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, 1998
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,
1998, 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 1-2
ITEM 2. Properties 2
ITEM 3. Legal Proceedings 2
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 3
ITEM 6. Selected Financial Data 3
ITEM 7. Management's Discussion and Analysis
of Financial Conditions and Results
of Operations 4-7
ITEM 7A. Quantitative and Qualitative Disclosures
about Market Risk Not Applicable
ITEM 8. Financial Statements and Supplementary Data 8-19
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 20
ITEM 11. Executive Compensation 20-23
ITEM 12. Security Ownership of Certain
Beneficial Owners and Management 24-25
ITEM 13. Certain Relationships and Related
Transactions 25
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 26
(a)(3) & (c) Exhibits
See Exhibit Index attached hereto, which is
incorporated herein by reference 29
SIGNATURES 28
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 is a
processor, marketer and distributor of beverage and food
products to retail stores, institutional distributors and
industrial and athletic users. Stokely's business is
primarily composed 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 in the second and third quarters
during the spring and summer beverage season.
Export sales in 1998, 1997, and 1996 were $30.2 million,
$31.9 million and $19.8 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,
1998, was approximately 1,330.
Enterprise and Geographic Data
<TABLE>
<CAPTION>
Dollars in Millions Net Sales(a) Long-lived Assets
Year Ended December 31, 1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
U.S. Beverages(b) $1,310.0 $1,153.6 $1,066.6 $ 263.8 $ 240.3 $ 187.9
Foreign 37.9 34.8 23.9 1.6 1.9 0.9
Total Consolidated $1,347.9 $1,188.4 $1,090.5 $ 265.4 $ 242.2 $ 188.8
</TABLE>
(a) Intersegment revenue is not material.
(b) Includes affiliate sales to Quaker of $3.2 million,
$0.4 million and $0.6 million in 1998, 1997 and 1996,
respectively.
<1>
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, construction of the Atlanta, Georgia beverage plant
was completed. The majority of Gatorade thirst quencher
sales are shipped direct from the production sites. In
addition, Quaker owns or leases distribution centers, seven
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.
<2>
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
1998, 1997 or 1996.
ITEM 6. SELECTED FINANCIAL DATA
Dollars in Millions
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997(a) 1996 1995(b) 1994(c)
<S> <C> <C> <C> <C> <C>
Net sales $1,347.9 $1,188.4 $1,090.5 $1,130.3 $1,081.4
Cost of goods sold 634.5 566.1 540.7 586.9 564.6
Income before income taxes
and cumulative effect of
accounting changes $ 271.6 $ 222.4 $ 211.9 $ 215.6 $ 84.2
Provision for income taxes 107.2 91.3 87.0 79.2 35.3
Income before cumulative
effect of accounting changes 164.4 131.1 124.9 136.4 48.9
Cumulative effect of accounting
changes - net of tax(d) -- -- -- -- (1.5)
Net Income $ 164.4 $ 131.1 $ 124.9 $ 136.4 $ 47.4
Dollars in Millions
<CAPTION>
As of December 31, 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Property - net $ 265.4 $ 242.2 $ 188.8 $ 141.7 $ 147.5
Total assets $ 1,359.2 $ 1,148.6 $ 1,013.6 $ 877.5 $ 754.9
Long-term debt $ 1.4 $ 1.5 $ 0.3 $ 0.5 $ 0.7
Redeemable preference
and preferred stock $ 15.3 $ 15.3 $ 15.3 $ 15.3 $ 15.3
</TABLE>
(a) 1997 results include $3.1 million of pretax restructuring
charges 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 $9.4 million of pretax restructuring
charges 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 SFAS No. 112.
<3>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Operating Results
This report discusses the operating results and financial
condition of Stokely-Van Camp, Inc. and Subsidiaries
(Company) for the years ended December 31, 1998 (current
year) and 1997 (prior year). The Company is a subsidiary of
The Quaker Oats Company (Quaker).
1998 Compared with 1997
Consolidated net sales for 1998 were $1.35 billion, an
increase of 13 percent from 1997, primarily driven by higher
U.S. sales. U.S. Gatorade sales comprise about 97 percent
of the total current year net sales. Gatorade thirst
quencher volume and sales in the United States increased 17
percent and 14 percent, respectively. New packaging and
flavors and strong growth outside the traditional retail
market, along with more favorable weather versus the prior
year, contributed to the volume and sales increase,
resulting in market share gains. Price changes did not
significantly affect the comparison of current year and
prior year sales.
Consolidated gross profit margin was 52.9 percent in 1998
compared to 52.4 percent in 1997. Selling, general and
administrative (SG&A) expenses increased 12 percent to
$492.9 million, driven by a 12 percent increase in
advertising and merchandising (A&M) expenses to support
growth in the Gatorade business. A&M expenses were 24.7
percent and 24.9 percent of net sales in 1998 and 1997,
respectively.
Net interest income of $51.1 million increased $6.7 million
from the prior year as a result of higher average amounts
due from Quaker. See Note 3 to the consolidated financial
statements for further discussion of the Company's investing
and borrowing agreement with Quaker.
The effective tax rate was 39.5 percent and 41.0 percent in
1998 and 1997, respectively. The decrease primarily was due
to a reduction in the effective state tax rates in 1998.
1997 Compared with 1996
Consolidated net sales for 1997 were $1.19 billion, an
increase of 9 percent from 1996, driven by higher U.S. and
export sales. 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 and 1996 sales.
Consolidated 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. SG&A expenses increased 17 percent to
$441.2 million, primarily due to higher 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.
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.
In 1997, the Company recorded restructuring charges of $3.1
million to reconfigure U.S. Gatorade manufacturing lines.
These charges were composed of non-cash asset write-offs.
As of December 31, 1997, there were no remaining reserves
and no material savings to be realized from these
restructuring actions.
Net interest income of $44.4 million increased $4.4 million
from 1996, the result of higher average amounts due from
Quaker. See Note 3 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.
<4>
Liquidity and Capital Resources
Net cash provided by operating activities was $196.6
million, $156.8 million and $137.3 million for 1998, 1997
and 1996, respectively. The increase in cash flows provided
by operating activities in all three years was primarily due
to increased net income. Capital expenditures were $54.1
million, $52.4 million and $68.9 million for 1998, 1997 and
1996, respectively. During 1998, the Company invested in
equipment to produce new products, increase availability and
reduce production costs. The Company expects future capital
expenditures and cash dividends to 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 and occasionally uses futures
and options to manage price exposure on purchased or
anticipated purchases of corn sweetener. The Company uses
derivatives only for purposes of managing risk associated
with underlying exposures. The Company does not trade or
use instruments with the objective of earning financial
gains on the commodity price fluctuations alone, nor does it
use instruments where there are not underlying exposures.
Complex instruments involving leverage or multipliers are
not used. Management believes that its use of these
instruments to manage risk is in the Company's best
interest. The Company does not use derivative foreign
exchange or interest rate instruments because underlying
exposures are not material.
The Company has estimated its market risk exposures using
sensitivity analyses. Market risk exposure has been defined
as the change in fair value of a derivative commodity
instrument assuming a hypothetical 10 percent adverse change
in market prices or rates. Fair value was determined using
quoted market prices. Based on the results of the
sensitivity analyses, the estimated quarter-end market risk
exposure on an average, high and low basis was $0.3 million,
$0.4 million and $0.1 million, respectively, during the
current year and was not material in the prior year. Actual
changes in market prices or rates may differ from
hypothetical changes.
Current and Pending Accounting Changes
In July 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income." This
Statement established standards for reporting comprehensive
income in the financial statements. The Company adopted
this standard in January 1998 and is not required to
separately report comprehensive income because comprehensive
income equals net income in all periods presented.
In July 1997, the FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information."
This Statement requires that operating segments be reported
consistent with how management assesses segment performance.
In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement
Benefits." This Statement revises employers' disclosures
about pensions and other postretirement benefit plans. It
does not change the measurement or recognition of those
plans in the financial statements. As Stokely is a wholly-
owned subsidiary of Quaker, the Company's adoption of these
new standards in December 1998 did not result in material
changes to previously reported amounts or disclosures.
In January 1998, Statement of Position (SOP) No. 98-1,
"Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," was issued. This SOP provides
guidance on the accounting for computer software costs. In
April 1998, SOP No. 98-5, "Reporting on the Costs of Start-
Up Activities," was issued. This SOP provides guidance on
accounting for the cost of start-up activities. The Company
is not required to adopt these standards until January 1999,
and these standards are not expected to materially affect
the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The
Statement establishes accounting and reporting standards
requiring that all derivative instruments (including certain
derivative instruments imbedded in other contracts) be
recorded in the balance sheet as either an asset or a
liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be
<5>
recognized currently in earnings unless specific hedge
accounting criteria are met. The accounting provisions for
qualifying hedges allow a derivative's gains and losses to
offset related results on the hedged item in the income
statement, and require that the Company must formally
document, designate, and assess the effectiveness of
transactions that qualify for hedge accounting. The Company
has not determined its method or timing of adopting this
Statement, but will be required to adopt it by January 2000.
When adopted, this Statement could increase volatility in
reported earnings and necessitate separate reporting of
comprehensive income.
Year 2000
Stokely, through its parent company, Quaker, conducts the
majority of its operations as an integrated component of
Quaker's business. As such, Stokely, throughout its
business, uses Quaker's software and other related
technologies that will be affected by the date change in
year 2000. The three areas where year 2000 issues may affect
Quaker include: (1) the computer systems, both hardware and
software; (2) imbedded systems, as in computer chips in
machinery and process controls; and (3) third parties with
material relationships with the Company, such as vendors,
customers and suppliers.
To address the year 2000 issue, Quaker has developed and is
executing a detailed comprehensive readiness plan. The
first phase of the readiness plan, the assessment of
Quaker's internal systems, has been completed. The second
phase involves the remediation, replacement and testing of
computer systems (90 percent complete) and imbedded systems
(85 percent complete) and is scheduled for completion by
mid-1999. The third phase will continue through mid-1999 and
includes Quaker taking steps to assess the year 2000 plans
of its material third parties. These steps include
contacting Quaker's major service providers, vendors,
suppliers and customers that are believed to be critical to
the business operations after January 1, 2000, to determine
their stage of year 2000 compliance through questionnaires,
interviews, on-site visits, testing and other available
means. The fourth phase involves the development of
contingency plans in the event of year 2000 non-compliance
and is also expected to be completed by mid-1999.
While Quaker's year 2000 readiness plans are under way, the
consequences of non-compliance by Quaker, its major service
providers, vendors, suppliers or customers, could have a
material adverse effect on Stokely's operations. Although
Quaker does not anticipate any major non-compliance issues,
it currently believes that the greatest risk of disruption
in its business exists in the event of non-compliance by its
material third parties. Some of the possible consequences
of non-compliance by Quaker or its material third parties
include, among other things: temporary plant closings;
delays in the delivery and receipt of products and supplies;
invoice and collection errors; and inventory obsolescence.
Given these risks, Quaker is developing contingency plans
intended to mitigate the possible disruption in business
operations that may result from year 2000 non-compliance.
Contingency plans may include stockpiling raw and packaging
materials, increasing finished goods inventory levels, and
securing alternate suppliers or other appropriate measures.
It is currently estimated that the aggregate cost of
Quaker's year 2000 efforts will be approximately $12 million
to $15 million, of which approximately $9 million has been
incurred to date. These costs are being funded through
Quaker's operating cash flow. These amounts do not include
any costs associated with the implementation of contingency
plans, which are in the process of being developed.
Quaker's year 2000 readiness plan is an ongoing process and
the estimates of costs and completion dates for various
components of the program as described above are subject to
change.
<6>
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.
Statements that are not historical facts, including
statements about expectations or projected results, are
forward-looking statements. 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
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; fluctuations in the cost and availability of
supply chain resources; weather; and the ability of Quaker,
its major service providers, vendors, suppliers and
customers, to adequately address the year 2000 issue.
Forward-looking statements speak only as of the date they
were made, and the Company undertakes no obligation to
publicly update them.
Continued growth in sales, earnings and cash flows from the
Gatorade thirst quencher operations is dependent on, among
other things: the level of competition from its two key
competitors, The Coca-Cola Co. 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.
<7>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND REINVESTED EARNINGS
Dollars in Millions
Year Ended December 31, 1998 1997 1996
Net sales $ 1,347.9 $ 1,188.4 $ 1,090.5
Cost of goods sold 634.5 566.1 540.7
Gross profit 713.4 622.3 549.8
Selling, general and administrative expenses 492.9 441.2 377.9
Restructuring charges -- 3.1 --
Interest income - net (51.1) (44.4) (40.0)
Income before income taxes 271.6 222.4 211.9
Provision for income taxes 107.2 91.3 87.0
Net Income 164.4 131.1 124.9
Dividends on preference and preferred stock (0.8) (0.8) (0.8)
Reinvested Earnings - Beginning Balance 942.1 811.8 687.7
Reinvested Earnings - Ending Balance $ 1,105.7 $ 942.1 $ 811.8
See accompanying notes to the consolidated financial statements.
<8>
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in Millions
Year Ended December 31, 1998 1997 1996
Cash Flows from Operating Activities:
Net income $ 164.4 $ 131.1 $ 124.9
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 25.2 21.3 15.9
Deferred income taxes (3.6) 3.0 (0.5)
Restructuring charges -- 3.1 --
Loss on disposition of property and equipment 3.0 13.9 1.7
(Increase) decrease in trade accounts receivable (7.6) (4.5) 2.3
Increase in inventories (22.3) (0.6) (9.8)
Increase in other current assets (4.9) (3.4) (12.7)
Increase (decrease) in trade accounts payable 4.1 (2.5) 12.2
Increase (decrease) in income taxes payable 22.7 (4.9) (2.3)
Increase (decrease) in other current liabilities 24.4 (7.8) 5.4
Other items (8.8) 8.1 0.2
Net Cash Provided by Operating Activities 196.6 156.8 137.3
Cash Flows from Investing Activities:
Additions to property, plant and equipment (54.1) (52.4) (68.9)
Proceeds on the sale of property and equipment 0.9 -- --
Net Cash Used in Investing Activities (53.2) (52.4) (68.9)
Cash Flows from Financing Activities:
Change in amount Due from The Quaker Oats Company (143.5) (102.8) (70.5)
Cash dividends (0.8) (0.8) (0.8)
Proceeds from long-term debt -- 1.4 --
Reduction of long-term debt (0.1) (0.2) (0.2)
Net Cash Used in Financing Activities (144.4) (102.4) (71.5)
Net (Decrease) Increase in Cash and Cash Equivalents (1.0) 2.0 (3.1)
Cash and Cash Equivalents - Beginning of Period 7.3 5.3 8.4
Cash and Cash Equivalents - End of Period $ 6.3 $ 7.3 $ 5.3
See accompanying notes to the consolidated financial statements.
<9>
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Dollars in Millions
As of December 31, 1998 1997
Assets
Current Assets:
Cash and cash equivalents $ 6.3 $ 7.3
Due from The Quaker Oats Company 924.0 778.7
Trade accounts receivable - net of allowance of $5.1
and $5.2 in 1998 and 1997, respectively 36.3 28.7
Inventories:
Finished goods 48.1 27.1
Materials and supplies 8.9 7.6
Total Inventories 57.0 34.7
Other current assets 60.5 55.6
Total Current Assets 1,084.1 905.0
Property, Plant and Equipment
Land 5.7 5.2
Buildings and improvements 94.2 82.0
Machinery and equipment 268.2 241.8
Property, plant and equipment 368.1 329.0
Less: accumulated depreciation 102.7 86.8
Property - Net 265.4 242.2
Other Assets 9.7 1.4
Total Assets $ 1,359.2 $ 1,148.6
Liabilities and Shareholders' Equity
Current Liabilities:
Trade accounts payable $ 22.5 $ 18.4
Accrued payroll, benefits and bonus 19.8 10.9
Accrued advertising and merchandising 27.8 16.4
Income taxes payable 43.3 20.6
Other current liabilities 22.3 18.2
Total Current Liabilities 135.7 84.5
Long-term Debt 1.4 1.5
Other Liabilities 46.1 46.6
Deferred Income Taxes 3.6 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 1,105.7 942.1
Treasury common stock, at cost, 602,010 shares (20.9) (20.9)
Total Common Shareholders' Equity 1,157.1 993.5
Total Liabilities and Shareholders' Equity $ 1,359.2 $ 1,148.6
See accompanying notes to the consolidated financial statements.
<10>
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).
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 and include the cost of
raw materials, labor and overhead. During the fourth quarter of 1998, the
Company changed the valuation of inventories from the last-in, first-out
(LIFO) cost method to the average quarterly cost method. Over the past four
years, the costs of key ingredients, package materials and manufacturing
fees have declined and are expected to decline going forward. As a result,
management believes that the average quarterly cost method is preferable
to the LIFO cost method because it provides better current period matching of
revenues and expenses. This change is effective January 1, 1998. The impact on
1998 and 1997 results and the cumulative effect of this accounting change are
not material, and accordingly, previously reported results have not been
restated.
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 July 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This Statement established standards for reporting comprehensive income in the
financial statements. The Company adopted this standard in January 1998
and is not required to separately report comprehensive income because
comprehensive income was equal to net income in all periods presented.
<11>
In July 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Statement requires that operating
segments be reported consistent with how management assesses segment
performance. In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This Statement
revises employers' disclosures about pensions and other postretirement
benefit plans. It does not change the measurement or recognition of those
plans in the financial statements. As Stokely is a wholly-owned subsidiary of
Quaker, the Company's adoption of these new standards in December 1998 did not
result in material changes to previously reported amounts or disclosures.
In January 1998, Statement of Position (SOP) No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use," was
issued. This SOP provides guidance on the accounting for computer software
costs. In April 1998, SOP No. 98-5, "Reporting on the Costs of Start-Up
Activities," was issued. This SOP provides guidance on accounting for the
cost of start-up activities. The Company is not required to adopt these
standards until January 1999, and these are not expected to materially
affect the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting
and reporting standards requiring that all derivative instruments (including
certain derivative instruments imbedded in other contracts) be recorded in
the balance sheet as either an asset or a liability measured at its fair
value. The Statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met. The accounting provisions for qualifying hedges allow a
derivative's gains and losses to offset related results on the hedged item in
the income statement, and requires that the Company must formally
document, designate, and assess the effectiveness of transactions that
qualify for hedge accounting. The Company has not determined its method or
timing of adopting this Statement, but will be required to adopt it by
January 2000. When adopted, this Statement could increase volatility in
reported earnings and necessitate the separate reporting of comprehensive
income.
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. Current deferred
tax assets and liabilities are netted in the consolidated balance sheets as
are long-term deferred tax assets and liabilities. Income taxes have also
been provided for potential tax assessments and the related tax accruals are in
the consolidated balance sheets. To the extent that tax accruals differ from
actual payments or assessments, the accruals will be adjusted through the
provision for income taxes.
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
RESTRUCTURING CHARGES
In 1997, the Company recorded restructuring charges of $3.1 million to
reconfigure U.S. Gatorade manufacturing lines. These charges were 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 these
restructuring actions.
<12>
NOTE 3
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 businesses. 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 businesses are
licensed to sell Gatorade thirst quencher in international markets. In
exchange for these licensing rights, Quaker pays the Company a royalty. The
following summarizes the significant related party transactions other than
those described elsewhere in the consolidated financial statements:
Income Taxes
Stokely is included in the consolidated Federal income tax return of Quaker.
Stokely provides for current and deferred taxes as if it filed a separate
consolidated tax return, except that if any items are subject to limitations in
Stokely's tax calculations, such limitations are determined on the basis of the
Quaker consolidated group.
Employees
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 businesses allocate 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 were $7.5 million, $6.4 million and $5.5 million in 1998, 1997
and 1996, respectively.
<13>
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, 1998
or 1997.
NOTE 4
LONG-TERM DEBT
Dollars in Millions
As of December 31, 1998 1997
Capital Lease Obligations $1.7 $1.6
Industrial Revenue Bond, 4.5%
due through October 1, 1999 0.2 0.3
Less: current maturities 0.5 0.4
Long-term Debt $1.4 $1.5
Aggregate required payments for long-term debt maturing over the next five
years are as follows:
Dollars in Millions 1999 2000 2001 2002 2003
Total Payments $0.5 $0.2 $0.2 $0.2 $0.2
NOTE 5
FINANCIAL INSTRUMENTS
Financial instruments are primarily used to fund operating requirements and to
manage 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 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 1998 was in commodities that may be hedged.
The Company's strategy is to hedge certain production requirements for
various periods, typically up to 12 months. As of December 31, 1998,
approximately 39% of 1999 hedgeable production requirements were hedged.
The fair value of commodity instruments outstanding as of December 31, 1998,
based on quotes from brokers, was a net unrealized loss of $0.1 million. No
commodity instruments were outstanding as of December 31, 1997. Realized
net (losses) gains charged to cost of goods sold were $(1.0) million, $(0.1)
million and $1.2 million in 1998, 1997 and 1996, respectively.
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.
<14>
NOTE 6
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, 1998, authorized shares were 500,000 and issued
and outstanding shares were 9,131 for the 5% Cumulative Convertible Second
Preferred Stock. As of December 31, 1998, 1,500,000 shares were authorized,
755,013 shares were issued, 754,680 shares were outstanding and 9,131 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 $20 Par Value
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
Shares Converted 1,269 (1,269)
Balance as of December 31, 1998 754,680 9,131
NOTE 7
PENSION AND POSTRETIREMENT PLANS
Pension benefits for salaried and hourly employees assigned to the Company
are provided 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 3, the Company was allocated
pension costs of approximately $0.8 million, $0.6 million, and $1.5 million in
1998, 1997 and 1996, respectively. The Company's allocated accrued pension
liability was approximately $10.4 million and $10.6 million as of December 31,
1998 and 1997, respectively.
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 3, the Company is allocated a portion of
these costs incurred by Quaker. The Company was allocated postretirement
benefit costs of $5.4 million, $2.8 million and $2.5 million in 1998, 1997
and 1996, respectively. The Company's allocated unfunded accrued
postretirement benefit liability was $37.7 million and $35.1 million as of
December 31, 1998 and 1997, respectively.
<15>
NOTE 8
SUPPLEMENTAL CASH FLOW INFORMATION
Dollars in Millions
Year Ended December 31, 1998 1997 1996
Cash Activity:
Interest Paid $ 0.1 $ 0.1 $ 0.1
Income Taxes Paid $ 83.9 $ 78.1 $ 100.1
Non-Cash 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 9
LEASES AND OTHER COMMITMENTS
Certain operating properties are rented under non-cancelable operating
leases. Total rental expense under operating leases was $5.2 million, $5.7
million and $5.0 million in 1998, 1997 and 1996, 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 1999 2000 2001 2002 2003 Thereafter Total
Total Payments $5.1 $4.6 $4.7 $3.8 $3.0 $7.8 $29.0
The Company enters into executory contracts to obtain inventory and promote
various products. As of December 31, 1998, future commitments under these
contracts amounted to $219.1 million.
NOTE 10
INCOME TAXES
The Company uses an asset and liability approach to financial accounting and
reporting for income taxes in accordance with SFAS No. 109, "Accounting for
Income Taxes."
Provisions for income taxes were as follows:
Dollars in Millions
Year Ended December 31, 1998 1997 1996
Currently payable:
Federal $ 99.5 $ 74.6 $ 75.2
Foreign 0.2 0.1 0.5
State 17.7 16.6 15.4
Total currently payable 117.4 91.3 91.1
Deferred - net:
Federal (8.5) (0.6) (4.9)
Foreign (0.1) (0.1) (0.3)
State (1.6) 0.7 1.1
Total deferred - net (10.2) -- (4.1)
Provision for income taxes $ 107.2 $ 91.3 $ 87.0
<16>
The components of the deferred income tax (benefit) provision were as
follows:
Dollars in Millions
Year Ended December 31, 1998 1997 1996
Accelerated tax depreciation $ (0.7) $ 4.7 $ 0.5
Postretirement benefits (1.7) (0.6) (1.0)
Accrued expenses (6.1) (4.1) (0.6)
Other (1.7) -- (3.0)
Deferred income tax (benefit) $ (10.2) $ -- $ (4.1)
The sources of pretax income were as follows:
Dollars in Millions
Year Ended December 31, 1998 1997 1996
U.S. sources $ 268.5 $ 222.2 $ 211.3
Foreign sources 3.1 0.2 0.6
Income before income taxes $ 271.6 $ 222.4 $ 211.9
Reconciliations of the statutory Federal income tax rates to the effective
income tax rates were as follows:
<TABLE>
<CAPTION>
Dollars in Millions
Year Ended December 31, 1998 1997 1996
% 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 $ 95.1 35.0% $ 77.9 35.0% $ 74.2 35.0%
State and local income tax
provision - net of
Federal income tax benefit 10.5 3.9 11.2 5.0 10.7 5.0
Other 1.6 0.6 2.2 1.0 2.1 1.0
Provision for income taxes $ 107.2 39.5% $ 91.3 41.0% $ 87.0 41.0%
</TABLE>
Deferred tax assets and deferred tax liabilities were as follows:
Dollars in Millions
As of December 31, 1998 1997
Deferred Deferred Tax Deferred Deferred Tax
Tax Assets Liabilities Tax Assets Liabilities
Depreciation and amortization $ 1.8 $25.2 $ 1.3 $26.4
Postretirement benefits 15.1 -- 13.4 --
Other benefit plans 8.0 -- 7.5 --
Accrued expenses 31.9 2.0 25.5 0.4
Other 0.8 -- 0.8 1.5
Total $57.6 $27.2 $48.5 $28.3
<17>
NOTE 11
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Dollars in Millions
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
Net sales $212.9 $505.7 $473.0 $156.3
Cost of goods sold 106.9 224.4 215.7 87.5
Gross profit $106.0 $281.3 $257.3 $ 68.8
Net income (loss) $ 17.6 $ 78.9 $ 74.7 $ (6.8)
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)
(a) Includes $3.1 million of pretax restructuring charges for a U.S. Gatorade
manufacturing reconfiguration.
<18>
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, 1998 and 1997 and the related
consolidated statements of income, reinvested earnings and cash flows for
the years ended December 31, 1998, 1997 and 1996. 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, 1998 and 1997 and the results of their
operations and their cash flows for the years ended December 31, 1998, 1997
and 1996, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, effective January 1,
1998, the Company adopted the average quarterly cost method of determining
cost for its inventories.
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 2, 1999
<19>
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, 1999.
Name Principal Occupation Age
Susan D. Wellington Vice President and President - U.S. 40
Beverages of Quaker and
Director, Chief Executive Officer and
President of Stokely.
John G. Jartz Senior Vice President - General Counsel, 45
Business Development and Corporate Secretary
of Quaker and Director, Vice President and
Secretary of Stokely.
Thomas L. Gettings Vice President - Treasurer and Tax of 42
Quaker and Stokely and Director
of Stokely.
Richard M. Gunst Vice President and Corporate 42
Controller of Quaker and Stokely.
Ms. Susan D. Wellington, Vice President and President - U.S. Beverages of
Quaker, replaced Mr. James F. Doyle as Director, Chief Executive Officer and
President of Stokely effective March 11, 1998. Mr. Jartz has served in his
capacity since October 1996. Mr. Gettings and Mr. Gunst have served in
their capacities since May 1998. 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 to the Company's Chief Executive
Officer and President as of December 31, 1998. Information is provided for each
fiscal year that Ms. Wellington served as an executive officer of the Company.
No other executive officer of the Company was paid in excess of $100,000 in
salary and bonus relative to their services for the Company.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-term
Annual Compensation Compensation
Other Restricted Securities All
Annual Stock Underlying Other
Fiscal Salary Bonus Compensation Awards Options Compensation
Name Year ($) ($)(1) ($) ($)(2) (#)(3) ($)(4)
<S> <C> <C> <C> <C> <C> <C> <C>
Susan D. Wellington 1998 $234,014 $342,900 -0- $285,000 21,000 $65,276
Chief Executive 1997 N/A N/A N/A N/A N/A N/A
Officer and President 1996 N/A N/A N/A N/A N/A N/A
</TABLE>
(1) 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 1998.
<20>
(2) 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 are paid on an on-going basis at the same rate as paid to
all Quaker shareholders of common stock. The amount and value of
restricted shares held by Ms. Wellington, as of December 31, 1998 were
5,000 and $297,500, respectively.
Upon a change in control of Quaker (see definition under Pension
Plans), restricted shares outstanding on the date of the change in
control will be canceled and an immediate lump-sum cash payment will be
paid which is equal to the product of (1) the higher of (i) the closing
price of common stock as reported on the New York Stock Exchange
Composite Index on or nearest to the date of payment (or, if not listed on
such exchange, on a nationally recognized exchange or quotation system
on which trading volume in the common stock is highest) or (ii) the
highest per share price for common stock actually paid in
connection with the change in control; and (2) the number of shares of
such restricted stock.
(3) All stock option awards were granted with an exercise price that was
equal to the fair market value of Quaker's common stock on the date of the
grant.
(4) Amounts shown are the total of the value of the stock allocations to
the Named Executives' employee stock ownership accounts and cash awards to
the Named Executives based on earnings in excess of the Internal Revenue
Code limits on the amount of earnings deemed eligible for purposes of the
annual stock allocations made directly under the Quaker 401(k) Plan for
Salaried Employees.
The following table contains information covering the grant of stock options
to the Chief Executive Officer and President during Fiscal Year 1998. The
exercise price for all options granted is equal to the fair market value of
Quaker's common stock on the date of grant.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants (1) for Option Term (2) %
% of Total
Number of Options
Securities Granted to
Underlying Employees
Options in Fiscal Exercise Expiration
Name Granted (#) Year Price ($/Share) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Susan D. Wellington 21,000 0.9% $56.78 03/10/08 $747,897 $1,900,387
</TABLE>
(1) All options were granted on March 11, 1998, 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 Ms.
Wellington would represent less than 0.1% of the incremental increase of
approximately $5 billion and $12 billion respectively, in the Potential
Realizable Value that shareholders would realize under both the
prescribed 5% and 10% stock price appreciation rates.
<21>
The following table contains information covering the exercise of
options by the Chief Executive Officer and President during 1998 and
unexercised options held as of the end of 1998.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised, In-the-
Underlying Unexercised Money Options at Fiscal
Options at Fiscal Year End (#) Year End ($)(2)
Shares Value
Name Acquired On Realized
Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Susan D. Wellington -0- -0- 43,155 30,045 $950,952 $254,590
</TABLE>
(1) Represents the difference between the option exercise price and the fair
market value of Quaker's common stock on the date of exercise,
multiplied by the number of options exercised.
(2) Represents the difference between the option exercise price and the fair
market value of Quaker's common stock on December 31, 1998, multiplied by
the number of options held on that date.
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 401(k) Plan for Salaried
Employees and allocations to the employee stock ownership accounts. Normal
retirement age under the Retirement Plan is age 65. The Retirement Plan
provides 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.
<22>
The Quaker Supplemental Executive Retirement Program (Supplemental Executive
Retirement Program) may also provide retirement benefits for officers of the
Company designated as participants by the Compensation Committee. Benefit
amounts payable under the Supplemental Executive Retirement Program are
intended to provide a minimum base retirement benefit and are therefore
offset by the total of amounts payable under the Retirement Plan, The Quaker
415 Excess Benefit Plan and The Quaker Eligible Earnings Adjustment Plan
(Basic Benefit). The Supplemental Executive Retirement Program benefit is
based upon a participant's average annual earnings for the five consecutive
calendar years during which earnings were highest within the last ten years of
service multiplied by a percentage based upon the participant's age at his
termination date. This percentage ranges from 35% to 50% (based upon their
ages at termination).
The estimated annual retirement benefits that Ms. Wellington would receive
under the Retirement Plan, The Quaker 415 Excess Benefit Plan, and The
Quaker Eligible Earnings Adjustment Plan, if she retired at age 65, are
$344,769. This amount assumes that she will continue to work for Quaker
until her normal retirement date and that her earnings will remain the same as
in year 1998 and that she 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:
(a) An acquisition of 25% or more of Quaker stock;
(b) A majority of Quaker's Board is comprised of persons who were not
nominated by its Board for election as directors;
(c) A plan of complete liquidation of Quaker; or
(d) A merger, consolidation or sale of all or substantially all of Quaker's
assets unless thereafter (i) directors of Quaker immediately prior thereto
continue to constitute at least 50% of the directors of the surviving entity or
purchaser; or (ii) Quaker's securities continue to represent, or are
converted to securities which represent, more than 70% of the combined
voting power of the surviving entity or purchaser.
For a 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 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 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.
<23>
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 Street, Chicago, Illinois
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, 1999. 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 22.0
Stock (1) Foundation
620 Campbell Station Road
Station West, Suite 4
Knoxville, TN 37922
Marjorie M. Cochran 1,125 12.3
2900 Country Squire Lane
Decatur, GA 30033-2418
Esther M. Minter 1,125 12.3
230 East College Street
Griffin, GA 30223-4348
Cooper N. Mills 926 10.1
666 Brook Circle
Griffin, GA 30223-4413
Sigler & Co. 855 9.4
c/o Chase Manhattan Bank
Dept. 3492
P.O. Box 50000
Newark, NJ 07101-8006
John B. Mills, III 526 5.8
1043 Clifton Road
Atlanta, GA 30307-1227
Olga L. Bretthauer 500 5.5
1515 Prairie St. #B
Vincennes, IN 47591-4341
(1) Holders of common stock and Second Preferred Stock vote collectively
and not as a separate class. As of December 31, 1998, 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.
<24>
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, 1999, 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 own any equity securities of Stokely.
Amount Shares Subject
of Beneficial to Acquisition
Ownership(a) Within 60 Days(a)
Susan D. Wellington 64,770(b)(c) 54,540
John G. Jartz 124,072(b)(c) 104,918
Thomas L. Gettings 102,297(b)(c) 91,268
All Directors and Officers as a group 314,822(b)(c) 266,590
(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, 1999.
(b) The figures shown for these directors and executive officers include an
aggregate of 23,157 shares (which includes 4,719 shares on the basis of the
conversion of 2,184 shares of Series B ESOP Convertible Preferred at the
conversion rate of 2.16) allocated to them in The Quaker Employee Stock
Ownership Plan of The Quaker 401(k) Plan for Salaried Employees. The
directors each hold the following number of shares under this plan: Ms.
Wellington, 6,013; Mr. Jartz, 8,622; and Mr. Gettings, 5,278.
(c) The figures shown for these directors and executive officers include an
aggregate of 11,264 shares granted to them under The Quaker Long Term
Incentive Plans for which the restricted period has not lapsed. The directors
each hold the following number of shares under this plan: Ms. Wellington,
5,000; Mr. Jartz, 1,379; and Mr. Gettings, 1,447.
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, 3, and 7 to the consolidated
financial statements.
<25>
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Dollars in Millions
Year Ended December 31, 1998 1997 1996
ITEM
Depreciation $ 25.2 $ 21.0 $ 15.2
Advertising & Merchandising $ 332.3 $ 296.2 $ 257.1
<26>
Exhibit 21
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
Subsidiaries of the Registrant
State or Country
Subsidiary of Incorporation
The Gatorade Company Delaware
Gatorade Puerto Rico Company Delaware
The Gatorade Company of Australia Pty. Ltd. Australia
Quaker de (Chile) Ltda Chile
SVC Equipment Company Delaware
SVC Latin America, Inc. Delaware
SVC Latin America, LLC Delaware
Foreign Joint Venture
Guangzhou Quaker Oats
Food & Beverage Co. Ltd. The Quaker Oats Company 90%
Stokely-Van Camp, Inc. 10%
<27>
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 25, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 25th day of March 1999, 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/ Thomas L. Gettings Vice President, Treasurer and Tax
Thomas L. Gettings (Principal Financial Officer)
and Director
/s/ John G. Jartz Vice President,
John G. Jartz Secretary and Director
/s/ Richard M. Gunst Vice President and Corporate
Richard M. Gunst Controller
<28>
EXHIBIT INDEX
Incorporated by
Reference (IBRF)
EXHIBIT NO. DESCRIPTION or Electronic (E)
3 (a) Restated Articles of Incorporation of IBRF
Stokely-Van 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) Bylaws 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
<29>
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
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<RECEIVABLES> 41
<ALLOWANCES> 5
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<CURRENT-ASSETS> 1,084
<PP&E> 368
<DEPRECIATION> 103
<TOTAL-ASSETS> 1,359
<CURRENT-LIABILITIES> 136
<BONDS> 1
0
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<COMMON> 4
<OTHER-SE> 1,153
<TOTAL-LIABILITY-AND-EQUITY> 1,359
<SALES> 1,348
<TOTAL-REVENUES> 1,348
<CGS> 635
<TOTAL-COSTS> 635
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 272
<INCOME-TAX> 107
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