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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 March 29, 1997
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, 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 April 15, 1997.
Common Stock: 10,000
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<TABLE>
Curtice-Burns Foods, Inc.
Consolidated Statement of Operations
(Dollars in Thousands)
<CAPTION>
Three Months Ended Nine Months Ended
March 29, March 23, March 29, March 23,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $179,146 $177,849 $ 561,332 $ 551,213
Cost of sales 131,888 133,619 412,827 412,760
-------- -------- --------- ---------
Gross profit 47,258 44,230 148,505 138,453
Gain from the sale of Finger Lakes Packaging 0 0 3,565 0
Selling, administrative, and general expenses (35,666) (34,633) (110,516) (117,674)
-------- -------- --------- ---------
Operating income before dividing with Pro-Fac 11,592 9,597 41,554 20,779
Interest expense (8,643) (10,484) (27,403) (31,489)
-------- -------- --------- ---------
Pretax income/(loss) before dividing with Pro-Fac and
before cumulative effect of an accounting change 2,949 (887) 14,151 (10,710)
Pro-Fac share of (income)/loss before cumulative effect of
an accounting change (2,151) 125 (7,075) 5,037
-------- -------- --------- ---------
Income/(loss) before taxes and cumulative effect of an
accounting change 798 (762) 7,076 (5,673)
Tax (provision)/benefit (502) (7) (3,334) 1,193
--------- -------- --------- ---------
Income/(loss) before cumulative effect of an accounting
change 296 (769) 3,742 (4,480)
Cumulative effect of an accounting change before
dividing with Pro-Fac 0 0 4,606 0
Pro-Fac share of accounting change 0 0 (2,859) 0
-------- -------- --------- ---------
Net income/(loss) $ 296 $ (769) $ 5,489 $ (4,480)
======== ======== ========= =========
<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>
March 29, June 29, March 23,
1997 1996 1996
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 5,334 $ 8,873 $ 6,073
Accounts receivable trade, net 51,138 47,259 54,184
Accounts receivable, other 6,056 8,959 8,546
Income taxes refundable 0 0 1,552
Current deferred tax asset 7,988 11,724 3,954
Inventories -
Finished goods 114,140 97,018 130,708
Raw materials and supplies 34,079 33,556 39,157
-------- ---------- --------
Total inventories 148,219 130,574 169,865
-------- --------- --------
Receivable from Pro-Fac 0 0 12,881
Investment in Bank, current 1,262 0 0
Prepaid manufacturing expense 2,002 11,339 4,344
Prepaid expenses and other current assets 9,281 1,066 3,394
-------- ----------- --------
Total current assets 231,280 219,794 264,793
Investment in Bank 24,320 24,439 24,439
Property, plant, and equipment, net 247,554 268,389 270,435
Assets held for sale 903 5,368 5,935
Goodwill and other intangibles, net 98,840 103,760 82,891
Other assets 11,462 12,500 15,550
-------- ---------- --------
Total assets $614,359 $634,250 $664,043
======== ======== ========
Liabilities and Shareholder's Equity Current liabilities:
Notes payable $ 5,500 $ 0 $ 41,000
Current portion of obligations under capital leases 547 547 764
Current portion of long-term debt 8,075 8,075 8,056
Accounts payable 33,008 54,661 38,566
Income taxes payable 6,638 3,836 0
Due to Pro-Fac 11,692 2,215 0
Accrued interest 4,503 9,447 4,440
Accrued employee compensation 10,015 8,368 6,733
Other accrued expenses 26,291 24,770 21,534
-------- -------- --------
Total current liabilities 106,269 111,919 121,093
Long-term debt 133,341 149,683 181,418
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 21,549 20,746 19,599
-------- -------- --------
Total liabilities 469,640 495,045 517,440
-------- -------- --------
Commitments and Contingencies
Shareholder's Equity:
Common stock, par value $.01; 10,000 shares outstanding,
owned by Pro-Fac 0 0 0
Additional paid-in capital 151,108 151,083 151,083
Accumulated deficit (6,389) (11,878) (4,480)
-------- -------- --------
Total shareholder's equity 144,719 139,205 146,603
-------- -------- --------
Total liabilities and shareholder's equity $614,359 $634,250 $664,043
======== ======== ========
<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
Nine Months Ended
(Dollars in Thousands) March 29, March 23,
<CAPTION>
1997 1996
<S> <C> <C>
Cash Flows From Operating Activities:
Net income/(loss) $ 5,489 $(4,480)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities -
Amortization of goodwill, other intangibles, and financing fees 3,651 3,114
Depreciation 16,883 19,740
Cumulative effect of an accounting change (1,747) 0
Gain on sale of Finger Lakes Packaging (3,565) 0
Equity in undistributed earnings of the Bank (1,143) (1,532)
Change in assets and liabilities:
Accounts receivable (7,131) 5,339
Inventories (22,336) (5,433)
Income taxes payable/refundable 3,078 (509)
Accounts payable and accrued expenses (13,081) (29,854)
Payable to/receivable from Pro-Fac 6,618 (12,342)
Other assets and liabilities (1,760) (3,733)
-------- -------
Net cash used in operating activities (15,044) (29,690)
-------- -------
Cash Flows From Investing Activities:
Purchase of property, plant, and equipment (12,065) (12,574)
Proceeds from disposals 34,387 4,322
Cash paid for acquisition 0 (5,400)
-------- -------
Net cash provided by/(used in) investing activities 22,322 (13,652)
-------- -------
Cash Flows From Financing Activities:
Receivable from/payable to Pro-Fac 0 10,000
Proceeds from issuance of short-term debt 5,500 41,000
Proceeds from issuance of long-term debt 18,000 5,400
Capital contribution by Pro-Fac 25 0
Payments on long-term debt (34,342) (11,143)
-------- -------
Net cash (used in)/provided by financing activities (10,817) 45,257
-------- -------
Net change in cash and cash equivalents (3,539) 1,915
Cash and cash equivalents at beginning of period 8,873 4,158
-------- -------
Cash and cash equivalents at end of period $ 5,334 $ 6,073
======== =======
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) $ 32,098 $ 36,147
======== ========
Income taxes, net $ 256 $ (681)
======== =======
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 $2.9 million and income taxes of $1.1 million) was $1.7 million. The estimate
of the Pro-Fac share of the accounting change has been adjusted to reflect that
actually anticipated for the fiscal year. See further comments at NOTE 2. 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 Company's contractual relationship with Pro-Fac 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. For the nine months ended March 29, 1997
and March 23, 1996, the CMV for all crops supplied by Pro-Fac amount to $51.3
million and $45.3 million, respectively. 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, under the agreement, 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, as additional patronage income, 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 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. For the nine months ended March 29, 1997 and
March 23, 1996, such estimated additional patronage income/(loss) amounted to
$9.9 million and $(5.0) million, respectively.
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.
<PAGE>
NOTE 3. ACQUISITIONS AND DISPOSALS
Nalley's Canada: In April 1997, the Company acquired certain businesses from
Nalley's Canada Ltd., a privately held, independent snack food company and
former subsidiary of Curtice Burns. The acquired Canadian businesses are a $12
million consumer products business that includes Nalley's chili and snack dips;
Adams Natural Peanut Butter; Bernstein's Salad Dressings; LaRestaurante Salsa
and other niche dressing and sauce products marketed throughout the western
Provinces of Canada. The purchase price of approximately $5.0 million was paid
through the forgiveness of various long-term receivables issued to the Company
in connection with its sale of the stock of Nalley's Canada Ltd. in 1995.
Curtice Burns sold its Canadian subsidiary in June 1995, but continued to
produce and supply these products to the operation through its Nalley's Fine
Foods business in Tacoma, Washington. The reacquired business will operate
through Nalley's Fine Foods in Tacoma with sales representation through local
brokers and distributors in Canada. Nalley's Canada Ltd. will continue to
distribute snack dip and salsa products as the exclusive distributor for these
goods in Canada.
Formation of New Sauerkraut Company: In April 1997, the Company and Flanagan
Brothers, Inc., of Bear Creek, Wisconsin, jointly announced that they have
signed a letter of intent to merge all assets involved in sauerkraut production
into one new sauerkraut company. Curtice Burns currently has sauerkraut
operations in New York State and Flanagan has operations in Wisconsin and New
York State. This new company, which has not yet been named, will operate as a
cooperative, incorporated in New York State, with ownership split between the
two companies.
The new company will have a joint board of directors to oversee operations.
Curtice Burns will manage all New York State cabbage sourcing and will also
provide accounting and marketing services for the new entity. Flanagan Brothers,
Inc. will provide the management needed to assure that the same tradition of
excellent customer service practiced by the founding companies will continue in
the new venture.
The parties are working toward completion of a definitive joint venture
agreement and creation of the venture which are expected to occur in the fourth
quarter of fiscal 1997.
Management anticipates the alliance will positively impact fiscal 1998 earnings.
Brooks Foods: During April 1997, the Company entered into an agreement with
Hoopeston Foods for Hoopeston to acquire certain assets from the Brooks Foods
division operating facility and for Hoopeston to pack certain products, using
raw product supplied by Curtice Burns, on a contractual basis. The parties
expect to close in the fourth quarter of fiscal 1997. The Brooks facility, in
Mt. Summit, Indiana, will be closed by July 1997. Approximately 180 employees
will be affected.
No significant gain or loss is anticipated as a result of this transaction.
Georgia Frozen Distribution Center: On February 25, 1997, the Company and URS
Logistics, Inc. ("URS") announced that they have signed a letter of intent for
URS to acquire Curtice Burns' frozen foods distribution center in Montezuma,
Georgia. In addition, the two companies will enter into a long-term logistics
agreement under which URS will manage all frozen food transportation operations
of Curtice Burns in Georgia and New York. Curtice Burns fleet operation is not
included in the sale.
The parties expect to close by the end of June.
No significant gain or loss is anticipated as a result of this transaction.
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.
<PAGE>
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 in the fourth quarter of fiscal
1997. 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.
For the quarters ended March 27, 1997 and March 23, 1996, the canned vegetable
business to be sold to Seneca incurred operating losses of $0.4 million and $0.6
million, respectively. For the nine months ended March 27, 1997 and March 23,
1996, this canned vegetable business incurred operating losses of $0.6 million
and $2.6 million, respectively.
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"). For the quarter ended March
23, 1996, the can-making operation realized an operating gain of $1.1 million.
For the nine months ended March 27, 1997 and March 23, 1996, the can-making
operation realized operating gains of $4.9 million and $2.8 million,
respectively.
NOTE 4. OTHER MATTERS
Product Recall: In February 1997, the Company issued a nationwide recall of all
"Tropic Isle" brand fresh frozen coconut produced in Costa Rica because it has
the potential to be contaminated with Listeria monocytogenes, an organism which
can cause serious and sometimes fatal infections in small children, frail or
elderly people, and others with weakened immune systems. Any material costs
associated with this recall are anticipated to be covered under the Company's
insurance policies.
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 nine-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 nine-month periods ended March 29, 1997 and March 23, 1996,
and the Company's total assets by business as of March 29, 1997 and March 23,
1996.
<PAGE>
<TABLE>
Net Sales
(Dollars in Millions)
<CAPTION>
Three Months Ended Nine Months Ended
March 27, 1997 March 23, 1996 March 27, 1997 March 23, 1996
% of % of % of % of
$ Total $ Total $ Total $ Total
------ ------ ------ ----- ------ -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comstock Michigan Fruit ("CMF") $ 75.1 41.9 $ 70.4 39.6% $240.6 42.9% $225.3 40.9%
Nalley's Fine Foods 43.8 24.5 44.4 25.0 133.6 23.8 137.2 24.9
Southern Frozen Foods 24.5 13.7 23.2 13.1 71.8 12.8 72.6 13.2
Snack Foods Group 16.2 9.0 14.4 8.1 49.7 8.8 44.9 8.1
Brooks Foods 9.0 5.0 9.3 5.2 28.2 5.0 28.6 5.2
------ ----- ------ ----- ------ ----- ------ -----
Subtotal ongoing operations 168.6 94.1 161.7 91.0 523.9 93.3 508.6 92.3
Businesses sold or to be sold1 10.5 5.9 16.1 9.0 37.4 6.7 42.6 7.7
------ ----- ------ ----- ------ ----- ------ -----
Total $179.1 100.0% $177.8 100.0% $561.3 100.0% $551.2 100.0%
====== ===== ====== ===== ====== ===== ====== =====
<FN>
1 Includes Finger Lakes Packaging and canned vegetable business to be sold to Seneca Foods. See Note 3 - "Acquisitions and
Disposals."
</FN>
</TABLE>
<TABLE>
Operating Income1
(Dollars in Millions)
<CAPTION>
Three Months Ended Nine MonthsEnded
March 27, 1997 March 23, 1996 March 27, 1997 March 23, 1996
% of % of % of % of
$ Total $ Total $ Total $ Total
----- ------ ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CMF $ 7.2 61.6% $ 5.3 55.3% $21.0 50.5% $19.4 93.3%
Nalley's Fine Foods 3.0 25.6 1.6 16.7 8.1 19.5 (3.1) (14.9)
Southern Frozen Foods 2.1 17.9 1.6 16.7 6.7 16.1 4.7 22.6
Snack Foods Group 1.3 11.1 0.8 8.3 4.4 10.6 2.7 13.0
Brooks Foods 1.3 11.1 1.1 11.5 4.0 9.6 3.3 15.9
Corporate overhead (2.8) (23.9) (1.3) (13.7) (6.9) (16.6) (6.4) (30.9)
----- ----- ----- ----- ----- ----- ----- -----
Subtotal 12.1 103.4 9.1 94.8 37.3 89.7 20.6 99.0
Business sold and other nonrecurring2 (0.4) (3.4) 0.5 5.2 4.3 10.3 0.2 1.0
----- ----- ----- ----- ----- ----- ----- -----
Total $11.7 100.0% $ 9.6 100.0% $41.6 100.0% $20.8 100.0%
===== ===== ===== ===== ===== ===== ===== =====
<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 -
"Acquisitions and Disposals." Also includes final settlement of an insurance
claim in fiscal 1997, strategic planning consulting fees, and a loss on the
disposal of property held for sale in fiscal 1996, and operating losses in
both years for the canned vegetable business to be sold to Seneca Foods.
</FN>
</TABLE>
<PAGE>
<TABLE>
EBITDA1
(Dollars in Millions)
<CAPTION>
Three Months Ended Nine MonthsEnded
March 27, 1997 March 23, 1996 March 27, 1997 March 23, 1996
% of % of % of % of
$ Total $ Total $ Total $ Total
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CMF $10.0 56.8% $ 8.2 47.1% $29.4 47.8% $28.1 65.4%
Nalley's Fine Foods 4.1 23.3 3.1 17.8 12.2 19.8 1.0 2.3
Southern Frozen Foods 3.0 17.0 2.9 16.7 9.8 15.9 8.7 20.2
Snack Foods Group 1.7 9.6 1.3 7.5 5.8 9.4 4.2 9.8
Brooks Foods 1.5 8.5 1.3 7.5 4.6 7.5 3.9 9.1
Corporate overhead (2.8) (15.8) 0.2 1.1 (6.9) (11.2) (4.9) (11.5)
----- ----- ----- ----- ----- ----- ----- -----
Subtotal 17.5 99.4 17.0 97.7 54.9 89.2 41.0 95.3
Business sold and other nonrecurring2 0.1 0.6 0.4 2.3 6.6 10.8 2.0 4.7
----- ----- ----- ----- ----- ----- ----- -----
Total $17.6 100.0% $17.4 100.0% $61.5 100.0% $43.0 100.0%
===== ===== ===== ===== ===== ===== ===== =====
<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 -
"Acquisitions and Disposals." Also includes final settlement of an insurance
claim in fiscal 1997, strategic planning consulting fees, and a loss on the
disposal of property held for sale in fiscal 1996, and operating losses in
both years for the canned vegetable business to be sold to Seneca Foods.
</FN>
</TABLE>
<TABLE>
Total Assets
(Dollars in Millions)
<CAPTION>
March 29, 1997 March 23, 1996
% of % of
$ Total $ Total
------ ----- ------ -----
<S> <C> <C> <C> <C>
CMF and Brooks Foods1 $269.6 43.9% $280.9 42.3%
Nalley's Fine Foods 149.8 24.4 145.4 21.9
Southern Frozen Foods 85.5 13.9 95.1 14.3
Snack Foods Group 26.0 4.2 26.9 4.1
Corporate 54.5 8.9 58.0 8.7
------- ----- ------ -----
Subtotal ongoing operations 585.4 95.3 606.3 91.3
Businesses sold or to be sold2 29.0 4.7 57.7 8.7
------ ----- ------ -----
Total $614.4 100.0% $664.0 100.0%
====== ===== ====== =====
<FN>
1 Effective October 1, 1996, CMF and Brooks administrative operations were
consolidated.
2 Includes Finger Lakes Packaging and canned vegetable business to be sold to
Seneca Foods. See Note 3 - "Other Matters."
</FN>
</TABLE>
CHANGES FROM THIRD QUARTER FISCAL 1996 TO THIRD QUARTER FISCAL 1997
Net Sales: Total net sales in the third quarter compared to the prior year
increased modestly. However, net sales for ongoing operations increased $6.9
million or 4.2 percent. The increase was primarily attributable to CMF and Snack
Foods Group improvement in pricing and volume.
<PAGE>
Gross Profit: Gross profit of $47.3 million in the quarter ended March 29, 1997
increased $3.1 million or 7.0 percent from $44.2 million in the quarter ended
March 23, 1996. This increase is attributable to operating improvements at
Southern Frozen Foods, CMF and Nalley's and increased sales.
Selling, Administrative, and General Expenses: Selling, administrative, and
general expenses include estimates for various employee incentive plans which
are allocated primarily to corporate overhead in the preceding tables. The
increase over the prior year is attributable to improved earnings. Excluding
such programs, expenses have decreased $1.4 million as compared with the prior
year.
Interest Expense: The decrease in interest expense of $1.8 million or 18 percent
is 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 and idle facilities.
Provision for Taxes: The provision for taxes in the quarter ended March 29, 1997
changed $0.5 million from the quarter ended March 23, 1996 resulting from an
increase in earnings. The tax provision was also negatively impacted by the
non-deductibility of goodwill.
CHANGES FROM FIRST NINE MONTHS FISCAL 1996 TO FIRST NINE MONTHS FISCAL 1997
Net Sales: Total net sales in the first nine months of fiscal 1997 increased
$10.1 million or 2 percent compared to the prior year period. Net sales from
ongoing operations increased $15.3 million or 3 percent. This increase 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 overall demand and increasing sales to new customers.
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 $148.5 million in the nine months ended March 29,
1997 increased $10.0 million or 7.2 percent from $138.5 million in the nine
months ended March 23, 1996. This increase is attributable to improved margins
in all operations. Improved pricing in the vegetable and popcorn categories at
CMF have increased profitability from a year ago. Nalley's, which in the prior
year experienced extremely high start-up costs on the new salad dressing line,
has managed through those issues and has significantly improved margins.
Selling, Administrative, and General Expenses: Selling, administrative, and
general expenses have decreased $7.2 million as compared with the prior year,
despite increased costs under various employee incentive plans as a result of
increased earnings. A $3.0 million decrease in selling and advertising expenses
and trade promotions related primarily to decreased spending at the Nalley's
division. Reductions in other administrative expenses accounted for $4.2 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.
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.
Interest Expense: The decrease in interest expense of $4.0 million or 13 percent
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 and idle facilities.
Provision for Taxes: The provision for taxes in the nine months ended March 29,
1997 of $3.3 million changed $4.5 million from the benefit of $1.2 million in
the nine months ended March 23, 1996 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
<PAGE>
share of $2.9 million and income taxes of $1.1 million) was $1.7 million. The
estimate of the Pro-Fac share of the accounting change has been adjusted to
reflect that actually anticipated for the fiscal year. See further comments at
NOTE 2. 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 nine months of fiscal 1997
compared to the first nine months of fiscal 1996.
Net cash used in operating activities improved in the first nine months of
fiscal 1997 primarily due to increased earnings, an inventory-reduction program
initiated in fiscal 1996, and the impact of transactions with the Company's
parent. See "Borrowings" below. Cash flow was, however, positively impacted in
the first nine months of fiscal 1996 due to the receipt of insurance proceeds in
fiscal 1996. No such proceeds were received in fiscal 1997.
Net cash provided by/(used in) investing activities varied significantly from
year to year, primarily due to the sale of Finger Lakes Packaging and the
receipt of $4 million from the sale of the idle Clifton, New Jersey plant which
had been held for sale. Offsetting items in the prior year were proceeds from
the disposition of Nalley's Ltd. and the acquisition of Packer Foods. The
purchase of property, plant, and equipment in both years was for general
operating purposes.
Borrowings decreased from the prior year due to increased earnings,
inventory-reduction, Pro-Fac's separate borrowing arrangement, proceeds from the
sale of Finger Lakes Packaging and the idle Clifton property. Overall, the
Company has focused a major initiative on debt reduction during the first nine
months of fiscal 1997, and these efforts will continue throughout the remainder
of the year. A detailed outline of actions regarding acquisitions and disposals
is included in NOTE 3.
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 $13.0 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) 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 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 March 29, 1997
amounted to $15.0 million.
As of March 29, 1997, (i) cash borrowings outstanding under the Seasonal
Facility were $5.5 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 $55.5 million. In addition to its seasonal
financing, as of March 29, 1997, the Company had $0.1 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 March 29, 1997, the Company is in compliance with, or has
obtained waivers for, all such covenants, restrictions and limitations.
Short- and Long-Term Trends: The statements contained herein are based on
current expectations. These statements are forward looking and actual results
may differ materially. Throughout fiscal 1997, the Company has focused its
efforts on the restructuring initiatives begun in the fourth quarter of fiscal
1996. These actions have included a focus on its core businesses, reductions in
general and administrative expenses, and debt reduction. The benefit from these
efforts are apparent in the increase in earnings over the prior year, and
management anticipates this trend will continue through the fourth quarter.
In addition, several other initiatives outlined in NOTE 3 to the consolidated
financial statements, including the sale of a portion of the canned vegetable
business and the sale of the Georgia distribution center, will have a favorable
impact on interest expense in fiscal 1998.
<PAGE>
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 nine months of
fiscal 1997 inventories were $21.6 million less than the fiscal 1996 period. 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.
Acquisitions and Disposals: Throughout fiscal 1997 the Company has worked toward
accomplishing the restructuring initiatives begun in fiscal 1996 which included
debt reduction. Ongoing initiatives will include a focus on the Company's core
businesses and growth opportunities. A complete description of the acquisition
and disposal activities currently outlined is included at NOTE 3 to the
consolidated financial statements.
Other Matters:
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
nine months of fiscal 1997, approximately $1.8 million of this reserve has been
liquidated for this purpose.
Deferred Taxes: During the first quarter of fiscal 1996, the net deferred tax
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.
Product Recall: In February 1997,.the Company issued a nationwide recall of all
"Tropic Isle" brand fresh frozen coconut produced in Costa Rica because it has
the potential to be contaminated with Listeria monocytogenes, an organism which
can cause serious and sometimes fatal infections in small children, frail or
elderly people, and others with weakened immune systems. Any material costs
associated with this recall are anticipated to be covered under the Company's
insurance policies.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
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: April 29, 1997 By:/s/ Earl L. Powers
-------------- --------------------------------------
Earl L. Powers
Vice President Finance and
Chief Financial Officer
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