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 24, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Registration Statement (Form S-4) Number 33-56517
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.
(1) YES X NO
(2) YES NO X
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of January 15, 1995:
10,000 shares
Page 1 of 26<PAGE>
<PAGE>
Part I. FINANCIAL INFORMATION
INTRODUCTION
Curtice-Burns Foods, Inc. ("Curtice-Burns" or "the Company") is a producer
and marketer of processed food products. In addition, the Company
manufactures cans which are both utilized by the Company and sold to third
parties. The Company sells products in three principal categories: (i)
"branded" products, which are sold under the Company's trademarks, (ii)
"private label" products, which are sold to grocers that in turn use their
own brand names on the products and (iii) "food service" products, which are
sold to food service institutions. In fiscal 1994, approximately one-half
of the Company's net sales were branded and the remainder were split between
private label and food service. The Company operates throughout the United
States and in Western Canada through six operating divisions.
On November 3, 1994 the Company was acquired by Pro-Fac Cooperative, Inc.
("Pro-Fac"), an agricultural cooperative formed under New York State law to
process and market crops grown by its members.
Pro-Fac and the Company were established together in the early 1960's and
before Pro-Fac's recent acquisition of the Company, had a long-standing
contractual relationship under the Integrated Agreement, and similar
predecessor agreements. The Integrated Agreement, which has been superseded
by the Pro-Fac Marketing Agreement, principally governed four arrangements
between Pro-Fac and the Company: facilities financing, operations financing,
marketing and management. Pro-Fac continues to market its members' crops
and provide other accommodations to the Company, and the Company continues
to provide management services to Pro-Fac, pursuant to the Pro-Fac Marketing
Agreement.
The Acquisition
The acquisition was accomplished through a tender offer for all outstanding
shares of the Company and a subsequent merger of PF Acquisition Corp.
("PFAC"), a wholly owned subsidiary of Pro-Fac, into the Company. As a
result of the acquisition, the holders of the Class A and Class B Common
Stock of the Company became entitled to $19.00 per share in cash, the
Company became a wholly owned subsidiary of Pro-Fac, and the Company assumed
all of the liabilities of PFAC, including liabilities for acquisition
indebtedness.
The acquisition was accounted for using the step acquisition method of
purchase accounting. As Pro-Fac historically shared in 50 percent of the
earnings of the Company, acquired assets were reflected 50 percent at their
historic value (representing the interest that Pro-Fac retained) and 50
percent at fair value, representing the interest acquired. The excess of
purchase cost over net assets acquired was recorded as goodwill. One effect
of the increase in the recorded value of assets and goodwill was to increase
the depreciation and amortization expense of the Company upon consummation
of the acquisition.
In connection with the acquisition, PFAC sold $160.0 million of 12.25 percent
Senior Subordinated Notes due 2005 (the "Notes") and entered into a credit
agreement (the "New Credit Agreement") with CoBank, ACB, formerly The
Springfield Bank for Cooperatives (the "Bank"), which provided for a term
loan, a term loan facility, a seasonal loan facility and a letter of credit
facility. All obligations of PFAC under the Notes and the New Credit
Agreement have become obligations of the Company. Consequently, the Company
is more highly leveraged, and has greater interest expense, than prior to
the acquisition.
Further information concerning the acquisition and how it was accounted for
and financed is set forth in Amendment No. 1 to the Company's Registration
Statement on Form S-4 (Registration No. 33-56517), which was filed with the
Securities and Exchange Commission on December 16, 1994.<PAGE>
<PAGE>
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
of normal recurring adjustments and the effects of the acquisition)
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. The
Company is a wholly owned subsidiary of Pro-Fac.
In addition, the interim financial statements contained herein, present the
results of the Company during the period prior to its acquisition by
Pro-Fac, ("Predecessor" entity) as well as the period subsequent to its
acquisition, ("Successor" entity). The financial statements of the
Predecessor and Successor are not comparable in certain respects because of
differences between the cost bases of the assets held by the Predecessor
compared to that of the Successor as well as the effect on Successor's
operations from increased depreciation, amortization and interest expense.
<TABLE>
Curtice-Burns Foods, Inc.
Consolidated Statement of Operations
<CAPTION>
(Dollars in Thousands)
9/25/94 - 11/3/94 - Three Months Ended
11/3/94 12/24/94 Total
Predecessor Successor 12/24/94 12/25/93
<S> <C> <C> <C> <C>
Net sales $ 99,774 $ 116,203 $ 215,977 $ 243,246
Cost of sales 68,966 80,289 149,255 169,377
Gross profit 30,808 35,914 66,722 73,869
Restructuring expenses, including net
gain from division disposals -- 8,114
Change in control expenses (400) -- (400) --
Other selling, administrative and general
expenses (22,603) (26,476) (49,079) (57,078)
Operating income before dividing with Pro-Fac 7,805 9,438 17,243 24,905
Interest expense (2,553) (5,849) (8,402) (5,155)
Pretax earnings before dividing with Pro-Fac 5,252 3,589 8,841 19,750
Pro-Fac share of earnings (2,569) (1,799) (4,368) (9,700)
Income before taxes 2,683 1,790 4,473 10,050
Provision for taxes (1,298) (1,328) (2,626) (3,326)
Net income $ 1,385 $ 462 $ 1,847 $ 6,724
</TABLE>
<TABLE>
<CAPTION>
6/26/94 - 11/3/94 - Six Months Ended
11/3/94 12/24/94 Total
Predecessor Successor 12/24/94 12/25/93
<S> <C> <C> <C> <C>
Net sales $ 276,621 $ 116,203 $ 392,824 $ 453,336
Cost of sales 195,810 80,289 276,099 322,428
Gross profit 80,811 35,914 116,725 130,908
Restructuring expenses, including net
(loss)/gain from division disposals (8,415) -- (8,415) 8,114
Change in control expenses (2,150) -- (2,150) --
Gain on assets resulting from fire claim 6,469 -- 6,469 --
Other selling, administrative and general
expenses (60,576) (26,476) (87,052) (103,367)
Operating income before dividing with Pro-Fac 16,139 9,438 25,577 35,655
Interest expense (7,624) (5,849) (13,473) (10,009)
Pretax earnings before dividing with Pro-Fac 8,515 3,589 12,104 25,646
Pro-Fac share of earnings (4,062) (1,799) (5,861) (12,473)
Income before taxes 4,453 1,790 6,243 13,173
Provision for taxes (2,735) (1,328) (4,063) (5,265)
Net income $ 1,718 $ 462 $ 2,180 $ 7,908
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Curtice-Burns Foods, Inc.
Consolidated Balance Sheet
Dollars in Thousands Except Share Amounts 12/24/94 6/25/94 12/25/93
<S> <C> <C> <C>
Assets
Current assets:
Cash $ 7,765 $ 2,928 $ 9,944
Accounts receivable trade 66,203 57,640 72,052
Accounts receivable, other 13,015 8,460 7,742
Income taxes refundable -- 237 --
Current deferred taxes receivable 12,618 10,487 7,561
Inventories -
Finished goods 160,962 108,538 147,293
Raw materials and supplies 54,464 46,721 51,173
Total inventories 215,426 155,259 198,466
Prepaid manufacturing expense -- 8,190 --
Prepaid expenses and other current assets 5,289 4,305 7,571
Total current assets 320,316 247,506 303,336
Investment in Bank 21,619 -- --
Property, plant and equipment, net 222,991 167,516 169,480
Goodwill and other intangibles, net 120,525 24,909 25,725
Other assets 23,649 7,007 7,948
Total Assets $709,100 $446,938 $506,489
</TABLE>
<TABLE>
<CAPTION>
Liabilities and shareholders' equity
Current liabilities:
<S> <C> <C> <C>
Notes payable $ 70,000 $ -- $ 17,000
Accounts payable 55,078 62,335 53,326
Due to Pro-Fac 10,554 9,447 39,241
Accrued employee compensation 9,259 11,482 8,867
Other accrued expenses 37,776 26,947 38,887
Accrued manufacturing expense 2,417 -- 2,900
Income taxes payable 1,272 -- 2,970
Current portion of obligations under
capital leases 785 18,430 22,871
Current portion of long-term debt 8,182 14,816 16,796
Total current liabilities 195,323 143,457 202,858
Long-term debt 167,131 79,061 81,064
Senior subordinated notes 160,000 -- --
Obligations under capital leases 1,296 124,973 128,098
Deferred income taxes 44,280 14,958 10,484
Other non-current liabilities 4,364 3,591 3,016
Total liabilities 572,394 366,040 425,520
Commitments and Contingencies
Shareholders' Equity:
Class A common - $.99 par value; -0-, 10,125,000
and 10,125,000 shares authorized;
- 0 -, 6,628,430 and 6,581,467
outstanding, respectively -- 6,562 6,516
Class B common - $.99 par value; -0-, 4,050,000
and 4,050,000 shares authorized;
- 0 -, 2,056,876 and 2,060,702
outstanding, respectively -- 2,036 2,040
Common stock, par value $1.00
10,000 shares outstanding, owned by Pro-Fac 10 -- --
Additional paid-in capital 136,279 14,224 13,728
Retained earnings 462 58,121 58,685
Minimum pension liability (45) (45) --
Total shareholders' equity 136,706 80,898 80,969
Total liabilities and shareholders' equity $709,100 $446,938 $506,489
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
Curtice-Burns Foods, Inc.
Consolidated Statement of Cash Flows
<CAPTION>
Dollars in Thousands
6/26/94 - 11/3/94 - Six Months Ended
11/3/94 12/24/94 Total
Predecessor Successor 12/24/94 12/25/93
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 1,718 $ 462 $ 2,180 $ 7,908
Adjustments to reconcile net income
to net cash provided by operating
activities -
Restructuring including net loss
from division disposals 8,415 -- 8,415 (8,114)
Gain on assets resulting from fire
claim (6,469) -- (6,469) --
Amortization of goodwill and other
intangibles 753 295 1,048 854
Depreciation and amortization of
capital assets 6,228 4,824 11,052 11,128
Deferred tax provision (1,224) 28,415 27,191 1,122
Change in assets and liabilities
Accounts receivable (12,430) (688) (13,118) (7,281)
Inventories (70,961) 10,794 (60,167) (42,957)
Income taxes payable/refundable 1,491 18 1,509 (6,076)
Accounts payable and accrued
expenses (5,662) 3,936 (1,726) 5,492
Due to Pro-Fac 9,650 (8,543) 1,107 11,028
Other assets and liabilities 8,733 (125,141) (116,408) (3,719)
Net cash used in operating activities (59,758) (85,628) (145,386) (30,615)
Cash Flows From Investing Activities:
Proceeds from division disposals -- -- -- 42,097
Purchase of property, plant and
equipment (5,689) (67,830) (73,519) (31,503)
Disposal of assets -- -- -- 21,800
Net cash used in investing activities (5,689) (67,830) (73,519) 32,394
Cash Flows From Financing Activities:
Due to Pro-Fac 42,000 (42,000) -- 14,714
Proceeds from issuance of short-term
debt 30,000 70,000 100,000 17,000
Proceeds from issuance of long-term
debt 10,886 335,313 346,199 --
Payments on short term debt -- (30,000) (30,000)
Payments on long-term debt (350) (104,413) (104,763) (1,447)
Payments on Pro-Fac capital leases (11,344) (129,978) (141,322) (26,004)
Proceeds from sale of stock 52 54,966 55,018 150
Cash dividends paid (1,390) -- (1,390) (2,764)
Net cash provided by financing
activities 69,854 153,888 223,742 1,649
Net change in cash 4,407 430 4,837 3,428
Cash at beginning of period 2,928 7,335 2,928 6,516
Cash at end of period $ 7,335 $ 7,765 $ 7,765 $ 9,944
Supplemental Disclosure of Cash Flow Information:
Cash paid/(received) during the period for -
Interest (net of amount capitalized) $ 6,967 $ 2,061 $ 9,028 $ 9,986
Income taxes, net $ 2,135 $ 2,508 $ 4,643 $ 10,977
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
/TABLE
<PAGE>
<PAGE>
CURTICE-BURNS FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. SUMMARY OF ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles. The
following summarizes the significant accounting policies applied in the
preparation of the accompanying financial statements. The accounting
policies apply to both the predecessor and successor companies, unless
otherwise noted.
Fiscal Year
The financial statements of the Predecessor entity include the period from
June 26, 1994 through November 3, 1994, the acquisition date. The financial
statements of the Successor entity include the period from November 3, 1994
through December 24, 1994, the fiscal quarter end (see Note 3). The fiscal
year of the Successor will correspond with that of its parent, Pro-Fac
Cooperative, Inc. and will end on June 24, 1995, the last Saturday in June.
Consolidation
The consolidated financial statements include the Company and its wholly-
owned subsidiaries after elimination of intercompany transactions and
balances.
Inventories
Inventories are stated at the lower of cost or market on the first-in,
first-out ("FIFO") method. Inventory reserves are recorded to reflect the
difference between FIFO cost and the market applicable to canned and frozen
fruit and vegetable inventories.
Investment in CoBank ("The Bank")
The Cooperative's investment in the Bank is required as a condition of
borrowing. These securities are not physically issued by the Bank, but the
Company is notified as to their monetary value. The investment is carried
on the Company's books at cost plus the Company's share of the undistributed
earnings of the Bank (that portion of patronage refunds not distributed
currently in cash).
Manufacturing Overhead
Allocation of manufacturing overhead to finished goods produced is on the
basis of a production year; thus at the end of each fiscal year,
manufacturing costs incurred by seasonal plants subsequent to the previous
pack are deferred and included in the accompanying balance sheet under the
caption "Accrued/prepaid manufacturing expense."
Property, Plant and Equipment and Related Lease Arrangements
Property, plant and equipment are depreciated over the estimated useful
lives of the assets using the straight-line method, half-year convention,
over 3 to 40 years.
Lease arrangements are capitalized when such leases convey substantially all
of the risks and benefits incidental to ownership. Capital leases are
amortized over either the lease term or the life of the related assets,
depending upon available purchase options and lease renewal features.
Income Taxes
Income taxes are provided on income for financial reporting purposes.
Deferred income taxes resulting from temporary differences between financial
<PAGE>
reporting and tax reporting are appropriately classified in the balance
sheet.
Pension
The Company and its subsidiaries have several pension plans and participate
in various union pension plans which on a combined basis cover substantially
all employees. Charges to income with respect to plans sponsored by the
Company and its subsidiaries are based upon actuarially determined costs.
Pension liabilities are funded by periodic payments to the various pension
plan trusts.
Goodwill and Other Intangibles
Goodwill and other intangible assets include the cost in excess of the fair
value of net tangible assets acquired in purchase transactions and acquired
non-competition agreements and trademarks. Goodwill and other intangible
assets, stated at net of accumulated amortization, are amortized on a
straight-line basis over periods ranging to 40 years. The Company
periodically assesses whether there has been a permanent impairment in the
value of goodwill. This is accomplished by determining whether the
estimated undiscounted future cash flows from operating activities exceed
the carrying value of goodwill as of the assessment date. Should aggregate
future cash flows be less than the carrying value, a writedown would be
required, measured by the difference between the undiscounted future cash
flows and the carrying value of goodwill.
Goodwill resulting from the purchase of the Company by Pro-Fac of
approximately $96.7 million is being amortized on a straight line basis over
35 years. Approximately $62.7 million of the purchase price was allocated
to fixed assets, in accordance with the step acquisition method of purchase
accounting. See Note 3.
Environmental Expenditures
Environmental expenditures that pertain to current operations are expensed
or capitalized consistent with the Company's capitalization policy.
Expenditures that result from the remediation of an existing condition
caused by past operations that do not contribute to current or future
revenues are expensed. Liabilities are recorded when remedial activities
are probable and the cost can be reasonably estimated.
Note 2. AGREEMENTS WITH PRO-FAC
On November 3, 1994 the Company was acquired by Pro-Fac. Pro-Fac and the
Company were established together in the early 1960's and before Pro-Fac's
recent acquisition of the Company, had a long-standing contractual
relationship under the Integrated Agreement, and similar predecessor
agreements. The Integrated Agreement, which has been superseded by the Pro-
Fac Marketing Agreement, consisted of four principal sections: Operations
Financing, Marketing, Facilities Financing and Management.
The provisions of the Integrated Agreement included the financing of certain
assets utilized in the business of the Company and provided a sharing of
income and losses between Curtice-Burns and Pro-Fac. Under the Pro-Fac
Marketing Agreement, Pro-Fac and the Company will continue the marketing and
management arrangements of the Integrated Agreement, as well as the sharing
of income and losses. The capital contribution of Pro-Fac to the Company
at acquisition included Pro-Fac's fixed and intangible assets that were
utilized in the Company's business and the cancellation of indebtedness and
capital lease obligations. Payments by the Company to Pro-Fac for interest,
amortization and lease financing payments ceased as of November 3, 1994.
Amounts received by Pro-Fac from Curtice-Burns under both Agreements for the
six months ended December 24, 1994 and December 25, 1993 include:
commercial market value of crops delivered, $54.2 million and $55.8 million,
<PAGE>
respectively; interest income, $6.1 million and $8.3 million, respectively;
and additional proceeds from profit sharing provisions, $5.9 million and
$12.5 million, respectively. During fiscal 1993 a dispute arose between the
Company and Pro-Fac regarding the sharing of certain losses incurred in the
Company's restructuring program. As part of the merger, such dispute was
resolved.
Note 3. DEVELOPMENTS RELATED TO CHANGE IN CONTROL OF THE COMPANY
In 1993, the Company's management and Board of Directors began exploring
several strategic alternatives for the Company, including a possible sale
of all the equity of the Company. Those activities ultimately resulted in
the Company entering into an Agreement and Plan of Merger with Pro-Fac and
PFAC on September 27, 1994 (the "Merger Agreement"). Pursuant to the Merger
Agreement, on October 4, 1994, Pro-Fac initiated a tender offer for all
of the Company's outstanding stock at $19.00 per share. At the expiration
of the tender offer on November 2, 1994, 6,229,442 shares of Class A and
2,046,997 shares of Class B common stock (or approximately 94 percent and
99 percent, respectively, of the total number of outstanding shares of Class
A and Class B common stock of the Company) had been validly tendered and not
withdrawn. All such tendered shares were accepted for payment by PFAC. On
November 3, 1994, PFAC merged into the Company, making the Company a
wholly-owned subsidiary of Pro-Fac.
During the first six months of fiscal 1995, the Company expensed $2.2
million of legal, accounting, investment banking and other expenses relative
to the change of control issue. In recognizing these expenses, the Company
allocated half of these amounts to Pro-Fac as a deduction to the profit
split. Pro-Fac disputed these charges, but such dispute was resolved with
the merger.
The acquisition was accounted for using the step acquisition method of
purchase accounting. As Pro-Fac historically shared in 50 percent of the
earnings of the Company, acquired assets were reflected 50 percent at their
historic value (representing the interest that Pro-Fac retained) and 50
percent at fair value, representing the interest acquired. The excess of
purchase cost over net assets acquired was recorded as goodwill.
In connection with the acquisition, PFAC sold $160.0 million of 12.25 percent
Senior Subordinated Notes due 2005 (the "Notes") and entered into a credit
agreement (the "New Credit Agreement") with The Springfield Bank for
Cooperatives, which provided for a term loan, a term loan facility, a
seasonal loan facility and a letter of credit facility. All obligations of
PFAC under the Notes and the New Credit Agreement have become obligations
of the Company.
Note 4. RESTRUCTURING PROGRAM
In fiscal 1993, the Company commenced a restructuring program and incurred
restructuring charges of $61.0 million to reflect the completed and
anticipated effects of the restructuring program. Among the elements of the
restructuring program was divesting businesses that were unprofitable or
declining for the Company, but would fit with other business portfolios.
Information regarding businesses sold in fiscal 1994 or fiscal 1995 is
provided below.
National Oats. On November 19, 1993, the Company sold the oats portion of
the National Oats business for $39.0 million and transferred the popcorn
business to CMF. The sale of the oats business resulted in an approximate
$10.9 million gain in fiscal 1994.
Hiland Potato Chips. On November 22, 1993, the Company sold certain assets
of the Hiland potato chips business for approximately $3.0 million. There
was no material gain or loss on this transaction after taking into account
the fiscal 1993 restructuring charge.<PAGE>
<PAGE>
Meat Snacks. On February 22, 1994, the Company sold the meat snacks
business. The Company will lease certain manufacturing facilities and
equipment and license its trademarks, trade names, etc. to the buyer until
February 1995, at which time the buyer is contractually obligated to
purchase these assets for $2.0 million. There was no material gain or loss
on this transaction after taking into account a restructuring charge
recorded fiscal 1993.
Nalley's U.S. Chips and Snacks. On December 19, 1994, the Company sold the
Nalley's U.S. Chips and Snacks business for approximately $2.0 million. In
the first quarter of fiscal 1995, the Company recognized a charge of
approximately $8.4 million in connection with the elimination of this line
of business. There was no material gain or loss on this transaction after
taking into account a restructuring charge recorded in the first quarter of
fiscal 1995.
The business divestitures resulted in the following charges to earnings in
fiscal 1994 and fiscal 1995:
Fiscal 1994 Restructuring Gain. Included in fiscal 1994 results was a net
gain of $7.8 million comprised of a gain on the sale of the oats business
of $10.9 million, net of a charge of $3.1 million to adjust previous
estimates regarding activities initiated in fiscal 1993.
Fiscal 1995 Restructuring Charge. Included in the first six months of
fiscal 1995 results was a restructuring charge of $8.4 million to reflect
the estimated impact of the sale of certain assets of the Nalley's U.S.
Chips and Snacks operation and other expenses relating to the disposal of
this operation. Of this amount, approximately 40 percent reflects non-cash
charges.
Note 5. DEBT
Historical Funding and Capital Expenditures
The operations of the Company historically have been funded with cash flows
generated by operations, borrowings from Pro-Fac (which in turn borrowed a
portion of these funds from the Bank) and borrowings under the Company's
seasonal facility with a syndicate of commercial lenders led by The Chase
Manhattan Bank, N.A. Pro-Fac and the Company had available seasonal lines
of credit of $100.0 million through September 1993, $86.0 million through
September 1994 and $96.0 million thereafter. The maximum borrowing on those
seasonal lines during fiscal 1994 was $81.0 million, while the average
amount outstanding during such year totaled approximately $51.5 million.
The balance outstanding at November 3, 1994 was $83.5 million. These
borrowings were repaid simultaneously with the consummation of the
acquisition of the Company by Pro-Fac and replaced by the New Credit
Agreement.
New Credit Agreement
The Bank has provided the Company, subject to the terms and conditions set
out in the New Credit Agreement, with loans of up to $200 million to finance
the purchase of Shares pursuant to the Tender Offer and the merger, to
refinance certain existing indebtedness of Pro-Fac and the Company and to
pay fees and expenses related to the purchase of Shares.
The Bank also has provided the Company, subject to the terms and conditions
set out in the New Credit Agreement, with seasonal financing of up to $86.0
million and a $10.0 million letter of credit facility. The Acquisition
Facility, the Seasonal Facility and the Letter of Credit Facility are
collectively referred to herein as the "Bank Facility".
Guarantees and Security. All obligations under the Bank Facility are
guaranteed by Pro-Fac and the Subsidiary Guarantors. The Company's
obligations under the Bank Facility, and Pro-Fac's and the Subsidiary <PAGE>
<PAGE>
Guarantor's obligations under their respective guaranties, are secured by
all of the assets of the Company and each guarantor, respectively, including
(i) all present and future accounts, contracts rights, chattel paper,
instruments (excluding shares of capital stock), documents, inventory,
general intangibles and equipment, (ii) all real property and (iii) all
products and proceeds of the foregoing.
Interest. The Bank Facility provides for interest rates on the Acquisition
Facility, at the Company's option, equal to (i) the relevant London
interbank offered rate plus 2.60 percent, (ii) the relevant prime rate plus
0.50 percent or (iii) the relevant U.S. Treasury Rate plus 3.00 percent.
The Seasonal Facility provides for interest rates on amounts outstanding
thereunder, at the Company's option, equal to (x) the relevant London
interbank offered rate plus 1.75 percent, (y) the relevant prime rate minus
0.25 percent or (z) the relevant U.S. Treasury Rate plus 2.00 percent. The
Bank has extended to a portion of the Acquisition Facility for a limited
period of time certain fixed rates that were in effect with respect to
indebtedness repaid to the Bank on November 3, 1994. The weighted average
rate of interest applicable to that portion of the Acquisition Facility is
estimated to equal approximately 8.3 percent per annum for the period from
November 3, 1994 through May 1, 1995.
Maturity. Borrowings of $80.0 million under the Term Loan portion of the
Acquisition Facility are payable in 20 equal semi-annual installments,
beginning in May 1995. Borrowings of up to an additional $120.0 million
under the Term Loan Facility portion of the Acquisition Facility are payable
during the first five years of the facility in annual installments on
September 1 of each year, in an amount equal to the "annual cash sweep" for
the preceding fiscal year, as defined in the Acquisition Facility. The
Company will be permitted to pay and reborrow funds under the Term Loan
Facility, subject to limitations on the amount reborrowed and the other
terms of the Acquisition Facility. Beginning in the year 2000, the balance
of the Term Loan Facility will be payable in ten equal semi-annual
installments.
Borrowings under the Seasonal Facility are payable at the expiration of that
portion of the facility, which is May, 1996 except that for 15 consecutive
calendar days before the end of fiscal 1995, the borrowings under the
Seasonal Facility must be zero. The Letter of Credit Facility provides
for the issuance of letters of credit through October, 1995.
Certain Covenants. The Pro-Fac Bank Guarantee requires Pro-Fac, on a
consolidated basis, to achieve an adjusted cash flow coverage ratio at the
end of fiscal 1995 of at least 1.0 to 1.0 and at the end of each fiscal
year thereafter of at least 1.1 to 1.0, to maintain a minimum working
capital of at least $100.0 million for each fiscal year (beginning with the
fiscal year ending June 30, 1995), and to maintain a minimum long-term debt
to equity ratio (measured at each month-end) of 3.1 to 1.0 from the Closing
Date through May, 1995, 2.8 to 1.0 from June 30, 1995 through May 1996 and
declining over time to 1.8 to 1.0 at June 30, 2001 and thereafter. In
addition, the Pro-Fac Bank Guarantee requires Pro-Fac, on a consolidated
basis, to maintain a consolidated total net worth of not less than 15
percent of total assets for each month-end until July 2000, and 20 percent
thereafter and at least 19 percent of total assets at the fiscal years
ending June 1995 and 1996, increasing over time to at least 25 percent of
total assets at the fiscal year ending June 2001 and each fiscal year
thereafter. The Bank Facility and the Pro-Fac Bank Guarantee contain
additional restrictions and obligations on Pro-Fac and the Company,
including (i) restrictions on the ability to declare or pay dividends or
repurchase stock, (ii) limitations on the incurrence of debt or prepayment
of debt, (iii) limitations on debt, investments, acquisitions, capital
expenditures and asset sales and (iv) requiring maintenance of properties
and insurance and the delivery of information, financial and otherwise.
Management believes the Company is in compliance with all restrictions and
requirements under the terms of the borrowing agreement.<PAGE>
<PAGE>
The Notes
The Notes represent general unsecured obligations of the Company,
subordinated in right of payment to certain other debt obligations of the
Company (including the Company's obligations under the New Credit
Agreement). The Notes are unconditionally guaranteed by the Guarantors on
a senior subordinated basis, with each such guarantee subordinated to the
Guarantors' respective guarantees of the obligations of the Company under
the New Credit Agreement and all other Senior Indebtedness of the
Guarantors.
The Notes are limited in aggregate principal amount to $160.0 million and
will mature on February 1, 2005. Interest on the Notes accrues at the rate
of 12 1/4 percent per annum and is payable semi-annually in arrears on
February 1 and August 1, commencing on February 1, 1995, to Holders of
record on the immediately preceding January 15 and July 15, respectively.
Except as provided above, interest on the Notes accrues from the most
recent date to which interest has been paid or, if no interest has been
paid, from the date of original issuance. Interest is computed on the
basis of a 360-day year comprised of twelve 30-day months.
Each of Pro-Fac and the Subsidiary Guarantors has unconditionally guaranteed
the payment of Obligations of the Company under the Notes. Rights of
Holders pursuant to such guarantees are subordinate to the rights of the
holders of the Senior Indebtedness of Pro-Fac and the Subsidiary Guarantors
to payment in full in the same manner as the rights of Holders of the Notes
are subordinate to those of the holders of the Senior Indebtedness of the
Company.
Additional information with respect to borrowing arrangements:
Because Pro-Fac's income had always been largely determined by the income
of Curtice-Burns and because Pro-Fac guaranteed the debt of Curtice-Burns
and Curtice-Burns guaranteed the debt of Pro-Fac (substantially all of which
was advanced to Curtice-Burns), management and lenders use combined pro
forma financial statements to assess the financial strength of the two
companies. Specifically, the pro forma combined statement of operations,
balance sheet and statement of cash flows portray the financial results,
cash flows and equity of Curtice-Burns and Pro-Fac for activity prior to the
acquisition date.
Such financial statements are neither necessary for a fair presentation of
the financial position of Pro-Fac nor appropriate as primary statements for
Pro-Fac shareholders and members because they combine earnings, assets and
liabilities and cash flows which were legally attributable to either
Curtice-Burns' former 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
Unaudited
<CAPTION>
(Millions)
Three Months Ended Six Months Ended
12/24/94 12/25/93 12/24/94 12/25/93
<S> <C> <C> <C> <C>
Sales $216.0 $243.2 $392.8 $453.3
Cost of sales 149.3 169.3 276.1 322.4
Restructuring -- (8.1) 8.4 (8.1)
Change in control costs 0.4 -- 2.2 --
Insurance gain -- -- (6.5) --
Selling, administrative
and general expenses 48.9 56.9 87.0 103.0
Total costs and expenses 198.6 218.1 367.2 417.3
Operating income 17.4 25.1 25.6 36.0
Interest expense (7.8) (4.1) (11.6) (8.0)
Income before taxes 9.6 21.0 14.0 28.0
Tax benefit/(provision) 3.6 (3.8) 2.2 (6.1)
Net income $ 13.2 $ 17.2 $ 16.2 $ 21.9
<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
Unaudited
<CAPTION>
(Millions)
12/24/94 12/25/93
<S> <C> <C>
Assets
Current assets $320.6 $306.7
Property, plant and equipment, net 223.0 169.5
Goodwill and other intangibles 120.5 51.4
Other assets 45.6 27.9
Total assets $709.7 $555.5
Liabilities and Net Worth
Current liabilities $207.7 $206.2
Lease obligations 1.3 1.8
Long-term debt 327.1 137.8
Other liabilities 40.0 14.0
Total liabilities 576.1 359.8
Shareholders' equity and members' capitalization 133.6 195.7
Total liabilities and net worth $709.7 $555.5
<FN>
Transactions between Curtice-Burns and Pro-Fac have been eliminated for purposes
of this combined balance sheet.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Combined Pro Forma Condensed Statement of Cash Flows
Unaudited
<CAPTION>
(Millions)
Six Months Ended
12/24/94 12/25/93
<S> <C> <C>
Net cash (used in)/provided by operating activities $(70.1) $ 4.8
Net cash (used in)/provided by investing activities (6.3) 10.9
Net cash provided by/(used in) financing activities 81.3 (12.3)
Net change in cash 4.9 3.4
Cash at beginning of period 2.9 6.5
Cash at end of period $ 7.8 $ 9.9
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest (net of amount
capitalized) $ 7.6 $ 8.0
Income taxes, net $ 4.6 $ 10.9
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Conversion of retains to preferred stock $ 1.2 $ --
<FN>
Transactions between Curtice-Burns and Pro-Fac have been eliminated for purposes
of this combined statement of cash flows.
</TABLE>
Note 6. OTHER MATTERS
Contingencies
In conjunction with the sale of the National Oats Division by the Company,
Pro-Fac terminated the membership of the Harvest States Cooperatives
("Harvest States") in Pro-Fac. Harvest States was the National Oats
Division's only supplier of oats. As a result of this action, Harvest
States filed a claim against Pro-Fac for, among other things, the receipt
of payments for future oats purchases after the sale of National Oats
division through fiscal year 1995.
The exact amount of any potential settlement related to this issue cannot
be estimated at December 24, 1994, but management, upon input from counsel,
does not believe that this is a material exposure to the Company.
A grower has filed suit against the Company for damages resulting from
defective seed which was purchased from the Southern Frozen Foods division.
The lawsuit alleges that the defective seed resulted in the loss of crops
and acreage use for a growing season, and the grower is seeking
approximately $1.0 million in damages. Management believes this claim is
without merit and intends to vigorously defend its position. As the amount
of damages is neither probable nor reasonably estimable, no accrual for loss
has been included in the financial statements. In addition, management
anticipates that all material costs of settlement, if incurred, will be
covered under its insurance policies.
<PAGE>
<PAGE>
Commitments
The Company's Southern Frozen Foods Division has guaranteed an approximate
$1.4 million loan for the City of Montezuma to renovate a sewage treatment
plant operated by Southern Frozen Foods on behalf of the City.
Fire Claim
In July 1994, a plant operated by the Company's Southern Frozen Foods
division, located in Montezuma, Georgia, was damaged by fire. All material
costs associated with the facility repairs and business interruption are
anticipated to be covered under the Company's insurance policies. During
the first quarter of fiscal 1995, a $6.5 million gain (before dividing with
Pro-Fac and before taxes) was recorded representing the insurance proceeds
for the replacement value in excess of the depreciated book value of the
building and equipment destroyed in this fire.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Although the results of operations of the Predecessor and Successor
companies are not comparable in certain respects because of differences
between the cost basis of the assets held by the Predecessor compared to
that of the Successor, these differences primarily effect interest expense,
amortization of intangibles and depreciation of fixed assets. However, for
purposes of the following "Management's Discussion and Analysis of Financial
Conditions and Results of Operations", fiscal 1994 balances will be compared
to the total of Predecessor and Successor balances from fiscal 1995.
In addition to the results of operations there were two significant
developments which began in fiscal 1993 and had major effects for the first
six months of fiscal 1995: the continuation of a major restructuring
program; and the eventual sale of the Company. (See Notes 3 and 4 of the
Notes To Consolidated Financial Statements.)
Results of Operations
Net sales for the quarter and the six months ended December 24, 1994 for
ongoing operations were up very slightly (less than 1 percent) from
equivalent prior year amounts. Nalley's Fine Foods had a slight increase
and the Comstock Michigan Fruit division a small decrease in sales while
other divisions had very small variations from prior year. Gross profit for
the quarter and six months ended December 24, 1994 were up 3.3 percent and
4.9 percent respectively for the ongoing businesses.
Pretax operating income was down to $17.2 million for the quarter compared
with $24.9 million in the prior year. The decrease was due to an $8.1 gain
from the sale of the oats business included in the prior year amount.
Excluding this prior year gain and current year change in control expenses
and amortization of the excess of the purchase cost in the acquisition of
the Company by Pro-Fac, ongoing business operating income was up $0.5
million, or 2.9 percent from the prior year quarter. This was principally
due to an increase in the earnings of Comstock Michigan Fruit division which
included improvements in the earnings of puddings, pie filling and frozen
vegetables.
Operating income from ongoing businesses was up 11.1 percent to $30.1
million for the six months ended December 24, 1994. Of the $3.0 million
total increase, $3.9 was at the Comstock Michigan Fruit division. Increases
in the earnings of puddings, pie fillings and frozen vegetables accounted
for this increase. For the six month's comparison of total operating
income, the prior year included an $8.1 million gain in operating earnings
<PAGE>
due to the sale of the oats business of the National Oats division and the
current year includes an $8.4 million loss for the sale of the Nalley U.S.
Chips and Snack business, $2.2 million of change in control expenses, a $6.5
million gain on assets due to the Southern Frozen Foods division fire claim
and $.9 million of amortization arising from the excess of purchase costs
of net assets acquired in the acquisition of the Company by Pro-Fac.
The interest expense increases for the quarter and six months ended December
24, 1994 of $3.2 million and $3.5 million, respectively, compared to the
comparable prior year periods. This increase was primarily attributable to
the increased borrowing related to the acquisition of the Company by Pro-
Fac.
The effective tax rates for the quarter and six months ended December 24,
1994 of 59.1 percent and 64.5 percent, respectively, increased significantly
from the prior year effective tax rates of 33.0 percent and 40.2 percent,
respectively, primarily due to the non-deductibility of the amortization of
the excess of purchase cost of net assets acquired in the acquisition of the
Company by Pro-Fac.
Net income for the quarter and six months ended December 24, 1994 were $1.8
million and $2.2 million, respectively, or decreases of $4.9 million and
$5.7 million respectively, compared to the prior year quarter and six
months.
The following tables illustrate the Company's results of operations by
business for the three and six months of fiscal 1994 compared to the three
and six months of fiscal 1995.
<TABLE>
<CAPTION>
Net Sales
(Dollars in Millions)
Three Months Ended Six Months Ended
12/24/94 12/25/93 12/24/94 12/25/93
% of % of % of % of
$ Total $ Total $ Total $ Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comstock Michigan Fruit 104.3 48.3 105.2 43.3 176.0 44.8 180.2 39.7
Nalley's Fine Foods 55.3 25.6 53.2 21.9 109.3 27.8 105.9 23.4
Southern Frozen Foods 26.6 12.3 25.3 10.4 49.7 12.7 48.2 10.6
Snack Foods Group 15.3 7.1 15.3 6.3 30.7 7.8 30.8 6.8
Brooks Foods 11.3 5.2 11.7 4.8 16.7 4.3 17.3 3.8
Finger Lakes Packaging 10.7 5.0 12.1 5.0 25.3 6.4 24.7 5.5
Intercompany eliminations1 (7.5) (3.5) (8.4) (3.5) (17.2) (4.4) (17.7) (3.9)
Subtotal ongoing operations 216.0 100.0 214.4 88.2 390.5 99.4 389.4 85.9
Businesses sold and to be sold2 -- -- 28.8 11.8 2.3 .6 63.9 14.1
Total 216.0 100.0 243.2 100.0 392.8 100.0 453.3 100.0
<FN>
1 Intercompany sales by Finger Lakes
2 The Company has sold the oats portion of the National Oats business, the Hiland potato
chips business, the meat snacks business and the Nalley's U.S. Chips and Snacks business.
See Note 4 - "Restructuring Program."
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Cost of Sales
(Dollars in Millions)
Three Months Ended Six Months Ended
12/24/94 12/25/93 12/24/94 12/25/93
% of % of % of % of
$ Total $ Total $ Total $ Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comstock Michigan Fruit 74.9 50.2 76.1 44.9 129.1 46.8 135.9 42.1
Nalley's Fine Foods 34.9 23.4 33.9 20.0 69.8 25.3 68.3 21.2
Southern Frozen Foods 20.6 13.8 19.3 11.4 38.7 14.0 38.0 11.8
Snack Foods Group 9.7 6.5 9.6 5.7 19.6 7.1 19.4 6.0
Brooks Foods 6.7 4.5 7.0 4.1 10.6 3.8 11.2 3.5
Finger Lakes Packaging 9.7 6.5 11.3 6.7 22.9 8.3 22.5 7.0
Intercompany eliminations and
corporate overhead (7.2) (4.9) (7.4) (4.3) (16.1) (5.8) (16.4) (5.1)
Subtotal ongoing operations 149.3 100.0 149.8 88.5 274.6 99.5 278.9 86.5
Businesses sold and to be sold1 -- -- 19.5 11.5 1.5 .5 43.5 13.5
Total 149.3 100.0 169.3 100.0 276.1 100.0 322.4 100.0
<FN>
1 The Company has sold the oats portion of the National Oats business, the Hiland potato
chips business, and the meat snacks business and the Nalley's U.S. Chips and Snacks
business. See Note 4 - "Restructuring Program."
</TABLE>
<TABLE>
<CAPTION>
Gross Profit
(Dollars in Millions)
Three Months Ended Six Months Ended
12/24/94 12/25/93 12/24/94 12/25/93
% of % of % of % of
$ Total $ Total $ Total $ Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comstock Michigan Fruit 29.4 44.1 29.1 39.4 46.9 40.2 44.3 33.8
Nalley's Fine Foods 20.4 30.6 19.3 26.1 39.5 33.8 37.6 28.7
Southern Frozen Foods 6.0 9.0 6.0 8.1 11.0 9.4 10.2 7.8
Snack Foods Group 5.6 8.4 5.7 7.7 11.1 9.5 11.4 8.7
Brooks Foods 4.6 6.9 4.7 6.4 6.1 5.2 6.1 4.7
Finger Lakes Packaging 1.0 1.5 .8 1.1 2.4 2.1 2.2 1.7
Intercompany eliminations and
corporate overhead (.3) (.5) (1.0) (1.4) (1.1) (.9) (1.3) (1.0)
Subtotal ongoing operations 66.7 100.0 64.6 87.4 115.9 99.3 110.5 84.4
Businesses sold and to be sold1 -- -- 9.3 12.6 .8 .7 20.4 15.6
Total 66.7 100.0 73.9 100.0 116.7 100.0 130.9 100.0
<FN>
1 The Company has sold the oats portion of the National Oats business, the Hiland potato
chips business and the meat snacks business and the Nalley's U.S. Chips and Snacks
Business. See Note 4 - "Restructuring Program."
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Operating Income Before Dividing with Pro-Fac1
(Dollars in Millions)
Three Months Ended Six Months Ended
12/24/94 12/25/93 12/24/94 12/25/93
% of % of % of % of
$ Total $ Total $ Total $ Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comstock Michigan Fruit 11.4 64.8 9.3 55.3 18.1 60.9 14.2 51.4
Nalley's Fine Foods 4.2 23.8 4.5 26.8 8.8 29.6 9.2 33.3
Southern Frozen Foods 3.1 17.6 2.9 17.3 5.5 18.5 4.7 17.0
Snack Foods Group 1.1 6.3 1.1 6.5 1.9 6.4 2.0 7.3
Brooks Foods 2.0 11.4 2.1 12.5 2.1 7.1 2.3 8.3
Finger Lakes Packaging .6 3.4 .8 4.8 1.6 5.4 1.9 6.9
Intercompany eliminations and
corporate overhead1 (4.8) (27.3) (3.6) (21.4) (7.9) (26.6) (7.2) (26.0)
Subtotal ongoing operations 17.6 100.0 17.1 101.8 30.1 101.3 27.1 98.2
Businesses sold and to be sold2 -- -- (.3) (1.8) (.4) (1.3) .5 1.8
Total 17.6 100.0 16.8 100.0 29.7 100.0 27.6 100.0
<FN>
1 Table excludes restructuring (loss)/gain from division disposals of fiscal 1995 and 1994
and change in control expense, and an insurance gain on assets resulting from a fire claim
recorded in the first six months of fiscal 1995.
2 The Company has sold the oats portion of the National Oats business, the Hiland potato
chips business, the meat snacks business, and the Nalley's U. S. Chips and Snack business.
See Note 4 "Restructuring Program".
</TABLE>
<TABLE>
<CAPTION>
Depreciation and Amortization
(Dollars in Millions)
Three Months Ended Six Months Ended
12/24/94 12/25/93 12/24/94 12/25/93
% of % of % of % of
$ Total $ Total $ Total $ Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comstock Michigan Fruit 2.2 33.3 2.8 44.4 4.9 40.5 5.7 44.5
Nalley's Fine Foods .8 12.1 .8 12.7 1.8 14.9 1.8 14.1
Southern Frozen Foods .6 9.1 .6 9.5 1.2 9.9 1.1 8.6
Snack Foods Group .5 7.6 .5 7.9 1.0 8.3 1.0 7.8
Brooks Foods .1 1.5 .2 3.2 .3 2.5 .4 3.1
Finger Lakes Packaging .3 4.5 .3 4.8 .6 5.0 .6 4.7
Corporate1 2.1 31.9 .2 3.2 1.8 14.9 .2 1.6
Subtotal ongoing operations 6.6 100.0 5.4 85.7 11.6 96.0 10.8 84.4
Businesses sold and to be sold2 .0 .0 .9 14.3 .5 4.0 2.0 15.6
Total 6.6 100.0 6.3 100.0 12.1 100.0 12.8 100.0
<FN>
1 Includes amortization of excess of purchase cost over net assets acquired.
2 The Company has sold the oats portion of the National Oats business, the Hiland potato
chips business, the meat snacks business, and the Nalley's U. S. Chips and Snack business.
See Note 4 - "Restructuring Program."
/TABLE
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Total Assets
(Dollars in Millions)
12/24/94 12/25/93
% of % of
$ Total $ Total
<S> <C> <C> <C> <C>
Comstock Michigan Fruit 264.0 37.2 234.3 46.3
Nalley's Fine Foods 95.2 13.4 91.3 18.0
Southern Frozen Foods 64.9 9.2 48.8 9.6
Snack Foods Group 24.3 3.4 26.3 5.2
Brooks Foods 11.1 1.6 10.2 2.0
Finger Lakes Packaging 42.5 6.0 57.4 11.3
Corporate1 207.1 29.2 (28.8) (5.6)
Subtotal ongoing operations 709.1 100.0 439.5 86.8
Businesses sold to be sold2 -- -- 67.0 13.2
Total 709.1 100.0 506.5 100.0
<FN>
1 Includes excess of purchase cost over net assets acquired.
2 The Company has sold the oats portion of the National Oats business, the Hiland potato
chips business, the meat snacks business, and the Nalley's U. S. Chips and Snack
business. See Note 4 - "Restructuring Program."
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statement of Operations
(Dollars in Millions)
The following table illustrates the Company's income statement data and the percentage of net
sales represented by these items for the three and six months ended December 24, 1994 and
December 25, 1993.
Three Months Ended Six Months Ended
12/24/94 12/25/93 12/24/94 12/25/93
% of % of % of % of
$ Sales $ Sales $ Sales $ Sales
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales 216.0 100.0 243.2 100.0 392.8 100.0 453.3 100.0
Cost of sales 149.3 69.1 169.4 69.7 276.1 70.3 322.4 71.1
Gross profit 66.7 30.9 73.8 30.3 116.7 29.7 130.9 28.9
Restructuring expenses, including
net gain/(loss) from division
disposals -- -- 8.1 3.3 (8.4) (2.1) 8.1 1.8
Change in control expenses (0.4) (0.2) -- -- (2.2) (0.6) -- --
Gain on assets resulting from
fire claim -- -- -- -- 6.5 1.7 -- --
Other selling, administrative
and general expenses (49.1) (22.7) (57.0) (23.4) (87.0) (22.1)(103.3) (22.8)
Operating income before dividing
with Pro-Fac 17.2 8.0 24.9 10.2 25.6 6.6 35.7 7.9
Interest expense (8.4) (3.9) (5.2) (2.1) (13.5) (3.5) (10.0) (2.2)
Pretax earnings before dividing
with Pro-Fac 8.8 4.1 19.7 8.1 12.1 3.1 25.7 5.7
Pro-Fac share of earnings (4.4) (2.0) (9.7) (4.0) (5.9) (1.5) (12.5) (2.8)
Income before taxes 4.4 2.1 10.0 4.1 6.2 1.6 13.2 2.9
Provision for taxes (2.6) (1.3) (3.3) (1.3) (4.0) 1.0 (5.3) (1.2)
Net Income 1.8 .8 6.7 2.8 2.2 0.6 7.9 1.7
/TABLE
<PAGE>
<PAGE>
THREE MONTH CHANGES FROM THE CORRESPONDING PRIOR YEAR PERIOD
Net Sales
The Company's net sales in the second quarter of fiscal 1995 of $216.0
million decreased $27.2 million or 11.2 percent from $243.2 million in the
second quarter of fiscal 1994. No net sales were attributable to businesses
sold in connection with the Company's restructuring program discussed in
Note 4 in the second quarter of fiscal 1995 whereas $28.8 million in the
second quarter of fiscal 1994. The Company's net sales from ongoing
operations excluding businesses sold were $216.0 million in the second
quarter of fiscal 1995, an increase of $1.6 million or 0.7 percent from
$214.4 million in the second quarter of fiscal 1994.
Cost of Sales
The Company's cost of sales in the second quarter of fiscal 1995 of $149.3
million decreased $20.0 million or 11.8 percent from $169.3 million in the
second quarter of fiscal 1994. Of this decrease, $19.5 million was
attributable to businesses sold and a $0.5 million reduction was
attributable to the Company's ongoing operations. This decrease of $0.5
million was the result of variations in volume, selling prices and product
mix.
Gross Profit
Gross profit of $66.7 million in the second quarter of fiscal 1995 decreased
$7.2 million or 9.7 percent from $73.9 million in the second quarter of
fiscal 1994. Of this net decrease, a $9.3 million reduction was
attributable to businesses sold and an increase of $2.1 million was
attributable to increased gross profit at the Company's ongoing operations.
This increase of $2.1 million was the result of variations in volume,
selling prices, costs and product mix.
Restructuring Expenses, Including Net Gain
From Division Disposals
Restructuring expenses, including net gain from division disposals resulted
in a gain in the second quarter of fiscal 1994 of $8.1 million, primarily
from the sale of the oats business of National Oats referred to in Note 4.
Change in Control Expenses
Change in control expenses recorded in the second quarter of fiscal 1995,
amounting to $0.4 million, reflect non-deductible expenses relating to the
sale of the Company covering legal, accounting, investment banking and other
expenses relative to the change in control issue. In recognizing this
expense, the Company allocated half of this amount to Pro-Fac as a deduction
to the profit split. See Note 3 - "Developments Related to Change in
Control of the Company".
Other Selling, Administrative and General Expenses
Other selling, administrative and general expenses in the second quarter of
fiscal 1995 of $49.1 million decreased $7.9 million or 13.9 percent from
$57.0 million in the second quarter of fiscal 1994. This decrease of $7.9
million includes primarily:<PAGE>
<PAGE>
<TABLE>
<CAPTION>
(In Millions) Businesses
Sold On Going Total
<S> <C> <C> <C>
Change in trade promotions $(2.8) $(1.3) $(4.1)
Change in advertising
and selling costs (4.7) 1.7 (3.0)
All other (.2) (.6) (.8)
Change in selling, administrative
and general expenses $(7.7) $ (0.2) $(7.9)
</TABLE>
The $0.6 million decrease in other administrative cost attributable to the
Company's ongoing operations was primarily related to reduced spending at
Comstock Michigan Fruit, with minor variations throughout the other
operations.
Interest Expense
Interest expense in the second quarter of fiscal 1995 of $8.4 million
increased $3.2 million or 61.5 percent from $5.2 million in the second
quarter of fiscal 1994. This increase was primarily attributable to the
increased borrowing related to the acquisition of the Company by Pro-Fac.
Pro-Fac Share of Earnings
Pro-Fac's share of the Company's earnings in the second quarter of fiscal
1995 of $4.4 million decreased $5.3 million or 54.6 percent from $9.7
million in the second quarter of fiscal 1994. The restructuring expenses
and change in control expenses discussed above accounted for a decrease of
$4.3 million of the $5.3 million decrease. The Pro-Fac share of earnings
in the second quarter of fiscal 1995 and fiscal 1994 was 50.0 percent and
49.2 percent, respectively, of the Company's pretax earnings before dividing
with Pro-Fac.
Income Before Taxes
The Company's income before taxes in the second quarter of fiscal 1995 of
$4.4 million decreased $5.6 million or 56.0 percent from $10.0 million in
the second quarter of fiscal 1994.
Provision for Taxes
The provision for taxes in the second quarter of fiscal 1995 of $2.6 million
decreased $0.7 million or 21.1 percent from $3.3 million in the second
quarter of fiscal 1994. The effective tax rate for the quarter ended
December 24, 1994 was 59.1 percent compared to 33.0 percent for the quarter
ended December 25, 1993. The effective tax rate was negatively effected by
the non-deductibility of the amortization of excess of purchase cost over
net assets acquired.
Net Income
The Company's net income for the second quarter of fiscal 1995 of $1.8
million decreased $4.9 million or 73.1 percent from $6.7 million in the
second quarter of fiscal 1994.
SIX MONTH CHANGES FROM THE CORRESPONDING PRIOR YEAR PERIOD
Net Sales
The Company's net sales in the first six months of fiscal 1995 of $392.8
million decreased $60.5 million or 13.3 percent from $453.3 million in the
first six months 1994. The net sales attributable to businesses sold or
to be sold in connection with the Company's restructuring program discussed
<PAGE>
in Note 3 were $2.3 million in the first six months of fiscal 1995 and $63.9
million in the first six months of fiscal 1994. The Company's net sales
from ongoing operations excluding businesses sold or to be sold were $390.5
million in the first six months of fiscal 1995, an increase of $1.1 million
or 0.3 percent from $389.4 million in the first six months of fiscal 1994.
Cost of Sales
The Company's cost of sales in the first six months of fiscal 1995 of $276.1
million decreased $46.3 million or 14.4 percent from $322.4 million in the
first six months of fiscal 1994. Of this decrease, $42.0 million was
attributable to businesses sold or to be sold and a $4.3 million reduction
was attributable to the Company's ongoing operations. This decrease of $4.3
million was the result in variations in volume, selling prices and product
mix.
Gross Profit
Gross profit of $116.7 million in the first six months of fiscal 1995
decreased $14.2 million or 10.8 percent from $130.9 million in the first six
months of fiscal 1994. Of this net decrease, a $19.6 million reduction was
attributable to businesses sold or to be sold and an increase of $5.4
million was attributable to increased gross profit at the Company's ongoing
operations. This increase of $5.4 million was the result of variations in
volume, selling prices, costs and product mix.
Restructuring Expenses Including Net (Loss)/Gain
From Division Disposals
Restructuring expenses, including net (loss)/gain from division disposals
resulted in a charge in the first six months of fiscal 1995 of $8.4 million
to reflect the impact of the sale of certain assets of the Nalley's U.S.
Chips and Snack other expenses relating to the disposal of this operation.
Of this amount, approximately 40 percent reflects non-cash charges.
Included in the first six months of fiscal 1994 was an $8.1 million net gain
from restructuring including division disposals.
Change in Control Expenses
Change in control expenses recorded in the first six months of fiscal 1995,
amounting to $2.2 million, reflect non-deductible expenses relating to the
sale of the Company covering legal, accounting, investment banking and other
expenses relative to the change in control issue. In recognizing this
expense, the Company allocated half of this amount to Pro-Fac as a deduction
to the profit split. See Note 3 - "Developments Related to Change in
Control of the Company".
Gain on Assets Resulting From Fire Claim
The gain on assets resulting from fire claim recorded in the first six
months of fiscal 1995 amounted to $6.5 million representing the insurance
proceeds for the replacement value in excess of the depreciated book value
of the building and equipment destroyed by fire on July 7, 1994 at the
Southern Frozen Foods Division.
Other Selling, Administrative and General Expenses
Other selling, administrative and general expenses in the first six months
of fiscal 1995 of $87.0 million decreased $16.3 million or 15.8 percent from
$103.3 million in the first six months of fiscal 1994. This net decrease
of $16.3 million includes primarily: <PAGE>
<PAGE>
<TABLE>
<CAPTION>
(Millions) Businesses
Sold or to be Sold On Going Total
<S> <C> <C> <C>
Change in trade promotions $ (5.5) $ 0.2 $ (5.3)
Change in advertising
and selling costs (9.8) 2.5 (7.3)
All other (2.3) (1.4) (3.7)
Change in selling, administrative
and general expenses $(17.6) $ 1.3 $(16.3)
</TABLE>
The $2.5 million increase in advertising and selling costs at the Company's
ongoing operations resulted from increased costs at Nalley's of $1.6 million
primarily in the canned and dressing product lines and an increase at
Comstock Michigan Fruit of $0.8 million primarily in the filling and topping
product lines. Minor variations occurred in the Company's other operations.
The $1.4 million decrease in other administrative cost attributable to the
Company's ongoing operations was primarily related to reduced spending at
Comstock Michigan Fruit and corporate headquarters and slight variations at
other operations.
Interest Expense
Interest expense in the first six months of fiscal 1995 of $13.5 million
increased $3.5 million or 35.0 percent from $10.0 million in the first six
months of fiscal 1994. This increase was primarily attributable to the
increased borrowing related to the acquisition of the Company by Pro-Fac.
Pro-Fac Share of Earnings
Pro-Fac's share of the Company's earnings in the first six months of fiscal
1995 of $5.9 million decreased $6.6 million or 52.8 percent from $12.5
million in the first six months of fiscal 1994. The restructuring expenses,
change in control and fire claim discussed above accounted for $6.1 million
of this decrease. The Pro-Fac share of earnings in the first six months of
fiscal 1995 and fiscal 1994 was 48.8 percent and 48.6 percent, respectively,
of the Company's pretax earnings before dividing with Pro-Fac.
Income Before Taxes
The Company's income before taxes in the first six months of fiscal 1995 of
$6.2 million decreased $7.0 million or 53.0 percent from $13.2 million in
the first six months of fiscal 1994.
Provision for Taxes
The provision for taxes in the first six months of fiscal 1995 of $4.0
million decreased $1.3 million or 24.5 percent from $5.3 million in the
first six months of fiscal 1994. The effective tax rate in the six months
ended December 24, 1994 was 64.5 percent compared to 40.2 percent in the six
months ended December 25, 1993. The non-deductibility of the amortization
of excess purchase cost over net assets acquired was responsible for the
significantly increased rate.
Net Income
The Company's net income for the first six months of fiscal 1995 of $2.2
million decreased $5.7 million or 72.2 percent from $7.9 million in the
first six months of fiscal 1994.
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historical Funding and Capital Expenditures
The operations of the Company historically have been funded with cash flows
generated by operations, borrowings from Pro-Fac (which in turn borrowed a
portion of these funds from the Bank) and borrowings under the Company's
seasonal facility with a syndicate of commercial lenders led by The Chase
Manhattan Bank, N.A. Pro-Fac and the Company had available seasonal lines
of credit of $100.0 million through September 1993, $86.0 million through
September 1994 and $96.0 million thereafter. The maximum borrowing on those
seasonal lines during fiscal 1994 was $81.0 million, while the average
amount outstanding during such year totaled approximately $51.5 million.
The balance outstanding at November 3, 1994 was $83.5 million. These
borrowings were repaid simultaneously with the consummation of the
Transactions.
In addition to borrowings by Pro-Fac, which had been loaned to the Company,
substantially all cash not distributed by Pro-Fac to its members or
securityholders had either been invested in assets leased to the Company or
loaned to the Company to finance its operations. As such, the information
provided below describes liquidity and capital resources of the Company and
Pro-Fac on a combined basis.
In the first six months of fiscal 1995, the net cash used by combined
operating activities of the Company and Pro-Fac of $70.1 million reflects
net income of $16.2 million for the Company and for Pro-Fac. Amortization
of assets amounted to $12.7 million. Inventories increased $60.2 million,
accounts receivable increased $13.1 million and the deferred tax provision
increased $21.3 million. Changes in other assets and liabilities amounted
to $47.0 million. The increases in the deferred tax provision and the
changes in other assets and liabilities were primarily related to the step-
up of fixed assets and the excess of cost over net assets acquired resulting
from the acquisition of Curtice-Burns by Pro-Fac.
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 used in investing activities of $6.3 million
in the first six months of fiscal 1995 was comprised of $5.7 million paid
for fixed assets, and a $0.7 million increase in the investment in the Bank.
Net cash provided by financing activities of $81.3 million in the first six
months of fiscal 1995 was primarily comprised of net proceeds of short-term
debt of $58.5 million and proceeds from the issuance long-term debt of
$192.9 million, cash paid for stock and stock options of $162.9 million, the
cash portion of non-qualified retain conversion of $0.3 million, and
dividends paid of $6.3 million.
New Borrowings; Additional Capital Contribution by Pro-Fac
Under the New Credit Agreement, the Company is able to borrow up to $86.0
million for seasonal working capital purposes under the Seasonal Facility,
subject to a borrowing base limitation, and obtain up to $10.0 million in
aggregate face amount of letters of credit pursuant to a letter of credit
facility. The borrowing base is defined as the lesser of (i) $86.0 million
and (ii) the sum of 60 percent of eligible accounts receivable plus 50
percent of eligible inventory. As of December 24, 1994, the outstanding
borrowing under the Seasonal Facility was $70.0 million and the borrowing
base was $108.2 million.
As of the Closing Date, after giving effect to the acquisition, (i) cash
borrowings outstanding under the Seasonal Facility were $72.6 million, (ii)
<PAGE>
additional availability under the Seasonal Facility, after taking into
account the amount of the borrowing base, was $13.4 million and (iii)
outstanding letters of credit were approximately $9.7 million. In addition
to its seasonal financing, as of November 3, 1994, after giving effect to
the Transactions, the Company would have had $22.5 million available for
long-term borrowings under the Term Loan Facility. The Company believes
that the cash flow generated by its operations and the amounts available
under the Seasonal Facility should be sufficient to fund its working capital
needs, fund its capital expenditures and service its debt for the
foreseeable future.
Pro-Fac intends to make additional equity contributions to the Company.
Specifically, Pro-Fac has undertaken to contribute not less than $10.0
million in equity to the Company by the end of fiscal 1995.
As a result of the acquisition of the Company by Pro-Fac, the Company's
total debt and interest expense have increased because the Notes have a
substantially higher interest rate than the debt that was repaid with the
proceeds from the Note Offering. The New Credit Agreement will require that
both Pro-Fac and the Company meet certain financial tests and ratios and
comply with certain other restrictions and limitations.
Supplemental Information on Inflation
During the last three fiscal years, 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.
Short- and Long-Term Trends
The 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.
Preliminary indications for the 1994 crop year are that national supplies
increased over the prior year due to the intentional increase in planned
production by vegetable processors and increased crop yields thereby
returning the current national supplies to ample levels. Yields in Curtice-
Burns' growing areas increased as well. There are variations among the
specific commodities and the effect on pricing and profitability in fiscal
1995 depends upon individual company pricing practices and the effect of
recent industry plant closings and production realignments.
Capital expenditures are expected to approximate $20.0 million in fiscal
1995. The largest single capital project in process is renovation and
updates to the Nalley's salad dressing plant in Tacoma, Washington. This
capital project amounts to approximately $10.0 million and will provide
increased production and efficiencies for the salad dressing line.
Required scheduled payments on long-term debt will approximate $8 million
in the current calendar year. Management expects that cash provided from
operations will be sufficient to cover the scheduled payments on long-term
debt and planned capital expenditures.
<PAGE>
<PAGE>
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
Exhibit 27 Financial Data Schedule
(b) The following reports on Form 8-K were filed during the fiscal period
to which this report relates:
Date Item
September 27, 1994 Item 5 - Other Events
Item 7 -Financial Statements and Exhibits
<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: 2/7/95 BY: /S/ William D. Rice
WILLIAM D. RICE
CHIEF FINANCIAL OFFICER, SENIOR
VICE PRESIDENT AND TREASURER
(Duly Authorized Officer and
Principal Financial Officer)
