UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarterly period ended September 30, 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
October 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 Nine and Three
Months Ended September 30, 1997 and 1996 3-4
Condensed Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1996 5
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended
September 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 13
SIGNATURES 14
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND REINVESTED EARNINGS
(UNAUDITED)
Nine Months Ended
Dollars in Millions September 30,
1997 1996
Net sales $1,051.7 $975.6
Cost of goods sold 484.8 469.4
Gross profit 566.9 506.2
Selling, general and administrative expense 361.5 322.2
Interest income - net (32.8) (28.3)
Income before income taxes 238.2 212.3
Provision for income taxes 97.8 87.1
Net Income 140.4 125.2
Dividends on preference and preferred stock (0.6) (0.6)
Reinvested Earnings - Beginning Balance 811.8 687.7
Reinvested Earnings - Ending Balance $ 951.6 $812.3
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 September 30,
1997 1996
Net sales $402.1 $358.2
Cost of goods sold 185.2 169.1
Gross profit 216.9 189.1
Selling, general and administrative expenses 134.1 115.5
Interest income - net (10.7) (10.2)
Income before income taxes 93.5 83.8
Provision for income taxes 38.4 34.4
Net Income 55.1 49.4
Dividends on preference and preferred stock (0.2) (0.2)
Reinvested Earnings - Beginning Balance 896.7 763.1
Reinvested Earnings - Ending Balance $951.6 $812.3
See accompanying notes to the condensed consolidated financial statements.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
Dollars in Millions 1997 1996
ASSETS
Current Assets:
Cash and cash equivalents $ 5.1 $ 5.3
Due from The Quaker Oats Company 837.7 715.3
Trade accounts receivable - net of allowances 62.3 24.2
Inventories:
Finished goods 33.1 24.8
Materials and supplies 6.9 9.3
Total inventories 40.0 34.1
Other current assets 39.7 39.9
Total Current Assets 984.8 818.8
Other Assets 7.9 6.0
Property, plant and equipment 323.4 264.2
Less accumulated depreciation 86.8 75.4
Property - Net 236.6 188.8
Total Assets $1,229.3 $1,013.6
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 23.9 $ 20.9
Accrued payroll, benefits and bonus 8.3 9.7
Accrued advertising and merchandising 36.9 21.9
Income taxes payable 69.6 17.4
Other current liabilities 26.4 21.7
Total Current Liabilities 165.1 91.6
Long-term Debt 0.2 0.3
Other Liabilities 43.1 43.2
Deferred Income Taxes 2.6 --
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 951.6 811.8
Treasury common stock, at cost, 602,010 shares (20.9) (20.9)
Total Common Shareholders' Equity 1,003.0 863.2
Total Liabilities and Shareholders' Equity $1,229.3 $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)
Nine Months Ended
Dollars in Millions September 30,
1997 1996
Cash Flows from Operating Activities:
Net income $140.4 $125.2
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred income taxes 2.6 0.9
Depreciation and amortization 15.8 12.0
Loss on disposition of property and equipment 10.5 0.5
Increase in trade accounts receivable (38.1) (24.4)
Increase in inventories (5.9) (8.6)
Decrease (increase) in other current assets 0.2 (3.5)
Increase in trade accounts payable 3.0 15.8
Increase in income taxes payable 52.2 68.2
Increase in other current liabilities 18.3 34.0
Other items (1.7) (4.9)
Net Cash Provided by Operating Activities 197.3 215.2
Cash Flows from Investing Activities:
Additions to property, plant and equipment (35.0) (43.4)
Net Cash Used in Investing Activities (35.0) (43.4)
Cash Flows from Financing Activities:
Change in amount due from The Quaker Oats Company (161.8) (171.5)
Cash dividends (0.6) (0.6)
Reduction of long-term debt (0.1) (0.2)
Net Cash Used in Financing Activities (162.5) (172.3)
Net Decrease in Cash and Cash Equivalents (0.2) (0.5)
Cash and Cash Equivalents - Beginning of Period 5.3 8.4
Cash and Cash Equivalents - End of Period $ 5.1 $ 7.9
See accompanying notes to the condensed consolidated financial statements.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 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
nine and three months ended September 30, 1997 and 1996, the
condensed consolidated balance sheet as of September 30, 1997, and
the condensed consolidated statements of cash flows for the nine
months ended September 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 September 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 September 30, 1997, authorized shares were 500,000 and issued
and outstanding shares were 10,400. The voting 5% Cumulative
Convertible Second Preferred Stock ($20 par value) is convertible
at the holder's option, on a share-for-share basis, into non-voting
5% Cumulative Prior Preference Stock ($20 par value).
5% Cumulative Prior Preference Stock
As of September 30, 1997, authorized shares were 1,500,000, issued
shares were 753,956 and outstanding shares were 753,623.
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)
SEPTEMBER 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 of 1997. 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)
SEPTEMBER 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
statement of income 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 statement of income 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
Nine Months Ended September 30, 1997 Compared With
Nine Months Ended September 30, 1996
Operating Results
Consolidated net sales for the nine months ended September 30,
1997, were $1.1 billion, up 8 percent from the nine months ended
September 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 7
percent, reflecting incremental sales from a new product, Gatorade
Frost, and core business growth resulting in market share gains.
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 51.9
percent last year primarily due to lower packaging costs. Selling,
general and administrative (SG&A) expenses increased 12 percent
primarily due to increases in advertising and merchandising (A&M)
expenses. The increase in A&M expenses was driven, in part, by
media spending for Gatorade Frost. As a percent of sales, A&M
expenses increased to 24.1 percent for the nine months ended
September 30, 1997, as compared to 23.1 percent for the nine months
ended September 30, 1996.
Interest and Income Taxes
Net interest income of $32.8 million increased $4.5 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 nine months ended September 30, 1997
and 1996, was 41.1 percent and 41.0 percent, respectively.
Three Months Ended September 30, 1997 Compared With
Three Months Ended September 30, 1996
Operating Results
Consolidated net sales for the three months ended September 30,
1997, were $402.1 million, an increase of 12 percent from the three
months ended September 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 11 percent and 12 percent, respectively, driven by
incremental sales of Gatorade Frost and strong execution of retail
in-store initiatives, including increased shelf space and improved
displays. 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 53.9 percent of sales from 52.8
percent last year primarily due to lower packaging costs. SG&A
expenses increased 16 percent primarily due to increases in A&M
expenses to support growth initiatives. As a percent of sales, A&M
expenses increased to 23.7 percent for the three months ended
September 30, 1997, as compared to 22.6 percent for the three
months ended September 30, 1996.
Interest and Income Taxes
Net interest income of $10.7 million increased $0.5 million from
last year stemming from higher average amounts due from The Quaker
Oats Company.
The effective tax rate for the three months ended September 30,
1997 and 1996, was 41.1 percent.
Liquidity and Capital Resources
Net cash provided by operating activities was $197.3 million and
$215.2 million for the nine months ended September 30, 1997 and
1996, respectively. The decrease in cash flows was driven in part
by an increase in accounts receivable. Capital expenditures for the
nine months ended September 30, 1997 and 1996, were $35.0 million
and $43.4 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.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Pending Accounting Change
In March 1997, the FASB issued Statement #128, "Earnings Per
Share." The Company will adopt this Statement during the fourth
quarter of 1997. 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.
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
All other items in Part II are either inapplicable to the Company
during the quarter ended September 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: November 13, 1997 Thomas L.Gettings
Thomas L.Gettings
Vice President and Corporate Controller
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