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, 1999
[ ]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, IL 60604-9001
(Address of principal executive office) (Zip Code)
(312)222-7111
(Registrant's telephone number, including area code)
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
Stock, $20 Par Value New York Stock Exchange
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,
1999, 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
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PART I PAGE
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ITEM 1. Business 1
ITEM 2. Properties 2
ITEM 3. Legal Proceedings 2
ITEM 4. Submission of Matters to a Vote of Security-Holders 2
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
Condition and Results of Operations 4-6
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk 6
ITEM 8. Financial Statements and Supplementary Data 7-18
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 19
PART III
ITEM 10. Directors and Executive Officers of the Registrant 19
ITEM 11. Executive Compensation 20-22
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management 23-24
ITEM 13. Certain Relationships and Related Transactions 24
PART IV
ITEM 14. Exhibits and Financial Statement Schedules 25-26
SIGNATURES 27
EXHIBIT INDEX 28
</TABLE>
PART I
ITEM 1. BUSINESS
Stokely-Van Camp, Inc. (together with its subsidiaries, the Company or Stokely)
has been a wholly-owned subsidiary of The Quaker Oats Company (Quaker) since
1983. The Company manufactures beverage and food products. Effective October 1,
1999, Stokely entered into an agreement with Quaker Sales and Distribution,
Inc. (QSD), a wholly-owned subsidiary of Quaker, to provide sales and
distribution services for the Company in North America. Under the terms of the
agreement, QSD purchases finished goods from Stokely at a contracted price
based on the sales price to the ultimate customer less an agreed-upon amount to
compensate QSD for services provided, which for 1999 was approximately 11
percent of the sales price to the ultimate customer. The 1999 results included
sales of $171.4 million from the Company to Quaker under the new sales
and distribution agreement. The agreement is automatically renewable each year
unless one of the parties notifies the other of its intention not to renew.
As a result, a majority of Stokely's sales on a going-forward basis will
be to Quaker, a related party.
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 QSD.
The supply of raw materials for Gatorade thirst quencher has been adequate and
continuous. The Company's sales are seasonal, with approximately 70 percent of
sales occurring in the second and third quarters, during the spring and summer
beverage season.
Export sales in 1999, 1998 and 1997 were $31.3 million, $30.2 million and
$31.9 million, respectively.
Fee Agreement
In 1984, the Company entered into 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 the 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, 1999, was
approximately 1,397.
Enterprise and Geographic Data
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Dollars in Millions Net Sales(a) Long-lived Assets
Year Ended December 31, 1999 1998 1997 1999 1998 1997
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U.S. Beverages(b) $ 1,461.5 $ 1,310.0 $ 1,153.6 $ 325.0 $ 263.8 $ 240.3
Foreign 33.1 37.9 34.8 1.8 1.6 1.9
Total Consolidated $ 1,494.6 $ 1,347.9 $ 1,188.4 $ 326.8 $ 265.4 $ 242.2
(a) Intersegment revenue is not material.
(b) Includes affiliate sales to Quaker of $180.1 million, $3.2 million and $0.4 million in
1999, 1998 and 1997, respectively.
</TABLE>
<Page 1>
ITEM 2. PROPERTIES
The Company owns and operates seven manufacturing plants, located in seven
states, and leases a facility in Puerto Rico. In conjunction with the
Company's capacity expansion plans, construction of a new Indianapolis plant
began in 1999 and is expected to replace the existing Indianapolis, Indiana
plant. Management believes that owned and leased manufacturing and office space
is suitable and adequate for the business and that production capacity is
appropriately utilized. Sales and distribution services are provided by QSD,
which owns or leases distribution centers and sales offices.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
<Page 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 1999, 1998 or 1997.
ITEM 6. SELECTED FINANCIAL DATA
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Dollars in Millions
Year Ended December 31, 1999 1998 1997(a) 1996 1995(b)
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Net sales $ 1,494.6 $ 1,347.9 $ 1,188.4 $ 1,090.5 $ 1,130.3
Cost of goods sold $ 707.9 $ 634.5 $ 566.1 $ 540.7 $ 586.9
Income before income taxes $ 335.0 $ 271.6 $ 222.4 $ 211.9 $ 215.6
Provision for income taxes $ 132.1 $ 107.2 $ 91.3 $ 87.0 $ 79.2
Net Income $ 202.9 $ 164.4 $ 131.1 $ 124.9 $ 136.4
</TABLE>
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<CAPTION>
Dollars in Millions
As of December 31, 1999 1998 1997 1996 1995
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Property - net $ 326.8 $ 265.4 $ 242.2 $ 188.8 $ 141.7
Total assets $ 1,554.3 $ 1,359.2 $ 1,148.6 $ 1,013.6 $ 877.5
Long-term debt $ 1.9 $ 1.4 $ 1.5 $ 0.3 $ 0.5
Redeemable preference and preferred
stock $ 15.3 $ 15.3 $ 15.3 $ 15.3 $ 15.3
(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.
</TABLE>
<Page 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 the
Company for the years ended December 31, 1999 (current year) and 1998 (prior
year). The Company is a wholly-owned subsidiary of Quaker. Effective October 1,
1999, Stokely entered into an agreement with QSD, a wholly-owned subsidiary
of Quaker, to provide sales and distribution services for the Company in North
America. The agreement is automatically renewable each year unless one of the
parties notifies the other of its intention not to renew. As a result, a
majority of Stokely's sales on a going-forward basis will be to Quaker, a
related party.
1999 Compared with 1998
Consolidated net sales for 1999 were approximately $1.49 billion, an increase
of 11 percent from 1998, primarily driven by higher U.S. net sales. U.S.
Gatorade net sales comprised more than 97 percent of the total current-year net
sales. Gatorade thirst quencher volume and net sales in the United States
increased 16 percent and 12 percent, respectively, driven by new flavors, such
as Gatorade Fierce, and new packaging, such as a redesigned sports bottle and a
20-ounce wide-mouth bottle. U.S. Gatorade continued to grow through expanded
distribution and availibility outside traditional retail channels. With the
exception of the contract pricing to QSD, price changes did not significantly
affect the comparison of current and prior year net sales. Under the terms
of the agreement with QSD, QSD purchases finished goods from Stokely at a
contracted price based on the sales price to the ultimate customer less an
agreed-upon amount to compensate QSD for services provide; in 1999, this
amount was approximately 11 percent of the sales price to the ultimate
customer. Current year results include net sales of $171.4 million from Stokely
to Quaker under the new sales and distribution agreement.
Consolidated gross profit margin was 52.6 percent in 1999 compared to
52.9 percent in 1998. Selling, general and administrative (SG&A) expenses
increased 4 percent to $514.4 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 24.9 percent and 24.7 percent of net sales in 1999
and 1998, respectively. Going forward, QSD will sell and distribute Gatorade in
North America; therefore, Stokely will no longer incur certain distribution
costs and SG&A expenses.
Net interest income of $62.7 million increased $11.6 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 39.4 percent and 39.5 percent in 1999 and 1998,
respectively.
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. net sales. U.S. Gatorade thirst
quencher volume and net sales increased 17 percent and 14 percent,
respectively. New packaging and flavors, strong growth outside the traditional
retail market and more favorable weather versus 1997 contributed to the volume
and net sales increase, which resulted in market share gains. Price changes
did not significantly affect the comparison of 1998 and 1997 net sales.
Consolidated gross profit margin was 52.9 percent in 1998 compared to
52.4 percent in 1997. SG&A expenses increased 12 percent to $492.9 million,
driven by a 12 percent increase in 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 1997 as a
result of higher average amounts due from 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.
<Page 4>
Liquidity and Capital Resources
Net cash provided by operating activities was $277.1 million, $196.6 million
and $156.8 million for 1999, 1998 and 1997, respectively. The increase in cash
flows provided by operating activities in all three years was primarily due to
increased net income. 1999 cash provided by the decrease in trade accounts
receivable reflects the collection of customer accounts and immediate
reimbursement to Stokely for QSD inventory purchases. Capital expenditures were
$101.5 million, $54.1 million and $52.4 million for 1999, 1998 and 1997,
respectively. During 1999, the Company announced plans to increase production
capacity in the United States and shortened the useful lives on the assets
planned to be replaced. The Company expects 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's policy is
to use 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 utilize 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, $0.8 million and zero, respectively, during the current year and
$0.3 million, $0.4 million and $0.1 million, respectively, during the prior
year. Actual changes in market prices or rates may differ from hypothetical
changes presented in sensitivity analyses.
Current and Pending Accounting Changes
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This 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.
This 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 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 2001. When adopted, this statement
could increase volatility in reported earnings and other comprehensive income
of the Company.
Year 2000
Stokely, through its parent company, Quaker, conducts the majority of its
operations as an integrated component of Quaker's business. Quaker spent
approximately $12 million to address issues with the year 2000 date change, of
which a ratable portion was allocated to Stokely. The Company has not
experienced business disruption or incurred significant expenses in 2000
related to the date change.
<Page 5>
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 suggested by 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 and consumer demand (including
customer and consumer responses to marketing); effectiveness of spending,
investments or programs (including cost-reduction and production capacity
expansion projects); changes in market prices or rates; fluctuations in the
cost and availability of supply chain resources; weather; the ability of Quaker
to effectuate distribution and outsourcing initiatives; and costs related to
the year 2000 issue, which may arise during the remainder of 2000. In
addition, capital expenditures may be affected by the amount of cash flow from
operating activities; and the Company's market risk exposures may be affected
by actual changes in market prices of derivative commodity instruments if
actual changes differ from the hypothetical changes used in sensitivity
analyses. Forward-looking statements speak only as of the date they were made,
and the Company undertakes no obligation to 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosure about market risk information is set
forth under the caption "Derivative Commodity and Financial Instruments" in
Item 7 of this Form 10-K, and is incorporated herein by reference.
<Page 6>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
REINVESTED EARNINGS AND COMPREHENSIVE INCOME
Dollars in Millions
Year Ended December 31, 1999 1998 1997
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Net sales $ 1,494.6 $ 1,347.9 $ 1,188.4
Cost of goods sold 707.9 634.5 566.1
Gross profit 786.7 713.4 622.3
Selling, general and administrative expenses 514.4 492.9 441.2
Restructuring charges -- -- 3.1
Interest income - net (62.7) (51.1) (44.4)
Income before income taxes 335.0 271.6 222.4
Provision for income taxes 132.1 107.2 91.3
Net Income 202.9 164.4 131.1
Dividends on preference and preferred stock (0.8) (0.8) (0.8)
Reinvested Earnings - Beginning Balance 1,105.7 942.1 811.8
Reinvested Earnings - Ending Balance $ 1,307.8 $ 1,105.7 $ 942.1
Comprehensive Income:
Net Income $ 202.9 $ 164.4 $ 131.1
Other Comprehensive Income:
Foreign currency translation adjustments (0.5) -- --
Total Comprehensive Income $ 202.4 $ 164.4 $ 131.1
</TABLE>
See accompanying notes to the consolidated financial statements.
<Page 7>
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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<CAPTION>
Dollars in Millions
Year Ended December 31, 1999 1998 1997
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 202.9 $ 164.4 $ 131.1
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 30.2 25.2 21.3
Deferred income taxes (1.4) (3.6) 3.0
Restructuring charges -- -- 3.1
Loss on disposition of property and equipment 3.8 3.0 13.9
Decrease (increase) in trade accounts receivable 30.9 (7.6) (4.5)
Decrease (increase) in inventories 1.2 (22.3) (0.6)
Decrease (increase) in other current assets 14.3 (4.9) (3.4)
Increase (decrease) in trade accounts payable 22.3 4.1 (2.5)
(Decrease) increase in income taxes payable (27.1) 22.7 (4.9)
(Decrease) increase in other current liabilities (4.3) 24.4 (7.8)
Other items 4.3 (8.8) 8.1
Net Cash Provided by Operating Activities 277.1 196.6 156.8
Cash Flows from Investing Activities:
Additions to property, plant and equipment (101.5) (54.1) (52.4)
Proceeds on the sale of property and equipment 1.1 0.9 --
Net Cash Used in Investing Activities (100.4) (53.2) (52.4)
Cash Flows from Financing Activities:
Change in amount Due from The Quaker Oats Company (179.6) (143.5) (102.8)
Cash dividends (0.8) (0.8) (0.8)
Proceeds from long-term debt 1.1 -- 1.4
Reduction of long-term debt (0.5) (0.1) (0.2)
Net Cash Used in Financing Activities (179.8) (144.4) (102.4)
Net (Decrease) Increase in Cash and Cash Equivalents (3.1) (1.0) 2.0
Cash and Cash Equivalents - Beginning of Period 6.3 7.3 5.3
Cash and Cash Equivalents - End of Period $ 3.2 $ 6.3 $ 7.3
</TABLE>
See accompanying notes to the consolidated financial statements.
<Page 8>
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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<CAPTION>
Dollars in Millions
As of December 31, 1999 1998
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 3.2 $ 6.3
Due from The Quaker Oats Company 1,103.6 924.0
Trade accounts receivable - net of allowance of $0.3 and $5.1 in
1999 and 1998, respectively 5.4 36.3
Inventories:
Finished goods 39.6 48.1
Materials and supplies 16.2 8.9
Total Inventories 55.8 57.0
Other current assets 46.2 60.5
Total Current Assets 1,214.2 1,084.1
Property, Plant and Equipment
Land 15.4 5.7
Buildings and improvements 112.5 94.2
Machinery and equipment 318.4 268.2
Property, plant and equipment 446.3 368.1
Less: accumulated depreciation 119.5 102.7
Property - Net 326.8 265.4
Other Assets 13.3 9.7
Total Assets $ 1,554.3 $ 1,359.2
Liabilities and Shareholders' Equity
Current Liabilities:
Trade accounts payable $ 44.8 $ 22.5
Accrued payroll, benefits and bonus 13.4 19.8
Accrued advertising and merchandising 28.5 27.8
Income taxes payable 16.2 43.3
Other current liabilities 23.8 22.3
Total Current Liabilities 126.7 135.7
Long-term Debt 1.9 1.4
Other Liabilities 49.5 46.1
Deferred Income Taxes 2.2 3.6
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 1,307.8 1,105.7
Cumulative translation adjustments (0.5) --
Treasury common stock, at cost, 602,010 shares (20.9) (20.9)
Total Common Shareholders' Equity 1,358.7 1,157.1
Total Liabilities and Shareholders' Equity $ 1,554.3 $ 1,359.2
</TABLE>
See accompanying notes to the consolidated financial statements.
<Page 9>
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. All significant intercompany transactions have been eliminated.
The Company is a subsidiary of 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.
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 primarily
range from 10 to 40 years for buildings and improvements and from 3 to 12 years
for machinery and equipment.
Advertising and Merchandising
Advertising and Merchandising expenses include amounts paid for media,
production activities, cooperative retailer advertising and in-store promotion.
Statement of Position (SOP) No.93-7 "Reporting on Advertising Costs,"
addresses the accounting for these expenses. Stokely expenses all of these
expenses as incurred except production cost which are deferred and expensed when
advertisements air for the first time. The amount of production cost deferred
and included in the balance sheets as of December 31, 1999 and 1998, was
$5.8 million and $5.1 million, respectively.
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.
<Page 10>
Current and Pending Accounting Changes
In January 1998, 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's
adoption of these standards in January 1999 did not materially affect the
Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This 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. This
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 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 2001. When adopted, this statement could
increase volatility in reported earnings and other comprehensive income of the
Company.
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.
NOTE 3
RELATED PARTY TRANSACTIONS
The Company, 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, advertising and merchandising expenses, and salaries and certain direct
expenses for Stokely employees, 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.
QSD, a wholly-owned subsidiary of Quaker, provides sales and distribution
services to the Company. QSD reimburses Stokely for inventory purchased.
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:
<Page 11>
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 allocated a ratable
portion of shared operating expenses including certain other marketing
expenses, product research and general and administrative services. For the
nine months ended September 1999 and the twelve months ended December 1998 and
1997, Quaker allocated a ratable portion of expenses for the sales force and
brokers. These expenses are allocated to Stokely on a basis which approximates
actual services provided as determined by various measures.
Sales and Distribution Agreement
Effective October 1, 1999, Stokely entered into an agreement with QSD, a
wholly-owned subsidiary of Quaker, to provide sales and distribution services
for the Company in North America. Under the terms of the agreement, QSD
purchases finished goods from Stokely at a contracted price based on the sales
price to the ultimate customer less an agreed-upon amount to compensate QSD for
services provided, which for 1999 was approximately 11 percent of the sales
price to the ultimate customer. 1999 results include sales of
$171.4 million from Stokely to QSD under this agreement. The agreement is
automatically renewable each year unless one of the parties notifies the other
of its intention not to renew. As a result, a majority of Stokely's sales on
a going-forward basis will be to Quaker, a related party.
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 $9.8 million, $7.5 million and $6.4 million in 1999, 1998 and
1997, 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 currently provides for an interest rate based on the six month
LIBOR (London Interbank Offered Rate) plus 4.25 percent. 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, 1999 or 1998.
<Page 12>
NOTE 4
<TABLE>
<CAPTION>
LONG-TERM DEBT
Dollars in Millions
As of December 31, 1999 1998
<S> <C> <C>
Capital Lease Obligations $ 2.5 $ 1.7
Industrial Revenue Bond, 4.5%
due through October 1, 1999 -- 0.2
Less: Current maturities 0.6 0.5
Long-term Debt $ 1.9 $ 1.4
</TABLE>
Aggregate required payments for long-term debt maturing over the next five
years are as follows:
Dollars in Millions 2000 2001 2002 2003 2004 Thereafter Total
Total Payments $ 0.6 $ 0.6 $ 0.5 $ 0.3 $ 0.3 $ 0.2 $ 2.5
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 manage 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 1999 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, 1999, approximately
92 percent of 2000 hedgeable production requirements were hedged. The fair
value of commodity instruments outstanding as of December 31, 1999 and 1998,
based on quotes from brokers, was a net unrealized loss of $0.1 million
and $0.1 million, respectively. Realized net losses charged to cost of goods
sold were $0.1 million, $1.0 million and $0.1 million in 1999, 1998 and 1997,
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.
<Page 13>
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, 1999, authorized shares were 500,000 and issued and outstanding
shares were 8,205 for the 5% Cumulative Convertible Second Preferred Stock. As
of December 31, 1999, 1,500,000 shares were authorized, 755,939 shares were
issued, 755,606 shares were outstanding and 8,205 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:
<TABLE>
<CAPTION>
<S> <C> <C>
5% Cumulative
5% Cumulative Convertible Second
Prior Preference Stock Preferred Stock
$20 Par Value $20 Par Value
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
Shares Converted 926 (926)
Balance as of December 31, 1999 755,606 8,205
</TABLE>
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 (income) expense of approximately $(0.3) million, $0.8 million, and
$0.6 million in 1999, 1998 and 1997, respectively. The Company's allocated
accrued pension liability was approximately $9.6 million and $10.4 million
as of December 31, 1999 and 1998, 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
expense of $3.9 million, $5.4 million and $2.8 million in 1999, 1998 and 1997,
respectively. The Company's allocated unfunded accrued postretirement benefit
liability was $39.2 million and $37.7 million as of December 31, 1999 and 1998,
respectively.
<Page 14>
NOTE 8
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Dollars in Millions
Year Ended December 31, 1999 1998 1997
<S> <C> <C> <C>
Cash Activity:
Interest Paid $ -- $ 0.1 $ 0.1
Income Taxes Paid $ 88.8 $ 83.9 $ 78.1
Non-Cash Activity:
Transfer of Assets $ -- $ -- $ 39.4
</TABLE>
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 $5.8 million, $5.2 million and
$5.7 million in 1999, 1998 and 1997, respectively. Future minimum annual
rentals on non-cancelable operating leases, primarily for storage space used by
manufacturing plants and corporate administrative offices, are as follows:
Dollars in Millions 2000 2001 2002 2003 2004 Thereafter Total
Total Payments $ 3.2 $ 3.1 $ 2.3 $ 1.9 $ 1.8 $ 4.6 $ 16.9
The Company enters into executory contracts to obtain inventory and promote
various products. As of December 31, 1999, future commitments under these
contracts amounted to $642.7 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:
<TABLE>
<CAPTION>
Dollars in Millions
Year Ended December 31, 1999 1998 1997
<S> <C> <C> <C>
Currently payable:
Federal $ 87.4 $ 99.5 $ 74.6
Foreign 0.1 0.2 0.1
State 16.8 17.7 16.6
Total currently payable 104.3 117.4 91.3
Deferred - net:
Federal 27.7 (8.5) (0.6)
Foreign 0.1 (0.1) (0.1)
State -- (1.6) 0.7
Total deferred - net 27.8 (10.2) --
Provision for income taxes $ 132.1 $ 107.2 $ 91.3
</TABLE>
<Page 15>
The components of the deferred income tax provision (benefit) were as follows:
<TABLE>
<CAPTION>
Dollars in Millions
Year Ended December 31, 1999 1998 1997
<S> <C> <C> <C>
Accelerated tax depreciation $ 5.8 $ (0.7) $ 4.7
Postretirement benefits (0.6) (1.7) (0.6)
Accrued expenses 21.0 (6.1) (4.1)
Other 1.6 (1.7) --
Deferred income tax provision (benefit) $ 27.8 $ (10.2) $ --
</TABLE>
The sources of pretax income were as follows:
<TABLE>
<CAPTION>
Dollars in Millions
Year Ended December 31, 1999 1998 1997
<S> <C> <C> <C>
U.S. sources $ 336.2 $ 268.5 $ 222.2
Foreign sources (1.2) 3.1 0.2
Income before income taxes $ 335.0 $ 271.6 $ 222.4
</TABLE>
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, 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
Tax provision based on the
Federal statutory rate $ 117.3 35.0% $ 95.1 35.0% $ 77.9 35.0%
State and local income tax provision -
net of Federal income tax benefit 10.9 3.2 10.5 3.9 11.2 5.0
Other 3.9 1.2 1.6 0.6 2.2 1.0
Provision for income taxes $ 132.1 39.4% $ 107.2 39.5% $ 91.3 41.0%
</TABLE>
Deferred tax assets and deferred tax liabilities were as follows:
<TABLE>
<CAPTION>
Dollars in Millions
As of December 31, 1999 1998
<S> <C> <C> <C> <C>
Deferred Deferred Tax Deferred Deferred Tax
Tax Assets Liabilities Tax Assets Liabilities
Depreciation and amortization $ 9.1 $ 30.4 $ 1.8 $ 25.2
Postretirement benefits 15.7 -- 15.1 --
Other benefit plans 7.8 -- 8.0 --
Accrued expenses 8.8 2.5 31.9 2.0
Other 1.1 0.1 0.8 --
Total $ 42.5 $ 33.0 $ 57.6 $ 27.2
</TABLE>
<Page 16>
NOTE 11
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Dollars in Millions
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Net sales $ 270.0 $ 544.5 $ 500.9 $ 179.2
Cost of goods sold 132.1 242.8 225.7 107.3
Gross profit $ 137.9 $ 301.7 $ 275.2 $ 71.9
Net income $ 27.3 $ 90.7 $ 83.2 $ 1.7
</TABLE>
<TABLE>
<CAPTION>
Dollars in Millions
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
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)
</TABLE>
<Page 17>
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, 1999 and 1998, and the related consolidated
statements of income, reinvested earnings and comprehensive income and cash
flows for the years ended December 31, 1999, 1998 and 1997. 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, 1999 and 1998, and the results of their
operations and their cash flows for the years ended December 31, 1999, 1998 and
1997, 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
January 27, 2000
<Page 18>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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, 2000.
Name Principal Occupation Age
Susan D. Wellington Vice President and President - U.S. 41
Beverages of Quaker and
Director, Chief Executive Officer and
President of Stokely-Van Camp, Inc.
John G. Jartz Senior Vice President - General Counsel, 46
Business Development and Corporate Secretary
of Quaker and Director, Vice President and
Secretary of Stokely-Van Camp, Inc.
Thomas L. Gettings Vice President - Treasurer and Tax of 43
Quaker and Stokely and Director
of Stokely-Van Camp, Inc.
William G. Barker Vice President and Corporate 41
Controller of Quaker and Stokely-Van Camp, Inc.
Ms. Wellington has served in her capacity since March 1998. Mr. Jartz has
served in his capacity since October 1996. Mr. Gettings has served in his
capacity since May 1998. Mr. Barker has served in his capacity since January
2000. All of the above-named directors and officers have been employed by
Quaker in an executive capacity for more than five years, with the exception of
Mr. Barker who joined the Company in January 1996, and was formerly the
Assistant Treasurer, International for Fruit of the Loom, Inc., an apparel
manufacturer (1994-1995).
<Page 19>
ITEM 11. EXECUTIVE COMPENSATION
The following table details annual and long-term compensation paid to Susan D.
Wellington, the Company's Chief Executive Officer and President, during 1999.
Information is provided for each fiscal year that Ms. Wellington served as an
executive officer of the Company. No other executive officers of the Company
were paid in excess of $100,000 in salary and bonus relative to their services
for the Company. Directors do not receive any compensation for their service as
directors of the Company.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-term
Annual Compensation Compensation
<S> <C> <C> <C> <C> <C> <C> <C>
Securities
Other Annual Restricted Underlying All Other
Name and Principal Fiscal Salary Bonus Compensation Stock Awards Options Compensation
Position Year ($) ($)(1) ($) ($)(2) (#)(3) ($)(4)
Susan D. Wellington 1999 $ 264,000 $ 397,700 $ 1,007 $ 49,716 25,000 $ 148,058
Chief Executive 1998 $ 234,014 $ 342,900 $ -0- $ 287,656 21,000 $ 65,276
Officer and President 1997 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
Ms. Wellington's personal performance for fiscal 1999 and 1998.
(2) Restricted stock values reflect the fair market value of Quaker's common
stock on the date of each grant. Dividends on restricted shares are paid
on an ongoing basis at the same rate as paid to all holders of Quaker
common stock. The number and value of currently restricted shares held by
Ms. Wellington were 5,000 and $328,125, respectively, as of December 31,
1999.
Upon a change in control of Quaker, restricted shares outstanding on the
date of the change in control will be canceled and an immediate lump sum
cash payment will be paid which is equal to the product of (1) the higher
of (i) the closing price of common stock as reported on the New York Stock
Exchange Composite Index on or nearest to the date of payment (or, if not
listed on such exchange, on a nationally recognized exchange or quotation
system on which trading volume in the common stock is highest) or (ii) the
highest per share price for common stock actually paid in connection with
the change in control; and (2) the number of shares of such restricted
stock.
(3) All stock option awards were granted with an exercise price equal to the
fair market value of Quaker's common stock on the date of grant.
(4) Amounts shown are the total of the value of the stock allocations to Ms.
Wellington's stock ownership accounts and cash awards to Ms. Wellington
based on earnings in excess of the Internal Revenue Code limits on the
amount of earnings deemed eligible for purposes of the annual stock
allocations made directly under The Quaker 401(k) Plan for Salaried
Employees.
The following table contains information covering the grant of stock options to
the Chief Executive Officer and President during fiscal year 1999. The
exercise price for all options granted is equal to the fair market value of
Quaker's common stock on the date of grant.
<Page 20>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants (1) for Option Term (2)
% of Total
Number of Options
Securities Granted to
Underlying Employee
Options in Fiscal Exercise Price Expiration
Name Granted(#) Year ($/Share) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Susan D. Wellington 25,000 1.2% $ 53.34 3/09/09 $ 838,691 $ 2,125,407
</TABLE>
(1) All options were granted on March 10, 1999. One-third of the options
granted on March 10, 1999 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.
(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 $4 billion and
$11 billion respectively, in the Potential Realizable Value that
shareholders would realize under the prescribed 5% and 10% stock price
appreciation rates.
The following table contains information covering the exercise of options by
the Chief Executive Officer and President during fiscal year 1999 and
unexercised options held as of the end of 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Value of Securities Underlying
Number of Securities Unexercised, In-the-Money
Underlying Unexercised Options at Fiscal
Options at Fiscal Year End(#) Year End ($)(2)
Shares Value
Acquired On Realized
Name Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Susan D. Wellington -0- $ -0- 54,540 43,660 $ 1,408,369 $ 561,704
</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 shares covered by each such option exercised.
(2) Represents the difference between the option exercise price and the fair
market value of Quaker's common stock on December 31, 1999, multiplied by
the number of shares covered by each such option held on that date.
<Page 21>
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 accrued under the Retirement Plan prior to
December 31, 1993; or (b) 1% of average annual earnings for the five years
through December 31, 1993 up to $22,700 plus 1.65% of such average annual
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.
The total 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, are $528,029. 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 calendar 1999 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 currently provides 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. For a two-
year period following a change in control of Quaker, the accrued benefits of
members, who meet specified age and service requirements and who are
terminated, will be increased and no employees of the purchaser may become
members. For a five-year period following such 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.
<Page 22>
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, 2000. 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.
<TABLE>
<CAPTION>
Amount and Percent
Name and Address Nature of of
Title of Class of Beneficial Owner Ownership Class
<S> <C> <C> <C>
Second Preferred The William B. Stokely, Jr. 2,012 24.5
Stock (1) Foundation
620 Campbell Station Road
Station West, Suite 4
Knoxville, TN 37922
First Clearing Corporation 1,125 13.7
P.O. Box 6570
Glen Allen, VA 23058-6570
Betty C. Ridley 1,125 13.7
P.O. Box 33585
Decatur, GA 30033
Sigler & Co. 855 10.4
c/o Chase Manhattan Bank
Dept. 3492
P.O. Box 50000
Newark, NJ 07101-8006
Edward D. Jones & Co. 550 6.7
Attn: Tenders & Exchange
201 Progress Parkway
Maryland Heights, MO 63043
John B. Mills, III 526 6.4
1043 Clifton Road
Atlanta, GA 30307-1227
</TABLE>
(1) Holders of common stock and Second Preferred Stock vote collectively and
not as a separate class. As of December 31, 1999, 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.
<Page 23>
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 10, 2000, 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.
<TABLE>
<CAPTION>
Amount and Nature Shares Subject
of Beneficial to Acquisition
Ownership(a) Within 60 Days(a)
<S> <C> <C>
Susan D. Wellington 87,107(b)(c) 74,310
John G. Jartz 154,848(b)(c) 132,498
Thomas L. Gettings 125,794(b)(c) 110,832
All Directors and Officers as a group 373,070(b)(c) 320,290
</TABLE>
(a) Unless otherwise indicated, each named individual and each person in the
group has sole voting and investment power with respect to the shares shown.
Of the total shares outstanding (including shares subject to acquisition within
60 days after March 10, 2000), each person individually, and the group in
total, beneficially owns less than 1% of the total shares.
(b) The figures shown for these directors and executive officers include an
aggregate of 23,521 shares allocated to them under The Quaker 401(k) Plan for
Salaried Employees (which includes 4,700 shares on the basis of the conversion
of 2,179 shares of Series B ESOP Convertible Preferred Stock at the conversion
rate of 2.16). The directors hold the following numbers of shares under this
Plan: Ms. Wellington, 6,641; Mr. Jartz, 9,246; and Mr. Gettings, 5,897.
(c) The figures shown for all directors and executive officers include an
aggregate of 11,264 shares granted to them under The Long Term Incentive
Plan of 1999 and The Long Term Incentive Plan of 1990 for which the restricted
period has not lapsed. The directors hold the following numbers of shares
under this Plan: Ms. Wellington, 5,000; Mr. Jartz, 2,194; and Mr. Gettings,
2,335.
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.
<Page 24>
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
Consolidated financial statements of Stokely-Van Camp, Inc. and subsidiaries
are included under Item 8 of this Form 10-K.
(a)(2)&(d) Financial Statement Schedules
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
Dollars in Millions
Year Ended December 31, 1999 1998 1997
<S> <C> <C> <C>
ITEM
Depreciation $ 30.2 $ 25.2 $ 21.0
Advertising & Merchandising $ 372.2 $ 332.3 $ 296.2
</TABLE>
(a)(3)&(c) Exhibits
See Exhibit Index attached hereto, which is incorporated herein by reference.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed in the last quarter of the period covered by
this report.
<Page 25>
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
SVC Manufacturing, Inc. Delaware
<Page 26>
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 24, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 24th day of March 2000, 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/ William G. Barker Vice President and
William G. Barker Corporate Controller
<Page 27>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Incorporated by
Reference (IBRF)
EXHIBIT NO. DESCRIPTION or Electronic (E)
<S> <C> <C>
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) 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
27 Financial Data Schedules E
</TABLE>
<Page 28>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 3
<SECURITIES> 0
<RECEIVABLES> 5
<ALLOWANCES> 0
<INVENTORY> 56
<CURRENT-ASSETS> 1,214
<PP&E> 446
<DEPRECIATION> 120
<TOTAL-ASSETS> 1,554
<CURRENT-LIABILITIES> 127
<BONDS> 2
0
15
<COMMON> 4
<OTHER-SE> 1,355
<TOTAL-LIABILITY-AND-EQUITY> 1,554
<SALES> 1,495
<TOTAL-REVENUES> 1,495
<CGS> 708
<TOTAL-COSTS> 708
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 335
<INCOME-TAX> 132
<INCOME-CONTINUING> 203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
