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Page 1 of 13 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 December 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 January 15, 1997.
Common Stock: 10,000
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
Curtice-Burns Foods, Inc.
Consolidated Statement of Operations
<TABLE>
(Dollars in Thousands)
<CAPTION>
Three Months Ended Six Months Ended
December 28, December 23, December 28, December 23,
1996 1995 1996 1995
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales $208,186 $208,186 $382,186 $373,364
Cost of sales 148,630 156,495 280,939 279,141
-------- -------- -------- --------
Gross profit 59,556 51,691 101,247 94,223
Gain from the sale of Finger Lakes Packaging 3,565 0 3,565 0
Selling, administrative, and general expenses (41,934) (46,316) (74,850) (83,041)
-------- -------- -------- --------
Operating income before dividing with Pro-Fac 21,187 5,375 29,962 11,182
Interest expense (9,385) (10,959) (18,760) (21,005)
--------- -------- -------- --------
Pretax income/(loss) before dividing with Pro-Fac and
before cumulative effect of an accounting change 11,802 (5,584) 11,202 (9,823)
Pro-Fac share of (income)/loss before cumulative effect of
an accounting change (5,429) 2,792 (5,153) 4,912
--------- -------- -------- --------
Income/(loss) before taxes and cumulative effect of an
accounting change 6,373 (2,792) 6,049 (4,911)
Tax (provision)/benefit (2,669) 915 (2,742) 1,200
--------- -------- -------- --------
Income/(loss) before cumulative effect of an accounting
change 3,704 (1,877) 3,307 (3,711)
Cumulative effect of an accounting change before
dividing with Pro-Fac 0 0 4,516 0
Pro-Fac share of accounting change 0 0 (2,630) 0
---------- -------- -------- --------
Net income/(loss) $ 3,704 $ (1,877) $ 5,193 $ (3,711)
========== ======== ======== =========
<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>
December 28, June 29, December 23,
1996 1996 1995
------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 7,653 $ 8,873 $ 6,228
Accounts receivable trade, net 57,633 47,259 62,094
Accounts receivable, other 6,942 8,959 9,853
Income taxes refundable 0 0 1,877
Current deferred tax asset 7,988 11,724 3,954
Inventories -
Finished goods 142,545 97,018 165,009
Raw materials and supplies 35,128 33,556 46,581
-------- -------- --------
Total inventories 177,673 130,574 211,590
-------- -------- --------
Receivable from Pro-Fac 0 0 8,490
Prepaid manufacturing expense 0 11,339 0
Prepaid expenses and other current assets 9,243 1,066 4,049
-------- -------- --------
Total current assets 267,132 219,794 308,135
Investment in Bank 24,439 24,439 22,907
Property, plant, and equipment, net 250,002 268,389 273,827
Assets held for sale 903 5,368 5,935
Goodwill and other intangibles, net 99,842 103,760 83,706
Other assets 11,303 12,500 12,770
-------- -------- --------
Total assets $653,621 $634,250 $707,280
======== ======== ========
Liabilities and Shareholder's Equity Current liabilities:
Notes payable $ 24,000 $ 0 $ 70,000
Current portion of obligations under capital leases 547 547 764
Current portion of long-term debt 8,075 8,075 8,056
Accounts payable 44,373 54,661 49,218
Income taxes payable 6,359 3,836 0
Due to Pro-Fac 12,323 2,215 0
Accrued interest 9,444 9,447 9,486
Accrued employee compensation 8,551 8,368 7,945
Accrued manufacturing expense 2,771 0 2,269
Other accrued expenses 30,234 24,770 27,514
-------- ---------- --------
Total current liabilities 146,677 111,919 175,252
Long-term debt 133,342 149,683 181,420
Senior subordinated notes 160,000 160,000 160,000
Obligations under capital leases 1,125 1,125 1,620
Deferred income tax liabilities 47,356 51,572 33,710
Other non-current liabilities 20,698 20,746 17,906
-------- ---------- --------
Total liabilities 509,198 495,045 569,908
-------- --------- --------
Commitments and Contingencies
Shareholder's Equity:
Common stock, par value $.01; 10,000 shares
outstanding, owned by Pro-Fac 0 0 0
December 28, June 29, December 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 (6,685) (11,878) (3,711)
-------- -------- --------
Total shareholder's equity 144,423 139,205 137,372
-------- -------- --------
Total liabilities and shareholder's equity $653,621 $634,250 $707,280
======== ======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
Curtice-Burns Foods, Inc.
Consolidated Statement of Cash Flows
<TABLE>
Six Months Ended
(Dollars in Thousands) December 28, December 23,
1996 1995
<CAPTION>
<S> <C> <C>
Cash Flows From Operating Activities:
Net income/(loss) $ 5,193 $ (3,711)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities -
Amortization of goodwill, other intangibles, and financing fees 2,451 2,053
Depreciation 11,897 12,772
Cumulative effect of an accounting change (1,886) 0
Gain on sale of Finger Lakes Packaging (3,565) 0
Change in assets and liabilities:
Accounts receivable (14,512) (3,878)
Inventories (51,790) (47,158)
Income taxes payable/refundable 2,709 (834)
Accounts payable and accrued expenses 10,463 (351)
Payable to/receivable from Pro-Fac 7,478 (7,951)
Other assets and liabilities (2,130) (2,999)
-------- ---------
Net cash used in operating activities (33,692) (52,057)
-------- --------
Cash Flows From Investing Activities:
Purchase of property, plant, and equipment (9,651) (8,751)
Proceeds from disposals 34,439 4,019
Cash paid for acquisition 0 (5,400)
-------- --------
Net cash provided by/(used in) investing activities 24,788 (10,132)
-------- --------
Cash Flows From Financing Activities:
Proceeds from issuance of short-term debt 24,000 70,000
Proceeds from issuance of long-term debt 18,000 5,400
Capital contribution by Pro-Fac 25 0
Payments on long-term debt (34,341) (11,141)
-------- --------
Net cash provided by financing activities 7,684 64,259
-------- --------
Net change in cash and cash equivalents (1,220) 2,070
Cash and cash equivalents at beginning of period 8,873 4,158
-------- --------
Cash and cash equivalents at end of period $ 7,653 $ 6,228
======== ========
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) $ 18,617 $ 25,415
======== ========
Income taxes, net $ 32 $ (366)
======== ========
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 and, in the opinion
of management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results of operations for
these periods. Curtice-Burns Foods, Inc. (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. The results of operations for the interim periods are not necessarily
indicative of the results of operations for the full year.
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 Company's independent accountants
have agreed that this change in accounting is preferable. The Company's
Indenture, which covers the Company's Senior Subordinated Notes (the "Notes"),
provides among other things that, if holders of greater than 25 percent of the
Notes object to this change, the Company must return to its previous accounting
practice. The favorable cumulative effect of the change (net of Pro-Fac's 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 Indenture
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 six months ended December
28, 1996 and December 23, 1995 include: commercial market value of crops
delivered, $49.6 million and $45.9 million, respectively; and additional
proceeds from profit/(loss) sharing provisions, $7.8 million and $(4.9) million,
respectively.
<PAGE>
NOTE 3. OTHER MATTERS
Seneca to Purchase Private Label Canned Vegetable Businesses: On January 6,
1997, the Company and Seneca Foods Corporation ("Seneca") jointly announced that
they have signed a letter of intent for Seneca to acquire certain Curtice Burns
assets and to realign the sourcing of Seneca's New York State raw vegetable
products. The transaction calls for Seneca to acquire the Curtice Burns
Leicester, New York production facility and the LeRoy, New York distribution
center, as well as the Blue Boy brand.
Seneca will produce, market and sell the Blue Boy brand canned vegetables and
private label canned vegetables and will also pack certain products on a
contractual basis for Curtice Burns. The acquisition will not include the
Greenwood and Silver Floss labels, or Curtice Burns sauerkraut, beets in glass
containers, or frozen vegetable business. Terms and conditions of the agreement
are subject to ongoing negotiations and board approval from Seneca, the Company,
and Pro-Fac.
Seneca and the Company will also forge a long-term strategic alliance to combine
their agricultural departments into one organization to be managed by Curtice
Burns. The objective is to maximize sourcing efficiencies of New York State
vegetable requirements for both companies. This agreement will initially have a
minimum ten-year term.
The parties are working towards finalizing the agreement, subject to further due
diligence by both parties, and expect to close by the end of March. A
mutually-agreed goal for both companies is a continuity of employment at the
facilities.
No significant gain or loss is anticipated as a result of this transaction.
Finger Lakes Packaging: On October 9, 1996, the Company completed the sale of
Finger Lakes Packaging, Inc. ("Finger Lakes Packaging"), a subsidiary of the
Company to Silgan Containers Corporation, an indirect, wholly-owned subsidiary
of Silgan Holdings, Inc., headquartered in Stamford, Connecticut. The Company
received proceeds of approximately $30.0 million. The transaction also included
a long-term supply agreement between Silgan and Curtice Burns. A gain of
approximately $3.6 million was recorded. Proceeds from this sale were applied to
the outstanding loans at CoBank, ACB ("the Bank").
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 three and six month periods
of fiscal 1997 compared to the comparable prior year periods.
The following tables illustrate the Company's results of operations by business
for the three- and six-month periods ended December 28, 1996 and December 23,
1995, and the Company's total assets by business as of December 28, 1996 and
December 23, 1995.
<TABLE>
Net Sales
(Dollars in Millions)
<CAPTION>
Three Months Ended Six Months Ended
December 28, December 23, December 28, December 23,
1996 1995 1996 1995
------------------- ----------------- ------------------ ------------------
% of % of % of % of
$ Total $ Total $ Total $ Total
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comstock Michigan Fruit ("CMF") $109.2 52.5% $104.2 50.0% $187.3 49.0% $172.9 46.3%
Nalley Fine Foods 45.6 21.9 46.5 22.3 89.8 23.5 92.9 24.9
Southern Frozen Foods 25.0 12.0 26.5 12.7 47.3 12.4 49.4 13.2
Snack Foods Group 16.3 7.8 15.0 7.2 33.5 8.8 30.4 8.1
Brooks Foods 12.1 5.8 12.4 6.0 19.2 5.0 19.3 5.2
------ ----- ------ ----- ------ ----- ------ -----
Subtotal ongoing operations 208.2 100.0 204.6 98.2 377.1 98.7 364.9 97.7
Finger Lakes Packaging 0.0 0.0 3.6 1.8 5.1 1.3 8.5 2.3
------ ----- ------ ----- ------ ----- ------ -----
Total $208.2 100.0% $208.2 100.0% $382.2 100.0% $373.4 100.0%
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
<PAGE>
<TABLE>
Operating Income1
(Dollars in Millions)
<CAPTION>
Three Months Ended Six Months Ended
December 28, December 23, December 28, December 23,
1996 1995 1996 1995
------------------- ----------------- ------------------ ------------------
% of % of % of % of
$ Total $ Total $ Total $ Total
----- ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CMF $ 9.9 46.7 $ 8.2 151.9% $13.6 45.5 $12.1 108.0
Nalley Fine Foods 3.0 14.1 (5.7) (105.6) 5.1 17.1 (4.7) (42.0)
Southern Frozen Foods 2.8 13.2 2.1 38.9 4.6 15.4 3.1 27.7
Snack Foods Group 1.6 7.5 0.9 16.7 3.1 10.4 1.9 17.0
Brooks Foods 2.2 10.4 1.8 33.3 2.7 9.0 2.2 19.6
Corporate overhead (2.4) (11.2) (2.0) (37.1) (4.1) (13.8) (4.0) (35.7)
----- ----- ----- ----- ----- ----- ----- -----
Subtotal 17.1 80.7 5.3 98.1 25.0 83.6 10.6 94.6
Business sold and other nonrecurring2 4.1 19.3 0.1 1.9 4.9 16.4 0.6 5.4
----- ----- ----- ----- ----- ----- ----- -----
Total $21.2 100.0% $ 5.4 100.0% $29.9 100.0% $11.2 100.0%
===== ===== ===== ===== ===== ===== ===== =====
<FN>
1 Excludes cumulative effect of an accounting change. See NOTE 1 - "Summary
of Accounting Policies - Change in Accounting Principle."
2 Includes Finger Lakes Packaging earnings and gain on sale. See NOTE 3 -
"Other Matters." Also includes strategic plan consulting fees, a loss on the
disposal of property held for sale, and final settlement of an insurance
claim.
</FN>
</TABLE>
<TABLE>
EBITDA1
(Dollars in Millions)
<CAPTION>
Three Months Ended Six Months Ended
December 28, December 23, December 28, December 23,
1996 1995 1996 1995
------------------ ----------------- ------------------ ------------------
% of % of % of % of
$ Total $ Total $ Total $ Total
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CMF $13.4 48.0% $11.6 92.8% $20.5 46.7% $19.0 74.2%
Nalley Fine Foods 4.5 16.1 (4.3) (34.4) 8.1 18.4 (2.0) (7.8)
Southern Frozen Foods 3.8 13.6 3.4 27.2 6.8 15.5 5.7 22.3
Snack Foods Group 2.0 7.2 1.3 10.4 4.1 9.3 2.8 10.9
Brooks Foods 2.4 8.6 2.0 16.0 3.1 7.1 2.6 10.2
Corporate overhead (2.4) (8.6) (2.0) (16.0) (4.1) (9.3) (4.0) (15.7)
----- ----- ----- ----- ----- ----- ----- -----
Subtotal 23.7 84.9 12.0 96.0 38.5 87.7 24.1 94.1
Business sold and other nonrecurring2 4.2 15.1 0.5 4.0 5.4 12.3 1.5 5.9
----- ----- ----- ----- ----- ----- ----- -----
Total $27.9 100.0% $12.5 100.0% $43.9 100.0% $25.6 100.0%
===== ===== ===== ===== ===== ===== ===== =====
<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 Includes Finger Lakes Packaging earnings and gain on sale. See NOTE 3 -
"Other Matters." Also includes strategic plan consulting fees, a loss on the
disposal of property held for sale, and final settlement of an insurance
claim.
</FN>
</TABLE>
<PAGE>
<TABLE>
Total Assets
(Dollars in Millions)
<CAPTION>
December 28, December 23,
1996 1995
% of % of
$ Total $ Total
------ ----- ------ -----
<S> <C> <C> <C> <C>
CMF and Brooks Foods1 $327.1 50.1% $345.6 48.8%
Nalley Fine Foods 155.0 23.7 153.9 21.8
Southern Frozen Foods 87.9 13.4 100.2 14.2
Snack Foods Group 26.9 4.1 28.1 4.0
Corporate 56.7 8.7 47.9 6.8
------ ----- ------ -----
Subtotal ongoing operations 653.6 100.0 675.7 95.6
Finger Lakes Packaging 0.0 0.0 31.6 4.4
------ ----- ------ -----
Total $653.6 100.0% $707.3 100.0%
====== ===== ====== =====
<FN>
1 Effective October 1, 1996, CMF and Brooks operations were consolidated.
</FN>
</TABLE>
CHANGES FROM SECOND QUARTER FISCAL 1996 TO SECOND QUARTER FISCAL 1997
Net Sales: The total net sales in the second quarter compared to the prior year
were unchanged at $208.2 million. The disposition of Finger Lakes Packaging on
October 9, 1996 caused a $3.6 million decrease in sales which was offset by a
net increase in sales of the ongoing business.
Gross Profit: Gross profit of $59.6 million in the quarter ended December 28,
1996 increased $7.9 million or 15.3 percent from $51.7 million in the quarter
ended December 23, 1995. This increase is attributable to improvements at CMF
($3.6 million) and Nalley ($4.2 million), reflecting higher margins on greater
sales.
Selling, Administrative, and General Expenses: Selling, administrative, and
general expenses have decreased $4.0 million as compared with the prior year. A
$1.1 million decrease in selling and advertising expenses and trade promotions
related primarily to decreased spending at the Nalley division. Reductions in
other administrative expenses accounted for $3.3 million and were primarily
attributable to the reduction of consulting and legal expenses incurred in the
prior year, benefits from the restructuring initiative, and the attendant
headcount reduction 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 as well as
the debt reduction attributable to the sale of Finger Lakes Packaging.
Provision for Taxes: The provision for taxes in the quarter ended December 28,
1996 of $2.7 million changed $3.6 million from the benefit of $0.9 million in
the quarter ended December 23, 1995 resulting from an increase in earnings
before tax of $9.2 million. The tax provision was also negatively impacted by
the non-deductibility of goodwill.
Gain on Sale of 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 Company received proceeds of approximately $30
million. The transaction also included a long-term supply agreement. A gain of
approximately $3.6 million was recognized. Proceeds from this sale were applied
to Bank debt.
CHANGES FROM FIRST SIX MONTHS FISCAL 1996 TO FIRST SIX MONTHS FISCAL 1997
Net Sales: The net sales increase in the first six months 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.
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 $7.2 million. Higher product costs have
increased pricing in the canned fruit and aseptic categories which, along with
incremental sales from the Packer Foods acquisition, have resulted in net sales
increases of approximately $6.4 million.
<PAGE>
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.
Gross Profit: Gross profit of $101.2 million in the six months ended December
28, 1996 increased $7.0 million or 7.5 percent from $94.2 million in the six
months ended December 23, 1995. This increase is attributable to improved
margins in all operations but primarily at CMF and Nalley. Somewhat improved
pricing in the vegetable and popcorn categories at CMF have helped improve
profitability from a year ago. Nalley, which experienced extremely high start-up
costs on the new salad dressing line a year ago, has managed through those
issues and has significantly improved margins.
Selling, Administrative, and General Expenses: Selling, administrative, and
general expenses have decreased $8.2 million as compared with the prior year. A
$2.6 million decrease in selling and advertising expenses and trade promotions
related primarily to decreased spending at the Nalley division. Reductions in
other administrative expenses accounted for $5.8 million and were primarily
attributable to benefits from the restructuring initiative that began late in
fiscal 1996 and the reduction of consulting and legal expenses incurred in the
prior year.
Interest Expense: The decrease in interest expense was a benefit of inventory
reduction and cash flow management programs initiated in fiscal 1996 as well as
the debt reduction attributable to the sale of Finger Lakes Packaging.
Provision for Taxes: The provision for taxes in the six months ended December
28, 1996 of $2.7 million changed $3.9 million from the benefit of $1.2 million
in the six months ended December 23, 1995 resulting from the increased earnings
before tax. The tax provision was also 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 Company's independent accountants
have agreed that this change in accounting is preferable. The favorable
cumulative effect of the change (net of Pro-Fac's 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.
Gain on Sale of 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 Company received proceeds of approximately $30
million. The transaction also included a long-term supply agreement. A gain of
approximately $3.6 million was recognized. Proceeds from this sale were applied
to Bank debt.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion highlights the major variances in the "Consolidated
Statement of Changes in Cash Flows" for the first six months of fiscal 1997
compared to the first six months of fiscal 1996.
Net cash used in operating activities improved in the first six months 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 flow relating to accounts receivable in the first six
months of fiscal 1997 decreased from the prior year primarily due to the receipt
of insurance proceeds in the prior year period.
Net cash provided by/(used in) investing activities varied significantly from
year to year, primarily due to the sale of Finger Lakes Packaging. Besides the
$30 million from the sale of Finger Lakes, the Company also received
approximately $4 million for the sale of the Clifton, New Jersey plant which had
been idle. Offsetting items in the prior year included the disposition of
Nalley's 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, Pro-Fac's
separate borrowing arrangement, proceeds from the sale of Finger Lakes Packaging
and the Clifton property, and the additional debt incurred in the prior year to
finance the Packer acquisition.
Borrowings: Under the Company's New Credit Agreement with the Bank, as amended,
Curtice Burns is able to borrow up to $76.0 million for seasonal working capital
purposes under the Seasonal Facility, subject to a borrowing base limitation,
and obtain up to $13.2 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.
<PAGE>
On June 28, 1996, Pro-Fac established a seasonal line of credit with the Bank.
In doing so, the Bank limited the Company's availability under the seasonal line
of credit to the total line less outstanding borrowings on Pro-Fac's line of
credit. Outstanding borrowings under Pro-Fac's seasonal line at December 28,
1996 amounted to $8.0 million.
As of December 28, 1996, (i) cash borrowings outstanding under the Seasonal
Facility were $24.0 million and (ii) additional availability under the Seasonal
Facility, after taking into account the amount of the borrowing base and
Pro-Fac's outstanding borrowings, was $47.0 million. In addition to its seasonal
financing, as of December 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 operations and the amounts available
under the Seasonal and Term Loan Facilities should be sufficient to fund working
capital needs, fund capital expenditures, and service 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 December 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 that year's crops. Excessive rain or drought
conditions can produce low crop yields and a shortage situation. This typically
results in higher selling prices and increased profitability. While the national
supply situation controls the pricing, the supply can differ regionally because
of variations in weather.
The effect of the 1996 growing season on fiscal 1997 financial results so far
has been a moderate improvement from the prior year in earnings on vegetable
products. The Company began fiscal 1997 with $29.6 million less in inventories
than the beginning of fiscal 1996 and at the end of the first six months of
fiscal 1997 inventories were $33.9 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 as well as to manage nonseasonal
inventories for shorter lead times in order to improve the utilization of
capital. The spring of 1996 produced excessive rain in some of the Company's
growing areas and drought conditions in some others. These adverse weather
conditions delayed or reduced the processing of certain early 1996 crops, but a
significant proportion of these throughputs have been replaced by later
production.
Other Matters:
Seneca to Purchase Private Label Canned Vegetable Businesses: On January 6,
1997, the Company and Seneca jointly announced that they have signed a letter of
intent for Seneca to acquire certain Curtice Burns assets and to realign the
sourcing of Seneca's New York State raw vegetable products. The transaction
calls for Seneca to acquire the Curtice Burns Leicester, New York production
facility and the LeRoy, New York distribution center, as well as the Blue Boy
brand.
Seneca will produce, market and sell the Blue Boy brand canned vegetables and
private label canned vegetables and will also pack certain products on a
contractual basis for Curtice Burns. The acquisition will not include the
Greenwood and Silver Floss labels, or Curtice Burns sauerkraut, beets in glass
containers, or frozen vegetable business. Terms and conditions of the agreement
are subject to ongoing negotiations and board approval from Seneca, the Company,
and Pro-Fac.
Seneca and the Company will also forge a long-term strategic alliance to combine
their agricultural departments into one organization to be managed by Curtice
Burns. The objective is to maximize sourcing efficiencies of New York State
vegetable requirements for both companies. This agreement will initially have a
minimum ten-year term.
The parties are working towards finalizing the agreement, subject to further due
diligence by both parties, and expect to close by the end of March. A
mutually-agreed goal for both companies is a continuity of employment at the
facilities.
No significant gain or loss is anticipated as a result of this transaction.
Restructuring: During the fourth quarter of fiscal 1996, the Company initiated a
corporate-wide restructuring program. Approximately $4 million of the
restructuring charge comprised employee termination benefits. During the first
six months of fiscal 1997, approximately $1.5 million of this reserve has been
liquidated for this purpose.
<PAGE>
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, the adjustment was reversed at the end of
fiscal 1996.
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
Exhibit 27 Financial Data Schedule
(b) No current report on Form 8-K was filed during the fiscal period to
which this report relates.
</TABLE>
<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: January 28, 1997 By:/s/ William D. Rice
----------------------- ------------------------------------------
WILLIAM D. Rice
Senior Vice President and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000026285
<NAME> Curtice-BurnsFoods, Inc.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> Jun-28-1997
<PERIOD-END> Dec-28-1996
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