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 June 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
July 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 Six and Three Months
Ended June 30, 1996 and 1995 3-4
Condensed Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995 5
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended
June 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
Item 4 - Submission of Matters to a Vote of Security-Holders 12
SIGNATURES 13
Page 3
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND REINVESTED EARNINGS
(UNAUDITED)
Six Months Ended
Dollars in Millions June 30,
1996 1995
Net sales $617.4 $642.5
Cost of goods sold 300.3 332.7
Gross profit 317.1 309.8
Selling, general and administrative expenses 206.7 215.9
Interest income - net (18.1) (13.7)
Gain on divestiture --- (44.9)
Income before income taxes 128.5 152.5
Provision for income taxes 52.7 55.9
Net income 75.8 96.6
Dividends on preference and preferred stock (0.4) (0.4)
Reinvested Earnings - Beginning Balance 687.7 552.1
Reinvested Earnings - Ending Balance $763.1 $648.3
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 June 30,
1996 1995
Net sales $430.3 $424.0
Cost of goods sold 200.6 213.8
Gross profit 229.7 210.2
Selling, general and administrative expenses 135.6 130.3
Interest income - net (9.1) (7.6)
Gain on divestiture --- (44.9)
Income before income taxes 103.2 132.4
Provision for income taxes 42.8 49.2
Net income 60.4 83.2
Dividends on preference and preferred stock (0.2) (0.2)
Reinvested Earnings - Beginning Balance 702.9 565.3
Reinvested Earnings - Ending Balance $763.1 $648.3
See accompanying notes to the condensed consolidated financial statements.
Page 5
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
Dollars in Millions 1996 1995
ASSETS
Current Assets:
Cash and cash equivalents $ 15.5 $ 8.4
Due from The Quaker Oats Company 703.8 644.8
Trade accounts receivable - net of allowances 107.9 26.5
Inventories:
Finished goods 49.3 16.1
Materials and supplies 5.8 8.2
Total inventories 55.1 24.3
Other current assets 28.8 27.2
Total Current Assets 911.1 731.2
Other Assets 0.9 4.6
Property, plant and equipment 226.9 210.5
Less accumulated depreciation 75.8 68.8
Property - Net 151.1 141.7
Total Assets $1,063.1 $877.5
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 28.2 $ 8.7
Accrued payroll, benefits and bonus 12.1 13.7
Accrued advertising and merchandising 48.8 15.9
Income taxes payable 57.5 19.7
Other current liabilities 42.7 22.7
Total Current Liabilities 189.3 80.7
Long-term Debt 0.4 0.5
Other Liabilities 42.9 41.4
Deferred Income Taxes 0.7 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 763.1 687.7
Treasury common stock, at cost, 602,010 shares (20.9) (20.9)
Total Common Shareholders' Equity 814.5 739.1
Total Liabilities and Shareholders' Equity $1,063.1 $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)
Six Months Ended
Dollars in Millions June 30,
1996 1995
Cash Flows from Operating Activities:
Net income $ 75.8 $ 96.6
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8.0 9.7
Deferred income taxes 0.2 (1.5)
Gain on divestiture --- (44.9)
Loss on disposition of property and equipment 0.3 0.6
Increase in trade accounts receivable (81.4) (101.3)
Increase in inventories (30.8) (10.8)
Increase in other current assets (1.6) (12.7)
Increase in trade accounts payable 19.5 41.9
Increase in income taxes payable 37.8 23.9
Increase in other current liabilities 51.3 21.4
Other items 11.2 (1.7)
Net Cash Provided by Operating Activities 90.3 21.2
Cash Flows from Investing Activities:
Additions to property, plant and equipment (23.7) (18.6)
Business divestiture --- 90.6
Net Cash (Used in) Provided by Investing Activities (23.7) 72.0
Cash Flows from Financing Activities:
Change in amount Due from The Quaker Oats Company (59.0) (75.4)
Cash dividends (0.4) (0.4)
Reduction of long-term debt (0.1) (0.1)
Net Cash Used in Financing Activities (59.5) (75.9)
Net Increase in Cash and Cash Equivalents 7.1 17.3
Cash and Cash Equivalents - Beginning of Year 8.4 12.7
Cash and Cash Equivalents - End of Quarter $ 15.5 $ 30.0
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)
JUNE 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
six and three months ended June 30, 1996 and 1995, the condensed
consolidated balance sheet as of June 30, 1996, and the condensed
consolidated statements of cash flows for the six months ended June
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 June 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.
Note 2 - Redeemable Preference and Preferred Stock
5% Cumulative Convertible Second Preferred Stock
As of June 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 June 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 was put on
CreditWatch for possible downgrade in June 1996.
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)
JUNE 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 stock options at an
estimated fair value based on an option pricing model. If expense
is not recognized for stock options, pro forma footnote disclosure
is required of what net income would have been under the
Statement's approach to valuing and expensing stock options.
Certain other new disclosures will be required. The Company will
implement the provisions of this Statement in 1996, but has decided
that it will not recognize the expense related to 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 from the Van Camp's business for the six and three
months ended June 30, 1995 were $76.2 million and $47.8 million,
respectively. Operating income from the Van Camp's business for
the six and three months ended June 30, 1995 was $6.9 million and
$4.1 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 six-month and the three-month periods
ended June 30, 1996 of the Company's new fiscal year reporting
cycle which began on January 1, 1996. The comparisons of the
results for the six-month and three-month periods ended June 30,
1996 ("current year") to those of the six-month and three-month
periods ended June 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 six-month and three-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.
Six Months Ended June 30, 1996 Compared With
Six Months Ended June 30, 1995
Operating Results
Consolidated net sales for the six months ended June 30, 1996 were
$617.4 million, down 4 percent from the six months ended June 30,
1995. Excluding the $76.2 million of Van Camp's sales from the
prior year, net sales were up 9 percent. This increase was
primarily due to higher Gatorade thirst quencher sales in the
United States partly offset by lower export sales as compared to
the prior year. Gatorade thirst quencher's sales in the United
States increased 11 percent on a volume increase of 9 percent.
This increase was driven by successful new packaging and flavor
introductions and more effective use of advertising combined with
normal weather conditions.
Gross profit margin increased to 51.4 percent of sales from 48.2
percent in the prior year. Excluding the Van Camp's business from
the prior year's results, gross profit margin was 49.8 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 $206.7
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 6 percent. This was primarily due to increases
in advertising and merchandising (A&M). A&M expenses were 23.4
percent and 23.3 percent of sales for the six months ended June 30,
1996 and 1995, respectively. Excluding the Van Camp's business,
A&M expenses were 23.8 percent of sales in the prior year. A&M
expenses were lower as a percentage of sales 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 $18.1 million increased $4.4 million from
the prior year stemming from higher average amounts Due from The
Quaker Oats Company.
The effective tax rate for the six months ended June 30, 1996 was
41.0 percent versus 36.7 percent in the prior year. The lower rate
for the six months ended June 30, 1995 is attributed to a favorable
tax impact from the tax treatment of operations in Puerto Rico.
Three Months Ended June 30, 1996 Compared With
Three Months Ended June 30, 1995
Operating Results
Consolidated net sales for the three months ended June 30, 1996
were $430.3 million, up 1 percent from the three months ended June
30, 1995. Excluding the $47.8 million of Van Camp's sales from the
prior year, net sales were up 14 percent. This increase was
primarily due to higher Gatorade thirst quencher sales in the
United States partly offset by lower export sales as compared to
the prior year. Gatorade thirst quencher's sales in the United
States increased 17 percent on a volume increase of 15 percent.
This increase was driven by successful new packaging and flavor
introductions and increased levels of advertising combined with
normal weather conditions.
Gross profit margin increased to 53.4 percent of sales from 49.6
percent in the prior year. Excluding the Van Camp's business from
the prior year's results, gross profit margin was 51.4 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. SG&A expenses increased 4
percent to $135.6 million. Excluding Van Camp's results, SG&A
expenses increased 15 percent. This was primarily due to increases
in A&M expenses. A&M expenses were 23.9 percent and 22.2 percent
of sales for the three months ended June 30, 1996 and 1995,
respectively. Excluding the Van Camp's business, A&M expenses were
22.4 percent of sales in the prior year. A&M expenses were higher
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 $9.1 million increased $1.5 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 June 30, 1996 was
41.5 percent versus 37.2 percent in the prior year. The lower rate
for the three months ended June 30, 1995 is attributed to a
favorable tax impact from the 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 $90.3 million and
$21.2 million for the six months ended June 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 positive
changes in trade accounts receivable and current liabilities offset
by an increase in inventories and less favorable changes in trade
accounts payable. Capital expenditures for the six months ended
June 30, 1996 and 1995 were $23.7 million and $18.6 million,
respectively. Quaker is building a plant near Atlanta, Georgia to
replace the Newport, Tennessee plant which was sold with the
Van Camp's business. As a result, continued increases in capital
spending are expected in the second half of the year. The project's
cost will be approximately $55 million, a significant portion of
which will be allocated to the Company. The Company expects that
its future capital expenditures and cash dividends will be financed
through a combination of 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 possible
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 stock options at an
estimated fair value based on an option pricing model. If expense
is not recognized for stock options, pro forma footnote disclosure
is required of what net income would have been under the
Statement's approach to valuing and expensing stock options.
Certain other new disclosures will be required. The Company will
implement the provisions of this Statement in 1996, but has decided
that it will not recognize the expense related to 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
4. Submission of Matters to a Vote of Security-Holders.
(a) The Company held its Annual Meeting of Shareholders on May 1,
1996 and November 1, 1995. Represented at both meetings,
either in person or by proxy, were 2,989,371 voting shares,
of a total 3,000,444 voting shares outstanding. The matters
voted upon at both meetings are described in (c) below.
(c) At both meetings, to elect three directors to each serve for a
one-year term or until their successors are elected and
qualified. All nominees are named below.
- James F. Doyle
Votes For Election - 2,989,371
- R. Thomas Howell, Jr.
Votes For Election - 2,989,371
- Janet K. Cooper
Votes For Election - 2,989,371
There were no votes withheld, against, abstentions or
broker non-votes with respect to the election of any
nominee named above.
All other items in Part II are either inapplicable to the Company
during the quarter ended June 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: August 14, 1996 Thomas L. Gettings
Thomas L. Gettings
Vice President and Corporate Controller
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