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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)
For the Fiscal Year Ended June 28, 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 of incorporation) (IRS Employer 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
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act: NONE
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 12 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of voting stock held by non-affiliates of the registrant:
NONE
Number of common shares outstanding at August 8, 1997:
Common Stock: 10,000
FORM 10-K ANNUAL REPORT - 1997
CURTICE-BURNS FOODS, INC.
TABLE OF CONTENTS
PART I
PAGE
ITEM 1. Description of Business
General Development of Business...................................................................... 3
Narrative Description of Business ................................................................... 3
Financial Information About Industry Segments........................................................ 5
Packaging and Distribution........................................................................... 5
Trademarks........................................................................................... 5
Raw Material Sources................................................................................. 6
Environmental Matters................................................................................ 6
Seasonality of Business.............................................................................. 7
Practices Concerning Working Capital................................................................. 7
Significant Customers................................................................................ 7
Backlog of Orders.................................................................................... 7
Business Subject to Government Contracts............................................................. 7
Competitive Conditions............................................................................... 7
New Products and Research and Development............................................................ 8
Employees............................................................................................ 8
Cautionary Statement on Forward-Looking Statements................................................... 8
ITEM 2. Description of Properties................................................................................ 9
ITEM 3. Legal Proceedings........................................................................................ 10
ITEM 4. Submission of Matters to a Vote of Security Holders...................................................... 10
PART II
ITEM 5. Market for Registrant's Common Stock and Related Security Holder Matters................................. 11
ITEM 6. Selected Financial Data.................................................................................. 11
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 12
ITEM 8. Financial Statements and Supplementary Data.............................................................. 18
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................... 37
PART III
ITEM 10. Directors and Executive Officers of the Registrant....................................................... 38
ITEM 11. Executive Compensation................................................................................... 41
ITEM 12. Security Ownership of Certain Beneficial Owners and Management........................................... 43
ITEM 13. Certain Relationships and Related Transactions........................................................... 43
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................... 45
Signatures............................................................................................... 48
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Curtice-Burns Foods, Inc. (the "Company" or "Curtice Burns") is a producer and
marketer of processed food products, including canned and frozen fruits and
vegetables, canned desserts and condiments, fruit fillings and toppings, canned
chilies and stews, salad dressings, pickles, peanut butter and snack foods.
On November 3, 1994, Pro-Fac Cooperative, Inc. ("Pro-Fac") acquired Curtice
Burns (the "Acquisition"), and Curtice Burns became a wholly-owned subsidiary of
Pro-Fac. Pro-Fac is an agricultural cooperative corporation formed in 1960 under
New York law to process and market crops grown by its members. The purchase
price and fees and expenses related to the Acquisition were financed with
borrowings under a new credit agreement (the "New Credit Agreement") with CoBank
ACB (the "Bank"), and the proceeds of the Company's 12.25 percent Senior
Subordinated Notes due 2005 (the "Notes"). Pro-Fac has guaranteed the
obligations of the Company under the New Credit Agreement and the Notes. As a
result of the indebtedness incurred in connection with the Acquisition, Curtice
Burns has higher interest expenses than prior to the Acquisition.
Upon consummation of the Acquisition, Pro-Fac and Curtice Burns entered into the
Pro-Fac Marketing and Facilitation Agreement (the "Pro-Fac Marketing
Agreement"). The New Credit Agreement and the Notes restrict the ability of
Pro-Fac to amend the Pro-Fac Marketing and Facilitation Agreement. The New
Credit Agreement and the Notes also restrict the amount of dividends and other
payments that may be made by the Company to Pro-Fac.
The Pro-Fac Marketing Agreement provides for Pro-Fac to supply crops and
additional financing to Curtice Burns, for Curtice Burns to provide a market and
management services to Pro-Fac, and for Pro-Fac to share in the profits and
losses of Curtice Burns. Pro-Fac is required to reinvest at least 70 percent of
the additional patronage income from Curtice Burns back into Curtice Burns. To
preserve the independence of Curtice Burns, the Pro-Fac Marketing Agreement also
requires that certain of the directors of Curtice Burns be individuals who are
not employees or shareholders of, or otherwise affiliated with, Pro-Fac or the
Company ("Disinterested Directors") and requires that certain decisions,
including the volume of and the amount to be paid for crops received from
Pro-Fac, be approved by the Disinterested Directors. See further discussion of
the relationship with Pro-Fac in NOTE 2 to the "Notes to Consolidated Financial
Statements."
In January of 1995, the Boards of Directors of Curtice Burns and Pro-Fac
approved appropriate amendments to the Bylaws of Curtice -Burns Foods, Inc. to
allow the Company to qualify as a cooperative under Subchapter T of the Internal
Revenue Code. A private letter ruling agreeing to this change was received from
the Internal Revenue Service in August 1995. The effective date of the change
was June 25, 1995. As a cooperative, patronage income is deductible to the
extent distributed to its members.
Accordingly, taxation on patronage income is only imposed at the patron level.
Under the Pro-Fac Marketing Agreement, Curtice Burns manages the business and
affairs of Pro-Fac and provides all personnel and administrative support
required. Pro-Fac pays Curtice Burns a quarterly fee of $25,000 for these
services. See "Certain Transactions."
NARRATIVE DESCRIPTION OF BUSINESS
The Company sells products in three principal categories: (i) "branded"
products, which are sold under various Company trademarks, (ii) "private label"
products, which are sold to grocers who in turn use their own brand names on the
products and (iii) "foodservice" products, which are sold to foodservice
institutions such as restaurants, caterers, bakeries, and schools. In fiscal
1997, approximately 52 percent of the Company's net sales were branded and the
remainder divided between private label and foodservice. The Company's branded
products are listed under the "Trademarks" section of this report. The Company's
private label products include salad dressings, salsa, fruit fillings and
toppings, canned puddings, canned and frozen vegetables, Southern frozen
vegetable specialty products, and frozen and breaded products which are sold to
customers such as A&P, Brunos, Kroger, Piggly Wiggly, Safeway, SuperValu, Topco,
Wegmans and Winn-Dixie. The Company's foodservice products include salad
dressings, pickles, fruit fillings and toppings, canned and frozen vegetables,
frozen Southern specialties, frozen breaded and battered products, canned
puddings, cheese sauces and canned and frozen fruit, which are sold to customers
such as Carvel, Church's, Disney, Foodservice of America, KFC, MBM, McDonald's,
PYA, and Sysco.
Comstock Michigan Fruit ("CMF"), Southern Frozen Foods and Brooks Foods: During
fiscal 1997, these three separate divisions were consolidated and are now
headquartered in Rochester, New York. The consolidated entity represents Curtice
Burns largest business unit. This business unit produces products in several
food categories, including fruit fillings and toppings; aseptically-produced
products; canned and frozen fruits and vegetables and popcorn. Well-known brand
names include "Chill Ripe," "Comstock," "Greenwood," "Just for Chili,"
"McKenzie's," "McKenzie's Gold King," "Pops-Rite," "Rich and Tangy," "Silver
Floss," "Super Pop," "Southern Farms," "Thank You," "Tropic Isle," and
"Wilderness." In fiscal 1997, approximately 36 percent of net sales for these
businesses represented branded products, approximately 25 percent represented
private label products and approximately 39 percent represented
foodservice/industrial products.
This business unit is a major supplier of branded and private label fruit
fillings to retailers and to foodservice institutions such as restaurants,
caterers, bakeries and schools. On July 21, 1995, the Company acquired Packer
Foods, Inc., and merged this pie filling operation into its existing business.
(See further discussion in NOTE 3 of "Notes to Consolidated Financial
Statements.")
Aseptic operations produce puddings and cheese sauces for sale. The aseptic
production process involves preparation of the product in a sterile environment
beginning with batch formulation and continuing through packaging. As a result,
once packaged, the product requires no further cooking. The Company believes its
aseptic production is a state-of-the-art facility. In 1997, the Company's
aseptically processed puddings and aseptically processed cheese sauces held a
significant portion of the national foodservice market.
This business unit processes fruits and vegetables under Company brands and
private labels. Additional products include value-added items such as canned
specialty fruits and frozen vegetable blends. Success in the fruit and vegetable
processing business is driven, among other things, by an ability to control
costs. This objective is managed through capital investments and the
modernization of processing equipment, modifications to product mix, and
refinement to advertising strategies. In fiscal 1997, $9.6 million was invested
in capital improvements.
This Curtice Burns' business unit is also one of the nation's leading suppliers
in the production and sale of frozen, Southern-specialty products such as
black-eyed peas, okra, Southern squash, and Southern specialty side dishes that
include summer squash casserole, Southern-style creamed corn, and Southern-style
black-eyed peas in a savory sauce.
Canned beans and tomato products are sold in several Midwestern states under the
Brooks label. The category includes value-added items such as Chili Hot Beans
and stewed tomatoes.
Subsequent to fiscal 1997, the Company and Flanagan Brothers, Inc. of Bear
Creek, Wisconsin, contributed all of their assets involved in sauerkraut
production into one new entity. This new entity, Great Lakes Kraut Company, will
operate as a New York limited liability company, with ownership split between
the two parties. This joint venture includes the Silver Floss brand, the No. 1
selling sauerkraut brand in the US, and Krrrrisp Kraut, the No. 1 selling
refrigerated poly-bag brand in the country.
During fiscal 1997, Curtice Burns sold its private label canned vegetable
operation to Seneca Foods, along with its Blue Boy brand. Included in this sale
were the Leicester, New York manufacturing facility and LeRoy, New York
distribution warehouse. The disposal did not include the Greenwood and Silver
Floss labels, or sauerkraut, glass beets, or frozen vegetable businesses. This
transaction also included an agreement requiring Curtice Burns to handle all
vegetable sourcing for Seneca Foods at its New York plants.
On June 27, 1997, URS Logistics, Inc. ("URS") acquired the Company's frozen
foods distribution center in Montezuma, Georgia. In addition, the two companies
entered into a long-term logistics agreement under which URS will manage this
facility and all frozen food transportation operations of Curtice Burns in
Georgia and New York.
Curtice Burns Foods is renaming this combined business and will announce the
name in the second quarter of fiscal 1998.
Nalley Fine Foods: Nalley is headquartered in Tacoma, Washington. It markets
canned meat products such as chilies and stews, pickles, salad dressings, peanut
butter and syrup, which are sold throughout the Northwest and Western United
States and Western Canada. Approximately three-quarters of Nalley products are
branded; however, private label accounts for a growing percentage of Nalley
business.
The Nalley products have been a vehicle for both geographic expansion and line
extension. Several of Nalley's products have leading market shares in the
Pacific Northwest, such as chili and "Nalley" and "Farman's" pickles. In the
Pacific Northwest, the Company's "Nalley" and "Bernstein's" brands of salad
dressings have a combined market share of approximately 20 percent.
In line with the growing trend toward private label, Nalley has been
aggressively pursuing this growing business segment. Specifically, Nalley is
executing its store label strategy on specialty products, such as chili and
salsa, salad dressings and canned soups. The private label customer base
continues to expand on a national basis and includes Winn-Dixie in the
Southeast, Wegmans in Upstate New York, Topco in the Midwest, and Ralph's,
Safeway, QFC, Albertsons and Western Family on the West Coast. Specialty
businesses, such as International, continue to grow in both branded and private
label products.
In April 1997, the Company acquired certain businesses from Nalley Canada Ltd.,
a privately held, independent snack food company and former subsidiary of
Curtice Burns. The acquired Canadian operations include 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.
Snack Foods Group: During fiscal 1997, two of the Curtice Burns' snack
businesses, Snyder of Berlin and Husman Snack Foods, were united under one
management group. The two entities combined resources to obtain the most cost
efficient operations. Tim's Cascade Potato Chips represents the Company's other
snack food operation. A brief description of each follows:
Snyder of Berlin: Snyder of Berlin, located in Berlin, Pennsylvania,
produces and markets several varieties of potato chips in distinctive
silver-colored bags, as well as several varieties of corn-based snack
products in conventional packaging, primarily under the "Snyder of
Berlin" brand. Snyder products are recognized for their unique taste
and freshness among users in Mid-Atlantic states, which are some of the
country's highest per capita snack consumption markets.
Husman Snack Foods: Husman Snack Foods, located in Cincinnati, Ohio,
manufactures and markets potato chips, popcorn, and cheese curls and
distributes other snack items in Cincinnati and Dayton, Ohio and areas
of Northern Kentucky. Husman creates a unique product niche by
customizing its product development and promotions to local tastes.
Multi-packs and licensing agreements with local restaurants are two
ways Husman creates its value-added proposition.
Tim's Cascade Potato Chips: Tim's Cascade Potato Chips, located in
Auburn, Washington, produces kettle-fried potato chips, popcorn, cheese
curls, and snack mix in the Washington, Northern Idaho, Oregon, and
Montana area. Kettle frying produces a potato chip that is thicker and
crisper than other potato chips.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The business of the Company is principally conducted in one industry segment,
the processing and sale of various food products. The financial statements for
the fiscal years ended June 28, 1997 and June 29, 1996, which are included in
this report, reflect the information relating to that segment for each of the
Company's last three fiscal years. The fiscal 1995 amounts, which are also
included in this report, are the total of Predecessor and Successor entities.
PACKAGING AND DISTRIBUTION
The food products produced by the Company are distributed to various consumer
markets in all 50 states as well as in Canada. Branded lines of the
CMF/Southern/Brooks business unit are sold through food brokers which sell
primarily to supermarket chains and various institutional feeders. Nalley has
its own sales personnel responsible for sales within the Pacific Northwest and
uses food brokers for sales in other marketing areas. Snyder's, Tim's and Husman
products are marketed through distributors (some of which are owned and operated
by the Company) who sell directly to retail outlets in the Midwest, Mid-Atlantic
and Pacific Northwest.
Customer brand operations encompass the sale of products under private labels to
chain stores and under the controlled labels of buying groups. The Company has
developed central storage and distribution facilities that permit multi-item
single shipment to customers in key marketing areas.
Curtice Burns Express ("CBX"), a subsidiary of the Company, is a licensed common
carrier with authority in 48 states. It is used by the Company to obtain
backhaul volume on shipments via the Company's trucks or contract haulers. The
other divisions of the Company lease their equipment to CBX for these backhauls.
TRADEMARKS
The major brand names under which the Company markets its products are
trademarks of the Company. Such brand names are considered to be of material
importance to the business of the Company since they have the effect of
developing brand identification and maintaining consumer loyalty. All of the
Company's trademarks are of perpetual duration so long as periodically renewed,
and it is currently intended that the Company will maintain them in force. The
major brand names utilized by the Company are:
Product Brand Name
Chilies, stews and soups Brooks, Mariners Cove, Nalley, Riviera
Fruits and vegetables Brooks, Chill-Ripe, Gold King, Gracias, Greenwood, Hoosier Sweets, Just for Chili, McKenzie's,
McKenzie's Gold King, Naturally Good, Ritter, Southern Farms, Southland, Thank You, Tropic Isle
Fruit fillings and toppings Comstock, Globe, Gracias, Thank You, Wilderness
Peanut butter Adams
Pickles Farman's, Nalley
Popcorn Pops-Rite, Super Pop
Puddings Gracias, Thank You
Salad dressings Bernstein's, Bernstein's Light Fantastic, Nalley
Sauerkraut Silver Floss, Farman's
Snack food Cheese Pleezers, Husman, La Restaurante, Snyder of Berlin, Thunder Crunch, Tim's Cascade Chips,
Naturally Good, Matthews
Syrup Lumberjack
RAW MATERIAL SOURCES
In fiscal 1997, the Company acquired approximately 71 percent of its raw
agricultural products from Pro-Fac. The Company also purchased on the open
market some crops of the same type and quality as those purchased from Pro-Fac.
Such open market purchases may occur at prices higher or lower than those paid
to Pro-Fac for similar products. See further discussion of the relationship with
Pro-Fac in NOTE 2 to the "Notes to Consolidated Financial Statements."
The vegetable and fruit portions of the business can be positively or negatively
affected by weather conditions nationally and the resulting impact on crop
yields. Favorable weather conditions can produce high crop yields and an
oversupply situation. This results in depressed selling prices and reduced
profitability on the inventory produced from that year's crops. Excessive rain
or drought conditions can produce low crop yields and a shortage situation. This
typically results in higher selling prices and increased profitability. While
the national supply situation controls the pricing, the supply can differ
regionally because of variations in weather.
The Company purchases all of its requirements for nonagricultural products,
including containers, in the open market. Although the Company has not
experienced any difficulty in obtaining adequate supplies of such items,
occasional periods of short supply of certain raw materials may occur.
ENVIRONMENTAL MATTERS
The disposal of solid and liquid waste material resulting from the preparation
and processing of foods and the emission of wastes and odors inherent in the
heating of foods during preparation are subject to various federal, state, and
local environmental laws and regulations. Such laws and regulations have had an
important effect on the food processing industry as a whole, requiring
substantially all firms in the industry to incur material expenditures for
modification of existing processing facilities and for construction of new waste
treatment facilities. The Company is also subject to standards imposed by
regulatory agencies pertaining to the occupational health and safety of its
employees. Management believes that continued measures to comply with such laws
and regulations will not have a material adverse effect upon its competitive
position.
Among the various programs for the protection of the environment which have been
adopted to date, the most important for the operations of the Company are the
waste water discharge permit programs administered by the environmental
protection agencies in those states in which the Company does business and by
the federal Environmental Protection Agency. Under these programs, permits are
required for processing facilities which discharge certain wastes into streams
and other bodies of water, and the Company is required to meet certain discharge
standards in accordance with compliance schedules established by such agencies.
The Company has to date received permits for all facilities for which permits
are required, and each year submits applications for renewal permits for some of
the facilities.
While the Company cannot predict with certainty the effect of any proposed or
future environmental legislation or regulations on its processing operations,
management of the Company believes that the waste disposal systems which are now
in operation or which are being constructed or designed are sufficient to comply
with all currently applicable laws and regulations.
The Company is cooperating with environmental authorities in remedying various
leaks and spills at several of its plants. Such actions are being conducted
pursuant to procedures approved by the appropriate environmental authorities at
a cost that is not material.
Expenditures related to environmental programs and facilities have not had, and
are not expected to have, a material effect on the earnings of the Company. In
fiscal 1997, total capital expenditures of Pro-Fac and the Company were $13.7
million of which approximately $2.0 million was devoted to the construction of
environmental facilities. The Company estimates that the capital expenditures
for environmental control facilities, principally waste water treatment
facilities, will be approximately $0.8 million for the 1998 fiscal year.
However, there can be no assurance that expenditures will not be higher.
SEASONALITY OF BUSINESS
From the point of view of sales, the business of the Company is not highly
seasonal, since the demand for its products is fairly constant throughout the
year. Exceptions to this general rule include some products that have higher
sales volume in the cool weather months (such as canned fruits and vegetables,
chili, and fruit fillings and toppings), and others that have higher sales
volume in the warm weather months (such as potato chips and condiments). Since
many of the raw materials processed by the Company are agricultural crops,
production of these products is predominantly seasonal, occurring during and
immediately following the harvest seasons of such crops.
PRACTICES CONCERNING WORKING CAPITAL
The Company must maintain substantial inventories throughout the year of those
finished products produced from seasonal raw materials. These inventories are
generally financed through seasonal borrowings.
A short-term line of credit is extended to the Company under agreements with
CoBank, ACB. This line of credit is used primarily for seasonal borrowing, the
amount of which fluctuates during the year. The line of credit is subject to
annual renewal.
Both the maintenance of substantial inventories and the practice of seasonal
borrowing are common to the food processing industry.
SIGNIFICANT CUSTOMERS
The Company's one principal industry segment is not dependent upon the business
of a single customer or a few customers. The Company does not have any customers
to which sales are made in an amount which equals 10 percent or more of the
Company's net sales. The loss of even its biggest customer would not have a
materially adverse effect on the Company.
BACKLOG OF ORDERS
Backlog of orders has not historically been significant in the business of the
Company. Orders are filled shortly after receipt from inventories of packaged
and processed foods.
BUSINESS SUBJECT TO GOVERNMENTAL CONTRACTS
No material portion of the business of the Company is subject to renegotiation
of contracts with, or termination by, any governmental agency.
COMPETITIVE CONDITIONS
All products of the Company, particularly branded products, compete with those
of national and major regional food processors under highly competitive
conditions. Many of the national manufacturers have substantially greater
resources than the Company. The principal methods of competition in the food
industry are ready availability of a broad line of products, product quality,
price, and advertising and sales promotion.
In recent years, and particularly when various food items are in short supply,
the constant availability of a full line of food items and the ability to
deliver the required items rapidly and economically have been among the most
important competitive factors in the markets in which the Company operates. The
Company believes that it is competitive with national brands in this area since
distribution of many of its regional brands and custom-pack food items are
limited to areas which can easily be served from its production and distribution
facilities. In this way, the problems inherent in attempting to supply markets
remote from its principal areas of operation are minimized, and the marketing
area is commensurate with the production and storage facilities.
Quality of product and uniformity of quality are also important methods of
competition. The Company's relationship with Pro-Fac gives the Company local
sources of supply, thus allowing the Company to exercise control over the
quality and uniformity of much of the raw product which it purchases. The
members of Pro-Fac generally operate relatively large production units with
emphasis on mechanized growing and harvesting techniques. This factor is also an
advantage in producing uniform, high-quality food products.
The Company's pricing is generally competitive with that of other food
processors for products of comparable quality. The branded products of the
Company are marketed under regional brands and its marketing programs are
focused on local tastes and preferences as a means of developing consumer brand
loyalty. The Company's advertising program utilizes local media, national
magazines, and in-store promotions.
Although the relative importance of the above factors may vary between
particular products or customers, the above description is generally applicable
to all of the products of the Company in the various markets in which they are
distributed.
Profit margins for canned and frozen fruits and vegetables are subject to
industry supply and demand fluctuations, attributable to changes in growing
conditions, acreage planted, inventory carryover, and other factors. The Company
has endeavored to protect against changing growing conditions through
geographical expansion of its sources of supply. The Company has emphasized the
merchandising of its own brands and expanded service and product development for
its high volume private label and foodservice customers. The percentage of sales
under brand names owned and promoted by the Company (including franchise brands)
amount to approximately 52 percent; sales to the foodservice industry
(restaurants and institutional customers) represent approximately 24 percent;
private label sales currently represent approximately 20 percent; and sales to
other manufacturers are approximately 4 percent of total sales.
An estimate of the number of competitors in the markets served by the Company is
very difficult. Nearly all products sold by the Company compete with the
nationally advertised brands of the leading food processors, including Borden,
DelMonte, Green Giant, Heinz, Frito-Lay, Kraft, Vlasic, Birdseye, and similar
major brands, as well as with the branded and private label products of a number
of regional processors, many of which operate only in portions of the marketing
area served by the Company. While the major brands are dominant in branded
products on a national level, the Company believes that it is a significant
factor in many of the marketing areas served by one or more of its regional
brands.
NEW PRODUCTS AND RESEARCH AND DEVELOPMENT
The amount expensed during the last three fiscal years on Company-sponsored and
customer-sponsored research activities relating to the development of new
products or the improvement of existing products was not material, and the
number of employees engaged full-time in such research activities is also not
material. While the Company operates test kitchens and pilot plants for the
development of new products, the emphasis generally has been on the development
of related products or modifications of existing products for the Company's
brands and customized products for the Company's private label and foodservice
businesses. No new products which require the investment of a material amount of
assets have been publicly announced.
EMPLOYEES
As of June 28, 1997, the Company had 3,363 full-time employees, of whom 2,599
were engaged in production and the balance in management, sales and
administration. As of that date, the Company also employed approximately 321
seasonal and other part-time employees, almost all of whom were engaged in
production. Most of the production employees are members of various labor
unions.
The Company believes its relationship with its employees is good.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
From time to time, the Company makes oral and written statements that may
constitute "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995 (the "Act") or by the SEC in its rules,
regulations, and releases. The Company desires to take advantage of the "safe
harbor" provisions in the Act for forward-looking statements made from time to
time, including, but not limited to, the forward-looking information contained
in the Management's Discussion and Analysis (pages 12 to 18 and other statements
made in this Form 10-K and in other filings with the SEC.
The Company cautions readers that any such forward-looking statements made by or
on behalf of the Company are based on management's current expectations and
beliefs but are not guarantees of future performance. Actual results could
differ materially from
those expressed or implied in the forward-looking statements. Among the factors
that could impact the Company's ability to achieve its goals are:
the impact of strong competition in the food industry;
the impact of weather on the volume and quality of raw product;
the inherent risks in the marketplace associated with new product
introductions, including uncertainties about trade and consumer acceptance;
the continuation of the Company's success in integrating operations and the
availability of acquisition and alliance opportunities; and
the Company's ability to achieve the gains in productivity and improvements
in capacity utilization.
ITEM 2. DESCRIPTION OF PROPERTIES
All plants, warehouses, office space and other facilities used by Curtice Burns
in its business are either owned by Curtice Burns or one of its subsidiaries or
leased from third parties. All of the properties owned by Curtice Burns are
subject to mortgages in favor of the Bank. In general, each business unit
occupies offices, processing plants and warehouse space. Some business units
have processing plants located in rural areas that are convenient for the
delivery of crops from Pro-Fac members and warehouse locations dispersed to
facilitate the distribution of finished products. Curtice Burns believes that
its facilities are in good condition and suitable for the operations of the
Company.
Four of the properties are held for sale. These properties are located in Alton,
New York; Rushville, New York, Mt. Summit, Indiana; and Wall Lake, Iowa.
The following table describes all facilities leased or owned by the Company
(other than the properties held for sale and certain public warehouses leased by
the Company from third parties from time to time). Except as otherwise noted,
each facility set forth below is owned by the Company.
FACILITIES UTILIZED BY THE COMPANY
Type of Property (By Business Unit) Location Square Feet
CMF/SOUTHERN FROZEN FOODS/BROOKS:
Office building, manufacturing plant and warehouse Benton Harbor, MI 239,252
Distribution center Coloma, MI 400,000
Manufacturing plant and warehouse Fennville, MI 350,000
Canning plant and warehouse Lawton, MI 142,000
Warehouse Sodus, MI 243,138
Warehouse and office; public storage facility1 Vineland, NJ 191,710
Freezing plant; warehouse; office and dry storage Barker, NY 123,600
Freezing plant Bergen, NY 138,554
Cold storage and repack facility and public storage warehouse Brockport, NY 429,052
Cutting, curing and packaging plant Gorham, NY 55,534
Canning plant and warehouse; freezing plant Oakfield, NY 263,410
Canning plant and warehouse Red Creek, NY 153,076
Cutting, curing and canning plant Shortsville, NY 111,946
Cutting and curing plant Waterport, NY 21,626
Manufacturing plant Ridgway, IL 50,000
Distribution and warehouse North Bend, NE 50,000
Office, freezing plant, cold storage and repackaging facility Montezuma, GA 591,300
Office, freezing plant and cold storage Alamo, TX 114,446
FACILITIES UTILIZED BY THE COMPANY
Type of Property (By Business Unit) Location Square Feet
NALLEY FINE FOODS:
Office building, warehouse and tank farm Enumclaw, WA 87,313
Office building, manufacturing plant and warehouse Tacoma, WA 412,564
Parking lot and yards1 Tacoma, WA 305,470
Warehouses1 Tacoma, WA 568,556
Receiving and grading station1 Cornelius, OR 11,700
Receiving and grading station1 Mount Vernon, WA 110,806
Receiving and grading station1 Aurora, OR 6,800
Office building - Fuller Building1 Tacoma, WA 60,000
SNACK FOODS GROUP:
Office, plant and warehouse Berlin, PA 190,225
Administrative, plant, warehouse and distribution center - Tim's1 Auburn, WA 34,000
Plant, warehouse, and distribution center - Matthews1 Auburn, WA 37,442
Office, plant and warehouse Cincinnati, OH 113,576
Distribution Center Elwood City, PA 8,000
Distribution Center Monessen, PA 10,000
CORPORATE HEADQUARTERS:
Headquarters office1 (Includes office space for CMF/Southern Frozen Foods/Brooks
as well as a Corporate Conference Center) Rochester, NY 62,500
1Leased from third parties, although certain related equipment is owned by the
Company.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings other than routine litigation
incidental to the business to which either the Company or Pro-Fac is a party or
to which any of their property is subject. Further, no such proceedings are
known to be contemplated by governmental authorities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
All of the capital stock of the Company is owned by Pro-Fac Cooperative, Inc.
ITEM 6. SELECTED FINANCIAL DATA
Curtice-Burns Foods, Inc.
FIVE YEAR SELECTED FINANCIAL DATA
(Dollars in Thousands)
Fiscal Year Ended June
1997 1996 1995* 1994 1993
------------ ------------ ------------ ------------ --------
Summary of Operations:
Net sales $730,823 $739,094 $748,525 $ 829,116 $ 878,627
Cost of sales 539,081 562,926 530,139 592,621 632,663
--------- --------- --------- ---------- ----------
Gross profit 191,742 176,168 218,386 236,495 245,964
Selling, administrative, and general expenses (145,392) (156,067) (159,937) (186,934) (207,119)
Gain on sale of Finger Lakes Packaging 3,565 0 0 0 0
Restructuring (including gains from disposal) 0 (5,871) (8,415) 7,768 (61,037)
Change in control expenses 0 0 (2,150) (3,500) 0
Gain on assets net of additional costs incurred as a
result of a fire 0 0 4,154 0 0
---------------------------- ---------------------------------------
Operating income/(loss) before dividing with Pro-Fac 49,915 14,230 52,038 53,829 (22,192)
Interest expense (35,030) (41,998) (32,414) (18,205) (19,550)
---------- ---------- ---------- ---------- ----------
Pretax income/(loss) before dividing with Pro-Fac and before
cumulative effect of an accounting change 14,885 (27,768) 19,624 35,624 (41,742)
Pro-Fac share of (income)/loss before cumulative effect of
an accounting change (7,442) 9,037 (9,616) (16,849) 21,800
----------- ---------- ----------- ---------- ----------
Income/(loss) before taxes and cumulative effect of
an accounting change 7,443 (18,731) 10,008 18,775 (19,942)
Tax (provision)/benefit (3,668) 6,853 (6,026) (8,665) (3,895)
----------- ---------- ----------- ----------- -----------
Income/(loss) before cumulative effect of an accounting change 3,775 (11,878) 3,982 10,110 (23,837)
Cumulative effect of an accounting change before
dividing with Pro-Fac 4,606 0 0 0 0
Pro-Fac share of an accounting change (2,859) 0 0 0 0
----------- -------------------------- ------------- -------------
Net income/(loss) $ 5,522 $(11,878) $ 3,982 $ 10,110 $(23,837)
=========== ======== ========= ======== ========
Balance Sheet Data:
Working capital $ 84,060 $107,875 $144,171 $ 104,049 $ 100,422
Ratio of current assets to current liabilities 1.8:1 2.0:1 2.3:1 1.7:1 1.6:1
Total assets $542,561 $634,250 $672,284 $ 446,938 $ 493,729
Long-term debt and senior-subordinated notes (excludes
current portion) $222,829 $309,683 $343,665 $ 79,061 $ 85,037
Long-term obligations under capital leases (excludes
current portion) $ 817 $ 1,125 $ 1,620 $ 124,973 $ 154,102
Other Statistics:
Average number of employees:
Regular 3,507 3,886 3,838 5,169 5,325
Seasonal 1,068 1,478 1,540 1,596 1,347
* Represents the results of operations for both the Predecessor and Successor
entities for fiscal 1995.
ITEM 7. 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 from fiscal 1995 through fiscal
1997. The following comparisons to fiscal 1995 present the results of the
Company during the period prior to its acquisition by Pro-Fac, ("Predecessor
entity") as well as the period subsequent to its acquisition, ("Successor
entity"). The financial statements of the Predecessor and Successor entities are
not comparable in certain respects because of differences between the cost bases
of the assets held by the Predecessor entity compared to that of the Successor
entity as well as the effect on the Successor entity's operations for
adjustments to depreciation, and interest expense.
The following tables illustrate the Company's results of operations by business
for the fiscal years ended June 28, 1997, June 29, 1996, and June 24, 1995, and
the Company's total assets by business as at June 28, 1997 and June 29, 1996.
Net Sales
(Dollars in Millions)
Fiscal Years Ended
6/28/97 6/29/96 6/24/95
% of % of % of
$ Total $ Total $ Total
------- ----- ------- ----- ------- -----
CMF, Southern Frozen Foods, and
Brooks Foods1 440.2 60.2 431.2 58.4 419.5 56.0
Nalley Fine Foods 182.4 25.0 189.2 25.6 181.2 24.2
Snack Foods Group 67.3 9.2 63.7 8.6 60.5 8.1
----- ----- ----- ----- ----- -----
Subtotal ongoing operations 689.9 94.4 684.1 92.6 661.2 88.3
Businesses sold or to be sold2 40.9 5.6 55.0 7.4 87.3 11.7
----- ----- ----- ----- ----- -----
Total 730.8 100.0 739.1 100.0 748.5 100.0
===== ===== ===== ===== ===== =====
1 CMF, Southern Frozen Foods, and Brooks Foods administrative operations were
consolidated during fiscal 1997.
2 Includes the sales of Finger Lakes Packaging, the portion of the canned
vegetable business sold, Nalley Canada Ltd., and Nalley US chips and Snacks
business. See NOTE 3 to the "Notes to Consolidated Financial Statements."
Operating Income1
(Dollars in Millions)
Fiscal Years Ended
6/28/97 6/29/96 6/24/95
% of % of % of
$ Total $ Total $ Total
----- ----- ------ ----- ----- -----
CMF, Southern Frozen Foods, and Brooks Foods2 40.5 81.1 26.5 186.6 42.2 81.2
Nalley Fine Foods 10.8 21.7 (2.9) (20.4) 18.7 35.9
Snack Foods Group 5.9 11.8 4.1 28.9 3.6 6.9
Corporate overhead (10.5) (21.0) (6.8) (47.9) (10.3) (19.8)
----- ----- ---- ----- ----- -----
Subtotal ongoing operations 46.7 93.6 20.9 147.2 54.2 104.2
Businesses sold or to be sold and other non-recurring3 3.2 6.4 (6.7) (47.2) (2.2) (4.2)
----- ----- ----- ----- ----- -----
Total 49.9 100.0 14.2 100.0 52.0 100.0
===== ===== ==== ===== ===== =====
1 Excludes cumulative effect of an accounting change. See NOTE 1 to the "Notes to Consolidated Financial Statements."
2 CMF, Southern Frozen Foods, and Brooks Foods administrative operations were
consolidated during fiscal 1997.
3 In fiscal 1997, such amount includes the operating earnings and gain on the
sale of Finger Lakes Packaging, operating activities of the canned vegetable
business, final settlement of an insurance claim, and a loss on the disposal
of property held for sale.
In fiscal 1996, such amount includes restructuring initiatives and operating
activities of both Finger Lakes Packaging and the canned vegetable business.
In fiscal 1995, such amount includes change in control expenses, a gain on
assets resulting from a fire and operating activities of Finger Lakes
Packaging, the canned vegetable business, Nalley Canada Ltd., and the Nalley
US Chips and Snacks business.
See NOTE 3 to the "Notes to Consolidated Financial Statements."
EBITDA1,2
(Dollars in Millions)
Fiscal Years Ended
6/28/97 6/29/96 6/24/95
% of % of % of
$ Total $ Total $ Total
----- ----- ---- ----- ------ -----
CMF, Southern Frozen Foods, and Brooks Foods3 57.1 74.4 44.4 101.6 55.0 72.7
Nalley Fine Foods 16.2 21.1 2.3 5.3 22.9 30.3
Snack Foods Group 7.6 9.9 6.0 13.7 5.4 7.1
Corporate (10.1) (13.1) (6.9) (15.8) (10.6) (13.9)
----- ----- ---- ----- ----- -----
Subtotal ongoing operations 70.8 92.3 45.8 104.8 72.7 96.2
Businesses sold or to be sold and other non recurring4 5.9 7.7 (2.1) (4.8) 2.9 3.8
----- ----- ---- ----- ----- -----
Total 76.7 100.0 43.7 100.0 75.6 100.0
===== ===== ==== ===== ===== =====
1 In conjunction with the Acquisition, net assets were adjusted to fair
market value and additional debt was incurred. Accordingly, depreciation
and interest expense have increased, making year-to-year comparisons
difficult to analyze. Nonetheless, earnings before interest, taxes,
depreciation and amortization (EBITDA) for ongoing businesses can be
compared. 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.
2 Excludes cumulative effect of an accounting change. See NOTE 1 to the
"Notes to Consolidated Financial Statements."
3 CMF, Southern Frozen Foods, and Brooks Foods administrative operations were
consolidated during fiscal 1997.
4 In fiscal 1997, such amount includes the operating earnings and gain on the
sale of Finger Lakes Packaging, operating activities of the canned vegetable
business, final settlement of an insurance claim, and a loss on the disposal
of property held for sale.
In fiscal 1996, such amount includes restructuring initiatives and operating
activities of both Finger Lakes Packaging and the canned vegetable business.
In fiscal 1995, such amount includes change in control expenses, a gain on
assets resulting from a fire, and operating activities of Finger Lakes
Packaging, the canned vegetable business, Nalley Canada Ltd., and the Nalley US
Chips and Snacks business.
See NOTE 3 to the "Notes to Consolidated Financial Statements."
Total Assets
(Dollars in Millions)
6/28/97 6/29/96
% of % of
$ Total $ Total
----- ----- ------ -----
CMF, Southern Frozen Foods and
Brooks Foods1 329.0 60.6 339.5 53.5
Nalley Fine Foods 144.4 26.6 134.1 21.1
Snack Foods Group 26.7 4.9 27.8 4.4
Corporate 42.5 7.9 71.6 11.3
----- ----- ----- -----
Subtotal ongoing operations 542.6 100.0 573.0 90.3
Businesses sold or to be sold2 0.0 0.0 61.3 9.7
----- ----- ----- -----
Total 542.6 100.0 634.3 100.0
===== ===== ===== =====
1 CMF, Southern Frozen Foods, and Brooks Foods administrative operations were
consolidated during fiscal 1997.
2 Includes Finger Lakes Packaging and the portion of the canned vegetable business sold to Seneca Foods. See NOTE 3 to the "Notes
to Consolidated Financial Statements."
CHANGES FROM FISCAL 1996 TO FISCAL 1997
Net income for fiscal 1997 of $5.5 million represented a $17.4 million increase
over the prior year's loss of $11.9 million. Total EBITDA before cumulative
effect of an accounting change was $76.7 million for the year ended June 28,
1997 versus $43.7 million in the prior year. EBITDA for ongoing business reached
$70.8 million versus the prior year's $45.8 million. This significant
improvement reflected the benefits from numerous initiatives, the focus of which
was the implementation of a strategic plan that outlined several major efforts
including debt reduction and structural changes.
During fiscal 1997, the outstanding debt of the Company was reduced by $86.8
million. Ongoing efforts to improve cash flow through inventory control and the
proceeds received from the sales of Finger Lakes Packaging, the New York canned
vegetable business, the Georgia distribution center, and the sale of idle assets
were the primary factors in the reduction of debt and related interest expense.
Structural changes within the Company's business units included a review of the
Nalley operations and the consolidation of several other operations. EBITDA for
the Nalley business unit was $16.2 million for the year ended June 28, 1997
versus $2.3 million in the prior year. These results were driven by
organizational changes and the absence of the significant start-up costs for the
new salad dressing line which were incurred throughout fiscal 1996. In addition
during fiscal 1997, the Company completed the restructuring program begun in the
fourth quarter of fiscal 1996. These efforts focused on consolidation of the
Southern Frozen Foods and Brooks operations into CMF and the consolidation of
support services such as human resources and agricultural services.
Net Sales: Total net sales in fiscal 1997 decreased $8.3 million or 1.1 percent
compared to the prior year period. Net sales from ongoing operations, however,
increased $5.8 million or 0.8 percent. This increase is primarily attributable
to increased volume and improved pricing at both CMF and the Snack Foods Group.
The vegetable and fruit categories at CMF have 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 $191.7 million in fiscal 1997 increased $15.5
million or 8.8 percent from $176.2 million in fiscal 1996. This increase is
attributable to improved margins in all business units. Improved pricing in the
vegetable, fruit, 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.
Increased sales from the Snack Foods Group also improved profitability.
Selling, Administrative, and General Expenses: Selling, administrative, and
general expenses have decreased $10.7 million as compared with the prior year.
This decrease is net of the inclusion of expenses (approximately $5.6 million)
relating to the Company's incentive program. Payments under the incentive
programs are attributable to the significantly improved earnings. Overall, the
net decrease is attributed to a $5.8 million decrease in selling, advertising,
and trade promotions expenses resulted from
decreased spending at Nalley's. Reductions in other administrative expenses
accounted for $10.5 million and were primarily attributable to benefits from the
restructuring initiative that began late in fiscal 1996. These initiatives
included the consolidation of the administrative functions at CMF, Southern
Frozen Foods, and Brooks locations, and the sale of Finger Lakes Packaging.
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. A gain of approximately $3.6 million was recognized on
this disposal. The Company received proceeds of approximately $30 million which
were applied to Bank debt. The transaction also included a long-term supply
agreement.
Interest Expense: The decrease in interest expense of $7.0 million or 16.6
percent resulted from both the inventory reduction and cash flow management
programs initiated in fiscal 1996 as well as the debt reduction in fiscal 1997
attributable to the sales of Finger Lakes Packaging, the canned vegetable
business, and idle facilities.
Provision for Taxes: The provision for taxes in fiscal 1997 of $3.7 million
changed $10.6 million from the benefit of $6.9 million in fiscal 1996. The
provision for taxes in fiscal 1997 results from increased earnings. The
Company's effective tax rate in fiscal 1997 was 49.3 percent. The Company's
effective tax rate is negatively impacted by the non-deductibility of goodwill.
A further discussion of tax matters is included at NOTE 6 to the "Notes to
Consolidated Financial Statements."
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. 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. 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.
CHANGES FROM FISCAL 1995 TO FISCAL 1996
EBITDA from ongoing businesses declined $32.2 million from $76.5 million in the
prior year to $44.3 million in fiscal 1996.
Depressed vegetable pricing significantly impacted the Company's financial
results as well as much of the industry. The Company's vegetable category, which
includes significant segments of CMF and Southern Frozen Foods, experienced a
71.2 percent reduction in EBITDA compared to the prior year. Improvements in
earnings of other product lines at CMF offset the vegetable earnings reduction.
Issues impacting Nalley results included the costly start up of the dressing
plant, other manufacturing variances and increased promotion expenses. Nalley
EBITDA was $20.6 million lower than the prior year. Several steps were taken to
address these problems, including senior management changes at the division.
A major inventory reduction program across all divisions was implemented in
fiscal 1996. Long-term debt was reduced $37.5 million in fiscal 1996 due to the
cash flow generated from these programs and from additional payments to the
Company by Pro-Fac. (See NOTES 2 and 5 to the "Notes to Consolidated Financial
Statements.")
During the fourth quarter of fiscal 1996, the Company initiated a corporate-wide
restructuring program. The overall objectives of the plan were to reduce
expense, improve productivity, and streamline operations. Efforts focused on the
consolidation of operations and the elimination of approximately 900 positions.
Reductions in personnel included operational and administrative positions. The
total fiscal 1996 restructuring charge amounted to $5.9 million, which included
a fourth quarter charge of approximately $4.0 million, primarily comprised of
employee termination benefits, and approximately $1.9 million for strategic
consulting which was incurred throughout the year
Net Sales: The Company's net sales in fiscal 1996 of $739.1 million decreased
$9.4 million or 1.3 percent from $748.5 million in fiscal 1995. The net sales
attributable to businesses sold or to be sold were $55.0 million in fiscal 1996
compared to $87.3 million in fiscal 1995. The Company's net sales from ongoing
operations were $684.1 million in fiscal 1996, an increase of $22.9 million or
3.5 percent from $661.2 million in fiscal 1995.
Gross Profit: Gross profit of $176.2 million in fiscal 1996 decreased $42.2
million or 19.3 percent from $218.4 million in fiscal 1995. Of this net
decrease, a $14.0 million reduction was attributable to businesses sold or to be
sold. The remaining decrease of $28.2 million from ongoing operations was the
result of variations in volume, selling prices, costs, product mix, and
increased depreciation due to the Acquisition.
Reductions at the Company's CMF/Southern Frozen Foods operations primarily
relates to depressed vegetable pricing.
Reductions at the Company's Nalley operation relates to higher costs on all the
product lines, but particularly in salad dressings due to plant start-up
activities.
Restructuring: Restructuring expenses, as described above, amounted to $5.9
million in fiscal 1996. Restructuring expenses in fiscal 1995 of $8.4 million
reflect the impact of the sale of certain assets of the Nalley US Chips and
Snacks business and other expenses relating to the disposal of this operation.
Change in Control Expenses: Change in control expenses recorded in fiscal 1995,
amounting to $2.2 million, reflected non-deductible cost relating to the sale of
the Company (primarily legal, accounting, and investment banking fees).
Gain on Assets Resulting From Fire Claim: The gain on assets resulting from the
fire claim recorded in fiscal 1995 amounted to $4.1 million. This amount
represented the replacement value in excess of the depreciated book value of the
building and equipment destroyed on July 7, 1994 at Southern Frozen Foods. This
amount is net of additional costs incurred.
Selling, Administrative and General Expenses: Selling, administrative and
general expenses in fiscal 1996 of $156.1 million decreased $3.8 million or 2.4
percent from $159.9 million in fiscal 1995. This net decrease of $3.8 million
includes:
(In Millions)
Businesses
Sold or
to be Sold Ongoing Total
Change in trade promotions, advertising and selling costs $(8.3) $0.7 $(7.6)
Change in other administrative expenses 2.5 1.3 3.8
------ ----- ------
$(5.8) $2.0 $(3.8)
===== ==== =====
The $0.7 million decrease in trade promotions, advertising and selling costs at
the Company's ongoing operations is the net from increased costs at Nalley of
$3.7 million (primarily in the canned and dressing product lines), increased
costs of $1.0 million at the Snack Group offset by decreases at CMF/Southern
Frozen Foods/Brooks of $4.0 million (primarily in the filling and topping
product lines).
The $1.3 million increase in other administrative costs attributable to the
Company's ongoing operations was primarily related to increased expense at
Nalley. The increased expense at Nalley included administrative expenses which
previously had been allocated to Nalley Chips and Snacks and Nalley Canada Ltd.
The disposal of these businesses did not eliminate centralized functions leaving
costs which will be reduced over a period of time.
Interest Expense: Interest expense in fiscal 1996 of $42.0 million increased
$9.6 million or 29.6 percent from $32.4. million in fiscal 1995. This increase
was primarily attributable to the increased borrowing and increased rates
related to the Acquisition of the Company by Pro-Fac. The impact of the
Acquisition was reflected for the full year in fiscal 1996 and for a partial
year in fiscal 1995.
Benefit/(Provision) for Taxes: The benefit for taxes in fiscal 1996 of $6.9
million compared to a provision of $6.0 million in fiscal 1995. A further
discussion of tax matters is included at NOTE 6 of "Notes to Consolidated
Financial Statements."
LIQUIDITY AND CAPITAL RESOURCES
The following discussion highlights the major variances in the "Consolidated
Statement of Changes in Cash Flows" for fiscal 1997 compared to fiscal 1996.
Net cash provided by operating activities decreased in fiscal 1997 primarily due
to an inventory-reduction program that favorably impacted fiscal 1996 cash flow.
Cash flow was also positively impacted in fiscal 1996 due to the receipt of
approximately $8.5 million in insurance proceeds compared to the final
settlement of $4.0 million received in fiscal 1997. Earnings, however, were
greatly improved in fiscal 1997.
Net cash provided by investing activities increased significantly in fiscal
1997, primarily due to the sales of Finger Lakes Packaging, a portion of the
canned vegetable business, the Georgia distribution center, and the idle
facilities. These actions were part of an overall initiative in fiscal 1997 to
reduce the Company's outstanding debt. Management believes that the significant
reduction in debt will provide the Company with the added financial flexibility
needed to operate the business. All proceeds from asset sales were applied to
Bank debt in accordance with the terms of the New Credit Agreement. Fiscal 1996
results included 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: Under the New Credit Agreement, as amended, Curtice Burns is able to
borrow up to $66.0 million for working capital purposes under the Seasonal
Facility, subject to a borrowing base limitation, and obtain up to $18.0 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, 1997, Pro-Fac established a seasonal line of
credit with the Bank. In doing so, the Bank limited the Company's availability
under the Seasonal Facility to $66.0 million less outstanding borrowings of
Pro-Fac. Pro-Fac's outstanding borrowings under their seasonal line were $7.0
million at June 28, 1997.
The Company believes that the cash flow generated by its operations and the
amounts available under the Seasonal Facility should be sufficient to fund its
working capital needs, fund its capital expenditures and service its debt for
the foreseeable future.
As of June 28, 1997, (i) cash borrowings outstanding under the Seasonal Facility
were zero 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 $59.0 million. In addition to its seasonal financing, as of June
28, 1997, the Company had $34.2 million available for long-term borrowings under
the Term Loan Facility.
The New Credit Agreement and Indenture requires that Pro-Fac and Curtice Burns
meet certain financial tests and ratios and comply with certain other
restrictions and limitations. As of June 28, 1997, the Company is in compliance
with, or has obtained waivers for, all such covenants, restrictions and
limitations.
Short- and Long-Term Trends: Throughout fiscal 1997 the Company has worked
toward accomplishing the restructuring initiatives begun in fiscal 1996. During
fiscal 1997, this program focused on 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 completed is
outlined at NOTE 3 to the "Notes to Consolidated Financial Statements."
The vegetable and fruit portions of the business, which includes CMF/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 has been
a minor improvement from the prior year.
Supplemental Information on Inflation: The changes in costs and prices within
the Company's business due to inflation were not significantly different from
inflation in the United States economy as a whole. Levels of capital investment,
pricing and inventory investment were not materially affected by the moderate
inflation.
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 fiscal
1997, approximately $2.0 million of this reserve was liquidated. It is
anticipated that the remaining reserve will be liquidated during the first
quarter of fiscal 1998.
Information Services Reorganization: On June 19, 1997, Systems & Computer
Technology Corporation ("SCT") and the Company announced a major outsourcing
services and software agreement effective June 30, 1997. The ten-year agreement,
valued at approximately $50 million, is for SCT's OnSite outsourcing services,
ADAGE ERP software and implementation services and assistance in solving the
Year 2000 issue.
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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
ITEM Page
Curtice-Burns Foods, Inc. and Consolidated Subsidiaries:
Management's Responsibility for Financial Statements.................................................................... 19
Reports of Independent Accountants...................................................................................... 20
Consolidated Financial Statements:
Consolidated Statement of Operations and Accumulated Earnings/(Deficit) for the years ended
June 28, 1997, June 29, 1996, and June 24, 1995..................................................................... 22
Consolidated Balance Sheet at June 28, 1997 and June 29, 1996......................................................... 23
Consolidated Statement of Cash Flows for the years ended June 28, 1997, June 29, 1996, and June 24, 1995.............. 24
Notes to Consolidated Financial Statements............................................................................ 26
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation and integrity of the financial
statements and related notes which begins on the page following the "Report of
Independent Accountants." These statements have been prepared in accordance with
generally accepted accounting principles.
The Company's accounting systems include internal controls designed to provide
reasonable assurance of the reliability of its financial records and the proper
safeguarding and use of its assets. Such controls are monitored through the
internal and external audit programs.
The financial statements have been audited by Price Waterhouse LLP, independent
accountants, who were responsible for conducting their examination in accordance
with generally accepted auditing standards. Their resulting reports are on the
subsequent pages.
The Board of Directors exercises its responsibility for these financial
statements. The independent accountants and internal auditors of the Company
have full and free access to the Board. The Board periodically meets with the
independent accountants and the internal auditors, without management present,
to discuss accounting, auditing and financial reporting matters.
/s/ Dennis M. Mullen /s/ Earl L. Powers
Dennis M. Mullen Earl L. Powers
President and Vice President Finance
Chief Executive Officer Chief Financial Officer
August 1, 1997
Report of Independent Accountants
To the Shareholder and
Board of Directors of
Curtice Burns Foods, Inc.
In our opinion, the consolidated statements of operations and accumulated
earnings/(deficit) and of cash flows listed under Item 8 of this Form 10-K
present fairly, in all material respects, the results of Curtice Burns Foods,
Inc. and its subsidiaries ("Predecessor Company") operations and cash flows for
the period from June 26, 1994 to November 3, 1994, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Predecessor Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the financial statements, as of November 3, 1994, the
Predecessor Company became a wholly owned subsidiary of Pro-Fac Cooperative,
Inc. In conjunction with this change in ownership, identifiable assets and
liabilities were adjusted to reflect their fair values at the date of
acquisition.
Our audit of the consolidated financial statements also included an audit of the
financial statement schedule listed in the accompanying index and appearing
under Item 14 of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein for the period from June 26, 1994 to November 3, 1994 when read in
conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Rochester, New York
August 1, 1997
Report of Independent Accountants
To the Shareholder and
Board of Directors of
Curtice Burns Foods, Inc.
In our opinion, the consolidated balance sheets and related consolidated
statements of operations and accumulated earnings/(deficit) and of cash flows
listed under Item 8 of this Form10-K present fairly, in all material respects,
the financial position of Curtice Burns Foods, Inc. and its subsidiaries
("Successor Company") at June 28, 1997 and June 29, 1996, and the results of
their operations and their cash flows for each of the two fiscal years ended
June 28, 1997 and June 29, 1996 and the period November 4, 1994 to June 24,
1995, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Successor Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in NOTE 1 to the "Consolidated Financial Statements," the Successor
Company changed its method of accounting for spare parts in 1997.
As discussed in Note 2 to the financial statements, as of November 3, 1994, the
Predecessor Company became a wholly owned subsidiary of Pro-Fac Cooperative,
Inc. In conjunction with this change in ownership, identifiable assets and
liabilities were adjusted to reflect their fair values at the date of
acquisition.
Our audits of the consolidated financial statements also included an audit of
the financial statement schedule listed in the accompanying index and appearing
under Item 14 of the Form10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein for
the fiscal years ended June 28, 1997 and June 29, 1996 and the period November
4, 1994 to June 24, 1995 when read in conjunction with the consolidated
financial statements.
PRICE WATERHOUSE LLP
Rochester, New York
August 1, 1997
FINANCIAL STATEMENTS
Curtice-Burns Foods, Inc.
Consolidated Statement of Operations and Accumulated Earnings/(Deficit)
(Dollars in Thousands)
Fiscal 1995
11/4/94 - 6/26/94 -
Fiscal 1997 Fiscal 1996 6/24/95 11/3/94
Successor Successor Successor Predecessor
Net sales $ 730,823 $ 739,094 $ 471,904 $276,621
Cost of sales 539,081 562,926 334,329 195,810
--------- --------- --------- --------
Gross profit 191,742 176,168 137,575 80,811
Selling, administrative, and general expenses (145,392) (156,067) (99,361) (60,576)
Gain on sale of Finger Lakes Packaging 3,565 0 0 0
Restructuring charge 0 (5,871) 0 (8,415)
Change in control expenses 0 0 0 (2,150)
Gain on assets net of additional costs incurred as a result of a fire 0 0 (2,315) 6,469
--------- --------- --------- --------
Operating income before dividing with Pro-Fac 49,915 14,230 35,899 16,139
Interest expense (35,030) (41,998) (24,790) (7,624)
--------- --------- --------- --------
Pretax income/(loss) before dividing with Pro-Fac and before
cumulative effect of an accounting change 14,885 (27,768) 11,109 8,515
Pro-Fac share of (income)/loss before cumulative effect of an
accounting change (7,442) 9,037 (5,554) (4,062)
--------- --------- --------- --------
Income/(loss) before taxes and cumulative effect of an accounting change 7,443 (18,731) 5,555 4,453
Tax (provision)/benefit (3,668) 6,853 (3,291) (2,735)
--------- --------- --------- --------
Income/(loss) before cumulative effect of an accounting change 3,775 (11,878) 2,264 1,718
Cumulative effect of an accounting change before
dividing with Pro-Fac 4,606 0 0 0
Pro-Fac share of an accounting change (2,859) 0 0 0
--------- --------- --------- --------
Net income/(loss) 5,522 (11,878) 2,264 1,718
Accumulated (deficit)/earnings at beginning of period (11,878) 0 0 58,121
Less cash dividends declared (5,522) 0 (2,264) (1,390)
--------- --------- --------- --------
Accumulated (deficit)/earnings at end of period $ (11,878) $ (11,878) $ 0 $ 58,449
========= ========= ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
Curtice-Burns Foods, Inc.
Consolidated Balance Sheet
(Dollars in Thousands)
ASSETS
6/28/97 6/29/96
Current assets:
Cash and cash equivalents $ 2,836 $ 8,873
Accounts receivable trade, less allowances for bad debts of $970
and $836, respectively 48,661 47,259
Accounts receivable, other 2,813 8,959
Current deferred tax asset 8,198 11,724
Inventories -
Finished goods 87,904 97,018
Raw materials and supplies 27,001 33,556
-------- --------
Total inventories 114,905 130,574
-------- ---------
Prepaid manufacturing expense 8,265 11,339
Prepaid expenses and other current assets 6,323 1,066
Current investment in Bank 946 0
-------- --------
Total current assets 192,947 219,794
Investment in Bank 24,321 24,439
Property, plant, and equipment, net 217,923 268,389
Assets held for sale 3,259 5,368
Goodwill and other intangible assets less accumulated amortization of
$10,053 and $5,961, respectively 96,429 103,760
Other assets 7,682 12,500
-------- --------
Total assets $542,561 $634,250
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
6/28/97 6/29/96
Current liabilities
Current portion of obligations under capital leases $ 558 $ 547
Current portion of long-term debt 8,075 8,075
Accounts payable 49,231 54,661
Income taxes payable 5,152 3,836
Due to Pro-Fac 4,312 2,215
Accrued interest 8,540 9,447
Accrued employee compensation 11,063 8,368
Other accrued expenses 21,956 24,770
-------- --------
Total current liabilities 108,887 111,919
Long-term debt 62,829 149,683
Senior subordinated notes 160,000 160,000
Obligations under capital leases 817 1,125
Deferred income tax liabilities 40,902 51,572
Other non-current liabilities 22,687 20,746
-------- --------
Total liabilities 396,122 495,045
-------- --------
Commitments and Contingencies
Shareholder's Equity:
Common stock, par value $.01; 10,000 shares outstanding, owned by Pro-Fac 0 0
Additional paid-in capital 158,317 151,083
Accumulated deficit (11,878) (11,878)
-------- --------
Total shareholder's equity 146,439 139,205
-------- --------
Total liabilities and shareholder's equity $542,561 $634,250
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Curtice-Burns Foods, Inc.
Consolidated Statement of Cash Flows
(Dollars in Thousands)
Fiscal 1995
11/4/94 - 6/26/94 -
Fiscal 1997 Fiscal 1996 6/24/95 11/3/94
Successor Successor Successor Predecessor
Cash Flows From Operating Activities:
Net income/(loss) $ 5,522 $(11,878) $ 2,264 $ 1,718
Adjustments to reconcile net income/(loss) to net cash provided by
operating activities -
Restructuring and disposals:
Restructuring and net (gain)/loss from disposals (3,565) 5,871 0 5,567
Including net operating losses subsequent to decision to dispose 0 0 0 2,848
Gain on assets resulting from fire claim 0 0 0 (6,469)
Amortization of goodwill and other intangibles 4,092 3,422 2,618 753
Amortization of debt issue costs 800 800 600 0
Depreciation 22,680 26,081 13,864 6,228
Cumulative effect of an accounting change (4,606) 0 0 0
Provision/(benefit) for deferred taxes 2,787 (6,853) 4,705 (4,205)
Provision for losses on accounts receivable 445 528 91 292
Equity in undistributed earnings of Bank (1,143) (1,532) (1,288) 0
Change in assets and liabilities:
Accounts receivable (1,856) 11,309 11,540 (12,722)
Inventories (1,636) 33,347 67,022 (70,961)
Income taxes payable/refundable 205 4,879 (1,043) 1,491
Accounts payable and accrued expenses (3,253) (15,200) (13,140) (5,662)
Payable to/receivable from Pro-Fac 466 2,754 (20,098) 9,650
Other assets and liabilities 548 (1,514) 15,029 11,714
---------- -------- --------- ---------
Net cash provided by/(used in) operating activities 21,486 52,014 82,164 (59,758)
---------- -------- --------- ---------
Cash Flows From Investing Activities:
Purchase of property, plant, and equipment (16,876) (18,038) (26,891) (5,689)
Proceeds from disposals 74,683 5,005 0 0
Proceeds from investment in CoBank 315 0 0 0
Cash paid for acquisition 0 (5,785) 0 0
---------- -------- --------- ---------
Net cash provided by/(used in) investing activities 58,122 (18,818) (26,891) (5,689)
---------- -------- --------- ---------
Cash Flows From Financing Activities:
Receivable from/payable to Pro-Fac 0 0 (42,000) 42,000
Proceeds from issuance of short-term debt 0 0 0 30,000
Proceeds from issuance of long-term debt 18,000 5,400 359,000 10,886
Payments on short term debt 0 0 (30,000) 0
Payments on long-term debt including acquisition-related financing fees (104,854) (43,056) (178,015) (350)
Payments on capital leases (503) (825) (1,259) (11,344)
Stock activity relating to Predecessor's equity 0 0 0 52
Amounts paid to shareholders for acquisition 0 0 (167,800) 0
Capital contribution by Pro-Fac 7,234 10,000 3,888 0
Cash dividends paid to Pro-Fac (5,522) 0 (2,264) (1,390)
---------- -------- --------- ---------
Net cash (used in)/provided by financing activities (85,645) (28,481) (58,450) 69,854
---------- -------- --------- ---------
Net change in cash and cash equivalents (6,037) 4,715 (3,177) 4,407
Cash and cash equivalents at beginning of period 8,873 4,158 7,335 2,928
---------- -------- --------- ---------
Cash and cash equivalents at end of period $ 2,836 $ 8,873 $ 4,158 $ 7,335
========== ======== ========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for :
Interest (net of amount capitalized) $ 35,587 $ 41,508 $ 17,531 $ 6,967
========== ======== ========== =========
Income taxes, net $ 676 $ (703) $ 5,567 $ 1,417
========== ======== ========== =========
Acquisition of Packer Foods and Matthews Candy Co.:
Accounts receivable 0 $ 1,282 $ 0 $ 0
Inventories 0 3,902 0 0
Prepaid expenses and other current assets 0 270 0 0
Property, plant and equipment 0 6,044 0 0
Goodwill 0 493 0 0
Deferred tax asset 0 264 0 0
Accounts payable 0 (4,954) 0 0
Accrued expenses 0 (418) 0 0
Other non-current liabilities 0 (1,098) 0 0
---------- -------- ---------- ---------
Cash paid for acquisition $ 0 $ 5,785 $ 0 $ 0
========== ======== ========== =========
Curtice-Burns Foods, Inc.
Consolidated Statement of Cash Flows (Continued)
(Dollars in Thousands)
Fiscal 1995
11/4/94- 6/26/94-
Fiscal 1997 Fiscal 1996 6/24/95 11/3/94
Successor Successor Successor Predecessor
Supplemental Schedule of Non-Cash Investing and Financing Activities:
In conjunction with the purchase of certain businesses of Nalley Canada Ltd.
by Curtice Burns in fiscal 1997, the following non-cash transactions occurred:
Notes forgiven $4,986 $ 0 $ 0 $0
====== ==== ======== ==
In conjunction with the purchase of Curtice Burns by Pro-Fac during fiscal 1995,
the following non-cash transactions occurred:
Transfer of Investment in CoBank from Pro-Fac 0 0 21,619 0
Debt forgiven by Pro-Fac 0 0 110,576 0
Other assets contributed by Pro-Fac 0 0 5,000 0
------ ---- --------
$ 0 $ 0 $137,195 $0
====== ==== ======== ==
Capital lease obligations incurred $ 206 $113 $ 1,562 $0
====== ==== ======== ==
The accompanying notes are an integral part of these consolidated financial
statements.
CURTICE-BURNS FOODS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, which requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
Curtice Burns is a producer and marketer of processed food products, including
canned and frozen fruits and vegetables, canned desserts and condiments, fruit
fillings and toppings, canned chilies and stews, salad dressings, pickles,
peanut butter and snack foods. The vegetable and fruit product lines account for
approximately 70 percent of sales. The Company's products are primarily
distributed in the United States.
The Company is a wholly-owned subsidiary of Pro-Fac Cooperative, Inc.
("Pro-Fac"). The financial statements contained herein present the results of
the Company during the period prior to its acquisition by Pro-Fac (the
"Predecessor entity") as well as the period subsequent to its November 3, 1994
acquisition (the "Successor entity"). The financial statements of the
Predecessor entity and Successor entity are not comparable in certain respects
because of differences between the cost bases of the assets as well as the
effect on the Successor entity's operations for adjustments to depreciation and
interest expense. The Acquisition was accounted for using the purchase method of
accounting. In conjunction with the change in ownership all identifiable assets
and liabilities were adjusted to reflect their fair values at the date of
acquisition.
Fiscal Year: The financial statements of the Predecessor entity include the
period from June 26, 1994 through November 3, 1994, the acquisition date. The
financial statements of the Successor entity include the period from November 3,
1994 through June 24, 1995, the fiscal year end (see NOTE 2 of "Notes to
Consolidated Financial Statements"). The fiscal year of the Successor entity
corresponds with that of its parent, Pro-Fac, and ends on the last Saturday in
June. Fiscal 1996 comprised 53 weeks and fiscal 1997 and 1995 each comprised 52
weeks.
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. 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. 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 and 1995 have been reclassified
to conform with fiscal 1997 presentation.
Cash and Cash Equivalents: Cash and cash equivalents include short-term
investments with maturities of three months or less. Short-term investments
amounted to $5.3 million at June 29, 1996. There were no such short-term
investments at June 28, 1997 or June 24, 1995.
Inventories: Inventories are stated at the lower of cost or market on the
first-in, first-out ("FIFO") method. Reserves recorded at June 28, 1997 and June
29, 1996 were $362,000 and $485,000, respectively.
Investment in CoBank ("The Bank"): The Company's investment in the Bank is
required as a condition of borrowing. These securities are not physically issued
by the Bank, but the Company is notified as to their monetary value. The
investment is carried at cost plus the Company's share of the undistributed
earnings of the Bank (that portion of patronage refunds not distributed
currently in cash).
Manufacturing Overhead: Allocation of manufacturing overhead to finished goods
produced is on the basis of a production year; thus at the end of each fiscal
year, manufacturing costs incurred by seasonal plants, subsequent to the
previous pack, are deferred and included in the accompanying balance sheet under
the caption "Prepaid manufacturing expense."
Property, Plant, and Equipment and Related Lease Arrangements: Property, plant,
and equipment are depreciated over the estimated useful lives of the assets
using the straight-line method, half-year convention, over 4 to 40 years.
Assets held for sale are separately classified on the balance sheet. The
recorded value represents an estimate of net realizable value.
Lease arrangements are capitalized when such leases convey substantially all of
the risks and benefits incidental to ownership. Capital leases are amortized
over either the lease term or the life of the related assets, depending upon
available purchase options and lease renewal features.
Other Assets: Other assets are primarily comprised of debt issuance. Debt
issuance costs are amortized over the term of the debt. Amortization expense
incurred in fiscal 1997, 1996, and 1995 was $800,000, $800,000, and $600,000,
respectively.
Income Taxes: Income taxes are provided on income for financial reporting
purposes. Deferred income taxes resulting from temporary differences between
financial reporting and tax reporting are appropriately classified in the
balance sheet.
Pension: The Company and its subsidiaries have several pension plans and
participate in various union pension plans which on a combined basis cover
substantially all employees. Charges to income with respect to plans sponsored
by the Company and its subsidiaries are based upon actuarially determined costs.
Pension liabilities are funded by periodic payments to the various pension plan
trusts.
Goodwill and Other Intangibles: Goodwill and other intangible assets include the
cost in excess of the fair value of net tangible assets acquired in purchase
transactions and acquired non-competition agreements and trademarks. Goodwill
and other intangible assets, stated net of accumulated amortization, are
amortized on a straight-line basis over 5 to 35 years. The Company periodically
assesses whether there has been a permanent impairment in the value of goodwill.
This is accomplished by determining whether the estimated, undiscounted future
cash flows from operating activities exceed the carrying value of goodwill as of
the assessment date. Should aggregate future cash flows be less than the
carrying value, a writedown would be required, measured by the difference
between the discounted future cash flows and the carrying value of goodwill.
Commodities Options Contracts: In connection with the purchase of certain
commodities for anticipated manufacturing requirements, the Company occasionally
enters into options contracts as deemed appropriate to reduce the effect of
price fluctuations. These options contracts are accounted for as hedges and,
accordingly, gains and losses are deferred and recognized in cost of sales as
part of the product cost. These activities are not significant to the Company's
operations as a whole.
Casualty Insurance: The Company is insured for workers compensation and
automobile liability through a primarily self-insured program. The Company
accrues for the estimated losses from both asserted and unasserted claims. The
estimate of the liability for unasserted claims arising from unreported
incidents is based on an analysis of historical claims data.
Earnings Per Share Data Omitted: Earnings per share amounts are not presented,
as subsequent to November 3, 1994, the Company is a wholly-owned subsidiary of
Pro-Fac.
Environmental Expenditures: Environmental expenditures that pertain to current
operations are expensed or capitalized consistent with the Company's
capitalization policy. Expenditures that result from the remediation of an
existing condition caused by past operations that do not contribute to current
or future revenues are expensed. Liabilities are recorded when remedial
activities are probable, and the cost can be reasonably estimated.
Advertising: Production costs of commercials and programming are charged to
operations in the year first aired. The costs of other advertising promotion and
marketing programs are charged in the year incurred. Advertising expense
incurred in fiscal year 1997, 1996, and 1995 amounted to $8,376,000, $9,831,000,
and $13,150,000, respectively.
Disclosures About Fair Value of Financial Statements: The following methods and
assumptions were used by the Company in estimating its fair value disclosures
for financial instruments:
Cash, Accounts Receivable, Accounts Payable, and Other Accrued
Expenses: The carrying amount approximates fair value because of the
short maturity of these instruments.
Long-Term Investments: The carrying value of the Company's investment
in CoBank was $25.3 million at June 28, 1997. As there is no market
price for this investment, a reasonable estimate of fair value is not
possible.
Long-Term Debt: The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar
issues or on the current rates offered to the Company for debt of the
same remaining maturities.
New Accounting Pronouncements: During fiscal 1997, the Company adopted Financial
Accounting Standards Board Statement No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation" As the Company's Long-Term Incentive Plan is a
compensatory plan, the adoption of SFAS 123 had no significant impact on
operations.
NOTE 2. CHANGE IN CONTROL OF THE COMPANY
In 1993, the Company's management and Board of Directors began exploring several
strategic alternatives for the Company, including a possible sale of all the
equity of the Company. Those activities ultimately resulted in the Company
entering into an Agreement and Plan of Merger with Pro-Fac and its subsidiary
PFAC on September 27, 1994 (the "Merger Agreement"). On November 3, 1994, PFAC
merged into the Company, making the Company a wholly-owned subsidiary of
Pro-Fac.
In connection with the acquisition, PFAC sold $160.0 million of 12.25 percent
Senior Subordinated Notes (the "Notes") due 2005 and entered into a credit
agreement (the "New Credit Agreement") with the Bank, which provided for a term
loan, a term-loan facility, a seasonal-loan facility, and a letter-of-credit
facility. All obligations of PFAC under the Notes and the New Credit Agreement
have become obligations of the Company.
The Acquisition was accounted for using the purchase method of accounting. In
conjunction with the change in ownership all other identifiable assets and
liabilities were adjusted to reflect their fair values at the date of
Acquisition. These allocations were finalized in fiscal 1996. In recording the
transaction, approximately $121.5 million was recorded to adjust property,
plant, and equipment to fair market value, and the asset lives were adjusted for
assets acquired. In addition, approximately $110.0 million of goodwill and other
intangible assets were recorded as the excess of purchase cost over net assets
acquired. Included in this amount was approximately $42.0 million for deferred
tax adjustments to properly reflect the effects of the acquisition in accordance
with the SFAS No. 109, "Accounting for Income Taxes." (See further discussion of
tax matters at NOTE 6 to the "Notes to Consolidated Financial Statements.") The
resulting annual amortization of goodwill and other intangible assets will
approximate $4.0 million using lives ranging from 5 to 35 years. There were no
other significant changes to accounting policies as a result of the Acquisition.
Following, in capsule form, is the consolidated, unaudited results of operations
of Curtice Burns Foods for the fiscal year ended June 24, 1995, assuming the
acquisition by Pro-Fac took place at the beginning of the fiscal year. The
column headed "Actual" for June 24, 1995 is the total of Successor and
Predecessor entities.
(In Millions)
Fiscal Year Ended
(Pro Forma is Unaudited)
June 24, 1995
Actual Pro Forma
Net sales $748.5 $748.5
Income before taxes $ 10.0 $ 7.0
Net income $ 4.0 $ 2.9
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 fiscal years ended
1997, 1996, and 1995 the CMV for all crops supplied by Pro-Fac amounted to $51.4
million, $44.7 million, and $55.9 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 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 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 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
fiscal years ended 1997, 1996, and 1995 such additional patronage income/(loss)
amounted to $10.3 million, $(9.0) million and $9.6 million, respectively. 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.
The capital contribution of Pro-Fac to the Company at acquisition primarily
included the cancellation of indebtedness and capital lease obligations.
Subsequent to the acquisition date, Pro-Fac invested an additional $21.1 million
in the Company (including reinvested Additional Patronage Income).
NOTE 3. RESTRUCTURING, ACQUISITIONS, AND DISPOSALS
Information Services Reorganization: On June 19, 1997, Systems & Computer
Technology Corporation ("SCT") and the Company announced they signed a major
outsourcing services and software agreement effective June 30, 1997. The
ten-year agreement, valued at approximately $50 million, is for SCT's, OnSite
outsourcing services and ADAGE ERP software and implementation services.
Nalley Canada Ltd.: In April 1997, the Company acquired certain businesses from
Nalley Canada Ltd., a privately held, independent snack food company and former
subsidiary of Curtice Burns. The acquired Canadian operations include 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.
Brooks Foods: On April 30, 1997, Hoopeston Foods acquired certain assets from
the Brooks Foods operating facility. The purchase price of approximately $2.1
million was paid with $400,000 in cash and a $1.7 million ten-year note. The
proceeds were applied to outstanding Bank loans. No significant gain or loss
occurred as a result of this transaction. In addition, the two companies entered
into a copack and warehouse agreement under which Hoopeston will produce,
package, and warehouse certain products.
Georgia Frozen Distribution Center: On June 27, 1997, URS Logistics, Inc.
("URS") acquired the Company's frozen foods distribution center in Montezuma,
Georgia. In addition, the two companies entered into a long-term logistics
agreement under which URS will manage its facility and all frozen food
transportation operations of Curtice Burns in Georgia and New York. The Company
received proceeds of approximately $9.1 million which were applied to
outstanding Bank loans. No significant gain or loss occurred as a result of this
transaction.
Sale of New York Canned Vegetable Businesses: On May 6, 1997, Seneca Foods
Corporation ("Seneca") acquired the Curtice Burns Leicester, New York production
facility and the LeRoy, New York distribution center, as well as the Blue Boy
brand.
Seneca and the Company have also forged 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 initially has a
minimum ten-year term.
The Company received proceeds of approximately $29.4 million which were applied
to outstanding Bank loans. No significant gain or loss occurred 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. A gain of
approximately $3.6 million was recognized on this transaction. Proceeds from
this sale were applied to outstanding Bank loans. The Company received proceeds
of approximately $30.0 million.
The transaction also included a long-term supply agreement between Silgan and
Curtice Burns.
Packer Foods: On July 21, 1995, the Company acquired Packer Foods, a privately
owned, Michigan-based food processor. The total cost of acquisition was
approximately $5.4 million in notes plus interest at 10 percent to be paid until
the notes mature in the year 2000. The transaction was accounted for as a
purchase. For its latest fiscal year ended December 31, 1994, Packer had net
sales of $13 million, operating income of $300,000, and income before
extraordinary items of $100,000. Packer Foods has been merged into the Company's
CMF operations.
Matthews Candy Co.: In the fourth quarter of fiscal 1996, the Company acquired
Matthews Candy Co., a privately owned Washington-based snack food distributor.
The total cost of the acquisition was approximately $0.4 million and was paid in
cash. Matthews Candy Co. has been merged into the Tim's Cascade Chips operation
of the Company's Snack Foods Group.
Restructuring initiatives resulted in the following charges to earnings of the
company in fiscal 1996 and 1995:
Fiscal 1996 Restructuring Charge: During the fourth quarter of fiscal
1996, the Company began implementation of a corporate-wide
restructuring program. The overall objectives of the plan were to
reduce expenses, improve productivity, and streamline operations.
Efforts focused on the consolidation of operations and the elimination
of approximately 900 positions. The total fiscal 1996 restructuring
charge amounted to $5.9 million. This amount included a fourth-quarter
charge of approximately $4.0 million which was primarily comprised of
employee termination benefits, and approximately $1.9 million for
strategic consulting incurred throughout the year. Reductions in
personnel included both operational and administrative positions.
Fiscal 1995 Restructuring Charge: Included in fiscal 1995 results was a
restructuring charge of $8.4 million to reflect the estimated impact of
the sale of certain assets of the Nalley US Chips and Snacks operation
and other expenses relating to the disposal of this operation. On
December 19, 1994 this operation was sold for approximately $2.0
million. This sale was contemplated by Pro-Fac in conjunction with the
acquisition.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT AND RELATED OBLIGATIONS
The following is a summary of property, plant and equipment and related
obligations at June 28, 1997 and June 29, 1996:
(Dollars in Thousands)
June 28, 1997 June 29, 1996
Owned Leased Owned Leased
Assets Assets Total Assets Assets Total
Land $ 5,755 $ 0 $ 5,755 $ 6,005 $ 0 $ 6,005
Land improvements 2,061 0 2,061 2,641 0 2,641
Buildings 80,907 645 81,552 97,855 690 98,545
Machinery and equipment 167,043 2,397 169,440 190,423 2,509 192,932
Construction in progress 13,053 0 13,053 11,881 0 11,881
-------- ------ -------- -------- ------ --------
268,819 3,042 271,861 308,805 3,199 312,004
Less accumulated depreciation 52,194 1,744 53,938 42,042 1,573 43,615
-------- ------ -------- -------- ------ --------
Net $216,625 $1,298 $217,923 $266,763 $1,626 $268,389
======== ====== ======== ======== ====== ========
Obligations under capital leases1 $1,375 $1,672
Less current portion 558 547
------ ------
Long-term portion $ 817 $1,125
====== ======
1 Represents the present value of net minimum lease payments calculated at the
Company's incremental borrowing rate at the inception of the leases, which
ranged from 6.3 to 9.8 percent.
Interest capitalized in conjunction with construction amounted to approximately
$342,000 and $470,000 in fiscal 1997 and 1996,
respectively.
The following is a schedule of future minimum lease payments together with the
present value of the minimum lease payments related to capitalized leases, both
as of June 28, 1997.
(Dollars in Thousands)
Fiscal Year Ending Last Capital Operating Total Future
Saturday In June Leases Leases Commitment
1998 $ 783 $ 5,368 $ 6,151
1999 556 4,248 4,804
2000 125 2,522 2,647
2001 92 1,115 1,207
2002 66 444 510
Later years 200 71 271
------ ------- -------
Net minimum lease payments 1,822 $13,768 $15,590
======= =======
Less amount representing interest 447
Present value of minimum lease payments $1,375
Total rent expense related to operating leases (including lease arrangements of
less than one year which are not included in the previous table) amounted to
$11,204,000, $10,927,000, and $10,297,000 for fiscal years 1997, 1996, and 1995,
respectively. The fiscal 1995 amount is comprised of $4,280,000 for the
Predecessor entity and $6,017,000 for the Successor entity.
NOTE 5. DEBT
Bank Facility: The Bank Facility includes Term Loan, Seasonal Facility, and
Letter of Credit facilities. The outstanding
borrowings under the Term Loan were $65.2 million at June 28, 1997.
The Seasonal Facility provides seasonal financing of up to $66.0 million. The
Letter of Credit Facility provides $18.0 million.
Guarantees and Security: All obligations under the Bank Facility are
guaranteed by Pro-Fac and certain subsidiaries of Curtice Burns (the
"Subsidiary Guarantors"). The Company's obligations under the Bank
Facility and Pro-Fac's and the Subsidiary Guarantors' obligations under
their respective guaranties are secured by all of the assets of the
Company and each guarantor, respectively.
The Bank has extended to a portion of the Term Loan Facility for a
limited period of time certain fixed rates that were in effect with
respect to indebtedness repaid to the Bank on November 3, 1994. The
weighted-average rate of interest applicable to the Term Loan was 8.60
percent per annum for fiscal 1997.
Borrowings under the Seasonal Facility are payable at the expiration of
that portion of the facility, which is December 1997; except that for
15 consecutive calendar days during each year, the borrowings under the
Seasonal Facility must be zero.
Short-term borrowings for the three years ended June 28, 1997 were as follows:
(Dollars in Thousands)
Fiscal Fiscal Fiscal
1997 1996 19951
Balance at end of period $ 0 $ 0 $ 0
Rate at fiscal year end 0.0% 0.0% 0.0%
Maximum outstanding during the period $65,000 $94,000 $94,000
Average amount outstanding during the period $24,900 $53,700 $66,500
Weighted average interest rate during the period 7.3% 7.4% 7.3%
1 The above amounts include borrowings from commercial banks and from Pro-Fac
under existing and pre-existing loan agreements.
The Letter of Credit Facility provides for the issuance of letters of
credit through December 1997. Management anticipates timely renewals of
both the Seasonal and the Letter of Credit facilities.
Certain Covenants: The Pro-Fac Bank Guarantee requires Pro-Fac, on a
consolidated basis, to maintain specified levels with regard to working
capital, tangible net worth, fixed charges, the incurrence of
additional debt, and limitations on dividends, investments,
acquisitions, and asset sales. The Company is in compliance with, or
has obtained waivers for, all covenants, restrictions and requirements
under the terms of the borrowing agreement.
Commitment Fees: The Bank assesses commitment fees of 0.55 percent on
the seasonal line and 0.25 percent on the unused portion of the Term
Loan.
Fair Value: Based on an estimated borrowing rate at fiscal year end
1997 of 8.7 percent for long-term debt with similar terms and
maturities, the fair value of the Company's long-term debt outstanding
under the New Credit Agreement was approximately $64.8 million at June
28, 1997.
Based on an estimated borrowing rate at fiscal year end 1996 of 9.6
percent for long-term debt with similar terms and maturities, the fair
value of the Company's long-term debt outstanding under the New Credit
Agreement was approximately $149.6 million at June 29, 1996.
The Senior Subordinated Notes ("Notes"): The Notes are limited in aggregate
principal amount to $160.0 million and will mature on February 1, 2005. Interest
on the Notes accrues at the rate of 12.25 percent per annum and is payable
semi-annually in arrears on February 1 and August 1.
Guarantees and Security: The Notes represent general unsecured
obligations of the Company, subordinated in right of payment to certain
other debt obligations of the Company (including the Company's
obligations under the New Credit Agreement).
Certain Covenants: The Notes limited the amount Pro-Fac can borrow from
the Company to $10.0 million and provided that, if Pro-Fac borrowed
from a source other than the Company, Pro-Fac was restricted from
borrowing from the Company. On June 28, 1996, Pro-Fac established a
line of credit with the Bank and, therefore, no longer can borrow from
the Company.
The Notes also limit the amount and timing of dividends and other
payments ("Restricted Payments") from the Company to Pro-Fac or to
holders of other Curtice Burns debt or equity. No dividends or other
Restricted Payments may be made if there is an existing event of
default under the Notes or if Curtice Burns' Fixed Charge Coverage
Ratio (as defined in the Indenture, a ratio of cash flow to interest
and tax-adjusted dividends) for the preceding four quarters is not at
least 1.75 to 1.00. The amount of all dividends and other Restricted
Payments subsequent to the date of the
Indenture is subject to an overall limit that is based on the Company's
net income and the amount of additional equity invested in the Company.
Fair Value: Based on an estimated borrowing rate at 1997 fiscal year
end of 11.1 percent for borrowings with similar terms and maturities,
the fair value of the Notes was $174.7 million at June 28, 1997.
Based on an estimated borrowing rate at 1996 fiscal year end of 12.5
percent for borrowings with similar terms and maturities, the fair
value of the Notes was $156.7 million at June 29, 1996.
Other Debt: Other debt of $5.7 million carries rates up to 11.0 percent at June
28, 1997.
Maturities: Total long-term debt maturities during each of the next five fiscal
years are as follows: 1998 through 1999, $8.1 million each; 2000, $9.0 million,
2001, $15.5 million, and 2002, $10.1 million. Provisions of the Term Loan
require annual payments in the years through 2000 on October 1 of each year in
an amount equal to the "annual cash sweep" (equivalent to approximately 80
percent of net income adjusted for certain cash and non-cash items) for the
preceding fiscal year as defined in the Bank Facility. As of June 28, 1997, the
Company had satisfied its obligation under this provision. Provisions of the
Term Loan also require that cash proceeds from the sale of businesses be applied
to the Term Loan.
NOTE 6. TAXES ON INCOME
Taxes on income before the cumulative effect of a change in accounting include
the following:
(Dollars in Thousands)
Fiscal 1995
11/4/94 - 6/26/94 -
Fiscal 1997 Fiscal 1996 6/24/95 11/3/94
Successor Successor Successor Predecessor
Federal -
Current $ 567 $ 0 $(1,368) $ 5,834
Deferred 2,639 (5,990) 3,810 (3,529)
------ ------- ------- -------
3,206 (5,990) 2,442 2,305
------ ------- ------- -------
State and foreign -
Current 314 0 (46) 1,106
Deferred 148 (863) 895 (676)
------ ------- ------- -------
462 (863) 849 430
------ ------- ------- -------
$3,668 $(6,853) $ 3,291 $ 2,735
====== ======= ======= =======
A reconciliation of the Company's effective tax rate to the amount computed by
applying the federal income tax rate to income before taxes and cumulative
effect of a change in accounting is as follows:
(Dollars in Thousands)
Fiscal 1995
1/4/94- 6/26/94-
Fiscal 1997 Fiscal 1996 6/24/95 11/3/94
Successor Successor Successor Predecessor
Income tax provision/(benefit) at 34% in 1997 and 1996 and 35% in 1995 $2,530 $(6,380) $1,942 $1,558
State income taxes, net of federal income tax effect 484 (859) 552 294
Goodwill amortization 1,041 784 637 167
Dividend received reduction (472) (521) 0 0
Non-deductible legal and advisory expenses 0 0 0 753
Other, net 85 123 160 (37)
------ ------- ------ -------
$3,668 $(6,853) $3,291 $2,735
====== ======= ====== ======
Effective Tax Rate 49.3% (36.5)% 59.3% 61.4%
====== ======= ====== ======
The deferred tax (liabilities)/assets consist of the following at June 28, 1997
and June 29, 1996:
Fiscal Fiscal
1997 1996
Liabilities
Depreciation $(49,357) $(61,350)
Non-compete agreements (462) (766)
Long-term receivables (538) (426)
Prepaid manufacturing (3,215) (4,411)
Other (215) (39)
-------- --------
(53,787) (66,992)
-------- --------
Assets
Inventory 2,322 2,203
Allowance for doubtful accounts 377 313
Capital and operating loss carryforwards 6,147 27,090
Accrued employee benefits 3,431 3,014
Insurance accruals 2,058 2,031
Pension/OPEB accruals 7,128 6,368
Restructuring reserves 1,332 1,731
Promotional reserves 1,592 0
Other 2,908 2,377
-------- --------
27,295 45,127
-------- --------
Net deferred liabilities (26,492) (21,865)
Valuation allowance (6,212) (17,983)
-------- --------
$(32,704) $(39,848)
======== ========
During fiscal year 1997, the Company utilized $22.1 million of net operating
loss carryforwards ($8.6 million of tax). Additionally, approximately $5.1
million of net operating loss carryforwards ($1.7 million of tax) were
transferred from Pro-Fac.
The benefits for these net operating losses had been recorded in previous years.
During fiscal year 1996, the Company sold the stock of its wholly-owned
subsidiary Curtice Burns Meat Snacks, Inc. Substantially all of the assets of
this subsidiary were previously sold. The sale resulted in a capital loss of
$36.3 million ($14.2 million of tax). As of the date of sale, a full valuation
allowance had been recorded against the capital loss carryforward as it was more
likely than not that a tax benefit would not be realized. During fiscal year
1997, however, the Company disposed of its Finger Lakes Packaging subsidiary,
its New York canned vegetable operation, and a distribution center in Georgia.
As a result of these disposals, the Company utilized $21.6 million of its
capital loss carryforward. As the related valuation allowance was established in
conjunction with the acquisition of the Company by Pro-Fac, the recognition of
this capital loss carryforward reduced goodwill in fiscal 1997. As of June 28,
1997, the Company has $14.7 million of a capital loss carryforward available.
The capital loss carryforward expires in 2001, and any future recognition of
this capital loss carryforward will also reduce goodwill.
In January 1995, the Boards of Directors of Curtice Burns and Pro-Fac approved
appropriate amendments to the Bylaws of Curtice Burns to allow the Company to
qualify as a cooperative under Subchapter T of the Internal Revenue Code. In
August 1995, Curtice Burns and Pro-Fac received a favorable ruling from the
Internal Revenue Service approving the change in tax treatment effective for
fiscal 1996. Subsequent to this date, a consolidated return has been filed
incorporating Curtice Burns and Pro-Fac. Tax expense is allocated to Curtice
Burns based on its operations.
NOTE 7. PENSIONS, PROFIT SHARING, AND OTHER EMPLOYEE BENEFITS
Pensions: The Company has primarily noncontributory defined benefit plans
covering most employees. The benefits for these plans are based primarily on
years of service and employees' pay near retirement. The Company's funding
policy is consistent with the funding requirements of Federal law and
regulations. Plan assets consist principally of common stocks, corporate bonds
and US government obligations.
The Company also participates in several union sponsored pension plans. It is
not possible to determine the Company's relative share of the accumulated
benefit obligations or net assets for these plans.
Pension cost for fiscal years ended 1997, 1996, and 1995 includes the following
components:
(Dollars in Thousands)
Fiscal 1995
11/4/94- 6/26/94-
Fiscal 1997 Fiscal 1996 6/24/95 11/3/94
Successor Successor Successor Predecessor
Service cost -- benefits earned during the period $ 2,888 $ 3,141 $ 2,427 $ 1,270
Interest cost on projected benefit obligation 6,461 6,544 4,365 2,225
Return on assets
Actual gain (4,884) (19,430) 0 (1,717)
Net amortization and deferral (4,063) 12,123 (4,789) (678)
------- -------- ------- -------
Total gain (8,947) (7,307) (4,789) (2,395)
------- -------- ------- -------
Amortization of transition amount 0 0 0 (265)
Amortization of prior service cost (22) 0 0 61
Amortization of (gain)/loss (811) (64) 0 57
------- -------- ------- -------
(431) 2,314 2,003 953
Union and other pension costs 282 385 147 1,182
------- -------- ------- -------
Net pension cost $ (149) $ 2,699 $ 2,150 $ 2,135
======= ======== ======= =======
As a result of the change of control of the Company, the plan assets and
obligations were remeasured on November 3, 1994, and the entire balance of the
transition obligation, unrecognized prior service costs, and outstanding gains
and losses totaling approximately $5.2 million were adjusted at the time of the
acquisition.
The pension plan's funded status was as follows:
(Dollars in Thousands)
June 28, 1997 June 29, 1996 June 24, 1995
------------- ------------- -------------
Assets Assets Assets
Exceed Exceed Exceed
Accumulated Accumulated Accumulated
Benefits Benefits Benefits
Actuarial present value of benefit obligations:
Vested benefit obligation $(72,223) $(74,108) $(65,350)
======== ======== ========
Accumulated benefit obligation $(75,138) $(77,035) $(69,449)
======== ======== ========
Projected benefit obligation $(84,280) $(85,307) $(78,809)
Plan assets at fair value 88,979 89,716 74,897
-------- -------- --------
Plan assets in excess of/(less than) projected benefit obligation 4,699 4,409 (3,912)
Unrecognized net (gain)/loss (15,913) (18,456) (8,787)
Unrecognized prior service cost (243) (266) 0
-------- -------- --------
(11,457) (14,313) (12,699)
Union and other pension plans (2,125) (2,318) (2,243)
-------- -------- --------
Pension liability $(13,582) $(16,631) $(14,942)
======== ======== ========
In 1997, the assumed discount rate, assumed long-term rate of return on plan
assets and the assumed long-term rate of compensation increase were 8.0 percent,
10.0 percent, and 4.5 percent, respectively. The year-end projected benefit
obligation decreased by approximately $2.6 million due to the increase in the
discount rate from 7.75 percent to 8.0 percent.
In 1996, the assumed discount rate, assumed long-term rate of return on plan
assets, and the assumed long-term rate of compensation increase were 7.75
percent, 10.0 percent, and 4.50 percent, respectively. The year end projected
obligation increased by approximately $7.6 million due to the decrease in the
discount rate from 8.5 percent to 7.75 percent.
In 1995, the assumed discount rate, assumed long-term rate of return on plan
assets, and the assumed long-term rate of compensation increase were 8.50
percent, 10.0 percent, and 4.50 percent, respectively.
Postretirement Benefits Other Than Pensions: Generally, other than pensions, the
Company does not pay retirees' benefit costs. Isolated exceptions exist, which
have evolved from union negotiations, early retirement incentives and existing
retiree commitments from acquired companies.
The Company has not prefunded any of its retiree medical or life insurance
liabilities. Consequently there are no plan assets held in a trust, and there is
no expected long-term rate of return assumption for purposes of determining the
annual expense.
The plan's funded status was as follows:
(Dollars In Thousands)
June 28, 1997 June 29, 1996
Accumulated postretirement benefit obligation:
Fully eligible active participants $ 169 $ 141
Other active participants 75 108
Retirees 2,360 2,446
------- -------
Total 2,604 2,695
Less Plan assets at fair value 0 0
------- -------
Accumulated postretirement benefit obligation in excess of fair value of assets (2,604) (2,695)
Unrecognized gains (378) (443)
------- -------
Accrued postretirement benefit cost $(2,982) $(3,138)
======= =======
Net periodic postretirement benefit cost included the following components:
(Dollars in Thousands)
Fiscal 1995
11/4/94- 6/26/94-
6/24/95 11/3/94
Fiscal 1997 Fiscal 1996 Successor Predecessor
Service cost $ 8 $ 23 $ 15 $ 8
Interest cost 199 222 154 74
Net amortization and deferral (15) 0 0 46
---- ---- ---- ----
Net periodic postretirement benefit cost $192 $245 $169 $128
==== ==== ==== ====
The weighted-average, assumed discount rate used to measure the benefit
obligations was 7.75 percent at the beginning and 8.00 percent at the end of
fiscal 1997. The change in the discount rate caused the accumulated
postretirement benefit obligation to decrease by approximately $53,000.
The annual rate of increase in the per capita cost of health care benefits was
assumed to be 10.0 percent for 1997 and 11.0 percent for 1996. The rate was
assumed to decrease gradually to 5.0 percent by the year 2007 and remain at that
level thereafter.
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation (APBO) and the aggregate of the service and
interest cost components of the net periodic postretirement benefit cost as
follows:
(Dollars in Thousands)
Successor
Fiscal 1997
Current 1% Higher
Trend Trend
APBO $2,604 $2,696
Service cost + interest cost $ 207 $ 215
Profit Sharing/401(k): Under the prior Deferred Profit Sharing Plan and the
Non-Qualified Profit Sharing Plan, the Company allocated to all salaried exempt
employees a percentage of its earnings in excess of 5.0 percent of the combined
long-term debt and equity (as defined) of Pro-Fac and the Company. In fiscal
1995, $1.4 million was allocated to the plans.
On October 1, 1995, the Company merged the Deferred Profit Sharing Plan into the
401(k) Investment Plan. Under the new combined plan, the Retirement Savings and
Incentive Plan ("RSIP"), the Company makes an incentive contribution to the Plan
if certain pre-established earnings goals are achieved. The maximum incentive
contribution is 3 percent of base salary earned during the fiscal year. In
addition, the Company contributes 401(k) matching contributions to the Plan for
the benefit of employees who elect to defer a portion of their salary into the
plan. During fiscal 1997 and 1996 the Company allocated $500,000 and $400,000,
respectively, in the form of matching contributions and $400,000 and $211,000,
respectively, in the form of incentive contributions for the benefit of its
employees.
Long-Term Incentive Plan: On June 24, 1996, the Company introduced a long-term
incentive program, the Curtice Burns Foods Equity Value Plan, which provides
performance units to a select group of management. The future value of the
performance units is determined by the Company's performance on earnings and
debt repayment. The performance units vest 25 percent each year after the first
anniversary of the grant, becoming 100 percent vested on the fourth anniversary
of grant. One-third of the appreciated value of units in excess of the initial
grant price is paid as cash compensation over the subsequent three years. The
final value of the 1997 performance units is determined on the fourth
anniversary of grant. The total units granted were 176,278 at $25.04 per unit,
and 7,996 at $13.38 per unit in June 1997, and 248,511 at $13.38 per unit in
June 1996. In fiscal 1997, approximately $1.5 million was allocated to this
plan.
The value of the grants from the Curtice Burns Foods Equity Value Plan will be
based on the Company's future earnings and debt repayment.
Employee Stock Purchase Plan: During fiscal 1996 the Company introduced an
Employee Stock Purchase Plan which affords employees the opportunity to purchase
semi-annually, in cash or via payroll deduction, shares of Class B Cumulative
Pro-Fac Preferred Stock to a maximum value of 5 percent of salary. The purchase
price of such shares is par value, $10 per share. During fiscal 1997 and 1996,
31,435 and 33,364 shares, respectively, were held by employees, and 833 shares
were subscribed to as of June 28, 1997.
NOTE 8. SUBSEQUENT EVENTS AND OTHER MATTERS
Formation of New Sauerkraut Company: Subsequent to fiscal year-end, on July 1,
1997, the Company and Flanagan Brothers, Inc., of Bear Creek, Wisconsin,
contributed all their assets involved in sauerkraut production into one new
sauerkraut company. This new company, Great Lakes Kraut Company, will operate as
a New York limited liability company, with ownership split between the two
companies. Management anticipates the alliance will positively impact fiscal
1998 earnings.
Legal Matters: The Company is party to various litigation and claims arising in
the ordinary course of business. Management and legal counsel for the Company
are of the opinion that none of these legal actions will have a material effect
on the financial position of the Company.
Commitments: The Company's Southern Frozen Foods Division has guaranteed an
approximate $1.4 million loan for the City of Montezuma to renovate a sewage
treatment plant operated in Montezuma on behalf of the City.
Southern Frozen Foods Fire: In July 1994, a plant operated by the Company's
Southern Frozen Foods Division, located in Montezuma, Georgia, was damaged by
fire. All material costs associated with the facility repairs and business
interruption were covered under the Company's insurance policies. A gain on
assets destroyed in the fire was recognized by Curtice Burns prior to the
Acquisition.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Management and Directors: Effective upon consummation of the Acquisition,
Pro-Fac established a management structure for the Company, providing for a
Board of Directors consisting of one management director, Pro-Fac Directors and
Disinterested Directors. The number of Pro-Fac Directors is equal to the number
of Disinterested Directors. The Chairman of the Board is a Pro-Fac Director. The
management and directors are listed below. The Company may in the future expand
the Board of Directors, but Pro-Fac has undertaken to cause the Company to
maintain a Board on which the number of Pro-Fac Directors does not exceed the
number of Disinterested Directors. Both the New Credit Agreement and the
Indenture provide that there will be a Change of Control if, for a period of 120
consecutive days, the number of Disinterested Directors on the Board of
Directors of the Company is less than the greater of (i) two and (ii) the number
of directors of the Company who are Pro-Fac Directors.
Set forth below is certain information concerning the individuals who serve as
directors and officers of the Company as well as other corporate officers and
the individuals who serve as presidents and chief executive officers of certain
of the Company's divisions.
Year of
Name Birth Positions
Dennis M. Mullen(1) 1953 President and Chief Executive Officer and Director
Roy A. Myers 1931 Retired President and Chief Executive Officer and Director
William D. Rice 1934 Senior Vice President Strategic Development and Secretary
Diana Bartalo 1946 Treasurer and Director of Financial Reporting
Robert E. McMahon 1941 Vice President Management Information Systems
Earl L. Powers 1944 Vice President and Chief Financial Officer
Beatrice B. Slizewski 1943 Vice President Corporate Communications
Lois J. Warlick-Jarvie 1958 Vice President Human Resources
Stephen R. Wright 1947 Executive Vice President Agriculture
Carl W. Caughran 1953 President and Chief Executive Officer of Nalley Fine Foods
Bernhard Frega 1950 President and Chief Executive Officer of CMF
Tim Kennedy 1948 President and Chief Executive Officer of Tim's Cascade Chips
David R. Ray 1945 President and Chief Executive Officer of Husman and Snyder
Robert V. Call, Jr.(2) 1926 Director and Chairman of the Board
Bruce R. Fox(2) 1947 Director
Cornelius D. Harrington, Jr.(3) 1927 Director
Steven D. Koinzan(2) 1948 Director
Walter F. Payne(3) 1936 Director
Frank M. Stotz(3) 1930 Director
(1) Management Director.
(2) Pro-Fac Director.
(3) Disinterested Director.
Dennis M. Mullen has been the President and Chief Executive Officer since
January 1997 and a Director of the Company since May 1996. He was Chief
Operating Officer from since May 1996 to January 1997 and Executive Vice
President since January 1996. He had been President and Chief Executive Officer
of CMF from March 1993 to May 1996. He was Senior Vice President and Business
Unit Manager Foodservice of CMF from 1991 to 1993, and Senior Vice
President-Custom Pack Sales for Nalley from 1990 to 1991. Prior to employment
with the Company, he was President and Chief Executive Officer of Globe Products
Company.
Roy A. Myers was President and Chief Executive Officer from November 1994 to
January 1997. Mr. Myers retired in January 1997. Prior to his retirement Mr.
Myers served as a Director and Executive Vice President of the Company from 1987
to the completion of the Acquisition (at which time he was appointed the Chief
Executive Officer). He served as Vice President-Operations of the Company from
1985 to 1987 and as Vice President of the Company from 1983 to 1985. He has been
an employee of the Company or a predecessor to the Company since 1955 in various
other capacities including Industrial Relations Manager, Operations Manager and
President of the Corporate Services Division. He was General Manager of Pro-Fac
from 1987 until the completion of the Acquisition, having served as Assistant
General Manager from 1983 to 1987.
William D. Rice has been Senior Vice President Strategic Development since
February 1997 and Secretary of the Company since 1989. He was Chief Financial
Officer from 1969 to February 1997. He was Treasurer of the Company from 1975 to
1996. He was Vice President-Finance of the Company from 1969 to 1991. He was
Assistant Treasurer of Pro-Fac from 1970 to February 1997 (Management Chief
Financial Officer for Pro-Fac).
Diana Bartalo has been Treasurer since March 1996 and Director of Financial
Reporting since 1992; Assistant Treasurer from 1988 to March 1996; Corporate
Accounting Manager 1976-1992. She held several administrative staff positions
1970-1976 and has been Assistant Treasurer of Pro-Fac since 1987.
Robert E. McMahon has been Vice President Information Systems since November
1993; prior to that he was Vice President, Information Systems for the CMF
Division 1992-1993 and Director of Corporate Information Systems since December
1991. He joined the CMF Division as Systems Integration Manager in 1989 and
became Director of Information Systems for that Division in 1990. Prior to
employment with Curtice Burns, he held management, executive and technical
positions with such organizations as Abbott Labs, BASF, IBM, MTech, and Price
Waterhouse LLP.
Earl L. Powers has been Vice President and Chief Financial Officer since
February 1997. He was Vice President and Corporate Controller from March 1993 to
February 1997, and Vice President Finance and Management Information Systems,
CMF Division of the Company from 1991 to March 1993. Prior to joining the
Company, he was Controller of various Pillsbury Company divisions 1987-1990 and
various other executive management positions at the Pillsbury Company 1976-1987.
Beatrice B. Slizewski has been Vice President of Corporate Communications for
Curtice Burns and Pro-Fac since March 1995. She joined the Company as Director
of Corporate Communications in 1991. Prior to joining Curtice Burns (1988-1991),
she worked as a marketing and public relations consultant for J.P. Associates, a
business consulting agency in Rochester, New York. Previous food industry
experience includes 14 years with the R.T. French Company (1974-1988) -- eight
years in public relations and six years in various accounting functions.
Lois J. Warlick-Jarvie has been Vice President Human Resources since January
1993; Corporate Director Human Resources July 1991 to January 1993; Manager
Compensation, Benefits and Risk Management January 1989 to July 1991; various
administrative staff positions within the Company 1982 to 1989.
Stephen R. Wright has been Executive Vice President since November 6, 1996. He
was Senior Vice President - Procurement of the Company from November 1994 and
Vice President -- Procurement for the Company from 1990 to November, 1994,
having served as Director of Commodities and Administration Services for the
Company from 1988 to 1990. He became General Manager of Pro-Fac in March 1995.
Carl W. Caughran has been President and Chief Executive Officer of Nalley Fine
Foods since March 1996. Prior to joining the Company, he was Vice
President/General Manager of Borden's Eastern Snacks Group 1993 to 1995, Vice
President/General Manager of Borden's Western Snacks Group 1991 to 1993, and
held various executive positions at Borden 1983 to 1991.
Bernhard Frega has been President and Chief Executive Officer of CMF since May
1996. He had been Executive Vice President and Chief Operating Officer of CMF
from December 1995 to May 1996. Prior to that he held increasingly responsible
positions at CMF, beginning in 1974 in sales and marketing. He became Marketing
Director in 1984, Vice President Private Label in 1987 and Senior Vice President
for Consumer Products in 1995.
Tim Kennedy has been President and Chief Executive Officer of Tim's since its
acquisition by the Company in 1989. Prior to that, he was President and Chief
Executive Officer at Tim's which was a privately-held corporation since its
inception in 1986.
David R. Ray has been President and Chief Executive Officer of Husman since
1995. He was Executive Vice President and Chief Operating Officer of Husman 1990
to 1995 and Director of Sales for Chips and Snacks at Nalley 1987 to 1990.
Robert V. Call, Jr. has been a Director of the Company since the completion of
the Acquisition. Mr. Call had been a Director of the Predecessor entity since
1986 until completion of the Acquisition (at which time he resigned and was
reappointed). He has been a Director of Pro-Fac since 1962. He was President of
Pro-Fac from 1986 to March 27, 1995, having served as Treasurer from 1973 to
1984. He has been a member of Pro-Fac since 1961. He is a vegetable, fruit and
grain farmer (My-T Acres, Inc., Batavia, NY).
Bruce R. Fox has been a Director of the Company since the completion of the
Acquisition. He has been a Director of Pro-Fac since 1974. He was Treasurer of
Pro-Fac from 1984 until March 27, 1995, when he was elected President. He has
been a member of Pro-Fac since 1974. Mr. Fox is a fruit and vegetable grower
(N.J. Fox & Sons, Inc., Shelby, MI).
Cornelius D. Harrington, prior to his retirement, was President of the Bank of
New England-West in Springfield, MA or a predecessor to the Bank of New
England-West from 1978 to December 1990. He was Chief Executive Officer of the
Bank of New England-West from 1984 to December 1990. Until 1987, he served as
Chairman of the Board of Directors of BayState Medical Center in Springfield,
MA. He has been a Director of the Farm Credit Bank of Springfield since January
1994.
Steven D. Koinzan has been a Director of the Company since the completion of the
Acquisition. He has been a Director of Pro-Fac since 1983. He was Secretary of
Pro-Fac from March 1993 until March 27, 1995, when he was elected Treasurer. He
has been a member of Pro-Fac since 1979. Mr. Koinzan is a popcorn, field corn
and soybean farmer (Koinzan Farms; Norden, Nebraska).
Walter F. Payne has been a Director of the Company since January 1996 and
President and Chief Executive Officer of Blue Diamond Growers since 1992. He
held various positions at Blue Diamond Growers between 1973 and 1992. He is
currently on the Board of Directors of the Almond Board of California and the
International Nut Council, a board alternate for the National Council of Farmer
Cooperatives, and a member of the Board of Trustees for the Graduate Institute
of Cooperative Leadership.
Frank M. Stotz has been a Director of the Company since the completion of the
Acquisition. Mr. Stotz retired in 1994 from his position as Senior Vice
President - Finance of Bausch & Lomb Incorporated. Before joining Bausch & Lomb
in that capacity in 1991, Mr. Stotz was a partner with Price Waterhouse. He
joined Price Waterhouse in Chicago in 1954, was admitted to partnership in 1966
and retired from the firm in 1991 to join Bausch & Lomb. From 1980 to 1991, he
was partner in charge of the Rochester office of Price Waterhouse. Mr. Stotz
serves on the Boards of Trustees of St. John Fisher College, The Genesee
Hospital, The Rochester Center for Governmental Research and The Automobile Club
of Rochester. He is also a member of the Bishop's Council of the Catholic
Diocese of Rochester.
Term of Office: All directors of the Company will hold office from the date of
election until the next annual meeting of the shareholder or until their
successors are duly elected and qualified. Each executive officer of the Company
will hold office from the date of election until his successor is elected or
appointed.
There are no family relationships between any Director, executive officer, or
any person nominated or chosen by the Company to become a Director or executive
officer. Officers of the Company serve for a term of office from the date of
election to the next organization meeting of the Board of Directors or until
their respective successors are elected and qualified, except in the case of
death, resignation, or removal.
ITEM 11. EXECUTIVE COMPENSATION
The following tables show the cash compensation and certain other components of
the compensation of the chief executive officer and certain other most highly
compensated executive officers of the Company, earned during fiscal years ended
June 28, 1997, June 29, 1996, and June 24, 1995 (collectively, the "Named
Executive Officers").
Executive Compensation
Summary Compensation Table
RSIP/
Matching
Contributions
Annual Deferred
Compensation1 Profit
Name and Principal Position Year Salary Bonus2 Sharing
Dennis M. Mullen - 1997 $349,181 $210,000 $ 8,013
President and Chief Executive Officer 1996 $216,107 $ 0 $ 1,465
1995 $179,558 $ 71,207 $ 7,265
Roy A. Myers - 1997 $224,000 $125,280 $ 2,736
Retired President, Chief Executive Officer, and Director 1996 $410,154 0 $ 2,672
1995 $339,927 $200,539 $10,609
William D. Rice - 1997 $259,422 $107,000 $ 5,990
Senior Vice President Strategic Development and Secretary 1996 $249,642 0 $ 1,656
1995 $240,065 $116,143 $ 9,791
Stephen R. Wright 1997 $180,043 $ 80,000 $ 4,321
Executive Vice President 1996 $156,789 0 $ 1,627
1995 $128,685 $ 51,628 $ 4,520
Earl L. Powers 1997 $187,179 $107,000 $ 4,492
Vice President Finance and Chief Financial Officer 1996 $157,990 0 $ 1,642
1995 $150,392 $ 60,333 $ 6,099
Bernhard Frega 1997 $175,769 $ 90,000 $ 4,341
President and Chief Executive Officer of CMF 1996 $141,677 0 $ 1,675
1995 $119,600 $ 42,500 $ 4,539
1 No Named Executive Officer has received personal benefits during the
period in excess of the lesser of $50,000 or 10 percent of annual salary.
2 Pursuant to the Management Incentive Plan of the Company (the "Incentive
Plan"), additional compensation is paid if justified by the activities of the
officers and employees eligible under the Incentive Plan and by the earnings
of the Company and of Pro-Fac Cooperative, Inc. ("Pro-Fac").
Long-Term Incentive Plan - Awards in Last Fiscal Year
Estimated Future Payouts
(b) (c) Under Non-Stock Price Based Plans
Number of Shares Performance or Other (d) (e)
(a) Units or Other Period Until Maturation Threshold Target
Name Rights Granted (1) or Payout ($ or #) ($ or #)(2)
Roy A. Myers 0 6/25/2001 $0 $0
Dennis M. Mullen 32,085 6/25/2001 $0 $0
William D. Rice 23,636 6/25/2001 $0 $0
Stephen R. Wright 13,970 6/25/2001 $0 $0
Earl L. Powers 14,056 6/25/2001 $0 $0
Bernhard Frega 15,041 6/25/2001 $0 $0
(1) On June 25, 1997, the Company issued performance units under the Curtice
Burns Foods Equity Value Plan ("EVP") to a select group of management. The
future value of the performance units is determined by the Company's
performance on earnings and debt repayment. The performance units vest 25
percent each year after the first anniversary of the grant, becoming 100
percent vested on the fourth anniversary of grant. One-third of the
appreciated value of units in excess of the initial grant price is paid as
cash compensation over the subsequent three years. The final value of the
1997 performance units is determined on the fourth anniversary of grant.
(2) The value of the June 25, 1997 grants from the Curtice Burns Foods Equity
Value Plan will be based on the Company's future earnings and debt
repayment. The beginning value of these performance units was set at a
level requiring improved earnings and debt-repayment performance. The
target payouts shown above are based on the value of the performance units
at fiscal 1997 earnings and debt levels and would yield no payout from the
plan at those levels. If future performance equals fiscal 1997 performance,
no payouts will be made from the plan relative to the options granted on
June 25, 1997.
Retirement Plans: The Company's Master Salaried Retirement Plan (the "Pension
Plan") provides defined retirement benefits for its officers and all salaried
and clerical personnel. The compensation upon which the pension benefits are
determined is included in the salary columns of the "Summary Compensation
Table."
For retirement before age 65, the annual benefits are reduced by an amount for
each year prior to age 65 at which such retirement occurs so that if retirement
occurs at age 55, the benefits are 70 percent of those payable at age 65.
The approximate number of years of Plan participation under the Company's
Pension Plan as of June 28, 1997, of the Executive Officers listed in the
Summary Compensation Table are as follows: Roy A. Myers-34, Dennis M. Mullen-7,
William D. Rice-25, Stephen R. Wright-23, Earl L. Powers-5, and Bernhard
Frega-21.
On January 28, 1992, the Company adopted an Excess Benefit Retirement Plan which
serves to provide employees with the same retirement benefit they would have
received from the Company's Master Salaried Retirement Plan under the career
average base pay formula, but for changes required under the 1986 Tax Reform Act
and the compensation limitation under Section 401(a)(17) of the Internal Revenue
Code, which was $150,000 on January 1, 1994, having been revised in the 1992
Omnibus Budget Reform Act.
The following table shows the estimated pension benefits payable to a covered
participant, at age 65, at the specified final average pay, and years of
credited service levels under the Company's Master Salaried Retirement Plan and
the Excess Benefit Retirement Plan.
Pension Plan Table
Years of Plan Participation
Final ----------------------------------------------------------
Average Pay 15 20 25 30 35
- ----------- ------- -------- -------- -------- --------
$125,000 $22,142 $ 29,008 $ 35,775 $ 42,721 $ 49,805
150,000 27,392 36,008 44,525 53,221 62,055
175,000 32,642 43,008 53,275 63,721 74,305
200,000 37,892 50,008 62,025 74,221 86,555
225,000 43,142 57,008 70,775 84,721 98,805
250,000 48,392 64,008 79,525 95,221 111,055
275,000 53,642 71,008 88,275 105,721 123,305
300,000 58,892 78,008 97,025 116,221 135,555
325,000 64,142 85,008 105,775 126,721 147,805
350,000 69,392 92,008 114,525 137,221 160,055
375,000 74,642 99,008 123,275 147,721 172,305
400,000 79,892 106,008 132,025 158,221 184,555
Termination Protection Provisions: The Company has adopted a Salary Continuation
Agreement for Mr. Mullen, whereby, two years of salary and benefit continuation
will be provided if Mr. Mullen's employment is involuntarily terminated on or
before December 31, 1998, for reasons other than for "cause" as such term is
defined in the Agreement.
Directors Compensation: In fiscal 1997, non-employee directors who were
designated by Pro-Fac received an annual stipend of $6,000 per year, plus $200
per day for attending Board or Committee meetings. In fiscal 1997, all other
outside directors, Messrs. Harrington, Payne, and Stotz received an annual rate
of $18,000 in addition to $600 per day. The Chairman of the Board receives a
fixed amount in lieu of the standard attendance fees and annual stipend. The
Company accrued an annual stipend of $24,700 for Mr. Call as Chairman of the
Board. Mr. Myers was not paid directors' fees.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding capital stock of the Company is owned by Pro-Fac
Cooperative, Inc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Borrowings by Pro-Fac: The Indenture governing the Notes permitted the Company
to make demand loans to Pro-Fac for working capital purposes in amounts not to
exceed $10.0 million at any time, each such loan to bear interest at a rate
equal to the rate in effect on the date of such loan under the Seasonal
Facility. The loan balance was required to be reduced to zero for a period of
not less than 15 consecutive days in each fiscal year. Except for the foregoing
provision and except for Pro-Fac's guarantee of the Notes and the New Credit
Agreement, as long as Pro-Fac has the right to borrow under the Pro-Fac
Marketing and Facilitation Agreement, the Indenture does not permit Pro-Fac to
incur any other indebtedness. During fiscal 1996, Pro-Fac repaid amounts due the
Company and incurred debt from the Bank.
Equity Ownership in CoBank: As part of its historical lending arrangements with
the Bank, which is a cooperative, Pro-Fac made investments in the Bank. Pro-Fac
made these investments through (i) a capital purchase obligation equal to a
percentage, set annually based on the Bank's capital needs, of its interest paid
to the Bank and (ii) a patronage rebate on interest paid by Pro-Fac to the Bank
based on the Bank's earnings, which is paid in cash and capital certificates.
The investments in the Bank represent a percentage of the previous five-years'
average borrowings from the Bank. As of June 28, 1997, the amount of the
Company's investment in the Bank was approximately $25.3 million.
Purchase of Crops From Pro-Fac: Each of the members of Pro-Fac sells crops to
Pro-Fac pursuant to a general marketing agreement between such member and
Pro-Fac, which crops in turn are sold to the Company pursuant to the Pro-Fac
Marketing and Facilitation Agreement. During fiscal 1997, the following
directors and executive officers of Pro-Fac directly or through sole
proprietorships or corporations, sold crops to Pro-Fac and provided harvesting,
trucking and waste removal services to Curtice Burns for the following aggregate
amounts:
RELATIONSHIP GROSS PURCHASES
NAME TO PRO-FAC IN FISCAL 1997
Dale E. Burmeister............... Director 183,000
Robert V. Call, Jr............... Director 2,254,000
Glen Lee Chase................... Director 199,000
Tommy R. Croner.................. Director and Secretary 261,000
Robert DeBadts................... Director 422,000
Albert P. Fazio.................. Director and Vice President 144,000
Bruce R. Fox..................... Director and President 935,000
Steven D. Koinzan................ Director and Treasurer 475,000
Kenneth A. Mattingly............. Director 806,000
Allan W. Overhiser............... Director 30,000
Paul E. Roe...................... Director 733,000
Darrell Sarff.................... Director 75,000
DIRECTORS AND OFFICERS LIABILITY INSURANCE
As authorized by New York law and in accordance with the policy of that state,
the Company has obtained insurance from Chubb Group Insurance insuring the
Company against any obligation it incurs as a result of its indemnification of
its officers and directors, and insuring such officers and directors for
liability against which they may not be indemnified by the Company. This
insurance has a term expiring on August 15, 1998, at an annual cost of
approximately $80,000. As of this date, no sums have been paid to any officers
or directors of the Company under this indemnification insurance contract.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
The Following Appear in ITEM 8 of This Report
ITEM Page
Curtice-Burns Foods, Inc. and Consolidated Subsidiaries:
Management's Responsibility for Financial Statements.................................................................. 19
Reports of Independent Accountants.................................................................................... 20
Consolidated Financial Statements:
Consolidated Statement of Operations and Accumulated Earnings/(Deficit) for the years ended
June 28, 1997, June 29, 1996, and June 24, 1995................................................................... 22
Consolidated Balance Sheet at June 28, 1997 and June 29, 1996....................................................... 23
Consolidated Statement of Cash Flows for the years ended June 28, 1997, June 29, 1996, and June 24, 1995............ 24
Notes to Consolidated Financial Statements.......................................................................... 26
(2) The following additional financial data are set forth herein:
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
Curtice-Burns Foods, Inc.
Valuation and Qualifying Accounts
For the Three Fiscal Years Ended June 28, 1997
Fiscal 1995
11/4/94- 6/26/94-
Fiscal 1997 Fiscal 1996 6/24/95 11/3/94
Successor Successor Successor* Predecessor*
Allowance for doubtful accounts
Balance at beginning of period $ 836,000 $ 673,000 $ 683,000 $1,066,000
Additions charged to expense 446,000 537,000 91,000 292,000
Deductions (312,000) (374,000) (101,000) (427,000)
----------- ----------- ---------- ----------
Balance at end of period $ 970,000 $ 836,000 $ 673,000 $ 931,000
=========== =========== ========== ==========
Inventory reserve**
Balance at beginning of period $ 485,000 $ 144,000 $ 0 $ 379,000
Net change (123,000) 341,000 144,000 635,000
----------- ----------- ---------- ----------
Balance at end of period $ 362,000 $ 485,000 $ 144,000 $1,014,000
=========== =========== ========== ==========
Tax valuation allowance***
Balance at beginning of period $17,983,000 $ 7,366,000 $ 0 $ 0
Net change (11,771,000) 10,617,000 7,366,000 0
----------- ----------- ---------- ----------
Balance at end of period $ 6,212,000 $17,983,000 $7,366,000 $ 0
=========== =========== ========== ==========
* Valuation accounts were revalued by the acquiring company.
** Difference between FIFO cost and market applicable to inventories.
*** See further discussion regarding tax matters at NOTE 6 to the "Notes to
Consolidated Financial Statements."
Schedules other than those listed above are omitted because they are either not
applicable or not required, or the required information is shown in the
financial statements or the notes thereto.
(3) The following exhibits are filed herein or have been
previously filed with
the Securities and Exchange Commission:
(b) Reports on Form 8-K:
No reports on Form 8-K were filed in the fourth quarter of fiscal 1997.
(c) EXHIBITS:
Exhibit
Number Description
3.3(2) Certificate of Incorporation of Curtice Burns.
3.4(3) Bylaws of Curtice Burns.
10.1(2) Indenture, dated as of November 3, 1994 (the "Indenture"), among PFAC, Pro-Fac and IBJ Schroder Bank & Trust
Company ("IBJ"), as Trustee, as amended by First Supplemental Indenture, dated as of November 3, 1994, each
with respect to Curtice Burns' 12.25 percent Senior Subordinated Notes due 2005 (the "Notes").
10.2(2) Term Loan, Term Loan Facility and Seasonal Loan Agreement, dated as of November 3, 1994, among Springfield Bank
for Cooperatives (the "Bank"), Curtice Burns and PFAC.
10.3(2) Parent Guaranty, dated as of November 3, 1994, by Pro-Fac in favor of the Bank.
10.4(2) Parent Security Agreement, dated as of November 3, 1994 between Pro-Fac and the Bank.
10.5(2) Mortgage, Open End Mortgage, Deed of Trust, Trust Deed, Deed to Secure Debt, Purchase Money Mortgage, Assignment,
Security Agreement and Financing Statement dated November 3, 1994 among PFAC, Curtice Burns and the Bank.
10.6(2) Marketing and Facilitation Agreement, dated as of November 3, 1994, between Pro-Fac and Curtice Burns.
10.7(2) Management Incentive Plan, as amended.
10.8(2) Supplemental Executive Retirement Plan, as amended.
10.10(2) Master Salaried Retirement Plan, as amended.
10.11(2) Non-Qualified Profit Sharing Plan, as amended.
10.12(2) Excess Benefit Retirement Plan.
10.13 Salary Continuation Agreement - Dennis M. Mullen.
10.14(1) Modification A of Term Loan, Term Loan Facility, and Seasonal Loan Agreement, dated as of January 26, 1995,
between Curtice Burns and the Bank.
10.15(1) Second Amendment to Non-Qualified Profit Sharing Plan.
10.16(3) Modifications B - D of Term Loan, Term Loan Facility, and Seasonal Loan Agreement Between Curtice Burns and
the Bank.
10.17(4) Modifications E - F of Term Loan, Term Loan Facility, and Seasonal Loan Agreement Between Curtice Burns and
the Bank.
10.18(4) Equity Value Plan Adopted on June 24, 1996.
10.19(4) Seasonal Loan Agreement Between Pro-Fac and the Bank Dated June 28, 1996.
10.20 Modifications G - K of Term Loan, Term Loan Facility, and Seasonal Loan Agreement Between Curtice Burns and
Bank.
10.21 OnSite Services Agreement with Systems & Computer Technology.
10.22 Raw Product Supply Agreement with Seneca Foods Corporation.
10.23 Reciprocal Co-Pack Agreement with Seneca Foods Corporation.
18(5) Accountant's Report Regarding Change in Accounting Method
(c) EXHIBITS (Continued):
Exhibit
Number Description
21.1 List of Subsidiaries.
27 Financial Data Schedule.
(1) Incorporated by reference from Registration Statement No. 33-60273.
(2) Incorporated by reference from Registration Statement No. 33-56517, as amended.
(3) Incorporated by reference from the Registrant's 1995 Annual Report on Form 10-K.
(4) Incorporated by reference from the Registrant's 1996 Annual Report on Form 10-K.
(5) Incorporated by reference from the Registrant's First Quarter Report on
Form 10-Q.
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: August 21, 1997 By: /s/ Earl L. Powers
Vice President Finance and
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints DENNIS M. MULLEN and EARL L. POWERS, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments to this Annual Report on Form
10-K and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Robert V. Call, Jr. Chairman of the Board; Director August 21, 1997
(ROBERT V. CALL, JR.)
/s/ Bruce R. Fox Director August 21, 1997
(BRUCE R. FOX)
/s/ Cornelius D. Harrington Director August 21, 1997
(CORNELIUS D. HARRINGTON)
/s/ Steven D. Koinzan Director August 21, 1997
(STEVEN D. KOINZAN)
/s/ Walter F. Payne Director August 21, 1997
(WALTER F. PAYNE)
/s/ Frank M. Stotz Director August 21, 1997
(FRANK M. STOTZ)
/s/ Dennis M. Mullen President and Chief Executive August 21, 1997
(DENNIS M. MULLEN) Officer and Director
(Principal Executive Officer)
/s/ Earl L. Powers Vice President Finance and August 21, 1997
(EARL L. POWERS) Chief Financial Officer
(Principal Financial Officer)
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
NO ANNUAL REPORT OR PROXY MATERIAL HAS BEEN SENT TO REGISTRANT'S SHAREHOLDER AND
NONE IS INTENDED TO BE SENT.