SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
Quarterly Report under Section 13 or 15(d) of the
Securities
Exchange Act of 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 25,
1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-7605
CURTICE-BURNS FOODS, INC.
(Exact Name of Registrant as Specified in its
Charter)
New York
16-
0845824
(State or other jurisdiction of
(IRS
Employer
incorporation or organization)
Identification Number)
90 Linden Place, P.O. Box 681, Rochester, NY
14603
(Address of Principal Executive Offices) (Zip
Code)
Registrant's Telephone Number, Including Area Code
(716) 383-1850
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 twelve 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 January 14, 1994.
Common Stock
Class A - 6,582,878
Class B - 2,060,702
Page 1 of 16<PAGE>
<PAGE>
<TABLE>
Part I. FINANCIAL INFORMATION
Item I - FINANCIAL STATEMENTS
The interim financial statements contained herein are unaudited,
but in the opinion of the
management of the Company include all adjustments (consisting only
of normal recurring
adjustments) necessary for a fair presentation of the results of
operations for these
periods. The results of operations for the interim periods are not
necessarily indicative
of the results of operations for the full year.
Curtice Burns Foods, Inc.
Consolidated Statement of Income and Retained
Earnings
(Dollars in Thousands except per share amounts)
<CAPTION>
Three Months Ended
Six Months Ended
12/25/93 12/25/92
12/25/93 12/25/92
<S> <C> <C>
<C> <C>
Net sales $ 243,246 $ 239,784
$ 453,336 $ 455,523
Costs and expenses:
Cost of sales 169,377 166,611
322,428 322,162
Restructuring (gain)/loss (8,114) 2,152
(8,114) 2,152
Selling, administrative and general
expenses 57,078 58,537
103,367 109,752
Interest expense
Interest expense on Pro-Fac related
borrowings 4,190 4,419
8,314 8,557
Interest expense on other debt 998 928
1,752 1,724
Less capitalized interest (33) --
(57) --
Total interest expense 5,155 5,347
10,009 10,281
Total costs and expenses 223,496 232,647
427,690 444,347
Earnings before dividing with Pro-Fac 19,750 7,137
25,646 11,176
Pro-Fac share of earnings 9,700 3,381
12,473 5,213
Income before taxes 10,050 3,756
13,173 5,963
Provision for taxes 3,326 1,603
5,265 2,473
Net income $ 6,724 $ 2,153
7,908 3,490
Retained earnings at beginning of period
53,541 82,882
Cash dividends declared
(2,764) (2,747)
Retained earnings at end of period
$ 58,685 $ 83,625
Net income per share $.78 $.25
$.92 $.41
Dividends declared per share $.16 $.16
$.32 $.32
Average number of shares outstanding 8,638,290 8,586,126
8,636,790 8,584,962
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Curtice Burns Foods, Inc.
Consolidated Balance Sheet
<CAPTION>
December 25,
June 26, December 25,
Dollars in Thousands Except Share Amounts 1993
1993 1992
<S> <C> <C>
<C>
ASSETS
Current Assets:
Cash $ 9,944 $
6,516 $ 7,509
Accounts receivable trade 72,052
63,160 64,459
Accounts receivable, other 7,742
8,151 5,933
Income taxes refundable --
-- 1,619
Current deferred taxes receivable 7,561
7,561 7,212
Inventories -
Finished goods 147,293
110,772 157,190
Raw materials and supplies 51,173
58,704 65,280
Total inventories 198,466
169,476 222,470
Prepaid manufacturing expense --
7,164 --
Prepaid expenses and other current assets 7,571
4,920 5,116
Total current assets 303,336
266,948 314,318
Net property, plant and equipment leased from
Pro-Fac 147,509
173,513 176,180
Other property, plant and equipment, net 21,971
18,939 20,968
Goodwill and other intangibles, net 25,725
26,546 50,116
Other assets 7,948
7,783 6,610
Total Assets $506,489
$493,729 $568,192
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
<C>
Current Liabilities:
Notes Payable $ 17,000 $
-- $ 40,000
Accounts payable 53,326
64,663 44,361
Due to Pro-Fac 39,241
9,113 43,002
Accrued employee compensation 8,867
11,843 10,748
Other accrued expenses 38,887
30,334 25,402
Accrued manufacturing expense 2,900
-- 2,781
Income taxes payable 2,970
9,046 --
Current portion of obligations under
Pro-Fac capital leases 21,184
21,184 21,940
Current portion of obligations under
other capital leases 1,687
1,687 1,247
Current portion of Pro-Fac long-term debt 14,000
16,000 14,000
Current portion of other long-term debt 2,796
2,656 2,588
Total current liabilities 202,858
166,526 206,069
Long-term debt due Pro-Fac 76,262
78,648 68,877
Long-term debt due others 4,802
6,389 8,607
Obligations under Pro-Fac capital leases 126,325
152,329 154,240
Obligations under other capital leases 1,773
1,773 1,933
Deferred income taxes 10,484
9,362 19,624
Other non-current liabilities 3,016
3,027 3,358
Commitments and Contingencies
Shareholders' Equity:
Class A common - $.99 par value;
10,125,000 shares authorized;
6,581,467, 6,568,518 and 6,545,909
outstanding, respectively 6,516
6,503 6,480
Class B common - $.99 par value;
4,050,000 shares authorized;
2,060,702, 2,060,702 and 2,060,731
outstanding, respectively 2,040
2,040 2,040
Additional paid-in capital 13,728
13,591 13,339
Retained earnings 58,685
53,541 83,625
Total Shareholders' Equity 80,969
75,675 105,484
Total Liabilities and Shareholders' Equity $506,489
$493,729 $568,192
<FN>
The accompanying notes are an integral part of these financial
statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
Curtice Burns Foods, Inc.
Consolidated Statement of Cash Flows
<CAPTION>
Dollars in Thousands Six
Months Ended
December 25,
1993 December 25, 1992
<S> <C>
<C>
Cash Flows From Operating Activities:
Net income $ 7,908
$ 3,490
Adjustments to reconcile net income to net
cash provided by operating activities -
Amortization of goodwill and other
intangibles 854
1,337
Depreciation and amortization of capital
assets 11,128
11,617
Deferred tax provision 1,122
--
Change in assets and liabilities
Accounts receivable (8,483)
(6,778)
Inventories (28,990)
(47,526)
Income taxes payable/refundable (6,076)
952
Accounts payable and accrued expenses 4,304
(6,783)
Due to Pro-Fac 11,028
7,235
Other assets and liabilities (2,860)
(2,494)
Net cash used in operating activities (10,065)
(38,950)
Cash Flows From Investing Activities:
Purchase of property, plant and equipment (9,956)
(2,110)
Disposal of Pro-Fac assets 21,800
63
Net cash from/(used in) investing activities 11,844
(2,047)
Cash Flows From Financing Activities:
Due to Pro-Fac 14,714
9,000
Proceeds from issuance of short-term debt 17,000
40,000
Proceeds from issuance of Pro-Fac long-term debt --
7,577
Payments on other long-term debt (1,447)
(494)
Payments on Pro-Fac capital leases (26,004)
(11,181)
Proceeds from sale of stock under stock
option plans 150
225
Cash dividends paid (2,764)
(2,747)
Net cash provided by financing activities 1,649
42,380
Net change in cash 3,428
1,383
Cash at beginning of period 6,516
6,126
Cash at end of period $ 9,944
$ 7,509
Supplemental Disclosure of Cash Flow Information:
Cash paid/(received) during the year for -
Interest (net of amount capitalized) $ 9,986
$ 9,961
Income taxes, net $ 10,977
$ 1,518
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Capital lease obligations incurred $ 4,604
$ 63
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
<PAGE>
Note 1. AGREEMENT WITH PRO-FAC COOPERATIVE, INC. ("Pro-Fac")
The Company has a contractual relationship with Pro-Fac under an
Agreement consisting of four
sections: Operations Financing, Marketing, Facilities Financing
and Management, which
extends to 1997, and provides for two successive five-year renewals
at the option of the
Company.
The provisions of the Agreement include the financing of certain
assets utilized in the
business of the Company and provide a sharing of income and losses
between Curtice Burns and
Pro-Fac. Should the Company terminate the Agreement, the Company
has the option of
purchasing those assets financed by Pro-Fac at their book value at
that time.
Revenues received by Pro-Fac from Curtice Burns under the Agreement
for the six months ended
December 25, 1993 and December 25, 1992 include: commercial market
value of crops delivered,
$59,572,000 and $56,017,000, respectively; interest income,
$8,314,000 and $8,557,000,
respectively; and additional proceeds from profit sharing
provisions, $12,473,000 and
$5,213,000, respectively. In addition, Pro-Fac received from the
Company amortization and
financing payments of $26,824,000 and $12,518,000 for the six
months ending December 25, 1993
and December 25, 1992, respectively.
Should the resolution of Agway's potential sale of its interest in
Curtice Burns (see Note
4) result in the Company exercising its option to purchase from
Pro-Fac the property and
equipment and certain other assets used by the Company in its
business, the financing
required to accomplish this (including the repayment of debt) would
be $302,737,000 as
measured at the book value on December 25, 1993. Of this amount,
$129,503,000 represents short-
and long-term debt, $25,725,000 relates to intangible assets, and
$147,509,000 relates to
fixed assets. This $302,737,000 at December 25, 1993 compares to
$303,820,000 at June 26,
1993, which was comprised of $103,761,000 of short- and long-term
debt, $26,546,000 relating
to intangible assets and $173,513,000 relating to leased fixed
assets. This change of
$1,083,000 during the six-month period is the net of increases and
decreases in the amounts
attributable to short- and long-term debt and leased assets. The
decrease in leased assets
is the result of assets sold as part of business units sold (see
Note 4 - Restructuring) and
depreciation exceeding additions for the period, resulting in a net
decrease in the leased
asset values for which Pro-Fac holds title of $26,004,000. The net
increase in the amount
attributable to short- and long-term debt of $25,742,000 is
comprised of a reduction of debt
of $35,726,000 relating to the sale proceeds of business units sold
offset by additional
borrowings in the amount of $61,468,000 for the financing of the
delivery and production of
raw product during the period.
In fiscal 1993 the Company wrote down assets associated with its
Meat Snacks and Hiland
Potato Chip businesses (see Note 4, Restructuring Program). The
total amount of such
writedown was $58,300,000, of which approximately $31,250,000 was
allocated to reduce the
book value of Pro-Fac assets.
In the event of a buyout of Pro-Fac, Pro-Fac has taken the position
that the amount to be
paid to Pro-Fac should include the value of assets prior to any
write down until an actual
sale or disposition of the underlying assets. Pro-Fac has asserted
that such writedown
should not affect amounts to be paid for assets of Pro-Fac should
Curtice Burns elect to buy
out Pro-Fac and terminate the Agreement, and has stated that
Pro-Fac reserves the right to
submit the dispute to arbitration or litigation in that event.
Curtice Burns disagrees with
Pro-Fac's position, and has indicated it will defend any action by
Pro-Fac and may submit the
dispute to arbitration or litigation. The Company and Pro-Fac have
agreed that, in any such
arbitration or litigation, the determination of the effect of the
writedown in fiscal 1993
of assets associated with the Company's Meat Snacks and Hiland
Potato Chip businesses on the
amount to be paid by the Company to buyout Pro-Fac will be made as
if such businesses had not
been sold.
Note 2. DEBT
Short-Term Debt
Short-term bank lines of credit are extended individually to both
the Company and Pro-Fac.
They are interrelated so that both companies must participate on a
proportionate basis in the
average borrowings under such lines. At least 55 percent of such
borrowing is attributable
<PAGE>
to Pro-Fac and advanced by the Springfield Bank for Cooperatives
and up to 45 percent is
attributable to the Company and advanced by a commercial bank
syndicate consisting of six
banks. The combined line of credit at December 25, 1993 was
$100,000,000. Such lines expire
annually unless renewed. The revolving lines of credit under such
agreements have been
renewed through November of 1994. Such agreements provide for
adjustments in interest rates
and covenants and grant to both short-term and long-term lenders,
or entitle such lenders to
obtain, liens on substantially all assets of the Company and
Pro-Fac as collateral for
borrowings under such agreements. Outstanding borrowings at
December 25, 1993 were
$48,100,000.
Long-Term Debt
In addition to the long-term and the short-term borrowings included
in the balance sheet as
due to Pro-Fac, the Company guaranteed Pro-Fac debt at December 25,
1993 of $56,752,000 which
was used primarily for financing the fixed and intangible assets
referred to in Note 1. The
interest rate on Pro-Fac borrowings was 6.3 percent at December 25,
1993. The other debt
consists of $4,837,000 due to Teachers Insurance and Annuity at 9
percent (which debt was
paid in full on January 28, 1994 with the proceeds from borrowing
under the above-described
short-term bank lines of credit) and the balance of $2,761,000
(primarily Industrial Revenue
Bonds) carries rates ranging up to 11.0 percent at December 25,
1993.
Additional Information With Respect to Borrowing Arrangements
Because Pro-Fac guarantees the debt of the Company and the Company
guarantees the debt of
Pro-Fac (substantially all of which is advanced to the Company),
management and lenders use
combined pro forma financial statements to assess the financial
strength of the two
companies. Specifically, the combined statement of operations,
balance sheet and statement
of cash flows portray the financial results, cash flows and equity
of the Company and
Pro-Fac. Management believes that combined financial statements
are useful because they
provide information concerning the Company's ability to continue
present credit arrangements
and/or obtain additional borrowings in the future.
Certain borrowing agreements require that the companies maintain
specified levels with regard
to working capital, current ratio, ratio of net worth to assets,
ratio of long-term debt to
net worth, tangible net worth, net income, coverage of interest and
fixed charges and the
incurrence of additional debt. The companies are in compliance
with restrictions and
requirements under the terms of the borrowing agreements. The
revolving lines of credit
under such agreements have been renewed through November of 1994.
Such renewals provide for
adjustments in interest rates and covenants and grant to both
short-term and long-term
lenders, or entitle such lenders to obtain, liens on substantially
all assets of the Company
and Pro-Fac as collateral for borrowings under such agreements.
Such combined financial statements are neither necessary for a fair
presentation of the
financial position of the Company nor appropriate as primary
statements for the Company's
shareholders or for Pro-Fac shareholders and members because they
combine earnings, assets
and liabilities and cash flows which are legally attributable to
either the Company's
shareholders or to Pro-Fac shareholders and members, but not to
both. Accordingly, the
condensed pro forma financial statements presented herein are
special purpose in nature and
should be used only within the context described.
<PAGE>
<PAGE>
<TABLE>
Combined Pro Forma Condensed Statement of
Operations
<CAPTION>
(Millions)
Six Months
Ended
December 25, 1993
December 25, 1992
Curtice
Burns Pro-Fac Eliminations
Combined Combined
<S> <C> <C> <C>
<C> <C>
Sales and revenues $453.3 $ 81.1 $(81.1)
$453.3 $455.5
Cost of sales 322.4 59.6 (59.6)
322.4 322.1
Restructuring (gain)/loss (8.1) -- --
(8.1) 2.2
Selling, administrative
and general expenses 103.4 .4 (.8)
103.0 109.4
Interest expense 10.0 6.3 (8.3)
8.0 8.9
Pro-Fac share of earnings 12.4 -- (12.4)
-- --
Total cost and expenses 440.1 66.3 (81.1)
425.3 442.6
Income before taxes 13.2 14.8
28.0 12.9
Provision for taxes (5.3) (.8)
(6.1) (3.3)
Net income $ 7.9 $ 14.0 $
21.9 $ 9.6
<FN>
Transactions between Curtice Burns and Pro-Fac have been
eliminated for purposes of this
combined statement of operations.
</TABLE>
<TABLE> Combined Pro Forma Condensed Balance Sheet
<CAPTION>
(Millions)
December 25, 1993
December 25, 1992
Curtice
Burns Pro-Fac Eliminations
Combined Combined
<S> <C> <C> <C>
<C> <C>
Assets
Current assets (A)(C) $303.3 $ 77.8 $ (74.4)
$306.7 $316.0
Property, plant and
equipment, net (B) 169.5 -- --
169.5 197.2
Investment in direct
financing leases (C) 126.3 (126.3)
-- --
Due from Curtice Burns (D) 76.3 (76.3)
-- --
Goodwill and other intangibles 25.7 25.7 --
51.4 100.2
Other assets 8.0 19.9 --
27.9 24.2
Total assets $506.5 $326.0 $(277.0)
$555.5 $637.6
Liabilities and Net Worth
Current liabilities (A)(C) $202.8 $ 77.8 $ (74.4)
$206.2 $207.8
Lease obligations (C) 128.1 -- (126.3)
1.8 2.0
Long-term debt--
Due Pro-Fac (D) 76.3 -- (76.3)
-- --
Due others (E) 4.8 133.0 --
137.8 164.6
Other liabilities 13.5 .5 --
14.0 23.3
Total liabilities 425.5 211.3 (277.0)
359.8 397.7
Shareholders' equity and
members' capitalization (F) 81.0 114.7 --
195.7 239.9
Total Liabilities and
Net Worth $506.5 $326.0 $(277.0)
$555.5 $637.6
<FN>
Notes to combined balance sheet:
(A) Current assets of Pro-Fac consist principally of amounts due
from Curtice
Burns with respect to the Agreement described in Note 1. Such
amounts are
eliminated for purposes of this balance sheet.<PAGE>
<PAGE>
(B) Property, plant and equipment to which Pro-Fac holds title and
leases to
Curtice Burns on a financing basis had a net book value of
$147.5 million
at December 25, 1993.
(C) The majority of the lease obligations of Curtice Burns are
payable to
Pro-Fac and amount to $147.5 million at December 25, 1993 of
which $21.2
million is payable currently. The related Curtice Burns
liability and
Pro-Fac receivable are eliminated for purposes of this balance
sheet.
(D) Long-term borrowings by Curtice Burns from Pro-Fac under the
Agreement are
eliminated for purposes of this balance sheet.
(E) With respect to Pro-Fac, long-term debt due others represents
term loans
payable to the Springfield Bank for Cooperatives (interest
rate of 6.3
percent at December 25, 1993).
(F) Shareholders' and members' capitalization of Pro-Fac at
December 25, 1993
consists of common stock, $10.5 million; retained earnings
allocated to
members ("retains"), $42.3 million; preferred stock, $59.5
million which
originates from conversion of "retains"--normally after five
years--and
which is redeemable at the option of Pro-Fac; and earned
surplus, $2.5
million.
</TABLE>
<TABLE> Combined Pro Forma Condensed Statement of Cash Flows
<CAPTION>
(Millions)
Six Months
Ended
December 25, 1993
December 25, 1992
Curtice
Burns Pro-Fac Eliminations
Combined Combined
<S> <C> <C> <C>
<C> <C>
Net cash (used in)/provided by
operating activities $(10.1) $ 25.1 $(10.2)
$ 4.8 $(31.3)
Net cash provided by/(used in)
investing activities 11.8 .2 (1.1)
10.9 (1.O)
Net cash provided by/(used in)
financing activities 1.7 (25.3) 11.3
(12.3) 33.7
Net change in cash 3.4 -- --
3.4 1.4
Cash at beginning of period 6.5 -- --
6.5 6.1
Cash at end of period $ 9.9 -- --
$ 9.9 $ 7.5
Supplemental disclosure of
cash flow information
Cash paid during the period for:
Interest (net of amount
capitalized) $ 10.0 $ 6.3 $( 8.3)
$ 8.0 $ 8.4
Income taxes, net $ 11.0 $ (.1) $ --
$ 10.9 $ 1.9
Supplemental Schedule of
Non-Cash Investing and
Financing Activities:
Capital lease obligations
incurred $ 4.6 $ -- $ (4.6)
$ -- $ --
<FN>
Transactions between Curtice Burns and Pro-Fac have been eliminated
for purposes
of this combined statement of cash flows.
/TABLE
<PAGE>
<PAGE>
Note 3. LEASES
Lease arrangements are capitalized when such leases convey
substantially all of
the risks and benefits incident to ownership. Such leases include
those assets
furnished by Pro-Fac Cooperative, Inc. under the Agreement
described in Note 1.
Capital leases are amortized over either the lease term or the life
of the
related asset, depending upon available purchase options and lease
renewal
features.
Note 4. OTHER MATTERS
Potential Change of Control of Curtice Burns
On March 23, 1993, the Company announced that Agway Inc., which
owns 99 percent
of Curtice Burns' Class B shares and approximately 14 percent of
Class A shares,
was considering the potential sale of its interest in the Company.
At its
meeting held on August 9 and 10, 1993, the Curtice Burns Board of
Directors
authorized Curtice Burns' management, with the advice of its
investment bankers,
to pursue strategic alternatives for Curtice Burns. These options
include
negotiations with Pro-Fac and its investment banker relative to
Pro-Fac gaining
control of the business; the possible sale of the entire equity of
Curtice Burns
to a third party; and a possible expanded restructuring plan and a
refinancing
plan which would involve Curtice Burns exercising its option to
purchase from
Pro-Fac the property and equipment and certain other assets used by
Curtice Burns
in its business. Under the Agreement with Pro-Fac, title to
substantially all
of Curtice Burns' fixed assets is held by Pro-Fac, and Pro-Fac
provides the major
portion of the financing of Curtice Burns' operations. Under the
Agreement
Curtice Burns has an option to purchase these assets from Pro-Fac
at their book
value. However, as mentioned in Note 1, there presently exists a
disagreement
with Pro-Fac as to how such settlement amount would be calculated.
Exercise of
the option would result in the termination of the Agreement with
Pro-Fac. In
such event, Curtice Burns would be required to repay all debt owed
to Pro-Fac.
The Company is actively exploring these alternatives.
Restructuring Program
The Company initiated a restructuring program in fiscal 1993.
The restructuring program is based on a strategic foundation of
five points: a
focus on a more limited number of product lines and businesses for
which the
Company has the resources to compete and grow profitably; a
strengthening of its
national sales and distribution capability so as to better serve
large regional
and national customers; a drive to true low-cost
producer/distributor status,
including a commitment to a unified corporate program of
information management;
a continuation of the development of one high-performance, adaptive
culture for
all divisions, capable of dealing with the continuing change in the
food
industry; and continuing support of the historically decentralized,
autonomous
division management system, operating within these overall
strategic parameters.
The first step of the restructuring program is to divest
unprofitable or
declining businesses that would fit strategically with other
business portfolios.
The Company divested Lucca Frozen Foods during the 1993 fiscal year
at a loss of
approximately $2.7 million before dividing with Pro-Fac and before
taxes. On
November 22, 1993, Curtice Burns sold certain assets of the Hiland
Potato Chip
business for $2 million at closing plus approximately $1 million to
be paid in
three installments over three months. The sale of the Hiland
business did not
result in any gain or loss after giving effect to the restructuring
charges in
fiscal 1993 (see below). In addition, Curtice Burns announced
plans to sell the
Meat Snacks business located in Denver, Colorado and Albany,
Oregon. In the
fiscal year ended June 26, 1993, Curtice Burns incurred losses of
$13.2 million
from the Meat Snacks and Hiland Potato Chip businesses before
dividing such
losses with Pro-Fac and before taxes. On November 19, 1993, the
Company sold the
oats portion of the National Oats business for $39 million. The
oats business
contributed approximately $1.4 million in fiscal 1993 before
dividing with Pro-
<PAGE>
Fac and before taxes. The sale of the oats business resulted in a
$10.0 million
gain. The popcorn portion of the National Oats division was
transferred to the
Comstock Michigan Fruit division. The Company has also begun to
make staff
reductions in selected locations throughout the Company.
To reflect completed and contemplated effects of the restructuring
program,
Curtice Burns incurred restructuring charges in fiscal 1993 of
$61.0 million
(before dividing such charges with Pro-Fac and before taxes), which
included the
loss incurred on the sale of the Lucca frozen entree business,
anticipated losses
on the sale of the Meat Snacks and Hiland businesses, and other
costs anticipated
in conjunction with the restructuring program. Virtually all of
this charge was
a revaluation of assets, rather than cash expense. A $1.9 million
charge to
adjust previous estimates was recorded in the second quarter of
fiscal 1994 to
complete the Lucca sale transaction and to reserve against
additional operating
losses on Curtice Burns Meat Snacks prior to the sale. The Company
expects
additional announcements relative to the restructuring program as
planning is
completed and implementation continues. Additional charges to
earnings in
connection with the overall restructuring program may be required
in the
remainder of fiscal 1994 as a result of decisions yet to be made.
During fiscal 1993, the Company disposed of two other businesses,
discontinued
production of private label ketchup and initiated production
consolidation
efforts involving the closing of three plants. The operations sold
included its
private label beverage bottling business located in Upstate New
York and the
Dura-Buket operations of the Company's National Oats division. The
disposition
of these non-strategic businesses did not have a significant effect
on the
Company's results of operations. The production consolidations
resulted in the
closing of plants in Michigan, Colorado, and New York.
Postretirement Benefits Other Than Pensions
Generally, other than pensions, the Company does not pay retirees'
benefit costs.
Isolated exceptions exist, involving less than one percent of the
total work
force and less than one percent of total retirees. These
exceptions evolved from
union negotiations, early retirement incentives and existing
retiree commitments
from acquired companies.
In December 1990, the Financial Accounting Standards Board issued
Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement
Benefits Other Than Pensions" (SFAS 106). SFAS 106, effective for
fiscal years
beginning after December 15, 1992, requires employers to accrue the
cost of
retiree health and other postretirement benefits during the working
careers of
active employees and allows the transition obligation to be
recognized in net
income either immediately or over 20 years.
The Company adopted SFAS 106 during the first quarter of fiscal
1994. The effect
of SFAS 106 resulted in a transition obligation of $2.6 million.
The transition
cost is being written off over a 20-year period.
The total cost of these postretirement benefits charged to expense
was $248,000
and $54,000 for the six months ended December 25, 1993 and December
25, 1992,
respectively. The fiscal 1994 amount includes the impact of the
adoption of SFAS
106.
New Tax Act
On August 10, 1993, President Clinton signed into law a new income
tax bill which
increased corporate income tax rates from 34 percent to 35
percent. Under the
provisions of SFAS 109 the Company recorded the impact of this rate
increase
during the first quarter of fiscal 1994. The impact of this rate
increase on the
Company's deferred tax assets and liabilities resulted in an
increase to income
tax expense of approximately $480,000.
Subsequent Events
<PAGE>
Subsequent to quarter end, on January 3, 1994, Curtice Burns
declared a dividend
of $.16 per share to Class A and Class B shareholders of record on
January 14,
1994. The dividend was paid on January 28, 1994.
On January 28, 1994, Curtice Burns repaid in full the $4,837,000
principal amount
of debt due to Teachers Insurance and Annuity, together with
interest and other
amounts due thereof, with proceeds from borrowings under the
seasonal lines of
credit.
<PAGE>
<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS
The following sets forth the major reasons for changes in the
statement of income
for the quarter ended December 25, 1993 from the prior year's
comparable quarter
as well as changes for the six-month period from the prior year and
the liquidity
position of the Company as of December 25, 1993.
There were two significant developments in fiscal 1993 with
lingering effects for
fiscal 1994: initiation of a major restructuring program designed
to enhance
Curtice Burns' shareholder value; and Agway's announcement of the
possible sale
of its interest in Curtice Burns. See Note 4 to Consolidated
Financial
Statements.
The Company realized increased earnings from Comstock Michigan
Fruit and Southern
Frozen Foods from improved pricing on commodity frozen and canned
vegetables
achieved as a result of the weather-related short national crop.
The crop size
for Northeastern vegetables was generally at normal levels. The
Snack Group
continued to have weak earnings performances, primarily due to
significant sales
volume declines resulting from severe competitive pressures in the
snack foods
industry.
Results of Operations - Changes from the Corresponding Prior Year
Quarter
For the second quarter of fiscal 1994, the Company's net earnings
were $6,724,000
or $.78 per share compared to $2,153,000 or $.25 per share for the
second quarter
of fiscal 1993. Included in the current quarter results, however,
was a gain
primarily from the sale of the oats business (see Note 4) of
approximately
$8,114,000, equivalent to $.38 per share. Included in the
corresponding prior
year quarter was a loss on the disposition of the Lucca business of
approximately
$2,152,000, the equivalent of $.07 per share. Net earnings,
excluding these non-
recurring items for the current year quarter, were approximately
$3,480,000,
equivalent to $.40 per share, compared to the prior year quarter of
approximately
$2,788,000, equivalent to $.32 per share.
The following sets forth other major changes in the consolidated
statement of
income from the prior year quarter.
Net sales for the quarter ended December 25, 1993 increased $3.5
million or 1.4
percent from the prior year quarter. This increase is comprised of
the
following:
<TABLE>
<CAPTION>
Variance in Millions of Dollars
Due to Due to
Due to Total
Dispositions Other Volume
Price/Mix Variance
<S> <C> <C>
<C>
Meat snacks $ -- $ .9 $
(.4) $ .5
Other snacks (1.2) (6.4)
.4 (7.2)
Canned and frozen vegetables -- 11.6
.6 12.2
Entrees and soups (3.1) .7
.2 (2.2)
Packaged and bulk cereals (4.7) .8
(2.0) (5.9)
Desserts (including puddings,
fruit fillings, canned and
frozen fruits) -- 2.3
(1.2) 1.1
Condiments and specialty
products -- 1.0
1.3 2.3
All other -- 2.8
(.1) 2.7
$(9.0) $13.7
$(1.2) $ 3.5
</TABLE>
The increase in canned and frozen vegetable sales volume is the
result of
increased demand for Northeastern vegetables due to the decreased
supply due to
shortages that developed from the floods in the Midwest and the
drought in the
<PAGE>
South during the 1993 growing season. The decrease in sales volume
for other
snacks is due to: the continued competitive pressures of the salty
snack
business; the decline in consumption for the potato chip category
in the
Company's marketing area; and the inability to increase prices to
offset raw
material price increases which reduced the available marketing and
promotional
funds required to increase volume in the grocery/food store
channels of
distribution.
Cost of sales increased $2.8 million. As a percent of sales, costs
increased to
69.6 percent from 69.5 percent. Gross profit decreased $.7 million
or 1.0
percent. These changes resulted primarily from volume variances
and effects of
price and product mix changes.
Selling, administrative and general expenses decreased $1.5 million
or 2.5
percent. This variance includes a $1.5 million increase in trade
promotions, a
$1.6 million decrease in advertising and selling costs, and a $1.4
million
decrease in other administrative costs.
Interest expense decreased $.2 million or 3.6 percent resulting
from a $.3
million increase due to an increase in debt and a $.5 million
reduction due to
lower interest rates.
Pro-Fac's share of the Company's profits increased $6.3 million or
186.9 percent,
of which $5.1 million was attributed to restructuring items.
Income before taxes increased $6.3 million or 167.6 percent, of
which $5.1
million was due to restructuring items.
Taxes on income increased $1.7 million or 207.5 percent, of which
$.9 million was
due to restructuring items.
Net income increased $4.6 million, or 212.3 percent. Of this
amount,
approximately $3.3 million was due to non-recurring items.
Results of Operations - Six Month Changes from the Corresponding
Prior Year
Period
For the first six months of fiscal 1994, the Company's net earnings
were
$7,908,000 or $.92 per share compared to $3,490,000 or $.41 per
share for the
first six months of fiscal 1993. Included in the first quarter
results was a
charge against earnings of $480,000, equivalent to $.06 per share,
to adjust
deferred taxes to the higher rates legislated by Congress as
required under
Financial Accounting Standards Board regulation number 109.
Included in the
fiscal 1994 six-month results, however, was a net gain on sale of
businesses and
other non-recurring items(see Note 4) of $8,114,000, equivalent to
$.38 per
share. Included in the corresponding prior year was a loss on the
disposition
of the Lucca business of approximately $2,152,000, the equivalent
of $.07 per
share. Net earnings, excluding these non-recurring items for the
current fiscal
year to date, were approximately $5,144,000, equivalent to $.60 per
share,
compared to the prior year of approximately $4,125,000, equivalent
to $.48 per
share.
Net sales for the six months ended December 25, 1993 decreased $2.2
million or
.5 percent from the prior year. This decrease is comprised of the
following:
<PAGE>
[CAPTION]
Variance in Millions of Dollars
Due to Due to
Due to Total
Dispositions Other Volume
Price/Mix Variance
[S] [C] [C]
[C] [C]
Meat Snacks $ -- $ 2.5 $
(.8) $ 1.7
Other snacks (1.2) (11.8)
1.1 (11.9)
Canned and frozen vegetables -- 18.0
(.2) 17.8
Entrees and soups (6.3) (.1)
.1 (6.3)
Packaged and bulk cereals (4.7) 2.3
(3.2) (5.6)
Desserts (including puddings,
fruit fillings, canned and
frozen fruits) -- .5
(3.2) (2.7)
Condiments and specialty
products -- .5
1.1 1.6
All other -- 3.5
(.3) 3.2
$(12.2) $ 15.4
$(5.4) $ (2.2)
[/TABLE]
The disposition of businesses reduced sales by $12.2 million as
shown above. Volume
improvements more than offset the reduction that was due to changes
in price and mix. The
increase in canned and frozen vegetable sales volume is the result
of increased demand
created by the decreased supply due to shortages that developed
from the floods in the
Midwest and the drought in the South during the 1993 growing
season. The decrease in sales
volume for other snacks is due to: the continued competitive
pressures of the salty snack
business; the decline in consumption for the potato chip category;
and the inability to
increase prices to offset raw material price increases which
reduced the available marketing
and promotional funds required to increase volume in the
grocery/food store channels.
Cost of sales increased $.3 million. As a percent of sales, costs
increased to 71.1 percent
from 70.7 percent. Gross profit decreased $2.5 million or 1.8
percent. These changes
resulted primarily from decreases in volume and effects of price
and product mix changes.
Selling, administrative and general expenses other than the
restructuring gain/(loss)
decreased $6.4 million or 5.8 percent. This variance includes a
$.1 million decrease in
trade promotions, a $3.8 million decrease in advertising and
selling costs, and a $2.5
million decrease in other administrative costs.
Interest expense decreased $.3 million or 2.6 percent resulting
from a $.7 million increase
due to an increase in debt and a $1.0 million reduction due to
lower interest rates.
Pro-Fac's share of the Company's profits increased $7.3 million or
139.3 percent due to Pro-
Fac's share of the restructuring activity and operational
improvements.
Income before taxes increased $7.2 million or 120.9 percent.
Taxes on income increased $2.8 or 112.9 percent. The Company's
effective tax rate was
impacted by the adjustment to tax expense relative to the tax law
change effect on deferred
taxes. This adjustment increased taxes by $.5 million. Other
non-recurring items increased
taxes by $.3 million.
Net income increased $4.4 million, or 126.6 percent. Of this
amount, approximately $3.9
million was attributable to non-recurring items.
Liquidity and Capital Resources
Substantially all cash not distributed by Pro-Fac to its members or
security holders is
either invested in assets leased to Curtice Burns or loaned to
Curtice Burns to finance its
operations. In order to gauge the working capital and other
resources available to the
companies, the combined pro forma condensed financial statements
should be used. The
relationship with Pro-Fac and the combined financial statements are
shown in Notes 3 and 4
to the Consolidated Financial Statements. Such financial
statements should not be used as
a basis for determining shareholders' interest in Curtice Burns,
but only as a measure of the
total financial resources available to the companies.
Certain borrowing agreements require that the companies maintain
specified levels with regard
to working capital, current ratio, ratio of net worth to assets,
ratio of long-term debt to
net worth, tangible net worth, net income, coverage of interest and
fixed charges and the
incurrence of additional debt. The companies are in compliance
with, or have obtained
waivers for, restrictions and requirements under the terms of the
borrowing agreements. The
revolving lines of credit under such agreements have been renewed
through November of 1994.
Such agreements provide for adjustments in interest rates and
covenants and grant to both
short-term and long-term lenders, or entitle such lenders to
obtain, liens on substantially
all assets of the Company and Pro-Fac as collateral for borrowings
under such agreements.
<PAGE>
should the resolution of Agway's potential sale of its interest in
Curtice Burns result in
the Company exercising its option to purchase from Pro-Fac the
property and equipment and
certain other assets used by the Company in its business, the
amount required to accomplish
this (including the repayment of debt) would be approximately
$302.7 million (as measured at
the book value on December 25, 1993). Of this amount, $129.5
million represents short- and
long-term debt, $25.7 million relates to intangible assets and
$147.5 million relates to
leased fixed assets. This $302.7 million at December 25, 1993
compares to $303.8 million at
June 26, 1993, which was comprised of $103.8 million of short- and
long-term debt, $26.5
million relating to intangible assets and $173.5 million leased
fixed assets. The decrease
in leased assets during the period of $26.0 million is primarily
the result of the reduction
of leased assets due to the sale of businesses and depreciation of
assets exceeding
additions. The net increase of $25.7 million in the amount
attributable to short- and long-
term debt of is comprised of a reduction of debt of $35.7 relating
to the sale proceeds of
business units sold is offset by additional borrowings of $61.4
million for the financing of
the delivery and production of raw product during the period.
However, as discussed in Note
1 to the Consolidated Financial Statements, there presently exists
a disagreement with Pro-
Fac as to what the purchase price would be. Curtice Burns has been
exploring financing for
this possible purchase with its investment bankers.
It is possible that the resolution of Agway's potential sale of its
interest in Curtice Burns
would result in the sale of the Company to Pro-Fac or a third
party, although there can be
no assurance such a transaction will occur.
Cash flows from operating activities are generally the cash effects
of transactions and other
events that enter into the determination of net income. Net cash
provided by operating
activities of the combined companies of $4.8 million in the
six-month period reflect net
income of $7.9 million and $14.0 million for Curtice Burns and
Pro-Fac, respectively.
Amortization of assets amounted to $12.8 million. Inventories
increased $29.0 million and
accounts receivable increased $8.5 million. Changes in other
assets and liabilities amounted
to $4.2 million.
Cash flows from investing activities include the acquisition and
disposition of property,
plant and equipment and other assets held for or used in the
production of goods. Net cash
provided by investing activities of $10.9 million in the periods
was comprised of cash paid
for purchases of property, plant and equipment of $10.0 million,
cash received for disposals
of fixed assets of $21.8 million and an increase in the investment
of Springfield Bank for
Cooperatives of $.9 million. During the six-month period, $40.8
million was received in
proceeds from the disposition of the oats portion of the National
Oats business and the
Hiland Potato Chip business. Approximately $2 million expects to
be received in additional
proceeds by February 22, 1994 in connection with such disposition.
Proceeds from such
dispositions have been and will be applied to debt.
Net cash used in financing activities of $12.3 million in the
periods was comprised of
proceeds from short-term debt of $36.1 million, payments on
long-term debt of $38.4 million,
issuance of capital stock of $.2 million less repurchases of $3.0
million and dividends paid
of $7.2 million.
Short- and Long-Term Trends
The fruit and vegetable portion of the business can be positively
or negatively affected by
weather conditions nationally and the resulting impact on crop
yields. Favorable weather
conditions can produce high crop yields and an oversupply
situation, such as that experienced
in the last three years. This results in depressed selling prices
and reduced profitability
on the inventory produced from that year's crops. Excessive rain
or drought conditions can
produce low crop yields and a shortage situation. This typically
results in higher selling
prices and increased profitability. While the national supply
situation controls the
pricing, the supply can differ regionally because of variations in
weather. The 1993 floods
in the Midwest and the drought in the South have the potential to
increase prices, even
though the crops in the Company's growing areas have been at normal
levels.
Seasonal lines of credit of $100.0 million were available to the
combined companies in the
six months ended December 25, 1993, and the maximum borrowing on
those lines was $81.0
million. The balance outstanding at December 25, 1993 was $48.1
million.
<PAGE>
On January 29, 1994, the outstanding principal of $4.8 million was
paid to Teachers Insurance
and Annuity with the proceeds from borrowings under the seasonal
lines of credit.
There are no current plans for the acquisition of further
businesses. Capital expenditures
are expected to approximate $20.0 million in the next year.
Scheduled payments on long-term debt will approximate $15 million
in the coming year
(excluding the scheduled payments for Teachers Insurance and
Annuity). Net cash provided
from operations and the cash proceeds from the planned sales of
excess facilities should be
sufficient to cover the scheduled payments on long-term debt and
planned capital expenditures
as well as anticipated dividends of approximately $10 million in
the coming year.
Proceeds from the sale of business units will be applied to debt.
Supplemental Information on Inflation
The changes in costs and prices within the Company's business due
to inflation were not
significantly different from inflation in the United States economy
as a whole. Levels of
capital investment, pricing and inventory investment were not
materially affected by the
moderate inflation.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders was held on November 12,
1993 in Rochester, New York.
(b) Election of directors to serve until the next annual meeting:
The 5,235,514 shares of Class A common stock represented by
proxies at the
meeting were voted with each nominee receiving more than 96
percent of those
votes and all such nominees were elected as follows:
Nominee For
Withheld Authority
John F. Blazin 5,102,754
132,760
Virginia M. Ford 5,102,625
132,889
David J. McDonald 5,060,760
174,754
J. William Petty 5,095,318
140,196
Carl H. Tiedemann 5,112,891
122,623
The 2,042,719 shares of Class B common stock represented by
proxies at the
meeting were voted with each nominee receiving more than 99
percent of these
votes and all such nominees were elected as follows:
Nominee For
Withheld Authority
Charles C. Brosius 2,042,719
0
Courtney B. Burdette 2,042,719
0
Robert V. Call, Jr. 2,042,719
0
Vyron M. Chapman 2,042,719
0
Roy A. Myers 2,042,719
0
John L. Norris 2,042,719
0
Donald E. Pease 2,042,686
33
Carl D. Smith 2,042,719
0
Carleton E. Whittemore, Jr. 2,042,719
0
Christian F. Wolff, Jr. 2,045,983
280
(c) Other than the election of directors and approval of the
selection of Price Waterhouse
& Co. as auditors, no other business was submitted to a vote
of security holders.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
No current report on Form 8-K was filed during the fiscal period to
which this report
<PAGE>
relates.<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
CURTICE-BURNS
FOODS, INC.
Date: BY
WILLIAM D. RICE,
SENIOR VICE
PRESIDENT AND
TREASURER
(Duly Authorized
Officer and
Principal
Financial Officer)
