Page 1 of 12 Pages
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 September 28, 1996
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 16-0855824
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification Number)
90 Linden Place, PO 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 October 15, 1996.
Common Stock: 10,000
<PAGE>
4
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<TABLE>
Curtice-Burns Foods, Inc.
Consolidated Statement of Operations
(Dollars in Thousands)
<CAPTION>
Quarter Ended
September 28, September 23,
1996 1995
<S> <C> <C>
Net sales $174,000 $165,178
Cost of sales 132,309 122,646
Gross profit 41,691 42,532
Selling, administrative, and general expenses (32,916) (36,725)
Operating income before dividing with Pro-Fac 8,775 5,807
Interest expense (9,375) (10,046)
Pretax loss before dividing with Pro-Fac and before cumulative effect of an
accounting change (600) (4,239)
Pro-Fac share of loss before cumulative effect of an accounting change 276 2,120
Loss before taxes and cumulative effect of an accounting change (324) (2,119)
Tax (provision)/benefit (73) 285
Loss before cumulative effect of an accounting change (397) (1,834)
Cumulative effect of an accounting change before dividing with Pro-Fac 4,516 0
Pro-Fac share of accounting change (2,630) 0
Net income/(loss) $ 1,489 $ (1,834)
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Curtice-Burns Foods, Inc.
Consolidated Balance Sheet
(Dollars in Thousands)
<CAPTION>
September 28, June 29, September 23,
1996 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 6,682 $ 8,873 $ 6,068
Accounts receivable trade, net 62,020 47,259 60,913
Accounts receivable, other 8,413 8,959 12,753
Income taxes refundable 0 0 1,105
Current deferred tax asset 11,724 11,724 3,954
Inventories -
Finished goods 158,474 97,018 179,559
Raw materials and supplies 35,161 33,556 52,387
Total inventories 193,635 130,574 231,946
Receivable from Pro-Fac 0 0 5,725
Prepaid manufacturing expense 1,111 11,339 0
Prepaid expenses and other current assets 8,570 1,066 4,944
Total current assets 292,155 219,794 327,408
Investment in Bank 24,439 24,439 22,907
Property, plant, and equipment, net 269,254 268,389 276,461
Assets held for sale 5,113 5,368 5,521
Goodwill and other intangibles, net 102,734 103,760 79,375
Other assets 12,549 12,500 13,560
Total assets $706,244 $634,250 $725,232
Liabilities and Shareholder Equity
Current liabilities:
Notes payable $ 63,000 $ 0 $ 86,000
Current portion of obligations under capital leases 548 547 764
Current portion of long-term debt 8,075 8,075 8,008
Accounts payable 46,150 54,661 59,122
Income taxes payable 5,054 3,836 0
Due to Pro-Fac 6,682 2,215 0
Accrued interest 4,741 9,447 4,525
Accrued employee compensation 8,143 8,368 7,042
Accrued manufacturing expense 0 0 787
Other accrued expenses 27,555 24,770 19,295
Total current liabilities 169,948 111,919 185,543
Long-term debt 162,164 149,683 185,274
Senior subordinated notes 160,000 160,000 160,000
Obligations under capital leases 1,125 1,125 1,650
Deferred income tax liabilities 51,572 51,572 34,923
Other non-current liabilities 20,716 20,746 18,593
Total liabilities 565,525 495,045 585,983
Commitments and Contingencies
Shareholder Equity:
Common stock, par value $.01; 10,000 shares
outstanding, owned by Pro-Fac 0 0 0
September 28, June 29, September 23,
1996 1996 1995
Additional paid-in capital:
Shareholder paid-in capital $151,108 $151,083 $151,083
Less capital contribution receivable 0 0 (10,000)
$151,108 $151,083 $141,083 151,108 151,083 141,083
Accumulated deficit (10,389) (11,878) (1,834)
Total shareholder equity 140,719 139,205 139,249
Total liabilities and shareholder equity $706,244 $634,250 $725,232
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Curtice-Burns Foods, Inc.
Consolidated Statement of Cash Flows
Quarter Ended
(Dollars in Thousands) September 28, September 23,
<CAPTION>
1996 1995
<S> <C> <C>
Cash Flows From Operating Activities:
Net income/(loss) $ 1,489 $ (1,834)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities -
Amortization of goodwill, other intangibles, and financing fees 1,226 1,180
Depreciation 6,202 6,374
Cumulative effect of an accounting change (1,886) 0
Change in assets and liabilities:
Accounts receivable (14,215) (5,138)
Inventories (63,061) (67,486)
Income taxes payable/refundable 17 (62)
Accounts payable and accrued expenses (429) (580)
Payable to/receivable from Pro-Fac 1,837 (4,724)
Other assets and liabilities (2,065) (3,895)
Deferred taxes 0 (122)
Net cash used in operating activities (70,885) (76,287)
Cash Flows From Investing Activities:
Purchase of property, plant, and equipment (7,105) (5,258)
Proceeds from disposals 293 4,790
Cash paid for acquisition 0 (5,400)
Net cash used in investing activities (6,812) (5,868)
Cash Flows From Financing Activities:
Proceeds from issuance of short-term debt 63,000 86,000
Proceeds from issuance of long-term debt 18,000 5,400
Capital contribution by Pro-Fac 25 0
Payments on long-term debt (5,519) (7,335)
Net cash provided by financing activities 75,506 84,065
Net change in cash and cash equivalents (2,191) 1,910
Cash and cash equivalents at beginning of period 8,873 4,158
Cash and cash equivalents at end of period $ 6,682 $ 6,068
Fiscal 1996 amounts above exclude the effects of the acquisition of Packer Foods as detailed in
the Supplemental Disclosure of Cash Flow Information
Supplemental Disclosure of Cash Flow Information:
Cash paid/(received) during the period for -
Interest (net of amount capitalized) $ 13,996 $ 14,694
Income taxes, net $ 56 $ (82)
Acquisition of Packer Foods in July 1995:
Accounts receivable $ 1,375
Inventories 4,278
Prepaid expenses and other current assets 270
Property, plant and equipment 5,884
Goodwill 128
Accounts payable (4,954)
Accrued expenses (257)
Deferred income tax (226)
Other non-current liabilities (1,098)
Cash paid for acquisition $ 5,400
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<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 Company is a
wholly-owned subsidiary of Pro-Fac Cooperative, Inc. (Pro-Fac). These financial
statements should be read in conjunction with the financial statements and
accompanying notes contained in the Company's Form 10-K for the fiscal year
ended June 29, 1996.
Consolidation: The consolidated financial statements include the Company and its
wholly-owned subsidiaries after elimination of intercompany transactions and
balances.
Change in Accounting Principle: Effective June 30, 1996, accounting procedures
were changed to include in prepaid expenses and other current assets,
manufacturing spare parts previously charged directly to expense. Management
believes this change is preferable because it provides a better matching of
costs with related revenues. In addition, the independent accountants of the
Company have agreed that this change in accounting is preferable. Their report,
relative to this change in accounting, is attached to this filing as Exhibit 18.
The Senior Subordinated Note agreement of the Company allows that if holders of
greater than 25 percent of the Notes object to this change, the Company would
return to its previous accounting practice. The favorable cumulative effect of
the change (net of the Pro-Fac share of $2.6 million and income taxes of $1.2
million) was $1.9 million. Pro forma amounts for the cumulative effect of the
accounting change on prior periods are not determinable due to the lack of
physical inventory counts required to establish quantities at the respective
dates.
Reclassification: Certain items for fiscal 1996 have been reclassified to
conform with fiscal 1997 presentation.
NOTE 2. AGREEMENTS WITH PRO-FAC
The contractual relationship between the two parties is defined in the Pro-Fac
Marketing and Facilitation Agreement (Agreement). Under the Agreement, the
Company pays Pro-Fac the commercial market value (CMV) for all crops supplied by
Pro-Fac. CMV is defined as the weighted average price paid by other commercial
processors for similar crops sold under preseason contracts and in the open
market in the same or competing market area. Although CMV is intended to be no
more than the fair market value of the crops purchased by Curtice Burns, it may
be more or less than the price Curtice Burns would pay in the open market in the
absence of the Agreement. Under the Agreement the Company is required to have on
its board of directors some persons who are neither members of nor affiliated
with Pro-Fac (Disinterested Directors). The number of Disinterested Directors
must at least equal the number of directors who are members of Pro-Fac. The
volume and type of crops to be purchased by Curtice Burns under the Agreement
are determined pursuant to its annual profit plan, which requires the approval
of a majority of the Disinterested Directors. In addition, in any year in which
the Company has earnings on products which were processed from crops supplied by
Pro-Fac (Pro-Fac Products), the Company pays to Pro-Fac up to 90 percent of
such earnings, but in no case more than 50 percent of all pretax earnings
(before dividing with Pro-Fac) of the Company. In years in which the Company has
losses on Pro-Fac Products, the Company reduces the CMV it would otherwise pay
to Pro-Fac by up to 90 percent of such losses, but in no case by more than 50
percent of all pretax losses (before dividing with Pro-Fac) of the Company.
Additional patronage income is paid to Pro-Fac for services provided to Curtice
Burns, including the provision of a long term, stable crop supply, favorable
payment terms for crops and access to cooperative bank financing and the sharing
of risks of losses of certain operations of the business. Earnings and losses
are determined at the end of the fiscal year, but are accrued on an estimated
basis during the year.
Some of the additional patronage income received by Pro-Fac from the Company is
not paid in cash by Pro-Fac to its members but is instead allocated to them
through notices of allocation (Retains). Funds represented by Retains have
historically been reinvested by Pro-Fac in the Company. Under the Indentures
related to the Notes, Pro-Fac is required to reinvest at least 70 percent of the
additional Patronage income in Curtice Burns.
Amounts received by Pro-Fac from Curtice Burns for the quarters ended September
28, 1996 and September 23, 1995 include: commercial market value of crops
delivered, $34.3 million and $31.8 million, respectively; and additional
proceeds from profit/(loss) sharing provisions, $2.4 and $(2.1) million,
respectively.
<PAGE>
NOTE 3. OTHER MATTERS
Finger Lakes Packaging: On October 9, 1996, the Company completed the sale of
Finger Lakes Packaging to Silgan Containers Corporation, an indirect,
wholly-owned subsidiary of Silgan Holdings, Inc., headquartered in Stamford,
Connecticut. The transaction price was approximately $30.0 million and includes
a long-term supply agreement between Silgan and Curtice Burns. A gain of
approximately $4.0 million will be recognized in the second quarter of the
Company earnings. Proceeds from this sale were applied to Bank debt.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of this discussion is to outline the most significant reasons for
changes in net sales, expenses and earnings for the first quarter of fiscal 1997
compared to the prior year quarter.
The following tables illustrate the Company's results of operations by business
for the quarters ended September 28, 1996 and September 23, 1995, and the
Company's total assets by business as of September 28, 1996 and September 23,
1995.
<TABLE>
Net Sales
(Dollars in Millions)
<CAPTION>
Quarter Ended
September 28, September 23,
1996 1995
% of % of
$ Total $ Total
<S> <C> <C> <C> <C>
Comstock Michigan Fruit (CMF) $ 78.0 44.8% $ 68.7 41.6%
Nalley Fine Foods 44.2 25.4 46.4 28.1
Southern Frozen Foods 22.4 12.9 22.9 13.9
Snack Foods Group 17.2 9.9 15.4 9.3
Brooks Foods 7.1 4.1 6.9 4.2
Subtotal ongoing operations 168.9 97.1 160.3 97.1
Business to be sold1 5.1 2.9 4.9 2.9
Total $174.0 100.0% $165.2 100.0%
<FN>
1 Subsequent to quarter end, the Company sold Finger Lakes Packaging. See NOTE 3 - Other Matters.
</FN>
</TABLE>
<PAGE>
<TABLE>
Operating Income1
(Dollars in Millions)
<CAPTION>
Quarter Ended
September 28, September 23,
1996 1995
% of % of
$ Total $ Total
<S> <C> <C> <C> <C>
CMF $ 3.7 42.0% $ 3.9 67.2%
Nalley Fine Foods 2.1 23.9 1.0 17.2
Southern Frozen Foods 1.9 21.6 1.0 17.2
Snack Foods Group 1.5 17.0 1.0 17.2
Brooks Foods 0.5 5.7 0.4 6.9
Corporate overhead (1.1) (12.5) (2.2) (37.8)
Subtotal ongoing operations 8.6 97.7 5.1 87.9
Business to be sold2 0.2 2.3 0.7 12.1
Total $ 8.8 100.0% $ 5.8 100.0%
<FN>
1 Excludes cumulative effect of an accounting change. See NOTE 1 - Summary of Accounting Policies - Change in Accounting
Principle.
2 Subsequent to quarter end, the Company sold Finger Lakes Packaging. See NOTE 3 - Other Matters.
</FN>
</TABLE>
<TABLE>
EBITDA1
(Dollars in Millions)
<CAPTION>
Quarter Ended
September 28, September 23,
1996 1995
% of % of
$ Total $ Total
<S> <C> <C> <C> <C>
CMF $ 7.1 44.4% $ 7.4 56.5%
Nalley Fine Foods 3.6 22.5 2.3 17.6
Southern Frozen Foods 3.0 18.7 2.3 17.6
Snack Foods Group 2.0 12.5 1.5 11.4
Brooks Foods 0.7 4.4 0.6 4.6
Corporate overhead (1.0) (6.3) (2.2) (16.8)
Subtotal ongoing operations 15.4 96.2 11.9 90.9
Business to be sold2 0.6 3.8 1.2 9.1
Total $16.0 100.0% $13.1 100.0%
<FN>
1 EBITDA does not represent information prepared in accordance with generally accepted accounting principles, nor is such
information considered superior to information presented in accordance with generally accepted accounting principles. Excludes
cumulative effect of an accounting change. See NOTE 1 - Summary of Accounting Policies - Change in Accounting Principle.
2 Subsequent to quarter end, the Company sold Finger Lakes Packaging. See NOTE 3 - Other Matters.
</FN>
</TABLE>
<PAGE>
10
<TABLE>
Total Assets
(Dollars in Millions)
<CAPTION>
Quarter Ended
September 28, September 23,
1996 1995
% of % of
$ Total $ Total
<S> <C> <C> <C> <C>
CMF $313.4 44.4% $338.2 46.6%
Nalley Fine Foods 154.7 21.9 161.5 22.3
Southern Frozen Foods 90.6 12.8 99.2 13.7
Snack Foods Group 27.6 3.9 28.0 3.9
Brooks Foods 24.2 3.4 23.4 3.2
Corporate 61.7 8.8 37.4 5.1
Subtotal ongoing operations 672.2 95.2 687.7 94.8
Business to be sold1 34.0 4.8 37.5 5.2
Total $706.2 100.0% $725.2 100.0%
<FN>
1 Subsequent to quarter end, the Company sold Finger Lakes Packaging. See NOTE 3 - Other Matters.
</FN>
</TABLE>
The following table illustrates the Company's income statement data and the
percentage of net sales represented by these items for the quarters ended
September 28, 1996 and September 23, 1995.
<TABLE>
Consolidated Statement of Operations
(Dollars in Millions)
<CAPTION>
Quarter Ended
September 28, September 23,
1996 1995
% of % of
$ Net Sales $ Net Sales
<S> <C> <C> <C> <C>
Net sales $174.0 100.0% $165.2 100.0%
Cost of sales 132.3 76.0 122.6 74.2
Gross profit 41.7 24.0 42.6 25.8
Selling, administrative and general expenses (32.9) (18.9) (36.8) (22.3)
Operating income before dividing with Pro-Fac 8.8 5.1 5.8 3.5
Interest expense (9.4) (5.4) (10.0) (6.0)
Pretax loss before dividing with Pro-Fac and before
cumulative effect of an accounting change (0.6) (0.3) (4.2) (2.5)
Pro-Fac share of loss before cumulative effect of an
accounting change 0.3 0.2 2.1 1.3
Loss before taxes and cumulative effect of an accounting change (0.3) (0.1) (2.1) (1.2)
Tax benefit/(provision) (0.1) (0.1) 0.3 0.1
Cumulative effect of an accounting change before dividing
with Pro-Fac 4.5 2.6 0.0 0.0
Pro-Fac share of accounting change (2.6) (1.5) 0.0 0.0
Net income/(loss) $ 1.5 0.9% $ (1.8) (1.1)%
</TABLE>
CHANGES FROM FIRST QUARTER FISCAL 1995 TO FIRST QUARTER FISCAL 1996
Net Sales: The net sales increase in the first quarter compared to the prior
year of $8.8 million is primarily attributable to increased volume and improved
pricing at both CMF and the Snack Foods Group.
<PAGE>
More specifically, the vegetable category at CMF has experienced improved
pricing due to several industry factors as well as increasing sales to new
customers. Net sales for the CMF vegetable category increased $5.0 million.
Higher product costs have increased pricing in the canned-fruit category which
along with incremental sales from the Packer Foods acquisition have resulted in
net sales increases of approximately $1.4 million for the quarter.
Increases at the Snack Foods Group are attributable to successful
sales/marketing efforts and the acquisition of Matthews Candy Company during the
fourth quarter of fiscal 1996.
Canned meats and salads at Nalley have increased $1.8 million due to sales and
marketing efforts. These increases were, however, offset by a net sales decrease
in the pickle ($2.5 million) and salad dressing ($1.1 million) product lines.
These decreases were the result of a decline in sales volume as a result of
competitive new product introductions. Sales and marketing efforts for these
categories are currently being reviewed to ensure opportunities for growth are
obtained.
Gross Profit: Gross profit of $41.7 million in the quarter ended September 28,
1996 decreased $0.9 million or 2.1 percent from $42.6 million in the quarter
ended September 23, 1995. This decrease is primarily attributable to the
competitive pressures experienced in the salad dressing category, primarily
offset by stronger pricing in most other product lines.
Selling, Administrative, and General Expenses: Selling, Administrative, and
General expenses have decreased $3.8 million as compared with the prior year. A
$1.3 million decrease in trade promotions related primarily to decreased
spending at the Nalley division. Reductions in other administrative expenses
accounted for $2.3 million and were primarily attributable to the elimination of
consulting and legal expenses incurred in the prior year and benefits from the
restructuring initiative that began late in fiscal 1996.
Interest Expense: The decrease in interest expense was a benefit of inventory
reduction and cash flow management programs initiated in fiscal 1996.
Provision for Taxes: The provision for taxes in the quarter ended September 28,
1996 of $0.1 million changed $0.4 million from the benefit of $0.3 million in
the quarter ended September 23, 1995. The tax provision was negatively impacted
by the non-deductibility of goodwill.
Cumulative Effect of a Change in Accounting: Effective June 30, 1996, accounting
procedures were changed to include in prepaid expenses and other current assets,
manufacturing spare parts previously charged directly to expense. Management
believes this change is preferable because it provides a better matching of
costs with related revenues. In addition, the independent accountants of the
Company have agreed that this change in accounting is preferable. Their report,
relative to this change in accounting, is attached to this filing as Exhibit 18.
The Senior Subordinated Note agreement of the Company allows that if holders of
greater than 25 percent of the Notes object to this change, the Company would
return to its previous accounting practice. The favorable cumulative effect of
the change (net of the Pro-Fac share of $2.6 million and income taxes of $1.2
million) was $1.9 million. Pro forma amounts for the cumulative effect of the
accounting change on prior periods are not determinable due to the lack of
physical inventory counts required to establish quantities at the respective
dates.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion highlights the major variances in the Consolidated
Statement of Changes in Cash Flows for the first quarter of fiscal 1997 compared
to the first quarter of fiscal 1996.
Net cash used in operating activities improved in the first quarter of fiscal
1997 primarily due to increased earnings, an inventory-reduction program
initiated in fiscal 1996, and the impact of intercompany transactions with
Pro-Fac Cooperative. Cash usage relating to accounts receivable in the first
quarter of fiscal 1997 varied from the prior year primarily due to the receipt
of insurance proceeds in the first quarter of fiscal 1996.
Net cash used in investing activities varied slightly from year to year.
Offsetting items in the prior year included the disposition of Nalley Ltd. and
the acquisition of Packer. The purchase of property, plant, and equipment in
both years was for general operating purposes.
Net cash provided by financing activities decreased from the prior year
primarily due to increased earnings, the inventory-reduction program, the
separate borrowing arrangement of Pro-Fac, and the additional debt incurred in
the prior year to finance the Packer acquisition.
<PAGE>
Borrowings: Under the New Credit Agreement, as amended, Curtice Burns is able to
borrow up to $84.0 million for seasonal working capital purposes under the
Seasonal Facility, subject to a borrowing base limitation, and obtain up to
$14.2 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) the total
line and (ii) the sum of 60 percent of eligible accounts receivable plus 50
percent of eligible inventory.
On June 28, 1996, Pro-Fac established a seasonal line of credit with the Bank.
In doing so, the Bank limited the availability of the Company under the seasonal
line of credit to $84.0 million less outstanding borrowings on the Pro-Fac line
of credit. There were no outstanding borrowings under the Pro-Fac seasonal line
at September 28, 1996.
As of September 28, 1996, (i) cash borrowings outstanding under the Seasonal
Facility were $63.0 million and (ii) additional availability under the Seasonal
Facility, after taking into account the amount of the borrowing base and
outstanding borrowings of Pro-Fac, was $21.0 million. In addition to its
seasonal financing, as of September 28, 1996, the Company had $15.1 million
available for long-term borrowings under the Term Loan Facility. Because of the
additional debt as a result of the acquisition of the Company by Pro-Fac, the
cash flow of the Company is the single, most important measure of performance.
The Company believes that the cash flow generated by its operations and the
amounts available under the Seasonal and Term Loan Facilities should be
sufficient to fund its working capital needs, fund its capital expenditures and
service its debt for the foreseeable future.
Certain financing arrangements require that Pro-Fac and Curtice Burns meet
certain financial tests and ratios and comply with certain other restrictions
and limitations. As of September 28, 1996, the Company is in compliance with, or
has obtained waivers for, all such covenants, restrictions and limitations.
Short- and Long-Term Trends: The vegetable portion of the business, which
includes CMF and Southern Frozen Foods, 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 the crops of that year. 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 effect of the 1996 growing season on fiscal 1997 financial results cannot be
estimated until late 1996 or early calendar 1997 when harvesting is complete and
when local and national supplies can be determined. The Company began fiscal
1997 with $29.6 million less inventories than the beginning of fiscal 1996 and
at the end of the first quarter of fiscal 1997 inventories were $38.3 million
less than the prior year. The reduction in inventories was primarily
accomplished as a result of decreased production and increased sales and was
planned to correct the higher carryover inventory situation from the previous
year and to improve the utilization of capital. The spring of 1996 produced
excessive rain in some of the growing areas of the Company and drought
conditions in some others. These adverse weather conditions delayed or reduced
the processing of certain early 1996 crops which further reduced inventory
levels and increased costs.
Other Matters:
Finger Lakes Packaging: On October 9, 1996, the Company completed the sale of
Finger Lakes Packaging to Silgan Containers Corporation, an indirect,
wholly-owned subsidiary of Silgan Holdings, Inc., headquartered in Stamford,
Connecticut. The transaction price was approximately $30.0 million and includes
a long-term supply agreement between Silgan and Curtice Burns. A gain of
approximately $4.0 million will be recognized in the second quarter earnings of
the Company. Proceeds from this sale were applied to Bank debt.
Chief Executive Officer Retirement: Roy A. Myers, chief executive officer of the
Company, has announced his retirement effective January 3, 1997. Effective that
date, the board of directors has appointed chief operating officer, Dennis M.
Mullen, as president and chief executive officer.
Deferred Taxes: During the first quarter of fiscal 1996 the net deferred taxes
liabilities of the Company were reduced by approximately $22 million. The
adjustment was made in conjunction with the Company obtaining its cooperative
tax status and was applied against goodwill, as it represented an uncertainty
related to income taxes outstanding at the date of the acquisition. Based on
further guidance from outside counsel, it was later determined that such an
adjustment was not warranted. Accordingly, the adjustment was reversed at the
end of fiscal 1996.
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
Exhibit 18 Change in Accounting Method
Exhibit 27 Financial Data Schedule
(b) No current report on Form 8-K was filed during the fiscal period to
which this report relates.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: October 30, 1996 By:/s/ William D. Rice
WILLIAM D. Rice
Senior Vice President and Secretary
Exhibit 18
October 11, 1996
To the Board of Directors of
Curtice-Burns Foods, Inc. and
Pro-Fac Cooperative, Inc.
Dear Directors:
We have been furnished with a copy of the Form 10-Q for Curtice-Burns Foods,
Inc., a wholly-owned subsidiary of Pro-Fac Cooperative, Inc., for the quarter
ended September 28, 1996. NOTE 1 therein describes a change in the method of
accounting for spare parts inventory, whereby spare parts previously charged
directly to expense will be capitalized until placed in service. It should be
understood that the preferability of one acceptable method of accounting for
spare parts over another has not been addressed in any authoritative accounting
literature, and in arriving at our opinion expressed below, we have relied on
the business planning and judgment of management. Based upon our discussions
with management and the stated reasons for the change, we believe that such
change represents, in your circumstances, the adoption of a preferable
alternative accounting principle for spare parts in conformity with Accounting
Principles Board Opinion No. 20.
We have not made an audit in accordance with generally accepted auditing
standards of the financial statements of Curtice-Burns Foods, Inc. for the
three-month period ended September 28, 1996 and, accordingly, we express no
opinion thereon or on the financial information files as part of the Form 10-Q
of which this letter is to be an exhibit.
Yours very truly,
/s/ Price Waterhouse LLP
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<NAME> Curtice-Burns Foods, Inc.
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0
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