ITEM 1. BUSINESS
Stokely-Van Camp, Inc. and subsidiaries (the Company or Stokely) has been a wholly-owned subsidiary of The Quaker Oats Company (Quaker) since 1983. The Company was a processor, marketer and distributor of high-quality canned food and beverage products to retail stores, institutional distributors and industrial and athletic users. On June 8, 1995, the Company sold its Van Camp's pork and beans business. Consequently, the majority of Stokely's business is now comprised of the Gatorade thirst quencher business in the United States. Gatorade thirst quencher is a beverage specifically developed to quench thirst during periods of physical activity. Gatorade thirst quencher is marketed through retail grocery stores, convenience stores, food service distributors, warehouse clubs and wholesalers, and is also sold directly to athletic, institutional and industrial users. This product is distributed nationally and internationally and is primarily sold through Quaker sales organizations and food brokers. The supply of raw materials for Gatorade thirst quencher has been adequate and continuous. The Company's sales are seasonal, with over 70 percent of sales occurring between April and September.
Export sales in 1997, 1996 and 1995 were $31.9 million, $19.8 million and $45.2 million, respectively.
Fee Agreement
In 1984, the Company entered a novation of a series of agreements (Agreement) with the trustee of the Gatorade Trust, the contracting agent of the innovators of Gatorade thirst quencher and their successors in interest, and renewed rights to manufacture and sell certain beverage products in return for payment of fees based on varying levels of sales. In the event of failure by Stokely to make payments to the Gatorade Trust, as called for by the Agreement, the Trustee may cancel the Agreement and purchase back from Stokely, for a reasonable value, all trademarks and foreign patents connected with the Gatorade thirst quencher business. In 1993, the Agreement was amended to provide certain alternatives to market and distribute Gatorade thirst quencher and to clarify certain aspects of the 1984 Agreement. Except for these changes, the 1984 Agreement remains in full force and effect.
Competition
Stokely's beverage business is highly competitive. The Company's two key competitors are The Coca-Cola Company and PepsiCo Inc. The principal competitive factors affecting sales include quality, price, brand image created by advertising, distribution effectiveness and product availability.
Employees
The total number of Stokely employees as of December 31, 1997, was approximately 1,471.
ITEM 2.
ITEM 2. PROPERTIES
The Company owns and operates seven plants, including manufacturing, filling and distribution facilities located in seven states. A facility in Puerto Rico is also leased. In 1997, Quaker completed the construction of its Atlanta, Georgia plant to replace the Newport, Tennessee plant which was sold with the Van Camp's business. The majority of Gatorade thirst quencher sales are shipped direct from the production sites. In addition, Quaker owns or leases distribution centers, six of which are shared with the Company. Other distribution centers are leased as needed throughout the year. Sales and administrative office space is shared with Quaker. Management believes that manufacturing, distribution and office space owned and leased is suitable and adequate for the business and production capacity is appropriately utilized.
ITEM 3.
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 1997, 1996 or 1995.
ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31, (Dollars in Millions) 1997(a) 1996 1995(b) 1994(c) 1993
Net sales $1,188.4 $1,090.5 $1,130.3 $1,081.4 $979.5 Cost of goods sold 566.1 540.7 586.9 564.6 499.1 Income before income taxes and cumulative effect of accounting changes $ 222.4 $ 211.9 $ 215.6 $ 84.2 $123.4 Provision for income taxes 91.3 87.0 79.2 35.3 49.5 Income before cumulative effect of accounting changes 131.1 124.9 136.4 48.9 73.9 Cumulative effect of accounting changes - net of tax (d) -- -- -- (1.5) -- Net Income $ 131.1 $ 124.9 $ 136.4 $ 47.4 $ 73.9
As of December 31, (Dollars in Millions) 1997 1996 1995 1994 1993
Property - net $ 242.2 $ 188.8 $ 141.7 $ 147.5 $137.4 Total assets $1,148.6 $1,013.6 $ 877.5 $ 754.9 $689.2 Long-term debt $ 1.5 $ 0.3 $ 0.5 $ 0.7 $ 0.7 Redeemable preference and preferred stock $ 15.3 $ 15.3 $ 15.3 $ 15.3 $ 15.3
(a) 1997 results include a $3.1 million pretax restructuring charge for a U.S. Gatorade manufacturing reconfiguration.
(b) 1995 results include a $44.9 million pretax gain for the divestiture of the Van Camp's pork and beans business.
(c) 1994 results include a $9.4 million pretax restructuring charge for Van Camp's manufacturing consolidation and work force reductions.
(d) 1994 cumulative effect of accounting changes includes an after-tax charge of $1.5 million for the adoption of FASB Statement #112.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report discusses the operating results and financial condition of the Company for the year ended December 31, 1997. The comparisons of the 1996 results to those of 1995 are affected by the divestiture of the Van Camp's business on June 8, 1995. See Note 2 to the Consolidated Financial Statements for further discussion of the divestiture.
1997 Compared with 1996
Operating Results
Consolidated net sales for 1997 were $1.19 billion, an increase of 9 percent from 1996, driven by higher U.S. and export sales as compared to the prior year. U.S. Gatorade thirst quencher net sales increased 8 percent on a volume increase of 9 percent, driven by incremental sales from a new product, Gatorade Frost, and strong execution of retail in-store initiatives, resulting in market share gains. Price increases did not significantly affect 1997 sales.
Gross profit margin increased to 52.4 percent compared to 50.4 percent in 1996. This increase was due to sales growth and lower packaging costs for U.S. Gatorade thirst quencher. Selling, general and administrative (SG&A) expenses increased 17 percent to $441.2 million, primarily due to higher advertising and merchandising (A&M) expenses, as well as the allocation of certain Quaker overhead costs absorbed by the Snapple beverages business in 1996. A&M expenses increased 15 percent, driven, in part, by media spending for Gatorade Frost. A&M expenses were 24.9 percent and 23.6 percent of sales in 1997 and 1996, respectively.
Transfer of Assets
On May 22, 1997, Quaker completed the sale of 100 percent of its wholly- owned subsidiary, Snapple Beverage Corp., to Triarc Companies, Inc. Prior to the completion of this transaction, a Snapple facility in Tolleson, Arizona was transferred to the Company as a Gatorade thirst quencher facility. The net book value of the assets transferred to the Company was $39.4 million.
Restructuring Charge
In 1997, the Company recorded a restructuring charge of $3.1 million to reconfigure U.S. Gatorade manufacturing lines. The charge was comprised of non-cash asset write-offs. As of December 31, 1997, there were no remaining reserves and no material savings to be realized from this restructuring action.
Interest and Income Taxes
Net interest income of $44.4 million increased $4.4 million from 1996, the result of higher average amounts due from Quaker. See Note 4 to the Consolidated Financial Statements for further discussion of the Company's investing and borrowing agreement with Quaker.
The effective tax rate was 41.0 percent in 1997 and 1996.
1996 Compared with 1995
Operating Results
As a result of the Van Camp divestiture, comparative results for 1996 and 1995 are difficult to analyze. To assist in the analysis of operating results, this discussion will address the financial results as reported, then note the impact of the divested business, where applicable, and review the results of the ongoing Gatorade thirst quencher business.
Consolidated net sales for 1996 were $1.09 billion, a decrease of 4 percent from 1995, largely driven by the Van Camp's divestiture. Excluding the $76.2 million of Van Camp's net sales from 1995 results, net sales for 1996 rose 3 percent. This increase was primarily due to higher U.S. Gatorade thirst quencher sales, partly offset by lower export sales as compared to the prior year. U.S. Gatorade thirst quencher net sales increased 6 percent on a volume increase of 5 percent, driven by successful new packaging and flavors and retail shelf space gains. Price increases did not significantly affect 1996 sales.
Gross profit margin increased to 50.4 percent compared to 48.1 percent in 1995, partly due to product mix changes resulting from the Van Camp's divestiture. Excluding the Van Camp's business, the gross profit margin was 48.9 percent in 1995. The increase in the gross profit margin, excluding the divested business, was primarily due to sales growth and lower manufacturing and packaging costs for U.S. Gatorade thirst quencher. SG&A expenses decreased 6 percent to $377.9 million, primarily due to the absence of expenses associated with the divested Van Camp's business. Excluding Van Camp's results, SG&A expenses decreased 1 percent, primarily due to a decrease in A&M expenses, partially offset by an increase in other operating expenses. A&M expenses were 23.6 percent and 24.6 percent of sales in 1996 and 1995, respectively. Excluding Van Camp's results, A&M expenses were 25.0 percent of sales in 1995. SG&A and A&M expenses were both lower as a percentage of sales as a result of increased efficiency in A&M spending combined with increased sales.
Gain on Divestiture
In 1995, the Company realized a gain of $44.9 million on the divestiture of the Van Camp's pork and beans business. See Note 2 to the Consolidated Financial Statements for a further discussion of the divestiture.
Interest and Income Taxes
Net interest income of $40.0 million increased $9.0 million from 1995, the result of higher average amounts due from Quaker. See Note 4 to the Consolidated Financial Statements for further discussion of the Company's investing and borrowing arrangement with Quaker.
The effective tax rate for 1996 was 41.0 percent versus 36.7 percent in 1995. Favorable tax treatment of operations in Puerto Rico was the primary driver of the lower rate in 1995.
Liquidity and Capital Resources
Net cash provided by operating activities was $156.8 million, $137.3 million and $103.1 million for 1997, 1996 and 1995, respectively. The increase in cash flows provided by operating activities in all three years was due to increased net income (excluding the gain on divestiture in 1995) and changes in working capital. In particular, in 1995, Gatorade thirst quencher inventory decreased due to more efficient inventory management during a period of increased sales. Capital expenditures for 1997, 1996 and 1995 were $52.4 million, $68.9 million and $37.1 million, respectively. In March 1997, the Company opened a Gatorade plant and distribution center near Atlanta, Georgia to replace the Newport, Tennessee plant that was sold with the Van Camp's business. Approximately $54 million was spent on this project in 1997 and 1996, resulting in an increased level of capital expenditures compared to 1995. The Company expects the level of its future capital expenditures and cash dividends will be financed through cash flows from operating activities.
The current Standard and Poor's rating on the Company's preferred stock is BBB+.
Derivative Commodity and Financial Instruments
The Company actively monitors its exposure to risk from changes in commodity prices related to purchases of corn sweetener. Derivative commodity futures and options are used, from time to time, to reduce the impact of these risks. The Company does not use these instruments for trading purposes and does not use instruments where there are no underlying exposures. Management believes that its use of these instruments to reduce risk is in the Company's best interest. No commodity instruments were outstanding as of December 31, 1997. Derivative foreign exchange or interest rate instruments are not used as the risks from changes in foreign exchange or interest rate are not material.
Current and Pending Accounting Changes and Other Matter
In March 1997, the Financial Accounting Standards Board (FASB) issued Statement #128, "Earnings per Share." This Statement simplifies the computation of earnings per share and makes the computation more consistent with International Accounting Standards. Although Stokely's parent company, Quaker, adopted this new standard in December 1997, this Statement does not apply to Stokely, since earnings per share measures are not presented.
In July 1997, the FASB issued Statement #130, "Reporting Comprehensive Income," and Statement #131, "Disclosures about Segments of an Enterprise and Related Information." Statement #130 establishes standards for reporting comprehensive income in financial statements. Statement #131 expands certain reporting and disclosures for segments from current standards. The Company is not required to adopt these Statements until 1998 and does not expect the adoption of these new standards to result in material changes to previously reported amounts or disclosures.
In February 1998, the FASB issued Statement #132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This Statement revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. The Company is not required to adopt this Statement until 1998 and does not expect the adoption of this standard to result in material changes in previously reported amounts or disclosures.
Stokely, through its parent company, Quaker, conducts the majority of its operations as an integrated component of Quaker's U.S. and Canadian Foods and Beverages business. As such, Stokely, throughout its business, uses Quaker's software and other related technologies that will be affected by the date change in the Year 2000. With Quaker senior management accountability and corporate staff guidance, the affected Quaker operating units are in varying stages of assessment and implementation of a plan to address Quaker's Year 2000 issues. Overall, Quaker has targeted Year 2000 compliance primarily by the end of 1998, with certain Quaker operating units targeting compliance by no later than mid-1999. While Quaker's plans are underway, and Quaker does not anticipate such, the consequences of non-compliance by Quaker, its customers or its suppliers, could have a material adverse impact on the Company's operations. Quaker will continue to incur expenses, on behalf of the Company, related to these efforts; however, such expenses are not expected to have a material impact on the Company's results of operations.
Cautionary Statement on Forward-Looking Statements
Forward-looking statements, within the meaning of Section 21E of the Securities and Exchange Act of 1934, are made throughout this Management's Discussion and Analysis and in other sections of this annual report. The Company's results may differ materially from those in the forward-looking statements. Forward-looking statements are based on management's current views and assumptions, and involve risks and uncertainties that could significantly affect expected results. For example, operating results may be affected by external factors such as: actions of competitors; changes in laws and regulations, including changes in governmental interpretations of regulations and changes in accounting standards; customer demand; effectiveness of spending or programs; and fluctuations in the cost and availability of supply chain resources.
Continued growth in sales, earnings and cash flows from the Gatorade thirst quencher operations is dependent on: the level of competition from its two key competitors, The Coca-Cola Company and PepsiCo Inc.; the ability to obtain increasing points of availability; the projected outcome of supply- chain management programs; capital spending plans; markets for key commodities, especially PET resins and cardboard; and the efficiency and effectiveness of A&M programs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND REINVESTED EARNINGS
Year Ended December 31, (Dollars in Millions) 1997 1996 1995
Net sales $1,188.4 $1,090.5 $1,130.3 Cost of goods sold 566.1 540.7 586.9 Gross profit 622.3 549.8 543.4
Selling, general and administrative expenses 441.2 377.9 403.7 Gain on divestiture -- -- (44.9) Restructuring charge 3.1 -- -- Interest income - net (44.4) (40.0) (31.0)
Income before income taxes 222.4 211.9 215.6 Provision for income taxes 91.3 87.0 79.2
Net Income 131.1 124.9 136.4
Dividends on preference and preferred stock (0.8) (0.8) (0.8) Reinvested Earnings - Beginning Balance 811.8 687.7 552.1 Reinvested Earnings - Ending Balance $ 942.1 $ 811.8 $ 687.7
See accompanying notes to consolidated financial statements.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, (Dollars in Millions) 1997 1996 1995
Cash Flows from Operating Activities: Net income $ 131.1 $124.9 $136.4 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 21.3 15.9 17.8 Deferred income taxes 3.0 (0.5) (1.0) Gain on divestiture -- -- (44.9) Restructuring charge 3.1 -- -- Loss on disposition of property and equipment 13.9 1.7 0.9 (Increase) decrease in trade accounts receivable (4.5) 2.3 6.4 (Increase) decrease in inventories (0.6) (9.8) 22.3 Increase in other current assets (3.4) (12.7) (9.9) (Decrease) increase in trade accounts payable (2.5) 12.2 (2.8) Decrease in income taxes payable (4.9) (2.3) (11.0) (Decrease) increase in other current liabilities (7.8) 5.4 (10.1) Other items 8.1 0.2 (1.0) Net Cash Provided by Operating Activities 156.8 137.3 103.1
Cash Flows from Investing Activities: Additions to property, plant and equipment (52.4) (68.9) (37.1) Business divestiture -- -- 90.6 Net Cash (Used in) Provided by Investing Activities (52.4) (68.9) 53.5
Cash Flows from Financing Activities: Change in amount Due from The Quaker Oats Company (102.8) (70.5) (159.9) Cash dividends (0.8) (0.8) (0.8) Proceeds from long-term debt 1.4 -- -- Reduction of long-term debt (0.2) (0.2) (0.2) Net Cash Used in Financing Activities (102.4) (71.5) (160.9)
Net Increase (Decrease) in Cash and Cash Equivalents 2.0 (3.1) (4.3) Cash and Cash Equivalents - Beginning of Period 5.3 8.4 12.7 Cash and Cash Equivalents - End of Period $ 7.3 $ 5.3 $ 8.4
See accompanying notes to consolidated financial statements.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
As of December 31, (Dollars in Millions) 1997 1996
Assets Current Assets: Cash and cash equivalents $ 7.3 $ 5.3 Due from The Quaker Oats Company 778.7 715.3 Trade accounts receivable - net of allowance of $5.2 and $3.9, as of December 31, 1997 and 1996, respectively 28.7 24.2 Inventories: Finished goods 27.1 24.8 Materials and supplies 7.6 9.3 Total Inventories 34.7 34.1
Other current assets 55.6 39.9 Total Current Assets 905.0 818.8
Other Assets 1.4 6.0
Property, Plant and Equipment Land 5.2 5.1 Buildings and improvements 82.0 67.9 Machinery and equipment 241.8 191.2 Property, plant and equipment 329.0 264.2 Less: accumulated depreciation 86.8 75.4 Property - Net 242.2 188.8 Total Assets $1,148.6 $1,013.6
Liabilities and Shareholders' Equity Current Liabilities: Trade accounts payable $ 18.4 $ 20.9 Accrued payroll, benefits and bonus 10.9 9.7 Accrued advertising and merchandising 16.4 21.9 Income taxes payable 20.6 17.4 Other current liabilities 18.2 21.7 Total Current Liabilities 84.5 91.6
Long-term Debt 1.5 0.3 Other Liabilities 46.6 43.2 Deferred Income Taxes 7.2 --
Redeemable Preference and Preferred Stock 15.3 15.3
Common Shareholders' Equity: Common stock, $1 par value, authorized 10,000,000 shares; issued 3,591,381 shares 3.6 3.6 Additional paid-in capital 68.7 68.7 Reinvested earnings 942.1 811.8 Treasury common stock, at cost, 602,010 shares (20.9) (20.9) Total Common Shareholders' Equity 993.5 863.2 Total Liabilities and Shareholders' Equity $1,148.6 $1,013.6
See accompanying notes to consolidated financial statements.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The Consolidated Financial Statements include Stokely-Van Camp, Inc. and Subsidiaries (the Company or Stokely). All significant intercompany transactions have been eliminated. The Company is a subsidiary of The Quaker Oats Company (Quaker). Divested businesses are included in the results of operations until their divestiture dates.
Derivative Commodity Instruments
The Company uses commodity options and futures contracts in its management of commodity price exposures. Instruments used as hedges must be effective at reducing the risks associated with the underlying exposure and must be designated as a hedge at the inception of the contract. Accordingly, changes in the market value of the instruments must have a high degree of inverse correlation with changes in the market value of the underlying hedged item. Complex instruments involving leverage or multipliers are not used.
The deferral method is used to account for those instruments which effectively hedge the Company's price exposures. For hedges of anticipated transactions, the significant characteristics and terms of the anticipated transaction must be identified, and the transaction must be probable of occurring to qualify for deferral method accounting. Under the deferral method, gains and losses on derivative instruments are deferred in the consolidated balance sheets as a component of other current assets (if a loss) or other accrued liabilities (if a gain) until the underlying inventory being hedged is sold. As the hedged inventory is sold, the deferred gains and losses are recognized in the consolidated statements of income as a component of cost of goods sold. Derivative instruments that do not meet the above criteria required for deferral treatment are accounted for under the fair value method, with gains and losses recognized currently in the consolidated statements of income as a component of cost of goods sold.
Inventories
Inventories are valued at the lower of cost or market, using the last-in, first-out (LIFO) cost method, and include the cost of raw materials, labor and overhead. If the LIFO method of valuing these inventories was not used, total inventories would have been $0.4 million higher than reported as of December 31, 1997 and 1996.
Property and Depreciation
Property, plant and equipment are carried at cost and depreciated on a straight-line basis over their estimated useful lives. Useful lives range from 10 to 40 years for buildings and improvements and from three to 12 years for machinery and equipment.
Current and Pending Accounting Changes
In March 1997, the Financial Accounting Standards Board (FASB) issued Statement #128, "Earnings per Share." This Statement simplifies the computation of earnings per share and makes the computation more consistent with International Accounting Standards. Although Stokely's parent company, Quaker, adopted this new Standard in December 1997, this Statement does not apply to Stokely, since earnings per share measures are not presented.
In July 1997, the FASB issued Statement #130, "Reporting Comprehensive Income," and Statement #131, "Disclosures about Segments of an Enterprise and Related Information." Statement #130 establishes standards for reporting comprehensive income in financial statements. Statement #131 expands certain reporting and disclosures for segments from current standards. The Company is not required to adopt these Statements until 1998 and does not expect the adoption of these new standards to result in material changes to previously reported amounts or disclosures.
In February 1998, the FASB issued Statement #132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This Statement revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. The Company is not required to adopt this Statement until 1998 and does not expect the adoption of this standard to result in material changes in previously reported amounts or disclosures.
Income Taxes
The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for a year and the bases of assets and liabilities.
Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
NOTE 2
DIVESITURE
On June 8, 1995, the Company completed the divestiture of the Van Camp's pork and beans business to Hunt-Wesson Inc., a subsidiary of ConAgra Inc., for $90.6 million and realized a gain of $44.9 million. Sales and operating income from the Van Camp's business were $76.2 million and $6.9 million in 1995, respectively. Operating income includes certain allocations of overhead expenses and excludes the gain on the divestiture in 1995.
NOTE 3
RESTRUCTURING CHARGE
In 1997, the Company recorded a restructuring charge of $3.1 million to reconfigure U.S. Gatorade manufacturing lines. The charge was comprised of non-cash asset write-offs. As of December 31, 1997, there were no remaining reserves and no material savings to be realized from this restructuring action.
NOTE 4
RELATED PARTY TRANSACTIONS
Stokely, through its parent company, Quaker, conducts the majority of its operations as an integrated component of Quaker's U.S. and Canadian Foods and Beverages business. Certain liabilities and expenses are commingled and are charged or allocated to Stokely from Quaker. With the exception of cost of sales and advertising and merchandising expenses, the majority of operating, general and administrative expenses are allocated from Quaker to Stokely. Stokely reimburses Quaker and its affiliates for services provided for its benefit. Quaker's International Foods and Beverages business is licensed to sell Gatorade thirst quencher in international markets. In exchange for these licensing rights, Quaker pays the Company a royalty. The following summarizes the significant related party transactions other than those described elsewhere in the consolidated financial statements:
Income Taxes
Stokely is included in the consolidated Federal income tax return of Quaker. Stokely provides for current and deferred taxes as if it filed a separate consolidated tax return, except that if any items are subject to limitations in Stokely's tax calculations, such limitations are determined on the basis of the Quaker consolidated group.
Employees
Certain salaried and hourly employees whose services benefit the Stokely business are employees of Quaker. Their compensation is paid by Quaker. These employees also participate in certain Quaker employee benefit plans. Stokely is directly charged for actual salary costs and allocated fringe benefit costs of these employees.
Corporate Insurance Programs
Stokely participates in Quaker's consolidated insurance and risk management programs for property and casualty insurance. Stokely is directly charged for its related insurance costs.
Corporate Overhead Allocations
Quaker provides certain corporate general and administrative services to Stokely including personnel, legal, finance, facility management and utilities. These expenses are allocated to Stokely on a basis which approximates actual services provided.
Shared Operating Expenses
Quaker's U.S. and Canadian Foods and Beverages business allocates a ratable portion of shared operating expenses including sales force and brokers, certain other marketing expenses, product research and general and administrative services. These expenses are allocated to Stokely on a basis which approximates actual services provided as determined by various measures.
Transfer of Assets
On May 22, 1997, Quaker completed the sale of 100 percent of its wholly-owned subsidiary, Snapple Beverage Corp., to Triarc Companies, Inc. Prior to the completion of this transaction, a Snapple facility in Tolleson, Arizona was transferred to the Company as a Gatorade thirst quencher facility. The net book value of the assets transferred to the Company was $39.4 million.
International Licensing Agreements
Stokely has entered into a number of licensing agreements allowing the international affiliates of Quaker to manufacture and sell certain beverage products in return for payment of licensing fees. Fees received under these agreements amounted to $6.4 million, $5.5 million and $6.3 million in 1997, 1996 and 1995, respectively.
Investing and Borrowing Arrangement
The Company has an investing and borrowing arrangement under which it loans its available cash to Quaker or borrows its short-term cash requirements from Quaker. Funds collected from operations which are remitted to Quaker increase the amount due from Quaker; conversely, operating expenses paid by Quaker reduce the receivable from Quaker or may result in a payable to Quaker. This arrangement provides for an interest rate based on the yield of U.S. Treasury Bills, as determined by the weekly U.S. Government auction. The Company may, at any time, demand repayment of all or any part of the amount due from Quaker. There were no bank lines of credit as of December 31, 1997 or 1996.
NOTE 5
LONG-TERM DEBT
As of December 31, (Dollars in Millions) 1997 1996
Capital Lease Obligations $1.6 $ -- Industrial Revenue Bond, 4.5% due through October 1, 1999 0.3 0.5 Less: current maturities 0.4 0.2 Long-term Debt $1.5 $0.3
Aggregate required payments for long-term debt maturing over the next five years are as follows:
(Dollars in Millions) 1998 1999 2000 2001 2002
Total Payments $0.4 $0.3 $0.2 $0.2 $0.2
NOTE 6
FINANCIAL INSTRUMENTS
Financial instruments are primarily used to fund operating requirements and to reduce the Company's exposure to commodity price fluctuations. The Company uses commodity options and futures contracts to reduce the risk that raw material purchases will be adversely affected as commodity prices change. While the hedge instruments are subject to the risk of loss from commodity price changes, the losses would generally be offset by lower costs of the purchases being hedged. The Company does not use financial instruments with the objective of earning financial gains on commodity price fluctuations alone, and does not use instruments where there are no underlying exposures. Management believes that its use of financial instruments to reduce risk is in the Company's best interest.
The Company primarily hedges purchases of corn sweetener. Approximately 1 percent of cost of goods sold in 1997 was in commodities that may be hedged. The Company's strategy is to typically hedge certain production requirements for various periods up to 12 months. No commodity instruments were outstanding as of December 31, 1997. The fair value of commodity instruments outstanding as of December 31, 1996, based on quotes from brokers, was a net unrealized loss of $0.5 million. Realized net (losses) gains charged to cost of goods sold were $(0.1) million in 1997, $1.2 million in 1996, and were not material in 1995.
The carrying value of cash and long-term debt approximates fair value. The counterparties to the Company's financial instruments are major financial institutions. The Company continually evaluates the creditworthiness of the counterparties and has never experienced, nor does it anticipate, nonperformance by any of its counterparties.
NOTE 7
CAPITAL STOCK
Since October 31, 1983, all outstanding shares of the Company's common stock have been held by Quaker and the balances of common stock ($3.6 million; 3,591,381 shares issued), additional paid-in capital ($68.7 million) and treasury common stock ($20.9 million; 602,010 shares) have remained unchanged.
The Company has three series of preferred stock: voting 5% Cumulative Convertible Second Preferred Stock; non-voting 5% Cumulative Prior Preference Stock; and Serial Preferred Stock. The voting 5% Cumulative Convertible Second Preferred Stock is convertible at the holder's option, on a share for share basis, into the non-voting 5% Cumulative Prior Preference Stock. As of December 31, 1997, authorized shares were 500,000 and issued and outstanding shares were 10,400 for the 5% Cumulative Convertible Second Preferred Stock. As of December 31, 1997, 1,500,000 shares were authorized, 753,744 shares were issued, 753,411 shares were outstanding and 10,400 shares were reserved for conversion for the 5% Cumulative Prior Preference Stock. Both issues are redeemable at the Company's option for $21 per share. No Serial Preferred Stock has been issued, although 500,000 shares are authorized.
The following chart summarizes the changes in the outstanding preference and preferred stock balances:
5% Cumulative 5% Cumulative Prior Preference Convertible Second Stock Preferred Stock $20 Par Value (a) $20 Par Value Balance as of December 31, 1994 752,743 11,068 Shares Converted 208 (208) Balance as of December 31, 1995 752,951 10,860 Shares Converted 60 (60) Balance as of December 31, 1996 753,011 10,800 Shares Converted 400 (400) Balance as of December 31, 1997 753,411 10,400
(a) Prior year amounts have been restated by 212 shares to accurately reflect stock balances.
NOTE 8
PENSION PLANS
Salaried and hourly employees assigned to the Company are covered by the Quaker Retirement Plan (Plan). Plan benefits are based on compensation paid to employees and their years of service. Quaker's policy is to make contributions to the Plan within the maximum amount deductible for Federal income tax purposes. Plan assets consist primarily of equity securities and government, corporate and other fixed-income obligations. Consistent with arrangements described in Note 4, the Company was allocated pension costs of approximately $0.6 million, $1.5 million and $3.5 million in 1997, 1996 and 1995, respectively. The Company's allocated accrued pension costs were approximately $10.6 million and $8.7 million as of December 31, 1997 and 1996, respectively.
NOTE 9
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS
Quaker provides certain health care and life insurance benefits to substantially all retired U.S. employees and certain retired foreign employees who meet service-related eligibility requirements. Consistent with arrangements described in Note 4, the Company is allocated a portion of these costs incurred by Quaker.
The Company was allocated postretirement benefit costs of $2.8 million, $2.5 million and $3.3 million in 1997, 1996 and 1995, respectively. The Company's allocated unfunded accrued postretirement benefit costs were $35.1 million and $33.4 million as of December 31, 1997 and 1996, respectively.
NOTE 10
SUPPLEMENTAL CASH FLOW INFORMATION
Year Ended December 31, (Dollars in Millions) 1997 1996 1995 Cash Activity: Interest Paid $ 0.1 $ 0.1 $ 0.1 Income Taxes Paid $78.1 $100.1 $80.1 Noncash Activity: Transfer of Assets $39.4 $ -- $ --
On May 22, 1997, Quaker completed the sale of 100 percent of its wholly- owned subsidiary, Snapple Beverage Corp., to Triarc Companies, Inc. Prior to the completion of this transaction, a Snapple facility in Tolleson, Arizona was transferred to the Company as a Gatorade thirst quencher facility. The net book value of the assets transferred to the Company was $39.4 million.
NOTE 11
LEASES AND OTHER COMMITMENTS
Certain operating properties are rented under non-cancelable operating leases. Total rental expense under operating leases was $5.7 million, $5.0 million and $4.7 million in 1997, 1996 and 1995, respectively. Future minimum annual rentals on non-cancelable operating leases, primarily for sales and administrative offices and distribution centers, are as follows:
(Dollars in Millions) 1998 1999 2000 2001 2002 Thereafter Total
Total Payments $5.7 $4.8 $4.4 $4.4 $4.3 $12.0 $35.6
The Company enters into executory contracts to obtain inventory and promote various products. As of December 31, 1997, future commitments under these contracts amounted to $41.5 million.
NOTE 12
INCOME TAXES
The Company uses an asset and liability approach to financial accounting and reporting for income taxes in accordance with FASB Statement #109, "Accounting for Income Taxes."
Provisions for income taxes were as follows:
Year Ended December 31, (Dollars in Millions) 1997 1996 1995
Currently payable: Federal $ 74.6 $75.2 $68.7 Foreign 0.1 0.5 0.8 State 16.6 15.4 17.2 Total currently payable 91.3 91.1 86.7 Deferred - net: Federal (0.6) (4.9) (6.5) Foreign (0.1) (0.3) (0.3) State 0.7 1.1 (0.7) Total deferred - net -- (4.1) (7.5) Provision for income taxes $ 91.3 $87.0 $79.2
The components of the deferred income tax provision (benefit) were as follows:
Year Ended December 31, (Dollars in Millions) 1997 1996 1995
Accelerated tax depreciation $ 4.7 $ 0.5 $(1.7) Postretirement benefits (0.6) (1.0) 0.5 Accrued expenses (4.1) (0.6) (5.8) Other -- (3.0) (0.5) Deferred income tax (benefit) $ -- $(4.1) $(7.5)
The sources of pretax income were as follows:
Year Ended December 31, (Dollars in Millions) 1997 1996 1995
U.S. sources $222.2 $211.3 $214.1 Foreign sources 0.2 0.6 1.5 Income before income taxes $222.4 $211.9 $215.6
Reconciliations of the statutory Federal income tax rates to the effective income tax rates were as follows:
The following table contains information covering the grant of stock options to the Chief Executive Officer and President during Fiscal Year 1997. The exercise price for all options granted is equal to the fair market value of Quaker's common stock on the date of grant.
The following table contains information covering the exercise of options by the Chief Executive Officer and President during 1997 and unexercised options held as of the end of 1997.
Pension Plans
Quaker and its subsidiaries maintain several pension plans. The Quaker Retirement Plan (Retirement Plan), which is the principal pension plan, is a noncontributory, defined benefit plan covering eligible salaried and hourly employees of the Company who have completed one year of service as defined by the Retirement Plan.
Under the Retirement Plan, the participant accrues a benefit based upon the greater of a Years-of-Service Formula and an Earnings/Service Formula. Under the Years-of-Service Formula, participants accrue annual benefits equivalent to credited years of service times $216. Under the Earnings/Service Formula, a participant's benefit is the sum of two parts:
1. Past Service Accrual -- Benefits accrued through December 31, 1993 are set at the greater of (a) those earned or (b) 1% of Five-Year Average earnings to $22,700 plus 1.65% of earnings above $22,700, times credited years of service; and
2. Future Service Accrual -- For each year beginning January 1, 1994 and after, participants accrue benefits of 1.75% of annual earnings to 80% of the Social Security wage base plus 2.5% of annual earnings above 80% of the Social Security wage base.
Eligible earnings used to calculate retirement benefits include wages, salaries, bonuses, contributions to The Quaker Investment Plan and allocations under The Quaker Employee Stock Ownership Plan. Normal retirement age under the Retirement Plan is age 65. The Retirement Plan contains provision for early retirement benefits.
Benefit amounts payable under the Retirement Plan are limited to the extent required by the Employee Retirement Income Security Act of 1974 (ERISA), as amended, and the Internal Revenue Code of 1986, as amended. If the benefit formula produces an amount in excess of those limitations, the excess will be paid out of general corporate funds in accordance with the terms of The Quaker 415 Excess Benefit Plan and The Quaker Eligible Earnings Adjustment Plan. The Quaker Eligible Earnings Adjustment Plan also provides for payment out of general corporate funds, based upon benefit amounts which would otherwise have been payable under the Retirement Plan and The Quaker 415 Excess Benefit Plan, if the executive had not previously elected to defer compensation under the Executive Deferred Compensation Plan.
The estimated annual retirement benefits that Mr. Doyle would receive under the Retirement Plan, The Quaker 415 Excess Benefit Plan, and The Quaker Eligible Earnings Adjustment Plan, if he retired at age 65, are $351,948. This amount assumes that he will continue to work for Quaker until his normal retirement date and that his earnings will remain the same as in year 1997 and that he will elect a straight-lifetime benefit without survivor benefits. Payment options such as a lump sum or other annuities are available.
The Retirement Plan assures active and retired employees that, to the extent of sufficient plan assets, it will continue in effect for a reasonable period following a change in control of Quaker without a reduction of anticipated benefits, and under certain circumstances may provide increased benefits. Generally, under the Retirement Plan, a change in control shall be deemed to have occurred in any of the following circumstances:
(i) An acquisition of 30% or more of Quaker stock unless such acquisition is pursuant to an agreement with Quaker approved by its Board before the acquirer becomes the beneficial owner of 5% of Quaker's outstanding voting power;
(ii) A majority of Quaker's Board is comprised of persons who were not nominated by its Board for election as directors;
(iii) A plan of complete liquidation of Quaker; or
(iv) A merger, consolidation or sale of all or substantially all of Quaker's assets unless thereafter (a) directors of Quaker immediately prior thereto continue to constitute at least 50% of the directors of the surviving entity or purchaser; or (b) Quaker's securities continue to represent, or are converted to securities which represent, more than 70% of the combined voting power of the surviving entity or purchaser.
For a five-year period following a change in control of Quaker, the accrual of benefits for service during such period cannot be decreased while there are excess assets (as defined in the Retirement Plan). For a two-year period following such a change in control, the accrued benefits of members who meet specified age and service requirements and who are terminated will be increased. For so long as there are excess assets during that five-year period, if the Retirement Plan is merged with any other plan, the accrued benefit of each member and the amount payable to retired or deceased members shall be increased until there are no excess assets. If during that five-year period the Retirement Plan is terminated, to the extent that assets remain after satisfaction of liabilities, the accrued benefits shall be increased such that no assets of the Retirement Plan will directly or indirectly revert to Quaker.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding common stock of Stokely is owned by Quaker whose corporate offices are located at 321 North Clark, Chicago, IL 60610.
The following table presents information with respect to all persons known to Stokely to own more than 5% of any other class of Stokely's voting securities as of March 1, 1998. Each beneficial owner has, to the knowledge of Stokely, sole voting power and sole investment power with respect to the shares listed opposite such owner's name.
Amount and Percent Name and Address Nature of of Title of Class of Beneficial Owner Ownership Class
Second Preferred The William B. Stokely, Jr. 2,012 19.3 Stock (1) Foundation 620 Campbell Station Road Station West, Suite 4 Knoxville, TN 37922
Marjorie M. Cochran 1,125 10.8 2900 Country Squire Lane Decatur, GA 30033-2418
Esther M. Minter 1,125 10.8 230 East College Street Griffin, GA 30223-4348
Cooper N. Mills 926 8.9 666 Brook Circle Griffin, GA 30223-4413
Sigler & Co. 855 8.2 c/o Chase Manhattan Bank Dept. 3492 P.O. Box 50000 Newark, NJ 07101-8006
John B. Mills, III 526 5.1 1043 Clifton Road Atlanta, GA 30307-1227
(1) Holders of common stock and Second Preferred Stock vote collectively and not as a separate class. As of December 31, 1997, the outstanding shares of Second Preferred Stock comprise less than 1% of the aggregate number of outstanding shares of common stock and Second Preferred Stock.
The table below sets forth information with respect to beneficial ownership of common stock of Quaker by the directors and named executive officers of Stokely as of March 1, 1998, and by the directors and by the named executive officers, and executive officers as a group. Shares subject to acquisition within 60 days through the exercise of stock options are included in the first column and are shown separately in the second column. No director or officer and named executive officers owns any equity securities of Stokely.
Amount Shares Subject of Beneficial to Acquisition Ownership(a) Within 60 Days(a)
James F. Doyle 313,922(b)(c) 268,520
John G. Jartz 105,939(b)(c)(d) 90,064
Janet K. Cooper 74,497(b)(c) 58,570
All Directors and Officers as a group 573,843(b)(c)(d) 486,782
(a) Unless otherwise indicated, each named individual and each person in the group has sole voting power and sole investment power with respect to shares shown. These shares represent less than 1 percent for every person, and less than 1 percent for all directors and officers as a group, of the total shares outstanding, including shares subject to acquisition within 60 days following March 1, 1998.
(b) The figures shown for these directors and executive officers include an aggregate of 23,866 shares (which includes 4,479 shares on the basis of the conversion of 2,073 shares of Series B ESOP Convertible Preferred at the conversion rate of 2.16) allocated to them in The Quaker Employee Stock Ownership Plan. The directors each hold the following number of shares under this plan: Mr. Doyle, 7,693; Mr. Jartz, 5,670; and Ms. Cooper, 5,974.
(c) The figures shown for these directors and executive officers include an aggregate of 14,905 shares granted to them under The Quaker Long Term Incentive Plan of 1990 for which the restricted period has not lapsed. The directors each hold the following number of shares under this plan: Mr. Doyle, 3,348; Mr. Jartz, 1,518; and Ms. Cooper, 8,781.
(d) The figures shown for these directors and executive officers include an aggregate of 2,465 shares representing their proportionate interests in the Quaker Stock Fund of The Quaker Investment Plan. The directors each hold the following number of shares under this plan: Mr. Jartz, 1,650.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of related transactions with Quaker, reference should be made to Part II, Items 7 and 8. See Notes 1, 4, 8 and 9 to the consolidated financial statements.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Year Ended December 31, (Dollars in Millions) 1997 1996 1995
ITEM
Depreciation $ 21.0 $ 15.2 $ 15.1
Advertising & Merchandising $296.2 $257.1 $278.5
Exhibit 21
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
Subsidiaries of the Registrant
Subsidiary State or Country of Incorporation
The Gatorade Company Delaware Gatorade Puerto Rico Company Delaware The Gatorade Company of Australia Pty. Ltd. Australia Quaker de (Chile) Ltda Chile
Foreign Joint Venture
Guangzhou Quaker Oats Food & Beverage Co. Ltd. The Quaker Oats Company 90% Stokely-Van Camp, Inc. 10%
SIGNATURES
Pursuant to the requirements of Sections 13 and 15 (d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
STOKELY-VAN CAMP, INC. (Registrant)
By: /s/ Susan D. Wellington Susan D. Wellington Chief Executive Officer, President and Director
Date: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 27th day of March 1998, by the following persons on behalf of the Registrant and in the capacities indicated.
Signature Title
/s/ Susan D. Wellington Chief Executive Officer, Susan D. Wellington President and Director
/s/ Janet K. Cooper Vice President, Treasurer and Tax Janet K. Cooper (Principal Financial Officer) and Director
/s/ John G. Jartz Vice President, John G. Jartz Secretary and Director
/s/ Thomas L. Gettings Vice President and Corporate Thomas L. Gettings Controller
EXHIBIT INDEX
Paper (P), Electronic (E) or Incorporated by EXHIBIT NO. DESCRIPTION Reference (IBRF)
3 (a) Restated Articles of Incorporation of Stokely-Van IBRF Camp, Inc. as of February 14, 1994 (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1995, file number 1-2944)
3 (b) By-Laws of Stokely-Van Camp, Inc. IBRF (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1985, file number 1-2944)
10 (a)(1) GATORADE Trust Agreement dated January 1, 1984 IBRF (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1984, file number 1-2944)
10 (a)(2) First Amendment to GATORADE Trust Agreement IBRF dated January 1, 1984, effective January 1, 1993 (incorporated by reference to the Company's Form 10-KT for the transition period ended December 31, 1995, file number 1-2944)
21 Subsidiaries of the Registrant E
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since October 31, 1983, all outstanding shares of the Company's common stock have been held by Quaker. The stock is not listed on any stock exchange or traded on any market. The Company did not pay any dividends on its common stock in 1997, 1996 or 1995.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31, (Dollars in Millions) 1997(a) 1996 1995(b) 1994(c) 1993
Net sales $1,188.4 $1,090.5 $1,130.3 $1,081.4 $979.5 Cost of goods sold 566.1 540.7 586.9 564.6 499.1 Income before income taxes and cumulative effect of accounting changes $ 222.4 $ 211.9 $ 215.6 $ 84.2 $123.4 Provision for income taxes 91.3 87.0 79.2 35.3 49.5 Income before cumulative effect of accounting changes 131.1 124.9 136.4 48.9 73.9 Cumulative effect of accounting changes - net of tax (d) -- -- -- (1.5) -- Net Income $ 131.1 $ 124.9 $ 136.4 $ 47.4 $ 73.9
As of December 31, (Dollars in Millions) 1997 1996 1995 1994 1993
Property - net $ 242.2 $ 188.8 $ 141.7 $ 147.5 $137.4 Total assets $1,148.6 $1,013.6 $ 877.5 $ 754.9 $689.2 Long-term debt $ 1.5 $ 0.3 $ 0.5 $ 0.7 $ 0.7 Redeemable preference and preferred stock $ 15.3 $ 15.3 $ 15.3 $ 15.3 $ 15.3
(a) 1997 results include a $3.1 million pretax restructuring charge for a U.S. Gatorade manufacturing reconfiguration.
(b) 1995 results include a $44.9 million pretax gain for the divestiture of the Van Camp's pork and beans business.
(c) 1994 results include a $9.4 million pretax restructuring charge for Van Camp's manufacturing consolidation and work force reductions.
(d) 1994 cumulative effect of accounting changes includes an after-tax charge of $1.5 million for the adoption of FASB Statement #112.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report discusses the operating results and financial condition of the Company for the year ended December 31, 1997. The comparisons of the 1996 results to those of 1995 are affected by the divestiture of the Van Camp's business on June 8, 1995. See Note 2 to the Consolidated Financial Statements for further discussion of the divestiture.
1997 Compared with 1996
Operating Results
Consolidated net sales for 1997 were $1.19 billion, an increase of 9 percent from 1996, driven by higher U.S. and export sales as compared to the prior year. U.S. Gatorade thirst quencher net sales increased 8 percent on a volume increase of 9 percent, driven by incremental sales from a new product, Gatorade Frost, and strong execution of retail in-store initiatives, resulting in market share gains. Price increases did not significantly affect 1997 sales.
Gross profit margin increased to 52.4 percent compared to 50.4 percent in 1996. This increase was due to sales growth and lower packaging costs for U.S. Gatorade thirst quencher. Selling, general and administrative (SG&A) expenses increased 17 percent to $441.2 million, primarily due to higher advertising and merchandising (A&M) expenses, as well as the allocation of certain Quaker overhead costs absorbed by the Snapple beverages business in 1996. A&M expenses increased 15 percent, driven, in part, by media spending for Gatorade Frost. A&M expenses were 24.9 percent and 23.6 percent of sales in 1997 and 1996, respectively.
Transfer of Assets
On May 22, 1997, Quaker completed the sale of 100 percent of its wholly- owned subsidiary, Snapple Beverage Corp., to Triarc Companies, Inc. Prior to the completion of this transaction, a Snapple facility in Tolleson, Arizona was transferred to the Company as a Gatorade thirst quencher facility. The net book value of the assets transferred to the Company was $39.4 million.
Restructuring Charge
In 1997, the Company recorded a restructuring charge of $3.1 million to reconfigure U.S. Gatorade manufacturing lines. The charge was comprised of non-cash asset write-offs. As of December 31, 1997, there were no remaining reserves and no material savings to be realized from this restructuring action.
Interest and Income Taxes
Net interest income of $44.4 million increased $4.4 million from 1996, the result of higher average amounts due from Quaker. See Note 4 to the Consolidated Financial Statements for further discussion of the Company's investing and borrowing agreement with Quaker.
The effective tax rate was 41.0 percent in 1997 and 1996.
1996 Compared with 1995
Operating Results
As a result of the Van Camp divestiture, comparative results for 1996 and 1995 are difficult to analyze. To assist in the analysis of operating results, this discussion will address the financial results as reported, then note the impact of the divested business, where applicable, and review the results of the ongoing Gatorade thirst quencher business.
Consolidated net sales for 1996 were $1.09 billion, a decrease of 4 percent from 1995, largely driven by the Van Camp's divestiture. Excluding the $76.2 million of Van Camp's net sales from 1995 results, net sales for 1996 rose 3 percent. This increase was primarily due to higher U.S. Gatorade thirst quencher sales, partly offset by lower export sales as compared to the prior year. U.S. Gatorade thirst quencher net sales increased 6 percent on a volume increase of 5 percent, driven by successful new packaging and flavors and retail shelf space gains. Price increases did not significantly affect 1996 sales.
Gross profit margin increased to 50.4 percent compared to 48.1 percent in 1995, partly due to product mix changes resulting from the Van Camp's divestiture. Excluding the Van Camp's business, the gross profit margin was 48.9 percent in 1995. The increase in the gross profit margin, excluding the divested business, was primarily due to sales growth and lower manufacturing and packaging costs for U.S. Gatorade thirst quencher. SG&A expenses decreased 6 percent to $377.9 million, primarily due to the absence of expenses associated with the divested Van Camp's business. Excluding Van Camp's results, SG&A expenses decreased 1 percent, primarily due to a decrease in A&M expenses, partially offset by an increase in other operating expenses. A&M expenses were 23.6 percent and 24.6 percent of sales in 1996 and 1995, respectively. Excluding Van Camp's results, A&M expenses were 25.0 percent of sales in 1995. SG&A and A&M expenses were both lower as a percentage of sales as a result of increased efficiency in A&M spending combined with increased sales.
Gain on Divestiture
In 1995, the Company realized a gain of $44.9 million on the divestiture of the Van Camp's pork and beans business. See Note 2 to the Consolidated Financial Statements for a further discussion of the divestiture.
Interest and Income Taxes
Net interest income of $40.0 million increased $9.0 million from 1995, the result of higher average amounts due from Quaker. See Note 4 to the Consolidated Financial Statements for further discussion of the Company's investing and borrowing arrangement with Quaker.
The effective tax rate for 1996 was 41.0 percent versus 36.7 percent in 1995. Favorable tax treatment of operations in Puerto Rico was the primary driver of the lower rate in 1995.
Liquidity and Capital Resources
Net cash provided by operating activities was $156.8 million, $137.3 million and $103.1 million for 1997, 1996 and 1995, respectively. The increase in cash flows provided by operating activities in all three years was due to increased net income (excluding the gain on divestiture in 1995) and changes in working capital. In particular, in 1995, Gatorade thirst quencher inventory decreased due to more efficient inventory management during a period of increased sales. Capital expenditures for 1997, 1996 and 1995 were $52.4 million, $68.9 million and $37.1 million, respectively. In March 1997, the Company opened a Gatorade plant and distribution center near Atlanta, Georgia to replace the Newport, Tennessee plant that was sold with the Van Camp's business. Approximately $54 million was spent on this project in 1997 and 1996, resulting in an increased level of capital expenditures compared to 1995. The Company expects the level of its future capital expenditures and cash dividends will be financed through cash flows from operating activities.
The current Standard and Poor's rating on the Company's preferred stock is BBB+.
Derivative Commodity and Financial Instruments
The Company actively monitors its exposure to risk from changes in commodity prices related to purchases of corn sweetener. Derivative commodity futures and options are used, from time to time, to reduce the impact of these risks. The Company does not use these instruments for trading purposes and does not use instruments where there are no underlying exposures. Management believes that its use of these instruments to reduce risk is in the Company's best interest. No commodity instruments were outstanding as of December 31, 1997. Derivative foreign exchange or interest rate instruments are not used as the risks from changes in foreign exchange or interest rate are not material.
Current and Pending Accounting Changes and Other Matter
In March 1997, the Financial Accounting Standards Board (FASB) issued Statement #128, "Earnings per Share." This Statement simplifies the computation of earnings per share and makes the computation more consistent with International Accounting Standards. Although Stokely's parent company, Quaker, adopted this new standard in December 1997, this Statement does not apply to Stokely, since earnings per share measures are not presented.
In July 1997, the FASB issued Statement #130, "Reporting Comprehensive Income," and Statement #131, "Disclosures about Segments of an Enterprise and Related Information." Statement #130 establishes standards for reporting comprehensive income in financial statements. Statement #131 expands certain reporting and disclosures for segments from current standards. The Company is not required to adopt these Statements until 1998 and does not expect the adoption of these new standards to result in material changes to previously reported amounts or disclosures.
In February 1998, the FASB issued Statement #132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This Statement revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. The Company is not required to adopt this Statement until 1998 and does not expect the adoption of this standard to result in material changes in previously reported amounts or disclosures.
Stokely, through its parent company, Quaker, conducts the majority of its operations as an integrated component of Quaker's U.S. and Canadian Foods and Beverages business. As such, Stokely, throughout its business, uses Quaker's software and other related technologies that will be affected by the date change in the Year 2000. With Quaker senior management accountability and corporate staff guidance, the affected Quaker operating units are in varying stages of assessment and implementation of a plan to address Quaker's Year 2000 issues. Overall, Quaker has targeted Year 2000 compliance primarily by the end of 1998, with certain Quaker operating units targeting compliance by no later than mid-1999. While Quaker's plans are underway, and Quaker does not anticipate such, the consequences of non-compliance by Quaker, its customers or its suppliers, could have a material adverse impact on the Company's operations. Quaker will continue to incur expenses, on behalf of the Company, related to these efforts; however, such expenses are not expected to have a material impact on the Company's results of operations.
Cautionary Statement on Forward-Looking Statements
Forward-looking statements, within the meaning of Section 21E of the Securities and Exchange Act of 1934, are made throughout this Management's Discussion and Analysis and in other sections of this annual report. The Company's results may differ materially from those in the forward-looking statements. Forward-looking statements are based on management's current views and assumptions, and involve risks and uncertainties that could significantly affect expected results. For example, operating results may be affected by external factors such as: actions of competitors; changes in laws and regulations, including changes in governmental interpretations of regulations and changes in accounting standards; customer demand; effectiveness of spending or programs; and fluctuations in the cost and availability of supply chain resources.
Continued growth in sales, earnings and cash flows from the Gatorade thirst quencher operations is dependent on: the level of competition from its two key competitors, The Coca-Cola Company and PepsiCo Inc.; the ability to obtain increasing points of availability; the projected outcome of supply- chain management programs; capital spending plans; markets for key commodities, especially PET resins and cardboard; and the efficiency and effectiveness of A&M programs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND REINVESTED EARNINGS
Year Ended December 31, (Dollars in Millions) 1997 1996 1995
Net sales $1,188.4 $1,090.5 $1,130.3 Cost of goods sold 566.1 540.7 586.9 Gross profit 622.3 549.8 543.4
Selling, general and administrative expenses 441.2 377.9 403.7 Gain on divestiture -- -- (44.9) Restructuring charge 3.1 -- -- Interest income - net (44.4) (40.0) (31.0)
Income before income taxes 222.4 211.9 215.6 Provision for income taxes 91.3 87.0 79.2
Net Income 131.1 124.9 136.4
Dividends on preference and preferred stock (0.8) (0.8) (0.8) Reinvested Earnings - Beginning Balance 811.8 687.7 552.1 Reinvested Earnings - Ending Balance $ 942.1 $ 811.8 $ 687.7
See accompanying notes to consolidated financial statements.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, (Dollars in Millions) 1997 1996 1995
Cash Flows from Operating Activities: Net income $ 131.1 $124.9 $136.4 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 21.3 15.9 17.8 Deferred income taxes 3.0 (0.5) (1.0) Gain on divestiture -- -- (44.9) Restructuring charge 3.1 -- -- Loss on disposition of property and equipment 13.9 1.7 0.9 (Increase) decrease in trade accounts receivable (4.5) 2.3 6.4 (Increase) decrease in inventories (0.6) (9.8) 22.3 Increase in other current assets (3.4) (12.7) (9.9) (Decrease) increase in trade accounts payable (2.5) 12.2 (2.8) Decrease in income taxes payable (4.9) (2.3) (11.0) (Decrease) increase in other current liabilities (7.8) 5.4 (10.1) Other items 8.1 0.2 (1.0) Net Cash Provided by Operating Activities 156.8 137.3 103.1
Cash Flows from Investing Activities: Additions to property, plant and equipment (52.4) (68.9) (37.1) Business divestiture -- -- 90.6 Net Cash (Used in) Provided by Investing Activities (52.4) (68.9) 53.5
Cash Flows from Financing Activities: Change in amount Due from The Quaker Oats Company (102.8) (70.5) (159.9) Cash dividends (0.8) (0.8) (0.8) Proceeds from long-term debt 1.4 -- -- Reduction of long-term debt (0.2) (0.2) (0.2) Net Cash Used in Financing Activities (102.4) (71.5) (160.9)
Net Increase (Decrease) in Cash and Cash Equivalents 2.0 (3.1) (4.3) Cash and Cash Equivalents - Beginning of Period 5.3 8.4 12.7 Cash and Cash Equivalents - End of Period $ 7.3 $ 5.3 $ 8.4
See accompanying notes to consolidated financial statements.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
As of December 31, (Dollars in Millions) 1997 1996
Assets Current Assets: Cash and cash equivalents $ 7.3 $ 5.3 Due from The Quaker Oats Company 778.7 715.3 Trade accounts receivable - net of allowance of $5.2 and $3.9, as of December 31, 1997 and 1996, respectively 28.7 24.2 Inventories: Finished goods 27.1 24.8 Materials and supplies 7.6 9.3 Total Inventories 34.7 34.1
Other current assets 55.6 39.9 Total Current Assets 905.0 818.8
Other Assets 1.4 6.0
Property, Plant and Equipment Land 5.2 5.1 Buildings and improvements 82.0 67.9 Machinery and equipment 241.8 191.2 Property, plant and equipment 329.0 264.2 Less: accumulated depreciation 86.8 75.4 Property - Net 242.2 188.8 Total Assets $1,148.6 $1,013.6
Liabilities and Shareholders' Equity Current Liabilities: Trade accounts payable $ 18.4 $ 20.9 Accrued payroll, benefits and bonus 10.9 9.7 Accrued advertising and merchandising 16.4 21.9 Income taxes payable 20.6 17.4 Other current liabilities 18.2 21.7 Total Current Liabilities 84.5 91.6
Long-term Debt 1.5 0.3 Other Liabilities 46.6 43.2 Deferred Income Taxes 7.2 --
Redeemable Preference and Preferred Stock 15.3 15.3
Common Shareholders' Equity: Common stock, $1 par value, authorized 10,000,000 shares; issued 3,591,381 shares 3.6 3.6 Additional paid-in capital 68.7 68.7 Reinvested earnings 942.1 811.8 Treasury common stock, at cost, 602,010 shares (20.9) (20.9) Total Common Shareholders' Equity 993.5 863.2 Total Liabilities and Shareholders' Equity $1,148.6 $1,013.6
See accompanying notes to consolidated financial statements.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The Consolidated Financial Statements include Stokely-Van Camp, Inc. and Subsidiaries (the Company or Stokely). All significant intercompany transactions have been eliminated. The Company is a subsidiary of The Quaker Oats Company (Quaker). Divested businesses are included in the results of operations until their divestiture dates.
Derivative Commodity Instruments
The Company uses commodity options and futures contracts in its management of commodity price exposures. Instruments used as hedges must be effective at reducing the risks associated with the underlying exposure and must be designated as a hedge at the inception of the contract. Accordingly, changes in the market value of the instruments must have a high degree of inverse correlation with changes in the market value of the underlying hedged item. Complex instruments involving leverage or multipliers are not used.
The deferral method is used to account for those instruments which effectively hedge the Company's price exposures. For hedges of anticipated transactions, the significant characteristics and terms of the anticipated transaction must be identified, and the transaction must be probable of occurring to qualify for deferral method accounting. Under the deferral method, gains and losses on derivative instruments are deferred in the consolidated balance sheets as a component of other current assets (if a loss) or other accrued liabilities (if a gain) until the underlying inventory being hedged is sold. As the hedged inventory is sold, the deferred gains and losses are recognized in the consolidated statements of income as a component of cost of goods sold. Derivative instruments that do not meet the above criteria required for deferral treatment are accounted for under the fair value method, with gains and losses recognized currently in the consolidated statements of income as a component of cost of goods sold.
Inventories
Inventories are valued at the lower of cost or market, using the last-in, first-out (LIFO) cost method, and include the cost of raw materials, labor and overhead. If the LIFO method of valuing these inventories was not used, total inventories would have been $0.4 million higher than reported as of December 31, 1997 and 1996.
Property and Depreciation
Property, plant and equipment are carried at cost and depreciated on a straight-line basis over their estimated useful lives. Useful lives range from 10 to 40 years for buildings and improvements and from three to 12 years for machinery and equipment.
Current and Pending Accounting Changes
In March 1997, the Financial Accounting Standards Board (FASB) issued Statement #128, "Earnings per Share." This Statement simplifies the computation of earnings per share and makes the computation more consistent with International Accounting Standards. Although Stokely's parent company, Quaker, adopted this new Standard in December 1997, this Statement does not apply to Stokely, since earnings per share measures are not presented.
In July 1997, the FASB issued Statement #130, "Reporting Comprehensive Income," and Statement #131, "Disclosures about Segments of an Enterprise and Related Information." Statement #130 establishes standards for reporting comprehensive income in financial statements. Statement #131 expands certain reporting and disclosures for segments from current standards. The Company is not required to adopt these Statements until 1998 and does not expect the adoption of these new standards to result in material changes to previously reported amounts or disclosures.
In February 1998, the FASB issued Statement #132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This Statement revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. The Company is not required to adopt this Statement until 1998 and does not expect the adoption of this standard to result in material changes in previously reported amounts or disclosures.
Income Taxes
The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for a year and the bases of assets and liabilities.
Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
NOTE 2
DIVESITURE
On June 8, 1995, the Company completed the divestiture of the Van Camp's pork and beans business to Hunt-Wesson Inc., a subsidiary of ConAgra Inc., for $90.6 million and realized a gain of $44.9 million. Sales and operating income from the Van Camp's business were $76.2 million and $6.9 million in 1995, respectively. Operating income includes certain allocations of overhead expenses and excludes the gain on the divestiture in 1995.
NOTE 3
RESTRUCTURING CHARGE
In 1997, the Company recorded a restructuring charge of $3.1 million to reconfigure U.S. Gatorade manufacturing lines. The charge was comprised of non-cash asset write-offs. As of December 31, 1997, there were no remaining reserves and no material savings to be realized from this restructuring action.
NOTE 4
RELATED PARTY TRANSACTIONS
Stokely, through its parent company, Quaker, conducts the majority of its operations as an integrated component of Quaker's U.S. and Canadian Foods and Beverages business. Certain liabilities and expenses are commingled and are charged or allocated to Stokely from Quaker. With the exception of cost of sales and advertising and merchandising expenses, the majority of operating, general and administrative expenses are allocated from Quaker to Stokely. Stokely reimburses Quaker and its affiliates for services provided for its benefit. Quaker's International Foods and Beverages business is licensed to sell Gatorade thirst quencher in international markets. In exchange for these licensing rights, Quaker pays the Company a royalty. The following summarizes the significant related party transactions other than those described elsewhere in the consolidated financial statements:
Income Taxes
Stokely is included in the consolidated Federal income tax return of Quaker. Stokely provides for current and deferred taxes as if it filed a separate consolidated tax return, except that if any items are subject to limitations in Stokely's tax calculations, such limitations are determined on the basis of the Quaker consolidated group.
Employees
Certain salaried and hourly employees whose services benefit the Stokely business are employees of Quaker. Their compensation is paid by Quaker. These employees also participate in certain Quaker employee benefit plans. Stokely is directly charged for actual salary costs and allocated fringe benefit costs of these employees.
Corporate Insurance Programs
Stokely participates in Quaker's consolidated insurance and risk management programs for property and casualty insurance. Stokely is directly charged for its related insurance costs.
Corporate Overhead Allocations
Quaker provides certain corporate general and administrative services to Stokely including personnel, legal, finance, facility management and utilities. These expenses are allocated to Stokely on a basis which approximates actual services provided.
Shared Operating Expenses
Quaker's U.S. and Canadian Foods and Beverages business allocates a ratable portion of shared operating expenses including sales force and brokers, certain other marketing expenses, product research and general and administrative services. These expenses are allocated to Stokely on a basis which approximates actual services provided as determined by various measures.
Transfer of Assets
On May 22, 1997, Quaker completed the sale of 100 percent of its wholly-owned subsidiary, Snapple Beverage Corp., to Triarc Companies, Inc. Prior to the completion of this transaction, a Snapple facility in Tolleson, Arizona was transferred to the Company as a Gatorade thirst quencher facility. The net book value of the assets transferred to the Company was $39.4 million.
International Licensing Agreements
Stokely has entered into a number of licensing agreements allowing the international affiliates of Quaker to manufacture and sell certain beverage products in return for payment of licensing fees. Fees received under these agreements amounted to $6.4 million, $5.5 million and $6.3 million in 1997, 1996 and 1995, respectively.
Investing and Borrowing Arrangement
The Company has an investing and borrowing arrangement under which it loans its available cash to Quaker or borrows its short-term cash requirements from Quaker. Funds collected from operations which are remitted to Quaker increase the amount due from Quaker; conversely, operating expenses paid by Quaker reduce the receivable from Quaker or may result in a payable to Quaker. This arrangement provides for an interest rate based on the yield of U.S. Treasury Bills, as determined by the weekly U.S. Government auction. The Company may, at any time, demand repayment of all or any part of the amount due from Quaker. There were no bank lines of credit as of December 31, 1997 or 1996.
NOTE 5
LONG-TERM DEBT
As of December 31, (Dollars in Millions) 1997 1996
Capital Lease Obligations $1.6 $ -- Industrial Revenue Bond, 4.5% due through October 1, 1999 0.3 0.5 Less: current maturities 0.4 0.2 Long-term Debt $1.5 $0.3
Aggregate required payments for long-term debt maturing over the next five years are as follows:
(Dollars in Millions) 1998 1999 2000 2001 2002
Total Payments $0.4 $0.3 $0.2 $0.2 $0.2
NOTE 6
FINANCIAL INSTRUMENTS
Financial instruments are primarily used to fund operating requirements and to reduce the Company's exposure to commodity price fluctuations. The Company uses commodity options and futures contracts to reduce the risk that raw material purchases will be adversely affected as commodity prices change. While the hedge instruments are subject to the risk of loss from commodity price changes, the losses would generally be offset by lower costs of the purchases being hedged. The Company does not use financial instruments with the objective of earning financial gains on commodity price fluctuations alone, and does not use instruments where there are no underlying exposures. Management believes that its use of financial instruments to reduce risk is in the Company's best interest.
The Company primarily hedges purchases of corn sweetener. Approximately 1 percent of cost of goods sold in 1997 was in commodities that may be hedged. The Company's strategy is to typically hedge certain production requirements for various periods up to 12 months. No commodity instruments were outstanding as of December 31, 1997. The fair value of commodity instruments outstanding as of December 31, 1996, based on quotes from brokers, was a net unrealized loss of $0.5 million. Realized net (losses) gains charged to cost of goods sold were $(0.1) million in 1997, $1.2 million in 1996, and were not material in 1995.
The carrying value of cash and long-term debt approximates fair value. The counterparties to the Company's financial instruments are major financial institutions. The Company continually evaluates the creditworthiness of the counterparties and has never experienced, nor does it anticipate, nonperformance by any of its counterparties.
NOTE 7
CAPITAL STOCK
Since October 31, 1983, all outstanding shares of the Company's common stock have been held by Quaker and the balances of common stock ($3.6 million; 3,591,381 shares issued), additional paid-in capital ($68.7 million) and treasury common stock ($20.9 million; 602,010 shares) have remained unchanged.
The Company has three series of preferred stock: voting 5% Cumulative Convertible Second Preferred Stock; non-voting 5% Cumulative Prior Preference Stock; and Serial Preferred Stock. The voting 5% Cumulative Convertible Second Preferred Stock is convertible at the holder's option, on a share for share basis, into the non-voting 5% Cumulative Prior Preference Stock. As of December 31, 1997, authorized shares were 500,000 and issued and outstanding shares were 10,400 for the 5% Cumulative Convertible Second Preferred Stock. As of December 31, 1997, 1,500,000 shares were authorized, 753,744 shares were issued, 753,411 shares were outstanding and 10,400 shares were reserved for conversion for the 5% Cumulative Prior Preference Stock. Both issues are redeemable at the Company's option for $21 per share. No Serial Preferred Stock has been issued, although 500,000 shares are authorized.
The following chart summarizes the changes in the outstanding preference and preferred stock balances:
5% Cumulative 5% Cumulative Prior Preference Convertible Second Stock Preferred Stock $20 Par Value (a) $20 Par Value Balance as of December 31, 1994 752,743 11,068 Shares Converted 208 (208) Balance as of December 31, 1995 752,951 10,860 Shares Converted 60 (60) Balance as of December 31, 1996 753,011 10,800 Shares Converted 400 (400) Balance as of December 31, 1997 753,411 10,400
(a) Prior year amounts have been restated by 212 shares to accurately reflect stock balances.
NOTE 8
PENSION PLANS
Salaried and hourly employees assigned to the Company are covered by the Quaker Retirement Plan (Plan). Plan benefits are based on compensation paid to employees and their years of service. Quaker's policy is to make contributions to the Plan within the maximum amount deductible for Federal income tax purposes. Plan assets consist primarily of equity securities and government, corporate and other fixed-income obligations. Consistent with arrangements described in Note 4, the Company was allocated pension costs of approximately $0.6 million, $1.5 million and $3.5 million in 1997, 1996 and 1995, respectively. The Company's allocated accrued pension costs were approximately $10.6 million and $8.7 million as of December 31, 1997 and 1996, respectively.
NOTE 9
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS
Quaker provides certain health care and life insurance benefits to substantially all retired U.S. employees and certain retired foreign employees who meet service-related eligibility requirements. Consistent with arrangements described in Note 4, the Company is allocated a portion of these costs incurred by Quaker.
The Company was allocated postretirement benefit costs of $2.8 million, $2.5 million and $3.3 million in 1997, 1996 and 1995, respectively. The Company's allocated unfunded accrued postretirement benefit costs were $35.1 million and $33.4 million as of December 31, 1997 and 1996, respectively.
NOTE 10
SUPPLEMENTAL CASH FLOW INFORMATION
Year Ended December 31, (Dollars in Millions) 1997 1996 1995 Cash Activity: Interest Paid $ 0.1 $ 0.1 $ 0.1 Income Taxes Paid $78.1 $100.1 $80.1 Noncash Activity: Transfer of Assets $39.4 $ -- $ --
On May 22, 1997, Quaker completed the sale of 100 percent of its wholly- owned subsidiary, Snapple Beverage Corp., to Triarc Companies, Inc. Prior to the completion of this transaction, a Snapple facility in Tolleson, Arizona was transferred to the Company as a Gatorade thirst quencher facility. The net book value of the assets transferred to the Company was $39.4 million.
NOTE 11
LEASES AND OTHER COMMITMENTS
Certain operating properties are rented under non-cancelable operating leases. Total rental expense under operating leases was $5.7 million, $5.0 million and $4.7 million in 1997, 1996 and 1995, respectively. Future minimum annual rentals on non-cancelable operating leases, primarily for sales and administrative offices and distribution centers, are as follows:
(Dollars in Millions) 1998 1999 2000 2001 2002 Thereafter Total
Total Payments $5.7 $4.8 $4.4 $4.4 $4.3 $12.0 $35.6
The Company enters into executory contracts to obtain inventory and promote various products. As of December 31, 1997, future commitments under these contracts amounted to $41.5 million.
NOTE 12
INCOME TAXES
The Company uses an asset and liability approach to financial accounting and reporting for income taxes in accordance with FASB Statement #109, "Accounting for Income Taxes."
Provisions for income taxes were as follows:
Year Ended December 31, (Dollars in Millions) 1997 1996 1995
Currently payable: Federal $ 74.6 $75.2 $68.7 Foreign 0.1 0.5 0.8 State 16.6 15.4 17.2 Total currently payable 91.3 91.1 86.7 Deferred - net: Federal (0.6) (4.9) (6.5) Foreign (0.1) (0.3) (0.3) State 0.7 1.1 (0.7) Total deferred - net -- (4.1) (7.5) Provision for income taxes $ 91.3 $87.0 $79.2
The components of the deferred income tax provision (benefit) were as follows:
Year Ended December 31, (Dollars in Millions) 1997 1996 1995
Accelerated tax depreciation $ 4.7 $ 0.5 $(1.7) Postretirement benefits (0.6) (1.0) 0.5 Accrued expenses (4.1) (0.6) (5.8) Other -- (3.0) (0.5) Deferred income tax (benefit) $ -- $(4.1) $(7.5)
The sources of pretax income were as follows:
Year Ended December 31, (Dollars in Millions) 1997 1996 1995
U.S. sources $222.2 $211.3 $214.1 Foreign sources 0.2 0.6 1.5 Income before income taxes $222.4 $211.9 $215.6
Reconciliations of the statutory Federal income tax rates to the effective income tax rates were as follows:
The following table contains information covering the grant of stock options to the Chief Executive Officer and President during Fiscal Year 1997. The exercise price for all options granted is equal to the fair market value of Quaker's common stock on the date of grant.
The following table contains information covering the exercise of options by the Chief Executive Officer and President during 1997 and unexercised options held as of the end of 1997.
Pension Plans
Quaker and its subsidiaries maintain several pension plans. The Quaker Retirement Plan (Retirement Plan), which is the principal pension plan, is a noncontributory, defined benefit plan covering eligible salaried and hourly employees of the Company who have completed one year of service as defined by the Retirement Plan.
Under the Retirement Plan, the participant accrues a benefit based upon the greater of a Years-of-Service Formula and an Earnings/Service Formula. Under the Years-of-Service Formula, participants accrue annual benefits equivalent to credited years of service times $216. Under the Earnings/Service Formula, a participant's benefit is the sum of two parts:
1. Past Service Accrual -- Benefits accrued through December 31, 1993 are set at the greater of (a) those earned or (b) 1% of Five-Year Average earnings to $22,700 plus 1.65% of earnings above $22,700, times credited years of service; and
2. Future Service Accrual -- For each year beginning January 1, 1994 and after, participants accrue benefits of 1.75% of annual earnings to 80% of the Social Security wage base plus 2.5% of annual earnings above 80% of the Social Security wage base.
Eligible earnings used to calculate retirement benefits include wages, salaries, bonuses, contributions to The Quaker Investment Plan and allocations under The Quaker Employee Stock Ownership Plan. Normal retirement age under the Retirement Plan is age 65. The Retirement Plan contains provision for early retirement benefits.
Benefit amounts payable under the Retirement Plan are limited to the extent required by the Employee Retirement Income Security Act of 1974 (ERISA), as amended, and the Internal Revenue Code of 1986, as amended. If the benefit formula produces an amount in excess of those limitations, the excess will be paid out of general corporate funds in accordance with the terms of The Quaker 415 Excess Benefit Plan and The Quaker Eligible Earnings Adjustment Plan. The Quaker Eligible Earnings Adjustment Plan also provides for payment out of general corporate funds, based upon benefit amounts which would otherwise have been payable under the Retirement Plan and The Quaker 415 Excess Benefit Plan, if the executive had not previously elected to defer compensation under the Executive Deferred Compensation Plan.
The estimated annual retirement benefits that Mr. Doyle would receive under the Retirement Plan, The Quaker 415 Excess Benefit Plan, and The Quaker Eligible Earnings Adjustment Plan, if he retired at age 65, are $351,948. This amount assumes that he will continue to work for Quaker until his normal retirement date and that his earnings will remain the same as in year 1997 and that he will elect a straight-lifetime benefit without survivor benefits. Payment options such as a lump sum or other annuities are available.
The Retirement Plan assures active and retired employees that, to the extent of sufficient plan assets, it will continue in effect for a reasonable period following a change in control of Quaker without a reduction of anticipated benefits, and under certain circumstances may provide increased benefits. Generally, under the Retirement Plan, a change in control shall be deemed to have occurred in any of the following circumstances:
(i) An acquisition of 30% or more of Quaker stock unless such acquisition is pursuant to an agreement with Quaker approved by its Board before the acquirer becomes the beneficial owner of 5% of Quaker's outstanding voting power;
(ii) A majority of Quaker's Board is comprised of persons who were not nominated by its Board for election as directors;
(iii) A plan of complete liquidation of Quaker; or
(iv) A merger, consolidation or sale of all or substantially all of Quaker's assets unless thereafter (a) directors of Quaker immediately prior thereto continue to constitute at least 50% of the directors of the surviving entity or purchaser; or (b) Quaker's securities continue to represent, or are converted to securities which represent, more than 70% of the combined voting power of the surviving entity or purchaser.
For a five-year period following a change in control of Quaker, the accrual of benefits for service during such period cannot be decreased while there are excess assets (as defined in the Retirement Plan). For a two-year period following such a change in control, the accrued benefits of members who meet specified age and service requirements and who are terminated will be increased. For so long as there are excess assets during that five-year period, if the Retirement Plan is merged with any other plan, the accrued benefit of each member and the amount payable to retired or deceased members shall be increased until there are no excess assets. If during that five-year period the Retirement Plan is terminated, to the extent that assets remain after satisfaction of liabilities, the accrued benefits shall be increased such that no assets of the Retirement Plan will directly or indirectly revert to Quaker.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding common stock of Stokely is owned by Quaker whose corporate offices are located at 321 North Clark, Chicago, IL 60610.
The following table presents information with respect to all persons known to Stokely to own more than 5% of any other class of Stokely's voting securities as of March 1, 1998. Each beneficial owner has, to the knowledge of Stokely, sole voting power and sole investment power with respect to the shares listed opposite such owner's name.
Amount and Percent Name and Address Nature of of Title of Class of Beneficial Owner Ownership Class
Second Preferred The William B. Stokely, Jr. 2,012 19.3 Stock (1) Foundation 620 Campbell Station Road Station West, Suite 4 Knoxville, TN 37922
Marjorie M. Cochran 1,125 10.8 2900 Country Squire Lane Decatur, GA 30033-2418
Esther M. Minter 1,125 10.8 230 East College Street Griffin, GA 30223-4348
Cooper N. Mills 926 8.9 666 Brook Circle Griffin, GA 30223-4413
Sigler & Co. 855 8.2 c/o Chase Manhattan Bank Dept. 3492 P.O. Box 50000 Newark, NJ 07101-8006
John B. Mills, III 526 5.1 1043 Clifton Road Atlanta, GA 30307-1227
(1) Holders of common stock and Second Preferred Stock vote collectively and not as a separate class. As of December 31, 1997, the outstanding shares of Second Preferred Stock comprise less than 1% of the aggregate number of outstanding shares of common stock and Second Preferred Stock.
The table below sets forth information with respect to beneficial ownership of common stock of Quaker by the directors and named executive officers of Stokely as of March 1, 1998, and by the directors and by the named executive officers, and executive officers as a group. Shares subject to acquisition within 60 days through the exercise of stock options are included in the first column and are shown separately in the second column. No director or officer and named executive officers owns any equity securities of Stokely.
Amount Shares Subject of Beneficial to Acquisition Ownership(a) Within 60 Days(a)
James F. Doyle 313,922(b)(c) 268,520
John G. Jartz 105,939(b)(c)(d) 90,064
Janet K. Cooper 74,497(b)(c) 58,570
All Directors and Officers as a group 573,843(b)(c)(d) 486,782
(a) Unless otherwise indicated, each named individual and each person in the group has sole voting power and sole investment power with respect to shares shown. These shares represent less than 1 percent for every person, and less than 1 percent for all directors and officers as a group, of the total shares outstanding, including shares subject to acquisition within 60 days following March 1, 1998.
(b) The figures shown for these directors and executive officers include an aggregate of 23,866 shares (which includes 4,479 shares on the basis of the conversion of 2,073 shares of Series B ESOP Convertible Preferred at the conversion rate of 2.16) allocated to them in The Quaker Employee Stock Ownership Plan. The directors each hold the following number of shares under this plan: Mr. Doyle, 7,693; Mr. Jartz, 5,670; and Ms. Cooper, 5,974.
(c) The figures shown for these directors and executive officers include an aggregate of 14,905 shares granted to them under The Quaker Long Term Incentive Plan of 1990 for which the restricted period has not lapsed. The directors each hold the following number of shares under this plan: Mr. Doyle, 3,348; Mr. Jartz, 1,518; and Ms. Cooper, 8,781.
(d) The figures shown for these directors and executive officers include an aggregate of 2,465 shares representing their proportionate interests in the Quaker Stock Fund of The Quaker Investment Plan. The directors each hold the following number of shares under this plan: Mr. Jartz, 1,650.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of related transactions with Quaker, reference should be made to Part II, Items 7 and 8. See Notes 1, 4, 8 and 9 to the consolidated financial statements.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Year Ended December 31, (Dollars in Millions) 1997 1996 1995
ITEM
Depreciation $ 21.0 $ 15.2 $ 15.1
Advertising & Merchandising $296.2 $257.1 $278.5
Exhibit 21
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
Subsidiaries of the Registrant
Subsidiary State or Country of Incorporation
The Gatorade Company Delaware Gatorade Puerto Rico Company Delaware The Gatorade Company of Australia Pty. Ltd. Australia Quaker de (Chile) Ltda Chile
Foreign Joint Venture
Guangzhou Quaker Oats Food & Beverage Co. Ltd. The Quaker Oats Company 90% Stokely-Van Camp, Inc. 10%
SIGNATURES
Pursuant to the requirements of Sections 13 and 15 (d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
STOKELY-VAN CAMP, INC. (Registrant)
By: /s/ Susan D. Wellington Susan D. Wellington Chief Executive Officer, President and Director
Date: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 27th day of March 1998, by the following persons on behalf of the Registrant and in the capacities indicated.
Signature Title
/s/ Susan D. Wellington Chief Executive Officer, Susan D. Wellington President and Director
/s/ Janet K. Cooper Vice President, Treasurer and Tax Janet K. Cooper (Principal Financial Officer) and Director
/s/ John G. Jartz Vice President, John G. Jartz Secretary and Director
/s/ Thomas L. Gettings Vice President and Corporate Thomas L. Gettings Controller
EXHIBIT INDEX
Paper (P), Electronic (E) or Incorporated by EXHIBIT NO. DESCRIPTION Reference (IBRF)
3 (a) Restated Articles of Incorporation of Stokely-Van IBRF Camp, Inc. as of February 14, 1994 (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1995, file number 1-2944)
3 (b) By-Laws of Stokely-Van Camp, Inc. IBRF (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1985, file number 1-2944)
10 (a)(1) GATORADE Trust Agreement dated January 1, 1984 IBRF (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1984, file number 1-2944)
10 (a)(2) First Amendment to GATORADE Trust Agreement IBRF dated January 1, 1984, effective January 1, 1993 (incorporated by reference to the Company's Form 10-KT for the transition period ended December 31, 1995, file number 1-2944)
21 Subsidiaries of the Registrant E
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND REINVESTED EARNINGS
Year Ended December 31, (Dollars in Millions) 1997 1996 1995
Net sales $1,188.4 $1,090.5 $1,130.3 Cost of goods sold 566.1 540.7 586.9 Gross profit 622.3 549.8 543.4
Selling, general and administrative expenses 441.2 377.9 403.7 Gain on divestiture -- -- (44.9) Restructuring charge 3.1 -- -- Interest income - net (44.4) (40.0) (31.0)
Income before income taxes 222.4 211.9 215.6 Provision for income taxes 91.3 87.0 79.2
Net Income 131.1 124.9 136.4
Dividends on preference and preferred stock (0.8) (0.8) (0.8) Reinvested Earnings - Beginning Balance 811.8 687.7 552.1 Reinvested Earnings - Ending Balance $ 942.1 $ 811.8 $ 687.7
See accompanying notes to consolidated financial statements.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, (Dollars in Millions) 1997 1996 1995
Cash Flows from Operating Activities: Net income $ 131.1 $124.9 $136.4 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 21.3 15.9 17.8 Deferred income taxes 3.0 (0.5) (1.0) Gain on divestiture -- -- (44.9) Restructuring charge 3.1 -- -- Loss on disposition of property and equipment 13.9 1.7 0.9 (Increase) decrease in trade accounts receivable (4.5) 2.3 6.4 (Increase) decrease in inventories (0.6) (9.8) 22.3 Increase in other current assets (3.4) (12.7) (9.9) (Decrease) increase in trade accounts payable (2.5) 12.2 (2.8) Decrease in income taxes payable (4.9) (2.3) (11.0) (Decrease) increase in other current liabilities (7.8) 5.4 (10.1) Other items 8.1 0.2 (1.0) Net Cash Provided by Operating Activities 156.8 137.3 103.1
Cash Flows from Investing Activities: Additions to property, plant and equipment (52.4) (68.9) (37.1) Business divestiture -- -- 90.6 Net Cash (Used in) Provided by Investing Activities (52.4) (68.9) 53.5
Cash Flows from Financing Activities: Change in amount Due from The Quaker Oats Company (102.8) (70.5) (159.9) Cash dividends (0.8) (0.8) (0.8) Proceeds from long-term debt 1.4 -- -- Reduction of long-term debt (0.2) (0.2) (0.2) Net Cash Used in Financing Activities (102.4) (71.5) (160.9)
Net Increase (Decrease) in Cash and Cash Equivalents 2.0 (3.1) (4.3) Cash and Cash Equivalents - Beginning of Period 5.3 8.4 12.7 Cash and Cash Equivalents - End of Period $ 7.3 $ 5.3 $ 8.4
See accompanying notes to consolidated financial statements.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
As of December 31, (Dollars in Millions) 1997 1996
Assets Current Assets: Cash and cash equivalents $ 7.3 $ 5.3 Due from The Quaker Oats Company 778.7 715.3 Trade accounts receivable - net of allowance of $5.2 and $3.9, as of December 31, 1997 and 1996, respectively 28.7 24.2 Inventories: Finished goods 27.1 24.8 Materials and supplies 7.6 9.3 Total Inventories 34.7 34.1
Other current assets 55.6 39.9 Total Current Assets 905.0 818.8
Other Assets 1.4 6.0
Property, Plant and Equipment Land 5.2 5.1 Buildings and improvements 82.0 67.9 Machinery and equipment 241.8 191.2 Property, plant and equipment 329.0 264.2 Less: accumulated depreciation 86.8 75.4 Property - Net 242.2 188.8 Total Assets $1,148.6 $1,013.6
Liabilities and Shareholders' Equity Current Liabilities: Trade accounts payable $ 18.4 $ 20.9 Accrued payroll, benefits and bonus 10.9 9.7 Accrued advertising and merchandising 16.4 21.9 Income taxes payable 20.6 17.4 Other current liabilities 18.2 21.7 Total Current Liabilities 84.5 91.6
Long-term Debt 1.5 0.3 Other Liabilities 46.6 43.2 Deferred Income Taxes 7.2 --
Redeemable Preference and Preferred Stock 15.3 15.3
Common Shareholders' Equity: Common stock, $1 par value, authorized 10,000,000 shares; issued 3,591,381 shares 3.6 3.6 Additional paid-in capital 68.7 68.7 Reinvested earnings 942.1 811.8 Treasury common stock, at cost, 602,010 shares (20.9) (20.9) Total Common Shareholders' Equity 993.5 863.2 Total Liabilities and Shareholders' Equity $1,148.6 $1,013.6
See accompanying notes to consolidated financial statements.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The Consolidated Financial Statements include Stokely-Van Camp, Inc. and Subsidiaries (the Company or Stokely). All significant intercompany transactions have been eliminated. The Company is a subsidiary of The Quaker Oats Company (Quaker). Divested businesses are included in the results of operations until their divestiture dates.
Derivative Commodity Instruments
The Company uses commodity options and futures contracts in its management of commodity price exposures. Instruments used as hedges must be effective at reducing the risks associated with the underlying exposure and must be designated as a hedge at the inception of the contract. Accordingly, changes in the market value of the instruments must have a high degree of inverse correlation with changes in the market value of the underlying hedged item. Complex instruments involving leverage or multipliers are not used.
The deferral method is used to account for those instruments which effectively hedge the Company's price exposures. For hedges of anticipated transactions, the significant characteristics and terms of the anticipated transaction must be identified, and the transaction must be probable of occurring to qualify for deferral method accounting. Under the deferral method, gains and losses on derivative instruments are deferred in the consolidated balance sheets as a component of other current assets (if a loss) or other accrued liabilities (if a gain) until the underlying inventory being hedged is sold. As the hedged inventory is sold, the deferred gains and losses are recognized in the consolidated statements of income as a component of cost of goods sold. Derivative instruments that do not meet the above criteria required for deferral treatment are accounted for under the fair value method, with gains and losses recognized currently in the consolidated statements of income as a component of cost of goods sold.
Inventories
Inventories are valued at the lower of cost or market, using the last-in, first-out (LIFO) cost method, and include the cost of raw materials, labor and overhead. If the LIFO method of valuing these inventories was not used, total inventories would have been $0.4 million higher than reported as of December 31, 1997 and 1996.
Property and Depreciation
Property, plant and equipment are carried at cost and depreciated on a straight-line basis over their estimated useful lives. Useful lives range from 10 to 40 years for buildings and improvements and from three to 12 years for machinery and equipment.
Current and Pending Accounting Changes
In March 1997, the Financial Accounting Standards Board (FASB) issued Statement #128, "Earnings per Share." This Statement simplifies the computation of earnings per share and makes the computation more consistent with International Accounting Standards. Although Stokely's parent company, Quaker, adopted this new Standard in December 1997, this Statement does not apply to Stokely, since earnings per share measures are not presented.
In July 1997, the FASB issued Statement #130, "Reporting Comprehensive Income," and Statement #131, "Disclosures about Segments of an Enterprise and Related Information." Statement #130 establishes standards for reporting comprehensive income in financial statements. Statement #131 expands certain reporting and disclosures for segments from current standards. The Company is not required to adopt these Statements until 1998 and does not expect the adoption of these new standards to result in material changes to previously reported amounts or disclosures.
In February 1998, the FASB issued Statement #132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This Statement revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. The Company is not required to adopt this Statement until 1998 and does not expect the adoption of this standard to result in material changes in previously reported amounts or disclosures.
Income Taxes
The Company uses an asset and liability approach to financial accounting and reporting for income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for a year and the bases of assets and liabilities.
Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
NOTE 2
DIVESITURE
On June 8, 1995, the Company completed the divestiture of the Van Camp's pork and beans business to Hunt-Wesson Inc., a subsidiary of ConAgra Inc., for $90.6 million and realized a gain of $44.9 million. Sales and operating income from the Van Camp's business were $76.2 million and $6.9 million in 1995, respectively. Operating income includes certain allocations of overhead expenses and excludes the gain on the divestiture in 1995.
NOTE 3
RESTRUCTURING CHARGE
In 1997, the Company recorded a restructuring charge of $3.1 million to reconfigure U.S. Gatorade manufacturing lines. The charge was comprised of non-cash asset write-offs. As of December 31, 1997, there were no remaining reserves and no material savings to be realized from this restructuring action.
NOTE 4
RELATED PARTY TRANSACTIONS
Stokely, through its parent company, Quaker, conducts the majority of its operations as an integrated component of Quaker's U.S. and Canadian Foods and Beverages business. Certain liabilities and expenses are commingled and are charged or allocated to Stokely from Quaker. With the exception of cost of sales and advertising and merchandising expenses, the majority of operating, general and administrative expenses are allocated from Quaker to Stokely. Stokely reimburses Quaker and its affiliates for services provided for its benefit. Quaker's International Foods and Beverages business is licensed to sell Gatorade thirst quencher in international markets. In exchange for these licensing rights, Quaker pays the Company a royalty. The following summarizes the significant related party transactions other than those described elsewhere in the consolidated financial statements:
Income Taxes
Stokely is included in the consolidated Federal income tax return of Quaker. Stokely provides for current and deferred taxes as if it filed a separate consolidated tax return, except that if any items are subject to limitations in Stokely's tax calculations, such limitations are determined on the basis of the Quaker consolidated group.
Employees
Certain salaried and hourly employees whose services benefit the Stokely business are employees of Quaker. Their compensation is paid by Quaker. These employees also participate in certain Quaker employee benefit plans. Stokely is directly charged for actual salary costs and allocated fringe benefit costs of these employees.
Corporate Insurance Programs
Stokely participates in Quaker's consolidated insurance and risk management programs for property and casualty insurance. Stokely is directly charged for its related insurance costs.
Corporate Overhead Allocations
Quaker provides certain corporate general and administrative services to Stokely including personnel, legal, finance, facility management and utilities. These expenses are allocated to Stokely on a basis which approximates actual services provided.
Shared Operating Expenses
Quaker's U.S. and Canadian Foods and Beverages business allocates a ratable portion of shared operating expenses including sales force and brokers, certain other marketing expenses, product research and general and administrative services. These expenses are allocated to Stokely on a basis which approximates actual services provided as determined by various measures.
Transfer of Assets
On May 22, 1997, Quaker completed the sale of 100 percent of its wholly-owned subsidiary, Snapple Beverage Corp., to Triarc Companies, Inc. Prior to the completion of this transaction, a Snapple facility in Tolleson, Arizona was transferred to the Company as a Gatorade thirst quencher facility. The net book value of the assets transferred to the Company was $39.4 million.
International Licensing Agreements
Stokely has entered into a number of licensing agreements allowing the international affiliates of Quaker to manufacture and sell certain beverage products in return for payment of licensing fees. Fees received under these agreements amounted to $6.4 million, $5.5 million and $6.3 million in 1997, 1996 and 1995, respectively.
Investing and Borrowing Arrangement
The Company has an investing and borrowing arrangement under which it loans its available cash to Quaker or borrows its short-term cash requirements from Quaker. Funds collected from operations which are remitted to Quaker increase the amount due from Quaker; conversely, operating expenses paid by Quaker reduce the receivable from Quaker or may result in a payable to Quaker. This arrangement provides for an interest rate based on the yield of U.S. Treasury Bills, as determined by the weekly U.S. Government auction. The Company may, at any time, demand repayment of all or any part of the amount due from Quaker. There were no bank lines of credit as of December 31, 1997 or 1996.
NOTE 5
LONG-TERM DEBT
As of December 31, (Dollars in Millions) 1997 1996
Capital Lease Obligations $1.6 $ -- Industrial Revenue Bond, 4.5% due through October 1, 1999 0.3 0.5 Less: current maturities 0.4 0.2 Long-term Debt $1.5 $0.3
Aggregate required payments for long-term debt maturing over the next five years are as follows:
(Dollars in Millions) 1998 1999 2000 2001 2002
Total Payments $0.4 $0.3 $0.2 $0.2 $0.2
NOTE 6
FINANCIAL INSTRUMENTS
Financial instruments are primarily used to fund operating requirements and to reduce the Company's exposure to commodity price fluctuations. The Company uses commodity options and futures contracts to reduce the risk that raw material purchases will be adversely affected as commodity prices change. While the hedge instruments are subject to the risk of loss from commodity price changes, the losses would generally be offset by lower costs of the purchases being hedged. The Company does not use financial instruments with the objective of earning financial gains on commodity price fluctuations alone, and does not use instruments where there are no underlying exposures. Management believes that its use of financial instruments to reduce risk is in the Company's best interest.
The Company primarily hedges purchases of corn sweetener. Approximately 1 percent of cost of goods sold in 1997 was in commodities that may be hedged. The Company's strategy is to typically hedge certain production requirements for various periods up to 12 months. No commodity instruments were outstanding as of December 31, 1997. The fair value of commodity instruments outstanding as of December 31, 1996, based on quotes from brokers, was a net unrealized loss of $0.5 million. Realized net (losses) gains charged to cost of goods sold were $(0.1) million in 1997, $1.2 million in 1996, and were not material in 1995.
The carrying value of cash and long-term debt approximates fair value. The counterparties to the Company's financial instruments are major financial institutions. The Company continually evaluates the creditworthiness of the counterparties and has never experienced, nor does it anticipate, nonperformance by any of its counterparties.
NOTE 7
CAPITAL STOCK
Since October 31, 1983, all outstanding shares of the Company's common stock have been held by Quaker and the balances of common stock ($3.6 million; 3,591,381 shares issued), additional paid-in capital ($68.7 million) and treasury common stock ($20.9 million; 602,010 shares) have remained unchanged.
The Company has three series of preferred stock: voting 5% Cumulative Convertible Second Preferred Stock; non-voting 5% Cumulative Prior Preference Stock; and Serial Preferred Stock. The voting 5% Cumulative Convertible Second Preferred Stock is convertible at the holder's option, on a share for share basis, into the non-voting 5% Cumulative Prior Preference Stock. As of December 31, 1997, authorized shares were 500,000 and issued and outstanding shares were 10,400 for the 5% Cumulative Convertible Second Preferred Stock. As of December 31, 1997, 1,500,000 shares were authorized, 753,744 shares were issued, 753,411 shares were outstanding and 10,400 shares were reserved for conversion for the 5% Cumulative Prior Preference Stock. Both issues are redeemable at the Company's option for $21 per share. No Serial Preferred Stock has been issued, although 500,000 shares are authorized.
The following chart summarizes the changes in the outstanding preference and preferred stock balances:
5% Cumulative 5% Cumulative Prior Preference Convertible Second Stock Preferred Stock $20 Par Value (a) $20 Par Value Balance as of December 31, 1994 752,743 11,068 Shares Converted 208 (208) Balance as of December 31, 1995 752,951 10,860 Shares Converted 60 (60) Balance as of December 31, 1996 753,011 10,800 Shares Converted 400 (400) Balance as of December 31, 1997 753,411 10,400
(a) Prior year amounts have been restated by 212 shares to accurately reflect stock balances.
NOTE 8
PENSION PLANS
Salaried and hourly employees assigned to the Company are covered by the Quaker Retirement Plan (Plan). Plan benefits are based on compensation paid to employees and their years of service. Quaker's policy is to make contributions to the Plan within the maximum amount deductible for Federal income tax purposes. Plan assets consist primarily of equity securities and government, corporate and other fixed-income obligations. Consistent with arrangements described in Note 4, the Company was allocated pension costs of approximately $0.6 million, $1.5 million and $3.5 million in 1997, 1996 and 1995, respectively. The Company's allocated accrued pension costs were approximately $10.6 million and $8.7 million as of December 31, 1997 and 1996, respectively.
NOTE 9
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS
Quaker provides certain health care and life insurance benefits to substantially all retired U.S. employees and certain retired foreign employees who meet service-related eligibility requirements. Consistent with arrangements described in Note 4, the Company is allocated a portion of these costs incurred by Quaker.
The Company was allocated postretirement benefit costs of $2.8 million, $2.5 million and $3.3 million in 1997, 1996 and 1995, respectively. The Company's allocated unfunded accrued postretirement benefit costs were $35.1 million and $33.4 million as of December 31, 1997 and 1996, respectively.
NOTE 10
SUPPLEMENTAL CASH FLOW INFORMATION
Year Ended December 31, (Dollars in Millions) 1997 1996 1995 Cash Activity: Interest Paid $ 0.1 $ 0.1 $ 0.1 Income Taxes Paid $78.1 $100.1 $80.1 Noncash Activity: Transfer of Assets $39.4 $ -- $ --
On May 22, 1997, Quaker completed the sale of 100 percent of its wholly- owned subsidiary, Snapple Beverage Corp., to Triarc Companies, Inc. Prior to the completion of this transaction, a Snapple facility in Tolleson, Arizona was transferred to the Company as a Gatorade thirst quencher facility. The net book value of the assets transferred to the Company was $39.4 million.
NOTE 11
LEASES AND OTHER COMMITMENTS
Certain operating properties are rented under non-cancelable operating leases. Total rental expense under operating leases was $5.7 million, $5.0 million and $4.7 million in 1997, 1996 and 1995, respectively. Future minimum annual rentals on non-cancelable operating leases, primarily for sales and administrative offices and distribution centers, are as follows:
(Dollars in Millions) 1998 1999 2000 2001 2002 Thereafter Total
Total Payments $5.7 $4.8 $4.4 $4.4 $4.3 $12.0 $35.6
The Company enters into executory contracts to obtain inventory and promote various products. As of December 31, 1997, future commitments under these contracts amounted to $41.5 million.
NOTE 12
INCOME TAXES
The Company uses an asset and liability approach to financial accounting and reporting for income taxes in accordance with FASB Statement #109, "Accounting for Income Taxes."
Provisions for income taxes were as follows:
Year Ended December 31, (Dollars in Millions) 1997 1996 1995
Currently payable: Federal $ 74.6 $75.2 $68.7 Foreign 0.1 0.5 0.8 State 16.6 15.4 17.2 Total currently payable 91.3 91.1 86.7 Deferred - net: Federal (0.6) (4.9) (6.5) Foreign (0.1) (0.3) (0.3) State 0.7 1.1 (0.7) Total deferred - net -- (4.1) (7.5) Provision for income taxes $ 91.3 $87.0 $79.2
The components of the deferred income tax provision (benefit) were as follows:
Year Ended December 31, (Dollars in Millions) 1997 1996 1995
Accelerated tax depreciation $ 4.7 $ 0.5 $(1.7) Postretirement benefits (0.6) (1.0) 0.5 Accrued expenses (4.1) (0.6) (5.8) Other -- (3.0) (0.5) Deferred income tax (benefit) $ -- $(4.1) $(7.5)
The sources of pretax income were as follows:
Year Ended December 31, (Dollars in Millions) 1997 1996 1995
U.S. sources $222.2 $211.3 $214.1 Foreign sources 0.2 0.6 1.5 Income before income taxes $222.4 $211.9 $215.6
Reconciliations of the statutory Federal income tax rates to the effective income tax rates were as follows:
The following table contains information covering the grant of stock options to the Chief Executive Officer and President during Fiscal Year 1997. The exercise price for all options granted is equal to the fair market value of Quaker's common stock on the date of grant.
The following table contains information covering the exercise of options by the Chief Executive Officer and President during 1997 and unexercised options held as of the end of 1997.
Pension Plans
Quaker and its subsidiaries maintain several pension plans. The Quaker Retirement Plan (Retirement Plan), which is the principal pension plan, is a noncontributory, defined benefit plan covering eligible salaried and hourly employees of the Company who have completed one year of service as defined by the Retirement Plan.
Under the Retirement Plan, the participant accrues a benefit based upon the greater of a Years-of-Service Formula and an Earnings/Service Formula. Under the Years-of-Service Formula, participants accrue annual benefits equivalent to credited years of service times $216. Under the Earnings/Service Formula, a participant's benefit is the sum of two parts:
1. Past Service Accrual -- Benefits accrued through December 31, 1993 are set at the greater of (a) those earned or (b) 1% of Five-Year Average earnings to $22,700 plus 1.65% of earnings above $22,700, times credited years of service; and
2. Future Service Accrual -- For each year beginning January 1, 1994 and after, participants accrue benefits of 1.75% of annual earnings to 80% of the Social Security wage base plus 2.5% of annual earnings above 80% of the Social Security wage base.
Eligible earnings used to calculate retirement benefits include wages, salaries, bonuses, contributions to The Quaker Investment Plan and allocations under The Quaker Employee Stock Ownership Plan. Normal retirement age under the Retirement Plan is age 65. The Retirement Plan contains provision for early retirement benefits.
Benefit amounts payable under the Retirement Plan are limited to the extent required by the Employee Retirement Income Security Act of 1974 (ERISA), as amended, and the Internal Revenue Code of 1986, as amended. If the benefit formula produces an amount in excess of those limitations, the excess will be paid out of general corporate funds in accordance with the terms of The Quaker 415 Excess Benefit Plan and The Quaker Eligible Earnings Adjustment Plan. The Quaker Eligible Earnings Adjustment Plan also provides for payment out of general corporate funds, based upon benefit amounts which would otherwise have been payable under the Retirement Plan and The Quaker 415 Excess Benefit Plan, if the executive had not previously elected to defer compensation under the Executive Deferred Compensation Plan.
The estimated annual retirement benefits that Mr. Doyle would receive under the Retirement Plan, The Quaker 415 Excess Benefit Plan, and The Quaker Eligible Earnings Adjustment Plan, if he retired at age 65, are $351,948. This amount assumes that he will continue to work for Quaker until his normal retirement date and that his earnings will remain the same as in year 1997 and that he will elect a straight-lifetime benefit without survivor benefits. Payment options such as a lump sum or other annuities are available.
The Retirement Plan assures active and retired employees that, to the extent of sufficient plan assets, it will continue in effect for a reasonable period following a change in control of Quaker without a reduction of anticipated benefits, and under certain circumstances may provide increased benefits. Generally, under the Retirement Plan, a change in control shall be deemed to have occurred in any of the following circumstances:
(i) An acquisition of 30% or more of Quaker stock unless such acquisition is pursuant to an agreement with Quaker approved by its Board before the acquirer becomes the beneficial owner of 5% of Quaker's outstanding voting power;
(ii) A majority of Quaker's Board is comprised of persons who were not nominated by its Board for election as directors;
(iii) A plan of complete liquidation of Quaker; or
(iv) A merger, consolidation or sale of all or substantially all of Quaker's assets unless thereafter (a) directors of Quaker immediately prior thereto continue to constitute at least 50% of the directors of the surviving entity or purchaser; or (b) Quaker's securities continue to represent, or are converted to securities which represent, more than 70% of the combined voting power of the surviving entity or purchaser.
For a five-year period following a change in control of Quaker, the accrual of benefits for service during such period cannot be decreased while there are excess assets (as defined in the Retirement Plan). For a two-year period following such a change in control, the accrued benefits of members who meet specified age and service requirements and who are terminated will be increased. For so long as there are excess assets during that five-year period, if the Retirement Plan is merged with any other plan, the accrued benefit of each member and the amount payable to retired or deceased members shall be increased until there are no excess assets. If during that five-year period the Retirement Plan is terminated, to the extent that assets remain after satisfaction of liabilities, the accrued benefits shall be increased such that no assets of the Retirement Plan will directly or indirectly revert to Quaker.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding common stock of Stokely is owned by Quaker whose corporate offices are located at 321 North Clark, Chicago, IL 60610.
The following table presents information with respect to all persons known to Stokely to own more than 5% of any other class of Stokely's voting securities as of March 1, 1998. Each beneficial owner has, to the knowledge of Stokely, sole voting power and sole investment power with respect to the shares listed opposite such owner's name.
Amount and Percent Name and Address Nature of of Title of Class of Beneficial Owner Ownership Class
Second Preferred The William B. Stokely, Jr. 2,012 19.3 Stock (1) Foundation 620 Campbell Station Road Station West, Suite 4 Knoxville, TN 37922
Marjorie M. Cochran 1,125 10.8 2900 Country Squire Lane Decatur, GA 30033-2418
Esther M. Minter 1,125 10.8 230 East College Street Griffin, GA 30223-4348
Cooper N. Mills 926 8.9 666 Brook Circle Griffin, GA 30223-4413
Sigler & Co. 855 8.2 c/o Chase Manhattan Bank Dept. 3492 P.O. Box 50000 Newark, NJ 07101-8006
John B. Mills, III 526 5.1 1043 Clifton Road Atlanta, GA 30307-1227
(1) Holders of common stock and Second Preferred Stock vote collectively and not as a separate class. As of December 31, 1997, the outstanding shares of Second Preferred Stock comprise less than 1% of the aggregate number of outstanding shares of common stock and Second Preferred Stock.
The table below sets forth information with respect to beneficial ownership of common stock of Quaker by the directors and named executive officers of Stokely as of March 1, 1998, and by the directors and by the named executive officers, and executive officers as a group. Shares subject to acquisition within 60 days through the exercise of stock options are included in the first column and are shown separately in the second column. No director or officer and named executive officers owns any equity securities of Stokely.
Amount Shares Subject of Beneficial to Acquisition Ownership(a) Within 60 Days(a)
James F. Doyle 313,922(b)(c) 268,520
John G. Jartz 105,939(b)(c)(d) 90,064
Janet K. Cooper 74,497(b)(c) 58,570
All Directors and Officers as a group 573,843(b)(c)(d) 486,782
(a) Unless otherwise indicated, each named individual and each person in the group has sole voting power and sole investment power with respect to shares shown. These shares represent less than 1 percent for every person, and less than 1 percent for all directors and officers as a group, of the total shares outstanding, including shares subject to acquisition within 60 days following March 1, 1998.
(b) The figures shown for these directors and executive officers include an aggregate of 23,866 shares (which includes 4,479 shares on the basis of the conversion of 2,073 shares of Series B ESOP Convertible Preferred at the conversion rate of 2.16) allocated to them in The Quaker Employee Stock Ownership Plan. The directors each hold the following number of shares under this plan: Mr. Doyle, 7,693; Mr. Jartz, 5,670; and Ms. Cooper, 5,974.
(c) The figures shown for these directors and executive officers include an aggregate of 14,905 shares granted to them under The Quaker Long Term Incentive Plan of 1990 for which the restricted period has not lapsed. The directors each hold the following number of shares under this plan: Mr. Doyle, 3,348; Mr. Jartz, 1,518; and Ms. Cooper, 8,781.
(d) The figures shown for these directors and executive officers include an aggregate of 2,465 shares representing their proportionate interests in the Quaker Stock Fund of The Quaker Investment Plan. The directors each hold the following number of shares under this plan: Mr. Jartz, 1,650.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of related transactions with Quaker, reference should be made to Part II, Items 7 and 8. See Notes 1, 4, 8 and 9 to the consolidated financial statements.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Year Ended December 31, (Dollars in Millions) 1997 1996 1995
ITEM
Depreciation $ 21.0 $ 15.2 $ 15.1
Advertising & Merchandising $296.2 $257.1 $278.5
Exhibit 21
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
Subsidiaries of the Registrant
Subsidiary State or Country of Incorporation
The Gatorade Company Delaware Gatorade Puerto Rico Company Delaware The Gatorade Company of Australia Pty. Ltd. Australia Quaker de (Chile) Ltda Chile
Foreign Joint Venture
Guangzhou Quaker Oats Food & Beverage Co. Ltd. The Quaker Oats Company 90% Stokely-Van Camp, Inc. 10%
SIGNATURES
Pursuant to the requirements of Sections 13 and 15 (d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
STOKELY-VAN CAMP, INC. (Registrant)
By: /s/ Susan D. Wellington Susan D. Wellington Chief Executive Officer, President and Director
Date: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 27th day of March 1998, by the following persons on behalf of the Registrant and in the capacities indicated.
Signature Title
/s/ Susan D. Wellington Chief Executive Officer, Susan D. Wellington President and Director
/s/ Janet K. Cooper Vice President, Treasurer and Tax Janet K. Cooper (Principal Financial Officer) and Director
/s/ John G. Jartz Vice President, John G. Jartz Secretary and Director
/s/ Thomas L. Gettings Vice President and Corporate Thomas L. Gettings Controller
EXHIBIT INDEX
Paper (P), Electronic (E) or Incorporated by EXHIBIT NO. DESCRIPTION Reference (IBRF)
3 (a) Restated Articles of Incorporation of Stokely-Van IBRF Camp, Inc. as of February 14, 1994 (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1995, file number 1-2944)
3 (b) By-Laws of Stokely-Van Camp, Inc. IBRF (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1985, file number 1-2944)
10 (a)(1) GATORADE Trust Agreement dated January 1, 1984 IBRF (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1984, file number 1-2944)
10 (a)(2) First Amendment to GATORADE Trust Agreement IBRF dated January 1, 1984, effective January 1, 1993 (incorporated by reference to the Company's Form 10-KT for the transition period ended December 31, 1995, file number 1-2944)
21 Subsidiaries of the Registrant E
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding common stock of Stokely is owned by Quaker whose corporate offices are located at 321 North Clark, Chicago, IL 60610.
The following table presents information with respect to all persons known to Stokely to own more than 5% of any other class of Stokely's voting securities as of March 1, 1998. Each beneficial owner has, to the knowledge of Stokely, sole voting power and sole investment power with respect to the shares listed opposite such owner's name.
Amount and Percent Name and Address Nature of of Title of Class of Beneficial Owner Ownership Class
Second Preferred The William B. Stokely, Jr. 2,012 19.3 Stock (1) Foundation 620 Campbell Station Road Station West, Suite 4 Knoxville, TN 37922
Marjorie M. Cochran 1,125 10.8 2900 Country Squire Lane Decatur, GA 30033-2418
Esther M. Minter 1,125 10.8 230 East College Street Griffin, GA 30223-4348
Cooper N. Mills 926 8.9 666 Brook Circle Griffin, GA 30223-4413
Sigler & Co. 855 8.2 c/o Chase Manhattan Bank Dept. 3492 P.O. Box 50000 Newark, NJ 07101-8006
John B. Mills, III 526 5.1 1043 Clifton Road Atlanta, GA 30307-1227
(1) Holders of common stock and Second Preferred Stock vote collectively and not as a separate class. As of December 31, 1997, the outstanding shares of Second Preferred Stock comprise less than 1% of the aggregate number of outstanding shares of common stock and Second Preferred Stock.
The table below sets forth information with respect to beneficial ownership of common stock of Quaker by the directors and named executive officers of Stokely as of March 1, 1998, and by the directors and by the named executive officers, and executive officers as a group. Shares subject to acquisition within 60 days through the exercise of stock options are included in the first column and are shown separately in the second column. No director or officer and named executive officers owns any equity securities of Stokely.
Amount Shares Subject of Beneficial to Acquisition Ownership(a) Within 60 Days(a)
James F. Doyle 313,922(b)(c) 268,520
John G. Jartz 105,939(b)(c)(d) 90,064
Janet K. Cooper 74,497(b)(c) 58,570
All Directors and Officers as a group 573,843(b)(c)(d) 486,782
(a) Unless otherwise indicated, each named individual and each person in the group has sole voting power and sole investment power with respect to shares shown. These shares represent less than 1 percent for every person, and less than 1 percent for all directors and officers as a group, of the total shares outstanding, including shares subject to acquisition within 60 days following March 1, 1998.
(b) The figures shown for these directors and executive officers include an aggregate of 23,866 shares (which includes 4,479 shares on the basis of the conversion of 2,073 shares of Series B ESOP Convertible Preferred at the conversion rate of 2.16) allocated to them in The Quaker Employee Stock Ownership Plan. The directors each hold the following number of shares under this plan: Mr. Doyle, 7,693; Mr. Jartz, 5,670; and Ms. Cooper, 5,974.
(c) The figures shown for these directors and executive officers include an aggregate of 14,905 shares granted to them under The Quaker Long Term Incentive Plan of 1990 for which the restricted period has not lapsed. The directors each hold the following number of shares under this plan: Mr. Doyle, 3,348; Mr. Jartz, 1,518; and Ms. Cooper, 8,781.
(d) The figures shown for these directors and executive officers include an aggregate of 2,465 shares representing their proportionate interests in the Quaker Stock Fund of The Quaker Investment Plan. The directors each hold the following number of shares under this plan: Mr. Jartz, 1,650.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of related transactions with Quaker, reference should be made to Part II, Items 7 and 8. See Notes 1, 4, 8 and 9 to the consolidated financial statements.
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Year Ended December 31, (Dollars in Millions) 1997 1996 1995
ITEM
Depreciation $ 21.0 $ 15.2 $ 15.1
Advertising & Merchandising $296.2 $257.1 $278.5
Exhibit 21
STOKELY-VAN CAMP, INC. AND SUBSIDIARIES
Subsidiaries of the Registrant
Subsidiary State or Country of Incorporation
The Gatorade Company Delaware Gatorade Puerto Rico Company Delaware The Gatorade Company of Australia Pty. Ltd. Australia Quaker de (Chile) Ltda Chile
Foreign Joint Venture
Guangzhou Quaker Oats Food & Beverage Co. Ltd. The Quaker Oats Company 90% Stokely-Van Camp, Inc. 10%
SIGNATURES
Pursuant to the requirements of Sections 13 and 15 (d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
STOKELY-VAN CAMP, INC. (Registrant)
By: /s/ Susan D. Wellington Susan D. Wellington Chief Executive Officer, President and Director
Date: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 27th day of March 1998, by the following persons on behalf of the Registrant and in the capacities indicated.
Signature Title
/s/ Susan D. Wellington Chief Executive Officer, Susan D. Wellington President and Director
/s/ Janet K. Cooper Vice President, Treasurer and Tax Janet K. Cooper (Principal Financial Officer) and Director
/s/ John G. Jartz Vice President, John G. Jartz Secretary and Director
/s/ Thomas L. Gettings Vice President and Corporate Thomas L. Gettings Controller
EXHIBIT INDEX
Paper (P), Electronic (E) or Incorporated by EXHIBIT NO. DESCRIPTION Reference (IBRF)
3 (a) Restated Articles of Incorporation of Stokely-Van IBRF Camp, Inc. as of February 14, 1994 (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1995, file number 1-2944)
3 (b) By-Laws of Stokely-Van Camp, Inc. IBRF (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1985, file number 1-2944)
10 (a)(1) GATORADE Trust Agreement dated January 1, 1984 IBRF (incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1984, file number 1-2944)
10 (a)(2) First Amendment to GATORADE Trust Agreement IBRF dated January 1, 1984, effective January 1, 1993 (incorporated by reference to the Company's Form 10-KT for the transition period ended December 31, 1995, file number 1-2944)
21 Subsidiaries of the Registrant E