July 29, 1997
Securities and Exchange Commission
450 N. Fifth Street, N.W.
Washington, D.C. 20549-1004
Re: Stokely USA, Inc. ("STKY")
1934 Act File No. 0-13943
Gentlemen:
Enclosed for filing pursuant to Section 240.12b-15 of the Code of Federal
Regulations promulgated under the Securities Exchange Act of 1934, as amended,
and Instruction G(3) of Form 10-K is an amended Form 10-K/A which is being
filed to include the information required by Part III of Form 10-K.
Should you have any questions or require additional information, please
contact the undersigned (collect) at (414) 569-1800. Thank you for your
attention to this matter.
Very truly yours,
Peter P. Caputa
Enclosures (filed via EDGAR)
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
-----
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
GENERAL
Stokely USA, Inc. (the "Company") hereby amends its Annual Report on Form
10-K for the fiscal year ended March 31, 1997 to include the information
required by Part III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
<TABLE>
Position with the Company Director of the
Name Age and Principal Occupation Company Since
<S> <C> <C> <C>
James H. DeWees 63 Retired; Chairman, President and Chief Executive 1994
Officer, Godfrey Company, a division of Fleming
Companies, Inc., a wholesale food distributor,
1984-94; Vice President, Fleming Companies, Inc.,
1987-94; Chairman, Village of Manor Park Foundation;
Director, Village of Manor Park, Inc. and Green
Bay Packer Hall of Fame; Member, First Bank Milwaukee
Business Advisory Board and Marquette
University Business Advisory Council.
Carol Ward Knox 46 Principal, Morgan & Myers, Inc., a public relations 1993
consulting company, since 1982; Former Chairperson,
Wisconsin Department of Agriculture, Trade and Consumer
Protection Board; Former Member, Board of Visitors,
University of Wisconsin College of Agriculture and
Life Science, and Wisconsin Rural Leadership Program
Board.
Thomas W. Mount 66 Retired; Chairman of the Company, 1992-93; 1966
President and Chief Operating Officer of the
Company, 1975-92; joined the Company in 1957;
Director, Fiduciary Capital Growth Fund, Inc.,
and Fiduciary Total Return Fund, Inc.; Former Chairman,
National Food Processors Association.
Orren J. Bradley 72 Senior Vice President, Laub Groups, Inc., an 1985
insurance operations company, since 1985; Chairman,
Boston Store Division of Federated Department Stores,
Inc., 1967-85; Director, Hanger-Tight Company, Great
Lakes Credit Corporation and Oshkosh B'Gosh, Inc.,
an apparel manufacturer.
Russell W. Britt 71 Retired; President, Chief Operating Officer 1985
and a Director of Wisconsin Energy Corp., a utility
service company, 1987-91 and Vice President, 1981-87;
Executive Officer and Director of Wisconsin Electric
Power Co. and Wisconsin Natural Gas Co., subsidiaries
of Wisconsin Energy Corp., 1982-91.
Ody J. Fish 72 Private Investor; President, Pal-O-Pak Insulation 1985
Co., Inc., an insulation manufacturing company,
1951-86; Director, Quest Technologies, Inc., f/k/a
La Belle Industries, Inc.; Director of all of the
funds included in the Marshall Family of Mutual Funds;
Former Member, University of Wisconsin Board of Regents;
Chairman, Wisconsin Education Commission.
Stephen W. Theobald 51 President and Chief Executive Officer of the Company 1980
since April 1996; Vice-Chairman and Treasurer of the
Company, 1992-96; Vice President-Administration and
Treasurer of the Company 1990-92; Vice President-
Administration of the Company, 1985-90; joined the
Company in 1985.
Charles J. Carey 72 Consultant since 1989; President and Chief Executive 1989
Officer, National Food Processors Association, a trade
association, 1972-89.
Frank J. Pelisek 67 Chairman of the Board of Directors and Executive 1983
Committee of the Board of Directors of the Company,
since August 1993; Acting Chief Executive Officer and
Chairman of the Executive Committee of the Board of
Directors, June 1992-August 1993; Partner, Michael
Best & Friedrich, legal counsel to the Company, since
1965; Director, various privately held companies.
</TABLE>
EXECUTIVE OFFICERS
The following is a list of the Company'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 and
directors listed and there are no arrangements or understandings pursuant
to which any of them were elected as officers. However, all executive
officers listed (except Mr. Pelisek) are a party to change of control
contingent employment agreements. All officers hold office for one year
and until their successors shall have been duly elected and qualified.
Directors hold office for staggered terms of three years (or until their
successors are elected and qualified).
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of the shares of
Common Stock outstanding, to file reports of ownership and changes in
ownership with the SEC by certain dates. Officers, directors and greater
than ten percent shareholders are required by regulation to furnish the
Company with copies of all Section 16(a) forms they file. Based upon
review of the information provided to the Company, the Company believes
that during the fiscal year ended March 31, 1997, officers, directors and
greater than ten percent shareholders complied with all Section 16(a)
filing requirements. In July 1997, the Company's non-employee directors,
(including Messrs. Charles J. Carey, Frank J. Pelisek, Orren J. Bradley,
James H. DeWees, Thomas W. Mount, Russell W. Britt, Ody J. Fish and Ms.
Carol Ward Knox) reported grants of restricted stock awarded to each of
them in May 1995 which inadvertently were not reported on a timely basis in
fiscal 1996 as required by Section 16(a) of the Exchange Act.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the total compensation earned by the
Company's President and Chief Executive Officer and the next highest
compensated executive officers whose compensation (salary and bonus)
exceeded $100,000 during the Company's fiscal years ended March 31, 1995,
1996 and 1997. On April 16, 1996, Mr. Vernon L. Wiersma resigned as
President and Chief Executive Officer of the Company and the Board of
Directors of the Company appointed Mr. Stephen W. Theobald as President and
Chief Executive Officer.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Compensation Awards
Value of
Annual Restricted Number of
Compensation<F1> Stock Option All Other
Name and Principal Position Year Salary Bonus Awards<F2> Awards<F3> Compensation<F4>
<S> <C> <C> <C> <C> <C> <C>
Stephen W. Theobald 1997 $170,500 -- -- 0 --
Current President and Chief 1996 170,500 -- -- 19,000 $ 12,636
Executive Officer; Vice 1995 160,400 -- -- 15,000 25,375
Chairman and Treasurer
during fiscal 1996
Vernon L. Wiersma 1997 -- -- -- 0 $220,000<F5>
Former President and Chief 1996 $220,000 -- $61,750 0 13,160
Executive Officer 1995 205,000 -- -- 30,000 26,399
Russell J. Trunk 1997 $124,000 $78,600<F6> -- 0 $ 0
Former Senior Vice President, 1996 124,000 -- -- 10,000 15,282
Operations 1995 118,000 -- -- 6,000 31,666
John McCormick 1997 $103,997 -- -- 3,000 --
Vice President, Sales and
Marketing; Vice President
Retail Sales in 1996 and 1995
<FN>
<F1> Perquisites provided to the named executive officers by the Company did not exceed the lesser
of $50,000 or 10% of each named executive officer's total annual salary during fiscal 1995,
1996 or 1997, and accordingly, are not included.
<F2> Amount shown in this column represents the value of 25,000 shares of Common Stock issued to
Mr. Wiersma on April 16, 1996, based on the value of Common Stock at March 31, 1996 ($2.47
per share). See "Severance Agreement with Mr. Wiersma."
<F3> Amounts shown represent the total number of options awarded under the 1985 Incentive Stock
Option Plan, the 1994 Executive Stock Option Plan and outside such option plans during the
fiscal years indicated.
<F4> Amounts shown represent contributions by the Company for the benefit of the named individuals
pursuant to the Stokely USA, Inc. Retirement Savings Profit Sharing Plan ("Retirement Savings
Plan")and the Split Dollar Life Insurance Plan in the form of premium payments on behalf of
the named executive officers during the fiscal years indicated.
<F5> During fiscal 1997, Mr. Wiersma received $220,000 pursuant to the terms of a severance
agreement with the Company. See "Severance Agreement with Mr. Wiersma."
<F6> Mr. Trunk's bonus payment was not made under the Company's Annual Incentive Plan. See "Compensation Committee Report."
</FN>
</TABLE>
The following table sets forth certain information concerning the
grant of stock options to the current executive officers listed in the
Summary Compensation Table during the fiscal year ended March 31, 1997.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
% of Total Potential Realizable Value
Options At Assumed Annual Rates of
Granted to Exercise Stock Price Appreciation
Options Employees In Price Expiration for Option Terms<F1>
Name Granted Fiscal Year ($/Sh) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
John McCormick 3,000 1.26% $2.8125 9/11/06 $ 8,859 $ 9,281
<FN>
<F1> Amount shown represents the potential realizable value, net of the option exercise price,
assuming that the underlying market price of the Common Stock appreciates in value from the
date of the grant to the end of the option term at annualized rates of 5% and 10%. These
amounts represent certain assumed rates of appreciation only. Actual gains, if any, on stock
option exercises are dependent upon the future performance of the Common Stock and overall
stock market conditions. There can be no assurance that amounts reflected in this table will
be achieved.
</FN>
</TABLE>
No options issued under the Incentive Stock Option Plan, the Executive
Stock Option Plan or outside of either option plans were exercised by any
of the current named executive officers in the Summary Compensation Table
during fiscal 1997. The number and total value of unexercised in-the-money
options held by such individuals at March 31, 1997 are shown in the
following table.
<TABLE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
Value of
Number of Unexercised
Number of Unexercised In-the-Money
Shares Options Options at
Acquired Value at Fiscal Year End Fiscal Year End<F1>
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Stephen W. Theobald 0 $0 30,000 -- -- --
Russell J. Trunk 0 0 10,000 -- -- --
John McCormick 0 0 8,000 -- -- --
<FN>
<F1> The value of unexercised in-the-money options is based upon the difference between the fair
market value of the securities underlying the options of $1.375 at March 31, 1997 and the
exercise price of the options. No options held by the named executive officers were in-the-money at March 31, 1997.
</FN>
</TABLE>
Directors' Compensation
Board Fees
Non-employee directors receive compensation of $6,000 per year for
service on the Board plus $500 for each Board or Committee meeting
attended. Directors may defer all or any portion of such compensation
under a Directors' Deferred Compensation Plan adopted in 1985. Deferred
compensation is credited to the account of a participating director in the
form of "phantom stock" of the Company based on the market price at the
time of each quarterly credit. Shares credited to the accounts of
directors electing to participate in the Directors' Deferred Compensation
Plan during the fiscal year ended March 31, 1997, were as follows: Mr.
Britt, 3,443 shares; and Mr. Fish, 3,589 shares. Directors who have served
two full terms (six years) and are Board members upon attaining the age 65
become eligible for retirement compensation of $500 per month upon
completion of service.
Severance Agreement with Mr. Wiersma
On May 29, 1996, the Company entered into a severance agreement (the
"Severance Agreement") with Mr. Wiersma setting forth the terms and
conditions of his resignation as President, Chief Executive Officer and
Director of the Company, effective April 16, 1996. Pursuant to the
Severance Agreement, Mr. Wiersma will be paid $18,333 per month from April
16, 1996 through May 30, 1998, and in the event of Mr. Wiersma's death,
such amounts shall be paid to his spouse, or if she is deceased, to the
personal representative of his estate. In the event of a Change of Control
of the Company (as defined in the Contingent Employment Agreements
currently in effect which are discussed herein), the Severance Agreement
provides that Mr. Wiersma shall be paid the then present value of such
monthly payments in a single sum. For the period commencing April 16, 1996
through May 30, 1998 or such earlier date as of the effective date of
coverage for Mr. Wiersma under any other employer's health insurance
program, Mr. Wiersma and his eligible dependents are entitled to
participate in the Company's group health and disability insurance programs
at the same cost to Mr. Wiersma as of the date of his resignation.
Pursuant to the Severance Agreement, the Company will continue to pay the
semi-annual premium of $14,523 under the split dollar life insurance
contract covering Mr. Wiersma through May 30, 1998, and Mr. Wiersma shall
have the option to purchase the contract from the Company by paying to the
Company the aggregate value of the premiums paid by the Company from the
date the contract was entered into to the date Mr. Wiersma exercises such
option to purchase. In addition, pursuant to the Severance Agreement, in
recognition that a portion of the grant of 50,000 shares of restricted
Common Stock to Mr. Wiersma on June 15, 1995 reflected compensation for
prior services, vesting of 25,000 shares was accelerated and such shares
were issued to Mr. Wiersma. Pursuant to the terms of the restricted stock
grant, the Company is obligated to pay an amount equal to the income tax
payable by Mr. Wiersma as a result of the grant of such shares. All rights
under agreements and/or plans which Mr. Wiersma had with respect to options
granted to him prior to April 16, 1996 also remained in effect in
accordance with the terms of such agreements and/or plans. Mr. Wiersma is
entitled to all benefits accrued under the Supplemental Employee Retirement
Plan (described herein) ("SERP") payable pursuant to the terms of the SERP,
upon Mr. Wiersma's attaining age 65, or, in the event of a Change of
Control, the Company shall pay to Mr. Wiersma the then present value of
such benefits, discounted at the rate of 7% per annum, in a single sum. In
addition, Mr. Wiersma received $2,530 as payment for the aggregate Company
contributions accrued for his benefit under the Deferred Compensation Plan
(as described herein). In lieu of outplacement services, the Company paid
to Mr. Wiersma a lump sum of $20,000 and paid $5,000 to Mr. Wiersma's legal
counsel for costs incurred in connection with negotiating the Severance
Agreement.
Employment Agreements
In 1992, the Company entered into Change of Control Contingent
Employment Agreements with Messrs. Theobald and McCormick (collectively,
the "Contingent Employment Agreements"). Under the Contingent Employment
Agreements, if a change of control occurs, the Company will continue to
employ Mr. Theobald for three years, and Mr. McCormick for one year,
following the date of the change of control. "Change of Control," as
defined in the Contingent Employment Agreements, includes the acquisition
of 20% or more of the Company's Common Stock, a merger, consolidation or
reorganization, the sale of substantially all of the Company's assets or a
significant change in the composition of the Board of Directors of the
Company. In the event of a Change of Control, the employee shall be
employed by the Company for the applicable number of years and shall
receive a salary equal to his salary on the date of the Change of Control,
subject to annual upward adjustments commensurate with increases awarded to
other officers and employees. If, after a Change of Control, the Company
terminates the employee for any reason other than for cause or if the
employee elects to terminate his employment, for a permitted reason, he
shall continue to be paid monthly an amount equal to his then current
monthly base salary plus a certain amount of incentive payments and shall
continue to be entitled to receive all other employee benefits and
perquisites made available to other employees of comparable status until
the end of his employment term. If the Company terminates the employee for
"cause" (as defined in the Contingent Employment Agreements), the employee
is entitled to receive only his compensation through the date of
termination. For purposes of the Contingent Employment Agreements, the
current base salary for Mr. Theobald is $170,500, and Mr. McCormick is
$115,000. The amount of the base salary and any incentive payments are
reviewed regularly by the Compensation Committee of the Board of Directors.
The Company also has entered into similar Contingent Employment Agreements
with other key officers and employees of the Company.
Deferred Compensation Plan for Key Executives
On January 1, 1995, the Company entered into Deferred Compensation
Agreements with Messrs. Theobald and McCormick pursuant to a Deferred
Compensation Plan (the "Deferred Compensation Agreements"). In accordance
with the terms of the Deferred Compensation Agreements, the Company accrues
amounts equal to the contributions that would have been made by the Company
under the Retirement Savings Plan (described herein) but for the maximum
annual contribution and compensation limits under the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code"). In addition, pursuant
to the Deferred Compensation Agreements, the executives may elect to defer
compensation earned in any year. The maximum amount that may be deferred
in any calendar year is 20% of the executives' annual compensation less the
maximum amount that may be deferred on an annual basis by such executive
pursuant to the Retirement Savings Plan. Interest is accrued on deferrals
and Company contributions at the rate of interest equal to the average of
the U.S. Treasury Bond rate as published in the Wall Street Journal on the
last day of the calendar year and the last day of the previous three
quarters of the calendar year. Executives may become eligible for receipt
of deferred compensation and Company contributions under the Deferred
Compensation Plans upon death, disability, retirement or termination. The
Deferred Compensation Agreements are non-qualified, unfunded contractual
liabilities of the Company. The Company also has entered into similar
deferred compensation agreements with other key officers and employees of
the Company.
Deferred Compensation Agreements
In 1990, the Company entered into a deferred compensation agreement
(the "1990 Deferred Compensation Agreements") with Mr. Thomas W. Mount,
former President and Chairman of the Board of Directors of the Company.
Under the 1990 Deferred Compensation Agreement, the Company is obligated to
pay Mr. Mount deferred compensation in monthly installments of $7,500 for a
period of 120 consecutive months (or at their election in one lump sum
based upon a present value calculation outlined in the 1990 Deferred
Compensation Agreement) following his death, disability or retirement. In
the event of the death of Mr. Mount, his designated beneficiaries shall
receive the deferred compensation payments over the stated period, or at
the Company's election, such payments may be paid in one lump sum based
upon a present value calculation outlined in the 1990 Deferred Compensation
Agreement. The 1990 Deferred Compensation Agreement is a non-tax
qualified, unfunded deferred compensation plan. Mr. Mount retired in April
1993, and the Company commenced the monthly installment payments at that
date.
Benefits
Split Dollar Plan
The Company established the Split Dollar Life Insurance Plan,
effective February 1, 1990 (the "Split Dollar Plan"), in which Messrs.
Theobald, Trunk and McCormick and other key officers and employees of the
Company participate. The life insurance benefit is equal to four times the
executive's salary. The executive pays the economic value of the insurance
and the Company is responsible for the balance of the premium. The Company
may use dividends paid pursuant to the terms of the insurance policies for
payment of premium. Upon the executive's death or the retirement of the
executive, the Company will receive all premiums paid by it on behalf of
the executive and the executive will receive the remainder of the death
benefit or the cash surrender value. For the fiscal year ended March 31,
1997, Mr. Wiersma also participated in the Split Dollar Plan. For further
information regarding the Split Dollar Plan arrangement with respect to Mr.
Wiersma made in connection with his resignation, see "Severance Agreement
with Mr. Wiersma."
Supplemental Employee Retirement Plan
The Company established the Supplemental Employee Retirement Plan (the
"SERP"), effective January 1, 1995, in which Messrs. Theobald and Trunk
participate. For Mr. Theobald, the SERP provides a benefit at retirement
(based on 25 years of service) of 120 equal monthly payments which equal,
on an annual basis, 40% of the salary (excluding bonus) individually earned
during the twelve months preceding retirement. For Mr. Trunk, the SERP
provides a benefit at retirement (based on 25 years of service) of 120
equal monthly payments which equal, on an annual basis, 20% of the salary
(excluding bonus) individually earned during the twelve months preceding
retirement. The monthly payment is reduced on a percentage basis of years
of service that are less than 25 at the time of retirement. For
information relating to the SERP arrangements made with respect to Mr.
Wiersma in connection with his resignation, see "Severance Agreement with
Mr. Wiersma."
Retirement Savings Plan
The Company maintains a retirement savings plan, the Stokely USA, Inc.
Retirement Savings Profit Sharing Plan (the "Retirement Savings Plan"),
covering all of its eligible employees. Employees are eligible to
participate after completing a twelve-month period of 1,000 or more hours
of employment. The Retirement Savings Plan involves a Company Profit
Sharing Contribution account, a Voluntary Contribution account and a 401(k)
Salary Deferral account. Subject to the Company's operating results, the
Company may make contributions up to 8% of pre-tax profits to the Profit
Sharing Contribution account which would be allocated to participants pro
rata based upon their eligible compensation. Participants become 20%
vested in the profit sharing contributions credited to their accounts and
the earnings thereon after three years of credited service, and 20% per
year thereafter until 100% vested after seven years. Participants also
become 100% vested upon death, disability or attainment of age 62. The
Voluntary Contribution account permits participants to make voluntary
after-tax savings contributions in amounts between 2% and 10% of their
annual compensation. Participants in the Voluntary Contribution account
are 100% vested in their contributions and the earnings thereon. Under the
Retirement Savings Plan, through the 401(k) Salary Deferral account,
participants are permitted, subject to the limitations imposed by Section
401(k) of the Internal Revenue Code to make voluntary tax-deferred
contributions in amounts between 1% and 10% of their annual compensation.
The Company may make a matching contribution to the 401(k) Salary Deferral
account in an amount up to 25% of the first 6% of compensation deferred by
the participant for participants who meet all eligibility and participant
requirements. Participants in the 401(k) Salary Deferral account are 100%
vested in their contributions, the Company's matching contribution and the
earnings thereon. Under the Retirement Savings Plan, a separate account is
maintained for each type of account and each participating employee.
Participating employees direct the Retirement Savings Plan trustee with
respect to the investment of assets held in their accounts among up to six
investment options made available by the trustee, including shares of the
Company's Common Stock.
Stock Option Plans
Incentive Stock Option Plan
The Company established the 1985 Incentive Stock Option Plan (the
"Incentive Stock Option Plan") in which key employees of the Company and
its subsidiaries, as determined by the Compensation Committee, are eligible
to participate. As of March 31, 1997, the Company and its subsidiaries had
23 eligible employees. The Incentive Stock Option Plan authorizes the
grant of options to purchase shares of Common Stock intended to qualify as
incentive stock options under Section 422A of the Internal Revenue Code.
The Compensation Committee administers the Incentive Stock Option Plan. As
of March 31, 1997, options to purchase 79,600 shares of Common Stock had
been granted and were outstanding under the Incentive Stock Option Plan.
No additional options will be granted under the Incentive Stock Option
Plan.
Executive Stock Option Plan
On June 3, 1994, the Board of Directors of the Company adopted the
Stokely USA, Inc. 1994 Executive Stock Option Plan (the "Executive Stock
Option Plan"). The Executive Stock Option Plan was ratified by
shareholders of the Company at the Annual Meeting of Shareholders held on
August 26, 1994. All key full-time employees of the Company and its
subsidiaries are eligible to participate in the Executive Stock Option
Plan. At March 31, 1997, the Company and its subsidiaries had 467
eligible employees. The Executive Stock Option Plan provides for the
granting of (I) incentive stock options ("ISOs"), (ii) non-qualified stock
options ("NSOs"), and (iii) stock appreciation rights ("SARs"). At March
31, 1997, options to purchase 249,817 shares had been granted and were
outstanding under the Executive Stock Option Plan and options for a total
of 150,183 shares of Common Stock were available for granting to eligible
participants. A total of 258,631 shares of Common Stock were granted under
the Executive Stock Option Plan in fiscal 1997. The Compensation Committee
of the Board, or such other committee appointed by the Board, administers
the Executive Stock Option Plan. Under the Executive Stock Option Plan,
the maximum number of shares for which grants may be made to any eligible
employee may not exceed 50,000 shares.
COMPENSATION COMMITTEE REPORT
Compensation Committee
The Compensation Committee of the Company reviews and establishes
compensation levels and benefits applicable to executive officers and
employees of the Company and makes recommendations with respect to all
issues pertaining to executive compensation for ratification by the Board
of Directors of the Company.
Compensation Committee Interlocks and Insider Participation
For the fiscal year ended March 31, 1997, the Compensation Committee
of the Board of Directors was composed of Messrs. Fish, Carey, Pelisek and
Ms. Knox, each of whom are not officers or employees of the Company. There
are no interlocks, as defined under the rules and regulations of the
Securities and Exchange Commission ("SEC"), between the Compensation
Committee and corporate affiliates of members of the Compensation
Committee.
Compensation Committee Report
Under rules established by the SEC, the Company is required to provide
certain data and information regarding the compensation and benefits
provided to executive officers of the Company. The rules require a report
of the Compensation Committee which explains the rationale and
considerations that led to fundamental compensation decisions affecting
such individuals. The Compensation Committee of the Company has prepared
the following report, at the direction of the Board of Directors of the
Company, for inclusion in this Proxy Statement.
It is the policy of the Company to maintain a compensation program
which will attract, motivate, retain and reward employees at all levels of
the organization and provide appropriate incentives intended to generate
long-term financial results which will benefit the Company and the
shareholders of the Company. The executive compensation program of the
Company incorporates a pay-for-performance policy that compensates
executives for both corporate and individual performance.
The executive compensation program is designed to achieve the
following objectives:
- Provide the Company with the ability to compete for and retain
talented executives that are critical to the Company's long-term
success;
- Provide incentives to achieve the Company's financial performance
objectives and strategic business initiatives with the objective
of enhancing shareholder value;
- Provide competitive compensation packages comparable to those
offered by other peer group companies; and
- Reward executives for individual performance in long-term
strategic management.
The Company's executive compensation package consists of three major
components: (I) cash compensation, including base salary and an annual
incentive bonus; (ii) long-term incentive compensation in the form of stock
options (including options awarded under the Incentive Stock Option Plan
and the Executive Stock Option Plan); and (iii) executive benefits.
In determining specific cash compensation for executive officers for
the fiscal year ended March 31, 1997, the Compensation Committee considered
the following factors:
1. Company performance relative to certain goals and objectives in
effect during the prior year;
2. Individual performance relative to certain goals and objectives
in effect during the prior year;
3. Company performance compared to broader based industry
performance; and
4. Salary surveys for positions with similar responsibilities in
similar sized companies.
The annual incentive bonus is determined under the Company's Annual
Incentive Plan (the "Incentive Plan") which was developed to recognize and
reward performance and provide a total annual cash bonus consistent with
the Company's executive compensation strategy. Under the Incentive Plan,
executives earn incentive compensation if the Company achieves various
targets set for profits (defined as income before taxes and before profit-
sharing expense) as a percent of sales. Incentive compensation earned is
established as a percentage of each officer's base salary, and the
applicable percentage is dependent upon the individual's base salary
amount. If the financial performance of the Company falls below the
threshold level, no awards will be earned. If threshold levels of the
performance indicators are achieved, the Incentive Plan provides for
payment of incentive compensation in amounts ranging between 10% to 25% of
an individual's base salary. If target levels are achieved by the Company,
the Incentive Plan provides for payment of incentive compensation in
amounts ranging from 20% to 50% of an individual's base salary. Incentive
compensation may exceed 50% of an individual's base salary if the Company
surpasses target levels, but may not exceed 75% of an individual's base
salary. Prior to payment of incentive compensation after completion of the
Company's financial audit, the Compensation Committee certifies the
performance objectives of the Incentive Plan have been met.
Based on the above noted factors and economic constraints facing the
Company, there were no increases in executive base salaries for the fiscal
year ending March 31 1997. No incentive bonus payments were made to
executive officers for the fiscal year ended March 31, 1997(with the
exception of Mr. Trunk)because the targets set for profits under the above-
described Incentive Plan were not achieved. Mr. Trunk was paid a lump-sum
bonus of $78,600 on 4/30/96 to compensate him for postponing his planned
retirement for one year to assist the Company in implementation of the core
business restructure.
The base salary for the Chief Executive Officer is determined by the
Compensation Committee in general accordance with the same criteria noted
herein for determining compensation for all executive officers. Based on
those factors, the Compensation Committee implemented no increase in Mr.
Theobald's base salary for the fiscal year ending March 31, 1997. No
incentive bonus payments were made to Mr. Theobald for the fiscal year
ending March 31, 1997, because the targets set for profits under the above-
described Incentive Plan were not achieved. The Committee did note that at
Mr. Theobald's request, no compensation adjustment was made in his base
salary at the time of his promotion to President and Chief Executive
Officer and that appropriate adjustments would be made based on the
Committee's assessment of his performance.
The Compensation Committee believes aligning the financial interests
of employees more closely with those of the shareholders influences the
creation of shareholder value. To encourage stock ownership among executive
and other employees, the Company has two stock option plans which it
administers, the Incentive Stock Option Plan and the Executive Stock Option
Plan. The stock option plans are designed to encourage and create
ownership and retention of the Company's Common Stock by key employees.
Through the option grants, the objective of aligning key employees' long-
range interests with those of shareholders may be met by providing key
employees with the opportunity to build, through achievement of corporate
goals, a meaningful stake in the Company.
In fiscal 1997, the Committee granted a total of 258,631 options under
the Executive Stock Option Plan. The options were awarded as an incentive
to help assure successful implementation of the core business restructure
undertaken in September, 1996. The Committee, in a departure from past
practice, elected to grant options to all full-time employees, with the
exception of Messrs. Theobald and Trunk and certain other senior
executives. Mr. McCormick received an option grant of 3,000 shares in
fiscal 1997 prior to being promoted to his current position of Vice
President of Sales and Marketing. The Committee believes this broad option
grant approach will contribute to successful implementation of the
restructure initiatives by acknowledging the importance of individual
employee contributions to the organization's success and by providing an
opportunity to, and an incentive for, employees to share in that success.
For a discussion of the executive benefits made available to officers
of the Company during the fiscal year ended March 31, 1997, see
"Compensation of Executive Officers and Directors - Benefits." Executive
benefits paid by the Company to its executive officers were based upon each
executive officer's contribution to the success of the Company and
reflected each executive officer's position, salary and specific
responsibilities.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
PERFORMANCE GRAPH FOR STOKELY USA, INC.
Set forth below is a line graph comparing the cumulative shareholder
return on the shares of Common Stock, based on the market price of the
Common Stock and assuming reinvestment of dividends, with the cumulative
total return of companies included in the Center for Research on Security
Prices Index for NASDAQ Stock Market companies and a peer group chosen by
the Company. The peer group includes NASDAQ-listed companies included in
Standard Industrial Classification (SIC) codes 2030-2039 (Canned, Frozen
and Preserved Fruits, Vegetables and Food Specialties) and AMEX and NYSE
companies with 2030-2039 SIC codes.
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
Stokely USA, Inc. NASDAQ NYSE/AMEX/NASDAQ
3/31/92 $100.0 $100.0 $100.0
3/31/93 95.4 115.0 113.0
3/31/94 98.5 124.1 105.4
3/31/95 67.7 138.0 131.8
3/29/96 30.4 187.4 163.5
3/31/97 16.2 208.3 209.8
The index level for all series was set to $100.0 on 3/31/92.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of June 30, 1997
(except as noted below), (I) by each person who is known to the Company to
beneficially own more than 5% of the Common Stock, (ii) by each of the
current and former executive officers of the Company appearing in the
Summary Compensation Table, (iii) by each director of the Company, and (iv)
by all directors and executive officers as a group.
Number of Percent of
Shares of Shares of
Common Stock Common Stock
Name Beneficially Owned<F1> Beneficially Owned
Exeter Ventures, UBOT<F2> . . . . . . 916,700 8.01
Morgan Stanley/Miller Anderson & Sherrerd<F3>
. . . . . . . . . . . . . . . . . . . 781,000 6.86
Heartland Advisors<F4> . . . . . . . . 640,000 5.62
Dimensional Fund Advisors<F5> . . . . 591,000 5.19
Vernon L. Wiersma<F6> . . . . . . . . 25,000 *
Stephen W. Theobald<F7> . . . . . . . 200,691 1.76
Russell J. Trunk<F8> . . . . . . . . . 10,000 *
John R. McCormick<F9> . . . . . . . . 13,175 *
Frank J. Pelisek . . . . . . . . . . . 9,650 *
Orren J. Bradley . . . . . . . . . . . 3,000 *
Russell W. Britt . . . . . . . . . . . 2,700 *
Charles J. Carey . . . . . . . . . . . 2,700 *
James H. DeWees . . . . . . . . . . . 3,500 *
Ody J. Fish . . . . . . . . . . . . . 3,500 *
Carol Ward Knox . . . . . . . . . . . 6,500 *
Thomas W. Mount . . . . . . . . . . . 181,756 1.60
All directors and executive
officers as a group (13 persons) . . . 451,172 3.94
* Amount represents less than 1% of the total shares of Common Stock
outstanding.
<F1> Unless otherwise indicated, includes shares of Common Stock held
directly by the individuals as well as by members of such individual's
immediate family who share the same household, shares held in trust
and other indirect forms of ownership over which shares the individuals
exercise sole or shared voting and/or dispositive power.
<F2> Based on a Schedule 13D, dated July 17, 1997, filed by Exeter Ventures,
UBOT, located at P.O. Box 4226, Ormond Beach, FL 32175, which indicated
sole voting power of 916,700 shares of Common Stock.
<F3> Based on a Schedule 13G, dated February 14, 1997, filed by Morgan
Stanley Group, Inc. and Miller Anderson & Sherrerd LLP, located at 1585
Broadway, New York, New York 10036 and 1 Tower Bridge, Suite 1100, West
Conshohocken, PA 19428, respectively, which indicated shared dispositive
voting power of 781,100 shares of Common Stock.
<F4> Based on a Schedule 13G, dated February 12, 1997, filed by Heartland
Advisors, Inc., located at 790 North Milwaukee Street, Milwaukee, WI
53202, which indicated sole dispositive voting power of 640,000 shares
of Common Stock.
<F5> Based on a Schedule 13G, dated February 5, 1997, filed by Dimensional
Fund Advisors, located at 1299 Ocean Avenue, 11th Floor, Santa Monica,
CA 90401, which indicated sole voting power of 409,400 shares of Common
Stock and shared voting power of 181,600 shares of Common Stock.
<F6> On April 16, 1996, Mr. Wiersma resigned as President and Chief Executive
Officer of the Company.
<F7> Includes 162,191 shares of Common Stock held by Mr. Theobald as
co-trustee for which he has shared dispositive and voting power with
The First National Bank of Chicago, and 30,000 shares of Common Stock
issuable pursuant to presently exercisable stock options.
<F8> Includes 10,000 shares of Common Stock issuable pursuant to presently
exercisable stock options.
<F9> Includes 8,000 shares of Common Stock issuable pursuant to presently
exercisable stock options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 21, 1996, the United States District Court for the Eastern
District of Wisconsin dismissed a consolidated class action lawsuit brought
against the Company, all of the individual members of the Board of Directors of
the Company (in both their capacity as individual members of the Board of
Directors and as executive officers, as applicable), William Blair & Company and
Dain Bosworth, Inc. This class action was a consolidated action, including the
action filed by Philip D. Freeman in January 1995 and a second class action
lawsuit filed by Daniel J. Sweeney in May 1995 which made similar claims against
the Company and certain officers arising from the same facts and events. In
conjunction with dismissing the consolidated action, the court denied
plaintiff's motion to certify the class as moot. The lawsuit raised claims
under various provisions of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
plaintiffs alleged that they sustained losses in connection with the purchase of
shares of Common Stock of the Company during the period from October 17, 1994 to
December 19, 1994, as a result of the Company's alleged misleading statements
and alleged omissions to state material facts in the prospectus and other
materials. The court dismissed the action after finding that the alleged
misrepresentations were not actually made by the Company and/or were not
misrepresentations, and that the alleged omissions of material facts were in
fact adequately disclosed to investors. Further, the court refused to permit
the plaintiff to amend the complaint, stating that an amendment would be futile
because the court's dismissal was based on the conclusion that the prospectus
and other materials did not contain the misrepresentations or omissions alleged
in the complaint. A judgement dismissing the case was entered March 22, 1996.
On April 8, 1996, the plaintiff filed a Motion for Reconsideration requesting
that the Court reconsider its decision refusing plaintiff leave to amend the
complaint. On March 27, 1997 the court denied that motion and the judgement
dismissing the case became final on April 28, 1997 as the appeal period expired
without an appeal being filed.
The Company has adopted a policy governing related party transactions
providing that any transaction by and between the Company and officers,
directors, principal shareholders or their affiliates will be for bona fide
business purposes and on terms no less favorable to the Company than those
obtainable in arms-length transactions with unaffiliated parties, and will be
subject to approval of a majority of the Company's outside directors.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on behalf
of the undersigned, thereunto duly authorized.
STOKELY USA, INC.
Date: July 29, 1997
BY:
Stephen W. Theobald
President and Chief Executive
Officer
Part IV
Item 14(c). Exhibits
Exhibit 99.1
1997 Shareholder Letter from President and Chief Executive
Officer, Stephen W. Theobald.
Exhibit 99.1
Shareholder Letter
Dear Shareholder:
Reflecting on results for the year and the appropriate content for this
message, I considered the traditional approach of comparison to year-
ago results. Typically that approach would point out, exclusive of
restructuring charges, the nearly $9 million improvement in earnings
before interest and tax, or the decline in our net loss from operations
to a level less than half last year's loss. But a loss, even if it is
diminishing, is eroding the value of the Company. A more relevant
discussion should focus on what progress has been made on the Company's
plan to eliminate the loss. That being the case, I decided a more
valuable discussion would review elements of my message from our annual
meeting last September regarding the core business restructure we
embarked on at that time. Such a discussion would properly review what
we said we were going to do, what has been accomplished and what
remains to be done.
I pointed out at the meeting that, as fiscal 1997 began, we were in an
intolerable risk position with unacceptable operating margins and a
heavy debt burden. We needed to act quickly to stabilize the situation
so more permanent solutions could be developed and implemented. Two
major items we completed in the operating arena during the year were
our brand pricing initiative and the sale of our frozen vegetable
business. Both those actions resulted in immediate improvement in
operating margins. Even more immediate than the need to improve
margins, there were some debt and liquidity issues that had to be dealt
with due to covenant violations in our working capital and senior note
agreements. We amended the note agreements and entered into a new
multi-year working capital facility to provide the resources and
flexibility needed to implement future plans. Additionally, the sale of
our frozen business as well as the sale of our corporate headquarters
building allowed us to substantially reduce our debt burden.
Despite our immediate actions, in September of 1996 we were still
wrestling with the long-term problem of unacceptable operating margins.
The only solution to that problem lay in a fundamental restructure of
our core canned vegetable business. Our restructure efforts were
primarily directed at fixing operating problems. Quite frankly, it was
operating problems that created our debt problem, and the debt burden
could not be permanently reduced without fixing them. The general
premise of the plan was that our previous efforts to achieve low cost
through operating at maximum capacity forced us to reach for
incremental sales volume which dragged overall operating margins down.
We could, in fact, increase operating margins by walking away from
certain business and eliminating our least efficient production
capacity. In order to accomplish this, we analyzed our customer base
and determined which business, in which distribution channels, was
desirable on an on-going basis. It is this core customer base that will
be the focal point of our relationship and volume building efforts
going forward. Then we determined the production configuration and
corporate support needed to most efficiently meet the needs of the
redefined customer base.
In addition to our immediate actions at the start of fiscal 1997 to
stabilize our situation, what have we accomplished in implementing the
core business restructure that is intended to correct the operating
problems we were faced with? The short answer is quite a lot, although
not enough. First, I will discuss what we've done and then address what
remains to be accomplished and why it has yet to be completed. The
plant and corporate reconfiguration we planned are essentially
complete. We have closed two plants and downsized two other plants.
Production of cream style corn has been moved into our Sun Prairie,
Wisconsin plant from a plant we closed in Wells, Minnesota. We closed a
green bean plant in Merrill, Wisconsin and have moved the majority of
our green bean production into our Scottville, Michigan facility. We
have discontinued sauerkraut production in Poynette, Wisconsin and have
entered into an agreement to have this product co-packed for us.
Finally, we have discontinued corn production at our Hoopeston,
Illinois plant, a high cost growing area for sweet corn. While these
changes will align our production capacity with our new sales
requirement, there are other important benefits. We will also achieve
further improvements in product quality with the installation of some
of the latest automated inspection equipment and we will lower our
fixed and variable manufacturing costs. As a result of these changes,
fixed manufacturing cost incurred decreased $3.9 million in fiscal 1997
and it is expected to decrease an additional $4.0 million in the
current year, with the full year benefit of these changes. The income
statement benefit of the lower fixed manufacturing cost incurred in
fiscal 1998 will be spread over fiscal 1998 and 1999, as this summer's
production is sold.
We also completed the sale of our corporate headquarters and moved into
smaller, more efficient leased space. That change and other initiatives
to streamline general corporate support resulted in a reduction in
fixed general and administrative expense of approximately $2.5 million
in fiscal 1997. Again, with the full year benefit of these changes,
additional savings of nearly $2 million will be realized in fiscal
1998. Finally, we have made significant progress in decreasing our debt
burden. Long-term debt was reduced from $59.4 million on March 31,1996
to $45.1 million on March 31, 1997. During that same time period, total
debt outstanding was reduced from $112.3 million to $86.2 million, a
significant $26.1 million decline.
Despite these substantial accomplishments, this remains a period of
transition for the Company. The major benefits of our restructure
efforts still lie ahead of us because implementation of the plan began
at the conclusion of last years processing season in October 1996. That
timing created certain problematic issues relating to realization of
the benefits of the restructure and the length of the transition
period. Our restructured sales volume requirement is about 20% below
what we produced in the summer of 1996. While the restructured
production configuration matches up with the new sales requirement, we
are faced with the difficulty of getting our existing inventory down to
desired levels. Alignment of inventory levels with our restructured
sales requirement is critical to the success of our restructure
efforts. The plan was to accomplish the needed reduction during the
nine month selling period from October 1996 until the beginning of
production this summer. However, planting and growing season anomalies
last summer resulted in excess inventory industry-wide which has
prevented us from making our entire inventory adjustment by selling
our excess inventory through our existing channels. Those same factors
are largely responsible for the depressed market prices we are
currently dealing with.
The summer of 1996 was an unusual and challenging growing season. An
abnormally cool and wet spring significantly delayed crop planting.
Corn was planted as late as the second week in July, which is two weeks
later than our normal completion date. Exceptionally late plantings by
all processors led to expectations of substantial production
shortfalls. The markets responded with a sharp run up in prices to slow
sales to a rate more consistent with anticipated production levels.
However, the anticipated production shortfall did not materialize. A
mild fall resulted in processing continuing into October in contrast to
the normal early to mid-September conclusion. Relatively normal
production and inventory levels soon appeared excessive, as the effect
of higher prices on canned vegetable sales continued. Price levels that
prevailed during the late summer and concerns regarding available
supplies discouraged retailers from featuring canned vegetables during
the important fall promotion period. The result was a reduction in
industry sales volume during a period when a disproportionate amount of
the industry's sales normally occur. Inventory levels then began to
appear burdensome and market prices started to erode late in our third
quarter and fell sharply in the fourth quarter.
While we will have fully implemented the plant configuration and
corporate support changes associated with our restructure by the end of
the first quarter of fiscal 1998, we are still carrying inventory
levels that are consistent with our prior business model. For us to
succeed and achieve the full potential of the restructure plan, it is
imperative that we reduce those inventory levels. Only then will we be
able to reduce our sales volume in our least profitable segments. To
make sure we accomplish the inventory reductions, we are taking some
severe short-term steps. The only way to make absolutely sure our
reduction goal is reached is to produce less this summer than our
ongoing requirement. This will have a short-term negative cost effect,
but reducing inventories is sufficiently critical that we are willing
to absorb that cost. Our new on-going production requirement is
approximately 20% below last year's production level. However, for the
reasons I have cited, our production plans this summer include an
additional 10% reduction. The additional reduction will allow us to
reach inventory levels by the end of the current fiscal year that will
permit full implementation of the sales channel changes contemplated in
the restructure. Those changes are the final piece needed to allow us
to realize the full benefit of the restructure.
This transition period will be difficult due to the negative short-term
cost effect of the production reductions we are implementing. That
difficulty is compounded by severely depressed market conditions in the
industry described earlier in this message. Current market prices
reflect the outcome of last summer's processing season and have yet to
reflect anticipation of what might happen this summer. Looking ahead,
assuming normal market behavior, we anticipate the likely effect of
this summer's production on selling prices will be positive. USDA
reported in mid-April that industry plantings of sweet corn would be
down 14% this year and at the lowest level in ten years. That's welcome
news because corn is one of the items that has been under the greatest
price pressure and it is also our biggest seller accounting for 40% of
revenues. While production reductions of that magnitude should result
in market price improvement, it is unlikely that such improvement would
begin before mid-summer unless additional positive news occurs.
I remain absolutely convinced that the course we are taking is correct.
It may seem like bitter medicine and that the cure is taking too long,
but the fact is the patient was seriously ill. This transition period
will be all the more difficult due to current market conditions, but we
must stay the course. We have a business that now possesses resources
capable of generating real value. Those resources include a highly
professional field organization that delivers the best possible raw
product to our plants, highly efficient production facilities staffed
by some of the best in the business, a distribution and customer
service organization that has earned us a reputation as a service
innovator and a team of knowledgeable sales professionals who present
the value of all this to the customer in a way that helps assure a fair
return for the benefit we provide. Completion of this restructure
program will align these resources in a manner that greatly enhances
their ability to generate real value.
Notwithstanding the importance of the things we are doing internally to
create value, this remains an industry with a persistent and growing
structural problem that needs to be remedied before satisfactory
returns are likely to be achieved. In the simplest terms, vegetable
processing is a relatively fragmented industry that serves an
increasingly concentrated customer base and is supplied by increasingly
concentrated key vendors. This type of imbalance invariably creates
pressure on operating margins. We believe that ultimately industry
participants, including Stokely, are going to have to combine, or work
cooperatively through joint ventures or similar strategic alliance
vehicles, to offset the effect of this unequal concentration relative
to the customer and supplier base. Otherwise, the imbalance will most
likely continue to have a negative impact on margins, and therefore all
industry participants. We are committed to continuing to explore and
pursue every alternative, whether internal or external, to improve the
economic performance of this Company.
In closing I'd like to say a few words about the people who are getting
all this work done. These are uncertain and, therefore, difficult times
for our employees. I am constantly amazed by the incredible
concentration and energy they demonstrate in the midst of enormous
distraction. I consider us very fortunate to have such a solid group of
people, a group that is proving to be exceptional under fire. Our
ability to successfully traverse the road ahead would be substantially
diminished where it not for the mettle of this fine group.
