Item 1. DESCRIPTION OF BUSINESS
General Development of Business
Curtice-Burns Foods, Inc. (the 'Company' or 'Curtice Burns') was incorporated in 1961 as a New York corporation for the purpose of acquiring the two businesses formerly operated as Curtice Brothers Company and Burns-Alton Corporation. Cooperative Grange League Federation Exchange, Inc., one of the predecessor corporations of Agway Inc. ('Agway'), a farm supply business operated as a cooperative for its farmer members and other patrons in the Northeastern United States, was instrumental in the formation of both the Company and Pro-Fac Cooperative, Inc. ('Pro-Fac'), an agricultural cooperative formed under the laws of New York State for the purpose of obtaining a dependable source of agricultural produce for the Company. The Company and Pro-Fac have entered into a contractual relationship (see Note 4 of 'Notes to Consolidated Financial Statements' and 'Relationship with Pro-Fac'). Agway has a substantial investment in the Company which enables it to elect 70 percent of the Company's directors.
In addition to the results of operations there were two significant developments in fiscal 1994: the completion of the first phase of a major restructuring program designed to enhance Curtice Burns' shareholder value; and significant progress made in the effort to sell the Company to serve Agway's purpose of liquidating its interest in the Company. See Note 2 of 'Notes to Consolidated Financial Statements.'
Restructuring Program The Conceptual Vision and Strategy
The restructuring program first initiated in fiscal 1993 was based on Curtice Burns' new vision of a company smaller in sales but more profitable, as measured by return on sales and equity, and possessing the financial and management resources sufficient to drive growth in carefully selected product line markets in which the Company can prosper for the long term. Thus, the strategy was to focus on a more limited number of product lines which now have a strong, competitive position.
The Plan outlined in 1993 is to restructure the business to a more profitable base. At the same time, the remaining businesses were to be managed to optimize earnings growth by installing corporate-wide purchasing, and a corporate-wide focus of capital spending.
The third leg of the strategy was to accelerate the Company's national sales and distribution programs by executing new product programs in store-brand retail dressings, salsa and chunky soups, and the 'More Fruit/More Flavor' pie filling program.
Execution of the Program
The first step of the restructuring program was to divest businesses that were unprofitable or declining for the Company but would fit strategically with other business portfolios. During fiscal 1993, the Company divested Lucca Frozen Foods. A loss of approximately $2.7 million (before dividing with Pro-Fac and before taxes) was recognized on this transaction. At the end of fiscal 1993, the Company wrote down the assets and provided for the expenses to dispose of the Hiland potato chips and meat snacks businesses during fiscal 1994. On November 22, 1993, Curtice Burns sold certain assets of the Hiland Potato Chip business for $2 million at closing, plus approximately $1 million paid in installments over three months. On February 22, 1994, Curtice Burns sold the meat snacks business located in Denver, Colorado and Albany, Oregon to Oberto Sausage Company of Kent, Washington. Under the agreement, Oberto has purchased certain assets and assumed certain liabilities of the meat snacks operation, excluding plant, equipment, and trademarks. Curtice Burns will lease its Albany Oregon manufacturing facility and equipment and license its trademarks, trade
names, etc. to Oberto until February 1995, at which time Oberto is contractually obligated to purchase these assets. The sale of the Hiland and meat snacks businesses did not result in any significant gain or loss in fiscal 1994 after giving effect to the restructuring charges recorded in fiscal 1993; however, charges of $3.1 million were incurred in fiscal 1994 to adjust previous estimates. In the fiscal year ended June 26, 1993, Curtice Burns incurred losses of $13.2 million from the meat snacks and Hiland potato chip businesses before dividing such losses with Pro-Fac and before taxes.
On November 19, 1993, the Company sold the oats portion of the National Oats business for $39 million. The oats business contributed approximately $1.4 million of earnings in fiscal 1993 before dividing with Pro-Fac and before taxes. The sale of the oats business resulted in an approximate $10.9 million gain. The popcorn portion of the National Oats Division was transferred to the Comstock Michigan Fruit Division.
During fiscal 1993 and 1994, the Company also made staff reductions in selected locations throughout the Company. A $1 million accrual relating to such costs was recorded as part of the fiscal 1993 restructuring charge.
Thus, a major part of the restructuring plan was successfully executed during fiscal 1994.
As reported above, Curtice Burns incurred restructuring charges in fiscal 1993 of $61.0 million (before dividing such charges with Pro-Fac and before taxes), which included the loss incurred on the sale of the Lucca frozen entree business, anticipated losses on the sale of the meat snacks and Hiland businesses, and other costs (primarily severance and losses prior to sale) in conjunction with the restructuring program. Virtually all of this charge was a revaluation of assets, rather than cash expense.
Having completed the first phase of the restructuring program in fiscal 1993, the second phase was approved by the Company's Board of Directors in August 1994. In connection with the second phase, the company is evaluating several alternatives regarding the Nalley's snack food business in the United States, including its possible sale to a third party. A charge, not exceed $12 million before split with Pro-fac and before taxes, for this phase of the restructuring program will be recorded during the first quarter of fiscal 1995.
With respect to the potential sale of the snack food business, the Company has signed a letter of intent with Country Crisp Foods of Salt Lake City, Utah. The letter of intent is subject to a number of conditions, including successful financing by the purchaser and the negotiation of a definitive purchase agreement. Country Crisp, a regional snack food company operating in the inter-mountain states of Colorado, Utah, Wyoming, Idaho, Nevada and New Mexico, will continue to market the Nalley's brand snacks under a licensing arrangement with the Company. If this sale is finalized, it may result in a revision to the aforementioned reserve.
Potential Change of Control of Curtice Burns
On March 23, 1993, the Company announced that Agway Inc., which owns 99 percent of Curtice Burns' Class B shares and approximately 14 percent of Class A shares, was considering the potential sale of its interest in the Company. At its meeting held on August 9 and 10, 1993, the Curtice Burns Board of Directors authorized Curtice Burns' management, with the advice of its investment bankers, to pursue strategic alternatives for Curtice Burns. These options included negotiations with Pro-Fac relative to Pro-Fac gaining control of the business; the possible sale of the entire equity of Curtice Burns to a third party; and the implementation of additional restructuring actions that may include recapitalizing the Company to buy out Pro-Fac and possibly, eventually Agway as well. Under the Agreement with Pro-Fac, title to substantially all of Curtice Burns' fixed assets is held by Pro-Fac, and
Pro-Fac provides the major portion of the financing of Curtice Burns' operations. Under the Agreement, Curtice Burns has an option to purchase these assets from Pro-Fac at their book value. However, as mentioned in Note 4 of the 'Notes to Consolidated Financial Statements,' there presently exists a disagreement with Pro-Fac as to how such settlement amount would be calculated. Exercise of the buy-out option would result in the termination of the Agreement with Pro-Fac. In such event, Curtice Burns would be required to repay all debt owed to Pro-Fac.
The Company actively explored these alternatives during fiscal 1994. On June 8, 1994, the Curtice Burns Board of Directors voted to pursue a proposal submitted by Dean Foods Company ('Dean Foods') to acquire all the outstanding shares of common stock of Curtice Burns at a maximum cash price of $20 per share, subject to a number of contingencies, including an agreement with Pro-Fac covering the termination of the Integrated Agreement, an agreement with Hormel Foods Corporation for the purchase of the Nalley's Fine Foods Division of Curtice Burns, clearance of the transaction by appropriate government agencies, negotiation of definitive agreements and approval of any transaction by Curtice Burns' shareholders.
As a result of Pro-Fac's unwillingness to enter into the agreement required by Dean Foods, on July 11, 1994, Curtice Burns commenced arbitration proceedings against Pro-Fac under the Integrated Agreement. These arbitration proceedings are discussed in more detail under 'Legal Proceedings' below. On August 4, 1994, Pro-Fac responded to the claim and served the Company with a counter claim demanding arbitration.
On August 4, 1994, Pro-Fac also submitted a proposal for acquisition of all the outstanding stock of Curtice Burns for $19.00 per share in cash, and upon acceptance of the offer, Pro-Fac would relinquish its claims against Curtice Burns. Pro-Fac has stated that it believes the value of these claims represents at least $5.75 per share based on the amount that would be due Pro-Fac upon completion of the proposed transaction between Curtice Burns and Dean Foods as discussed above. The contingencies of the Pro-Fac offer involve shareholder approval and financing. This was the second proposal submitted by Pro-Fac. The first was for $16.87 per share, in cash, which the Company rejected in favor of pursuing the Dean Foods offer. The Curtice Burns Board of Directors has not yet taken any definitive action with respect to this revised proposal.
No assurance can be given that any transaction for the acquisition of Curtice Burns by Dean Foods, Pro-Fac or any third party will be consummated.
During fiscal 1994, the Company expensed $3.5 million of legal, accounting, investment banking and other expenses relative to the change in control issue. In recognizing this expense, the Company allocated half of this amount to Pro-Fac as a deduction to the annual profit split. The allocation to Pro-Fac is being disputed by Pro-Fac. See Notes 4 and 5 of 'Consolidated Notes to Financial Statements.'
Narrative Description of Business
The Company's business is principally conducted in one industry segment, the processing and sale of various food products. Through its seven operating divisions, the Company produces and markets a variety of processed food products, including canned vegetables, frozen vegetables and fruits, canned desserts, canned fruits, condiments and salad dressings, snack foods, pickles, canned meat dishes, soups, and peanut butter and produces containers for some of its food products.
The Comstock Michigan Fruit Division, headquartered in Rochester, New York produces fruit fillings and toppings, popcorn, puddings, dips, cheese sauce, and canned and frozen vegetables and fruits such as peas, corn, beets, beans, carrots, sauerkraut and applesauce. Variations of product type such as sliced, whole or diced, pickled and dietetic, are offered in several product lines, as well as a choice of sizes of containers. This division markets its branded products under its 'Thank You', 'Comstock', 'Wilder- ness', 'Greenwood', 'Silver Floss', 'Blue Boy', 'Victor', 'Cortland Valley,' 'Cerise,' 'Super Pop,' 'Pop-Eye,' and 'Popsrite' labels and also markets its products under customer brands throughout the Eastern United States and sells products to food service institutional and bakery customers.
The Brooks Foods Division, Mt. Summit, Indiana, produces specialty tomato products, barbecue sauce, specialty chili beans, and related products under the 'Brooks' label. Its principal markets are in the Midwest. Sales of the specialty products of this division have continued to increase, due in part to an ongoing program of advertising and sales promotion.
The Curtice Burns Snack Food Group consists of:
1. Nalley's U.S. Chips & Snacks, Tacoma, Washington, which produces potato chips and a variety of snack foods marketed throughout the Northwestern and Western states under the 'Nalley' brand.
2. Snyder of Berlin, Berlin, Pennsylvania, manufactures and markets several varieties of potato chips in distinctive aluminum foil bags, as well as several varieties of corn chips, and similar snack products in conventional packaging, primarily under the 'Snyder of Berlin' brand. Snyder operates several snack food distributorships and contracts with independent distributors.
3. Tim's Cascade Chips, Tacoma, Washington, produces kettle- fried potato chips for distribution in the Tacoma/Seattle, Washington area.
4. Husman Snack Foods, Cincinnati, Ohio, acquired in fiscal 1991, is the leading marketer of potato chips in Cincinnati.
The Nalley's Fine Foods Division, Tacoma, Washington, produces canned meat products, pickles, salad dressings, peanut butter and syrup, which are marketed throughout the Northwestern and Western states under the 'Nalley's' brand and other brands of the Company (such as 'Bernstein's' salad dressing and 'Adams' natural peanut butter). In fiscal 1994, the Company continued to test the Bernstein's salad dressings in the Northeast and has achieved distribution of a refrigerated version of the dressings in a test market in its Pacific Northwest markets.
Nalley's Canada Ltd., Vancouver, British Columbia, manufactures salad dressings, syrup, canned meat products, potato chips and other snack foods. The Division markets these items and small amounts of pickles and other food products obtained from Nalley's Fine Foods in Western Canada.
The Southern Frozen Foods Division, Montezuma, Georgia, freezes and sells a full line of Southern vegetables such as black eyed peas, okra, and greens as well as a line of other vegetables such as corn, peas, and green beans and specialty side dishes. The Division also produces a small amount of frozen fruit. The brand names include 'McKenzie's,' 'Gold King,' 'Chill-Ripe,' and 'Tropic Isle.' Distribution is primarily in the Southeast and South Central portions of the United States.
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 Brooks, Comstock Michigan Fruit, and Southern Frozen Foods divisions are
sold through food brokers which sell primarily to supermarket chains and various institutional feeders. 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 Pennsylvania, West Virginia, Ohio, Maryland, Kentucky, and Virginia. Nalley's has its own sales personnel responsible for sales within the Pacific Northwest and utilizes food brokers for sales in other marketing areas.
Customer brand operations encompass the sale of products under private labels to chain stores and under the controlled labels of buying groups. For example, private label customers of Comstock Michigan Fruit include such major food distributors as A&P, Kroger, Scrivner, Safeway, Shurfine, Topco, Wakefern, and Winn-Dixie. The Company has developed central storage and distribution facilities that permit multi-item single shipment to customers in key marketing areas.
The Curtice-Burns Express ('CBX') subsidiary of the Company is a licensed common carrier with authority in 48 states. It is used by the other units of the Company to obtain backhaul volume to prevent empty backhauls on shipments via Company trucks or contract haulers. The other Curtice Burns operations lease their equipment to CBX for these backhauls.
The Finger Lakes Packaging Company manufactures various sizes of sanitary food cans for sale to other companies and for the Comstock Michigan Fruit and Brooks Foods divisions of Curtice Burns. Approximately two-thirds of the containers manufactured by Finger Lakes are produced for the Comstock Michigan Fruit and Brooks divisions. The facility is well-equipped and staffed to furnish quality containers at competitive cost.
During the fiscal year ended June 25, 1994, neither the Company nor any of its subsidiaries was involved in any bankruptcy, receivership, or similar proceeding; with any reclassification, merger, or consolidation; or with any acquisition or disposition of any material amount of assets other than those disclosed and those in the ordinary course of business. During such period, the Company did not make any material changes in the manner in which it conducts its business.
Financial Information About Industry Segments
As described above, the business of the Company is principally conducted in one industry segment, the processing and sale of various food products. The table set forth below shows certain financial information relating to that industry segment for each of the Company's last five fiscal years. The financial statements for the fiscal years ended June 25, 1994, June 26, 1993 and June 26, 1992, which are included in this report, reflect the information set forth in the table.
* The only sales by the Company to affiliated customers are made to Agway. Such sales consist principally of frozen foods and are made at competitive prices. There are no intersegment sales or transfers since the business of the Company is principally conducted in one industry segment.
** Including restructuring charges, net gain/(loss) from division disposals of $3.1 million (after split with Pro-Fac and after taxes) and change of control costs of $1.7 million (after split with Pro-Fac and after taxes) in 1994; and $(29.9) million (after split with Pro-Fac and after taxes) in 1993. See Notes 2 and 3 to 'Notes to Consolidated Financial Statements.'
Sales By Product Line
In its industry segment, the Company manufactures and sells six classes of similar products:
1. vegetables;
2. condiments and specialty products (including salad dressings, chip dip, salsa, sauces, syrups, pickles, relishes, peanut butter and ketchup);
3. snack foods;
4. canned and frozen fruits;
5. meats, soups and entrees;
6. miscellaneous products (including aseptic products, containers and discontinued product lines such as cereals and soft drinks).
The principal products produced by the Company and the principal markets for, and methods of distribution of, such products are discussed under 'General Development of Business.'
The following tabulation shows, for each of the last five fiscal years of the Company, the dollar amount and percentage of total revenues contributed by each class of similar products produced by the Company:
SALES BY PRODUCT LINE Fiscal Years Thousands of Dollars
Relationship with Pro-Fac
The Company has a long-standing contractual relationship with Pro-Fac, a New York agricultural cooperative corporation formed in 1960 to market crops grown by its members. The relationship between Pro-Fac and Curtice Burns is governed by an Integrated Agreement (the 'Agreement') between them consisting of five sections: operations financing; marketing; facilities financing; management; and settlement.
Broadly speaking, the Company pays Pro-Fac, as the purchase price for those crops purchased through Pro-Fac, the commercial market value ('CMV') of the crops, which is defined as the weighted average of the prices paid by other commercial processors for similar crops sold under pre-season contracts and in the open market in the same or competing market area.
Curtice Burns pays rent for the use of the fixed and intangible assets leased to it by Pro-Fac. The rental payments are equal to the amortization of the leased assets plus any other costs such as taxes and utilities which may be incurred by Pro-Fac associated with the ownership of the facilities. Curtice Burns also pays a basic financing charge equal to the interest expense incurred by Pro-Fac in financing its facilities leased to Curtice Burns and in carrying the loans of funds which have been loaned to Curtice Burns. In addition, Curtice Burns pays or receives an adjustment based upon the earnings or losses of Curtice Burns on all products determined according to a formula which reflects the respective adjusted equity investments of the two companies.
Curtice Burns and Pro-Fac were both formed with support from Agway. As a farm supply business operated as a cooperative, Agway had an interest in ensuring a market for crops grown by its grower members. Agway initiated meetings between representatives of small New York food processors and their suppliers and suggested the outlines of a relationship between them. Agway provided Pro-Fac with advice concerning operating as a cooperative, and Agway's involvement assisted Pro-Fac in enlisting members. Agway provided Curtice Burns with financial support and retains a substantial investment in Curtice Burns which enables Agway to elect 70 percent of the directors of Curtice Burns. Agway owns no stock of Pro-Fac, although two directors of Agway, Donald E. Pease and Christian F. Wolff, Jr., served as directors of Pro-Fac until their resignation in fiscal 1994.
The Agreement between Pro-Fac and Curtice Burns extends to 1997, and provides for two successive renewals, each for a term of five years at the option of Curtice Burns. Curtice Burns has the right, at any time upon 60- day written notice to Pro-Fac, to purchase the assets to which Pro-Fac holds title pursuant to the Agreement, together with finance receivable relating to certain of the Company's intangible assets, in each case at the book value thereof. Upon exercise of such option, the Agreement would automatically terminate. Upon termination, the Company would be required to repay to Pro-Fac all outstanding indebtedness due to Pro-Fac. Provisions of the Agreement also allow Pro-Fac, with sufficient notice, to accelerate the repayment of outstanding debt. In the arbitration proceedings currently pending between Curtice Burns and Pro-Fac, Pro-Fac has asserted, among other matters, (1) that Pro-Fac is entitled to a 50 percent share of the profits from the consummation of the pending acquisition proposal from Dean Foods, which share Pro-Fac calculates to be greater than $5.75 per share of Curtice Burns; (2) that Curtice Burns cannot terminate the Agreement at all or not before, at the earliest, June 1996; and (3) that the book value of Pro-Fac's assets for the purpose of calculating the buyout price under the Integrated Agreement should not take into account specified writedowns by Curtice Burns of those assets. In addition, Pro-Fac maintains that the $3.5 million charge to cover legal, accounting, investment banking and other costs associated with the change of control issue should not be included in the fiscal 1994 profit split. See also 'General Development of Business,' 'Restructuring Program,' 'Potential Change of Control of Curtice Burns,' and 'Legal Proceedings.'
Raw Material Sources
The Company acquires a substantial part of its raw agricultural product requirements from Pro-Fac and from Pro-Fac's members. See 'Relationship with Pro-Fac' and Note 4 of 'Notes to Consolidated Financial Statements.'
The Company schedules the planting and harvesting of crops grown by Pro-Fac members based on Company standards for quality and uniformity. Planting
schedules are arranged to anticipate the maturing of a crop on a date compatible with the manufacturing schedules at Company plants. Control of planting schedules and the use of largely mechanical harvesting techniques are designed to permit a steady and efficient flow of raw produce to the manufacturing plants of the Company, which are located close to growing areas. Approximately 60 percent of the raw agricultural crops used by Curtice Burns in its processing and marketing operations have been supplied by Pro-Fac.
The Company also purchases on the open market some crops of the same type and condition as those purchased from Pro-Fac.
In March 1994, the Company advised Pro-Fac that in view of the possibility that the Company might be acquired by a third party, Pro-Fac should not rely on Curtice Burns to purchase any crops from Pro-Fac or its growers in calendar 1995 and beyond. In addition, the Company notified Pro-Fac that Curtice Burns will not commit to purchase a substantial portion of the crops historically purchased from Pro-Fac in the 1995 growing season. As a result, Pro-Fac has given notice to its affected members terminating Pro- Fac's obligation to purchase these crops beginning next year. The affected Pro-Fac growers are principally Pro-Fac's New York fruit and vegetable growers, Illinois and Nebraska popcorn growers, and Northwest potato growers who represent more than half of Pro-Fac's membership and have accounted for approximately $29.9 million or 50 percent of the total crops delivered by Pro-Fac to Curtice Burns in the past year. In the arbitration proceedings currently pending between Curtice Burns and Pro-Fac, Pro-Fac has asserted, among other matters, that Curtice Burns is in default under the Integrated Agreement for improper termination of crops and has claimed damages that Pro-Fac estimates at more than $50 million. See Note 2 of the 'Notes to Consolidated Financial Statements.' The Company believes that its only obligation to purchase crops from Pro-Fac is as set forth in the Profit Plan as approved each year by the Boards of Directors of both Pro-Fac and the Company. Because the most recent approved Profit Plan was for fiscal year 1995 (which Plan corresponds to the 1994 calendar year crops), the Company believes that it is not currently obligated to purchase any crops from Pro- Fac for calendar year 1995 or later.
The Company purchases substantially all of the raw materials used in certain of its products, such as cheese sauce, meat entrees, salad dressings, and puddings, on the open market. Except for cans manufactured by its subsidiary, Finger Lakes Packaging Company, Inc., the Company purchases all of its requirements for nonagricultural products, including containers, on the open market and has not experienced any difficulty in obtaining adequate supplies of such items.
The price and availability of raw agricultural products are subject to the vagaries of nature.
Trademarks and Patents
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. The major brand names utilized by the Company are 'Blue Boy' (vegetables and fruits), 'Silver Floss' (sauerkraut), 'Victor' (sauerkraut), 'Cortland Valley' (sauerkraut), 'Ritter' (specialty butter beans), 'Snyder of Berlin', 'Thunder Crunch', 'La Restaurante', and 'Tim's Cascade Chips' (snack foods), 'Brooks' (smooth and tangy ketchup, specialty tomato products, chili hot beans, and other canned dry bean items), 'Thank You Brand' and 'Gracias' (puddings, fruit fillings and toppings, fruits, vegetables, and specialty food items), 'Nalley's' (canned meat products, snack foods, salad dressing, pickles, and specialty food items), 'Lumberjack' (syrup), 'Bernstein's' (salad dressings), 'Comstock' (fruit fillings and toppings), 'Greenwood' (beets), 'Super Pop' (popcorn), 'McKenzie's' (frozen vegetables), 'Gold
King' (frozen breaded vegetables), 'Chill-Ripe' and 'Tropic Isle' (frozen vegetables and fruit), 'Wilderness' (fruit fillings and toppings), 'Cerise' (maraschino cherries), 'Pop-Eye' and 'POPS-RITE' (popcorn), 'Adams' (peanut butter), and 'Farman's' (pickles). All of the foregoing trademarks are of perpetual duration so long as periodically renewed, and the Company intends to maintain them in force.
The Company does not hold any material patents or concessions.
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. In addition, Pro-Fac has agreed to lend the Company (to the extent needed by the Company) all funds of Pro-Fac not immediately needed for its operations. (See Notes 4 and 5 of 'Notes to Consolidated Financial Statements.')
Short-term bank lines of credit are extended to both the Company and Pro-Fac. Under agreements with the Springfield Bank for Cooperatives, both companies participate on a proportionate basis in the average short-term borrowings under such lines; at least 55 percent of such borrowing is obtained by Pro-Fac from the Springfield Bank for Cooperatives, and 45 percent is borrowed by the Company from six commercial banks. These lines of credit are used primarily for seasonal borrowing, the amount of which fluctuates during the year. The lines of credit are subject to annual renewal. The Company has guaranteed payment of all bank indebtedness of Pro-Fac. Pro-Fac also guarantees payment of all bank indebtedness of Curtice Burns.
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 profits 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.
The expansion of the operations of the Company over the years has also allowed it to offer more complete and diverse lines of products. In the early years of its existence, the Company marketed principally commodity canned vegetables. The Company now also markets a broad range of snack foods, desserts, condiments and other specialty food items, canned and other frozen entrees, salad dressings and branded frozen vegetables. While all of these products are not offered in every marketing area, in many areas the Company can offer a diverse line of products, and the original commodity vegetable items now account for only 8.8 percent of Company sales. During fiscal 1994, the Company made progress on its program to focus on a more limited number of product lines and businesses. See 'General Development of Business - Restructuring Program.'
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 mechanical growing and harvesting techniques. This factor is also an advantage in producing uniform, high-quality food products. See 'Relationship with Pro-Fac' and Note 4 of 'Notes to Consolidated Financial Statements.'
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, and strong emphasis is placed on in-store promotions.
Although the relative importance of the above factors may vary as 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. In recent years, the Company has also taken steps to lessen the impact of such cycles on its earnings by diversifying into food product lines which are not affected as severely by fluctuation in profit margins. The Company has emphasized the merchandising of its own brands and expanded service and product development for its high volume private label and food service customers. The
percentage of sales under brand names owned and promoted by the Company (including franchise brands) increased from 35 percent in fiscal 1972 to a current level of approximately 54 percent; sales to the food service industry (restaurants and institutional customers), which were insignificant in 1972, now represent approximately 21 percent; private label sales, which were more than half the Company's sales in 1972, currently represent approximately 21 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 several divisions of the Company operate 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 food service businesses. No new products which required the investment of a material amount of assets have been publicly announced.
Compliance with EPA Regulations
The disposal of solid and liquid waste material resulting from the preparation and processing of foods and the emission of odors inherent in the heating of foods during preparation are subject to various federal, state, and local laws and regulations relating to the protection of the environment. 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 believes that it is in a position at least equal to the industry leaders with respect to compliance with such laws and related regulations. The Company also 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 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 industrial 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. Such renewal permits are currently being processed under normal agency procedures and it is expected that they will be issued in due course.
While the Company cannot predict with certainty the effect of any proposed or future environmental legislation or regulations on its processing
operations, 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.
Expenditures for facilities related to protection of the environment are made from the regular capital budget of Pro-Fac and such facilities are then leased to the Company pursuant to the facilities financing section of the Agreement, as described under Item 2
Item 2. DESCRIPTION OF PROPERTIES
Pro-Fac holds title to all processing facilities, warehouses, and other plant and equipment utilized in the Company's business, except for the facility owned by Nalley's Canada Ltd., or those leased from third parties. The Company, including its subsidiaries, owns one processing facility in Canada and occupies 37 other properties, 26 of which are used under the facilities financing section of the Agreement with Pro-Fac and 11 of which are leased from third parties. In the properties leased from third parties, however, title to substantially all of the operating equipment is held by Pro-Fac. Under the facilities financing section of the Agreement with Pro-Fac, the Company pays all taxes, insurance, and other operating costs, as well as an amount equal to the annual amortization taken on the assets. In addition to the 26 Pro-Fac properties mentioned above, 7 Pro-Fac properties are not being utilized for production and are held for resale. The net book value of these properties held for resale was $11,898,000 at June 25, 1994.
The following table describes the properties leased or owned by the Company as of the end of the 1994 fiscal year. Unless otherwise indicated, all properties are leased from Pro-Fac.
Type of Property Square (by Division) Location Feet - ----------------- -------- ------
COMSTOCK-MICHIGAN FRUIT:
Office building, manufacturing plant, and warehouse for cheese sauce, snack dips, puddings, and fruit fillings and toppings . . . . . . . . . . Benton Harbor, MI 239,252
Distribution center. . . . . . . Coloma, MI 400,000
Manufacturing plant and ware- house for canned fruits and vegetables, fruit fillings and toppings . . . . . . . . . . . . Fennville, MI 370,600
Warehouse for maraschino cherries, frozen fruits and vegetables, fruit fillings and supplies . . . . . . . . . . Sodus, MI 243,138
Property held for resale . . . . Clifton, NJ 250,000
Warehouse and office; public storage facility (1). . . Vineland, NJ 198,000
Warehouse for finished goods . . Alton, NY 60,060
Property held for resale . . . . Alton, NY 170,000
Freezing Plant for green beans; warehouse for frozen goods; office and dry storage . . . . . Barker, NY 150,100
Freezing plant for peas, snap beans, corn, and carrots . . . . Bergen, NY 122,009
Cold storage and repack facility for frozen fruits and vegetables and public storage warehouse. . . . . . . Brockport, NY 429,052
Cutting, curing and packaging plant for sauerkraut . . . . . . Gorham, NY 55,534
Canning plant and warehouse for peas, corn, lima beans, beets, and dried bean products; freezing plant for corn . . . . . . . . . . . . Leicester, NY 205,599
Distribution center and warehouse. . . . . . . . . . . . LeRoy, NY 137,300
Canning plant and warehouse for snap beans and carrots; freezing plant for snap beans, corn and cabbage . . . . . . . . Oakfield, NY 203,403
Canning plant and warehouse for snap beans . . . . . . . . . . . So. Dayton, NY 151,140
Type of Property Square (by Division) Location Feet - ----------------- -------- ------
COMSTOCK-MICHIGAN FRUIT (Cont'd.):
Canning plant and warehouse for fruit fillings and toppings, fruit specialty products and applesauce . . . . . . . . . . . Red Creek, NY 137,264
Property held for resale . . . . Rushville, NY 315,701
Cutting, curing, and canning plant for sauerkraut . . . . . Shortsville, NY 103,686 Cutting and curing plant for sauerkraut . . . . . . . . . . Waterport, NY 21,626
Manufacturing plant - popcorn. . Ridgway, IL 50,000
Closed plant held for resale . . Wall Lake, IA 39,000
Manufacturing plant - popcorn. . North Bend, NE 50,000
BROOKS FOODS:
Office building, canning plant, and warehouse for dried bean products and tomato products. . . . . . . . . Mt. Summit, IN 200,000
CURTICE BURNS SNACK FOOD GROUP:
SNYDER SNACK FOODS:
Office, plant and warehouse for potato chips and corn snack foods. . . . . . . . . . . Berlin, PA 190,225
TIM'S:
Administrative, plant, warehouse and distribution center (1). . . Auburn, WA 37,600
HUSMANS SNACK FOODS:
Office, plant and warehouse for potato chips, and other snack food . . . . . . . . . . . Cincinnati, OH 113,576
NALLEY'S FINE FOODS:
Office building, warehouse and tank farm for pickles. . . . Enumclaw, WA 87,313
Office building, manufacturing plant, and warehouse for pickles, canned meat products, salad dressings, peanut butter and snack foods. . . . . . . . . . . Tacoma, WA 438,000
Sales offices and distribution warehouse for chips and snacks (1) . . . . . . . . . . . Spokane, WA 16,300
Type of Property Square (by Division) Location Feet - ----------------- -------- ------
NALLEY'S FINE FOODS (Cont'd.):
Parking lot and pickle vat yards (1). . . . . . . . . . . . Tacoma, WA 162,570
Cucumber receiving and grading station (1). . . . . . . Cornelius, OR 11,700
Sales offices and distribution warehouses for chips and snacks (1) . . . . . . . . . . . Portland, OR 14,365
Cucumber receiving and grading station (1). . . . . . . Mount Vernon, WA 30,206
NALLEY'S CANADA LTD.:
Office, manufacturing plant and distribution warehouse for chips and snacks, dressings, pickles, syrup, peanut butter, canned products and oatmeal (1) . . . . Anacis Island, BC 108,000
Main office (1). . . . . . . . . Burnaby, BC 8,350
Office building and warehouse for chips and snack food distribution (1) . . . . . . . . Kelowna, BC 15,900
Office, manufacturing plant and ware- house for salad dressings, syrup, chip dip, and pickles (2). . . . Vancouver, BC 48,000
SOUTHERN FROZEN FOODS:
Office, freezing plant, cold storage and repackaging facility for southern vegetables, breaded vegetables and other vegetables and fruits . . . . . . . . . . . Montezuma, GA 545,942
Office, freezing plant and cold storage for southern vegetables . . . . . . . . . . . Alamo, TX 110,000
FINGER LAKES PACKAGING:
Can manufacturing plant. . . . . Lyons, NY 147,376
CORPORATE HEADQUARTERS:
Headquarters office (1) (Includes office space for Comstock Michigan Fruit Division as well as Corporate Conference Center). . . . . . . . . . . . . Rochester, NY 62,500
Sales Office (1) . . . . . . . . Cordova, TN 1,000
Type of Property Square (by Division) Location Feet - ----------------- -------- ------
CORPORATE HEADQUARTERS (Cont'd.): Closed facility held for resale. Denver, CO 80,000
Closed facility held for resale (Subleased to Oberto sausage). . Albany, OR 140,000
Closed plant held for resale . . Des Moines, IA 82,958
1. Leased from third parties, although the related equipment may be owned by Pro-Fac.
2. Owned by the Company or one of its wholly-owned subsidiaries.
The Company has the option of terminating the Agreement with Pro-Fac by exercising its right to purchase all plant and equipment covered by the facilities financing section at its then book value as well as certain intangible assets. However, as discussed in Note 4 of 'Notes to Consolidated Financial Statements,' there presently exists a disagreement with Pro-Fac as to how such purchase price would be calculated. The Agreement extends to June 27, 1997 and provides for two successive renewals, each for five years, at the option of the Company.
In the opinion of management of the Company, all of the properties used by the Company are suitable for the use intended and adequately maintained. The extent of utilization of such properties varies from property to property and from time to time. In addition, from time to time, the Company leases space in various public warehouses of close proximity to customers in order to expedite delivery times.
Item 3.
Item 3. LEGAL PROCEEDINGS
On July 11, 1994, Curtice Burns commenced arbitration proceedings against Pro-Fac under the Integrated Agreement by serving a Demand for Arbitration on Pro-Fac. A copy of Curtice Burns' Demand for Arbitration is attached as Exhibit 1 to Curtice Burns' current Report on Form 8-K dated July 11, 1994. In the arbitration, Curtice Burns is seeking, among other relief, a declaration confirming its right to terminate the Integrated Agreement and to purchase the assets owned by Pro-Fac but used by Curtice Burns in the conduct of its business upon tender of the then current book value thereof, determined in accordance with generally accepted accounting principles, a declaration confirming the effect of termination of he Integrated Agreement on the obligations of Curtice Burns under the Integrated Agreement and a declaration confirming that Curtice Burns does not have any obligations under the Integrated Agreement to purchase crops except as set forth in the fiscal 1995 Profit Plan. Curtice Burns is also seeking an award of damages sustained by Curtice Burns in an amount to be determined by the arbitrators, but in no event less than the difference in value between the Dean Foods $20 per share offer and the market price per share of Curtice Burns' common stock following any public announcement that the Dean Foods acquisition proposal has been withdrawn. On August 2, 1994, Curtice Burns filed a petition in the Supreme Court of New York for an order compelling Pro-Fac to proceed with the arbitration.
On August 4, 1994, Pro-Fac served Curtice Burns with Pro-Fac's Response and Counterdemand for Arbitration (the 'Response'), a copy of which is attached as Exhibit 1 to Curtice Burns' current Report on Form 8-K dated August 2, 1994. In the Response, Pro-Fac asserted (1) that Pro-Fac is entitled to a 50 percent share of the profits from the consummation of the of the pending acquisition proposal from Dean Foods, which share Pro-Fac calculated to be greater than $5.75 per share of Curtice Burns' common stock; (2) that
Curtice Burns cannot terminate the Integrated Agreement at all or not before, at the earliest, June 1996; (3) that the book value of Pro-Fac's assets for the purposes of calculating the price at which Curtice Burns may buy those assets and terminate the Integrated Agreement should not take into account specified writedowns by Curtice Burns of those assets; (4) that Curtice Burns is in default under the Integrated Agreement for improper termination of crops; and (5) that Curtice Burns is in default under the Integrated Agreement for failing to manage the business of Pro-Fac. Pro-Fac also claimed damages that it estimated at more than $50 million. In the Response, Pro-Fac also generally denied Curtice Burns' allegations in its Demand for Arbitration.
Curtice Burns believes that Pro-Fac's allegations are without merit and intends to resist them vigorously.
A grower has filed suit against the Company for damages resulting from defective seed which was purchased from the Southern Frozen Foods Division. The lawsuit alleges that the defective seed resulted in the loss of crops and acreage, and the grower is seeking $950,000 in damages. Management believes this claim is without merit and intends to vigorously defend its position. As the amount of damages is neither probable nor reasonably estimable, no accrual for loss has been included in the fiscal 1994 financial statements. In addition, management anticipates that any material costs of settlement, if incurred, will be covered under its insurance policies.
There are no other material pending legal proceedings other than routine litigation incidental to the business to which the Company is a party or to which any of its property is subject. Further, no such proceedings are known to be contemplated by governmental authorities
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The Company's Class A Common Stock is listed on the American and Midwest stock exchanges (trading symbol CBI). There is no established public trading market for the Company's Class B Common Stock. The Company pays a common stock cash dividend each quarter and has paid 85 consecutive quarterly dividends since becoming public in 1973. See 'Quarterly Financial Data' in Item 8 for market price per share highs and lows for each quarter of fiscal 1994 and 1993.
The Dividend Reinvestment and Stock Purchase Plan for shareholders offers shareholders of record a convenient method of acquiring additional shares of Curtice Burns common stock through reinvestment of dividends and voluntary cash contributions. The Company pays service charges for the Plan, which offers benefits of dollar-cost averaging, simplified record keeping, bank custodian service and investment accumulation similar to the effect of compound interest.
As of June 25, 1994, there were approximately 3,300 registered holders of Class A Common Stock and 64 registered holders of Class B Common Stock.
The Company's registrar, stock transfer agent, dividend disbursing and reinvestment agent is First Union National Bank of North Carolina, 230 South Tryon Street, 10th Floor, Charlotte, North Carolina 28288-1154, telephone number (800) 829-8432.
Requests for annual reports to shareholders, 10-K, and quarterly reports on Form 10-Q may be obtained by contacting the Director of Corporate Communications, Curtice-Burns Foods, Inc., PO Box 681, Rochester, New York 14603-0681, telephone (716) 264-3199.
Item 6.
Item 6. SELECTED FINANCIAL DATA
Curtice Burns Foods, Inc. FIVE YEAR SELECTED FINANCIAL DATA
Item 7.
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 1992 through 1994. The relevant figures are shown in the Summary of Operations which appears in the 'Five Year Selected Financial Data' the previous page of this report.
CHANGES FROM FISCAL 1993 TO FISCAL 1994
In addition to the results of operations there were two significant developments in fiscal 1994: the completion of the first phase of a major restructuring program designed to enhance Curtice Burns' shareholder value; and significant progress made in the effort to sell the Company to serve Agway's purpose of liquidating its interest in the Company. See Note 2 of 'Notes to Consolidated Financial Statements.'
Restructuring Program The Conceptual Vision and Strategy
The restructuring program first initiated in fiscal 1993 was based on Curtice Burns' new vision of a company smaller in sales but more profitable, as measured by return on sales and equity, and possessing the financial and management resources sufficient to drive growth in carefully selected product line markets in which the Company can prosper for the long term. Thus, the strategy was to focus on a more limited number of product lines which now have a strong, competitive position.
The Plan outlined in 1993 is to restructure the business to a more profitable base. At the same time, the remaining businesses were to be managed to optimize earnings growth by installing corporate-wide purchasing, and a corporate-wide focus of capital spending.
The third leg of the strategy was to accelerate the Company's national sales and distribution programs by executing new product programs in store-brand retail dressings, salsa and chunky soups, and the 'More Fruit/More Flavor' pie filling program.
Execution of the Program
The first step of the restructuring program was to divest businesses that were unprofitable or declining for the Company but would fit strategically with other business portfolios. During fiscal 1993, the Company divested Lucca Frozen Foods. A loss of approximately $2.7 million (before dividing with Pro-Fac and before taxes) was recognized on this transaction. At the end of fiscal 1993, the Company wrote down the assets and provided for the expenses to dispose of the Hiland potato chips and meat snacks businesses during fiscal 1994. On November 22, 1993, Curtice Burns sold certain assets of the Hiland Potato Chip business for $2 million at closing, plus approximately $1 million paid in installments over three months. On February 22, 1994, Curtice Burns sold the meat snacks business located in Denver, Colorado and Albany, Oregon to Oberto Sausage Company of Kent, Washington. Under the agreement, Oberto has purchased certain assets and assumed certain liabilities of the meat snacks operation, excluding plant, equipment, and trademarks. Curtice Burns will lease its Albany Oregon manufacturing facility and equipment and license its trademarks, trade names, etc. to Oberto until February 1995, at which time Oberto is contractually obligated to purchase these assets. The sale of the Hiland and meat snacks businesses did not result in any significant gain or loss in fiscal 1994 after giving effect to the restructuring charges recorded in fiscal 1993; however, charges of $3.1 million were incurred in fiscal 1994 to adjust previous estimates. In the fiscal year ended June 26, 1993, Curtice Burns incurred losses of $13.2 million from the meat snacks and Hiland potato chip businesses before dividing such losses with Pro-Fac and before taxes.
On November 19, 1993, the Company sold the oats portion of the National Oats business for $39 million. The oats business contributed approximately $1.4
million of earnings in fiscal 1993 before dividing with Pro-Fac and before taxes. The sale of the oats business resulted in an approximate $10.9 million gain. The popcorn portion of the National Oats Division was transferred to the Comstock Michigan Fruit Division.
During fiscal 1993 and 1994, the Company also made staff reductions in selected locations throughout the Company. A $1 million accrual relating to such costs was recorded as part of the fiscal 1993 restructuring charge.
Thus, a major part of the restructuring plan was successfully executed during fiscal 1994.
As reported above, Curtice Burns incurred restructuring charges in fiscal 1993 of $61.0 million (before dividing such charges with Pro-Fac and before taxes), which included the loss incurred on the sale of the Lucca frozen entree business, anticipated losses on the sale of the meat snacks and Hiland businesses, and other costs (primarily severance and unexpected losses prior to sale) in conjunction with the restructuring program. Virtually all of this charge was a revaluation of assets, rather than cash expense.
Having completed the first phase of the restructuring program in fiscal 1993, the second phase was approved by the Company's Board of Directors in August 1994. In connection with the second phase, the company is evaluating several alternatives regarding the Nalley's snack food business in the United States, including its possible sale to a third party. A charge, not exceed $12 million before split with Pro-fac and before taxes, for this phase of the restructuring program will be recorded during the first quarter of fiscal 1995.
With respect to the potential sale of the snack food business, the Company has signed a letter of intent with Country Crisp Foods of Salt Lake City, Utah. The letter of intent is subject to a number of conditions, including successful financing by the purchaser and the negotiation of a definitive purchase agreement. Country Crisp, a regional snack food company operating in the inter-mountain states of Colorado, Utah, Wyoming, Idaho, Nevada and New Mexico, will continue to market the Nalley's brand snacks under a licensing arrangement with the Company. If this sale is finalized, it may result in a revision to the aforementioned reserve.
Potential Change of Control of Curtice Burns
On March 23, 1993, the Company announced that Agway Inc., which owns 99 percent of Curtice Burns' Class B shares and approximately 14 percent of Class A shares, was considering the potential sale of its interest in the Company. At its meeting held on August 9 and 10, 1993, the Curtice Burns Board of Directors authorized Curtice Burns' management, with the advice of its investment bankers, to pursue strategic alternatives for Curtice Burns. These options included negotiations with Pro-Fac relative to Pro-Fac gaining control of the business; the possible sale of the entire equity of Curtice Burns to a third party; and the implementation of additional restructuring actions that may include recapitalizing the Company to buy out Pro-Fac and potentially Agway as well. Under the Agreement with Pro-Fac, title to substantially all of Curtice Burns' fixed assets is held by Pro-Fac, and Pro-Fac provides the major portion of the financing of Curtice Burns' operations. Under the Agreement Curtice Burns has an option to purchase these assets from Pro-Fac at their book value. However, as mentioned in Note 4 of the 'Notes to Consolidated Financial Statements,' there presently exists a disagreement with Pro-Fac as to how such settlement amount would be calculated. Exercise of the buyout option would result in the termination of the Agreement with Pro-Fac. In such event, Curtice Burns would be required to repay all debt owed to Pro-Fac.
The Company actively explored these alternatives during fiscal 1994. On June 8, 1994, the Curtice Burns Board of Directors voted to pursue a proposal submitted by Dean Foods Company ('Dean Foods') to acquire all the outstanding shares of common stock of Curtice Burns at a maximum cash price of $20 per share, subject to a number of contingencies, including an agreement with Pro-Fac covering the termination of the Integrated Agreement,
an agreement with Hormel Foods Corporation for the purchase of the Nalley's Fine Foods Division of Curtice Burns, clearance of the transaction by appropriate government agencies, negotiation of definitive agreements and approval of any transaction by Curtice Burns' shareholders.
As a result of Pro-Fac's unwillingness to enter into the agreement required by Dean Foods, on July 11, 1994, Curtice Burns commenced arbitration proceedings against Pro-Fac under the Integrated Agreement. On August 4, 1994, Pro-Fac responded to the claim and served the Company with a counter claim demanding arbitration. These arbitration proceedings are discussed in more detail under 'Legal Proceedings.'
On August 4, 1994, Pro-Fac also submitted a proposal for acquisition of all the outstanding stock of Curtice Burns for $19.00 per share in cash, and upon acceptance of the offer, Pro-Fac would relinquish its claims against Curtice Burns. Pro-Fac has stated that it believes the value of these claims represents at least $5.75 per share based on the amount that would be due Pro-Fac upon completion of the proposed transaction between Curtice Burns and Dean Foods. The contingencies of the Pro-Fac offer involve shareholder approval and financing. This was the second proposal submitted by Pro-Fac. The first was for $16.87 per share, in cash, which the Company rejected in favor of pursuing the Dean Foods offer. The Curtice Burns Board of Directors has not yet taken definitive action with respect to this revised proposal.
No assurance can be given that any transaction for the acquisition of Curtice Burns by Dean Foods, Pro-Fac or any third party will be consummated.
During fiscal 1994, the Company expensed $3.5 million of legal, accounting, investment banking and other expenses relative to the change in control issue. In recognizing this expense, the Company allocated half of this amount to Pro-Fac as a deduction to the profit split. The allocation to Pro-Fac is being disputed by Pro-Fac. See Notes 4 and 5 of 'Consolidated Notes to Financial Statements.'
Results of Operations - General
The Company's fiscal 1994 net earnings were $10.1 million or $1.17 per share compared to a loss of $23.8 million or $2.77 per share for fiscal 1993. Included in the fiscal 1994 results was a charge against earnings of $.5 million, equivalent to $.06 per share, to adjust deferred taxes to the higher rate as legislated by Congress and as required under Financial Accounting Standards Board No. 109. Also included in fiscal 1994 results was a net gain of $7.8 million ($3.1 million after dividing with Pro-Fac and after taxes) comprised of a gain on sale of $10.9 million, net of a charge of $3.1 million to adjust previous estimates regarding activities initiated in fiscal 1993, and a charge of $3.5 million of legal, accounting, investment banking and other expenses ($1.7 millon after dividing with Pro- Fac and after taxes) relating to the potential change in control of the Company. Included in the fiscal 1993 results were restructuring charges of $61.0 million ($29.9 million after dividing with Pro-Fac and after taxes). Net earnings, excluding these items, was approximately $9.1 million (equivalent to $1.05 per share) for fiscal 1994 and $5.9 million (equivalent to $.68 per share) for fiscal 1993, an increase of 54.2 percent.
Pretax earnings before dividing with Pro-Fac increased $77.4 million from the prior year. The major elements of this change are:
Change in control expenses are anticipated to occur in fiscal 1995 until a final resolution is reached.
The major changes from the prior year for product line earnings (before dividing with Pro-Fac and before taxes), excluding operations sold or to be sold are as follows:
The increased profitability in the vegetable category was driven by the price increases permitted by the national short crop due to poor weather conditions in the Midwest during the 1993 growing season.
The fruit category was negatively affected by increased trade promotion and advertising related to reformulated fruit fillings and promotions on pumpkin pie filling.
The snack foods category has continued to be affected by the competitive pressures of the salty snacks business and the decline in consumption for the potato chip category.
The change in condiments and specialty products was primarily because the profitability of peanut butter and pickles and relishes was negatively affected by both a sales volume decline and an increase in costs. While the canned meats and entree product line produced increased volume, increased trade promotions and selling costs exceeded the effect of the sales increase.
The following sets forth the major changes in the consolidated statement of income from the prior year.
Net sales for the year ended June 25, 1994 decreased $49.5 million or 5.6 percent from the prior year. This decrease is comprised of the following:
The disposition of businesses reduced sales by $59.0 million as shown above. The increase in vegetable sales volume resulted from higher demand created by a vegetable crop shortage caused by flooding in the Midwest and a drought in the South during the 1993 growing season. The decrease in sales volume for snack foods is due to the continued competitive pressures of the salty snack business and the decline in consumption for the potato chip category.
Cost of sales decreased $40.0 million. As a percent of sales, costs decreased to 71.4 percent from 72.0 percent. Gross profit decreased $9.5 million or 3.8 percent. These changes resulted primarily from dispositions and changes in volume, price and product mix.
Selling, administrative and general expenses decreased $20.2 million or 9.7 percent. Cost reductions include a $.7 million decrease in trade promotions, a $13.1 million decrease in advertising and selling costs and a $6.4 million decrease in administrative costs.
Interest expense decreased $1.3 million or 6.9 percent resulting from a $.2 million increase due to loan volume on Pro-Fac related debt and a $1.5 million reduction due to lower interest rates.
Income before taxes improved $38.7 million or 194.1 percent. The Company's effective tax rate was significantly impacted during fiscal 1994 by non- deductible legal and advisory expenses incurred in conjunction with the change in control, the increase in the federal statutory income tax rate enacted on August 10, 1993 and the adjustment of the valuation allowance previously recorded.
CHANGES FROM FISCAL 1992 TO FISCAL 1993
Results of Operations
Pretax earnings before dividing with Pro-Fac decreased $62.2 million from the prior year. The major elements of this change are:
Excluding the restructuring charges recorded in fiscal 1993, the Company was slightly less profitable in 1993 in comparison to the prior year, but results of operations comprised many increases to product line earnings that were offset by significant losses incurred in the meat snacks, Hiland snack food, Nalley's U.S. Chips and Snacks, and vegetable businesses.
The Company benefited from strong performances from some of its regional brands and from its can-making operations. The major changes from the prior year for product line earnings (before dividing with Pro-Fac and before taxes), excluding operations sold or to be sold are as follows:
Price increases instituted in the fourth quarter of fiscal 1992 were maintained in fiscal 1993 in the can making operation and improved margins from the prior year. The increased profits from the fruit filling category were primarily due to reduced raw product costs that improved margins for that category.
The entree category also achieved higher margins as a result of moving the production for the Lucca canned operation to the Nalley's Fine Foods Division. As previously discussed, the Hiland and meat snacks operations were placed for sale as part of the restructuring program to divest unprofitable or declining businesses. The decrease in earnings relative to the snack operations other than Hiland, meat snacks and Nalley's U.S. Chips and Snacks is due to the continuing competitive pressures in the snack industry that prevent the implementation of price increases that would improve margins without the incurrence of a loss of market share.
During fiscal 1993 the Company continued to experience pressure on earnings from the depressed commodity vegetable business.
The following sets forth the major changes in the consolidated statement of income from the prior year.
Net sales for the year ended June 26, 1993 decreased $18.3 million or 2.0 percent from the prior year. This decrease is comprised of the following:
Variance in Millions of Dollars
The disposition of the soft drink bottling business in July 1992 and Lucca frozen entrees in December 1992 reduced sales by $17.7 million as shown above.
The volume decrease for condiments and specialty products resulted from lower cheese sauce and ketchup sales. Sales volume for cheese sauce decreased in the first part of the fiscal year due to a loss of business partially reinstated later in the year. The ketchup decrease in sales was due to the discontinuation of the private label business for that product. The variance due to price and mix in the fruit category resulted from a decreased raw product purchase price for cherries which was passed along in part to customers.
Cost of sales decreased $19.7 million. As a percent of sales, costs decreased to 72.0 percent from 72.7 percent. Gross profit increased $1.4
million or .6 percent. These changes resulted primarily from increases in volume partially offset by effects of price and product mix changes.
Selling, administrative and general expenses increased $5.8 million or 2.9 percent. This variance includes an $8.6 million increase in trade promotions, a $1.9 million decrease in advertising and selling costs, a $3.3 million benefit due to operational changes in the Company's salaried vacation policy, and a $2.4 million increase in other administrative costs. The increase in trade promotions directly contributed to the increased sales volume and increased margins discussed above.
Interest expense decreased $3.3 million or 14.4 percent resulting from a $.9 million decrease due to a reduction in debt and a $2.4 million reduction due to lower interest rates.
Pro-Fac's share of the Company's profits decreased $31.3 million, of which $30.5 million was due to the restructuring charges.
Income before taxes decreased $30.9 million, primarily due to the restructuring charges discussed above.
Taxes on income decreased $.9 million or 18.3 percent. The Company's effective tax rate was significantly impacted by the writedown of goodwill and other intangibles having a lower tax basis than book value.
Net income decreased $30 million, almost entirely due to the restructuring program (after allocating to Pro-Fac its share of the loss) and the Company's effective tax rate as previously discussed.
Liquidity and Capital Resources
Substantially all cash not distributed by Pro-Fac to its members or security holders is either invested in assets leased to Curtice Burns or loaned to Curtice Burns to finance its operations. In order to gauge the working capital and other resources available to the companies, the combined pro forma condensed financial statements should be used. The relationship with Pro-Fac and the combined financial statements are shown in Notes 4 and 5 to the 'Notes to the Consolidated Financial Statements.' Such financial statements should not be used as a basis for determining shareholders' interest in Curtice Burns, but only as a measure of the total financial resources available to Curtice Burns and Pro-Fac.
Certain borrowing agreements require that the companies maintain specified levels with regard to working capital, current ratio, ratio of net worth to assets, ratio of long-term debt to net worth, tangible net worth, net income, coverage of interest and fixed charges and the incurrence of additional debt. The companies are in compliance with, or have obtained waivers for, restrictions and requirements under the terms of the borrowing agreements. The revolving lines of credit under such agreements have been renewed through November of 1994. Such agreements provide for adjustments in interest rates and covenants and grant to both short-term and long-term lenders, or entitle such lenders to obtain, liens on substantially all assets of the Company and Pro-Fac as collateral for borrowings under such agreements.
Should the resolution of the potential change in control of Curtice Burns result in the Company exercising its option to purchase from Pro-Fac the property and equipment and certain other assets used by the Company in its business, the Company believes that the amount required to accomplish this (including the repayment of debt) would be approximately $267.7 million (as measured at the book value on June 25, 1994). Of this amount, $101.5 million represents short- and long-term debt, $24.9 million relates to intangible assets and $141.3 million relates to leased fixed assets. This $267.7 million at June 25, 1994 compares to $303.8 million at June 26, 1993, which was comprised of $103.8 million of short- and long-term debt, $26.5 million relating to intangible assets and $173.5 million relates to leased fixed assets. The decrease in leased assets during fiscal 1994 of $32.2 million is primarily the result of the reduction of leased assets due to the sale of businesses and depreciation of assets exceeding additions. However,
in the pending arbitration proceedings between Curtice Burns and Pro-Fac, Pro-Fac has asserted, among other matters, (1) that Pro-Fac is entitled to a 50 percent share of the profits from the consummation of the pending acquisition proposal from Dean Foods, which share Pro-Fac calculates to be greater than $5.75 per share of Curtice Burns' common stock; and (2) that the book value of Pro-Fac's assets for the purposes of determining the buyout price under the Integrated Agreement should not take into account specified writedowns by Curtice Burns of those assets. See 'Legal Proceedings' above and Note 2 to the 'Notes to the Consolidated Financial Statements.'
There are currently two offers for all the outstanding common stock of Curtice Burns. See Note 2 of the 'Notes to Consolidated Financial Statements.'
Cash flows from operating activities are generally the cash effects of transactions and other events that enter into the determination of net income. In the fiscal year, net cash provided by operating activities of the combined companies of $39.0 million reflects net income of $10.1 million for Curtice Burns and $24.5 million for Pro-Fac. Amortization of assets amounted to $25.7 million. Inventories decreased $.3 million and accounts receivable decreased $5.7 million. Changes in other assets and liabilities amounted to $27.3 million.
Cash flows from investing activities include the acquisition and disposition of property, plant and equipment and other assets held for or used in the production of goods. Net cash provided by investing activities of $22.4 million in the period was comprised of $42.1 million received from disposals, $19.6 million paid for purchases of property, plant and equipment, $1.3 million received for disposals of fixed assets, and a $1.4 million increase in the investment of Springfield Bank for Cooperatives. During the period, the $42.1 million received from the disposition of the oats portion of the National Oats business and the Hiland Potato Chip business was generally applied to reduce debt.
Net cash used in financing activities of $65.1 million in the period was comprised of payments on short-term debt of $.5 million, payments on long- term debt of $50.2 million, payments on capital leases of $2.1 million, issuance of capital stock of $.7 million, less repurchases of $3.2 million, and dividends paid of $9.9 million.
Short- and Long-Term Trends
The vegetable portion of the business can be positively or negatively affected by weather conditions nationally and the resulting impact on crop yields. Favorable weather conditions can produce high crop yields and an oversupply situation. This results in depressed selling prices and reduced profitability on the inventory produced from that year's crops. Excessive rain or drought conditions can produce low crop yields and a shortage situation. This typically results in higher selling prices and increased profitability. While the national supply situation controls the pricing, the supply can differ regionally because of variations in weather. The 1993 floods in the Midwest and the drought in the South increased finished goods pricing, even though the crops in the Company's growing areas were at normal levels. It is difficult to assess the 1994 crop yields and resulting impact on fiscal 1995 profitability until late fall of 1994 when national supplies of the fruit and vegetable commodities are known.
Seasonal lines of credit of $100.0 million were available to the Company and Pro-Fac up to September 1993, $86 million after that date, and the maximum borrowing on those lines was $81.0 million. The balance outstanding at June 25, 1994 was $11.5 million.
There are no current plans for the acquisition of businesses. Capital expenditures are expected to approximate $20.0 million in the next year.
Scheduled payments on long-term debt will approximate $15 million in the coming year. Net cash provided from operations and the cash proceeds from the planned sales of excess facilities should be sufficient to cover the scheduled payments on long-term debt and planned capital expenditures as well as anticipated dividends of approximately $10 million in the coming year. Proceeds from the sale of business units, if any, will be applied to reduce debt.
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
In November 1992, the Financial Accounting Standard Board issued Statement of Accounting Standards No. 112, 'Employers' Accounting for Postemployment Benefits.' This statement establishes accounting standards for employers who provide benefits to former or inactive employees after employment but before retirement. Postemployment benefits are all types of benefits provided to former or inactive employees, their beneficiaries, and covered dependents.
This statement is effective for fiscal years beginning after December 15, 1993. Management believes that any changes caused by this Statement will not be material.
Statement of Position ('SOP') 93-7, 'Reporting on Advertising Costs,' was issued in December 1993 and has not yet been adopted by the Company. The Statement provides guidance on financial reporting on advertising costs. The Company plans to adopt the Statement in fiscal 1995, and believes that the effect on the results of operations will not be material.
Note 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages
Curtice Burns Foods and Consolidated Subsidiaries:
Independent Accountants' Reports . . . . . . . . . . . . . . . 31
Management's Responsibility for Financial Statements . . . . . 32
Consolidated Statements of Operations and Retained Earnings for the Fiscal Years Ended June 25, 1994, June 26, 1993, and June 26, 1992 . . . . . . . . . . . . . . 33
Consolidated Balance Sheets, June 25, 1994 and June 26, 1993 . . 34
Consolidated Cash Flow Statements for the Fiscal Years Ended June 25, 1994, June 26, 1993, and June 26, 1992 . . . . . . . 35
Notes to Consolidated Financial Statements. . . . . . . . . . . 36
Selected Quarterly Financial Data . . . . . . . . . . . . . . . 55
The following additional financial data are submitted as part of Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K of this report:
Schedule V -Property, Plant and Equipment
Schedule VI -Accumulated Depreciation of Property, Plant and Equipment
Schedule VIII -Valuation and Qualifying Accounts
Schedule IX -Short-Term Borrowings
Schedule X -Supplementary Income Statement Information
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.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Curtice-Burns Foods, Inc.
In our opinion, the consolidated financial statements listed under Item 8
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF THE REGISTRANT
Standing Committees of the Board:
Assignments as of the last meeting of the Board held within Fiscal 1994.
(1) Finance Committee (acts as the Audit Committee, excluding Management Directors)
(2) Human Resource Committee
(3) Public Responsibility Committee
(4) Nominating Committee
* The Chairman of the Board and President serve as ex-officio members of all committees.
EXECUTIVE OFFICERS OF THE REGISTRANT
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 and until their respective successors are elected and qualified, except in the case of death, resignation, or removal.
Item 11.
Item 11. EXECUTIVE COMPENSATION
Human Resource Committee Report on Executive Compensation
The Human Resources Committee of the Board of Directors (the 'Committee') is composed entirely of non-employee directors. The Committee is responsible for reviewing and approving the Company's executive compensation program on an annual basis.
Compensation Philosophy
The Company recognizes the importance of senior management to the continued success of the enterprise and is committed to a compensation philosophy which will attract, retain, and motivate highly qualified senior management. To achieve this objective, the Company realizes that it must offer a compensation program which is competitive within the food processing industry and which is sensitive to individual and organizational performance.
This compensation goal is pursued in a manner that stresses 'pay for performance.' Those elements of the compensation program that rise or fall based on financial achievement are stressed over base earnings levels.
Policy
It is the policy of the Company to compensate senior management competitively for similar positions within the food processing industry. In determining similar positions, Company revenues are taken into account.
Compensation packages are structured so that base salaries will tend to be on the low end of the salary range, while opportunity for 'pay for performance' will be somewhat greater than those of competitive companies. 'Pay for performance' will be focused largely in terms of short term incentives as opposed to stock options due to the limitations resulting from the financial structure of the Company and Pro-Fac.
Each year the Committee performs a review of the Company's executive compensation program, with the assistance of an independent outside consultant. In this review, competitive survey data of food companies similar in size to the Company are analyzed, if available. (Companies in the consumer non-durable goods manufacturing industry are used if food companies are not available.) This data is used to determine 'going rates' for each executive's base salary, short-term and long-term incentive levels.
Current Compensation Program Practices
The Company designs and administers its compensation program to offer competitive salary levels and incentive opportunities which balance both short term and long term performance. The competitive frame of reference is the food processing industry and consumer non-durable goods manufacturing.
Base Salaries
Competitive salary ranges are assigned to each senior manager which represent salary ranges for similar positions within the food industry. The midpoint of each salary range represents the fiftieth percentile of salaries paid for comparable positions within the food processing industry. Individual sustained performance influences the placement of an executives' salary within the respective range. Generally, wherever practical, executive salaries are at the low end of the salary range.
Short-Term Incentives
The Company provides an annual incentive program to senior managers designed to recognize yearly performance against pre-established financial goals. For fiscal 1994 and forward, the underlying performance standard of this program provides that, if a manager's business unit and the corporation as a whole achieves annual earnings equal to the original Profit Plan, the manager receives a bonus as a percent of salary equivalent to that of counterparts in competitive companies as measured by compensation
consultants. Performance above standard results in higher awards, performance below this standard results in much reduced awards. For fiscal 1994 and forward, this plan had been revised so that goals are based upon original profit plan and each participant's bonus will be based upon one- third of corporate performance. Prior to fiscal 1994, the Plan measured performance of each business unit against historical earnings goals without regard to corporate performance.
Long-Term Incentives
The objectives of the long-term incentive plan are to align the interests of executives with those of shareholders and to encourage employee ownership in the Company through the Executive Stock Option Plan. Stock option grant levels are established by determining the typical value of long-term incentives at various levels of responsibility based on competitive surveys. Stock option grant levels represent the twenty-fifth percentile of long-term incentives granted for comparable positions within the food processing and consumer non-durable goods industries because a significant portion of the Company's financing is provided through the relationship with Pro-Fac, and grants at the fiftieth percentile might have a dilutive effect on shareholder value.
The absence of stock option grants in 1994 relates to a decision by the Company to not ask shareholders to approve additional shares for the Plan until the potential change in ownership of the Company is clarified or completed.
Retirement/Capital Accumulation Plans
The Company currently has two retirement plans and two capital accumulation plans.
Retirement, Deferred Profit Sharing, and 401-K
Both the retirement plan and the deferred profit sharing program (a capital accumulation plan) work together to provide a retirement benefit that is competitive within the food processing industry. Unlike the retirement plan, which is a defined benefit plan with no risk, the deferred profit sharing program is a defined contribution plan which is dependent upon the financial success of the Company. Because of this, a continuing string of low earnings years would position the Company's total retirement benefits below competitive levels. Additionally, the Company administers a 401-K plan which is entirely employee funded.
Supplemental Executive Retirement Plan ('SERP')
The SERP is designed to ensure the payment of a competitive level of retirement income in order to attract, retain, and motivate selected senior managers. The plan is designed to provide a benefit which, when added to other retirement income of the executive, will meet the objective described above.
Perquisites
The Company does not grant significant perquisites to its employees or officers.
Chief Executive Officer Compensation
The salary, short-term incentive target and stock option grant level of the chief executive officer are determined by the Committee in conformance with the policies and practices described above for all executives of the
Company. In Fiscal 1994, Mr. Petty's annual base salary was increased from $400,000 to $424,000, and his targeted annual incentive award was 50 percent of his base salary earned during the fiscal year. (Mr. Petty's actual bonus of $219,440 as shown on the Summary Compensation Table was based on overall corporate performance. In years prior to fiscal 1994, Mr. Petty's bonus was based on the performance of the business units for which he was responsible as Executive Vice President and on overall corporate performance.) In making these compensation decisions, the Committee considered the base salaries, bonus levels and stock option grants of Chief Executive Officers of food processing companies similar in size to the Company, as well as his service to the Company, his performance during the year and its judgment that Mr. Petty has the expertise and leadership qualities necessary to drive the future success of the Company.
Future Elements of a Compensation Program
It should be recognized that compensation programs offered to senior managers within the food processing industry change due to business objectives, tax regulations, and state-of-the-art changes. In order to remain competitive with other food companies, it is the Company's policy to monitor compensation changes and trends within the industry and adjust its own program whenever appropriate.
Carl D. Smith, Chairman John F. Blazin Vyron M. Chapman John L. Norris
The following table shows the cash compensation and certain other components of the compensation of the chief executive officer and the four (4) other most highly compensated Executive Officers of the Company earned during fiscal years ended June 25, 1994, June 26, 1993, and June 26, 1992.
Executive Compensation Summary Compensation Table
(1) No named Executive Officer has received personal benefits during the listed years 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').
(3) Fiscal 1992 options are net of canceled options as follows:
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 column 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 credited participation under the Company's Pension Plan as of June 25, 1994, of the Executive Officers listed in the compensation table on page 63 are as follows: J. William Petty-10, Patrick D. Lindenbach-4, Dennis M. Mullen-4, Roy A. Myers-32, and William D. Rice-22.
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
The benefits listed on the Pension Plan Table are not subject to any deduction for Social Security.
The Company also maintains a Supplemental Executive Retirement Plan ('SERP') to ensure that key executives affected by joining the Company at mid-career will receive levels of retirement income reasonably related to their service and compensation, and reflecting their contribution to the success of the Company.
Presently the SERP includes Mr. Petty as a participant. The Plan ensures that participants will receive, from all past and current employment sources, a minimum aggregate benefit of 50 percent of Final Average Base Salary upon retirement at age 65 with decreasing amounts as early as age 62, but no SERP benefit if retirement occurs prior to age 62. Final Average Base Salary is defined as the average of the highest three consecutive calendar years' compensation, including base salary and cash incentive bonuses. Retirement benefits for SERP participants will be paid from a combination of five sources: The Master Salaried Retirement Plan of the Company, the interest income available from the accumulations in the Company's Deferred Profit Sharing Plan, primary benefits under Social Security, any pension plans from previous employment, and finally, an increment paid by the SERP from the Company's general funds to bring the aggregate benefits to the prescribed level. The SERP is not tax qualified and is not subject to the various maximum benefit limitations prescribed in ERISA and the 1986 Tax Reform Act. The total projected annual benefit payable under this supplemental plan to Mr. Petty at age 65, assuming current compensation levels and continued service to age 65, is $130,532.
Change of Control Provisions of Severance and Other Benefit Plans
The Company has adopted a Change of Control Severance Plan concerning certain key employees and Executive Officers (the 'Plan'). The Plan provides salary and benefit continuation to designated executives (including the named executives listed in the compensation table) in the event their employment is terminated within a specified period after a change of control of the Company, as such term is defined in the Plan.
The Plan has a term ending in February, 1995; however, if a change in control occurs within that time period, the Plan will remain in existence for two years after the date of the change of control. The Plan cannot be terminated within two years after a change of control or during any period of time when the Company has knowledge that a third person has taken steps reasonably calculated to effect a change of control. The Plan provides for salary and benefit continuation upon termination other than for cause within the two-year period following a Change of Control as follows: one year of salary and benefit continuation for Messrs. Petty, Myers and Rice; two years of salary and benefit continuation for the other designated executives including Messrs. Lindenbach and Mullen, or until the executive obtains other employment at an annual salary not less than 75 percent of his annual salary at termination, whichever occurs first.
Under the terms of the Agreement, Mr. Petty would be entitled to a minimum supplemental retirement benefit equal to 50 percent of his current salary, less all other sources of retirement income including his supplemental retirement benefit, if any, under the Curtice Burns Foods Supplemental Executive Retirement Plan. Messrs. Myers and Rice would be entitled to a supplemental retirement benefit equal to the benefit they would receive from the Curtice Burns Foods Master Salaried Retirement Plan if they continue working until age 65 at their current salary level, less their actual retirement benefit from this Plan. In all cases, the supplemental retirement benefits begin at the end of the salary and benefit continuation period. Also, upon a Change of Control all stock options granted prior to February 18, 1994 would become exercisable. However, with the exception of Mr. Petty's stock options, the vesting of stock options will only accelerate to the extent that such acceleration shall not result in an excise tax under the Internal Revenue Code.
If any excise tax is imposed on Mr. Petty in respect to payments under these agreements and the accelerated vesting of stock options, the Company will pay to Mr. Petty an amount that will net him the same sum as he would have retained if the excise tax did not apply.
The Profit Sharing Plan and the Incentive Plan also contain a change of control provision pursuant to which, in the event of a change of control of the Company, participants in such plan who are terminated within two years following a change in control are entitled to benefits earned under such plan for the fiscal year of their termination on a pro rata basis for the part of the year they were employed.
Executive Stock Option Plans
Under the Company's 1980 Executive Stock Option Plan ('1980 Plan') and 1990 Executive Stock Option Plan ('1990 Plan'), options to purchase the Company's Class A shares may be granted to senior management employees of the Company and its subsidiaries. There were no grants to the named Executive Officers of stock options during the fiscal year ended June 25, 1994. There are no stock appreciation or other rights issued in tandem with options under the 1980 Plan or the 1990 Plan.
The following table provides information on unexercised stock options held as of the end of the fiscal year by the named Executive Officers. No options were exercised by the named executive officers during the fiscal year ended June 25, 1994.
Aggregated Fiscal Year End Option Values
* Fair market value of the Company stock on June 25, 1994 was $16.625.
(1) Value of unexercised options equals the fair market value of the share underlying in-the-money options at June 25, 1994 ($16.625), less exercise price, times the number of options outstanding.
Non-employee Board members who are either Pro-Fac or Agway directors receive an annual stipend of $6,000 per year, plus a $200 per diem for attending Board or Committee meetings. During fiscal 1994, all outside directors, Messrs. Blazin and Tiedemann and Ms. Ford, received $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. During fiscal 1994, Mr. Pease received $21,500 salary and a $3,200 retainer for the fiscal year as Chairman of the Board. Directors who are also officers of the Company or Agway are not paid directors' fees.
Performance Graph
The following Performance Graph shows the changes over the past five year- period in the value of $100 invested in (1) the Company's common stock, (2) the Standard and Poor's 500 Index, and (3) the Company's Peer Group.
The Peer Group consists of publicly traded companies in industry segments corresponding to the Company's core businesses. These companies are Borden, Dean Foods, Flowers Industries, Gerber Products, Golden Enterprises, Inc., International Multifoods, McCormick, Pepsico, Sara Lee Corporation, Seneca Foods, Stokely USA and Universal Foods.
The values of each investment are based on share price appreciation and the reinvestment of dividends as of the end of June each year, the Company's fiscal year end.
Comparative Five-Year Total Returns* Curtice Burns Foods, Inc., S&P 500, Peer Group (Performance results through 6/30/94)
[PERFORMANCE GRAPH]
Dollar Values
Assumes $100 invested at the close of trading on the last trading day preceding the first day of the fifth preceding fiscal year in CBI common stock, S&P 500, and Peer Group.
* Cumulative total return assumes reinvestment of dividends.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below indicates as of July 31, 1994, those persons who are known by the Company to be the beneficial owners of more than 5 percent of either the Company's Class A or Class B common stock. Beneficial ownership refers to voting and/or investment authority with respect to the Company's stock:
(1) Agway Holdings Inc. is a wholly-owned subsidiary of Agway Inc. Agway is a farm supply business operated as a cooperative for its members and other patrons in the Northeastern United States.
(2) Agway Holdings Inc. has sole voting and investment power with respect to these shares.
The following table sets forth the ownership of the Company's Class A common stock as it pertains to the directors and those officers listed in the compensation table on page 63. In November, 1993, the Board of Directors approved a requirement that all Directors should own at least 100 shares of stock. Because of the potential change of ownership of the Company, legal counsel has advised that no Director or Officer can buy or sell shares, thus the three directors owning less than 100 shares have been unable to increase their holdings.
Stock Ownership Officers and Directors - September 1994 (Number of Shares)
No director or officer owns more than 1 percent of Class A stock. No director or officer owns any Class B stock.
As of June 25, 1994, there were 3,302 holders of the Class A common stock and 60 holders of the Class B common stock of the Company. As of that date, there were 6,628,430 shares of Class A common stock and 2,056,876 shares of Class B common stock outstanding.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has a contractual relationship with Pro-Fac Cooperative, Inc. ('Pro-Fac'), an agricultural cooperative which, since its organization, has supplied a substantial portion of the raw food products processed by the Company from crops grown by its approximately 700 members.
The relationship between Pro-Fac and the Company is governed by an Agreement consisting of five sections: Operations Financing, Marketing, Facilities Financing, Management and Settlement, which extends to 1997, and provides for two successive five-year renewals at the option of the Company. Curtice Burns has the right, at any time upon 60-day written notice to Pro-Fac, to purchase the assets to which Pro-Fac holds title pursuant to the Agreement, together with Pro-Fac's interest in certain of the Company's intangible assets, in each case at the book value thereof. Upon exercise of such option, the Agreement would automatically terminate. Upon termination, the Company would be required to repay to Pro-Fac all outstanding indebtedness due to Pro-Fac.
Revenues received by or accrued to Pro-Fac under the Agreement for the year ended June 25, 1994 include: commercial market value of crops delivered, $59,216,000; interest income, $15,617,000; and income from profit sharing provision of $16,849,000. In addition, Pro-Fac received financing amortization payments of $43,830,000.
Under the Agreement, the Company's Board of Directors is obligated to nominate a designee of Pro-Fac (currently Mr. Call) for annual election to the Company's Board of Directors, and a designee of the Company (currently vacant) is elected to the Board of Directors of Pro-Fac.
Pro-Fac, under the operations financing section of the Agreement with the Company, lends the Company all available funds not currently necessary for its own operations. Short-term debt under this Agreement averaged $30,464,000 for fiscal 1994 and was $11,500,000 at June 25, 1994. Long-term debt averaged $80,505,000 for fiscal 1994 and was $78,040,000 at June 25, 1994. Interest paid on these loans and interest on funds used for leased assets is the same as the cost of the funds to Pro-Fac. For fiscal 1994, interest rates on short-term and long-term debt averaged 4.8 percent and 6.3 percent, respectively. At June 25, 1994, the interest rate on the short- term and long-term debt was 5.5 percent and 6.7 percent, respectively.
Mr. Call served as director of the Company during the past year and is also President, director, and member of Pro-Fac. Mr. Pease, Chairman and a director of the Company, was also a director of Pro-Fac until his recent resignation. Mr. Wolff, a director of the Company, was also a director of Pro-Fac until his recent resignation. As a member of Pro-Fac, Mr. Call sold certain agricultural products to Pro-Fac during the year. (Mr. Call conducts business with Pro-Fac through My-T Acres, Inc., a controlled corporation). The prices paid to Mr. Call by Pro-Fac for products delivered were identical to prices paid to all others for like produce. Pro-Fac paid My-T Acres, Inc., $2,038,000 for products delivered during the fiscal year ended June 25, 1994. Mr. Myers, an executive officer and director of the Company, and Mr. Rice and Ms. Bartalo, executive officers of the Company, serve as officers of Pro-Fac.
The Company has no understanding or arrangements with Agway to purchase, process, or market produce grown by Agway members who are not members of Pro-Fac, or to purchase other products manufactured or distributed by Agway. From time to time the Company purchases certain products and services (principally petroleum) from Agway and its subsidiaries at competitive prices; and Agway purchases certain products (principally frozen foods) from
the Company at competitive prices. During the fiscal year ended June 25, 1994, the Company's purchases from Agway and its subsidiaries amounted to approximately $1,167,000 and Agway's purchases from the Company amounted to approximately $29,000. Messrs. Brosius, Burdette, Norris, Saul and Whittemore are officers of Agway; Messrs. Brosius, Chapman, Pease, Smith and Wolff are directors of Agway. As of July 15, 1994, all officers and directors of the Company as a group, including all nominees for election, beneficially owned eight shares or less than .1 percent of Agway's common stock.
Mr. Blazin served as director of the Company during the past year and is also president and chief executive officer of Kelley-Clarke, Inc., a food broker for the Nalley's division of the Company. During fiscal 1994, brokerage fees of $502,000 were paid to Kelley-Clarke, Inc. The brokerage fees paid to Kelley-Clarke, Inc. were similar to fees paid to others for like services.
As authorized by New York law and in accordance with the policy of that state, the Company has obtained insurance through Agway from Federal Insurance Company 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 March 17, 1995, at an annual cost of approximately $38,000. 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.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The consolidated financial statements are set forth in Part II, Item 8 of this report.
(2) The following additional financial data are set forth herein:
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:
EXHIBIT INDEX (Cont'd.)
(b) Reports on Form 8-K dated June 9, 1994, July 11, 1994 and August 2, 1994, as filed with the Commission
Curtice Burns Foods, Inc. Schedule V - Property, Plant And Equipment (Owned and Leased)
Curtice Burns Foods, Inc. Schedule VI - Reserve for Amortization of Property, Plant and Equipment (Owned and Leased)
Curtice Burns Foods, Inc. Schedule VIII - Valuation and Qualifying Accounts
Allowance for Doubtful Accounts -
* Difference between FIFO cost and market applicable to canned and frozen fruit and vegetable inventories.
Curtice Burns Foods, INC. Schedule IX - Short-Term Borrowings For the Three Years Ended June 25, 1994
Curtice Burns Foods, Inc. Schedule X - Supplementary Income Statement Information
- -------------------------- * Not applicable as individual amounts do not exceed 1 percent of net sales
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. Dated: 8/10/94 CURTICE-BURNS FOODS, INC.
By/s/ William D. Rice ------------------------------ William D. Rice, Senior Vice President, Secretary and Treasurer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints J. WILLIAM PETTY and WILLIAM D. RICE, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution 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.
APPENDIX
Graphic and Image Information:
See reference to performance graph on page 69 of the 10-K.
EXHIBIT INDEX
(b) Reports on Form 8-K dated June 9, 1994, July 11, 1994 and August 2, 1994, as filed with the Commission