ITEM 1. BUSINESS
Stokely-Van Camp, Inc. and Subsidiaries (the "Company" or "Stokely"), a wholly-owned subsidiary of The Quaker Oats Company ("Quaker") since fiscal 1984, is a processor, marketer and distributor of high-quality canned food and beverage products to retail stores, institutional distributors and industrial and athletic users. Stokely's current products include GATORADE thirst quencher, 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 somewhat seasonal, with particularly strong first and fourth fiscal quarter sales.
The Company's other products, consisting of canned pork and beans and other specialty canned products, are marketed under the VAN CAMP'S brand name. Distribution of VAN CAMP'S products is national. Stokely is the largest domestic processor of pork and beans. Specialty canned products include BEANEE-WEENEE (beans with sliced wieners), kidney beans, hominy and chili products. Raw materials for Stokely's canned products are purchased from dealers and terminal and local elevators. The price and availability of raw agricultural products are subject to market conditions. Supplies have been adequate and continuous.
Export sales in fiscal 1994 were $50.6 million. Export sales in fiscal 1993 and 1992 were not material.
Fee Agreement
In 1984, the Company entered a novation of a series of agreements 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, the Trustee may cancel the Agreements and purchase back from Stokely, for a reasonable value, all trademarks and foreign patents connected with the GATORADE thirst quencher business.
Competition
Stokely's businesses are highly competitive. The Company competes with a number of companies which are engaged in the production, sale or distribution of products similar to those sold by Stokely. The principal competitive factors affecting sales include quality, price, advertising and service.
Employees
The total number of Stokely employees as of June 30, 1994, was approximately 1,700.
ITEM 2.
ITEM 2. PROPERTIES
The Company owns and operates 7 plants, including manufacturing and filling facilities. The plants are located in 6 states and in Puerto Rico. In addition, the Company owns or leases 4 distribution centers, 3 of which are shared with Quaker. Other distribution centers are leased as needed throughout the year. Sales and administrative office space is shared with Quaker. Management believes manufacturing, distribution center and office space owned and leased are suitable and adequate for the business and productive capacity is appropriately utilized.
ITEM 3.
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.
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 fiscal years 1994, 1993 or 1992.
ITEM 6.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fiscal 1994 Compared with Fiscal 1993
Operating Results
Consolidated net sales for fiscal 1994 were $1.08 billion, up 22 percent from fiscal 1993. Volume increased 17 percent versus the prior year due to strong volume increases for GATORADE thirst quencher, slightly offset by volume decreases for VAN CAMP'S products. The GATORADE thirst quencher volume increase was a result of the warmer summer weather in fiscal 1994 compared to fiscal 1993 and the increased consumer demand resulting from the conversion of the 32 ounce glass container to plastic. GATORADE thirst quencher performance is particularly notable, in that two major soft drink competitors have broadened the distribution of their sports beverages throughout the United States. The Company expects this heightened level of competition to continue in the coming year. Price increases did not significantly affect fiscal 1994 sales.
Gross profit margin decreased to 48.6 percent of sales from 49.9 percent in the prior year as a result of increased distribution and packaging material costs, partially offset by improved product mix and cost-containment initiatives. Selling, general and administrative (SG&A) expenses increased to $406.6 million, or an increase of 17 percent, primarily due to higher advertising and merchandising (A&M) expenditures for GATORADE thirst quencher, as well as higher other operating expenses. A&M expenses were 25.5 percent of sales in fiscal 1994, versus 26.6 percent in fiscal 1993, and are likely to continue at or near these levels in the future. SG&A and A&M expenses were both lower as a percentage of sales as a result of the significant increase in sales.
Restructuring Charge
The Company is pursuing a series of cost-reduction and realignment activities to bring greater value to consumers and trade customers. As a result, the Company recorded a restructuring charge of $9.4 million for a manufacturing consolidation for VAN CAMP'S products and for workforce reductions. Net non-cash asset write-offs amounted to $5.4 million of the charge. Severance and termination benefits for the elimination of approximately 200 positions are $3.0 million in cash expenses and the remaining amount of $1.0 million in cash expenses is for other related costs. Cash outlays will occur predominately in fiscal 1995 and will be funded through operating cash flows. These actions are expected to save approximately $0.9 million in fiscal 1995 and approximately $2 million annually beginning in fiscal 1996, with about 80 percent of the savings in cash.
The Company will continue to focus on efficiency initiatives that improve its manufacturing, marketing, logistics and customer service processes while lowering costs and more effectively utilizing human and financial resources. These continuous improvement initiatives may lead to charges in future periods.
Interest and Income Taxes
Interest income of $18.5 million increased $7.3 million from the prior year stemming from higher average amounts due from The Quaker Oats Company, as well as higher interest rates. See Note 4 to the consolidated financial statements for further discussion of the Company's investing and borrowing arrangement with Quaker.
The effective tax rate for fiscal 1994 was 41.6 percent versus 39.8 percent in fiscal 1993. The higher U.S. statutory tax rate, including the legislated retroactive adjustment to January 1, 1993, caused the overall rate to increase.
Fiscal 1993 Compared with Fiscal 1992
Operating Results
Consolidated net sales for fiscal 1993 were $885.3 million, up 1 percent over the prior year's $876.2 million. Approximately one-half of the change in sales was due to price increases. The remainder of the change was primarily due to volume increases for GATORADE thirst quencher partially offset by volume declines for VAN CAMP'S products.
Gross profit margin decreased to 49.9 percent of sales from the prior year's 51.8 percent due to expenses related to the retooling of certain GATORADE thirst quencher production lines. These expenses were offset by cost-containment initiatives. Fiscal 1992 cost of goods sold included a net charge of $3.4 million for the recall of certain VAN CAMP'S products. SG&A expenses decreased $5.4 million primarily due to lower A&M expenditures for GATORADE thirst quencher. A&M expenses were 26.6 percent of sales in fiscal 1993 as compared to 28.9 percent in fiscal 1992.
During fiscal 1992, the Company changed the timing of trade promotions to align production and shipments more closely with consumer demand and to derive greater efficiencies in its go-to-market processes. Sales and earnings postponed in the second half of fiscal 1992 were recouped in the first half of fiscal 1993. Unseasonably cool weather in fiscal 1993, however, affected GATORADE thirst quencher sales and partially offset the benefits realized by the trade promotion timing change.
Interest and Accounting Changes
Interest expense of $4.4 million decreased $2.7 million from the prior year mainly due to lower debt resulting from the redemption of 8 percent sinking fund debentures in fiscal 1992.
Included in net income in fiscal 1993 was the cumulative effect of adopting Financial Accounting Standards Board (FASB) Statement #106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and FASB Statement #109, "Accounting for Income Taxes." The combined cumulative effect of adoption was an after-tax charge of $14.0 million. See Notes 3 and 8 to the consolidated financial statements for further discussion.
Liquidity and Capital Resources
Net cash provided by operating activities of $66.6 million, $145.0 million and $69.0 million during fiscal 1994, 1993 and 1992, respectively, was well in excess of the Company's dividends and capital expenditures. The decrease in cash flows in fiscal 1994 was mainly due to changes in working capital, primarily inventories and trade accounts receivable. Capital expenditures for fiscal 1994, 1993 and 1992 were $21.1 million, $24.6 million and $15.1 million, respectively, with no material individual commitments outstanding.
The Company has an investing and borrowing arrangement under which it loans available cash to Quaker or borrows its short-term cash requirements from Quaker. Certain subsidiaries of the Company currently maintain cash balances. See Note 4 to the consolidated financial statements for further discussion of this arrangement.
Pending Accounting Changes
Effective July 1, 1994, the Company adopted FASB Statement #112, "Employers' Accounting for Postemployment Benefits." The cumulative effect of adoption is a $0.9 million after-tax charge in the first quarter of fiscal 1995. The adoption of this statement will not have a material effect on operating results or cash flows in future years.
The Company is in compliance with the accounting required in the American Institute of Certified Public Accountants' Statement of Position (SOP) 93-7, "Reporting on Advertising Costs," that requires advertising expenses to be expensed as incurred or the first time the advertising takes place. The adoption of this SOP, required in fiscal 1995, will have no impact on the Company's financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND REINVESTED EARNINGS
See accompanying notes to consolidated financial statements.
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 wholly-owned subsidiary of The Quaker Oats Company ("Quaker"). Certain prior-year amounts have been reclassified to conform to the current presentation.
Inventories
Inventories are valued at the lower of cost or market, using the last-in, first-out (LIFO) cost method, and include the cost of raw materials, labor and overhead. If the LIFO method of valuing these inventories was not used, total inventories would have been $8.8 million and $7.9 million higher than reported as of June 30, 1994 and 1993, respectively.
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 3 to 12 years for machinery and equipment.
Software Costs
The Company defers significant software development project costs. Software costs of $1.3 million, $1.3 million and $2.2 million were deferred during fiscal 1994, 1993 and 1992, respectively, pending the projects' completion. Amounts deferred are amortized over a three-year period beginning with a project's completion. As of June 30, 1994, approximately $8.5 million of completed project costs were subject to amortization. Total amortization expense was $2.7 million, $2.2 million and $0.6 million in fiscal 1994, 1993 and 1992, respectively.
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. Effective July 1, 1992, the Company adopted FASB Statement #109, "Accounting for Income Taxes," which requires an asset and liability approach to financial accounting and reporting for income taxes. See Note 3 for further discussion.
Postretirement Benefits Other Than Pensions
The Company provides certain health and life insurance benefits for eligible retirees. Effective July 1, 1992, the Company adopted FASB Statement #106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," whereby the cost of postretirement benefits is accrued during the years that employees render service. See Note 8 for further discussion.
NOTE 2
RESTRUCTURING CHARGE
The Company is pursuing a series of cost-reduction and realignment activities to bring greater value to consumers and trade customers. As a result, the Company recorded a restructuring charge of $9.4 million for a manufacturing consolidation for VAN CAMP'S products and for workforce reductions. Net non-cash asset write-offs amounted to $5.4 million of the charge. Severance and termination benefits for the elimination of approximately 200 positions are $3.0 million in cash expenses and the remaining amount of $1.0 million in cash expenses is for other related costs. Cash outlays will occur predominately in fiscal 1995 and will be funded through operating cash flows. These actions are expected to save approximately $0.9 million in fiscal 1995 and approximately $2 million annually beginning in fiscal 1996, with about 80 percent of the savings in cash.
NOTE 3
INCOME TAXES
Effective July 1, 1992, the Company adopted FASB Statement #109, " Accounting for Income Taxes," which requires an asset and liability approach to financial accounting and reporting for income taxes. The cumulative effect of adopting FASB Statement #109 was to increase income by $2.8 million.
Provisions for income taxes on income before the cumulative effect of accounting changes were as follows:
Total income tax provisions (benefits) were allocated as $50.2 million for continuing operations in fiscal 1994 and as $39.7 million for continuing operations and $(13.5) million for the cumulative effect of accounting changes in fiscal 1993.
NOTE 4
RELATED PARTY TRANSACTIONS
Stokely, through its parent Quaker, conducts its operations as an integrated component of Quaker's U.S. and Canadian Grocery Products Division. 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 remaining operating, general and administrative expenses are allocated from Quaker to Stokely. Quaker's International Grocery Products Division is licensed to sell GATORADE thirst quencher in international markets. Stokely reimburses Quaker and its affiliates for services provided for its benefit. The following summarizes the significant related party transactions other than those described elsewhere in the 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
Current salaried employees whose services benefit the Stokely business are employees of Quaker. Their compensation is paid by Quaker and charged to Stokely based on actual salary and fringe benefit costs of the assigned employees. These employees also participate in a number of Quaker insurance and employee benefit programs. Stokely participates in these programs through annual charges of each program's cost.
Corporate Insurance Programs
Stokely participates in Quaker's consolidated risk management programs for property and casualty insurance.
Stokely is charged for annual premiums and reported losses. Incurred but not reported losses are not charged to Stokely income currently. Stokely will recognize these costs in the future when specific identification has been made by Quaker.
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 Grocery Products Division allocates a ratable portion of shared operating expenses including sales force and brokers, certain other marketing expenses, product research and general and administrative services. These expenses are allocated to Stokely on a basis which approximates actual services provided as determined by various measures.
International Grocery Products Fee Agreements
Stokely has entered into a number of licensing agreements allowing the international affiliates of Quaker to manufacture and sell certain beverage products in return for payment of licensing fees. Fees received under these agreements amounted to $3.6 million, $3.1 million and $3.1 million in fiscal 1994, 1993 and 1992, respectively.
Investing and Borrowing Arrangement
The Company has an investing and borrowing arrangement under which it loans its available cash to Quaker or borrows its short-term cash requirements from Quaker. Funds collected from operations which are remitted to Quaker increase the amount due from Quaker; conversely, operating expenses paid by Quaker reduce the receivable from Quaker or may result in a payable to Quaker. This arrangement provides for an interest rate based on the yield of U.S. Treasury Bills, as determined by the weekly U.S. Government auction. In addition, the Company has 100 percent participation in certain loans owed to Quaker by Quaker subsidiaries. The loans outstanding as of June 30, 1994, carried an interest rate of 11 percent and were included in the amount due from Quaker. The Company may, at any time, demand repayment of all or any part of the amount due from Quaker or demand that Quaker repurchase the loans from the Company. (See Schedule II in Part IV of this Form 10-K for further information). There were no bank lines of credit as of June 30, 1994 or 1993.
NOTE 5
NOTE 7
PENSION PLANS
Salaried employees assigned to the Stokely business are employees of Quaker and are covered by a Quaker plan (see Note 4). The Company maintains a pension plan for all hourly employees. Plan benefits are based on years of service. Company 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.
The components of net pension (income) for hourly employees are detailed below:
NOTE 8
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND OTHER POSTEMPLOYEMENT BENEFITS
The Company provides certain health care and life insurance benefits to its retired employees who meet service-related eligibility requirements. The Company funds only the annual cash requirements of these benefits.
Effective July 1, 1992, the Company adopted FASB Statement #106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement requires that the expected cost of these benefits be charged to expense during the years that the employees render service. The statement was adopted through a cumulative pretax charge of $27.5 million, or $16.8 million after-tax, which represents the accumulated postretirement benefit obligation for years prior to fiscal 1993. The incremental effect on fiscal 1993 results of adopting FASB Statement #106 was a pretax charge of $2.4 million. Cash expenditures are not affected by this accounting change.
If the health care trend rates were increased one percentage point, the current-year postretirement benefit costs would have been $0.5 million higher and the accumulated benefit obligation as of June 30, 1994 would have been $5.2 million higher.
Effective July 1, 1994, the Company adopted FASB Statement #112, "Employers' Accounting for Postemployment Benefits." The cumulative effect of adoption is a $0.9 million after-tax charge in the first quarter of fiscal 1995. The adoption of this statement will not have a material effect on operating results or cash flows in future years.
NOTE 10
LEASES AND OTHER COMMITMENTS
Certain operating properties are rented under non-cancelable operating leases. Total rental expense under operating leases was $5.0 million, $5.4 million and $7.0 million in fiscal 1994, 1993 and 1992, respectively. Future minimum annual rentals on non-cancelable operating leases, primarily for sales offices and distribution centers, is as follows:
The Company enters into executory contracts to promote various products. As of June 30, 1994, future commitments under these contracts amounted to approximately $56.2 million. NOTE 11
NOTE 12
FINANCIAL INSTRUMENTS
Financial instruments are primarily used to fund working capital and to reduce the impact of commodity price fluctuations. The Company uses commodity options and futures contracts to reduce the risk that raw material purchases will be adversely affected as commodity prices change. While the hedge instruments are subject to the risk of loss from changing commodity prices, the losses would generally be offset by lower costs of the purchases being hedged. The Company does not trade these instruments with the objective of earning financial gains on the commodity price fluctuations alone, nor does it trade in commodities for which 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. Approximately one percent of cost of goods sold is in commodities that may be hedged. The Company's strategy is to typically hedge most of the production requirements for the following twelve-month period. As of June 30, 1994, approximately 90 percent of fiscal 1995 production requirements were hedged. The carrying values of these commodity instruments approximates the fair values. Realized gains and losses charged to cost of goods sold in fiscal 1994 and 1993 were not material.
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.
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 wholly-owned subsidiary of The Quaker Oats Company) and subsidiaries as of June 30, 1994 and 1993, and the related consolidated statements of income and reinvested earnings and cash flows for each of the three fiscal years in the period ended June 30, 1994. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules 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 June 30, 1994 and 1993, and the results of their operations and their cash flows for each of the three fiscal years in the period ended June 30, 1994, in conformity with generally accepted accounting principles.
As indicated in Note 3 and Note 8, effective July 1, 1992, the Company changed their accounting for income taxes and for postretirement benefits other than pensions.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedules II and X are presented for purposes of complying with the Securities and Exchange Commission's rules and are not a required part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois, August 3, 1994
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 September 1, 1994.
Name Principal Occupation Age
James F. Doyle Senior Vice President - President - 42 Gatorade Worldwide Division of Quaker; Chief Executive Officer and President of Stokely.
R. Thomas Howell, Jr. Vice President and General 52 Corporate Counsel of Quaker; Director, Vice President and Secretary of Stokely.
Janet K. Cooper Vice President and Treasurer of 41 Quaker and Stokely and Director of Stokely.
Thomas L. Gettings Vice President and Corporate 37 Controller of Quaker and Stokely.
Mr. Doyle has served since May, 1992. Mr. Howell has served in his capacity since 1983. Ms. Cooper and Mr. Gettings have served since July, 1992. All of the above-named directors and officers have been employed by Quaker in an executive capacity 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. 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.
The following table contains information covering the grant of stock options to the Company's Chief Executive Officer and President during fiscal 1994 under The Quaker Long Term Incentive Plan of 1990. The exercise price for options granted is equal to the fair market value of Quaker's common stock on the date of the grant.
The following table contains information covering the exercise of options by the Chief Executive Officer and President during fiscal 1994 and unexercised options held as of the end of fiscal 1994. Pension Plans
Quaker and its subsidiaries maintain several pension plans. The Quaker Retirement Plan (the "Retirement Plan"), which is the principal 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, 1994 are set at the greater of (a) those earned or (b) 1% of Five-Year Average earnings to $22,700 plus 1.65% of earnings above $22,700, times credited years of service; and
2. Future Service Accrual -- For each year beginning January 1, 1994 and after, participants accrue benefits of 1.75% of annual earnings to 80% of the Social Security wage base plus 2.5% of annual earnings above 80% of the Social Security wage base.
Eligible earnings used to calculate retirement benefits include wages, salaries, bonuses, contributions to The Quaker Investment Plan and allocations under The Quaker Employee Stock Ownership Plan. Normal retirement age under the Retirement Plan is age 65. The Retirement Plan contains provision for early retirement benefits.
Benefit amounts payable under the Retirement Plan are limited to the extent required by the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, and the Internal Revenue Code of 1986, as amended. If the benefit formula produces an amount in excess of those limitations, the excess will be paid out of general corporate funds in accordance with the terms of The Quaker 415 Excess Benefit Plan and The Quaker Eligible Earnings Adjustment Plan. The Quaker Eligible Earnings Adjustment Plan also provides for payment out of general corporate funds, based upon benefit amounts which would otherwise have been payable under the Retirement Plan and The Quaker 415 Excess Benefit Plan, if the executive had not previously elected to defer compensation under the Executive Deferred Compensation Plan.
The estimated annual retirement benefits that Mr. Doyle would receive under the Retirement Plan, The Quaker 415 Excess Benefit Plan, and The Quaker Eligible Earnings Adjustment Plan, if he retired at age 65, is $211,754. The amount assumes that he will continue to work for Quaker until his normal retirement date and that his earnings will remain the same as in calendar year 1993 and that he will elect a straight-lifetime benefit without survivor benefits. (Payment options such as a 50% joint and survivor annuity or other annuities are available.)
The Retirement Plan assures active and retired employees that, to the extent of sufficient plan assets, it will continue in effect for a reasonable period following a change in control of Quaker without a reduction of anticipated benefits, and under certain circumstances may provide increased benefits.
Generally, under the Retirement Plan a change in control shall be deemed to have occurred in any of the following circumstances:
(i) An acquisition of 30% or more of Quaker's stock unless such acquisition is pursuant to an agreement with Quaker approved by the Board before the acquisitor becomes the beneficial owner of 5% of Quaker's outstanding voting power;
(ii) A majority of the Board of Directors is comprised of persons who were not nominated by the Board of Directors for election as directors;
(iii) A plan of complete liquidation of Quaker; or
(iv) A merger, consolidation or sale of all or substantially all of Quaker's assets unless thereafter (a) directors of Quaker immediately prior thereto continue to constitute at least 50% of the directors of the surviving entity or purchaser; or (b) Quaker's securities continue to
represent, or are converted to securities which represent, more than 70% of the combined voting power of the surviving entity or purchaser.
For a five-year period following a change in control of Quaker, the accrual of benefits for service during such period cannot be decreased while there are excess assets (as defined in the Retirement Plan). For a two-year period following such a change in control, the accrued benefits of members who meet specified age and service requirements and who are terminated will be increased. For so long as there are excess assets during that five-year period, if the Retirement Plan is merged with any other plan, the accrued benefit of each member and the amount payable to retired or deceased members shall be increased until there are no excess assets. If during that five-year period the Retirement Plan is terminated, to the extent that assets remain after satisfaction of liabilities, the accrued benefits shall be increased such that no assets of the Retirement Plan will directly or indirectly revert to Quaker.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding common stock of Stokely is owned by Quaker whose corporate offices are located at 321 North Clark, Chicago, IL 60610.
The following table presents information with respect to all persons known to Stokely to own more than 5% of any other class of Stokely's voting securities as of September 19, 1994. 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 18.2 Stock (1) Foundation 620 Campbell Station Road Station West, Suite 4 Knoxville, TN 37922
Marjorie M. Cochran 1,125 10.2 6201 Linwood Drive Covington, GA 30209-3953
Esther M. Minter 1,125 10.2 230 East College Street Griffin, GA 30223-4348
Cooper N. Mills 926 8.4 666 Brook Circle Griffin, GA 30223-4413
(1)Holders of common stock and Second Preferred Stock vote collectively and not as a separate class. As of June 30, 1994, 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.
The table below sets forth information with respect to beneficial ownership of common stock of Quaker by the directors of Stokely as of September 1, 1994, and by the directors and executive officers as a group. No director or officer owns any equity securities of Stokely.
[FN] (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 September 1, 1994.
(b) The figures shown for these executive officers include an aggregate of 1,094 shares representing their proportionate interests in the Quaker Stock Fund of The Quaker Investment Plan.
(c) The figures shown for these executive officers include an aggregate of 8,921 shares (which includes 1,543 shares on the basis of the conversion of 1,428 shares of Series B ESOP Convertible Preferred at the conversion rate of 1.08) allocated to them in The Quaker Employee Stock Ownership Plan.
(d) The figures shown for these executive officers include an aggregate of 1,685 shares granted to them under The Quaker Long Term Incentive Plan of 1990 for which the restricted period has not lapsed.
(e) Of these shares, 747 are held by Mr. Howell's children.
(f) Of these shares, 50 are held by Ms. Cooper's husband and 1 is held by Ms. Cooper's daughter.
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 (Notes 1, 4 and 7), and Part IV, Schedule II.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
[FN] (a)This amount primarily represents an investing arrangement between Stokely and its parent, Quaker. It also includes miscellaneous intercompany activity. Interest is accrued on the outstanding balance each month using a rate based on the yield of U.S. Treasury Bills (see Note 4 to the consolidated financial statements under Item 8).
(b) Stokely purchased a 100 percent participation in certain loans owed to Quaker by certain Quaker subsidiaries. Quaker has agreed to repurchase these loans at any time upon Stokely's request. STOKELY-VAN CAMP, INC. AND SUBSIDIARIES SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE FISCAL YEARS ENDED JUNE 30, 1994, 1993 AND 1992
*Royalty expense represents fees paid to the Gatorade Trust. See description in Item 1, Business.
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/ James F. Doyle James F. Doyle Chief Executive Officer and President
Date: September 28, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 28th day of September, 1994, by the following persons on behalf of the Registrant and in the capacities indicated.
Signature Title
/s/ James F. Doyle Chief Executive Officer and James F. Doyle President
/s/ Janet K. Cooper Vice President and Treasurer Janet K. Cooper (Principal Financial Officer)
/s/ R. Thomas Howell, Jr. Vice President, R. Thomas Howell, Jr. Secretary and Director
/s/ Thomas L. Gettings Vice President and Corporate Thomas L. Gettings Controller
EXHIBIT INDEX
Paper (P), Electronic (E) or Incorporated by EXHIBIT NO. DESCRIPTION Reference (IBRF)
3 (a) Articles of Incorporation of Stokely-Van IBRF Camp, Inc. (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1985, file number 1-2944).
3 (b) By-Laws of Stokely-Van Camp, Inc. IBRF (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1985, file number 1-2944).
10 (a) 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).
21 Subsidiaries of the Registrant. E
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 fiscal years 1994, 1993 or 1992.
ITEM 6.
ITEM 6.
ITEM 7.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fiscal 1994 Compared with Fiscal 1993
Operating Results
Consolidated net sales for fiscal 1994 were $1.08 billion, up 22 percent from fiscal 1993. Volume increased 17 percent versus the prior year due to strong volume increases for GATORADE thirst quencher, slightly offset by volume decreases for VAN CAMP'S products. The GATORADE thirst quencher volume increase was a result of the warmer summer weather in fiscal 1994 compared to fiscal 1993 and the increased consumer demand resulting from the conversion of the 32 ounce glass container to plastic. GATORADE thirst quencher performance is particularly notable, in that two major soft drink competitors have broadened the distribution of their sports beverages throughout the United States. The Company expects this heightened level of competition to continue in the coming year. Price increases did not significantly affect fiscal 1994 sales.
Gross profit margin decreased to 48.6 percent of sales from 49.9 percent in the prior year as a result of increased distribution and packaging material costs, partially offset by improved product mix and cost-containment initiatives. Selling, general and administrative (SG&A) expenses increased to $406.6 million, or an increase of 17 percent, primarily due to higher advertising and merchandising (A&M) expenditures for GATORADE thirst quencher, as well as higher other operating expenses. A&M expenses were 25.5 percent of sales in fiscal 1994, versus 26.6 percent in fiscal 1993, and are likely to continue at or near these levels in the future. SG&A and A&M expenses were both lower as a percentage of sales as a result of the significant increase in sales.
Restructuring Charge
The Company is pursuing a series of cost-reduction and realignment activities to bring greater value to consumers and trade customers. As a result, the Company recorded a restructuring charge of $9.4 million for a manufacturing consolidation for VAN CAMP'S products and for workforce reductions. Net non-cash asset write-offs amounted to $5.4 million of the charge. Severance and termination benefits for the elimination of approximately 200 positions are $3.0 million in cash expenses and the remaining amount of $1.0 million in cash expenses is for other related costs. Cash outlays will occur predominately in fiscal 1995 and will be funded through operating cash flows. These actions are expected to save approximately $0.9 million in fiscal 1995 and approximately $2 million annually beginning in fiscal 1996, with about 80 percent of the savings in cash.
The Company will continue to focus on efficiency initiatives that improve its manufacturing, marketing, logistics and customer service processes while lowering costs and more effectively utilizing human and financial resources. These continuous improvement initiatives may lead to charges in future periods.
Interest and Income Taxes
Interest income of $18.5 million increased $7.3 million from the prior year stemming from higher average amounts due from The Quaker Oats Company, as well as higher interest rates. See Note 4 to the consolidated financial statements for further discussion of the Company's investing and borrowing arrangement with Quaker.
The effective tax rate for fiscal 1994 was 41.6 percent versus 39.8 percent in fiscal 1993. The higher U.S. statutory tax rate, including the legislated retroactive adjustment to January 1, 1993, caused the overall rate to increase.
Fiscal 1993 Compared with Fiscal 1992
Operating Results
Consolidated net sales for fiscal 1993 were $885.3 million, up 1 percent over the prior year's $876.2 million. Approximately one-half of the change in sales was due to price increases. The remainder of the change was primarily due to volume increases for GATORADE thirst quencher partially offset by volume declines for VAN CAMP'S products.
Gross profit margin decreased to 49.9 percent of sales from the prior year's 51.8 percent due to expenses related to the retooling of certain GATORADE thirst quencher production lines. These expenses were offset by cost-containment initiatives. Fiscal 1992 cost of goods sold included a net charge of $3.4 million for the recall of certain VAN CAMP'S products. SG&A expenses decreased $5.4 million primarily due to lower A&M expenditures for GATORADE thirst quencher. A&M expenses were 26.6 percent of sales in fiscal 1993 as compared to 28.9 percent in fiscal 1992.
During fiscal 1992, the Company changed the timing of trade promotions to align production and shipments more closely with consumer demand and to derive greater efficiencies in its go-to-market processes. Sales and earnings postponed in the second half of fiscal 1992 were recouped in the first half of fiscal 1993. Unseasonably cool weather in fiscal 1993, however, affected GATORADE thirst quencher sales and partially offset the benefits realized by the trade promotion timing change.
Interest and Accounting Changes
Interest expense of $4.4 million decreased $2.7 million from the prior year mainly due to lower debt resulting from the redemption of 8 percent sinking fund debentures in fiscal 1992.
Included in net income in fiscal 1993 was the cumulative effect of adopting Financial Accounting Standards Board (FASB) Statement #106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and FASB Statement #109, "Accounting for Income Taxes." The combined cumulative effect of adoption was an after-tax charge of $14.0 million. See Notes 3 and 8 to the consolidated financial statements for further discussion.
Liquidity and Capital Resources
Net cash provided by operating activities of $66.6 million, $145.0 million and $69.0 million during fiscal 1994, 1993 and 1992, respectively, was well in excess of the Company's dividends and capital expenditures. The decrease in cash flows in fiscal 1994 was mainly due to changes in working capital, primarily inventories and trade accounts receivable. Capital expenditures for fiscal 1994, 1993 and 1992 were $21.1 million, $24.6 million and $15.1 million, respectively, with no material individual commitments outstanding.
The Company has an investing and borrowing arrangement under which it loans available cash to Quaker or borrows its short-term cash requirements from Quaker. Certain subsidiaries of the Company currently maintain cash balances. See Note 4 to the consolidated financial statements for further discussion of this arrangement.
Pending Accounting Changes
Effective July 1, 1994, the Company adopted FASB Statement #112, "Employers' Accounting for Postemployment Benefits." The cumulative effect of adoption is a $0.9 million after-tax charge in the first quarter of fiscal 1995. The adoption of this statement will not have a material effect on operating results or cash flows in future years.
The Company is in compliance with the accounting required in the American Institute of Certified Public Accountants' Statement of Position (SOP) 93-7, "Reporting on Advertising Costs," that requires advertising expenses to be expensed as incurred or the first time the advertising takes place. The adoption of this SOP, required in fiscal 1995, will have no impact on the Company's financial statements.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND REINVESTED EARNINGS
See accompanying notes to consolidated financial statements.
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 wholly-owned subsidiary of The Quaker Oats Company ("Quaker"). Certain prior-year amounts have been reclassified to conform to the current presentation.
Inventories
Inventories are valued at the lower of cost or market, using the last-in, first-out (LIFO) cost method, and include the cost of raw materials, labor and overhead. If the LIFO method of valuing these inventories was not used, total inventories would have been $8.8 million and $7.9 million higher than reported as of June 30, 1994 and 1993, respectively.
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 3 to 12 years for machinery and equipment.
Software Costs
The Company defers significant software development project costs. Software costs of $1.3 million, $1.3 million and $2.2 million were deferred during fiscal 1994, 1993 and 1992, respectively, pending the projects' completion. Amounts deferred are amortized over a three-year period beginning with a project's completion. As of June 30, 1994, approximately $8.5 million of completed project costs were subject to amortization. Total amortization expense was $2.7 million, $2.2 million and $0.6 million in fiscal 1994, 1993 and 1992, respectively.
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. Effective July 1, 1992, the Company adopted FASB Statement #109, "Accounting for Income Taxes," which requires an asset and liability approach to financial accounting and reporting for income taxes. See Note 3 for further discussion.
Postretirement Benefits Other Than Pensions
The Company provides certain health and life insurance benefits for eligible retirees. Effective July 1, 1992, the Company adopted FASB Statement #106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," whereby the cost of postretirement benefits is accrued during the years that employees render service. See Note 8 for further discussion.
NOTE 2
RESTRUCTURING CHARGE
The Company is pursuing a series of cost-reduction and realignment activities to bring greater value to consumers and trade customers. As a result, the Company recorded a restructuring charge of $9.4 million for a manufacturing consolidation for VAN CAMP'S products and for workforce reductions. Net non-cash asset write-offs amounted to $5.4 million of the charge. Severance and termination benefits for the elimination of approximately 200 positions are $3.0 million in cash expenses and the remaining amount of $1.0 million in cash expenses is for other related costs. Cash outlays will occur predominately in fiscal 1995 and will be funded through operating cash flows. These actions are expected to save approximately $0.9 million in fiscal 1995 and approximately $2 million annually beginning in fiscal 1996, with about 80 percent of the savings in cash.
NOTE 3
INCOME TAXES
Effective July 1, 1992, the Company adopted FASB Statement #109, " Accounting for Income Taxes," which requires an asset and liability approach to financial accounting and reporting for income taxes. The cumulative effect of adopting FASB Statement #109 was to increase income by $2.8 million.
Provisions for income taxes on income before the cumulative effect of accounting changes were as follows:
Total income tax provisions (benefits) were allocated as $50.2 million for continuing operations in fiscal 1994 and as $39.7 million for continuing operations and $(13.5) million for the cumulative effect of accounting changes in fiscal 1993.
NOTE 4
RELATED PARTY TRANSACTIONS
Stokely, through its parent Quaker, conducts its operations as an integrated component of Quaker's U.S. and Canadian Grocery Products Division. 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 remaining operating, general and administrative expenses are allocated from Quaker to Stokely. Quaker's International Grocery Products Division is licensed to sell GATORADE thirst quencher in international markets. Stokely reimburses Quaker and its affiliates for services provided for its benefit. The following summarizes the significant related party transactions other than those described elsewhere in the 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
Current salaried employees whose services benefit the Stokely business are employees of Quaker. Their compensation is paid by Quaker and charged to Stokely based on actual salary and fringe benefit costs of the assigned employees. These employees also participate in a number of Quaker insurance and employee benefit programs. Stokely participates in these programs through annual charges of each program's cost.
Corporate Insurance Programs
Stokely participates in Quaker's consolidated risk management programs for property and casualty insurance.
Stokely is charged for annual premiums and reported losses. Incurred but not reported losses are not charged to Stokely income currently. Stokely will recognize these costs in the future when specific identification has been made by Quaker.
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 Grocery Products Division allocates a ratable portion of shared operating expenses including sales force and brokers, certain other marketing expenses, product research and general and administrative services. These expenses are allocated to Stokely on a basis which approximates actual services provided as determined by various measures.
International Grocery Products Fee Agreements
Stokely has entered into a number of licensing agreements allowing the international affiliates of Quaker to manufacture and sell certain beverage products in return for payment of licensing fees. Fees received under these agreements amounted to $3.6 million, $3.1 million and $3.1 million in fiscal 1994, 1993 and 1992, respectively.
Investing and Borrowing Arrangement
The Company has an investing and borrowing arrangement under which it loans its available cash to Quaker or borrows its short-term cash requirements from Quaker. Funds collected from operations which are remitted to Quaker increase the amount due from Quaker; conversely, operating expenses paid by Quaker reduce the receivable from Quaker or may result in a payable to Quaker. This arrangement provides for an interest rate based on the yield of U.S. Treasury Bills, as determined by the weekly U.S. Government auction. In addition, the Company has 100 percent participation in certain loans owed to Quaker by Quaker subsidiaries. The loans outstanding as of June 30, 1994, carried an interest rate of 11 percent and were included in the amount due from Quaker. The Company may, at any time, demand repayment of all or any part of the amount due from Quaker or demand that Quaker repurchase the loans from the Company. (See Schedule II in Part IV of this Form 10-K for further information). There were no bank lines of credit as of June 30, 1994 or 1993.
NOTE 5
NOTE 7
PENSION PLANS
Salaried employees assigned to the Stokely business are employees of Quaker and are covered by a Quaker plan (see Note 4). The Company maintains a pension plan for all hourly employees. Plan benefits are based on years of service. Company 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.
The components of net pension (income) for hourly employees are detailed below:
NOTE 8
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND OTHER POSTEMPLOYEMENT BENEFITS
The Company provides certain health care and life insurance benefits to its retired employees who meet service-related eligibility requirements. The Company funds only the annual cash requirements of these benefits.
Effective July 1, 1992, the Company adopted FASB Statement #106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement requires that the expected cost of these benefits be charged to expense during the years that the employees render service. The statement was adopted through a cumulative pretax charge of $27.5 million, or $16.8 million after-tax, which represents the accumulated postretirement benefit obligation for years prior to fiscal 1993. The incremental effect on fiscal 1993 results of adopting FASB Statement #106 was a pretax charge of $2.4 million. Cash expenditures are not affected by this accounting change.
If the health care trend rates were increased one percentage point, the current-year postretirement benefit costs would have been $0.5 million higher and the accumulated benefit obligation as of June 30, 1994 would have been $5.2 million higher.
Effective July 1, 1994, the Company adopted FASB Statement #112, "Employers' Accounting for Postemployment Benefits." The cumulative effect of adoption is a $0.9 million after-tax charge in the first quarter of fiscal 1995. The adoption of this statement will not have a material effect on operating results or cash flows in future years.
NOTE 10
LEASES AND OTHER COMMITMENTS
Certain operating properties are rented under non-cancelable operating leases. Total rental expense under operating leases was $5.0 million, $5.4 million and $7.0 million in fiscal 1994, 1993 and 1992, respectively. Future minimum annual rentals on non-cancelable operating leases, primarily for sales offices and distribution centers, is as follows:
The Company enters into executory contracts to promote various products. As of June 30, 1994, future commitments under these contracts amounted to approximately $56.2 million. NOTE 11
NOTE 12
FINANCIAL INSTRUMENTS
Financial instruments are primarily used to fund working capital and to reduce the impact of commodity price fluctuations. The Company uses commodity options and futures contracts to reduce the risk that raw material purchases will be adversely affected as commodity prices change. While the hedge instruments are subject to the risk of loss from changing commodity prices, the losses would generally be offset by lower costs of the purchases being hedged. The Company does not trade these instruments with the objective of earning financial gains on the commodity price fluctuations alone, nor does it trade in commodities for which 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. Approximately one percent of cost of goods sold is in commodities that may be hedged. The Company's strategy is to typically hedge most of the production requirements for the following twelve-month period. As of June 30, 1994, approximately 90 percent of fiscal 1995 production requirements were hedged. The carrying values of these commodity instruments approximates the fair values. Realized gains and losses charged to cost of goods sold in fiscal 1994 and 1993 were not material.
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.
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 wholly-owned subsidiary of The Quaker Oats Company) and subsidiaries as of June 30, 1994 and 1993, and the related consolidated statements of income and reinvested earnings and cash flows for each of the three fiscal years in the period ended June 30, 1994. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules 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 June 30, 1994 and 1993, and the results of their operations and their cash flows for each of the three fiscal years in the period ended June 30, 1994, in conformity with generally accepted accounting principles.
As indicated in Note 3 and Note 8, effective July 1, 1992, the Company changed their accounting for income taxes and for postretirement benefits other than pensions.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedules II and X are presented for purposes of complying with the Securities and Exchange Commission's rules and are not a required part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois, August 3, 1994
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 September 1, 1994.
Name Principal Occupation Age
James F. Doyle Senior Vice President - President - 42 Gatorade Worldwide Division of Quaker; Chief Executive Officer and President of Stokely.
R. Thomas Howell, Jr. Vice President and General 52 Corporate Counsel of Quaker; Director, Vice President and Secretary of Stokely.
Janet K. Cooper Vice President and Treasurer of 41 Quaker and Stokely and Director of Stokely.
Thomas L. Gettings Vice President and Corporate 37 Controller of Quaker and Stokely.
Mr. Doyle has served since May, 1992. Mr. Howell has served in his capacity since 1983. Ms. Cooper and Mr. Gettings have served since July, 1992. All of the above-named directors and officers have been employed by Quaker in an executive capacity 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. 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.
The following table contains information covering the grant of stock options to the Company's Chief Executive Officer and President during fiscal 1994 under The Quaker Long Term Incentive Plan of 1990. The exercise price for options granted is equal to the fair market value of Quaker's common stock on the date of the grant.
The following table contains information covering the exercise of options by the Chief Executive Officer and President during fiscal 1994 and unexercised options held as of the end of fiscal 1994. Pension Plans
Quaker and its subsidiaries maintain several pension plans. The Quaker Retirement Plan (the "Retirement Plan"), which is the principal 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, 1994 are set at the greater of (a) those earned or (b) 1% of Five-Year Average earnings to $22,700 plus 1.65% of earnings above $22,700, times credited years of service; and
2. Future Service Accrual -- For each year beginning January 1, 1994 and after, participants accrue benefits of 1.75% of annual earnings to 80% of the Social Security wage base plus 2.5% of annual earnings above 80% of the Social Security wage base.
Eligible earnings used to calculate retirement benefits include wages, salaries, bonuses, contributions to The Quaker Investment Plan and allocations under The Quaker Employee Stock Ownership Plan. Normal retirement age under the Retirement Plan is age 65. The Retirement Plan contains provision for early retirement benefits.
Benefit amounts payable under the Retirement Plan are limited to the extent required by the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, and the Internal Revenue Code of 1986, as amended. If the benefit formula produces an amount in excess of those limitations, the excess will be paid out of general corporate funds in accordance with the terms of The Quaker 415 Excess Benefit Plan and The Quaker Eligible Earnings Adjustment Plan. The Quaker Eligible Earnings Adjustment Plan also provides for payment out of general corporate funds, based upon benefit amounts which would otherwise have been payable under the Retirement Plan and The Quaker 415 Excess Benefit Plan, if the executive had not previously elected to defer compensation under the Executive Deferred Compensation Plan.
The estimated annual retirement benefits that Mr. Doyle would receive under the Retirement Plan, The Quaker 415 Excess Benefit Plan, and The Quaker Eligible Earnings Adjustment Plan, if he retired at age 65, is $211,754. The amount assumes that he will continue to work for Quaker until his normal retirement date and that his earnings will remain the same as in calendar year 1993 and that he will elect a straight-lifetime benefit without survivor benefits. (Payment options such as a 50% joint and survivor annuity or other annuities are available.)
The Retirement Plan assures active and retired employees that, to the extent of sufficient plan assets, it will continue in effect for a reasonable period following a change in control of Quaker without a reduction of anticipated benefits, and under certain circumstances may provide increased benefits.
Generally, under the Retirement Plan a change in control shall be deemed to have occurred in any of the following circumstances:
(i) An acquisition of 30% or more of Quaker's stock unless such acquisition is pursuant to an agreement with Quaker approved by the Board before the acquisitor becomes the beneficial owner of 5% of Quaker's outstanding voting power;
(ii) A majority of the Board of Directors is comprised of persons who were not nominated by the Board of Directors for election as directors;
(iii) A plan of complete liquidation of Quaker; or
(iv) A merger, consolidation or sale of all or substantially all of Quaker's assets unless thereafter (a) directors of Quaker immediately prior thereto continue to constitute at least 50% of the directors of the surviving entity or purchaser; or (b) Quaker's securities continue to
represent, or are converted to securities which represent, more than 70% of the combined voting power of the surviving entity or purchaser.
For a five-year period following a change in control of Quaker, the accrual of benefits for service during such period cannot be decreased while there are excess assets (as defined in the Retirement Plan). For a two-year period following such a change in control, the accrued benefits of members who meet specified age and service requirements and who are terminated will be increased. For so long as there are excess assets during that five-year period, if the Retirement Plan is merged with any other plan, the accrued benefit of each member and the amount payable to retired or deceased members shall be increased until there are no excess assets. If during that five-year period the Retirement Plan is terminated, to the extent that assets remain after satisfaction of liabilities, the accrued benefits shall be increased such that no assets of the Retirement Plan will directly or indirectly revert to Quaker.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding common stock of Stokely is owned by Quaker whose corporate offices are located at 321 North Clark, Chicago, IL 60610.
The following table presents information with respect to all persons known to Stokely to own more than 5% of any other class of Stokely's voting securities as of September 19, 1994. 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 18.2 Stock (1) Foundation 620 Campbell Station Road Station West, Suite 4 Knoxville, TN 37922
Marjorie M. Cochran 1,125 10.2 6201 Linwood Drive Covington, GA 30209-3953
Esther M. Minter 1,125 10.2 230 East College Street Griffin, GA 30223-4348
Cooper N. Mills 926 8.4 666 Brook Circle Griffin, GA 30223-4413
(1)Holders of common stock and Second Preferred Stock vote collectively and not as a separate class. As of June 30, 1994, 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.
The table below sets forth information with respect to beneficial ownership of common stock of Quaker by the directors of Stokely as of September 1, 1994, and by the directors and executive officers as a group. No director or officer owns any equity securities of Stokely.
[FN] (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 September 1, 1994.
(b) The figures shown for these executive officers include an aggregate of 1,094 shares representing their proportionate interests in the Quaker Stock Fund of The Quaker Investment Plan.
(c) The figures shown for these executive officers include an aggregate of 8,921 shares (which includes 1,543 shares on the basis of the conversion of 1,428 shares of Series B ESOP Convertible Preferred at the conversion rate of 1.08) allocated to them in The Quaker Employee Stock Ownership Plan.
(d) The figures shown for these executive officers include an aggregate of 1,685 shares granted to them under The Quaker Long Term Incentive Plan of 1990 for which the restricted period has not lapsed.
(e) Of these shares, 747 are held by Mr. Howell's children.
(f) Of these shares, 50 are held by Ms. Cooper's husband and 1 is held by Ms. Cooper's daughter.
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 (Notes 1, 4 and 7), and Part IV, Schedule II.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
[FN] (a)This amount primarily represents an investing arrangement between Stokely and its parent, Quaker. It also includes miscellaneous intercompany activity. Interest is accrued on the outstanding balance each month using a rate based on the yield of U.S. Treasury Bills (see Note 4 to the consolidated financial statements under Item 8).
(b) Stokely purchased a 100 percent participation in certain loans owed to Quaker by certain Quaker subsidiaries. Quaker has agreed to repurchase these loans at any time upon Stokely's request. STOKELY-VAN CAMP, INC. AND SUBSIDIARIES SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE FISCAL YEARS ENDED JUNE 30, 1994, 1993 AND 1992
*Royalty expense represents fees paid to the Gatorade Trust. See description in Item 1, Business.
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/ James F. Doyle James F. Doyle Chief Executive Officer and President
Date: September 28, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 28th day of September, 1994, by the following persons on behalf of the Registrant and in the capacities indicated.
Signature Title
/s/ James F. Doyle Chief Executive Officer and James F. Doyle President
/s/ Janet K. Cooper Vice President and Treasurer Janet K. Cooper (Principal Financial Officer)
/s/ R. Thomas Howell, Jr. Vice President, R. Thomas Howell, Jr. Secretary and Director
/s/ Thomas L. Gettings Vice President and Corporate Thomas L. Gettings Controller
EXHIBIT INDEX
Paper (P), Electronic (E) or Incorporated by EXHIBIT NO. DESCRIPTION Reference (IBRF)
3 (a) Articles of Incorporation of Stokely-Van IBRF Camp, Inc. (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1985, file number 1-2944).
3 (b) By-Laws of Stokely-Van Camp, Inc. IBRF (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1985, file number 1-2944).
10 (a) 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).
21 Subsidiaries of the Registrant. E
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 September 1, 1994.
Name Principal Occupation Age
James F. Doyle Senior Vice President - President - 42 Gatorade Worldwide Division of Quaker; Chief Executive Officer and President of Stokely.
R. Thomas Howell, Jr. Vice President and General 52 Corporate Counsel of Quaker; Director, Vice President and Secretary of Stokely.
Janet K. Cooper Vice President and Treasurer of 41 Quaker and Stokely and Director of Stokely.
Thomas L. Gettings Vice President and Corporate 37 Controller of Quaker and Stokely.
Mr. Doyle has served since May, 1992. Mr. Howell has served in his capacity since 1983. Ms. Cooper and Mr. Gettings have served since July, 1992. All of the above-named directors and officers have been employed by Quaker in an executive capacity more than five years.
ITEM 11.
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. 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.
The following table contains information covering the grant of stock options to the Company's Chief Executive Officer and President during fiscal 1994 under The Quaker Long Term Incentive Plan of 1990. The exercise price for options granted is equal to the fair market value of Quaker's common stock on the date of the grant.
The following table contains information covering the exercise of options by the Chief Executive Officer and President during fiscal 1994 and unexercised options held as of the end of fiscal 1994. Pension Plans
Quaker and its subsidiaries maintain several pension plans. The Quaker Retirement Plan (the "Retirement Plan"), which is the principal 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, 1994 are set at the greater of (a) those earned or (b) 1% of Five-Year Average earnings to $22,700 plus 1.65% of earnings above $22,700, times credited years of service; and
2. Future Service Accrual -- For each year beginning January 1, 1994 and after, participants accrue benefits of 1.75% of annual earnings to 80% of the Social Security wage base plus 2.5% of annual earnings above 80% of the Social Security wage base.
Eligible earnings used to calculate retirement benefits include wages, salaries, bonuses, contributions to The Quaker Investment Plan and allocations under The Quaker Employee Stock Ownership Plan. Normal retirement age under the Retirement Plan is age 65. The Retirement Plan contains provision for early retirement benefits.
Benefit amounts payable under the Retirement Plan are limited to the extent required by the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, and the Internal Revenue Code of 1986, as amended. If the benefit formula produces an amount in excess of those limitations, the excess will be paid out of general corporate funds in accordance with the terms of The Quaker 415 Excess Benefit Plan and The Quaker Eligible Earnings Adjustment Plan. The Quaker Eligible Earnings Adjustment Plan also provides for payment out of general corporate funds, based upon benefit amounts which would otherwise have been payable under the Retirement Plan and The Quaker 415 Excess Benefit Plan, if the executive had not previously elected to defer compensation under the Executive Deferred Compensation Plan.
The estimated annual retirement benefits that Mr. Doyle would receive under the Retirement Plan, The Quaker 415 Excess Benefit Plan, and The Quaker Eligible Earnings Adjustment Plan, if he retired at age 65, is $211,754. The amount assumes that he will continue to work for Quaker until his normal retirement date and that his earnings will remain the same as in calendar year 1993 and that he will elect a straight-lifetime benefit without survivor benefits. (Payment options such as a 50% joint and survivor annuity or other annuities are available.)
The Retirement Plan assures active and retired employees that, to the extent of sufficient plan assets, it will continue in effect for a reasonable period following a change in control of Quaker without a reduction of anticipated benefits, and under certain circumstances may provide increased benefits.
Generally, under the Retirement Plan a change in control shall be deemed to have occurred in any of the following circumstances:
(i) An acquisition of 30% or more of Quaker's stock unless such acquisition is pursuant to an agreement with Quaker approved by the Board before the acquisitor becomes the beneficial owner of 5% of Quaker's outstanding voting power;
(ii) A majority of the Board of Directors is comprised of persons who were not nominated by the Board of Directors for election as directors;
(iii) A plan of complete liquidation of Quaker; or
(iv) A merger, consolidation or sale of all or substantially all of Quaker's assets unless thereafter (a) directors of Quaker immediately prior thereto continue to constitute at least 50% of the directors of the surviving entity or purchaser; or (b) Quaker's securities continue to
represent, or are converted to securities which represent, more than 70% of the combined voting power of the surviving entity or purchaser.
For a five-year period following a change in control of Quaker, the accrual of benefits for service during such period cannot be decreased while there are excess assets (as defined in the Retirement Plan). For a two-year period following such a change in control, the accrued benefits of members who meet specified age and service requirements and who are terminated will be increased. For so long as there are excess assets during that five-year period, if the Retirement Plan is merged with any other plan, the accrued benefit of each member and the amount payable to retired or deceased members shall be increased until there are no excess assets. If during that five-year period the Retirement Plan is terminated, to the extent that assets remain after satisfaction of liabilities, the accrued benefits shall be increased such that no assets of the Retirement Plan will directly or indirectly revert to Quaker.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding common stock of Stokely is owned by Quaker whose corporate offices are located at 321 North Clark, Chicago, IL 60610.
The following table presents information with respect to all persons known to Stokely to own more than 5% of any other class of Stokely's voting securities as of September 19, 1994. 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 18.2 Stock (1) Foundation 620 Campbell Station Road Station West, Suite 4 Knoxville, TN 37922
Marjorie M. Cochran 1,125 10.2 6201 Linwood Drive Covington, GA 30209-3953
Esther M. Minter 1,125 10.2 230 East College Street Griffin, GA 30223-4348
Cooper N. Mills 926 8.4 666 Brook Circle Griffin, GA 30223-4413
(1)Holders of common stock and Second Preferred Stock vote collectively and not as a separate class. As of June 30, 1994, 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.
The table below sets forth information with respect to beneficial ownership of common stock of Quaker by the directors of Stokely as of September 1, 1994, and by the directors and executive officers as a group. No director or officer owns any equity securities of Stokely.
[FN] (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 September 1, 1994.
(b) The figures shown for these executive officers include an aggregate of 1,094 shares representing their proportionate interests in the Quaker Stock Fund of The Quaker Investment Plan.
(c) The figures shown for these executive officers include an aggregate of 8,921 shares (which includes 1,543 shares on the basis of the conversion of 1,428 shares of Series B ESOP Convertible Preferred at the conversion rate of 1.08) allocated to them in The Quaker Employee Stock Ownership Plan.
(d) The figures shown for these executive officers include an aggregate of 1,685 shares granted to them under The Quaker Long Term Incentive Plan of 1990 for which the restricted period has not lapsed.
(e) Of these shares, 747 are held by Mr. Howell's children.
(f) Of these shares, 50 are held by Ms. Cooper's husband and 1 is held by Ms. Cooper's daughter.
ITEM 13.
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 (Notes 1, 4 and 7), and Part IV, Schedule II.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
[FN] (a)This amount primarily represents an investing arrangement between Stokely and its parent, Quaker. It also includes miscellaneous intercompany activity. Interest is accrued on the outstanding balance each month using a rate based on the yield of U.S. Treasury Bills (see Note 4 to the consolidated financial statements under Item 8).
(b) Stokely purchased a 100 percent participation in certain loans owed to Quaker by certain Quaker subsidiaries. Quaker has agreed to repurchase these loans at any time upon Stokely's request. STOKELY-VAN CAMP, INC. AND SUBSIDIARIES SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE FISCAL YEARS ENDED JUNE 30, 1994, 1993 AND 1992
*Royalty expense represents fees paid to the Gatorade Trust. See description in Item 1, Business.
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/ James F. Doyle James F. Doyle Chief Executive Officer and President
Date: September 28, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 28th day of September, 1994, by the following persons on behalf of the Registrant and in the capacities indicated.
Signature Title
/s/ James F. Doyle Chief Executive Officer and James F. Doyle President
/s/ Janet K. Cooper Vice President and Treasurer Janet K. Cooper (Principal Financial Officer)
/s/ R. Thomas Howell, Jr. Vice President, R. Thomas Howell, Jr. Secretary and Director
/s/ Thomas L. Gettings Vice President and Corporate Thomas L. Gettings Controller
EXHIBIT INDEX
Paper (P), Electronic (E) or Incorporated by EXHIBIT NO. DESCRIPTION Reference (IBRF)
3 (a) Articles of Incorporation of Stokely-Van IBRF Camp, Inc. (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1985, file number 1-2944).
3 (b) By-Laws of Stokely-Van Camp, Inc. IBRF (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1985, file number 1-2944).
10 (a) 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).
21 Subsidiaries of the Registrant. E