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, 1996 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
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(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
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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 9, 1996
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Common Stock, 11,357,472 Shares
$.05 par value per share
STOKELY USA, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - 3-4
June 30, 1996, June 30, 1995 and
March 31, 1996
Consolidated Condensed Statements of 5
Operations - Three Months Ended
June 30, 1996 and 1995
Consolidated Condensed Statements of 6
Cash Flow - Three Months Ended
June 30, 1996 and 1995
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 12
Item 2. Changes in Securities 12
Item 3. Default Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of 12
Security Holders
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
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,
1996 1995 1996
(unaudited) (unaudited) (note)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 890 $ 944 $ 777
Accounts receivable, less
allowance for losses of $570,
$477 and $570, respectively 16,378 14,113 16,975
Refundable income taxes -- 380 11
Inventories: Finished goods 58,445 66,832 78,922
Manufacturing supplies 8,023 7,708 6,482
Prepaid expenses 1,251 1,424 1,406
Property held for disposition 9,500 -- 9,500
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Total Current Assets 94,487 91,401 114,073
OTHER ASSETS 4,428 4,689 4,147
PROPERTY, PLANT & EQUIPMENT, at cost 91,656 110,284 91,142
Less accumulated depreciation 35,087 40,879 33,641
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56,569 69,405 57,501
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TOTAL ASSETS $155,484 $165,495 $175,721
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See accompanying notes to consolidated condensed financial statements
(unaudited).
Note: The balance sheet at March 31, 1996 has been condensed from the
audited financial statements at that date.
STOKELY USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
June 30, June 30, March 31,
1996 1995 1996
(unaudited) (unaudited) (note)
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Notes payable $13,996 $ 2,817 $ 19,887
Accounts payable 14,559 18,099 21,365
Current maturities on long-
term debt 15,150 2,536 15,150
Other current liabilities 5,934 4,671 9,253
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Total Current Liabilities 49,639 28,123 65,655
LONG-TERM DEBT, less current
maturities 77,230 78,441 77,230
OTHER LIABILITIES 3,210 4,319 3,269
STOCKHOLDERS' EQUITY:
Capital stock 572 572 572
Additional paid-in capital 43,628 43,683 43,683
Retained earnings (18,334) 10,975 (14,070)
Treasury stock at cost (461) (618) (618)
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Total Stockholder's Equity 25,405 54,612 29,567
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TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $155,484 $165,495 $175,721
========= ========= =========
See accompanying notes to consolidated condensed financial statements
(unaudited).
Note: The balance sheet at March 31, 1996 has been condensed from the
audited financial statements at that date.
STOKELY USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
(unaudited)
Three Months Ended
June 30,
1996 1995
REVENUES:
Net Sales $ 42,342 $ 40,700
Other 35 59
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Total Revenues 42,377 40,759
COST AND EXPENSES:
Cost of products sold 37,200 35,494
Selling, general & administrative expenses 6,333 6,650
Nonrecurring charge 433 --
Interest 2,675 2,391
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Total Cost and Expenses 46,641 44,535
LOSS BEFORE INCOME TAX (4,264) (3,776)
INCOME TAXES -- --
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NET LOSS $ (4,264) $ (3,776)
========= =========
NET LOSS PER COMMON SHARE $ (.38) $(.33)
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WEIGHTED AVERAGE SHARES OUTSTANDING 11,332,303 11,325,652
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See accompanying notes to consolidated condensed financial statements
(unaudited).
STOKELY USA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
June 30,
1996 1995
Net cash provided by operating activities $ 7,262 $19,733
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Cash flows from investing activities:
Purchases of property, plant and equipment (521) (2,903)
Increase in other assets - net (110) (543)
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Net cash used in investing activities (631) (3,446)
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Cash flows from financing activities:
Change in short-term debt - net (5,891) (16,474)
Payments of long-term debt -- (56)
Payment of deferred debt issuance costs (729) --
Capital stock transactions - net 102 10
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Net cash used in financing activities (6,518) (16,520)
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Net increase (decrease) in cash and
cash equivalents 113 (233)
Cash and cash equivalents at beginning
of period 777 1,177
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Cash and cash equivalents at end of period $ 890 $ 944
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See accompanying notes to consolidated condensed financial statements
(unaudited).
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, 1996 and 1995, and
March 31, 1996, the consolidated condensed statements of operations for
the three month periods ended June 30, 1996 and 1995, 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, 1996 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, 1996, 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 of the Company's Form 10-K for the year
ended March 31, 1996.
2. Supplemental cash flow disclosures: Cash payments for interest
were $2,561,000 and $2,080,000 for the three months ended June 30, 1996
and 1995, respectively. Net payments of income taxes were $27,000 for
the three months ended June 30, 1996. The Company recorded a non-cash
charge of $433,000 related to the write-off of deferred debt cost
associated with the replacement of the Company's revolving credit
facility on May 21, 1996.
3. A nonrecurring charge of $12,500,000 was recognized in the fourth
quarter of fiscal 1996 as discussed in the Company's Annual Report on
Form 10-K. The Company utilized reserves of $3,302,000, leaving a
balance of $8,254,000 at June 30, 1996. Reserves were utilized in
connection with the sale of inventory, severance payments and other
miscellaneous costs.
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.
The discussion in this Form 10-Q includes forward-looking statements
based on current management expectations. Factors which could cause
future results to differ from these expectations include the following:
general economic conditions; vegetable processing industry conditions
and price and volume fluctuations; competitive pressures and pricing
pressures; inventory risks; supply-related risks; demand-related risks;
third party lender actions; and results of Company - specific cost
containment and profit enhancement initiatives. Additional factors are
described in the Company's other reports filed with the Securities and
Exchange Commission.
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 growth. 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.
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.
RESULTS OF OPERATIONS:
Three Months Ended June 30, 1996 Compared to Three Months Ended
June 30, 1995
Net Sales
Net sales increased $1.6 million, or 3.9%, to $42.3 million for the
quarter ended June 30, 1996 compared to $40.7 million for the quarter
ended June 30, 1995. The increase in sales was due primarily to a $3.9
million increase in frozen sales as a result of the liquidation of
frozen inventory in conjunction with the Company's exit from the frozen
business. The remaining frozen inventory of approximately $17 million
at June 30, 1996 is scheduled to be sold during the second and third
quarters of fiscal 1997.
Total canned vegetable sales decreased $2.3 million, or 6.9%, to $31.0
million for the quarter ended June 30, 1996 compared to $33.3 million
for the quarter ended June 30, 1995. The decrease in total canned
vegetable sales was primarily the result of a $3.7 million decrease in
sales volume offset in part by a $1.4 million increase in average
selling prices. The decline in sales volume was caused primarily by
lower available inventory due to poorer growing and harvesting
conditions last summer. Also contributing to the lower first quarter
canned sales volume and improved selling prices were the Company's
actions to increase prices in certain markets and exit others to improve
operating results.
Cost of Products Sold
Cost of products sold increased $1.7 million, or 4.8%, to $37.2 million
for the quarter ended June 30, 1996 compared to $35.5 million for the
quarter ended June 30, 1995. The increase in cost of goods sold was due
primarily to higher frozen sales volume. Cost of products sold as a
percent of sales was 87.9% for the quarter ended June 30, 1996 compared
to 87.2% for the quarter ended June 30, 1995. The increase of 0.7% in
cost of products sold as a percent of sales is due primarily to the
decline in selling prices associated with the liquidation of the frozen
business inventory.
Selling, General and Administrative Expense
Selling, general and administrative expense decreased $0.4 million to
$6.3 million for the quarter ended June 30, 1996 compared to $6.7
million for the quarter ended June 30, 1995. This decrease is primarily
the result of cost reduction initiatives taken in fiscal 1996.
Interest Expense
Interest expense increased $0.3 million to $2.7 million for the quarter
ended June 30, 1996 from $2.4 million for the quarter ended June 30,
1995 due to higher average borrowing levels.
Net Loss
Net loss for the quarter ended June 30, 1996 was $4.3 million compared
to a net loss of $3.8 million for the quarter ended June 30, 1995. The
larger net loss was due primarily to a nonrecurring charge of $0.4
million related to the write-off of deferred debt issuance costs
associated with the replacement of the Company's revolving credit
facility on May 21, 1996.
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.
Cash Flows from Operating Activities
Cash flow provided from operations during the three months ended
June 30, 1996 totaled $7.3 million. Of the total cash provided, changes
in operating assets and liabilities provided cash of $9.5 million,
primarily due to decreases in inventory of $18.9 million partially
offset by decreases in accounts payable and other current liabilities of
$6.8 million and $3.3 million, respectively. The decrease in inventory
levels and associated reduction in accounts payable reflects the
seasonal reduction in inventories prior to the current year growing and
harvesting season and the liquidation of frozen inventory in conjunction
with the Company's previously announced exit from the frozen business.
The decrease in other liabilities relates to decreases in reserves
established in connection with the Company's decision to exit the frozen
business as severance costs and selling expenses were paid as well as
decreases in accrued compensation and withholding amounts associated
with the frozen business.
Cash Flows from Investing Activities
Net cash used in investing activities during the three months ended
June 30, 1996 was $0.6 million. Purchase of property, plant and
equipment was $0.5 million during the three months ended June 30, 1996.
Cash Flows from Financing Activities
Cash used in financing activities during the three months ended June 30,
1996 totaled $6.5 million, and represents primarily decreases in
revolving credit obligations through the use of cash flow generated from
the reduction in inventories. At June 30, 1996 the Company had $47.0
million of borrowings under its revolving credit facility, of which
$33.0 million was classified as long term and $14.0 million was
classified as short term.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
A class action 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
alleged 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. 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. The second
lawsuit made similar claims against the Company and certain officers
arising from the same facts and events. These lawsuits were
consolidated on September 22, 1995 and the complaint filed in the first
lawsuit was deemed the operative complaint superseding the complaint
filed in the second lawsuit. The plaintiff in the second lawsuit has
since elected to withdraw as a plaintiff in the consolidated lawsuit.
On March 31, 1996, the United States District Court issued a decision
dismissing the consolidated lawsuit. The plaintiff has filed a motion
to alter or amend the judgment of dismissal which is pending a decision.
The Company has opposed this motion and believes that the dismissal was
proper.
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
The Company was not in compliance with certain financial covenants of
its senior note agreements. As discussed in the Company's Annual Report
on Form 10-K, the note agreements were amended and prior covenant
violations waived on July 25, 1996.
Item 4. Submission of Matters to a vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27.1 - Financial Data Schedule
Exhibit 99.1 - Loan and Security Agreement by and among
Congress Financial Corporation, as lender, and
Stokely USA, Inc. dated May 21, 1996 with
respect to a $70,000,000 Credit Facility.
Exhibit 99.2 - Amended and Restated Note Agreement dated
July 25, 1996 regarding $20,000,000 Original
Principal Amount of 9.74% Senior Notes due
January 15, 2000.
Exhibit 99.3 - Series A Warrant to purchase shares of Common
Stock by State of Wisconsin Investment Board.
Exhibit 99.4 - Series B Warrant to purchase shares of Common
Stock by State of Wisconsin Investment Board.
Exhibit 99.5 - Amended and Restated Note Agreement dated
July 25, 1996 regarding $25,000,000 Original
Principal Amount of 9.37% Senior Notes due
January 15, 2000.
Exhibit 99.6 - Series A Warrant to purchase shares of Common
Stock.
Exhibit 99.7 - Series B Warrant to purchase shares of Common
Stock.
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K dated May 23, 1996
regarding its fiscal 1996 financial results, issues relating to
its long-term senior credit agreements and a new revolving credit
facility.
STOKELY USA, INC.
SIGNATURES
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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 13, 1996 /s/ Stephen W. Theobald
Stephen W. Theobald
President and Chief Executive Officer
Date August 13, 1996 /s/ Leslie J. Wilson
Leslie J. Wilson
Vice President - Finance
(Principal Financial Officer)
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 13, 1996
Stephen W. Theobald
President and Chief Executive Officer
Date August 13, 1996
Leslie J. Wilson
Vice President - Finance
(Principal Financial Officer)
Exhibit 27.1
Period Type 3 Months
Period Year End March 31, 1997
Period End June 30, 1996
Cash 890
Securities 0
Receivables 16,948
Allowances 570
Inventory 66,468
Current Assets 94,487
PP&E 91,656
Depreciation 35,087
Total Assets 155,484
Current Liabilities 49,639
Bonds 77,230
Common 572
Preferred Mandatory 0
Preferred 0
Other Stockholders Equity 24,833
Total Liability and Equity 155,484
Sales 42,342
Total Revenues 42,377
Cost of Goods Sold 37,200
Total Costs 37,200
Other Expenses 433
Loss Provision 0
Interest Expense 2,675
Income Pretax (4,264)
Income Tax Expense 0
Incoming Continuing Operations (4,264)
Discontinued Operation 0
Extraordinary Items 0
Changes 0
Net Income (4,264)
EPS - Primary (0.38)
EPS - Diluted (0.38)