UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1996
Transition Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the transition period from ____ to ____
Commission file number 1-2944
STOKELY-VAN CAMP, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-0690290
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Quaker Tower
P.O. Box 049001 Chicago, Illinois 60604-9001
(Address of principal executive office) (Zip Code)
(312) 222-7111
(Registrant's telephone number, including area code)
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 for such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES XX NO ___
The registrant had 2,989,371 shares of Common Stock outstanding on October 31,
1996, all of which were held by The Quaker Oats Company.
Page 2
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Income
and Reinvested Earnings for the Nine and Three Months
Ended September 30, 1996 and 1995 3-4
Condensed Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995 5
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended
September 30, 1996 and 1995 6
Notes to the Condensed Consolidated Financial
Statements 7-8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II - OTHER INFORMATION 12
SIGNATURES 13
Page 3
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND REINVESTED EARNINGS
(UNAUDITED)
Nine Months Ended
Dollars in Millions September 30,
1996 1995
Net sales $975.6 $1,015.8
Cost of goods sold 469.4 509.4
Gross profit 506.2 506.4
Selling, general and administrative expenses 322.2 336.2
Interest income - net (28.3) (22.1)
Gain on divestiture -- (44.9)
Income before income taxes 212.3 237.2
Provision for income taxes 87.1 89.3
Net income 125.2 147.9
Dividends on preference and preferred stock (0.6) (0.6)
Reinvested Earnings - Beginning Balance 687.7 552.1
Reinvested Earnings - Ending Balance $812.3 $699.4
See accompanying notes to the condensed consolidated financial statements.
Page 4
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND REINVESTED EARNINGS
(UNAUDITED)
Three Months Ended
Dollars in Millions September 30,
1996 1995
Net sales $358.2 $373.3
Cost of goods sold 169.1 176.7
Gross profit 189.1 196.6
Selling, general and administrative expenses 115.5 120.3
Interest income - net (10.2) (8.4)
Income before income taxes 83.8 84.7
Provision for income taxes 34.4 33.4
Net income 49.4 51.3
Dividends on preference and preferred stock (0.2) (0.2)
Reinvested Earnings - Beginning Balance 763.1 648.3
Reinvested Earnings - Ending Balance $812.3 $699.4
See accompanying notes to the condensed consolidated financial statements.
Page 5
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
Dollars in Millions 1996 1995
ASSETS
Current Assets:
Cash and cash equivalents $ 7.9 $ 8.4
Due from The Quaker Oats Company 816.3 644.8
Trade accounts receivable - net of allowances 50.9 26.5
Inventories:
Finished goods 26.6 16.1
Materials and supplies 6.3 8.2
Total inventories 32.9 24.3
Other current assets 30.7 27.2
Total Current Assets 938.7 731.2
Other Assets 10.7 4.6
Property, plant and equipment 240.5 210.5
Less accumulated depreciation 72.2 68.8
Property - Net 168.3 141.7
Total Assets $1,117.7 $877.5
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 24.5 $ 8.7
Accrued payroll, benefits and bonus 11.2 13.7
Accrued advertising and merchandising 48.1 15.9
Income taxes payable 87.9 19.7
Other current liabilities 22.4 22.7
Total Current Liabilities 194.1 80.7
Long-term Debt 0.3 0.5
Other Liabilities 42.9 41.4
Deferred Income Taxes 1.4 0.5
Redeemable Preference and
Preferred Stock 15.3 15.3
Common Shareholders' Equity:
Common stock, $1 par value, authorized
10,000,000 shares;issued 3,591,381 shares 3.6 3.6
Additional paid-in capital 68.7 68.7
Reinvested earnings 812.3 687.7
Treasury common stock, at cost, 602,010 shares (20.9) (20.9)
Total Common Shareholders' Equity 863.7 739.1
Total Liabilities and Shareholders' Equity $1,117.7 $877.5
See accompanying notes to the condensed consolidated financial statements.
Page 6
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
Dollars in Millions September 30,
1996 1995
Cash Flows from Operating Activities:
Net income $125.2 $147.9
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 12.0 13.7
Deferred income taxes 0.9 (1.5)
Gain on divestiture -- (44.9)
Loss on disposition of property and equipment 0.5 0.6
Increase in trade accounts receivable (24.4) (36.7)
(Increase) decrease in inventories (8.6) 4.5
Increase in other current assets (3.5) (14.1)
Increase in trade accounts payable 15.8 19.1
Increase in income taxes payable 68.2 23.6
Increase (decrease) in other current liabilities 34.0 (1.2)
Other items (4.9) (2.0)
Net Cash Provided by Operating Activities 215.2 109.0
Cash Flows from Investing Activities:
Additions to property, plant and equipment (43.4) (24.1)
Business divestiture -- 90.6
Net Cash (Used in) Provided by Investing Activities (43.4) 66.5
Cash Flows from Financing Activities:
Change in amount Due from The Quaker Oats Company (171.5) (162.6)
Cash dividends (0.6) (0.6)
Reduction of long-term debt (0.2) (0.2)
Net Cash Used in Financing Activities (172.3) (163.4)
Net (Decrease) Increase in Cash and Cash Equivalents (0.5) 12.1
Cash and Cash Equivalents - Beginning of Year 8.4 12.7
Cash and Cash Equivalents - End of Period $ 7.9 $ 24.8
See accompanying notes to the condensed consolidated financial statements.
Page 7
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996
Note 1 - Basis of Presentation
The condensed consolidated financial statements include Stokely-Van Camp, Inc.
(a wholly-owned subsidiary of The Quaker Oats Company, or "Quaker") and its
subsidiaries (the "Company"). The condensed consolidated statements of income
and reinvested earnings for the nine and three months ended September 30, 1996
and 1995, the condensed consolidated balance sheet as of September 30, 1996,
and the condensed consolidated statements of cash flows for the nine months
ended September 30, 1996 and 1995, have been prepared by the Company without
audit. In the opinion of management, these financial statements include all
adjustments necessary to present fairly the financial position, results of
operations and cash flows as of September 30, 1996 and for all periods
presented. All adjustments made have been of a normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The Company believes that the disclosures
included are adequate and provide a fair presentation of interim period
results. Interim financial statements are not necessarily indicative of the
financial position or operating results for an entire year. It is suggested
that these interim financial statements be read in conjunction with the audited
financial statements and the notes thereto included in the Company's report to
shareholders for the six-month transition period ended December 31, 1995.
Certain previously reported amounts have been reclassified to conform to the
current presentation. Certain income statement amounts previously reported in
the quarter ended September 30, 1995 have been adjusted to include certain
expenses previously recorded in the three months ended December 31, 1995.
The third and fourth quarter supplemental information in the upcoming 10-K
filing for the year ended December 31, 1996 will reflect this presentation.
These changes had no effect on the results of operations reported in the six-
month transition period ended December 31, 1995.
Note 2 - Redeemable Preference and Preferred Stock
5% Cumulative Convertible Second Preferred Stock
As of September 30, 1996, authorized shares were 500,000 and issued and
outstanding shares were 10,800. The voting 5% Cumulative Convertible Second
Preferred Stock ($20 par value) is convertible at the holder's option, on a
share-for-share basis, into non-voting 5% Cumulative Prior Preference Stock
($20 par value).
5% Cumulative Prior Preference Stock
As of September 30, 1996, authorized shares were 1,500,000, issued shares were
753,556 and outstanding shares were 753,223. This issue is rated A- by
Standard & Poor's (S&P) and has been put on CreditWatch for a potential
downgrade.
Both issues are redeemable at the Company's option for $21 per share.
Page 8
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996
Note 3 - Pending Accounting Change
In October 1995, the FASB issued Statement #123, "Accounting for Stock-Based
Compensation." The Company is required to adopt this Statement no later than
December 31, 1996. This Statement encourages companies to recognize expense
for employee stock options at an estimated fair value based on an option
pricing model. If expense is not recognized for employee stock options, pro
forma footnote disclosure is required of what net income would have been under
the Statement's approach to valuing and expensing employee stock options.
Certain other new disclosures will be required. The Company has decided that
it will not recognize the expense related to employee stock options in the
financial statements. The disclosure impact of this new Statement has not been
completely evaluated.
Note 4 - Divestiture
On June 8, 1995, the Company completed the divestiture of the Van Camp's pork
and beans business to Hunt-Wesson Inc., a subsidiary of ConAgra Inc., for $90.6
million and realized a gain of $44.9 million. Sales and operating income from
the Van Camp's business through the divestiture date were $76.2 million and
$6.9 million, respectively. Operating income includes certain allocations of
overhead expenses.
Page 9
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Presentation
This report discusses the nine-month and the three-month periods ended
September 30, 1996 of the Company's new fiscal year reporting cycle which began
January 1, 1996. The comparisons of the results for the nine-month and three-
month periods ended September 30, 1996 ("current year") to those of the nine-
month and three-month periods ended September 30, 1995 ("prior year") are
affected by the divestiture of the Van Camp's business on June 8, 1995. See
Note 4 for further discussion about the divestiture. Because of the
divestiture, comparative nine-month financial results are more difficult to
analyze. To aid in the analysis, this discussion will compare financial
results as reported, then break out the impact of the divested business, where
applicable, and compare the ongoing Gatorade thirst quencher's business
results.
Nine Months Ended September 30, 1996 Compared With
Nine Months Ended September 30, 1995
Operating Results
Consolidated net sales for the nine months ended September 30, 1996 were $975.6
million, down 4 percent from the prior year. Excluding the $76.2 million of
Van Camp's sales from the prior year, net sales were up 4 percent. This
increase was primarily due to higher Gatorade thirst quencher's sales in the
United States partly offset by lower export sales as compared to the prior
year. Gatorade thirst quencher sales in the United States increased 6 percent
on a volume increase of 4 percent. This increase was driven by successful new
packaging and flavors along with merchandising and shelving gains in retail
outlets.
Gross profit margin increased to 51.9 percent of sales from 49.9 percent in the
prior year. Excluding the Van Camp's business from the prior year's results,
gross profit margin was 50.9 percent. The increase in gross profit margin was
primarily due to sales growth and lower manufacturing and packaging costs for
Gatorade thirst quencher in the United States. Selling, general and
administrative (SG&A) expenses decreased 4 percent to $322.2 million partly due
to the absence of expenses associated with the divested Van Camp's business.
Excluding Van Camp's results, SG&A expenses increased 2 percent. This was due
to increases in advertising and merchandising (A&M) expenses and overhead
expenses in the current year. A&M expenses were 23.1 percent and 23.4 percent
of sales for the nine months ended September 30, 1996 and 1995, respectively.
Excluding the Van Camp's business, A&M expenses were 23.7 percent of sales in
the prior year. A&M expenses were lower as a percentage of sales in the
current year as a result of increased efficiency in A&M spending combined with
increased sales.
Page 10
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest and Income Taxes
Net interest income of $28.3 million increased $6.2 million from the prior year
stemming from higher average amounts Due from The Quaker Oats Company.
The effective tax rate for the nine months ended September 30, 1996 was 41.0
percent versus 37.6 percent in the prior year. The lower rate for the nine
months ended September 30, 1995 is primarily attributable to favorable tax
treatment of operations in Puerto Rico.
Three Months Ended September 30, 1996 Compared With
Three Months Ended September 30, 1995
Operating Results
Consolidated net sales for the three months ended September 30, 1996 were
$358.2 million, down 4 percent from the prior year. This decrease was driven
by a 3 percent decline in U.S. Gatorade thirst quencher's sales due to less
favorable weather conditions versus the prior year.
Gross profit margin increased to 52.8 percent of sales from 52.7 percent in the
prior year. SG&A expenses decreased 4 percent to $115.5 million due to lower
A&M expenses. A&M expenses were 22.6 percent and 23.5 percent of sales for the
three months ended September 30, 1996 and 1995, respectively. A&M expenses
were lower as a percentage of sales due to a shift in the timing of A&M
spending as compared to the prior year.
Interest and Income Taxes
Net interest income of $10.2 million increased $1.8 million from the prior year
stemming from higher average amounts Due from The Quaker Oats Company.
The effective tax rate for the three months ended September 30, 1996 was 41.1
percent versus 39.5 percent in the prior year. The lower rate for the three
months ended September 30, 1995 is primarily attributable to favorable tax
treatment of operations in Puerto Rico.
Page 11
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Net cash provided by operating activities was $215.2 million and $109.0 million
for the nine months ended September 30, 1996 and 1995, respectively. The
increase in net cash provided by operating activities primarily reflects higher
net income, excluding the gain on the Van Camp's divestiture in the prior year,
and favorable changes in trade accounts receivable, income taxes payable and
current liabilities which more than offset an increase in inventories and less
favorable changes in trade accounts payable. Capital expenditures for the nine
months ended September 30, 1996 and 1995 were $42.8 million and $24.1 million,
respectively. Capital expenditures are expected to continue at the current
rate in the fourth quarter of this year. Quaker is building a plant near
Atlanta, Georgia to replace the Newport, Tennessee plant which was sold with
the Van Camp's business. The project's cost will be approximately $50 million.
The Company expects that its future capital expenditures and cash dividends
will be financed through cash flows from operating activities.
In June 1996, Standard & Poor's (S&P) put the Company's 5% Cumulative Prior
Preference Stock on CreditWatch for a potential downgrade.
Pending Accounting Change
In October 1995, the FASB issued Statement #123, "Accounting for Stock-Based
Compensation." The Company is required to adopt this Statement no later than
December 31, 1996. This Statement encourages companies to recognize expense
for employee stock options at an estimated fair value based on an option
pricing model. If expense is not recognized for employee stock options, pro
forma footnote disclosure is required of what net income would have been under
the Statement's approach to valuing and expensing employee stock options.
Certain other new disclosures will be required. The Company has decided that
it will not recognize the expense related to employee stock options in the
financial statements. The disclosure impact of this new Statement has not been
completely evaluated.
Cautionary Statement on Forward-Looking Statements
Forward-looking statements within the meaning of Section 21E of the Securities
and Exchange Act of 1934, are made throughout this Management's Discussion and
Analysis.
Total Company results may differ materially from those in the forward-looking
statements. Forward-looking statements are based on management's current views
and assumptions and involve risks and uncertainties that could significantly
affect expected results. For example, operating results may be affected by
external factors such as: actions of competitors; changes in laws and
regulations, including changes in accounting standards; customer and consumer
demand; effectiveness of A&M spending or programs; consumer perception of
health-related issues; and fluctuations in the cost and availability of supply-
chain resources.
Page 12
PART II - OTHER INFORMATION
All other items in Part II are either inapplicable to the Company during the
quarter ended September 30, 1996, the answer is negative or a response has been
previously reported and an additional report of the information need not be
made, pursuant to the instructions to Part II.
Page 13
SIGNATURES
Pursuant to the requirements 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 as an officer and as chief accounting
officer.
Stokely-Van Camp, Inc.
(Registrant)
Date: November 12, 1996 Thomas L. Gettings
Thomas L. Gettings
Vice President and Corporate Controller
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