLE>
Severance Agreement with Mr. Wiersma
On May 29, 1996, the Company entered into a severance agreement (the
"Severance Agreement") with Mr. Wiersma setting forth the terms and
conditions of his resignation as President, Chief Executive Officer and
Director of the Company, effective April 16, 1996. Pursuant to the
Severance Agreement, Mr. Wiersma will be paid $18,333 per month from
April 16, 1996 through May 30, 1998, and in the event of Mr. Wiersma's
death, such amounts shall be paid to his spouse, or if she is deceased, to
the personal representative of his estate. In the event of a Change of
Control of the Company (as defined in the Contingent Employment Agreements
currently in effect which are discussed herein), the Severance Agreement
provides that Mr. Wiersma shall be paid the then present value of such
monthly payments in a single sum. For the period commencing April 16, 1996
through May 30, 1998 or such earlier date as of the effective date of
coverage for Mr. Wiersma under any other employer's health insurance
program, Mr. Wiersma and his eligible dependents are entitled to
participate in the Company's group health and disability insurance programs
at the same cost to Mr. Wiersma as of the date of his resignation.
Pursuant to the Severance Agreement, the Company will continue to pay the
semi-annual premium of $14,523 under the split dollar life insurance
contract covering Mr. Wiersma through May 30, 1998, and Mr. Wiersma shall
have the option to purchase the contract from the Company by paying to the
Company the aggregate value of the premiums paid by the Company from the
date the contract was entered into to the date Mr. Wiersma exercises such
option to purchase. In addition, pursuant to the Severance Agreement, in
recognition that a portion of the grant of 50,000 shares of restricted
Common Stock to Mr. Wiersma on June 15, 1995 reflected compensation for
prior services, vesting of 25,000 shares was accelerated and such shares
were issued to Mr. Wiersma. Pursuant to the terms of the restricted stock
grant, the Company is obligated to pay an amount equal to the income tax
payable by Mr. Wiersma as a result of the grant of such shares. All rights
under agreements and/or plans which Mr. Wiersma had with respect to options
granted to him prior to April 16, 1996 also remained in effect in
accordance with the terms of such agreements and/or plans. Mr. Wiersma is
entitled to all benefits accrued under the Supplemental Employee Retirement
Plan (described herein) ("SERP") payable pursuant to the terms of the SERP,
upon Mr. Wiersma's attaining age 65, or, in the event of a Change of
Control, the Company shall pay to Mr. Wiersma the then present value of
such benefits, discounted at the rate of 7% per annum, in a single sum. In
addition, Mr. Wiersma received $2,530 as payment for the aggregate Company
contributions accrued for his benefit under the Deferred Compensation Plan
(as described herein). In lieu of outplacement services, the Company paid
to Mr. Wiersma a lump sum of $20,000 and paid $5,000 to Mr. Wiersma's legal
counsel for costs incurred in connection with negotiating the Severance
Agreement.
Employment Agreements
In 1992, the Company entered into Change of Control Contingent
Employment Agreements with Messrs. Theobald, Murray, Trunk and Wilson
(collectively, the "Contingent Employment Agreements"). Under the
Contingent Employment Agreements, if a change of control occurs, the
Company will continue to employ Mr. Theobald for three years, Mr. Wilson
for two years, and Messrs. Murray and Trunk for one year, following the
date of the change of control. "Change of Control," as defined in the
Contingent Employment Agreements, includes the acquisition of 20% or more
of the Company's Common Stock, a merger, consolidation or reorganization,
the sale of substantially all of the Company's assets or a significant
change in the composition of the Board of Directors of the Company. In the
event of a Change of Control, the employee shall be employed by the Company
for the applicable number of years and shall receive a salary equal to his
salary on the date of the Change of Control, subject to annual upward
adjustments commensurate with increases awarded to other officers and
employees. If, after a Change of Control, the Company terminates the
employee for any reason other than for cause or if the employee elects to
terminate his employment, he shall continue to be paid monthly an amount
equal to his then current monthly base salary plus a certain amount of
incentive payments and shall continue to be entitled to receive all other
employee benefits and perquisites made available to other employees of
comparable status until the end of his employment term. If the Company
terminates the employee for "cause" (as defined in the Contingent
Employment Agreements), the employee is entitled to receive only his
compensation through the date of termination. For purposes of the
Contingent Employment Agreements, the current base salary for Mr. Theobald
is $170,500, Messrs. Murray and Trunk is $124,000, and Mr. Wilson is
$118,000. The amount of the base salary and any incentive payments are
reviewed regularly by the Compensation Committee of the Board of Directors.
The Company also has entered into similar Contingent Employment Agreements
with other key officers and employees of the Company.
In June 1992, the Company entered into an Employment Agreement with
Mr. Wilson (the "Employment Agreement") for a two-year term which
automatically is extended for a period of one year on each anniversary date
unless the Company or Mr. Wilson has provided notice of nonrenewal within
30 days prior to the date thereof. For purposes of the Employment
Agreement, the current base salary for Mr. Wilson is $118,000. In addition
to base salary, the Employment Agreement provides for payments from other
Company incentive compensation plans, and provides for other benefits,
including participation in any group health, life, disability or similar
insurance program and in any pension, profit-sharing, deferred
compensation, 401(k) or other retirement plans maintained by the Company.
The Employment Agreement also provides for participation in any stock-based
incentive programs made available to executive officers of the Company.
The Employment Agreement will terminate in the event the Company ceases
operations and may be terminated by the Company in the event of Mr.
Wilson's disability or retirement, or for "cause" (as defined in the
Employment Agreement) at any time.
Deferred Compensation Plan for Key Executives
On January 1, 1995, the Company entered into Deferred Compensation
Agreements with Messrs. Wiersma, Theobald, Murray, Trunk and Wilson
pursuant to a Deferred Compensation Plan (the "Deferred Compensation
Agreements"). In accordance with the terms of the Deferred Compensation
Agreements, the Company accrues amounts equal to the contributions that
would have been made by the Company under the Retirement Savings Plan
(described herein) but for the maximum annual contribution and compensation
limits under the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"). In addition, pursuant to the Deferred Compensation
Agreements, the executives may elect to defer compensation earned in any
year. The maximum amount that may be deferred in any calendar year is 20%
of the executives' annual compensation less the maximum amount that may be
deferred on an annual basis by such executive pursuant to the Retirement
Savings Plan. Interest is accrued on deferrals and Company contributions
at the rate of interest equal to the average of the U.S. Treasury Bond
rate as published in the Wall Street Journal on the last day of the
calendar year and the last day of the previous three quarters of the
calendar year. Executives may become eligible for receipt of deferred
compensation and Company contributions under the Deferred Compensation
Plans upon death, disability, retirement or termination. The Deferred
Compensation Agreements are non-qualified, unfunded contractual liabilities
of the Company. The Company also has entered into similar deferred
compensation agreements with other key officers and employees of the
Company.
Deferred Compensation Agreements
In 1990, the Company entered into deferred compensation agreements
(the "1990 Deferred Compensation Agreements") with Messrs. Thomas W. Mount,
former President and Chairman of the Board of Directors of the Company, and
Joseph B. Weix, former Chairman of the Board of Directors of the Company.
Under the 1990 Deferred Compensation Agreements, the Company is obligated
to pay Messrs. Mount and Weix each deferred compensation in monthly
installments of $7,500 for a period of 120 consecutive months (or at their
election in one lump sum based upon a present value calculation outlined in
the 1990 Deferred Compensation Agreements) following their death,
disability or retirement. In the event of the death of Messrs. Mount or
Weix, their designated beneficiaries shall receive the deferred
compensation payments over the stated period, or at the Company's election,
such payments may be paid in one lump sum based upon a present value
calculation outlined in the 1990 Deferred Compensation Agreements. The
1990 Deferred Compensation Agreements are non-tax qualified, unfunded
deferred compensation plans. Mr. Mount retired in April 1993, and Mr. Weix
retired in June 1992, and the Company commenced the monthly installment
payments at those dates.
Benefits
Split Dollar Plan
The Company established the Split Dollar Life Insurance Plan,
effective February 1, 1990 (the "Split Dollar Plan"), in which Messrs.
Mount, Theobald, Murray, Trunk and Wilson and other key officers and
employees of the Company participate. The life insurance benefit is equal
to four times the executive's salary. The executive pays the economic
value of the insurance and the Company pays the balance of the premium.
Upon the executive's death or the retirement of the executive, the Company
will receive all premiums paid by it on behalf of the executive and the
executive will receive the remainder of the death benefit or the cash
surrender value. For the fiscal year ended March 31, 1996, Mr. Wiersma
also participated in the Split Dollar Plan. For further information
regarding the Split Dollar Plan arrangements with respect to Mr. Wiersma
made in connection with his resignation, see "Severance Agreement with Mr.
Wiersma."
Supplemental Employee Retirement Plan
The Company established the Supplemental Employee Retirement Plan (the
"SERP"), effective January 1, 1995, in which Messrs. Theobald, Murray,
Trunk, and Wilson participate. For Mr. Theobald, the SERP provides a
benefit at retirement (based on 25 years of service) of 120 equal monthly
payments which equal, on an annual basis, 40% of the salary (excluding
bonus) individually earned during the twelve months preceding retirement.
For Messrs. Murray, Trunk, and Wilson, the SERP provides a benefit at
retirement (based on 25 years of service) of 120 equal monthly payments
which equal, on an annual basis, 20% of the salary (excluding bonus)
individually earned during the twelve months preceding retirement. The
monthly payment is reduced on a percentage basis of years of service that
are less than 25 at the time of retirement. For information relating to
the SERP arrangements made with respect to Mr. Wiersma in connection with
his resignation, see "Severance Agreement with Mr. Wiersma."
Retirement Savings Plan
The Company maintains a retirement savings plan, the Stokely USA, Inc.
Retirement Savings Profit Sharing Plan (the "Retirement Savings Plan"),
covering all of its eligible employees. Employees are eligible to
participate after completing a twelve-month period of 1,000 or more hours
of employment. The Retirement Savings Plan involves a Company Profit
Sharing Contribution account, a Voluntary Contribution account and a 401(k)
Salary Deferral account. Subject to the Company's operating results, the
Company may make contributions up to 8% of pre-tax profits to the Profit
Sharing Contribution account which would be allocated to participants pro
rata based upon their eligible compensation. Participants become 20%
vested in the profit sharing contributions credited to their accounts and
the earnings thereon after three years of credited service, and 20% per
year thereafter until 100% vested after seven years. Participants also
become 100% vested upon death, disability or attainment of age 62. The
Voluntary Contribution account permits participants to make voluntary
after-tax savings contributions in amounts between 2% and 10% of their
annual compensation. Participants in the Voluntary Contribution account
are 100% vested in their contributions and the earnings thereon. Under the
Retirement Savings Plan, through the 401(k) Salary Deferral account,
participants are permitted, subject to the limitations imposed by Section
401(k) of the Internal Revenue Code to make voluntary tax-deferred
contributions in amounts between 1% and 10% of their annual compensation.
The Company may make a matching contribution to the 401(k) Salary Deferral
account in an amount up to 25% of the first 6% of compensation deferred by
the participant for participants who meet all eligibility and participant
requirements. Participants in the 401(k) Salary Deferral account are 100%
vested in their contributions, the Company's matching contribution and the
earnings thereon. Under the Retirement Savings Plan, a separate account is
maintained for each type of account and each participating employee.
Participating employees direct the Retirement Savings Plan trustee with
respect to the investment of assets held in their accounts among up to six
investment options made available by the trustee, including shares of
Common Stock.
Stock Option Plans
Incentive Stock Option Plan
The Company established the 1985 Incentive Stock Option Plan (the
"Incentive Stock Option Plan") in which key employees of the Company and
its subsidiaries, as determined by the Compensation Committee, are eligible
to participate. As of March 31, 1996, the Company and its subsidiaries had
36 eligible employees. The Incentive Stock Option Plan authorizes the
grant of options to purchase shares of Common Stock intended to qualify as
incentive stock options under Section 422A of the Internal Revenue Code.
The Compensation Committee administers the Incentive Stock Option Plan. As
of March 31, 1996, options to purchase 164,000 shares of Common Stock had
been granted and were outstanding under the Incentive Stock Option Plan and
a total of 60,550 shares of Common Stock were available for granting under
the Incentive Stock Option Plan. In fiscal 1996, a total of 29,900 options
which were to expire on August 30, 1995 were surrendered by participants
and cancelled, and replacement options were issued for the same number of
shares and at the same exercise price. The expiration date for all of such
replacement options is June 17, 1998. In addition, during fiscal 1996, the
exercise prices of a total of 87,600 options granted under the Incentive
Stock Option Plan were adjusted for those options which had an exercise
price 25% greater than the closing price of the Common Stock on May 31,
1995. The exercise price of such amended options was adjusted to $6.875, a
price 25% greater than the closing price of the Common Stock on May 31,
1995. For information regarding the repricing of options granted to those
executive officers named in the Summary Compensation Table, see "Ten Year
Option/SAR Repricings."
Non-Qualified Stock Option Grants
On April 8, 1994, the Company granted options to purchase 30,000
shares of Common Stock and 15,000 shares of Common Stock to Mr. Wiersma and
Mr. Theobald, respectively, with an exercise price of $8.50 per share, the
market price at date of grant. These options are non-qualified under the
Internal Revenue Code and were not awarded under either the 1985 Incentive
Stock Option Plan or the 1994 Executive Stock Option Plan. In fiscal 1996,
the exercise price of these options was adjusted to $6.875. There were no
other options granted outside of the 1985 Incentive Stock Option Plan or
the Executive Stock Option Plan in fiscal 1996.
Executive Stock Option Plan
On June 3, 1994, the Board of Directors of the Company adopted the
Stokely USA, Inc. 1994 Executive Stock Option Plan (the "Executive Stock
Option Plan"). The Executive Stock Option Plan was ratified by
shareholders of the Company at the Annual Meeting of Shareholders held on
August 26, 1994. All key full-time employees of the Company and its
subsidiaries are eligible to participate in the Executive Stock Option
Plan. At March 31, 1996, the Company and its subsidiaries had 45 eligible
employees. The Executive Stock Option Plan provides for the granting of
(i) incentive stock options ("ISOs"), (ii) non-qualified stock options
("NSOs"), and (iii) stock appreciation rights ("SARs"). At March 31, 1996,
options to purchase 3,796 shares had been granted and were outstanding
under the Executive Stock Option Plan and options for a total of 396,204
shares of Common Stock were available for granting to eligible
participants. A total of 3,796 shares of Common Stock were granted under
the Executive Stock Option Plan in fiscal 1996. The Compensation Committee
of the Board, or such other committee appointed by the Board, administers
the Executive Stock Option Plan. Under the Executive Stock Option Plan,
the maximum number of shares for which grants may be made to any eligible
employee may not exceed 50,000 shares.
<PAGE>
The following table sets forth certain information concerning the
grant of stock options to the current executive officers listed in the
Summary Compensation Table during the fiscal year ended March 31, 1996,
including the options which had been previously granted but which were
repriced in fiscal 1996.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential Realizable
% of Total Value at Assumed
Options Annual Rates of Stock
Granted to Exercise Price Appreciation
Options Employees in Price Expiration for Option Terms<F2>
Name Granted<F1> Fiscal Year<F1> ($/Sh) Date 5% 10%
---- ----------- --------------- ------ ---- --- ---
<S> <C> <C> <C> <C> <C> <C>
Stephen w. Theobald 4,000 2.9% $6.875 07/03/96 $ 229 $ 458
15,000 10.8 6.875 04/08/04 56,856 140,038
Kenneth C. Murray 2,500 1.8 6.875 02/05/00 4,487 9,864
2,500 1.8 6.875 02/01/02 6,709 15,545
6,000 4.3 6.875 12/11/02 18,486 43,824
Russell J. Trunk 4,000 2.9 6.875 05/20/01 9,353 21,218
6,000 4.3 6.875 04/08/04 19,695 47,173
- --------------
<FN>
<F1> All of these options represent options which had previously been granted to such
individuals but which were repriced in fiscal 1996. In fiscal 1996, options to purchase
138,896 shares of Common Stock were granted to all eligible participants, including a
total of 135,100 options which were repriced during the fiscal year ended March 31,
1996.
<F2> Amount shown represents the potential realizable value, net of the option exercise
price, assuming that the underlying market price of the Common Stock appreciates in
value from the date of repricing (May 12, 1995) to the end of the option term at
annualized rates of 5% and 10%. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are dependent upon
the future performance of the Common Stock and overall stock market conditions. There
can be no assurance that amounts reflected in this table will be achieved.
</FN>
</TABLE>
<PAGE>
No options issued under the Incentive Stock Option Plan, the Executive
Stock Option Plan or outside of either option plans were exercised by any
of the current named executive officers in the Summary Compensation Table
during fiscal 1996. The number and total value of unexercised in-the-money
options held by such individuals at March 31, 1996 are shown in the
following table.
<TABLE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
Value of
Number of Unexercised
Number of Unexercised In-the-Money
Shares Options Options at
Acquired Value at Fiscal Year End Fiscal Year End<F1>
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen W. Theobald 0 $0 22,500 7,500 -- --
Kenneth C. Murray 0 0 11,000 -- -- --
Russell J. Trunk 0 0 7,000 3,000 -- --
Leslie J. Wilson 0 0 10,000 -- -- --
- ------------
<FN>
<F1> The value of unexercised in-the-money options is based upon the difference between the
fair market value of the securities underlying the options of $2.47 at March 31, 1996 and
the exercise price of the options. No options held by the named executive officers were
in-the-money at March 31, 1996.
</FN>
</TABLE>
<PAGE>
The following table sets forth certain information concerning the
repricing of options held by the current named executive officers in the
Summary Compensation Table during the fiscal year ended March 31, 1996.
<TABLE>
TEN-YEAR OPTION/SAR REPRICINGS<F1>
<CAPTION>
Length of
Number of Market Original
Securities Price of Exercise Option Term
Underlying Stock at Price at Remaining
Options/SARs Time of Time of New at Date of
Repriced or Repricing or Repricing or Exercise Repricing or
Name Date Amended Amendment<F2> Amendment<F2> Price<F2> Amendment
---- ---- ------------ ------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen W. Theobald.. 07/03/864,000 $5.50 $10.50 $6.875 1 yr, 1 mnth
Current President 04/08/94 15,000 5.50 8.50 6.875 9 yrs
and Chief Executive
Officer, Vice Chair-
man and Treasurer
during fiscal 1996
Kenneth C. Murray..... 02/05/90 2,500 5.50 10.00 6.875 4 yrs,9 mnths
Senior Vice President,02/01/92 2,500 5.50 15.875 6.875 6 yrs,9 mnths
Sales and Marketing 12/11/92 6,000 5.50 7.75 6.875 7 yrs,7 mnths
Russell J. Trunk...... 05/20/91 4,000 5.50 10.00 6.875 6 yrs
Senior Vice President,04/08/94 6,000 5.50 8.50 6.875 9 yrs
Operations
- ------------
<FN>
<F1> Submitted by the Compensation Committee of the Board of Directors, consisting of Messrs.
Ody J. Fish (Chairman), Charles J. Carey, Frank J. Pelisek and Ms. Carol Ward Knox.
<F2> The options were approved for repricing by the Compensation Committee on May 12, 1995;
however, the repricing date was May 31, 1995. All options which had an exercise price 25%
greater than the closing price of the Common Stock on May 31, 1995 ($5.50) were amended
and the new exercise price was adjusted to $6.875, a price 25% greater than the closing
price of the Common Stock on May 31, 1995.
</FN>
</TABLE>
Directors' Compensation
Board Fees
Non-employee directors receive compensation of $6,000 per year for
service on the Board plus $500 for each Board or Committee meeting
attended. Directors may defer all or any portion of such compensation
under a Directors' Deferred Compensation Plan adopted in 1985. Deferred
compensation is credited to the account of a participating director in the
form of "phantom stock" of the Company based on the market price at the
time of each quarterly credit. Shares credited to the accounts of
directors electing to participate in the Directors' Deferred Compensation
Plan during the fiscal year ended March 31, 1996, were as follows: Mr.
Britt, 2,442 shares; and Mr. Fish, 2,671 shares. Directors who have served
two full terms (six years) and are Board members upon attaining the age 65
become eligible for retirement compensation of $500 per month upon
completion of service.
In May 1995, each non-employee director was issued a restricted stock
grant of 5,000 shares of Common Stock, each of which is subject to the
following vesting schedule: (i) 1,250 shares (06/01/96); (ii) 1,250 shares
(06/01/97); (iii) 1,250 shares (06/01/98); and (iv) 1,250 shares
(06/01/99). The restricted stock grants shall become fully vested upon (i)
completion of the term in which the Director attains age 72: (ii) death; or
(iii) incapacitation.
COMPENSATION COMMITTEE REPORT
Compensation Committee
The Compensation Committee of the Company reviews and establishes
compensation levels and benefits applicable to executive officers and
employees of the Company and makes recommendations with respect to all
issues pertaining to executive compensation for ratification by the Board
of Directors of the Company.
Compensation Committee Interlocks and Insider Participation
For the fiscal year ended March 31, 1996, the Compensation Committee
of the Board of Directors was composed of Messrs. Fish, Carey, Pelisek and
Ms. Knox, each of whom are not officers or employees of the Company. There
are no interlocks, as defined under the rules and regulations of the
Securities and Exchange Commission ("SEC"), between the Compensation
Committee and corporate affiliates of members of the Compensation
Committee.
Compensation Committee Report
Under rules established by the SEC, the Company is required to provide
certain data and information regarding the compensation and benefits
provided to executive officers of the Company. The rules require a report
of the Compensation Committee which explains the rationale and
considerations that led to fundamental compensation decisions affecting
such individuals. The Compensation Committee of the Company has prepared
the following report, at the direction of the Board of Directors of the
Company, for inclusion in this Proxy Statement.
It is the policy of the Company to maintain an executive compensation
program which will attract, motivate, retain and reward employees at all
levels of the organization and provide appropriate incentives intended to
generate long-term financial results which will benefit the Company and the
shareholders of the Company. The executive compensation program of the
Company incorporates a pay-for-performance policy that compensates
executives for both corporate and individual performance.
The executive compensation program is designed to achieve the
following objectives:
- Provide the Company with the ability to compete for and retain
talented executives that are critical to the Company's long term
success;
- Provide incentives to achieve the Company's financial performance
objectives and strategic business initiatives with the objective
of enhancing shareholder value;
- Provide competitive compensation packages comparable to those
offered by other peer group companies; and
- Reward executives for individual performance in long-term
strategic management.
The Company's executive compensation package consists of three major
components: (i) cash compensation, including base salary and an annual
incentive bonus; (ii) long-term incentive compensation in the form of stock
options (including options awarded under the Incentive Stock Option Plan
and the Executive Stock Option Plan); and (iii) executive benefits.
In determining specific cash compensation for executive officers for
the fiscal year ended March 31, 1996, the Compensation Committee considered
the following factors:
1. Company performance relative to certain goals and objectives in
effect during the prior year;
2. Individual performance relative to certain goals and objectives
in effect during the prior year;
3. Company performance compared to broader based industry
performance; and
4. Salary surveys for positions with similar responsibilities in
similar sized companies.
The annual incentive bonus is determined under the Company's Annual
Incentive Plan (the "Incentive Plan") which was developed to recognize and
reward performance and provide a total annual cash bonus consistent with
the Company's executive compensation strategy. Under the Incentive Plan,
executives earn incentive compensation if the Company achieves various
targets set for profits (defined as income before taxes and before profit-
sharing expense) as a percent of sales. Incentive compensation earned is
established as a percentage of each officer's base salary, and the
applicable percentage is dependent upon the individual's base salary
amount. If the financial performance of the Company falls below the
threshold level, no awards will be earned. If threshold levels of the
performance indicators are achieved, the Incentive Plan provides for
payment of incentive compensation in amounts ranging between 10% to 25% of
an individual's base salary. If target levels are achieved by the Company,
the Incentive Plan provides for payment of incentive compensation in
amounts ranging from 20% to 50% of an individual's base salary. Incentive
compensation may exceed 50% of an individual's base salary if the Company
surpasses target levels, but may not exceed 75% of an individual's base
salary. Prior to payment of incentive compensation after completion of the
Company's financial audit, the Compensation Committee certifies the
performance objectives of the Incentive Plan have been met.
Based on the above noted factors, the Compensation Committee
implemented the following increases in executive base salaries, effective
April 1, 1995, for the fiscal year ending March 31, 1996: Mr. Theobald,
6%; Mr. Murray, 5%; Mr. Trunk, 5%; and Mr. Wilson, 3%. No incentive bonus
payments were made to executive officers for the fiscal year ended March
31, 1996, because the targets set for profits under the above-described
Incentive Plan were not achieved.
The base salary for the Chief Executive Officer is determined by the
Compensation Committee in general accordance with the same criteria noted
herein for determining compensation for all executive officers. Based on
those factors, the Compensation Committee implemented a 7% increase in Mr.
Wiersma's base salary for the fiscal year ending March 31, 1996. No
incentive bonus payments were made to Mr. Wiersma for the fiscal year
ending March 31, 1996, because the targets set for profits under the above-
described Incentive Plan were not achieved.
The Compensation Committee believes aligning the financial interests
of management more closely with those of the shareholders influences the
creation of shareholder value. Therefore, the Compensation Committee has
required certain executive stock ownership levels for certain of its
executive officers. For Mr. Theobald, the requirement is stock ownership
representing a value at least two times his annual salary, and for Messrs.
Murray, Trunk and Wilson, the stock ownership requirement is value
representing at least one times their annual salary. Executives are
required to use a portion of any annual cash bonus received to purchase
shares of Common Stock until the ownership requirement is met.
To further encourage stock ownership among executive and other key
employees, the Company has two stock option plans which it administers, the
Incentive Stock Option Plan and the Executive Stock Option Plan. The stock
option plans are designed to encourage and create ownership and retention
of the Company's Common Stock by key employees. Through the option grants,
the objective of aligning key employees' long-range interests with those of
shareholders may be met by providing key employees with the opportunity to
build, through achievement of corporate goals, a meaningful stake in the
Company. In fiscal 1996, a total of 29,900 options granted under the
Incentive Stock Option Plan which were to expire on August 30, 1995 were
surrendered by participants and cancelled, and replacement options were
issued for the same number of shares and at the same exercise price. The
expiration date for all of such replacement options is June 17, 1998. In
addition, during fiscal 1996, the exercise prices of a total of 87,600
options were adjusted for those options which had an exercise price 25%
greater than the closing price of the Common Stock on May 31, 1995. The
exercise price of such amended options was adjusted to $6.875, a price 25%
greater than the closing price of the Common Stock on May 31, 1995. The
Compensation Committee believed that the issuance of the replacement
options and the repricing of certain options was in the best interests of
the Company and in the long-term interests of the Company's shareholders.
The Compensation Committee believed such adjustments were necessary in
order for the option grants to continue to serve their primary purpose to
encourage key employees to remain with the Company and provide adequate
incentive for such individuals to contribute toward efforts to increase the
value of the Common Stock. For a further discussion of the Company's stock
option plans and the repricing of the options, see "Compensation of
Executive Officers and Directors - Stock Option Plans" and "Ten Year
Option/SAR Repricings."
For a discussion of the executive benefits made available to officers
of the Company during the fiscal year ended March 31, 1996, see
"Compensation of Executive Officers and Directors - Benefits." Executive
benefits paid by the Company to its executive officers were based upon each
executive officer's contribution to the success of the Company and
reflected each executive officer's position, salary and specific
responsibilities.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
PERFORMANCE GRAPH FOR STOKELY USA, INC.
Set forth below is a line graph comparing the cumulative shareholder
return on the shares of Common Stock, based on the market price of the
Common Stock and assuming reinvestment of dividends, with the cumulative
total return of companies included in the Center for Research on Security
Prices Index for NASDAQ Stock Market companies and a peer group chosen by
the Company. The peer group includes NASDAQ-listed companies included in
Standard Industrial Classification (SIC) codes 2030-2039 (Canned, Frozen
and Preserved Fruits, Vegetables and Food Specialties) and AMEX and NYSE
companies with 2030-2039 SIC codes.
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
Stokely USA, Inc. NASDAQ NYSE/AMEX/NASDAQ
---------------- ------ ----------------
3/31/92 $100.0 $100.0 $100.0
3/31/93 95.4 115.0 113.0
3/31/94 98.5 124.1 105.4
3/31/95 67.7 138.0 131.8
3/29/96 30.4 187.4 163.5
The index level for all series was set to $100.0 on 3/31/92.<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of June 30, 1996
(except as noted below), (i) by each person who is known to the Company to
beneficially own more than 5% of the Common Stock, (ii) by each of the
current and former executive officers of the Company appearing in the
Summary Compensation Table, (iii) by each director of the Company, and (iv)
by all directors and executive officers as a group.
Number of Percent of
Shares of Shares of
Common Stock Common Stock
Name Beneficially Owned<F1> Beneficially Owned
---- ---------------------- -------------------
David L. Babson & Co., Inc<F2> . . . 1,177,600 10.37%
Winogene Kile<F3>. . . . . . . . . . 502,000 4.42
Vernon L. Wiersma<F4>. . . . . . . . 85,000 *
Stephen W. Theobald<F5>. . . . . . . 193,191 1.70
Russell J. Trunk<F6> . . . . . . . . 10,000 *
Leslie J. Wilson<F7> . . . . . . . . 10,000 *
Robert M. Brill<F8>. . . . . . . . . 10,000 *
Robert Cook<F9>. . . . . . . . . . . 5,700 *
Eddie W. Foster<F10> . . . . . . . . 7,130 *
Kenneth C. Murray<F11> . . . . . . . 16,000 *
Frank J. Pelisek . . . . . . . . . . 3,650 *
Orren J. Bradley . . . . . . . . . . 1,750 *
Russell W. Britt . . . . . . . . . . 1,450 *
Charles J. Carey . . . . . . . . . . 2,250 *
James H. DeWees. . . . . . . . . . . 2,250 *
Ody J. Fish. . . . . . . . . . . . . 2,250 *
Carol Ward Knox. . . . . . . . . . . 5,250 *
Thomas W. Mount. . . . . . . . . . . 180,506 1.59
Joseph B. Weix<F12>. . . . . . . . . 65,883 *
All directors and executive
officers as a group (17 persons) 602,260 5.20
- ------------------------
* Amount represents less than 1% of the total shares of Common Stock
outstanding.
<F1> Unless otherwise indicated, includes shares of Common Stock held
directly by the individuals as well as by members of such
individual's immediate family who share the same household,
shares held in trust and other indirect forms of ownership over
which shares the individuals exercise sole or shared voting
and/or dispositive power.
<F2> Based on a Schedule 13G, dated February 12, 1996, filed by David
L. Babson & Co., Inc., located at One Memorial Drive, Cambridge,
MA 02142-1300, which indicated sole voting power of 841,100
shares of Common Stock and shared voting power of 336,500 shares
of Common Stock.
<F3> Winogene Kile's address is P. O. Box 592, Oconomowoc, Wisconsin
53066.
<PAGE>
<F4> Includes 60,000 shares of Common Stock issuable pursuant to
stock options exercisable as of June 30, 1996 held by Mr.
Wiersma. On April 16, 1996, Mr. Wiersma resigned as President
and Chief Executive Officer of the Company.
<F5> Includes 162,191 shares of Common Stock held by Mr. Theobald as
co-trustee for which he has shared dispositive and voting power
with The First National Bank of Chicago, and 30,000 shares of
Common Stock issuable pursuant to presently exercisable stock
options.
<F6> Includes 10,000 shares of Common Stock issuable pursuant to
presently exercisable stock options.
<F7> Includes 10,000 shares of Common Stock issuable pursuant to
presently exercisable stock options.
<F8> Includes 10,000 shares of Common Stock issuable pursuant to
presently exercisable stock options.
<F9> Includes 4,500 shares of Common Stock issuable pursuant to
presently exercisable stock options.
<F10> Includes 5,000 shares of Common Stock issuable pursuant to
presently exercisable stock options.
<F11> Includes 11,000 shares of Common Stock issuable pursuant to
presently exercisable stock options.
<F12> Includes 5,000 shares of Common Stock held by Mr. Weix as
co-trustee for which he has shared dispositive and voting power, and
as to which he disclaims any beneficial interest.
<PAGE>
INDEPENDENT AUDITORS
Deloitte & Touche LLP served as the Company's independent auditors
for the fiscal year ended March 31, 1996 and are serving in such capacity for
the current fiscal year. The appointment of independent auditors is made
annually by the Board of Directors. The decision of the Board is based on
the recommendation of the Audit Committee of the Board, which reviews both
the audit scope and estimated audit fees. Representatives of Deloitte &
Touche LLP are expected to be present at the Annual Meeting and will have the
opportunity to make a statement if they desire to do so and to respond to
appropriate questions.
CERTAIN TRANSACTIONS
On March 21, 1996, the United States District Court for the Eastern
District of Wisconsin dismissed a consolidated class action lawsuit brought
against the Company, all of the individual members of the Board of Directors
of the Company (in both their capacity as individual members of the Board of
Directors and as executive officers, as applicable), William Blair & Company
and Dain Bosworth, Inc. This class action was a consolidated action,
including the action filed by Philip D. Freeman in January 1995 and a second
class action lawsuit filed by Daniel J. Sweeney in May 1995 which made
similar claims against the Company and certain officers arising from the same
facts and events. In conjunction with dismissing the consolidated action,
the court denied plaintiff's motion to certify the class as moot. The
lawsuit raised claims under various provisions of the Securities Act of 1933,
as amended, and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The plaintiffs alleged that they sustained losses in
connection with the purchase of shares of Common Stock of the Company during
the period from October 17, 1994 to December 19, 1994, as a result of the
Company's alleged misleading statements and alleged omissions to state
material facts in the prospectus and other materials. The court dismissed
the action after finding that the alleged misrepresentations were not
actually made by the Company and/or were not misrepresentations, and that the
alleged omissions of material facts were in fact adequately disclosed to
investors. Further, the court refused to permit the plaintiff to amend the
complaint, stating that an amendment would be futile because the court's
dismissal was based on the conclusion that the prospectus and other materials
did not contain the misrepresentations or omissions alleged in the complaint.
On April 8, 1996, the plaintiff filed a Motion for Reconsideration requesting
that the Court reconsider its decision refusing plaintiff leave to amend the
complaint. The Company has opposed the motion, which is still pending before
the court.
The Company has adopted a policy governing related party transactions
providing that any transaction by and between the Company and officers,
directors, principal shareholders or their affiliates will be for bona fide
business purposes and on terms no less favorable to the Company than those
obtainable in arms-length transactions with unaffiliated parties, and will be
subject to approval of a majority of the Company's outside directors.
<PAGE>
SECTION 16 COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of the shares of Common
Stock outstanding, to file reports of ownership and changes in ownership with
the SEC and the National Association of Securities Dealers, Inc. Officers,
directors and greater than ten percent shareholders are required by
regulation to furnish the Company with copies of all Section 16(a) forms they
file. Based upon review of the information provided to the Company, the
Company believes that during the fiscal year ended March 31, 1996, officers,
directors and greater than ten percent shareholders complied with all Section
16(a) filing requirements, with the exception of one individual. Mr. Charles
J. Carey, a director of the Company, did not timely report the acquisition of
800 shares of Common Stock, but reported said purchase on a Form 5 (Annual
Statement of Changes in Beneficial Ownership), for the fiscal year ended
March 31, 1996.
SHAREHOLDER PROPOSALS
Shareholders of the Company may submit matters to be considered at
the 1997 Annual Meeting of Shareholders. In order to be included in the 1997
Proxy Statement, such written proposals must be received on or before
April 12, 1997, at the principal offices of the Company at 1055 Corporate
Center Drive, Oconomowoc, Wisconsin, 53066-0248, Attention: Robert M. Brill,
Secretary. If such proposal is in compliance with all of the requirements of
17 C.F.R. Section 240.14a-8 ("Rule 14a-8") of the Rules and Regulations under
the Exchange Act, it will be included in the proxy statement and set forth on
the appointment form of proxy issued for such annual meeting of shareholders.
It is urged that any such proposals be sent certified mail, return receipt
requested.
OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING
The Board of Directors knows of no business which will be presented
for consideration at the Annual Meeting other than as stated in the Notice of
Annual Meeting of Shareholders. If, however, other matters are properly
brought before the Annual Meeting or any adjournments or postponements
thereof, it is the intention of the persons named in the accompanying proxy
to vote the shares represented thereby on such matters in accordance with
their best judgment.
By Order of the Board of Directors
Robert M. Brill
Secretary
Oconomowoc, Wisconsin
August 9, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 777
<SECURITIES> 0
<RECEIVABLES> 17545
<ALLOWANCES> 570
<INVENTORY> 85404
<CURRENT-ASSETS> 114073
<PP&E> 91142
<DEPRECIATION> 33641
<TOTAL-ASSETS> 175721
<CURRENT-LIABILITIES> 65655
<BONDS> 77230
<COMMON> 572
0
0
<OTHER-SE> 43683
<TOTAL-LIABILITY-AND-EQUITY> 175721
<SALES> 206251
<TOTAL-REVENUES> 206398
<CGS> 175865
<TOTAL-COSTS> 175865
<OTHER-EXPENSES> 12500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10182
<INCOME-PRETAX> (28821)
<INCOME-TAX> 0
<INCOME-CONTINUING> (28821)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28821)
<EPS-PRIMARY> (2.54)
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</TABLE>
