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 March 26, 1994
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 April 15, 1994.
Common Stock
Class A - 6,583,632
Class B - 2,060,702
Page 1 of 16<PAGE>
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<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 Nine Months Ended
3/26/94 3/26/93 3/26/94 3/26/93
<S> <C> <C> <C> <C>
Net sales $ 189,455 $ 211,102 $ 642,791 $ 666,625
Costs and expenses:
Cost of sales 134,166 155,028 456,594 477,190
Restructuring (gain)/loss -- -- (8,114) 2,152
Selling, administrative and general
expenses 45,357 48,938 148,724 158,690
Interest expense
Interest expense on Pro-Fac related
borrowings 3,677 4,063 11,991 12,620
Interest expense on other debt 642 817 2,394 2,541
Less capitalized interest (34) (6) (91) (6)
Total interest expense 4,285 4,874 14,294 15,155
Total costs and expenses 183,808 208,840 611,498 653,187
Earnings before dividing with Pro-Fac 5,647 2,262 31,293 13,438
Pro-Fac share of earnings 2,517 854 14,990 6,067
Income before taxes 3,130 1,408 16,303 7,371
Provision for taxes 1,479 701 6,744 3,174
Net income $ 1,651 $ 707 9,559 4,197
Retained earnings at beginning of period 53,541 82,882
Cash dividends declared (4,147) (4,125)
Retained earnings at end of period $ 58,953 $ 82,954
Net income per share $.19 $.08 $1.11 $.49
Dividends declared per share $.16 $.16 $.48 $.48
Average number of shares outstanding 8,643,332 8,614,558 8,638,971 8,594,827
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Curtice Burns Foods, Inc.
Consolidated Balance Sheet
March 26, June 26, March 26,
Dollars in Thousands Except Share Amounts 1994 1993 1993
<S>
ASSETS
Current Assets: <C> <C> <C>
Cash $ 3,836 $ 6,516 $ 5,775
Accounts receivable trade 55,972 63,160 60,276
Accounts receivable, other 7,916 8,151 6,719
Income taxes refundable 6,229 -- 1,315
Current deferred taxes receivable 8,825 7,561 7,212
Inventories -
Finished goods 120,432 110,772 130,689
Raw materials and supplies 47,704 58,704 59,871
Total inventories 168,136 169,476 190,560
Prepaid manufacturing expense 3,117 7,164 2,263
Prepaid expenses and other current assets 7,898 4,920 6,464
Total current assets 261,929 266,948 280,584
Net property, plant and equipment leased from
Pro-Fac 139,861 173,513 175,224
Other property, plant and equipment, net 28,481 18,939 20,785
Goodwill and other intangibles, net 25,331 26,546 49,515
Other assets 8,024 7,783 6,685
Total Assets $463,626 $493,729 $532,793
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S>
Current Liabilities: <C> <C> <C>
Notes Payable $ 15,500 $ -- $ 20,000
Accounts payable 42,551 64,663 41,291
Due to Pro-Fac 15,469 9,113 40,062
Accrued employee compensation 10,547 11,843 10,044
Other accrued expenses 29,648 30,334 21,995
Income taxes payable -- 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 1,150 2,656 2,644
Total current liabilities 151,736 166,526 173,223
Long-term debt due Pro-Fac 86,262 78,648 69,948
Long-term debt due others 1,095 6,389 6,827
Obligations under Pro-Fac capital leases 118,677 152,329 153,284
Obligations under other capital leases 1,773 1,773 1,933
Deferred income taxes 19,449 9,362 19,630
Other non-current liabilities 3,380 3,027 3,012
Commitments and Contingencies
Shareholders' Equity:
Class A common - $.99 par value;
10,125,000 shares authorized;
6,582,878, 6,568,518 and 6,557,136
outstanding, respectively 6,517 6,503 6,492
Class B common - $.99 par value;
4,050,000 shares authorized;
2,060,702, 2,060,702 and 2,060,702
outstanding, respectively 2,040 2,040 2,040
Additional paid-in capital 13,744 13,591 13,450
Retained earnings 58,953 53,541 82,954
Total Shareholders' Equity 81,254 75,675 104,936
Total Liabilities and Shareholders' Equity $463,626 $493,729 $532,793
<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 Nine Months Ended
March 26, 1994 March 26, 1993
<S>
Cash Flows From Operating Activities: <C> <C>
Net income $ 9,559 $ 4,197
Adjustments to reconcile net income to net
cash provided by operating activities -
Amortization of goodwill and other
intangibles 1,215 1,939
Depreciation and amortization of capital
assets 16,066 17,149
Provision for deferred taxes 8,823 --
Change in assets and liabilities
Accounts receivable 7,423 (3,381)
Inventories 1,340 (15,616)
Income taxes payable/refundable (15,275) 1,256
Accounts payable and accrued expenses (20,047) (19,008)
Due to Pro-Fac (1,144) (1,705)
Other assets and liabilities (2,866) (4,258)
Net cash provided by/(used in) operating activities 5,094 (19,427)
Cash Flows From Investing Activities:
Purchase of property, plant and equipment (13,784) (15,152)
Disposal of Pro-Fac assets 21,828 13,238
Net cash provided by/(used in) investing activities 8,044 (1,914)
Cash Flows From Financing Activities:
Due to Pro-Fac 7,500 15,000
Proceeds from issuance of short-term debt 15,500 20,000
Proceeds from issuance of Pro-Fac long-term debt 5,614 8,648
Payments on other long-term debt (6,800) (2,218)
Payments on Pro-Fac capital leases (33,652) (16,663)
Proceeds from sale of stock under stock option plans 167 348
Cash dividends paid (4,147) (4,125)
Net cash (used in)/provided by financing activities (15,818) 20,990
Net change in cash (2,680) (351)
Cash at beginning of period 6,516 6,126
Cash at end of period $ 3,836 $ 5,775
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for -
Interest (net of amount capitalized) $ 14,413 $ 15,074
Income taxes, net $ 12,437 $ 2,614
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Capital lease obligations incurred $ 3,633 $ 9,218
<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
nine months ended March 26, 1994 and March 26, 1993 include: commercial
market value of crops delivered, $58,423,000 and $60,360,000, respectively;
interest income, $11,991,000 and $12,620,000, respectively; and additional
proceeds from profit sharing provisions, $14,990,000 and $6,067,000,
respectively. In addition, Pro-Fac received from the Company amortization
and financing payments of $34,867,00 and $18,601,000 for the nine months
ending March 26, 1994 and March 26, 1993, 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 $280,923,000 as measured at the
book value on March 26, 1994. Of this amount, $115,731,000 represents
short- and long-term debt, $25,331,000 relates to intangible assets, and
$139,861,000 relates to fixed assets. This $280,923,000 at March 26, 1994
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 $22,897,000 during the nine-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 certain
businesses that were sold (see Note 4) and depreciation exceeding additions
for the period, resulting in a net decrease of $33,652,000 in the leased
asset values for which Pro-Fac holds title. The net increase of $11,970,000
in short- and long-term debt is comprised of a reduction of debt of
$37,393,000 (relating to the sale proceeds of business units sold) offset
by additional borrowings in the amount of $49,363,000 (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). The total amount of such
writedown was $58,300,000, of which approximately $29,150,000 was allocated
to reduce the value of assets leased from Pro-Fac.
In the event of a buyout of Pro-Fac, Pro-Fac has taken the position that a
writedown of assets should not be taken until those assets are sold, and
therefore, the amount owed Pro-Fac should include the value of any assets
prior to the sale (and writedown). 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 effect of the fiscal 1993
writedown of assets associated with the Company's Meat Snacks and Hiland
Potato Chip businesses will be treated as if such businesses had not been
sold.
In March 1994, the Company advised Pro-Fac that in view of the possibility
that the Company might be acquired by a third party, Pro-Fac should not rely
on Curtice Burns to purchase any crops from Pro-Fac or its growers in
calendar 1995 and beyond. In addition, the Company notified Pro-Fac that
Curtice Burns will not commit to purchase a substantial portion of the crops
historically purchased from Pro-Fac in the 1995 growing season. As a
result, Pro-Fac has given notice to its affected members terminating Pro-
Fac's obligation to purchase these crops beginning next year. The affected
Pro-Fac growers are principally Pro-Fac's New York fruit and vegetable
growers, Illinois and Nebraska popcorn growers, and Northwest potato growers
who represent more than half of Pro-Fac's membership and have accounted for
approximately $29.9 million or 50 percent of the total crops delivered by
Pro-Fac to Curtice <PAGE>
<PAGE>
Burns in the past year. Pro-Fac has advised the Company that Pro-Fac
intends to contest the Company's refusal to commit to purchase corps, and
that it represents a wrongful termination of crops under the Agreement. The
Company believes that its only obligation to purchase crops from Pro-Fac is
as set forth in the Profit Plan as approved each year by the Boards of
Directors of both Pro-Fac and the Company. Because the most recent approved
Profit Plan was for fiscal year 1995 (which Plan corresponds to the 1994
calendar year crops), the Company believes that it is not currently
obligated to purchase any crops from Pro-Fac for calendar year 1995 or
later.
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 to Pro-Fac and
advanced by the Springfield Bank for Cooperatives. 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 March 26, 1994 was
$86,000,000. 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 under the combined line of credit at March 26, 1994 were
$35,000,000.
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
March 26, 1994 of $46,752,000 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 March 26, 1994. The other debt of
$2,245,000 (primarily Industrial Revenue Bonds) carries rates ranging up to
11.0 percent at March 26, 1994.
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>
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<TABLE>
Combined Pro Forma Condensed Statement of Operations
<CAPTION>
(Millions)
Nine Months Ended
March 26, 1994 March 26, 1993
Curtice
Burns Pro-Fac Eliminations Combined Combined
<S> <C> <C> <C> <C> <C>
Sales and revenues $642.8 $ 86.7 $(86.7) $642.8 $666.6
Cost of sales 456.6 58.4 (58.4) 456.6 477.2
Restructuring (gain)/loss (8.1) -- -- (8.1) 2.2
Selling, administrative
and general expenses 148.7 .7 (1.3) 148.1 157.9
Interest expense 14.3 9.0 (12.0) 11.3 13.2
Pro-Fac share of earnings 15.0 -- (15.0) -- --
Total cost and expenses 626.5 68.1 (86.7) 607.9 650.5
Income before taxes 16.3 18.6 -- 34.9 16.1
Provision for taxes (6.7) (.1) -- (6.8) (4.4)
Net income $ 9.6 $ 18.5 $ -- $ 28.1 $ 11.7
<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)
March 26, 1994 March 26, 1993
Curtice
Burns Pro-Fac Eliminations Combined Combined
<S>
Assets <C> <C> <C> <C> <C>
Current assets (A)(C) $261.9 $ 53.8 $ (50.7) $265.0 $282.1
Property, plant and
equipment, net (B) 168.3 -- -- 168.3 196.0
Investment in direct
financing leases (C) -- 118.7 (118.7) -- --
Due from Curtice Burns (D) -- 86.3 (86.3) -- --
Goodwill and other intangibles 25.3 25.3 -- 50.6 99.0
Other assets 8.1 21.7 -- 29.8 25.3
Total assets $463.6 $305.8 $(255.7) $513.7 $602.4
Liabilities and Net Worth
Current liabilities (A)(C) $151.7 $ 53.7 $ (50.7) $154.7 $174.7
Lease obligations (C) 120.4 -- (118.7) 1.7 1.9
Long-term debt--
Due Pro-Fac (D) 86.3 -- (86.3) -- --
Due others (E) 1.1 133.0 -- 134.1 162.8
Other liabilities 22.8 .5 -- 23.3 23.1
Total liabilities 382.3 187.2 (255.7) 313.8 362.5
Shareholders' equity and
members' capitalization (F) 81.3 118.6 -- 199.9 239.9
Total Liabilities and
Net Worth $463.6 $305.8 $(255.7) $513.7 $602.4
<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 $139.9 million at March 26, 1994.
(C) The majority of the lease obligations of Curtice Burns are payable to Pro-Fac and
amount to $139.9 million at March 26, 1994 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 March 26,
1994).
(F) Shareholders' and members' capitalization of Pro-Fac at March 26, 1994 consists of
common stock, $10.3 million; retained earnings allocated to members ("retains"),
$39.9 million; preferred stock, $64.4 million which originates from conversion of
"retains"--normally after five years--and which is redeemable at the option of
Pro-Fac; and earned surplus, $4.0 million.
</TABLE>
<TABLE>
Combined Pro Forma Condensed Statement of Cash Flows
(Millions)
<CAPTION> Nine Months Ended
March 26, 1994 March 26, 1993
Curtice
Burns Pro-Fac Eliminations Combined Combined
<S>
Net cash provided by/(used in) <C> <C> <C> <C> <C>
operating activities $ 5.1 $ 15.3 $ 2.4 $ 22.8 $(8.7)
Net cash provided by/(used in)
investing activities 8.0 21.7 (22.9) 6.8 (8.2)
Net cash (used in)/provided by
financing activities (15.8) (37.0) 20.5 (32.3) 16.6
Net change in cash (2.7) -- -- (2.7) (.3)
Cash at beginning of period 6.5 -- -- 6.5 6.1
Cash at end of period $ 3.8 -- -- $ 3.8 $ 5.8
Supplemental disclosure of
cash flow information
Cash paid during the period for:
Interest (net of amount
capitalized) $ 14.4 $ 9.0 $(12.0) $ 11.4 $13.0
Income taxes, net $ 12.4 $ (.2) $ -- $ 12.2 $ 3.5
Supplemental Schedule of
Non-Cash Investing and
Financing Activities:
Capital lease obligations
incurred $ 3.6 $ -- $ (3.6) $ -- $ --
Conversion of retains into
preferred stock $ -- $ 4.9 $ -- $ 4.9 $ 6.0
<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 relative to Pro-Fac gaining
control of the business; the possible sale of the entire equity of Curtice
Burns to a third party; and the implementation of additional restructuring
actions that may include recapitalizing the Company to buy out Pro-Fac.
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.
As of March 26, 1993, the Company has spent $1.6 million relative to the
change in control issue. It is anticipated an additional $1.2 million will
be incurred prior to fiscal year end. Due to the uncertainty surrounding
the ultimate outcome of the review relating to the change in control, these
costs have been recorded as a prepaid expense.
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 was to divest businesses that
were unprofitable or declining for the Company, but 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 paid in three installments over three
months. On February 22, 1994, Curtice Burns sold the meat snacks business
located in Denver, Colorado and Albany, Oregon to Oberto Sausage Company of
Kent, Washington. Under the agreement, Oberto has purchased certain assets
and assumed certain liabilities of the Meat Snacks operation, excluding
plant, equipment, and trademarks. Curtice Burns will lease its Albany
Oregon manufacturing facility and equipment and license its trademarks,
trade names, etc. to Oberto for up to a one-year period, at the end of which
Oberto is contractually obligated to purchase these assets. The sale of the
Hiland and meat snacks businesses did not result in any significant gain or
loss after giving effect to the restructuring charges in fiscal 1993 (see
below). 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 <PAGE>
<PAGE>
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-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 made staff reductions in selected locations throughout the
Company.
To reflect completed and anticipated 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 at Curtice Burns Meat
Snacks prior to the sale. The Company has indicated that there may be
additional asset sales as the restructuring plan goes forward. 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 amortized over a 20-year period.
The total cost of these postretirement benefits charged to expense was
$338,000 and $81,000 for the nine months ended March 26, 1994 and March 26,
1993, respectively. The fiscal 1994 amount includes the impact of the
adoption of SFAS 106.
Employers' Accounting for Postemployment Benefits
In November 1992, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits."
This statement establishes accounting standards for employers who provide
benefits to former or inactive employees after employment but before
retirement. Postemployment benefits are all types of benefits provided to
former or inactive employees, their beneficiaries, and covered dependents.
This Statement is effective for fiscal years beginning after December 15,
1993.
The Company is in the process of evaluating all ramifications of this
Statement and management estimates that any change caused by this Statement
will not be material.
<PAGE>
<PAGE>
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
Subsequent to quarter end, on April 1, 1994, Curtice Burns declared a
dividend of $.16 per share to Class A and Class B shareholders of record on
April 15, 1994. The dividend was paid on April 29, 1994.
<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 March 26, 1994 from the prior year's comparable
quarter as well as changes for the nine-month period from the prior year and
the liquidity position of the Company as of March 26, 1994.
There were two significant developments in fiscal 1993 that affected 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 due to improved pricing on commodity
frozen and canned vegetables at Comstock Michigan Fruit and Southern Frozen
Foods because 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 third quarter of fiscal 1994, the Company's net earnings were
$1,651,000 or $.19 per share compared to $707,000 or $.08 per share for the
third quarter of fiscal 1993, an increase of 137.5 percent.
The following sets forth other major changes in the consolidated statement
of income from the prior year quarter.
Net sales for the quarter ended March 26, 1994 decreased $21.6 million or
10.3 percent from the prior year quarter. This decrease is comprised of the
following:
<TABLE>
Variance in Millions of Dollars
<CAPTION> Due to Due to Due to Total
Dispositions Other Volume Price/Mix Variance
<S> <C> <C> <C> <C>
Meat snacks $ (2.8) $ (.5) $ -- $ (3.3)
Other snacks (4.1) (3.5) (.3) (7.9)
Canned and frozen vegetables -- (.7) 4.5 3.8
Entrees and soups (.5) (.5) .2 (.8)
Packaged and bulk cereals (15.4) -- -- (15.4)
Desserts (including puddings,
fruit fillings, canned and
frozen fruits) -- (1.6) -- (1.6)
Condiments and specialty
products -- 1.8 .6 2.4
All other -- 1.5 (.3) 1.2
$(22.8) $(3.5) $4.7 $(21.6)
</TABLE>
Cost of sales decreased $20.9 million or 13.5 percent. As a percent of net
sales, cost of sales decreased to 70.8 percent from 73.4 percent. Gross
profit decreased $.8 million or 1.4 percent. These changes resulted
primarily from volume variances and effects of price and product mix
changes.
Selling, administrative and general expenses decreased $3.6 million or 7.3
percent. This variance includes a $1.1 million increase in trade
promotions, a $5.5 million decrease in advertising and selling costs, and
a $.8 million increase in other administrative costs. Of the decrease in
advertising and selling costs, $4.3 million relates to businesses sold.
Interest expense decreased $.6 million or 12.1 percent resulting from a $.4
million decrease due to debt volume and a $.2 million reduction due to lower
interest rates.
Pro-Fac's share of the Company's profits increased $1.7 million or 194.7
percent.
Income before taxes increased $1.7 million or 122.3 percent.<PAGE>
<PAGE>
Taxes on income increased $.8 million or 111.0 percent.
Net income increased $.9 million, or 133.5 percent.
Results of Operations - Nine Month Changes from the Corresponding Prior Year
Period
For the first nine months of fiscal 1994, the Company's net earnings were
$9,559,000 or $1.11 per share compared to $4,197,000 or $.49 per share for
the first nine months of fiscal 1993. Included in the fiscal 1994 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 and as required under Financial Accounting Standards Board No. 109.
Included in the fiscal 1994 six-month results was a net gain on sale of
businesses and other items (see Note 4) of $8,114,000 ($3,244,000 after
dividing with Pro-Fac and after taxes) 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 ($635,000 after dividing with
Pro-Fac and after taxes) the equivalent of $.07 per share. Net earnings,
excluding these items for the current fiscal year to date, were
approximately $6,795,000, equivalent to $.79 per share, compared to the
prior year of approximately $4,826,000, equivalent to $.56 per share, an
increase of 41.1 percent.
Net sales for the nine months ended March 26, 1994 decreased $23.8 million
or 3.6 percent from the prior year. This decrease is comprised of the
following:
<TABLE>
Variance in Millions of Dollars
<CAPTION> Due to Due to Due to Total
Dispositions Other Volume Price/Mix Variance
<S> <C> <C> <C> <C>
Meat Snacks $ (2.8) $ 2.0 $ (.8) $ (1.6)
Other snacks (5.3) (15.3) .8 (19.8)
Canned and frozen vegetables -- 17.3 4.3 21.6
Entrees and soups (6.8) (.6) .3 (7.1)
Packaged and bulk cereals (20.1) 2.3 (3.2) (21.0)
Desserts (including puddings,
fruit fillings, canned and
frozen fruits) -- (1.1) (3.2) (4.3)
Condiments and specialty
products -- 2.3 1.7 4.0
All other -- 5.0 (.6) 4.4
$(35.0) $ 11.9 $ (.7) $(23.8)
</TABLE>
The disposition of businesses reduced sales by $35.0 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
resulted from higher demand created by a vegetable crop shortage caused by
flooding in the Midwest and a 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 and the decline
in consumption for the potato chip category.
Cost of sales decreased $20.6 million or 4.3 percent. As a percent of net
sales, cost of sales decreased to 71.0 percent from 71.6 percent. Gross
profit decreased $3.2 million or 1.7 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 $10.0 million or 6.3 percent. This variance includes
a $1.1 million increase in trade promotions, a $9.3 million decrease in
advertising and selling costs, and a $1.8 million decrease in other
administrative costs. Of the decrease in advertising and selling costs,
$8.0 million relates to businesses sold.
Interest expense decreased $.9 million or 5.7 percent resulting from a $.3
million increase due to debt volume and a $1.2 million reduction due to
lower interest rates.
Pro-Fac's share of the Company's profits increased $8.9 million or 147.1
percent due to Pro-Fac's share of the restructuring activity and operational
improvements.
<PAGE>
<PAGE>
Income before taxes increased $8.9 million or 121.2 percent. Taxes on income
increased $3.6 million or 112.5 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.
Net income increased $5.4 million, or 127.8 percent. Of this amount,
approximately $3.9 million was attributable to the gains and losses
associated with the restructuring program.
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 Curtice
Burns and Pro-Fac.
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.
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 $280.9 million (as measured at the
book value on March 26, 1994). Of this amount, $115.7 million represents
short- and long-term debt, $25.3 million relates to intangible assets and
$139.9 million relates to leased fixed assets. This $280.9 million at March
26, 1994 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 $33.6 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 $11.9
million in the amount attributable to short- and long-term debt is comprised
of a reduction of debt of $37.4 million (relating to the sale proceeds of
business units sold) offset by additional borrowings of $49.3 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 is presently a disagreement with Pro-Fac on that purchase
price. 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. In the nine-month period, net cash provided by operating activities
of the combined companies of $22.8 million reflects net income of $9.6
million for Curtice Burns and $18.5 million for Pro-Fac. Amortization of
assets amounted to $18.6 million. Inventories decreased $1.3 million and
accounts receivable decreased $7.4 million. Changes in other assets and
liabilities amounted to $32.6 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 $6.9
million in the period was comprised of $13.8 million paid for purchases of
property, plant and equipment, $21.8 million received for disposals of fixed
assets, and a $1.1 million increase in the investment of Springfield Bank
for Cooperatives. During the nine-month period, $43.9 million was received
in proceeds from the <PAGE>
<PAGE>
disposition of the oats portion of the National Oats business and the Hiland
Potato Chip business. Proceeds from dispositions have been applied to debt.
Net cash used in financing activities of $32.3 million in the periods was
comprised of proceeds from short-term debt of $23.0 million, payments on
long-term debt of $43.8 million, issuance of capital stock of $.1 million
less repurchases of $3.1 million, and dividends paid of $8.5 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. 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 increased
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 nine months ended March 26, 1994, and the maximum borrowing
on those lines was $81.0 million. The balance outstanding at March 26, 1994
was $35.0 million.
There are no current plans for the acquisition of 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. 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, if any, 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 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 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)
