United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
X Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
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-K or any amendment to
this Form 10-K.[X]
Registrant had 2,989,371 shares of common stock outstanding on December 31,
1997, 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 Not Applicable
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 3-5
ITEM 7A. Quantitative and Qualitative Disclosures about
Market Risk Not Applicable
ITEM 8. Financial Statements and Supplementary Data 6-17
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure Not Applicable
PART III
ITEM 10. Directors and Executive Officers of
the Registrant 18
ITEM 11. Executive Compensation 18-22
ITEM 12. Security Ownership of Certain
Beneficial Owners and Management 22-23
ITEM 13. Certain Relationships and Related
Transactions 23
PART IV
ITEM 14. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements
Consolidated Financial Statements of
Stokely-Van Camp, Inc. and subsidiaries are
incorporated under Item 8 of this Form 10-K
(a)(2)&(d) Financial Statement Schedules
Schedule X - Supplementary Income Statement
Information 24
(a)(3)&(c) Exhibits
See Exhibit Index attached hereto, which is
incorporated herein by reference 27
SIGNATURES 26
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 1983. The
Company was 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, the majority of Stokely's
business is now comprised of the Gatorade thirst quencher business in the
United States. Gatorade thirst quencher is 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 over 70 percent of sales occurring between April and
September.
Export sales in 1997, 1996 and 1995 were $31.9 million, $19.8 million and
$45.2 million, respectively.
Fee Agreement
In 1984, the Company entered a novation of a series of agreements (Agreement)
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, as called for by
the Agreement, the Trustee may cancel the Agreement 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
thirst quencher and to clarify certain aspects of the 1984 Agreement. Except
for these changes, the 1984 Agreement remains in full force and effect.
Competition
Stokely's beverage business is highly competitive. The Company's two key
competitors are The Coca-Cola Company 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, 1997, was
approximately 1,471.
ITEM 2. PROPERTIES
The Company owns and operates seven plants, including manufacturing, filling
and distribution facilities located in seven states. A facility in Puerto
Rico is also leased. In 1997, Quaker completed the construction of its
Atlanta, Georgia plant to replace the Newport, Tennessee plant which was sold
with the Van Camp's business. The majority of Gatorade thirst quencher sales
are shipped direct from the production sites. In addition, Quaker owns or
leases distribution centers, six of which are shared with the Company. Other
distribution centers are leased as needed throughout the year. Sales and
administrative office space is shared with Quaker. Management believes that
manufacturing, distribution and office space owned and leased is suitable and
adequate for the business and production 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 1997, 1996 or 1995.
ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31,
(Dollars in Millions) 1997(a) 1996 1995(b) 1994(c) 1993
Net sales $1,188.4 $1,090.5 $1,130.3 $1,081.4 $979.5
Cost of goods sold 566.1 540.7 586.9 564.6 499.1
Income before income taxes and
cumulative effect of
accounting changes $ 222.4 $ 211.9 $ 215.6 $ 84.2 $123.4
Provision for income taxes 91.3 87.0 79.2 35.3 49.5
Income before cumulative effect
of accounting changes 131.1 124.9 136.4 48.9 73.9
Cumulative effect of accounting
changes - net of tax (d) -- -- -- (1.5) --
Net Income $ 131.1 $ 124.9 $ 136.4 $ 47.4 $ 73.9
As of December 31,
(Dollars in Millions) 1997 1996 1995 1994 1993
Property - net $ 242.2 $ 188.8 $ 141.7 $ 147.5 $137.4
Total assets $1,148.6 $1,013.6 $ 877.5 $ 754.9 $689.2
Long-term debt $ 1.5 $ 0.3 $ 0.5 $ 0.7 $ 0.7
Redeemable preference and
preferred stock $ 15.3 $ 15.3 $ 15.3 $ 15.3 $ 15.3
(a) 1997 results include a $3.1 million pretax restructuring charge for a
U.S. Gatorade manufacturing reconfiguration.
(b) 1995 results include a $44.9 million pretax gain for the divestiture of
the Van Camp's pork and beans business.
(c) 1994 results include a $9.4 million pretax restructuring charge for Van
Camp's manufacturing consolidation and work force reductions.
(d) 1994 cumulative effect of accounting changes includes an after-tax charge
of $1.5 million for the adoption of FASB Statement #112.
2
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report discusses the operating results and financial condition of the
Company for the year ended December 31, 1997. The comparisons of the 1996
results to those of 1995 are affected by the divestiture of the Van Camp's
business on June 8, 1995. See Note 2 to the Consolidated Financial
Statements for further discussion of the divestiture.
1997 Compared with 1996
Operating Results
Consolidated net sales for 1997 were $1.19 billion, an increase of 9 percent
from 1996, driven by higher U.S. and export sales as compared to the prior
year. U.S. Gatorade thirst quencher net sales increased 8 percent on a
volume increase of 9 percent, driven by incremental sales from a new product,
Gatorade Frost, and strong execution of retail in-store initiatives,
resulting in market share gains. Price increases did not significantly
affect 1997 sales.
Gross profit margin increased to 52.4 percent compared to 50.4 percent in
1996. This increase was due to sales growth and lower packaging costs for
U.S. Gatorade thirst quencher. Selling, general and administrative (SG&A)
expenses increased 17 percent to $441.2 million, primarily due to higher
advertising and merchandising (A&M) expenses, as well as the allocation of
certain Quaker overhead costs absorbed by the Snapple beverages business in
1996. A&M expenses increased 15 percent, driven, in part, by media spending
for Gatorade Frost. A&M expenses were 24.9 percent and 23.6 percent of sales
in 1997 and 1996, respectively.
Transfer of Assets
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.
Restructuring Charge
In 1997, the Company recorded a restructuring charge of $3.1 million to
reconfigure U.S. Gatorade manufacturing lines. The charge was comprised of
non-cash asset write-offs. As of December 31, 1997, there were no remaining
reserves and no material savings to be realized from this restructuring
action.
Interest and Income Taxes
Net interest income of $44.4 million increased $4.4 million from 1996, the
result of higher average amounts due from Quaker. See Note 4 to the
Consolidated Financial Statements for further discussion of the Company's
investing and borrowing agreement with Quaker.
The effective tax rate was 41.0 percent in 1997 and 1996.
1996 Compared with 1995
Operating Results
As a result of the Van Camp divestiture, comparative results for 1996 and
1995 are difficult to analyze. To assist in the analysis of operating
results, this discussion will address the financial results as reported, then
note the impact of the divested business, where applicable, and review the
results of the ongoing Gatorade thirst quencher business.
3
Consolidated net sales for 1996 were $1.09 billion, a decrease of 4 percent
from 1995, largely driven by the Van Camp's divestiture. Excluding the $76.2
million of Van Camp's net sales from 1995 results, net sales for 1996 rose 3
percent. This increase was primarily due to higher U.S. Gatorade thirst
quencher sales, partly offset by lower export sales as compared to the prior
year. U.S. Gatorade thirst quencher net sales increased 6 percent on a
volume increase of 5 percent, driven by successful new packaging and flavors
and retail shelf space gains. Price increases did not significantly affect
1996 sales.
Gross profit margin increased to 50.4 percent compared to 48.1 percent in
1995, partly due to product mix changes resulting from the Van Camp's
divestiture. Excluding the Van Camp's business, the gross profit margin was
48.9 percent in 1995. The increase in the gross profit margin, excluding the
divested business, was primarily due to sales growth and lower manufacturing
and packaging costs for U.S. Gatorade thirst quencher. SG&A expenses
decreased 6 percent to $377.9 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 1 percent, primarily due to a
decrease in A&M expenses, partially offset by an increase in other operating
expenses. A&M expenses were 23.6 percent and 24.6 percent of sales in 1996
and 1995, respectively. Excluding Van Camp's results, A&M expenses were 25.0
percent of sales in 1995. SG&A and A&M expenses were both lower as a
percentage of sales as a result of increased efficiency in A&M spending
combined with increased sales.
Gain on Divestiture
In 1995, the Company realized a gain of $44.9 million on the divestiture of
the Van Camp's pork and beans business. See Note 2 to the Consolidated
Financial Statements for a further discussion of the divestiture.
Interest and Income Taxes
Net interest income of $40.0 million increased $9.0 million from 1995, the
result of higher average amounts due from Quaker. See Note 4 to the
Consolidated Financial Statements for further discussion of the Company's
investing and borrowing arrangement with Quaker.
The effective tax rate for 1996 was 41.0 percent versus 36.7 percent in 1995.
Favorable tax treatment of operations in Puerto Rico was the primary driver
of the lower rate in 1995.
Liquidity and Capital Resources
Net cash provided by operating activities was $156.8 million, $137.3 million
and $103.1 million for 1997, 1996 and 1995, respectively. The increase in
cash flows provided by operating activities in all three years was due to
increased net income (excluding the gain on divestiture in 1995) and changes
in working capital. In particular, in 1995, Gatorade thirst quencher
inventory decreased due to more efficient inventory management during a
period of increased sales. Capital expenditures for 1997, 1996 and 1995 were
$52.4 million, $68.9 million and $37.1 million, respectively. In March 1997,
the Company opened a Gatorade plant and distribution center near Atlanta,
Georgia to replace the Newport, Tennessee plant that was sold with the Van
Camp's business. Approximately $54 million was spent on this project in 1997
and 1996, resulting in an increased level of capital expenditures compared to
1995. The Company expects the level of its future capital expenditures and
cash dividends will be financed through cash flows from operating activities.
The current Standard and Poor's rating on the Company's preferred stock is
BBB+.
Derivative Commodity and Financial Instruments
The Company actively monitors its exposure to risk from changes in commodity
prices related to purchases of corn sweetener. Derivative commodity futures
and options are used, from time to time, to reduce the impact of these risks.
The Company does not use these instruments for trading purposes and does not
use instruments where there are no underlying exposures. Management believes
that its use of these instruments to reduce risk is in the Company's best
interest. No commodity instruments were outstanding as of December 31, 1997.
Derivative foreign exchange or interest rate instruments are not used as the
risks from changes in foreign exchange or interest rate are not material.
4
Current and Pending Accounting Changes and Other Matter
In March 1997, the Financial Accounting Standards Board (FASB) issued
Statement #128, "Earnings per Share." This Statement simplifies the
computation of earnings per share and makes the computation more consistent
with International Accounting Standards. Although Stokely's parent company,
Quaker, adopted this new standard in December 1997, this Statement does not
apply to Stokely, since earnings per share measures are not presented.
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.
In February 1998, the FASB issued Statement #132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This Statement revises
employers' disclosures about pension and other postretirement benefit plans.
It does not change the measurement or recognition of those plans. The
Company is not required to adopt this Statement until 1998 and does not
expect the adoption of this standard to result in material changes in
previously reported amounts or disclosures.
Stokely, through its parent company, Quaker, conducts the majority of its
operations as an integrated component of Quaker's U.S. and Canadian Foods and
Beverages business. As such, Stokely, throughout its business, uses Quaker's
software and other related technologies that will be affected by the date
change in the Year 2000. With Quaker senior management accountability and
corporate staff guidance, the affected Quaker operating units are in varying
stages of assessment and implementation of a plan to address Quaker's Year
2000 issues. Overall, Quaker has targeted Year 2000 compliance primarily by
the end of 1998, with certain Quaker operating units targeting compliance by
no later than mid-1999. While Quaker's plans are underway, and Quaker does
not anticipate such, the consequences of non-compliance by Quaker, its
customers or its suppliers, could have a material adverse impact on the
Company's operations. Quaker will continue to incur expenses, on behalf of
the Company, related to these efforts; however, such expenses are not
expected to have a material impact on the Company's results of operations.
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 annual report. 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, The Coca-Cola Company and PepsiCo Inc.; the ability to
obtain increasing points of availability; 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.
5
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND REINVESTED EARNINGS
Year Ended December 31,
(Dollars in Millions) 1997 1996 1995
Net sales $1,188.4 $1,090.5 $1,130.3
Cost of goods sold 566.1 540.7 586.9
Gross profit 622.3 549.8 543.4
Selling, general and administrative
expenses 441.2 377.9 403.7
Gain on divestiture -- -- (44.9)
Restructuring charge 3.1 -- --
Interest income - net (44.4) (40.0) (31.0)
Income before income taxes 222.4 211.9 215.6
Provision for income taxes 91.3 87.0 79.2
Net Income 131.1 124.9 136.4
Dividends on preference and
preferred stock (0.8) (0.8) (0.8)
Reinvested Earnings - Beginning
Balance 811.8 687.7 552.1
Reinvested Earnings - Ending
Balance $ 942.1 $ 811.8 $ 687.7
See accompanying notes to consolidated financial statements.
6
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
(Dollars in Millions) 1997 1996 1995
Cash Flows from Operating Activities:
Net income $ 131.1 $124.9 $136.4
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 21.3 15.9 17.8
Deferred income taxes 3.0 (0.5) (1.0)
Gain on divestiture -- -- (44.9)
Restructuring charge 3.1 -- --
Loss on disposition of
property and equipment 13.9 1.7 0.9
(Increase) decrease in
trade accounts receivable (4.5) 2.3 6.4
(Increase) decrease in inventories (0.6) (9.8) 22.3
Increase in other current assets (3.4) (12.7) (9.9)
(Decrease) increase in
trade accounts payable (2.5) 12.2 (2.8)
Decrease in income taxes payable (4.9) (2.3) (11.0)
(Decrease) increase in
other current liabilities (7.8) 5.4 (10.1)
Other items 8.1 0.2 (1.0)
Net Cash Provided by
Operating Activities 156.8 137.3 103.1
Cash Flows from Investing Activities:
Additions to property, plant and
equipment (52.4) (68.9) (37.1)
Business divestiture -- -- 90.6
Net Cash (Used in) Provided by
Investing Activities (52.4) (68.9) 53.5
Cash Flows from Financing Activities:
Change in amount Due from The
Quaker Oats Company (102.8) (70.5) (159.9)
Cash dividends (0.8) (0.8) (0.8)
Proceeds from long-term debt 1.4 -- --
Reduction of long-term debt (0.2) (0.2) (0.2)
Net Cash Used in Financing
Activities (102.4) (71.5) (160.9)
Net Increase (Decrease) in Cash and
Cash Equivalents 2.0 (3.1) (4.3)
Cash and Cash Equivalents - Beginning
of Period 5.3 8.4 12.7
Cash and Cash Equivalents - End of
Period $ 7.3 $ 5.3 $ 8.4
See accompanying notes to consolidated financial statements.
7
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31,
(Dollars in Millions) 1997 1996
Assets
Current Assets:
Cash and cash equivalents $ 7.3 $ 5.3
Due from The Quaker Oats Company 778.7 715.3
Trade accounts receivable - net of allowance
of $5.2 and $3.9, as of December 31, 1997
and 1996, respectively 28.7 24.2
Inventories:
Finished goods 27.1 24.8
Materials and supplies 7.6 9.3
Total Inventories 34.7 34.1
Other current assets 55.6 39.9
Total Current Assets 905.0 818.8
Other Assets 1.4 6.0
Property, Plant and Equipment
Land 5.2 5.1
Buildings and improvements 82.0 67.9
Machinery and equipment 241.8 191.2
Property, plant and equipment 329.0 264.2
Less: accumulated depreciation 86.8 75.4
Property - Net 242.2 188.8
Total Assets $1,148.6 $1,013.6
Liabilities and Shareholders' Equity
Current Liabilities:
Trade accounts payable $ 18.4 $ 20.9
Accrued payroll, benefits and bonus 10.9 9.7
Accrued advertising and merchandising 16.4 21.9
Income taxes payable 20.6 17.4
Other current liabilities 18.2 21.7
Total Current Liabilities 84.5 91.6
Long-term Debt 1.5 0.3
Other Liabilities 46.6 43.2
Deferred Income Taxes 7.2 --
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 942.1 811.8
Treasury common stock, at cost, 602,010 shares (20.9) (20.9)
Total Common Shareholders' Equity 993.5 863.2
Total Liabilities and Shareholders' Equity $1,148.6 $1,013.6
See accompanying notes to consolidated financial statements.
8
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). Divested businesses are included in the results of
operations until their divestiture dates.
Derivative Commodity Instruments
The Company uses commodity options and futures contracts in its management of
commodity price exposures. Instruments used as hedges must be effective at
reducing the risks associated with the underlying exposure and must be
designated as a hedge at the inception of the contract. Accordingly, changes
in the market value of the instruments must have a high degree of inverse
correlation with changes in the market value of the underlying hedged item.
Complex instruments involving leverage or multipliers are not used.
The deferral method is used to account for those instruments which
effectively hedge the Company's price exposures. For hedges of anticipated
transactions, 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
consolidated balance sheets 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 consolidated statements of income as a
component of cost of goods sold. Derivative instruments that do not meet the
above criteria required for deferral treatment are accounted for under the
fair value method, with gains and losses recognized currently in the
consolidated statements of income as a component of cost of goods 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 $0.4 million higher than reported as of
December 31, 1997 and 1996.
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 three to 12 years
for machinery and equipment.
Current and Pending Accounting Changes
In March 1997, the Financial Accounting Standards Board (FASB) issued
Statement #128, "Earnings per Share." This Statement simplifies the
computation of earnings per share and makes the computation more consistent
with International Accounting Standards. Although Stokely's parent company,
Quaker, adopted this new Standard in December 1997, this Statement does not
apply to Stokely, since earnings per share measures are not presented.
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.
9
In February 1998, the FASB issued Statement #132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This Statement revises
employers' disclosures about pension and other postretirement benefit plans.
It does not change the measurement or recognition of those plans. The
Company is not required to adopt this Statement until 1998 and does not
expect the adoption of this standard to result in material changes in
previously reported amounts or disclosures.
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
DIVESITURE
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 were $76.2 million and $6.9 million in
1995, respectively. Operating income includes certain allocations of
overhead expenses and excludes the gain on the divestiture in 1995.
NOTE 3
RESTRUCTURING CHARGE
In 1997, the Company recorded a restructuring charge of $3.1 million to
reconfigure U.S. Gatorade manufacturing lines. The charge was comprised of
non-cash asset write-offs. As of December 31, 1997, there were no remaining
reserves and no material savings to be realized from this restructuring
action.
NOTE 4
RELATED PARTY TRANSACTIONS
Stokely, through its parent company, Quaker, conducts the majority of its
operations as an integrated component of Quaker's U.S. and Canadian Foods and
Beverages business. 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 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 Foods and Beverages business 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.
10
Employees
Certain salaried and hourly employees whose services benefit the Stokely
business are employees of Quaker. Their compensation is paid by Quaker.
These employees also participate in certain Quaker employee benefit plans.
Stokely is directly charged for actual salary costs and allocated fringe
benefit costs of these employees.
Corporate Insurance Programs
Stokely participates in Quaker's consolidated insurance and risk management
programs for property and casualty insurance. Stokely is directly charged
for its related insurance costs.
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 Foods and Beverages business 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.
Transfer of Assets
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.
International Licensing 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 $6.4 million, $5.5 million and $6.3 million in 1997,
1996 and 1995, respectively.
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.
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, 1997 or 1996.
11
NOTE 5
LONG-TERM DEBT
As of December 31,
(Dollars in Millions) 1997 1996
Capital Lease Obligations $1.6 $ --
Industrial Revenue Bond, 4.5%
due through October 1, 1999 0.3 0.5
Less: current maturities 0.4 0.2
Long-term Debt $1.5 $0.3
Aggregate required payments for long-term debt maturing over the next five
years are as follows:
(Dollars in Millions) 1998 1999 2000 2001 2002
Total Payments $0.4 $0.3 $0.2 $0.2 $0.2
NOTE 6
FINANCIAL INSTRUMENTS
Financial instruments are primarily used to fund operating requirements and
to reduce the Company's exposure to 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 commodity
price changes, the losses would generally be offset by lower costs of the
purchases being hedged. The Company does not use financial instruments with
the objective of earning financial gains on commodity price fluctuations
alone, and does not use instruments where 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 1
percent of cost of goods sold in 1997 was in commodities that may be hedged.
The Company's strategy is to typically hedge certain production requirements
for various periods up to 12 months. No commodity instruments were
outstanding as of December 31, 1997. The fair value of commodity instruments
outstanding as of December 31, 1996, based on quotes from brokers, was a net
unrealized loss of $0.5 million. Realized net (losses) gains charged to cost
of goods sold were $(0.1) million in 1997, $1.2 million in 1996, and were not
material in 1995.
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.
12
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, 1997, authorized shares were 500,000 and issued and outstanding
shares were 10,400 for the 5% Cumulative Convertible Second Preferred Stock.
As of December 31, 1997, 1,500,000 shares were authorized, 753,744 shares
were issued, 753,411 shares were outstanding and 10,400 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.
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 (a) $20 Par Value
Balance as of December 31, 1994 752,743 11,068
Shares Converted 208 (208)
Balance as of December 31, 1995 752,951 10,860
Shares Converted 60 (60)
Balance as of December 31, 1996 753,011 10,800
Shares Converted 400 (400)
Balance as of December 31, 1997 753,411 10,400
(a) Prior year amounts have been restated by 212 shares to accurately reflect
stock balances.
NOTE 8
PENSION PLANS
Salaried and hourly employees assigned to the Company are covered by the
Quaker Retirement Plan (Plan). Plan benefits are based on compensation paid
to employees and their years of service. Quaker's policy is to make
contributions to the Plan within the maximum amount deductible for Federal
income tax purposes. Plan assets consist primarily of equity securities and
government, corporate and other fixed-income obligations. Consistent with
arrangements described in Note 4, the Company was allocated pension costs of
approximately $0.6 million, $1.5 million and $3.5 million in 1997, 1996 and
1995, respectively. The Company's allocated accrued pension costs were
approximately $10.6 million and $8.7 million as of December 31, 1997 and
1996, respectively.
13
NOTE 9
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
AND OTHER POSTEMPLOYMENT BENEFITS
Quaker provides certain health care and life insurance benefits to
substantially all retired U.S. employees and certain retired foreign
employees who meet service-related eligibility requirements. Consistent with
arrangements described in Note 4, the Company is allocated a portion of these
costs incurred by Quaker.
The Company was allocated postretirement benefit costs of $2.8 million, $2.5
million and $3.3 million in 1997, 1996 and 1995, respectively. The Company's
allocated unfunded accrued postretirement benefit costs were $35.1 million
and $33.4 million as of December 31, 1997 and 1996, respectively.
NOTE 10
SUPPLEMENTAL CASH FLOW INFORMATION
Year Ended December 31,
(Dollars in Millions) 1997 1996 1995
Cash Activity:
Interest Paid $ 0.1 $ 0.1 $ 0.1
Income Taxes Paid $78.1 $100.1 $80.1
Noncash Activity:
Transfer of Assets $39.4 $ -- $ --
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 11
LEASES AND OTHER COMMITMENTS
Certain operating properties are rented under non-cancelable operating
leases. Total rental expense under operating leases was $5.7 million, $5.0
million and $4.7 million in 1997, 1996 and 1995, respectively. Future
minimum annual rentals on non-cancelable operating leases, primarily for
sales and administrative offices and distribution centers, are as follows:
(Dollars in Millions) 1998 1999 2000 2001 2002 Thereafter Total
Total Payments $5.7 $4.8 $4.4 $4.4 $4.3 $12.0 $35.6
The Company enters into executory contracts to obtain inventory and promote
various products. As of December 31, 1997, future commitments under these
contracts amounted to $41.5 million.
14
NOTE 12
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."
Provisions for income taxes were as follows:
Year Ended December 31,
(Dollars in Millions) 1997 1996 1995
Currently payable:
Federal $ 74.6 $75.2 $68.7
Foreign 0.1 0.5 0.8
State 16.6 15.4 17.2
Total currently payable 91.3 91.1 86.7
Deferred - net:
Federal (0.6) (4.9) (6.5)
Foreign (0.1) (0.3) (0.3)
State 0.7 1.1 (0.7)
Total deferred - net -- (4.1) (7.5)
Provision for income taxes $ 91.3 $87.0 $79.2
The components of the deferred income tax provision (benefit) were as
follows:
Year Ended December 31,
(Dollars in Millions) 1997 1996 1995
Accelerated tax depreciation $ 4.7 $ 0.5 $(1.7)
Postretirement benefits (0.6) (1.0) 0.5
Accrued expenses (4.1) (0.6) (5.8)
Other -- (3.0) (0.5)
Deferred income tax (benefit) $ -- $(4.1) $(7.5)
The sources of pretax income were as follows:
Year Ended December 31,
(Dollars in Millions) 1997 1996 1995
U.S. sources $222.2 $211.3 $214.1
Foreign sources 0.2 0.6 1.5
Income before income taxes $222.4 $211.9 $215.6
15
Reconciliations of the statutory Federal income tax rates to the effective
income tax rates were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in Millions) 1997 1996 1995
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
<S> <C> <C> <C> <C> <C> <C>
Tax provision based on the
Federal statutory rate $77.9 35.0% $74.2 35.0% $75.5 35.0%
State and local income tax provision -
net of Federal income tax benefit 11.2 5.0 10.7 5.0 10.6 4.9
Other 2.2 1.0 2.1 1.0 (6.9) (3.2)
Provision for income taxes $91.3 41.0% $87.0 41.0% $79.2 36.7%
Deferred tax assets and deferred tax liabilities were as follows:
As of December 31,
(Dollars in Millions) 1997 1996
Deferred Deferred Tax Deferred Deferred Tax
Tax Assets Liabilities Tax Assets Liabilities
<S> <C> <C> <C> <C>
Depreciation and amortization $ 1.3 $26.4 $ 2.5 $15.4
Postretirement benefits 13.4 -- 12.8 --
Other benefit plans 7.5 -- 7.9 3.5
Accrued expenses 25.5 0.4 10.5 0.8
Other 0.8 1.5 2.0 0.8
Total $48.5 $28.3 $35.7 $20.5
NOTE 13
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in Millions)
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter(a)
Net sales $215.9 $433.7 $402.1 $136.7
Cost of goods sold 107.2 192.4 185.2 81.3
Gross profit $108.7 $241.3 $216.9 $ 55.4
Net income (loss) $ 26.2 $ 59.1 $ 55.1 $ (9.3)
(Dollars in Millions)
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
Net sales $187.1 $430.3 $358.2 $114.9
Cost of goods sold 99.7 200.6 169.1 71.3
Gross profit $ 87.4 $229.7 $189.1 $ 43.6
Net income (loss) $ 15.4 $ 60.4 $ 49.4 $ (0.3)
(a) Includes a $3.1 million pretax restructuring charge for a U.S. Gatorade
manufacturing reconfiguration.
16
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, 1997 and 1996 and the related
consolidated statements of income, reinvested earnings and cash flows for the
years ended December 31, 1997, 1996 and 1995. 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, 1997 and 1996 and the results of their
operations and their cash flows for the years ended December 31, 1997, 1996
and 1995, in conformity with generally accepted accounting principles.
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.
/s/ Arthur Andersen LLP
Chicago, Illinois
February 4, 1998
17
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, 1998.
Name Principal Occupation Age
James F. Doyle Executive Vice President - Worldwide 45
Beverages of Quaker and
Director, Chief Executive Officer and
President of Stokely.
John G. Jartz Senior Vice President - General Counsel, 44
Business Development and Corporate Secretary
of Quaker and Director, Vice President and
Secretary of Stokely.
Janet K. Cooper Vice President - Treasurer and Tax of 44
Quaker and Stokely and Director
of Stokely.
Thomas L. Gettings Vice President and Corporate 41
Controller of Quaker and Stokely.
Mr. Doyle served in his capacity from November 1994 through March 11, 1998.
Thereafter, Ms. Susan D. Wellington, Vice President and President - U.S.
Beverages of Quaker, replaced Mr. Doyle as Director, Chief Executive Officer
and President of Stokely. Mr. Jartz has served in his capacity since October
1996. 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 three most recent fiscal years and the six-month transition period
ended December 31, 1995 (transition period shown as "1995.5") to the Company's
Chief Executive Officer and President. No other executive officer of the
Company was paid in excess of $100,000 in salary and bonus relative to their
services for the Company.
</TABLE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-term
Annual Compensation Compensation
Other Restricted Securities All
Annual Stock Underlying Other
Fiscal Salary Bonus Compensation Awards Options Compensation
Name Year (1) ($) ($)(2) ($) ($)(3) (#)(4) ($)(5)
<S> <C> <C> <C> <C> <C> <C> <C>
James F. Doyle - 1997 $364,702 $632,900 -0- $63,809 64,000 $521,010
Chief Executive 1996 $351,778 $382,800 $942 -0- -0- $ 64,240
Officer and 1995.5 $173,004 -0- $592 $19,610 90,000 -0-
President 1995 $332,760 $217,600 -0- $42,449 48,000 $ 70,764
18
<FN>
(1) The six-month transition period ended December 31, 1995 is identified as
Fiscal Year 1995.5 for purposes of this table.
(2) Amounts include the cash awards that have been paid under the Management
Incentive Bonus Plan based on Quaker's financial performance and the Named
Executive's personal performance for fiscal 1997, 1996 and 1995,
respectively.
(3) Restricted stock values reflect the fair market value of Quaker's common
stock on the date of each grant. Dividends on restricted shares and units
were and continue to be paid on an on-going basis at the same rate as paid
to all shareholders. The amount and value of restricted shares held by
Mr. Doyle, as of the last day of 1997 were 3,415 and $180,244,
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
canceled 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 and in fiscal 1997 and
1995 were granted with an exercise price that was equal to the fair market
value of Quaker's common stock on the date of the grant. In the
transition period, Quaker made a larger-than-normal award of stock options
in order to provide a transition to the new calendar fiscal year. As a
result, no stock options awards were made to Mr. Doyle in 1996.
(5) For 1997, 1996 and 1995, 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. In addition, of the
amount shown for Mr. Doyle for 1997, $441,165 is attributable to a special
incentive award.
</FN>
</TABLE>
19
The following table contains information covering the grant of stock options to
the Chief Executive Officer and President during Fiscal Year 1997. The
exercise price for all options granted is equal to the fair market value of
Quaker's common stock on the date of grant.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants (1) for Option Term (2)
% of Total
Number of Options
Securities Granted to
Underlying Employees
Options in Fiscal Exercise Expiration
Name Granted (#) Year Price ($/Sh) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
James F. Doyle 64,000 2.0% $37.25 03/11/07 $1,499,285 $3,799,482
<FN>
(1)All options were granted on March 12, 1997, and one-third of the options
granted will vest on each of the three anniversaries following the date of
grant. Upon the occurrence of a change in control, all options would be
canceled and a lump-sum cash payment paid for realizable value. (See
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 SEC and therefore do not forecast possible
future appreciation, if any, of Quaker's stock price. However, the total
of the "Potential Realizable Value" for Mr. Doyle would represent less than
0.1% of the incremental increase of approximately $3 billion and $8 billion
respectively, in the Potential Realizable Value that shareholders would
realize under both the prescribed 5% and 10% stock price appreciation
rates.
</FN>
</TABLE>
The following table contains information covering the exercise of options by
the Chief Executive Officer and President during 1997 and unexercised options
held as of the end of 1997.
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<CAPTION>
Number of Securities Underlying Value of Unexercised, In-the-
Unexercised Options at Fiscal Year Money Options at Fiscal
End(#) Year End ($)(2)
Shares Value
Acquired On Realized
Name Exercise(#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
James F. Doyle 56,688 $1,104,379 247,400 94,600 $4,082,620 $1,595,210
<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 1997.
</FN>
</TABLE>
20
Pension Plans
Quaker and its subsidiaries maintain several pension plans. The Quaker
Retirement Plan (Retirement Plan), which is the principal pension 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, are $351,948. This 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 1997 and that he
will elect a straight-lifetime benefit without survivor benefits. Payment
options such as a lump sum 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 acquirer
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.
21
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, 1998. 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 19.3
Stock (1) Foundation
620 Campbell Station Road
Station West, Suite 4
Knoxville, TN 37922
Marjorie M. Cochran 1,125 10.8
2900 Country Squire Lane
Decatur, GA 30033-2418
Esther M. Minter 1,125 10.8
230 East College Street
Griffin, GA 30223-4348
Cooper N. Mills 926 8.9
666 Brook Circle
Griffin, GA 30223-4413
Sigler & Co. 855 8.2
c/o Chase Manhattan Bank
Dept. 3492
P.O. Box 50000
Newark, NJ 07101-8006
John B. Mills, III 526 5.1
1043 Clifton Road
Atlanta, GA 30307-1227
(1) Holders of common stock and Second Preferred Stock vote collectively and
not as a separate class. As of December 31, 1997, 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.
22
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, 1998, 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 313,922(b)(c) 268,520
John G. Jartz 105,939(b)(c)(d) 90,064
Janet K. Cooper 74,497(b)(c) 58,570
All Directors and Officers as a group 573,843(b)(c)(d) 486,782
(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, 1998.
(b) The figures shown for these directors and executive officers include an
aggregate of 23,866 shares (which includes 4,479 shares on the basis of the
conversion of 2,073 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, 7,693; Mr. Jartz, 5,670; and Ms. Cooper, 5,974.
(c) The figures shown for these directors and executive officers include an
aggregate of 14,905 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, 3,348;
Mr. Jartz, 1,518; and Ms. Cooper, 8,781.
(d) The figures shown for these directors and executive officers include an
aggregate of 2,465 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. Jartz, 1,650.
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, 4, 8 and 9 to the consolidated
financial statements.
23
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Year Ended December 31,
(Dollars in Millions) 1997 1996 1995
ITEM
Depreciation $ 21.0 $ 15.2 $ 15.1
Advertising & Merchandising $296.2 $257.1 $278.5
24
Exhibit 21
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
Subsidiaries of the Registrant
Subsidiary State or Country
of Incorporation
The Gatorade Company Delaware
Gatorade Puerto Rico Company Delaware
The Gatorade Company of Australia Pty. Ltd. Australia
Quaker de (Chile) Ltda Chile
Foreign Joint Venture
Guangzhou Quaker Oats Food & Beverage Co. Ltd. The Quaker Oats Company 90%
Stokely-Van Camp, Inc. 10%
25
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/ Susan D. Wellington
Susan D. Wellington
Chief Executive Officer,
President and Director
Date: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 27th day of March 1998, by the following
persons on behalf of the Registrant and in the capacities indicated.
Signature Title
/s/ Susan D. Wellington Chief Executive Officer,
Susan D. Wellington President and Director
/s/ Janet K. Cooper Vice President, Treasurer and Tax
Janet K. Cooper (Principal Financial Officer)
and Director
/s/ John G. Jartz Vice President,
John G. Jartz Secretary and Director
/s/ Thomas L. Gettings Vice President and Corporate
Thomas L. Gettings Controller
26
EXHIBIT INDEX
Paper (P),
Electronic (E) or
Incorporated by
EXHIBIT 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 IBRF
dated January 1, 1984, effective January 1, 1993
(incorporated by reference to the Company's Form
10-KT for the transition period ended December
31, 1995, file number 1-2944)
21 Subsidiaries of the Registrant E
27
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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<COMMON> 4
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