UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1997
Transition Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the transition period from to
Commission file number 1-2944
STOKELY-VAN CAMP, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-0690290
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Quaker Tower
P.O. Box 049001 Chicago, Illinois 60604-9001
(Address of principal executive office) (Zip Code)
(312) 222-7111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file for such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES XX NO ___
The registrant had 2,989,371 shares of Common Stock outstanding on July 31,
1997, all of which were held by The Quaker Oats Company.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Income
and Reinvested Earnings for the Six and Three Months
Ended June 30, 1997 and 1996 3-4
Condensed Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 5
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended
June 30, 1997 and 1996 6
Notes to the Condensed Consolidated Financial
Statements 7-9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-12
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 13
SIGNATURES 14
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND REINVESTED EARNINGS
(UNAUDITED)
Six Months Ended
Dollars in Millions June 30,
1997 1996
Net sales $649.6 $617.4
Cost of goods sold 299.6 300.3
Gross profit 350.0 317.1
Selling, general and administrative expenses 227.4 206.7
Interest income - net (22.1) (18.1)
Income before income taxes 144.7 128.5
Provision for income taxes 59.4 52.7
Net Income 85.3 75.8
Dividends on preference and preferred stock (0.4) (0.4)
Reinvested Earnings - Beginning Balance 811.8 687.7
Reinvested Earnings - Ending Balance $896.7 $763.1
See accompanying notes to the condensed consolidated financial statements.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND REINVESTED EARNINGS
(UNAUDITED)
Three Months Ended
Dollars in Millions June 30,
1997 1996
Net sales $433.7 $430.3
Cost of goods sold 192.4 200.6
Gross profit 241.3 229.7
Selling, general and administrative expenses 151.4 135.6
Interest income - net (10.4) (9.1)
Income before income taxes 100.3 103.2
Provision for income taxes 41.2 42.8
Net Income 59.1 60.4
Dividends on preference and preferred stock (0.2) (0.2)
Reinvested Earnings - Beginning Balance 837.8 702.9
Reinvested Earnings - Ending Balance $896.7 $763.1
See accompanying notes to the condensed consolidated financial statements.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
Dollars in Millions 1997 1996
ASSETS
Current Assets:
Cash and cash equivalents $ 4.3 $ 5.3
Due from The Quaker Oats Company 760.3 715.3
Trade accounts receivable - net of allowances 108.5 24.2
Inventories:
Finished goods 58.5 24.8
Materials and supplies 11.5 9.3
Total inventories 70.0 34.1
Other current assets 38.2 39.9
Total Current Assets 981.3 818.8
Other Assets 0.7 6.0
Property, plant and equipment 319.2 264.2
Less accumulated depreciation 84.3 75.4
Property - Net 234.9 188.8
Total Assets $1,216.9 $1,013.6
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 49.4 $ 20.9
Accrued payroll, benefits and bonus 10.9 9.7
Accrued advertising and merchandising 45.1 21.9
Income taxes payable 69.6 17.4
Other current liabilities 32.7 21.7
Total Current Liabilities 207.7 91.6
Long-term Debt 0.3 0.3
Other Liabilities 43.1 43.2
Deferred Income Taxes 2.4 -
Redeemable Preference and
Preferred Stock 15.3 15.3
Common Shareholders' Equity:
Common stock, $1 par value, authorized 10 million shares;
issued 3,591,381 shares 3.6 3.6
Additional paid-in capital 68.7 68.7
Reinvested earnings 896.7 811.8
Treasury common stock, at cost, 602,010 shares (20.9) (20.9)
Total Common Shareholders' Equity 948.1 863.2
Total Liabilities and Shareholders' Equity $1,216.9 $1,013.6
See accompanying notes to the condensed consolidated financial statements.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
Dollars in Millions June 30,
1997 1996
Cash Flows from Operating Activities:
Net income $85.3 $75.8
Adjustments to reconcile net income to net cash provided
by operating activities:
Deferred income taxes 2.4 0.2
Depreciation and amortization 9.8 8.0
Loss on disposition of property and equipment 5.3 0.3
Increase in trade accounts receivable (84.3) (81.4)
Increase in inventories (35.9) (30.8)
Decrease (increase) in other current assets 1.7 (1.6)
Increase in trade accounts payable 28.5 19.5
Increase in income taxes payable 52.2 37.8
Increase in other current liabilities 35.4 51.3
Other items 4.9 11.2
Net Cash Provided by Operating Activities 105.3 90.3
Cash Flows from Investing Activities:
Additions to property, plant and equipment (21.5) (23.7)
Net Cash Used in Investing Activities (21.5) (23.7)
Cash Flows from Financing Activities:
Change in amount due from The Quaker Oats Company (84.4) (59.0)
Cash dividends (0.4) (0.4)
Reduction of long-term debt - (0.1)
Net Cash Used in Financing Activities (84.8) (59.5)
Net (Decrease) Increase in Cash and Cash Equivalents (1.0) 7.1
Cash and Cash Equivalents - Beginning of Period 5.3 8.4
Cash and Cash Equivalents - End of Period $ 4.3 $15.5
See accompanying notes to the condensed consolidated financial statements.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997
Note 1 - Basis of Presentation
The condensed consolidated financial statements include Stokely-Van Camp, Inc.
(a wholly-owned subsidiary of The Quaker Oats Company, or Quaker) and its
subsidiaries (the Company). The condensed consolidated statements of income
and reinvested earnings for the six and three months ended June 30, 1997 and
1996, the condensed consolidated balance sheet as of June 30, 1997, and the
condensed consolidated statements of cash flows for the six months ended June
30, 1997 and 1996, have been prepared by the Company without audit. In the
opinion of management, these financial statements include all adjustments
necessary to present fairly the financial position, results of operations and
cash flows as of June 30, 1997, 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 (GAAP) 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 Form 10-K for the
year ended December 31, 1996.
Note 2 - Redeemable Preference and Preferred Stock
5% Cumulative Convertible Second Preferred Stock
As of June 30, 1997, authorized shares were 500,000 and issued and outstanding
shares were 10,500. The voting 5% Cumulative Convertible Second Preferred
Stock ($20 par value) is convertible at the holder's option, on a share-for-
share basis, into non-voting 5% Cumulative Prior Preference Stock ($20 par
value).
5% Cumulative Prior Preference Stock
As of June 30, 1997, authorized shares were 1,500,000, issued shares were
753,856 and outstanding shares were 753,523.
Both issues are redeemable at the Company's option for $21 per share.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997
Note 3 - Estimates and Assumptions
The preparation of financial statements in conformity with 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 4 - Pending Accounting Change
In March 1997, the Financial Accounting Standards Board (FASB) issued Statement
#128, "Earnings Per Share." The Company will adopt this statement during the
fourth quarter. The adoption of this new Statement will not have a significant
impact on the Company.
In July 1997, the FASB issued Statement #130, "Reporting Comprehensive Income,"
and Statement #131 "Disclosures About Segments of an Enterprise and Related
Information." Statement #130 establishes standards for reporting comprehensive
income in financial statements. Statement #131 expands certain reporting
and disclosures for segments from current standards. The Company is not
required to adopt these Statements until 1998 and does not expect the adoption
of these new standards to result in material changes to previously reported
amounts or disclosures.
Note 5 - Sale of Snapple Beverages
On May 22, 1997, Quaker completed the sale of 100 percent of its wholly-owned
subsidiary, Snapple Beverage Corp., to Triarc Companies, Inc. Prior to the
completion of this transaction, a Snapple facility in Tolleson, Arizona
was transferred to the Company as a Gatorade thirst quencher
facility. The net book value of the assets transferred to the Company was
$39.4 million.
Note 6 - Derivative Commodity Instruments
The Company actively monitors its exposure to commodity price risk and
occasionally uses futures and options to reduce price exposure on purchased or
anticipated purchases of commodities. Complex instruments involving leverage
or multipliers are not used. The Company does not trade or use these
instruments with the objective of earning financial gains on the commodity
price fluctuations alone, nor does it utilize instruments where there are not
underlying exposures. Management believes that its use of derivative commodity
instruments to reduce risk is in the Company's best interest. Currently the
Company has no commodity hedges outstanding.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997
Instruments used as hedges must be effective at reducing the risks associated
with the underlying exposure being hedged and must be designated as a hedge at
the inception of the contract. Accordingly, changes in the market value of
hedge instruments must have a high degree of inverse correlation with changes
in market values of the underlying hedged item. Commodity derivatives that
meet these hedge criteria are accounted for under the deferral method
(discussed below). Derivatives that do not meet these hedge criteria are
accounted for under the fair value method with gains or losses recognized
currently in the condensed consolidated income statement as a component of cost
of goods sold. For hedges of anticipated transactions, the Company has a
policy that the significant characteristics and terms of the anticipated
transaction must be identified and the transaction must be probable of
occurring to qualify for deferral method accounting.
Under the deferral method, gains and losses on derivative instruments are
deferred in the condensed consolidated balance sheet as a component of other
current assets (if a loss) or other accrued liabilities (if a gain) until the
underlying inventory being hedged is sold. As the hedged inventory is sold,
the deferred gains and losses are recognized in the condensed consolidated
income statement as a component of cost of goods sold.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 Compared With
Six Months Ended June 30, 1996
Operating Results
Consolidated net sales for the six months ended June 30, 1997, were $649.6
million, up 5 percent from the six months ended June 30, 1996. This increase
is primarily due to higher Gatorade thirst quencher sales in the United States.
Gatorade thirst quencher sales and volume in the United States increased 4
percent and 5 percent, respectively, reflecting incremental sales from a new
product, Gatorade Frost, and core business growth. An initial strong season
sell-in, resulting in a 15 percent first quarter sales increase, was partly
offset in the second quarter as cool and wet spring weather in the United
States depressed seasonal demand. Price changes did not significantly affect
the comparison of current year and prior year sales.
Gross profit margin increased to 53.9 percent of sales from 51.4 percent last
year primarily due to lower packaging costs. Selling, general and
administrative (SG&A) expenses increased 10 percent primarily due to increases
in advertising and merchandising (A&M) expenses. The increase in A&M expenses
was driven by media spending for the Gatorade Frost launch and support of other
growth initiatives. As a percent of sales, A&M expenses increased to 24.5
percent for the six months ended June 30, 1997, as compared to 23.4 percent for
the six months ended June 30, 1996.
Interest and Income Taxes
Net interest income of $22.1 million increased $4.0 million from last year
stemming from higher average amounts due from The Quaker Oats Company and
higher interest rates.
The effective tax rate for the six months ended June 30, 1997 and 1996, was
41.1 percent and 41.0 percent, respectively.
Three Months Ended June 30, 1997 Compared With
Three Months Ended June 30, 1996
Operating Results
Consolidated net sales for the three months ended June 30, 1997, were $433.7
million, an increase of 1 percent from the three months ended June 30, 1996.
An increase in export sales was partly offset by a decrease in Gatorade thirst
quencher in the United States. Gatorade thirst quencher sales in the United
States declined 1 percent on flat volume; however, exceptionally strong sales
growth of 17 percent in the prior year affected the comparison. Current year
sales were also adversely impacted by cool and wet spring weather in the United
States which depressed seasonal demand. Price changes did not significantly
affect the comparison of current and prior year sales.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Gross profit margin increased to 55.6 percent of sales from 53.4 percent last
year primarily due to lower packaging costs. SG&A expenses increased 12
percent primarily due to increases in A&M expenses. Media spending to support
the Gatorade Frost launch began in the current quarter. As a percent of sales,
A&M expenses increased to 26.3 percent for the three months ended June 30,
1997, as compared to 23.9 percent for the three months ended June 30, 1996.
Interest and Income Taxes
Net interest income of $10.4 million increased $1.3 million from last year
stemming from higher average amounts due from The Quaker Oats Company and
higher interest rates.
The effective tax rate for the three months ended June 30, 1997, was 41.1
percent versus 41.5 percent last year.
Liquidity and Capital Resources
Net cash provided by operating activities was $105.3 million and $90.3 million
for the six months ended June 30, 1997 and 1996, respectively. The increase in
cash flows was primarily due to higher net income. Capital expenditures for
the six months ended June 30, 1997 and 1996, were $21.5 million and $23.7
million, respectively. Capital expenditures are expected to increase slightly
during the remainder of the current year as Quaker continues its expansion of
production capacity for Gatorade thirst quencher in the United States. The
Company expects that its future capital expenditures and cash dividends will be
financed through cash flows from operating activities.
Pending Accounting Change
In March 1997, the FASB issued Statement #128, "Earnings Per Share." The
Company will adopt this Statement during the fourth quarter. The adoption of
this new Statement will not have a significant impact on the Company.
In July 1997, the FASB issued Statement #130, "Reporting Comprehensive Income,"
and Statement #131 "Disclosures About Segments of an Enterprise and Related
Information." Statement #130 establishes standards for reporting comprehensive
income in financial statements. Statement #131 expands certain reporting
and disclosures for segments from current standards. The Company is not
required to adopt these Statements until 1998 and does not expect the adoption
of these new standards to result in material changes to previously reported
amounts or disclosures.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sale of Snapple Beverages
On May 22, 1997, Quaker completed the sale of 100 percent of its wholly-owned
subsidiary, Snapple Beverage Corp., to Triarc Companies, Inc. Prior to the
completion of this transaction, a Snapple facility in Tolleson, Arizona
was transferred to the Company as a Gatorade thirst quencher
facility. The net book value of the assets transferred to the Company was
$39.4 million.
Cautionary Statement on Forward-Looking Statements
Forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, are made throughout this Management's Discussion and
Analysis. The Company's 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 governmental
interpretations of regulations and changes in accounting standards; customer
demand; effectiveness of spending or programs; and fluctuations in the cost and
availability of supply chain resources.
Continued growth in sales, earnings and cash flows from the Gatorade thirst
quencher 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, capital spending plans, markets for key
commodities, especially PET resins and cardboard, and the efficiency and
effectiveness of A&M programs.
PART II - OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Shareholders on May 7,
1997. Represented at the Meeting, either in person or by proxy,
were 2,989,371 voting shares, of a total 3,000,444 voting shares
outstanding. The matters voted upon at the Meeting are described
in (c) below.
(c) To elect three directors to each serve for a one-year term or
until their successors are elected and qualified. All nominees
are named below.
- James F. Doyle
Votes for Election - 2,989,371
- John G. Jartz
Votes for Election - 2,989,371
- Janet K. Cooper
Votes for Election - 2,989,371
There were no votes withheld, against, abstentions or
broker non-votes with respect to the election of any
nominee named above.
All other items in Part II are either inapplicable to the Company during the
quarter ended June 30, 1997, 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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as an officer and as chief accounting
officer.
Stokely-Van Camp, Inc.
(Registrant)
Date: August 13, 1997 Thomas L. Gettings
Thomas L. Gettings
Vice President and Corporate Controller
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