SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1997 Commission File Number 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)
Registrant's telephone number, including area code: (414) 569-1800
--------------
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 the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class Outstanding at November 7, 1997
- ------------------------ --------------------------------
Common Stock, 11,390,871 Shares
$.05 par value per share
STOKELY USA, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
--------
PART I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
September 30, 1997, September 30, 1996
and March 31, 1997 3-4
Consolidated Condensed Statements of
Operations - Three and Six Months Ended
September 30, 1997 and 1996 5-6
Consolidated Condensed Statements of
Cash Flows - Six Months Ended
September 30, 1997 and 1996 7
Notes to Consolidated Condensed Financial
Statements 8-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11-19
Item 3. Quantitative and Qualitative
Disclosure About Market Risks 20
PART II. Other Information
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Default Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of
Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STOKELY USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
---------------------------------------
(Dollars in thousands)
September 30, September 30, March 31,
1997 1996 1997
(unaudited) (unaudited) (note)
------------- ------------- ---------
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 1,515 $ 1,880 $ 1,660
Accounts receivable, less
allowance for losses of $393,
$558 and $508, respectively 12,931 16,078 10,634
Inventories: Finished goods 86,931 105,846 68,861
Manufacturing supplies 4,538 3,933 4,924
Prepaid expenses 618 1,434 728
Property held for disposition 132 5,025 537
-------- -------- --------
Total Current Assets 106,665 134,196 87,344
OTHER ASSETS: 2,507 3,501 2,929
-------- -------- --------
PROPERTY, PLANT & EQUIPMENT, at cost 74,734 71,018 73,112
Less accumulated depreciation 35,109 30,723 32,643
-------- -------- --------
39,625 40,295 40,469
-------- -------- --------
TOTAL ASSETS $148,797 $177,992 $130,742
======== ======== =========
See accompanying notes to consolidated condensed financial statements
(unaudited).
Note: The balance sheet at March 31, 1997 has been condensed from the
audited financial statements at that date.
STOKELY USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(Dollars in thousands)
September 30, September 30, March 31,
1997 1996 1997
(unaudited) (unaudited) (note)
------------- ------------- ---------
LIABILITIES & STOCKHOLDER'S EQUITY
- ----------------------------------
CURRENT LIABILITIES:
Notes payable $ 47,725 $ 19,541 $ 15,551
Accounts payable 45,017 52,941 29,311
Current maturities on long-
term debt 5,174 9,650 2,584
Other current liabilities 5,663 5,776 3,466
--------- --------- ---------
103,579 87,908 50,912
Additional long-term debt
classified as current 38,126 19,245
--------- --------- ---------
Total Current Liabilities 141,705 107,153 50,912
LONG-TERM DEBT, less current
maturities 2,100 55,951 68,041
OTHER LIABILITIES 2,883 4,349 2,982
STOCKHOLDERS' EQUITY:
Capital stock 572 572 572
Additional paid-in capital 43,508 43,596 43,593
Accumulated deficit (41,675) (33,245) (34,993)
Treasury stock at cost (271) (380) (373)
Cumulative translation adjustments (25) (4) 8
--------- --------- ---------
Total Stockholder's Equity 2,109 10,539 8,807
--------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $148,797 $177,992 $130,742
========= ========= =========
See accompanying notes to consolidated condensed financial statements
(unaudited).
Note: The balance sheet at March 31, 1997 has been condensed from the
audited financial statements at that date.
STOKELY USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
-----------------------------------------------
(Dollars in thousands except per share amounts)
(unaudited)
Three Months Ended
September 30,
1997 1996
---- ----
REVENUES:
- ---------
Net Sales $ 37,684 $ 51,630
Other 27
-------- --------
Total Revenues 37,684 51,657
COST AND EXPENSES:
- ------------------
Cost of products sold 31,551 42,845
Selling, general & administrative expenses 7,148 8,091
Merger expenses 598
Nonrecurring charges 13,096
Interest 2,314 2,537
-------- --------
Total Cost and Expenses 41,611 66,569
LOSS BEFORE INCOME TAX (3,927) (14,912)
INCOME TAXES
-------- --------
NET LOSS $ (3,927) $(14,912)
========= ========
NET LOSS PER COMMON SHARE $(.34) $(1.31)
====== ======
WEIGHTED AVERAGE SHARES OUTSTANDING 11,389,506 11,363,989
========== ==========
See accompanying notes to consolidated condensed financial statements
(unaudited).
STOKELY USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
-----------------------------------------------
(Dollars in thousands except per share amounts)
(unaudited)
Six Months Ended
September 30,
1997 1996
---- ----
REVENUES:
- ---------
Net Sales $ 74,009 $ 93,973
Other 3 62
------- -------
Total Revenues 74,012 94,035
COST AND EXPENSES:
- ------------------
Cost of products sold 61,641 80,011
Selling, general & administrative expenses 13,697 14,460
Merger expenses 598
Nonrecurring charges 13,529
Interest 4,758 5,210
------- -------
Total Cost and Expenses 80,694 113,210
LOSS BEFORE INCOME TAX (6,682) (19,175)
INCOME TAXES
-------- --------
NET LOSS $ (6,682) $(19,175)
========= ========
NET LOSS PER COMMON SHARE $(.59) $(1.69)
====== ======
WEIGHTED AVERAGE SHARES OUTSTANDING 11,383,930 11,348,233
========== ==========
See accompanying notes to consolidated condensed financial statements
(unaudited).
STOKELY USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Dollars in thousands)
(Unaudited)
Six Months Ended
September 30,
1997 1996
---- ----
Net cash (used in) provided by operating
activities $(5,970) $ 1,322
--------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (1,619) (1,047)
Proceeds from disposal of property, plant
and equipment 538 9,215
Decrease in other assets - net 315 394
--------- ---------
Net cash (used in) provided by investing
activities (766) 8,562
--------- ---------
Cash flows from financing activities:
Net borrowings under revolving credit
facility 6,674 2,154
Proceeds from (payments of) long-term
debt 275 (10,034)
Payment of deferred debt issuance costs (375) (1,052)
Capital stock transactions - net 17 151
--------- ---------
Net cash provided by (used in) financing
activities 6,591 (8,781)
--------- ---------
Net (decrease) increase in cash and cash
equivalents (145) 1,103
Cash and cash equivalents at beginning
of period 1,660 777
--------- ---------
Cash and cash equivalents at end of period $ 1,515 $ 1,880
========= =========
See accompanying notes to consolidated condensed financial statements
(unaudited).
STOKELY USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
1. In the opinion of management, the accompanying unaudited
consolidated condensed financial statements contain all normal and
recurring adjustments necessary to present fairly Stokely USA, Inc.'s
consolidated condensed balance sheets as of September 30, 1997 and 1996,
and March 31, 1997, the consolidated condensed statements of operations
for the three and six month periods ended September 30, 1997 and 1996,
and the consolidated condensed statements of cash flows for the six
month periods then ended.
The results of operations for the three and six months ended
September 30, 1997 are not necessarily indicative of the results to be
expected for the full year. For interim reporting purposes, certain
expenses are based on estimates rather than expenses actually incurred.
The unaudited interim consolidated condensed financial statements should
be read in conjunction with the consolidated financial statements and
notes thereto for the fiscal year ended March 31, 1997, included in the
Company's Form 10-K (as amended) filed with the Securities and Exchange
Commission.
The accounting policies followed by the Company are described in Note A
of the financial statements of the Company's Form 10-K (as amended) for
the year ended March 31, 1997.
2. Supplemental cash flow disclosures: Cash payments for interest
were $3,626,000 and $5,236,000 for the six months ended September 30,
1997 and 1996, respectively. Net payments of income taxes were $20,000
and $28,000 for the six months ended September 30, 1997 and
September 30, 1996 respectively.
3. A nonrecurring charge of $13,529,000 was recognized during the six
months ended September 30, 1996 as discussed in the Company's Annual
Report on Form 10-K (as amended) for the fiscal year ended March 31,
1997. Reserves utilized during the three months ended September 30,
1997 are as follows (in thousands):
Balance Balance
at Reserves at
June 30, 1997 Utilized September 30, 1997
Property, plant and equipment
write-downs $6,965 $ 10 $6,955
Severance costs 379 163 216
Inventory write-downs 48 0 48
Other costs 199 45 154
Total $7,591 $ 218 $7,373
4. 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 trading days preceding 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 Stokely shareholder approval and
various other closing conditions.
Expenses incurred related to the merger totaled $598,000 through
September 30, 1997, and consisted primarily of legal, consulting and
financial advisor fees. Additional expenses in connection with the
merger are expected to be incurred and paid during each of the next two
fiscal quarters. There are also approximately $1.4 million of
contingent expenses which would be expensed and paid upon the merger
closing, the majority of which relate to fees payable to the Company's
financial advisor.
Commencing in May 1997, the Company is in violation of certain covenants
applicable to the Senior Notes due January 2000 (which constitutes an
event of default) and certain of its Industrial Development Revenue
Bonds. Commencing in July 1997, the Company also is in violation of
certain covenants applicable to most of the other Industrial Development
Revenue Bonds. As a result of these covenant violations, the Senior
Notes due January 2000 and most of the Company's Industrial Development
Revenue Bonds have been classified as "Additional long-term debt
classified as current" on the September 30, 1997 balance sheet. Through
November 7, 1997, 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 events of default or the covenant
violations. Furthermore, the Senior Noteholders and the holders of
certain Industrial Development Revenue Bonds signed a Debt-holder
Agreement dated September 16, 1997 whereby they agreed to exchange their
outstanding debt for shares of Chiquita Common Stock in the proposed
Merger.
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.<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's operations during
the periods included in the accompanying (unaudited) consolidated
condensed financial statements.
The discussion in this Form 10-Q 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 judgement 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.
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. Product availability is a
direct result of plantings, growing conditions, crop yields and
inventories, all of which may vary from year to year. In addition,
price can be affected by the planting, inventory level and individual
pricing decisions of the three or four largest processors in the
industry. Generally, the market prices in the vegetable processing
industry tend to adjust more quickly to variations in product
availability than an individual processor can adjust its cost structure;
thus, in an oversupply situation, a processor's margins likely will
weaken, as suppliers generally are not able to adjust their cost
structure as rapidly as market prices adjust for the oversupply. The
Company typically has experienced lower margins during times of industry
oversupply. There can be no assurance the Company's margins will
improve in response to favorable market conditions or that the Company
will be able to operate profitably during depressed market conditions.
RESULTS OF OPERATIONS:
Three Months Ended September 30, 1997 Compared to Three Months Ended
September 30, 1996
Net Sales
Net sales decreased $13.9 million, or 26.9%, to $37.7 million for the
quarter ended September 30, 1997 compared to $51.6 million for the
quarter ended September 30, 1996. The decrease in sales was due
primarily to the elimination of frozen sales of $10.6 million as the
Company completed its exit from the frozen vegetable business in fiscal
1997.
Total canned vegetable sales decreased $3.3 million, or 8.0%, to $37.7
million for the quarter ended September 30, 1997 compared to $41.0
million for the quarter ended September 30, 1996. The decrease in total
canned vegetable sales was the result of a $3.7 million decrease in
average selling prices offset in part by a $.4 million increase in sales
volume. The abnormally low selling prices that prevailed during the
first quarter of fiscal 1998 continued through the second quarter.
Cost of Products Sold
Cost of products sold decreased $11.2 million, or 26.2%, to $31.6
million for the quarter ended September 30, 1997 compared to $42.8
million for the quarter ended September 30, 1996. The decrease in cost
of products sold was due primarily to the elimination of the frozen
sales. Cost of products sold as a percent of sales was 83.7% for the
quarter ended September 30, 1997 compared to 82.9% for the quarter ended
September 30, 1996. The increase of .8% in cost of products sold as a
percent of sales is due primarily to lower average selling prices for
canned vegetable sales offset, in part, by the elimination of lower
margin frozen sales resulting from the liquidation of frozen vegetables
in fiscal 1997.
Selling, General and Administrative Expense
Selling, general and administrative expense decreased $1.0 million to
$7.1 million for the quarter ended September 30, 1997 compared to $8.1
million for the quarter ended September 30, 1996. This decrease is
primarily the result of cost reduction initiatives taken as part of the
Company's restructuring efforts.
Costs associated with the proposed merger of the Company with a wholly-
owned subsidiary of Chiquita Brands International, Inc. as discussed in
Note 4 of Notes to Consolidated Condensed Financial Statements totaled
$.6 million for the quarter ended September 30, 1997 and consisted
primarily of legal, consulting and financial advisory fees.
Nonrecurring Charge
On September 10, 1996, the Company announced a major restructuring of
its core canned vegetable business. This action was designed to improve
operating margins in the Company's core canned vegetable business in
order to achieve consistently profitable operating results. The margin
improvement initiatives will be implemented through 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
being closed, two expanded and two down-sized. The consolidation moves
will increase efficiency while new equipment in the expanded facilities
will further enhance product quality.
The Company recorded a nonrecurring charge of $13.1 million in the
quarter ended September 30, 1996 in connection with this restructuring.
See Note 3 of Notes to Consolidated Condensed Financial Statements.
Interest Expense
Interest expense decreased $.2 million to $2.3 million for the quarter
ended September 30, 1997 from $2.5 million for the quarter ended
September 30, 1996 due to lower average borrowing levels.
Net Loss
The net loss for the quarter ended September 30, 1997 was $3.9 million
compared to a net loss of $14.9 million for the quarter ended
September 30, 1996. The decrease was primarily due to the nonrecurring
charge of $13.1 million recorded in fiscal 1997. Excluding the
nonrecurring charge, the loss for the quarter ended September 30, 1997
increased $2.1 million compared to the quarter ended September 30, 1996
due primarily to continued low selling prices for canned vegetable sales
during the quarter ended September 30, 1997.
<PAGE>
RESULTS OF OPERATIONS:
Six Months Ended September 30, 1997 Compared to Six Months Ended
September 30, 1996
Net Sales
Net sales decreased $20.0 million, or 21.3%, to $74.0 million for the
six months ended September 30, 1997 compared to $94.0 million for the
six months ended September 30, 1996. The decrease in sales was due
primarily to the elimination of frozen sales of $21.9 million as the
Company completed its exit from the frozen vegetable business in fiscal
1997.
Total canned vegetable sales increased $1.9 million, or 2.6%, to $74
million for the six months ended September 30, 1997 compared to $72.1
million for the six months ended September 30, 1996. The increase in
total canned vegetable sales was the result of a $5.9 million increase
in sales volume, offset in part by a $4.0 million decrease in average
selling prices.
Cost of Products Sold
Cost of products sold decreased $18.4 million, or 23.0%, to $61.6
million for the six months ended September 30, 1997 from $80.0 million
for the six months ended September 30, 1996. The decrease in cost of
products sold was due primarily to elimination of the frozen sales
volume. Cost of products sold as a percent of sales decreased to 83.3%
for the six months ended September 30, 1997 compared to 85.1% for the
six months ended September 30, 1996. The decrease of 1.8% in cost of
products sold as a percent of sales is due primarily to elimination of
lower margin frozen sales resulting from the liquidation of frozen
vegetables in fiscal 1997 offset, in part, by lower average selling
prices associated with canned vegetable sales in fiscal 1998.
Selling, General and Administrative Expense
Selling, general and administrative expense decreased $.8 million to
$13.7 million for the six months ended September 30, 1997 from $14.5
million for the six months ended September 30, 1996. This decrease is
primarily the result of cost reduction initiatives taken as part of the
Company's restructuring efforts offset, in part, by increased selling
and promotion expenses created by continued market pressures.
Costs associated with the proposed merger of the Company with a wholly-
owned subsidiary of Chiquita Brands International, Inc. as discussed in
Note 4 of Notes to Consolidated Condensed Financial Statements totaled
$.6 million for the six months ended September 30, 1997 and consisted
primarily of legal, consulting and financial advisory fees.
Nonrecurring Charge
On September 10, 1996 the Company announced a major restructuring of its
core canned vegetable business. This action was designed to
substantially improve operating margins in the Company's core canned
vegetable business in order to achieve consistently profitable operating
results. The margin improvement initiatives will be implemented through
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 being closed, two expanded and two down-sized. The
consolidation moves will increase efficiency while new equipment in the
expanded facilities will further enhance product quality.
The Company recorded a nonrecurring charge of $13.5 million in the six
months ended September 30, 1996 in connection with this restructuring.
See Note 3 of Notes to Consolidated Condensed Financial Statements.
Interest Expense
Interest expense decreased $.4 million to $4.8 million for the six
months ended September 30, 1997 from $5.2 million for the six months
ended September 30, 1996 due to lower average borrowing levels.
Net Loss
The net loss for the six months ended September 30, 1997 was $6.7
million compared to a net loss of $19.2 million for the six months ended
September 30, 1996. The reduced net loss was due to the nonrecurring
charge of $13.5 million in fiscal 1997. Excluding the nonrecurring
charge, the loss for the six months ended September 30, 1997 increased
$1.0 million compared to the six months ended September 30, 1996 due
primarily to continued low selling prices for canned vegetable sales for
the six months ended September 30, 1997.
FINANCIAL CONDITION AND LIQUIDITY AND CAPITAL RESOURCES
General
Due to the seasonal production nature of the canned and frozen vegetable
processing business, the Company must maintain substantial inventories
of processed vegetables throughout the year. The working capital
requirements associated with producing and maintaining such inventories
are financed primarily through short-term borrowings and deferred
payment terms with major raw product and container suppliers.
Abnormally low selling prices that prevailed during the first and second
quarters of fiscal 1998 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 the United States Department of Agriculture
("USDA") in April 1997, which indicated significant reductions in
planting from prior years. If current market conditions prevail for the
balance of the fiscal year, the Board of Directors and management
believe the Company will experience losses of similar magnitude in its
third and fourth fiscal quarters. These losses are expected to continue
to erode the Company's liquidity position and net worth.
The Company has a $70 million revolving credit facility with Congress
Financial Corporation (Central) ("Congress") which expires in May 1998.
The Congress facility represents the third credit facility the Company
has operated under since 1992. The current revolving credit facility
has fewer restrictive financial covenants, higher collateral advance
rates and a larger total credit facility than the Company's two previous
credit facilities. Given the Company's historical operating results and
its more recent operating performance, it is uncertain whether the
Company could successfully negotiate an extension of its current
facility or replace it with a facility which provides comparable credit
terms.
Scheduled principal payments on the Company's long-term debt total
approximately $2.0 million each in its fiscal years 1997 and 1998.
Scheduled principal payments on the Company's long-term debt for its
fiscal year 1999 are approximately $7.5 million. There is substantial
doubt regarding the Company's ability to meet these debt payments in
fiscal 1999.
Stokely is subject to various state regulations in order to operate as a
vegetable contractor in those states. Effective July 11, 1996, the
Wisconsin Department of Agriculture, Trade and Consumer Protection
("WDA") amended its regulations governing when vegetable contractors are
required to pay cash for raw products upon delivery, file security with
the WDA, or file financial statements that meet minimum financial
standards. The Company was required to file security of approximately
$2.0 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 WDA to meet this security requirement. This
security was required to be 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 ending December 31, 1998, and 75% thereafter for those
companies not meeting the minimum financial standards. The Company
currently anticipates that it will not meet the minimum financial
standards in calendar 1998 and will be required to either pay cash upon
delivery of raw products or file security of approximately $5.0 million
in calendar 1998. The Company believes it would be extremely
disadvantaged in obtaining grower contracts if it were to attempt to pay
cash upon delivery of raw products and, as such, the Company estimates
it would need to post security of approximately $5.0 million in calendar
1998. Because of the Company's operating performance, it is anticipated
that the security to be posted in the calendar 1998 would be in the form
of a letter of credit or a surety bond which would be fully supported by
a letter of credit. In either case, the letter of credit would further
reduce Stokely's borrowing availability and thus adversely affect
Stokely's liquidity.
Cash Flows from Operating Activities
Cash flow used in operations during the six months ended September 30,
1997 totaled $6.0 million. Of the total cash used, changes in operating
assets and liabilities used cash of $2.1 million, primarily due to
increases in inventories of $17.7 million, partially offset by increases
in accounts payable of $15.7 million. The increases in inventories and
accounts payable reflect the seasonal increases resulting from the
current year growing and harvesting season.
Expenses incurred related to the merger totaled $598,000 through
September 30, 1997, and consisted primarily of legal, consulting and
financial advisor fees. Additional expenses in connection with the
merger are expected to be incurred and paid during each of the next two
fiscal quarters. There are also approximately $1.4 million of
contingent expenses which would be expensed and paid upon the
consummation of the merger, the majority of which relate to fees payable
to the Company's financial advisor.
Cash Flows from Investing Activities
Net cash used in investing activities during the six months ended
September 30, 1997 was $.8 million. Purchases of property, plant and
equipment totalled $1.6 million during the six months ended
September 30, 1997.
Cash Flows from Financing Activities
Cash provided by financing activities during the six months ended
September 30, 1997 totaled $6.6 million. At September 30, 1997 the
Company had $47.7 million of borrowings under its revolving credit
facility, all of which were classified as short term as the revolving
credit loans mature on May 20, 1998.
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 trading days preceding 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.
Commencing in May 1997, the Company is in violation of certain covenants
applicable to the Senior Notes due January 2000 (which constitutes an
event of default) and certain of its Industrial Development Revenue
Bonds. Commencing in July 1997, the Company also is in violation of
certain covenants applicable to most of the other Industrial Development
Revenue Bonds. As a result of these covenant violations, the Senior
Notes due January 2000 and most of the Company's Industrial Development
Revenue Bonds have been classified as "Additional long-term debt
classified as current" on the September 30, 1997 balance sheet. Through
November 7, 1997, 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 events of default or the covenant
violations. Furthermore, the Senior Noteholders and the holders of
certain Industrial Development Revenue Bonds signed a Debt-holder
Agreement dated September 16, 1997 whereby they agreed to exchange their
outstanding debt for shares of Chiquita Common Stock in the proposed
Merger.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISKS
Not applicable until after June 15, 1998.<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
Commencing in May 1997, the Company was in violation of the current
ratio covenant contained in its Senior Notes due January 2000 (which
constitutes an event of default) and certain of its Industrial
Development Revenue Bonds. At September 30, 1997, the Company is in
violation of the current ratio covenant contained in its Senior Notes
due January 2000 (which constitutes an event of default) and certain of
the Industrial Development Revenue Bonds, and the net worth covenant
contained in its Senior Notes due January 2000 (which constitutes an
event of default) and most of the other Industrial Development Revenue
Bonds. Through November 7, 1997, the Company had 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 events of default or the
covenant violations. The Senior Noteholders and holders of certain
Industrial Development Revenue Bonds signed a Debt-holder Agreement
dated September 16, 1997, whereby they agreed to exchange their
outstanding debt for shares of Chiquita Common Stock in the proposed
Merger.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 2.1 - Letter agreement among Chiquita Brands International,
Inc., Chiquita Acquisition Corp. and Stokely USA, Inc. relating to
the interpretation of certain terms set forth in the Agreement and
Plan of Reorganization dated as of September 17, 1997.
(b) Exhibit 27.1 - Financial Data Schedule
(c) Reports on Form 8-K
The Company filed a report on Form 8-K dated September 17, 1997
regarding an Item 5 event that it had entered into an Agreement and
Plan of Reorganization with Chiquita Brands International, Inc. and
Chiquita Acquisition Corp.<PAGE>
STOKELY USA, INC.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STOKELY USA, INC.
Registrant
November 11, 1997 /s/ Stephen W. Theobald
Date Stephen W. Theobald
President and Chief Executive Officer
November 11, 1997 /s/ Peter P. Caputa
Date Peter P. Caputa
Senior Vice President
Chief Financial Officer
STOKELY USA, INC.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STOKELY USA, INC.
Registrant
November 11, 1997
Date Stephen W. Theobald
President and Chief Executive Officer
November 11 , 1997
Date Peter P. Caputa
Senior Vice President
Chief Financial Officer
<PAGE>
Exhibit 2.1
October 21, 1997
Stokely USA, Inc.
1230 Corporate Center Drive
Oconomowoc, WI 53066-0248
RE: Agreement and Plan of Reorganization dated as of September
12, 1997 among Chiquita Brands International, Inc., Chiquita
Acquisition Corp., and Stokely USA, Inc. (The "Agreement")
Dear Sirs:
This letter acknowledges that, for purposes of Section 6.05 of the
Agreement, the calculation of consolidated net loss will be made without
reference to the following transaction costs related to the Merger (as
defined in the Agreement): (I) any fees listed in Schedule 3.21 to the
Agreement which are incurred by Stokely USA, Inc., and (ii) any expenses
incurred by Stokely USA, Inc. which are described in Section 10.10 of
the Agreement.
Please acknowledge your agreement with this acknowledgment by signing
below.
CHIQUITA BRANDS INTERNATIONAL, INC.
By: Robert W. Olson
Its: Senior Vice-President
CHIQUITA ACQUISITION CORP.
By: J. John Gelp
Its: Vice-President
ACKNOWLEDGED AND AGREED TO:
STOKELY USA, INC.
By: Stephen W. Theobald
Its: President and Chief Executive Officer<PAGE>
Exhibit 27.1
Period Type 6 Months
Period Year End March 31, 1998
Period End September 30, 1997
Cash 1,515
Securities 0
Receivables 13,324
Allowances 393
Inventory 91,469
Current Assets 106,665
PP&E 74,734
Depreciation 35,109
Total Assets 148,797
Current Liabilities 141,705
Bonds 2,100
Common 572
Preferred Mandatory 0
Preferred 0
Other Stockholders Equity 1,537
Total Liability and Equity 148,797
Sales 74,009
Total Revenues 74,012
Cost of Goods Sold 61,641
Total Costs 61,641
Other Expenses 0
Loss Provision 0
Interest Expense 4,758
Income Pretax (6,682)
Income Tax Expense 0
Incoming Continuing Operations (6,682)
Discontinued Operation 0
Extraordinary Items 0
Changes 0
Net Income (6,682)
EPS - Primary (.59)
EPS - Diluted (.59)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 1515
<SECURITIES> 0
<RECEIVABLES> 13324
<ALLOWANCES> 393
<INVENTORY> 91469
<CURRENT-ASSETS> 106665
<PP&E> 74734
<DEPRECIATION> 35109
<TOTAL-ASSETS> 148797
<CURRENT-LIABILITIES> 141705
<BONDS> 2100
<COMMON> 572
0
0
<OTHER-SE> 1537
<TOTAL-LIABILITY-AND-EQUITY> 148797
<SALES> 74009
<TOTAL-REVENUES> 74012
<CGS> 61641
<TOTAL-COSTS> 61641
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4758
<INCOME-PRETAX> (6682)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6682)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6682)
<EPS-PRIMARY> (.59)
<EPS-DILUTED> (.59)
</TABLE>
