SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1995 Commission File Number 0-13943
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STOKELY USA, INC.
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(Exact name of registrant as specified in its charter)
WISCONSIN 39-0513230
- ---------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1055 Corporate Center Drive, Oconomowoc, WI 53066
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(Address of principal executive office)
Registrant's telephone number, including area code: (414) 569-1800
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class Outstanding at August 11, 1995
- ------------------------ -------------------------------
Common Stock, 11,326,441 Shares
$.05 par value per share
Page 1
STOKELY USA, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
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PART I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - 3-4
June 30, 1995, June 30, 1994 and
March 31, 1995
Consolidated Condensed Statements of 5
Operations - Three Months Ended
June 30, 1995 and 1994
Consolidated Condensed Statements of 6
Cash Flow - Three Months Ended
June 30, 1995 and 1994
Notes to Consolidated Condensed Financial 7
Statements
Item 2. Management's Discussion and Analysis 8-11
of Financial Condition and Results
of Operations
PART II. Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Default Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of 14
Security Holders
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Page 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STOKELY USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
---------------------------------------
(Dollars in thousands)
June 30, June 30, March 31,
1995 1994 1995
(unaudited) (unaudited) (note)
------------ ----------- --------
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 944 $ 2,989 $ 1,177
Accounts receivable, less
allowance for losses of $477,
$337 and $452, respectively 14,113 13,218 25,459
Refundable income taxes 380 785 380
Inventories: Finished Products 66,832 51,339 73,053
Production Supplies 7,708 6,505 6,336
Prepaid Expenses 1,424 1,039 1,825
---------- --------- --------
Total Current Assets 91,401 75,875 108,230
OTHER ASSETS 4,689 7,918 4,467
PROPERTY, PLANT & EQUIPMENT, at cost 110,284 100,000 107,381
Less accumulated depreciation 40,879 31,949 38,784
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69,405 68,051 68,597
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TOTAL ASSETS $165,495 $151,844 $181,294
========== ========= ==========
See accompanying notes to consolidated condensed financial statements
(unaudited).
Note: The balance sheet at March 31, 1995 has been condensed from the
audited financial statements at that date. The balance sheet at
June 30, 1994 has been reclassified for comparative purposes.
Page 3
STOKELY USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(Dollars in thousands)
June 30, June 30, March 31,
1995 1994 1995
(unaudited) (unaudited) (note)
----------- ----------- ----------
LIABILITIES & STOCKHOLDER'S EQUITY
- ----------------------------------
CURRENT LIABILITIES:
Notes payable $ 2,817 $ 5,981 $ 19,291
Accounts payable 18,099 19,312 13,454
Current maturities on long-
term debt 2,536 3,868 2,536
Other current liabilities 4,671 4,585 4,897
-------- -------- ---------
Total Current Liabilities 28,123 33,746 40,178
LONG-TERM DEBT, less current
maturities 78,441 80,384 78,497
OTHER LIABILITIES 4,319 4,667 4,241
STOCKHOLDER'S EQUITY:
Capital stock 572 422 572
Additional paid-in capital 43,683 18,665 43,683
Retained earnings 10,975 14,588 14,751
Treasury stock at cost (618) (628) (628)
--------- --------- ---------
Total Stockholder's Equity 54,612 33,047 58,378
--------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $165,495 $151,844 $181,294
========= ========= =========
See accompanying notes to consolidated condensed financial statements
(unaudited).
Note: The balance sheet at March 31, 1995 has been condensed from the
audited financial statements at that date. The balance sheet at
June 30, 1994 has been reclassified for comparative purposes.
Page 4
STOKELY USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
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(Dollars in thousands except per share amounts)
(unaudited)
Three Months Ended
June 30,
1995 1994
---- ----
REVENUES:
- ---------
Net Sales $ 40,700 $ 38,818
Other 59 13
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Total Revenues 40,759 38,831
COST AND EXPENSES:
- ------------------
Cost of products sold 35,494 30,243
Selling, general & administrative expenses 6,650 5,698
Interest 2,391 2,375
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Total Cost and Expenses 44,535 38,316
EARNINGS(LOSS) BEFORE INCOME TAX (3,776) 515
INCOME TAXES 108
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NET EARNINGS (LOSS) $ (3,776) $ 407
========= =========
NET EARNINGS (LOSS) PER COMMON SHARE $ (.33) $ .05
======= ======
WEIGHTED AVERAGE SHARES OUTSTANDING 11,325,652 8,324,645
========== =========
See accompanying notes to consolidated condensed financial statements
(unaudited).
Page 5
STOKELY USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
June 30,
1995 1994
---- ----
Net cash provided by operating activities $19,733 $14,899
-------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment (2,903) (2,572)
Increase in other assets - net (543) (171)
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Net cash used in investing activities (3,446) (2,743)
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Cash flows from financing activities:
Change in short-term debt - net (16,474) (12,011)
Payments of long-term debt (56) (54)
Capital stock transactions - net 10
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Net cash used in financing activities (16,520) (12,065)
-------- --------
Net (decrease) increase in cash and
cash equivalents (233) 91
Cash and cash equivalents at beginning
of period 1,177 2,898
-------- --------
Cash and cash equivalents at end of period $ 944 $ 2,989
======== ========
See accompanying notes to consolidated condensed financial statements
(unaudited).
Page 6
STOKELY USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
1. In the opinion of management, the accompanying unaudited
consolidated condensed financial statements contain all normal and
recurring adjustments necessary to present fairly Stokely USA, Inc.'s
consolidated condensed balance sheets as of June 30, 1995 and 1994, and
March 31, 1995, the consolidated condensed statements of operations for
the three month periods ended June 30, 1995 and 1994, and the
consolidated condensed statements of cash flow for the three month
periods then ended.
The results of operations for the three months ended June 30, 1995 are
not necessarily indicative of the results to be expected for the full
year. For interim reporting purposes, certain expenses are based on
estimates rather than expenses actually incurred. The unaudited interim
consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
for the fiscal year ended March 31, 1995, included in the Company's Form
10-K filed with the Securities and Exchange Commission.
The accounting policies followed by the Company are described in Note A
of the financial statements, located on Page 49 of the Company's Form
10-K for the year ended March 31, 1995.
2. Supplemental cash flow disclosures: Cash payments for interest
were $2,080,000 and $2,210,000 for the three months ended June 30, 1995
and 1994, respectively. Net refunds of income taxes were $1,086,000 for
the three months ended June 30, 1994.
Page 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------
The following is management's discussion and analysis of certain
significant factors which have affected the Company's operations during
the periods included in the accompanying (unaudited) consolidated
condensed statements of operations and balance sheets.
General
- -------
The Company's financial performance and growth are directly related to
certain characteristics and trends in the vegetable processing industry.
The United States vegetable processing industry is a mature industry,
with a relatively modest .7% compounded annual growth rate from 1989 to
1994. Therefore, any significant sales growth that may be experienced
by the Company likely would come at the expense of the loss of market
share by another processor, but also may occur through efforts designed
to promote increased consumption, such as through the introduction of
new or improved products or through increased sales internationally,
where the processed vegetable market is currently growing.
The Company's net sales are affected by product availability and market
pricing. In the vegetable processing industry, product availability and
market prices tend to have an inverse relationship: market prices tend
to decrease as more product is available, whereas if less product is
available, market prices tend to increase. Product availability is a
direct result of plantings, growing conditions, crop yields and
inventories, all of which may vary from year to year. In addition,
price can be affected by the planting, inventory level and individual
pricing decisions of the three or four largest processors in the
industry. Generally, the market prices in the vegetable processing
industry tend to adjust more quickly to variations in product
availability than an individual processor can adjust its cost structure;
thus, in an oversupply situation, a processor's margins likely will
weaken, as suppliers generally are not able to adjust their cost
structure as rapidly as market prices adjust for the oversupply. The
Company typically has experienced lower margins during times of industry
oversupply. There can be no assurance the Company's margins will
improve in response to favorable market conditions or that the Company
will be able to operate profitably during depressed market conditions.
Page 8
RESULTS OF OPERATIONS:
Three Months Ended June 30, 1995 Compared to Three Months Ended
June 30, 1994
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Net Sales
- ---------
Net sales increased $1.9 million, or 4.9%, to $40.7 million for the
quarter ended June 30, 1995 compared to $38.8 million for the quarter
ended June 30, 1994. The increase in sales reflects a 13.9% increase in
volume, partially offset by a 9.0% decline in average selling price.
Total canned vegetable sales increased $4.5 million, or 15.6%, to $33.3
million for the quarter ended June 30, 1995 compared to $28.8 million
for the quarter ended June 30, 1994. The increase in total canned
vegetable sales was primarily the result of an $8.3 million increase in
sales volume due to higher inventory availability from a much improved
growing and harvesting season in the summer of 1994 compared to the
summer of 1993. The volume increase was partially offset by a $3.8
million decrease in sales due to lower average selling prices.
The decline in selling prices reflects the depressed market conditions
which have prevailed since last December. The Company believes these
current market conditions are the result of excessive industry
inventories due to record crop yields from the summer of 1994 and the
aggressive price-cutting of certain industry competitors that occurred
late in the third quarter of fiscal 1995. Due to reduced industry
production this summer and assuming the absence of the events that
negatively impacted the market in late fiscal 1995, the Company believes
inventories should return to more normal levels, resulting in some
improvement in market conditions and pricing in the second half of
fiscal 1996.
Sales of canned private label products increased $5.3 million or 24.7%
to $26.8 million for the quarter ended June 30, 1995, compared to $21.5
million for the quarter ended June 30, 1994. The increase in private
label sales was the result of an $8.8 million increase in sales from
higher sales volume primarily due to higher available inventory,
partially offset by a $3.5 million decrease in sales due to lower
average selling prices. Sales of canned brand products decreased
$800,000 or 11.0%, to $6.5 million for the quarter ended June 30, 1995
compared to $7.3 million for the quarter ended June 30, 1994. The
decrease in brand sales was primarily the result of lower sales volume.
Frozen sales declined $2.6 million, or 26.0%, to $7.4 million for the
quarter ended June 30, 1995 compared to $10.0 million for the quarter
ended June 30, 1994. The reduction in frozen sales was due to a $1.4
million decrease in sales volume, primarily relating to elimination of
certain frozen products and a $1.2 million decrease in sales due to
lower average selling prices.
Page 9
Cost of Products Sold
- ---------------------
Cost of products sold increased $5.3 million, or 17.5%, to $35.5 million
for the quarter ended June 30, 1995 from $30.2 million for the quarter
ended June 30, 1994. The increase in cost of goods sold was due
primarily to higher sales volume. Cost of products sold as a percent of
sales increased to 87.2% for the quarter ended June 30, 1995 compared to
77.9% for the quarter ended June 30, 1994. The increase of 9.3% in cost
of products sold as a percent of sales is due primarily to the decline
in selling prices. Increases in certain cost components including
containers and corrugated packaging also contributed to the increase in
the ratio of cost of products sold to sales.
Selling, General and Administrative Expense
- -------------------------------------------
Selling, general and administrative expense increased $1.0 million to
$6.7 million for the quarter ended June 30, 1995 from $5.7 million for
the quarter ended June 30, 1994. This increase resulted from a $494,000
increase in selling expense due to the higher sales volume in the first
quarter of fiscal 1996 and the remainder was due to higher
administrative expenses.
Interest Expense
- ----------------
Interest expense of $2.4 million incurred in the quarter ended June 30,
1995 was unchanged from that of the quarter ended June 30, 1994.
Interest expense was unchanged because the increases in net working
capital, primarily inventories, were funded by the proceeds from the
November 1994 common stock offering.
Net Earnings (Loss)
- -------------------
Net loss for the quarter ended June 30, 1995 was $3.8 million compared
to net income of $407,000 for the quarter ended June 30, 1994. The
decline in net earnings was due primarily to reduced margins caused by
depressed selling prices.
Page 10
FINANCIAL CONDITION AND LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------------------------------
General
- -------
Due to the seasonal production nature of the canned and frozen vegetable
processing business, the Company must maintain substantial inventories
of processed vegetables throughout the year. The working capital
requirements associated with producing and maintaining such inventories
are financed primarily through short-term borrowings and deferred
payment terms with major raw product and container suppliers.
Effective May 31, 1995, the Company entered into a new revolving credit
agreement with various lenders. The new credit facility provides for
borrowings up to $65 million. The Company believes that the new
revolving credit facility will be adequate to meet the Company's
seasonal borrowing needs. The new revolving credit agreement provides
for a lower interest rate and less restrictive financial and operating
covenants than the former agreement. Borrowings under the new revolving
credit facility were $20.8 million at June 30, 1995 and are projected to
peak at $50 million during fiscal 1996.
In addition to the revolving credit facility, the Company has various
long-term debt obligations, which aggregated $78.4 million at June 30,
1995, excluding current maturities of $2.5 million. Included in the
total long-term debt obligations are two senior notes totaling $35.9
million, various Industrial Development Revenue Bonds totaling $27.1
million, and $18.0 million of the revolving credit notes which are not
expected to be repaid currently and are classified as long-term.
Cash Flows from Operating Activities
- ------------------------------------
Cash flow provided from operations during the three months ended
June 30, 1995 totaled $19.7 million. Of the total cash provided,
changes in operating assets and liabilities provided cash of $21.0
million, primarily due to decreases in inventory and accounts receivable
of $4.8 million and $11.3 million, respectively, and an increase in
accounts payable of $4.6 million. The decrease of $4.8 million in
inventory levels reflects the seasonal reduction in inventories prior to
the current year growing and harvesting season. The decrease in
accounts receivable of $11.3 million reflects the decrease in sales (due
to seasonal consumption patterns for products sold) in the quarter ended
June 30, 1995, compared to the quarter ended March 31, 1995. The
increase in accounts payable of $4.6 million is due to expected seasonal
increases related to the summer processing season.
Page 11
Cash Flows from Investing Activities
- ------------------------------------
Net cash used in investing activities during the three months ended
June 30, 1995 was $3.4 million. Purchase of property, plant and
equipment was $2.9 million during the three months ended June 30, 1995
and primarily related to the development and implementation of the
initial phases of a new management information system and investment in
product quality control equipment at several processing plants.
Cash Flows from Financing Activities
- ------------------------------------
Cash used in financing activities during the three months ended June 30,
1995 totaled $16.5 million, and represents decreases in revolving credit
obligations through the use of cash flow generated from the reduction in
accounts receivable and inventories. At June 30, 1995 the Company had
$20.8 million of borrowings under the new revolving credit facility, of
which $18.0 million was classified as long term and $2.8 million was
classified as short term.
Page 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- ---------------------------
A lawsuit was filed on January 3, 1995, in the United States District
Court for the Eastern District of Wisconsin, against the Company, all of
the individual members of the Board of Directors of the Company, William
Blair & Company and Dain Bosworth, Inc. The plaintiff alleges that he
sustained losses in connection with his purchase of shares of Common
Stock of the Company during the period from October 17, 1994, to
December 19, 1994, as a result of defendants' alleged misleading
statements and omissions to state material facts. The Company believes
that the allegations are without merit or substance, and is defending
the action vigorously. Motions for dismissal have been filed by all
defendants. Such motions have been fully briefed and a decision from
the court is pending.
A second lawsuit seeking to represent class members who purchased shares
of Common Stock of the Company during the period from October 17, 1994,
to December 19, 1994, was filed on May 10, 1995, in the United States
District Court for the Eastern District of Wisconsin. This second
lawsuit makes similar claims against the Company and certain officers
arising from the same facts and events. As with the first class action
lawsuit, the Company believes the allegations in the second case are
without merit or substance and will defend the action vigorously.
Motions for dismissal have been filed by all defendants which are in the
process of being briefed.
In addition to the above cases, the Company also is involved in various
other legal actions and claims primarily arising in the normal course of
its business. In the opinion of management of the Company, the
liability, if any, would not have a material effect on the Company's
financial condition or results of operations.
Item 2. Changes in Securities
- -------------------------------
None.
Item 3. Defaults Upon Senior Securities
- -----------------------------------------
None.
Page 13
Item 4. Submission of Matters to a vote of Security Holders
- -------------------------------------------------------------
The Annual Meeting of Shareholders of the Company was held on July 28,
1995 for the purpose of electing four directors. Proxies for the
meeting were solicited pursuant to Section 14(a) of the Securities
Exchange Act of 1934, as amended, and there was no solicitation in
opposition to the Board of Directors' solicitation. All four of the
Company's nominees were elected, each receiving the vote indicated
below:
Russell W. Britt
For 9,935,284
Withheld 180,159
Abstain 0
Broker Non Vote 0
Ody J. Fish
For 9,938,234
Withheld 177,209
Abstain 0
Broker Non Vote 0
Stephen W. Theobald
For 9,913,649
Withheld 201,794
Abstain 0
Broker Non Vote 0
Vernon L. Wiersma
For 9,909,335
Withheld 206,108
Abstain 0
Broker Non Vote 0
The terms of office for directors Carey, Pelisek & Weix expire in 1996
and the terms of office for directors Bradley, DeWees, Knox and Mount
expire in 1997.
Item 5. Other Information
- ---------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits: Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K: None
Page 14
STOKELY USA, INC.
SIGNATURES
----------
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STOKELY USA, INC.
-------------------------
Registrant
Date August 11, 1995 /s/ Stephen W. Theobald
--------------- -------------------------
Stephen W. Theobald
Vice Chairman
Date August 11, 1995 /s/ Leslie J. Wilson
--------------- -------------------------
Leslie J. Wilson
Vice President - Finance
(Principal Financial Officer)
Page 15
STOKELY USA, INC.
SIGNATURES
----------
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STOKELY USA, INC.
-------------------------
Registrant
Date August 11, 1995
--------------- -------------------------
Stephen W. Theobald
Vice Chairman
Date August 11, 1995
--------------- -------------------------
Leslie J. Wilson
Vice President - Finance
(Principal Financial Officer)
Page 16
Exhibit 27.1
Period Type 3 Months
Period Year End March 31, 1996
Period End June 30, 1995
Cash 944
Securities 0
Receivables 14,590
Allowances 477
Inventory 74,540
Current Assets 91,401
PP&E 110,284
Depreciation 40,879
Total Assets 165,495
Current Liabilities 28,123
Bonds 78,441
Common 572
Preferred Mandatory 0
Preferred 0
Other Stockholders Equity 43,683
Total Liability and Equity 165,495
Sales 40,700
Total Revenues 40,759
Cost of Goods Sold 35,494
Total Costs 44,535
Other Expenses 6,650
Loss Provision 0
Interest Expense 2,391
Income Pretax (3,776)
Income Tax Expense 0
Incoming Continuing Operations (3,776)
Discontinued Operation 0
Extraordinary Items 0
Changes 0
Net Income (3,776)
EPS - Primary (0.33)
EPS - Diluted (0.33)
Page 17