UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
Transition Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the transition period from ____ to ____
Commission file number 1-2944
STOKELY-VAN CAMP, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-0690290
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Quaker Tower
P.O. Box 049001 Chicago, Illinois 60604-9001
(Address of principal executive office) (Zip Code)
(312) 222-7111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file for such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES XX NO ___
The registrant had 2,989,371 shares of Common Stock outstanding on April 30,
1996, all of which were held by The Quaker Oats Company.
Page 2
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Income
and Reinvested Earnings for the Three Months
Ended March 31, 1996 and 1995 3
Condensed Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995 4
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended
March 31, 1996 and 1995 5
Notes to the Condensed Consolidated Financial
Statements 6-7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II - OTHER INFORMATION 10
SIGNATURES 11
Page 3
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND REINVESTED EARNINGS
(UNAUDITED)
Three Months Ended
Dollars in Millions March 31,
1996 1995
Net sales $187.1 $218.5
Cost of goods sold 99.7 118.9
Gross profit 87.4 99.6
Selling, general and administrative expenses 71.1 85.6
Interest income - net (9.0) (6.1)
Income before income taxes 25.3 20.1
Provision for income taxes 9.9 6.7
Net income 15.4 13.4
Dividends on preference and preferred stock (0.2) (0.2)
Reinvested Earnings - Beginning Balance 687.7 552.1
Reinvested Earnings - Ending Balance $702.9 $565.3
See accompanying notes to the condensed consolidated financial statements.
Page 4
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
Dollars in Millions 1996 1995
ASSETS
Current Assets:
Cash and cash equivalents $ 15.1 $ 8.4
Due from The Quaker Oats Company 598.9 644.8
Trade accounts receivable - net of allowances 66.8 26.5
Inventories:
Finished goods 43.3 16.1
Materials and supplies 11.7 8.2
Total inventories 55.0 24.3
Other current assets 32.7 27.2
Total Current Assets 768.5 731.2
Other Assets 4.6 4.6
Property, plant and equipment 219.9 210.5
Less accumulated depreciation 72.5 68.8
Property - Net 147.4 141.7
Total Assets $ 920.5 $ 877.5
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 24.0 $ 8.7
Accrued payroll, benefits and bonus 12.5 13.7
Accrued advertising and merchandising 18.1 15.9
Income taxes payable 22.8 19.7
Other current liabilities 29.8 22.7
Total Current Liabilities 107.2 80.7
Long-term Debt 0.4 0.5
Other Liabilities 42.8 41.4
Deferred Income Taxes 0.5 0.5
Redeemable Preference and
Preferred Stock 15.3 15.3
Common Shareholders' Equity:
Common stock, $1 par value, authorized
10,000,000 shares; issued 3,591,381 shares 3.6 3.6
Additional paid-in capital 68.7 68.7
Reinvested earnings 702.9 687.7
Treasury common stock, at cost, 602,010 shares (20.9) (20.9)
Total Common Shareholders' Equity 754.3 739.1
Total Liabilities and Shareholders' Equity $ 920.5 $ 877.5
See accompanying notes to the condensed consolidated financial statements.
Page 5
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
Dollars in Millions March 31,
1996 1995
Cash Flows from Operating Activities:
Net income $ 15.4 13.4
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4.0 5.4
Deferred income taxes -- 0.6
Loss on disposition of property and equipment 0.1 0.3
Increase in trade accounts receivable (40.3) (56.0)
Increase in inventories (30.7) (17.6)
Increase in other current assets (5.5) (1.6)
Increase in trade accounts payable 15.3 34.7
Increase (decrease) in income taxes payable 3.1 (1.7)
Increase in other current liabilities 8.1 0.3
Other items 4.9 (1.7)
Net Cash Used in Operating Activities (25.6) (23.9)
Cash Flows from Investing Activities:
Additions to property, plant and equipment (13.3) (21.4)
Net Cash Used in Investing Activities (13.3) (21.4)
Cash Flows from Financing Activities:
Change in amount Due from The Quaker Oats Company 45.9 49.6
Cash dividends (0.2) (0.2)
Reduction of long-term debt (0.1) (0.1)
Net Cash Provided by Financing Activities 45.6 49.3
Net Increase in Cash and Cash Equivalents 6.7 4.0
Cash and Cash Equivalents - Beginning of Year 8.4 12.7
Cash and Cash Equivalents - End of Quarter $ 15.1 $ 16.7
See accompanying notes to the condensed consolidated financial statements.
Page 6
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
Note 1 - Basis of Presentation
The condensed consolidated financial statements include Stokely-Van Camp, Inc.
(a wholly-owned subsidiary of The Quaker Oats Company, or "Quaker") and its
subsidiaries (the "Company"). The condensed consolidated statements of income
and reinvested earnings for the three months ended March 31, 1996 and 1995, the
condensed consolidated balance sheet as of March 31, 1996, and the condensed
consolidated statements of cash flows for the three months ended March 31, 1996
and 1995, have been prepared by the Company without audit. In the opinion of
management, these financial statements include all adjustments necessary to
present fairly the financial position, results of operations and cash flows as
of March 31, 1996 and for all periods presented. All adjustments made have
been of a normal recurring nature. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The Company believes that the disclosures included are adequate and provide a
fair presentation of interim period results. Interim financial statements are
not necessarily indicative of the financial position or operating results for
an entire year. It is suggested that these interim financial statements be
read in conjunction with the audited financial statements and the notes thereto
included in the Company's report to shareholders for the six month transition
period ended December 31, 1995.
Certain previously reported amounts have been reclassified to conform to current
presentation.
Note 2 - 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. A six month transition period of July 1, 1995
through December 31, 1995 ("transition period") preceded the start of this new
fiscal year. These financial statements reflect the first quarter results of
the new fiscal year.
Note 3 - Redeemable Preference and Preferred Stock
5 % Cumulative Convertible Second Preferred Stock
As of March 31, 1996, authorized shares were 500,000 and issued and outstanding
shares were 10,800. The voting 5% Cumulative Convertible Second Preferred
Stock ($20 par value) is convertible at the holder's option, on a share-for-
share basis, into non-voting 5% Cumulative Prior Preference Stock ($20 par
value).
5% Cumulative Prior Preference Stock
As of March 31, 1996, authorized shares were 1,500,000, issued shares were
753,556 and outstanding shares were 753,223.
Both issues are redeemable at the Company's option for $21 per share.
Page 7
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
Note 4 - Pending Accounting Change
In October 1995, the FASB issued Statement #123, "Accounting for Stock-Based
Compensation." The Company is required to adopt this Statement no later than
December 31, 1996. This Statement encourages companies to recognize expense
for stock options at an estimated fair value based on an option pricing model.
If expense is not recognized for stock options, pro forma footnote disclosure
is required of what net income would have been under the Statement's approach
to valuing and expensing stock options. Certain other new disclosures will be
required. The Company will implement the provisions of this Statement in 1996,
but has decided that it will not recognize the expense related to stock options
in the financial statements. The disclosure impact of this new Statement has
not been completely evaluated.
Note 5 - Divestiture
On June 8, 1995, the Company completed the divestiture of the Van Camp's pork
and beans business to Hunt-Wesson Inc., a subsidiary of ConAgra Inc., for $90.6
million and realized a gain of $44.9 million. Sales and operating income from
the Van Camp's business for the three months ended March 31, 1995 were $28.4
million and $2.8 million, respectively. Operating income includes certain
allocations of overhead expenses.
Page 8
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared With
Three Months Ended March 31, 1995
Operating Results
The comparisons of the results for the three months ended March 31, 1996 to
those of the three months ended March 31, 1995 are affected by the divestiture
of the Van Camp's business on June 8, 1995. See Note 5 for further discussion
about the divestiture. Because of the divestiture, comparative three-month
financial results are more difficult to analyze. To aid in the analysis, this
discussion will compare financial results as reported, then break out the
impact of the divested business, where applicable, and compare the ongoing
Gatorade thirst quencher's business results.
Consolidated net sales for the three months ended March 31, 1996 were $187.1
million, down 14 percent from the three months ended March 31, 1995. Excluding
the Van Camp's business from last year's results, net sales were down 2
percent. This decrease is primarily due to lower export sales as compared to
last year, offset partly by higher Gatorade thirst quencher's sales in the
United States. Excluding the impact of price increases, Gatorade thirst
quencher's sales in the United States decreased 1 percent. Gatorade thirst
quencher's volume in the United States also decreased 1 percent.
Gross profit margin increased to 46.7 percent of sales from 45.6 percent last
year primarily due to product mix changes resulting from the divestiture of the
Van Camp's business. Excluding Van Camp's business from last year's results,
gross profit margin was 46.4 percent. The increase in gross profit margin for
the ongoing business was due primarily to the impact of price increases.
Selling, general and administrative (SG&A) expenses decreased 17 percent to
$71.1 million partly due to the absence of expenses associated with the
divested Van Camp's business. Excluding Van Camp's results, SG&A expenses
decreased 8 percent. This was primarily due to decreases in advertising and
merchandising (A&M). A&M expenses were 22.4 percent of sales for the three
months ended March 31, 1996. Excluding Van Camp's business from last year's
results, A&M expenses were 26.7 percent of sales. A&M expenses were lower as
a percentage of sales due to a shift in the timing of A&M programs, which will
most likely result in a higher rate of spending in the upcoming April to
September period.
Interest and Income Taxes
Net interest income of $9.0 million increased $2.9 million from last year
stemming from higher average amounts Due from The Quaker Oats Company.
The effective tax rate for the three months ended March 31, 1996 was 39.1
percent versus 33.3 percent last year. The lower rate for the three months
ended March 31, 1995 is attributed to a more favorable tax impact from the tax
treatment of operations in Puerto Rico.
Page 9
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Net cash used in operating activities was $25.6 million and $23.9 million for
the three months ended March 31, 1996 and 1995, respectively. Capital
expenditures for the three months ended March 31, 1996 and 1995 were $13.3
million and $21.4 million, respectively. Capital expenditures are expected to
increase. Quaker is currently building a plant near Atlanta, Georgia to
replace the Newport, Tennessee plant which was sold with the Van Camp's
business. The project's cost will be approximately $55 million, a significant
portion of which will be allocated to the Company. The Company expects that
its future capital expenditures and cash dividends will be financed through a
combination of cash flows from operating activities and debt financing from
Quaker.
Pending Accounting Change
In October 1995, the FASB issued Statement #123, "Accounting for Stock-Based
Compensation." The Company is required to adopt this Statement no later than
December 31, 1996. This Statement encourages companies to recognize expense
for stock options at an estimated fair value based on an option pricing model.
If expense is not recognized for stock options, pro forma footnote disclosure
is required of what net income would have been under the Statement's approach
to valuing and expensing stock options. Certain other new disclosures will be
required. The Company will implement the provisions of this Statement in 1996,
but has decided that it will not recognize the expense related to stock options
in the financial statements. The disclosure impact of this new Statement has
not been completely evaluated.
Cautionary Statement on Forward-Looking Statements
Forward-looking statements within the meaning of Section 21E of the Securities
and Exchange Act of 1934, are made throughout this Management's Discussion and
Analysis.
Total Company results may differ materially from those in the forward-looking
statements. Forward-looking statements are based on management's current views
and assumptions and involve risks and uncertainties that could significantly
affect expected results. For example, operating results may be affected by
external factors such as: actions of competitors; changes in laws and
regulations, including changes in accounting standards; customer demand;
effectiveness of A&M spending or programs; consumer perception of health-
related issues; and fluctuations in the cost and availability of supply-chain
resources.
Page 10
PART II - OTHER INFORMATION
All other items in Part II are either inapplicable to the Company during the
quarter ended March 31, 1996, the answer is negative or a response has been
previously reported and an additional report of the information need not be
made, pursuant to the instructions to Part II.
Page 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as an officer and as chief accounting
officer.
Stokely-Van Camp, Inc.
(Registrant)
Date: May 14, 1996 s/Thomas L. Gettings
Thomas L. Gettings
Vice President and Corporate Controller
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