SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
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, 1997 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)
1230 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 X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K
-----<PAGE>
State the aggregate market value of the voting stock held by non-affiliates
of the registrant as of June 16, 1997: $9,964,904
Common Stock, $.05 par value
Number of shares of Common Stock, $.05 par value, outstanding as of
June 16, 1997 - 11,388,462
<PAGE>
The discussion in this Form 10-K includes certain forward-looking
statements within the meaning of the Private Securities Litigation Reform
Act of 1995 with respect to the results of operations, financial condition
and business of Stokely. Statements in this document that are not
historical facts are hereby identified as "forward-looking statements" for
the purpose of the safe harbor provided by Section 21E of the Securities
Exchange Act of 1934 and Section 17A of the Securities Act of 1933.
Stokely cautions readers that such "forward-looking statements," including
without limitation, those relating to Stokely's future business prospects,
revenues, working capital, liquidity, capital needs and interest costs,
wherever they occur in this document or in other statements attributable to
Stokely, are necessarily estimates reflecting the best judgment of
Stokely's senior management and involve a number of risks and uncertainties
that could cause actual results to differ materially from those suggested
by the "forward-looking statements." Factors which could cause future
results to differ from these expectations include the following: 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. Additional factors are described in the Company's
other reports filed with the Securities and Exchange Commission. The words
"estimate," "project," "intend," "expect," and similar expressions are
intended to identify forward-looking statements. These "forward-looking
statements" can be found at various places throughout this document.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. Stokely does not
undertake any obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
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 business. Essentially all the assets associated with
the frozen vegetable processing business were sold during fiscal 1997.
<PAGE>
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. 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. 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 typically a majority of sales occur
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. The
vegetable processing industry is characterized by several large producers,
but also includes a number of smaller independently owned producers. In
general, the canned 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 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 products usually are a direct result of industry product supply,
which correlate to plantings, growing conditions, crop yields 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.
During 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
certain 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. Unfavorable growing
conditions in the spring and early summer of 1996 further improved market
prices during the first three quarters of fiscal 1997. However, favorable
growing conditions in the late summer and early fall resulted in downward
pressure on industry pricing and margins during the fourth quarter of
fiscal 1997. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a further discussion of
the industry conditions.
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 three
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 compared to its fiscal 1993 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 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.
During the second quarter of fiscal 1997, the Company announced a major
restructuring of its core canned vegetable business. The action was
designed to improve operating margins in the Company's core business. The
margin improvement initiatives involve a combination of customer value
analysis, production consolidation and related reductions in general and
administrative areas. Six of the Company's nine processing facilities were
affected by the consolidation moves, with two facilities being closed, two
facilities downsized and two facilities expanded. The consolidation moves
are intended to increase efficiency while installation of some of the
latest automated inspection equipment in the expanded facilities should
enhance product quality and lower product costs. The Company also sold its
headquarters building and relocated its headquarters to a new leased
facility during the fourth quarter of fiscal 1997. The total charge
recorded by the Company in fiscal 1997 for the above actions and the write-
off of certain deferred debt costs was $13.5 million. See "Item 7.
Management's Discussion and Analysis of Financial Conditions and Results of
Operations" for a further discussion of the Company's restructuring charge
and business strategy.
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 processed dry beans and pumpkin, supplemented by purchased
items such as asparagus and sauerkraut, which are packed for Stokely by
others under 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 sold
essentially all the remaining inventory by the end of 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 product groups.
<TABLE>
Fiscal Year Ended March 31,
1997 1996 1995
<CAPTION>
Net Net Net
Sales Percent Sales Percent Sales Percent
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Canned Vegetables:
Corn $ 64,800 35.0% $ 64,200 31.1% $ 67,500 29.2%
Green beans 30,800 16.7 36,000 17.5 40,000 17.3
Peas 20,400 11.0 22,600 11.0 20,500 8.9
Root crops 17,900 9.7 17,000 8.2 13,800 6.0
Other 24,000 13.0 28,400 13.8 33,300 14.3
Total canned vegetables 157,900 85.4 168,200 81.6 175,100 75.7
Frozen Vegetables:
Corn 12,700 6.9 13,900 6.7 22,200 9.6
Peas 4,900 2.6 5,800 2.8 11,100 4.8
Other 9,400 5.1 18,400 8.9 23,000 9.9
Total frozen vegetables 27,000 14.6 38,100 18.4 56,300 24.3
Total canned and frozen
vegetables $184,900 100.0% $206,300 100.0% $231,400 100.0%
======== ====== ======== ====== ======== ======
</TABLE>
Description of Business
Canned Vegetables
The Company produces nine 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 Midwest-type vegetables in all major can sizes and
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 1997, approximately 66% of the Company's canned corn was sold
to the private label industry, 18% was sold under the Company's brand
labels and 16% was sold to the foodservice industry. The Company's corn
for canned products was 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 (including
Italian flat pod beans and European slender whole green beans) and styles
(cut, french style and whole). During fiscal 1997, approximately 41% of
the Company's canned green beans were sold to the private label industry,
43% were sold under the Company's brand labels and 16% were sold to the
foodservice industry. The Company's green beans were 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 1997, approximately 57% of the
Company's canned peas were sold to the private label industry, 24% were
sold under the Company's brand labels and 19% were sold to the foodservice
industry. The Company's peas were 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 1997, approximately 52%
of the Company's canned root crop vegetables were sold to the private label
industry, 19% were sold under the Company's brand labels and 29% were sold
to the foodservice industry.
OTHER VEGETABLES. The Company also sells various other vegetables,
including pumpkin, processed dry beans (pinto, kidney, pork'n beans and
garbanzo beans) and sauerkraut. During fiscal 1997, approximately 39% of
the Company's other vegetables were sold to the private label industry, 13%
were sold under the Company's brand labels and 48% were sold to the
foodservice industry. 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.
<PAGE>
Frozen Vegetables
Most of the Company's frozen vegetable products were sold as part of the
frozen sale agreement which closed in the second quarter of fiscal 1997.
The Company also sold certain of its frozen vegetable products through the
industrial channel of distribution in bulk quantities and to the private
label industry, the foodservice industry and export markets that were
packaged 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, grocery chain stores and
other retail channels of distribution. The Company's foodservice sales
involve sales, generally in large containers, directly or through
foodservice distributors, to purchasers of food products such as the United
States government, fast food chains, restaurants and hospitals.
The Company emphasizes responsiveness to customer needs as a point of
competitive differentiation, and the Company has invested in technology to
support its Efficient Customer Response initiatives. For example, the
Company has developed modular pallets that allow customers to avoid storage
costs by "cross-docking" a pallet of mixed items directly to the retail
outlet, allowing customers to avoid set-up labor costs when the product
arrives at the retail location.
<PAGE>
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,
1997 1996 1995
<CAPTION>
Net Net Net
Sales Percent Sales Percent Sales Percent
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Private label <F1> $ 85,500 46.3% $ 80,300 38.9% $ 77,600 33.6%
Brand label 36,300 19.6 49,300 23.9 53,300 23.0
Foodservice <F2> 36,100 19.5 38,600 18.7 44,200 19.1
Frozen 27,000 14.6 38,100 18.5 56,300 24.3
Total $184,900 100.0% $206,300 100.0% $231,400 100.0%
======== ====== ======== ====== ======== ======
<FN>
<F1> Of the Company's total private label sales shown above, export sales totalled $15.3
million, $16.3 million and $10.9 million for fiscal 1997, 1996 and 1995,
respectively.
<F2> Of the Company's total foodservice sales shown above, U.S. government sales totalled
$5.4 million, $9.5 million and $8.2 million for fiscal 1997, 1996 and 1995,
respectively.
</FN>
</TABLE>
For the fiscal year ended March 31, 1997, no single customer accounted for
more than 6% 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 a 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. The majority of private label sales are
made through commissioned brokerage representatives, while the remaining
sales are made direct to the customer. The Company's private label
division's primary responsibilities include selling private label products,
marketing the Company's service capabilities, ensuring customer
satisfaction, managing inventories and gaining new customers and
distribution.
Customers include 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. For example, the Company's sales force meets 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 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.
The Company sells its brand label products through a broker network of
independent food brokers who sell on a commission basis and provide local
marketing and service support to their distributors. 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 primarily regional print media-delivered
promotions in major markets, primarily coupon circulation and newspaper
advertisements, in addition to strong emphasis on in-store point-of-sale
promotions. 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.
The majority 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 were 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. Essentially all of the remaining frozen inventory was
sold by the end of the third quarter in fiscal 1997.
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 a higher proportion of irrigated acreage than its
competitors. 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 and
Crown Cork & Seal under supply agreements. The Company has not experienced
difficulty in obtaining adequate supplies of cans for production.
Production and Distribution
At March 31, 1997, the Company operated seven canned vegetable processing
plants. The Company closed its Merrill, Wisconsin and Wells, Minnesota
plants in the fall of fiscal 1997 after completion of the pack as part of
its restructuring efforts. The Company also ceased production of
sauerkraut at its Poynette, Wisconsin plant and will no longer process corn
at its Hoopeston, Illinois plant after fiscal 1997. 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. 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 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 food technologists
supervised by a 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. Some 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 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.
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 facilitate greater fact based analysis and
decision making throughout all levels of the Company. This added
analytical capability and flexibility assists 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 vegetable 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 Seneca Foods
Corporation and Friday Canning Company, 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 less significant
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."
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 Company is also subject to various state regulations in order for the
Company to operate as a vegetable contractor in those states. The State of
Wisconsin amended its regulations effective July 11, 1996 as it related to
certain instances when vegetable contractors are required to either pay
cash for raw products upon delivery, file security with the state, or file
financial statements that meet minimum financial standards. The Company
was required to file security of approximately $2 million on April 2, 1997
as it did not meet the minimum financial standards in the amended
regulations. Accordingly, the Company posted a surety bond with the State
of Wisconsin to meet this security requirement. The security filed with
the state on April 2, 1997 was required to equal 25% of the estimated
maximum liability expected to be owed to Wisconsin vegetable growers in the
calendar year ended December 31, 1997. The security requirement increases
to 50% for the calendar year ended December 31, 1998 and 75% thereafter for
those companies not meeting the minimum financial standards.
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 employed approximately 2,200 employees, of which approximately
1,720 were seasonal and part-time production personnel, 410 were full-time,
year-round production personnel, and 70 were management, sales and
administration personnel. Approximately 640 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 1998. There are two union contracts expiring in fiscal
1998. 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
The Company's export sales principally involve sales of private label
canned vegetables. The Company's export sales accounted for 9.7%, 10.3%
and 6.6% of total canned sales for fiscal 1997, 1996 and 1995,
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. The Company's international sales organization is
based in Oconomowoc, Wisconsin and sells through agents, commissioned
brokers and direct sales.
<PAGE>
ITEM 2. PROPERTIES
Stokely's principal facilities, all of which are owned except for the
corporate headquarters which is leased, are described below:
Plant and
Location Warehouse Size Principal Products
Canned Vegetable Production (Sq. ft.)
and Distribution:
Ackley, Iowa<PAGE>
199,000 Whole kernel corn;
canned dry pack beans<PAGE>
Cobb, Wisconsin<PAGE>
65,000 Warehouse<PAGE>
DeForest, Wisconsin<PAGE>
538,000 Warehouse and
distribution center;
field department office<PAGE>
Hoopeston, Illinois<PAGE>
240,000 Pumpkin; warehouse and
distribution center<PAGE>
Pickett, Wisconsin<PAGE>
145,000 Peas; whole kernel corn<PAGE>
Poynette, Wisconsin<PAGE>
345,000 Green and wax beans;
warehouse and
distribution center<PAGE>
Scottville, Michigan<PAGE>
238,000 Green, shellie and
romano beans<PAGE>
Sun Prairie, Wisconsin<PAGE>
108,000 Peas; peas and carrots;
whole kernel corn; cream
style corn<PAGE>
Waunakee, Wisconsin<PAGE>
181,000 Peas; peas and carrots;
whole kernel corn;
beets; carrots;
potatoes; mix vegetables<PAGE>
Corporate Headquarters:
Oconomowoc, Wisconsin<PAGE>
24,000<PAGE>
General Offices<PAGE>
Closed Facilities Held for Sale <F1>
Vegetable Production:
Green Bay, Wisconsin<PAGE>
76,000 <PAGE>
Merrill, Wiscosnin<PAGE>
56,000 <PAGE>
Wells, Minnesota<PAGE>
103,000 <PAGE>
<F1> These facilities were closed during fiscal 1996 and 1997 as part of
the Company's restructuring plans.
<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
subsequently elected to withdraw as a plaintiff in the consolidated
lawsuit.
The court dismissed the consolidated lawsuit in a judgment entered on March
21, 1996. The plaintiff subsequently filed a motion with the court which
sought to alter or amend that judgment. In a decision dated March 27,
1997, the court denied that motion and the judgment of dismissal became
final when it was not appealed by the plaintiff by April 28, 1997.
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 executive officers, their ages and
their positions and office at June 30, 1997.
Name Age Office and Business Experience
Frank J. Pelisek 67 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 51 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.
Peter P. Caputa 35 Senior Vice President and Chief
Financial Officer since March 1997;
Named Vice President of Finance in
December 1996; Controller December
1995, when he joined Stokely, to
December 1996; Senior Manager
at Deloitte & Touche LLP 1991-
1995.
Robert M. Brill 49 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.
Eddie W. Foster 59 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
John R. McCormick 54 Vice President of Sales and
Marketing since March 1997; Vice
President of Oconomowoc Canning
Company, a Stokely subsidiary,
since April 1990; National Sales
Manager for Stokely Branded
Business 1983-1990.
Jack R. McDowell 55 Vice President of Manufacturing
since joining Stokely in February
1997; Operations Manager at Custom
Cuts, Inc. 1996; Vice President,
General Manager at Lyco
Manufacturing 1995; Senior Vice
President at Agripac, Inc.
1992-1994; Vice President of
Operations at Johnsonville Foods
1989-1992.
Family Relationships
There are no family relationships among the executive officers listed and
there are no arrangements or understandings pursuant to which any of them
were elected as officers. However, all officers listed (except Mr.
Pelisek) are a party to change of control contingent employment agreements,
more fully described and hereby incorporated by reference from the
Company's definitive Proxy Statement, dated July 14, 1997. All officers
hold office for one year and until their successors shall have been duly
elected and qualified.
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
1997
First Quarter 3 13/16 2 3/8
Second Quarter 3 5/8 2 1/8
Third Quarter 2 7/8 1 1/4
Fourth Quarter 2 1 1/4
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
Holders
At June 16, 1997, there were 973 holders of record of the shares of common
stock.
<PAGE>
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, 1997, all of the Company's 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, 1997, contained in Item 8 of this Form 10-K.
Recent Sales of Unregistered Securities
During the past three years, Registrant sold securities which were not
registered under the Securities Act of 1933, as amended, as described
below. The securities of Registrant were sold in reliance on the exemption
from registration contained in Section 4(2) of the Securities Act of 1933,
as amended. No underwriters were involved in the sale of the securities
and no commissions were paid to any person.
<TABLE>
Price Date
per of Nature of
Title and Amount Share Purchaser Sale Transaction
<S> <C> <C> <C> <C>
$9,841,805.00 Amended Promissory State of Wisconsin July 1996 Amended and Restated
and Restated Senior Note Investment Board Promissory Note in
Secured Note Due connection with
January 15, 2000 previous
financings
$12,185,032.27 Amended Promissory Nationwide Life July 1996 Amended and Restated
and Restated Senior Note Insurance Company Promissory Note in
Secured Note Due connection with
January 15, 2000 previous
financings
$1,782,582.17 Amended Promissory Employers Life July 1996 Amended and Restated
and Restated Senior Note Insurance Company Promissory Note in
Secured Note Due of Wausau connection with
January 15, 2000 previous
financings
$891,585.31 Amended Promissory West Coast Life July 1996 Amended and Restated
and Restated Senior Note Insurance Company Promissory Note in
Secured Note Due connection with
January 15, 2000 previous
financings
Warrants to purchase $2.25 State of Wisconsin July 1996 Warrants issued in
996,876 shares of Investment Board connection with
Common Stock amendments to a
promissory note,
price per share is
exercise price per
warrant share
Warrants to purchase $2.25 Nationwide Life July 1996 Warrants issued in
986,562 shares of Insurance Company connection with
Common Stock amendments to a
promissory note,
price per share is
exercise price per
warrant share
Warrants to purchase $2.25 Employers Life July 1996 Warrants issued in
144,374 shares of Insurance Company connection with
Common Stock of Wausau amendments to a
promissory note,
price per share is
exercise price per
warrant share
Warrants to purchase $2.25 West Coast Life July 1996 Warrants issued in
72,188 shares of Insurance Company connection with
Common Stock amendments to a
promissory note,
price per share is
exercise price per
warrant share
/TABLE
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
<CAPTION> Years ended March 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $184,850 $206,251 $231,422 $256,145 $281,382
Other revenues 91 147 517 4,691 2,145
Total net revenues 184,941 206,398 231,939 260,836 283,527
Cost of products sold 153,139 175,865 186,814 216,392 249,982
Selling, general and
administrative expenses 28,446 36,672 33,617 36,476 42,139
Nonrecurring charge <F1><F2> 13,529 12,500 - - 21,145
Operating earnings(loss) (10,173) (18,639) 11,508 7,968 (29,739)
Interest expense 10,750 10,182 10,796 12,710 12,721
Earnings (loss) before
income taxes (credits)and
cumulative effect of
change in accounting
principle (20,923) (28,821) 712 (4,742) (42,460)
Income taxes (credits) - - 142 (2,527) (12,983)
Earnings (loss) before
cumulative effect of
change in accounting
principle (20,923) (28,821) 570 (2,215) (29,477)
Cumulative effect of change
in method of accounting for
postretirement benefits (net
of income taxes of $850) <F3> - - - - (1,650)
Net earnings (loss) $(20,923) $(28,821) $ 570 $ (2,215) $(31,127)
COMMON STOCK DATA
Net earnings (loss)
per share <F1><F2><F3> $ (1.84) $ (2.54) $ .06 $ (.27) $(3.75)
Stockholders' equity
per share $ .78 $ 2.61 $ 5.15 $3.92 $4.18
Average shares out-
standing (thousands) 11,360 11,326 9,336 8,320 8,302
Shares outstanding at
year-end (thousands) 11,374 11,326 11,325 8,325 8,316
<FN>
<F1> For the nonrecurring charge in fiscal 1997 and fiscal 1996 see Note J to Notes to
Consolidated Financial Statements. The charges accounted for $1.19 and $1.10 in
fiscal 1997 and fiscal 1996, respectively, of the loss per share reported.
<F2> 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. This charge resulted in a
loss per share of $2.54.
<F3> Fiscal 1993 includes a $.20 per share loss due to post-retirement benefits
accounting method change.
</FN> </TABLE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
(Dollars in thousands except per share data)
<CAPTION>
Years ended March 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
BALANCE SHEET AND FINANCIAL DATA
Working capital $ 36,432 $ 48,418 $ 68,052 $ 42,071 $ 40,626
Current ratio 1.72 1.74 2.69 2.03 1.38
Property, plant and
equipment - net 40,469 57,501 68,597 67,356 68,419
Depreciation 5,979 8,190 7,508 7,230 9,286
Capital expenditures 3,220 7,521 6,421 5,174 12,871
Total assets 130,742 175,721 181,294 158,535 232,843
Long-term debt 68,041 77,230 78,497 80,438 82,854
Stockholders' equity 8,807 29,567 58,378 32,640 34,777
/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.
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. Selling prices of canned and
frozen products are a direct result of industry product supply, which
correlate to 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.
Nonrecurring Charge
During the second quarter of fiscal 1997, the Company announced a major
restructuring of its core canned vegetable business. The action was
designed to improve operating margins in the Company's core business. The
margin improvement initiatives involve a combination of customer value
analysis, production consolidation and related reductions in general and
administrative areas. Six of the Company's nine processing facilities were
affected by the consolidation moves, with two facilities being closed, two
facilities downsized and two facilities expanded. The consolidation moves
are expected to increase efficiency while installation of some of the
latest automated inspection equipment in the expanded facilities should
further enhance product quality and lower product costs. The Company also
sold its headquarters building and relocated its headquarters to a new
leased facility during the fourth quarter of fiscal 1997. The total charge
recorded by the Company in fiscal 1997 for the above actions and the write-
off of deferred debt costs was $13.5 million. See Note J of Notes to
Consolidated Financial Statements for a further discussion of the non-
recurring charges.
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 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 15% and 20% of
the Company's 1997 and 1996 fiscal year sales, respectively. 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 J of
Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
Fiscal Year Ended March 31, 1997 Compared to Fiscal Year Ended March 31,
1996
Net Earnings (Loss)
The net loss for the fiscal year ended March 31, 1997 was $20.9 million
compared to a net loss of $28.8 million for the previous year. Excluding
the nonrecurring charges of $13.5 million in fiscal 1997 and $12.5 million
in fiscal 1996, results improved $8.9 million. This improvement was
primarily due to an improved selling environment for canned vegetable sales
and to cost reductions resulting from the Company's restructurings in
fiscal 1997 and 1996.
Net Sales
Net sales in fiscal 1997 decreased $21.4 million, or 10.4%, to $184.9
million from $206.3 million in fiscal 1996. Frozen sales decreased $11.1
million to $27.0 million in fiscal 1997 from $38.1 million in fiscal 1996,
as the Company completed its exit from the frozen vegetable business in
fiscal 1997. Total canned vegetable sales decreased $10.3 million, or
6.1%, to $157.9 million in fiscal 1997 from $168.2 million in fiscal 1996.
The decline in total canned vegetable sales was the result of a $17.8
million reduction in sales volume partially offset by a $7.5 million
increase in average selling prices.
The decrease in sales volume and increase in average selling prices appear
to have been initially caused by weather related delays in last summer's
production which created lower available inventories and concerns regarding
product availability later in the fiscal year. These concerns over product
availability and related pricing increases appear to have resulted in lower
trade promotion activity at the retail level and lower category consumption
than experienced historically during the third fiscal quarter. However,
the anticipated production shortfall did not materialize and that, in
combination with reduced consumption, resulted in excess inventory levels
and declining selling prices during the fourth quarter of fiscal 1997.
Cost of Products Sold
Cost of products sold decreased $22.8 million, or 13.0%, to $153.1 million
in fiscal 1997 from $175.9 million in fiscal 1996. 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 by 2.5% to 82.8% in fiscal 1997 compared to 85.3% in fiscal
1996. This decrease is due primarily to the improvement in average selling
prices associated with canned vegetable sales, partially offset by lower
selling prices associated with the liquidation of the frozen vegetable
inventory.
Selling, General and Administrative Expense
Selling, general and administrative expenses decreased by $8.3 million, or
22.6%, to $28.4 million in fiscal 1997 from $36.7 million in fiscal 1996.
This decrease is primarily the result of reduced selling expenses
associated with the decrease in canned vegetable sales and cost reduction
initiatives taken as part of the Company's restructurings in fiscal 1996
and 1997. Selling, general and administrative expenses as a percentage of
net sales were 15.4% in fiscal 1997 compared to 17.8% in fiscal 1996.
Interest Expense
Interest expense increased $0.6 million or 5.9%, to $10.8 million in fiscal
1997 compared to $10.2 million in fiscal 1996. This increase was primarily
due to higher average borrowing levels on the Company's revolving credit
facility.
Income Taxes
In fiscal 1997, no income tax expense or benefit was recorded. The tax
benefit of the pre-tax operating loss of fiscal 1997 was offset by a
corresponding increase in the valuation allowance of allowable tax
benefits. At March 31, 1997, the Company had net operating loss
carryforwards of $59.5 million and tax credit carryforwards of $2.9
million, which are available to reduce and/or offset future tax
liabilities.
<PAGE>
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 believed 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 believed 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.
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.
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY AND CAPITAL RESOURCES
General
Due to the seasonal production nature of the canned (and frozen) vegetable
processing business, the Company must maintain substantial inventories of
processed vegetables throughout the year. The working capital requirements
associated with producing and maintaining such inventories are financed
primarily through short-term borrowings and deferred payment terms with
major suppliers. The maximum amount of short-term borrowings in fiscal
1997 was $65.6 million compared to $65.4 million in fiscal 1996 and $59.7
million in fiscal 1995.
On May 21, 1996, the Company entered into a revolving credit agreement with
a commercial lender which provides for borrowings up to $70 million. The
agreement provides for an expanded collateral borrowing base, lower
interest rates and less restrictive financial and operating covenants than
the former agreement. Maximum revolving credit borrowings projected for
fiscal 1998 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 $68.0 million at March 31, 1997,
excluding current maturities of $2.6 million. Included in the long-term
debt obligations are two senior notes totaling $17.2 million, various
Industrial Development Revenue Bonds totaling $25.3 million and $25.5
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.
The senior note agreements were amended July 25, 1996. The amended
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 on July 25, 1998 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 $2.25. 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
financial covenants including a minimum tangible net worth of $4.8 million
and a minimum current ratio of 1.25 to 1.00.
As a result of the nonrecurring charge recorded by the Company during the
quarter ended September 30, 1996, the Company was in violation of certain
financial and other covenants in most of its Industrial Development Revenue
Bonds. These covenant violations were waived and the covenants amended.
The financial covenants require the Company to maintain a minimum tangible
net worth of $4.8 million and a minimum current ratio of 1.25 to 1.00.
Cash Flows from Operating Activities
Cash provided by operations during fiscal 1997 totaled $17.3 million. Of
the total cash provided, changes in operating assets and liabilities
provided cash of $18.0 million, primarily due to a decrease in accounts
receivable of $6.3 million, a decrease in inventory of $11.0 million, and
an increase in accounts payable of $7.9 million, partially offset by a
decrease in restructure liabilities. The decrease in accounts receivable
of $6.3 million is due to a decrease in sales in the quarter ended
March 31, 1997 compared to a year ago. The increase in accounts payable of
$7.9 million is due primarily to extended terms negotiated with various
vendors and increases in deferred revenues. The decrease in inventory of
$11.0 million is due primarily to the liquidation of frozen vegetable
finished goods inventory partially offset by an increase of $15.9 million
in canned inventory caused by lower sales volume in fiscal 1997.
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 the previous year.
Cash Flows from Investing Activities
Net cash provided by (used in) investing activities during fiscal 1997,
1996 and 1995 was $10.6 million, $(5.5) million and $(4.9) million,
respectively. Purchase of property, plant and equipment was $3.2 million,
$7.5 million and $6.4 million during fiscal 1997, 1996 and 1995,
respectively.
Major capital expenditures during fiscal 1997 related to capacity
consolidation at Scottville, Michigan and Sun Prairie, Wisconsin. The
Company received $13.7 million in additional cash flow from the sale of the
frozen processing plants and the sale of the Oconomowoc headquarters.
Proceeds from these sales were primarily used to pay down long-term debt.
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.
Cash Flows from Financing Activities
At March 31, 1997, the Company decreased its revolving credit borrowings by
$11.8 million to $41.1 million primarily due to cash provided by changes in
asset and liabilities discussed earlier. At March 31, 1997, the Company
had $41.1 million of revolving credit borrowings, of which $25.5 million
was classified as long-term and $15.6 million was classified as short-term.
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.
Litigation
The Company is involved from time to time in various legal actions and
claims. For a discussion of current matters, see "Item 3. Legal
Proceedings" and 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 Events and Liquidity
The Company recorded a net loss of $2.8 million (unaudited) in its fiscal
quarter ended June 30, 1997. Abnormally low selling prices that prevailed
during the first quarter have not abated. Current selling prices remain
below year-ago levels, historical averages and levels anticipated at the
beginning of the fiscal year by management based on industry planting
intentions reported by USDA in April 1997, which indicated significant
reductions in plantings from prior years.
As a result, the Company anticipates a slightly larger loss in its second
quarter ended September 30, 1997 than in its first quarter. Subsequent to
June 30, 1997, the Company is in violation of certain covenants applicable
to the Senior Notes due January 2000 and its Industrial Development Revenue
Bonds. The Company has not been notified by any of its debt holders that
they intend to accelerate the maturity date of their obligations as a
result of the covenant violations. Should current market conditions
continue, the Company's anticipated negative cash flow and working capital
positions will seriously affect the Company's liquidity in the upcoming
quarters. Stokely's deteriorating operating results and financial
condition and anticipated liquidity problems are of sufficient severity and
magnitude that it will be unable to continue normal operations for an
extended period absent a sales transaction.
The Company entered into an Agreement and Plan of Reorganization, dated as
of September 17, 1997 (the "Merger Agreement") with Chiquita Brands
International, Inc. ("Chiquita") and Chiquita Acquisition Corp.
("Acquisition Subsidiary").
In the merger: (i) the Acquisition Subsidiary will be merged with and into
Stokely, and Stokely will be the surviving corporation and become a direct,
wholly-owned subsidiary of Chiquita and (ii) outstanding shares of Stokely
Common Stock will be converted into shares of Chiquita Common Stock. Each
outstanding share of Stokely Common Stock will be converted into the right
to receive a fractional share of Chiquita Common Stock having a value of
$1.00. The size of the fractional amount will be based on the average
closing price of Chiquita's Common Stock on the New York Stock Exchange
over the 15 days preceeding the Merger. The number of whole shares of
Chiquita Common Stock to be received by each Stokely shareholder will
depend on the number of shares of Stokely Common Stock held by the
shareholder. No fractional shares of Chiquita Common Stock will be issued
and cash will be paid in lieu of fractional shares. Additionally, in
connection with the merger: (i) certain holders of $31.8 million principal
amount of Stokely debt have agreed to exchange that indebtedness for shares
of Chiquita Common Stock; (ii) certain Stokely suppliers have agreed to
forgive $1.0 million in accounts receivable; and (iii) it is a condition to
closing that Stokely's revolving credit lender will agree to leave in place
at least $20 million of outstanding revolving credit indebtedness.
Completion of the transaction is subject to obtaining necessary regulatory
approvals and Stokely shareholder approval and various other closing
conditions.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable until after June 15, 1998.
<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, 1997 and 1996 and the related
consolidated statements of operations, stockholders'equity and cash flows
for each of the three years in the period ended March 31, 1997. 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 Stokely USA, Inc. and
subsidiaries as of March 31,1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 1997 in conformity with generally accepted accounting
principles. Also, in our opinion, such consolidated financial statement
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.
We have not audited any financial statements of the Company for any
period subsequent to March 31, 1997. The accompanying financial
statements have been prepared assuming the Company will continue as a
going concern, however, as discussed in Note L to the consolidated
financial statements, due to continued deteriorating financial
conditions, subsequent to June 30, 1997, the Company was not in
compliance with certain of its loan covenant requirements related to its
senior note agreements and its industrial development revenue bonds.
These matters raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these
matters are also described in Note L. The consolidated financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
Deloitte & Touche, LLP
Milwaukee, Wisconsin
June 19, 1997
(October 10, 1997 as to Note L)<PAGE>
Stokely USA, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS - Note D
March 31,
(Dollars in thousands) 1997 1996
CURRENT ASSETS:
Cash and cash equivalents - Note A $ 1,660 $ 777
Accounts receivable, less allowance for
losses ($508 and $570, respectively) 10,634 16,975
Inventories - Notes A, B and J 73,785 85,404
Prepaid expenses 728 1,417
Property held for disposition - Note J 537 9,500
TOTAL CURRENT ASSETS 87,344 114,073
OTHER ASSETS - Notes A and C 2,929 4,147
PROPERTY, PLANT AND EQUIPMENT, at cost - Note A
Land and land improvements 2,839 2,973
Buildings 18,825 27,217
Machinery and equipment 51,448 60,952
73,112 91,142
Less accumulated depreciation 32,643 33,641
40,469 57,501
TOTAL ASSETS $130,742 $175,721
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) 1997 1996
CURRENT LIABILITIES:
Notes payable - Note D $ 15,551 $ 19,887
Accounts payable 29,311 21,365
Accrued compensation and withholdings 1,426 2,546
Other accrued liabilities - Note J 2,040 6,707
Current maturities on long-term debt - Note D 2,584 15,150
TOTAL CURRENT LIABILITIES 50,912 65,655
LONG-TERM DEBT, less current maturities
- Note D 68,041 77,230
OTHER LIABILITIES - Notes F and G 2,982 3,269
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 43,593 43,683
Retained earnings (34,993) (14,070)
9,172 30,185
Less treasury stock at cost
(61,375 and 108,754 shares, respectively) (373) (618)
Cumulative translation adjustments 8 -
8,807 29,567
COMMITMENTS AND CONTINGENCIES - Note I
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $130,742 $175,721
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,
1997 1996 1995
REVENUES:
Net sales $184,850 $206,251 $231,422
Other 91 147 517
TOTAL REVENUES 184,941 206,398 231,939
COSTS AND EXPENSES:
Cost of products sold 153,139 175,865 186,814
Selling, general and
administrative expenses 28,446 36,672 33,617
Nonrecurring charge - Note J 13,529 12,500 -
Interest 10,750 10,182 10,796
TOTAL COSTS AND EXPENSES 205,864 235,219 231,227
EARNINGS (LOSS) BEFORE INCOME
TAXES (20,923) (28,821) 712
INCOME TAXES - Note E - - 142
NET EARNINGS (LOSS) $(20,923) $(28,821) $ 570
PER SHARE AMOUNTS:
NET EARNINGS (LOSS) PER SHARE OF
COMMON STOCK $ (1.84) $ (2.54) $ .06
WEIGHTED AVERAGE SHARES
OUTSTANDING 11,360,413 11,326,245 9,335,604
See Notes to Consolidated Financial Statements.<PAGE>
<TABLE>
Stokely USA, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<CAPTION>
Foreign
Additional Currency
Common Stock Paid-In Retained Treasury Stock Translation
Shares Amount Capital Earnings Shares Amount Adjustment
<S> <C> <C> <C> <C> <C> <C> <C>
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)
Net loss (20,923)
Stock issued (90) (47,379) 245
Translation
adjustments $ 8
Balances,
March 31, 1997 11,435,195 $572 $43,593 $(34,993) 61,375 $(373) $ 8
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Stokely USA, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31,
(Dollars in thousands) 1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $(20,923) $(28,821) $ 570
Adjustments to net earnings (loss):
Depreciation 5,979 8,190 7,508
Deferred income taxes - (142) 142
Amortization of trademarks 40 79 79
Amortization of deferred debt
issuance costs 640 536 1,649
Nonrecurring charge 13,529 12,500 -
Gains on disposal of property,
plant and equipment 1 (461) (256)
(734) (8,119) 9,692
Changes in operating assets and
liabilities:
Accounts receivable 6,341 8,484 (4,642)
Inventories 11,019 (12,765) (24,133)
Prepaid expenses 689 788 1,757
Accounts payable 7,946 7,911 (413)
Accrued compensation and withholdings (1,120) (469) (50)
Other liabilities (6,857) (1,755) (2,011)
18,018 2,194 (29,492)
Net cash provided by (used in)
operating activities 17,284 (5,925) (19,800)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant
and equipment (3,220) (7,521) (6,421)
Proceeds from sales of property,
plant and equipment 13,656 2,328 863
Other - net 180 (332) 672
Net cash provided by (used in)
investing activities 10,616 (5,525) (4,886)
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) 1997 1996 1995
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in short-term debt (net) $(11,836) $ 596 $ 1,299
(Payments) borrowings of long-term deb (14,255) 11,347 (3,273)
Payments of deferred debt
issuance costs (1,081) (903) (229)
Issuance of common stock 155 10 25,168
Exercise of stock options - - -
Net cash (used in) provided by
financing activities (27,017) 11,050 22,965
Net increase (decrease) in cash
and cash equivalents 883 (400) (1,721)
Cash and cash equivalents,
beginning of year 777 1,177 2,898
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 1,660 $ 777 $ 1,177
See Notes to Consolidated Financial Statements.
<PAGE>
Stokely USA, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended March 31, 1997, 1996 and 1995
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.
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.
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, 1997 $68,861 $4,924 $73,785
March 31, 1996 78,922 6,482 85,404
Note C
Other Assets:
Other assets (in thousands) consisted of the following:
March 31,
1997 1996
Property held for disposition - Note J $1,022 $ 993
Trademarks - 680
Other 1,907 2,474
$2,929 $4,147
Trademarks were written off as part of the fiscal 1997 restructure charge
as discussed in Note J of Notes to Consolidated Financial Statements.
Trademark accumulated amortization was $929,000 at March 31, 1996.
Included in other assets are unamortized deferred debt issuance costs of
$994,000 and $1,382,000 at March 31, 1997 and 1996, respectively. The
accumulated amortization was $939,000 and $746,000, respectively, at
March 31, 1997 and 1996.
Note D
Notes Payable and Long-Term Debt:
Long-term debt (in thousands) consisted of the following:
March 31,
1997 1996
Senior notes due January 2000 $19,630 $33,735
Revolving credit notes 25,500 33,000
Industrial Development Revenue Bonds:
7.75% to 8.92% 23,245 23,245
3.875% Variable 2,250 2,400
70,625 92,380
Less current maturities on long-term debt (2,584) (15,150)
$68,041 $77,230
On May 21, 1996, the Company entered into a 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. Revolving credit
loans under the 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 agreement
requires a commitment fee at a rate of .25% per annum on the unused
portion of the commitments. The 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 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.
The senior note agreements were amended on July 25, 1996. The senior
note agreements, as amended, 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 agreements on January 15, 2000. The amended agreements provide for
adjustments to the interest rates on July 25, 1998 based upon the Company
attaining certain additional reductions in the principal balance of the
senior notes. In addition, the Company issued warrants to the senior
note holders. The warrants entitle the holders to purchase an aggregate
of 2,200,000 shares of common stock through July 15, 2006 at a price per
share equal to $2.25. 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 financial covenants including a
minimum tangible net worth of $4,816,000 and a minimum current ratio of
1.25 to 1.00.
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, 1997, $15,551,000 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 1998. The interest
rate on the outstanding revolving credit loans under the existing credit
agreement (including the amounts classified as long-term) at March 31,
1997, was 9.25%.
The stated aggregate amounts of scheduled maturities on long-term debt
each year for the five years subsequent to March 31, 1997, are as
follows: 1998 - $2,584,000; 1999 - $32,898,000; 2000 - $14,163,000; and
2001 - $150,000 and 2002 - $4,730,000.
Revolving credit loans payable at March 31, 1997, and 1996, 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, 1997 and 1996.
Management of the Company has estimated the fair value of the Industrial
Development Revenue Bond issues to be approximately $25,009,000 and
$25,159,000 at March 31, 1997 and 1996, respectively.
Note E
Income Taxes:
Income taxes (in thousands) consisted of the following:
Years Ended March 31,
1997 1996 1995
Currently payable (refundable):
Federal - - -
State - $ 142 -
Deferred - Federal - (142) $142
$ 0 $ 0 $142
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,
1997 1996 1995
U.S. statutory rate 34.0% 34.0% 34.0%
State income taxes net of federal
income tax benefits - .5 -
Increase in valuation allowance (34.0) (35.1) -
Benefit of net operating loss
carryforwards - - (14.0)
Other items - net - .6 -
Effective tax rate 0.0% 0.0% 20.0%
Deferred income taxes are 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.
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,
1997 1996
Deferred tax assets:
Reserves not currently deductible $ 1,335 $ 1,276
Provision for nonrecurring charge 3,002 3,663
Postretirement benefits 531 931
Tax credit carryforwards 2,937 2,937
Net operating loss carryforwards 20,234 14,255
Valuation allowance (20,178) (13,063)
Total deferred tax assets $ 7,861 $ 9,999
Deferred tax liabilities:
Change in method of inventory valuation $ 612 $ 918
Deferred casualty gain - -
Tax over book depreciation 7,195 8,850
Other 54 231
Total deferred tax liabilities 7,861 9,999
Net deferred tax (liability) $ 0 $ 0
At March 31, 1997, the Company had an alternative minimum tax credit
carryforward of approximately $1,916,000 which may be carried forward
indefinitely, and a general business credit carryforward of approximately
$1,021,000 which expires in various years from 2003 to 2010. At March
31, 1997, the Company had net operating loss carryforwards of
approximately $59,512,000 which expire in the years 2009 through 2012.
Note F
Other Liabilities:
Other liabilities (in thousands) consisted of the following:
March 31,
1997 1996
Postretirement benefits - Note G $1,560 $1,613
Deferred compensation 1,422 1,656
$2,982 $3,269
<PAGE>
Note G
Employees' Retirement Plan And Other Benefit Plans:
The Company provides certain postretirement health care benefits and life
insurance benefits to certain existing retired employees. The benefits
and eligibility requirements varied by location and various union
agreements. The Company funds benefit expenses on a pay-as-you-go basis.
Existing employees 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.
The following table sets forth the plan's status reconciled with amounts
recognized in the balance sheet:
March 31,
(Dollars in thousands) 1997 1996
Accumulated postretirement benefit obligation:
Retirees $ 734 $1,438
Fully eligible active plan participants - -
Other active plan participants - -
734 1,438
Unrecognized prior service cost 575 -
Unrecognized net gain 251 175
Accrued postretirement benefits $1,560 $1,613
Years ended March 31,
1997 1996 1995
Net periodic postretirement benefit (income)
expense included the following components:
Service cost - benefits attributed to
service during the period $ 108 $ 89 $154
Interest cost on accumulated post-
retirement benefit obligation 185 160 203
Amortization of unrecognized net gain (2) (23) -
Curtailment gain (189) (1,088) (379)
Net periodic postretirement benefit (income) $ 102 $ (862) (22)
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 13% in 1997 and 1996, gradually
declining to 6% in 2002.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% in 1997 and 1996.
If the health care cost trend assumptions were increased by 1%,the
accumulated postretirement benefit obligation as of March 31, 1997, would
increase by $4,000. The effect of this change on the aggregate of the
service cost and interest cost would be no additional charge to expense
for the year ended March 31, 1997.
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
J.) This curtailment gain was subsequently adjusted in fiscal 1997.
Effective in October of 1996 retirees pay full cost for prescription drug
coverage.
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, 1997 and March 31, 1996. 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 $5,000, $581,000, and $436,000 in 1997, 1996 and
1995, 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 canceled 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 and 1997.
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.
In September, 1996 the Company granted 238,325 options under the 1994
Plan to employees at all levels of the Company. These options vested
100% on the date of grant.
Changes in shares, as to options, are as follows:
Shares
Outstanding
Reserved options Available
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
($5.125 to $6.875) 624,550 167,796 456,754
Granted ($1.6250 to $2.8125) 258,631 (258,631)
Expired ($2.8125 to $8.50) (97,010) 97,010
Balances at March 31,1997 624,550 329,417 295,133
At March 31, 1997, a total of 307,248 options were exercisable at $2.8125
to $6.875.
The Company applies Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its plans. Accordingly, no compensation expense has been
reflected in the financial statements. Had compensation cost for the
Company's stock option plans been determined based upon the fair value at
the grant date for awards under these plans consistent with the
methodology prescribed under Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation," the Company's net loss
and net loss per share would have been increased by $442,000, or $.04 per
share and 83,000 or $.01 per share, for 1997 and 1996, respectively. The
weighted average fair value of the options granted during 1997 and 1996
was estimated as $1.83 and $2.22 respectively, on the date of grant using
the Black-Scholes option - pricing model with the following weighted
average assumptions: volatility of 125.7% and 80.7%, for 1997 and 1996
respectively, risk-free interest rate of 6.3% for both 1997 and 1996, and
an expected term of approximately two years for both 1997 and 1996.
In 1995, the Company granted options to purchase 15,000 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 former 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:
During fiscal 1997 the Company entered into a ten year operating lease
for its corporate headquarters building for which the Company is
responsible for certain maintenance, operating costs and insurance. The
Company also leases certain data processing and manufacturing equipment
and land under operating leases with terms that generally range from
three to seven years.
Future minimum rental commitments for fiscal years ending March 31, are
as follows; 1998 - $1,239,000; 1999 - $705,000; 2000 - $577,000; 2001 -
$560,000; 2002 - $560,000; thereafter, $2,300,000.
In addition to the above lease arrangements, the Company also enters into
equipment leases for terms of one year or less. The Company does,
however, in some instances continue to lease the equipment beyond the
minimum lease period. Total rent expense aggregated $2,499,000,
$2,639,000 and $2,350,000 respectively, during fiscal 1997, 1996 and
1995.
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 subsequently elected to withdraw as a
plaintiff in the consolidated lawsuit.
The court dismissed the consolidated lawsuit in a judgment entered on
March 21, 1996. The plaintiff subsequently filed a motion with the court
which sought to alter or amend that judgment. In a decision dated
March 27, 1997, the court denied that motion and the judgment of
dismissal became final when it was not appealed by the plaintiff by April
28, 1997.
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.
Note J
Nonrecurring Charge:
A nonrecurring charge of $13,529,000 was recognized during the first six
months of fiscal 1997 of which $13,096,000 was recorded during the second
quarter. The nonrecurring charge related to the restructuring of the
Company's core canned vegetable business and the write-off of deferred
debt costs associated with the replacement of the Company's revolving
credit facility on May 21, 1996 and the amendments made to the senior
note agreements on July 25, 1996. The nonrecurring charge included a
write-down of property, plant and equipment at two plants which were
closed and two plants which were downsized. The nonrecurring charge also
included a writedown for the loss on the sale of the Company's
headquarters building which was completed during the fourth quarter of
fiscal 1997 at which time the Company relocated its headquarters to a new
leased facility. The nonrecurring charge also included provisions for
severance costs, a writedown of certain discontinued inventory items to
their estimated net realizable values and the writedown of certain
intangible assets. An analysis of the 1997 nonrecurring charge is as
follows (in thousands):
Balance
Original Reserves at March 31,
Reserves Utilized 1997
Property, plant and
equipment writedowns $ 9,550 $2,710 $6,840
Write-off of deferred debt
issuance costs 829 829 -
Severance costs 1,250 732 518
Inventory writedowns 600 152 448
Intangible asset writedowns 640 640 -
Other costs 660 327 333
Total $13,529 $5,390 $8,139
Approximately $11,779,000 of the nonrecurring charge are non-cash
charges. Severance costs pertain to approximately 50 personnel. The
write-off of intangible assets pertains mainly to certain trademarks
which will no longer be actively marketed.
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 approximated
$24,000,000.
An analysis of the 1996 nonrecurring charge is as follows (in thousands):
Reserves Balance
Original Utilized at
Reserves in fiscal 1996 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
Essentially all the reserves remaining at March 31, 1996 were fully
utilized during fiscal 1997. The only asset remaining from the frozen
business is the third plant discussed above which is shown as a current
asset held for disposition.
The inventory write-down and gain on settlement of post-retirement
benefits were non-cash charges. The other charges required future cash
outlays, principally during fiscal 1997. Severance costs pertained to
approximately 300 personnel directly and indirectly associated with the
frozen business.
Revenues of the frozen business approximated $27.0 million, $38.1 million
and $56.3 million in fiscal years 1997, 1996 and 1995, respectively.
Note K
Supplemental Cash Flow Disclosures:
Cash payments for (refunds of) interest and income taxes were as follows
(in thousands):
Years ended March 31,
1997 1996 1995
Interest $10,591 $ 9,578 $ 9,209
Income taxes - net 31 (283) (1,664)
Note L
Subsequent Events
The Company recorded a net loss of $2.8 million (unaudited) in its fiscal
quarter ended June 30, 1997. Abnormally low selling prices that
prevailed during the first quarter have not abated. Current selling
prices remain below year-ago levels, historical averages and levels
anticipated at the beginning of the fiscal year by management based on
industry planting intentions reported by USDA in April 1997, which
indicated significant reductions in plantings from prior years.
As a result, the Company anticipates a slightly larger loss in its second
quarter ended September 30, 1997 than in its first quarter. Subsequent
to June 30, 1997, the Company is in violation of certain covenants
applicable to the Senior Notes due January 2000 and its Industrial
Development Revenue Bonds. The Company has not been notified by any of
its debt holders that they intend to accelerate the maturity date of
their obligations as a result of the covenant violations. Should current
market conditions continue, the Company's anticipated negative cash flow
and working capital positions will seriously affect the Company's
liquidity in the upcoming quarters. Stokely's deteriorating operating
results and financial condition and anticipated liquidity problems are of
sufficient severity and magnitude that it will be unable to continue
normal operations for an extended period absent a sales transaction.
The Company entered into an Agreement and Plan of Reorganization, dated
as of September 17, 1997 (the "Merger Agreement") with Chiquita Brands
International, Inc. ("Chiquita") and Chiquita Acquisition Corp.
("Acquisition Subsidiary").
In the merger: (i) the Acquisition Subsidiary will be merged with and
into Stokely, and Stokely will be the surviving corporation and become a
direct, wholly-owned subsidiary of Chiquita and (ii) outstanding shares
of Stokely Common Stock will be converted into shares of Chiquita Common
Stock. Each outstanding share of Stokely Common Stock will be converted
into the right to receive a fractional share of Chiquita Common Stock
having a value of $1.00. The size of the fractional amount will be based
on the average closing price of Chiquita's Common Stock on the New York
Stock Exchange over the 15 days preceeding the Merger. The number of
whole shares of Chiquita Common Stock to be received by each Stokely
shareholder will depend on the number of shares of Stokely Common Stock
held by the shareholder. No fractional shares of Chiquita Common Stock
will be issued and cash will be paid in lieu of fractional shares.
Additionally, in connection with the merger: (i) certain holders of $31.8
million principal amount of Stokely debt have agreed to exchange that
indebtedness for shares of Chiquita Common Stock; (ii) certain Stokely
suppliers have agreed to forgive $1.0 million in accounts receivable; and
(iii) it is a condition to closing that Stokely's revolving credit lender
will agree to leave in place at least $20 million of outstanding
revolving credit indebtedness. Completion of the transaction is subject
to obtaining necessary regulatory approvals and Stokely shareholder
approval and various other closing conditions.
<PAGE>
QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands except per share)
Quarter Ended
1997 June September December March Year
Net sales $42,342 $51,630 $55,342 $35,536 $184,850
Gross profit 5,142 8,785 11,195 6,589 31,711
Net earnings (loss) (4,264) (14,912) 690 (2,437) (20,923)
Net earnings (loss)
per share (.38) (1.31) .06 (0.21) (1.84)
1996
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)
No dividends were paid during fiscal 1997 and 1996, and the Company does
not anticipate paying dividends in the foreseeable future.
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
canned sales for the third and fourth quarters of fiscal 1997 and 1996
were 54% and 53% of total canned sales. 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 first quarter ended June 30, 1996, the Company recorded a
nonrecurring charge of $433,000 ($.04 per share) related to the
write-off
of deferred debt cost associated with the replacement of the Company's
revolving credit facility on May 21, 1996. See Note J to the
Consolidated Financial Statements.
During the second quarter ended September 30, 1996, the Company recorded
a nonrecurring charge of $13,096,000 ($1.15 per share) related to the
Company's restructuring of its core canned vegetable business, sale of
its corporate headquarters and write-off of deferred debt costs,
associated with renegotiations of senior notes. See Note J to the
Consolidated Financial Statements.
During the fourth quarter ended March 31, 1996, the Company recorded a
nonrecurring charge of $12,500,000 ($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 J 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 is included in the Company's Form 10-K/A
previously filed on July 29, 1997 with the Securities and Exchange Commission.
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 in the Company's Form 10-K/A
previously filed on July 29, 1997 with the Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is included in the Company's Form 10-K/A
previously filed on July 29, 1997 with the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is included in the Company's Form 10-K/A
previously filed on July 29, 1997 with the Securities and Exchange Commission.
<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 00
Consolidated Balance Sheets, March 31, 1997 and 1996 00-00
For the years ended March 31, 1997, 1996 and 1995:
Consolidated Statements of Operations 00
Consolidated Statements of Stockholders' Equity 00
Consolidated Statements of Cash Flows 00-00
Notes to Consolidated Financial Statements 00-00
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 00
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:
There were no reports filed on Form 8-K for the three months ended March
31, 1997.
(c) Exhibits
Exhibit listing attached.
(d) Financial Statement Schedules
<TABLE>
SCHEDULE VIII
STOKELY USA, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended March 31, 1997, 1996 and 1995
<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, 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.......... (6,000)<F1> (562,000) (2,094,000)
Balance
March 31, 1996..... 570,000 6,855,000 -
Additions charged to
costs and expenses. 700,000 600,000 9,550,000
Deductions.......... (762,000)<F1> (7,007,000) (2,710,000)
March 31, 1997..... $ 508,000 $ 448,000 $ 6,840,000
========= ========== ===========
<FN>
<F1> Uncollectible accounts written off, net of recoveries and reduction in bad debt reserve.
</FN>
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements 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: October 14, 1997
BY:
Stephen W. Theobald
President and Chief Executive
Officer
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
FORM 10-K/A
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, 1997 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/A for
fiscal year ended March 31, 1997
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) 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(o) 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(p) Second Amendment to Note Agreement dated June 11, 1993
regarding $20,000,000 Promissory Note (see Exhibit 10(l))(8).
10(q) First Amendment to Security Agreement dated June 1993 relating
to the Credit Facility (see Exhibit 10(m))(8).
10(r) 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(s) Warrant to Purchase Shares of Common Stock of Stokely USA,
Inc. issued to Nationwide Life Insurance Company dated June
1993(8).
10(t) Warrant to Purchase Shares of Common Stock of Stokely USA,
Inc. issued to EMPL and Co. dated June 1993(8).
10(u) Warrant to Purchase Shares of Common Stock of Stokely USA,
Inc. issued to West Coast Life Insurance Company dated June
1993(8).
10(v) 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(w) 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(x) 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(y) 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(z) 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(aa) 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(bb) 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(cc) Change of Control Contingent Employment Agreement between
Stokely USA, Inc. and Stephen W. Theobald dated October 16,
1992(12).
10(dd) Change of Control Contingent Employment Agreement between
Stokely USA, Inc. and Leslie J. Wilson dated October 16,
1992(12).
10(ee) Change of Control Contingent Employment Agreement between
Stokely USA, Inc. and Robert M. Brill dated October 16,
1992(12).
10(ff) Change of Control Contingent Employment Agreement between
Stokely USA, Inc. and Eddie Foster dated October 16, 1992(12).
10(gg) Stokely USA, Inc. 1994 Executive Stock Option Plan(12).
10(hh) Stock Option Agreement between Stokely USA, Inc. and Kenneth
C. Murray dated March 13, 1990(12).
10(ii) Stock Option Agreement between Stokely USA, Inc. and Vernon L.
Wiersma dated April 8, 1994(12).
10(jj) Stock Option Agreement between Stokely USA, Inc. and Stephen
W. Theobald dated April 8, 1994(12).
10(kk) Warrant to Purchase Shares of Common Stock of Stokely USA,
Inc. issued to the State of Wisconsin Investment Board dated
June 1993(12).
10(ll) Second Amendment to Loan Documents dated October 13, 1992
regarding the Credit Facility (see Exhibit 10(m))(12).
10(mm) Third Amendment to Loan Documents dated December 16, 1992
regarding the Credit Facility (see Exhibit 10(m))(12).
10(nn) Fourth Amendment to Loan Documents dated June 11, 1993
regarding the Credit Facility (see Exhibit 10(m))(12).
10(oo) Fifth Amendment to Loan Document dated March 24, 1994
regarding the Credit Facility (see Exhibit 10(m))(12).
10(pp) Summary Plan Description of Split Dollar Life Insurance
Plan(12).
10(qq) Supplemental Employee Retirement Plan(13).
10(rr) 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(ss) 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(tt) 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(uu) Deferred Compensation Agreement for Highly Compensated
Employees(14).
10(vv) Loan and Security Agreement by and among Congress Financial
Corporation, as lender, and Stokely USA, Inc. dated May 21,
1996 with respect to a $70,000,000 Credit Facility(15).
10(ww) Amended and Restated Note Agreement dated July 25, 1996
regarding $20,000,000 Original Principal Amount of 9.74%
Senior Notes due January 15, 2000(15).
10(xx) Series A Warrant to purchase shares of Common Stock by State
of Wisconsin Investment Board(15).
10(yy) Series B Warrant to purchase shares of Common Stock by State
of Wisconsin Investment Board(15).
10(zz) Amended and Restated Note Agreement dated July 25, 1996
regarding $25,000,000 Original Principal Amount of 9.37%
Senior Notes due January 15, 2000(15).
10(aaa) Series A Warrant to purchase shares of Common Stock(15).
10(bbb) Series B Warrant to purchase shares of Common Stock(15).
10(ccc) Second Amendment to Loan Agreement with the Town of Utica,
Wisconsin (see Exhibit 10(i)), dated February 1, 1997, between
Stokely USA, Inc. and The Bank of New York, as trustee(1).
10(ddd) Second Amendment to Loan Agreement with Port of Walla Walla
Corporation (see Exhibit 10 (j)), dated February 1, 1997,
between Stokely USA, Inc. and The Bank of New York, as trustee
(16).
10(eee) Second Amendment to Loan Agreement with the City of Green Bay,
Wisconsin (see Exhibit 10(a)), dated February 1, 1997, between
Stokely USA, Inc. and The Bank of New York, as trustee(1).
10(fff) First Amendment to Indenture with the City of Ackley, Iowa
(see Exhibit 10(f)), dated March 31, 1997, between Stokely
USA, Inc. and Norwest Bank Minnesota, N.A., as trustee(1).
10(ggg) Second Amendment to Loan Agreement with the City of Ackley,
Iowa (see Exhibit 10 (f)), dated March 31, 1997, between
Stokely USA, Inc. and Norwest Bank Minnesota, N.A., as trustee
(16).
10(hhh) First Amendment to Indenture with the Village of Poynette,
Wisconsin (see Exhibit 10(d)), dated March 31, 1997, between
Stokely USA, Inc. and The Bank of New York, as trustee(1).
10(iii) Second Amendment to Loan Agreement with the Village of
Poynette, Wisconsin (see Exhibit 10(d)), dated March 31, 1997,
between Stokely USA, Inc. and The Bank of New York, as trustee
(16).
10(jjj) First Amendment to Indenture with the Village of Waunakee,
Wisconsin (see Exhibit 10(e)), dated March 31, 1997, between
Stokely USA, Inc. and The Bank of New York, as trustee(1).
10(kkk) Second Amendment to Loan Agreement with the Village of
Waunakee, Wisconsin (see Exhibit 10(e)), dated March 31, 1997,
between Stokely USA, Inc. and The Bank of New York, as trustee
(16).
10(lll) First Amendment to Indenture with the Village of Poynette,
Wisconsin (see Exhibit 10(f)), dated March 31, 1997, between
Stokely USA, Inc. and Norwest Bank Minnesota, N.A., as trustee
(16).
10(mmm) Second Amendment to Loan Agreement with the Village of
Poynette, Wisconsin (see Exhibit 10(b)), dated March 31, 1997,
between Stokely USA, Inc. and Norwest Bank Minnesota, N.A., as
trustee(16).
10(nnn) Change of Control Contingent Employment Agreement between
Stokely USA, Inc. and Peter P. Caputa dated March 17, 1997
(16).
10(ooo) Change of Control Contingent Employment Agreement between
Stokely USA, Inc. and John R. McCormick dated October 16, 1992
(16).
10(ppp) Change of Control Contingent Employment Agreement between
Stokely USA, Inc. and Jack R. McDowell dated February 11,
1997(16).
10(qqq) Severance Agreement between Stokely USA, Inc. and Vernon L.
Wiersma dated May 29, 1996 (16).
21.1 Subsidiaries of the Registrant(16).
23.1 Consent of Deloitte & Touche LLP(1).
24.1 Powers of Attorney for certain officers and directors(12).
27.1 Financial Data Schedule(16).
(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.
(14) Incorporated by reference to exhibits filed with Registrant's
Form 10-K for the year ended March 31, 1996.
(15) Incorporated by reference to exhibits filed with Registrant's
Form 10-Q for the three months ended June 30, 1996.
(16) Incorporated by reference to exhibits filed with Registrant's Form
10-K for the year ended March 31, 1997.<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 June 19, 1997
(October 10, 1997 as to Note L) appearing in the Annual Report on Form
10-K/A of Stokely USA, Inc. and subsidiaries for the year ended March 31,
1997.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
June 19, 1997
(October 10, 1997 as to Note L)
