United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KT405
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the fiscal year ended
X Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from July 1, 1995 to December 31, 1995
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 Number)
Quaker Tower P.O. Box 049001 Chicago, Illinois 60604-9001
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: 312-222-7111
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
5% Cumulative Prior Preference New York Stock Exchange
Stock, $20 Par Value
Common Stock, $1 Par Value None
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-KT405 or any amendment to
this Form 10-KT405.[X]
Registrant had 2,989,371 shares of common stock outstanding on December 31,
1995, all of which were owned by The Quaker Oats Company. There is no trading
market for the registrant's voting stock held by non-affiliates.
TABLE OF CONTENTS
PART I PAGE
ITEM 1. Business 1
ITEM 2. Properties 1
ITEM 3. Legal Proceedings 1
ITEM 4. Submission of Matters to a Vote of
Security-Holders N/A
PART II
ITEM 5. Market for Registrant's Common
Equity and Related Stockholder Matters 2
ITEM 6. Selected Financial Data 2
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 3-6
ITEM 8. Financial Statements and Supplementary Data 7-19
ITEM 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure N/A
PART III
ITEM 10. Directors and Executive Officers of
the Registrant 21
ITEM 11. Executive Compensation 21-25
ITEM 12. Security Ownership of Certain
Beneficial Owners and Management 25-26
ITEM 13. Certain Relationships and Related
Transactions 26
PART IV
ITEM 14. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements
Consolidated Financial Statements of Stokley-Van Camp,
Inc. and subsidiaries are incorporated under Item 8 of
this Form 10-KT405
(a)(2) Financial Statement Schedules
& (d) Schedule X - Supplementary Income Statement Information 27
(a)(3) Exhibits
& (c) 3(a) Restated Articles of Incorporation of Stokley-Van
Camp, Inc. as of February 14, 1994 (incorporated by
reference to the Company's Form 10-K for the year ended
June 30, 1995, file number 1-2944)
3(b) By-Laws of Stokley-Van Camp, Inc. (incorporated
by reference to the Company's Form 10-K for the year
ended June 30, 1985, file number 1-2944)
10(a)(1) GATORADE Trust Agreement dated January 1, 1984
(incorporated by reference to the Company's Form 10-K
for the fiscal year ended June 30, 1984, file
number 1-2944)
10(a)(2) First Amendment to GATORADE Trust Agreement
dated January 1, 1984, effective January 1, 1993
21 Subsidiaries of the Registrant 28
SIGNATURES 29
PART I
ITEM 1. BUSINESS
Stokely-Van Camp, Inc. and Subsidiaries (the "Company" or "Stokely") has been a
wholly owned subsidiary of The Quaker Oats Company ("Quaker") since fiscal 1984.
The Company has historically been a processor, marketer and distributor of high-
quality canned food and beverage products to retail stores, institutional
distributors and industrial and athletic users. On June 8, 1995, the Company
sold its Van Camp's pork and beans business. Consequently, Stokely's business
is now comprised of Gatorade thirst quencher, a beverage specifically developed
to quench thirst during periods of physical activity. Gatorade thirst quencher
is marketed through retail grocery stores, convenience stores, food service
distributors, warehouse clubs and wholesalers, and is also sold directly to
athletic, institutional and industrial users. This product is distributed
nationally and internationally and is primarily sold through Quaker sales
organizations and food brokers. The supply of raw materials for Gatorade
thirst quencher has been adequate and continuous. The Company's sales are
seasonal, with particularly strong sales from April through September.
To capture the results of a full beverage season in a single fiscal-year
period, the Company changed its fiscal year to align with the calendar year,
beginning January 1, 1996. The six-month transition period of July 1, 1995
through December 31, 1995 (transition period) precedes the start of the new
fiscal year.
Export sales in the transition period and in fiscal 1995 and 1994 were $17.8
million, $43.7 million and $50.6 million, respectively. Export sales in fiscal
1993 were not material.
Fee Agreement
In 1984, the Company entered a novation of a series of agreements with the
trustee of the Gatorade Trust, the contracting agent of the innovators of
Gatorade thirst quencher and their successors in interest, and renewed rights
to manufacture and sell certain beverage products in return for payment of fees
based on varying levels of sales. In the event of failure by Stokely to make
payments to the Gatorade Trust, the Trustee may cancel the Agreements and
purchase back from Stokely, for a reasonable value, all trademarks and foreign
patents connected with the Gatorade thirst quencher business. In 1993, the
Agreement was amended to provide certain alternatives to market and distribute
Gatorade and to clarify certain aspects of the 1984 Agreement. Except for these
changes, in all other respects the 1984 Agreement is reaffirmed and remains in
full force and effect.
Competition
Stokely's beverage business is highly competitive. Following the divestiture
of the Van Camp's business, the Company's two key competitors are Coca-Cola Co.
and PepsiCo Inc. The principal competitive factors affecting sales include
quality, price, brand image created by advertising, distribution effectiveness
and product availability.
Employees
The total number of Stokely employees as of December 31, 1995, was
approximately 1,200.
ITEM 2. PROPERTIES
The Company owns and operates 5 plants, including manufacturing, filling and
distribution facilities. The plants are located in 5 states. The Company also
leases a facility in Puerto Rico. The Newport, Tennessee plant was sold
with the Van Camp's business. The Company continues to co-pack from the sold
plant and is currently building a new plant near Atlanta, Georgia to replace
the sold facility. The majority of Gatorade thirst quencher sales is shipped
direct from the production sites. In addition, the Company owns or leases 6
distribution centers, all of which are shared with Quaker. Other distribution
centers are leased as needed throughout the year. Sales and administrative
office space is shared with Quaker. Management believes manufacturing,
distribution center and office space owned and leased are suitable and adequate
for the business and productive capacity is appropriately utilized.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings or environmental
clean-up actions that it believes will have a material adverse effect on its
financial position or results of operations.
1
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since October 31, 1983, all outstanding shares of the Company's common stock
have been held by Quaker. The stock is not listed on any stock exchange or
traded on any market. The Company did not pay any dividends on its common
stock in the transition period or in fiscal 1995, 1994 or 1993.
ITEM 6.
<TABLE>
SELECTED FINANCIAL DATA
<CAPTION>
Transition Prior
Period Ended Period Ended Fiscal Year
December 31, December 31, Ended June 30,
(Dollars in Millions) 1995 1994 1995(a) 1994(b) 1993 1992(c) 1991
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $487.8 $470.7 $1,113.2 $1,077.0 $885.3 $876.2 $876.5
Cost of Goods Sold 254.2 253.7 586.4 553.4 443.7 422.7 435.1
Income Before Income Taxes and
Cumulative Effect of
Accounting Changes $ 63.1 $ 15.4 $ 167.9 $ 120.6 $ 99.7 $105.4 $131.7
Provision for Income Taxes 23.3 6.1 62.0 50.2 39.7 41.9 51.0
Income Before Cumulative Effect
of Accounting Changes 39.8 9.3 105.9 70.4 60.0 63.5 80.7
Cumulative Effect of Accounting
Changes - Net of Tax -- 1.5 1.5 -- 14.0 -- --
Net Income $ 39.8 $ 7.8 $ 104.4 $ 70.4 $ 46.0 $ 63.5 $ 80.7
<CAPTION>
As of
December 31, As of June 30,
(Dollars in Millions) 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Property - Net $141.7 $132.0 $132.9 $133.4 $124.7 $121.2
Total Assets $877.5 $948.6 $804.8 $707.4 $628.5 $618.0
Long-term Debt $ 0.5 $ 0.6 $ 0.7 $ 0.8 $ 1.1 $ 10.6
Redeemable Preference and
Preferred Stock $ 15.3 $ 15.3 $ 15.3 $ 15.3 $ 15.3 $ 15.3
<FN>
(a) Fiscal 1995 results include a $44.9 million pretax gain for the
divestiture of the Van Camp's pork and beans business.
(b) Fiscal 1994 results include a $9.4 million pretax restructuring charge for
Van Camp's manufacturing consolidation and work force reductions.
(c) Fiscal 1992 results include a $3.4 million pretax charge for a recall of
certain Van Camp's products.
2
</TABLE>
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Transition Period Ended December 31, 1995 Compared with Prior Period Ended
December 31, 1994
Operating Results
This report discusses the six-month transition period ended December 31, 1995
(transition period) as the Company changes from a June 30 fiscal-year end to a
fiscal year aligned with the calendar year, beginning January 1, 1996.
The comparisons of the results for the six months ended December 31, 1995 to
those of the six months ended December 31, 1994 (prior period) are affected by
the divestiture of the Van Camp's business on June 8, 1995. See Note 2 for
further discussion about the divestiture. Because of the divestiture,
comparative six-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.
Consolidated net sales for the transition period were $487.8 million, up four
percent from the prior period. Excluding the results of the Van Camp's
business from the prior period results, net sales were up 16 percent. Gatorade
thirst quencher's sales and volume in the United States increased 16 percent
and 15 percent, respectively. This increase was primarily a result of increased
consumer demand due to new packaging, new flavors and warmer weather. Gatorade
thirst quencher's sales continued to be strong despite the continued
distribution and advertisement of competitive beverage products by Coca-Cola
Co. and PepsiCo Inc. The Company expects this heightened level of competition
to continue. Price increases did not significantly affect transition period
sales.
Gross profit margin increased to 47.9 percent of sales from 46.1 percent in the
prior period primarily due to product mix changes resulting from the
divestiture of the Van Camp's business. Excluding Van Camp's results, the
gross profit margin for the prior period was 47.4 percent. The increase in
the gross profit margin for the ongoing business from 47.4 percent to 47.9
percent was due to increased sales for Gatorade thirst quencher which more
than offset increased packaging material costs and costs associated with various
capital projects. Selling, general and administrative (SG&A) expenses decreased
11 percent to $187.8 million primarily due to the absence of expenses associated
with the divested Van Camp's business. Excluding Van Camp's results, SG&A
expenses decreased three percent. This was primarily due to a decrease in
advertising and merchandising (A&M) expenses, which was partially offset by
an increase in other operating expenses. A&M expenses were 26.3 percent of sales
in the transition period. Excluding Van Camp's results, A&M expenses were
32.0 percent of sales in the prior period. SG&A and A&M expenses were
both lower as a percentage of sales as a result of increased efficiency in
A&M spending coupled with increased sales for Gatorade thirst quencher.
Interest and Income Taxes
Interest income of $17.3 million increased $3.6 million from the prior period
stemming from higher average amounts due from The Quaker Oats Company. In the
transition period, interest income was partly offset by interest expense on a
retired loan that in prior periods was outstanding to a Quaker subsidiary. The
loan was included in the amount due from The Quaker Oats Company; however,
interest expense was calculated separately and reported as interest expense in
the Consolidated Statements of Income. During fiscal 1995, Quaker repaid the
loan on behalf of the Company. The outstanding balance is still included in
the amount due from The Quaker Oats Company; however, the interest expense
associated with that balance is now offset against interest income. See Note 5
to the consolidated financial statements for further discussion of the
Company's investing and borrowing agreement with Quaker.
The effective tax rate for the transition period was 36.9 percent versus 39.6
percent for the prior period. The decrease was due to a more favorable tax
impact from the tax treatment of operations in Puerto Rico. This favorable
impact is expected to diminish in the future.
3
Fiscal 1995 Compared with Fiscal 1994
Operating Results
Consolidated net sales for fiscal 1995 were $1.11 billion, up three percent
from fiscal 1994. Volume increased three percent versus the prior year due to
volume increases of approximately five percent for Gatorade thirst quencher in
the United States, slightly offset by volume decreases in the Van Camp's
business, which was sold on June 8, 1995. See Note 2 for further discussion
about the divestiture. The Gatorade thirst quencher volume increase was a
result of increased consumer demand primarily resulting from the introduction
of the new sport bottle in addition to new flavor introductions and effective
advertising and merchandising. Gatorade thirst quencher's performance was
particularly notable, in that two major soft drink competitors broadened the
distribution of competitive beverage products throughout the United States.
Price increases did not significantly affect fiscal 1995 sales.
Gross profit margin decreased to 47.3 percent of sales from 48.6 percent in the
prior year as a result of increased packaging material and distribution costs
and product mix changes. SG&A expenses increased to $427.0 million, or an
increase of five percent, primarily due to higher A&M expenditures for Gatorade
thirst quencher in a period of competitive expansion in its category. A&M
expenses were 26.5 percent of sales in fiscal 1995, versus 25.5 percent in
fiscal 1994. SG&A and A&M expenses were both higher as a percentage of sales
as a result of the significant spending for Gatorade thirst quencher.
Gain on Divestiture
In fiscal 1995, the Company realized a gain of $44.9 million on the divestiture
of the Van Camp's pork and beans business.
Interest and Income Taxes
Interest income of $29.4 million increased $10.9 million from the prior year
stemming from higher average amounts due from The Quaker Oats Company, as well
as higher interest rates. See Note 5 to the consolidated financial statements
for further discussion of the Company's investing and borrowing arrangement
with Quaker.
The effective tax rate for fiscal 1995 was 36.9 percent versus 41.6 percent in
fiscal 1994. Favorable tax treatment of operations in Puerto Rico caused the
overall rate to decrease.
Fiscal 1994 Compared with Fiscal 1993
Operating Results
Consolidated net sales for fiscal 1994 were $1.08 billion, up 22 percent from
fiscal 1993. Volume increased 17 percent versus the prior year due to strong
volume increases for Gatorade thirst quencher, slightly offset by volume
decreases for Van Camp's products. The Van Camp's business was sold on June 8,
1995. See Note 2 for further discussion about the divestiture. The Gatorade
thirst quencher volume increase was a result of the warmer summer weather in
fiscal 1994 compared to fiscal 1993 and the increased consumer demand resulting
from the conversion of the 32 ounce glass container to plastic. Gatorade
thirst quencher's performance was particularly notable, in that two major soft
drink competitors broadened the distribution of their sports beverages
throughout the United States. Price increases did not significantly affect
fiscal 1994 sales.
Gross profit margin decreased to 48.6 percent of sales from 49.9 percent in the
prior year as a result of increased distribution and packaging material costs,
partially offset by improved product mix and cost-containment initiatives.
SG&A expenses increased to $406.6 million, or an increase of 17 percent,
primarily due to higher A&M expenditures for Gatorade thirst quencher, as well
as higher other operating expenses. A&M expenses were 25.5 percent of sales in
fiscal 1994, versus 26.6 percent in fiscal 1993. SG&A and A&M expenses were
both lower as a percentage of sales as a result of the significant increase in
sales.
4
Restructuring Charge
In fiscal 1994, the Company recorded a restructuring charge of $9.4 million for
Van Camp's manufacturing consolidation and work force reductions. Net non-cash
asset write-offs amounted to $5.4 million of the charge. Severance and
termination benefits for the elimination of approximately 200 positions were
$3.0 million in cash expenses and the remaining amount of $1.0 million in cash
expenses was for other related costs. Cash outlays occurred predominately in
fiscal 1995 and were funded through operating cash flows. Charges to the
established reserve were consistent with management's original estimate. With
the divestiture of the Van Camp's business during fiscal 1995, there are no
remaining reserves and no recurring savings to be realized from these
restructuring activities.
The Company will continue to focus on efficiency initiatives that improve its
manufacturing, marketing, logistics and customer service processes while
lowering costs and more effectively utilizing human and financial resources.
Interest and Income Taxes
Interest income of $18.5 million increased $7.3 million from the prior year
stemming from higher average amounts due from The Quaker Oats Company, as well
as higher interest rates. See Note 5 to the consolidated financial statements
for further discussion of the Company's investing and borrowing arrangement
with Quaker.
The effective tax rate for fiscal 1994 was 41.6 percent versus 39.8 percent in
fiscal 1993. The higher U.S. statutory tax rate, including the legislated
retroactive adjustment to January 1, 1993, caused the overall rate to increase.
Liquidity and Capital Resources
Net cash provided by operating activities of $81.9 million and $73.8 million
for the six months ended December 31, 1995 and 1994, respectively, was well in
excess of the Company's dividends and capital expenditures. The increase in
cash flows provided by operating activities was due to higher net income, and
decreases in working capital primarily due to the Van Camp's divestiture.
Capital expenditures for the six months ended December 31, 1995 and 1994 were
$18.5 million and $19.6 million, respectively. Capital expenditures are
expected to increase. The Company is currently building a plant near Atlanta,
Georgia to replace the Newport, Tennessee plant which was sold with the
Van Camp's business. This plant will produce Gatorade thirst quencher as
well as other Quaker products. The project's cost will be approximately $50
million, a 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 and debt
financing from Quaker. Net cash provided by operating activities of $95.0
million, $66.6 million and $145.0 million during fiscal 1995, 1994 and 1993,
respectively, was well in excess of the Company's dividends and capital
expenditures. The increase in cash flows provided by operating activities
in fiscal 1995 was primarily due to changes in working capital. In particular,
Gatorade thirst quencher's inventory decreased due to efficient inventory
management during a period of high sales. The decrease in cash flows
provided by operating activities in fiscal 1994 was primarily due to
increases in inventories and trade accounts receivable. Capital expenditures
for fiscal 1995, 1994 and 1993 were $38.2 million, $21.1 million and $24.6
million, respectively.
In February 1996, Standard & Poor's (S&P) lowered the rating on the Company's
preferred stock from A to A-, reflecting the corresponding downgrade of Quaker's
long-term debt rating.
Current and Pending Accounting Changes
Effective July 1, 1994, the Company adopted Financial Accounting Standards
Board (FASB) Statement #112, "Employers' Accounting for Postemployment
Benefits." The cumulative effect of adoption was a $1.5 million after-tax
charge in the first quarter of fiscal 1995. The adoption of this Statement did
not have a material effect on operating results or cash flows in fiscal 1995,
nor is it expected to have a material effect in future periods.
Included in the net income of fiscal 1993 was the cumulative effect of adopting
FASB Statement #106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" and FASB Statement #109, "Accounting For Income Taxes." The
combined cumulative effect of adoption was an after-tax charge of $14.0
million.
5
During the transition period, the Company adopted FASB Statement #121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." This Statement requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. The adoption of this
Statement did not have any effect on operating results or cash flows during the
transition period.
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 and in other sections of this transition period report.
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 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.
Specifically for the Gatorade thirst quencher business, the continued growth in
sales, earnings and cash flows from operations is dependent on the level of
competition from its two key competitors, Coca-Cola Co. and PepsiCo Inc., and
the projected outcome of supply-chain management programs, the efficiency and
effectiveness of A&M programs and the outcome of capital spending plans.
6
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND REINVESTED EARNINGS
Transition Prior
Period Ended Period Ended Fiscal Year
December 31, December 31, Ended June 30,
(Dollars in Millions) 1995 1994 1995 1994 1993
(unaudited)
Net Sales $487.8 $470.7 $1,113.2 $1,077.0 $885.3
Cost of Goods Sold 254.2 253.7 586.4 553.4 443.7
Gross Profit 233.6 217.0 526.8 523.6 441.6
Selling, general and
administrative
expenses 187.8 211.1 427.0 406.6 348.7
Interest income (17.3) (13.7) (29.4) (18.5) (11.2)
Interest expense -- 4.2 6.2 5.5 4.4
Gain on divestiture -- -- (44.9) -- --
Restructuring charge -- -- -- 9.4 --
Income Before Income
Taxes and Cumulative
Effect of Accounting
Changes 63.1 15.4 167.9 120.6 99.7
Provision for Income
Taxes 23.3 6.1 62.0 50.2 39.7
Income Before Cumulative
Effect of Accounting
Changes 39.8 9.3 105.9 70.4 60.0
Cumulative Effect of
Accounting Changes -
Net of Tax -- 1.5 1.5 -- 14.0
Net Income 39.8 7.8 104.4 70.4 46.0
Dividends on preference
and preferred stock (0.4) (0.4) (0.8) (0.8) (0.8)
Reinvested Earnings -
Beginning Balance 648.3 544.7 544.7 475.1 429.9
Reinvested Earnings -
Ending Balance $687.7 $552.1 $ 648.3 $ 544.7 $475.1
See accompanying notes to consolidated financial statements.
7
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Transition Prior
Period Ended Period Ended Fiscal Year
December 31, December 31, Ended June 30,
(Dollars in Millions) 1995 1994 1995 1994 1993
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 39.8 $ 7.8 $ 104.4 $ 70.4 $ 46.0
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting changes -- 1.5 1.5 -- 14.0
Depreciation and amortization 8.1 9.0 18.7 16.0 14.6
Deferred income taxes 0.5 0.2 (1.3) (0.4) 1.4
Gain on divestiture -- -- (44.9) -- --
Restructuring charge -- -- -- 9.4 --
Loss on disposition of property and
equipment 0.3 -- 0.6 1.2 3.2
Decrease (increase) in trade accounts
receivable 107.7 80.6 (20.7) (16.4) 28.9
Decrease (increase) in inventories 33.1 32.2 21.4 (31.4) 22.6
Decrease (increase) in other
current assets 2.8 2.7 (10.0) (7.6) (1.4)
(Decrease) increase in trade
accounts payable (44.7) (33.0) 8.9 6.1 0.6
(Decrease) increase in income
taxes payable (34.9) (8.9) 15.0 (1.5) 6.6
(Decrease) increase in other
current liabilities (31.8) (17.2) 4.2 17.3 10.4
Other items 1.0 (1.1) (2.8) 3.5 (1.9)
Net Cash Provided by Operating Activities 81.9 73.8 95.0 66.6 145.0
Cash Flows from Investing Activities:
Additions to property, plant
and equipment (18.5) (19.6) (38.2) (21.1) (24.6)
Business divestiture -- -- 90.6 -- --
Net Cash (Used) in Provided by Investing
Activities (18.5) (19.6) 52.4 (21.1) (24.6)
Cash Flows from Financing Activities:
Change in amount Due from The
Quaker Oats Company (84.5) (82.2) (157.6) (3.5) (119.3)
Cash dividends (0.4) (0.4) (0.8) (0.8) (0.8)
Reduction of long-term debt (0.1) -- (0.1) (0.1) (0.3)
Net Cash Used in Financing Activities (85.0) (82.6) (158.5) (4.4) (120.4)
Net (Decrease) Increase in Cash
and Cash Equivalents (21.6) (28.4) (11.1) 41.1 --
Cash and Cash Equivalents - Beginning of Period 30.0 41.1 41.1 -- --
Cash and Cash Equivalents - End of Period $ 8.4 $ 12.7 $ 30.0 $ 41.1 $ --
<FN>
See accompanying notes to consolidated financial statements.
8
</TABLE>
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
(Dollars in Millions) 1995 1995 1994
Assets
Current Assets:
Cash and cash equivalents $ 8.4 $ 30.0 $ 41.1
Due from The Quaker Oats Company 644.8 560.3 402.7
Trade accounts receivable - net of allowance of
$2.8, $4.8 and $4.6 as of December 31, 1995
and June 30,1995 and 1994, respectively 26.5 134.2 113.5
Inventories:
Finished goods 16.1 42.2 70.9
Materials and supplies 8.2 15.2 16.8
Total inventories 24.3 57.4 87.7
Other current assets 27.2 30.0 20.3
Total Current Assets 731.2 811.9 665.3
Other Assets 4.6 4.7 6.6
Property, plant and equipment 210.5 194.6 203.4
Less accumulated depreciation 68.8 62.6 70.5
Property - Net 141.7 132.0 132.9
Total Assets $877.5 $948.6 $804.8
Liabilities and Shareholders' Equity
Current Liabilities:
Trade accounts payable $ 8.7 $ 53.4 $ 44.5
Accrued payroll, benefits and bonus 21.1 26.1 23.5
Accrued advertising and merchandising 15.9 37.1 35.8
Income taxes payable 19.7 54.6 39.6
Other current liabilities 22.7 28.3 13.6
Total Current Liabilities 88.1 199.5 157.0
Long-term Debt 0.5 0.6 0.7
Other Liabilities 34.0 33.5 33.4
Deferred Income Taxes 0.5 -- 2.3
Redeemable Preference and
Preferred Stock 15.3 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 3.6
Additional paid-in capital 68.7 68.7 68.7
Reinvested earnings 687.7 648.3 544.7
Treasury common stock, at cost, 602,010 shares (20.9) (20.9) (20.9)
Total Common Shareholders' Equity 739.1 699.7 596.1
Total Liabilities and Shareholders'
Equity $877.5 $948.6 $804.8
See accompanying notes to consolidated financial statements.
9
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include Stokely-Van Camp, Inc. and
Subsidiaries (the "Company" or "Stokely"). All significant intercompany
transactions have been eliminated. The Company is a subsidiary of The Quaker
Oats Company ("Quaker").
Fiscal Year Change
To capture the results of a full beverage season in a single fiscal-year
period, the Company changed its fiscal year to align with the calendar year,
beginning January 1, 1996. The six-month transition period of July 1, 1995
through December 31, 1995 (transition period) precedes the start of the new
fiscal year. The unaudited financial information for the six months ended
December 31, 1994 (prior period) is presented for comparative purposes and
includes any adjustments (consisting of normal, recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation.
Commodity Options and Futures Contracts
The Company uses commodity options and futures contracts in its management of
commodity price exposures. Realized and unrealized gains and losses on
commodity options and futures contracts that hedge commodity price exposures
are deferred in inventory and subsequently included in cost of goods sold as
the inventory is sold.
Inventories
Inventories are valued at the lower of cost or market, using the last-in, first-
out (LIFO) cost method, and include the cost of raw materials, labor and
overhead. If the LIFO method of valuing these inventories was not used, total
inventories would have been $2.2 million, $1.2 million and $8.8 million higher
than reported as of December 31, 1995 and June 30, 1995 and 1994, respectively.
Property and Depreciation
Property, plant and equipment are carried at cost and depreciated on a straight-
line basis over their estimated useful lives. Useful lives range from 10 to 40
years for buildings and improvements and from 3 to 12 years for machinery and
equipment.
Software Costs
The Company defers significant software development project costs. Software
costs of $0.2 million, $1.3 million and $1.3 million were deferred during
fiscal 1995, 1994 and 1993, respectively. No software costs were deferred
during the transition period. Amounts deferred are amortized over a three-year
period beginning with a project's completion. Net deferred software costs as
of December 31, 1995 were $1.1 million.
Current and Pending Accounting Changes
Effective July 1, 1994, the Company adopted Financial Accounting Standards
Board (FASB) Statement #112, "Employers' Accounting for Postemployment
Benefits." The cumulative effect of adoption was a $1.5 million after-tax
charge in the first quarter of fiscal 1995. The adoption of this Statement did
not have a material effect on operating results or cash flows in fiscal 1995,
nor is it expected to have a material effect in future periods.
Included in the net income of fiscal 1993 was the cumulative effect of adopting
FASB Statement #106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" and FASB Statement #109, "Accounting For Income Taxes." The
combined cumulative effect of adoption was an after-tax charge of $14.0
million.
10
During the transition period, the Company adopted FASB Statement #121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." This Statement requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. The adoption of this
Statement did not have any effect on operating results or cash flows during the
transition period.
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.
Income Taxes
The Company uses an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income taxes are provided when tax laws
and financial accounting standards differ with respect to the amount of income
for a year and the bases of assets and liabilities.
Estimates and Assumptions
The preparation of financial statements in conformity with Generally Accepted
Accounting Principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2
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 were $49.7 million in the prior period and $125.9 million, $143.8
million and $149.5 million in fiscal 1995, 1994 and 1993, respectively. The
Van Camp's business had an operating loss of $0.5 million in the prior period
and operating income of $6.4 million, $8.2 million and $10.9 million in fiscal
1995, 1994 and 1993, respectively. Operating income includes certain
allocations of overhead expenses and excludes the gain on the divestiture in
fiscal 1995 and the restructuring charge in fiscal 1994.
NOTE 3
RESTRUCTURING CHARGE
In fiscal 1994, the Company recorded a restructuring charge of $9.4 million for
Van Camp's manufacturing consolidation and work force reductions. Net non-cash
asset write-offs amounted to $5.4 million of the charge. Severance and
termination benefits for the elimination of approximately 200 positions were
$3.0 million in cash expenses and the remaining amount of $1.0 million in cash
expenses was for other related costs. Cash outlays occurred predominately in
fiscal 1995 and were funded through operating cash flows. All restructuring
activities were completed by the Van Camp's divestiture date. Charges to the
established reserve were consistent with management's original estimate. With
the divestiture of the Van Camp's business during fiscal 1995, there are no
remaining reserves and no recurring savings to be realized from these
restructuring activities.
11
NOTE 4
INCOME TAXES
The Company uses an asset and liability approach to financial accounting and
reporting for income taxes in accordance with FASB Statement #109, "Accounting
for Income Taxes." FASB Statement #109 was adopted effective July 1, 1992 and
the cumulative effect of adoption was to increase fiscal 1993 net income by
$2.8 million.
Provisions for income taxes on income before the cumulative effect of
accounting changes were as follows:
Transition
Period Ended Fiscal Year
December 31, Ended June 30,
(Dollars in Millions) 1995 1995 1994 1993
Currently payable:
Federal $17.6 $58.1 $41.9 $32.9
State 4.7 11.9 8.5 6.9
Non-U.S. 0.1 0.2 -- --
Total currently payable 22.4 70.2 50.4 39.8
Deferred - net:
Federal 0.8 (7.6) (0.7) (0.5)
State 0.2 (0.3) 0.5 0.4
Non-U.S. (0.1) (0.3) -- --
Total deferred - net 0.9 (8.2) (0.2) (0.1)
Provision for income taxes $23.3 $62.0 $50.2 $39.7
The components of the deferred income tax provision (benefit) were as follows:
Transition
Period Ended Fiscal Year
December 31, Ended June 30,
(Dollars in Millions) 1995 1995 1994 1993
Accelerated tax depreciation $ 1.0 $(1.8) $ 0.8 $ 1.1
Postretirement benefits (0.2) 0.8 (0.7) (0.9)
Accrued expenses (0.1) (5.7) (0.4) --
Other 0.2 (1.5) 0.1 (0.3)
Deferred income tax provision
(benefit) $ 0.9 $(8.2) $(0.2) $(0.1)
12
Reconciliations of the statutory Federal income tax rates to the effective
income tax rates were as follows:
<TABLE>
<CAPTION>
Transition
Period Ended Fiscal Year
December 31, Ended June 30,
(Dollars in Millions) 1995 1995 1994 1993
% of % of % of % of
Pretax Pretax Pretax Pretax
Amount Income Amount Income Amount Income Amount Income
<S> <C> <C> <C> <C>
Tax provision based on the
Federal statutory rate $22.1 35.0% $58.8 35.0% $42.2 35.0% $33.9 34.0%
State and local income taxes -
net of Federal income
tax benefit 3.2 5.0 7.5 4.5 5.9 4.9 4.8 4.8
Other (2.0) (3.1) (4.3) (2.6) 2.1 1.7 1.0 1.0
Provision for income taxes $23.3 36.9% $62.0 36.9% $50.2 41.6% $39.7 39.8%
The sources of pretax income before the cumulative effect of accounting changes
were as follows:
Transition
Period Ended Fiscal Year
December 31, Ended June 30,
(Dollars in Millions) 1995 1995 1994 1993
U.S. sources $68.6 $177.7 $122.2 $95.5
Non-U.S. sources (5.5) (9.8) (1.6) 4.2
Income before income taxes and
cumulative effect of accounting
changes $63.1 $167.9 $120.6 $99.7
The consolidated balance sheets included the following deferred tax assets and
deferred tax liabilities:
<CAPTION>
As of As of
December 31, June 30,
(Dollars in Millions) 1995 1995 1994
Deferred Deferred Deferred Deferred Deferred Deferred
Tax Tax Tax Tax Tax Tax
Assets Liabilities Assets Liabilities Assets Liabilities
<S> <C> <C> <C> <C> <C> <C>
Depreciation and amortization $ 2.0 $14.9 $ 2.0 $14.0 $ 2.5 $16.7
Postretirement benefits 11.8 -- 11.6 -- 12.4 --
Other benefit plans 3.5 3.3 3.5 3.0 1.5 2.7
Accrued expenses 9.1 0.1 9.1 0.2 3.0 0.2
Other 1.2 0.8 1.1 0.7 0.2 --
Total $27.6 $19.1 $27.3 $17.9 $19.6 $19.6
Total income tax provisions (benefits) were allocated as follows: $23.3 million
for continuing operations in the transition period ended December 31, 1995;
$62.0 million for continuing operations and $(1.0) million for the cumulative
effect of accounting change in fiscal 1995; $50.2 million for continuing
operations in fiscal 1994; and $39.7 million for continuing operations and
$(13.5) million for the cumulative effect of accounting changes in fiscal 1993.
13
NOTE 5
RELATED PARTY TRANSACTIONS
Stokely, through its parent Quaker, conducts the majority of its operations as
an integrated component of Quaker's U.S. and Canadian Grocery Products
Division. Certain liabilities and expenses are commingled and are charged or
allocated to Stokely from Quaker. With the exception of cost of sales and
advertising and merchandising expenses, the majority of remaining operating,
general and administrative expenses are allocated from Quaker to Stokely.
Stokely reimburses Quaker and its affiliates for services provided for its
benefit. Quaker's International Grocery Products Division is licensed to sell
Gatorade thirst quencher in international markets. In exchange for these
licensing rights, Quaker pays the Company a royalty. The following summarizes
the significant related party transactions other than those described elsewhere
in the consolidated financial statements:
Income Taxes
Stokely is included in the consolidated Federal income tax return of Quaker.
Stokely provides for current and deferred taxes as if it filed a separate
consolidated tax return except that if any items are subject to limitations in
Stokely's tax calculations, such limitations are determined on the basis of the
Quaker consolidated group.
Employees
Current salaried and hourly employees whose services benefit the Stokely
business are employees of Quaker. Their compensation is paid by Quaker and
charged to Stokely based on actual salary and fringe benefit costs of the
assigned employees. These employees and retired employees also participate in
a number of Quaker insurance and benefit programs. Stokely is charged an
allocated portion of each program's cost.
Corporate Insurance Programs
Stokely participates in Quaker's consolidated risk management programs for
property and casualty insurance.
Stokely is charged for annual premiums and reported losses. Incurred but not
reported losses are not charged to Stokely income currently. Stokely will
recognize these costs in the future when specific identification has been made
by Quaker.
Corporate Overhead Allocations
Quaker provides certain corporate general and administrative services to
Stokely including personnel, legal, finance, facility management and utilities.
These expenses are allocated to Stokely on a basis which approximates actual
services provided.
Shared Operating Expenses
Quaker's U.S. and Canadian Grocery Products Division allocates a ratable
portion of shared operating expenses including sales force and brokers, certain
other marketing expenses, product research and general and administrative
services. These expenses are allocated to Stokely on a basis which
approximates actual services provided as determined by various measures.
International Grocery Products Fee Agreements
Stokely has entered into a number of licensing agreements allowing the
international affiliates of Quaker to manufacture and sell certain beverage
products in return for payment of licensing fees. Fees received under these
agreements amounted to $2.8 million, $5.5 million, $3.6 million and $3.1
million in the transition period ended December 31, 1995 and in fiscal 1995,
1994 and 1993, respectively.
14
Investing and Borrowing Arrangement
The Company has an investing and borrowing arrangement under which it loans its
available cash to Quaker or borrows its short-term cash requirements from
Quaker. Funds collected from operations which are remitted to Quaker increase
the amount due from Quaker; conversely, operating expenses paid by Quaker
reduce the receivable from Quaker or may result in a payable to Quaker. This
arrangement provides for an interest rate based on the yield of U.S. Treasury
Bills, as determined by the weekly U.S. Government auction. In addition, the
Company had 100 percent participation in certain loans owed to Quaker by Quaker
subsidiaries. These loans were repaid to Quaker in the fourth quarter of
fiscal 1995. However, the funds received were not remitted to the Company and
are included in the amount due from Quaker. The Company also had a loan
payable to a Quaker subsidiary. During fiscal 1995, Quaker repaid the loan on
behalf of the Company. The outstanding balance is still offset against the
amount due from Quaker. The Company may, at any time, demand repayment of all
or any part of the amount due from Quaker. There were no bank lines of credit
as of December 31, 1995 or June 30, 1995 or 1994.
NOTE 6
LONG-TERM DEBT
As of As of
December 31, June 30,
(Dollars in Millions) 1995 1995 1994
Industrial Revenue Bonds, 4.5%
due through October 1, 1999 $0.6 $0.7 $0.8
Less current maturities 0.1 0.1 0.1
Long-term Debt $0.5 $0.6 $0.7
Aggregate required payments of maturities on long-term debt for the next four
calendar years are $0.1 million in 1996 and 1997, and $0.2 million in 1998 and
1999.
NOTE 7
CAPITAL STOCK
Since October 31, 1983, all outstanding shares of the Company's common stock
have been held by Quaker and the balances of common stock ($3.6 million;
3,591,381 shares issued), additional paid-in capital ($68.7 million) and
treasury common stock ($20.9 million; 602,010 shares) have remained unchanged.
The Company has three series of preferred stock: Voting 5% Cumulative
Convertible Second Preferred Stock; non-voting 5% Cumulative Prior Preference
Stock; and Serial Preferred Stock. The Voting 5% Cumulative Convertible Second
Preferred Stock is convertible at the holder's option, on a share for share
basis, into the non-voting 5% Cumulative Prior Preference Stock. As of
December 31, 1995, authorized shares were 500,000 and issued and outstanding
shares were 10,860 for the 5% Cumulative Convertible Second Preferred Stock.
As of December 31, 1995, 1,500,000 shares were authorized, 753,496 shares were
issued, 753,163 shares were outstanding and 10,860 shares were reserved for
conversion for the 5% Cumulative Prior Preference Stock. Both issues are
redeemable at the Company's option for $21 per share. No Serial Preferred
Stock has been issued, although 500,000 shares are authorized.
15
The following chart summarizes the changes in the outstanding preference and
preferred stock balances:
5% Cumulative 5% Cumulative
Prior Preference Convertible Second
Stock Preferred Stock
$20 Par Value $20 Par Value
Balance as of June 30, 1992 752,340 11,683
Shares Converted 360 (360)
Balance as of June 30, 1993 752,700 11,323
Shares Converted 250 (250)
Balance as of June 30, 1994 752,950 11,073
Shares Converted 213 (213)
Balance as of June 30, 1995 753,163 10,860
Shares Converted -- --
Balance as of December 31, 1995 753,163 10,860
NOTE 8
PENSION PLANS
Salaried and hourly employees assigned to the Company are employees of Quaker
and are covered by the Quaker Retirement Plan. Plan benefits are based on
compensation paid to employees and their years of service. Quaker policy is
to make contribution to its plan within the maximum amount deductible for
Federal income tax purposes. Plan assets consist primaily of equity securities
and government, corporate and other fixed-income obligations. Consistent with
arrangements described in Note 5, pension costs related to both salaried and
hourly employees are allocated based on actual pension costs incurred by
Quaker. The Company was allocated pension costs of approximately $2.0 million,
$6.1 million, $3.2 million and $2.2 million in the transition period and in
fiscal 1995, 1994 and 1993, respectively. The Company's allocated funded
accrued pension costs were approximately $7.4 million, $9.1 million and
$5.1 million as of December 31, 1995 and June 30, 1995 and 1994, respectively.
The Company had maintained a separate pension plan for all hourly employees
which, effective December 31, 1994, was merged with the Quaker Retirement Plan.
Plan benefits were based on years of service. Company policy was to make
contributions to the Plan within the maximum amount deductible for Federal
income tax purposes.
The components of net pension income under the former Stokely Plan for hourly
employees are detailed below:
Fiscal Year
Ended June 30,
(Dollars in Millions)
1995 1994 1993
Service cost (benefits earned
during the year) $ 0.2 $ 0.4 $ 0.3
Interest cost on projected
benefit obligation 0.7 1.4 1.4
Actual return on plan assets (1.4) (2.0) (2.5)
Net amortization and deferral (0.2) (0.9) (0.4)
Net pension income $ (0.7) $ (1.1) $ (1.2)
16
A reconciliation of the funded status of the Company's former defined benefit
plan for hourly employees to the prepaid pension cost was as follows (with the
merger of the Company's plan into the Quaker Retirement Plan, effective
December 31, 1994, no reconciliation since June 30, 1994 is available):
As of
(Dollars in Millions) June 30,1994
Vested benefits $18.3
Non-vested benefits 0.5
Accumulated and projected benefit obligation(a) 18.8
Plan assets at market value 33.6
Projected benefit obligation less than plan assets 14.8
Unrecognized net (gain) (3.9)
Unrecognized prior service cost 1.2
Unrecognized net (asset) at transition (5.1)
Prepaid pension cost $ 7.0
Assumptions:
Discount rate: 8.0%
Rate of future compensation increases:(a) --
Long-term rate of return on plan assets: 8.5%
(a) Effect of future compensation increases is not applicable as the Plan
benefits are based on years of service.
NOTE 9
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
AND OTHER POSTEMPLOYMENT BENEFITS
Quaker provides certain health care and life insurance benefits to its retired
employees who meet service-related eligibility requirements. Consistent with
arrangements described in Note 5, the Company is allocated a portion of these
costs incurred by Quaker.
Effective July 1, 1992, the Company adopted FASB Statement #106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." This Statement
requires that the expected cost of these benefits be charged to expense during
the years that the employees render service. This Statement was adopted
through a cumulative pretax charge of $27.5 million, or $16.8 million after-
tax, which represents the accumulated postretirement benefit obligation for
years prior to fiscal 1993.
The Company was allocated postretirement benefit costs of $1.7 million, $5.2
million, $5.5 million and $4.0 million in the transition period and in fiscal
1995, 1994 and 1993, respectively. The Company's allocated unfunded
accrued postretirement benefit costs were $33.7 million, $33.1
million and $35.3 million as of December 31, 1995 and June 30, 1995 and 1994,
respectively.
Effective July 1, 1994, the Company adopted FASB Statement #112, "Employers'
Accounting for Postemployment Benefits." The cumulative effect of adoption was
a $1.5 million after-tax charge in the first quarter of fiscal 1995. The
adoption of this Statement will not have a material effect on operating results
or cash flows in future years.
17
NOTE 10
SUPPLEMENTAL CASH FLOW INFORMATION
Transition Period Fiscal Year
Ended Ended June 30,
December 31,
(Dollars in Millions) 1995 1995 1994 1993
Interest Paid $ -- $ 0.1 $ 0.1 $ 0.1
Income Taxes Paid $55.1 $37.9 $38.5 $31.2
NOTE 11
LEASES AND OTHER COMMITMENTS
Certain operating properties are rented under non-cancelable operating leases.
Total rental expense under operating leases was $2.0 million, $5.3 million,
$5.0 million and $5.4 million in the transition period ended December 31, 1995
and in fiscal 1995, 1994 and 1993, respectively. Future minimum annual rentals
(calendar-year basis) on non-cancelable operating leases, primarily for sales
and administrative offices and distribution centers, are as follows:
(Dollars in Millions) 1996 1997 1998 1999 2000 Later Total
Total Payments $4.0 $3.2 $3.1 $2.9 $2.9 $8.6 $24.7
The Company enters into executory contracts to promote various products. As of
December 31, 1995, future commitments under these contracts amounted to
approximately $51.0 million.
NOTE 12
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in Millions)
First Second
1995 Transition Period Quarter Quarter
Net sales $ 373.3 $ 114.5
Cost of goods sold 171.8 82.4
Gross profit $ 201.5 $ 32.1
Net income (loss) $ 59.6 $ (19.8)
18
(Dollars in Millions)
First Second Third Fourth
Fiscal 1995 Quarter Quarter Quarter Quarter(a)
Net sales $ 350.8 $ 119.9 $ 218.5 $ 424.0
Cost of goods sold 178.0 75.7 118.9 213.8
Gross profit $ 172.8 $ 44.2 $ 99.6 $ 210.2
Income (loss) before
cumulative effect of
accounting change $ 23.2 $ (13.9) $ 13.4 $ 83.2
Net income (loss) $ 21.7 $ (13.9) $ 13.4 $ 83.2
(a) Includes a $44.9 million pretax gain for the divestiture of the Van Camp's
pork and beans business.
(Dollars in Millions)
First Second Third Fourth
Fiscal 1994 Quarter Quarter Quarter Quarter(b)
Net sales $ 347.4 $ 118.9 $ 191.3 $ 419.4
Cost of goods sold 173.8 68.7 105.3 205.6
Gross profit $ 173.6 $ 50.2 $ 86.0 $ 213.8
Net income (loss) $ 37.5 $ (6.7) $ 8.2 $ 31.4
(b) Includes a $9.4 million pretax restructuring charge ($5.6 million after-
tax) for Van Camp's manufacturing consolidation and work force reductions.
NOTE 13
FINANCIAL INSTRUMENTS
Financial instruments are primarily used to fund working capital and to reduce
the impact of commodity price fluctuations. The Company uses commodity options
and futures contracts to reduce the risk that raw material purchases will be
adversely affected as commodity prices change. While the hedge instruments are
subject to the risk of loss from changing commodity prices, the losses would
generally be offset by lower costs of the purchases being hedged. The Company
does not trade these instruments with the objective of earning financial gains
on the commodity price fluctuations alone, nor does it trade in commodities for
which there are no underlying exposures. Management believes that its use of
financial instruments to reduce risk is in the Company's best interest.
The Company primarily hedges purchases of corn sweetener. Approximately two
percent of cost of goods sold was in hedgeable commodities. The Company's
strategy is to typically hedge some of the production requirements for the
following twelve-month period. As of December 31, 1995, approximately 34 percent
of calendar 1996 production requirements were hedged. The fair values of these
commodity instruments as of December 31, 1995, based on broker quotes, reflect
net gains of $0.3 million. Realized gains and losses charged to cost of goods
sold in the transition period ended December 31, 1995 and in fiscal 1995 and
1994 were not material.
The carrying value of cash and long-term debt approximates fair value. The
counterparties to the Company's financial instruments are major financial
institutions. The Company continually evaluates the creditworthiness of the
counterparties and has never experienced, nor does it anticipate nonperformance
by any of its counterparties.
19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Stokely-Van Camp, Inc.:
We have audited the accompanying consolidated balance sheets of Stokely-Van
Camp, Inc. (an Indiana corporation and subsidiary of The Quaker Oats Company)
and subsidiaries as of December 31, 1995, and June 30, 1995 and 1994, and the
related consolidated statements of income, reinvested earnings and cash flows
for the six month period ended December 31, 1995 and years ended June 30,
1995, 1994 and 1993. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stokely-Van Camp, Inc. and
subsidiaries as of December 31, 1995, and June 30, 1995 and 1994, and the
results of their operations and their cash flows for the six month period
ended December 31, 1995 and years ended June 30, 1995, 1994 and 1993,
in conformity with generally accepted accounting principles.
As indicated in Note 4, effective July 1, 1992, the Company changed their
accounting for income taxes. As indicated in Note 9, effective July 1, 1992,
the Company changed their accounting for postretirement benefits other than
pensions and effective July 1, 1994, the Company changed their accounting for
postemployment benefits.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule X is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
February 2, 1996
20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the directors and
executive officers of Stokely-Van Camp, Inc. as of March 1, 1996.
Name Principal Occupation Age
James F. Doyle Executive Vice President - Worldwide 43
Beverages;
Director, Chief Executive Officer and
President of Stokely.
R. Thomas Howell, Jr. Vice President - General 53
Corporate Counsel and Corporate
Secretary of Quaker; Director, Vice
President and Secretary of Stokely.
Janet K. Cooper Vice President and Treasurer of 42
Quaker and Stokely and Director
of Stokely.
Thomas L. Gettings Vice President and Corporate 39
Controller of Quaker and Stokely.
Mr. Doyle and Mr. Howell have served in their capacities since November, 1994.
Ms. Cooper and Mr. Gettings have served in their capacities since July, 1992.
All of the above-named directors and officers have been employed by Quaker in
an executive capacity for more than five years.
ITEM 11. EXECUTIVE COMPENSATION
The following table details annual and long-term compensation paid during the
Company's transition period and the three most recent fiscal years to the
Company's Chief Executive Officer and President. No other executive officer of
the Company was paid in excess of $100,000 in salary and bonus relative to
their services for the Company.
SUMMARY COMPENSATION TABLE
</TABLE>
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
Other Restricted Securities All
Fiscal Annual Stock Underlying Other
Year Salary Bonus Compensation Awards Options Compensation
Name (1) ($) ($)(2) ($) ($)(3) (#)(4) ($)(5)
<S> <C> <C> <C> <C> <C>
James F. Doyle - 1995.5 $173,004 $ -0- $ 592 $19,610 90,000 $ -0-
Chief Executive Officer 1995 $332,760 $217,600 $ -0- $42,449 48,000 $70,764
and 1994 $299,208 $254,800 $ -0- $25,247 48,000 $55,753
President of Stokely 1993 $270,790 $221,100 $ -0- $18,953 60,000 $54,938
<FN>
(1)The transition period is identified as Fiscal 1995.5 for purposes of this
table.
(2)Amounts include the cash awards that have been paid under the Management
Incentive Bonus Plan ("MIB") based on Quaker's financial performance for
the transition period, fiscal 1995, 1994 and 1993, respectively. Amounts
for fiscal 1993 also include the portion of the MIB award for fiscal 1992
21
which was withheld from the fiscal 1992 MIB award pool and put at risk,
subject to achievement of certain financial objectives during the first
half of fiscal 1993. The financial objectives were achieved in fiscal
1993, and paid in fiscal 1993 along with the 1993 MIB award as follows for
Mr. Doyle: $31,900 and $189,200.
(3)Restricted stock award values reflect the fair market value of Quaker's
common stock on the date of each grant. The values reflect Quaker matching
awards of restricted stock under a broad-based long-term incentive program,
the Incentive Investment Program. Dividends on restricted shares were and
continue to be paid on an on-going basis at the same rate as paid to all
shareholders. The aggregate number and value of restricted shares for Mr.
Doyle, valued as of the last day of the Company's transition period
(December 31, 1995) were 2,974 and $102,231, respectively.
Upon a change in control of Quaker (see definition under Pension Plans),
restricted shares outstanding on the date of the change in control will be
cancelled and an immediate lump-sum cash payment will be paid which is
equal to the product of (1) the higher of (i) the closing price of common
stock as reported on the New York Stock Exchange Composite Index on or
nearest to the date of payment (or, if not listed on such exchange, on a
nationally recognized exchange or quotation system on which trading volume
in the common stock is highest) or (ii) the highest per share price for
common stock actually paid in connection with the change in control; and
(2) the number of shares of such restricted stock.
(4)All stock option awards in the transition period, fiscal 1995 and 1994 were
granted with an exercise price that is equal to the fair market value of
Quaker's common stock on the date of the grant. Fifty percent of the stock
option awards in fiscal 1993 were granted with an exercise price that is
equal to the fair market value of Quaker's common stock on the date of the
grant. The remaining 50% were granted with an exercise price that is 125%
of the fair market value of Quaker's common stock on the date of the grant.
(5)For fiscal 1995, 1994 and 1993, amounts shown are the total of the value of
the stock allocations under The Quaker Employee Stock Ownership Plan
("ESOP"), and cash awards based on earnings in excess of the Internal
Revenue Code limits on the amount of earnings deemed eligible for purposes
of the annual stock allocation made directly under the ESOP.
22
The following table contains information covering the grant of stock options to
the Company's Chief Executive Officer and President during the transition
period under The Quaker Long Term Incentive Plan. The exercise price for
options granted is equal to the fair market value of Quaker's common stock on
the date of the grant.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants (1) for Option Term (2)
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise
Granted In Fiscal Price Expiration
Name (#) Year ($/Sh) Date 5% 10%
James F. Doyle 90,000 2.2% $33.13 7/20/05 $1,875,175 $4,752,062
(1) All options were granted on July 21, 1995. One-third of the options
granted will vest on each of the three anniversaries following the date of
grant. The options will be cancelled and a lump sum cash payment will be
paid for realizable value upon the occurrence of a change in control. (See
definition under Pension Plans.)
(2) Based on fair market value on the date of grant and an annual appreciation
at the rate stated (compounded annually) of such fair market value through
the expiration date of such options. The dollar amounts under these
columns are the result of calculations at the 5% and 10% stock price
appreciation rates set by the Securities and Exchange Commission and
therefore do not forecast possible future appreciation, if any, of
Quaker's stock price.
The following table contains information covering the exercise of options by
the Chief Executive Officer and President during the transition period and
unexercised options held as of the end of the transition period.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
</TABLE>
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised,
Unexercised Options In-the-Money Options
at Fiscal Year at Fiscal
End(#) Year End ($)(2)
Shares
Acquired Value
On Realized
Name Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C>
James F. Doyle -0- -0- 211,412 138,480 $846,865 $112,050
<FN>
(1) Represents the difference between the option exercise price and the fair
market value of Quaker's common stock on the date of exercise.
(2) Represents the difference between the option exercise price and the fair
market value of Quaker's common stock on the last day of the transition
period (December 31, 1995).
23
</TABLE>
Pension Plans
Quaker and its subsidiaries maintain several pension plans. The Quaker
Retirement Plan (Retirement Plan), which is the principal plan, is a
noncontributory, defined benefit plan covering eligible salaried and hourly
employees of the Company who have completed one year of service as defined by
the Retirement Plan.
Under the Retirement Plan, the participant accrues a benefit based upon the
greater of a Years-of-Service Formula and an Earnings/Service Formula. Under
the Years-of-Service Formula, participants accrue annual benefits equivalent to
credited years of service times $216. Under the Earnings/Service Formula, a
participant's benefit is the sum of two parts:
1. Past Service Accrual -- Benefits accrued through December 31, 1993 are set
at the greater of (a) those earned or (b) 1% of Five-Year Average earnings
to $22,700 plus 1.65% of earnings above $22,700, times credited years of
service; and
2. Future Service Accrual -- For each year beginning January 1, 1994 and
after, participants accrue benefits of 1.75% of annual earnings to 80% of
the Social Security wage base plus 2.5% of annual earnings above 80% of
the Social Security wage base.
Eligible earnings used to calculate retirement benefits include wages,
salaries, bonuses, contributions to The Quaker Investment Plan and allocations
under The Quaker Employee Stock Ownership Plan. Normal retirement age under
the Retirement Plan is age 65. The Retirement Plan contains provision for
early retirement benefits.
Benefit amounts payable under the Retirement Plan are limited to the extent
required by the Employee Retirement Income Security Act of 1974 ("ERISA"), as
amended, and the Internal Revenue Code of 1986, as amended. If the benefit
formula produces an amount in excess of those limitations, the excess will be
paid out of general corporate funds in accordance with the terms of The Quaker
415 Excess Benefit Plan and The Quaker Eligible Earnings Adjustment Plan. The
Quaker Eligible Earnings Adjustment Plan also provides for payment out of
general corporate funds, based upon benefit amounts which would otherwise have
been payable under the Retirement Plan and The Quaker 415 Excess Benefit Plan,
if the executive had not previously elected to defer compensation under the
Executive Deferred Compensation Plan.
The estimated annual retirement benefits that Mr. Doyle would receive under the
Retirement Plan, The Quaker 415 Excess Benefit Plan, and The Quaker Eligible
Earnings Adjustment Plan, if he retired at age 65, is $291,601. The amount
assumes that he will continue to work for Quaker until his normal retirement
date and that his earnings will remain the same as in year 1995 and that he
will elect a straight-lifetime benefit without survivor benefits. Payment
options such as a 50% joint and survivor annuity or other annuities are
available.
The Retirement Plan assures active and retired employees that, to the extent of
sufficient plan assets, it will continue in effect for a reasonable period
following a change in control of Quaker without a reduction of anticipated
benefits, and under certain circumstances may provide increased benefits.
Generally, under the Retirement Plan, a change in control shall be deemed to
have occurred in any of the following circumstances:
(i) An acquisition of 30% or more of Quaker stock unless such acquisition is
pursuant to an agreement with Quaker approved by its Board before the acquiror
becomes the beneficial owner of 5% of Quaker's outstanding voting power;
(ii) A majority of Quaker's Board is comprised of persons who were not
nominated by its Board for election as directors;
(iii) A plan of complete liquidation of Quaker; or
(iv) A merger, consolidation or sale of all or substantially all of Quaker's
assets unless thereafter (a) directors of Quaker immediately prior thereto
continue to constitute at least 50% of the directors of the surviving entity or
purchaser; or (b) Quaker's securities continue to represent, or are converted
to securities which represent, more than 70% of the combined voting power of
the surviving entity or purchaser.
For a five-year period following a change in control of Quaker, the accrual of
benefits for service during such period cannot be decreased while there are
excess assets (as defined in the Retirement Plan). For a two-year period
following such a change in control, the accrued benefits of members who meet
specified age and service requirements and who are terminated will be
increased. For so long as there are excess assets during that five-year
period, if the Retirement Plan is merged with any other plan, the accrued
benefit of each member and the amount payable to retired or deceased members
shall be increased until there are no excess assets. If during that five-year
period the Retirement Plan is terminated, to the extent that assets remain
after satisfaction of liabilities, the accrued benefits shall be increased such
that no assets of the Retirement Plan will directly or indirectly revert to
Quaker.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding common stock of Stokely is owned by Quaker whose
corporate offices are located at 321 North Clark, Chicago, IL 60610.
The following table presents information with respect to all persons known to
Stokely to own more than 5% of any other class of Stokely's voting securities
as of March 1, 1996. Each beneficial owner has, to the knowledge of Stokely,
sole voting power and sole investment power with respect to the shares listed
opposite such owner's name.
Amount and Percent
Name and Address Nature of of
Title of Class of Beneficial Owner Ownership Class
Second Preferred The William B. Stokely, Jr. 2,012 18.5
Stock (1) Foundation
620 Campbell Station Road
Station West, Suite 4
Knoxville, TN 37922
Marjorie M. Cochran 1,125 10.4
Wesley Woods Towers #808
1825 Clifton Rd NE
Atlanta, GA 30329-4047
Esther M. Minter 1,125 10.4
230 East College Street
Griffin, GA 30223-4348
Cooper N. Mills 926 8.5
666 Brook Circle
Griffin, GA 30223-4413
(1)Holders of common stock and Second Preferred Stock vote collectively and
not as a separate class. As of December 31, 1995, the outstanding shares
of Second Preferred Stock comprise less than 1% of the aggregate number of
outstanding shares of common stock and Second Preferred Stock.
25
The table below sets forth information with respect to beneficial ownership of
common stock of Quaker by the directors and named executive officers of Stokely
as of March 1, 1996, and by the directors and by the named executive officers,
and executive officers as a group. Shares subject to acquisition within 60
days through the exercise of stock options are included in the first column and
are shown separately in the second column. No director or officer and named
executive officers owns any equity securities of Stokely.
Amount Shares Subject
of Beneficial to Acquisition
Ownership(a) Within 60 Days(a)
James F. Doyle 235,891(c)(d) 211,412
R. Thomas Howell, Jr. 209,172(b)(c)(d)(e) 132,616
Janet K. Cooper 51,976(c)(d) 44,892
All Directors and Officers
as a group 536,585(b)(c)(d) 421,222
(a) Unless otherwise indicated, each named individual and each person in the
group has sole voting power and sole investment power with respect to shares
shown. These shares represent less than 1 percent for every person, and less
than 1 percent for all directors and officers as a group, of the total shares
outstanding, including shares subject to acquisition within 60 days following
March 1, 1996.
(b) The figures shown for these directors and executive officers include an
aggregate of 2,489 shares representing their proportionate interests in the
Quaker Stock Fund of The Quaker Investment Plan. The directors each hold the
following number of shares under this plan: Mr. Howell, 1,469.
(c) The figures shown for these directors and executive officers include an
aggregate of 21,164 shares (which includes 3,604 shares on the basis of the
conversion of 1,669 shares of Series B ESOP Convertible Preferred at the
conversion rate of 2.16) allocated to them in The Quaker Employee Stock
Ownership Plan. The directors each hold the following number of shares under
this plan: Mr. Doyle, 6,302; Mr. Howell, 6,827; and Ms. Cooper, 4,695.
(d) The figures shown for these directors and executive officers include an
aggregate of 5,669 shares granted to them under The Quaker Long Term Incentive
Plan of 1990 for which the restricted period has not lapsed. The directors
each hold the following number of shares under this plan: Mr. Doyle, 2,907;
Mr. Howell, 1,311; and Ms. Cooper, 464.
(e) Of these shares, 1,568 are held by Mr. Howell's children.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of related transactions with Quaker, reference should be made
to Part II, Items 7 and 8. See Notes 1, 5 and 8.
26
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE TRANSITION PERIOD ENDED DECEMBER 31, 1995 AND
THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993
Transition
Period
Ended Fiscal Year
December 31, Ended June 30,
(Dollars in Millions) 1995 1995 1994 1993
ITEM
Depreciation $ 6.9 $ 15.7 $ 12.9 $ 12.4
Advertising & Merchandising $128.5 $294.8 $274.6 $235.2
27
28
SIGNATURES
Pursuant to the requirements of Sections 13 and 15 (d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
STOKELY-VAN CAMP, INC.
(Registrant)
By: /s/ James F. Doyle
James F. Doyle
Chief Executive Officer,
President and Director
Date: March 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 28th day of March, 1996, by the following
persons on behalf of the Registrant and in the capacities indicated.
Signature Title
/s/ James F. Doyle Chief Executive Officer,
James F. Doyle President and Director
/s/ Janet K. Cooper Vice President, Treasurer
Janet K. Cooper (Principal Financial Officer)
and Director
/s/ R. Thomas Howell, Jr. Vice President,
R. Thomas Howell, Jr. Secretary and Director
/s/ Thomas L. Gettings Vice President and Corporate
Thomas L. Gettings Controller
29
EXHIBIT INDEX
Paper (P),
Electronic (E)
EXHIBIT or Incorporated by
NO. DESCRIPTION Reference (IBRF)
3 (a) Restated Articles of Incorporation of Stokely-Van IBRF
Camp, Inc. as of February 14, 1994
(incorporated by reference to
the Company's Form 10-K for the fiscal year
ended June 30, 1995, file number 1-2944)
3 (b) By-Laws of Stokely-Van Camp, Inc. IBRF
(incorporated by reference to
the Company's Form 10-K for the fiscal year
ended June 30, 1985, file number 1-2944)
10 (a)(1) GATORADE Trust Agreement dated January 1, 1984 IBRF
(incorporated by reference to the Company's Form
10-K for the fiscal year ended June 30, 1984, file
number 1-2944)
10 (a)(2) First Amendment to GATORADE Trust Agreement E
dated January 1, 1984, effective January 1, 1993
21 Subsidiaries of the Registrant E
30
Exhibit 21
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
Subsidiaries of the Registrant
Subsidiary State or Country
of Incorporation
Beverages Gatorade (Chile) Limitada Chile
The Gatorade Company Delaware
Gatorade Puerto Rico Company Delaware
The Gatorade Company of Australia
Pty. Ltd. Australia
Gatorade Portugal Servicos da
Marketing S.A. Portugal
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-END> SEP-30-1995 DEC-31-1995
<CASH> 25 8
<SECURITIES> 0 0
<RECEIVABLES> 74 30
<ALLOWANCES> 4 3
<INVENTORY> 42 24
<CURRENT-ASSETS> 829 731
<PP&E> 200 211
<DEPRECIATION> 66 69
<TOTAL-ASSETS> 968 878
<CURRENT-LIABILITIES> 159 88
<BONDS> 1 1
0 0
15 15
<COMMON> 4 4
<OTHER-SE> 755 735
<TOTAL-LIABILITY-AND-EQUITY> 968 878
<SALES> 373 488
<TOTAL-REVENUES> 373 488
<CGS> 172 254
<TOTAL-COSTS> 172 254
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 99 63
<INCOME-TAX> 39 23
<INCOME-CONTINUING> 60 40
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 60 40
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
Exhibit 10 (a) (2)
AMENDMENT TO AGREEMENT
THIS AMENDMENT, made effective and entered into as of this 1st day
of January, 1993, to that certain Agreement dated January 1, 1984 (hereinafter
the "1984 Agreement"), by and between STOKELY-VAN CAMP, INC.
(hereinafter "Stokely"), a wholly owned subsidiary of The Quaker Oats Company,
and BANK ONE, INDIANAPOLIS, N.A., as successor trustee to American Fletcher
National Bank and Trust Company, solely in its capacity as the Trustee
(hereinafter the "Trustee") of The Gatorade Trust (hereinafter the "Trust")
created under the laws of the State of Indiana by virtue of a Trust
Agreement dated May 16, 1967, as amended on May 23, 1967.
WHEREAS, Stokely and the Trustee mutually desire to amend the
1984 Agreement to provide certain alternatives for Stokely to market and
distribute Gatorade and to clarify certain aspects of the 1984 Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants of the parties hereinafter set forth, the existence and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Subparagraph 4.03 of the 1984 Agreement is modified to read:
"On Contract Product sold after June 30, 1984 (except as provided
in subparagraph 4.06), Stokely shall make Payment equal to:"
2. New subparagraph 4.06 is added to the 1984 Agreement to read:
4.06 On Contract Product sold on or after January 1, 1993,
Stokely shall make payment on a July 1 fiscal year basis equal to:
1
(a) For sales of Contract Product by Stokely, The Quaker Oats
Company, their Affiliates and their Hybrid Licensees, the Payment Basis
(as defined in subparagraph 2.08) shall be multiplied by the Payment
Rate, wherein the respective Payment Rate for the respective levels of
Payment Basis are set forth in the following tables:
(i)
For Payment Basis on Domestic Sales
(including the first $30,000,000 in Can
and Fountain Domestic and Foreign Sales)
in Each Respective Full or Partial Payment
Fiscal Year Beginning January 1, 1993 Rate is:
On the First $ 50,000,000 3.6%
On the Second $ 50,000,000 3.4%
On the Third $ 50,000,000 3.0%
On the Fourth $ 50,000,000 2.4%
In Excess of $200,000,000 1.9%
For Payment Basis on Can and Fountain
Domestic and Foreign Sales in
Each Respective Full or Partial Payment
Fiscal Year Beginning January 1, 1993 Rate is:
On all sales in excess of $30,000,000 1.4%
For Payment Basis on Foreign Sales
in Each Respective Full or Partial Payment
Fiscal Year Beginning January 1, 1993 Rate is:
On the First $160,000,000 (1) 1.9%
In Excess of $160,000,000 1.4%
(1) This assumes that domestic sales (excluding can and fountain
sales) exceed $200,000,000 in each fiscal year; otherwise, the Payment
Basis on the first $160,000,000 of foreign sales would be treated as
if such sales were domestic sales (excluding can and fountain sales).
plus
(ii) Twenty-five percent (25%) of the royalty paid to
Stokely, The Quaker Oats Company, or their Affiliates, if
any, by Pure Licensees (as defined in subparagraph
2.08(b)(3), herein).
2
(b) (i) With respect to foreign sales, the Payment Rate of 1.4%
shall be conditional and subject to review by the Trust in 1998 and in
2003. If actual, annual foreign sales for the fiscal year ending on or prior
to June 30, 1998 are equal to or greater than Three Hundred Twenty-Five
Million Dollars ($325,000,000), the conditional Payment Rate of 1.4% on
foreign sales shall be extended to at least June 30, 2003; provided,
however, if actual, annual foreign sales for the fiscal year ending June
30, 1998 are not equal to or greater than $325,000,000, but such level of
actual, annual foreign sales is achieved in one of the two immediately
preceding fiscal years, the conditional Payment Rate of 1.4% on foreign sales
shall be extended to at least June 30, 2003 provided that such level of
actual, annual foreign sales is also achieved in either the fiscal year
ending on or prior to June 30, 1999, or the fiscal year ending on or prior to
June 30, 2000. If actual, annual foreign sales for the fiscal year ending
on or prior to June 30, 2003 are equal to or greater than Seven Hundred
Seventy Million Dollars ($770,000,000), the Payment Rate on foreign sales
shall become permanent at a rate of 1.4%; provided however, if actual,
annual foreign sales for the fiscal year ending June 30, 2003 are not equal
to or greater than $770,000,000, but such level of actual, annual foreign
sales is achieved in one of the two immediately preceding fiscal years,
the Payment Rate on foreign sales shall become permanent at a rate of 1.4%
provided that such level of actual, annual foreign sales is also achieved in
either the fiscal year ending on or prior to June 30, 2004, or the fiscal
year ending on or prior to June 30, 2005.
(ii) If actual, annual foreign sales do not reach the
required minimum levels set forth in subparagraph 4.06(b)(i), then the terms
of the 1984 Agreement, as they existed on July 1, 1992, except as modified by
Paragraphs 5 through 10 of this Amendment, shall apply to foreign sales
for all future fiscal years. If actual, annual foreign sales do not
reach the required
3
minimum levels set forth in subparagraph 4.06(b)(i), but actual, annual
foreign sales were within one percent (1%) of such minimum levels, then the
Trust and Stokely shall enter into negotiations to determine the terms under
which the Trust shall be paid on future foreign sales; provided, however, if
the parties choose to do so on their own, outside of the terms of this
Amendment, they shall not be precluded from agreeing to enter into future
negotiations. In the event no agreement is reached by December 31 of that
calendar year, the terms of the 1984 Agreement, as they existed on July 1,
1992, shall continue to apply for all future fiscal years.
(c) The conditional Payment Rate of 1.4% on foreign sales, and
all other terms of the 1984 Agreement modified by Paragraphs 1 through 4 of
this Amendment, shall return to the original terms set forth in the 1984
Agreement, as they existed on July 1, 1992, in the event all or any portion
of Stokely's rights under the 1984 Agreement are assigned to or acquired by
another person or entity such that Stokely (or an Affiliate) no longer has
substantial control over the exercise of those rights.
3. (a) The exclusion provided for in subparagraph 5.01 of the
1984 Agreement for new Trading Areas shall not apply to any foreign sales for
which the Payment Rate is 1.4%.
(b) The exclusions provided for in subparagraphs 5.02 and 5.03
of the 1984 Agreement for flavors and packaging types may never be taken
on flavors and packaging types of Contract Product which are introduced during
the first year of sales of Contract Product in a new foreign Trading Area.
(c) If Stokely ceases offering a particular packaging type
of Contract Product, on which Stokely has taken an exclusion under
subparagraph 5.02 or 5.03 of the 1984 Agreement, in a particular foreign
Trading Area within three years of introducing such packaging type of
Contract Product in that Trading Area, then Stokely shall not be entitled to
take a
4
packaging type exclusion for the substitute packaging type of Contract
Product introduced in such particular Trading Area.
4. All foreign sales data and accounting information concerning the
sale of Contract Product shall be physically present and made available
to representatives of the Trust at Stokely's principal office within the
United States. If such information is not made available at Stokely's principal
office within the United States, then the reasonable costs associated
with necessary travel by Trust representatives to foreign countries to
conduct annual financial reviews shall be paid by Stokely.
5. The 1984 Agreement is further modified as follows:
(a) In Paragraph 1, insert the word "product," after "patent," in
the first sentence.
(b) In subparagraph 2.03(b), insert at the end of the existing
text after the phrase "(e.g. as flavorants or stabilizers)" the following:
; or iii) any product in which electrolytes are added as
ingredients, and which are advertised or promoted in any manner, or
indicated in any way on the container or package, as beverages for
replacement of electrolytes lost in body fluids (other than a
Contract Product) marketed by a third party at the time such third
party either becomes an Affiliate or enters into a business
arrangement with Stokely, The Quaker Oats Company, or an Affiliate,
whether or not such product is marketed or sold thereafter by or
through an Affiliate, but only to the extent that the ratio of
annual sales of such products to the annual sales of Contract
Products does not increase as compared to that ratio which
existed as of the date the third party became an Affiliate or
entered into such business arrangement (i.e., the portion of
such product's annual sales that exceed the ratio shall not be
excluded from the meaning of "Competitive Products in the
Electrolyte Replacement Beverage Market").
(c) In subparagraph 2.04, insert the word "or for" before the word
"Stokely" at the end of the paragraph.
5
(d) In subparagraph 2.06, delete the words "subparagraph 4.02 and
4.03" and replace them with the words "subparagraphs 4.02, 4.03 and 4.06."
(e) In Paragraph 3, delete the word "License" from the heading
and delete the words "an exclusive license under" in the first sentence of
the paragraph.
(f) In subparagraph 14.02, the following phrase shall be added to
the end of that subparagraph, ", unless Stokely or an Affiliate retains
substantial control over the exercise of such rights."
(g) All references to "Licensed Product" and "New Licensed Product"
shall be replaced with "Contract Product" and "New Contract Product,"
respectively.
(h) All references to "Sublicensees" shall be replaced with
"Licensees."
(i) All references to "License Grant" shall be replaced with
"Grant."
6. Stokely shall, upon the request of the Trust, provide the Trust with
reasonable information and details regarding Stokely's business arrangements
with third parties for foreign sales of Contract Product.
7. Stokely agrees, under Paragraph 9 of the 1984 Agreement, to reimburse
the Trustee within ten (10) days of the execution of this Amendment in
the amount of $540,199.88 for attorneys' fees, costs and expenses which
have been incurred with respect to the litigation currently pending
relating to a product known as "Thirst Quencher II," "TQII" and "TQ2."
Further, Stokely agrees to assume the review and direct payment of
any and all future reasonable attorneys' fees (except for the fees
paid to Bingham Summers Welsh & Spilman), experts' fees, costs and
expenses which, after consultation with Stokely, may be necessarily
incurred by the Trust with respect to the above-referenced litigation.
6
8. Subparagraph 2.03(a) is modified to read: "Contract Products" shall
mean any and all beverage products and beverage-mix products (i.e., either dry
or liquid concentrate products intended to be mixed with liquid to form a
beverage) on which a trademark incorporating the word "Gator" is used on the
principal display panel (as defined by the FDA) as the principal trademark or
brand name for such products, including but not limited to the beverage
products presently sold bearing the registered trademark "Gatorade." The term
"Contract Products" shall not include:
(i) any non-beverage products sold bearing such a trademark;
(ii) any beverage products on which a trademark incorporating the word
"Gator" or a term or phrase incorporating the word "Gator" is used
either:
(1) in a nontrademark context (i.e., as a tradename such as
"From The Gatorade Company"); or
(2) for informational purposes (i.e., such as "From the Makers
of Gatorade"); anywhere on the label where the height ratio (as
defined below) is equal to or less than 25%; or
(iii) any beverage products on which a trademark incorporating the
word "Gator" is used for informational purposes on a portion of
the label other than the principal display panel where the use is
limited to a listing of products which are all listed at the same
height and for the purpose of cross-selling such products.
If a trademark incorporating the word "Gator" is used on the principal
display panel of a beverage or beverage-mix product, but not as the principal
trademark or brand name for such product, or such trademark or a term or phrase
incorporating the word "Gator" is used by Stokely in such a way so as not to be
excluded from the definition of Contract Products as set forth
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in subparagraphs 2.03(a)(ii) or (iii) above, then the Payment Rate for sales
of such product shall be equal to the percentage of the Payment Rate calculated
on the basis of the ratio of:
(a) the height of the tallest letter of the trademark or term or phrase
incorporating the word "Gator," divided by
(b) the height of the tallest letter of the largest use of the principal
trademark on the principal display panel of such product (the "height
ratio"),
without regard to trade dress or design elements; provided, however, where the
height ratio is either equal to or less than 15% on the principal display panel
or equal to or less than 20% on a portion of the label other than the principal
display panel, such use shall not be included in the Payment Basis and shall
not require any Payment under this Agreement. For example, if the trademark
"Gatorade" is used as a nonprincipal trademark on the principal display panel
of a beverage product whose principal brand name is "Ramdar" and the tallest
letter in "Gatorade" is one-half the height of the tallest letter in "Ramdar,"
then Stokely would make payments with respect to the sales of the "Ramdar"
product at 50% of the rate that would be due if such beverage product's
principal brand name was "Gatorade." Provided, however, that any use in
advertising or merchandising which is not on the product label, shall not be
included in the Payment Basis and shall not require any Payment under this
Agreement. If there are duplicate uses on the label, the Payment will be based
on the use with the greatest height ratio. The parties acknowledge that this
Amendment is a resolution of a contractual issue and is not intended to reflect
upon the ownership right of Stokely to use the trademark "Gatorade" in any
manner."
9. Paragraph 13 is modified to read:
"13.01 Any dispute, controversy or claim arising out of or relating to
this Agreement or the rights of either party hereunder ("Dispute") shall
first be submitted to good faith negotiation
8
by the parties. The party requesting such good faith negotiation shall notify
the other party in writing and such negotiation shall commence within fifteen
(15) days of such notice. No other action, legal or otherwise, may be taken
in connection with the Dispute until the parties have made a good faith effort
to negotiate for a period of at least sixty (60) days.
13.02 In the event the parties are unable to resolve the Dispute after
sixty (60) days of good faith negotiations as specified in subparagraph 13.01
and before resorting to arbitration, the parties shall endeavor to settle the
Dispute in an amicable manner by non-binding mediation under the Commercial
Mediation Rules of the American Arbitration Association. Thereafter, any
unresolved aspect of the Dispute shall be submitted to arbitration for final
disposition and decision. The arbitrator shall have no power to add to,
subtract from or modify any of the terms of this Agreement.
Either party desiring arbitration shall promptly serve a notice on the
other party, advising of its desire for arbitration and shall request the
American Arbitration Association to submit a list of proposed arbitrators who
are generally familiar with the subject matter involved in the Dispute and from
which an arbitrator shall be selected by the following method: each party
shall strike any names from the list deemed unacceptable, number the remaining
names in order of preference, and return the list to the American Arbitration
Association. The American Arbitration Association shall then invite an
arbitrator to serve from among those names remaining on the list, in the
designated order of mutual preference.
The ruling of the arbitrator shall be binding upon the parties hereto.
The arbitrator shall follow the Commercial Arbitration Rules of the American
Arbitration Association. Costs of arbitration shall be borne as directed by
the arbitrator. Either party shall have the right to secure a
9
mandatory injunction in any court of competent jurisdiction to enforce any
final order of the arbitrator."
10. Paragraph 16 is modified to read:
"Any notice or mailing required under the terms of this Agreement shall be
mailed to the parties at the following addresses, until notice in writing of a
change of address is given to the other party:
To the Trustee:
Bank One, Indianapolis, N.A.
111 Monument Circle, Suite 1601
Indianapolis, Indiana 46277
Attn: Trust Officer in charge of The
Gatorade Trust U/A dated
May 16, 1967
With a copy to:
Bingham Summers Welsh & Spilman
2700 Market Tower
10 West Market Street
Indianapolis, Indiana 46204
Attn: Gary L. Klotz, Esq.
To STOKELY:
Stokely-Van Camp, Inc.
c/o The Quaker Oats Company
Quaker Tower
321 N. Clark Street
Chicago, Illinois 60610-4714
Attn: Senior Vice President of Law
To University of Florida:
John V. Lombardi, President
University of Florida
226 Tigert Hall
Gainesville, Florida 32611
10
Pamela J. Bernard, Esq.
General Counsel
University of Florida
207 Tigert Hall
Gainesville, Florida 32611
With a copy to:
Shackleford, Farrior, Stallings & Evans, P.A.
501 East Kennedy Boulevard
Suite 1400
Post Office Box 3324
Tampa, Florida 33601
Attn: Thomas C. Macdonald, Jr., Esq."
11. New subparagraph 2.11 is added to the 1984 Agreement to read:
2.11 "Domestic Sales" and "domestic sales" shall mean sales
intended for consumers located in the United States of
America.
12. New subparagraph 2.12 is added to the 1984 Agreement to read:
2.12 "Foreign Sales" and "foreign sales" shall mean sales
intended for consumers located outside the United States of
America.
13. The terms of this Amendment modifying the 1984 Agreement shall
be effective as of January 1, 1993.
14. Except for the changes made to the 1984 Agreement as reflected
in this Amendment, and general clean-up changes made to the 1984 Agreement
(as contained in an Amended and Restated 1984 Agreement which reflects
conformance with this Amendment), in all other respects the 1984 Agreement is
reaffirmed and remains in full force and effect.
11
IN WITNESS WHEREOF, the parties have executed this Amendment to Agreement
the day and date indicated following each signature, but effective as
of January 1, 1993.
STOKELY-VAN CAMP, INC.
By: /sic/Peter J. Vitulli
Title: President-Gatorade U.S./Canada
Date: June 29, 1993
BANK ONE, INDIANAPOLIS, N.A.
Solely In Its Capacity As Trustee
Of The Gatorade Trust
By: /sic/Theresa E. Walker
Title: Vice President and Trust Officer
Date: June 15, 1993
12
The Board of Regents of the State of Florida acting for the University
of Florida, a division of the State University System of Florida
(the "University"), by its duly constituted agent, hereby acknowledges
that, in accordance with paragraph 5 of the Stipulation of July 1972,
Stokely and the Trustee have given the University at least thirty (30) days
written notice of the proposed Amendment between Stokely and the Trustee
commencing December 1, 1992, and have conferred and consulted with the
University during that thirty (30) day period, as required by the
Stipulation of July 1972. The duly authorized execution of this Amendment
reflects the University's response to that notice, and the University
affirms that such Amendment became effective as of January 1, 1993.
BOARD OF REGENTS OF THE STATE OF FLORIDA, acting
for the UNIVERSITY OF FLORIDA, a division of the
State University System of Florida
By: /sic/J.V. Lombardi
Title: President, University of Florida
Date: July 7, 1993
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